```

[Senate Hearing 107-315]
[From the U.S. Government Publishing Office]

                                                        S. Hrg. 107-315
 
                     CLEAN AIR ACT OVERSIGHT ISSUES
=======================================================================

                                HEARINGS

                               BEFORE THE

                 SUBCOMMITTEE ON CLEAN AIR, WETLANDS, 
                  PRIVATE PROPERTY, AND NUCLEAR SAFETY

                                AND THE

                              COMMITTEE ON
                      ENVIRONMENT AND PUBLIC WORKS
                          UNITED STATES SENATE

                      ONE HUNDRED SEVENTH CONGRESS

                             FIRST SESSION

                               __________

                             MARCH 21, 2001
                             APRIL 5, 2001
                       APRIL 27, 2001--SALEM, NH
                              MAY 2, 2001
                             AUGUST 1, 2001

                               __________

  Printed for the use of the Committee on Environment and Public Works

                           U.S. GOVERNMENT PRINTING OFFICE
78-066                          WASHINGTON : 2002
____________________________________________________________________________
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               COMMITTEE ON ENVIRONMENT AND PUBLIC WORKS

                    one hundred seventh congress\1\
                 first session: january 25-june 6, 2001

                   BOB SMITH, New Hampshire, Chairman
             HARRY REID, Nevada, Ranking Democratic Member
JOHN W. WARNER, Virginia             MAX BAUCUS, Montana
JAMES M. INHOFE, Oklahoma            BOB GRAHAM, Florida
CHRISTOPHER S. BOND, Missouri        JOSEPH I. LIEBERMAN, Connecticut
GEORGE V. VOINOVICH, Ohio            BARBARA BOXER, California
MICHAEL D. CRAPO, Idaho              RON WYDEN, Oregon
LINCOLN CHAFEE, Rhode Island         THOMAS R. CARPER, Delaware
ROBERT F. BENNETT, Utah              HILLARY RODHAM CLINTON, New York
BEN NIGHTHORSE CAMPBELL, Colorado    JON S. CORZINE, New Jersey
                Dave Conover, Republican Staff Director
                Eric Washburn, Democratic Staff Director
                              ----------                              

  Subcommittee on Clean Air, Wetlands, Private Property, and Nuclear 
                                 Safety

                  GEORGE V. VOINOVICH, Ohio, Chairman
JAMES M. INHOFE, Oklahoma            JOSEPH I. LIEBERMAN, Connecticut
MICHAEL D. CRAPO, Idaho              THOMAS R. CARPER, Delaware
BEN NIGHTHORSE CAMPBELL, Colorado    HILLARY RODHAM CLINTON, New York
                                     JON S. CORZINE, New Jersey
                              ----------                              

               COMMITTEE ON ENVIRONMENT AND PUBLIC WORKS

                      one hundred seventh congress
                first session: july 10-december 20, 2001

                  JAMES M. JEFFORDS, Vermont, Chairman
MAX BAUCUS, Montana                  BOB SMITH, New Hampshire
HARRY REID, Nevada                   JOHN W. WARNER, Virginia
BOB GRAHAM, Florida                  JAMES M. INHOFE, Oklahoma
JOSEPH I. LIEBERMAN, Connecticut     CHRISTOPHER S. BOND, Missouri
BARBARA BOXER, California            GEORGE V. VOINOVICH, Ohio
RON WYDEN, Oregon                    MICHAEL D. CRAPO, Idaho
THOMAS R. CARPER, Delaware           LINCOLN CHAFEE, Rhode Island
HILARY RODHAM CLINTON, New York      ARLEN SPECTER, Pennsylvania
JON S. CORZINE, New Jersey           BEN NIGHTHORSE CAMPBELL, Colorado
                 Ken Connolly, Majority Staff Director
                 Dave Conover, Minority Staff Director
                              ----------                              

        Subcommittee on Clean Air, Wetlands, and Climate Change

               JOSEPH I. LIEBERMAN, Connecticut, Chairman
HARRY REID, Nevada                   GEORGE V. VOINOVICH, Ohio
THOMAS R. CARPER, Delaware           JAMES M. INHOFE, Oklahoma
HILLARY RODHAM CLINTON, New York     MICHAEL D. CRAPO, Idaho
JON S. CORZINE, New Jersey           BEN NIGHTHORSE CAMPBELL, Colorado

\1\Note:  During the first session of the 107th Congress, the 
    committee roster appeared in the Congressional Record on 
    January 25, 2001. The subcommittee memberships were 
    determined at an organizational meeting held on February 28, 
    2001.
On June 6, 2001, the majority of the Senate changed from 
    Republican to Democrat when Senator James M. Jeffords, of 
    Vermont, changed party affiliation from Republican to 
    Independent. Senator Harry Reid, of Nevada, assumed the 
    chairmanship of the committee. On July 10, 2001, Senator 
    Jeffords was appointed as chairman of the committee by the 
    Democratic Leader. At a business meeting held on July 25, 
    2001, two subcommittees were renamed and new subcommittee 
    assignments were made.

                            C O N T E N T S

                              ----------                              
                                                                   Page

                             MARCH 21, 2001
        ENVIRONMENTAL REGULATIONS AND THE NATION'S ENERGY POLICY
                           OPENING STATEMENTS

Carper, Hon. Michael D., U.S. Senator from the State of Delaware.    29
Clinton, Hon. Hillary Rodham, U.S. Senator from the State of New 
  York...........................................................    11
Corzine, Hon. Jon S., U.S. Senator from the State of New Jersey..    54
Crapo, Hon. Michael D., U.S. Senator from the State of Idaho.....    14
Inhofe, Hon. James M., U.S. Senator from the State of Oklahoma...     7
Lieberman, Hon. Joseph I., U.S. Senator from the State of 
  Connecticut....................................................     9
Voinovich, Hon. George V., U.S. Senator from the State of Ohio...     1

                               WITNESSES

Alexander, Anthony J., President, FirstEnergy....................    34
    Prepared statement...........................................    61
    Responses to additional questions from Senator Lieberman.....    63
Hawkins, David, Director, Air and Energy Program, Natural 
  Resources Defense Council......................................    38
    Prepared statement...........................................    73
McGinty, Kathleen, former Chair, Council on Environmental Quality    18
    Prepared statement...........................................    59
Nemtzow, David, President, Alliance to Save Energy...............    35
    Prepared statement...........................................    64
Plunk, Olon, Vice President for Environmental Services, Xcel 
  Energy.........................................................    41
    Prepared statement...........................................    83
    Responses to additional questions from Senator Lieberman.....    86
Stuntz, Linda, former Deputy Secretary, Department of Energy.....    15
    Prepared statement...........................................    54
                                 ------                                

                             APRIL 5, 2001
              ENVIRONMENTAL REGULATIONS AND ENERGY POLICY
                           OPENING STATEMENTS

Campbell, Hon. Ben Nighthorse, U.S. Senator from the State of 
  Colorado.......................................................   129
    Article, Impact of Environmental Regulations on Hydropower 
      Generation.................................................   130
Clinton, Hon. Hillary Rodham, U.S. Senator from the State of New 
  York...........................................................    95
Corzine, Hon. Jon S., U.S. Senator from the State of New Jersey..   133
Inhofe, Hon. James M., U.S. Senator from the State of Oklahoma...    92
    Letter, energy policy, to Vice President Cheney..............    94
Lieberman, Hon. Joseph I., U.S. Senator from the State of 
  Connecticut....................................................    96
Voinovich, Hon. George V., U.S. Senator from the State of Ohio...    87

                               WITNESSES

Bowlden, Taylor, Vice President, Policy and Government Affairs, 
  American Highway Users Alliance................................   118
    Prepared statement...........................................   200
Grumet, Jason S., Executive Director, Northeast States for 
  Coordinated Air Use Management.................................   111
    Prepared statement...........................................   177
Hirsch, Robert, board of directors, Annapolis Center, and Chair 
  of the NAS Energy and Environment Board........................    97
    Prepared statement...........................................   133
Porras, Carlos J., Executive Director, Communities for a Better 
  Environment....................................................   116
    Prepared statement...........................................   188
    Report, Major Accidents and Serious Incidents: 1999-2000, 
      Contra Costa County, California............................   193
Slaughter, Bob, Director, Public Policy, National Petrochemical 
  and Refiners Association.......................................   114
    Prepared statement...........................................   182
Spitzer, Eliot, Attorney General, State of New York..............   100
    Prepared statement...........................................   135
    Report, State of New York Action Plan for a Balanced Electric 
      Power Policy..............................................142-172
Stewart, Thomas, Executive Vice President, Ohio Oil and Gas 
  Association....................................................   108
    Prepared statement...........................................   172

                          ADDITIONAL MATERIAL

Article, Impact of Environmental Regulations on Hydropower 
  Generation.....................................................   130
Letter, Interstate Natural Gas Association of America............   211
Reports:
    Major Accidents and Serious Incidents: 1999-2000, Contra 
      Costa County, California...................................   193
    State of New York Action Plan for a Balanced Electric Power 
      Policy.....................................................   142
Statements:
    National Association of Manufacturers........................   206
    Robinson Oil Corporation.....................................   204
                                 ------                                

                       APRIL 27, 2001--SALEM, NH
               USE OF METHYL TERTIARY BUTYL ETHER (MTBE)
                           OPENING STATEMENT

Smith, Hon. Bob, U.S. Senator from the State of New Hampshire....   213
    Letter, to Administrator Whitman, Governor Jeanne Shaheen....   217
    Summary, Provisions of S. 2962, 106th Congress...............   218

                               WITNESSES

Aho, Patricia W., Executive Director, Maine Petroleum Association   232
    Prepared statement...........................................   287
    Statement, American Petroleum Institute......................   289
Bogan, Doug, Director, New Hampshire Clean Water Action..........   239
Glen, Howie......................................................   251
Harrison, Margo..................................................   245
Holmberg, William C., President, Biorefiner......................   231
    Prepared statement...........................................   268
Kinner, Nancy, Professor of Civil Engineering, University of New 
  Hampshire......................................................   229
    Prepared statement...........................................   272
Klemm, Hon. Arthur, President, New Hampshire State Senate........   222
    Prepared statement...........................................   255
Lang, Hal........................................................   247
Maguire, Bob.....................................................   252
Martin, Mary Ellen...............................................   243
Miller, Christina, Derry, NH.....................................   220
    Prepared statement...........................................   254
Norris, Richard..................................................   238
Varney, Robert W., Commissioner, New Hampshire Department of 
  Environmental Services.........................................   221
    Prepared statement...........................................   256

                          ADDITIONAL MATERIAL

Article, Salem Revisited: Updating the MTBE Controversy..........   302
Letter, Gahagan and Associates...................................   305
Statements:
    American Petroleum Institute.................................   289
    Norris, Clint, BC International..............................   303
    Oxygenated Fuels Association.................................   298
                                 ------                                

                              MAY 2, 2001
     SCIENCE OF GLOBAL CLIMATE CHANGE AND GREENHOUSE GAS EMISSIONS
                           OPENING STATEMENTS

Baucus, Hon. Max, U.S. Senator from the State of Montana.........   360
Chafee, Hon. Lincoln, U.S. Senator from the State of Rhode Island   318
Clinton, Hon. Hillary Rodham, U.S. Senator from the State of New 
  York...........................................................   322
Corzine, Hon. Jon S., U.S. Senator from the State of New 
                                                  Jersey.......320, 361
Inhofe, Hon. James M., U.S. Senator from the State of Oklahoma...   320
Lieberman, Hon. Joseph I., U.S. Senator from the State of 
  Connecticut....................................................   336
Reid, Hon. Harry, U.S. Senator from the State of Nevada........315, 358
Smith, Hon. Bob, U.S. Senator from the State of New Hampshire....   309
Voinovich, Hon. George V., U.S. Senator from the State of Ohio...   313
Wyden, Hon. Ron, U.S. Senator from the State of Oregon...........   317

                               WITNESSES

Brown, Marilyn A., Director, Energy Efficiency and Renewable 
  Energy Program, Oak Ridge National Laboratory..................   346
    Prepared statement...........................................   462
    Responses to additional questions from:
        Senator Corzine..........................................   468
        Senator Reid.............................................   469
Christy, John R., Professor, Department of Atmospheric Science, 
  University of Alabama at Huntsville............................   339
    Prepared statement...........................................   383
Edmonds, Jae, Pacific Northwest National Laboratory, Battelle 
  Memorial Institute.............................................   341
    Prepared statement...........................................   392
    Report, Global Energy Technology Strategy...................396-452
Lal, Rattan, School of Natural Resources, Ohio State University..   343
    Prepared statement...........................................   452
    Responses to additional questions from Senator Corzine.......   456
Lindzen, Richard S., Alfred P. Sloane Professor of Meteorology, 
  Massachusetts Institute of Technology..........................   324
    Prepared statement...........................................   352
    Responses to additional questions from Senator Reid..........   366
Rogers, James E., Chairman, President and Chief Executive 
  Officer, Cinergy Corporation...................................   344
    Prepared statement...........................................   457
    Responses to additional questions from Senator Smith.........   461
Trenberth, Kevin E., Head, Climate Analysis Section, Climate and 
  Global Dynamics Division, National Center for Atmospheric 
  Research.......................................................   325
    Article, Stronger Evidence of Human Influence on the Climate.   371
    Prepared statement...........................................   367
    Responses to additional questions from:
        Senator Corzine..........................................   380
        Senator Reid.............................................   383

                          ADDITIONAL MATERIAL

Article, Stronger Evidence of Human Influence on the Climate, 
  Kevin Trenberth................................................   371
Report, Global Energy Technology Strategy.......................396-452
Statements:
    CMS Energy Corporation, John W. Clark........................   495
    International Project for Sustainable Energy Paths, Florentin 
      W. Krause..................................................   471
    National Environmental Trust, Kalee Kreider..................   493
                                 ------                                

                             AUGUST 1, 2001
         IMPACT OF AIR EMISSIONS FROM THE TRANSPORTATION SECTOR
                           OPENING STATEMENTS

Carper, Hon. Michael D., U.S. Senator from the State of Delaware.   506
Chafee, Hon. Lincoln, U.S. Senator from the State of Rhode Island   506
Clinton, Hon. Hillary Rodham, U.S. Senator from the State of New 
  York...........................................................   508
Corzine, Hon. Jon S., U.S. Senator from the State of New Jersey..   507
Inhofe, Hon. James M., U.S. Senator from the State of Oklahoma...   504
Jeffords, Hon. James M., U.S. Senator from the State of Vermont..   499
Lieberman, Hon. Joseph I., U.S. Senator from the State of 
  Connecticut....................................................   501
Reid, Hon. Harry, U.S. Senator from the State of Nevada..........   534
Voinovich, Hon. George V., U.S. Senator from the State of Ohio...   509

                               WITNESSES

Brenner, Rob, acting Assistant Administrator, Air and Radiation, 
  U.S. Environmental Protection Agency...........................   503
    Prepared statement...........................................   534
Dana, Greg, Vice President, Environment, Alliance of Automobile 
  Manufacturers..................................................   520
    Prepared statement...........................................   544
Freilla, Omar, New York City Environmental Justice Alliance......   523
    Prepared statement...........................................   548
Greenbaum, Dan, President, Health Effects Institute..............   521
    Letter, Health Effects Institute.............................   552
    Prepared statement...........................................   549
Mark, Jason, Clean Vehicles Program Director, Union of Concerned 
  Scientists.....................................................   518
    Prepared statement...........................................   541
Saitas, Jeff, Executive Director, Texas Natural Resources 
  Conservation Commission........................................   526
    Prepared statement...........................................   556

                          ADDITIONAL MATERIAL

Letter, Health Effects Institute.................................   552

                     CLEAN AIR ACT OVERSIGHT ISSUES

                              ----------                              

                       WEDNESDAY, MARCH 21, 2001

                                       U.S. Senate,
                 Committee on Environment and Public Works,
Subcommittee on Clean Air, Wetlands, Private Property, and 
                                            Nuclear Safety,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 9:10 a.m. in 
room 406, Senate Dirksen Building, Hon. George V. Voinovich 
(chairman of the subcommittee) presiding.

        ENVIRONMENTAL REGULATIONS AND THE NATION'S ENERGY POLICY

    Present: Senators Voinovich, Lieberman, Clinton, Corzine, 
Inhofe, Crapo, Carper, and Smith [ex officio].
    Senator Voinovich. Good morning. The hearing will come to 
order. I have a statement I want to put in the record.

        OPENING STATEMENT OF HON. GEORGE V. VOINOVICH, 
              U.S. SENATOR FROM THE STATE OF OHIO

    Today's hearing is on the interaction between our 
environmental regulations and our nation's energy policy. This 
is our first subcommittee hearing this year, and I'd like to 
welcome our ranking member, Senator Joe Lieberman. I look 
forward to working with him in Congress and in this committee.
    Few would disagree that we are in the midst of an energy 
crisis in this nation, one that is having a tremendous 
influence over the state of our economy and affecting the 
quality of life of the American people. The impact of this 
energy crisis is, and will continue to be, of such a magnitude 
that I believe what this committee does this year could have 
more sway over what happens to our economy and the citizens of 
the United States than at any other time in recent memory.
    All we need do is look at what is happening in the State of 
California and it is apparent how urgently we need to enact a 
national energy policy. Brownouts, rolling blackouts, lost 
business--all have brought chaos to this nation's largest State 
and largest economy. Not only is California's energy crisis 
impacting California; it reaches nationwide and across the 
globe.
    Since the beginning of the 107th Congress, I have been 
holding a series of public meetings across the State of Ohio 
where I have asked individuals and business owners to relay 
their experiences as to how our energy crisis is impacting 
them.
    Last month in Cleveland I held a meeting with Catholic 
Charities, Lutheran Housing, and the Salvation Army, as well as 
senior citizens, low-income parents, and handicapped 
individuals. The Catholic Diocese said the number of helpline 
calls in 2000 was up 96 percent from 1999 and 194 percent from 
1998 to 2000.
    The Salvation Army, first 7 weeks this year, 559 families 
seeking assistance with energy costs; last year, 330.
    For the least of our brothers and sisters, the choice comes 
down to paying for heat or paying for food, and because of this 
many are having to rely on hunger centers for their meals.
    A few weeks ago I met with business leaders in Cincinnati. 
They weren't big businesses. They were small ones. Each of them 
relayed how energy costs were impacting their particular 
business.
    Mr. Joe Maas, who owns JTM Provisions Company, a food 
service company, indicated that JTM will pay $200,000 more this 
year than last year for gas and electric, a 100 percent 
increase for the business.
    H.J. Benken Florists, owned by Mr. Michael Benken, is a 
family owned business. He reports that energy costs for many 
California-based companies that provide flowers to Mr. Benken's 
shop have increased as high as 600 percent. As a matter of 
fact, he said that most roses are now grown in Ecuador or other 
Latin American countries where energy prices are lower.
    We read the Wall Street Journal and New York Times, 
business section and I would suspect that some of the 
predictions that the profits aren't reaching what they 
suspected them to have a lot to do with their energy costs.
    Many Americans live paycheck to paycheck, and when they 
have to allocate more of their paycheck for energy costs and 
make a choice to meet the mortgage payments, pay their bills, 
or cut back on other spending, usually they cut back on 
spending, and since consumer spending makes up 68 percent of 
our gross domestic product, America's competitiveness is 
negatively impacted.
    This hearing is the first in a series of hearings examining 
our energy and environmental policies. To that end, I am 
working closely with Senator Murkowski on his National Energy 
Security Act. In fact, I am the fourth original cosponsor of 
this legislation.
    It is my intention to examine the various environmental 
issues surrounding our energy policy in our subcommittee in 
order to prepare for action by the Senate on the Murkowski 
energy bill.
    If you were to listen to the media, you'd think that the 
only thing in the bill is oil drilling in ANWR. It is much more 
than that. The bill is a comprehensive package of proposals and 
it includes general provisions to protect energy supply and 
security; it encourages clean coal technology, allowing us to 
use our 250-year supply; it supports domestic oil and gas 
exploration; it promotes energy conservation and efficiency; it 
encourages alternative fuels and renewable energy supplies for 
homes, businesses, and cars; and it provides continued 
assistance under the Low Income Energy Assistance Program, or 
LIHEAP program.
    Today's hearing will begin with a broad perspective on the 
energy end environmental issues, followed by a closer look at 
utility-related issues. Our next hearing will look more 
specifically at oil and gas issues. We will then have a hearing 
on global climate change--which I think is going to be very 
interesting and hopefully we can get the best and the brightest 
to come in and talk about that--and nuclear issues and the 
Smith multi-emissions strategy.
    This year the subcommittee will also conduct general 
oversight hearings on the Clean Air Act, budget oversight, 
indoor air, and other issues. I promise it will be a very, very 
busy year.
    As I mentioned, I think these hearings will have a dramatic 
impact on our economy. I don't know what the economic situation 
is in the rest of our States and in our nation, but I've got to 
tell you in Ohio that we're in recession. We are. How deep that 
recession will be will largely be determined on what we do to 
harmonize our energy and environmental needs.
    I went through--and I think I shared this with Senator 
Lieberman--I went through, as mayor of Cleveland, the recession 
of 1981 and 1982. I don't want to go through that again. We've 
got to take some action here to turn people's attitude around.
    The energy crisis has several causes, all of which are 
important: a lack of national energy policy for almost 30 
years--and I want to say this, this is not a Republican or 
Democratic issue, as far as I am concerned. My party is as 
guilty as the other party in terms of putting energy policy 
together.
    Faulty deregulation law--where deregulation has worked in 
other States, it has failed in California. It's working in 
Ohio. This has placed a drag on California's economy, as well 
as the rest of America, and they still haven't dealt with 
resolving their energy problems.
    It is an interesting thing to me, as a government official, 
that so often when a problem arises that what we do is we point 
to somebody else, instead of stepping forward and saying, ``mea 
culpa.'' Some of it is because of me, and there are things that 
I need to do to help the situation.
    Third, environmental policies which have contributed to a 
lack of fuel diversity and difficulties in siting new 
generation facilities, pipelines, and transmission lines. These 
policies have gotten much worse over the last 8 years, 
particularly in terms of fossil fuel.
    Fourth, we are too reliant on foreign sources of oil. In 
January the OPEC nations cut back on production by 1.5 billion 
barrels. That was January 17. Just this past weekend OPEC 
announced they are decreasing production by another one billion 
barrels per day. The Saudis have said, ``Don't worry about it. 
We'll keep it around $28. Well, I'm not putting that in the 
bank.
    I think that we are going to be held hostage to the Middle 
East, and I think that's another issue that we ought to look 
at. The Middle East is--I spent time in Egypt and I spent 3 
days in Israel, and the situation there to me is more critical 
and I'd submit--and I have been going to Israel and visiting 
that part of the world for 20 years. We have some real 
difficult problems over there, and that may well have an impact 
on us.
    In 1973 we had 35 percent reliance. Today it is 56 percent. 
It is projected by 2020 to be 65 percent.
    The other thing is the inappropriate demonizing of nuclear 
power. The U.S. industry uses this safely and other countries 
use it safely. It's clean, and we need to deal with the waste 
issue and move on with building new reactors.
    On fuel diversity, current environmental laws have created 
greater dependence on natural gas. Of currently planned new 
electric generation, 90 percent is natural gas fired. Thirty-
one peaking plants are planned in Ohio. We just built 13 new 
1,000-megawatt peaking plants, all fueled by natural gas.
    The problem is natural gas production is down. It has 
dropped 3.7 percent from the fourth quarter of 1999, and the 
price of it has gone right through the roof.
    We need to determine the necessary changes in environmental 
laws for increased energy production from clean coal 
technologies, increased nuclear generation, new refining 
capacity.
    Refining capacity--we could get oil tomorrow. We don't have 
the refineries. We haven't built a new refinery in this country 
in 25 years. We had 231 in 1983. We have 155 in 2000.
    I think Secretary of Energy Spencer Abraham gave an 
excellent speech on Monday to the U.S. Chamber of Commerce 
laying out our current energy situation. I don't know whether 
my colleagues read that or not, but it is, I think, one of the 
most comprehensive reviews of where we are in terms of our 
energy policy, and I'm going to include that in the record and 
again urge people to read that.
    As we begin today's hearing, I'd like to pose three 
questions for the panelists to consider:

      To what extent has the Clean Air Act affected 
fuel choice and reduced fuel diversification?
      To what extent has the Clean Air Act made it more 
difficult to site and operate energy facilities such as power 
plants, refineries, E&P facilities, transmission lines, and 
pipelines?
      What is the appropriate method for harmonizing 
our nation's environmental laws with our energy needs? How can 
policymakers better reconcile the sometimes conflicting policy 
objectives?

    I'd be curious to hear the answers put forth by today's 
panelists, and I thank the witnesses for coming here to appear 
before us. I really appreciate Senator Lieberman being here and 
Senator Corzine. I will ask now Senator Lieberman for his 
opening statement.
    [The prepared statement of Senator Voinovich follows:]
 Opening Statement of Hon. George V. Voinovich, U.S. Senator from the 
                             State of Ohio
    Today's hearing is on the interaction of our environmental 
regulations and the nation's energy policy. This is the first 
subcommittee hearing of the year and I would like to welcome our 
ranking member Senator Joe Lieberman. Senator Lieberman and I have 
worked well together in the past couple of years on a wide variety of 
issues here in the Environment and Public Works Committee and also in 
the Governmental Affairs Committee. I look forward to another 2 years 
of productivity working with him in this Congress.
    Few would disagree that we are in the midst of an energy crisis in 
this nation, one that is having a tremendous influence over the state 
of our economy and affecting the quality of life of the American 
people. The impact of this energy crisis is, and will continue to be, 
of such a magnitude that I believe what this committee does this year 
could have more sway over what happens to our economy and the citizens 
of the United States than at any other time in recent memory.
    All we need do is look at what is happening in the State of 
California and it is apparent how urgently we need to enact a national 
energy policy. Brownouts, rolling blackouts, lost business--all have 
brought chaos to this nation's largest State and largest economy. Not 
only is California's energy crisis impacting California, it reaches 
nationwide and across the globe.
    California's problem--as large as it is--is just one of the many 
energy problems faced by communities, cities and States across the 
nation.
    Since the beginning of the 107th Congress, I've been holding a 
series of public meetings across the State of Ohio where I have asked 
individuals and business owners to relay their experiences as to how 
our energy crisis is impacting them.
    Last month in Cleveland, I held a meeting with Catholic Charities, 
Lutheran Housing and the Salvation Army as well as senior citizens, low 
income parents and handicapped individuals. I heard many heart-rending 
stories about the struggles that they were going through just to be 
able to afford their monthly energy bills.
    I was told that because of soaring energy costs, the dependency on 
charitable organizations has risen dramatically.
    The Catholic Diocese said that in the year 2000, their helpline 
received 3,400 calls for basic needs; items such as food, utilities, 
mortgage or rent. The number of calls the Diocese received went up 96 
percent from 1999 to 2000, and 194 percent from 1998 to 2000.
    In the first 7 weeks of 2001, the Salvation Army in Cleveland had 
559 families seeking assistance with energy costs. In comparison, for 
all of 2000, the Salvation Army helped 330 families.
    For the least of our brothers and sisters, the choice sometimes 
comes down to paying for heat or paying for food, and because of this, 
many are having to rely on hunger centers for their meals. As more 
people come into these programs, the more it is taking a toll on the 
various philanthropic organizations to keep up with the demand.
    A few weeks ago, I met with business leaders in Cincinnati, each of 
whom relayed how energy costs were impacting their particular 
businesses.
    For instance, Mr. Joe Maas, who owns JTM Provisions Company, a 
company which produces products for the food service industry, 
indicated that JTM will pay $200,000 more this year than last for gas 
and electric--a 100 percent increase. High energy prices have also 
increased the prices of JTM's raw ingredients, such as tomato paste, 
which Mr. Maas buys from California producers. The price of this 
ingredient alone has increased $2,000 per load due to higher shipping 
and processing costs.
    Another example is H.J. Benken Florists owned by Mr. Michael 
Benken. This family owned business reports that energy costs for many 
California-based companies that provide flowers to Mr. Benken's shop 
have increased as high as 600 percent. Energy prices have increased so 
dramatically in California that most roses are now grown in Ecuador or 
other Latin American countries where energy prices are lower. Mr. 
Benken also stressed that his products--flowers--are luxury items, so 
consumers will simply forgo buying them if their prices skyrocket, as 
they have.
    In December, Mr. Benken's heating bill was $15,000, just $200 more 
than the previous December. However, that was to heat less than a third 
of the space: Mr. Benken typically heats 20,000 square feet of 
greenhouse space. This year, he is heating just 6,000 square feet.
    The ``horror stories'' that I had heard from business owners in 
Ohio were confirmed on a national scale when I addressed the Board of 
Directors meeting of the National Association of Manufacturers last 
month. Manufacturers from all over America complained bitterly over the 
high price of energy they were experiencing.
    Many expressed how they couldn't immediately pass these incredible 
increases in energy costs because they knew their customers couldn't 
afford it. This has led them to cut costs elsewhere by deferring 
maintenance, freezing their hiring and even considering lay-offs.
    Federal Reserve Chairman, Alan Greenspan, has indicated that 
businesses don't have the same capital to invest, since more of it is 
being used to pay energy bills.
    Indeed, at my meeting in Cleveland, a businessman by the name of 
Jim Krimmel told me that the price he paid for gas had increased from 
$87,000 in January of 2000 to just over $197,000 in January 2001; even 
though this year, he was using less gas. By his calculations, Mr. 
Krimmel indicated that he will pay $1.5 million for gas in 2001--an 
$867,000 increase over the price he paid just 2 years ago.
    I believe the high cost of energy is a major contributing factor to 
our current economic downturn, affecting both businesses and individual 
consumers. Many Americans live paycheck to paycheck, and when they have 
to allocate more of their paycheck for energy costs, they make a choice 
to either meet their mortgage payments, pay their bills or cut back on 
other spending. Usually, they cut back on spending, and since consumer 
spending makes up 68 percent of our Gross Domestic Product, America's 
competitiveness is negatively impacted.
    Another aspect of our energy crisis that we must address is the 
uncertainty over a large portion of our crude oil supply.
    The United States is more dependent on foreign oil today than at 
any other time in our history. I trust that my colleagues remember the 
Arab Oil Embargo of 1973, when costs went up, gas shortages were 
everywhere and people sat in long lines to get gas. At that time, the 
U.S. relied on 35 percent foreign oil to meet our domestic needs. In 
the year 2000, our reliance on foreign oil averaged some 56 percent. By 
the year 2020, it is projected to hit 65 percent at our current rate of 
consumption.
    Our dependence on foreign oil is both a national security issue and 
an economic issue, and a major reason why a lack of an energy policy 
should be of great concern to all Americans.
    In addition, we should be extremely concerned about how our 
environmental policies have impacted our ability to meet our energy 
needs here in America. That is the purpose of today's hearing.
    This hearing is the first in a series of hearings examining our 
energy and environmental policies. My goal as subcommittee chairman is 
to harmonize our Federal clean air regulations with our nation's energy 
needs. I want a clean environment and cost-effective reliable sources 
of energy that will allow continued economic growth. To that end, I am 
working closely with Senator Murkowski on his National Energy Security 
Act, S. 388. In fact I am the fourth original cosponsor of his 
legislation, right behind the Majority Leader.
    If you were to listen to the media, you'd think that Senator 
Murkowski's bill was just about oil drilling in ANWR. It's much more 
than that. This bill is a comprehensive package of proposals:

      It includes general provisions to protect energy supply 
and security;
      It encourages clean coal technology--(allowing us to use 
our 250-year supply);
      It supports domestic oil and gas exploration; it promotes 
energy conservation and efficiency;
      It encourages alternative fuels and renewable energy 
supplies for homes, businesses and cars;
      It provides continued assistance under the Low Income 
Home Energy Assistance Program (LIHEAP).

    It is my intention to examine the various environmental issues 
surrounding our energy policy in the Clean Air Subcommittee in order to 
prepare for action by the Senate on the Murkowski Energy Bill.
    Today's hearing will begin with a broad perspective on America's 
energy and environmental issues followed by a closer look at utility 
related issues. Our next hearing will look more specifically at oil 
and-gas issues. We will then have hearings on Global Climate Change, 
Nuclear Issues, and Chairman Smith's Multi-Emissions Strategy.
    This year, the subcommittee will also conduct general oversight 
hearings on the Clean Air Act, Budget Oversight on the Office of Air 
and Radiation of the EPA and Wetlands Of lice of the Army Corps of 
Engineers, Indoor Air and a number of other issues. Needless to say, it 
will be a very busy year.
    However, in today's hearing we are addressing the impact between 
our environmental and energy policies. As I indicated, I believe we are 
not only entering into a recession, but also an energy crisis; and our 
energy crisis will largely determine how deep of a recession, and how 
long it will last.
    In my opinion, this energy crisis has several causes, all of which 
are important:

    1) A lack of a national energy policy for almost 30 years.
    2) A faulty deregulation law in California. Where deregulation has 
worked in other States, it has failed in California. As I said earlier, 
this has placed a drag on California's economy as well as the rest of 
America's--and they still have not dealt with their problem. California 
needs to take responsibility for its failed law because deregulation is 
working in other States.
    3) Environmental policies which have contributed to a lack of fuel 
diversity and difficulties in siting new generation facilities, 
pipelines, and transmission lines. These policies have gotten much 
worse over the last 8 years, particularly with the previous 
Administration's ``War On Fossil Fuel.''
    4) We are too reliant on foreign sources of oil. Just this past 
weekend, OPEC announced they are decreasing production by 1 million 
barrels per day--on top of the 1.5 million barrel per day reduction we 
faced in January. If we do nothing to shake our dependence on foreign 
oil, we are going to be held hostage to unstable and/or unfriendly 
regimes in the Middle East for years to come. It should not sit well 
with the members of this subcommittee that while our troops are bombing 
Saddam Hussein, he is selling us oil.
    5) The inappropriate demonizing of nuclear power. The U.S. energy 
industry uses it safely and other countries use it safely as well. The 
two things we must do is address the waste issue and what to do with it 
and move forward with building new reactors. We have been discussing 
what to do with the nuclear repository in Yucca Mountain for some 15 
years. It's time to make a final decision on whether or not Yucca 
Mountain is a viable site for nuclear waste. Either it is the right 
place to store our nuclear waste, or we should move on.

    With respect to fuel diversity, our current environmental laws have 
helped create greater dependence on cleaner-burning natural gas. Ninety 
percent of currently planned new electric generation is from plants 
that will be natural gas-fired. Right now, there are 31 ``peaking'' 
plants planned in Ohio--plants which operate at peak times--and all of 
which would be natural gas-fired. The major problem with our growing 
reliance on natural gas is the fact that natural gas production is 
down. It has dropped 3.7 percent from the fourth quarter of 1999 and 
has driven the price of natural gas through the roof.
    We need to determine the necessary changes in environmental laws 
for increased energy production. We need to look at the options that 
tend to get ignored because they are not ``politically correct:'' from 
clean coal technologies, to increased nuclear generation to new 
refining capacity. If we are unable or unwilling to do so, I believe 
that for the foreseeable future, we will only see more of the same of 
what is occurring in California right now, but on a nationwide scale.
    As we begin today's hearing I would like to pose three questions 
for the panelists to consider:

    Question 1. To what extent has the Clean Air Act affected fuel 
choice and reduced fuel diversification?
    Question 2. To what extent has the Clean Air Act made it more 
difficult to site and operate energy facilities such as power plants, 
refineries, and E&P facilities, transmission lines, and pipelines?
    Question 3. What is the appropriate method for harmonizing our 
nation's environmental laws with our energy needs? How can policymakers 
better reconcile the sometimes conflicting policy objectives?

    I will indeed be curious to hear the answers put forth by today's 
panelists.
    I thank the witnesses for appearing this morning, and I look 
forward to your testimony.
    Senator Lieberman. Mr. Chairma, thank you. I'm going to 
yield to Senator Inhofe, who I know has another committee he 
has to go to.

          OPENING STATEMENT OF HON. JAMES M. INHOFE, 
            U.S. SENATOR FROM THE STATE OF OKLAHOMA

    Senator Inhofe. Thank you, Senator Lieberman.
    All I want to do is insert a statement for the record, and 
I'd like to repeat what the chairman said. This is not a 
Republican/Democrat type of thing. We tried to get Ronald 
Reagan to adopt a comprehensive national energy policy. He 
didn't do it. I thought sure Bush would when he came in. He 
didn't do it. The Clinton Administration didn't do it. So it is 
overdue and certainly the regulations, the cost of regulations 
is a very significant part of our cost of energy.
    Just the other day they released a report that if you 
regulate the CO2 emissions from utilities, the cost 
would be somewhere between 60 and $115 billion a year--again 
costs go up.
    I would ask unanimous consent that my statement be put in 
the record, and I thank Senator Lieberman for allowing me to do 
that.
    Senator Voinovich. Without objection.
    [The prepared statement of Senator Inhofe follows:]
Opening Statement of Hon. James M. Inhofe, U.S. Senator from the State 
                              of Oklahoma
    In the last week, there has been an enormous amount of negative 
press about President Bush's decision to not support mandatory carbon 
reductions from utilities. However, with a looming recession and rising 
energy prices, President Bush did the right thing.
    When the price of gasoline went through the roof last summer, we 
all witnessed the Clinton Administration's incredibly irresponsible 
accusations that big oil companies were ``colluding.'' Price spikes 
occurred last summer because of the large number of the Clinton 
Administration's poorly implemented environmental regulations and our 
dependence on foreign oil supplies.
    The solution to the high prices is not found in cheap political 
gimmicks like releasing oil from the Strategic Petroleum Reserve. 
Rather, the solution relies on developing a strategic national energy 
policy and having highly effective and streamlined environmental 
regulations.
    Currently, 56.6 percent of the U.S. oil needs are met by foreign 
sources. This presents a real energy and national security problem.
    The military is equally dependent on foreign oil as the general 
public is. We must seek to encourage as great a domestically produced, 
diverse energy supply as possible--including nuclear, coal, oil, gas, 
and renewables.
    When well thought out and reflecting consensus, environmental 
regulations can certainly provide benefits to the American people. But 
when regulations are rushed into effect without adequate thought, they 
are likely to do more harm than good.
    Congress should not let the extreme environmental group's tyranny 
force the American people to pay sky high prices for fuel.
    Over the years, I have witnessed the environmental movement fight 
any and all attempts to reform and streamline environmental 
regulations. We are dealing with this energy crisis largely because the 
environmental extremists dictated our nation's energy policy for the 
last 8 years. A consequence that they do not want to tell the American 
people is a byproduct of their efforts.
    If you do not do it the environmentalists way, then we see all of 
the commercials detailing horror stories. Well, the energy crisis it a 
real life horror story. A horror story, which will only get worse. If 
we, as a nation, do not do something about it, it will affect every 
aspect of everyone's life. I want all of the American people to take 
notice!
    Let's not forget. When the price of energy rises that means the 
less fortunate in our society must make a decision between keeping the 
heat and lights on or paying for other essential needs. I am hearing 
from school after school that heating bills are depleting the funds 
that usually go to supplies and books. Though we are seeing with the 
rolling blackouts in California right now that it does not matter how 
much money you have--because the energy just doesn't exist. There is a 
real human cost to the extreme environmental movement.
    Last December, the Department of Energy's Energy Information 
Administration released a study on regulating CO2 emissions 
from utilities. The study concluded that the mandatory regulation of 
CO2 from utilities will cost $60-115 billion per year by 
2005. The mandatory regulation of CO2 would make the price 
and availability of energy a national crisis--at a scale that our 
nation has never before experienced. Environmental regulations are a 
large contributor to the energy crisis in California. Before we add to 
the current regulatory web, our nation should look at how we can 
implement our current environmental regulations--more effectively and 
efficiently.
    As a Senator and grandfather, I want to ensure the cleanest 
environment for our nation. I am convinced that environmental 
regulations can be harmonized with energy policy. Our current situation 
demands it.
    Unlike his predecessor, President Bush cannot continue to place 
layer after layer of regulations without any consideration of their 
energy implications. The environmental community does not have to 
answer to the American people when energy prices go through the roof or 
to worry about the national security implications of greater dependence 
on foreign energy sources. However, the President does.
    Senator Voinovich. I'd like to thank you for being here, 
and, Senator Crapo, thank you for being here.
    Senator Inhofe. One last thing. I always thought when 
Republicans took over we'd run things better in the Senate, and 
yet we have two significant committees taking place at the same 
time now, so I guess that didn't happen.
    Senator Lieberman. We're going to do better when we take 
over.
    [Laughter.]
    Senator Voinovich. On that note, we'll hear from Senator 
Lieberman.

        OPENING STATEMENT OF HON. JOSEPH I. LIEBERMAN, 
           U.S. SENATOR FROM THE STATE OF CONNECTICUT

    Senator Lieberman. Thanks. Thanks, Mr. Chairman. Thanks 
very much for convening this hearing today and this series of 
hearings that you and I have agreed that we would do in this 
Subcommittee on Clean Air and particularly the interaction of 
our energy needs and our environmental goals.
    These are complicated but urgent questions, and I think 
they can benefit from just the kind of open, balanced 
discussion that I hope we will have this morning, so I look 
forward to being part of this with you.
    This is one of those areas where, you know, everybody in 
one sense is right, or, put another way, there are arguments on 
both sides, and the truth is that we have to find a way to both 
meet our energy needs and protect our environment, and we have 
to do it in a way that doesn't just respond to short-term 
pressures and problems but has long-term goals and values for 
our country involved.
    It is not going to be easy, but I think we can do it, and 
we can do it if we share information in a mutually respectful 
and open-minded way, and particularly if we take advantage of 
the single-most significant new factor in our world today, 
which is technology, and the extraordinary new opportunities 
that technology gives us.
    So we have an energy system now that is substantially 
dependent on a source of energy, fossil fuels, which we do not 
control, and it creates exactly the dependence that Senator 
Voinovich has talked about and undercuts our own security and 
our own national strength, no matter how strong we are in every 
other way--economically and militarily.
    So I think, as we go forward, we have to acknowledge--and 
it is painful, because it represents change and dislocation--
that, one, we should try to develop and use as much of our 
energy resources, natural energy resources, as we have within 
our country--fossil fuel sources--in an environmentally 
protective way, but that ultimately we have to look beyond 
fossil fuel. While we're looking beyond, we have to make much 
better use of efficiency, energy efficiency, and conservation, 
but the next chapter of our history will involve new sources of 
energy.
    A while back--actually, it was at the time of the Kyoto 
meetings on climate change. I spent a few days after the 
meetings in Tokyo, and I had dinner one night with an executive 
of Toyota Motors, and we were talking future, and he said--
because, obviously, the Japanese have their own problems about 
how much energy they control within their resources, which is 
not much, so they look for outside sources or new technologies. 
He said Toyota has made a judgment that vehicles will be 
powered in the future by fuel cells. He said, ``That's my 
prediction to you.''
    Now, it may happen in 10 years, it may happen in 30 years. 
I think at the time he said it probably would happen in 20 
years. But it is going to happen, and it is going to happen 
because the logic of it, the efficiency of it, the cleanliness 
of it, if you will, the economy of it is so overpowering that 
it's just going to be, and the question is who is going to do 
it first. In fact, the Japanese are investing extraordinary 
amount of money from within their government and their 
companies in fuel cell technology.
    We're beginning to do that ourselves, although I think one 
result of hearings such as this might be to create a much 
bolder, more aggressive--I hesitate to use the metaphor. It is 
used probably too often, but it is not a bad one--a moon shot 
program focus for developing the energy sources through new 
technology of the next generation to make sure, for our own 
energy interests but also for our own economic interests, that 
we are at least a significant factor in the global marketplace 
for these new technologies, if not the dominant factor.
    So the answer to the question is that somehow we've got to 
do what our constituents want us to do and our national 
interest suggests that we do and our national values compels us 
to do, which is to both meet our energy needs, to have a 
reliable, cost-efficient source of energy to power our economy, 
but also to protect our environment.
    I mean, we have been dealing with this lately in this very 
interesting, complicated discussion, debate that we are having 
over the so-called effort to regulate the four pollutants from 
power plants. I mean, and this focuses it. Power plants produce 
power. They produce energy. We need energy. We need that power. 
Yet they are obviously also one of the major sources of air 
pollution in our country.
    Let me just give you a few statistics. Power plants 
generate 24 percent of industrial nitrogen oxide emissions, 66 
percent of industrial sulfur dioxide, 32 percent of mercury, 
and 40 percent of carbon dioxide emissions.
    Remarkably, almost 80 percent of those emissions come from 
coal-fired power plants that were installed prior to 1977. 
Those pollutants contribute to serious environmental and public 
health problems such as smog, acid rain, climate change, and 
cause effects such as respiratory problems, contamination of 
fish and other wildlife, and even, according to some 
scientists, developmental abnormalities in our children.
    So we have a shared interest in doing something about 
those, and the question is how to do it.
    I was privileged last week to join with several colleagues, 
a bipartisan group of colleagues, including Senator Clinton, 
I'm proud to say, to introduce the Clean Power Act, which is a 
proposal that tries to build on the market-based ideas that 
were part of the Clean Air Act originally, the so-called ``cap 
in trading system'' to fix limits on emissions of these four 
pollutants.
    I know they are controversial, particularly the carbon 
dioxide provision, which, as we know, the President supported 
and changed his mind on. We're going to argue about that, 
because I think that's a critical element in the problem of 
climate change that the public should and really wants us to do 
something about.
    To me here is a real, live issue that brings together our 
need to have a reliable source of energy with our desire to 
protect the environment and our public health.
    I just offer this anecdote as an example of how complicated 
these issues are. I sat last week with an executive of a 
utility company, a major utility company. This one happens to 
be supporting this four-pollutant bill. While there is a 
tendency to say, ``This four-pollutant bill is against the coal 
industry,'' this gentleman said to me that he expects that his 
utility and the ones that he is associated with will want to 
build coal-fired plants in the future, but they're not going to 
build them unless they have the regulatory certainty that he 
believes our four-pollutant bill will produce.
    So I just present this--the irony that the bill is seen in 
some ways as anti-coal, over-regulatory by its critics, and 
here is a man in the utility industry saying he'd like to build 
some more coal-fired plants because he thinks he can do it in 
an environmentally protective way and still have a cost 
advantage, but he's not going to do it unless he knows what the 
regulatory environment is long term because that will help him 
plan and make an investment with some sense of confidence about 
what the future will hold.
    These are critically important, as I say, complicated 
matters. They are not inherently partisan. They ought not to be 
partisan. I hope, Mr. Chairman, that, perhaps through the light 
that we will shed on them in this hearing and others that we 
will hold, we can find common ground to go forward and present 
not just for ourselves, but particularly for our children and 
grandchildren, a strong, reliable source of energy and a 
cleaner and healthier planet.
    I thank you very much, Mr. Chairman. I look forward to 
these hearings. We've got two great witnesses here--Ms. McGinty 
and Ms. Stuntz--and others to follow, and I look forward to 
their testimony.
    Senator Voinovich. Thank you, Senator Lieberman.
    The subcommittee has been operating by the early bird rule, 
and Senator Corzine was next in line, and Senator Crapo was 
here, and, Senator Clinton, you are on.

       OPENING STATEMENT OF HON. HILLARY RODHAM CLINTON, 
            U.S. SENATOR FROM THE STATE OF NEW YORK

    Senator Clinton. I'm the only bird left. Thank you so much, 
Mr. Chairman. I really want to commend both the chairman and 
Senator Lieberman for holding this hearing today and trying to 
get to the difficult questions that both the chairman and 
Senator Lieberman just referred to with respect to the 
interaction of environmental and energy policy. I'm delighted 
to have our witnesses here and I look forward to hearing from 
both of you, and I am particularly glad to see Ms. McGinty back 
from India and other far-flung adventures.
    This hearing is exceptionally timely, perhaps more than 
anyone would have realized, given the events of the last week. 
Before I continue to speak about the substance of the hearing, 
itself, I'd like to just take a minute to express my extreme 
disappointment with another action taken by the new 
Administration yesterday.
    You know, we've all heard about the President's charm 
offensive, but when it come to the environment and public 
health it sometimes appears as though his Administration is on 
a harm offensive. Yesterday it was arsenic and about face. 
We've seen the intention of this Administration to roll back an 
important new drinking water standard for arsenic, a known 
human carcinogen. The standard would have followed the 
recommendations of the National Academy of Sciences. It would 
have brought us in line with standards elsewhere in the world. 
I think it is regrettable that we would turn our backs on an 
effort to update a standard which has not been revised in 
almost 60 years.
    Rather than rolling back health standards, we should be 
rolling up our sleeves and investing in our nation's water 
infrastructure so that drinking water can be as clean and safe 
as possible.
    I know that meeting our nation's water infrastructure needs 
is something we will be looking at in the committee, and I hope 
it will be an issue that we can address legislatively in this 
Congress, because when it comes to the environment and health, 
whether it is the air we breathe or the water we drink, there 
really shouldn't be any bigger or more important priority to us 
as representatives of people, and I feel the same way when it 
comes to the issue we are here today to discuss.
    The answer to meeting our nation's energy challenges should 
not be to lower the bar with respect to air quality, but to 
look for ways that together we can make it cost effective and 
efficient for us to meet the appropriate standards.
    The Federal Government should be working to help industry 
meet the bar by investing in research and development; by 
providing incentives for more energy-efficient appliances, 
homes, offices; providing incidents for the production and use 
of renewable energy sources and other clean sources of energy; 
and taking the additional steps necessary to ensure reliable 
and affordable power, whether it is by establishing regional 
transmission organizations or other measures.
    Yesterday I met with a number of New York's winners of the 
EPA Energy Star Award, and I was so impressed with their 
individual stories. The energy conservation and efficiency 
achievements and actual monetary savings realized by these 
winners are on-the-ground proof that these kinds of efforts and 
investments actually do work and are one of the ways we can 
really bridge the dilemma that both the chairman and Senator 
Lieberman addressed.
    For example, in Kingston, New York, in the school district 
there, a community located in the Hudson Valley, because of 
Federal and State incentives and assistance, the school 
district replaced windows, installed new boilers, made other 
energy-efficient upgrades, and ended up saving more than 
$395,000 last year--money that can be reinvested in education 
programs.
    Verizon Company also in New York has made a commitment to 
buy energy-efficient products, communicate with employees, use 
more fuel cells, because they recognize, as you said, Senator 
Lieberman, that this is something that will save money and it 
is a technology that should be in wider use.
    There are stories like that all over America, and yet I'm 
told that in the President's budget programs like this in both 
EPA and the Department of Energy will be either eliminated or 
severely cut back, which I think is exactly the wrong direction 
for us to be going in.
    We ought to be taking a look at effective cost-saving 
programs that will help us deal with our energy needs in an 
environmentally sustainable way and investing in such programs, 
and that goes along with our major concern of this hearing of 
ensuring that people in New York and across America have access 
to reliable and affordable power.
    I ran into a friend of mine at breakfast yesterday, the 
recently retired chairman of Mobil Oil Company, Lou Noto, and I 
was talking with him and he said something which made a big 
impression on me. He said, ``You know, we've got to do more in 
conservation.'' He said, ``For every gallon of oil that I've 
brought up from the ground, 75 percent of its energy usage was 
wasted, 25 percent was what we eventually ended up using.'' He 
said, ``You know, that's just not something we can keep 
doing.'' Well, we have to figure out a way how to avoid that.
    Much of the concern in New York is divided between our 
efforts to stimulate economic development in upstate New York 
and not having access to affordable and reliable power at a 
cost that many businesses feel they can pay, because you may 
know that New York has the highest utility cost in the country. 
We used to be second to Hawaii, but we have surpassed that 
distinction. Downstate we have the highest of the high, and so 
that is a real challenge for New York City, about how we are 
going to be meeting the needs, particularly this summer. Now 
that New York City's population has topped eight million for 
the first time in history, more and more people are going to be 
placing demands, and we have to be ready to meet those demands.
    I don't think our concern about meeting our demands for 
energy today should permit us to be short-sighted about our 
long-term energy and environmental needs over the coming 
decades.
    I fully support Senator Lieberman's initiative, both with 
respect to four pollutants but also with his strong stand 
against drilling in the Arctic National Wildlife Refuge, which 
is not an answer either to our short-term or our long-term 
energy needs and postpones the moment of reality and reckoning 
that our country has to come up to face. We have to decide 
we're going to be more energy efficient. Yes, we have to 
produce more, but what we produce, as Lou told me yesterday, we 
have to use more efficiently and cost effectively.
    So I'm very grateful that we are having this hearing, 
because we represent people, as all of us in this Body do, who 
need reliable and affordable power, but I also represent many 
people who are just as concerned that, you know, we've killed 
the lakes in the Adirondacks; that the Long Island Sound is, 
you know, not what it used to be; that if global warming comes 
to pass over the next 100 years, Long Island will become Short 
Island. You know, we have a lot of concerns that we have to 
confront.
    So I think it is important that we are having this hearing 
and trying to sort out all of these issues and trying to get a 
good, solid basis in science and fact on which to build a 
consensus that cuts across partisan lines.
    I just want to conclude by really recognizing the 
chairman's efforts, who I think has played a very important 
role.
    I hope, Mr. Chairman, that you will take me up on my offer 
at an earlier hearing to come to Ohio and visit some of the 
plants and the people that you represent and that you will come 
and visit some of my folks in the Adirondacks and elsewhere, 
because we have to figure out how to really protect the 
interests of all of our people in a way that brings people 
together and solves our problems, and I really applaud the many 
efforts you have made over the years to do just that.
    Senator Voinovich. Thank you.
    Senator Crapo?

          OPENING STATEMENT OF HON. MICHAEL D. CRAPO, 
              U.S. SENATOR FROM THE STATE OF IDAHO

    Senator Crapo. Thank you very much, Mr. Chairman.
    I also applaud your holding this and other hearings that 
you are going to hold.
    I didn't come here with a prepared statement, but as I 
listened to the statements made by you and other Senators 
something strikes me, and that is that there is a very clear 
indication here that there is a broad bipartisan support for 
developing a national energy policy and for a lot of the 
elements that have to be in that energy policy.
    I think that your statement, Mr. Chairman, very, very 
adequately laid out the scope of the issue that we have to 
address. Senator Lieberman and his focus on technology and 
making sure that we have a shared interest in problem solving 
plays right into what you were saying, Mr. Chairman, and I 
believe that ultimately we have already, as I've listened here, 
the basis for a good bipartisan approach to the issue.
    Undoubtedly, as we develop our approach to a national 
energy policy, we are going to have to focus on conservation 
and on efficiencies and on renewables and other alternative 
sources of energy. We're going to have to look at the short-
term needs and find out how to address the issues that Mr. 
Chairman has raised already with regard to our lack of 
development of supply alternatives, whether it be short-term or 
long-term alternatives.
    I strongly agree with the chairman's highlighting of the 
fact that we have a significant source of power in this country 
that we have not utilized effectively--nuclear power. 
Admittedly, we have to address the waste stream issues, but 
when we can solve those issues--and I believe that with all the 
talk we have about technology and research and the American 
ingenuity that needs to be brought to effect on these issues 
that we will be able to resolve the waste stream issues with 
nuclear power, and when we do we are going to see that there 
will be a tremendous boon to our ability to generate self-
sufficiency in the power arena.
    So, with those comments I would just say I see that, with 
the statements that I've already heard here today, a broad area 
of consensus has already been outlined. I believe that this is 
a bipartisan issue where we have a strong commitment on all 
sides to make it work. There will be areas where there is 
disagreement, but from what I've heard today there's an awful 
lot more area of agreement, and hopefully we'll be able to work 
forward quickly to address both the short-and long-term needs.
    Thank you.
    Senator Voinovich. Thank you, Senator Crapo.
    It is interesting that you mention nuclear power. I've 
looked at the source of energy in our respective States, and it 
is interesting that, Senator Lieberman, 73 percent of the power 
in your State is from nuclear, and Senator Corzine 70 percent. 
It looks like your part of the country uses more nuclear power 
than the midwest and some other places in the country, and it 
has been--it is expensive. It's clean, and it is not as 
expensive as some other alternatives.
    It is an area that I think--we also have the Nuclear 
Regulatory Commission under our jurisdiction, and I've met now 
with three of the commissioners, and they sincerely believe 
that with some changes we could move forward with more 
production with the current facilities that are available. 
There are people in this country today that are giving 
consideration to building more nuclear-generating plants.
    The basic problem, of course, that we have is this whole 
issue that we've had since I was a county commissioner in 
Cuyahoga County, and that is: what do you do with the nuclear 
waste?
    Senator Crapo. Mr. Chairman?
    Senator Voinovich. Yes?
    Senator Crapo. Could I just make one interesting point 
there. Senator Clinton pointed out how we apparently waste 75 
percent of the power that comes from the oil that we take out 
of the ground in just getting it up and generating it into 
ultimate usage. I'm going to be a little bit off on these 
statistics, but I'm in the ball park. My understanding is that, 
with regard to the spent nuclear fuel, when those fuel rods 
come out only about 10 percent of the power in those fuel rods 
has been utilized, and that if they can figure out the 
technology to refine and reconcentrate those fuel rods, there's 
about 90 percent of the power left in them.
    It's a tremendous--it's enough power to run the energy 
needs of this country for 100s of years in a lot of different 
areas, and so this focus we're talking about on research and 
development and technology I think can be utilized very 
effectively in nuclear power.
    Senator Voinovich. Thank you.
    We're very fortunate today to have two panelists that have 
had a lot to do with our energy and environment over the years, 
Ms. Linda Stuntz, former Deputy Secretary, Department of 
Energy, and Kate McGinty, former chairman of CEQ. We're pleased 
that you are both with us this morning.
    Ms. Stuntz, we'll start with you. I think you are familiar 
with the rules of the committee that we'd like you to try to 
limit your testimony to 5 minutes. Your statements will be put 
into the record, and so if you can do that we'd very, very 
grateful to you.
    Ms. Stuntz?

STATEMENT OF LINDA STUNTZ, FORMER DEPUTY SECRETARY, DEPARTMENT 
                           OF ENERGY

    Ms. Stuntz. Thank you, Mr. Chairman and members of the 
subcommittee. I'm very grateful for the opportunity to testify 
before you today on this extremely important and very timely 
issue of harmonizing the Clean Air Act and the nation's energy 
policy.
    Some 12 years ago, before I was Deputy Secretary in the 
Department of Energy, I was something called Deputy Under 
Secretary for Policy, which meant I got the things to do that 
nobody else really wanted to do. One of those things--and it 
made an effect on me for my life, I will tell you--was to be 
the Department's point person on the development of the Clean 
Air Act Amendments of 1990, both within the Administration and 
in meetings here in the Senate. I recall many days spent around 
a conference table with then-Majority Leader Mitchell, working 
out a deal that was going to be done between the Senate and the 
Administration.
    Senator Lieberman is laughing because he was a part of that 
process, as well. I recall his constructive participation in 
that process. I'm heartened this morning by what I've heard, 
because I think--not that it was perfect--but those amendments 
were important. They were a product of a bipartisan approach 
that included the Administration. It is never easy to deal with 
the Clean Air Act. I don't think you will be able to 
reauthorize it as it needs to be done without a similar 
approach, and so I think you are off to a good start. That 
experience certainly impressed upon me the importance and the 
difficulty of reconciling these competing objectives.
    I will be brief this morning. At the risk of boring some of 
you who I'm sure know this, I did attach to my testimony some 
basic facts in hopes that it would be useful to you as you 
continue your inquiries on this matter. I won't review in 
detail our current energy consumption. I don't disagree with 
Senator Lieberman that in the future we all must inevitably 
evolve from a fossil-fuel-based economy to something else, 
whether it is hydrogen or nuclear. We are right now very much a 
fossil-fuel-based economy, and the charts I've showed you make 
that quite clear.
    Figure two, I would point out, also talks about the trends. 
The trends you see are good in the sense that we use less oil 
now in our economy. We are less oil dependent than we used to 
be. That's primarily because we've backed it out of 
electricity, but we remain, of course, extremely dependent on 
it in transportation.
    Coal is the single largest source of energy that we produce 
as a nation. Natural gas--interestingly, those in the room who 
are energy groupies will recall that in the early 1970's we 
actually produced more natural gas than we produce now. Even 
though there has been substantial attention to that, we have 
yet to obtain the level of production we had back then. There's 
a long, interesting story about why that occurred, and we can 
go into that if it is of interest.
    In terms of the less-emitting energy--and I hesitate to say 
``emission free,'' because when the Energy Administration 
information calculates non-hydro renewables, it includes 
biomass and municipal solid waste. My friends in the 
environmental community frequently have issues with those 
factors, so non-hydro renewables and hydro-power and nuclear 
together don't make up very much of the total. When we talk 
about Clean Air Act policy I think that has to be kept in mind.
    Let me move to figure three, because that's where it gets 
interesting. We talk about where at least the Energy 
Information Administration thinks we're going in the future.
    One of the things we know about this for sure is that it 
will be wrong, because we never do a very good job as a nation 
in predicting exactly what we will use and how much it will 
cost. But directionally I think it is important to look at what 
they see happening.
    Our production of petroleum is going to continue to 
decline. Perhaps it will stabilize. Perhaps not. That depends 
upon price, that depends upon technology.
    Coal is going to continue to increase to meet our needs, 
leveling off a little bit, but, nonetheless, remaining 
extremely important.
    With respect to nuclear energy--and the Energy Information 
Administration has some, I believe, fairly pessimistic 
predictions about relicensing. I think there will be more 
relicensing of existing plants that could extend their lives 
and extend the contribution of that source. I think it is an 
important issue for this subcommittee to look into, because 
without that what you see is that hydro power continues to be 
static, could even decline. Non-hydro renewables increases 
slightly but not a lot, and we remain primarily a fossil fuel 
based economy.
    This doesn't exclude, please, the importance of 
conservation. Republicans always get hit with this--that we 
don't care about conservation. In fact, the economy has grown 
substantially more energy efficient as it has adopted new 
technologies, and it will continue to do so. We need it all, I 
think, is the bottom line.
    Let me just close by talking about what I see as the 
greatest challenge we face right now, and that's on the 
electric side. We didn't need California and a lot of other 
things, tightness in New York City this summer to tell this. If 
you look at figure four, it really shows you where the 
Government experts think we are headed with respect to the need 
for new capacity.
    Right now, as was pointed out in the opening statement, I 
believe by the chairman, some 89 or 90 percent of that capacity 
is predicted to be natural gas. As I point out in my statement, 
I represent companies that drill for natural gas and build 
pipelines in the Gulf of Mexico. There are credible 
technological stories going on down there to produce gas from a 
mile of water and 7,000 feet beneath that. I have great 
optimism for their ability to do this.
    Nonetheless, any time this nation in the past has decided 
that we know the fuel that is going to carry us through, 
whether it was nuclear too cheap to meter, coal, no more 
natural gas, synthetic fuels, whenever we have done that we 
have regretted it. It has been a costly mistake.
    Therefore, I think this forecast should be troubling in 
terms of fuel diversity, in terms of security, and in terms of 
economics. As to the extent to which the Clean Air Act has 
driven this development, it unquestionably has been a factor. 
Perhaps we can discuss later the extent to which it has been a 
factor. I think that is debatable, but it clearly has been an 
issue in terms of the ability to build new coal plants, 
uncertainty about the requirements, and the importance of 
regulatory certainty for the future to make these large, long-
life capital investments.
    So let me close with that. I look forward to your questions 
and this important discussion.
    Senator Voinovich. I thank you very much, Ms. Stuntz.
    Ms. McGinty, thank you for being here.

    STATEMENT OF KATHLEEN MCGINTY, FORMER CHAIR, COUNCIL ON 
                     ENVIRONMENTAL QUALITY

    Ms. McGinty. Thank you, Mr. Chairman and members of the 
committee, for having me here to join you in this discussion 
today.
    Let me, if I might, move right to my bottom line. When it 
comes to meeting our energy and environmental needs in this 
country, we face an enormous wealth of opportunities. Yet, 
instead of fostering these opportunities, leadership in 
Washington today seems bent on creating a climate of crisis and 
fear. The hyperbole being thrown around seems to me to bear 
little resemblance to reality.
    So what is going on? Sadly, one can only surmise that the 
events of the day are being seized upon opportunistically to 
promote narrow special interests and sacrifice the broader 
public interest in the process.
    To me, a glaring example of this pattern is the effort to 
use the California energy situation as an excuse, frankly, to 
sacrifice the Arctic National Wildlife Refuge. I can't build on 
Senator Clinton's comments here. The bottom line is, as we 
know, and as I think in an honest moment the Administration 
should admit, that opening the Arctic National Wildlife Refuge 
will do nothing to solve or even help what is a very tragic 
situation in California today.
    With all due respect to the members of this committee, I 
suspect that for some, at any rate, this hearing is part of a 
similar strategy--namely, to seize upon current energy issues 
to push through policies that will roll back critical 
environment and public health protections.
    With the change of Administration, special interests are 
seeing opportunity anew, I believe, and are grasping at any and 
all developments to justify short-sighted and self-interested 
campaigns.
    To take the implicit premise of this hearing, did the 
Federal Clean Air Act cause what are inarguably tremendous 
problems now being suffered and experienced in California? 
Answer--no. You don't have to go to the Sierra Club to obtain 
that answer, just ask some of the major electricity generators 
operating in California in response to assertions by the White 
House and others that environmental regulations are holding 
back output. Generators have repeatedly said--and I quote--
absolutely false.
    What are the main drivers? They are economic and they have 
to do with honest, earnest, but inevitably flawed, as Linda 
just said, best guesses about markets. Power plants were not 
built in California in the early 1990's because there was an 
excess of power. Then came not new regulation but deregulation, 
which offers many benefits, but in the mid-1990's it brought 
with it some market uncertainty which further dampened 
interests in building further generating capacity.
    Then the unanticipated happened--stronger economic growth 
than had been anticipated, stronger growth in electronic-based 
commerce than had been anticipated, and, perhaps a harbinger of 
climate change, the weather hit new extremes of hot and cold.
    The result, instead of the excess which previously had been 
anticipated broadly, there was a dearth of supply.
    Let's look nationally. Is the Federal Clean Air Act 
preventing increases in generation across the nation, as a 
whole? Again, I think that is a hard case to make. I'd say 
absolutely not.
    Experts say that some 190,000 megawatts of new capacity is 
in the pipeline. Now, that's a full 25 percent increase in the 
nation's overall generating capacity. Of that, some 22,000 
megawatts of this new capacity projected to come on line by 
2020 is coal fired. If that amount of coal is being planned, 
clearly Clean Air Act requirements are not shutting down coal 
as an option.
    Are environmental concerns completely irrelevant to the 
California story? No. But to the extent they play a role they 
do so largely related to local concerns, primarily on issues 
like the siting of plants, pipelines, and transmission lines.
    Now, since local control and State's rights seems to be an 
article of faith among the Administration and some in Congress, 
I assume that there is no Federal effort intended here to 
reverse those local decisions and that those decisions might 
earn some modicum of respect here in this forum.
    To me, this whole debate actually is a tremendous tragedy. 
Why? Quite simply, because I think our country is better than 
these false choices that are being presented. Americans are 
smarter. With inventiveness and ingenuity, we thankfully have 
moved beyond the tired, old rhetoric of it's jobs or the 
economy, it's the environment or the economy. We know that we 
can and must have both or we will have neither.
    This principle was proved repeatedly during the Clinton/
Gore Administration. While some of the most demanding 
environmental protections were put in place, the nation also 
enjoyed and experienced unsurpassed economic performance.
    In the energy area, in particular, the record shows that 
this false conflict is, in fact, a false choice. According to 
numbers compiled by the Minerals Management Service in 1992, 
the last year of the first Bush Administration, domestic oil 
and gas drilling activity was at its lowest level since World 
War II.
    By contrast, under the Clinton/Gore Administration natural 
gas production on Federal lands on shore increased 60 percent; 
oil production offshore, particularly in the Gulf of Mexico, is 
increased 65 percent; natural gas production, in especially the 
deep waters of the Gulf, increased nearly 80 percent in just 
the last 2 years. Even coal production was substantially higher 
in the last Administration than in the previous two.
    I would note that all of that was accomplished even while 
the last Administration protected more lands than any 
Administration since Teddy Roosevelt.
    While shoring up conventional sources of energy, the 
Clinton/Gore Administration also moved, however, aggressively 
to achieve better balance in our energy sources. Contrary to 
statements by the White House and congressional leadership----
    Senator Voinovich. Ms. McGinty----
    Ms. McGinty. I have about 3 minutes left, if the chairman 
would indulge me.
    Senator Voinovich. We'll indulge you.
    Ms. McGinty. Thank you, sir.
    Contrary to some statements that have been made, when 
nearly 80 percent of our electricity is fossil fuel dependent, 
you cannot achieve better balance by simply increasing supplies 
of fossil fuels. To reduce risk, you have to diversity your 
portfolio, and that's what we were working to do. Wind--we 
invested. It is now the largest-growing source of energy in the 
world. Geothermal--investments have reduced the cost by one-
third. Photovoltaics--dramatic increase of shipments of that 
technology and efficiency, dramatic savings to consumers while 
moving forward in environmentally sound ways.
    These achievements, while impressive, are not enough, and 
they represent actually only 12 percent of the increased 
investments of these environmentally and energy sound 
technologies that have been requested in the previous 
Administration.
    It is particularly troubling to me in this regard to learn 
that the White House proposes to go in exactly the opposite 
direction from investing in a diverse, robust set of energy 
sources. Estimates are that the recently proposed budget will 
slash efficiency and renewables by some 30 to 40 percent. This 
policy simply can't be squared with a sincere effort to improve 
balance and energy and security and energy.
    Last point--perhaps the most compelling example of bringing 
the environment and the economy together in the energy area is 
the multi-pollutant approach that Senator Lieberman had 
referred to. When former Vice President Gore first announced 
this policy in April, 2000, the statement was supported by 
everyone from the Sierra Club to some of our biggest coal-fired 
power generators, and, indeed, even President Bush later 
endorsed it.
    Why? Because so many realized that, in fact, good energy 
policy is good environmental policy, and they realized that we 
need a comprehensive policy that protects the environment 
while, as Senator Lieberman said, offering certainty to 
business and operators out there.
    That also means that climate must be in the mix. To fail to 
include climate, as the White House now proposes, is 
irresponsible because it virtually guarantees the supply 
problems we see today will be repeated because climate is one 
of the biggest drivers to energy on the horizon. Not including 
climate and giving regulatory certainty is a threat to 
reliability.
    My hope is that this committee will chart a different 
course on these issues, that this committee will see that 
Americans have come together, business leaders and 
environmentalists, alike. They've moved beyond the false 
choices of the past, the choices that said you had to sacrifice 
your quality of life, you have to choose either environment or 
the economy.
    This country is blessed with a wealth of opportunity to be 
a technological leader, to improve the health and well-being of 
our citizens, and to fuel our economy. That's the vision that 
we are presented with, and it is my hope that this committee 
can help lead the way to our securing that bright future. Thank 
you very much.
    Senator Voinovich. Thank you, Ms. McGinty.
    Because of the fact that you had so much more time than Ms. 
Stuntz, I'm going to allow Ms. Stuntz to have a little more 
time to maybe respond to some of the things that you've said in 
your testimony.
    I'd like to say this, in all due respect. I'm hoping that 
these hearings that we have are not looking back and knocking 
the past Administration or the new Administration. I'm more 
interested in how do we work together to move forward. I think 
that to have hearings where we are, you know--there's no 
question that this Administration has policies. The other one 
had policies in regard to this. But we are trying to work 
together to try and come up with some positive solutions to 
things, and I hope we don't let these things get back to just 
throwing daggers at the last 8 years or the last 30 years or 
what this new Administration--I'd rather keep it on a more 
positive note, if we can, because if we make it partisan, 
frankly, we'll do what we've done around here in my 2 years 
here--just keep throwing stones and end up getting nothing 
done.
    Ms. Stuntz, I'd like to give you a few more minutes.
    Ms. Stuntz. Mr. Chairman, I appreciate that, but I really 
would rather engage in a discussion with you if you are 
interested, and perhaps you'll allow me some long-winded 
answers.
    [Laughter.]
    Ms. Stuntz. That's what I'd like to do.
    Senator Voinovich. Well, I'll start out the questioning, 
then.
    Senator Lieberman. We're unaccustomed to long-winded 
answers here.
    [Laughter.]
    Senator Voinovich. OK. We're going to try to limit the 
questioning to the 5-minutes, but to what extent has the Clean 
Air Act, in your opinion, made it more difficult to site and 
operate energy facilities such as power plants, refineries, E&P 
facilities, transmission lines, and pipelines? That's the first 
thing. I'd be interested also in your comments about where we 
are going with these numbers.
    You hear that we can do a better job in energy, and we are 
doing a better job in conserving energy. We had a big program 
in Ohio, Green Lights, in all of our public buildings and our 
schools and so forth, but if you look at conserving energy and 
then you look at the other sources of energy that are 
available, you know, do these projections hold up?
    Ms. Stuntz. Well, I think EIA has done a pretty good job 
here. I think it sets up a challenge. Can we increase the 
nuclear piece? Can we do something about--I think, frankly, 
hydroelectric power, it's a crime. The two largest non-Federal 
projects happen to be in upstate New York--Niagara and St. 
Lawrence. They produce low-cost power. There are international 
implications. One has been in relicensing for 5 years. It is 
not close to being done. But out West there are many more--
Senator Crapo knows well the problems that hydroelectric power 
encounters in trying to get relicensed. The process is broken. 
It needs to be fixed. That's just one small example.
    So I report these numbers to you, not because I believe 
they can't be changed, but where we are going under current 
conservation policies, that's where we will be.
    It is a challenge. It is also a reality check. I have a 
small disagreement with Katie. In today's Energy Daily, which I 
grabbed before I left the office, a Duke executive said, 
``Emission limits in California are going to cause it to shut 
down plants.'' That is the last thing California needs right 
now. This is NOx emission limits. The Governor is not going to 
allow that to happen. He will waive or provide some low-cost 
source of NOx emission allowances. As I mentioned in my 
testimony, he has already issued an executive order to do that.
    Clearly, the Clean Air Act in certain parts of the country 
has made it very difficult to site new generation. Southern 
California is probably one of the worst because they have to 
find emissions offsets. Other parts of the northeast, for every 
new source in places where there are not a lot of existing 
industrial sources from which one can obtain offsets--I know in 
southern California, for example, one of the plants that is 
under construction, is closest to coming on line, desperately 
needed, the developer bought emissions allowances from the 
airport by converting the fleet of vehicles that run people 
around to natural gas as a source of emissions allowances. That 
is an example of how far and how deeply they have to go to get 
emissions allowances to build new power plants.
    One could say, ``Well, but California is a terribly bad air 
quality area. They've got to do this.'' What you're seeing now 
is perhaps they went too far too fast, and so it is going to 
have to be relaxed. They're going to have to use diesel 
generators. This is something that is coming up in New York and 
the northeast, as well, this summer. Emissions from diesel 
generators are much higher by magnitudes of five or six than a 
coal-fired plant. But if the choice is shutting down a hospital 
or something, what do you do?
    So these are real choices, and it is not--I can't answer 
the question generically across the country, but, with respect 
to coal plants, I would say the Clean Air Act is a huge 
impediment right now, not because there aren't plants out there 
that could meet new source performance standards it's because 
they don't know what the next things are going to be. What are 
the NOx levels going to be? What are the SO2 levels 
going to be? What is mercury? And what is going to happen on 
CO2?
    So I agree that there needs to be more certainty, and I 
think an increasing percentage of the industry sees that, as 
well. The problem is doing it in a manner that doesn't seem 
punitive and doesn't wipe out existing generation at a time 
when we really can't afford to lose any of the stuff we've got.
    Senator Voinovich. What recommendations would you have to 
make this a more-reasonable environment?
    Ms. Stuntz. Well, I think that----
    Senator Voinovich. And, at the same time, improving the 
environment. I think it is a given here that we do not want to 
go back, we want to go forward, and I think most people 
understand that, and I think that I want to make it clear to 
everyone on this committee and in this room that I don't want 
to go back. I want to go forward and continue to improve 
environment and our public health in this country. But how do 
we do that and at the same time deal with this situation that 
we're confronted with today?
    Ms. Stuntz. That's the central question. The only answer I 
can give you is I think you have to start from a basis, as I 
believe you are starting here, which is: what are the facts? 
What's the science? What is achievable? And I certainly agree 
with you--I don't know of anyone that wants to go back. I don't 
know of anyone that is advocating rollbacks. The question is: 
how quickly can we go forward? My sense is that now may be an 
excellent time to work out a deal with existing coal-fired 
plants, being that natural gas prices are where they are and 
look like they are likely to stay north of $4, for some time. 
That has changed the economic dynamics, even from a year-and-a-
half ago.
    There may be opportunities to work out deals to retrofit 
existing coal plants and clean them up that might not have been 
there before, but if we are going to continue to engage in, you 
know, ``Well, you've got to commit to do new source performance 
standards in 5 years or we're not going to let you in the 
room,'' then we'll just continue to have a standoff, I believe.
    Senator Voinovich. Well, it is--again, if you can get 
people in the room and start talking to each other, there might 
be something that could be achieved.
    Do you believe that even if we are able to get more 
transmission lines and all the rest of it that natural gas is 
going to stay at--where, about, do you think? Did you say $4?
    Ms. Stuntz. Well, in the near future I don't see it going 
below there. I looked at some of the Government estimates, and 
it depends on how quickly production responds to the recent 
healthy prices. I hope we won't see $10 in the Mercantile 
Exchange like we saw in January and December, but I don't think 
it will be below $4 either. Remembering that just about a year 
ago it was down around two, it presented then--since natural 
gas sets the competition at the margin for electricity in most 
regions, it makes it much more difficult for owners of large 
coal fleets to say, ``Well, I can spend `X' billion dollars 
installing new equipment,'' because they are very mindful of 
putting that power out of the market.
    So there has been a change in the market dynamics. I'm not 
an economist, although I am occasionally accused of trying to 
sound like one, but I do work with people in the industry and I 
have just heard enough to suggest that there may be--the 
economic dimension may have changed and there may be an 
opportunity now to do some things, along with continuing 
development of technology.
    There are a lot of people looking for multiple pollutant 
approaches, technologies that would not only address NOx and 
SOx but look at mercury, too. They know it is coming. They want 
to deal with it. They don't want to put a lot of retrofit 
technology on now, SCRs and so forth, only to have that 
obsolete in 2 or 3 years from now. It doesn't work.
    Senator Voinovich. Well, I have looked at the numbers. The 
people from Babcock and Wilcox were in. They're building a new 
coal-fired facility out in Wyoming. Comparative cost, I think, 
for coal is about $1.50, and I think natural gas right now is 
about $5.50. Some of our people in Ohio on the spot market have 
had to pay $7.50 for natural gas, which has been--you know, it 
is unbelievable for them.
    All of the new generating plants, as I've mentioned--in 
Ohio we've got nine. There's another 20 or so. They are all, at 
this stage of the game, talking about being natural gas fired. 
I think the reason for it is because the alternative that you 
just discussed in terms of using coal doesn't make very much 
sense because of the hurdles that one has to overcome.
    The other thing I just want to mention is I was in 
Hamilton, Ohio. They have a little--and it's really 
interesting. They have a hydroelectric facility they've built 
on the Ohio River they call ``Green Up.'' They generate power 
with coal. They bought, 5 years ago, a scrubber, $14 million, 
and it is still not really operating today, and they were 
bitter about the fact that it is 5 years and they've spent 
almost a $0.5 billion on what they call ``paperwork'' to get 
this thing so it is up and running.
    So I think not only should we look at some of these new 
ideas, but perhaps look at the capacity of some of these 
regulatory agencies in order to deal with the problem.
    That gets to another subject that I have, and that's the 
human capital crisis that we have where one-third of our 
workers are going to retire before the year 2004, another 22 
percent are eligible for retirement, and if you start going 
through these agencies, many of the key people that they are 
going to need to get the ball across the field are leaving, and 
our capacity to hire new people is limited.
    So I think that has also got something to do with where we 
are today in terms of moving forward with new facilities and 
fines and the rest of it.
    Senator Lieberman?
    Senator Lieberman. Thanks, Mr. Chairman. Thanks, too, Ms. 
Stuntz and Ms. McGinty.
    I want to pick up on the words you spoke about 
bipartisanship and also go back to those halcyon days in--I 
think it was room 224 at the Capitol in 1990 when we adopted 
the Clean Air Act Amendments. I must say that that was my 
second year here. I'm now in my thirteenth year. If you ask me 
to name three or four things I have been involved in here that 
I am proudest of, that would definitely be one of them. It was 
an extraordinary experience.
    Part of what drove it in the midst--as you remember, 
because you were there--in the midst of all of the complexities 
of the science and the technology and all of the political and 
regional differences and difficulties was that there was a 
sense that we were all--we all had common goals here, and I 
must say that President Bush--the previous President Bush--was 
part of that. He set that standard, if you will; that sense 
that we--and we were going to have arguments along the way. We 
had a lot of work to do to balance them out, but we all 
understood that there was a problem here.
    I want to try to do this in a way that doesn't seem 
partisan.
    I think the first signals from this Bush Administration are 
not similarly inclusive. They are not similarly balanced. It 
may be that the true intention of the present Administration is 
not getting through. But the two things that we looked at that 
are most visible so far are drilling in the Arctic and the 
change of position on CO2 emissions, and those are 
both very controversial.
    I want to put it this way--they get people's back up. 
There's a sense that we are into a game of stark choices and 
irreconcilable differences. I don't believe that is true. Just 
the short exchanges that we've had here show that there is a 
lot of common interest. But I do hope that we can get ourselves 
to a point on some form of a multi-pollutant bill, on other 
forms of the balance of energy and environmental policy where 
we can find common ground and go back to some room somewhere, 
maybe not too far, to try to negotiate with the same sense, 
basically that same sense, we're not leaving the room until we 
have an agreement, because the truth is that our country cannot 
afford gridlock, cannot afford partisan debate that produces 
nothing on these questions of energy and the environment. They 
are too critical to our economy, to our health, to our 
strength, as a nation.
    So I don't know whether you want to comment on that 
whatever that was--a sermon, evocation--but I think it is quite 
possible--and this committee can play a role in it, but we need 
our leaders, both in the Administration and in Congress, to 
strike those notes that say, ``We're going to have some 
arguments here, but we've got a goal that we share in common.'' 
Right now I don't feel that.
    Ms. Stuntz. I would only say, Senator, I think your point 
is well taken, but I would ask you not to--to keep alive the 
possibility that it could work out that way again. President 
Bush in Texas, as part of the electric restructuring program, 
did--I believe unique among all of the electric restructuring 
programs in the country--impose control requirements on 
existing coal-fired power plants.
    The issue of CO2 is a confounding one. I agree 
with the President. It is not a pollutant under the Clean Air 
Act. I'm afraid it could be allowed to continue to prevent 
progress on anything else in this area. I don't represent the 
Administration on these issues and can only say my hope would 
be that perhaps that could be put, if not to the side, at least 
back in the pack and progress made on other issues, or at least 
see how much can be made on other issues.
    It's like your work on a conference report--it's never done 
until everybody has signed off on all the titles of the bill. 
Right? But see what can be done and then, as I said, see what 
is happening in the environment.
    I believe there are a lot of companies that want to build 
new coal-fired power plants----
    Senator Lieberman. Right.
    Ms. Stuntz [continuing]. That cannot afford--the reason, 
Senator--and I don't think I was as clear as I should have 
been--they do cost more money up front to build, to build them 
to standards. It is an increased capital cost. The fuel cost, 
you're right, is lower, but they cost more up front by way of 
capital cost. If you're going to make that investment in a 30-
or 40-year long asset, you've got to have some understanding of 
what is happening in the future.
    There are people who will make that investment. I think 
there are more people all the time that believe they can't do 
that until they know where things are going to come down. We 
could talk greenhouse gas emission minimization, as opposed to 
rigid reductions. Those are decisions that you need to make. 
But I believe that dialog can occur. I believe this is a 
President that wants to be in that position. I think he needs a 
little more time to get a few more people in place, a few more 
conversations with you and Administrator Whitman, and perhaps 
we can be back in that conference room again.
    Senator Lieberman. Well, that's great. Look, it's early and 
there's time, but we've really got to do it. As we say on our 
side, we're always prepared to keep hope alive.
    I thank you.
    I guess I've used my time. I'm sorry about that. Thanks, 
Mr. Chairman.
    Thanks for the exchange, Ms. Stuntz.
    Senator Voinovich. Senator Clinton?
    Senator Clinton. Thank you both for your testimony.
    I want to just throw one additional element into this 
debate, because I really do appreciate greatly both what the 
witnesses have said and my colleagues. I really think that we 
have an opportunity to bring people back into that metaphorical 
room, and I think that shame on us if we don't.
    Just as in the 1950's we knew we needed a national highway 
program to link our country together, I don't think it is any 
overstatement at all to say that, if nothing else, California 
should have persuaded us that we need a national approach to 
try to work toward a national energy policy that does represent 
the kinds of sensible conclusions that you are advocating.
    I'm concerned, however, that, in spite of what might be 
good intentions not yet expressed or realized in the 
Administration, there is very little in the budget that we've 
heard about which would support an effort that would enable us 
here on this side to put in the incentives--the carrots that 
are needed to go along with the sticks.
    I am very concerned that if we rush to judgment and pass 
the tax cut that the President is still urging on us, despite 
what I think many of us now see as increasing doubt about these 
10-year projections and growing concern about the impact that 
such a large 10-year tax cut backloaded to the last 5 years 
would have on the economy, as opposed to a smaller, more-
targeted stimulus if that is necessary, that, despite our best 
efforts--suppose, you know, if this tax cut stays on this fast 
track and the votes are there to push it through, May or June 
or July, when we start trying to get people in the room, and we 
say, ``OK, what is it we can offer to our generators? What is 
it we can give to our utility companies to make sure that they 
are not put at severe financial disadvantage? What can we help 
with our States in order to be able to meet the generating 
transmission and distribution needs that exist in their 
States,'' we won't have any way to do that. We won't have any 
way not just this year, but we won't have any way to do it for 
the next 10 years.
    So we can sit here and talk about how bipartisan we want to 
be--and I believe that about this subcommittee, as I believe it 
about the committee, and I hope that maybe somebody sitting 
here would recognize that there is a great willingness on both 
sides of the aisle to do the hard work that was done 10 years 
ago on the Clean Air Act Amendments that I think were a 
crowning achievement of the first Bush Administration and those 
who served in Congress at that time, but we're not going to be 
able to have the resources to do that.
    I'm on the Budget Committee, and I'll offer an amendment if 
we have a markup, which I'm told we may not even have a markup, 
but if we have a markup I'm going to propose an amendment to 
try to set aside some significant dollars for an energy 
initiative that would come through this committee to the 
Congress because I think we have to do more as a nation to 
invest in some of these technologies. We have to help our 
utility companies realize that we're all in this together. It 
shouldn't be us versus them. I love to turn on the lights in my 
house, you know. I don't have any bad feelings about people who 
run utility companies and provide that energy for us. I want to 
have us all in the same boat, just as in previous decades in 
our country we all made those kinds of decisions. But we sure 
can't do it if we are going to be saddled with a 10-year 
uncertain set of projections that lead to large tax cuts that I 
believe will take us back to deficits. So I think we have to be 
honest in our assessment of what is possible.
    I wanted to ask just a couple of quick questions.
    I was recently visited by a utility executive--actually, 
somebody I went to high school with who I haven't seen since we 
graduated, but now that I am in the Senate he has discovered me 
again, and I was more than happy to sit down and reminisce with 
him.
    Senator Lieberman. It wasn't enough when you were the First 
Lady?
    [Laughter.]
    Senator Clinton. No. Never found his way to me there. I 
think after the committee assignments were put out there might 
have been some e-mails going.
    In any event, I looked him up in my yearbook and I did 
recognize him and we had a nice conversation.
    [Laughter.]
    Senator Clinton. But one of the points that he made, which 
I was very grateful for, because I hadn't hear this, George. I 
mean, I never had been told about this--is that there might be 
some technology that has been used, particularly in South 
Africa, to use coal for liquification that would enable us to 
produce cleaner energy using this enormous coal reserve that we 
do have that is cheaper to produce. That's something I think we 
ought to look into. Again, I think that's something that, you 
know, could help us on this chart that Ms. Stuntz has given us.
    Could you, Ms. Stuntz, enlighten me even further than my 
old classmate did about whether this is a realistic option that 
this committee should look at and figure out if there's ways we 
can promote it?
    Ms. Stuntz. Senator, I think coal liquifaction, coal 
gassification--there have been some tremendous recent 
improvements in--it's called ``integrated gassification 
combined cycle,'' which gassifies the coal, and then you've got 
essentially natural gas, with good emissions performance and 
efficiency of natural gas.
    The issue is one of economics in terms of deploying it, and 
it is the rules.
    I believe that Senator Murkowski's bill, which is a 
starting point, has a lot of investment in clean coal research 
and development in there. I think sequestration has been, in my 
opinion, tremendous underfunded by the Government. I think if 
we have issues with respect to global climate change, we could 
do substantially better by looking at the anemic budgets we 
have now on carbon sequestration.
    It is the sorts of things I think your Energy and Natural 
Resources Committee will be looking at as they examine their 
bill, but I think this committee has a very important stake in 
that, and I do believe--and perhaps the witnesses behind me 
from the utility industry could tell you more--I think the 
Department of Energy has had a coal liquefaction program for 
many, many years. The question is one of cost and 
competitiveness. There are also some emissions issues with some 
of the earlier versions of it. But I don't think we've tapped 
the potential of that by any means.
    Senator Clinton. I'd also like to ask Ms. McGinty, I know 
that you have spent some time abroad recently.
    Ms. McGinty. Yes.
    Senator Clinton. And I am concerned about our national 
leadership on global environmental issues and our need to 
figure out ways of helping to control emissions, because, you 
know, the worst of all possible worlds, it seems to me, is that 
we would finally deal with, you know, sulfur dioxide and 
mercury and diesel and other things here but take 
CO2 off the table. Then, as we see China and India, 
for example, industrializing and people being affluent enough 
to buy automobiles, and we then are stuck in a situation where 
whatever progress we've made domestically is overshadowed by 
the extraordinary global impacts of the failure to have any 
global agreements that control emissions elsewhere.
    Would you comment on the role that you think the United 
States should be playing in environmental and air quality 
issues?
    Ms. McGinty. Thank you, Senator. Yes. I think in this area, 
as well, what we are faced with is an opportunity, and there 
are two kinds of opportunities that come from looking overseas 
on the climate issue, in particular. One is that, as Linda can 
probably say better than I, some $25 trillion of energy 
capacity will be put in place in the developing countries 
between now----
    Senator Clinton. Was that $25 trillion?
    Ms. McGinty. Trillion, T--between now and the year 2050. 
Some country is going to be supplying that technology. If we 
partner with these countries, it increases the chances that it 
will be U.S. companies doing that.
    The second reason I think it is important to open that kind 
of partnership with the developing world is, again, for 
something Linda referred to, which is, as we look at our own 
cost of reducing greenhouse gases, there is no question that it 
is cheaper in many respects for U.S. business to be able to 
invest in a country like India or China than simply to have to 
meet the requirements within the four corners of the United 
States, so we want to nurture those partnerships and it is an 
opportunity for us if we do.
    Thank you.
    Senator Voinovich. It's interesting that you mentioned 
that, because Senator Craig has a company in his State that has 
the best technology, and they said to him, ``Unless this energy 
thing is worked out here, we're moving. We can take 8,000 jobs 
overseas. We can do that tomorrow.'' That's a threat that 
they're not going to put up with this.
    I think that's something else that we need to look at. Even 
China, for example, used to provide oil. Now it is importing 
oil. As its economy grows, and other parts of the world, some 
of the things that we just take for granted are not going to be 
available to us. We need to look at that. I think your point is 
well taken on the environmental issue.
    My good friend, Senator Carper?

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

    Senator Carper. Thanks, Mr. Chairman. Thanks for bringing 
us together today around these issues.
    I have a statement I'd like to ask unanimous consent be 
entered into the record.
    Senator Voinovich. Without objection.
    [The prepared statement of Senator Carper follows:]
Opening Statement of Hon. Thomas R. Carper, U.S. Senator from the State 
                              of Delaware
    I am grateful to the chairman, my friend from Ohio, and the ranking 
member, my friend from Connecticut for calling this hearing. I 
understand that this is the first of several hearings this subcommittee 
will hold where we examine the nexus between clean air, the 
environment, and the nation's energy policy. I am looking forward to 
the testimony we will receive, and to working with my colleagues as we 
move forward.
    The issues of clean air, and energy policy are important to 
Delaware. In my State, which has urbanized areas as well as rural 
farming communities, it is important that we have both a clean 
environment and a reliable energy supply. Delaware has come a long way 
toward achieving this, but we still have work to do.
    In Delaware, in-fact throughout the mid-Atlantic and northeast, we 
are still faced with a clean air problem. In States like New Jersey, 
New York, and Delaware we have been working hard over the past decade 
to clean up the air by reducing or controlling the emissions from the 
sources ranging from automobiles to factories to power plants within 
our State borders.
    This is not just a State problem however; it is a regional, and 
national problem.
    We need to be very smart about how we proceed on this. Last week, I 
had a chance to speak at a conference on energy policy.
    I told that group, and I'll repeat it today, we need to be broad-
minded and very creative. The link between this nation's energy use and 
our air quality is not the question. The question is what do we do 
about it? Clearly, we need to both protect our air and also provide an 
abundant, reliable source of energy. We need to think about incentives 
as well as regulations. The toolbox will need to be diverse.
    Delaware is an importer of energy. The major power plants in the 
State generate the majority of our electricity, mostly from coal, but 
still we must import electricity from States such as Pennsylvania and 
New Jersey to meet demand. Thus, we need to have a dialog with our 
neighbors to determine what we can do to allow for both a reliable 
energy supply, and clean air.
    Last year, Delaware joined with the EPA and other eastern States in 
urging the Midwest power utilities to clean up their emissions. As 
others today have mentioned, those of us downwind from the Midwest 
utility plants are faced with trying to clean up the air in our States 
by controlling the emissions within our borders, while at the same time 
facing penalties for pollutants imported from other regions. We have to 
work together with States such as Ohio to achieve results, and I am 
ready to work with everyone here to find a solution. I was pleased to 
hear that recently the Supreme Court indicated that utilities need to 
abide by provisions of the Clean Air Act, but I recognize that this 
will be expensive and that the costs imposed on States and companies 
with older power plants will be significant. That being said, we must 
begin to find out how to address those costs, instead of how to avoid 
them.
    Generation of electricity releases more than two thirds of the 
sulfur dioxide emitted, and close to half of U.S. carbon dioxide. The 
bottom line is that we are accustomed to burning fossil fuels to 
generate electricity and as long as we burn fossil fuels, we will have 
to be mindful of the impacts on air quality. Through application of 
various technologies, we've probably done the easy part in cleaning up 
the majority of pollutants. Further progress will be difficult. But we 
must keep moving. I look forward to today's discussions, and to working 
with my colleagues this Congress on this issue.
    Senator Carper. I was looking through my school yearbook 
last night----
    [Laughter.]
    Senator Carper [continuing]. I was reminded, when I was at 
Delaware graduate school in the mid-1970's that we were in the 
throes of an energy crisis, concerned about clean air, as well. 
I'm tempted to say sometimes it seems like we never learn, but 
we can--we're always learning, I suppose.
    I want to ask each of you the same question, and I'm going 
to ask each of you to take about two or two-and-a-half minutes 
or so to answer it for me, if you will. It's not a hard 
question, but an important one.
    Our friend, Senator Murkowski, and maybe this week or next 
week Senator Bingaman will lay out their energy proposals for 
our country. I talked with Senator Bingaman about it a little 
bit yesterday to get a feel for what was coming from his 
proposal.
    I'm reminded that--and he shared with me a graph that 
showed consumption of energy, particularly oil, that is 
attributed to our transportation sector. I've had some 
interesting conversations of late with friends from the auto 
industry about hybrid technology that is coming in vehicles 
that are literally in the pipeline--they're going to be out, 
are out, are coming out--and about fuel cell vehicles, as well.
    Here's what I want to ask you to do. Just help us briefly 
piece together part of an energy policy for our country that 
would encourage Americans to actually purchase hybrid vehicles, 
fuel cell powered vehicles, other energy-efficient, clean-
operating vehicles in the years ahead. So that's No. 1. Give us 
some thoughts on how do we actually encourage people to buy 
them? I think they are going to be produced. The question is 
whether anybody is going to buy them.
    Second piece I want to ask, Senator Clinton has already 
talked to you about coal, so I'll skip over that one, but I do 
want you to give us some thoughts on nuclear power, and 
particularly the environmental problems with nuclear power and 
how maybe in 2001, maybe in this decade, we're better able to 
deal with those problems.
    The last piece, just some thoughts, if you will, on 
renewable fuels, not so much photovoltaic or solar or wind, but 
more bio--stuff that we grow, whether soybeans or ethanol, that 
sort of thing.
    Just those three components, if you will, for an energy 
policy, and if each of you would take a couple minutes and 
share some thoughts with us it might be helpful as we grapple 
with these issues. I would be grateful.
    Ms. McGinty. Thanks, Senator. I think you've outlined 
several major pieces of the kind of comprehensive approach that 
is being talked about here.
    In terms of buying clean vehicles, several thoughts I would 
offer. First, I think on the front end the Government has a 
very important role to play in helping to reduce the cost of 
those technologies up front by promoting research and 
development partnerships. A fine example along these lines is 
the current partnership for a new generation of vehicles. I 
think it has shown this win/win we are struggling for in terms 
of energy and environment and the transportation sector.
    On the back end, in terms of a pull for those technologies 
to help consumers afford them, proposals have been made to 
offer tax credits to consumers or to businesses that would buy 
fleets of these vehicles, for example, to again ease the up-
front cost of affording some of these vehicles.
    I would add to this mix, in terms of the transportation 
sector, I think it is very important not only to improve the 
automobile but to offer consumers choices, and that means that, 
again, what the Federal Government can do to invest in and 
provide local communities resources for transportation 
alternatives--mass transit, high-speed rail--those kinds of 
investments are very critical to our infrastructure and to our 
future.
    I think as the sprawl issue demonstrates, there is a 
quality of life issue there, too, where some people want to get 
out of their car and out of traffic jams.
    Nuclear power--I think the issues have been touched on 
here. There is an opportunity to increase the operating life 
and usefulness of our nuclear power plants, and the Federal 
Government has made investments in partnership with industry 
along those lines, but the waste issues, the storage issues, 
and the proliferation issues are tough ones that need to be 
wrestled with.
    Senator Carper. Take 30 seconds on waste. Is there anybody 
in the world who is doing a better job than we are with respect 
to the waste recycling and that sort of thing?
    Ms. McGinty. Well, I wouldn't present myself as any kind of 
expert on that. I think that the French consider themselves to 
be quite advanced in handling these issues. This country has 
experimented with technologies like vitrification, which tries 
to encase that waste in glass. So there are different 
approaches that are being pursued.
    We maybe have suffered from too single-mindedly pursuing 
just things like Yucca Mountain, which need to be examined, but 
maybe we have too single-mindedly focused on that.
    I can't present a more-thorough analysis of that.
    Finally, in renewable fuels, I think you are right to point 
to biomass sources of fuels, in part because not only does it 
offer us an opportunity for some more degree of autonomy, since 
we have plenty of biomass that we can put toward fuel 
production, but it is one of these things that improves the 
environment, but also offers promising new economic 
opportunity, even in depressed areas of the country like our 
farming and rural sectors, where they could have whole new 
business opportunities that they could pursue with Federal 
Government support for biomass, both research and deployment.
    Senator Carper. Ms. Stuntz, before you respond, for the 
past year in Delaware we have been conducting an experiment in 
Sussex County--actually, throughout that State--where we take 
soybean oil and we mix it with diesel fuel, and we use it to 
provide power for our vehicles in our Department of 
Transportation, and we find that their performance is good, 
energy efficiency is good. They burn more cleanly. The 
emissions smell like kind of a cross between popcorn and french 
fries.
    [Laughter.]
    Senator Carper. When people drive to the Delaware shore 
this year or to Ocean City, Maryland, they're going to be 
driving through these fields of soybeans. They can maybe think 
of not how just we use that soybean to feed chickens and raise 
chickens on the Delmarva Peninsula, but maybe some day to 
provide power for our vehicles.
    Ms. Stuntz?
    Ms. Stuntz. Yes, Senator.
    On hybrid vehicles, I think first the issue is performance. 
If they don't provide the basic services--reliable, taking you 
to the grocery store, dropping the kids off at school, or 
whatever you need--I don't think it will work. But I believe we 
are close on that. I, personally, am very excited about hybrid 
vehicles. I would agree with Katie the keys would be perhaps 
tax incentives to buy down any price differentials, and maybe 
trying to get creative, maybe to give them access to HOV lanes. 
Unlike some of the things we've discovered now, you let dual-
fuel cars in some places, fuel-flexible cars access, and then 
they run on gasoline all the time, so is it just kind of a cute 
way to avoid HOV requirements.
    Those kinds of things in urban areas, which is where I 
think some of these vehicles have their greatest potential, 
might really encourage people to do that, because they're 
getting some benefits they otherwise wouldn't get.
    Nuclear power--I think it is a tragedy what this nation has 
done in the area of nuclear power. In my views the issues are 
not technical, they are political. I think, you know, France is 
not known for being careless about its citizens' health and 
well-being, and it is virtually entirely dependent on nuclear 
power and it is very low cost and it is very reliable.
    Our industry a great success story. The nuclear plants in 
this country now operate at something over 90 percent capacity. 
Their utilization, their performance, with very few exceptions, 
has been extraordinary. It is one of the reasons that the air 
in the northeast and elsewhere, even California, is better than 
it otherwise would be with anything else, and yet we seem, as a 
nation, not able to deal with the political issue of what to do 
about the waste. We don't even have an EPA that can get out a 
standard to allow people to determine whether Yucca Mountain 
can meet it, and I just think that's wrong.
    Renewable fuels--I am not as big a devotee, I guess, of 
biomass. Certainly there is a role for biodiesel and ethanol. 
Where it is available, close at hand, it play make a real role, 
but I, personally, in the area of renewable fuels am most 
excited about wind. I think wind is really taking off. I think 
the Federal Government has played an important role.
    Senator Carper. There's a pun in there somewhere.
    Ms. Stuntz. I didn't mean one, but it is possible.
    The Federal tax credit, production tax credit that came 
about as part of the Energy Policy Act of 1992 and has been 
extended by the Congress since then, along with some of the 
State initiatives on renewable portfolio standards--in Texas, 
for example, under the President--has made a huge difference. 
There are wind farms of not just a few but hundreds of 
megawatts worth popping up in Texas, Iowa, Wisconsin, 
California, even Ohio, West Virginia, wherever there is a good 
resource. We're getting a lot smarter about, yes, it is 
intermittent and you can't always count on it, but now that 
we've got wholesale deregulation--and this is a good side of 
it--people are learning to firm it up by matching it up with 
maybe some gas or something else so you can provide a firm 
product, you can rely on it.
    We taxpayers pay for the production of it. We don't just 
pay for building machines that stand around and don't do 
anything. I think it is an example that could be looked at that 
has really helped to promote, I think, cost-effective, 
renewable fuels around the country, and I think there is the 
potential for more than that.
    Senator Voinovich. Thank you.
    Senator Carper. Mr. Chairman, there you have it. That could 
be our energy policy.
    Can I just say one last quick thing, and then I'll stop?
    Senator Voinovich. Yes, you can.
    Senator Carper. Solar and wind don't always work. The sun 
doesn't always shine, and the wind doesn't always blow, as we 
know. To the extent that we can develop the ability to better 
harness and store the energy that is created for the times when 
the sun is--like today. Today we could harness the wind, maybe, 
but not the sun. But, to the extent that we can develop better 
a way to store that energy when the sun is shining and the wind 
is blowing, we will have struck a blow for cleaner air, I 
think.
    Thank you.
    Senator Voinovich. Thank you.
    We are very fortunate to have the chairman of our committee 
with us this morning, Senator Smith.
    Senator Smith. Thank you, Mr. Chairman.
    I won't take any time for questions, because I came in 
late, and I apologize for that and to the witnesses. But I 
certainly want to thank you and Senator Lieberman for holding 
the hearing. This is vital that we look closely at whatever 
ways we can to improve the performance of the Clean Air Act. 
That's what we're working on. I believe that we can find ways 
to get better environmental results and at the same time reduce 
the compliance costs, and that's what we're about. It needs to 
be a bipartisan effort.
    I was particularly impressed with the comments that you 
just made, Ms. Stuntz. You don't hear that said too often on 
the nuclear power side, but I think we need to say it more 
often and we need to start thinking seriously about that.
    I am looking forward to working with you, Mr. Chairman, as 
we move down the road, and with others in a bipartisan way to 
try to address the issue of clean air, and, at the same time, 
more energy, which is obviously a need right now.
    Thank you.
    Senator Voinovich. Thank you, Mr. Chairman.
    I want to thank the witnesses for coming here this morning. 
We appreciate your being here and certainly will be reviewing 
the questions and the testimony.
    Thanks.
    Ms. Stuntz. Thank you.
    Ms. McGinty. Thank you.
    Senator Voinovich. Our next panel is: Mr. Tony Alexander, 
president of FirstEnergy; Mr. David Nemtzow, president of the 
Alliance to Save Energy; Mr. David Hawkins, the Natural 
Resources Defense Council; and Mr. Olon Plunk, who is vice 
president for environmental services at Xcel Energy.
    Good morning, gentlemen. Let me say welcome to all of you. 
We appreciate your being here. I know some of you had to travel 
to get here, and we appreciate it.
    Mr. Alexander, are you ready to go if I start with you, or 
would you prefer to go down the other end?
    Mr. Alexander. I guess I am, Mr. Chairman.
    Senator Voinovich. All right. We'll start with you, 
president of FirstEnergy. Nice to have you here.

   STATEMENT OF ANTHONY J. ALEXANDER, PRESIDENT, FIRSTENERGY

    Mr. Alexander. Thank you. Good morning, Chairman Smith and 
distinguished members of the Senate Subcommittee on Clean Air. 
Thank you for the opportunity to share FirstEnergy's 
perspective on this important issue.
    My name is Tony Alexander, and I am president of 
FirstEnergy. FirstEnergy is a diversified energy services 
holding company headquartered in Akron, Ohio. We are in the 
process of merging with New Jersey-based GPU, Incorporated. 
That transaction will make FirstEnergy the fifth-largest 
investor-owned electric system in the country, based on serving 
4.3 million customers.
    FirstEnergy owns and operates more than 12,000 megawatts of 
generation. Of this, 62 percent is coal fired, 32 percent is 
nuclear, and the rest is natural gas, oil, or pump storage 
hydro.
    FirstEnergy was the first U.S. company to install and use 
large SO2 scrubbers, starting in 1976. We've also 
participate in more clean coal technology projects than any 
other company in the United States.
    Since the Clean Air Act was amended in 1990, we've reduced 
our emissions of nitrogen oxides by 60 percent, sulfur dioxide 
by 57 percent, and carbon dioxide by 20 percent. I21As 
electricity deregulation continues to evolve, we must strike an 
appropriate balance between meeting the electricity needs of 
our customers and our responsibilities to the environment. We 
need to recognize that the rules of our industry have changed. 
Under deregulation, the impact of environmental regulations on 
the supply and the price of generation needs to be considered, 
especially since customers will no longer have the protection 
of regulated generation service when transition periods end.
    This is not to say that competition and environmental 
regulations are mutually exclusive. Environmental regulations 
must be an integral part of a successful, competitive 
electricity market.
    FirstEnergy believes that the following five principles are 
important to developing a comprehensive energy policy that 
addresses both environmental and market issues.
    First, the production of electricity from increasingly 
clean and diverse fuel sources should be encouraged. A balanced 
portfolio of generation, including coal, nuclear, natural gas, 
solar, wind, and hydro will minimize the risk of price 
fluctuations and better assure an adequate supply of 
electricity for consumers.
    Second, there must be recognition of the significant role 
coal plays in meeting the nation's growing electricity needs. 
Policies that would eliminate coal as a viable fuel source or 
that would discourage ways to burn it cleaner and more 
efficiently are counter productive.
    Third, environmental regulations must be implemented fairly 
and consistently across all geographic regions so that in the 
competitive market all participants are subject to the same 
rules.
    Fourth, future environmental legislation must allow 
adequate regulatory flexibility and certainty. Doing so will 
encourage development of innovative and more cost-effective 
control technologies and provide more options for existing 
facilities when meeting new regulations.
    I would point out that today's best available control 
technology (or BACT) requirements significantly limit the 
industry's flexibility in balancing the environmental and 
energy needs of the public. For example, under the USEPA's 
current interpretation of BACT, promising technology that is in 
the development process today may never be deployed because, 
while it would reduce pollutants at high levels--even mercury--
it may not be able to quite reach the best available technology 
reduction levels for each of the pollutants that it would 
otherwise control. Yet, if this emerging technology were 
retrofitted throughout the industry, far more emission 
reductions could be achieved than through selective best 
available technology deployment.
    This kind of interpretation doesn't make sense from a 
business or an environmental perspective.
    I would recommend that Congress determine what the 
appropriate reductions requirements should be and the 
timeframes and then allow the industry to meet them in the most 
cost-effective ways possible, including through market-based 
trading for all sources of generation. The command and control 
approach will only serve to drive up costs and curb innovation.
    Finally, and not least, we need to encourage energy 
efficiency programs that would require, among other things, for 
customers to experience real-time prices.
    In summary, environmental regulations must work within, not 
against, the competitive electricity marketplace. They should 
provide flexibility, uniform performance obligations, and 
reasonable compliance schedules. They should also encourage 
fuel diversity, energy efficiency, and continued use of coal.
    Thank you very much.
    Senator Voinovich. Thank you, Mr. Alexander.
    Mr. Nemtzow?

 STATEMENT OF DAVID NEMTZOW, PRESIDENT, ALLIANCE TO SAVE ENERGY

    Mr. Nemtzow. Thank you very much, Mr. Chairman and members 
of the committee, for allowing the Alliance to Save Energy to 
testify before you today.
    I am David Nemtzow, president of the Alliance to Save 
Energy. We are a bipartisan, nonprofit coalition of business 
and government leaders who are dedicated to energy efficiency. 
We were founded by Senator Charles Percy and we are chaired 
today by your colleagues, Senators Jeff Bingaman and James 
Jeffords. Over 70 companies are members.
    Mr. Chairman, you know what a competitive world we live in. 
It seems that whenever somebody wins, somebody else must lose. 
After all, there is only one NCAA winner, only one survivor 
gets to keep the million dollars, and only one film is getting 
Best Picture this year. So it could be tempting today to think 
that energy and environment goals are competitive and that one 
must win and the other must lose. We've heard different 
testimony--you'll hear more--suggesting that environmental 
goals are interfering with energy goals and that energy goals 
are interfering with the environment.
    That is small wonder. You've heard other statistics, and 
I'll give you some more about how intertwined energy and 
environmental decisions are. We can never forget that over 80 
percent of the air pollution generated every year in this 
country is generated from the production, consumption, or 
transportation of energy. The number is even higher for carbon 
dioxide. The list doesn't end with air pollutants. It goes on 
to water pollution, land use disruptions, toxic waste. We heard 
about nuclear waste. So we have to accept how inter-twined the 
energy and environment decisions are, and that is, of course, 
why this subcommittee is holding this important hearing.
    That is also why it is so essential to cut energy waste and 
to use energy much more efficiently than we are. Energy 
efficiency isn't the ``conservation'' of the past; energy 
efficiency is using modern technologies to do the services that 
we demand--the heating and cooling, transportation and lighting 
services, information technology, all of the others--that is, 
doing the same with less energy input. That means having the 
same or superior services, the same or superior productivity in 
the work force, the same or superior comfort for homeowners.
    By having less energy input, it means less of the 
environmental stresses that this subcommittee and this Congress 
is so concerned about.
    Separately--I know it is not the jurisdiction of this 
subcommittee or full committee--you will also save Americans 
money, and I suspect your constituents will be happy about that 
as you do your work on tax and budget issues.
    You can have it all. You can have a good energy policy, 
good environmental policy, save money for businesses and 
consumers.
    I know this all sounds too good to be true, but I want to 
say to you it not only can happen, it has happened, and it is 
still happening.
    I'd like to look at the record. I'd like to show you this 
chart, if I could. What is key here is to remember that energy 
efficiency is providing more energy to this nation today than 
any other energy source but oil. If we look at energy 
efficiency as an energy source--and you won't see these in the 
other charts, the traditional charts that forget about the 
efficiency side of the meter. You'll see it is ahead of natural 
gas or coal or nuclear or the others, which, of course, are 
very important to our nation's energy balance. Efficiency is 
second only to petroleum. When we remember that over half of 
our petroleum is imported, energy efficiency becomes our No. 1 
domestic energy resource today, and that number can even go up 
higher if this Congress adopts further policies.
    The implications for environment I think are quite clear to 
all of you, but I'd like to just show it graphically, if I 
might. If we could start with the NOx chart, this is a chart 
that shows two scenarios, Mr. Chairman. The top line is what 
NOx emissions in this country would have been--this is from 
1973 forward to 1997--if we hadn't embraced energy efficiency 
as much as we had. NOx emissions would be that much higher. 
That delta there between the higher bar and the actual bar is 
the lowering due to the improvements that we've had in energy 
efficiencies--more efficient refrigerators, lighting, 
appliances. Your home State, Mr. Chairman, of course is a great 
champion of energy efficiency. Owings Corning and many other 
companies that are based in Ohio have been leaders 
technologically, and Carrier in New York, and companies 
throughout the country. I won't even speak to the Yankee 
ingenuity in New Hampshire that has produced so much of these 
important technologies. These technologies have lowered air 
emissions, and we can see the same pattern for the other key 
pollutants. With SO2 it's not as dramatic, but, 
again, because of energy efficiency we have the lower level of 
emissions, not the higher level.
    Finally, the most dramatic graphically is carbon dioxide. 
What CO2 emissions would have been in 1999 is that 
higher number. Luckily, they were the lower. That's what energy 
efficiency can do.
    How do we get more energy efficiency? How do you make sure 
that energy and environmental policies work together? I'd like 
to offer some recommendations on how to do that.
    First of all, cap and trade programs such as Chairman 
Smith, described earlier are key. Cap and trade programs not 
only give companies the flexibility that Mr. Alexander talked 
about, but they create an implicit incentive to produce less 
power because then they need less of the tradable permits.
    Second, just as the Clean Air Act did in 1990, there should 
be set-asides for energy efficiency and renewable energy so 
that they remain the preferred approach to dealing with energy 
and environmental issues at the same time.
    Third, this committee and this Congress should support 
energy efficiency standards that explicitly look at 
environmental performance. The recent air conditioning standard 
that was adopted will save seven million tons of carbon dioxide 
annually in 2020 and will avoid the need for about a hundred 
power plants that won't be needed because of more efficient air 
conditioners.
    Fourth, you should support programs that educate the public 
about the linkage between energy and environment. Senator 
Clinton talked about the Energy Star program. It has been a big 
winner. One of the winners, Mr. Chairman, was from New 
Hampshire, Harvey Windows, who has been a leader in energy-
efficient windows, as well as winners from other States.
    I would encourage this subcommittee or full committee to 
have a hearing on the Energy Star program. I think you might 
agree, Senator, it is a wonderful program that was established 
under the first President Bush and deserves your support.
    Fifth, the public benefits fund for electricity consumers--
as Senator Bingaman will be introducing, we believe, in a few 
days, and as Governor Pataki in New York has recently doubled 
his State's public benefits fund, in a deregulated era you need 
some kind of market-friendly mechanism to have the resources to 
invest in energy efficiency.
    I have to talk briefly about these proposed cuts we expect 
in R&D spending for efficiency and renewables. I must say I 
don't get it. If you had an encyclopedia of aphorisms and you 
looked up ``penny-wise and pound-foolish,'' you'd see a chart 
that looks like this budget cut--efficiency and renewables cut 
by one-third while this country is going through the worst 
energy crisis in a generation is something that I cannot 
explain, and certainly not defend.
    Finally, I would like to encourage you to support tax 
credits for efficiency as your colleagues are doing. Senator 
Grassley has a proposal for highly efficient appliances. Your 
proposal, of course, Chairman Smith, for highly efficient 
homes, and Congressman Bill Thomas in the House has a very 
similar bill, we thank you for that. Of course, the bill 
introduced by Senators Murkowski and Lott have half a dozen tax 
credit proposals, and we expect Senator Bingaman's to, also. 
The tax credits are a great way to help your constituents 
embrace these technologies.
    Finally, I want to thank you very much again. You can have 
it all. You won't win the NCAA championship. You won't get the 
million bucks. You won't get Best Picture. But you can have a 
good energy and environmental policy simultaneously if you 
tackle energy waste first.
    Thank you.
    Senator Voinovich. Thank you very much.
    Our next witness is Mr. David Hawkins, who is the from the 
Natural Resources Defense Council.

    STATEMENT OF DAVID HAWKINS, DIRECTOR FOR AIR AND ENERGY 
          PROGRAMS, NATURAL RESOURCES DEFENSE COUNCIL

    Mr. Hawkins. Thank you, Senator Voinovich, members of the 
committee. I am David Hawkins. I am director of the air and 
energy program at NRDC.
    NRDC is a citizens advocacy organization devoted to 
protection of the environment and public health. NRDC started 
in New York 31 years ago and now has over 400,000 members 
around the United States.
    I'd like to address three points today. First, why we need 
a comprehensive policy to clean up electric power plants. 
Second, why President Bush's decision last week on 
CO2 is bad policy. Third, why the public discourse 
on energy policy, in my opinion, is off to a bad start.
    Cleaning up power plants--the truth is, to have clean air 
we need clean energy, but today's electric powerplant fleet is 
dirty. It is dirtier than needed to protect public health. It 
is dirtier than needed to protect the environment.
    As Senator Lieberman summarized, and I'll repeat quickly, 
electric generation today is responsible for two-thirds of 
sulfur oxide emissions. It is responsible for 40 percent of 
carbon dioxide, and it is responsible for about a third of 
nitrogen oxides and mercury.
    What do these pollutants do to us and to our planet? Much 
too much. Let me quickly summarize.
    Sulfur dioxide produces soot that causes tens of thousands 
of premature deaths a year. That figure was challenged by 
industry, but it was recently reaffirmed in an independent 
analysis, and the Supreme Court has also upheld that standard 
against legal challenges.
    The same sulfur dioxide produces acid rain that continues 
to destroy lakes and streams, forests, and monuments.
    It also produces haze in our national parks that spoils 
visits by millions of visitors every year, denying them an 
opportunity to experience truly clean air.
    Carbon dioxide--carbon dioxide is the driving force behind 
climate change, a phenomenon that threatens to kill millions of 
people due to increased, more-destructive floods, droughts, 
heat waves, intense storms, and climate-related infectious 
disease, to produce sea-level rise that would inundate the 
homes of tens of millions of people and cost hundreds of 
billions of dollars in damages, and for counter-measures in 
those countries that are fortunate enough to have the resources 
to respond.
    Climate change also threatens to destroy complex ecosystems 
that have evolved over thousands of years under the influence 
of climate cycles that were not de-stabilized by fossil fuel 
combustion.
    Nitrogen oxide causes smog that blankets more and more of 
our country, and it also contributes to the degradation of our 
very productive estuaries through excess nutrients.
    Mercury is a brain poison. The electric generating sector 
is the only sector in the United States that is currently not 
regulated for mercury. Mercury continues to buildup in the 
environment, contaminating our lakes so that 40 States have to 
issue warnings about eating the fish therein.
    Dirty plants also waste energy. More energy is wasted in 
making electricity each year in the United States than all the 
energy in all the coal we burn in the United States. That's a 
phenomenal figure. We can do something about it by modernizing 
our powerplant fleet.
    Dirty powerplants are also anti-competitive. They keep from 
the market cleaner and more-efficient power sources, because, 
absent comprehensive pollution control requirements, the market 
places no value on the fact that cleaner plants emit far fewer 
of each of these pollutants, what I call the ``four horsemen of 
air pollution.''
    Now, Chairman Smith, you have recognized the need to 
address this problem, and we are proud of the fact that you 
have done so, and other members of the committee have 
recognized the need to do something about it, as well. In fact, 
just last week the Clean Power Act of 2001, S. 556, was 
introduced, and Senators Lieberman, Clinton, and Corzine of 
this committee are among its lead sponsors. We hope others of 
you will consider sponsoring, as well.
    NRDC strongly supports S. 556, and we applaud these members 
for their leadership.
    The bill establishes industry-wide caps on the four 
horsemen pollutants. Plant-by-plant reductions are required for 
mercury, while, for the other three, market-based programs will 
allow great flexibility for firms to meet the bill's targets. 
This approach will not only protect the environment and public 
health, it will give clean power the recognition in the market 
that the current law impedes.
    The bill will also give investors in the electric sector 
certainty they now lack about future regulatory obligations and 
help them avoid costly mistakes in investment strategies.
    A critical feature of the bill is the cap on 
CO2. The cap in the bill is set at 1990 levels. 
That's the level that the United States agreed to to meet the 
1992 Rio Climate Treaty, which was signed by the current 
President's father and ratified by the Senate.
    Now, in his campaign, the current President pledged to 
support a powerplant bill requiring mandatory reductions in all 
four pollutants, including CO2, but last week he 
announced he would not honor that promise. That, in my opinion, 
was a mistake, and we urge Congress to proceed with a bill that 
covers all four pollutants. Let me give you a few reasons why.
    Failure to include carbon will increase costs in the long 
run. When carbon controls are required--and they will be--much 
investment that could have been made intelligently today will 
have been wasted. A narrow bill will prolong uncertainty. Is 
carbon really off the table? For how long? Will it be put back 
on the table right after companies have made investments?
    As Katie McGinty pointed out, a narrow bill would miss the 
opportunity for the United States to position itself ahead of 
competitors in the global marketplace for designing cost-
effective strategies to fight global climate change.
    The smart money knows that there is going to be a huge 
market for climate-friendly energy technologies. The United 
States can either play a leadership role in looking at that 
market or it can play a catch-up role. This legislation gives 
the United States an opportunity to get ahead of the curve.
    I detail in my testimony the reasons that President Bush 
gave for his reversal. I won't go into those points now.
    Let me just conclude by my final point, which is why things 
are off to a bad start.
    As the director of the choir that I sing in reminds us, 
even the most beautiful music can be spoiled by a few 
discordant voices, and, no matter how people try to make 
harmony, it is impossible with those discordant voices. I'd 
like to mention a few discordant voices that we are hearing.
    One is the proposal to drill in the Arctic National 
Wildlife Refuge. If you really want to encourage a reasoned 
discourse about energy policy, why does one lead with a policy 
to drill in a very special place? That should be the last place 
we look to meet our energy needs, not the first place to talk 
about drilling.
    Second, pointing the finger at environmental rules as a 
cause of California's energy problem is wrong and it diverts 
attention from real solutions and further polarizes debate.
    Third, the coal lobby is now promoting huge new exemptions 
from the Clean Air Act for coal-fired power plants. This, too, 
is not the way to promote a reasoned discussion about the role 
coal should play in the nation's energy policy.
    Finally, efforts to blame New Source Review and other 
permitting requirements from interfering with development and 
location of new powerplants is short-sighted. Fundamental 
advertising principles should remind us that if you associate 
things in the public mind, you're going to reap the 
consequences of that association. If you say over and over 
again, ``We can't build new powerplants because of 
environmental rules,'' what is the public going to conclude? 
They're going to conclude they should be anxious about those 
new powerplant projects because somehow they are in conflict 
with their environmental aspirations. That's not the way to 
reduce controversy; it is the way to increase anxiety.
    I hope that what we can do in the months ahead is move away 
from looking at energy policy like a boxing match where we are 
trying to score points for a referee and instead look at this 
as an opportunity where we can take a deep breath, work 
together, figure out how to find solutions.
    Thank you very much.
    Senator Voinovich. Thank you very much.
    Our next witness is Mr. Olon Plunk, vice president for 
environmental services, Xcel Energy.
    Mr. Plunk?

   STATEMENT OF OLON PLUNK, VICE PRESIDENT FOR ENVIRONMENTAL 
                     SERVICES, XCEL ENERGY

    Mr. Plunk. Good morning, Mr. Chairman, members of the 
committee. My name is Olon Plunk. I am vice president for 
environmental services of Xcel Energy. Xcel Energy is a public 
utility holding company headquartered in Minneapolis, 
Minnesota. We own or operate more than 15,000 megawatts of 
electric capacity generated by coal, natural gas, nuclear, and 
renewable energy generating facilities. We have operations in 
12 States and serve over three million customers.
    Today I am testifying regarding some of our experiences 
with the Clean Air Act. I am also here to express my support 
for alternative approaches to the current air quality 
regulatory scheme. We believe that the current regulations and 
EPA's implementation of them present very real obstacles to the 
goal of ensuring an adequate, reliable, and reasonably priced 
supply of energy for our nation.
    Xcel Energy serves most of Colorado and all of the fast-
growing Denver metropolitan area. In recent years, we have 
embarked on an aggressive effort to meet these burgeoning 
energy demands. Our new capacity acquisition efforts, however, 
have not been without difficulties. One of the chief obstacles 
we face involves new source permitting under the Clean Air Act. 
For example, in early 2000 we were struggling to obtain a 
permit for a new gas-fired combined cycle unit at our Ft. St. 
Vrain facility located in eastern Colorado. The permit that we 
submitted would have used the cleanest low-NOx combustion 
technology available. Despite this fact, EPA demanded 
additional expensive emission controls at the facility.
    We proposed a different approach. In the Denver area, 
approximately 50 miles away, we operate an existing coal-fired 
facility that has significantly higher NOx emissions than the 
proposed gas turbine. We offered to install new burners on this 
coal-fired plant that would have reduced its NOx emissions by a 
much greater amount and at significantly less cost than the 
EPA's preferred controls on the new gas-fired Ft. St. Vrain 
unit.
    Both the State of Colorado and the members of the 
environmental community were supportive of this proposal. 
Unfortunately, EPA was not. Although some EPA managers 
expressed great interest in the idea, EPA ultimately stopped it 
because, in EPA's words, it was contrary to the integrity of 
the PSD permit program.
    Because of our customers' great need for this additional 
generation capacity, we could not risk the potential that an 
EPA enforcement action would prevent or delay construction of 
the plant. We agreed to install EPA's preferred controls at 
much greater cost and less environmental benefit than under our 
proposal.
    In sharp contrast to our experience with EPA, we have found 
that, working with the State of Colorado, we have been able to 
achieve great environmental progress at much lower cost by 
focusing on flexibility and certainty. We operate three coal-
fired power plants in the Denver area. In 1997 we proposed a 
voluntary emission reduction program to reduce uncontrolled 
sulfur dioxide emissions from those plants by 70 percent.
    We worked closely with the Colorado environmental community 
and a diverse group of stakeholders to develop and pass 
legislation that encourages the Colorado Air Pollution Control 
Division to enter into flexible, voluntary emission reduction 
agreements for stationary sources. In return for these 
significant reductions, the legislation grants such things as a 
period of regulatory assurance, during which the sources will 
not be subject to additional state regulatory requirements.
    The act also requires that regulated utilities, such as 
Xcel Energy, can recover the cost of these controls from their 
customers.
    In July 1998 we entered into an emission reduction 
agreement with Colorado. Under the agreement, we will reduce 
our sulfur dioxide emissions by approximately 20,000 tons per 
year. The agreement grants the company flexibility in complying 
with its requirements through annual emission averages, 
flexible tonnage caps, and trading of emissions between the 
different plants. It grants us certainty by ensuring that the 
plants will not be subject to new or different State 
requirements for a period of 15 years. Finally, it assures that 
we can recover the cost of these controls in a way that does 
not put the plants at a competitive disadvantage.
    From our experience working with these issues and 
struggling to meet energy demands in the west, we have learned 
several things about the kinds of reform that would help the 
nation resolve its current energy security problems and prevent 
their recurrence.
    First, the tremendous growth in the nation's energy demand 
requires that our industry build and maintain new and existing 
power plants. In order to protect the air quality while meeting 
these needs, Clean Air Act regulations must become more 
flexible. Our own experience in Denver is proof that the right 
kind of flexibility creates the conditions that lead to 
cleaner, cheaper power.
    Second, the Clean Air Act should provide plant owners with 
greater certainty. Owners of existing plants must be able to 
maintain their facilities and improve their efficiency without 
the fear that these efforts will be punished by an EPA 
enforcement action for alleged violations of New Source Review 
rules.
    Plant owners should be allowed to plan rationally and 
flexibly for the emission reduction requirements that will be 
associated with their operations for the life of their 
facilities.
    Finally, the Clean Air Act should recognize that States are 
uniquely situated to address the concerns of local air quality. 
Our experience in Colorado demonstrates that States are well 
equipped to think creatively about clean air issues and find 
innovative solutions. Congress should be responsible for 
setting the broad agenda and national goals for the nation's 
air quality program. States should implement that agenda and 
those goals at the local level without unnecessary interference 
by the EPA.
    Finally, Xcel Energy believes that nuclear power must 
remain an important part of our nation's energy portfolio. We 
cannot maintain and improve upon the nation's air quality 
without taking full advantage of this emission-free generation 
source.
    As many members of the subcommittee know, we are facing the 
very real prospect of prematurely closing our Prairie Island 
plant in Minnesota because of the Federal Government's failure 
to meet its obligation to manage the spent fuel generated by 
the facility. We hope that this issue will also continue to 
receive attention by Congress.
    As Congress considers various multi-pollutant strategies 
for the utility industry, these principles should serve as a 
valuable guide. We believe that, if properly designed, such 
strategies could achieve greater environmental progress at less 
cost than the current regulatory program. By bringing 
flexibility and certainty to the construction and operation of 
power plants, these strategies would also play an important 
role in a comprehensive, effective energy policy.
    Mr. Chairman, I thank the committee for taking time to 
listen to me today, and we would be happy to answer any 
questions that you may have.
    Senator Voinovich. Thank you, Mr. Plunk.
    I'd like to start the questioning with a question to you, 
Mr. Alexander.
    You describe the problem with the EPA's best available 
technology program, and you say that it limits the industry's 
flexibility in balancing environmental and energy needs of the 
public. I'd like you to explain if the problem could be fixed 
administratively by EPA, or does it require congressional 
action?
    The second question is the question about New Source 
Review. We have heard from Mr. Hawkins that that isn't a real 
problem, and I would like you to comment on that, also.
    Mr. Alexander. With respect to the best available 
technology issue, especially with respect to a retrofit 
application, it is extremely important that there is some 
understanding and recognition that the types of facilities that 
are out there. Much like if you had a home, you cannot 
necessarily put the very best in that limited space that you 
have.
    In Ohio we have some facilities that are space limited, and 
when we think about having to put best available technology, it 
is impossible to retrofit those plants. In fact, in one of the 
plants we have a consent decree that says that.
    Yet, we are working on a technology called ``Powerspan'' 
that is a multi-pollutant technology that reduces 
SO2, NOx, mercury, and collects small particulates, 
but yet that technology doesn't quite reach the best available 
levels that could be achieved compared to a new technology on a 
brand new facility where you have the space to do that.
    That technology won't be deployed or may not be deployed 
because the EPA requires and will recognize only the very best. 
So the option for that facility may be shut down as compared to 
continue to operate.
    It leads into the New Source Review and the uncertainties 
that that has created for our industry. Both of these, while I 
would suggest that over the last 20 years the interpretation of 
both BACT, as well as New Source Review, would not have led to 
the problems that we're dealing with today. So today's 
interpretation of those requirements are leading to 
circumstances in which what everyone had considered to be 
routine maintenance now is leading to a circumstance in which 
facilities and, quite frankly, things that were done on 
powerplants 20 years ago are now being challenged, and there is 
a suggestion that new source standards must be applied, and 
that is best available technology again in a retrofit 
application.
    I think it is very, very important as we move forward that 
we deal with these kinds of issues in a way that will allow the 
industry to make investments. There needs to be a certainty 
about the investment decisions that we make. We need to have 
some flexibility so that we can take--that we can balance the 
existing fleet with what the new requirements are going to be.
    Obviously, we are going to need some reasonable time limits 
to change this fleet out and meet the energy requirements of 
this country.
    Senator Voinovich. Thank you.
    Mr. Nemtzow, I would really like to have you give me a 
report on what you think of the incentives in the Murkowski 
bill and other incentives that you feel that might be 
worthwhile to look at, because it is interesting, now that we 
have the incentives in that bill, I'm getting calls from 
everyone around the country saying I've got a great idea and we 
ought to incentivize this new idea. I'd be really interested in 
your organization's review of that for me, and if you could 
share it with the other members of this committee.
    Mr. Nemtzow. Thank you. I'd be pleased to.
    There is an embarrassment of riches of ideas, as you are 
finding out. I would like to also comment on Senator Smith's 
bill and the other leading bills there.
    The Alliance endorses the provisions, the thrust of those 
in the Murkowski-Lott bill, and while we do have some sharp 
critiques of that bill, it is not for what you're talking 
about; it is for what is missing from the bill, the issues it 
doesn't deal with.
    In terms of the tax incentives, I think Senator Murkowski 
has done a wonderful job in terms of taking some of the best 
ideas he has got--tax incentives for new homes, for highly 
efficient new homes, similar but slightly different from your 
bill, Mr. Chairman; for existing homes; for highly efficient 
appliances, which is virtually the same in that case as Senator 
Grassley's bill. He's got provisions for combined heat and 
power, which, for example, DuPont and others in Delaware and 
throughout the country have been leaders in that technology, 
and this is for the next generation there. So there is a wealth 
of good policies there.
    Senator Smith's bill has those and also has provisions for 
commercial buildings, which we support, and for air 
conditioners.
    Then, what is missing from both those approaches--and, 
Senator Smith, if I may speak for your bill, if not for you--is 
not--I don't think you ever said it is a comprehensive tax 
incentive for energy, but you were doing some of the leading 
provisions, so I don't mean to cite anything that is missing 
there.
    What Senator Bingaman and Senator Hatch and Senator 
Rockefeller are likely to do in different vehicles are 
provisions for tax incentives for new automotive technologies. 
This, of course, is key. This is the problem we are not 
solving.
    I wish I knew what Linda Stuntz was driving, but she is not 
driving the hybrids that are on the street today, the Toyota 
Prius, a phenomenal car, the Honda Insight, and now, of course, 
the big three led by Ford are racing to catch up.
    What the new provisions will do is provide incentives for 
fuel cells and hybrids and the next generation technologies, 
and I'm ahead of myself and the NRDC, who is negotiating with 
the auto makers--and I think you will see something very 
exciting, politically exciting, in terms of bringing together 
different players, as well as technically exciting.
    In conclusion, if I could say, Senator, I think the 
philosophical approach that Congress should take on these 
incentives are to provide tax incentives for cutting-edge 
technologies, for things that are just at arm's reach, as 
Senator Smith's and the other approaches are.
    You don't want to provide incentives for things that people 
will do, anyway. It is too expensive for the taxpayers. You 
don't need those incentives. You need the ones for the ones 
that are cutting edge, not so far that they are beyond reach of 
companies or individuals, but just at the edge. I think if you 
follow that philosophy you will find a lot of good in the 
Murkowski and the other proposals.
    Senator Voinovich. I'm interested, as a sponsor of the 
Murkowski legislation, to get your thoughts on it on what you 
think may be missing. It's all going to cost money, and you're 
going to have to prioritize, you know, the incentives. You 
won't be able to do them all.
    Mr. Nemtzow. Homes, cars, appliances I think are key there, 
and I would also submit that politically homes will resonate in 
ways because it affects so many Americans in ways that some of 
the other technologies don't. So I think I would recommend you 
put those at the top of your list.
    Senator Voinovich. I was in Cleveland with the 
administrator of the EPA on Monday, and visiting a home that is 
about as energy efficient as you can find, and I think that, 
even with the high cost of gas, their original projection was, 
like, $300 a year. I think it is probably going to be around 
$600, but some people's gas bill a month is $600, so there's a 
lot of things that are going on out there that I think we can 
do on that side of it.
    Senator Carper?
    Senator Carper. Thank you, Mr. Chairman.
    Gentlemen, welcome to each of you.
    As someone said in their testimony, there can only be one 
winner in the NCAA. Actually, there will be two--the men and 
women. I'm reminded of that as our Delaware women's team went 
to the first round and lost. But had they won we could still be 
in the hunt.
    One of the real values for me for a hearing like this is to 
find out where we agree and where you agree. I'm reminded in 
some of what I've read lately that, whether it is technology to 
provide cleaner-operating, more-fuel-efficient motor vehicles, 
whether it is technology to provide less energy consumption for 
air conditioners, I was reading about small--I guess it is an 
electric co-op out in Colorado which has taken a heat pump and 
they bury the coils of the heat pump down under the ground and, 
instead of being up on the surface where the temperature might 
be 10, 20 degrees, down several feet under the ground it is 
always 54 degrees, and it can be used to heat the homes in 
winter and cool them in the summer. They install a couple 
hundred a year of these. I'm just reminded, if we could do that 
sort of thing all over the country we could really get 
something done.
    I'm convinced that we have a lot of the technology, and, 
frankly, a lot of the products that are developed, whether it 
is for more energy-efficient homes or cars or air conditioners 
or appliances. We actually have this stuff being manufactured, 
and manufactures would probably like to build them and sell 
them. The question is how do we make sure that we buy them. How 
do we make sure that we buy them?
    What I really want to do is just go down the row and ask 
each of you just to dwell on that if you will. All the 
technology, all the ability to take and harness that technology 
and turn it into more energy-efficient products doesn't do us a 
lot of good unless people and companies put the stuff to good 
use. What should we do to better ensure that that happens?
    Mr. Plunk, I was struck by your accent. For a guy from a 
company from Minnesota, I was wondering what part of Minnesota 
you were raised in.
    [Laughter.]
    Mr. Plunk. I have been bumped around a little bit. I've 
gone through two utility mergers. I started out in Amarillo, so 
what you're hearing is a West Texas accent.
    Senator Carper. All right. I thought maybe southern 
Minnesota.
    [Laughter.]
    Mr. Plunk. Southern Minnesota.
    Senator Carper. Southwestern Minnesota.
    Mr. Plunk. We have a real diverse service territory , 
essentially from the Canadian border to the Mexican border. I 
presently live in Denver, Colorado.
    Senator Carper. Thank you.
    Mr. Plunk. I might give you an example, Senator, of an 
issue that we are experiencing right now that does deploy an 
electrotechnology.
    In one of our service territories, speaking of the region 
in Texas, we have we have a lot of natural gas supply and 
compression facilities in that service territory . Most of that 
natural gas compression is driven off of internal combustion 
engines. It is not very efficient when compared to the heat 
cycle in a steam electric generating plant.
    Because of the high natural gas prices that they have 
experienced in that region, they have come to us asking us to 
electrify that gas compression, rather than them doing it by 
natural gas fired internal combustion engine.
    What that will do is give them essentially an emission-free 
compression source coming off of our electrified system. Now, 
our system is going to be coming off of highly efficient steam 
electric generating cycles. It is being produced through a mix 
of coal, natural gas, and even some wind in our system down 
there, so it is going to be driven off of a diverse fuel mix.
    So the essential thing there that is driving them is the 
price signal for that energy, because it is more efficient for 
them to electrify that process. Overall, even though that is 
going to make our emissions of CO2 and NOx and 
SO2 a little bit higher on our system--I haven't 
done the calculations, but I suspect overall there is a net 
emissions decrease because of them replacing it with something 
that is driven by a more efficient process.
    Senator Carper. OK. Thank you.
    Mr. Plunk. That's just one example.
    Senator Carper. All right. Again, thank you very much for 
that example.
    The question I'm asking you to come back to is what are we 
to be doing, as policymakers, to encourage the actual purchase 
and putting to use of the technology and the products that have 
been developed? Thank you.
    Mr. Hawkins. Thank you, Senator Carper.
    I would mention information, incentives--including dealing 
with financing--and performance standards. I'll give you an 
example. NRDC's offices use about one-third the electricity 
that conventional office space uses. We have those offices 
built out for maybe 20 percent more initial cost than it would 
have cost for standard construction job, but we had one person 
spend about two-thirds of his time for a year collecting the 
information. Most organizations don't have the ability or the 
insight to actually allocate a person's time to do that. You 
have to root around and find all these things. They are there. 
They are on the market and you can apply them and get two-
thirds savings, just as we have.
    Information is very important. Keeping programs alive in 
the Federal, State, and local governments to provide this 
information, finding ways for entrepreneurs to provide the 
information.
    Incentives--first-cost financing is a problem for some 
energy-saving technologies. We all know the examples of the 
compact fluorescent lights. They use a quarter of the energy, 
they last ten times as long, they save everyone who uses them 
lots of money, but they cost more, first cost.
    Through things like the Public Benefits Trust, electric 
generating companies or other service providers can provide a 
way of dealing with this up-front financing issue so that the 
whole country will save money and consumers will save money and 
they won't be deterred by the higher first cost of some of 
these products.
    Performance standards--David Nemtzow has mentioned energy 
efficiency standards for refrigerators, for other forms of 
major appliances. The motor vehicle industry is another huge 
opportunity for better performance standards. Those are all 
places where products that we buy and then have a lifetime for 
maybe a decade or more using energy, we can influence our 
energy footprint by just being smarter about having modern 
performance standards.
    Senator Carper. Thank you.
    Mr. Nemtzow. Some of these issues have been covered, but 
let me suggest that the philosophy with which to approach your 
question is we should try to get the marketplace to work 
wherever possible, and that, I think, is a truism, but there is 
a ``wherever possible'' there.
    Let me start with the exception first. In the energy 
marketplace, in the consumer marketplace there are many market 
values that classical economics teaches us about. For example, 
almost half of the refrigerators bought every year in this 
country are bought by somebody who will never, ever see the 
electric bill for them--landlords, home builders, developers--
so they are going to buy based on what makes sense--first cost 
or looks. They don't have to pay the electric bill. They won't 
care about efficiency. Nobody would expect them to. That's a 
market failure that needs to be addressed by regulation or some 
other non-market force.
    Let's talk about the marketplace, which is the right way to 
do it. First, of course, are price signals. You have to give 
people the price of their decision and the cost of it, as much 
as possible. One of California's many mistakes was to protect 
consumers from the reality of what was happening in the real 
world of natural gas prices. Consumers haven't conserved--well, 
they are conserving now, but they hadn't planned, they're not 
doing it voluntarily.
    Even better than that is educating consumers about what 
products are out there and why it is in their interest, and 
there is a bevy of programs. Governor Pataki in New York is on 
TV all the time trying to head off his summer's problems. 
Governor Ridge I think will soon be there, of course, Governor 
Davis.
    We talked about the Energy Star program. If you want to 
come to the Alliance to Save Energy home page, Senator, we have 
a calculator there where you can estimate how much energy you 
are saving or wasting at home and some opportunities for 
saving, so there are a lot of ways to educate consumers that 
you, as a policymaker, can support.
    Finally, we talked about the tax incentives that the 
chairman asked about, and I think that is key in this day and 
age. To provide the economic incentives for those new 
technologies, get them out there, let people try them. You try 
it, you like it, and then the marketplace will be more 
friendly.
    So those are some of the approaches, but there's a lot to 
do. Consumers now, after a decade of not having to worry about 
energy, of course have to worry about it now, so they are 
primed. Now we just have to give them the tools to make some 
smart decisions.
    Senator Carper. Thank you.
    Mr. Alexander. Senator, thank you.
    My company has been engaged in energy management and 
offering controls for a number of years--geothermal 
applications for residential homes, whole house energy 
efficiency. We are the largest mechanical contractor in the 
Midwest. We offer energy management controls on HVAC equipment, 
lighting equipment, and also a green roofs program, which is a 
reflective roof on buildings.
    We have seen in this experience boils down to three simple 
prospects. I think a lot of it has already been talked about. 
First, you have to have a quality product that serves the needs 
of the customer. If it is a quality product, first in the door 
works.
    Second, the customer has to see real-time prices. You 
cannot continue to have subsidized prices, controlled, capped 
prices. They must see real-time prices so they can make those 
kinds of economic decisions and choices which will allow the 
deployment of these new technologies, which are more expensive.
    Third, we talked a lot about subsidies. I would suggest 
that if we look toward subsidies, you look toward subsidies 
that help the development and the initial deployment of the 
resource, because if you have a quality product, customers are 
seeing real-time prices, then what you need to do is to get the 
business started, but that there is not a large capital 
investment required for the market to get developed.
    If you can do that and target subsidies toward the--there 
are direct subsidies to the customers--you could target those 
toward people that could not otherwise afford to make that 
capital investment because they don't have that ability to even 
make that tradeoff. That's where I think you should concentrate 
your effort.
    Senator Carper. Thank you all.
    Senator Voinovich. Thank you. That information, Mr. 
Hawkins, is very, very important. We undertook the green lights 
program in the State of Ohio, and it has just been wonderful. 
It is an initial high cost to get into it, but we've saved so 
much money. We asked the universities to do management 
studies--and this sounds like a no-brainer, but a lot of them 
weren't turning down their heat at night, and one of our 
universities saved almost $750,000 just by doing that, and 
others installing those automatic things at certain times when 
they're shut down.
    There's a lot that can be done, and I was really impressed 
with your second--the energy efficiency right next to the 
petroleum. That is our No. 1 source. Then the next source was 
energy efficiency, which was terrific.
    Mr. Nemtzow. If I may comment, Senator, one of the problems 
is energy efficiency is invisible. What we want is for the 
Maytag appliance that's fuel efficient to look just like the 
other one. That's the plan. We want it to be invisible. But 
then our success story gets lost because of that invisibility.
    Senator Voinovich. I'd just like to make one comment. One 
of the questions that I have got, and I think that maybe every 
member of this committee, and that is that we have conservation 
and we have technology and we have alternative fuels, and 
that's all happening, and some of it more rapidly than others. 
Then folding that into--and I know this is difficult--but 
folding that into looking down the road 15 years, say, in terms 
of our energy needs, and what impact does that have on our use 
of natural gas, what impact does it have on nuclear power, what 
impact does it have on use of coal. It is how do you put all of 
this together in a way that doesn't get you off on one thing 
and you fail to recognize there's something happening over 
here. It is a very difficult thing for us to weigh.
    I think part of what we are going to come up with here has 
got to take that kind of thing into consideration if we are 
going to deal with this thing appropriately.
    I've spoken enough.
    Chairman Smith?
    Senator Smith. Thank you, Mr. Chairman.
    I think I indicated before, and as all four of you 
gentlemen know, we are trying over the next several months, and 
the purpose of these hearings is to try to gather enough 
information to be able to write a bill that amends, if you 
will, the Clean Air Act in a way that provides for the energy 
that we need and a safer, cleaner environment.
    With that in mind, let me just probe with you a little bit, 
Mr. Hawkins. If we make the assumption that we are putting more 
carbon into the atmosphere than the natural system can 
accomplish across the board--we're not just talking utilities 
here--if we make that assumption and in order to reduce the 
CO2 levels in the atmosphere, if we assume that 
energy efficiency will increase if we give the right incentives 
to do it, we make some reasonable assumptions that Mr. Nemtzow 
talked about, which I agreed with, in terms of where we are 
headed with automobiles--I don't know what the timeline is, but 
we certainly have hybrid automobiles now. We're certainly 
moving toward fuel cells. As to when they are here, I don't 
know exactly. If we make the assumption that what Mr. Alexander 
just talked about a few moments ago, that with cleaner coal 
technology voluntarily administered with the company from New 
Hampshire, Powerspan, reducing emissions and reducing some of 
the emissions, if we make all those assumptions why is it 
necessary to go regulate specifically the powerplant, command 
control powerplant emission for carbon? Why can we not put all 
of these together and I can add one more, which is the creation 
of coral reefs, more tightening up the gas pipelines, providing 
reforestation or rain forest purchase, landfills. All of these 
things could be done in a trade and exchange program that would 
get us there, allow more flexibility, as they have all asked 
for, and get us there.
    Are you insisting that it be command, control, end-of-pipe, 
end-of-powerplant emission control on carbon?
    Mr. Hawkins. To answer your question, Mr. Chairman, no, we 
are not insisting on end-of-pipe carbon control for 
powerplants, nor are we insisting on command and control. 
However, we do believe that sound policy is to establish a cap 
on carbon emissions, just as the successful 1990 law 
established a cap on sulfur emissions. That will permit a 
market mechanism for the electric sector to respond in a 
variety of ways so that it integrates reducing carbon with the 
objectives that are set forth for the other three pollutants.
    If that isn't done, the risk is that the engineering 
calculation and the short-sighted cost calculation that is 
driven by discount rates will say, ``All right, even though 
this strategy won't do anything to reduce our carbon, it will 
get us in compliance with sulfur, nitrogen, and mercury, so 
that's what you ought to do. Even if it means that 15 years 
down the road you are going to face an obligation to control 
carbon that you won't have put yourself in a position to deal 
with, I can show you with my slide rule and my calculator that 
the discount rate should cause you to ignore that right now.'' 
But that's still a wasted resource, and it also perpetuates the 
release of carbon into the atmosphere at levels greatly in 
excess of what we need to start thinking about in order to get 
us moving.
    So failure to integrate this runs the risk of investments 
that will be optimized for the other three pollutants, and if 
carbon is reduced at all it will only be because it is 
incidental to those other three decisions.
    The analyses that we've seen say that you cannot robustly 
predict that you will get significant carbon reductions by 
pursuing the other three pollutants independently.
    Senator Smith. Even if we had a system involving credits 
provided to those utilities for such things as reforestation, 
coral reefs, etc.?
    Mr. Hawkins. Well, a credit is useful if there is an 
obligation that one applies the credit to, but if you don't 
have any obligation to limit carbon, then whether you pursue an 
opportunity to reduce carbon is going to be pretty 
questionable, because why are you doing it. Are you doing it 
because of some speculative future possibility? That causes the 
discount rate calculator to run even harder.
    Senator Smith. Well, if you implement a voluntary system 
under a so-called ``cap and trade system'' out there, and you 
implemented a voluntary system to try to achieve the reasonable 
goals on these emissions, if it is getting results that's what 
we want, isn't it? I mean, I'm just asking you, can you 
envision any way of supporting any type of legislation that 
would--the result would be a reduction. Obviously, there will 
be a reduction in NOx, SOx, and mercury, but the result would 
be reductions in carbon, but without command control at each 
powerplant? Can you envision supporting any type of legislation 
that would accomplish that?
    Mr. Hawkins. We think that a target for carbon needs to be 
an integral part of the legislation, and we are willing to work 
with you, Mr. Chairman, to see if there are ways that you can 
robustly get a program that will, in fact, allow all of us to 
conclude that yes, we will hit that carbon target because there 
are effective and accountable means for determining what the 
obligations are, and even if they were flexibly implemented 
that they, nonetheless, will reliably produce a carbon target 
and achieve a carbon target.
    So we are not locked into one particular formula for how 
one writes legislation to produce the carbon target output, 
and, indeed, I would point out that the Clean Power Act of 2001 
does not specify how the carbon target is to be achieved. It 
leaves that in the bill that has been introduced to the 
administrator to design market-based systems to achieve that 
target. But it is a clear target, and one that has meaning, and 
meaning that is as clear as it is for the other three 
pollutants.
    Senator Smith. Final point, Mr. Chairman. If we look at Mr. 
Alexander's example, where they are working with Powerspan, as 
I said, a New Hampshire company, on a voluntary basis--and 
mercury, as you know, is not regulated. However, if this pilot 
project which they're working on, if the preliminary reports 
are anywhere near accurate, you're looking at a possible 75 to 
80 percent reduction in mercury with this technology without 
any regulation whatsoever.
    So I think we have plenty of evidence that the companies, 
utilities are willing to move forward on a voluntary basis, 
perhaps under a cap and trade system, to make these reductions. 
Indeed, we don't have one now and they are moving in that 
direction. That's a dramatic reduction in an emission that we 
don't even regulate, 80 percent.
    Mr. Hawkins. If I could comment, Mr. Chairman, in a 
deregulated electric market, capturing a portion of the market 
or losing it will depend on fractions of a cent per kilowatt 
hour. So if there are technologies that improve performance at 
zero additional cost--and I have to underscore ``zero''--then 
sure, there is a possibility that they will be used. But unless 
that additional cost is zero, no matter how small it is, no 
matter how good a bargain it looks to be, if it does raise the 
cost of generation by a fraction of a cent, I would say it is 
not going to be chosen because of the forces of the competitive 
marketplace.
    So if you want to accomplish it, it is critical that the 
industry have targets that apply to everybody so that it isn't 
just a matter of volunteerism, because volunteerism will carry 
you only so far in a very competitive market.
    Senator Smith. I'd just make one other point.
    Mr. Nemtzow, in your discussions or your comments regarding 
autos, do you have any idea when you--this ball park you think 
that a hydrogen vehicle, for example, would be--fuel cell 
vehicle would be marketed extensively here in the United 
States? Fifty years?
    Mr. Nemtzow. Less than that. I'd have to quote Samuel 
Goldwyn about not making predictions about the future, and so 
it is dangerous in this business.
    Fuel cells that don't run on hydrogen you can expect much 
sooner. You'll see them this decade. Daimler-Chrysler is a 
leader domestically on select models.
    The problem with hydrogen--of course, it works very well in 
the fuel cell. The problem is getting it to the customer, 
getting the infrastructure, and that's why the big three are 
betting, I think correctly, on gasoline for the next period of 
time because the infrastructure is there and it is much easier.
    So I would say fuel cells, yes; hydrogen fuel cells, it's 
beyond this decade. Hybrids are the next exciting technology.
    Senator Smith. Sure, and I think looking at that--and, 
although that's not under anybody's proposal here on cap and 
trade--if, in fact, in the next 25 to 50 years--be generous and 
say 50--we take 50 percent of the source of all of the 
emissions we're talking about, including carbon, out of the 
equation completely because automobiles are no longer burning 
gasoline, we've made dramatic reductions and dramatic progress 
without any end-of-pipe regulation on the utilities that are 
producing the energy for us.
    The question is when is Armageddon. I mean, is it 10 years 
from now? Twenty years from now? Fifty years? One hundred 
years? Is it tomorrow? I mean, that's really the issue, and 
those are things we all have to put in play here as we try to 
craft legislation that makes all this work.
    Unfortunately, we don't have all those answers 
specifically.
    Senator Voinovich. Thank you.
    Senator Carper, do you have any other questions you want to 
ask?
    Senator Carper. Well, we don't have all the answers, but we 
got a couple of them here today. This has been a real good 
session.
    I wanted to go back, Mr. Chairman, if I could to the issue 
of real-time prices. When I think of real-time prices, I think 
of a different context.
    Let me just use an example. I was talking with the 
president of AMTRAK a week or two ago, and we were talking 
about the pricing of train tickets, and you've got some trains 
that run maybe early in the morning or late afternoon where 
everybody wants to ride those trains, and trains that run in 
the evening, 7, 8, 9, not as many people want to leave 
Washington around those times.
    We were talking about how we might adjust pricing so that 
those folks who wanted to get on the 5 Metroliner, they pay 
more money. Those people who were willing to wait until 7, 8, 
9, they pay less money. But we charge the same price for all 
the trains.
    When you talk about real-time pricing, particularly with 
pricing of electricity, there are times during the day when 
electricity ought to cost more for us to consume than other 
times. When you're talking about real-time pricing--I think it 
was Mr. Alexander--I'm thinking adjusting how much we pay for 
electricity by virtue of the peak demand times, but that's not 
what you're talking about, though, is it?
    Mr. Alexander. Senator, I think yes, that is in part. I 
think there needs to be a--you need to have two kinds--when you 
think about real-time pricing, you need to have two kinds of 
issues that need to be solved. No. 1, you have to have metering 
and information in the customer's hands so that they know what 
they are using at any point in time and they also know the 
price of what they're using. Now, the deployment of that type 
of metering capability and information kind of capability is 
seriously lacking in the industry. I mean, the large industrial 
customers have it, some large commercial customers have it, but 
it is not into the residential class and it is not in the small 
commercial class, so that part of the deployment of moving 
toward a true system in which customers make real-time choices, 
they need real-time information to do that. That is going to be 
developed and will be deployed over a series of years as we 
move through deregulation.
    The second aspect of it is that we are still operating in 
many, many States--Ohio included, California included--on the 
basis of a capped, regulated rate which does not allow even 
today customers to experience even an average real price in the 
marketplace, so they are continuing to experience the prices 
that, for example, might have been set in a utilities case back 
in the early 1990's and are going to be frozen for another 10 
years or so, and they will see no price change in that bill for 
that timeframe.
    When you're in that environment, it is very difficult to 
deploy new technology, especially when it costs more, or to 
make customers make those kinds of energy efficiency decisions. 
Those are the things that need to be addressed as you move 
through this transition in the history of our industry.
    Senator Carper. All right. We were talking about the same 
thing. Thank you for that clarification.
    Mr. Chairman, thank you.
    Senator Voinovich. Thank you.
    Senator Smith?
    Senator Smith. Thank you.
    Senator Voinovich. We would like to thank the witnesses for 
coming this morning. I think it has been very, very informative 
and gives us a little perspective that we didn't have before 
and will help us in our decisionmaking, and we thank you very, 
very much for taking time out of your busy schedule to be with 
us today.
    [Whereupon, at 11:50 a.m., the subcommittee was adjourned, 
to reconvene at the call of the Chair.]
    [Additional statements submitted for the record follow:]
Statement of Senator Jon S. Corzine, U.S. Senator from the State of New 
                                 Jersey
    Thank you, Mr. Chairman. I would like to thank you and Senator 
Lieberman for your leadership in scheduling this hearing on the 
interaction between our environmental regulations and our nation's 
energy policy.
    Mr. Chairman, the President has called for a comprehensive energy 
policy and I agree that we need to do more. But a comprehensive energy 
policy should not come at the expense of protecting human health and 
the environment. While we have made great strides in cleaning our 
nation's air since the enactment of the Clean Air Act 30 years ago, 
there is more that needs to be done.
    In my State of New Jersey, for example, 6 of our cities and 
counties rank among the worst in air quality in the nation, due to 
problems from high-levels of ground ozone, also known as smog, 
according to the Environmental Protection Agency. These high levels of 
ozone have caused significant respiratory problems in our population, 
especially among our most vulnerable: the youngest, the oldest and the 
infirm.
    I understand that much of the smog that hangs over New Jersey is 
produced by the people who live there and the cars that they drive. New 
Jersey can and should take steps to deal with pollution caused by its 
auto emissions. But a large amount of the smog and other air pollutants 
which we face comes from other regions of the country. In fact, the New 
Jersey Department of Environmental Protection estimates that as much as 
one-third of our air pollution--including smog--either comes from or is 
caused by pollutants from another State.
    What this says to me is that we simply need to do more to reduce 
the levels of air pollutants on a comprehensive basis. That's why I 
became a co-sponsor of the Clean Power Act, sponsored by Senators 
Jeffords and Lieberman. This is an important bill because it marks the 
beginning of a debate as to how much further we should reduce already 
regulated pollutants such as sulfur dioxide and nitrogen oxide.
    This bill is also important because it regulates carbon dioxide. I 
was disappointed when the Bush Administration reversed itself last week 
on the question of whether carbon dioxide should be regulated. There is 
little doubt now that increased carbon dioxide in the atmosphere causes 
global warming. It is time we take steps to reduce its levels.
    Again, Mr. Chairman, I thank you for holding this hearing. I look 
forward to working with you as the subcommittee considers these and 
related issues.
                               __________
    Statement of Linda G. Stuntz, Former Deputy Secretary of Energy
    Mr. Chairman and members of the subcommittee: Thank you for the 
opportunity to testify before you today on this extremely important 
subject: ``Harmonizing the Clean Air Act with our Nation's Energy 
Policy.'' Some 12 years ago, when I served as Deputy Undersecretary for 
Policy at the Department of Energy in the Bush Administration, I was 
the Department's point person in the development of the Clean Air Act 
Amendments of 1990, both within the Administration and with respect to 
Congress. That experience, including countless hours with some of you 
around then-Majority Leader Mitchell's conference table to hammer out 
agreement between the Administration and the Senate, left me entirely 
persuaded that there is no more difficult, nor more important, 
challenge than coordinating our air quality objectives and our energy 
policy objectives.
Current Energy Consumption
    Let me start first with where we are. In Figure 1, you can see 
total U.S. energy consumption for the year 2000, broken down by fuel 
source. (This and the other four charts used in my testimony all come 
from the U.S. Energy Information Administration's Annual Energy Outlook 
2001, published in December 2000.) As you would expect, the three 
energy pillars on which we rely are oil (39 percent), natural gas (23 
percent) and coal (22 percent), with nuclear, hydropower and non-hydro 
renewables making up another 16 percent, collectively.
Previous Trends
    That is a good snapshot, but to understand the challenge of 
harmonizing clean air and energy policy, we need to understand where we 
have been, and where we are going. Let's start with where we have been. 
. Figure 2 shows U.S. energy production by fuel from 1970--2000. 
Interestingly, total production has remained about constant. As a 
result, the growth in demand for energy has been met by imports, 
primarily of oil and natural gas. Coal and nuclear production have 
risen steadily. Natural gas production has still not returned to where 
it was in the early 1970's, although it is growing. Oil production is 
falling, hydro is virtually static, and nonhydro renewables, despite 
substantial Federal and State incentives in the form of guaranteed 
markets, research and development spending, production tax incentives 
and other efforts to boost its production, have risen only slightly.
Future Energy Production--Electricity
    The implications of these trends for future energy production, and 
for future air quality policy are highlighted in EIA's projected U.S. 
energy production by fuel, looking out to 2020, as depicted in Figure 
3. The three emission-free sources of energy are projected to decline 
(nuclear), increase only slightly (nonhydro renewables) or remain 
static (hydropower). The decline in petroleum production levels off. 
Coal production continues a steady upward growth, and natural gas 
production soars, driven in large part by increased electrification of 
our economy.
    This increased electrification of our economy deserves special 
attention. Buried in the dry statistical language of the Annual Energy 
Outlook for 2001 is a very profound statement:

  Electricity demand is projected to grow by 1.8 percent per year from 
    1999 through 2020, higher than the rate of 1.3 percent forecast for 
    the same period in AEO 2000. The higher demand projection results 
    from the higher projected economic growth and a reevaluation of the 
    potential for growth in electricity use for a variety of 
    residential and commercial appliances and equipment, including 
    personal computers.

    In other words, between this year and last year EIA increased its 
forecast of annual electricity growth by 38 percent!
    To meet this increased demand, which still is less than projected 
GDP growth, natural gas use for electricity generation, excluding 
cogeneration, is projected to triple over the next two decades, as 89 
percent of new electricity generation built between now and 2020 is 
projected to be gas-fired. This is depicted in Figure 4.
    Now I have always been ``bullish'' on U.S. natural gas resources, 
and the ability of our industry to develop the advanced technologies 
necessary to find and recover natural gas from ever more difficult 
locations, BUT this picture makes me uncomfortable. Whenever this 
country has decided as a matter of national policy that we will prefer 
one fuel (or as I call it, engage in ``fuel fads''), the experience has 
been uniformly dismal. Nuclear was going to be too cheap to meter. Gas 
was in such short supply that we banned its use for electricity 
generation in 1978, and insisted that coal be used to generate 
electricity. Remember the Synthetic Fuels Corporation? One could even 
consider MTBE to be a similar fuel ``fad.'' If nothing else, we should 
have learned from these experiences that our national well-being is 
best served by a diverse portfolio of energy supplies, and by setting 
performance standards, not dictating the means by which those standards 
should be met.
    Let me point out also, with respect to this chart, that despite the 
phenomenal growth in the use of natural gas to generate electricity, 
coal remains the largest source of electricity.
Future Petroleum Consumption
    Figure 5 expresses EIA's projections for future petroleum 
consumption. This is really a tale of cars, trucks and planes, and 
should not be a surprise given continuing growth in miles traveled by 
increasing numbers of SUVs, planes and trucks. Yes, there are exciting 
.developments with respect to hybrid vehicles, fuel cells and hydrogen 
fuels, but wide use of any of these is judged by EIA to be unlikely at 
least before 2020.
Implications for Clean Air Policy
    Based on EIA's analyses, it plainly will not be possible for us in 
the foreseeable future to reduce in any meaningful way the use of coal 
to generate electricity, or the use of petroleum to fuel our cars. 
Therefore, air quality policies need to focus NOT on phasing out coal-
based generation, but on developing and requiring deployment of 
technologies that will enable us to use coal more cleanly and 
efficiently.
    Similarly, we can continue to reduce emissions from vehicles, both 
by improving fuels and by improving the vehicles, but we need to be 
mindful that we have pushed our existing refinery industry and the fuel 
distribution and storage infrastructure to its limits. The entire motor 
fuel supply system is more brittle and subject to disruption if 
anything goes wrong, because refined products are far less fungible, 
and it is more difficult to use imports to offset short-term 
disruptions. We saw this last summer in Chicago.
    I have heard many times the argument that ``industry always cries 
wolf,'' and ultimately, ``if we regulate it, they will do it, and do it 
at less cost than they said they would.'' It is true that emissions 
reductions have been achieved at lower cost than initially predicted 
because of the use of flexible trading mechanisms, as in the 
SO2 reduction program contained in the Clean Air Act 
Amendments of 1990. There are important lessons here. But one is not 
that, ``if we mandate it, they will do it and there will be no 
problem.''
    Last week, I heard the Governor of Washington report to the Energy 
and Natural Resources Committee that he has worked with EPA Region 10 
to obtain waivers to allow diesel peaking generators to be used around 
the clock in order to keep the lights on in Washington State. Emissions 
from these generators are far worse than any coal-fired power plant.
    In California, Governor Davis has issued an Executive Order 
requiring the South Coast Air Quality Management District to make NOx 
allowances available to power plans at $7.50 per pound, essentially 
suspending, for the time being, the AQMD's NOx reduction program based 
on an ever-shrinking pool of NOx allowances available.
    I cite these examples NOT to suggest that air quality regulation is 
responsible for the Western electricity crisis. That would be overly 
simplistic. What these examples show is that sound energy policy is the 
ally, not the opponent, of good air quality policy. When we make it too 
difficult to site, construct and maintain adequate electricity 
generation, and when we place too much reliance on a single fuel, we 
expose the environment and ourselves as consumers to damage that can 
wipe out months and years of careful progress.
Conclusion and Recommendations
    I commend you, Mr. Chairman, for conducting this hearing. At a time 
when California is struggling through rolling blackouts, the Northwest 
and much of the West is seeing soaring electricity prices, and much of 
the rest of the country is experiencing substantial increases in 
natural gas bills, we are reminded how essential it is that we have 
access to adequate, affordable supplies of energy. As a nation, we have 
made great progress in cleaning our air over the past decade. 
Unfortunately, the story with respect to our energy foundation is a far 
less happy one. If we do not work harder to keep energy and environment 
in better balance, both will suffer. . I would encourage this 
subcommittee to continue and deepen its inquiry as to the linkages 
between energy and clean air policy. In the ``Lower Body,'' on whose 
staff I served many years ago, the Energy and Commerce Committee now 
includes the Subcommittee on Energy and Air Quality. I think the 
collection of this jurisdiction in a single subcommittee is a very 
important step in addressing these issues in more integrated fashion. 
Senate committee jurisdictions being quite different, I understand that 
such a subcommittee would be a good deal more difficult to construct 
here, but I encourage you to explore the ways in which this 
subcommittee can work more closely with your colleagues on the Energy 
and Natural Resources Committee. You have a great deal to learn from, 
and teach, each other, and both energy and air quality policy will be 
the better for it.
    Thank you for your attention. I welcome your questions.

    
    
    
                               __________

    Statement of Hon. Kathleen A. McGinty, Former Chair, Council on 
                         Environmental Quality
    Mr. Chairman and members of the subcommittee: Thank you for 
inviting me to join this discussion today.
    Let me move right to my bottom line: when it comes to meeting our 
energy and environmental needs, we face an enormous wealth of 
opportunities. Yet, instead of fostering and tirelessly promoting these 
opportunities, leadership in Washington today seems bent on creating a 
climate of ``crisis'' and fear.
    The hyperbole being thrown around bears little resemblance to 
reality. So, what is going on? Sadly, One can only surmise that events 
of the day are being seized upon opportunistically to promote narrow 
special interests, and sacrifice the broader public interest in the 
process.
    A glaring example in the energy and environmental area is the 
effort of the Bush Administration to use the California energy 
situation as an excuse finally to sacrifice the arctic national 
wildlife refuge to the short-term interests of a few oil companies. 
This effort is objectionable on many grounds. But, the reasoning of the 
Bush Administration is particularly objectionable. Less than 1 percent 
of California's electricity comes from oil. But even if more of it came 
from oil, the refuge likely holds only a very limited amount of 
economically extractable oil, and we know that it will take 10-15 years 
to bring that even that oil on line. In short, sacrificing the refuge 
will do nothing to help California's near-term problem. Yet Americans 
nonetheless are being asked to sacrifice this priceless, irreplaceable 
resource.
    And, with all due respect, I suspect that this hearing is part of a 
similar strategy-namely, to seize upon current energy issues to push 
through policies that roll back critical environment and public health 
protections. It is no secret that this has been a top goal of the 
leadership on Capitol Hill at least since Mr. Gingrich's 1994 
``Contract with America.'' Over the last 6 years, citizens groups, 
doctors, teachers, religious leaders, workers, and yes--a vast array of 
responsible business leaders--and others, joined committed leaders in 
the Congress and a determined Clinton/Gore White House to foil most of 
these special interest drives. But, with the change of administration, 
special interests are seeing opportunity anew and, I believe, are 
grasping at any and all developments to justify their self-interested 
campaigns.
    Let's just take on the implicit premise of this hearing-did the 
Federal Clean Air Act cause the energy problems being experienced in 
California?
    Answer: no. You don't have to go to the Sierra Club for that 
answer. Just ask some of the major electricity generators operating 
there. In response to assertions by the White House and others that 
environmental regulations are holding back output, generators have 
repeatedly said: ``absolutely false.''
    What are the main drivers? They are economic and they have to do 
with best guesses about markets. We need look no further than recent 
stock market performance to know that even the experts don't always 
guess right about how the markets will behave.
    Power plants were not built in California in the early 1990's 
because there was an excess of power. Then came-not new regulation, but 
deregulation in the mid 1990's, and with it some market uncertainty 
that further dampened interest in plant construction. Indeed, the 
California policy of prohibiting long-term supply contracts is evidence 
of a widespread anticipation that there would continue to be excess 
capacity and decreasing prices.
    But, the unanticipated then happened: stronger economic growth than 
had been anticipated; stronger growth in electronic-based commerce than 
had been anticipated; and the weather hit new extremes of hot and cold. 
The result-instead of excess supply, there was not enough supply.
    And let's look nationally. Is the Federal Clean Air Act-even 
including the strong new requirements put in place by the Clinton/Gore 
Administration-preventing increases in generation?
    Again, absolutely not. In fact, experts say that some 190,000 
Megawatts of new capacity is in the pipeline-roughly a 25 percent 
increase in the nation's generating capacity. Some 22,000 megawatts of 
the new capacity projected by EIA to come on line by 2020 is coal 
fired. In fact, Wall Street will tell you that investments in energy 
generation are some of the hottest investments out there now, and that 
environmental issues are a pull for those new investments, not an 
obstacle to them.
    Are environmental concerns completely irrelevant to the California 
story? No. But to the extent they play a role, they are largely local 
concerns related primarily to the siting of plants, pipelines and 
transmission lines. Now, since ``local control'' and ``States rights'' 
are professed as articles of faith by the White House and many on 
Capitol Hill, it would seem inconsistent at best for there to be a 
Federal effort to interfere in these areas of local prerogative. I 
assume therefore that no such thing is intended in this hearing.
    To me, this whole debate is a tremendous tragedy. Why? Because, 
quite simply, our country is better than this. Americans are smarter 
than this. With ingenuity and inventiveness, we have moved beyond the 
tired old rhetoric of ``it's the environment vs. the economy. Its jobs 
or the environment.'' We know that we can and we must have both-or we 
will have neither.
    This principle was proved repeatedly during the Clinton/Gore 
Administration. While some of the most demanding environmental 
protections ever were put in place, the nation experienced unsurpassed 
economic performance as well.
    Let's look at the energy area in particular. It has been charged 
that the Clinton/Gore Administration neglected energy policy and/or 
that environmental policies were in conflict with energy goals. 
Absolutely not so. The record proves the opposite:

  According to numbers compiled by the minerals management service, in 
    1992, the last year of the last Bush Administration, domestic oil 
    and gas drilling activity was at the lowest level since World War 
    II. By contrast, under Clinton/Gore, natural gas production on fed 
    lands onshore increased 60 percent. Oil production offshore, 
    particularly in the Gulf of Mexico was increased 65 percent over 
    1992 levels, and natural gas production in deep waters in this area 
    increased 80 percent in just the last 2 years of the Clinton/Gore 
    Administration. Moreover, coal production on fed lands was 
    substantially higher under Clinton/Gore than under either Bush or 
    Reagan.

    And, all of that was accomplished while more lands were protected 
and preserved than in any Administration since that of Teddy Roosevelt.
    The Clinton/Gore Administration also pushed for and secured new 
investments in drilling technologies that will enable the production of 
millions of additional barrels of oil and some additional 6 trillion 
cubic feet of natural gas domestically every year. These increases will 
be realized without increasing the environmental footprint of current 
oil and gas extraction activities.
    But, while shoring up these conventional sources of energy, the 
Clinton/Gore Administration also moved aggressively to achieve better 
balance in our sources of energy. Contrary to the statements of the 
Bush Administration and the congressional leadership, when nearly 80 
percent of our electricity is derived from fossil fuels, you cannot 
achieve better balance (and therefore security) by just aiming further 
to increase supplies of fossil fuels. That just makes a dangerous 
situation worse. To reduce risk, you have to diversify your portfolio. 
That is what we worked to do in the Clinton/Gore Administration. In 
doing so, we advanced policies that enhanced our energy security, were 
a boost to our economy and helped cleanup the air. We did not pit these 
vital interests against each other as is being done today.
    Wind: we invested in new turbines and now wind is the fastest 
growing source of energy in the world. It is a clean source of energy 
and it is now working to boost even depressed economies like those that 
have been experienced in rural America and in the farming sector.
    Geothermal: investments have reduced the cost of this technology by 
one-third.
    Photovoltaic: sales and shipments of this key technology have 
tripled.
    Efficiency: investments in just 5 key technologies have already 
saved consumers some $15 billion; new appliance efficiency standards 
will save consumers $40 billion by 2010; and the intensity of Federal 
energy use has decreased by 12 percent, saving taxpayers some 600 
million/year.
    While impressive, our gains in these areas should be even larger. 
Why? Because while the Clinton/Gore Administration achieved nearly a 40 
percent increase in efficiency investments and more than a 50 percent 
increase in renewables investments, those increases only represented 
some 12 cents on the dollar of overall increases the Clinton/Gore 
Administration requested of the Congress. If we are serious about 
achieving a better balance in energy, these investments must be 
increased substantially. It is particularly troubling in this regard to 
learn that the White House apparently proposes to go in exactly the 
opposite direction. Estimates are that the Bush budget will slash 
efficiency and renewables by some 30-40 percent. This kind of policy 
simply cannot be squared with any sincere effort to improve balance and 
security in energy in this country.
    Perhaps the most compelling example of bringing the environment and 
the economy together in the energy area is the multipollutant approach 
to cleaning up power plants. When former Vice President Gore first 
publicly announced his support for this kind of approach in April of 
2000-after having worked on it since 1996--his statement was endorsed 
by everyone from the sierra club to some of the nation's largest coal 
fired power generators like American Electric Power, WEPCO, and others. 
Indeed, the consensus was so broad that even candidate Bush endorsed 
the plan.
    Why? Because so many realize that good energy policy is good 
environmental policy, and good environmental policy is good economic 
policy.
    And, they realize that we need a comprehensive policy that protects 
the environment while giving power generators the certainty they need 
to plan investments. That, in turn, means that the climate issue simply 
must be accounted for in a comprehensive approach. To fail to include 
climate as the White House now proposes is irresponsible; it virtually 
guarantees that current supply problems will be repeated in the future 
since it ignores one of the most important drivers on the energy 
horizon. It is a threat to reliability.
    And that is why the Bush reversal on this issue seems so 
inexplicable. Why would such a broadly supported and smart policy be so 
cavalierly thrown overboard? Sadly, again, one has to assume that the 
broad consensus was sacrificed to some narrow, short-term special 
interest.
    My hope is that this committee will chart a different course. That 
this committee will see that Americans have come together as never 
before-leaders in business and the environmental community working with 
a common vision and pursuing a shared interest in economic and 
environmental vitality. The opportunities are enormous for 
technological leadership; for substantial economic advance; and for a 
healthy and whole environment.
    True leadership requires that strategies-like those being advanced 
by the Bush Administration and many in Congress--calling for Americans 
to sacrifice their quality of life and values they hold dear--must be 
rejected. True leadership consists in supporting the common interest 
over the narrow special interest. True leadership today consists in 
nurturing the wonderful and promising consensus that has emerged among 
Americans-business and environmental leaders alike-and seizing the 
wealth of opportunities with which we are blessed.
                               __________
    Statement of Anthony J. Alexander, President, FirstEnergy Corp.
    Chairman Voinovich and distinguished members of the Senate 
Subcommittee on Clean Air, thank you for the opportunity to share 
FirstEnergy's perspective on this important issue.
    My name is Anthony J. Alexander, and I am president of FirstEnergy. 
FirstEnergy is a diversified energy services holding company 
headquartered in Akron, Ohio.
    Our four electric utility operating companies comprise the nation's 
tenth largest investor-owned electric system. We serve 2.2 million 
customers within 13,200 square miles of northern and central Ohio and 
western Pennsylvania.
    We are in the process of merging with Morristown, New Jersey-based 
GPU, Inc., a transaction that will make FirstEnergy the fifth-largest 
investor-owned electric system in the country, based on serving 4.3 
million customers.
    FirstEnergy owns and operates more than 12,000 megawatts of 
generation. Of this, 62 percent is coal-fired, 32 percent is nuclear 
and the rest is natural gas, oil, or pumped-storage hydro.
    Last year, more than 60 percent of our generation was produced by 
nuclear and scrubber-equipped coal-fired units.
    Since passage of the Clean Air Act in 1970, we've spent a total of 
$4.6 billion on environmental protection to ensure that our plants meet 
all Federal, State and local environmental laws and regulations.
    Just since the Clean Air Act was amended in 1990, we've spent 
nearly $1.5 billion in environmental protection. During that same time, 
we've reduced emissions of nitrogen oxides by 60 percent and sulfur 
dioxide by 57 percent.
    As electricity deregulation continues to evolve--along with 
regional problems associated with tight generating supplies--we must 
strike an appropriate balance between meeting the electricity needs of 
our customers and our responsibilities to the environment.
    We need to recognize that the rules of our industry have changed. 
Under deregulation, the competitive market will determine how much 
capacity is built, what types of sources are used, and what the price 
of electricity will be. As utilities are relieved of their obligation 
to supply power, the economics of making investments further change.
    The impact of environmental regulations on the supply and price of 
generation needs to be considered, especially since consumers will no 
longer have the protection of regulated rates when transition periods 
end.
    If supplies remain tight, or become tighter in order to retrofit 
environmental equipment, the impact certainly will be reflected in 
customer prices--and perhaps, even in service reliability.
    This is not to say that competition and environmental regulations 
are mutually exclusive. In fact, I believe the opposite is true.
    Environmental regulations must be an integral part of a successful 
competitive electricity market.
    FirstEnergy believes that the following five principles are 
important to developing a comprehensive energy policy that addresses 
both environmental and market issues:

    1. Encourage the production of electricity from increasingly clean 
and diverse fuel sources.
    2. Recognize the significant role coal plays in meeting the 
nation's growing electricity needs.
    3. Implement environmental regulation fairly and consistently 
across broad geographic regions.
    4. Provide the regulatory flexibility and certainty to meet 
emission reductions.
    5. Encourage energy efficiency efforts to limit energy demand and 
usage.

    Let me briefly address each of these five principles.
      First, the production of electricity from increasingly 
clean and diverse fuel sources should be encouraged. A balanced 
portfolio of generation--including coal, nuclear, natural gas, solar, 
wind and hydro--will minimize the risk of price fluctuations affecting 
any single generation source.
      Second, there must be recognition of the significant role 
coal plays in meeting the nation's growing electricity needs. Policies 
that would eliminate coal as a viable fuel source, or that would 
discourage ways to burn it more cleanly and efficiently, are 
counterproductive.
    Natural gas generation will continue to play a key role in 
minimizing price spikes in the electricity market--as long as the price 
of natural gas doesn't become cost prohibitive. However, it cannot 
replace coal, which provides more than half of the electricity we use 
in this country, and more than 90 percent of Ohio's use.
      Third, environmental regulations must be implemented 
fairly and consistently across all geographic regions so that, in the 
competitive market, all participants are subject to the same rules. 
Otherwise, selective enforcement will ultimately undermine the 
development of retail competition.
    In the recent initiative by U.S. EPA claiming decades of routine 
work at power plants constituted major modifications that triggered New 
Source Review, the Agency targeted specific regions of the country--the 
Midwest and South, and only certain companies in those regions--in what 
amounted to a radical reinterpretation of existing law.
    It is impossible for a capital-intensive industry such as ours to 
operate effectively under unclear, ever-changing rules and regulations. 
Such actions can only have a negative effect on future development of 
generation.
    As the national energy policy is crafted, we hope that Congress 
supports Senator Voinovich's proposal that new, second-generation 
environmental laws include cost-benefit considerations that balance the 
full spectrum of public needs and interests. That's especially 
important considering that consumers will bear the costs in a 
competitive energy marketplace. New laws should not add needlessly to 
the future cost of electricity or adversely affect available supplies.
      Fourth, future environmental legislation must allow for 
adequate regulatory flexibility and certainty. That will encourage 
development of innovative, more cost-effective control technologies, 
and provide more options for existing facilities when meeting new 
regulations.
    As part of that effort, we support market-based allowance trading 
that provides trading credits to all sources of electric generation--
not only to those sources that burn fossil fuels. This would help 
create an economic incentive for the use of low-and non-emitting 
sources and produce ongoing environmental benefits. I would point out 
that today's best-available control technology--or BACT--requirements 
significantly limit the generating industry's flexibility in balancing 
the environmental and energy needs of the public.
    Under the U.S. EPA's current interpretation of BACT, for example, 
we could not use a new control technology to help achieve NOx or 
SO2 reductions, even if it was almost as effective as the 
best available, and achieved reductions of other substances as well. 
Yet, if that new technology were used throughout the industry, far more 
emission reductions could be achieved than through selective BACT 
deployment. This kind of regulatory inflexibility doesn't make business 
sense and, more important, doesn't make environmental sense.
    I believe Congress should determine the appropriate reduction 
requirements and timeframes, then allow the industry to meet them in 
the most cost-effective ways possible. The command-and-control approach 
will only serve to drive up costs and curb innovation.
      Finally, we need to encourage energy-efficiency programs. 
Conservation and a shift to more off-peak consumption can be achieved 
by providing customers with real-world price information. Ultimately, 
that means retail prices will need to track more closely with wholesale 
prices. While this will be a difficult adjustment, there's no other way 
to truly achieve a dramatic reduction in the consumption of 
electricity, or an improvement in the efficiency of its use.
    In short, environmental regulations must work within--not against--
the competitive electricity marketplace. They should provide 
flexibility, uniform performance obligations and compliance schedules. 
They should also encourage fuel diversity, energy-efficiency and 
continued use of coal and other abundant natural resources to ensure 
that we maintain a clean, reliable, affordable supply of electricity.
    Thank you.
                                 ______
                                 
Responses by Anthony J. Alexander to Additional Questions from Senator 
                               Lieberman
    Question 1. Do you believe that CO2 reductions will be 
required of your industry in the next decade?
    Response. It is up to Congress to decide whether it is appropriate 
to require reductions of CO2 emissions. However, I believe 
that this decision should take into account the fact that there are 
currently no commercially available technologies for reducing 
CO2 from power plant emissions. While some CO2 
reductions will occur as a result of the ongoing changes within the 
electric industry--including increased use of renewables and natural-
gas-fired generation, as well as improvements in the way we burn coal--
large-scale reductions are only possible today by significantly 
reducing our use of coal-fired generating plants. Should research 
result in a viable CO2 reduction technology, it may be 
possible to have larger scale reductions of CO2 without 
drastically reducing our use of coal--the source of more than half the 
nation's electricity. In my testimony, I stated that we need to 
encourage energy-efficiency programs. While programs that reduce the 
demand for electricity will result in CO2 reductions, they 
are not likely to provide a return to 1990 levels of CO2 
within this decade, if that is the standard being considered. At 
FirstEnergy, we have reduced CO2 by about 20 percent since 
1990 through a combination of various voluntary activities, including 
an exchange with Duquesne Light of some of our coal-fired plants for 
nuclear generation, DOE-sponsored climate challenge efforts, the 
shutdown of some older, less efficient coal-fired units, and increases 
in electricity generated at our nuclear units.

    Question 2. You asked for uniformity in our regulatory scheme. 
Sometimes, however, different areas have different sensitivities to 
pollutants. For example, the soils of the Adirondacks lack the buffers 
they need to absorb acid rain. National parks are more sensitive to the 
aesthetic concerns posed by smog. Shouldn't our laws be capable of 
recognizing such regional variability to protect particularly sensitive 
areas?
    Response. My request for uniformity relates to new second-
generation control schemes in addition to, not in lieu of, the National 
Ambient Air Quality Standards (NAAQS) program. As you know, the NAAQS 
have been the cornerstone of the Clean Air Act since 1970. The NAAQS 
are set at levels that protect public health with an adequate margin of 
safety, and protect public welfare. The Supreme Court recently held 
that the economic costs of implementation are not relevant to the level 
of health and welfare protection to be provided by the NAAQS. So, my 
request for uniformity is based upon a belief that most of the emerging 
regional issues can be solved by national programs which produce the 
maximum environmental benefits per dollar invested, and do not upset 
the current competitive balance between companies. The NAAQS attainment 
program, which typically deals with source impacts within 50 
kilometers, would presumably remain in the law. Attainment and 
maintenance of NAAQS would continue to be a national requirement, 
whether or not additional uniform emission reductions are required. For 
example, the attainment and maintenance of the NAAQS was in no way 
compromised, relaxed, or superseded by the additional ten-million-ton 
reduction in utility SO2 emissions and two-million-ton 
reduction in utility NOx emissions mandated by the Acid Rain Program. 
Even without attempting precise source-receptor correlations, the 
emission reductions called for in the Acid Rain Program certainly don't 
cause any added adverse air quality impacts anywhere, and probably help 
the particularly sensitive areas as much as or more than less efficient 
and more complicated and costly command-and-control programs. National 
emissions trading programs, such as the one included in the Acid Rain 
Program, provide an opportunity to reduce emissions at lower costs than 
the command-and-control approach. Such programs also share the benefits 
widely and spread the costs across more of our population. The Acid 
Rain Program has been among the most successful environmental programs 
ever passed by Congress. Last year we began Phase II of the Acid Rain 
Program and the positive environmental results should become evident 
throughout this decade and beyond (over the next 50 years according to 
the congressionally directed National Acid Precipitation Assessment 
Program study).

    Question 3. I sympathize with your desire for certainty and 
flexibility. Some contend, however, that we should only proceed with 
the regulation of the first three pollutants. Would your business 
decisions as a result of such comprehensive regulation differ if 
CO2 was or was not included?
    Response. If Congress elected to include CO2 as a 
regulated pollutant in a comprehensive environmental law, it could 
affect future business decisions. Much would depend on how Congress 
addressed CO2, including the timing and level of reductions, 
and whether an emissions trading program would be included. As I said 
in my testimony, there must be recognition of the significant role coal 
plays in meeting the nation's growing electricity needs. In the absence 
of commercially available CO2 control technology, we would 
have no choice but to shut down much-needed coal-fired generating 
plants to meet reduction mandates. Considering that more than half the 
nation's electricity is generated using coal, I don't believe this is a 
viable option.
                               __________
   Statement of David M. Nemtzow, President, Alliance to Save Energy
    Mr. Chairman and members of the committee, thank you for the 
opportunity to testify before you today about how we can meet the 
nation's future energy needs while limiting, even lessening, 
environmental impacts.
    My name is David Nemtzow. I am President of the Alliance to Save 
Energy, a bipartisan, non-profit coalition of business, government, 
environmental, and consumer leaders dedicated to improving the 
efficiency with which our economy uses energy. Senators Charles Percy 
and Hubert Humphrey founded the Alliance in 1977; it is currently 
chaired by Senators Jeff Bingaman and James Jeffords as well as 
Representative Ed Markey.
    Over 70 companies and organizations currently belong to the 
Alliance to Save Energy. If it pleases the chairman I would like to 
include for the record a complete list of the Alliance's Board of 
Directors and Associate members, which includes many of the nation's 
leading energy efficiency firms, electric and gas utilities, and other 
companies providing cost savings and pollution reduction to the 
marketplace.
    The Alliance has a long history of researching and evaluating 
Federal energy efficiency efforts. We also have a long history of 
supporting and participating in efforts to promote energy efficiency 
that rely not on mandatory Federal regulations, but on partnerships 
between government and business and between the Federal and State 
governments. Federal energy efficiency programs at the Department of 
Energy (DOE), the Environmental Protection Agency (EPA), and other 
agencies are largely voluntary programs that further the national goals 
of environmental protection, as well as broad-based economic growth, 
national security and economic competitiveness.
                            i. introduction
Energy-Efficiency: A Bipartisan Tradition
    From the days of our first national nightmare of gas lines and 
soaring fuel prices, energy efficiency has had champions in Congress 
from both sides of the aisle. Sen. Charles Percy, who founded the 
Alliance to Save Energy in 1977, recognized the need to promote energy 
efficiency to address a glaring hole in our nation's economic security. 
He knew that a partnership between business, government, 
environmentalists, and consumer advocates would not only result in 
benefits for each sector, it would help avoid the need for coercive 
regulation when our problems reach crisis level.
    That maxim is no less true today, even though oil supplies and 
prices have eased. Our fossil fuel economy is now believed by many to 
have put new stresses on our environment. Energy efficiency has been 
repeatedly cited as a key solution to slow the loading of carbon and 
other greenhouse gases into the atmosphere. Fortunately, we now have a 
quarter-century track record of showing how energy efficiency reduces 
air pollutants--including SO2, NOx, mercury, carbon dioxide, 
particulates, and others.
    Support of action by the Federal Government to promote energy 
efficiency has also been historically bipartisan. Though the 
establishment of the Department of Energy and energy efficiency 
programs is most often associated with the Carter Administration, key 
advancements in Federal efforts were made under the Reagan and Bush 
Administrations. While funding was cut severely from Carter-era levels, 
President Ronald Reagan signed the National Appliance Efficiency and 
Conservation Act (NAECA) the law requiring DOE to set energy efficiency 
standards for appliances and other equipment. That program has led to 
tens of billions of dollars in savings for the American people and 
significant carbon emissions reductions. The first Bush Administration, 
in the context of its support for the Rio Treaty, began to 
significantly expand funding for DOE energy efficiency and renewable 
energy efforts and created the Green Lights and Energy Star programs at 
EPA. In addition, former President Bush signed the Energy Policy Act of 
1992, which expanded the scope and magnitude of energy efficiency 
efforts.
    The House and Senate caucuses devoted to promoting renewable energy 
and energy efficiency continue that tradition of bipartisanship. 
Currently, the House Renewable Energy and Energy-Efficiency Caucus 
features 173 members from both parties, while the newer Senate version 
counts 32 of your colleagues as its members. Such support from all 
parts of the political spectrum is what has made clean energy a driving 
force in the American economy.
Today's Testimony
    I am here today to testify on the relationship of energy policy and 
environmental policy. At today's hearing I know you will receive 
testimony indicating that certain environmental policies make it more 
difficult to produce energy in this country, and other testimony that 
certain energy policies are lessening our nation's environmental 
quality.
    That is small wonder, after all energy and environmental decisions 
are inexorably linked since so many of our environmental challenges 
result from the production, transportation and/or consumption of energy 
resources. Most notably, 80-90 percent of our air pollution comes from 
energy use, as does an even larger percentage of carbon dioxide, the 
leading greenhouse gas. Unfortunately, the list doesn't end there: 
energy use contributes significantly to other environmental problems, 
including water pollution, land use disruptions, toxic and nuclear 
wastes, etc. So we must accept that energy and environmental decisions 
are intertwined, and the policies designed to aid in one area will 
often have impacts--often negative--in the other.
    That is why cutting energy waste and using energy efficiently is so 
critical. Energy efficiency means providing the services that our 
modern, in fact future, economy and lifestyles demand--lighting, 
heating, cooling, transportation, IT, and much more--but doing so with 
less energy input. Energy efficiency means relying on technologies--
many of which are familiar, while others are still innovative or still 
in the laboratory, perhaps at Oak Ridge National Laboratory in the 
chairman's home State or at the United Technologies company in the 
ranking member's home State--that can provide the same or superior 
services, productivity and comfort while using less energy input. 
Lessening energy input means reducing the numerous pollutants and 
environmental stresses that result from our currently wasteful energy 
practices.
           ii. energy efficiency and environmental pollution
Proven Performer
    Increasing energy-efficiency has been reducing air pollution in the 
United States for at least 25 years. Alliance research shows that the 
gains made in energy efficiency alone during the past 25 years have 
resulted in 18 percent less air pollution today. This massive 
assistance to our environmental health is in addition to improvements 
made through the Clean Air Act and other air regulations.
    The most polluting activity on earth is the production, 
transportation, and use of energy. Electricity generation, vehicle 
exhaust, oil spills, the heating and cooling of buildings, industrial 
processes, and myriad other uses of energy account for what is 
estimated to be 80-90 percent of environmental pollution in this 
country. As our population and economic activity increases into the 
21st Century, environmental stresses on our air, water, and land will 
be heightened.
    We can bring these large figures down to some snapshots. In March, 
2000, the Rand Corporation completed a study of the economic and 
environmental impacts of utility energy-efficiency programs in 
California. Rand's analysis found that the reduction in demand for 
electricity achieved by these programs prevented a 40 percent increase 
in stationary source air pollution in California. In addition to these 
findings, it is important to note that Rand documented a return of 
roughly $1000 for every $1 spent on commercial and industrial energy 
efficiency by utilities between 1977 and 1995, and asserted that 3 
percent of the 1995 California State gross state product can be 
attributed to these investments.
    While some may now say that we could use more plants in California 
now that the current crisis has taken hold, it is important to note 
that energy-efficiency efforts by utilities were cut back drastically 
in the onset of deregulation in the State. Continued demand reduction 
through the end of the 1990's would have put the State in a 
significantly more secure position than it finds itself today.
NOx, SOx, and Carbon: EPA Data
    Alliance to Save Energy analysis of Environmental Protection Agency 
pollution data shows that energy-efficiency has been particularly 
effective at reducing emissions of nitrogen oxides and carbon dioxide. 
On average, since 1977, energy-efficiency measures in the U.S. have 
reduced nitrogen oxides by 13 percent over what annual emissions levels 
would have been. Energy-efficiency has reduced sulfur dioxide by an 
average of 3 percent per year. (See enclosed tables.)
Energy-Efficiency and SIPs: A New Tool for States
    More than ever, States are looking for innovative ways to meet 
their obligations under the Clean Air Act to develop and issue State 
Implementation Plans. A growing acknowledgement that energy-efficiency 
is an effective tool to reduce criteria air pollutants and carbon is 
fueling a new look at energy-efficiency set-asides and other measures.
    We strongly support this move to look at energy and environment as 
two parts of the same equation. Their separation in the public 
consciousness--and Mr. Chairman, often times in committee 
jurisdiction--is the single biggest obstacle we have to solving our 
energy crises and environmental problems. If energy and environmental 
policy is moved in concert then better programs will be developed. With 
the U.S. Supreme Court's recent decisions regarding the State 
Implementation Plans for NOx and the 8 hour rule for ozone, this effort 
should have new immediacy.
Climate Change and the Alliance to Save Energy
    Let me start, Mr. Chairman, by stating that the Alliance to Save 
Energy currently has no official policy on climate change. We are not 
on record regarding targets or timetables, the Kyoto treaty, nor any 
other proposed form of regulation to address the problem. However, we 
are very cognizant of both the science and politics surrounding the 
issue, and even more acutely, the potential for energy efficiency to be 
a large part of the solution to global climate change.
    But we must look at where our carbon emissions would be without the 
investments that have been made in this country since 1977.
    Mr. Chairman, our nation's emission of carbon would be a full one-
third (33 percent) greater without the progress that has been made in 
the past quarter century.
    Mr. Chairman, the Alliance is not surprised that energy efficiency 
stands to be a key component of nearly any climate change strategy. 
Slowing or stemming climate change should rightly take its place with 
economic growth, reduction of other environmental pollutants, increased 
national security, and promoting American competitiveness abroad, as a 
reason to move full speed ahead with research, development, and 
deployment of energy-efficient technology throughout the economy. We 
are such believers in the positive effects of energy efficiency that if 
you told us it cured the common cold, we might not be surprised.
    However, energy efficiency becomes an even more crucial component 
for our nation's near-term future when we think of the fact that a huge 
amount of our nation's capital stock will turn over in the next 10 
years. EPA estimates that fully 60 percent of our carbon emissions in 
2010 will come from equipment not yet purchased. Decisions about how we 
develop and deploy technology will have a profound effect on whether 
the nation is even able to sufficiently reduce emissions if a political 
consensus on action to stem climate change should develop. In this 
context, energy efficiency becomes an insurance policy that the nation 
can ill-afford to pass up, and one that should be pursued with no 
regret.
    Five of our most prestigious national laboratories recently came 
out with a study titled, ``Scenarios for a Clean Energy Future.'' The 
conclusion of that study was that targeted investment in a selection of 
energy-efficiency measures could get us more than one half of the way 
to 1990 levels of carbon emissions. Furthermore, by 2020, these 
targeted efficiency measures would pay for themselves. Let me state 
that again Mr. Chairman. Five of our national laboratories believe that 
targeted investments in energy-efficiency can get our nation at least 
half way to the targets of the Kyoto treaty FOR FREE. In no place have 
I seen these findings refuted or substantially questioned. Yet few 
policymakers are seriously considering implementing these investments.
    Frankly, Mr. Chairman, we should stop carrying on an increasingly 
surreal debate over how much evidence we need for a conclusive finding 
that climate change exists, and start putting in place an insurance 
policy that will benefit the country economically and environmentally 
no matter what happens--and mitigate potential impacts of global 
warming.
                 iii. federal energy efficiency efforts
Energy efficiency Research, Development, and Deployment: Why the 
        Federal Government?
    Back in 1995, when some in Congress were contemplating the 
dissolution of the Department of Energy, two major reports were 
released that came to the same conclusion: If we forego Federal 
research and development in energy technologies, it will not be 
replaced in kind by the private sector. Both the Galvin Commission 
studying the national laboratories and DOE's Yergin Task Force looked 
at energy research and development and arrived at this conclusion. 
Among the reasons they cited as barriers to corporate efforts are high 
R&D costs, internal cost-cutting which has resulted in widespread 
downsizing of companies, uncertainty of property rights and the ability 
to capture all the benefits of R&D, and high initial investment in R&D 
capability.
    In the early 1990's, Federal energy research efforts were 
criticized for producing technology and innovation in a vacuum. While 
research accomplishments were substantial, many business leaders 
believed that these efforts were not relevant to markets for lighting, 
building materials, automobiles and other products. This decade has 
seen an exponential rise in cooperation, planning, and cost-sharing 
with the private sector to assure that Federal research and deployment 
really do create the maximum value added. These process gains are 
exemplified by EPA's Green Lights and Energy Star as well as DOE's 
Industries of the Future and Buildings Roadmap programs.
Technology Deployment is Integral to a Successful Research Agenda
    Some critics of DOE and EPA energy efficiency efforts have argued 
that while basic research is an acceptable activity of the Federal 
Government, deployment and market transformation are not.
    The need for having deployment in the toolbox of DOE is illustrated 
by the story of the flame retention oil burner. DOE did not develop 
this technology. However, in response to the oil price shocks of the 
1970's, DOE worked with the oil heat industry to field test and promote 
the technology as a substantial energy-saver. The key was a program to 
train fuel oil technicians how to install these advanced burners to 
yield the most savings for homeowners.
    The subsequent realization by the oil heat industry of its 
attributes created demand, and adoption of the flame retention head oil 
burner increased about tenfold between 1979 and 1983. As of 1996, the 
technology was in use in about 7.3 million households, over half of 
oil-heated homes. The burner provides an 11-22 percent energy saving, 
Mr. Chairman, and, as of 1999, a conservative energy savings estimate 
of over $14 billion billion for consumers from a simple, existing 
technology--in large part due to deployment efforts by DOE. DOE's 
responsibility for this benefit can be traced to addressing barriers 
that were inhibiting wide use of the technology, and accelerating 
market penetration.
Federal Programs: Have They Returned Our Investment?
    In 1996, Mr. Chairman, the General Accounting Office did a study of 
a variety of success stories which DOE had published in 1994. 
Unfortunately, the purpose of the study appeared to be political, and 
it attempted to discredit energy efficiency programs by attacking DOE's 
methodology for preparing the success stories. But rather than 
achieving this goal, it ended up validating billions in energy savings 
for a few key technologies which far outstrip out entire national 
investment in energy efficiency over the past 20 years.
    Mr. Chairman, the accumulated success of these programs at saving 
money for American consumers and taxpayers is remarkable. The GAO study 
validated DOE's assertion that just five technologies developed or 
assisted by the DOE buildings program resulted in $28 billion in energy 
savings over the past 20 years for an approximate $8 billion in 
investment in all energy-efficiency programs as of 1994. DOE has 
updated results for those programs that credits these technologies with 
returning $50.9 billion to the U.S. economy through 1999. Add gains 
from the low-income Weatherization Assistance Program, State energy 
programs, and building and appliance standards work, and returns total 
$89.6 billion. Add FEMP gains and it moves to $101 billion. Add the 
hundreds of other technologies to come out of the business, industrial, 
and transportation programs and the additional accrued energy savings 
of the past 5 years and you get a portrait of an overwhelmingly cost-
effective effort which has contributed significantly and directly to 
the quality of life of Americans.
    Mr. Chairman, I have yet to know of another Federal program that 
has returned more than $100 billion to the economy for such a 
relatively small investment of $12.0 billion through 1999.
    (The technologies are: low-emissivity windows, electronic ballasts, 
advanced refrigerator compressors, the flame retention head oil burner, 
and DOE-II building design software.)
    By the same token, the EPA Energy Star and Green Lights programs, 
as well as other EPA climate programs, have already returned more than 
$40 billion in energy savings to to the economy from less than $750 
million in Federal investment through 1999. In addition, these Federal 
partnerships with businesses, State and local governments, school 
districts, non-profits, and other organizations have yielded reductions 
of more than 300 million metric tons of carbon equivalent pollution.
    It must be noted, Mr. Chairman, that these dollar returns are from 
just lower fuel and energy bills--they do not include the economic 
value of reductions in pollution, increases in productivity and comfort 
of employees and consumers, or national security benefits of oil 
imports.
A More Comprehensive Audit Must be Performed
    Mr. Chairman, I believe we need an even more comprehensive review 
of the accomplishments of energy efficiency programs in the Federal 
Government that spans the work of DOE, EPA, the Agency for 
International Development, and other agencies. Until we get a clearer 
picture of the size and scope of the accomplishment of Federal energy 
efficiency efforts, we cannot fully assess their value in a climate 
change context.
Tax Credits
    Numerous leading Senators and Representatives of both parties have 
introduced legislation to promote energy-efficient technologies. Rep. 
Bill Thomas of California has been a leader in promoting tax credits 
for energy-efficient new homes and for upgrading existing homes; Sen. 
Charles Grassley has done the same for highly efficient appliances; and 
Sen. Bob Smith has introduced legislation that covers homes, commercial 
buildings and other equipment. Perhaps most significantly, Senators 
Murkowski, Lott and others included tax credits for energy efficiency 
in S. 388/S. 389, the Republican comprehensive energy package, and 
Senator Bingaman is expected to do so in his comprehensive bill.
    These actions are a powerful bi-partisan endorsement of efficiency 
as an environmentally responsive energy policy. The Alliance strongly 
supports such efforts.
Public Benefits Fund
    We are all familiar by now, Mr. Chairman, with the ongoing 
electricity troubles in California. These ills are now spreading to 
other States in the west, and Chicago, New York, and other eastern 
cities expect to experience shortages of electricity this summer. A 
reliable, affordable source of electricity is extremely important to 
Americans.
    Public benefits spending, such as that which was assessed by the 
Rand Corporation for California has been immensely successful at 
delivering electric capacity cheaply, quickly, and cleanly. In fact, 
Mr. Chairman, we assert that the delivery of energy-efficiency measures 
is a cleaner, cheaper, and quicker strategy for assuring electricity 
supply in our cities than building new generation and upgrading 
transmission.
    The bill that Sen. Bingaman is expected to introduce today will 
include a non-bypassable wires charge for electricity consumers that 
will go directly toward insuring reliability in the power supply, as 
well as helping low-income Americans meet rising costs, and assisting 
States in their efforts to bring greater renewable energy resources on 
line. We strongly support this public benefits fund for use to shore up 
huge gaps in public interest programs that deregulation has left by the 
wayside.
                 iv. energy efficiency and the economy
    Energy efficiency makes money and puts people to work. The economic 
gains from energy efficiency come in two forms. The greatest benefit 
comes from displaced costs--money that households and businesses can 
spend elsewhere because they no longer have to spend it on energy. That 
spending includes additional investment and hiring additional workers. 
Direct economic benefits come from growth in industries that generate 
energy-efficient products and services. Companies that sell insulation 
or efficient windows domestically and/or for export employ Americans in 
high-skill service and manufacturing jobs. Secondary economic benefits 
come from businesses and consumers re-spending these newfound energy 
savings in sectors of the economy which are more labor-intensive than 
energy supply.
Energy efficiency Must Be Measured as an Energy Source
    Our energy system operates against the backdrop of a U.S. economy 
that has become significantly more energy-efficient over the past 
quarter-century. But we often fail to realize the actual contribution 
of energy efficiency to our GDP and national well being.
    Mr. Chairman, it isn't easy to compare the contribution of energy 
efficiency to the environment and the economy with more traditional 
energy sources such as oil and coal. It requires the observer to regard 
saved or unused energy as created energy in the same way that oil comes 
out of the well and coal comes out of the mine. In addition, I think 
that any economist would tell you that energy efficiency measures have 
increased the supply of energy and thus helped to lower the price. 
Energy not used is just as salable and usable when conserved as when 
produced. Upgrades in energy efficiency made to home appliances, 
industrial equipment, building systems, or car and truck fleets serve 
as an energy source that increases our overall supply of electricity, 
coal, oil, and natural gas.
Energy-Efficiency, our Number 2 Energy Source in 1999
    Alliance research shows that, for 1999, the most recent year for 
which we have complete data, energy efficiency was the second leading 
source of energy for U.S. consumption, and if we consider only domestic 
energy sources, it's No. 1. I might add, Mr. Chairman, this is an 
extremely conservative estimate, staying well within the tight 
parameters of Department of Energy modeling. Mr. Chairman, it would 
have been number-one if we declined to count oil imports, now more than 
half of this nation's oil consumption. Our analysis of 1999 energy 
consumption shows that energy efficiency provided the nation with 27 
quadrillion Btus (quads), nearly 25 percent of U.S. energy consumption. 
While energy efficiency trails our mammoth oil consumption (38 quads), 
it significantly outstrips the contribution of natural gas (22 quads), 
coal (22 quads), nuclear (8 quads) and hydro (4 quads). (See attached 
chart.)
    Mr. Chairman, the contribution of energy efficiency to our nation's 
overall supply is now so great that we cannot regard as an esoteric 
externality anymore. We must promote and support it in the same way we 
do the coal belt and the oil patch, which enjoy a variety of tax breaks 
and subsidies based on their use of fuel.
    These figures show energy efficiency for what it is--an 
unparalleled driver of environmentally sound economic growth.

    Mr. Chairman these economic snapshots of efficiency show an energy 
industry that spans the economy and the populace. But it is not an 
energy industry that looks like what we have known in the past. 
However, all the functions of traditional energy industries are 
represented. But with energy-efficiency, the miners are businesses 
trying to cut their costs. The roughnecks are homeowners trying to keep 
their families warmer in the winter. The geologists are mechanical 
engineers working to get more out of less. Energy efficiency is highly 
dispersed throughout the economy. Because of its diffuse nature, energy 
efficiency doesn't carry the political clout of the coal-mining 
regions, or of the oil and gas-producing regions. There is no ``energy 
efficiency patch.''
    By the same token there is not a defined energy efficiency 
industry. Whirlpool makes highly efficient appliances but they sell 
washing machines and refrigerators, not energy efficiency. Honeywell 
sells controls that regulate building systems that can save a company 
millions of dollars a year, not energy efficiency. Owens-Corning sells 
fiberglass insulation which can make a house warmer, more comfortable, 
and more economical to live in, but they sell insulation, not energy-
efficiency.
    So when we have to make tough choices about what we do with Federal 
dollars, we must think about energy efficiency as what it is--an energy 
source that is essential for the economic health of our nation--and one 
that is paying off like a gusher for the American people. Yes, Mr. 
Chairman, that energy is produced cleanly, displacing both conventional 
air pollutants as well as ones believed by many to be causing a warming 
of the Earth's climate. It enhances our national security, as this year 
we again went to war to protect our interests in Mideast oil fields. 
Energy efficiency cuts costs for businesses and consumers, and it 
increases our international competitiveness--all the things we have 
traditionally talked about.
    The tough choices on energy and climate must be made with a clear 
eye on the contribution to the environment, the economy, national 
security, and international competitiveness delivered in the past and 
promised for the future by energy-efficiency.
                 v. other benefits of energy efficiency
National Security
    As historians consider the reasons for the Persian Gulf War, one 
must acknowledge that the U.S. went to war with Iraq in 1991 in large 
part to defend our critical oil interests in the region. Within the 
past year, we have again gone to war with Iraq to protect those same 
interests. When considered by economists, the billions which American 
taxpayers spent to protect those interests--never mind the dangers 
posed to a half a million American soldiers--should be added not onto 
our military or diplomatic budget, but onto our national expenditure 
for energy.
    The U.S. has now crossed the line of being dependent for more than 
55 percent of its oil consumption on foreign sources. Two-thirds of 
that habit comes from transportation. Without more aggressive research 
and innovation in automobile technology that situation will grow 
significantly worse in the coming decades for two reasons. One, U.S. 
consumption will continue to grow both in the number of vehicles on the 
road and the amount driven by each one. Two, the concentration of 
remaining global oil reserves will grow more consolidated in the 
Persian Gulf region as time goes on, making the U.S. more and more 
beholden to a region which demonstrates its volatility nearly every 
day. Consequently, U.S. dependence on foreign oil is projected to rise 
to nearly 60 percent within 10 years.
    In the absence of congressional support for increasing Corporate 
Average Fuel Economy Standards (CAFE), the Partnership for a New 
Generation of Vehicles remains our best bet for the development of 
cleaner, more fuel-efficient cars with which to reduce our dependence 
on foreign oil supplies. This program has come under some criticism, 
and perhaps it is valid to question why the Big Three automakers 
require millions of dollars in Federal research to develop products 
that are less environmentally harmful. However, cleaner, more efficient 
cars remain a national priority, and PNGV is making progress. While 
much of the advancement made thus far through the program has been kept 
proprietary, the known advances in fuel cells and hybrids are getting 
us closer to clean cars. In fact, Mr. Chairman, the fact that this 
information is being kept proprietary is a good sign that progress is 
being made and that people are expecting money to be made in the 
future.
 vi. investing in energy efficiency: nothing to lose and everything to 
                                  gain
    Mr. Chairman, I have described here how energy efficiency has been 
a transforming force in the American economy, and how Federal energy 
efficiency efforts have played a key role in that expansion. 
Investments in research, development, and deployment of energy-
efficient technology pay for themselves many times over in economic, 
environmental, and national security benefits. In addition, these are 
strides forward that would happen much more slowly or even not at all 
without Federal leadership.
    Any evaluation of climate change programs must fully factor in the 
benefits of energy efficiency gains in any cost-benefit analysis. In 
order to do that, we must undertake a more comprehensive accounting of 
the benefits of Federal energy efficiency programs that began 25 years 
ago, and have continued through today.
    Mr. Chairman, I believe that due to their contribution to 
environmental quality energy efficiency efforts at DOE, EPA and other 
agencies should be escalated. Accordingly, I am deeply troubled by 
reports in the press--that appear to be accurate--that the Bush 
Administration will be deeply cutting the DOE efficiency programs when 
it makes its fiscal year 2002 budget recommendations in early April. I 
cannot imagine a worse way to face our nation's multiple energy crises 
and our environmental demands than by cutting energy efficiency 
programs. I have yet to learn of a Federal investment that has yielded 
such rich rewards so broadly dispersed over the economy.
    Thank you for the opportunity to testify before your committees 
today. I'm happy to address any questions you might have.
                               __________
   Statement of David G. Hawkins, Director, Air and Energy Programs, 
                   Natural Resources Defense Council
    Mr. Chairman, members of the subcommittee, thank you for your 
invitation to testify on behalf of NRDC, the Natural Resources Defense 
Council, regarding the Clean Air Act and national energy policy. NRDC 
is a nonprofit citizen organization dedicated to environmental 
protection, with more than 400,000 members nationwide. Since 1970, NRDC 
has followed closely the implementation of the Clean Air Act and has 
sought to promote actions under the law that carry out Congress' policy 
decisions to protect public health and the environment from harm caused 
by air pollution.
    With all respect to the subcommittee, my first point today is to 
suggest that the title of this hearing does not capture the issue 
before us. Rather than discussing ways to change the Clean Air Act to 
harmonize with an independently determined national energy policy, we 
need to define our tasks as identifying the goals that are important to 
Americans in the areas of energy, public health protection, and 
environmental quality and then designing energy and clean air policies 
that support these goals. I think any objective view of the historical 
record would demonstrate that the way we have pursued our energy goals 
in the past has interfered with Americans' desire for clean air, rather 
than the other way around. Today's hearing appears to be prompted by 
concerns that the Clean Air Act is interfering with meeting the 
nation's energy needs. While I welcome the opportunity to speak to 
these claims, I think it would be healthy for your sister committee, 
the Senate Committee on Energy and Natural Resources, to hold a hearing 
to review widespread concerns regarding the impact of our energy 
policies on public health and the environment. NRDC certainly would 
appreciate any encouragement you can give your colleagues on that 
committee. Perhaps Senators Campbell, Graham, and Wyden, who serve on 
both committees, could form an Health, Energy, Environment Harmony 
Caucus!
    In this testimony I would like to touch on three topics: the need 
to clean up electric power plants, the flaws in President Bush' change 
of position on including carbon dioxide in that program, and the role 
of new source pollution control requirements in the nation's air 
quality management program and useful improvements to that program.
  i. the need for a comprehensive program to clean up polluting power 
                                 plants
    Today, electricity generation imposes an enormous burden of air 
pollution on the American public and the great bulk of that pollution 
comes from plants that are not meeting technically feasible, affordable 
modern environmental performance standards. This fact is the product of 
actions, both lawful and unlawful, that have resulted in an electric 
generating fleet that is older, dirtier, and less efficient than is 
needed to protect health and the environment.
    As I explain in greater detail in Part III of my testimony, 
Congress in 1970 drew a distinction between existing pollution sources 
and sources that are new or modified: new and modified power plants 
were required to minimize air pollution through performance standards 
based on state-of-the-art clean power techniques, while existing, 
unmodified plants were required to clean up only to the degree needed 
to address local air quality problems.
    There were several reasons for this approach. First, most air 
quality problems were perceived as local. Second, at the time, the 
electric power industry was mostly a local one. Third, the exemption 
was assumed to be temporary-Congress believed existing plants would 
retire and be replaced by new ones meeting modern performance 
standards.
    Now, nearly 30 years later, the facts on the ground have changed. 
We know now that many of our most threatening air pollution problems 
are not local-they are regional, national, and even global. Our 
electric generating industry is rapidly becoming a national industry 
with all parts of the country connected by wires over which the product 
can move anywhere in three large regions of the lower 48 States. And 
those powerplants that were supposed to retire have, by lawful and 
unlawful means, kept on running like the Energizer Bunny. As a result, 
pollution from electric power generation is a dominant cause of nearly 
all our most pressing air quality related problems.
    Four pollutants cause a host of public health and environmental 
damage: sulfur dioxide, nitrogen oxides, mercury, and the pollutant no 
one can get away from, carbon dioxide, the dominant greenhouse gas. 
Electric generation in the U.S. is the largest single source of these 
four horsemen of air pollution. Electric powerplants release over two-
thirds of total U.S. emissions of sulfur dioxide; they release 40 per 
cent of U.S. carbon dioxide; and they release about one-third of the 
nation's nitrogen oxide and mercury pollution.
    These pollutants are responsible for a Pandora's box of health and 
environmental harm:

      fine particles, formed from sulfur and nitrogen 
emissions, that contribute to tens of thousands of premature deaths in 
the U.S. each year;
      smog, that plagues our major cities, and causes 
respiratory attacks in kids and seniors;
      acid rain, that still damages lakes, streams, forests, 
and monuments;
      regional haze, that spoils trips to national parks for 
millions of visitors annually;
      nitrogen emissions, that help over-fertilize estuaries, 
including the Chesapeake Bay, Long Island Sound, Pamlico Sound, and the 
Gulf of Mexico, leading to dead zones where aquatic life perishes;
      mercury contamination of lakes and streams, that has lead 
40 States to issue continuing advisories of the fish that store this 
toxin; and,
      carbon dioxide driven climate change, that threatens--
      to kill millions of people through more destructive 
floods, droughts, heat waves, intense storms, and climate-related 
infectious disease;
      to produce sea-level rise that would inundate the homes 
of tens of millions of people and cost hundreds of billions of dollars 
in damages and for countermeasures in those countries with the 
resources to respond; and
      to destroy complex ecosystems that have evolved over 
thousands of years under the influence of climate cycles that were not 
destabilized by fossil fuel combustion.

    Consider also the energy we waste with current generating 
technology. Today's fossil generating plants are about 34 percent 
efficient in converting the chemical energy found in fossil fuels into 
electricity. What that means in real terms is that we must mine three 
tons of coal and pollute the air with the emissions caused by burning 
three tons of coal just to get electricity with the energy equivalent 
of one ton of coal. In fact, the energy we waste each year in making 
electricity is greater than the total energy in all the coal we burn 
each year in the United States. Stated another way, if we could 
increase the efficiency of our power plant fleet from about 34 percent 
to around 68 percent, we would cut sulfur, nitrogen, mercury, and 
carbon pollution from electricity generation in half, even with no 
change in the fuel mix.
    Our plague of pollution problems and wasted energy is the result of 
policies and practices that still allow 30-, 40- and 50-year old plants 
to keep operating without meeting modern performance standards for 
pollution or efficiency. In addition to harming health and the 
environment, the de facto grandfather status of most of today's power 
plants creates unfair competition in the electricity market. In effect, 
the patchwork of lenient or nonexistent rules at the State and local 
level, combined with evasion of Federal requirements, has created 
pollution havens where grandfathered plants can engage in domestic 
environmental dumping, distorting fair energy markets.
    As we move to modernize the electricity market economically, we 
must accompany it with modern environmental performance measures. A 
central purpose of electric industry restructuring legislation is to 
create a free and fair, competitive market for energy services. But 
fair competition is impossible in an environment where air pollution 
performance requirements are balkanized. Because electricity markets 
are connected by wires, different pollution standards promote a 
``survival of the filthiest'' market, where the power plants that are 
the dirtiest, run harder because they can slightly underbid cleaner 
generators.
    These market distortions do not deliver consumer benefits. The 
price differences caused by different pollution requirements are quite 
small-usually 2-3 mills per kilowatt-hour or less-but these small 
differences are enough to give dirtier producers a decisive market 
advantage in many areas. The market distortions also discourage 
investment in new, cleaner, more efficient generation and in renewable 
resources.
    Under the current rules, an entrepreneur who seeks financing for, 
say, a clean, high-efficiency natural gas plant can point out that it 
emits no sulfur, no mercury, and much less nitrogen oxides (NOx) and 
carbon dioxide (CO2) than the competition. But, with the 
partial exception of sulfur (for which allowance programs exist under 
the acid rain law), this superior environmental performance has no 
economic value in the market place. The financier wants to know whether 
the plant will be able to run more cheaply than the competition. If the 
competition is a group of grandfathered coal-fired power plants, the 
answer often will be no, and financing may go to a higher-polluting new 
plant rather than a clean one.
    To address the egregious health, environmental, and economic flaws 
in the current air pollution control programs, a number of bills were 
introduced in the last Congress and last week the bipartisan ``Clean 
Power Act of 2001,'' S. 556, was introduced in the Senate. Among its 
lead sponsors are three members of this committee, Senators Lieberman, 
Clinton, and Corzine. The Clean Power Act establishes industry-wide 
caps on tons of each of the ``four-horsemen'' pollutants: sulfur 
dioxide (SOx), NOx, CO2, and mercury. The caps on SOx and 
NOx would provide building blocks for meeting health-based smog and 
fine particle standards (challenged unsuccessfully by industry in the 
Supreme Court) and would reduce acid rain further. The mercury cap 
would attack the largest single remaining U.S. source of this 
pollutant. And the CO2 cap would return the industry's 
emissions to 1990 levels-the target set in the 1992 Rio Climate Treaty 
that the first President Bush signed and that the Senate has ratified.
    With the exception of mercury, for which there are both local and 
regional concerns, the bill would implement the cap through market-
based approaches where power generators could trade their clean-up 
obligations to meet the caps in the most efficient manner. One possible 
market mechanism, a ``generation performance standard,'' would define 
the amount of pollution that could be legally emitted for a kilowatt-
hour of electricity from fossil generation, thus creating a level 
playing field for those generators. This system will directly reward 
cleaner, more efficient generators.
    In contrast to the current situation, if the Clean Power Act were 
now law, a developer of a new clean power plant would be able to show 
direct tangible economic benefits from its reduced environmental 
impact. Because the new plant would be able to generate electricity 
below the average pollution performance required under the law, every 
kilowatt-hour generated would also generate another source of revenue: 
emission allowances that can be banked or sold on the market. This 
additional revenue stream would make financing such projects that much 
more attractive.
    A final benefit of these integrated pollution cleanup bills is that 
they provide a clear roadmap for business in planning long-term 
investments. The history of clean air progress has developed as a 
series of unconnected initiatives, typically focused on a single 
pollutant. Today, we can survey the next 10-15 years and be confident 
that additional measures will be pursued to reduce the four horsemen 
pollutants. But if we pursue the traditional approach, no one can say 
now with confidence, when, how deep, and in what order these important 
steps will occur.
    As a result, business planners must approach today's investments by 
making educated guesses about environmental requirements. Billions of 
dollars are changing hands as generation plants are sold under State 
restructuring programs. One thing we can say for sure is that someone 
is guessing wrong. By enacting integrated cleanup programs, Congress 
could both provide certainty and reduce the tendency to prolong 
dependence on existing outmoded plants through the traditional process 
of applying end-of-pipe cleanup devices normally aimed at controlling 
only one pollutant.
    In short, we know we need to reduce a range of damaging pollutants 
from the electric generating sector; we know how to do it; and we know 
that failure to take these steps now will increase damage, prolong 
uncertainty, and encourage unfair competition. Mr. Chairman and members 
of the subcommittee, we hope you will seize the opportunity presented 
by the Clean Power Act to harmonize clean air and energy goals. By 
doing so you can address the key issues that face the industry and the 
public in a manner that produces a cleaner, more efficient, more 
sustainable, and more competitive electricity market that delivers 
energy services for lower costs.
             ii. president bush' position on carbon dioxide
    As you know, on March 13, 2001, President Bush announced that, 
despite his campaign promise to support emission reductions for all 
four major pollutants from power plants, including carbon dioxide, he 
now opposes inclusion of CO2 in a power plant control bill. 
You may also know that NRDC and virtually every other environmental 
organization strongly objected to the President's change of position, 
the reasons he gave for his decision, and the way in which he made his 
decision.
    From what I have said in Part I of my testimony you can understand 
that NRDC believes that control of carbon dioxide from power plants is 
as critical to health and the environment as control of the other three 
pollutants. Requiring the electricity industry to return its carbon 
emissions to 1990 levels is a practical and necessary first step in 
demonstrating that the U.S. intends to honor its commitment under the 
1992 Rio Climate Treaty, which, as I said, has been ratified by the 
Senate. Failure to include carbon dioxide in a clean-up bill would mean 
the legislation would not be comprehensive. By decoupling carbon 
emissions from control strategies on the other three pollutants, a 
limited bill would increase the tendency for plant owners to make 
short-sighted investments in control methods that might reduce sulfur, 
nitrogen, and mercury but would perpetuate high levels of carbon 
emissions. Indeed, a narrow-focus strategy that slaps controls on 
inefficient, outmoded generators could well extend the life of such 
facilities further, wasting energy and making it more difficult and 
costly to reduce carbon when Congress decides (as I believe will 
happen) to take on that threat to planet. A narrow bill would send a 
confusing signal to investors: is carbon really off the table or will 
it be put back on in a couple of years just after we have selected a 
strategy that ignores that pollutant? A two-step program to control the 
four major pollutants from electric generators will cost consumers more 
in the end than enacting a comprehensive bill now.
    Let me turn to the reasons President Bush gave in his March letter 
for his about-face. The first reason cited by the President is his 
claim that carbon dioxide is ``not a 'pollutant' under the Clean Air 
Act.'' To start, the claim that carbon dioxide is not a Clean Air Act 
pollutant is irrelevant as a justification for abandoning his pledge to 
support a new law (imagine President Lincoln announcing he would oppose 
adoption of the 14th Amendment because he had learned that the original 
Constitution did not prohibit discrimination). However, President Bush 
is wrong on the law as well as on his logic.
    To my knowledge, the only official interpretation of the status of 
carbon dioxide under the Act was issued in a legal memorandum prepared 
in April 1998, by the chief agency officer authorized to interpret the 
Act, EPA General Counsel Jonathan Z. Cannon (copy attached). In his 
memorandum, Mr. Cannon concluded that while not yet covered by 
regulations issued under the Act, carbon dioxide met the statutory 
criteria for a ``pollutant'' as the term is defined in the law. Indeed, 
as pointed out by Mr. Cannon, carbon dioxide is mentioned by name in a 
list of multiple pollutants from fossil fuel power plants for which 
Congress directed EPA to develop pollution prevention programs. Sec. 
103(g). To be sure, this section of the law does not by itself confer 
authority on EPA to regulate carbon dioxide, just as it does not 
provide regulatory authority for any of the other pollutants listed in 
section 103(g) that EPA has regulated under other provisions of the 
Act. While lawyers will argue about the scope of EPA's current 
authority to regulate carbon dioxide, the Act is clear that carbon 
dioxide is a pollutant. (See attached NRDC Fact Sheet.)
    Perhaps some will argue, Mr. Cannon was general counsel in the last 
Administration and we now have a new president. It is true that 
President Bush is the Chief Executive of the United States but his oath 
under the Constitution is to faithfully execute its laws, not to make 
them up. If President Bush did not rely on Mr. Cannon's existing 
interpretation of the Act, on what official's legal interpretation did 
he rely? Was a memorandum of law prepared for the president's 
consideration? If so, by whom? We don't know the answers to these 
questions and we should know, to promote confidence in the way the 
president reaches his decisions.
    President Bush' second reason for changing his position was an 
assertion that including carbon dioxide in new legislation would lead 
to significantly higher electricity prices. Was this conclusion based 
on any analysis performed by his Administration? Apparently not. His 
letter cites one report for the high cost conclusion: ``Analysis of 
Strategies for Reducing Multiple Emissions from Power Plants.'' I will 
say more about this report in a moment. First, let me point out that 
while the president apparently did not ask his own appointees to 
prepare an analysis for him, there were four other reports done in the 
last 6 months regarding the costs of programs to reduce power plant 
emissions of carbon dioxide. The other four studies, including a 
November, 2000, Department of Energy report, Scenarios for a Clean 
Energy Future, concluded that substantial carbon dioxide reductions 
from the electric sector could be achieved at very low costs. For 
example, the DOE ``Clean Energy Future'' study found that electric 
sector carbon dioxide emissions could be reduced to 1990 levels with a 
net increase in Americans' energy bills of less than 1 percent in the 
year 2010 and with large energy bill savings in later years due to more 
efficient use of energy. Citations to this and the other studies are 
attached.
    Thus, there were five studies the president could have consulted 
regarding the costs of carbon controls-four that found low to modest 
costs and one outlier that forecast high costs. Unfortunately, his 
letter leaves the impression that his staff seized on the EIA analysis, 
not based on any broad review of the issue but because it contained the 
conclusion that could be used to rationalize the president's change of 
position. If this is correct, it is quite striking. The president made 
an explicit and clear policy commitment during the campaign. His 
surrogates repeated his pledge in additional public appearances during 
the campaign. One would think that before abandoning such an explicit 
promise, the president would have directed a thorough review by his own 
Administration team of policy options and the costs of those options to 
determine whether there was a real conflict between his promise and 
Americans' energy goals. At the very least, one would have hoped that 
the president's staff would have recommended a process that included an 
examination of all relevant recent analyses and, when presented with a 
conflict in those analyses, that more time would have been taken to 
determine which cost analyses were more reliable. While the president's 
letter states the information he received ``warrants a reevaluation,'' 
he didn't announce he was undertaking a reevaluation. He just made a 
decision that flatly contradicted his campaign pledge. All of these 
facts suggest that careful policy analysis had very little to do with 
the president's decision.
    What should we make of the report cited by the president? While he 
called it a ``Department of Energy Report,'' the analysis is, in fact, 
a ``Service Report'' prepared by the Energy Information Administration 
(EIA) for submission to former Congressman David McIntosh in response 
to his request for an analysis of emission reduction scenarios 
specified by the Congressman. Now EIA is respected for its analytical 
capabilities but it is also clear that when Congressmen McIntosh 
requested the analysis, his staff knew before the EIA computers were 
turned on that the result would forecast high costs for carbon 
controls. Given Mr. McIntosh' vehement opposition to any form of carbon 
emission reductions, this prospect probably did not make him unhappy.
    Is EIA's predictable result due to deliberate deception by EIA? 
Certainly not. It is an artifact of the approach EIA used to evaluate 
the policies specified by Mr. McIntosh. The analytic approach and 
assumptions that EIA adopts in modeling electric services options 
guarantee that any policy aimed at significantly reducing carbon from 
electricity generators will be calculated as having a high cost. One 
would have more confidence in the reality of this prediction if there 
were no credible conflicting conclusions. But, in fact, the Department 
of Energy Clean Energy Future study I mentioned above, uses the same 
model run by EIA and reaches dramatically different conclusions. A 
principle reason for this is that in DOE's runs, analysts incorporate a 
number of sensible policies designed to help Americans use electricity 
and natural gas more efficiently. These policies lower consumer energy 
bills and make it possible to clean up power plants at much lower 
costs. For example, the DOE analysis ignored by the president includes 
policies found in Chairman Smith's recently reintroduced Energy 
Efficient Buildings Incentives Act, S. 207, also sponsored by Senators 
Reid, Lieberman, and Chafee of this committee. By examining a 
harmonized set of energy and clean air policies such as those 
championed by Chairman Smith, the DOE Clean Energy Future report comes 
much closer to the truth about the costs of smart carbon reduction 
programs than the EIA service report done at Mr. McIntosh' request.
    President Bush also refers to concerns about current high energy 
prices in California and other States as supporting his new position on 
carbon dioxide. This point really does not withstand analysis. Prices 
are high today and generation capacity in California and the West is 
constrained. But any legislation enacted by Congress for power plants 
will not affect energy supplies today. Instead, a reduction timetable 
will be some years in the future, allowing time to install pollution 
controls and for repowering or replacement of the very plants whose 
breakdowns contributed to California's problems in the last year. As 
explained in attached NRDC fact sheets, environmental requirements have 
not caused today's electricity price and supply problems and no amount 
of scapegoating will change the facts or improve our chance of 
designing effective remedies.
    Finally, I must comment on the president's statements regarding the 
Kyoto Protocol in his letter. Just last month the president's foreign 
policy officials requested and received a delay in the resumed meeting 
of the parties to the Rio Climate Treaty, previously scheduled for May 
2001. The State Department requested this delay because, it told other 
countries, the Administration was conducting a comprehensive review of 
climate change policy that could not be completed by the May meeting.
    How is that need for a thorough review to be squared with the 
president's apparently definitive denunciation of the Kyoto agreement 
in his letter? Granted, in this case, his statements are consistent 
with views he expressed on the campaign trail. But why not await the 
review he has promised before reaffirming views he formed without 
benefit of such an analysis? The president says the Kyoto agreement 
would ``cause serious harm to the U.S. economy.'' What analyses did he 
review in reaching this conclusion? The previous Administration 
published analyses concluding that compliance with the agreement would 
have less than a 1 percent impact on forecasted GDP, equivalent to 
adding no more than a month or two to a 10-year forecast for achieving 
a vastly increased level of wealth in this country. The president may 
well disagree with the previous Administration's analysis but on what 
basis? Wouldn't he and the American public be benefited by preparation 
of the best objective analysis that the new Administration is capable 
of producing? Why the hurry to issue the verdict before hearing the 
evidence?
    The other thing the president had to say about the Kyoto agreement 
was that it was unfair because it does not establish the same reduction 
targets for China and India as for the United States. In my opinion, 
this is a shameful statement. Consider that the U.S. and other 
developed countries are among the wealthiest nations on earth and that 
they have put into the atmosphere about 75 percent of the carbon 
dioxide that has accumulated since the start of the industrial 
revolution 150 years ago. Consider also the relative economic ability 
of the U.S., India, and China to take the first steps in demonstrating 
that we can fight global warming. The mortality rate for children under 
5 years old in India is 13 times higher than in the U.S.; China's 
mortality rate for these children is 6 times higher than ours. In 
India, close to half the population attempts to survive on less than $1 
per day; in China, one in five people lives on this level. Consider 
electricity consumption: the average American uses more electricity in 
a day than the average person in India uses in a month; compared to 
China the average American uses more electricity in a month than a 
Chinese person uses in 15 months.
    For the president to demand that India and China make equal 
commitments to control carbon dioxide as a condition for the U.S. to 
take a first step along with other wealthy nations, flies in the face 
of Americans' vision of our country as a compassionate and responsible 
world citizen. America's heart is bigger than this. The president spoke 
of compassion during the campaign and I have to believe his heart is 
bigger than this too.
    There is a practical point to be made here as well. China and India 
are important nations to engage in global strategies to fight climate 
change. The U.S. certainly needs a strategy to break down barriers with 
these countries and produce a more cooperative basis for discussion of 
all countries' global warming responsibilities over time. But what 
possible strategy could underlie the President's decision to single out 
China and India for criticism in his letter? Did Secretary of State 
Powell advise that this would be helpful in moving those two countries 
to a position that is less contentious on this issue? That seems 
unlikely.
    NRDC hopes the president actually will evaluate and reevaluate his 
positions on carbon dioxide from power plants and the Kyoto agreement, 
rather than flatly reversing one position and restating the other with 
no current analysis to inform his decisions. If he does so, he could 
rebuild some badly needed bridges that are now in flames.
        iii. the clean air act's dual-track air quality strategy
    Now I want to turn to the role of new source review under the Clean 
Air Act. Members who read my testimony before this subcommittee in 
February, 2000, will find this material familiar, since I repeat in 
this section, what I said at that time.
    In 1970 Congress adopted a dual-track program to protect and 
enhance our nation's air quality. The first program calls on States to 
adopt comprehensive pollution control programs under State law to 
achieve air quality objectives set forth in National Ambient Air 
Quality Standards (NAAQS) adopted by EPA. This ambient program is an 
example of the ``assimilative capacity'' approach to environmental 
management-based on the belief that the environment can assimilate a 
certain amount of dirt or toxins released from human activities without 
causing identifiable harm. This approach starts by identifying exposure 
levels of pollution that current research indicates may be tolerable 
for humans and ecosystems and then seeks to reduce emissions from 
pollution sources enough to meet the maximum tolerable exposure 
targets.
    The 1970 Act's ambient management program strengthened previous 
efforts enacted by Congress in the 1960's and relied on States to set 
control rules for pollution sources at levels just tough enough to 
bring total pollution down to the level of the national ambient 
standards. Implicit in this approach is that an area's air quality 
determines the amount of clean-up required of sources. Even if there 
are readily available means of reducing a source's pollution, a State 
is not required to adopt such measures if not needed to meet the NAAQS.
    But Congress did not rely exclusively on the assimilative approach 
to air quality protection in the 1970 Act. Congress adopted another 
strategy designed to minimize air pollution by requiring sources to 
meet emission performance standards based on modern ``best practices'' 
in pollution abatement. The performance standard approach does not set 
required levels of control based on the air quality conditions of 
particular areas. Rather, the required emission reductions are 
determined by assessing how much polluting processes can be cleaned up, 
taking account of technical and economic constraints.
    Congress expected that future ambient goals would likely be more 
ambitious than 1970's defined goals and wanted an independent program 
that would be effective in reducing total emissions over time. 
Congress' intent in the performance standard program was to use the 
force of new purchases and investments to incorporate advances in 
pollution prevention and control as a complementary strategy to the 
ambient management program.
    Congress applied the performance standard approach to both 
stationary and mobile sources but with some important distinctions. In 
the mobile source area (cars, trucks, buses), only entirely new 
vehicles were subject to federally established modern performance 
standards. Congress was presented with analyses demonstrating that with 
traditional rates of ``fleet turnover,'' most of the benefits of 
tighter new car standards would be experienced in less than 10 years.
    In requiring performance standards for stationary sources, Congress 
adopted more sweeping provisions. The Act requires that both new and 
modified stationary sources must meet modern performance standards. 
Congress in 1970 also adopted a very expansive definition of 
``modification,'' to assure that environmental performance would 
improve as investments were made.
    The 1970 Act's principal tool for improved pollution control for 
new and modified sources was the New Source Performance Standard 
(NSPS), a national, categorical requirement based on very good, but not 
the best, pollution minimizing practices. In 1977, when the Act was 
amended, Congress adopted the new source review (NSR) and prevention of 
significant deterioration (PSD) programs to strengthen efforts to 
minimize emissions and air quality impacts from new and modified 
sources. \1\ In the 1977 Amendments Congress expanded both the scope of 
the rigor of the requirements for improved performance from new and 
modified sources. Coverage would no longer be limited to the categories 
for which EPA had adopted NSPS requirements; rather all new and 
modified sources above certain pollution tonnage thresholds would be 
required to minimize their emissions. Second, the level of the 
performance requirement would not be tied to often out-of-date NSPS; 
rather case-by-case determinations of current best performance would be 
required. Third, covered sources locating in clean areas as well as 
dirty areas would have to pass ambient impact tests to prevent a 
worsening of air quality. In 1990, Congress again increased its 
emphasis on pollution prevention from new and modified sources, 
reducing the size thresholds for coverage in badly polluted areas.
---------------------------------------------------------------------------
     \1\For simplicity, for this testimony I will refer to these 
programs generally as NSR. 2 Chevron, U.S.A., Inc. v. NRDC, 467 U.S. 
837 (1984).
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    In sum, Congress has repeatedly endorsed the concept of modern 
performance standards for new and modified pollution sources, adopting, 
in successive amendments, strengthened requirements intended to make 
the NSR programs more effective in reducing pollution.
    However, these programs have for 20 years been the subject of 
criticism from industry representatives and from many academic 
economists. The economists' argument runs, ``why should new sources be 
regulated more strictly than existing sources? After all, air quality 
is determined by how much pollution is released and where it is 
released. The air certainly cannot tell the difference between a pound 
of pollution from a plant built in 1965 and that from a plant built in 
1995.''
    Critics of the Act's new source requirements argue that instead of 
regulating new and old sources differently, we should simply establish 
our desired air quality objectives and allow them to be met by the most 
efficient means. Under this approach, agencies first would do research 
to identify the adverse effects of air pollution on health and welfare; 
next, agencies would convert this research into environmental 
standards; then, the agencies would design pollution control programs 
to achieve the environmental standards; finally, agencies and pollution 
sources would implement the pollution control programs and the air 
would become cleaner.
    This critique and prescription has a certain superficial appeal. As 
I have mentioned, the ambient management program has been a central 
program of the Clean Air Act since 1970 and it should continue. The 
question is whether it is prudent to rely on the ambient standards 
approach as the only strategy for improving and protecting air quality. 
In my view that would be a mistake.
    The 1970 and later Clean Air Acts reflect a judgment by Congress 
that the ambient standards approach should be the major pollution 
control strategy but that it should be complemented by other 
independently functioning programs such as the NSR and Mobile Source 
Emission Standards programs. I think that this judgment was a wise one. 
The history of air pollution control efforts both before and after the 
1970 Act reveals that the ambient standards approach, while 
conceptually sound, has its weak spots, which when exploited by well-
organized opposition, can prevent the program from solving air quality 
problems in a timely fashion.
    First, the Government's capacity to acquire unambiguous information 
about natural processes is very limited. The research is complex, 
expensive, and time consuming. Due to perennial shortages of money, 
talent, and time, most of the studies undertaken in the past and those 
being conducted now are less than perfect. As a result, their 
conclusions are easy to pick apart and dismiss as not dispositive. 
Moreover, the health effects we are concerned about are increasingly 
related to chronic exposures to low levels of combinations of 
pollutants. We have never conducted an adequate study to characterize 
the effects from these kinds of exposures and none is even planned.
    The uncertainties in what we know about air pollution effects in 
turn lead to controversy and delay in establishing environmental 
standards. All of us, including this committee, have experienced this 
controversy in the continuing disputes about EPA's revised ozone and 
particulate standards.
    The next step in the process--control program design--can also be 
affected. Different interests argue at length about how emissions in a 
particular location relate to air quality in that location or 
elsewhere. This can and has led to uncertainty, controversy and delay 
in designing pollution reduction programs to meet environmental 
standards. The continuing fights over efforts to address transported 
air pollution are an example of this problem.
    Another weak spot in the ambient standards abatement program is 
that it often requires large changes in established patterns of 
behavior. When an air pollution control agency adopts a regulation that 
applies to an existing source it is trying to get firms to spend their 
money, time, and thought in ways they have not planned. Not 
surprisingly, these firms often resist, which leads to uncertainty, 
controversy and delay in the final step of the ambient standards 
approach, the actual implementation of pollution reduction measures in 
the real world.
    This resistance to change often feeds back to the first step in the 
ambient standards process, setting the standards themselves. Pressure 
is mounted to weaken existing standards and to oppose the setting of 
new ones. Again, the unified fight of industrial polluters against the 
revision of the ozone and particulate standards highlights this 
problem.
    These weaknesses do not call for abandoning the ambient standards 
approach. But they do suggest the wisdom of complementing that approach 
with programs that are strong where the ambient approach is weak. The 
Act's NSR programs meet that need. Implemented properly, these programs 
can assure that as new well-controlled sources replace old ones, we 
will make progress in reducing emissions as our economy grows. By 
controlling the major pollutants, the new source programs also serve as 
a hedge against unidentified risks associated with those pollutants. By 
dealing with engineering facts rather than biological facts, the new 
source programs usually involve more manageable factual controversies. 
We are relatively good at measuring the dollar costs of meeting 
performance standards and calculating the emission reductions such 
standards can provide. Finally, by focusing on new and modified 
sources, the new source programs can lessen the social and political 
costs of reducing pollution. Because they operate at the time firms are 
making new investments, these programs allow firms to plan pollution 
prevention and control into their plant operations.
    All of this does not argue that the new source programs should 
replace the ambient program, only that they should complement that 
program. For the new source programs have weaknesses in areas where the 
ambient program performs better. The new source programs focus on the 
highly technical details of engineering and thus are too insulated from 
effective public participation. Controlling pollution only from new 
sources often is not the cheapest way to achieve a unit of emissions 
reduction. In my view, the premium we pay to accomplish reductions 
where the ambient program has failed to deliver them is a prudent 
investment, but controls on new and modified sources should not be our 
only program. Finally, new source programs, because they are technology 
based, do not guarantee a desirable level of environmental quality. We 
will degrade our air quality unless we improve pollution reducing 
methods and processes at least as fast as we grow. The new source 
programs do not create adequate incentives for such improvements and 
thus must be complemented by the ambient standards and PSD programs 
which do recognize that clean air is a scarce resource.
    In sum, the Clean Air Act's dual track approach to air quality 
management employs the principle of diversification to reduce risks. In 
an uncertain world, a prudent investor will forego putting all her 
money into the one stock with the apparent highest yield. Instead she 
will spread her risk by selecting a range of investments-some which 
offer high risk and high yield and others which offer less risk and 
less yield. Similarly, the Act resembles a stable ecosystem which has a 
diversity of species. Such systems are much less likely to fail in the 
face of adversity than systems that have no diversity.
    IV. How Should EPA's NSR Programs be ``Reformed''?
    NRDC has participated over the last decade in stakeholder 
discussions convened by EPA to consider ways to improve the Act's NSR 
programs. A major reason these talks have made little progress is the 
lack of agreement on the purposes of these programs. There are two 
major purposes: to assure that new investments do not degrade air 
quality and to assure that when new investments are made, emissions are 
minimized by requiring sources to meet performance standards that 
reflect modern emission prevention capabilities.
    While a great deal of attention has been paid to the complexity of 
the NSR permitting process, the larger environmental failure of the NSR 
program is that the program has not brought down emissions as Congress 
intended. Citizens, pollution control agencies, and Members of Congress 
are increasingly aware of the fact that grandfathered air pollution 
sources are more and more the central impediment to clean air progress. 
Contrary to the intent of Congress, investments in new production have 
not resulted in existing grandfathered sources being replaced by 
facilities that must meet modern performance standards. As a result, 
grandfathered sources dominate the pollution inventory throughout the 
United States.
    The degree to which old stationary sources determine our nation's 
burden of air pollution is striking, especially when compared to the 
impact of old cars on pollution loads. For example, fossil electric 
powerplants built more than 20 years ago are responsible for 84 percent 
of total U.S. nitrogen oxides (NOx) pollution from that sector and 88 
percent of sulfur dioxide ( SOx). In contrast, 20-year-old cars 
contribute less than 7 percent of U.S. car NOx pollution and 3 percent 
of that sector's VOC (volatile organic compounds) pollution. It is 
obvious that the Title II new mobile source program has done quite a 
good job of preventing old cars from dominating today's pollution 
problems but the Title I new stationary source program has performed 
miserably on this score.
    There are some obvious reasons for the NSR program's poor pollution 
reduction performance. First, the rules themselves contain too many 
loopholes that allow sources to avoid NSR even though they continue to 
make significant investments year after year. Second, as recent 
enforcement actions have alleged, there are many instances of firms 
escaping the requirements of the rules by misclassifying projects in an 
unlawful manner.
    Reform of the NSR program should address its failure to produce 
pollution reduction from old grandfathered sources as a priority issue 
as well as explore ways to simplify the NSR process. A genuine reform 
of the program should aim to make two basic changes: the program should 
apply to more industrial projects than it now does and the review 
process should be streamlined to enable decisions to be made quickly 
while protecting the public's right to participate. Instead, the 
``reform'' proposals EPA has published over the last decade have 
concentrated almost entirely on changes that would expand the loopholes 
of the current rules so that even fewer grandfathered sources would be 
required to clean up as they upgraded their capital equipment.
    The combination of categorical exemptions and exclusions, weak 
rules for calculating emission increases, and broad provisions for 
``netting out'' of review allow far too many sources to avoid the NSR 
program indefinitely. When illegal evasions of the rules are added to 
the many exemption opportunities in the rules, we get the results we 
see-most sources never encounter the Federal NSR program and their 
pollution remains with us. NRDC has filed lengthy comments with EPA on 
these issues over the years and I will not burden the subcommittee with 
a recitation of the details here. I would like to mention one area-that 
of ``netting.'' Netting is the jargon for a transaction that allows new 
projects at existing sources to escape NSR. In essence it allows the 
source operator to count ``reductions'' from grandfathered pieces of 
polluting equipment at the site in calculating whether a new project 
will result in an emission increase that would require new source 
review. By allowing sources to avoid the modern performance 
requirements of NSR, netting preserves the status quo, perpetuating 
excessively high levels of pollution originally emitted by poorly 
controlled, grandfathered pollution sources.
    Netting rewards sources that have managed to manipulate the current 
system to preserve high levels of emissions. Current netting policy 
allows those high emission levels to function as an asset that can be 
deployed to avoid NSR/PSD review. Thus, netting operates at cross 
purposes with sound air quality objectives. It creates incentives to 
keep emissions at unnecessarily high levels and perpetuates an 
inefficient allocation of emission ``shares'' by providing the greatest 
rewards to the most polluting sources. Netting frustrates one of the 
primary objectives of the NSR/PSD program, which is to link 
requirements for modern emission performance standards to investments, 
so that emissions are reduced as the economy expands. Instead, netting 
allows existing emission levels to be perpetuated indefinitely.
    While the netting rules are complex, the fundamental problem with 
the approach is easy to understand. Netting allows a grandfathered 
pollution source to ``bequeath'' its excessive pollution privileges to 
its descendant, the new piece of equipment. Under netting, the new 
piece of equipment is not required to meet modern performance 
standards; it can emit at much higher levels by relying on the 
pollution entitlements transferred from old, grandfathered pieces of 
equipment. In this way, excessive amounts of pollution can live on long 
after the original sources have disappeared. Netting resembles the 
former hereditary peerage system in England, where membership in the 
House of Lords and other privileges were handed down from generation to 
generation. England recently acknowledged this system has no proper 
place in a modern democracy. We too need to eliminate the pollution 
peerage that is imbedded in EPA's netting rules.
    For nonattainment NSR, the Supreme Court in Chevron made it clear 
that EPA has the authority to eliminate the availability of netting 
altogether.2 One perverse effect of netting in nonattainment NSR is 
that new equipment is installed without meeting ``lowest achievable 
emission rate'' (LAER) performance standards. This in turn means that a 
greater level of emission reduction is required to offset the new 
equipment's emissions than if the new equipment had met LAER standards. 
These additional emission reductions must come from a finite pool of 
existing emission sources whose total pollution load must be further 
reduced for the area to attain the ambient standards. Thus, the effect 
of NSR netting is to allow existing source owners to unilaterally 
dedicate the cheapest and easiest emission reductions in a 
nonattainment area to compensate for poorly controlled new units, 
leaving State and local control agencies with the more difficult task 
of developing an attainment plan from the more expensive, politically 
controversial remaining emission reduction opportunities.
    EPA's original defense of its 1981 change to allow netting under 
the nonattainment NSR program was that areas choosing such an approach 
would be required to develop timely attainment plans in any event so 
that there would be no environmental harm. It is now the year 2000 and 
EPA can no longer deny that the theory it presented to the Supreme 
Court in the early 1980's has no basis in reality. In fact, areas have 
not succeeded in developing timely and adequate attainment plans. State 
and local agencies have protested repeatedly to EPA that they cannot 
identify sufficient, politically feasible emission reductions to 
demonstrate timely attainment. EPA has responded with policies that 
have permitted lengthy delays in the submission of adequate plans. 
Given that the premise for EPA's initial adoption of NSR netting in 
1981 has not been achieved, it is time for nonattainment netting to be 
abolished.
    To restrict netting in the PSD NSR program, EPA should reform its 
definition of contemporaneous so that only activities which are part of 
the project for which the netting claim is made can qualify. Second, 
EPA should reduce the netting credits available for shutting down or 
limiting operations at existing units to reflect the obvious fact that 
the new emission-increasing projects will have greater longevity than 
the older existing units that are generating the netting credits. For 
example, consider a source that proposes to build a 100-ton-per-year 
new unit with a 35-year useful life and to net out the increase with 
the shutdown of a 100-ton source that has only 5 years of life 
remaining. The stream of emission reductions from the shutdown source 
ends after 5 years but the emission increases from the new source 
continue for an additional 30 years. There clearly is an enormous 
increase in the cumulative emissions from the facility over the life of 
the new project that is not captured if netting credits are given for 
the shutdown unit based only on a comparison one year's emissions.
               v. new source review and energy facilities
    Over the last year, as we have experienced high prices and 
shortages in some energy markets, the cry has been raised that 
permitting requirements, including the Act's NSR requirements, are 
preventing construction of needed facilities. These are not new claims. 
They are raised whenever the basic fact that energy is a scarce 
resource makes its way on to the evening news. So we see repeated 
references to the fact that California ``has not built a major power 
plant in a decade'' and the claim that permitting requirements are the 
reason. As NRDC's attached fact sheet points out, the claim is wrong. 
Power plant construction slowed to a trickle in California in the 
1990's not because of permitting requirements but because private 
investors first did not forecast enough demand to be assured of returns 
that would beat other uses for their money; then uncertainties created 
by the development of a deregulated electricity market caused further 
hesitation. A review of California's permitting files demonstrates that 
nearly all power plant projects were approved and without significant 
delays. The fact is, had there been no permitting requirements at all 
in California during the 1990's, private investors still did not have 
adequate market incentives to spend money building new plants.
    However, in this Congress bills have been introduced that would 
carve gaping exemptions for from NSR requirements for new and modified 
power plants. For example, S. 60 and similar provisions in S. 389, 
Senator Murkowski's energy bill, would exempt from NSR and from any 
additional emission regulation, projects at new or existing coal-fired 
power plants. While these exemptions are labeled ``credit for emission 
reduction'' or ``clean-coal'' projects, in fact the legislation does 
not require emissions to be reduced as a condition for eligibility. The 
eligibility criteria are so broadly drafted that virtually any 
expansion project at an existing plant or any new coal plant could be 
built with an exemption from NSR and a prohibition of coverage by new 
pollution control requirements, such as future rules for mercury 
controls or rules to reduce nitrogen oxides to address regional smog 
problems. A detailed analysis of S. 60's exemptions, which applies as 
well to similar provisions in S. 389, is attached.
    In truth, these efforts to repeal Clean Air Act safeguards are 
short-sighted and counterproductive to the goal of increasing public 
acceptance of new energy projects. While the nation's energy concerns 
continue to be a convenient excuse for attacking environmental 
permitting requirements, with the ``NIMBY syndrome'' derided as a 
telltale symptom of our ills, the fact is, people want nearby plants to 
be as clean as possible and want the chance to participate in location 
decisions. Weakening the Clean Air Act would increase anxiety and 
opposition to new projects, not lessen it.
    As you consider this issue I would encourage each member of the 
subcommittee to ask, ``how close is the nearest large fossil fuel 
generating station to my home-1 mile away, 2, 5, 10?'' Suppose a new 
station was proposed less than a mile from your home; how would you 
talk about it in your own kitchen or living room? Would you like the 
opportunity to ask questions about the design, performance, scale, and 
perhaps even the location of the project? Would you like a public 
process that your neighbors could join in? Would you like the right to 
get answers from the approval authorities? Would you like some recourse 
if officials ignored your questions and suggestions for improvement of 
the project? Other Americans want these same safeguards and they 
deserve better than to be labeled ``NIMBY.''
    The path to harmonizing clean air and energy goals is not down the 
road of exemptions from safeguards. The right path involves adopting 
comprehensive integrated programs to clean up existing polluting power 
plants and improving current new source programs so that they more 
reliably and efficiently assure citizens that expanded energy supplies 
can be achieved without degrading environmental quality. Mr. Chairman 
and members of the subcommittee, NRDC would be happy to work with you 
to move down this path. Thank you for the opportunity to present these 
views and I am happy to answer any questions you may have.
                               __________
 Statement of Olon Plunk, Vice President, Environmental Services, Xcel 
                              Energy Inc.
    Mr. Chairman and members of the committee, my name is Olon Plunk. I 
am Vice President for Environmental Services of Xcel Energy Inc. Xcel 
Energy is a public utility holding company headquartered in 
Minneapolis, Minnesota. Its regulated subsidiaries have the capacity to 
generate over 15,000 MW of electricity from coal, natural gas, nuclear 
and renewable power facilities. Xcel Energy has operations in 12 States 
and serves over 3.1 million customers.
    Today, I am testifying regarding some of Xcel Energy's experiences 
with EPA's implementation of the Clean Air Act. I am also here to 
express my support for alternative approaches to the current air 
quality regulatory scheme. Xcel Energy believes that the current 
regulations and EPA's implementation of them stand in the way of the 
efforts that will be necessary to ensure that the country will have an 
adequate, reliable, and reasonably priced supply of energy.
    Xcel Energy has experience with the electricity challenges 
affecting the West. We serve most of Colorado and all of the Denver 
metropolitan area. Metropolitan Denver, as you know, is one of the 
fastest growing cities in the country. During the course of the last 
several years, Xcel Energy has embarked on an effort to build or 
acquire more electric generating capacity to meet the region's growing 
energy demands. As a result of this new capacity, we have been able to 
avoid the power shortages that have had such a devastating impact on 
California.
    However, because of air quality regulation, our resource 
acquisition efforts have not always gone smoothly. Our CEO, Wayne 
Brunetti, previously appeared before this subcommittee and described 
some of the problems presented to us by the new source permitting 
requirements of the Clean Air Act. For example, in early 2000, we were 
struggling to obtain a Prevention of Significant Deterioration permit 
for a new gas-fired ``combined cycle'' unit at our Fort St. Vrain 
facility located in Platteville, Colorado. The permit that we proposed 
would have used the cleanest low-NOx combustion technology available. 
Despite this fact, EPA demanded that we install additional, expensive 
emission controls at the facility. We suggested a different approach: 
In the Denver metropolitan area, approximately 50 miles from the Fort 
St. Vrain facility, we operate an existing coal-fired facility that has 
significantly higher NOx emissions than the new gas turbine. We offered 
to install new burners on this coal-fired plant that would have reduced 
its NOx emissions by a significantly greater amount--and at 
significantly less cost--than EPA's preferred controls on the new gas-
fired Fort St. Vrain unit. Moreover, these reductions would have 
occurred in the Denver metropolitan area rather than far from the city 
on Colorado's eastern plains. Both the State of Colorado and members of 
the environmental community supported this proposal.
    Unfortunately, EPA did not. Although some EPA managers expressed 
great interest in the idea, EPA ultimately stopped it because, in EPA's 
words, it was contrary to ``the integrity of the PSD program.'' EPA 
threatened to bring an enforcement action if the State issued a permit 
to the new Fort St. Vrain unit based on our proposal. Because of our 
customers' great need for this additional generating capacity, we could 
not risk the possibility that an EPA enforcement action would prevent 
or delay construction of the plant. We agreed to install EPA's 
preferred emission control technology to reduce approximately 200 tons 
of nitrogen oxides per year at Fort St. Vrain at a total cost of $2.3 
million--approximately one half of the environmental benefit at 
substantially greater cost than the approach that EPA rejected.
    In 2000, we were also engaged in litigation with EPA over a 
somewhat different permitting issue. Under Colorado's resource 
acquisition process, Xcel Energy purchases most of the new generating 
capacity needed to meet its customer demands from independent power 
producers. These independent entities are responsible for building and 
operating the new facilities. Their only relationship to Xcel Energy is 
a power purchase agreement. Although the independent power producers 
are at most contractors of Xcel Energy, EPA in late 1999 ruled that 
their facilities were single sources with (and therefore modifications 
of) existing Xcel Energy power plants located a few miles away. Because 
of our concerns about the effect of this ruling on our ability to 
acquire the generating resources necessary to meet customer demands, we 
challenged the ruling in the 10th Circuit Court of Appeals. 
Regrettably, the 10th Circuit never reached the merits of our 
challenge. Notwithstanding the fact that EPA's ruling was issued under 
threat of sanctions against the State of Colorado and immediately 
became the settled law controlling hundreds of millions of dollars of 
investment in new generating plants, the court found that EPA's ruling 
was not final agency action and therefore not ripe for review.
    Fortunately for our company and the people of Colorado, EPA's 
ruling did not prevent the construction of the new power plants 
necessary to meet our needs at this time. However, EPA's ruling did 
prevent some of the plants from locating close to one another near 
existing transmission capacity. Thus, EPA's ruling has had the effect 
of separating new power plants from one another and forcing the 
construction of new transmission lines. The committee is undoubtedly 
aware that transmission capacity is an important factor in the ability 
of utilities such as Xcel Energy to meet customer energy demands.
    In sharp contrast to our experience with EPA, we have found that, 
working with the State of Colorado, we have been able to achieve great 
environmental progress at much lower cost by focusing on flexibility 
and certainty. As Mr. Brunetti told you last year, Xcel Energy operates 
three coal-fired power plants in the Denver metropolitan area. In 1997, 
after much study of different alternatives, we proposed a voluntary 
emission reduction program to reduce substantially the sulfur dioxide 
and nitrogen oxide emissions from those plants. For sulfur dioxide, we 
proposed to reduce uncontrolled emissions by 70 percent.
    We worked closely with the Colorado environmental community and a 
diverse group of stakeholders to develop and pass legislation that 
would allow our proposal to become a reality. That legislation 
encourages the Colorado Air Pollution Control Division to enter into 
flexible voluntary emission reduction agreements with stationary 
sources. It grants such sources a period of ``regulatory assurance'' 
during which they will not be subject to additional State regulatory 
requirements. The act also ensures that regulated utilities (such as 
Xcel Energy) can recover the costs of the new emission controls from 
their customers.
    In July 1998, Colorado and Xcel Energy's operating subsidiary 
entered into an agreement to implement our proposed Denver emission 
reduction program. Unlike traditional command and control approaches, 
the agreement allowed us to define the most cost-effective way to 
reduce emissions from the plants. The agreement grants the company 
flexibility in complying with its requirements--through annual 
emissions averages, flexible tonnage caps and trading of emissions 
between the different plants. It grants us certainty by ensuring that 
the plants will not be subject to new or different State requirements 
for a period of 15 years. Finally, it assures that we can recover the 
costs of these controls in a way that does not put the plants at a 
competitive disadvantage. As a result of this agreement, Xcel Energy 
will make dramatic reductions in emissions from these power plants--
reductions that are far greater than would have been achieved through 
traditional air quality regulation.
    The success of this plan was the result of a great deal of hard 
work by a broad range of parties. We do not believe that, under the 
current Clean Air Act, we could have reached such an environmentally 
beneficial result by working solely with EPA. This plan became a 
reality largely because of the leadership of the State of Colorado.
    From our experience working with these issues and struggling to 
meet energy demands in Colorado, we have learned several things about 
the kinds of reform that would help the West and the nation resolve the 
current electricity crisis and prevent its recurrence:

      First, the tremendous growth in energy demand in the 
country requires utilities to develop new power plants and maintain 
their existing facilities. In order to protect the air while allowing 
for the permitting, construction and maintenance of power plants, Clean 
Air Act regulations must become more flexible. We believe that the 
history of the Title IV Acid Rain program demonstrates that broad-based 
emissions trading programs are more effective and less costly than 
EPA's traditional plant-by-plant command and control approach. Our own 
experience in the Denver metropolitan area is proof that the right kind 
of flexibility creates the conditions that lead to an enhanced 
environment and cleaner, cheaper power.
      Second, and of at least equal importance, the Clean Air 
Act should provide plant owners with greater certainty in building and 
maintaining these existing generating plants. This certainty must allow 
owners of existing plants to maintain their facilities and improve 
their efficiency without fear that these efforts will be challenged by 
an EPA enforcement action for alleged violations of the New Source 
Review rules. They must also allow plant owners to plan rationally and 
flexibly for the emission reduction requirements that will be 
associated with their operations for the life of their facilities.
      Finally, the Clean Air Act should recognize that States 
are uniquely situated to address the concerns of local air quality. We 
believe that our experience in Colorado demonstrates that States are 
willing and able to think creatively about Clean Air Act issues and 
find innovative solutions. Congress should be responsible for setting 
the broad agenda and national goals for the nation's air quality 
program. States should implement that agenda and those goals creatively 
at the local level--without unnecessary interference by EPA.
    Mr. Chairman, any discussion of a reconciliation of our nation's 
clean air and energy policies would remain incomplete if we did not 
discuss the role of nuclear energy. As you and other members of the 
subcommittee well know, nuclear energy has been, and will for some time 
continue to be, the largest single source of emissions-free, base-load 
electricity. In 2000, nuclear powered electricity plants set yet 
another record in this country, generating 755 billion kilowatt hours 
of electricity.
    The role that nuclear energy plants have played in the avoidance of 
air emissions is without question. Between 1973 and 1999, U.S. nuclear 
power plants reduced cumulative emissions of nitrogen oxide and sulfur 
dioxide by 31.6 million tons and 61.7 million tons, respectively. Over 
the same period, the nation's nuclear plants reduced the cumulative 
amount of carbon emissions by 2.61 billion tons.
    The experience of Xcel Energy matches these industry-wide figures. 
Approximately 30 percent of the electricity that our customers in 
Minnesota use is generated by nuclear energy. If we were to replace our 
two-unit Prairie Island facility with a new, state-of-the-art coal-
fired facility, we would need to find clean air credits that would 
anticipate the emission of some 1,500 tons of sulfur dioxide, 4,000 
tons of nitrogen oxide, 50-100 pounds of mercury and 9,000,000 tons of 
carbon dioxide, annually.
    Given the tremendous economic and environmental value of Prairie 
Island to our company, we would not, in the normal course, be examining 
issues related to its closure. However, as most of the members of the 
subcommittee know, we are facing the very real prospect of prematurely 
closing this plant due to the Federal Governments failure to meet its 
1998 statutory and contractual obligation to manage the spent fuel 
generated by the facility. We hope that this issue will also continue 
to receive attention by Congress.
    As Congress considers various multi-pollutant strategies for the 
utility industry, these principles should serve as a valuable guide. 
Xcel Energy believes that, if properly designed, such strategies could 
achieve greater environmental progress at less cost than the current 
regulatory program. By bringing flexibility and certainty to the 
construction and operation of power plants, these strategies would also 
play an important role in a comprehensive, effective and balanced 
energy policy.
    Mr. Chairman, I thank the committee for taking time to listen to me 
today, and would be happy to answer any questions that you or the 
members may have.
                                 ______
                                 
 Responses by Olon Plunk to Additional Questions from Senator Lieberman
    Question 1. Do you believe that CO2 reductions will be 
required of your industry in the next decade?
    Response. It is very difficult to predict whether CO2 
reductions will be required of the utility industry in the next decade. 
In order to impose a CO2 emission reduction program on the 
utility or any other industry, the country must confront a wide range 
of difficult scientific, economic and political issues, including the 
following:
      Any proposed CO2 emission reduction plan must 
account for the uncertainty in the existing global climate change 
models and research. A CO2 program will ultimately be judged 
a success only ff.it is based on facts and sound science.
      Unlike regulations addressing pollutants under the Clean 
Air Act, a CO2 emission reduction plan has extraordinarily 
broad implications for the American economy and its reliance on the 
combustion of fossil fuels for the generation of electricity. An 
improperly designed CO2 program could have a significant 
impact on the reliability of the nation's electric energy supply and 
consequently a devastating effect on the daily lives of our nation's 
citizens.
      As the Senate has already made clear in its consideration 
of the Kyoto accords, a CO2 program could affect American 
competitiveness if it imposes greater costs on our Nation than other 
countries (especially countries like China in the developing world).
    These issues make the creation of a CO2 reduction 
program applicable to the utility industry a significant political and 
economic challenge during the next 10 years.

    Question 2. I sympathize with your desire for certainty and 
flexibility. Some contend, however, that we should only proceed with 
regulation of the first three pollutants. Would your business decisions 
as a result of such comprehensive regulation differ if CO2 
was or was not included?
    Response. In most circumstances, the answer would be ``yes,'' but 
that answer depends on the nature of the three and four pollutant 
strategies under consideration. For example, if a proposed three 
pollutant strategy would require-excessive and infeasible reductions in 
mercury emissions, many existing power plants would be forced to shut 
down--thus reducing significantly reducing carbon emissions. In that 
case, my company might make the same business decisions apart from 
whether CO2 were part of the program.
    Regardless of whether three or four pollutants are included in a 
comprehensive approach, Xcel Energy believes that the program should be 
designed with the following principles in mind: (1) the program should 
preserve fuel diversity and allow the continued use of coal-fired 
generation as a necessary component of the nation's energy 
infrastructure; (2) the program should be technically feasible; (3) for 
every type of emissions covered by the program, the program should 
allow both new and existing sources to use emission trading and other 
flexible mechanisms; and (4) the program should provide the certainty 
necessary for the industry to make rational investment decisions to 
insure the reliability of the nation's energy supply during the next 15 
to 20 years.

                     CLEAN AIR ACT OVERSIGHT ISSUES

                              ----------                              

                        THURSDAY, APRIL 5, 2001

                                       U.S. Senate,
                 Committee on Environment and Public Works,
Subcommittee on Clean Air, Wetlands, Private Property, and 
                                            Nuclear Safety,
                                                     Washington DC.
    The subcommittee met, pursuant to notice, at 9 a.m. in room 
SD-406, Senate Dirksen Building, Hon. George V. Voinovich 
(chairman of the subcommittee) presiding.

              ENVIRONMENTAL REGULATIONS AND ENERGY POLICY

    Present: Senators Voinovich, Inhofe, Lieberman, Carper, and 
Clinton.

        OPENING STATEMENT OF HON. GEORGE V. VOINOVICH, 
              U.S. SENATOR FROM THE STATE OF OHIO

    Senator Voinovich. The hearing will come to order. I would 
like to explain in the beginning that we have two votes at 
9:30, so we are going to try and stay here until about 9:40, 
slip out and then come back as soon as soon as we can so that 
we can continue the hearing. We apologize to the witnesses in 
advance.
    Today is our second hearing on the interaction of our 
environmental regulations and the nation's energy policy. Two 
weeks ago we held our first hearing in which we concentrated on 
our utility issues.
    Today, we will concentrate primarily on oil and gas issues. 
We need to ensure a reliable and dependable fuel supply, while 
continuing to improve public health and our environment. Today 
we are too reliant on foreign sources of oil. In January, OPEC 
decreased production by one million and a half barrels per day. 
Two weeks ago they decreased production by an additional one 
million barrels a day. That is two and a half million barrels 
reduction since the beginning of this year.
    Without the Saudis, we could be held hostage to the Middle 
East and in deep trouble. The same Iraq that we are bombing is 
selling us oil today.
    Our reliance on foreign oil has increased from 1973. At 
that time when we had our last real problem, we were 35 percent 
reliant on foreign oil. Today, it is 56 percent. It is 
projected to be 65 percent in the year 2020. We have a domestic 
refining capacity problem. There have been no new refineries 
built in the last 25 years. In fact, since 1983, 33 percent of 
our refineries have closed. The average annual capacity rate of 
those refineries is about 92 percent, while during peak demand 
periods the capacity rate runs between 95 and 98 percent. So, 
they are working at probably their top capacity.
    The high capacity rate causes us to import more refined 
products and leave us vulnerable to emergency shutdowns and 
equipment failures at any of our larger refineries.
    This problem will only get worse as our fleet of refineries 
ages. As Linda Stunt said at our last hearing, we are a fossil 
fuel based economy and we will be for the foreseeable future.
    While I support alternative fuels, such as wind and solar, 
we should continue research in those areas. But it is not 
realistic that we can replace fossil fuels today or even 
tomorrow. I think that is really important that we understand 
that.
    Too often those who emphasize alternatives fail to realize 
that there is no way that alternatives can meet our energy 
demands. Demand is increasing not only in our country, but also 
worldwide. For example, China used to export oil. Today, they 
import oil. The demand for oil in the world is growing.
    On fuel for vehicles, we will continue to be petroleum 
based. We heard testimony at the last hearing that hybrid 
vehicles look promising. They are certainly on a shorter 
timeframe than fuel cells. But hybrids are not quite there yet, 
and the current technology still uses gasoline.
    I met yesterday with Rick Waggoner, the President of 
General Motors, who told me that the electric vehicle program 
in California is not proving as feasible as many thought. The 
problems there have increased with the electricity crisis that 
they have in the State.
    I am, however, in favor of alternative fuels for vehicles. 
I think ethanol, for example, is very promising. In Ohio, 40 
percent of the gasoline we use has an ethanol content to it. 
Although we need to resolve the problem related to the Highway 
Trust Fund. Many people are not aware of the fact that two and 
a half cents from the ethanol tax goes into the General Fund of 
the United States.
    I think, particularly, Senator Inhofe, you will remember 
last year we had a colloquy on the fact that we need to take 
that two and a half cents and see if we can't get that money 
put into the Highway Trust Fund. As more and more people use 
ethanol, States are going to be impacted because that money is 
not going into the Highway Trust Fund, but added to the General 
Fund. I have talked with Senator Grassley about this.
    At our last hearing, Senator Carper mentioned an experiment 
in Delaware where they are mixing diesel fuel with soybean oil. 
I understand in Oklahoma they are doing experiments making 
ethanol from switchgrass. So, we need to broaden our fuel base.
    For today, tomorrow and tomorrow we are still petroleum 
dependent and we are going to have problems with price spikes 
and supply disruptions. We need to address the price and supply 
issues while continuing to improve the environment and public 
health.
    The question is: How do we harmonize our energy needs and 
our environmental needs so that we come up with an energy 
policy for this country? There are three main areas where 
environmental regulations may be causing problems contributing 
to fuel price spikes and shortages.
    The first is the exploration and production of oil and gas, 
which has led us to increase our foreign imports. The second is 
during the refining process, environmental regulations are 
partially responsible for no new refineries in 25 years and the 
closure of over 75 refineries.
    In addition, the constantly changing environmental 
regulations and the enforcement practices of the EPA, in 
particular the changing definitions under the New Source Review 
Program have led to complications in producing refined 
products. Because of the uncertainty of EPA's New Source Review 
Program, people are refraining from essential maintain and 
repair work which will only lead to more facility shutdowns in 
the near future.
    The program has also created a disincentive for installing 
the latest pollution control devices and modernizing 
facilities. Installing one piece of equipment can cause the 
entire facility to trigger in NSR, which may not be financially 
viably.
    Third, the boutique fuel requirements across the country 
and the inability to site new pipelines have caused additional 
problems in getting fuel to the consumers. With our growing 
dependence on natural gas, this problem is only to get worse.
    Now, we had an FTC investigation last year. It is very 
interesting; the report of the FTC got very little coverage in 
the media. What did they say? Well, what they said is  and at 
that time, if you recall, it was alleged that there was price 
gouging and price fixing in the Mid West.
    The report is very valuable, and I want it entered into the 
record today. I want to read a couple of quotes from it. ``The 
current high capacity utilization rates in the oil refining 
industry leave little room for error in predicting short run 
demand. Unexpected demand for a certain oil product is 
difficult to satisfy without reducing the supply of another oil 
product. Unexpected supply problems can result in temporary 
shortages across many oil products. Assuming that demand 
continues to grow, occasional price spikes in various parts of 
the country are likely unless refining capacity is increased 
substantially.''
    The FTC found no evidence ``of illegal collusion to reduce 
output to raise prices. Rather each industry participant acted 
unilaterally and followed individual profit maximization 
strategies.''
    The report found the primary causes were refinery 
production problems, refinery turnarounds, unexpected refinery 
disruptions and RFG phase two manufacturing problems, pipeline 
disruptions and low inventories.
    So, it went on. It concluded that the gasoline price spike 
in the Midwest was short lived. Soon after prices spiked, 
additional gasoline was produced and imported to the region and 
prices dropped as quickly and dramatically as they had risen, 
notwithstanding industry's ability to respond to the short-term 
problems, the long-term refining imbalance in the United States 
must be addressed or similar price spikes in the Midwest and 
other regions of the country are likely.
    I thought we got off to a good beginning in our last 
hearing. We have some outstanding witnesses today. We are going 
to get another perspective on it. I think the witnesses are 
balanced. We try to do that so we just don't hear one side of 
the story. I am looking forward to their testimony.
    [The prepared statement of Senator Voinovich follows:]
 Opening Statement of Hon. George V. Voinovich, U.S. Senator from the 
                             State of Ohio
    Today's hearing is our second in a series, ``Interaction of our 
Environmental Regulations and the Nation's Energy Policy.'' Two weeks 
ago, we held our first hearing in which we concentrated on utility 
issues. Today will we concentrate primarily on oil and gas issues.
    One of the great challenges facing our nation is the need to ensure 
a reliable and dependable fuel supply while continuing to improve 
public health and the environment. Accomplishing these goals without a 
major disruption to our economy or our way of life will be a test to 
our ingenuity and our resolve.
    One of the first hurdles we need to surmount is our over-reliance 
on foreign sources of oil. The extent that our reliance on foreign oil 
has increased is astonishing. In 1973, during the Arab Oil Embargo, we 
imported 35 percent of our oil. In the year 2000, that number had 
climbed to 56 percent. It is estimated that at our present rate of 
consumption, we will import 65 percent of our oil needs by the year 
2020. Since OPEC has us ``over a barrel'' so to speak they are able to 
turn the spigots on or off at their whim.
    Twice already this year, OPEC has announced a decrease in oil 
production by a combined total of 2.5 million barrels of oil per day. 
This action has driven up prices at the pump in the U.S., much to the 
consternation of many Americans. If not for the help and friendship of 
the Saudis to minimize the oil cartel's production cuts, we would be in 
deep trouble. However, it does not sit well with this Senator that 
while our military is engaged with Saddam Hussein, he is selling us 
oil.
    One of the issues that we face which keeps our imports high is the 
fact that we have a domestic refining capacity problem. There have been 
no new refineries built in the last 25 years, and in fact since 1983 we 
have lost 33 percent of our refineries. The average annual capacity 
rate is 92 percent while during peak demand periods the capacity rate 
runs between 95 percent and 98 percent. This high capacity rate causes 
us to import more refined products and leaves us vulnerable to 
emergency shutdowns and equipment failures at any of our larger 
refineries. This problem will only get worse as our nation's refineries 
age.
    At our last hearing, Linda Stuntz said that we are a fossil fuel 
based economy and we will be for the foreseeable future. I agree.
    With regards to fuel for vehicles, the American and world auto-
markets will continue to be petroleum based. While demand for fuel oil 
is increasing in our nation, it is also increasing worldwide. China, 
for example has gone from a net exporter of petroleum to a net 
importer. Having said that, I believe it is imperative that we continue 
to conduct research into the use of alternative fuels for vehicles.
    At our last hearing, we heard testimony about the potential that 
hybrid vehicles posses. Hybrid vehicles are not quite ``there'' yet and 
the current technologies still use some gasoline. Still, they are 
certainly on a shorter timeframe than fuel cells. I met yesterday with 
Rick Wagoner, the President of General Motors who told me that the 
electric vehicle program in California is not proving feasible, and the 
problems will only increase with the electricity crisis.
    I also believe ethanol is a promising fuel source. In Ohio, 40 
percent of our fuel contains ethanol. As an aside, I am still concerned 
that we have not satisfactorily addressed the issue of allocating 2.5 
cent-per-gallon ethanol fuel tax into the Highway Trust Fund instead of 
the general treasury. In a colloquy during the MTBE debate last year 
there was agreement to put the 2.5 cent ethanol tax into the Highway 
Trust Fund rather than into general revenues. We need to resolve this 
issue.
    In addition to ethanol, we should look at other alternative fuels. 
At our last hearing, Senator Carper mentioned an experiment in Delaware 
where diesel fuel is mixed with soybean oil. I also understand that in 
Oklahoma experiments are being conducted that make ethanol from switch 
grass. All of these activities will help broaden our fuel base.
    However, while I support the use of alternative fuels, too often 
those who emphasize alternative fuels fail to realize that there is no 
way that they can fully meet our current energy demands. We need to 
address the price and supply issues while continuing to improve the 
environment and public health. The question is how do we harmonize our 
energy needs and our environmental needs to achieve a National Energy 
Policy.
    Therefore, today, we must deal in the reality that our nation is 
still petroleum-dependent and we are going to have problems with price 
spikes and supply disruptions. We have already discussed the role 
foreign oil plays in such matters, but we need to explore how they are 
affected by environmental laws and regulations here in the United 
States.
    There are three main areas where environmental regulations may be 
causing problems contributing to fuel price spikes and shortages. The 
first is the exploration and production of oil and gas which has led us 
to increase our foreign imports.
    The second can be traced to the refining process. Environmental 
regulations are partially responsible for the fact that no new 
refineries have been built in the last 25 years and that over 75 
refineries have been closed in the same time-frame. In addition, 
constantly changing environmental regulations and the enforcement 
practices of the EPA in particular the changing definitions under the 
New Source Review program have led to complications in producing 
refined products.
    Because of the uncertainty of the EPA's New Source Review Program, 
companies are refraining from essential maintenance and repair work. 
This will only lead to more facility shut downs in the near future. The 
program has also created a disincentive for installing the latest 
pollution control devices and modernizing facilities. Installing one 
piece of equipment can cause an entire facility to trigger NSR, which 
may not be financially viable.
    Third, the boutique fuel requirements that are in random use across 
the country and the inability to site new pipelines have caused 
additional problems in getting fuel to consumers. With our growing 
dependence on natural gas as an energy source, this problem is only 
going to get worse.
FTC Investigation
    Finally, I would like to say a few words about the Federal Trade 
Commission investigation into alleged price gouging and price fixing in 
the Midwest last year. They released their report last Friday. By a 5-0 
decision, the FTC found no credible evidence of collusion or other 
anti-competitive conduct by the oil industry in the causes of the 
gasoline price spikes in local markets during the spring and summer of 
2000.
    But the Report itself is very valuable and I am going to enter it 
into the record and read a few quotes from it. First:

  ``The current high capacity utilization rates in the oil refining 
    industry leave little room for error in predicting short-run 
    demand. Unexpected demand for a certain oil product is difficult to 
    satisfy without reducing the supply of another oil product, and 
    unexpected supply problems can result in temporary shortages across 
    many oil products. Assuming that demand continues to grow, 
    occasional price spikes in various parts of the country are likely 
    unless refining capacity is increased substantially.''
  And: ``FTC staff found no evidence of illegal collusion to reduce 
    output or raise prices. Rather, each industry participant acted 
    unilaterally and followed individual profit-maximization 
    strategies.''

    The report found that the primary causes were:

    Refinery Production Problems (refinery turnarounds, unexpected 
refinery disruptions, and RFG Phase II manufacturing problems), 
Pipeline Disruptions, and Low Inventories.

    The report found that the secondary problems were:

    Unavailability of MTBE as a Substitute for ethanol in Chicago and 
Milwaukee, Unocal Patents, waiver of RFG Phase II Requirements in St. 
Louis, High Crude Oil Prices, Increase in Gasoline Demand, and Taxes.

    The report concludes:

  ``The gasoline price spike in the Midwest was short-lived. Soon after 
    prices spiked, additional gasoline was produced and imported to the 
    region, and prices dropped as quickly and dramatically as they had 
    risen. Notwithstanding the industry's ability to respond to the 
    short-term problem, the long-term refining imbalance in the United 
    States must be addressed, or similar price spikes in the Midwest 
    and other regions of the country are likely.''
                               conclusion
    I thought we got off to a good start at the last hearing and with 
this hearing I hope to build on our findings.
    There is no doubt that we are dealing with a national energy 
crisis. The impact of this energy crisis is, and will continue to be, 
of such a magnitude that I believe what this committee does this year 
could have more sway over what happens to the U.S. economy and 
America's pocket books than at any other time in U.S. history. I 
maintain optimism that we will be able to deal with these issues in a 
bipartisan manner. We have a distinguished group of witnesses this 
morning and I look forward to their testimony.
    I would now like to call on Senator Inhofe.

          OPENING STATEMENT OF HON. JAMES M. INHOFE, 
            U.S. SENATOR FROM THE STATE OF OKLAHOMA

    Senator Inhofe. Thank you, Mr. Chairman.
    By the way, the program that you referred to on the grass 
is Oklahoma State University. In fact, the person who is 
heading that up is the former United States Senator Henry 
Bellmon from Oklahoma. He is very optimistic about that.
    You know, so often we look at what might be out there in 
the future, but our crisis is here now. In a recent report 
entitled ``The U.S. Downstream: The EPA Takes Another Bite Out 
of America's Fuel Supply,'' Merrill Lynch concluded that the 
EPA's clean regulations ``will clearly have the impact of 
reducing existing U.S. refinery capacity.''
    Now, this is a problem. On this chart back on the price 
spikes, if you start out with 100 percent refinery capacity, 
which we have today, everything that is on here will have that 
effect. Of course, the American people are very sensitive to 
the cost of energy right now.

    I think we as a nation need to rethink the manner in which 
we approach regulation. We need to keep an open mind. We need 
not to use some of the terms that we have heard such as ``sneak 
attacks on the environment.''
    In fact, the opposite is true. If we rethink regulation, we 
can be in a better position in the future. We can find 
ourselves in a place where we can have far greater 
environmental protection and more reliable and diverse energy 
sources.
    The chairman talked about the problem that we have right 
now in terms of our reliance upon other nations. I can't say 
that this is a partisan thing because we have not had a 
national energy policy. We first tried in the Reagan 
Administration. He didn't do it. I thought surely when Bush 
came in out of the oil patch that we would have one. We didn't 
have one there either. We didn't have one during the Clinton 
Administration. Now it is time that we do have one.
    In fact, I can remember, and this happened in New York 
State, Senator Clinton, when Don Hodel was Secretary of 
Interior. He and I had a dog and pony show where we would go to 
the consumption States and talk about how serious it was 
because our reliance upon foreign oil at that time was 
approaching 40 percent.
    We were trying to approach it in reality for what it is as 
a national security issue. Our reliance upon the Middle East 
for our ability to fight a war is not in our nation's best 
interest. We were not able to sell it back then, but I think 
now, because of the events that have taken place people are 
more sensitive to it.
    I think when you look at the refineries, working at 100 
percent capacity, it is going to be simultaneously hit with a 
number of regulations in the next few years such as Tier II of 
the sulfur-diesel rules and some of the rules and regulations 
that have already been out there.
    As many of you know, Senator Breaux and I recently sent a 
letter to Vice President Cheney in his capacity as chairman of 
the National Energy Policy Development Group that the EPA's New 
Source Review Enforcement, its flawed and confusing policies 
will continue to interfere with our nation's ability to meet 
our energy and fuel needs.
    I chaired this committee. We swapped committees not too 
long ago. I chaired this committee. In the last 4 years we have 
had hearings on New Source Review. We had one hearing out in 
your State of Ohio. We heard testimony on some of the things. 
It was really ludicrous. They would change one pipe and all of 
a sudden that triggers a New Source Review. So, we need to have 
common sense there.
    Finally, there has been a lot of talk and negative press 
about President Bush's decision on CO2. But the 
press and environmentalists have neglected to give him any 
credit for supporting a streamlined process, which will 
significantly reduce mercury, which does have a health effect, 
NOx, which is the precursor to ozone, and SO2, which 
causes acid rain.
    These are types of initiatives that we have to examine if 
we as a nation are going to provide an energy supply and 
protect human health and the environment. So, I think that it 
is good that we are having this hearing. It is good that we are 
having the types of witnesses that we have that can give us a 
balance. I think that the timing is right, too, Mr. Chairman, 
because everyone is sensitive because of the cost of energy 
right now. I think maybe we are the ones who are going to be in 
a position to do something about it in the long term.
    So, thank you for having this hearing.
    [The referenced document follows:]
                                                    March 23, 2001.
The Honorable Richard B. Cheney,
Vice President of the United States of America,
The White House,
1600 Pennsylvania Avenue, NW
Washington, DC. 20500.
Dear Mr. Vice President: In your capacity as the chairman of the 
National Energy Policy Development Group, we are writing to bring to 
your attention our concerns that, unless addressed, the prior 
Administration's EPA's New Source Review (``NSR'') enforcement policies 
will continue to interfere with our nation's ability to meet our energy 
and fuel supply needs. We strongly urge that the Administration take 
into account these concerns in developing its national energy plan.
    As you are very much aware, the nation faces a potential energy 
supply shortage of significant dimensions. The California energy crisis 
is receiving the greatest attention in the media. However, major 
challenges exist in meeting demands for gasoline and other fuels, 
especially in the Midwest. More troubling, current projections suggest 
fuel shortages and price spikes--far exceeding last year's problem. 
These are due to a number of factors including: difficulties in making 
summer-blend Phase II reformulated gasoline; EPA hurdles to expanding 
refinery capacity; and the overall increase in energy demand.
    Unless reviewed and addressed, EPA's implementation of NSR 
permitting requirements will continue to thwart the nation's ability to 
maintain and expand refinery capacity to meet fuel requirements. In 
1998, EPA embarked on an overly aggressive initiative in which it 
announced new interpretations of its NSR requirements that it has 
applied retroactively to create a basis for alleging that actions by 
electric utilities, refineries and other industrial sources taken over 
the past 20 years should have been permitted under the Federal NSR 
program. We also understand that these new interpretations conflict 
with EPA's regulations, its own prior interpretations and actions, and 
State permitting agency decisions.
    EPA's actions have been premised heavily on its reinterpretation of 
two elements of the NSR permitting requirements. First. EPA's 
regulations specifically exempt ``routine maintenance, repair and 
replacement'' activities from NSR permitting. EPA now claims that
    projects required to be undertaken by utilities and refineries over 
the past 20 years to maintain plants and a reliable supply of 
electricity and fuels were not routine and thus should have gone 
through the 18-month, costly NSR permitting process. EPA's enforcement 
officials are asserting this even though, for more than two decades, 
EPA staff have had full knowledge that these maintenance, repair and 
replacement projects were not being permitted.
    A second ground for many of EPA's claims has to do with whether 
projects resulted in significant emissions increases. By employing a 
discredited method for determining whether emissions increases would 
result from a project-using so called ``potential emissions'' instead 
of actual emissions, EPA is asserting that numerous projects resulted 
in emission increases when in reality they had no effect on emissions 
or were followed by emissions decreases.
    EPA's NSR interpretations have created great uncertainty as to 
whether protects long recognized to be excluded from NSR permitting can 
be undertaken in the coming months to assure adequate and reliable 
energy supplies. Electric utilities and refineries have expected that 
they could undertake maintenance activities, modest plant expansions, 
and efficiency improvements without going through lengthy and 
extraordinarily costly NSR permitting, as long as the project involved 
either routine maintenance or no significant increase in actual 
emissions.
    Now, in light of the new interpretations, utilities and refineries 
find themselves in a position where they cannot undertake these very 
desirable and important projects. This is not an acceptable result when 
the Nation is faced with severe strains on existing facilities. Against 
this backdrop, we strongly urge that the National Energy Policy 
Development Group:

      give investigation of EPA's implementation of its NSR 
requirements a high priority;
      suspend EPA's activities until such time as there has 
been a thorough review of both the policy and its implications;
      clarify whether the implications of EPA's new NSR 
interpretations and its enforcement initiative are being reviewed by 
the White House Office of Energy Policy and the Secretary of Energy 
prior to actions that could undermine energy and fuel supply; and
      establish guidelines to assure that EPA's application and 
enforcement of its NSR requirements will not interfere with the 
Administration's energy and fuel supply policy. Requirements should be 
developed, which are consistent with responsible implementation of the 
statutory NSR requirements.

    Specifically, to assist you in assessing the implications of NSR on 
meeting the nation's energy and fuel supply demands, you may want to 
obtain the following: (1) all requests since January 1, 1998 for 
information under section 114 of the Clean Air Act issued to facilities 
and companies in any sector involved in energy and fuel supply; and (2) 
notices of violation issued to, and complaints filed against, any such 
company and/or facility alleging NSR violations during that period. We 
are submitting a similar request to EPA today.
    Thank you for your consideration of this matter. We look forward to 
working with you in the future to develop environmental policy, which 
further protects human health and the environment and works in concert 
with sound energy policy.
            Sincerely,
                             James M. Inhofe, U.S. Senator.
                                 John Breaux, U.S. Senator.
    Senator Voinovich. Thank you.
    Senator Clinton?

       OPENING STATEMENT OF HON. HILLARY RODHAM CLINTON, 
            U.S. SENATOR FROM THE STATE OF NEW YORK

    Senator Clinton. Thank you, Mr. Chairman. I would like to 
thank you and Senator Lieberman for holding this hearing today 
on the future of our environmental and energy policies.
    This is a continuation in a series of hearings and I really 
applaud the committee leadership for bringing the environment 
and energy together as we debate the important issues before 
us.
    I would like to submit my opening statement for the record 
and take my time to introduce one of the witnesses who we will 
be hearing from in just a minute. I would like to welcome both 
witnesses, Dr. Hirsch and Eliot Spitzer, the New York Attorney 
General.
    Mr. Spitzer is someone who has adopted a very strong and 
vigorous approach toward the issues that are within his 
jurisdiction as our State's Attorney General. The environment 
is at the top of that list.
    Last month in Roessleville, New York, which is just 
southwest of Albany, we co-chaired an environmental roundtable 
where we had an in-depth discussion about many of the issues 
that are within the jurisdiction of this committee. I thank him 
for that discussion last month. I hope we can continue that and 
perhaps even have some of our colleagues on the committee join.
    Since becoming New York's 63d Attorney General in January 
1999, General Spitzer has distinguished himself as a leader on 
environmental protection, public safety, civil rights and 
consumer affairs.
    Most recently, he has helped lead the way in our State, and 
I think around the nation, in coming with an action plan that I 
hope he will explain to us, for a balanced electric power 
policy in New York State.
    It is that kind of forward thinking that has brought him to 
fight to cut pollution causing acid rain and smog in our State, 
to be on the forefront of pesticide issues and other important 
public health and environmental issues.
    I am delighted that the committee would invite the Attorney 
General to address us and I thank you for having this important 
hearing.
    [The prepared statement of Senator Clinton follows:]
    Senator Voinovich. Senator Lieberman.

        OPENING STATEMENT OF HON. JOSEPH I. LIEBERMAN, 
           U.S. SENATOR FROM THE STATE OF CONNECTICUT

    Senator Lieberman. Thank you, Mr. Chairman. It is a 
pleasure to be working with you on these hearings. We are 
dealing here with complicated but urgent questions. They can 
benefit from exactly the kind of open discussion that we had at 
our last hearing and I am sure we will have this morning.
    As others have said, this is all about balance. We need to 
have a reliable, cost efficient source of energy for our 
country, but we also need to protect our environment. There are 
increasingly those who say that we can't have both. Of course, 
we believe very strongly that we can have both. The most 
compelling evidence of that, I think, is the record of the 
1990's when we had booming economic times and substantial 
increases in the protection of our environment.
    So, I was struck at the last hearing by one of the 
witnesses who said energy efficiency gains are the second 
largest source of energy in the United States, after petroleum. 
It is a good construct with which to approach this. Obviously, 
energy efficiency doesn't get us everything we want, but when 
you think about it as a source of energy and one whose limits 
are not yet known and clearly whose emissions are minimal to 
zero, it is one to think a lot about.
    So, I thank you, Mr. Chairman, as we hold these hearings, 
hopefully, leading all of us to be part of a debate that is 
coming in Congress about a national energy policy, but also 
leading to a reauthorization and amendment of the Clean Air 
Act.
    I do want to make a brief note of one issue that is of 
importance to my home State of Connecticut, and I know to New 
York and other States. The Clean Air Act requires reformulated 
gasoline to contain 2 percent oxygen, a requirement that is 
satisfied, apparently, about 85 percent of the time by adding 
the oxygenate, MTBE.
    Last year the Blue Ribbon Panel on Oxygenates and Gasoline 
found that between 5 and 10 percent of drinking water supplies 
in high oxygenate use areas had detectable amounts of MTBE. The 
odor, taste and possible health effects resulting from that 
contamination have created a national movement for its 
elimination.
    In fact, in Connecticut, the legislature responded to 
concerns last year about MTBE by banning use of the additive 
effective in 2003.
    I hope our witnesses will help us find a way to address 
this concern while also protecting our air and our water.
    I want to welcome Dr. Hirsch and Mr. Spitzer. I want to say 
a special welcome to Attorney General Spitzer. I always loved 
being in the company of Attorneys General. One of the hardest 
transitions I had to make, Mr. Chairman, when I went from being 
Attorney General of Connecticut to being a Senator was that no 
one called me ``General'' any more.
    So, General Spitzer, it is great to see you. You are truly 
a general in the army of those who fight, as one of your 
distinguished predecessors said, ``as the peoples' attorney'' 
for their best interests. It is good to have you here.
    Senator Voinovich. Thank you, Senator Lieberman.
    As I mentioned, I thought we did get off to a good start at 
the last hearing. We are dealing, I think, with a national 
energy crisis. It is unbelievable what is happening across the 
country at this time. No one could have predicted it. We are 
here with this energy crisis.
    I believe that this crisis will continue to be of great 
magnitude. I really believe that what this committee does this 
year could have more sway over what happens to the U.S. economy 
and America's pocketbooks than maybe at any time in the history 
of this committee.
    Recently, I spoke to the Winter Meeting of the Board of 
Directors of the National Association of Manufacturers. I was 
just overwhelmed with the anecdotal information that I got in 
terms of what impact this energy crisis was having on 
manufacturing in this country.
    I can tell you, it is primarily the reason why we have a 
recession today in Ohio, a deep recession that our State is 
trying to grapple with in terms of providing services to the 
citizens of our State.
    I would ask that the statement of concern on energy supply 
policies be inserted in the record from the National 
Association of Manufacturers.
    Senator Voinovich. I will say this: I maintain optimism 
about the fact that we can work on this problem in a bipartisan 
basis and a bicameral basis. Somehow, we can work together to 
figure out how we can harmonize the needs of the environmental 
and the energy needs and really make a wonderful gift to the 
American people and that is, for once and for all, having a 
energy policy.
    We are lucky to have such great witnesses. We look forward 
to hearing from General Spitzer and Dr. Hirsch. Without further 
words, I would like to call on Mr. Hirsch to present his 
testimony. Thank you for being here.

   STATEMENT OF ROBERT HIRSCH, BOARD OF DIRECTORS, ANNAPOLIS 
   CENTER, AND CHAIR OF THE NAS ENERGY AND ENVIRONMENT BOARD

    Mr. Hirsch. Thank you, Mr. Chairman, and distinguished 
Members.
    I am Dr. Robert Hirsch. I am a member of the Board of the 
Annapolis Center for Science-Based Public Policy, which is a 
nonpartisan, not-for-profit study group. I am also chairman of 
the Board of Energy and Environmental Systems at the National 
Academies and I am a Senior Energy Analyst at the RAND 
Corporation. I21My experience is in energy technology 
management and analysis in both government and industry. I have 
been involved in a number of different areas of energy 
technology. The views this morning are my own and do not 
necessarily reflect the positions of my three affiliations.
    My messages to you today are as follows: One, we are 
experiencing a new kind of energy crisis that has only begun 
and we need to take decisive action.
    Two, there is no silver bullet to solve our problems.
    Three, the fundamental challenge, as has been indicated, is 
to balance, balance, balance what we do about it.
    Why do I call this a new kind of energy crisis? It is 
because the problems are more complicated than an oil embargo 
or a Gulf War. Our challenges involve many different aspects of 
our very complex U.S. energy infrastructure.
    Furthermore, I believe that our problems will take upwards 
to a decade or more to fix. Why do I feel it will take so long? 
It is because the problems are large in scale, large in number 
and large in cost, and because we are simultaneously working, 
as we should be, to reduce some of the remaining environmental, 
health and safety risks associated with our energy system.
    By now you have probably heard enough about the electricity 
problems in California, the natural gas price spikes throughout 
the country, the heating oil problems in the Northeast and the 
gasoline problems in the Midwest. These problems were 
predictable. Indeed, there were some unheeded warnings along 
the way.
    Part of the reason we are in such a pickle is that there is 
no one in the Federal Government responsible for the well being 
of the U.S. energy system, no one with the authority, 
responsibility and respect to warn us when potentially 
significant problems begin to rear their ugly head. The 
Department of Energy is responsible for nuclear weapons, 
environmental cleanup and almost incidentally, energy. FERC is 
responsible for regulating various elements of interstate 
energy flows. EPA is responsible for environmental care, and 
the States are responsible for energy matters within their 
borders. The energy goose has been laying golden eggs for so 
long that energy is off the radar screen or at least has been 
off the radar screen of most people until we have the 
occasional trauma.
    Right now we are seeing a number of traumas simultaneously, 
and there is reason to believe that there are more to come. For 
instance, as has already been mentioned here, our refineries 
are running near 100 percent capacity and we have been slowly 
increasing our imports of refined products, adding yet another 
dependence on foreign sources.
    No new refineries have been built in this country since the 
1970's, and a number have been shut down. Furthermore, we are 
in the process of phasing out an important gasoline additive, 
MTBE, an action that will further reduce refinery production 
rates at a time when demand is continuing to increase.
    In addition, the EPA has mandated much lower levels of 
sulfur in gasoline and diesel fuels, necessitating significant 
new investments in refineries in the United States and offshore 
to supply us with our increasing needs for fuels.
    Refining is historically a low rate of return business. So 
many companies are naturally reluctant to invest the vast sums 
needed for the mandated changes. Am I suggesting that we reduce 
our environmental goals? Absolutely not. In my opinion, we must 
reduce sulfur levels in our fuels in order to further reduce 
air pollution. I just wish we could accomplish our laudable 
goals with less acrimony.
    How about siting and building the new electric transmission 
lines needed to deliver the higher levels of electric power 
that people are demanding? That is a not-so-obvious problem in 
California and in other places around the country.
    As you may know, siting new transmission lines has 
encountered interminable delays in many parts of the country 
and threatens to choke off the higher power that people demand.
    About natural gas pipelines and petroleum product 
pipelines, both are problems in many areas. Permits for new 
pipelines are tough to come by and land for right-of-ways is 
increasingly expensive.
    At a meeting in New Orleans 2 weeks ago, a major oil 
company representative indicated that his company is using 
drag-reducing agents in some of their pipelines because their 
pipelines are operating at full capacity. With petroleum 
product demands increasing, that indicates trouble ahead; and 
the list continues.
    If you want more electric power, you have to build more 
electric power plants. Natural gas is clean and was very cheap 
until recently. Over 90 percent of the planned new electric 
power generation in the United States will be natural gas 
fired. In one sense that is good because of the environmental 
attractiveness of natural gas generators with exhaust gas 
cleanup.
    In another sense, it is troubling because the mushrooming 
dependence on natural gas will make the country ever more 
vulnerable to future natural gas disruptions and price spikes.
    Analysts can run complicated models to tell you about 
vulnerability, but it is really common sense. If you had, for 
instance, all of your retirement money in the NASDAQ in the 
last year, you would have some troubles. If you had all of your 
money in bonds in the early 1990's, you would have missed some 
good opportunities.
    The answer isn't all gas or all coal or all nuclear or all 
renewables. Each has its strengths and weaknesses. For 
instance, many people don't realize that for larger power loads 
the popular renewables are simply fuel savers for other power 
plants. So, their ultimate contribution to U.S. energy needs 
will be limited, even after their prices and their costs come 
down.
    Energy efficiency is extremely important and must be part 
of the equation. However, making a major difference, a major 
national difference in energy usage would require much higher 
energy prices to motivate people to buy more efficient 
appliances, cars, et cetera, or there would have to be heavy 
Federal Government intervention, and it would still take a 
decade or more to work out the problems.
    Be wary of anyone who tries to sell you a silver bullet in 
energy. There are none. A diversity of approaches is essential.
    Where does all of this lead? To me, we need, as indicated, 
a more balanced, a better-balanced approach. We need a 
diversity of energy sources and energy efficiency if we are to 
minimize our costs and our vulnerabilities. However, that would 
require Federal intervention, which is not universally 
welcomed.
    Let us not forget energy research and development. Our 
Federal investments at the Department of Energy and its 
predecessor agencies have yielded very important technologies, 
some of which are in use today and others are on the shelf, 
ready to go when we need them.
    Also, it may be that we need to be temporarily flexible in 
some of our near term environmental goals to help us get back 
on an even keel. They are doing that in California now. I, for 
one, on the other hand, do not endorse permanently turning back 
the clock on pollution reduction.
    Finally, let us not be afraid to have open, honest dialog 
on our options. Every one of them has advantages and 
disadvantages. Let us discuss the options objectively and 
strive to minimize the extremism and misinformation that so 
often characterizes such discussion.
    Let us put somebody in charge of overseeing our nation's 
energy system. If it is to be the Secretary of Energy, let us 
make that clear by law and give him or her the authority and 
the budgets needed for the task.
    Thank you.
    Senator Voinovich. Thank you very much.
    Attorney General Spitzer?

 STATEMENT OF ELIOT SPITZER, ATTORNEY GENERAL STATE OF NEW YORK

    Mr. Spitzer. Mr. Chairman, Senators Lieberman, Clinton and 
Inhofe, thank you for those kind words. Thank you for inviting 
me to testify before this subcommittee concerning the 
interaction between our environmental regulations and our 
nation's energy policy.
    Let me be crystal clear: There need be no conflict between 
environmental protection and a sound energy policy. Indeed, 
careful attention to environmental and health protections will 
enhance, not harm, our energy security.
    Our energy supply must be reliable and affordable. I agree 
that it must be expanded. However, it must not only be 
superficially inexpensive, appearing cheap because of hidden 
costs borne elsewhere.
    An energy supply that is provided at the cost of harm to 
the public health or the environment--imposing enormous, but 
usually unquantified costs on the American public through 
health care costs, lost productivity, premature mortality or 
lost enjoyment of health or natural resources--is not in the 
nation's best interests.
    Proposals for such a policy will backfire. By contrast, 
proposals for clean energy and energy conservation will garner 
public support and confidence and provide the path to a 
balanced energy future.
    I urge you to work together, as we are trying to do in New 
York, to move the country toward a balanced energy policy and 
to reject the claim that environmental protections are the 
cause of the energy squeeze we are seeing today. Environmental 
protections are not the cause of, but part of the solution to 
the energy challenge.
    It was the lack of perceived demand, not environmental 
regulations that led companies not to build new power plants 
over the last decade. Indeed, many environmentalists support 
new plants that if linked with strong efficiency programs will 
take the place of our dirtiest existing plants.
    My office investigated air pollution problems facing New 
York. Neighboring States, in particular Connecticut and New 
Jersey, joined in this. Asthma is on the rise in urban areas. 
Indeed, pediatric asthma in New York City is two to five times 
the national average and double what it was 20 years ago.
    Numerous studies have shown that thousands of people in New 
York alone and tens of thousands in the country die prematurely 
due to particulate air pollution.
    Over 20 percent of the lakes in the Adirondacks are dead, 
so acidic that fish cannot survive in them. Without dramatic 
additional reductions in air pollution, that figure will rise 
to 40 percent within several decades.
    Every summer, portions of the Long Island Sound bordering 
New York and Connecticut and many other estuaries throughout 
the country become eutrophic, so devoid of oxygen that fish 
cannot survive.
    New York's and our nation's cultural heritage, our 
buildings and our monuments are corroding under onslaught of 
acid rain. Mercury contaminates most of our waters, rendering 
fish unsafe to eat and threatening human health. These harms of 
pollution are quite real. They are not merely a matter of 
environmental preferences. Asthma, premature mortality and 
other respiratory diseases cost Americans billions of dollars 
every year. The loss of recreational jobs, tourism and 
commercial fishing, plus the increased expense of water 
treatment, cost the nation billions every year. The loss of our 
architectural history is priceless and it costs many millions 
each year just to stem the destruction.
    To address the harms caused by pollution, my office sued 
the coal-fired power plants that are the source of much of this 
air pollution. These lawsuits are premised on clear violations 
of the New Source Review provisions of the Clean Air Act, which 
required that old plants be upgraded to modern standards when 
non-routine modifications are made.
    These suits are based on well-settled interpretations of 
statutes and regulations that date from the Reagan and first 
Bush Administrations. The law is clear and industry documents 
prove beyond any doubt that the industry understood the types 
of investments at issue in this litigation were covered by the 
statutes and regulations. Companies were evading the New Source 
Review provisions and expanding or upgrading their plants 
without installing the necessary pollution controls. Our 
lawsuits simply seek to have these controls installed.
    We filed notices of Intent to Sue against 17 coal-fired 
electricity plants located in upwind States in September 1999. 
You should know that we play fair in New York and do not only 
pursue out-of-State sources. With the State Department of 
Environmental Conservation, we also commenced enforcement 
actions against eight coal-fired plants in New York.
    Shortly after we filed our notices of intent, the Federal 
Environmental Agency commenced legal action against a number of 
coal-fired plants as well. A number of other northeastern 
States joined our actions.
    I should note that Governor Whitman, acting through her 
appointed Attorney General, was very supportive of this effort.
    We have now reached agreements in principle with two 
companies, Virginia Electric Power Company and Cinergy 
Corporation. These agreements will lead to enormous reductions 
in the emissions from the coal-burning plants from these 
companies. They will spend approximately $2.8 billion in 
support of these emission control systems, an agreement they 
entered voluntarily because they understood the weight of our 
legal argument.
    In addition, we are in active discussions with several of 
the owners of several of New York's coal-fired plants.
    In discussing resolution of these lawsuits with the 
companies, we recognized the need to ensure the nation's energy 
supply. We gave the companies significant time to install the 
needed controls. These lawsuits will have absolutely no 
detrimental effect on our energy supply. We ensured that the 
upgrades could be implemented consistent with the operating and 
financial needs and abilities of the companies.
    We expect that pursuant to the settlements some facilities 
will be repowered and expanded. Moreover, these settlements 
provide the regulatory certainty these companies need to 
invest. By providing clear guidelines for the future these 
settlements delineate a path through the environmental laws, 
allowing the companies to invest in their coal plants.
    The result is to improve our energy diversity, increase our 
energy supply and improve the environment, a win-win result. 
These lawsuits are achieving major environmental improvements 
while helping, and not in any way harming, our energy security.
    For that reason, I disagree, respectfully but vehemently, 
with the request by Senators Inhofe and Breaux that these cases 
be suspended.
    Indeed, it is the uncertainty created by the effort to 
suspend the New Source Review program, not any uncertainty 
created by the litigation, that is jeopardizing progress in 
this area.
    Senator Voinovich asked how to harmonize our environmental 
and energy policies. We can harmonize these two critical needs 
by addressing not only how much power we have available, but 
how the power is generated.
    We can achieve a sustainable energy portfolio by enacting 
policies that promote clean, distributed generation, renewable 
power, and energy efficiency and at the same time ensuring that 
the necessary new supply can be brought on line promptly.
    Recent studies demonstrate that even in northern States 
such as New York solar power which is best generated on hot 
summer days can already be cost effective in reducing peak 
electricity demand which also comes on hot summer days.
    We also have significant wind resources if the electricity 
can be properly distributed. Finally, we can achieve 
significant gains in energy efficiency even in New York, which 
ranks second among the States for the most efficient use of 
energy today.
    One important way to achieve these gains is to implement as 
soon as possible the appliance energy efficiency standards, 
which the new Administration has put on hold. They are critical 
to a sound energy policy.
    If we were to improve efficiency by an achievable 10 to 20 
percent, we would be solidly on the path to resolving the 
energy challenge and we probably, just by that measure, would 
go most of the way toward meeting even the most aggressive 
climate change goals. Finally, we would reduce our dependence 
on foreign fossil fuels.
    In sum, the Clean Air Act, as well as other environmental 
regulations, should not be viewed as hindering a sound energy 
policy. The American people will not accept energy production 
that poisons their air and their water, any more than they will 
accept blackouts. Indeed, it is a false dichotomy to suggest 
that people must choose one or the other. An environmentally 
sound energy policy is the only sustainable future. 
Fortunately, it is achievable if we demonstrate leadership and 
foresight.
    Thank you very much.
    Senator Voinovich. Thank you, Attorney General Spitzer.
    I would like to start off quickly. I do not want to debate 
the issue of the lawsuits that we have. Frankly, I did not 
expect that we would be getting testimony on it. I would like 
to ask two questions, Attorney General Spitzer, that are 
relevant because ``I am the Governor of Ohio.'' I am proud of 
the fact that while I was Governor of our State that we did 
achieve the current ambient air standards.
    I would like to point out that New York is not in 
attainment of the current ambient air standards. It is 
interesting say, if they are not in current attainment, how are 
they going to attain the new standards?
    Second of all, more important that New York is expected to 
have power outages this summer, at least brownouts and possibly 
blackouts.
    I understand the main problem for the city is an adequate 
transmission capacity, not necessarily the generation problem. 
In your opinion, are there any environmental impediments to 
increasing the transmission capacity for New York? This is 
going to be a big problem this summer for your State and 
particularly for the city.
    Mr. Spitzer. Let me address each of those questions. I 
think they are very well framed questions. First, you are 
correct, New York State has not complied with the attainment 
standards. Part of the problem, even though it is not the 
exclusive answer, is that we have an inflow of pollution from 
out of State. That indeed was the rationale for our lawsuits.
    I think it is very poignant that the power plants in Ohio 
and elsewhere--and I don't say this to cast blame, but I think 
it is just a fascinating fact--built smokestacks that were in 
excess of 700-feet tall. The reason for that, and I think it 
was a very wise policy by the energy companies because they 
like to be good neighbors for those in the immediate vicinity 
of the plants, was they do not want the emissions from their 
plants to fall on their neighbors.
    Unfortunately, what these smokestacks do is send the 
emissions up into the air stream where they come down farther 
to the east, which means New York, New Jersey and Connecticut, 
which is precisely why we have such an overwhelming interest in 
ensuring that the plants in the Midwest comply with the Clean 
Air Act.
    So, I think that yes, Ohio was to a certain extent able to 
satisfy its statutory mandate----
    Senator Voinovich. Not to a certain extent. We did achieve 
it.
    Mr. Spitzer. To a certain extent because it was able to 
shift the burden eastward. I applaud you for caring enough to 
reach and satisfy the attainment standards, however, I think 
part of the reason you were able to do that is that we are now 
caught with the very emissions that come from the Ohio plants 
and that is the predicate for our lawsuit.
    Senator Voinovich. We could close down our plants and you 
would still have a problem in terms of achieving your emission 
standards. I ought to get off this subject. It is one that I 
have been dealing with for a long time.
    How about the issue of transmissions?
    Mr. Spitzer. I agree with you entirely about the T&D 
systems. I applaud you, and I say this very sincerely, for 
getting Ohio into compliance. We are working aggressively 
within New York State. As I said, we play fair. We are pursuing 
New York emissions as well. That doesn't mean we will ignore 
out-of-State emissions.
    With respect to transmissions and distribution, in the 
report that I issued we focus a great deal upon transmission 
and distribution constraints. New York State has not invested 
adequately. It is an interesting figure. Ten years ago we 
invested over $300 million annually to improve our transmission 
and distribution systems.
    In 1998, it was down to $90 million. We have load pockets 
downstate--New York City and Long Island--that make it very 
difficult to move the energy from those regions where we have 
an energy surplus, Western New York where we have access to 
hydropower from either Quebec or elsewhere, down to New York 
City. We have to improve more in our T&D systems.
    I disagree a little bit with the second part of your 
question. I don't think we will have, there is no certainty, 
certainly, to the notion that we will have either brownouts or 
blackouts in New York City this summer.
    I think that if we make the necessary adjustments and put 
in place, and I support putting in place, some of the turbine 
generation in New York City and on the Island that we need, we 
will avoid that concern this summer.
    Senator Voinovich. Dr. Hirsch, here is a big question. You 
say that we are not organized to have an energy policy. Have 
you given any thought to how you would organize the Federal 
Government so that we do have an energy policy? Where would you 
put the overseer of this program?
    Mr. Hirsch. The logical place would be in the Department of 
Energy, in my opinion. It should be the Secretary of Energy. As 
indicated, he does not now have responsibility for overseeing 
the well being of a very complicated energy system that we have 
in the United States.
    That, I think, needs to change. As I said before, a number 
of the issues that we are facing today were predictable. 
Indeed, if somebody was looking at the details of what was 
happening in the oil patch in terms of drilling for natural 
gas, you could have predicted that there would have been a 
problem coming.
    Could we have done somebody about that? It would have taken 
heroic action, but we could have, I think.
    In terms of the problems with transmission and distribution 
of electric power, there needs to be somebody seriously looking 
at these issues and reporting so that you all and we all listen 
and pay attention to the problems before they get to the point 
that they are today.
    The same thing with oil, natural gas pipelines and so 
forth.
    Senator Voinovich. Thank you.
    Senator Clinton.
    Senator Clinton. I think we have to go vote; don't we? I 
think this is such an important discussion. I would only add 
that the interchange between the chairman and General Spitzer 
is important in several respects.
    You know, I have a great deal of admiration and respect for 
our chairman and for our Attorney General. I honestly believe, 
going along with what Dr. Hirsch just said, that we can give 
real leadership to this. We can, in this Congress, in this 
Session, in a bipartisan way, by getting people around the 
table and honestly discussing our differences and trying to 
figure out how to bring about the changes that we all seek. To 
that end, of course, I am hopeful that there will be sufficient 
funds left in our Federal budget to provide some of the carrots 
that we need, some of the incentives that we need so that our 
utility companies have the incentives that are required to move 
toward efficiency and controlling emissions and that we also 
make the kind of investments Dr. Hirsch is speaking of that 
need to come from the public sector, as well as the private 
sector, in a partnership.
    I honestly believe if we did this right now, and I would 
respectfully ask the Administration whom I am sure must have 
representatives in the audience, to think carefully about what 
we could do in a bipartisan way to achieve these ends with the 
kind of incentives that are possible.
    Senator Voinovich. I think we will recess now for 15 
minutes and then get back. We will catch the last of the first 
vote and do an early vote on the second one.
    [Recess]
    Senator Voinovich. The committee will come to order.
    I would like to call on Senator Inhofe. I would also like 
to make note of the fact that Senator Corzine stopped by and 
although he cannot be here, he has asked that his statement be 
inserted in the record. He would appreciate the witnesses 
responding to several questions that are in his opening 
statement.
    Senator Voinovich. Senator Inhofe.
    Senator Inhofe. Thank you, Mr. Chairman.
    Let me just make a comment rather than ask a question. I 
think, Mr. Spitzer, you probably will have a response to it. 
You implied in your testimony that the NSR Program is quite 
clear. I would like to submit for the record a March 12, 2001 
letter and attachment from Russ Harding, Michigan's DEQ 
Director, to Administrator Whitman. In this letter he is 
representing the DEQs of six States.
    These directors state, and I am quoting now that ``They 
understand the complexity of the current air permit program, 
referring to NSR, and the roadblocks to administer it fairly 
and consistently.''
    The attachment to the letter then outlines proposals for 
much needed true reforms. Based on this letter and discussions 
I have had, it doesn't sound like your opinion of the NSR is 
shared by everybody or by many of them.
    Mr. Spitzer. Sir, I appreciate the comment. I think you 
said that they described it as complex. I don't think 
``complex'' and ``clear'' are necessarily opposites. It is 
complex, certainly, but the tax code is complex but also I 
think it is quite clear how we pay taxes, in most instances.
    I think that the NSR guidelines and regulations, certainly 
the ones that we have invoked in our litigation, are, we 
believe, very clear. I would suggest what we could submit to 
you--and we would be happy to respond precisely to that 
letter--but what I will also send to you is our motion for 
partial summary judgment in our litigation against AEP, which 
is one of the pending litigations.
    We will have to redact some of it because some of it is 
based upon internal documents from the company that are filed 
under seal. But I think you will see that we rely upon almost 
entirely regulations and interpretations of regulations that 
were issued during the Presidents Reagan and Bush 
Administrations.
    I think that we are not invoking either new interpretations 
or trying to put a gloss on new interpretations. We are using 
very stable, accepted interpretations of an NSR structure that 
the companies, and again the internal documents demonstrate 
this, understood.
    Senator Inhofe. My staff just reminded me that we went 
through this in another hearing, that this is a 20-page 
regulation with 4,000 pages of guidance documents.
    I do want to submit this letter for the record. You can 
respond specifically to the letter.
    Mr. Spitzer. We would be pleased to do that, sir. Senator 
Inhofe. I neglected to ask, and I would ask now unanimous 
consent that the letter from John Breaux and myself be inserted 
in the record right after my opening comments and this letter 
at this point.
    Senator Voinovich. Without objection.
    Senator Inhofe. Dr. Hirsch, there have been no new 
refineries sited in almost 20 years. Do you want to tell us 
why?
    Mr. Hirsch. Well, it is a low margin business. It is not 
attractive for people to get involved from the outside in most 
cases. A lot of refineries that are there now, particularly 
with the large oil companies, have been expanded over time. The 
economics are not unreasonable for folks like that.
    Also, to try to get permits to site a new refinery would be 
a bear, just an absolute bear. People would object to that the 
way they object to power lines and other things. So, it would 
be a daunting task. It is easier to expand existing refineries.
    Senator Inhofe. You know, I have talked to a lot of 
refineries and some in my State of Oklahoma. They say it is not 
just the regulations, but it is the uncertainty and the 
interpretations and it is a moving target. There are huge costs 
of compliance, only to find out that they are complying with 
the wrong thing.
    Mr. Spitzer, do you have any thoughts about that?
    Mr. Spitzer. Absolutely. I think you focus on the word 
``uncertainty.'' I agree with you. I think uncertainty is a 
risk that business does not like to assume. So, one of the 
things we have sought to accomplish in our settlements with 
both Cinergy and VEPCO is certainty with respect to the nature 
of the investments they have to make to ensure compliance. We 
believe that is an unalloyed good.
    With respect to your larger point about the failure to get 
additional supply on line, again, the report that we issued a 
few weeks ago addresses that very clearly. We need new supply. 
I agree with Dr. Hirsch. He and I were chatting during the 
break. We have to improve the siting process. We have to invest 
in transmission and distribution lines so that we have a grid 
that works, that permits energy to flow into load pockets right 
now that are cutoff.
    We make some very specific recommendations in my report, 
though they are specific to New York State, about how we can 
improve the siting process and how we have to also work to 
overcome what we all understand is local opposition to plants 
that are not necessarily desirable neighbors.
    So, I think I agree with you with respect to the cost of 
uncertainty. I don't think that is the underlying reason that 
we have not had new investment. I think that in the market, in 
its regulated context for many years there was not an 
understanding of the pent-up demand. I think that goes to the 
California crisis as well.
    Senator Inhofe. OK. Now, we are running the clock here. Can 
I get one more question in here since the other people have not 
come in?
    Senator Voinovich. Surely.
    Senator Inhofe. I wanted to ask you to respond, if you 
would, Dr. Hirsch. In the statement of General Spitzer, 
``Environmental protections are not the cause of, but a part of 
the solution to our energy challenge.''
    You saw the spike chart which we have used now for a couple 
of years. Would you respond to that statement and also what 
role the regulations play in the future costs of energy, of gas 
and fuel?
    Mr. Hirsch. That is a tough question. The reason why it is 
a touch question is that it depends on who you talk to.
    Senator Inhofe. We are finding that out.
    Mr. Hirsch. Yes. There are people who are trying to run 
businesses and work hard for pennies, in particular going back 
to refiners. They worry about fractions of a penny. 
Environmental regulations come along and cause them to have to 
put in equipment and change the way they operate, causing their 
costs to go up by two, three, four or five cents. Now, that is 
not only difficult for them personally, but it is tough from a 
competitive standpoint unless everybody is treated equally.
    It is important that we reduce a number of our air 
pollutants. You and I, our kids, and our grandkids are 
breathing them. We have to do something about that, but we 
ought to be able to do it in a way that works a little better 
than it is working now, where people are dragged kicking and 
screaming, in a number of cases.
    you will always have some people who will hold out, but it 
seems to me there must be a better way to do it.
    Senator Inhofe. Thank you. Thank you, Mr. Chairman.
    Senator Voinovich. Thank you. I really don't know whether 
Senator Lieberman and Senator Clinton are coming back. I would 
like to thank the panel for being here this morning. I 
appreciate your testimony. We will be submitting some other 
questions to you if you would be willing to respond to them.
    Thank you very much for being here.
    Mr. Hirsch. Thank you, sir.
    Senator Voinovich. I would like to apologize to the next 
panel for the long wait that they have had.
    Testifying today will be Mr. Thomas Stewart, Executive Vice 
President of the Ohio Oil and Gas Association. Following Mr. 
Stewart will be Mr. Jason Grumet, Executive Director of the 
Northeast States for Coordinated Air Use Management; Mr. Bob 
Slaughter, Director of Public Policy for the National 
Petrochemical and Refiners Association; and Mr. Carlos Porras, 
Executive Director of the Communities for a Better Environment; 
and Mr. Taylor Bowlden, Vice President of Policy and Government 
Affairs at the American Highways Users Alliance.
    I understand that Mr. Bowlden worked for Senator Symms on 
the EPW Committee for 10 years.
    I would like to particularly welcome Mr. Steward from Ohio, 
the Ohio Oil and Gas Association. I have worked with that 
organization during my years as a legislator and then as 
Governor of Ohio.
    Now, I would like to begin the testimony. Mr. Stewart, will 
you start?

STATEMENT OF THOMAS STEWART, EXECUTIVE VICE PRESIDENT, OHIO OIL 
                      AND GAS ASSOCIATION

    Mr. Stewart. Good morning. I am Tom Stewart and I serve as 
the Executive Vice President of the Ohio Oil and Gas 
Association, a trade association representing over 1300 oil and 
gas producers in the State of Ohio and allied support 
industries.
    I am also testifying on behalf of the Independent Petroleum 
Association of America who represents thousands of independent 
producers throughout the nation and who I am proud to say is a 
fine advocate for our issues here in Washington, DC.
    The exploration and production industry is distinguished by 
its breadth and diversity. Oil and natural gas are found in 33 
States, 12 of which are represented on the committee. There are 
over 850,000 oil and gas wells in the country in areas ranging 
from arid plains and forests to wetlands. These wells produce 
from reservoirs that are shallow to ultra-deep. Production 
levels range from the very prolific to wells that produce less 
than one barrel of oil per day.
    The operation of these wells has been regulated since the 
1920's, with an increasing emphasis on environmental controls 
since the 1960's. Because of the diverse conditions associated 
with production, the regulatory process must be flexible in 
reflecting the unique conditions in each State and the areas 
within the States.
    It requires the technical expertise which has been 
developed in each of these States and which does not exist 
within the Federal EPA. For this reason, Federal law and 
determinations issued by EPA have generally deferred regulation 
of the industry and the various States.
    Furthermore, many studies catalogued by interstate oil and 
gas compact commissions have established that environmental 
regulation at the State level results consistently in higher 
standards of protection than does Federal regulation.
    Complying with environmental regulation remains a 
significant cost for my industry, with estimates of annual 
costs ranging from $1.6 billion to more than $2.6 billion.
    Equally important is understanding that independent 
producers, who range from large publicly traded companies to 
small business operations, drill 85 percent of the wells within 
this country. The common factor for these independents is that 
their revenues and hence their ability to meet environmental 
costs come solely from exploration, production, and sale of 
crude oil and natural gas from the wellhead.
    So, unlike large major producers, the integrated oil and 
gas industry, the independents have no means of passing on 
production and regulatory costs through other operations such 
as refining and marketing.
    Consequently, we place great emphasis on cost-effective 
regulation, limited paperwork burdens and avoiding duplicative 
regulatory requirements.
    In general, the unique problems associated with the diverse 
nature of the E&P industry have been addressed, making the 
burden of regulation manageable. However, there are some 
exceptions. For example, the most compelling environmental 
issue confronting my industry is the movement to have U.S. EPA 
regulate hydraulic fracturing under the Save Drinking Water 
Act.
    Hydraulic fracturing is a common and necessary procedure 
used by producers to complete the majority of domestic crude 
oil and natural gas wells. A producer performs the fracturing 
procedure to increase the flow of oil and gas from rock known 
to contain oil and gas, but the rock's natural characteristics 
do not allow oil and gas to reach the well bore in sufficient 
volumes.
    The process involves pumping fluid, often fresh water, down 
the well and into the reservoir to create drainage ditches deep 
within the reservoir of the rock.
    Since 1951, massive numbers of hydraulic fracturing jobs 
have been performed in Ohio and throughout the United States, 
dramatically increasing the nation's oil and gas resource base. 
This process revolutionized and made modern the Ohio oil and 
gas industry.
    At the time that the Safe Drinking Water Act was enacted, 
the States had already developed extensive underground 
injection control programs to manage liquid waste resulting 
from operations. Congress recognized the States' efforts by 
modifying the Safe Drinking Water Act to allow States primacy 
based upon comparable State oil and gas UIC programs.
    In so doing, Congress recognized that State UIC programs 
were well structured and that an overall Federal program would 
not be sufficiently flexible enough to deal with the varying 
circumstances from State to State.
    At no time during these debates has there ever been a 
suggestion to increase hydraulic fracturing in the UIC waste 
management requirements. This is because fracturing is a 
temporary injection of fluids designed for well stimulation and 
is not underground injection designed for waste control.
    Because of this and the purposes for which it was designed, 
it does not create an environmental problem.
    Nonetheless, in the mid-1990's, the Legal Environmental 
Assistance Foundation, after years of failing to make and 
environmental case against coaled methane development, 
petitioned the U.S. EPA to regulate fracturing under the UIC 
program.
    EPA rejected LEAF, arguing that Congress never intended UIC 
to cover fracturing. LEAF appealed this to the 11th Circuit 
Court, which in 1997 issued a decision, but did not address the 
environmental risk, but merely spoke to the plain language of 
the statute, saying that it should include it as underground 
injection. Initially, EPA responded to the LEAF decision by 
requesting that the Groundwater Protection Council study coal 
bed methane wells, which was the prime focus. After evaluating 
10,000 wells, they found one complaint, the LEAF case Alabama 
well that EPA had already concluded was not a fracturing 
problem.
    LEAF now returned to file a second case against EPA, likely 
to be decided this year, arguing that EPA should implement 
nationwide rules. If EPA loses this case, all hydraulic 
fracturing jobs could be federally regulated.
    Simply stated, EPA's original rejection of LEAF's complaint 
implements the balance Congress struck between protection of 
drinking water while also encouraging the continued development 
of gas and oil resources.
    However, LEAF would have EPA carve out fracturing for 
Federal regulatory oversight for steep, inactive and other 
injection methods.
    The National Petroleum Council estimates that 68 percent of 
the wells drilled in the next decade to meet natural gas demand 
would require fracturing.
    To regulate fracturing under Federal regulation, as LEAF 
suggests, would drastically impede domestic recovery of oil and 
gas reserves. It would contravene the very purpose of the Safe 
Drinking Water Act.
    Even if EPA wins the LEAF case, the likely result will be a 
rash of lawsuits of similar nature.
    Not considered an issue at the time, the Safe Drinking 
Water Act was passed, Congress did not specifically excluded 
fracturing. Two decades later, the court ignored the facts of 
the issue and changed the scope of the law on a technicality.
    We would hope that Congress would address this issue by 
legislation. We appreciate Senator Inhofe's efforts in this 
regard during the last session.
    One other issue I would like to bring up of the many that 
are in my written testimony is the Endangered Species Act. 
While Federal land managers, principally the Bureau of Land 
Management, develop resource management plans, one of their 
most important concerns is habitat management. However, balance 
needs to be struck.
    Endangered species is not a very big issue in Ohio, but it 
has had an impact. For example, in the Wayne National Forest of 
Ohio, a small oil and gas producer for an extended period has 
been seeking to obtain a permit from the Bureau of Land 
Management to drill a development well on a Federal lease 
tract.
    Since applying for the permit in February 2000, the 
producer has been waiting for the Forest Service to perform an 
environmental assessment taking into account new information, 
if any, regarding endangered species.
    It is ironic that the producer already operates two wells 
on the same property. It is even more ironic that continuous 
oil and gas operations have existed in this area since 1860. 
While this producer has been waiting for the Federal process to 
resolve itself, his requisite permits issued by the State have 
been issued and expired. Needless to say, he is frustrated with 
the process that stymies the drilling of a simple development 
well in what is the most mature oil and gas-producing basin in 
the United States.
    Senator Voinovich. Mr. Stewart, I think you will have to 
wrap it up.
    Mr. Stewart. I could not agree with what the other 
witnesses have said before, Senator. We do agree that there has 
to be a harmony brought between environmental regulation on a 
wide scope and the nation's energy supply. We encourage 
Congress to drive toward that by national policy or by separate 
issue.
    Senator Voinovich. Thanks very much. We appreciate your 
being here.
    Our next witness is Mr. Jason Grumet, Executive Director, 
Northeast States for Coordinated Air Use Management.
    Mr. Grumet?

  STATEMENT OF JASON S. GRUMET, EXECUTIVE DIRECTOR, NORTHEAST 
           STATES FOR COORDINATED AIR USE MANAGEMENT

    Mr. Grumet. Thank you, Chairman Voinovich, Senator Inhofe 
and Senator Carper.
    My name is Jason Grumet. I am the Executive Director of 
NESCAUM, which for over 30 years has been assisting the 
Northeast States in establishing a coordinated approach to our 
common air quality goals.
    On behalf of those eight States, I would like to express 
our appreciation for the opportunity to testify before you here 
today.
    The issues before the committee, Mr. Chairman, are clearly 
numerous and complex. I would like to, at the outset, commend 
you and Senator Lieberman for bringing this opportunity forward 
so we can understand better and explore the necessary 
connection between sustainable energy and environmental 
policies.
    Mr. Chairman, the current focus on our energy situation in 
this country, presents clear challenges and also obvious 
opportunities, it is understandable and yet regrettable that 
our body politic tends to focus on energy issues during moments 
of scarcity, whether they are real or perceived.
    At these moments of scarcity, the fundamental vulnerability 
of our nation's dependence on a monoculture of imported oil is 
most obvious. It is also at these moments of scarcity where 
long-term strategies which look at the environment's impact on 
energy and energy policy's impact on the environment, as well 
as strategies that understand the need to focus on more energy 
efficient demand side policies are often eschewed in favor of 
quick fix strategies which try to provide immediate relief at 
the pump, socket and switch.
    It is worth noting, Mr. Chairman, that Congress has boldly 
grappled with our country's hydrocarbon dependence in the past. 
The 1992 Energy Policy Act set forth ambitious but reasoned 
goals to try to break this monoculture of dependence on foreign 
petroleum.
    By 1999, 75 percent of the vehicles purchased by our 
government were supposed to operate on non-petroleum 
alternative fuels. By the year 2000, a full 10 percent of our 
motor fuels used in this country were slated to be non-
petroleum and by 2010 that number was slated to rise up to 30 
percent.
    The best description of our success and approach to this 
effort has been sadly woeful, Mr. Chairman. Presently, less 
than 1 percent of the fuels used on our nation's highways are 
non-petroleum.
    The Energy Administration indicated that the 20 million 
barrel per day use of oil is projected to rise to 26 million 
barrels per day by 2020. Last year, $100 billion of U.S. money 
was spent on imported oil. The trade deficit on the basis of 
that vast expenditure surged to the highest ever of $135 
billion.
    Mr. Chairman, as a founding member of the Governors' 
Ethanol Coalition, I know that you appreciate the need to 
diversify our energy stock to a more reliable, diverse and 
domestic feedstock.
    However, I would respectfully submit to you and the rest of 
this panel that had our nation devoted the resources and 
innovation to achieve the goals of EPACT over the last decade, 
both the mood and the options available to us today would be 
far improved.
    Mr. Chairman, I also agree with the statement you made 
initially that our economy today and tomorrow is going to rely 
on petroleum. I hope to take issue with that next tomorrow. It 
is my sincere hope that tomorrow's tomorrow will in fact enable 
us to have an economy that also relies on clean and renewable 
energy like fuel cells and electric vehicles.
    We in the Northeast States are working diligently to try to 
bring that about.
    I would like to focus on three regulatory policies, if I 
may, that deal with the issues that we must grapple with today 
to harmonize our existing dependence on petroleum with our very 
legitimate environmental needs.
    I will try to touch on these quickly. I will not mention 
NSR at all because I think Attorney General Spitzer did a fine 
job on behalf of the Northeast States position.
    First, Mr. Chairman, is the question of mobile source 
toxics. In 1990, this body adopted Section 202(l) of the Clean 
Air Act which ``directs the agency to promulgate regulations to 
control hazardous air pollutants from motor vehicles and motor 
vehicle fuels.''
    These standards, at a minimum for benzene and formaldehyde 
should ``reflect the greatest degree of emission reduction 
achievable for the application of technology which would be 
available.''
    Mr. Chairman, EPA's efforts in this regard have been 
uninspired at best. While we recognize that motor vehicles are 
responsible for known carcinogens that are emitted in excess of 
health standards throughout the country, we finally got a rule 
under court order from U.S. EPA that does nothing to actually 
reduce the emissions of these mobile source toxins.
    At best, Mr. Chairman, EPA's role could be described as 
what we used to call on the kickball court a ``do-over.'' They 
identify many of the inadequacies in their understanding of the 
problem and have committed to a regulatory response in 2003.
    I would ask this committee to work with these States to see 
that that in fact is achieved.
    Next, Mr. Chairman, I would like to mention briefly the 
issue of diesel. Diesel is the lifeblood of our transportation 
technology. But our failure to control diesel emissions have 
led to an unacceptable toll on our environment and public 
health.
    Moreover, the inability to control diesel effectively over 
the last 30 years has created a vulnerability in our diesel 
supply because we simply can't rely on a fuel that is going to 
exact that kind of public health harm.
    There are two issues underway which would address this. 
First are the consent decrees entered into by diesel 
manufacturers to address the fact that over one million engines 
were sold in this country which violate the environmental 
standards that they were committed to achieve.
    Second is the 2007 rule, recently promulgated by this 
agency, which for the first time would make the words ``clean 
and diesel'' rightfully belong in the same sentence.
    I would ask that this committee work to help us oversee the 
consent decrees, which sadly are beginning to unravel. The very 
companies that signed these decrees are now seeking relief from 
their very commitments, which causes us great concern in the 
Northeast.
    With regard to the 2007 rule, the agency should be 
commended and the Administration from moving forward to 
implement this regulation.
    I would like to submit for the record a letter signed by a 
number of States and industries supporting this rule and noting 
one concern. That concern is that there are suggestions that 
the Administration is going to impose a third-party review to 
kind of look over the shoulder of EPA and determine whether 
this rulemaking should go forward.
    We think that would actually provide much more harm than 
good by undermining investment decisions and undermining the 
very certainty that industry needs to comply with these 
regulations.
    Senator Voinovich. Can you wrap it up?
    Mr. Grumet. Any review that is done should be done within 
the FACA.
    Finally, Mr. Chairman, Senator Lieberman mentioned the 
issue of MTBE. Congress and only Congress can get our country 
out of this fix by lifting the oxygen mandate. Presently it is 
not possible to protect air quality, water quality and maintain 
a reliable fuel and low-cost fuel because of the oxygen 
mandate.
    We are left between the rock of MTBE contamination and the 
hard place of an ill-designed ethanol mandate.
    I would like to thank Senator Inhofe and Senator Smith for 
their efforts last year to address the oxygen mandate. I commit 
to work with this and other issues in the coming days.
    Thank you very much.
    Our next witness is Bob Slaughter who is the Director of 
Public Policy for the National Petrochemical and Refiners 
Association.
    Mr. Slaughter?

 STATEMENT OF BOB SLAUGHTER, DIRECTOR, PUBLIC POLICY, NATIONAL 
             PETROCHEMICAL AND REFINERS ASSOCIATION

    Mr. Slaughter. Thank you, Mr. Chairman. I want to thank you 
for the opportunity to comment on national energy policy and 
environmental regulation's impact. NPRA represents almost 500 
companies, virtually all domestic refiners and most 
petrochemical manufacturers.
    It has been many years since we have had serious national 
debate on energy policy. For the last two decades, low prices 
and plentiful supplies have allowed policies and policymakers 
to take energy for granted.
    As a result, programs with great impact on energy have 
often been pursued in an isolated fashion. Important national 
goals such as environmental improvements have not been balanced 
with the need for reliable domestic energy supplies. The 
tradeoffs inherent in policy decisions have not always been 
recognized.
    Our national energy policy thus far has resulted in 
declining domestic oil production, domestic natural gas 
production is still below levels in the early 1970's, 
increasing imports of crude oil and products and refining 
capacity stretched to its limit with further expansion limited 
by regulatory policies.
    Domestic refiners are increasingly challenged to meet 
demand. Since 1983, the number of U.S. refineries has decreased 
from 231 to 152. Total capacity has been relatively stable, but 
energy demand has risen dramatically, by 20 percent.
    For much of 2000, refineries ran near their operational 
maximum. Utilization peaked at 97 percent last summer. As this 
graph from a recent National Petroleum Council study shows, 
U.S. demand for petroleum products exceeds domestic refining 
capacity resulting in increased product imports.
    For the last 20 years, there was excess U.S. refining 
capacity. This chart says that is gone. Due to financial and 
regulatory constraints, it is unlikely new refineries will be 
constructed in the United States. No new refinery has been 
built here in about 20 years. Hence, the importance of 
expanding capacity at existing sites. That is where the NSR 
regulations will come in and I will discuss them later.
    Rates of return for refineries averaged only about 5 
percent in the last decade, roughly the return from a passbook 
savings account, but with much greater risk. Refiners had to 
make large investments to meet environmental requirements. The 
National Petroleum Council estimated these costs exceeded the 
book value of the entire refining industry during the last 
decade.
    Refiners now again face substantial challenges. As my 
second chart shows, an avalanche of environmental requirements 
is coming, all within the same narrow implementation period. 
Investment requirements will be substantial. We think as much 
as $20 billion over the next decade.
    The recent closure of one Midwest refinery providing 9 
percent of Midwestern supply reminds us that some existing 
refineries may not be able to continue to operate. The product 
distribution structure is also challenged. The complicating 
factor has been the addition of various area-specific fuels to 
the fuel mix.
    The next chart, prepared by Exxon-Mobil, identifies current 
fuel requirements across the nation. Assuming three grades per 
category, there are almost 50 distinct gasolines on this chart. 
Pipelines and terminals have the same problem keeping these 
fuels separate. They, too, are faced with constraints on their 
operations and find it difficult to expand.
    As we saw in the Midwest last summer, differing fuel 
specifications severely limit the ability to move supplies to 
areas that become short. Some ongoing initiatives merit a 
second look because they threaten future energy supplies.
    The first is EPA's New Source Review Enforcement Program in 
which EPA has retroactively reinterpreted its permitting rules 
long after modifications to refineries were made, amounting to 
``regulation through enforcement'' rather than through public 
rulemaking.
    The companies acted in good faith to modify existing 
facilities to keep up with existing demand. They had the 
knowledge of regulators and now face millions of dollars in 
fines and additional costs as a result of their efforts.
    Bear in mind, if refiners had been unable to make the 
expansions at existing refineries, the first chart showing the 
balance between demand and refining capacity in the U.S. would 
be even farther out of balance than it is today.
    The refining industry is not arguing against enforcement, 
but we are arguing for fairness and equity in ensuring 
compliance by everyone.
    We commend Senators Breaux and Inhofe for their recent 
letter to the Vice President questioning EPA's approach. 
Permitting uncertainties will discourage capacity expansions 
and slow necessary modifications. In many cases these 
modifications are necessary to produce cleaner burning fuels 
like Tier II low sulfur gasoline.
    The choice that America has to make is between these 
expansions or increased imports of petroleum products. We 
support market-based incentives as we move forward with new NSR 
requirements, but fuel supplies will be further strained unless 
we get a new, streamlined and flexible permitting process.
    We urge the Administration to review EPA's current 
enforcement initiative and to include permitting process 
improvements in national energy policy.
    To be fair, future action on enforcement will also need to 
consider those who have already settled with EPA in order to 
avoid disadvantaging them.
    Another EPA initiative that concerns us is the ultra-low 
sulfur diesel program. An important study commissioned by 
Charles River Associates indicated that there will be a 12 
percent shortage in national supplies of highway diesel in the 
first year of that program. That program, despite our 
recommendations, was put right on top of the EPA's gasoline 
sulfur reduction program.
    The National Petroleum Council recommended very strongly 
against that move and found that there was increased danger of 
supply disruptions if those rules were not appropriately 
sequenced.
    Contrary to others on this panel, we think the rule would 
be improved by an independent analysis by a third party, the 
National Academy of Sciences. This rule's timeframe should be 
adjusted to reduce the potential for supply problems without 
foregoing its environmental benefits.
    I would just like to say on MTBE, Mr. Chairman, we know 
that there is another concern for future energy supplies 
regarding MTBE. As you know, oxygenates assist in the 
production of cleaner-burning fuels. Several States have 
legislated an end to MTBE use due to groundwater concerns. But 
we ask the panel to bear in mind that MTBE does significantly 
supplement gasoline supplies. It is about 4 percent of the 
nation's gasoline supply, but is 11 percent of the gasoline 
supplies in RFG areas on the coasts. So, it is an extremely 
important component of gasoline supply and we ask you to bear 
that in mind in moving forward on that issue.
    Thank you very much.
    Senator Voinovich. Our next witness is Mr. Carlos Porras, 
Executive Director, Communities for a Better Environment.
    Mr. Porras?

STATEMENT OF CARLOS J. PORRAS, EXECUTIVE DIRECTOR, COMMUNITIES 
                    FOR A BETTER ENVIRONMENT

    Mr. Porras. Thank you, Mr. Chairman and distinguished 
members of the committee.
    My name is Carlos Porras and I am Executive Director of a 
non-profit organization based in California with offices in 
Oakland, and the Los Angeles area, Huntington Park.
    I am very grateful to be able to present to you today a 
slightly different version of, I think, the impacts and 
considerations that are currently before you with this very 
pressing issue of energy policy in the United States which we 
are feeling very much so in the State of California and in 
particular in the communities that we do our work in. In urban 
areas of Los Angeles County it has very much come to fruition 
for us with some brownouts, blackouts, and the proposed siting 
of a new power plant in one of our communities, the city of 
Southgate.
    The city of Southgate is approximately 85 to 95 percent 
Latino. I think this is very important to weigh in your 
considerations as we move forward with our considerations on 
energy and in particular the impact it has on regulation and 
environmental regulation which has a direct health impact in 
many communities, those which unfortunately not at the table 
when considerations and decisions are made.
    I want to note that we have documented in the Los Angeles 
area some of these environmental problems and the 
disproportionate burden that it has in certain communities in a 
report that we published in 1998.
    One of the things that is critical, I think, in looking at 
the regulatory impacts is to note that certain people, sub-
populations are disproportionately impacted historically by 
what are policies, programs, enforcement or in many cases lack 
of enforcement has on the health of certain communities.
    What we have done here to illustrate in this map of Los 
Angeles County, what you see is the color-shaded areas. The 
yellow areas are zero to 40 percent people of minority, by 1990 
Census data. The red-shaded areas are 80 to 100 percent 
communities of color. The green dots that you see in this map 
are one data base, toxic release inventory sites. That was 
gathered by the Federal Government. This shows the 
disproportionate impact.
    What I would like to point out on this map, which is very 
important to note, is that as the doglegs of race by 
demographic in the county go, there is a pattern also with 
toxic release inventory sites.
    Now, this has a very critical effect on health. One other 
thing to note is that that was one data base. In the 
communities that we are working in, Southgate being one, there 
is not just one source of pollution. This map indicates eight 
data bases which shows the huge impact, the cumulative effect 
of which is not being considered in the regulatory process.
    Coming back to the issue at hand, it is very much an issue 
of health for us. A New Source Review has a direct correlation 
with the problems in our communities, the health effect. Recent 
studies coming out of the University of Southern California 
School of Medicine and another study at Occidental College and 
UC-Santa Cruz looks at the health effects of children in 
schools from these sources, point sources.
    The impacts are having a direct effect on our children's 
learning abilities. So, I think it is important to keep that in 
consideration of any amendments to the Federal Clean Air Act, 
in particular New Source Review. In one of our struggles in our 
communities there is a refinery, Powerine Oil Company 
historically was built in 1936 and closed in 1995. it is 
currently seeking to reopen.
    Under the Federal Clean Air Act that refinery should go 
through New Source Review and install best available control 
technology. Why? Historically, this refinery was documented as 
being the dirtiest in the State of California. The land use and 
development around the refinery has changed since it was built 
in 1936. There is a State mental health hospital within a few 
hundred yards, an elementary school within an eighth of a mile, 
a senior citizens center two blocks downwind from the refinery.
    This refinery has repeatedly violated the air quality 
management district's permits.
    Senator Voinovich. Mr. Porras, could you wrap soon? Thank 
you.
    Mr. Porras. Yes. It is currently, as I said attempting to 
open without going through New Source Review. We have a 
significant problem with any type of operation given the 
history of historical violations that this refinery has had. A 
New Source Review is really the only method by which the 
community can attempt to protect their health and have a voice 
in the decisionmaking.
    I would like to finally offer what we believe are some 
suggestions for public policy. That is that first and foremost 
toxic use reduction must be incentivized and prioritized by 
regulation.
    Pollution prevention should be incentivized and required by 
regulation. Last, due to the fact that many of the substances 
that are generated and emitted into our environment causing 
serious health problems are yet unknown. We offer that the 
precautionary principle of ``First do no harm'' should be a 
public policy model that merits your consideration.
    I thank you and thank you for the opportunity to speak to 
you.
    Senator Voinovich. Mr. Bowlden?

    STATEMENT OF TAYLOR BOWLDEN, VICE PRESIDENT, POLICY AND 
      GOVERNMENT AFFAIRS, AMERICAN HIGHWAY USERS ALLIANCE

    Mr. Bowlden. Good morning, Mr. Chairman and good morning, 
Senator Inhofe and Senator Carper.
    I am Taylor Bowlden, Vice President of the American Highway 
Users Alliance. We appreciate the opportunity to talk to you 
today about how motor fuel consumption fits into our energy 
policy debate.
    Today I want to discuss three specific issues that fall 
within the purview of this committee's jurisdiction. First is 
the importance of easing traffic congestion in order to reduce 
fuel consumption.
    Second is the need to streamline the environmental review 
process to expedite congestion-relief projects.
    Third is the adverse impact on highway improvements 
associated with legislative proposals to mandate ethanol use in 
motor fuels.
    Let me begin with the connection between traffic congestion 
and fuel consumption. As most Americans could attest, traffic 
congestion has grown worse in the past decade. Just a few 
statistics will illustrate the crux of the congestion problem. 
Since 1970, American's population has grown by 32 percent, but 
the number of licensed drivers is up by 64 percent.
    The number of vehicles has increased by 90 percent. The 
miles we drive those vehicles has jumped by 132 percent. Yet, 
during the same period of time road mileage has increased by 
just 6 percent.
    It is no wonder that traffic congestion is a source of 
public frustration and concern like it never has been before. 
The Texas Transportation Institute estimates that in 1999 
traffic delay cost more than $75 billion in the 68 cities 
included in their biennial report and wasted approximately 6.6 
billion gallons of fuel.
    What can be done to ease congestion? There are a variety of 
solutions depending on the particular circumstances, but there 
is no doubt that a program focused on eliminating the worst 
traffic choke points would produce significant fuel and time 
savings.
    Cambridge Systematics, a highly respected transportation 
consulting firm, found that improving traffic flow at our 
nation's 167 worst bottlenecks would reduce gasoline and diesel 
consumption by 19,883,000,000 gallons over the next 20 years. 
That is one billion gallons of fuel a year, roughly one-seventh 
the cost the Texas Transportation Institute estimates for their 
68 cities.
    Fuel savings are just the beginning of the benefits that 
could be realized from improving those bottlenecks. The 
Cambridge Systematics report also says that we would prevent 
290,000 crashes. We would nearly halve the pollution at those 
bottlenecks. We could slash emissions of carbon dioxide at 
those sites by 71 percent and we would reduce truck delivery 
and motorist delays by an average 19 minutes per trip.
    Mr. Chairman, this is a win-win approach to energy policy 
because it would accommodate the public's need and desire for 
greater mobility while simultaneously reducing the amount of 
fuel needed to meet the demand for transportation.
    Now, let me mention the environmental streamlining issue. 
Today, it takes approximately 12 years for a major highway 
project to move through the stages of planning, design, 
environmental review and right-of-way acquisition. That is 12 
years before construction begins.
    Typically, one to 5 years of that time is spent completing 
the environmental review. Congress made a serious attempt to 
deal with this issue in TEA-21, but I think it is fair to say 
that the work of the Federal agencies to date has not met the 
expectations of the members of this committee and in the House 
who crafted that statutory provision.
    Given the time and expense involved in the current review 
process, we urge Congress to renew its effort at reform. 
Specifically, we encourage you to consider giving States the 
opportunity to play a greater role in interacting with Federal 
resource agencies.
    In addition, we believe Congress should designate the 
transportation officials as the official arbiters of the 
transportation purpose and need of a proposed project and give 
those officials authority to set appropriate deadlines for 
comment by Federal resource agencies.
    Finally, Mr. Chairman, I want to mention quickly the impact 
of ethanol-blended fuels in the Highway Program. As members of 
the subcommittee know, gasoline blended with ethanol is taxed 
at a lower rate than regular gasoline, resulting in a revenue 
loss to the Highway Trust Fund.
    In addition, as the chairman noted in his opening 
statement, a portion of the tax that is imposed on ethanol is 
deposited in the General Fund rather than the Highway Trust 
Fund.
    In combination, the General Fund diversion and the ethanol 
tax subsidy cost the Trust Fund $1.2 billion in lost revenues 
last year.
    Toward the end of the last Congress, this committee 
considered and approved legislation that would phaseout MTBE in 
gasoline simultaneously establishing a nationwide renewable 
fuels program, essentially mandating a large new market for 
ethanol-blended gasoline.
    We estimated that had that legislation been enacted, the 
Trust Fund's total subsidy to ethanol would have been $2.5 
billion annually by 2007. Lost tax revenues attributable to 
ethanol-blended fuel would inevitably reduce the amount of 
highway funds distributed annually to the States and the loss 
of highway funding means less money available for projects to 
reduce congestion and conserve fuel.
    I do want to commend you, Mr. Chairman, for taking the lead 
in addressing part of that problem. As you mentioned, you had a 
colloquy last year with other members about getting that 
portion of the tax that is going to the General Fund put back 
into the Trust Fund. We hope you will pursue that initiative 
and we commend you for it.
    Thank you again for inviting me to testify.
    Senator Voinovich. Thank you very much.
    I would like to welcome Senator Carper here to the hearing 
this morning.
    One of the things that has bothered me recently with regard 
to this discussion of a national energy policy is the fact that 
a bill that I am cosponsoring with Senator Murkowski and 
Senator Lott is that there is a lot of emphasis on the issue of 
ANWR. It seems that is being kind of the lightning rod of the 
bill, and it really deals with so many other things.
    I would like anyone to comment on what other sources of oil 
supply are available within our control in terms of the U.S. 
Government and how reasonable is it for us to be able to get 
our hands on it?
    I know, for example, from reading and talking to people 
that a lot of sources of oil in this country just have been 
kind of abandoned. Even the people who are doing the work of 
extracting it have abandoned it because the price of a barrel 
of oil went so low that it wasn't reasonable for people to go 
at it.
    What is available in terms of oil supply in this country 
and what would it take for us to get at it? Let us not talk 
about ANWR. Let us talk about somebody else and some others 
areas that are available and how long would it take us to get 
it out.
    That doesn't ignore what you just said, Mr. Bowlden. I 
think it is very important that when we put our energy policy 
together we have to look at some other practical things that 
are out there. We have cars just sitting there in traffic jams 
and all the other stuff that we have out there that is 
incredible. It just defies common sense.
    Even the issue of, you know, you drive down the highway 
every day and you see one person behind the wheel. There is not 
enough emphasis on alternatives. There are a lot of things that 
we can do.
    Specifically, what is available out there? If we opened it 
all up, how much would we be relying on foreign oil?
    Mr. Stewart. Senator, I think it is undoubtedly a fact that 
we are always going to be relying upon foreign sources for oil. 
The oil base in the United States is one of the most mature in 
the modern era of oil extraction.
    On the other hand, the natural gas resource base in North 
America is vast. It is frustrating because if you go out to the 
Rocky Mountains or into the Gulf of Mexico, on both shores, 
there are vast resources out there that have been blocked off 
from access for reason unknown.
    For instance, the coal bed methane resources in the Rocky 
Mountains that are tied up in the LEAF case that I talked about 
earlier. I personal don't understand how we are ever going to 
get away from foreign reliance for crude oil without taking 
into consideration just the mature base that we have.
    Senator Voinovich. Are you saying that but for large tracts 
like ANWR, what else is available won't make a dent in our 
reliance on foreign oil?
    Mr. Stewart. I think you need to keep in mind what happened 
at the end of 1997 when the crude oil prices collapsed to near 
$8, posted price to the wellhead. That was a direct attack on 
foreign producers on the margin of well base which supplies 
about 450,000 barrels a day to this country.
    That resource base was knocked down, substantially never to 
be recovered. That in itself is a national petroleum reserve 
that has been supplemented, as we talked earlier in our opening 
statements, for instance by Iraqi oil.
    I think the national energy policy needs to take into 
consideration the mature characteristics of oil production in 
the United States. To recognize that and come up with ways to 
sustain and underpin that oil base is the best means we have of 
controlling foreign encroachment into our marketplace, and then 
drive toward natural gas, which is apparently what everybody 
wants to drive toward.
    Senator Voinovich. I would like if some organization could 
give me a report on that, just really to define what is 
available. The natural gas thing I understand. I know there are 
just tremendous reserves out there.
    From my perspective, my narrow Ohio perspective, our 
natural gas costs have skyrocketed. It is negatively impacting, 
as you know, our businesses in the State. I had hearings with 
the elderly and others. It is just driving people into our soup 
kitchens. People are giving up food and clothing because of the 
fact that they can't pay their energy bills. We have to do 
something about it.
    Mr. Stewart. Well, it is frustrating because the resource 
base of natural gas is there. It is a matter of getting the 
molecules into the ground and into the marketplace.
    Mr. Grumet. Mr. Chairman, just to say briefly, I very much 
appreciate your invocation of the notion that we are focused 
far too much on ANWR. I think the reason now, however, is that 
it symbolizes the fundamental debate between supply and demand 
approaches to addressing this problem.
    We are existing in an energy house with a cracked 
foundation. ANWR is about a new paint job. I think the conflict 
we have and the challenge we have is that while trying to 
exploit these resources to balance that with better efficiency.
    It is worth knowing that some work we did suggests that it 
will take about 50 years to extract the full breadth of the 
reserve in ANWR.
    In 10 years, if we increase the fuel economy of light duty 
trucks and SUVs to be the same a passenger cars, we would 
reduce as much oil as is available in that 50-year reserve.
    So, it is part of a balanced package that looks both at the 
demand side as well as the supply side. I think we could 
diffuse a lot of the misdirected focus that, I agree with you, 
is being focused on ANWR.
    Senator Voinovich. Thank you.
    Senator Inhofe?
    Senator Inhofe. Thank you, Mr. Chairman.
    I know the national energy policy is not really the purview 
of this hearing, but you brought this up with Mr. Stewart. Let 
me just kind of followup and give you a different perspective 
or ask for a response.
    It happens that in the early 1950's I started out in that 
business. I was a tool dresser in a cable tool rig. No one 
knows what that is nowadays. You do? OK.
    We went after the shallow stuff. Our wells were marginal. I 
remember so well coming back, and this happened in 1970, the 
same year that EPA started, so it wasn't the result of that. I 
remember going back to the owner of these rigs. We had about 25 
cable tool rigs and they were really producing oil. He said, 
any more I have been producing cheap oil of Oklahomans for many 
years, but I can no longer comply with all the regulations. 
This wasn't even EPA regulation.
    I think it is pretty well established that if we had in 
production the oil from plugged wells for the last 15 years it 
would equal close to what we import from Saudi Arabia.
    I am not going to ask you a question, but I would like to 
ask you a question for the record, since it would be unfair to 
ask you now.
    Our energy policy, the bill that our chairman mentioned, 
the only criticism I have, even though I am a sponsor of that 
bill, is that it doesn't get to these reserves. I think that 
there are reserves out there. I know they are trying to avoid 
any messing around with the tax policy, because it is going to 
require that. I don't know of any other way to make this 
happen.
    So, for the record, I would like to have you let me know if 
there is any idea you have where we could add predictability in 
there. This is the problem these guys have. Any time you go 
from $8 to $40 in the period of a year, it can go the other 
way.
    These guys are not going to be in a position to go out and 
venture their capital unless there is some predictability. I 
would like to have you address that from your vast experience 
and those with whom you work to see if there are some ideas 
that we can up with in this legislation, if you would do that.
    Mr. Stewart. Well, Senator, the predictability of the price 
of oil, as you well know from Oklahoma, is certainly an issue. 
My own State, Ohio, is the largest oil producer in the 
Appalachian Basin. You do not see producers going out and 
drilling for oil right now, even though they have had oil 
prices----
    Senator Inhofe. That is my point. It is hard to sell here 
in Washington. They are thinking about the price. They don't 
understand. What is the price going to be if we are fortunate 
enough to have something to sell a year from now?
    Mr. Stewart. Well, if you go back to the 1980's, adjusted 
for inflation, in real dollars, the price of oil was $50 back 
then. So we are getting half of what we got. That may be an 
unfair comparison in some circumstances, but when you need to 
attract capital to this industry and you go out to the 
investment community and say, ``I want to drill for oil``M and 
then show them the price of oil curve----
    Senator Inhofe. I think we are making the same point here. 
I would also just like to mention, when you say we are going to 
be dependent upon foreign sources, this is true. What 
percentage--and I believe this should be a part of this 
legislation, a cornerstone--what percentage are we going to be 
willing to be dependent on foreign sources? That is just a 
thought.
    I don't want my time to expire. I had a question I wanted 
to ask Mr. Slaughter. You know, I very much appreciate the 
environmental goals of sulfur and diesel regulation. My major 
concern has been, before this committee and several hearings 
even already this year, fuel shortages and price spikes.
    I know that the Administration is going to have an external 
and independent review. I had something to do with that. But I 
am concerned about the time lines now because if a review takes 
2 years to start, then you are going to have 6 months or 8 
months of a year for this to take place.
    Yet, we are looking at a deadline of 2006. So, I would like 
to get from you, in terms of having this resolved and in place 
by you folks and the people you represent, I would like to have 
you share with us and get into the record here how the timeline 
affects what we want to ultimately achieve after this review 
takes place.
    Mr. Slaughter. The industry generally needs 4 years, 
Senator, in order to adequately make all the preparations, get 
permits, do the construction work and bring a new fuel on line. 
So, we believe that we are going to need some resolution and 
know where we are headed on diesel sometime probably in 2002, 
perhaps the middle of that year.
    As you know, the rule requires at least 80 percent, and we 
think quite more likely closer to 100 percent of diesel meet 
ultra-low sulfur levels in June of 2006. So, we are concerned 
about the timeframe. This is one of the reasons why we were 
urging that an independent study be done before the rule was 
taken final. We are absolutely convinced that is the way it 
should have been done.
    Then we would not be up against this mid-2006 timeline, 
which may cause a significant shortage, which I talked about.
    Senator Inhofe. You heard me mention that we had the 
hearing. I think you were even there at the Ohio hearing. We 
went into some of the problems with these new policies from the 
Administration. In some instances the Administration 
retroactively applied new policies or issued reinterpretations 
applicable to the changes in facilities.
    How would the New Source Review enforcement initiative 
impact the ability of the refining industry to produce and 
supply sufficient quantities of clean fuels to the public?
    Mr. Slaughter. It is an impediment to making the changes in 
the facilities that are necessary to make those fuels, Senator. 
The uncertainty over the exact meaning of the New Source Review 
requirements at this time by this reinterpretation has caused 
considerable confusion in the refining industry. We simply 
don't know what the requirements are going forward. The agency 
has decided to try to basically reinterpret all the rules 
through enforcement actions dealing with individual companies 
rather than follow the Administrative Procedures Act and issue 
rules that are common to all.
    As you pointed out, these were 20 pages of rulemaking which 
have now become 4,000 pages of interpretation. As part of this 
4-year lead time that I talked with you about earlier on diesel 
sulfur, a lot has to be done, but permits are the key matter 
that has to be taken care of in making these fuel changes for 
both gasoline and diesel.
    If more certainty isn't brought to this matter, then it 
will be difficult to make all the changes necessary to have all 
these mandated new fuels in the market on time. The industry 
has been trying to work with EPA to make sure that they will be 
in the market on time, particularly gasoline sulfur. But the 
results so far are not all that encouraging.
    Senator Inhofe. I know I have gone over my time. Let me 
just give the assurance to Mr. Stewart that I had legislation 
last year on hydraulic fracturing that we are going to 
reintroduce this year. I have already talked about it to some 
members that I think will support it.
    Senator Voinovich. It is interesting. To followup on the 
diesel thing, we have a manufacturer in Ohio who has an 
emulsion type of additive for gasoline and he can't get that 
thing through the EPA currently.
    They are using it in Europe right now. In fact, the 
European nations are encouraging people to use it. It reduces 
pollution from the current diesel fuel by about 40 percent. You 
know, from a logic point of view, I am not sure just how much 
it adds to the cost, but I think it is not that much an 
increase. Maybe that would be a way of maybe helping to 
transition later on to reducing the sulfur and at the same time 
during that period make a dramatic reduction in the pollution 
from diesel fuel.
    I talked to another major manufacturer of automobiles who 
said we ought to be using a lot more automobiles in this 
country that use diesel fuel, that Europe is increasing the 
number of diesel automobiles.
    There are a lot of inconsistencies here that we need to 
look at.
    Mr. Grumet. Mr. Chairman?
    Senator Voinovich. Do you have a comment? Sure, Mr. Grumet.
    Mr. Grumet. I would like to comment for just a moment on 
this diesel question. I thank you.
    There is a bit of irony in this exchange because what we 
need, I think, is clearly certainty for the industry to invest 
in the infrastructure necessary to meet these challenges. We 
have that certainty. We have a final rule that had 370 comments 
and numerous public hearings that were initiated by the last 
Administration and finalized by this Administration.
    Now we are in essence seeking to undermine that certainty 
with a third-party review, which will deprive us of the ability 
to invest with confidence. It becomes a self-fulfilling 
prophecy for failure if we stretch out this uncertainty and 
disable the investment that is going on.
    I have to tell you that I didn't make it to the NPRA 
conference, which is always very informative, held a couple of 
weeks ago. But let me read you to titles of three papers 
presented.
    ``Unipure's ASR-2 Diesel Desulfurization Process: A Novel, 
Cost-Effective Process for Ultra-Low Sulfur Diesel Fuel.''
    ``Sulphco--Desulfurization Via Selective Oxidation--Pilot 
Plant Results and Commercialization Plans.''
    Finally, ``Application of Phillips' Zorb Process to 
Distillates--Meeting the Challenge.''
    I don't begin to suggest that I know what the Zorb process 
is, but the people at Phillips do, Mr. Chairman. I think we 
should let these companies now work within the 5-year lead time 
that we have provided and make sure that we can in fact 
harmonize these affluent diesel standards.
    Senator Inhofe. Mr. Chairman, let me at least respond.
    Obviously, you and I don't agree on this review. I think it 
is important that you not necessarily have the last word in 
this.
    Mr. Grumet. That is your prerogative, sir.
    Senator Inhofe. I would like to have Mr. Slaughter respond 
to your objection to the review process.
    Senator Voinovich. Senator Inhofe, I would like to respond, 
too. I think to clarify this, I think what we are talking about 
here is to look at this and just see from a practical point of 
view what impact this would have if you put it into effect when 
they anticipate putting it into effect in terms of the 
reliability of a resource to the people.
    I want you to know something, I went through, this last 
year in Ohio, a situation where the supply wasn't there. We 
went to reformulated gasoline and gasoline prices went up to 
over $2 a gallon.
    You know, it is common sense. I am not in favor of saying 
you don't get it on ``x'' date. But I want to tell you 
something, I am interested. I think some of the environmental 
groups have got to understand that the public now is at the 
table; OK? I am the one who got the telephone calls last year 
about ``What about the gasoline? Why is this happening?''
    We had the FTC thing and everybody was saying, ``Oh, those 
oil companies are out there gouging.''
    The fact of the matter is they weren't. We don't have the 
refinery capacity. We don't have the transmission lines. We 
don't have a lot of things that are out there. So, somewhere 
long the line we have to balance up the consumer, you know, the 
person in my city today who is going to the soup kitchen, 
hunger center, can't do things because their energy costs are 
up there.
    We don't burn coal any more. We are not burning enough of 
it. We have to get to the point where we have one group saying, 
``Well, yeah, yeah, yeah.'' But we have to get to common sense. 
That is the trouble today in this country. Everybody is off on 
their own thing. One special interest group here. Another 
special interest group here.
    It is about time we got in the same room and started to be 
concerned about the people out there, yes, their environment 
and their health, improving the environment. But some how 
figuring it how, how do we work together? You just say, ``Well, 
this is the way it is and if you don't like it--tough.''
    Then, boom, you don't have the diesel fuel that is out 
there. You have truckers that are working. We are in a 
recession right now. The people are looking at us. We are 
debating about this stuff. They are saying, ``What is going 
on?''
    I am sorry.
    Senator Inhofe. I am not.
    Senator Voinovich. Anyhow, I think that is where we are. We 
are just trying to use common sense here.
    Mr. Grumet. Mr. Chairman, I am not seeking the last word 
for a moment. I would suggest, though, that there is a Clean 
Air Act Advisory Committee created by Congress that has full 
involvement of industry, academia, environmental groups, and 
private citizens.
    There is a Mobile Source Technical Subcommittee that is 
already in the process of reviewing these rules. So, I couldn't 
agree with you more, with the sentiments, the frustration, the 
concern. I am merely suggesting that we have a process in place 
that could provide that review without undermining the 
investment certainty we need so we don't have the shortages 
that we both fear.
    Senator Voinovich. I have one question. You are talking 
about refineries.
    Mr. Grumet. Yes.
    Senator Voinovich. And you are telling me you have to 
increase the capacity of the refineries. You are saying that 
New Source Review has something to do with that, and I 
understand that, because of the uncertainty and so forth.
    The issue I have is: Why can't we build more refineries? 
Why aren't you building more refineries? You are saying we can 
improve the capacity of the refineries. But the statistics that 
I have say they are at 95, 94, and 98 percent. You said one 
went down at 9 percent. How do we get more refineries?
    Mr. Slaughter. Well, it is extremely difficult to build a 
new refinery and this is because the regulations are extremely 
strict. It is very difficult to get local support for heavy 
manufacturing to be sited in any area.
    So, therefore, you know, the industry has reluctantly 
reached the conclusion that we are more likely to be able to 
use existing sites and expand capacity at existing sites than 
start new refineries. There hasn't been a new refinery built in 
the U.S. for over 20 years.
    So, the real question is: Will we be able to increase the 
capacity of our existing plants enough to at least meet a large 
part of growing demand?
    The problem with this retroactive enforcement campaign is 
that essential it has jumbled all of the rules for adding 
capacity at existing sites. So, even that very promising area 
where we might be able to increase refining capacity may well 
be closed off to us.
    I think it is extremely important that you make some 
comments like the ones that you just made because one of the 
difficulties is that when the industry tries to make what are 
really very reasonable and rational points about supply 
considerations, we are essentially denounced for opposing the 
goals of regulations, the goals of which we support.
    I think that unless policymakers like yourselves make 
statements such as you have just made and refocus this debate 
on the choices and balancing that have got to be made and done 
in these rulemakings, it is not going to happen any more.
    Senator Voinovich. Well, the issue is this: It is like what 
do we do specifically? Is it rulemaking that is the problem? Is 
it legislation that needs to be changed so that we butt up 
against what is the problem so you can sit in the room and say, 
if this is changed, this will happen?
    Then Mr. Grumet knows what they are and says, ``Well, let 
us talk about these things.''
    Do you specifically have a list of five things or six 
things that would give you the ability to increase your 
refining in a short period of time, which we need, and then 
maybe get at the issue of a new facility?
    When you give us those things, then we can get the 
environmental people and sit down with them.
    Senator Inhofe. Where on that list would ``uncertainty'' 
be?
    Mr. Slaughter. ``Uncertainty'' would be right up at the top 
because the major problem is you have to have an effective 
process to get permits and be able to build new capacity and 
make changes to comply with the mandates that have already been 
put on us.
    The New Source Review regulations, the regulations that we 
have to follow increasingly whenever we do anything to our 
refineries, EPA says even when we change our catalysts, are so 
confused and in such a mess. Everyone agrees on that point. No 
one agrees as to what the fix should be. But everybody wants 
one and the country needs one. The only way, I think, we are 
going to get one is being brought to a table.
    Someone is going to have to exercise leadership because not 
everyone is going to get what he or she wants in a resolution 
of these questions.
    Senator Voinovich. I am concerned about New Source Review, 
as you know, as certainty and changing the rules and so forth. 
It would be really nice if the people who are concerned about 
New Source Review would get into a room and come back with some 
recommendations for this committee.
    I don't think that Senator Murkowski's legislation deals 
with that. It is a big problem. Then, again, if we could then 
get the environmental groups in there to say here is what they 
are planning on doing and seeing if something can be worked out 
so that we move forward and at the same time protect and 
improve our environment.
    Mr. Grumet.
    Mr. Grumet. Mr. Chairman, thank you. I appreciate being 
thought of as an environmental group, but I should stress that 
actually I represent the air pollution programs in the eight 
Northeast States.
    There is a concept that I think is a pathway through much 
of this. You have talked about it before. That is that we 
should set clear and comprehensive environmental limits and 
then get out of the way and let industry figure out how to do 
the rest.
    That concept applies to almost everything we have talked 
about today. There are innovative efforts in Oklahoma and other 
States to adopt plant-wide applicability limits, which is in 
essence a permit on the entire facility.
    Within that real cap on that facility's emissions then 
regulators could become responsibly disinterested in exactly 
what and how the facility meets those standards.
    In reformulated gasoline, if we could maintain the 
performance standards but lift the prescriptive oxygen mandate 
and give refiners the flexibility to achieve those performance 
standards without telling them how to do it.
    Broadly put, if we could set comprehensive multi-pollutant 
caps like those envisioned in the legislation that Senators 
Lieberman, Jeffords and many Northeast State Senators have 
supported for utilities that ensure that the environmental 
benefits on mercury, on sulfur, on NO2, on carbon 
were addressed, we could then become responsibly disinterested 
in how industry decides to meet those standards. We can use 
market-based mechanisms.
    The option is there. It is on the table. There have been, I 
fear to tell you, meetings of people talking about NSR for 7 
years. I would be happy to try to see if we could help 
summarize some of that.
    The pathway through this, I firmly believe, is a 
combination of clear and comprehensive environmental standards 
and then letting industry figure out how to achieve those 
standards.
    Senator Inhofe. Mr. Chairman, he had mentioned several 
things that are our responsibilities in new compliances over 
the years. The chart that I had here, each one of these has had 
a direct effect.
    It seems to me, in looking at it in terms of supply and 
demand, we have not always been at that 100 percent refinery 
capacity. Right now, you can argue between 94 and 100 percent. 
But when you reach that point, everything that is new is passed 
on.
    That is where the chairman gets the telephone calls and I 
get the telephone calls. That is what doesn't seem to be 
addressed. To me, maybe it is not that simple, but certainly 
supply and demand is the major concern here and the major 
problem in terms of the costs.
    Mr. Slaughter. Yes, Senator. I might just add that one of 
the problems with all the flexibility programs, and everyone 
agrees that we need more flexibility and set performance goals 
and don't tell people what to do but just give them goals to 
meet.
    The devil is always in the details. There is a host of fine 
print that has come along with all of those supposedly flexible 
programs that basically often turns them into nothing more than 
a copy of the existing system.
    So, this again is why you do need everyone to come together 
and for a fair result to be reached. But I think it does 
require a good dose of leadership.
    Senator Voinovich. I am going to ask my staff people to 
identify them. We have to get on with this. One of the things 
that bothers me about being a Senator is that I am a former 
Governor and Senator Inhofe is a former Mayor. We have all 
these hearings and all this testimony and I really appreciate 
this. Mr. Porras, you came from California here. I really 
appreciate what you are trying to do in your community and your 
people live in a lot of areas where you have some bad stuff and 
you are getting a lot more than they should be getting. I am 
concerned about that.
    I am just saying, we just talk and talk and talk. We are 
running out of time. We have to get started. So, I would like 
to start drafting multi-emissions. We have talked with some of 
the environmental groups in New York. They said they are 
interested in mercury. They are interested in NOx. They are 
interested in SO2. They said, ``If you really took 
care of those things and we could see quicker activity in this 
area, we would be willing to sit at the table.''
    They didn't say you have to do the carbon thing. They said, 
``You could really guarantee that.''
    So, we are going to start drafting our legislation and see 
where people are. The NSR thing, we have to start looking at 
that. That covers the whole gamut of just about everything. But 
we need to get on with this. We are going to get on with it, 
put some meat on the bones and start talking about this thing 
and see if we can't get something done this year.
    Mr. Porras. Mr. Chairman, may I make one comment?
    Senator Voinovich. Mr. Porras, we will finish on your 
comments.
    Mr. Porras. I would just like to thank you first of all for 
the leadership of convening this discussion on the issue of New 
Source Review.
    I think what is important is to go back and look at the 
spirit of the Federal Clean Air Act, what was intended. Now 
interpretations may have been confused along the way. But on 
the point of New Source Review there was significant debate 
when the act was promulgated.
    Now, the compromise at that time, and again because of the 
health implementations of the environmental degradation that 
results from these facilities, because of that the compromise 
that was reached was that New Source Review would be 
transitioned into, best available control technology would be 
transitioned into the industry through the course of time, 
lessening the burden of the capital outlay of requiring it all 
at once. I think the spirit of that is what needs to be focused 
on so that the future policy will recognize that rather than 
just throw the baby out with the bath water, let us find 
something that works, something that still retains the spirit 
of the Federal Clean Air Act to protect public health.
    Senator Voinovich. I think that is a real good consensus. I 
want to tell you one example and I will just finish on this. In 
Lorraine, Ohio, USS Colby wants to put in a brand new blast 
furnace, $100 million. Twenty-five million dollars of that is 
going to be used to reduce pollution.
    They are going to close down this other blast furnace that 
is terrible, you know. It is still operating because of the 
fact that it is grandfathered in. They were told that you can't 
open the new one because the new one, which is the most modern 
technology, is going to violate the new ambient air standards 
that we set for the Lorain area. When we set the standards that 
plant was just about shut down.
    That is the kind of thing that I think doesn't make sense. 
We need to start to look at it. ``Gee, they are going to put in 
a new plant. They are going to reduce substantially; close down 
this other thing that is polluting the air. That is kind of a 
sensible thing.''
    Then some bureaucrat comes along and says, ``Oh, I am 
sorry, but the standard we set, your new blast furnace is not 
going to reach that new standard.''
    There is some kind of common sense that we need to insert 
in the way this operates. If we can do that, I think we are 
going to have a cleaner environment and I think we are going to 
have an energy policy.
    Thank you very much for being here. The hearing is 
adjourned.
    [Whereupon, at 11:37 a.m. the subcommittee was adjourned, 
to reconvene at the call of the Chair.]
    [Additional statements submitted for the record follow:]
Statement of Hon. Ben Nighthorse Campbell, U.S. Senator from the State 
                              of Colorado
    Thank you, Mr. Chairman. I would like to welcome all of the 
witnesses for appearing before the committee today. I am looking 
forward to the testimony that you all will be providing us shortly on 
aspects of environmental regulations and our energy policy. As you 
know, I sit on the Energy Committee which oversees energy policy, and 
now I sit on this committee which has jurisdiction over the Clean Air 
Act and other important environmental issues. Being on both of these 
committees enables me to help forge a responsible balance between 
environmental protection and adequate energy supply, which is the scope 
of this hearing. Let me stress that we have to find a balance between 
the two, especially since we are experiencing this dire energy crisis.
    I believe the Bush Administration has it just right--to maintain 
our economic health, we must have a dependable energy policy. We need 
an energy policy that makes the best use of both coal and natural gas. 
We are a long way from a point where a majority of our energy supply is 
not from these two fuel sources. So, we need to focus on coal and 
natural gas now.
    Many utilities have refused to invest in new coal-fired generation 
plants because of the regulatory barriers they have to scale. These are 
the reasons we have to revisit and sometimes recall regulations for a 
short period of time. Coal is our main fuel for electricity generation, 
and we need to be able to produce this type of power in an economically 
sound manner.
    Another set of regulations to reduce the sulfur content in diesel 
fuel will have unintended consequences too. Trucks today run on diesel, 
not wind or solar power. Everything we buy to eat and wear comes on a 
truck. If the trucks stop rolling, this nation stops rolling. Over 95 
percent of all commercial manufacturing goods and agricultural products 
are shipped by truck at some point. 9.6 million people have jobs 
directly or indirectly related to trucking.
    In addition, trucking contributes over 5 percent of America's gross 
domestic product.
    Also, several Federal hydroelectric dams are constrained by 
Endangered Species Act restrictions. Some of the restrictions are 
needed, but we have to consider any possible way to reverse our current 
energy trends, even if that means revisiting some of the regulations.
    Many will say that we are sacrificing the environment for energy, 
but that is not the case. Strict regulations and standards have been 
set for sulfur dioxide which causes acid rain and nitrogen oxide which 
causes smog. But, when one regulation was not put forth to limit 
emissions of carbon dioxide, many started to say that the Bush 
Administration was attacking the which is just plain wrong. 
environment,
    Caps on carbon dioxide would be so expensive that coal fired 
generation plants, which now provide over half the nation's electric 
power, could be forced to shut down. This would further strain our 
electricity grids and put the entire country into a position where 
rolling blackouts would be common, which we cannot allow to happen. We 
need to revisit which ever regulations need to be looked at. No one is 
going to take away a regulation on a whim; there is always a reason. 
The main reason is to get our nation out of this energy crisis. Then 
once we get a hold of the crisis and we are not in immediate danger of 
repeating it, we can revisit the regulations again.
    I ask Unanimous Consent that a white paper written by the Assistant 
Director of the Colorado Department of Natural Resources, entitled 
``The Impact of Environmental Regulations on Hydropower Generation,'' 
be included in the Record. This document gives a good view of how some 
regulations are affecting hydropower in my home State of Colorado.
    I will have some questions that I would like the witnesses to 
address so that we can further explore this issue during the time for 
questions.
    Thank you Mr. Chairman.
                                 ______
                                 
                          [February 15, 2001]
    The Impact of Environmental Regulations on Hydropower Generation
(By Kent Holsinger, Assistant Director, Colorado Department of Natural 
                               Resources)
Introduction
    The value of electrical power is immeasurable. It heats our homes, 
offices and schools, lights our way in the dark, delivers us the news, 
and allows us to produce goods and services. The United States, at 
least until recently, was the envy of the world when it came to 
electric power generation. The cost of our power was 37 percent lower 
than in Europe, 49 percent lower than in Germany, and 73 percent lower 
than in Japan. What happened?
    Population migration to the West, increasing reliance on computers, 
the Internet, and cellular phones, among other things, has propelled 
the demand for energy to epic proportions. Meanwhile, increased 
regulation and environmental demands on water in the West have created 
an alchemy of issues and a poignant contradiction: Consumers want more 
power at affordable prices; Environmentalists want fewer dams and more 
restrictions on existing dams.
Hydroelectric Power
    The Western Area Power Administration (Western) markets and 
delivers hydroelectric power from 55 dams in the West, the vast 
majority of which are owned and operated by the Bureau of Reclamation 
(the Bureau). The Bureau is the nation's second largest hydroelectric 
producer. Hydropower, has been, and continues to be, critical to the 
nation and the West.
    In 1941 Franklin Delano Roosevelt tasked his countrymen to build an 
arsenal of ships, boats and planes capable of defending the United 
States and the world from Hitler's advancing forces. The buildup 
required huge quantities of aluminum, which, in turn, required 
staggering amounts of energy. Roosevelt's goal was achieved because of 
nearly unlimited, cheap hydropower production in the Northwest.
    Today, hydroelectric power produces roughly 13 percent of the 
nation's generating capacity (nuclear power accounts for 14 percent and 
fossil fuels generate 62 percent). But hydropower has many advantages 
over other power sources. Not only are hydroelectric plants more 
reliable and durable than other sources, they are inexpensive to 
operate, clean and extraordinarily efficient.
    Hydroelectric plants operate at 85 to 90 percent efficiency--more 
than twice that of fossil-fueled plants. Water storage in reservoirs 
serves as the best means to store large amounts of electricity. Need 
more power? Release some water. Simple as that. No mining; no 
transportation costs period. Hydroelectric plants are also flexible in 
meeting peak power demands. Their ability to start quickly and adjust 
to load changes make hydroelectric dams invaluable during times of high 
energy demand.
    The Western Area Power Administration depends on hydroelectric 
power to serve millions of consumers in 15 western States (Arizona, 
California, Colorado, Iowa, Kansas, Minnesota, Montana, Nebraska, 
Nevada, New Mexico, North Dakota, South Dakota, Texas, Utah and 
Wyoming). In 1999, Western generated $886 million in revenues and 
repaid an estimated $149 million of investments in Federal water 
projects. Power marketing administrations, such as Western and the 
Bonneville Power Administration, (Bonneville) were built to market and 
deliver affordable power to rural communities while paying the debt 
service on Federal water projects. They were doing just that until the 
U.S. Fish and Wildlife Service started demanding flows for endangered 
fish over and above irrigation and power production needs.
Environmental Restrictions on Hydroelectric Power
    There are environmental impacts when rivers are harnessed to 
produce power: siltation and barriers to fish migration are among the 
foremost, but at what cost do we forego power production? In recent 
years, the U.S. Fish and Wildlife Service and the National Marine 
Fisheries Service have been directing the Bureau to run hydroelectric 
plants not for power generation, but for environmental needs including 
species listed under the Endangered Species Act.
    In the Colorado River Basin, when the U.S. Fish and Wildlife 
Service demands flows from the Bureau in the spring to mimic natural 
flooding this depletes critical summer supplies and releases stored 
water when power usage and demand is lowest. With low reservoir levels, 
power marketing administrations are then poorly equipped to deal with 
peak power demands during hot and dry summers.
    Take last summer: its dry as dust, the temperature soars and so 
does the demand for energy. But the Aspinall Unit, a series of three 
hydro-producing reservoirs in Colorado, had no water for peaking power. 
To make matters worse, the U.S. Fish and Wildlife Service forced the 
Bureau to decrease reservoir releases to minimum levels so the Federal 
Government could study the effects of drought on fish. Western, in 
turn, had to purchase power on the open market (when costs were 3.6 
times higher than just 1 year before). In sum, the U.S. Fish and 
Wildlife Service caused Western to release water when there was no 
market for power and to purchase power when the market was at its 
highest. The potential cost in lost power generation has yet to be 
quantified. Cold comfort for consumers.
Impacts
    Several Federal hydroelectric dams in the Upper Basin of the 
Colorado River are constrained by Endangered Species Act restrictions. 
In 1996, the Department of Interior issued a Record of Decision that 
slashed capacity at Glen Canyon by 456 megawatts for environmental 
reasons primarily fish flows and sand bars. One megawatt is roughly the 
energy required to supply one thousand homes. The Environmental Impact 
Statement alone cost $104 million to complete. Today, reoperations cost 
an estimated $100 million annually! Moreover, in the Spring and Summer 
of 2000, a 6-month test operation for additional endangered fish 
benefits was conducted at a cost of $3.5 million. The cost to replace 6 
months of lost electricity was between $16 and $24 million.
    Other examples abound. Since 1991, Flaming Gorge Dam has been 
subject to ESA requirements at an estimated cost of $7.2 million 
annually (based on today's prices). Operations of the Navajo 
hydroelectric plant in New Mexico have also been hindered. The Bureau 
is now doing an EIS on Navajo reoperations that should outline some of 
these problems.
    Things are even worse in the Pacific Northwest. The U.S. Army Corps 
of Engineers and the Bureau own and operate 29 hydro projects on the 
Columbia and Snake Rivers in the Northwest. Those dams generate the 
least expensive electricity in the country. Unlike the Colorado River 
Basin, peak demands in the Northwest occur due to heating demand in the 
winter. The Bonneville Power Administration markets and distributes 
power from these Federal dams. Power revenues pay for the operation of 
the projects, debt service to repay initial investments in the system, 
and flow and habitat improvements for endangered fish.
    In a recent report, the Northwest Power Pool, a seven-State 
coalition of power interests in the Pacific Northwest, warned that cold 
snaps in the region will trigger blackouts should dry conditions 
continue. Reservoir storage in key hydroelectric facilities is only 63 
percent of average in part because of dry hydrology and releases for 
fish last summer. Historically, BPA managed the system to supply power 
throughout the duration of a 4-year drought. Since the application of 
the Endangered Species Act, the system can only supply power for a 10-
month drought.
    While salmon runs are at all time highs, the National Marine 
Fisheries Service (NMFS) has listed up to 40 distinct subspecies under 
the Endangered Species Act. These fish have different spawning runs and 
different needs at different times. Some biologists protest on the 
grounds Northwest salmon should be lumped into much broader categories 
as salmon have been in the Northeastern United States. Overall, salmon 
numbers are very high in most of the Northwest. But Federal biologists 
are unwavering. In fact, they advocate killing, yes killing, up to one-
third of the hatchery raised salmon that have successfully migrated 
above the Bonneville dam because they are not the ``right'' fish.
    Federal biologists also insist on hugely controversial flow 
programs for the salmon and steelhead. Fish flows affect power 
generation in two ways: forced spills and flow augmentation. Last week, 
electricity prices reached over 30 times the price Bonneville sells to 
its customers. The difference in prices cost the agency $50 million 
over 4 days in January. Should the National Marine Fisheries Service 
continue to run the hydroelectric plants for fish, Bonneville will have 
to purchase $1.3 billion to $2.6 billion in electricity to meet its 
power supply obligations. Should dry conditions persist, those numbers 
could increase by a factor of ten. Such a devastating blow could hurl 
an already uneasy economy into the abyss. Some utilities are already 
teetering on financial ruin.
    Bonneville has declared a power emergency to release water slated 
for 12 spring and summer runs of Columbia Basin salmon to generate 
electricity. But there is no lasting authority to disregard fish flows 
and without significant precipitation even that won't be enough.
Conclusion
    In today's computer-driven society, dependable supplies of 
electrical power are more important than ever. Power marketing 
administrations are already purchasing power on the open market and 
passing along outlandish price increases to consumers. The cost for 
Endangered Species Act and environmental protections is breathtaking. 
Yet, some environmental groups that clamor to remove dams for fish 
habitat have been strangely quiet amidst the recent crisis. Could they 
be contemplating whether or not to expend the energy on their e-mail 
networks?
    Should the U.S. Fish and Wildlife Service and the National Marine 
Fisheries Service continue to force power marketing administrations to 
operate for the benefit of fish rather than power, the West could be 
cast into darkness and the nation propelled into a bleak economic 
future. Truly, balancing economic benefits with environmental 
protection is a monumental task. But when the stakes are this high, 
policymakers must question how best to achieve that balance. Only 
through sound science and truly collaborative efforts may stakeholders 
and Federal decisionmakers achieve these goals. If they do, the power 
marketing administrations will continue generating so that supply is 
strong and prices are low and all utilities (and consumers) will 
benefit.
    Kent Holsinger is the Assistant Director for water issues at the 
Colorado Department of Natural Resources. He can be reached at (303) 
866-3311.
                               __________
 Statement of Hon. Jon S. Corzine, U.S. Senator from the State of New 
                                 Jersey
    Mr. Chairman, Thank you for holding a hearing on this very 
important topic. As we are all aware, our nation's energy policy and 
our global environment are closely interconnected. That is why we must 
remain vigilant in ensuring that we pursue an energy policy that meets 
our short-term needs, while taking into account the legacy that we, as 
stewards of our nation's environment, leave behind.
    I am particularly grateful that the witnesses appearing today have 
spent many long hours preparing to inform us and the public on this 
very important issue.
    The air we breathe, the water we drink and the land upon which we 
live are precious resources. To that end, I hope that, in pursuing an 
energy policy, we keep in mind not only ways to keep those natural 
resources clean with existing sources of energy but also invest in 
finding newer, cleaner and renewable energy sources.
                               __________
   Statement of Dr. Robert L. Hirsch, Member, Board of the Annapolis 
                 Center for Science Based Public Policy
    Mr. Chairman and distinguished committee members: I am Dr. Robert 
Hirsch, a Member of the Board of the Annapolis Center for Science Based 
Public Policy, a non-partisan, not-for-profit study group. I am also 
chairman of the Board on Energy and Environmental Systems at the 
National Academies and a senior energy analyst at RAND. My experience 
is in energy technology management and analysis in both government and 
industry in many areas of energy technology. The views expressed here 
are my own and do not necessarily represent positions of my three 
affiliations.
    My messages to you today are as follows:

    1. We are experiencing a new kind of U.S. energy crisis that has 
only begun, and we need to take decisive action.
    2. There is no silver bullet to solve our problems.
    3. The fundamental challenge that we face is balance, balance, and 
balance.
The U.S. Energy Crisis
    Why do I call this a new kind of energy crisis? It's because the 
problems are more complicated than an oil embargo or a Gulf war. Our 
challenges involve many different aspects of our very complex U.S. 
energy infrastructure. Furthermore, I believe that our problems will 
take upwards of a decade or more to fix. Why so long? Because the 
problems are large in number, scale, and cost, and because we are 
simultaneously working to reduce some of the remaining environmental, 
health and safety risks associated with our energy system.
    By now you've probably heard enough about the electricity problems 
in California, the natural gas price spikes throughout the country, the 
heating oil problems in the Northeast, and the gasoline problems in the 
Midwest. These problems were predictable, and, indeed, there were some 
unheeded warnings along the way. Part of the reason that we are in such 
a pickle is that there was no one in the Federal Government responsible 
for the wellbeing of the U.S. energy system--no one with authority, 
responsibility and respect to warn us when potentially significant 
problems began to rear their ugly heads. The Department of Energy is 
responsible for nuclear weapons, environmental cleanup and, almost 
incidentally, energy. FERC is responsible for regulating various 
elements of interstate energy flows. The EPA is responsible for 
environmental care, and the States are responsible for energy matters 
within their borders.
    The energy goose has been laying golden eggs for so long that 
energy is off the radar screen of most people, until we have the 
occasional trauma. Right now, we are seeing a number of traumas 
simultaneously, and there is reason to believe that there are more to 
come.
    For instance, in addition to the problems I just mentioned, our oil 
refineries are running at near 100 percent capacity, and we have slowly 
been increasing our imports of refined products--adding another 
dependence on foreign sources. No new refineries have been built in the 
U.S. since the 1970's, and a number have been shut down. Furthermore, 
we are in the process of phasing out an important gasoline additive, 
MTBE, an action that will further reduce refinery production rates at a 
time when demand is continuing to increase. In addition, the EPA has 
mandated much lower levels of sulfur in gasoline and diesel fuels, 
necessitating significant new investments in refineries in both the 
U.S. and offshore to supply the U.S. with our increasing needs.
    Refining is historically a low return-on-investment business, so 
many companies are naturally reluctant to invest the vast sums of money 
needed for mandated changes. Am I suggesting that we reduce our 
environmental goals? Most certainly not. In my opinion, we must reduce 
sulfur levels in our fuels in order to further reduce air pollution. I 
just wish that we could accomplish our laudable goals with less 
acrimony.
    How about siting and building the new electric transmission lines 
needed to deliver higher levels of electric power? That's a not-so-
obvious problem in California and elsewhere. As you may know, siting 
new transmission lines has encountered interminable delays in many 
parts of the country and threatens to choke off higher power demands in 
a number of locations.
    What about natural gas pipelines and petroleum product pipelines? 
Both are problems in many areas. Permits for new pipelines are tough to 
come by, and land for right-of-ways is increasingly expensive. At a 
meeting in New Orleans 2 weeks ago, a major oil company representative 
indicated that his company is using drag reducing agents in some of 
their pipelines because their pipelines are operating at full capacity. 
With petroleum product demands increasing, that indicates trouble 
ahead! And the list of energy problems goes on.
No Silver Bullets
    If you want more electric power, you must build more power plants. 
Natural gas is clean and was very cheap until recently. Over 90 percent 
of planned new generation in the U.S. will be natural gas fired. In one 
sense, that's good because of the environmental attractiveness of 
natural gas generators with exhaust gas cleanup. In another sense, it's 
troubling because that mushrooming dependence on natural gas will make 
the country ever more vulnerable to future natural gas disruptions and 
price spikes. Analysts can run complex models that can demonstrate that 
over-dependence on a single fuel will increase national 
vulnerabilities. But in fact it's common sense. For instance, if all 
your retirement money was in the NASDAQ over the past year, you'd have 
problems. If all your money was in bonds in the early 1990's, you would 
have missed some golden opportunities.
    The answer isn't all gas or all coal or all nuclear or all 
renewables. Each has its strengths and weaknesses. For instance, many 
people don't realize that for large power loads, the popular renewables 
are simply fuel savers for other power plants, and so their ultimate 
contribution to U.S. energy needs will be limited, even after their 
costs are brought down further.
    Energy efficiency is important and must be part of the equation. 
However, making a major difference in energy usage on a national scale 
would require much higher energy prices or heavy Federal Government 
intervention and a decade or more of large investments.
    Be wary of anyone who tries to sell you a silver bullet in energy. 
There are none. A diversity of approaches is essential.
Balance, Balance, Balance
    Where does all of this lead? To me, we need a better-balanced 
approach. We need a diversity of energy sources and energy efficiency, 
if we are to minimize our costs and vulnerabilities. However, that 
would likely require Federal intervention, which would not be 
universally welcomed.
    And let's not forget energy research and development. Our Federal 
investments at DOE and its predecessor agencies have yielded very 
important technologies, some of which are in use today and others that 
are on the shelf, ready when we need them.
    Also, it may be that we will need to be temporarily flexible on 
some of our near-term environmental goals to help get us back on an 
even keel in energy. They're doing that in California now. However, I, 
for one, do not endorse turning permanently the clock back on pollution 
reduction.
    Finally, let's not be afraid to have open honest dialog on our 
options. Every one of them has its advantages and disadvantages. Let's 
discuss our options objectively and strive to minimize the extremism 
and misinformation that so often characterizes such discussions. Let's 
put someone in charge of overseeing our nation's energy system, please. 
If it's to be the Secretary of Energy, let's make that clear by law and 
then provide the authority and budgets needed for the task.
    Postscript: When Federal agencies or the Congress need expert, non-
partisan, non-biased analysis, the three institutions with which I am 
involved have often been of help. The National Academies draw on the 
nation's most experienced and capable experts and provide the nation's 
highest level, most respected, in-depth studies of the full range of 
technical and technology-related matters. The Annapolis Center for 
Science Based Public Policy also draws on national experts and has 
provided relatively quick, brief, lay-level perspectives on narrower 
topics. RAND has in-house expertise across the spectrum of technical, 
environmental, economic and behavioral disciplines, and has provided 
analysis on small to very large issues, often relatively rapidly.
                               __________
    Statement of Eliot Spitzer, Attorney General, State of New York
    Thank you for inviting me to testify before this subcommittee 
concerning the interaction between our environmental regulations and 
our nation's energy policy. This is a critical issue, both in the 
short-term and over the longer term.
Introduction
    While we usually take for granted the electricity that permeates 
our life and fuels our modern society, we cannot do so any longer. 
Recent events in California have forced us to look carefully at our 
energy supply and examine it critically. We must ensure Americans with 
a reliable and reasonably priced power supply. Moreover, to be reliable 
over the long term, the supply must be diverse, so that shortages or 
price spikes in any one fuel do not cause excessive dislocation.
    Yet while we seek a secure energy future, we now know that we must 
also consider the environmental and health impacts of power generation 
and use. This panel has correctly noted that the two issues are closely 
linked, given that the power sector is the industrial sector that 
causes by far the most air pollution. A sound and balanced energy plan 
will help us to achieve a reliable and clean energy future.
    As many of you have noted, we have not been able to implement a 
comprehensive energy policy at either the Federal or State level. 
Federal programs have been at best sporadic. In New York, energy policy 
has also been largely sporadic, addressing issues, if at all, on a one-
by-one basis. The State Energy Office was abolished 8 years ago and any 
efforts to create and implement a comprehensive State energy plan were 
dropped. I recently released a report, entitled Attorney General's 
Action Plan for a Balanced Electric Power Policy in New York State. It 
can be found at our web site at http://www.oag.state.ny.us/press/
reports/power--policy.pdf. I incorporate it with this testimony because 
I think it represents a comprehensive blueprint at the State level for 
considering and balancing the needs for electricity and the need to 
protect our health and environment. I suggest that the Federal 
Government could do well to consider such an approach, and I urge you 
to review the report carefully.
    Let me be crystal clear: there need be no conflict between 
environmental protection and a sound energy policy. Indeed, careful 
attention to environmental and health protections will enhance, not 
harm, our energy security. Our energy supply must be reliable and 
affordable. However, it must not be only superficially inexpensive, 
appearing cheap because of hidden costs borne elsewhere. An energy 
supply that is provided at the cost of harm to the public health or the 
environment--imposing enormous, but usually unquantified, costs on the 
American public through health care costs, lost productivity, premature 
mortality, or lost enjoyment of health or natural resources--is not in 
the nation's best interests. Proposals for such a policy will backfire.
    I urge you to work together, as we are trying to do in New York, to 
move the country toward a balanced energy policy and to reject the 
spurious claim that environmental protections are the cause of the 
energy squeeze we see today. Environmental protections are not the 
cause of, but part of the solution to, our energy challenge. It was the 
lack of demand, not environmental regulations, that led companies not 
to build new power plants over the last decade; indeed, some 
environmentalists would support some new plants that, if linked with 
strong efficiency programs, would take the place of our dirtiest 
existing plants.
    I will not repeat all of the details set forth in the report. 
Instead, below, I will focus on the clean air litigation that has been 
the subject of some scrutiny and controversy, in an effort to dispel 
many of the misperceptions concerning those cases.
Environmental and Health Impacts of Energy Choices
    It is critical that any discussion of energy policies not 
underestimate the impacts of electricity generation. The level of 
impacts is simply not acceptable. As Senator Voinovich said, we want to 
go forward, not backward. We cannot go forward, however, if we either 
weaken or ignore existing clean air laws. It was this realization that 
led New York to its power plant litigation initiative.
    Electric utility plants collectively account for about 70 percent 
of annual sulfur dioxide (SO2) emissions and 30 percent of 
nitrogen oxide (NOx) emissions in the United States, pollutants that 
have significant health and environmental impacts. SO2 
interacts in the atmosphere to form sulfate aerosols, which may be 
transported long distances through the air. These transported sulfate 
aerosols are both acidic and respirable, contributing to acid rain and 
smog. Particulate matter (PM) is the term for solid or liquid particles 
found in the air. Particulate matter composed of particles with 
diameters of 10 micrometers or less is referred to as PM10, 
while particles with diameters of 2.5 microns or less are referred to 
as PM2.5. Coal fired power plants are a major source of both 
PM10 and PM2.5. Not only do power plants emit PM 
directly, but emissions of NOx and SO2 from these plants 
lead to the formation of fine nitrate and sulfate particles that are 
particularly harmful to the respiratory system.
    Numerous studies, from an EPA acid rain study to a National Oceanic 
and Atmospheric Administration back trajectory analysis, to many 
private studies, demonstrate conclusively that emissions from coal-
fired power plants in the Midwest and mid-Atlantic travel on prevailing 
winds to the Northeast. One 1985 New York study found that over 80 
percent of the sulfate deposition in New York's Adirondack Park came 
from sources outside New York.
    In the eastern United States, sulfate aerosols make up 25 to 50 
percent of the inhalable (PM2.5) particles on average and 
cause up to 75 percent of the aerosol pollution during extreme 
transport episodes. People exposed to sulfur dioxide can suffer a 
variety of respiratory ailments. Nitrogen oxides contribute to the 
formation of ozone in locations downwind from the source of the 
pollution. Ground level ozone also contributes to respiratory 
illnesses. Particulate matter is an extremely harmful pollutant that 
contributes to a number of respiratory difficulties, ranging from 
bronchitis to asthma and even premature death. At least one study 
performed for the Federal Government has attributed 30,000 premature 
deaths nationwide each year to fine PM attributable to power plant 
emissions.
    Emissions of NOx and SO2 also cause extensive harm to 
natural resources. In the atmosphere, NOx and SO2 are 
converted into nitric and sulfuric acids, which fall to the ground as 
acid particles, rain, and snow. Power plant emissions are largely 
responsible for damage to forests, lakes, and wildlife throughout the 
northeast. For example, acid deposition has caused 20 percent of the 
lakes in New York's Adirondack Park region to become too acidic to 
support fish life. Federal studies conclude that the percentage of 
acidified lakes is expected to increase or even double over the next 
four decades unless upwind emissions of NOx and SO2, 
primarily from coal-fired power plants, are reduced extensively. 
Similar impacts are seen in the lakes and streams of other northeastern 
States such as Vermont and New Hampshire. This year, when the record 
snow pack in northern New York and New England melts, the streams and 
lakes will suffer a lethal acid shock.
    In addition, acid deposition contributes to the widespread death of 
spruce forests in high elevation areas of the northeast. According to a 
recent study, more than half of large canopy trees in the Adirondack 
Mountains of New York and the Green Mountains of Vermont and 
approximately one quarter of large canopy trees in the White Mountains 
of New Hampshire have died since the 1960's. Moreover, ozone, which is 
also a product of NOx emissions, causes foliar injury (injury to plant 
leaves) and can reduce plant growth and reproduction.
    Visibility in Class I national parks and wilderness areas has 
suffered severe deterioration from manmade haze created in large part 
by sulfate particles resulting from power plant emissions. Sulfate 
particles swell up in the often humid weather conditions of the 
northeast and scatter more light (thereby reducing visibility more) 
than most other kinds of particles. In Vermont, for instance, sulfates 
cause about half of the fine particle pollution, but closer to 75 
percent of the visibility impairment obscuring the landscape for 
visitors and residents.
    Nitrogen deposition also contributes to the eutrophication of 
coastal bays and estuaries, which occurs when an excess of nitrogen 
causes algae growth that threatens the survival of other aquatic 
species. For example, the Chesapeake Bay, which has severe 
eutrophication problems, receives twenty-five percent of its nitrogen 
from sources of NOx emissions, primarily from power plants located to 
the west of the Chesapeake Bay watershed. Long Island Sound suffers 
similar problems, in large part from nitrogen falling onto New York and 
Connecticut lands, and from there flowing into the Sound.
    Finally, New York's and our nation's cultural heritage--our 
buildings and our monuments--are corroding under the onslaught of acid 
rain. Some of our finest buildings in the Northeast are losing their 
detail and beginning to look as if they were melting.
    These harms of pollution are quite real; they are not merely a 
matter of environmental preferences. Asthma, premature mortality, and 
other respiratory diseases cost Americans billions of dollars each 
year. The loss of recreational jobs, tourism, and commercial fishing, 
plus the increased expense of water treatment, cost the nation billions 
each year. The loss of our architectural history is priceless, and it 
costs many millions each year just to stem the destruction.
New Source Review Law and Regulations
    To address these harms of pollution, my office sued the coal-fired 
power plants that are the source of much of this air pollution. We 
filed notices of intent to sue against 17 coal-fired electricity plants 
located in upwind States in September 1999. We play fair in New York 
and do not only pursue out-of-state sources, so shortly thereafter we, 
with the State Department of Environmental Conservation, commenced 
enforcement action against eight coal-fired plants in New York as well. 
Shortly after we filed our notices of intent, the Federal Environmental 
Protection Agency commenced legal action against a number of coal-fired 
plants. A number of other northeast States joined our actions. We have 
now reached agreements in principle with two companies--the Virginia 
Electric Power Company and Cinergy Corporation. In addition, we are in 
active discussions with the owners of several of the New York coal-
fired plants to resolve their liability.
    The aim of the Clean Air Act litigation brought by New York, other 
northeast States, the Federal EPA and various environmental 
organizations is to address these harms by going to their source. 
Whereas in the past citizens and States had looked entirely to the 
Federal Government to address interstate pollution, we decided to 
confront the power plants themselves. While some have argued that the 
interpretation of the New Source Review (NSR) provisions in these 
lawsuits was new, in fact the interpretation stays entirely within EPA 
interpretations and court rulings over a decade old. We rely on EPA 
memoranda and court decisions from the previous Reagan and Bush 
Administrations. There was nothing new about the interpretation. What 
was new was only the fact that we decided to investigate and identify 
violations.
    Congress created the NSR provisions (including the related 
Prevention of Significant Deterioration (PSD) provisions) to insure 
that increased pollution from the construction of new emissions sources 
or the modification of existing emission sources be minimized, and to 
ensure that construction activities would be consistent with air 
quality planning requirements. Generally, the NSR program requires such 
sources to obtain permits from the permitting authority before the 
sources undertake construction projects if those projects will result 
in an increase in pollutants above a de minimis amount. In addition, 
the NSR regulations usually require that sources install state-of-the-
art controls to limit or eliminate pollution. Congress required and 
fully expected that those older existing sources would either 
incorporate the required controls as they underwent ``modifications,'' 
or would instead be allowed to ``die'' and be replaced with new, state-
of-the-art units that fully complied with pollution control 
requirements.
    The Clean Air Act defines ``modification'' as a physical change or 
change in the method of operation that increases the amount of an air 
pollutant emitted by the source. 42 U.S.C. Sec.  7411(a). Courts for 
many years have interpreted the Clean Air Act term ``modification'' 
broadly. Alabama Power Co. v. Costle, 636 F.2d 323, 400 (D.C. Cir. 
1979) (the term `modification' is nowhere limited to physical changes 
exceeding a certain magnitude''); Wisconsin Electric Power Co. v. 
Reilly, 893 F.2d 901, 905 (7th Cir. 1990) (``WEPCO'') (``[e]ven at 
first blush, the potential reach of these modification provisions is 
apparent: the most trivial activities--the replacement of leaky pipes, 
for example--may trigger the modification provisions if the change 
results in an increase in the emissions of a facility.'') The WEPCO 
court noted that Congress did not intend to provide ``indefinite 
immunity [to grandfathered facilities] from the provisions of [the 
Clean Air Act],'' id. at 909, and that ``courts considering the 
modification provisions of [the Clean Air Act] have assumed that >any 
physical change' means precisely that.'' Id. at 908 (emphasis added) 
(citations omitted). EPA recognized, however, that the sweeping 
statutory definition of ``modification'' to include ``any physical 
change'' could have nonsensical results if carried to an extreme (``the 
definition of physical or operational change in Section 111(a)(4) 
could, standing alone, encompass the most mundane activities at an 
industrial facility (even the repair or replacement of a single leaky 
pipe, or a change in the way that pipe is utilized)''). 57 Fed. Reg. 
32,314, 32,316 (July 21, 1992). Thus, since 1977, Federal regulations 
have exempted routine maintenance, repair, and replacement from the 
definition of modification. 40 CFR 52.21(b)(2)(iii). EPA historically 
has analyzed and applied the ``routine maintenance'' exemption to 
modification by using a common sense test that assesses four primary 
factors--(1) the nature and extent; (2) purpose; (3) frequency; and (4) 
cost of the proposed work. See, e.g., Memorandum from Don R. Clay, EPA 
Acting Assistant Administrator for Air and Radiation, to David A. Kee, 
Air and Radiation Division, EPA Region V (Sept. 9, 1988). Our cases 
follow these standards.
    The NSR provisions also apply only if there is a significant 
increase in pollution due to the modification. Methods for calculating 
emissions increases generally compare the emissions prior to the 
modification and those after the modification. For post-modification 
emissions, however, a company undergoing NSR review at the time of the 
modification would have to project the emissions after the modification 
in its permit application. While the analysis of emissions is still 
being refined in the cases under litigation as documents are being made 
available by the defendants, in the Tennessee Valley Authority case, 
the Environmental Appeals Board found that emissions did increase under 
methods favorable to industry at all units at which violations were 
alleged.
    As noted above, the standards for these cases derive from EPA 
memoranda and litigation dating from the Reagan and Bush 
Administrations. They are not new interpretations. They do not address 
true ``routine'' maintenance; indeed, industry documents indicate that 
industry did not consider the modifications at issue to be routine 
maintenance. Rather, the modifications were large-scale capital 
projects that required significant advance planning. They were intended 
to address problems that routine repair or replacement had been unable 
to address. Nor were the upgrades modest; in most cases they cost 
millions of dollars. By contrast, activities considered by industry to 
be ``routine'' include more mundane actions such as the day-to-day 
repairs of leaky or broken pipes. Industry documents further show that 
industry officials were aware of the potential applicability of the NSR 
provisions to their power plant life-extension projects.
Clean Air Act Litigation Settlements
    In discussing resolution of these lawsuits with the companies, we 
and EPA recognized the need to ensure the nation's energy supply. We 
gave the companies significant time to install the needed controls. 
These lawsuits will have absolutely no detrimental effect on our energy 
supply. We ensured that the upgrades could be implemented consistent 
with the operating and financial needs and abilities of the companies. 
Indeed, we expect that pursuant to the settlements, some facilities 
will be repowered and expanded. Moreover, these settlements will 
provide the regulatory certainty that companies need to invest. By 
providing clear guidelines, these settlements delineate a path through 
the environmental laws by allowing the companies to invest in their 
coal plants so long as they invest in state-of-the-art controls. The 
result is to improve our energy diversity, increase our energy supply, 
and improve the environment, a win-win result.
    While the actual agreements in principle that we have reached are 
still confidential--we are working to finalize the language of the 
consent orders now--the outline of those settlements is public. Those 
outlines provide sufficient detail to see that, far from harming our 
energy supply, the settlements will enhance it.
    In the first case, with Virginia Electric Power Company (VEPCO), we 
had alleged that VEPCO made modifications to its plant that 
significantly increased emissions, without installing concomitant 
pollution controls. For instance, VEPCO rebuilt the boilers at several 
plants, changing their design, and expanded the coal yard at its Mount 
Storm plant by 50 percent. (VEPCO also doubled the height of the 
smokestack at Mount Storm to 730 feet to ensure that air pollution from 
the facility did not fall on nearby communities. The result is that 
much of the plant's emissions now drift hundreds of miles on prevailing 
winds to distant States such as New York.)
    The agreement in principle covers eight plants in Virginia and West 
Virginia (Mount Storm, at Mount Storm Lake, West Virginia; 
Chesterfield, in Chester, Virginia; Bremo, in Bremo Bluff, Virginia; 
Chesapeake Energy Center, in Chesapeake, Virginia; Clover, in Clover, 
Virginia; North Branch, in Bayard, West Virginia; Possum Point, in 
Dumfries, Virginia; and Yorktown, in Yorktown, Virginia.). In the 
agreement in principle, VEPCO agreed to cut pollution of sulfur dioxide 
and nitrogen oxides by approximately 70 percent over the next 12 years. 
(Of course, the primary beneficiaries of these pollution reductions 
will be people in Virginia and West Virginia near the plants.) 
Capacity, however, will not be decreased. It will install pollution 
controls at its largest units on a schedule consistent with its rate 
restrictions. The consent order will also provide for VEPCO's funding 
of certain energy efficiency and renewable energy projects in New York 
and several other States. Finally, the settlement will provide VEPCO 
with clear guidelines for changes and upgrades acceptable to EPA that 
can be made in the future.
    The settlement with Cinergy Corporation addresses 10 power plants 
(Cayuga, Cayuga, IN; Gallagher, New Albany, IN; Wabash River, West 
Terre Haute, IN; Beckjord, New Richmond, OH; Gibson, Owensville, IN; 
Miami Fort, North Bend, OH; Zimmer, Moscow, OH; East Bend, Rabbit Hash, 
KY; Edwardsport, Edwardsport, IN; and Noblesville, Noblesville, IN). 
This agreement in principle requires substantial pollution reductions 
and allows Cinergy to use new technology if appropriate so long as the 
new technology meets certain emission limitations. Like the VEPCO 
settlement, this agreement should not result in a decrease in Cinergy's 
generating capacity; in fact, with the repowering of several units, 
Cinergy's generating capacity should increase. The consent order will 
also provide for the funding of energy efficiency and renewable energy 
efforts.
    There is no question, finally, that these companies can easily 
afford the settlements. As others who have appeared before you have 
testified, coal is by far the least expensive fuel now. These power 
plants, being very old, have been fully depreciated. The fixed and 
variable costs of running them are exceedingly low. Yet, while their 
costs are remaining low, the price consumers are paying for electricity 
is increasing dramatically. This revenue increase is a windfall for 
these old coal-fired plants. Our estimates are that rates will have to 
increase very little, or not at all, for the companies to afford the 
clean air pollution upgrades the settlements will require. Certainly, 
the rates will remain well below rates in the Northeast. In short, 
these lawsuits, while they will cost some money, in no way jeopardize 
either the financial health of the companies or the burdens on the 
ratepayers.
    The VEPCO and Cinergy settlements are not legal straight-jackets as 
some have unfairly portrayed them. In the enforcement context, we, 
along with officials from EPA and the Department of Justice, can weigh 
and have weighed numerous issues that may be unique to each company. We 
have allowed technological flexibility. We have recognized financial 
constraints and provided ample time for planning and implementation. 
These lawsuits and settlements represent an extraordinary accommodation 
of clean air and energy needs. I find it nothing short of amazing that 
efforts to enforce the law--really no different from the myriad of 
other law enforcement efforts my office and many other prosecutors 
undertake ranging from drug crimes to fraud investigations--have been 
so criticized. Rather, they should be applauded.
    There has been some discussion before this subcommittee of the 
PowerSpan technology that is being developed by several companies, 
including some we have sued. We are meeting next week with PowerSpan 
representatives to investigate and understand this technology better. 
We have also been discussing other innovative technology with the 
private sector and with EPA. We are open to and enthusiastic about new 
technologies, particularly ones that may control mercury or carbon 
dioxide emissions. It would be a big mistake, and completely 
unjustified, to think that we are locked into old technologies. At the 
moment, of course, this PowerSpan technology appears promising, but not 
proven on a large scale; it is not yet as good as others for most 
pollutants. We intend to keep following its development and give it, 
and the power companies that will use it, appropriate opportunities for 
deployment. In sum, these lawsuits are achieving major environmental 
improvements while helping, and not in any way harming, our energy 
security. For that reason, I emphatically disagree--respectfully but 
vehemently--with the request by Senators Inhofe and Breaux that these 
cases be suspended. Regardless of what the Administration decides, we 
intend to pursue our cases both within and outside of New York.
Economic Value of Clean Air
    Some have taken issue with the value of clean air, suggesting that 
it is merely a matter of convenience and not a matter of dollars and 
cents. Of course, anyone who has seen a child suffering an asthma 
attack, an older person struggling for breath on a smoggy day, or an 
adult friend wheezing, would recognize the absurdity of drawing this 
distinction. But lest there be any doubt, studies demonstrate that 
clean air is good for the American economy. A study done for the 
Federal Government found that the net benefits of the Clean Air Act 
over the last 20 years, ranging from increased crop production to 
decreased health care costs, totaled over $22 trillion. Other studies 
demonstrate the same: clean air is good for the American economy.
    Moreover, the claim that the cost of clean air requirements has 
made new power plant construction unprofitable has little if any basis. 
Few power plants were sited during the early 1990's because there was 
ample supply. Once it appeared that new supply was needed, new 
proposals appeared very quickly. In New York, we have dozens of 
proposed new power plants. The regulations that apply to them are 
clearly within the financial plans of the many companies proposing such 
plants.
    As others have noted, there will be an extraordinary market for 
clean technologies over the next decade. You were told it would be a 
$25 trillion market. New York, like its sister States, wants, deserves, 
and should have a substantial share of that market. Yet if we do not 
insist on clean air ourselves, we will not find the clean air 
technology developed here. By insisting on clean air, we continue to 
provide opportunities for our thriving business community.
    Finally, it is important to note that, while clean air has 
tremendous value, so does dirty air. Dirty air consists of free waste 
disposal for a few privileged companies. Any normal company, 
particularly power companies in the deregulated and highly competitive 
market, looks for ways to reduce costs. Free waste disposal, if 
allowed, is one such method. Because of the significant cost advantage 
such unloading of costs can provide, we cannot rely on a purely 
voluntary system to cut emissions. A voluntary approach will not work 
any better in the electric power market than it does or would in other 
waste discharge programs. We have seen repeatedly, that absent fair but 
strong limits, pollution will be discharged into the public's air or 
water or land in order to cut costs. We need a strong air pollution 
system, and we need it to be enforced.
The Importance of the State Role
    While air pollution is a classic example of a problem that requires 
a Federal presence, it is critical not to underestimate the role of 
States in confronting this inherently interstate problem. States have 
been actively involved in the litigation concerning many of EPA's 
recent air quality rules. Many northeastern States have joined in New 
York's lawsuits against the Midwestern power plants. Let me remind you 
that New York, for example, filed its lawsuit against VEPCO before the 
EPA filed any lawsuit. This litigation, and its success, owes a great 
deal to State enforcement efforts.
    Indeed, the structure of environmental laws gives States a large 
and important role. As you know, it is the States that develop the 
State Implementation Plans that govern how we will actually achieve the 
ambient air quality standards set by EPA. The northeast States have 
gone beyond those minimum actions and have taken many other measures on 
their own to reduce air pollution, such as imposing stricter controls 
on in-state sources. I urge you to work in partnership with the 
States--both the State environmental agencies and the State attorney 
general offices--when considering the issues before you.
    I also urge you to support and encourage strong Federal enforcement 
as part of a true Federal-State partnership. There are several reasons 
why this is important. First, Federal enforcement levels the playing 
field in two distinct areas: (1) between companies that willingly 
comply with environmental and other rules and those that do not, and 
(2) between States that aggressively enforce the law within their own 
borders and those that do not. While at times States can bring 
enforcement actions concerning out-of-State sources, such as we did 
with the power plants, that is unusual. A State doing a good job 
protecting the health of its citizens should not be at a disadvantage 
with respect to less conscientious States. Second, Federal enforcement 
provides a solid back-drop to State enforcement, playing a role in 
unusually difficult or troublesome cases. Finally, Federal enforcement 
often brings with it the tremendous technical resources and expertise 
of the Federal agencies that oversee the entire program. In the case of 
clean air, EPA's expertise and experience is extraordinary and very 
helpful both to us in the States and, I believe, the regulated 
industries. Reducing Federal enforcement does not create a vacuum that 
States fill; rather it hinders State enforcement. In contrast, strong 
Federal enforcement actually enhances the State role.
Steps to a Sound and Diverse Energy Supply
    Senator Voinovich asked about how to harmonize our environmental 
and energy policies. We harmonize these two critical needs by 
addressing not only how much power we have available, but how that 
power is generated. I discuss this at length in my report. We can 
achieve a sustainable energy portfolio by enacting policies that 
promote clean distributed generation, renewable power, and energy 
efficiency and, at the same time, ensuring that the necessary new 
supply can be brought on line promptly. If we were to improve 
efficiency by an achievable 10B20 percent, and increase renewable 
energy to provide 10-20 percent or more of our nation's energy needs, 
which is also quite feasible, we would largely, if not completely, 
resolve the current energy challenge. Moreover, we probably, just by 
those measures, would go most of the way toward meeting even the most 
aggressive climate change goals. Finally, we would reduce our 
dependence on foreign fossil fuels.
    While not all aspects of my recent report detailing how New York 
can achieve both its energy and its environmental goals are necessarily 
relevant to Federal policymaking, I suggest that certain of my New York 
recommendations offer a sound strategy for the nation.
    First, we must embark on an immediate effort to reduce dramatically 
demand through conservation and efficiency. We are confident that we 
can achieve significant gains in energy efficiency even in New York 
which ranks second among the States for the most efficient use of 
energy today. (New York ranks second in large part due to the 
efficiencies of the mass transportation that is so extensive, 
particularly in the New York City region. This energy efficiency 
provides yet another reason, in addition to air and water quality and 
traffic congestion reasons, for significant Federal support for mass 
transit.) Specific measures include:

      immediate adoption of the Department of Energy efficiency 
standards for residential air conditioners and heat pumps, residential 
clothes washers, residential water heaters, and commercial heating and 
cooling equipment;
      government funding for efficiency improvements, such as 
through programs like New York's System Benefit Charge, a small non-
bypassable charge added to the electricity rates that, our experience 
proves, more than pays for itself within a couple a years in reduced 
consumer bills;
      utility portfolio mandates, modeled after the renewable 
portfolio standards in effect in many States, to bring utilities 
(particularly those in deregulated States where there are no longer 
rate hearings and conditions on rate increases) back into the 
efficiency effort;
      pricing policies to encourage flexible demand (such as 
time-of-day or day-night rates that encourage people to use power at 
off-peak times) and policies to ensure that people have a direct price 
signal for their energy use (such as conversion of master metered 
multiple unit dwellings to individual meters);
      changing regulations so retailers of electricity are 
rewarded for reductions in demand;
      State sales tax credits for efficient appliances and 
vehicles; and
      measures to provide consumers with better information 
about their energy choices (such as the excellent Energy Star program).

    The Federal Government should increase, not decrease as has been 
proposed by the new Administration, its spending on these measures.
    Second, we must increase the supply of clean electricity. In New 
York, we have created a new siting board to review applications for new 
power plants. In my report, I suggest that the existing process is too 
slow and can be improved by giving earlier review to those applications 
that, because of a variety of factors, deserve a preference and through 
other procedural changes. While such siting issues are generally left 
to the States, the Federal Government can assist in bringing clean new 
sources of supply on line by promptly passing the Clean Power Act, S. 
556, and other measures to establish the certainty necessary for 
private investment. The Federal Government's role must not be, as some 
recommend, to suspend environmental rules; that will only lead to 
additional years of uncertainty. In addition, as was mentioned at this 
subcommittee's first hearing on March 21,2001, the Federal Government 
can help by stopping the rhetoric about environmental requirements 
interfering with our energy supply. We have spent years trying to get 
beyond the simplistic ``environment versus economy'' argument; it has 
been rebutted by innumerable studies. When the Federal Government 
revives such myths, it makes people believe that new power plants will 
poison them. So they resist them in every available forum. If instead, 
the Federal Government reassures Americans that they can have a clean 
environment and a secure energy supply, then the siting process 
everywhere will be easier and faster.
    Third, we must improve the transmission system so that available 
power can reach the places where it is needed. For example, in New 
York, we have an ample wind resource upstate while our greatest demand 
is in New York City. Improvements to the transmission system should 
allow us to take advantage of clean supply opportunities wherever 
located.
    Fourth, we need to increase clean distributed energy sources. Small 
scale sources, such as fuel cells, wind generators, small-scale hydro, 
solar cells and cogeneration facilities (but not including uncontrolled 
diesel generators), can provide significant new supply while avoiding 
any incremental strain on the distribution system and without creating 
significant emissions.
    Finally, we need an all-out effort to expand renewable power 
sources, especially wind and solar. Recent studies demonstrate that 
even in northern States such as New York, solar power--which is best 
generated on hot summer days--can already be cost-effective in reducing 
peak electricity demand--which also comes on hot summer days. We also 
have significant wind resources--enough to make a significant 
contribution to our future needs if properly distributed. We urge both 
research efforts and the enactment of a renewable portfolio standard 
that would create a market for renewable energy facilities.
    I believe that many of these issues are addressed in the 
``Comprehensive and Balanced Energy Policy act of 2001'' which is now 
being considered. I urge your careful attention to these 
recommendations.
Oil and Gas Issues
    The second of today's panels will focus on oil and gas issues. Many 
of the clean air questions there are similar to those raised by the 
electric utility sector. Indeed, the clean air litigation brought by 
EPA on refiners is based on the same NSR provisions of the Clean Air 
Act. I suggest that the explanation I gave above as to why my clean air 
litigation is sound and proper applies to those refinery cases as well.
    More broadly, the oil and gas sector again demonstrates that 
careful attention to environmental concerns can enhance, and does not 
harm, our energy future. EPA's recently promulgated diesel fuel rule, 
which has been challenged by certain industries and which my office 
will help defend, is a good example. This rule, on its own, will 
dramatically improve urban air quality since diesel exhaust is one of 
the largest pollution sources in urban areas. In addition, the use of 
low-sulfur fuel allows the use of traps and other devices to reduce 
particulate pollution. These traps could lead to significant reductions 
in PM2.5, the finer particles that can lodge in the lung, 
since diesel exhaust is composed of 90 percent PM2.5 and, 
according to a California study, contains numerous carcinogenic 
compounds.
    Another issue of great importance in this area is methyl tertiary-
butyl ether (MTBE). Many drinking water wells in New York, particularly 
in Long Island, have been found to be contaminated by MTBE. The costs 
of remediating such contamination are usually significantly greater 
than the costs associated with uncontaminated petroleum spills. In part 
to address this concern, New York has passed a law that will ban MTBE 
in 2004. This law, however, has been challenged by MTBE manufacturers 
on Federal preemption grounds. Federal action to allow the elimination 
of MTBE would be welcome.
Conclusion
    In sum, the Clean Air Act, as well as other environmental 
regulations, should be viewed as helping, not hindering, a sound energy 
policy. The American people will not accept energy production that 
poisons their air and their water any more than they will accept 
blackouts. Indeed, it is a false dichotomy to suggest that people must 
choose one or the other. An environmentally sound energy policy is the 
only sustainable future. Fortunately, it is achievable if we 
demonstrate leadership and foresight.
                                 ______
                                 
   State of New York: Attorney General's Action Plan for a Balanced 
                Electric Power Policy in New York State
                              introduction
    Electric power is in the news and on everyone's mind these days, 
with good reason. While we usually take for granted this invisible but 
vital force that permeates our daily lives and provides the power 
without which our modem society could not exist, recent events in New 
York and elsewhere demand our close attention and immediate action.
    As the economy has grown rapidly in New York over the last decade, 
so has the demand for electricity. Demand has risen so dramatically 
over the past several years that it is now outstripping available 
supply in New York, particularly in New York City and Long Island where 
transmission constraints require most power to be generated locally. 
Moreover, in New York's restructured market--where the price of power 
no longer reflects a regulated price, but rather a market price--the 
current supply/demand imbalance has caused dramatic price spikes in 
electncity bills For example, Con Edison's customers saw their bills 
increase an average 30 percent last summer, even though it was the 
coolest summer in years. California's forced rolling blackouts, soaring 
energy prices, and threatened bankruptcy of several major utilities 
have also heightened New Yorkers' concerns.
    At the same time as New York confronts price spikes and potential 
shortages, we are faced with continuing reports of the impacts of 
electncity generation Power plant emissions contribute greatly to acid 
rain and urban smog, which, in turn, cause tremendous damage to our 
health and our environment. Urban smog exacerbates asthma, which is 
increasing rapidly in New York City and other urban areas--especially 
among children. Acid rain is killing entire ecosystems in the--
Adirondacks and other treasured natural areas. Mercury emitted by coal-
fired plants contaminates fish, and greenhouse gases such as carbon 
dioxide change the climate. Power plant cooling water intake systems 
injure fisheries upon which many New Yorkers depend.
    Clearly, New York needs to find better ways to meet its electricity 
demands at a reasonable cost while also protecting its citizens' health 
and the State's natural resources. To meet growing electricity demand, 
the State has had to rely largely on existing power plants, many of 
which are old, inefficient, highly polluting, and insufficient to meet 
projected demand. New York policymakers would be foolhardy to ignore 
the lessons of California, and our own experience, in developing energy 
policy.
    We must move now on two fronts to develop a sustainable, balanced 
energy policy that ensures customers a reliable and reasonably priced 
power supply and that preserves our environment and protects our 
health. We must meet our immediate short-term needs by increasing clean 
supply and reducing the growth in demand through conservation and 
efficiency. We must also secure the longer term by using electricity 
more efficiently and shifting our dependence on fossil fuel toward 
renewable sources of electricity.
    For the short term, New York must plan for the summer of 2001. 
Summer is when the demand for power is the greatest in our region, as 
more air conditioning is used in response to hot weather. We must have 
enough power supply available downstate to meet expected demand without 
skyrocketing prices. The power generators the New York Power Authority 
(``NYPA'') is placing downstate--among the cleanest and most efficient 
available--are a sound approach to accomplish those goals. At the same 
time, investments in energy efficiency must be significantly increased. 
The New York Independent System Operator (``NYISO'') must enhance the 
design--and operation of the State's electricity markets to avoid, 
price spikes based on abusive market power, and to ensure the integrity 
of the wholesale power market. Unless these markets work competitively, 
deregulation cannot achieve its goals, and consumers, the economy, and 
the environment will suffer as windfalls are reaped by the few at the 
expense of the many.
    For the longer term, we must address not only how much power we 
have available, but how that power is generated To protect our health 
and natural resources, the State must move to a cleaner electncity 
supply and contain the ever-expanding growth of demand Relying more on 
renewable energy and using electricity efficiently should also lower 
bills for consumers.
    To assure reliable electricity at steady prices we must build new 
sources of electric power, expand transmission capacity to reach more 
existing sources of power, and create more flexible demand during peak 
demand periods through demand-side management, conservation and more 
efficient consumption We can achieve this new, balanced energy 
portfolio by improving the plant siting process, by enacting policies 
that promote clean distributed generation and the use of renewable 
energy sources, and by increasing transmission capacity to allow market 
sited plants to serve the entire State. We must also ensure that new 
clean generating capacity displaces older, dirtier, and less efficient 
power plants.
    These goals are achievable if we work together and act with care 
and speed New York is one of the largest energy users in the United 
States, which is the largest energy user in the world Thus, our choices 
can have a major influence on global as well as local energy policies 
and environmental impacts. The following recommendations are a first 
step toward a balanced strategy on electric power.
                           executive summary
    The demand for electricity in New York has grown dramatically over 
the past several years, primarily due to a rising economy. Supply 
however, has not kept up, raising reliability concerns for the future. 
New York has also recently restructured its electric power markets, and 
the current supply/demand imbalance has been reflected in the price of 
power, sometimes leading to dramatic price volatility in electricity 
bills downstate. As we confront our energy needs, we must recognize the 
impacts of electricity generation. Power plant emissions contribute to 
acid rain, smog, toxic pollution and climate change, all of which have 
a serious deleterious impact on our health and environment. These facts 
raise both short-term and long-term concerns for New York about the 
price, reliability, and impacts of electric power. New York needs to 
find better ways to meet its electricity demands at a reasonable cost 
while also protecting its citizens' health and the State's natural 
resources.
Recommendations
    The Attorney General's Bureaus of Telecommunications & Energy and 
Environmental Protection recommend the following measures:
A. Short-Term Measures
    Currently, New York's growing imbalance in supply and demand is 
greater downstate than upstate, due to the nature of transmission 
constraints, which make it difficult for significant power to be sent 
downstate. We must be sure we have enough electric power supply this 
summer to meet the anticipated peak demand downstate by increasing 
clean sources of electricity generation and by reducing demand through 
aggressive conservation and efficiency measures. Not only must we make 
sure that the lights stay on this summer, but also that there is enough 
supply so that electricity prices do not skyrocket.
    1. New supply is needed, particularly in downstate areas Estimates 
of peak supply shortfall downstate in the summer of 2001 require the 
additional generation proposed by the New York Power Authority 
(``NYPA'') and others.
    2. Immediate efforts to reduce demand will improve reliability, 
lower price and reduce the need for more supply Funding for the three 
existing State programs that promote energy efficiency, conservation 
and renewable energy must be increased The Attorney General is 
directing a portion of its future power plant settlement funds--
totaling approximately $20 million--to the New York State Energy 
Research and Development Authority (``NYSERDA'') for efficiency, 
conservation and renewable energy programs Funding for NYPA efficiency 
programs should be increased immediately from its current level of $60 
million annually to $160 million per year, with an emphasis on projects 
to reduce peak demand in New York City and Long Island Funding for Long 
Island Power Authority (``LIPA'') efficiency programs should be 
increased this spring from $32 million per year to $50 million per year 
With increased funding for these demand-reducing programs, it is 
estimated that over 600 MW of generation capacity needs could be 
avoided statewide over the next 2 years.
B. Long-Term Measures
    In the longer term, we must address not only how much power we have 
available, but how that power is generated and used. To ensure 
environmental protection, a reliable electricity system, and reasonable 
prices for electricity, we must develop policies today that (1) improve 
the siting process for new power generation, (2) upgrade the 
transmission and distribution system, (3) increase renewable energy and 
clean distributed generation sources, (4) protect the consumer, and (5) 
contain the growth of demand and protect the environment.
1. We must increase our supply for the long term
    The State needs to recognize that an increase in supply is 
necessary to keep up with demand. We need to be innovative and forward-
looking in considering how to increase supply while protecting our 
environment.
    a. The siting process must be improved. The Siting Process must be 
improved to ensure that necessary new generating facilities come on 
line expeditiously, with the least possible impact on the environment 
and public health:

      The Legislature should require the Siting Board and New 
York State Department of Environmental Conservation (``DEC'') to decide 
which siting applications merit a preference for earlier review.
      The Siting Board should designate a project manager for 
each application.
      The Siting Board should require applicants to file 
environmental permit applications with DEC before filing a siting 
application.
      The Siting Board should establish a 30-day time limit to 
negotiate voluntary stipulations.
      The Siting Board should appoint an ombudsman for each 
project to be a focal point of contact for community groups and to 
mediate disputes.
      The New York State Independent System Operator 
(``NYISO'') should set deadlines for Transmission and Distribution 
Owners to contribute to system reliability impact studies.
      The PSC and the NYISO should assign responsibility for 
transmission system upgrades necessary for new generating capacity.

    b. New and upgraded transmission lines are needed. New York needs 
additional high voltage transmission capacity to move large quantities 
of power from places with surplus power to areas that currently contain 
limited generating capacity. For decades, transmission bottlenecks have 
restricted the efficient use of New York's overall existing generating 
capacity as well as access to supplies from out-of-state. Despite these 
infrastructure flaws, investment in transmission has declined 
significantly since 1988. Steps have been taken to establish a 
federally sanctioned regional transmission organization (``RTO'') to 
address New York's transmission needs However, whether or when such an 
RTO will begin operations remains uncertain The PSC and the NYISO have 
the authority to begin the work needed to relieve New York's 
transmission bottlenecks, and should begin immediately.
    c. Renewable generation and clean distributed generation sources 
should be increased. Until recently, solar and wind generation were not 
economically competitive with fossil fuel power generation. New 
technologies for solar and wind generation, combined with increased 
fossil fuel costs, have narrowed the cost gap considerably. The 
Legislature should join New Jersey, Massachusetts, Connecticut, Texas, 
and many other States by adopting a Renewable Portfolio Standard 
(``RPS'') requiring retailers of electricity to include in their 
portfolio of supply an increasing percentage of renewable generation.
    Policies are also needed to increase clean distributed energy 
sources. The need for large power plants and the strain on the 
transmission system could be lessened by distributing smallscale 
generation units (L? fuel cells, wind generators, small-scale hydro, 
solar cells, and cogeneration facilities)' that use minimally polluting 
technologies directly on the site where the electricity is to be used. 
The Legislature should (i) expand tax credits for the purchase of clean 
distributed generation technologies, and (ii) expand the Solar Net 
Metering Law to include wind and small hydro power--allowing owners of 
such generation to sell excess power generated back to the grid. In 
addition, NYPA should work with local governments across the State to 
install fuel cells at landfills and wastewater treatment facilities, 
which produce large quantities of methane that can be used to power 
fuel cells.
2. The consumer must be protected during the transition to competitive 
        markets
    a. The NYISO must enhance its market monitoring and price 
mitigation functions. Electricity prices must not be permitted to soar 
during the transition to competitive markets for this vital service. 
The NYISO has made significant progress toward developing competitive 
power markets and in monitoring the markets for potential abuses of 
market power. However, more needs to be done to ensure stable prices 
for the summer of 2001 and beyond, whenever supply and demand are 
severely out of balance. The NYISO must implement its proposed 
``automatic'' mitigation, which seeks to ensure that prices reflecting 
potential abusive exercise of market power do not set the market-
clearing price. The NYISO must also strengthen its current forward-
looking market mitigation, by obtaining approval from the Federal 
Energy Regulatory Commission (``FERC'') to order retroactive refunds 
when abuses of market power are timely identified. The current $1,000 
per megawatt-hour cap on the price of wholesale power should be 
retained, and should be kept in line with any price caps in adjoining 
markets, until a judgment is made that New York's markets are 
reasonably competitive, especially during times of peak demand.
    b. Consumers must be protected from extremely volatile electricity 
prices while receiving necessary market price signals. During the 
transition to deregulation, utilities should 'bear some of the risk of 
high wholesale market prices with customers, rather than completely 
passing through such prices to consumers. This will incentivize 
utilities to better manage their risk, while affording consumers price 
signals upon which to make decisions about electricity use.
3. Demand must be contained over the long term and the environment must 
        be protected
    As the economy and population grows, so will demand. We must meet 
growth without increasing degradation. Aggressive measures to reduce 
demand, together with construction of clean and renewable power plants, 
will greatly increase the probability that older, highly polluting 
power plants will be displaced.
    The NYSERDA, NYPA and LIPA programs that fund efficiency and 
renewable projects are not required by law. NYSERDA's funding expires 
in 2006, NYPA's funding is year-to-year, and LIPA's funding expires in 
2004 The Legislature should mandate that these programs be funded at a 
higher level for at least the next 10 years. In addition, the 
Legislature should enact other financial incentives to reduce demand, 
such as exempting the most energy efficient products from sales tax.
    The PSC should improve pricing and revenue signals to encourage 
flexible demand and conservation. Utilities should promote offers for 
different time-of-day rates to residential customers to encourage load 
shifting, and master-metered buildings in New York State should be 
converted to direct metering or submetering. The PSC should also 
consider changing the way it regulates the price of electricity 
distribution If the rate structure rewarded retailers for reductions in 
demand, energy conservation would more likely become a priority.
    State government can bring utilities into the State's energy 
efficiency efforts by enacting an Efficiency Portfolio Standard, 
requiring retail sellers of electricity to achieve certain levels of 
demand reductions in their service area. The Federal Government can 
similarly act to implement stringent minimum energy efficiency 
standards for appliances and other electrical products to reduce demand 
for electricity nationwide.
    No one proposal within this report stands alone. This package of 
proposals recognizes the need to address both supply and demand. In so 
doing, the State will best promote the growth of competitive electric 
power markets while also protecting both consumers and the environment. 
Taken together, these recommendations are a balanced approach to 
address the State's short-term and long-term electric power needs and 
to lay the foundation for a sustainable energy policy for the future.
I. New York Must Address its Growing Imbalance in Electric Supply and 
        Demand
A. Electricity Supply and Demand are Out of Balance
    The recent rapid and welcome growth in New York's economy has 
spurred a dramatic increase in demand for electricity statewide, peak 
demand for electricity is estimated to be increasing at an annual rate 
of 1.4 percent, with demand increasing in some regions at more than 
twice the state-wide rate. \1\ Growth in generating capacity and 
investments in efficiency have not kept pace. Indeed, addition of new 
electric power sources in New York State has slowed dramatically over 
the last 5 years, even compared to the limited amount of capacity built 
between 1990 and 1995, \2\ and state-mandated demand-side management 
investments (and their associated savings in needed generating 
capacity) have declined from a high of $330 million in 1993 \3\ to 
approximately $170 million in 2000. \4\ This growing imbalance between 
supply and demand, if unaddressed, can lead only to ever-soaring 
electric power prices and eventual blackouts. However, increasing 
capacity without regard to environmental considerations, will 
exacerbate our State's air pollution problems.
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     \1\See, NYISO Installed Capacity Load Forecast Study for Summer 
2001. Http://www.nyiso.com/markets/icapinfo.html#summer 2001.
     \2\Only 308 MW of power were added between 1996-2000, compared 
with 3,410.7 MW added between 1990 and 1995. This data is based on 
NYISO registration dates for New York power plants currently operating.
     \3\ New York State Energy Planning Board (``NYSEPB''), New York 
State Energy Plan and Final Environmental Impact Statement. November 
1998. p. 3-60, 3-62.
     \4\ State-mandated DSM Funding in 2000 came from three sources: 1) 
SBC, See 'Order Continuing and Expanding the System Benefits Charge for 
Public Benefit Programs, Case NO. 94-E-0952, et. al., (January 26, 
2001); 2) NYPA, see NYPA press release, November 30, 2000; and 3) LIPA, 
see LIPA, Clean Energy Initiative, May 3, 1999.
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    The present facts are stark. New York State has a geographical 
mismatch between generating capacity and where electricity is used. \5\ 
Physical limitations on the amount of electricity that can be 
transported from one part of the State to another over the existing 
high voltage transmission system mean that western New York has 
surpluses of power whereas eastern New York, particularly downstate in 
New York City and Long Island, are short. Moreover, additional capacity 
is required to ensure that the lights can be kept on even if a major 
generating unit or transmission line fails. These reserve levels are 
required to be 18 percent above the projected peak demand for 
electricity statewide and in given areas.
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     \5\ New York State's total summer electric generation capacity is 
35,098 MW. NYISO 2000 Load And Capacity Data Report, July 1, 2000, 
Table 111-2, p. 55. Seasonal effects change capacity levels for certain 
generators, resulting in a state-wide winter capacity of 36,649.8 MW. 
One megawatt is the amount of power required to light 10,000 100-watt 
light bulbs. Because demand for electricity peaks in the summer, the 
winter capacity has less significance for system reliability concerns. 
The summer peak electricity demand for New York State in 2001 is 
projected to be 30,620 MW. See, NYISO Installed Capacity Load Forecast 
Study for Summer 2001. Http://www.nyiso.com/markets/
icapinfo.html#summer--2001.
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    New York City is projected to have a summer 2001 peak demand of 
10,535 MW, \6\ up 4.6 percent from the record peak demand of 10,076 MW 
during the July 1999 heat wave. \7\ The NYISO estimates that New York 
City will be a glaring 397 MW short of required capacity during the 
upcoming summer Electricity supply on Long Island is only slightly 
better For Long Island, the NYISO projects a summer 2001 peak demand of 
4,733 MW and a capacity shortfall of 131 MW. \8\
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     \6\ NYISO February 15, 2001 Locational Installed Capacity 
Requirements Study.
     \7\The power outages experienced in parts of New York City and 
Westchester County that began on July 6, 1999 were caused by failures 
in Con Edison's distribution network, not insufficiency in supply. See, 
New York State Attorney General's report, Con Edison 's July 1999 
Electric Service Outages, March 9, 2000.
     \8\ These estimates do not take into account the proposed NYPA 
generating units or additional projected capacity increases on Long 
Island. NYISO February 15, 2001 Locational Installed Capacity 
Requirements Study. See also, NYISO, Power Alert: New York's Energy 
Crossroads, March 2001, p. 19, and NYISO March 14, 2001 press release, 
Expedited Power Plant Development & More Customer Choices Needed To 
Avoid California-Type Energy Crisis, Says NYISO Report.
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    For 2001 NYISO forecasts a 1.7 percent annual increase for New York 
City and a 2.3 percent annual increase for Long Island. \9\ Thus, 
projected summer peak demand in 2002 and 2003 for both New York City 
and Long Island may well exceed available generating capacity unless 
supply and demand are quickly aligned. \10\ As shown in Table 1, if 
current demand growth continues unchanged for the next 2 years, no more 
generation capacity is added, and efficiency and conservation are not 
improved, both New York City and Long Island risk being unable to 
supply sufficient power.
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     \9\See, NYISO Installed Capacity Load Forecast Study for Summer 
2001. Http://www.nyiso.com/markets/icapinfo.html#summer--2001.
     \10\ See, NYISO Piess Release, New York Independent System 
Operator Finds That New York City Faces Electricity Shortage, February 
14, 2001. See also, NYISO, Power Alert: New York's Energy Crossroads, 
March 2001, p. 19.

                                                     Table 1
                    Downstate New York Shortage Without More Generation Or Reduced Demand\11\
                                                   (MegaWatts)
----------------------------------------------------------------------------------------------------------------
                                             2001                         2002                 2003
                                             Zone      2001      2001     Zone       2002      Zone       2003
                   Zone                    Capacity   Current  Current  Capacity  Projected  Capacity  Projected
                                           Required  Capacity  Deficit  Required   Deficit   Required   Deficit
----------------------------------------------------------------------------------------------------------------
NYC......................................      8428      8031     -397      8560      -529       8680      -649
LI.......................................      4638      4507     -131      4709      -202       4776      -269
----------------------------------------------------------------------------------------------------------------
 AAAAAAAA\11\Source: NYISO, Power Alert: New York's Energy Crossroads, March 2001, p. 19.

    In addition to these estimates, the Public Service Commission 
(``PSC'') has identified a ``statewide need for 600 MW plus per year of 
capacity additions to satisfy the demands of a growing economy'' and 
``an immediate need for 300 MW [of added capacity now in New York 
Cityj, and an additional 200 MW each year thereafter.'' \12\ PSC 
Chairman Helmer has also stressed that New York must use effective 
strategies to cut demand, comparing building power plants alone to 
trying to clap with one hand. \13\
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     \12\See, August 2, 2000 testimony of PSC Chairman Maureen Helmer 
before the Assembly Standing Committee on Energy, Http://
www.dps.state.ny.us/testimony--8--2--2000.htm, p.3.
     \13\See, Albany Times Union, Demand the Key to Power Supply, March 
6, 2001, p. E1.
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    While electricity conservation and demand management programs could 
substantially reduce the amount of additional generation needed, it is 
clearly imperative that clean supply be increased, both for the short-
term downstate, and for the long-term throughout the State. Indeed, new 
clean and efficient power plants, combined with aggressive demand-side 
management and renewable energy investments, should displace older, 
dirtier power plants and yield reduced emissions and increased 
generating capacity.
B. Supply Must be Greater than Demand, to Avoid Power Outages, and Keep 
        Electricity Prices from Skyrocketing
    In competitive markets, when demand is inflexible and approaches 
the limits of available supply, the price paid for a product will climb 
dramatically. This characteristic is especially salient in the case of 
wholesale electricity markets, where demand currently is relatively 
inflexible, and where the physical properties of electrical generation 
and flow are such that electricity cannot be stored in any significant 
quantity, but is generated, transmitted, and used virtually 
instantaneously. \14\ The amount generated and put into the 
transmission grid must be balanced with the amount consumed second by 
second, or the entire system could break down. \15\When demand 
threatens to outstrip supply during periods of peak use, price spikes 
will occur. Electricity will be less expensive if surplus capacity is 
sufficient not simply to keep the lights on, but to keep wholesale 
prices competitive.
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     \14\Buyers in other power markets, including natural gas, can ride 
out peak demand periods by drawing down storage supplies and avoid 
paying volatile spot prices.
     \15\Different generation plants have vastly differing production 
costs, according to their size, design, operation, and fuel source. 
Large steam powered generators and nuclear power plants (in the 500-
1,000 MW range--called ``base load'' units), cannot be activated 
quickly, nor can they rapidly adjust electricity output. Therefore, 
owners of such units normally offer their power into the market at 
relatively low prices, to ensure that it will be dispatched and they 
will not have to dump excess output. At the other end of the spectrum, 
small gas turbines (ranging from 20 to 60 MW) are designed to allow for 
quick startup and output adjustment and, due to their high operating 
costs, are most often used during peak hours. Peaking units, including 
gas turbines, experience greater wear and maintenance costs if run for 
extended periods. To recover their investment and operating expenses 
over a relatively limited number of unpredictable hours of use, owners 
of such units usually offer power at high prices.
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    Once a sufficient number of private sector new generation projects 
are approved to be brought on line, market forces can be expected to 
bring supply into better balance with demand, yielding greater 
wholesale market price stability.
    Until we have more experience with market participant behavior, it 
is difficult to ascertain what specific amount of capacity would 
provide sufficient surplus to not only assure reliability but also 
stabilize market prices during peak demand periods. As much as 10-20 
percent surplus during peak demand may be required to avoid the steep 
end of the price curve. The NYISO projects that by 2005, if no new 
generation is added in New York, ``statewide prices could be expected 
to increase by about 14 percent from present levels'', but ``[i]f 
supply is allowed to grow statewide prices should actually decrease and 
could be 20-25 percent lower than if no new generation is added,'' 
resulting in statewide ``savings of over $1.4 billion annually in 
2005.'' \16\ Because the mix of generator types and sizes varies in 
each of the 11 zones where NYISO administers market prices, the surplus 
capacity needed to avoid volatile prices will necessarily differ for 
each zone.
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     \16\ See, NYISO, Power Alert: New York's Energy Crossroads, March 
2001, p. 9. This NYISO projection assumes that 8,600 MW would be added 
to New York's supply, and does not include inflation or fuel cost 
increases.
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C. NYPA's Proposed Generators for New York City are Necessary to Meet 
        Peak Demand for Summer 2001
    For the immediate term, by the summer of 2001, we have no choice 
but to increase the available power downstate by at least 528 MW, i.e., 
397 in New York City and 131 MW in Long Island. The NYPA has received 
approval to construct 11 new gas turbines in New York City with a 
combined output of 443.5 MW, most of which are expected to be 
operational at the start of the upcoming summer cooling season. In 
addition, the Astoria No. 2 plant (a former Con Edison-generator fueled 
by natural gas) is expected to be repowered by Orion Power Holdings, 
Inc. and available sometime during summer 2001, which would add 170 MW. 
Another 60 MW to the generating capacity in New York City is 
anticipated from Con Edison's planned reactivation of the Hudson Avenue 
No. 10 plant (Brooklyn). \17\ These new NYPA and repowered units, if 
completed in time, should address the risk that New York City might 
otherwise have insufficient power supply if demand peaks at forecast 
levels. \18\
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     \17\ While a number of other small-scale potential capacity 
additions to existing units in New York City are being pursued at 
various sites, it is difficult to determine with certainty which 
efforts will be brought en line and whether they will meet the need 
when demand peaks.
     \18\ The Attorney General supports this effort, but takes no 
position on the particular sites selected for the NYPA generators.
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    The NYPA units, which burn natural gas as a fuel, are considered 
relatively clean in terms of emissions \19\--they emit virtually no 
sulfur dioxide (``SO2'') and less nitrogen oxide (``NOx'') 
than oil or coal-fired plants. Thus, the potential air quality impact 
of this supplemental generation capacity should be limited. \20\ In 
addition, the NYPA has committed to reducing air emissions at other New 
York City plants so overall air emissions will not increase. \21\ Each 
new unit is comparatively small in scale, which should minimize impact 
on local communities. \22\
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     \19\Power plants emit significant quantities of pollutants, 
especially sulfur dioxide, nitrogen oxides, particulate matter, carbon 
dioxide, and mercury. These emissions contribute to acid rain and 
regional haze, and are dangerous to human health as well as to the 
health of fish and wildlife.
     \20\The NYPA has stated that they will use the best available 
emission control technology to reduce NON, particulate matter, sulfur 
dioxide and carbon monoxide emissions. In addition, the NYPA performed 
an analysis of the turbines' fine particulate (PM2.5) pollution and 
determined the increase to be insignificant. The DEC has issued air 
pollution control and acid rain permits limiting emissions for each of 
the sites.
     \21\DEC Press Release, dated January 12, 2001. The State's 
Department of Environmental Conservation (``DEC'') and the NYPA should 
formalize an agreement on reduction of overall area emissions.
     \22\The NYPA has also committed to noise mitigation measures at 
some of the new sites.
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    On Long Island, the NYPA is installing one 44 MW capacity gas 
turbine at the former site of Pilgrim State Hospital. In addition, 
Keyspan is upgrading its Holtsville unit to increase output by 5 MW, 
and other gas turbines that will add 35 MW more generating capacity on 
Long Island. A merchant generator turbine is slated for Far Rockaway 
with 44-50 MW of capacity. Together, these planned additions will 
barely satisfy the 131 MW capacity needed for Long Island reliably to 
meet forecast demand. Some of these new units are not expected to be 
operational by the May 1, 2001 start of the peak season, but instead 
may not be available until July 1. Even with the anticipated new 
generating unit upgrades and additions, Long Island electric power 
resources are likely to be stretched to their limit during peak demand 
periods this summer.
D. Current State Programs that Promote Energy Efficiency and Renewable 
        Energy Should be Expanded
    Several programs in New York State currently encourage energy 
efficiency and renewable energy. Most are implemented by the New York 
State Energy Research and Development Authority (``NYSERDA''), the 
NYPA, and the Long Island Power Authority (``LIPA'') \23\ They have 
proven to be highly successful and offer a good starting point for an 
expanded State efficiency effort.
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     \23\The NYPA and LIPA are publicly owned not-for-profit utilities, 
whose programs are funded by rates charged their customers.
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1. The Attorney General is Directing Power Plant Settlement Funds to 
        Supplement NYSERDA Programs
    The Attorney General, through his authority to enforce Federal and 
State environmental protection laws, has embarked on a number of clean 
air initiatives. The Attorney General sued out-of-state coal-fired 
power plants that upgraded or expanded their old power plants without 
installing the pollution controls required by the Clean Air Act The 
Attorney General, with the DEC, is also pursuing legal action against 
similar plants in New York. Recognizing the priority the people of New 
York have assigned to clean air and a balanced energy policy, the 
Attorney General is negotiating to ensure that settlements are directed 
to enhancing renewable energy development and efficiency.
    The Attorney General is working with the NYSERDA and DEC to ensure 
settlement funds are spent most effectively to promote energy 
efficiency and renewables The settlement funds may also be used to fund 
some of the transmission infrastructure needed to make available 
additional wind resources. While agreements-in-principal have not been 
finalized--and other cases are in negotiation or litigation--the 
lawsuits are likely to yield $20 million or more that can provide the 
catalyst for an additional 10-30 MW of renewable energy and perhaps 10 
MW of savings through efficiency.
2. The Legislature Should Ensure Funding for NYSERDA Programs by 
        Extending the System Benefits Charge
    The NYSERDA's programs, under the umbrella of the New York Energy 
Smart program, are designed to improve energy efficiency through 
education, improved operations, purchases and use of energy efficiency 
equipment and services, and technology development and demonstration. 
The 38 New York Energy Smart programs, range from market transformation 
(e.g., ensuring retail stores offer efficient products to their 
customers) to low-income assistance (e.g., direct installation of 
efficiency measures in low-income households) and renewable energy 
development (e.g., production incentives to wind farm developers).
    The NYSERDA's programs are funded by the System Benefits Charge 
(``SBC''). \24\ The SBC is a small, non-bypassable charge per kilowatt-
hour to all customers buying electricity transmitted and distributed by 
the State's investor-owned utilities. Currently, the SBC rate is just 
over one-tenth of one cent per kilowatt-hour and collects $150 million 
per year. \25\ The existence of the SBC derives from a PSC Order that 
expires in 2006. \26\ The Legislature should codify the SBC and extend 
it 5 years to ensure a long-term, reliable source of funding for energy 
efficiency and renewables. In addition, the Legislature should make 
permanent programs funded by the SBC that improve efficiency in low-
income households.
---------------------------------------------------------------------------
     \24\In Opinion and Order Regarding Competitive Opportunities for 
Electric Service, Case NO. 94-E-0952, et. al., (May 20, 1996), the PSC 
created the SBC to mitigate the potential adverse environmental impact 
of restructuring the electric industry.
     \25\See, Order Continuing and Expanding the System Benefits Charge 
for Public Benefit Programs, Case NO. 94-E -0952, et. al., (January 26, 
2001), p. 12. A small percentage of the funding is administered by the 
utilities.
     \26\Ibid.
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    The NYSERDA has used over $71.8 million SBC funds since 1998 to 
encourage efficiency and renewable power investments. These investments 
have resulted in estimated electric savings of 486,000 MWh annually; 
demand reduction of at least 125 MW; reductions to electric, fuel oil, 
and natural gas bills of $54 million annually; reductions to annual air 
emissions of 464 tons of NOR, 774 tons of SO2, and nearly 
335,000 tons of CO2 and the creation of over one thousand 
jobs. \27\ While the $71.8 million was paid out once, the savings are 
annual. Based on this experience, a one-time investment of $100 million 
in energy efficiency reduces consumer bills by about $75 million per 
year. This annual savings accumulates over the lifetime of the 
efficiency measure, yielding' a net savings of $375 million over the 
first 5 years for just the first year's investment.
---------------------------------------------------------------------------
     \27\NYSERDA, New York State Energy Smart Program Evaluation and 
Status Report, Report to the System Benefits Charge Advisory Group. 
Interim Report, September 2000.
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    The NYSERDA estimates that the total effect of SBC expenditures 
through the summer of 2002 will reduce peak demand between 600 and 660 
MW and between 1,200 and 1,300 MW through 2006. \28\ These programs, so 
critical to New York's energy and environmental future, should be 
codified.
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     \28\NYSERDA, Proposed Operating Plan for New York Energy Smart 
Programs (2001-2006), February 15, 2001, pp. 2,3.
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3. NYPA Should Work With its Customers to Reduce Demand by an 
        Additional 200 MW Over the Next Two Years Beyond Its Current 
        Goals
    The NYPA currently provides about $60 million annually to its 
customers for demand-side management projects and recovers its costs by 
sharing in the electric bill savings. These projects cost taxpayers 
nothing to implement, but realize approximately $65 million annually in 
energy bill savings, and save enough energy each year to service 
300,000 people, and avoid 360,000 tons of CO2 emissions \29\ 
While the NYPA's demand-side management initiatives currently achieve 
capacity savings of between 20 and 60 MW per year, \30\ significant 
opportunities exist for greater savings. \31\ The NYPA's customers, 
many of which are public entities, consume over 20 percent of the 
State's electricity, making this agency well situated to advance the 
State's need for more aggressive energy efficiency efforts. By reducing 
the government's demand for electricity, The NYPA can save taxpayers 
hundreds of millions of dollars in electricity costs. The NYPA should 
work with its governmental and business customers to reduce demand and 
increase clean distributed generation and renewable energy by at least 
an additional 100 MW per year over the next 2 years and commit to fund 
its demand-side management programs at an increased level over the next 
10 years.
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     \29\The NYPA's efficiency programs have successfully reduced 
electricity use and electricity bills. For example, the NYPA is working 
with the New York City Housing Authority (NYCHA) to replace 180,000 
refrigerators with more efficient varieties over 8 years. After this 
project is completed in 2003, NYCHA will reduce energy consumption by 
103,000 MWh per year and save over $7 million annually in energy costs. 
Similarly, its High Efficiency Lighting Program provides energy-
efficiency improvements such as new lighting and upgrades to heating, 
ventilation and air-conditioning systems with no up-front costs to 
government and educational institutions. These measures can cut up to 
25 percent on electric consumption. See, Http://www.nypa.gov/html/
es.htm. See also NYPA press release, November 30, 2000.
     \30\ The NYPA currently spends approximately $60 million per year 
on demand-side management (``DSM''), but information regarding the 
amount of generating capacity saved is unavailable. Capacity savings 
were estimated based on past DSM investments. Between 1990 and 1996, 
the NYPA spent $255 million on demand-side management programs and 
reported saving 84 MW (0.33 MW per million dollars spent). Between 1990 
and 1997, Investor-Owned utilities spent $1,277 million on DSM and 
reported saving 1,377 MW (1.08 MW per million dollars spent). Thus, an 
annual $60 million investment could result in a capacity savings of 
between 20 and 60 MW per year.
     \31\ For example, one of the NYPA's largest customers, the 
Metropolitan Transportation Authority, uses approximately 1,800,000 MWh 
per year. By updating its lighting and signal systems and other 
efficiency/conservation projects, it is conservatively estimated that 
the MTA could reduce its electricity use by 2 percent. (The NYPA 
reports that they can achieve up to a 25 percent reduction in energy 
consumption for each efficiency project they undertake. Thus a 2 
percent overall reduction is a conservative target.) This project alone 
could reduce peak demand in New York City--a load pocket--by at least 4 
MW, saving 36,000 MWh per year and $2,520,000 in annual energy costs 
(based on a rate of 7 cents per kWh--the NYPA's rates vary). See NYPA 
1998 Annual Report.
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    Because of the dual benefit of reducing demand and reducing the 
electricity bills of public entities, the Governor should direct all 
State agencies to report on energy use and recommend how to reduce both 
base and peak demand within 6 months. The NYPA should work closely with 
the State agencies to develop and implement those recommendations, 
including providing the financing necessary to obtain technical 
assistance, conducting energy audits, and purchasing and installing 
more efficient motors, lights, and other appliances or devices.
    The NYPA should also expand its existing efficiency programs to 
include more local governments and school districts statewide, further 
reducing electricity costs for taxpayers The Legislature should direct 
the NYPA to provide funding for local governments to assess their 
energy efficiency opportunities within 6 months (for New York City and 
Long Island) or 12 months (for upstate areas) and reach agreements for 
their implementation.
    The NYPA sells approximately 40,000,000 MWh of electricity per 
year, much of it to government and educational institutions. \32\ For 
the NYPA to achieve 200 MW in additional savings beyond its current 
program, it will need to reduce energy consumption from all of its 
customers by 7 percent over 2 years. \33\ This would save the NYPA's 
government customers (the taxpayers) and business customers 
$196,224,000 in energy costs annually. \34\ The environmental gains 
would be commensurately large--an estimated 2 7 million tons of 
CO2, 14,280 tons of SO2, and 5,320 tons of NOx 
would be avoided. \35\ Finally, energy savings of this--magnitude would 
reduce stress on the existing system, improving reliability.
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     \32\ New York Power Authority 1998 Annual Report, p.19.
     \33\The NYPA would need to achieve 320 MW savings over 2 years to 
meet the Attorney General's proposal, assuming the NYPA already 
achieves 60 MW savings per year through its existing $60 million per 
year program. A 7-percent reduction in electricity use = 5,600,000 MWh. 
320 MW x 17,520 hours per 2 years = 5,600,000 MWh.
     \34\Based on a rate of 7 cents per kWh. The NYPA's rates vary.
     \35\Based on average statewide emission rates according to PSC 
Historical Fuel Mix and Emissions Data. Http://www.dps.state.ny.us/
fuelmix.htm.
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4. The Legislature Should Direct LIPA to Increase Its Investments in 
        Demand Side Management
    Shortly after the LIPA acquired the Long Island Lighting Company, 
its Board of Trustees issued a Clean Energy Policy Statement that 
declared the LIPA would establish a Clean Energy Initiative to support 
energy efficiency, clean distributed generation and renewable 
technologies. The LIPA funded the Clean Energy Initiative at $32 
million per year for 5 years and began implementation in mid-1999. \36\ 
In light of the current demand/supply imbalance on Long Island, the 
Legislature should direct the LIPA to increase its funding for the 
Clean Energy Initiative from $32 million to at least $50 million per 
year for 10 years.
---------------------------------------------------------------------------
     \36\ The LIPA's Clean Energy Initiative offers many programs, 
including rebates for energy efficient products in their ``EnergyWise'' 
catalog. More than 37,000 lighting products have been ordered through 
the program and an additional 170,000 compact fluorescent lights have 
been sold in home improvement stores. Together, they represent 
potential electric savings of nearly $9 million and over 2,970 MWh of 
electricity. The LIPA's Residential Energy Affordability Partnership, a 
low-income energy efficiency program much like the NYSERDA's, directly 
installs energy efficiency measures, such as compact fluorescent 
lighting, refrigerators, wall and attic insulation, and programmable 
thermostats. The Solar Pioneer Program offers direct consumer 
incentives toward the installation of qualified photovoltaic systems 
between 250 and 10,000 watts, as well as a $3.00 per watt rebate for 
installing approved solar equipment.
---------------------------------------------------------------------------
    The LIPA's existing Clean Energy Initiative--projected to obtain 
144 MW of demand-side energy capacity savings by the time it expires in 
2004 \37\--will not realize all of the potential for capacity savings 
on Long Island. A 1999 study that examined opportunities to meet 
expected-increases in demand on Long Island found that expanded energy 
efficiency, distributed generation, wind power, fuel cells, and 
photovoltaics could yield 690 MW by 2010, including 465 MW from energy 
efficiency alone. \38\
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     \37\Estimated peak load reductions during the first year of the 
Clean Energy Initiative, totaled approximately 39 MW. Energy reductions 
resulting from the Clean Energy Initiative during 1999 were estimated 
to total approximately 16,000 MWh. These savings were achieved within 1 
year of the LIPA's approval of the Clean Energy Initiative, 
demonstrating how quickly efficiency measures can be effective. At the 
end of the 5-year, $160 million program, the LIPA estimates that it 
will save 191,000 MWh of energy per year and avoid the need for 144 MW 
of capacity. See, LIPA, Clean Energy Initiative, May 3, 1999.
     \38\ Pace Law School Energy Project and Long Island Citizens 
Advisory Panel, Power Choices: 21st Century Energy Alternatives for 
Long Island, October 1999, p. 3.
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    If the Clean Energy Initiative were expanded to $50 million per 
year until 2010, as. recommended, capacity savings over the next 10 
years could be greater than 450 MW. \39\ If the funding were increased 
immediately, and programs were expanded this year, an additional 30 MW 
could be avoided over the next 2 years and an additional 45 MW savings 
over the remaining 3 years of the LIPA program. Given the cost savings 
from efficiency programs in the past, the investment of $50 million per 
year would save Long Island ratepayers approximately $35 million in 
each succeeding year, leading to dramatic cumulative savings (perhaps 
$60 million after 3 years) Again, significant environmental and 
reliability gains can also be expected.
---------------------------------------------------------------------------
     \39\ Estimate based on LIPA's current projections of 144 MW per 
$160 million spent over 5 years (0.9 MW per million dollars spent).
---------------------------------------------------------------------------
II. The Review Process for the Siting of New Generation Facilities Must 
        be Streamlined
    The need for new supply underscores the importance of the power 
plant siting process, yet significant problems in that process affect 
the ability to respond quickly to increased demand with increased 
supply. Power plants cannot simply be built whenever and wherever 
someone decides they would like to do so. Rather, because of their size 
and environmental impacts, plans to build power plants are subject to 
an extensive and careful State approval process. This State-mandated 
review has been fraught with delay and uncertainty, impeding the 
ability of aspiring generators to proceed as expeditiously as would be 
optimal. Oddly, no process exists by which to rank the relative 
environmental impact of the proposed power plants. To increase the 
supply of electrical power to meet our economy's needs while protecting 
human health and the environment, the process must be dramatically 
improved.
    Ideally, the siting process should provide one-stop shopping for 
generators. Indeed, when the Legislature enacted Article X of the 
Public Service Law (``PSL'') in 1992, the goal was for one entity, the 
New York State Board On Electric Generation Siting And the Environment 
(``Siting Board''), to have authority over the entire review process. 
\40\ However, the U. S. Environmental Protection Agency (``EPA'') 
authorizes the State DEC to issue permits under the Clean Water Act and 
the Clean Air Act. Since such permits are necessary before a generating 
facility may be built, the process does not readily fit the one-stop 
shopping model. Additionally, the siting of a power plant is often 
controversial, so the review process appropriately provides an 
opportunity for extensive input by interested parties. For these 
reasons, siting a new plant is neither easy nor quick. \41\ 
Nevertheless, more can and must be done to coordinate and expedite the 
process if New York is going to meet the expected increase in demand 
with sufficient increase in supply, while at the same time ensuring 
that the added capacity results in a cleaner environment. Toward that 
end, the Attorney General urges the following:
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     \40\Under Article X, any utility, public authority or merchant 
generator wishing to build a new generator in New York State with a 
capacity of 80 MW or more must comply with and obtain a Certificate of 
Environmental Compatibility and Public Need (``Certificate'') from the 
Siting Board approving the plant's construction and operation. See 
also, 16 NYCRR Chapter X, Subchapter A, Sec. 1000 et seq., which sets 
forth the Board's rules and procedures. The five permanent members of 
the Siting Board are the PSC Chairman, who serves as the Siting Board 
chairman, the Commissioner of Environmental Conservation, Commissioner 
of Health, Chairman of NYSERDA and the Commissioner of Economic 
Development. The Governor appoints two members of the public as ``ad 
hoc members'' for each generator application: one must reside within 
the judicial district and the other must be from the county where the 
proposed plant is to be located.
     \41\Article X requires an entity seeking approval for a generating 
facility to file an application with the Siting Board. At least 60 (60) 
days before filing its application, an applicant must file a 
preliminary statement with the Siting Board and various offices within 
the PSC. An applicant must also obtain environmental air and water 
permits from the DEC and acceptance of its interconnection study from 
the NYISO. The PSC and DEC assign staff members to review the 
application, and each also assigns a project manager to coordinate 
review within their agencies.
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    Before filing the application, the applicant, the PSC, DEC, and 
others may voluntarily engage in negotiations regarding environmental 
and other studies needed. Once the applicant files its Article X 
application with the Siting Board, the Chairman of the PSC has 60 days 
to determine if the application is complete, or needs to be 
supplemented. Once the application is deemed complete, the Siting Board 
has 12 (12) months to decide whether to approve it, during which time 
the DEC and PSC jointly conduct public hearings in which expert 
witnesses are examined and evidence submitted. The hearing officers 
make specific statutory findings and recommend a decision to the Siting 
Board, which has the ultimate decisionmaking authority.
A. Decide Which Siting Applications Merit A Preference for Earlier 
        Review
    Currently, the Siting Board reviews each application in the order 
received, on a first-come first-served basis The Siting Board does not 
now give a reviewing priority based on relative need for generation at 
the location of the proposed site or on environmental attributes The 
Legislature, however, could and should direct the Siting Board and DEC 
to give a preference in the review process to applications for plants 
that:
    Are located in areas that have an acute need for new generating 
capacity, and thus would have the greatest incremental impact on New 
York's structural supply deficit;

      Repower existing plants so overall emissions are reduced 
and community impacts minimized, or otherwise displace electrical 
generation that produces greater air emissions in the same air basin;
      Achieve a lower emission rate for particulate matter, 
NOR, and SO2 than legally mandated or than other proposed 
plants, in addition to obtaining the largest offsets (proportional to 
the plant size);
      Are the most efficient generators, producing the least 
CO2 per MWH generated;
      Include active controls for mercury emissions;
      Are sited on former industrial ``brownfields,'' which 
thus would be redeveloped, cleaned and put to use; or
      Utilize dry-cooling techniques to minimize water impacts.

    Since the Siting Board reviews applications as they come in, all 
other things being equal the first applications will be reviewed, 
approved and built first. As new supply comes on line, later proposals 
for plants may be withdrawn. However, the later proposed plants may, in 
fact, be preferable from the perspective of the State's energy needs or 
the environment.
    To ensure that the State's needs are best served by proposed 
plants, and to encourage the private sector to propose such plants, the 
Legislature should require the Siting Board to give both procedural and 
substantive preference to plants that meet the above criteria. A 
preliminary review of any application should establish whether the 
plant is located in an existing electricity load pocket, repowers an 
existing plant, and what its emissions rates are. \42\ The Siting Board 
and DEC staff could be preferentially allocated to plants that meet the 
criteria listed. That alone would speed the review and approval of such 
plants given existing staff constraints. Similarly, the Siting Board 
could, in making approval decisions, give a substantive preference to 
plants that meet these criteria.
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     \42\ To ease the initial screening process, the application form 
could require a cover page that indicates which, if any, of the 
preference criteria are met by the proposed plant.
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B. Designate a Project Manager for Each Application
    The time to review a siting application could be sharply reduced if 
the Siting Board designated a central Project Manager to be responsible 
for monitoring and ensuring the progress of an application's review at 
all agencies, rather than relying on separate agency project managers 
The lack of coordination among the State agencies, especially the DEC 
and PSC, has often made it difficult for applicants to get clear 
direction to move forward A central project manager for each 
application would keep the process from getting bogged down through 
conflicting or confusing directions.
C. Require Applicants to File Environmental Permit Applications with 
        the DEC Before Filing a Siting Application
    Initially, applicants filed siting applications and the DEC permit 
requests at the same time This led to delays because DEC, subject to 
EPA requirements in its permit process, cannot generally decide within 
the Siting Board's 60-day period whether the environmental permit 
applications are complete As a result, many applications were rejected 
by the Siting Board at the 60-day deadline as incomplete, and the 
process had to be restarted.
    Applicants should be required to submit their DEC permit requests 
well ahead of their siting application. \43\ The aforementioned Project 
Manager could coordinate this ``front-loading'' of the approval process 
so that an applicant will have negotiated with the PSC and DEC, secured 
the required environmental permits, and performed the necessary studies 
prior to filing the siting application.
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     \43\ Underscoring the necessity for a formal rule, the Siting 
Board recently adopted an informal policy that it will not consider a 
siting application to be complete unless the DEC has proposed a draft 
permit.
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D. Establish a 30-Day Time Limit to Negotiate Voluntary Stipulations
    The Siting Board encourages, but does not require, applicants to 
negotiate voluntary stipulations with State agencies and interested 
parties to identify the issues of public concern and the studies or 
analyses appropriate for the project under review. \44\ This ``scoping 
process'' is intended to speed review by enabling parties to reach 
early agreement on which issues need to be addressed in the 
application, thereby reducing later objections or litigation. With no 
current timeframe for completion, these negotiations are often 
protracted--causing unnecessary delay and uncertainty. To address this 
problem, the scoping process should be made mandatory and should be 
overseen by the Project Manager, who should establish a 30-day 
timeframe for the parties, the DEC and PSC to negotiate stipulations. 
The Project Manager should clarify the details of the environmental and 
other reviews required by the Siting Board and DEC. Adherence to well-
established and understood descriptions of the detailed studies 
necessary for permitting under the State Environmental Quality Review 
Act (SEQRA) will also result in greater clarity and expedite the 
process.
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     \44\See, PSL Sec. 163. These studies include those describing the 
expected environmental impact and safety of the facility, both during 
its construction and its operation, that identify ``(i) the anticipated 
gaseous, liquid and solid wastes to be produced at the facility 
including their source, anticipated volumes, composition and 
temperature, and such other attributes as the board may. specify and 
the probable level of noise during construction and operation of the 
facility; (ii) the treatment processes to reduce wastes to be released 
to the environment, the manner of disposal for wastes retained and 
measures for noise abatement; (iii) the anticipated volumes of wastes 
to be released to the environment under any operating condition of the 
facility, including such meteorological, hydrological and other 
information needed to support such estimates; (iv) conceptual 
'architectural and engineering plans indicating compatibility of the 
facility with the environment; and (v) how the construction and 
operation of the facility, including transportation and disposal of 
wastes would comply with environmental health and safety standards, 
requirements, regulations and rules under State and municipal laws, and 
a statement why any variances or exceptions should be granted. `` PSL 
Sec. 164(c).
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E. Appoint An Ombudsman For Each Project
    The Siting Board should appoint an ombudsman to be a focal point of 
contact for community groups seeking to be involved in the siting 
process and to work with the Project Manager to--mediate issues 
concerning the scope of necessary studies Citizens often identify 
community and environmental concerns about which the DEC and 'Siting 
Board members are unaware. Earlier identification and mediation of the 
issues could speed the permitting process by avoiding the need for 
amended applications, supplemental hearings, and subsequent litigation.
F. Set Deadlines for Transmission and Distribution Owners to Contribute 
        to System Reliability Impact Studies
    A siting applicant must submit to the NYISO a System Reliability 
Impact Study (``SRIS'') that identifies both the impact a new or 
modified plant would have on existing transmission and distribution 
systems, and the changes needed to accommodate the proposed additional 
generating capacity. NYISO approval of an SRIS is necessary.
    To prepare an SRIS, an applicant needs essential technical 
information that only the owners of transmission and distribution 
systems can supply Currently, these entities are not required to 
provide the information within any particular deadline. The PSC and 
NYISO should quickly correct this deficiency New York transmission and 
distribution owners are either subject to PSC jurisdiction or are 
members of the NYISO. The PSC and NYISO should establish an efficient 
process for SRJS applicants to obtain information from transmission and 
distribution system owners, including the deadline by which a system 
owner must comply with an applicant's request for information. 
Additionally, formal deadlines for the NYISO to complete its required 
review should be set.
G. Assign Responsibility for Transmission System Upgrades Necessary for 
        New Generating Capacity
    New generators may require costly upgrades or modifications of 
transmission system facilities to carry the increased power. 
Transmission facility owners and generators often disagree as to 
whether a transmission system reinforcement is needed to serve new 
capacity and which of them should bear an expense. Disputes have the 
potential to delay or restrict the availability of new capacity. 
Currently, no clear rule governs as to who should bear this 
responsibility. However, between them, the PSC and NYISO have 
jurisdiction over all possible parties. To ensure expeditious 
resolution of such disputes, the PSC and NYISO should quickly decide 
disputes over transmission reinforcement obligations.
III. Additional High Voltage Transmission Capacity is Needed
    New York must augment the network of high voltage transmission 
lines used to move bulk power from places with surpluses to areas where 
the power is needed. Major transmission bottlenecks in central New York 
(``Central East bottleneck''), around New York City (``In-City 
bottleneck'') and at our borders with other States and Canada limit the 
amount of power that can be moved. \45\ While minimizing the 
environmental and aesthetic impact of transmission lines, these 
bottlenecks must be opened.
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     \45\See generally, New York State Energy Planing Board, Report on 
the Reliability of New York's Electric Transmission and Distribution 
Systems (November 2000) (hereinafter ``Planning Board Report'') and New 
York State Department of Public Service, Analysis Of Load Pockets And 
Market Power In New York State, Final Report (October 1, 1996) 
(hereinafter ``PSC Analysis'').
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    High-voltage transmission lines enable large amounts of power to 
move over long distances, provide flexibility in the location of 
plants, and increase access to diverse sources of electricity, 
including sources hundreds of miles away. \46\ Long distance access is 
especially important in New York, which has cheap hydroelectric and 
Canadian power sources at the extreme western and northern borders of 
the State.
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     \46\Dependence on power plants fueled by natural gas has 
contributed to the recent increase in 'the price of natural gas, which 
in turn has increased the wholesale price of electric power. Augmenting 
transmission capabilities would facilitate access to electricity 
generated by other sources.
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A. Bottlenecks in New York Transmission Cut Off Access to Cheap Power
    New York's transmission network contains segments that are not able 
at all times to carry the optimum amount of power. Each such inadequate 
segment forms a ``bottleneck.'' \47\ Near Utica, the transmission lines 
from western New York and Ontario converge with the transmission lines 
from the north and Quebec to form the Central East bottleneck. Whatever 
power is available to the west or north, Central East can pass along 
only 5,995 megawatts. \48\ When the demand for power soars in 
southeastern New York during the summer, the Central East bottleneck 
may limit access to surplus power west and north of this bottleneck The 
In-City bottleneck works similarly to set an even lower limit (4,979 
megawatts) \49\ on the amount of power New York City and Long Island 
can import from western and northern New York, Canada and plants in the 
Hudson Valley.
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     \47\A transmission bottleneck resembles a section of highway 
carrying traffic merging from two or more other highways with the same 
number of lanes. As long as the traffic is light, the merge flows 
smoothly. But if the merging traffic is heavy, all lanes slow and 
movement can cease.
     \48\PSC Analysis, p. 235. This description of power flows in the 
New York transmission system is highly simplified and is not intended 
to take into consideration numerous technical factors that make the 
movement of bulk power difficult.
     \49\ Id., p. 123.
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B. New York's Transmission System has been Neglected
    Despite the potential for transmission upgrades to lower our 
electricity costs and avoid having to build new power plants, 
fundamental infrastructure is sorely lacking in New York. Measured in 
constant dollars, between 1988 and 1998 capital improvements to New 
York's transmission system dropped from $307.7 million per year to 
$90.0 million per year. \50\ The Central East and In-City bottlenecks 
have existed for at least 20 years. Today only one major project to 
ease a New York transmission bottleneck is under active regulatory 
consideration. \51\
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     \50\ Planning Board Report, p. 26.
     \51\ The LIPA has applied to the PSC for approval of two 
transmission lines under Long Island Sound to Connecticut. If 
constructed, these new lines would ease but not eliminate both the 
InCity bottleneck and the constraints on importing power from New 
England. The PSC reviews transmission construction proposals under 
Article VII of the Public Service Law.
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    Building a transmission upgrade, such as a new high voltage line, 
is complex and expensive. Once the PSC approves a project, an applicant 
may then have to negotiate or litigate with possibly hundreds of 
landowners for rights of way, and obtain dozens of local building 
permits. Uncertainty about who is responsible for transmission under 
deregulation and how the cost of transmission construction is to be 
recovered in a deregulated marketplace has undoubtedly affected 
decisionmaking on transmission upgrades.
C. Upgrades to New York Transmission Capacity Should not Await Approval 
        of a Regional Transmission Organization
    The Federal Energy Regulatory Commission (``FERC'') has proposed 
the creation of disinterested Regional Transmission Organizations 
(``RTOs'') to improve transmission capability \52\ and has asked 
electric utilities to submit proposals for RTOs that would, inter alia, 
have authority to prepare and enforce plans for optimizing transmission 
systems. A disinterested RTO could weigh the interest of all, decide 
what transmission network upgrades are in the public interest and then 
enforce its decisions by ordering appropriate utilities and others to 
construct improvements On January 16, 2001, the NYISO and the six 
private New York electric utilities submitted a joint RTO proposal 
requesting that the FERC designate the NYISO the RTO for New York \53\
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     \52\Regional Transmission Organizations, Order No. 2000, III FERC 
Stats. & Regs. Sec.  31,089 (1999); Order No. 2000-A, III FERC Stats. & 
Regs. Sec.  31,092 (2000).
     \53\FERC, Docket No. RTO1-000, Order No. 2000 Compliance Filing 
(January 16, 2001). The NYPA and the LIPA supported the filing but did 
not join as applicants. Id., p. 2, fn 3.
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    While an RTO is welcome, we should not wait for an RTO to be up and 
running before addressing New York's transmission needs The PSC and the 
NYISO must immediately begin working with the transmission facility 
owners to assess what transmission upgrades are warranted In 
particular, this joint effort should examine what can be done within 
the next 2 years to ease the Central East and In-City bottlenecks and 
increase our ability to import power from other States and Canada. If 
the FERC approves the application to designate the NYISO an RTO or 
brings New York under another RTO, the new RTO could take over this 
work and not have to start from scratch.
IV. New York Should Encourage New Sources of Generation
    While our electricity supply brings innumerable benefits and drives 
our economy, electricity generation also significantly impacts public 
health and the environment Existing electricity generation in the 
United States produces: one-third of the nitrous oxide emissions that 
cause urban smog; two-thirds of the sulfur dioxide emissions that cause 
acid rain; one-third of the mercury emissions that poison fish and 
wildlife; and one-third of the greenhouse gas emissions, particularly 
CO2, that are warming the planet.
    The impacts of these problems are very severe in New York State, 
which is characterized by an asthma rate 2-5 times the national 
average, and 20 percent of Adirondack lakes too acidic to support life. 
Though up to 40 percent of New York's air pollution comes from sources 
out, of State, it is essential that New York lead by example in 
creating a sustainable electricity policy.
    Not all conventional power plants pose the same level of health and 
environmental hazards. Modern combined-cycle gas-fired generators, 
which are most of the units proposed for new generation in New York, 
are far more efficient than power plants built in the past, and are 
equipped with controls that greatly reduce emissions. To the extent 
that more efficient units come on line and displace older, less 
efficient and dirtier units, air emissions problems in New York will 
decrease. \54\ To minimize the adverse impacts of even the cleanest 
fossil generation plants, alternatives such as enhanced transmission, 
renewable source generation, clean distributed generation, conservation 
and increased efficiency must have a major role in a balanced package.
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     \54\In the short run, even the most modern gas units will likely 
increase total air pollutants, until the older units become too 
uneconomical to operate.
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A. Renewable Generation Sources Should Provide at Least an Additional 
        10 Percent of New York's Electricity
    For many decades, New York has benefited from hydro power, a 
renewable source that does not release air emissions and uses no 
imported fossil fuels. Hydro power currently produces up to one-fifth 
of the electricity needs of the State. While ecological and 
sociological impacts limit the usefulness of further expansion of hydro 
power, recent developments in solar and wind power generation promise 
new means of clean electricity generation. \55\
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     \55\Large scale hydropower can adversely affect fish and other 
aquatic life and can displace indigenous populations. While solar and 
wind power cause no air or water emissions problems, wind power can 
raise aesthetic concerns.
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    Commercial scale electricity generation from wind and solar 
(photovoltaic) sources are unlikely to come on line in significant 
amounts (over 100 MW) by this summer, however they can meet a 
significant portion of New York's electricity needs in the medium to 
long term, while reducing air emissions and reliance on imported fossil 
fuels. \56\ Indeed, some argue that renewables could satisfy virtually 
all of New York's need for increased capacity.
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     \56\Electric generators in New York State rely on fuels that 
originate elsewhere in the U.S. or abroad. Increasing renewable 
generation sources in New York State will produce jobs in-state and 
keep electricity expenditures in-state.
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    New York is particularly well suited for renewable generation A 
study by the State University of New York Atmospheric Sciences Research 
Center concluded that solar power could significantly reduce sharp 
demand peaks because the State gets most of its sunlight during the 
same time as electricity demand peaks--hot summer days. \57\ Similarly, 
many areas across the State have strong wind resources It is estimated 
that up to 5,000 MW of electric capacity could be produced from large 
scale wind generation sites in New York enough to generate about 13 
million MWh, or 10 percent of the State's electricity consumption. \58\
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     \57\New York Times, New York Ranks Near the Top For Efficient Use 
of Energy, October 21, 2000, pp. Bi, B6.
     \58\Bailey, B. and Marcus, M., AWS Scientific, Wind Power 
Potential in New York State: Wind Resource and New Technology 
Assessment, May 1996. ESEERCO Project EP 91-32, p. 36.
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    In the past, solar and wind generation were not economically 
competitive with fossil fuel power generation. However, new 
technologies for solar and wind generation combined with increased 
fossil fuel costs narrow the cost gap considerably. \59\ During most of 
the 1990's, wind energy was the world's fastest-growing energy source, 
expanding by 20-30 percent per year; in the last 24 months, nearly 
1,000 MW of wind have been installed in the U.S. \60\
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     \59\According the U.S. Department Of Energy (``DOE''), today's 
cost of generating electricity from wind is about $0.05 or less per 
kilowatt-hour, which represents an 85 percent drop over the past 15 
years. Http://www. eren. doe.gov/wind/faqs. html.
     \60\ American Wind Energy Association, The Global Wind Energy 
Market Report, February, 2001.
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    The following steps should enhance use of solar and wind power to 
produce clean electricity for New York:
1. The Attorney General Will Use Settlement Funds to Develop Wind Power
    The Attorney General's Office sued a number of out-of-state coal-
fired power plants that upgraded or expanded their old power plants 
without installing the pollution controls required by the Clean Air Act 
and whose pollution significantly harmed New York State. The Attorney 
General has directed that a major portion of the settlement money 
arising from the Clean Air Act power plant enforcement cases be used as 
incentives to develop 10-30 MW of renewable wind generation. The Office 
is also pursuing legal action against similar plants in New York. These 
cases will likely generate tens of millions of dollars in payments in 
lieu of penalties that the State can use for clean air and efficiency 
projects.
2. The Legislature Should Enact a Renewable Portfolio Standard
    The Legislature should join New Jersey, Massachusetts, Connecticut, 
Texas, and many other States by adopting a Renewable Portfolio Standard 
(``RPS''). The RPS would require retailers of electricity to include in 
their portfolio of supply an increasing percentage of renewable 
generation. This would increase demand for renewables such as wind and 
solar, that would, in turn, create a competitive market for supplies of 
renewable generation.
    A bill to create an RPS has been introduced in the State Assembly. 
\61\ The Legislature should pass, and the Governor should sign, the 
Assembly proposal to require 0.5 percent of all retail electric sales 
to come from non-hydro renewables (650,000 MWh; equivalent to about 300 
MW of installed capacity, or enough to power 90,000 homes) by 2003. The 
percentage grows by a half-percent per year until renewables reach 6 
percent of sales Thereafter it grows by 1 percent per year until it 
reaches 10 percent The bill includes a cost cap of 2 5 cents/kWh If 
renewables at this price cannot be found, retailers have the option of 
making payments into a ``Clean Electricity Fund,'' calculated as 2.5 
cents times their RPS obligation This fund would incentivize the 
development of renewable generation.
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     \61\See, A.8506-Englebright.
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    An aggressive RPS could create well over 3,000 MW of renewable 
generation at little to no additional cost to consumers. For example, a 
recent study of Massachusetts' RPS (similar to what the Attorney 
General recommends for New York) found that it would add only 0.4 
percent to consumer bills by 2003, rising to 2.2 percent in 2012. \62\ 
An Iowa study--which assumed that the cost of fossil fuels would rise, 
while wind's costs would decline--showed customers could save $300 
million over a 25-year period if the State met 10 percent of its 
electric demand through wind generation. \63\
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     \62\ Massachusetts Division of Energy Resources., Massachusetts 
Renewable Portfolio Standard Cost Analysis Report. December 21, 2000, 
p. 37.
     \63\ Wind, Thomas, Wind Utility Consulting, The Electric Price 
Impact of an RPS in Iowa, May 1, 2000.
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    Much of the renewable supply needs in New York could be met with 
wind power, providing significant environmental and economic benefits. 
It is estimated that for every 100 MW of wind development about $1 
million is generated in property tax revenue. New York could see 2,000 
MW of wind power by 2010 with an aggressive RPS and financial 
incentives, generating $20 million annually in tax revenues to rural 
communities. In addition, since wind farms are generally located on 
privately owned land, the development of 2,000 MW in New York means 
annual payments of approximately $4 million to farm and forest 
landowners. \64\
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     \64\ Estimated benefits according to American Wind Energy 
Association RPS Fact Sheet, Http://www.awea.org/pubs/factsheets/
nyrps001.pdf
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    The reduced emissions of pollution and greenhouse gases resulting 
from wind power is significant. A single 1.65 MW wind turbine will each 
year displace emissions of 2,161 tons of CO2, 11 tons of 
SO2, and 4 tons of NOR, based on the New York State average 
utility fuel mix. \65\
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     \65\Assumes wind turbine generates electricity 30 percent of the 
year. Historical fuel mix data and emission rates according to the DPS 
at Http://www.dps.state.ny.us/fuelmix.htm.
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B. Policies are Needed to Increase Clean Distributed Energy Sources
    The need for large power plants could be lessened by distributing 
small-scale generation units that use minimally polluting technologies 
directly on the site where the electricity is to be used. Electric 
power can be efficiently generated at small-scale facilities located on 
or near the consumer's property. Generation options include fuel cells, 
wind generators, small-scale hydro, solar cells, and cogeneration 
facilities that combine heating and cooling with electric generation. 
Because distributed generation facilities may not always provide the 
exact amount of power needed, the facility is usually connected to the 
electric power grid. The grid can provide additional power if the 
facilities run short, or can take the excess power generated. To the 
extent that local sources of electricity reduce the demand placed on 
traditional generating plants, they can reduce both (i) the need to 
build new power plants, and (ii) the wholesale market scarcity--
conditions that produce price volatility.
    Distributed generation's smaller scale often enables new sources of 
power to be obtained in less time than with conventional power plants. 
Another advantage is the greater diversity of generation sources, 
including renewables such as sunlight and wind, decreasing dependency 
on fossil fuels. As demonstrated by the current rise in natural gas and 
oil prices, excessive reliance on fossil fuels subjects New York to 
risk of fuel shortages and cost volatility Distributed generation also 
avoids further strain on the transmission and distribution system.
    Many forms of distributed generation are. also environmentally 
cleaner than conventional power plants. \66\ Moreover, their smaller 
scale can minimize the impact on neighborhoods and open space. However, 
uncontrolled diesel generators--sometimes used for distributed peak 
supply--emit many times the pollution of modern, large-scale power 
plants or any form of renewable generation. Thus, public policies 
encouraging distributed generation must not include incentives for 
environmentally detrimental onsite generation facilities. \67\
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     \66\Wind and solar power are cleaner. Fuel cells that operate on 
hydrogen fuel emit only water vapor. Other fuel cells use natural gas, 
and thus emit carbon dioxide.
     \67\For example, LIPA's recent action to promote the use of onsite 
back-up generation does not differentiate between clean onsite 
generation and diesel generators. This action should be revisited to 
ensure that financial incentives to use diesel generators are removed. 
See, LIPA Supplemental Service Tariff. Http://www.lipower.org/
suyservtalkpoints.html.
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    If more commercial, industrial and multi-family residential 
buildings installed modern onsite generation facilities, the balance 
between supply and demand in tight regions such as downstate New York 
could be improved, reducing the need to construct large new power 
plants or transmission lines. In the past, many onsite generators did 
not economically compete with traditional sources of electricity. 
However, recent technological advances have lowered the costs of 
distributed generation. In addition, the transition to wholesale market 
pricing and the ability of distributed generation to shave peak demand 
levels (thereby relieving all power buyers from prices set at the 
steepest part of the supply/demand curve) further increase the relative 
economic benefit of distributed generation. \68\
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     \68\When customers are billed on a real-time basis, such that 
their bills reflect the power used during peak and off-peak hours, the 
economic value of solar generation will be maximized, as it is most 
productive during periods when demand and market prices are highest.
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    The following policies should reduce barriers to, and promote 
additional distributed generation:
1. The Legislature Should Offer Financial Incentives to Develop Clean 
        Distributed Generation
    The NYSERDA should provide low-cost loans to finance the investment 
necessary to install onsite facilities, and the Legislature should 
expand New York State's tax credit for residential solar power systems 
to clean distributed technologies such as fuel cells, wind, and small 
hydro power projects. \69\ Government incentives are necessary to jump-
start development of supplemental electricity generation in New York. 
If the initial investment barriers are reduced, many distributed 
generation units could be installed in time to help meet New York's 
electricity needs for 2002.
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     \69\ New York State residents can claim a State income tax credit 
of 25 percent on the cost of their Photovoltaic system, up to a maximum 
credit of $3,750.
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2. The Legislature Should Expand the Solar Net Metering Law to Include 
        Wind and Small Hydro Power
    The Legislature should expand the Solar Net Metering Law (Public 
Service Law Section 66-j) to include wind and hydro power. The New York 
State Legislature enacted the net metering law in 1997, allowing 
customers who install solar power to use excess electricity produced by 
the solar panels to spin the electricity meter backward, effectively 
banking the electricity until it is needed by the customer This 
provides the customer with full retail value for all electricity 
produced. In its current form, the net metering law applies only to 
facilities powered by solar generation Of the 30 States with net 
metering opportunities, New York is the only State where small wind 
generation systems are ineligible. \70\
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     \70\ American Wind Energy Association. Http://www.awea.org/
smallwind/newyork.html
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3. The PSC Should Eliminate Unjustifiable Barriers to Clean Distributed 
        Generation
    Distributed generation facilities typically require connection to 
the utility grid. Utilities therefore need to maintain technical 
safeguards to prevent distributed generation from adversely affecting 
the transmission system. Formerly, utilities imposed burdensome 
insurance requirements on independent generators seeking to connect to 
the power grid. The PSC recently reviewed such tariff conditions, and 
adopted improved interconnection standards designed to lower this and 
similar barriers. \71\ However, insurance is still required for solar 
power systems that are net-metered. The PSC should remove this existing 
barrier and the NYSERDA should provide low-cost insurance or bond 
coverage to meet utility interconnection requirements. Furthermore, the 
PSC should review utility policies and practices to ensure that any 
unjustifiable barriers to distributed generation are eliminated.
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     \71\See, New York State Standardized Interconnection Requirements, 
Application Process, Contract & Application Forms For New Distributed 
Generators, 300 Kilo Volt-Amperes Or Less, Connected In Parallel With 
Radial Distribution Lines, issued November 9, 2000.
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4. NYPA Should Work With Local Governments to Install Fuel Cells at 
        Landfills and Wastewater Treatment Facilities
    The NYPA should build on its success with fuel cells and work more 
aggressively with local governments to install them, particularly local 
governments in load pockets such as New York City and Long Island. 
Landfills and wastewater treatment plants produce large quantities of 
methane, which can be used to power fuel cells to generate electricity. 
If not used to generate power, the gas is either flared or released, 
significantly contributing to climate change.
    In 1998, the NYPA and the EPA installed the world's first 
commercial fuel cell powered by waste gas, located at the Westchester 
County Wastewater Treatment Plant in Yonkers. In its first year, the 
200 kilowatt fuel cell converted over 20 tons of waste gas into over 
1.2 million kWh of electricity. \72\ The NYPA has also installed fuel 
cells at NYPD's Central Park Station and North Central Bronx Hospital, 
both of which run on natural gas.
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     \72\March 23, 1999 EPA press release. Http://www.epa.gov/nheerl/
ordpr/]999/pr032399.pdf
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    Other prospects for fuel cells have not materialized. The New York 
City Department of Environmental Protection (``DEP'') has estimated 
that it flares or releases enough anaerobic digester gas at its 14 
wastewater treatment facilities to fuel between 15 and 25 fuel cells. 
\73\ But a proposal to install two NYPA fuel cells at one of DEP's 
wastewater facilities did not move' forward largely because of the high 
cost of fuel cells, which are not yet commercially available. \74\ The 
myriad environmental benefits of fuel cells, and the improved 
reliability to the grid resulting from distributed generation, must not 
be overlooked in cost/benefit analyses. To fully realize the potential 
of fuel cells, the NYPA should seek new opportunities for fuel cell 
installation across the State, and offer attractive financing to its 
local government partners to ensure the projects are implemented. \75\
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     \73\ February 15, 2001 conversation between OAG Policy Analyst Tom 
Congdon and Energy, Air and Laboratory Services Division Chief Fred 
Sachs, DEP Bureau of Wastewater Treatment.
     \74\Ibid. DEP's electric bill would have increased significantly 
to repay the NYPA for the cost of the fuel cells. The fuel cells 
installed at Yonkers Wastewater Treatment Plant and the North Bronx 
Hospital were subsidized by the DOE.
     \75\As with other NYPA efficiency and renewable programs, these 
fuel cells would be financed from the NYPA's existing rate revenue.
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V. Power Prices Must Not Be Permitted To Skyrocket During the 
        Transition to Competitive Markets
A. New York Wholesale Power Markets Must be Significantly Reformed
    Since New York's wholesale power markets began operating in 
November 1999, significant flaws in the design of these markets have 
been identified. The markets are not fully competitive at all times in 
all locations, and thus the opportunity to exercise abusive market 
power often arises When improper market power is exercised, electricity 
prices can suddenly rise to noncompetitive and, indeed, stratospheric, 
levels This creates windfalls for generators, as well as unreasonably 
high bills for energy purchasers. It also impedes the development of 
truly competitive markets. All possible means must be used to ensure 
competitive pricing in the NYISO's markets, thwart the abusive exercise 
of market power, and provide redress for purchasers when market power 
leads to noncompetitive pricing.
1. NYISO Background
    In January 1999, independent power generators, utilities, public 
authorities and others interested in competitive electricity markets 
and open access to power transmission requested from the FERC authority 
to create an ``independent system operator'' to manage New York's high-
voltage transmission grid, operate competitive short-term markets for 
power, and undertake other tasks essential to establishing a 
competitive 'wholesale market for electricity. \76\ The NYISO began 
operations in November 1999.
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     \76\FERC approval was required because the FERC regulates 
interstate transmission of power and has mandated open access to 
transmission services.
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    Today the NYISO manages the transmission grid that moves bulk power 
around New York, and operates the short-term Day Ahead (``DAM'') and 
Real Time (``RTM'') markets that together supply half the power used 
each day in the State. (The other half is supplied through bilateral 
contracts between generators and users.) On a typical day, the DAM 
accounts for about 45 percent of the total power used in New York, 
while the RTM typically accounts for 5 percent of the power. The DAM 
and RTM determine the price per megawatt-hour to be paid for wholesale 
power and the order in which generating plants will be scheduled to 
run. In highly simplified terms, the NYISO accepts confidential bids 
stating how much power each utility or other electricity retailer \77\ 
wishes to purchase during each hour of the next day (in the DAM). 
Simultaneously, each power supplier submits confidential offers stating 
for each generating plant it owns how much power at a given price it is 
willing to provide. The NYISO, using complex software, totals the bids 
and ranks the offers in ascending price order. The most expensive offer 
that must be scheduled to run to provide the total amount of power 
requested for a given hour sets the price per megawatt-hour paid to all 
suppliers for power delivered during that time (referred to as ``the 
market clearing price''). \78\ The RTM operates similarly. \79\
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     \77\In New York, independent electricity supply businesses, termed 
``energy service companies'' or ``ESCOs,'' may compete with traditional 
utilities for customers.
     \78\ Alternatives to market clearing prices to set wholesale 
electricity prices have been proposed. One approach is to pay each 
seller its asking price, rather than pay all sellers the highest offer 
taken. Other proposals would peg each offer price to actual costs.
     \79\The NYISO also operates competitive markets for generating 
reserves and other services related to supplying electricity, and 
monitors the power markets to ensure that they operate competitively.
---------------------------------------------------------------------------
    NYISO membership today consists of private generators, utilities, 
public authorities, power marketers, representatives of commercial and 
industrial customers, consumer advocates and others, as well as a paid 
professional staff. A ten-member Board of Directors sets policy for the 
professional staff and determines the actions the NYISO will take in 
its relations with the FERC and other government agencies By NYISO 
rule, Board members must be disinterested and may not have a financial 
interest in any aspect of the electric power industry.
    A NYISO Management Committee and two other NYISO committees 
discuss, issues and propose actions to the NYISO Board of Directors. 
The FERC exercises regulatory authority over the NYISO and other 
independent system operators. The NYISO has sought the FERC's approval 
of numerous proposed changes in the way NYISO operates and exercises 
its authority. While many of the changes involve technical and 
``housekeeping'' matters, several have addressed competition problems 
identified by the NYISO staffs Market Monitoring Unit (``MMU''). Most 
notable are the NYISO's June 30, 2000 petition for a $1,000 per 
megawatt-hour cap on the price of power in the short term markets, and 
its March 27, 2000 petition for a cap on the price of reserve 
generation capacity. The FERC approved the power price cap petition on 
July 26, 2000 and the reserves price cap petition on May 31, 2000. 
These and other FERC-approved changes in NYISO operations have 
moderated but not eliminated the potential for exercise of market 
power. \80\
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     \80\The NYISO professional staff has taken the position that the 
NYISO Board does not need to seek the FERC's approval of every 
operational change intended to strengthen the NYISO's efforts to deter 
uncompetitive actions. Not all NYISO members agree.
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2. The NYISO Must Ensure That Energy Sellers Cannot Unfairly Exercise 
        Market Power to Raise Electricity Prices
    At least two instances have been identified in which the NYISO 
markets were not competitive in 2000. During certain hours of high 
demand on June 26, 2000, the price of power in the Day Ahead Market 
spiked to $1,000 per megawatt-hour due to bidding practices leading to 
excessively high prices. This behavior cost energy buyers an estimated 
$100 million in excessive power prices that day. The NYISO has also 
identified instances of market power in the sale of generating capacity 
reserves from January to March 2000. The Attorney General has urged the 
FERC, which has jurisdiction over power transmission and independent 
system operators, to provide the NYISO the authority it needs to 
address such exercises of market power. \81\
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     \81\October 31, 2000 Letter from Attorney General Eliot Spitzer to 
FERC Chairman James J. Hoecker.
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    The NYISO must ensure that design and operational flaws are 
addressed quickly, before the demand for electricity rises with the 
start of the summer cooling season in May 2001. In particular, the 
NYISO must enhance its ability to identify and correct noncompetitive 
prices and practices. The Attorney General supports a three part 
approach: (1) ``automatic mitigation'' of DAM prices as soon as 
possible; (2) strengthening after-the-fact market monitoring, including 
retroactive mitigation of noncompetitive prices; and (3), retaining the 
$1,000 cap on power prices. Finally, the NYISO should follow through on 
plans to open its markets to increased participation by non-generators 
and non-load serving entities, so as to enhance competition and 
liquidity in the power markets.
    a. Automatic Mitigation Must be Implemented Quickly On February 20, 
2001, the NYISO Board voted to extend its current forward looking 
market mitigation to the DAM in a way that is intended to prevent the 
exercise of market power until competition fully takes hold. \82\ To 
effect this mitigation, also referred to as a ``circuit breaker,'' the 
NYISO will reprogram the software it uses to operate its power markets 
so that the software automatically analyzes bids before they set the 
market-clearing price. If the analysis indicates a potential exercise 
of market power in the DAM, the suspect power prices will be replaced 
with competitive prices. The NYISO expects to implement the software 
changes before the 2001 summer cooling season, i.e., by May, 2001. \83\
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     \82\New York Independent System Operator Approves Automated 
Process For Reviewing Supply Bids--Measure Enhances NYISO 'S Ability To 
Prevent Market Abuse--, NYISO press release (February 22, 2001).
     \83\Automatic mitigation will use as triggering levels the price 
threshold values in the NYISO's current forward-looking market 
monitoring procedures. Each day NYISO software will automatically 
review Day Ahead offers for evidence of market power and recompute 
excessive offers before they can set the market clearing price. In 
grossly simplified form, automatic mitigation works as follows: if upon 
matching offers with bids, the Day Ahead Market in any zone would yield 
a market clearing price that exceeded $150 per megawatt-hour, a price 
analysis will be triggered. Depending on where in New York the over-
$150 market clearing price appeared, the NYISO software would examine 
every offer in any zone in the State deemed competitively relevant to 
the affected zone, and compare it to a predetermined ``reference 
price'' associated with the generating facility whose output is 
represented by each offer. If the difference between any offer and its 
associated reference price exceeds $100, the NYISO software would 
substitute the reference price for each offer and recompute a 
``reference market clearing price'' for each affected zone. This 
recomputed reference market clearing price hen would be compared to the 
initial ``unanalyzed'' market clearing price in each affected zone. If 
the difference between the two market clearing prices is more than $100 
in any zone, the NYISO software would then automatically set aside any 
offer in the affected zone that was initially greater than $100 above 
its reference price and replace that offer's price with the reference 
price. These recomputed offers would then be used in the calculation of 
the official market clearing price for that zone.
---------------------------------------------------------------------------
    While agreeing with the general framework, some have objected that 
the NYISO automatic mitigation would still allow considerable exercise 
of market power, primarily because the triggering levels in the NYISO 
proposal are too high. Among other changes, the objectors would lower 
the initial trigger to $100 per megawatt-hour and the market comparison 
triggers to $50 per megawatt-hour. Lowering the triggers could more 
accurately capture the times and places in--which market power may be 
exercised. For this reason, the Attorney General supports lower 
thresholds for automatic mitigation.
    While lowering the triggers would make automatic mitigation more 
effective, such a refinement would likely constitute a material change 
from the current NYISO market monitoring standards and thus might 
require the FERC's authorization before it could be implemented, with 
the concomitant risk of delay or denial. \84\
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     \84\ Others object to the idea of automatic mitigation as an 
unnecessary tampering with competitive markets. The markets, however, 
are not always competitive. Automatic mitigation should prevent 
excessive prices from occurring in the first instance.
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    Another objection to the current automatic mitigation is that it 
does not apply to the RTM. The NYISO staffs explanation is that the 
logistics of the RTM operate on such a short timeframe that it is not 
practical to design an automatic mitigation mechanism for the RTM. 
Experience with Day Ahead mitigation may suggest ways to make automatic 
mitigation of the RTM practical. Deployment of Day Ahead automatic 
mitigation should not be delayed, but the NYISO should continue to 
evaluate capability for automatic mitigation of the RTM as well.
b. Existing Forward-Looking Market Monitoring Must be Strengthened
i. The NYISO's Market Monitoring Triggers Must be Refined
    The NYISO staff has a fourteen-member Market Monitoring Unit 
(``MMTJ'') that examines the offers, bids and market clearing prices in 
the various electricity markets to determine whether noncompetitive 
prices or practices have occurred. Once it identifies such a price or 
practice, the MMU takes actions to prevent a repetition. The major 
difference between automatic mitigation and the current MMU efforts is 
that the MMIIJ addresses prices and practices after the market has 
cleared; it does not prevent the initial exaction of noncompetitive 
prices. As part of its effort, the MMU compares the market clearing 
prices in the DAM and RTM to numerical triggers. If a market clearing 
price exceeds a trigger, the MMU then employs procedures to identify 
potential noncompetitive behavior and fashion forward-looking means for 
preventing its repetition.
    Because the current MMU threshold values may not identify 
accurately enough all situations in which competition is impaired, the 
NYISO should seek from the FERC, and the FERC should grant, authority 
for the NYISO to lower these triggers. This refinement would increase 
the NYISO's ability to discern noncompetitive market behavior leading 
to noncompetitive prices. It could also lead to the identification of 
loopholes in NYISO rules that the current market monitoring protocol 
does not detect.
ii. Authority for Retroactive Mitigation Must be Obtained
    The FERC has not authorized the NYISO to recapture excess profits 
obtained through the exercise of market power. When the MMU identifies 
a noncompetitive pricing or practice, the NYISO can at most order the 
offending act or practice to cease prospectively. Thus, currently, one 
exercising market power in a NYISO market gets at least ``one bite at 
the apple,'' risking nothing more than being admonished not to do it 
again. Such limited enforcement capability is inadequate. 
Noncompetitive market conditions for even a few hours on a single day 
can exact--large sums in excessive prices.
    Adding automatic mitigation to the MMU's tools and tightening the 
MMU's surveillance triggers will reduce the likelihood of 
noncompetitive prices, but no preventive system is perfect. The NYISO 
needs the authority to recover excessive noncompetitive profits if and 
when market power slips past the NYISO's preventive measures.
    As the Attorney General urged in the October 31 letter to FERC 
Chairman Hoecker, the NYISO should request from the FERC, and the FERC 
should grant, authority retroactively to mitigate noncompetitive prices 
identified in the course of its forward-looking market monitoring. The 
window for identification of possible exercises of market power and for 
retroactive refunds should be short, both to maximize the value of 
refunds as a deterrent and to provide the wholesale power market with 
certainty. Both consumers and wholesale market participants have an 
interest in the speedy resolution of market monitoring inquiries, as 
well as in not being forced to pay noncompetitive prices for electric 
power.
iii. The Current $1,000 Per Megawatt Hour Price Cap Must be Retained
    A $1,000 per megawatt-hour cap on the price of wholesale power 
currently exists in the NYISO's Day Ahead Market and Real Time Market, 
as well as in relevant markets in the adjacent New England and PJM 
power pools. \85\ The NYISO should ask the FERC, and the FERC should 
agree, to retain this cap until the wholesale electric market in New 
York is fully competitive. While NYISO market monitoring can be the 
first line of defense against market power, and retroactive mitigation 
may recover excess profits exacted by market power, there may be 
circumstances in which neither is able to prevent extreme wholesale 
power price spikes The current NYISO price cap thus provides a crucial 
final safeguard against extreme price spikes It should be retained 
until a change in circumstances justifies modifying or retiring it.
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     \85\The current price cap is set to expire on April 30, 2001 
unless extended by the FERC upon request.
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    To be effective, a price cap must be compatible with conditions in 
neighboring power pools Otherwise, power suppliers may have a financial 
incentive to sell preferentially into the power pool with the highest 
price cap. Today, both power pools neighboring New York have a $1,000 
per megawatt-hour price cap. This compatibility of price caps should be 
maintained.
iv. The NYISO Should Implement Virtual Bidding to Expand Competition
    Today the only parties that may buy or sell electricity through the 
NYISO are utilities and other entities that provide retail service to 
end users, and those who own or control generating plants. This limits 
the number of participants in the NYISO markets. Competition would be 
enhanced if power marketers, brokers and others not directly involved 
in generating or retailing electricity could buy and sell power through 
the NYISO markets. In addition to increasing competition, market 
participation by new types of parties would add liquidity to these 
markets by increasing the number of ways that power purchases can be 
contracted for and financed. The downside of opening the NYISO markets 
to new classes of participants is the increased potential for gaming 
the markets, especially during times of tight electricity supply.
    The NYISO currently plans to implement power trading by parties 
other than generators and retailers, participation termed ``virtual 
bidding,'' by November 1, 2001. \86\ The NYISO's explanation for the 
delay in instituting virtual bidding is that it needs to correct flaws 
in its current operating procedures and to develop appropriate software 
before adding virtual bidding to an already complex system. \87\ FERC 
has accepted the NYISO's explanation. \88\ The NYISO should develop the 
necessary software and make the operational improvements needed to 
implement virtual bidding as soon as practicable. At the same time, the 
NYISO should address the increased complexity that virtual bidding will 
add to its markets and strengthen its market monitoring capability to 
accommodate the additional market surveillance' that will be needed.
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     \86\See, e.g., NYISO, New York Independent System Operator, Inc. 
's Report on the Implementation of Virtual Bidding and Zonal Price-
Capped Load Bidding in Docket No. ELOO-90-000, FERC (February 2, 2001), 
p. 6.
     \87\Id., p.4.
     \88\Some have protested to FERC that the NYISO's implementation of 
virtual bidding is taking too long. FERC rejected the initial protests 
as inconsistent with the prudent development of the NYISO's operations. 
FERC Docket No. ELOO-90-000, Order On Complaint, Morgan Stanley Capital 
Group, Inc. v. New York Independent System Operator, Inc., 93 FERC 
61,107 (October 5, 2000). Certain parties have renewed their protests. 
See, e.g., Morgan Stanley Capital Group, Inc., Motion For Immediate 
Commission Action Regarding Virtual Bidding Implementation Schedule, 
Docket No. E100-90-000 (March 5, 2001).
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c. Exposure to Volatile Prices Must be Minimized Without Shielding 
        Customers From Market Price Signals
    We have seen in New York that highly volatile wholesale electricity 
prices can accompany the transition from regulated monopoly to 
competitive commodity markets, especially during times when supply is 
limited and demand irreducible. During the summer of 2000, Con Edison's 
customers experienced electricity rates 30 percent higher than during 
the comparable period in 1999, despite cooler weather in 2000 resulting 
in lower peak usage levels than usual In addition to the increased cost 
of oil and natural gas, an almost twelve-month outage at Con Edison's 
Indian Point 2 nuclear plant tightened supply in the downstate markets 
significantly, leading to higher wholesale prices in times of high 
demand. \89\ If New York's summer weather in 2001 or 2002 is normal or 
hotter, wholesale price spikes remain a threat.
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     \89\The Attorney General has taken NYISO analyses and examined the 
impact of the Indian Point 2 outage on the price of power in the 
wholesale markets. The unavailability of Indian Point 2's 41 MW 
capacity output from February 16, 2000 through early January 2001 
required the NYISO to rely upon more expensive generators during times 
of greater demand, and thus increased the market clearing price for 
peak-hour power purchased by Con Edison. Indeed, it increased the 
market price throughout the State. The Attorney General, in a motion 
filed with the PSC has estimated that the outage cost Con Edison's 
customers $176.5 million and urged that Con Edison be required to 
reimburse customers for this increase in wholesale power costs. See, 
PSC Case 00-E-0612--Proceeding on Motion of the Commission to 
Investigate the Forced Outage at Consolidated Edison Company of New 
York, Inc. 's Indian Point No. 2 Nuclear Generating Facility, December 
4, 2000 Motion by New York State Attorney General Eliot Spitzer For 
Complete Quantification Of Consolidated Edison 's Liability For Alleged 
Imprudent Management Of Its Indian Point 2 Nuclear Plant.
---------------------------------------------------------------------------
    Con Edison's and Orange & Rockland's current rate structures permit 
them to pass through to their customers nearly all of the commodity 
cost of electricity, no matter how high. \90\ Con Edison is a multi-
billion dollar company serving over three million customers, and 
therefore has much more bargaining power than any of its residential or 
small business customers to control price volatility through 
negotiation of long-term contracts with generators, and through other 
hedges that manage risk. \91\ To give an electric utility like Con 
Edison an incentive to hedge its risks in the wholesale market, the 
company must pay the price for bad market decisions.
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     \90\ Con Edison passes through to its electric customers 90 
percent of the difference between the company's forecasted and actual 
purchased power costs. (Con Edison, P.S. C. No. 9--Electricity, Leaf 
No. 163, Effective September 11, 2000.) Central Hudson Gas & Electric's 
rates permit an automatic pass-through, but this is ameliorated by the 
utility's long term supply contracts with the companies that purchased 
their former generation units. Rochester Gas & Electric has not yet 
progressed as far as the other utilities toward restructuring, and 
currently retains most of its own generating plants. LIPA, as a public 
authority, is not regulated, but instead sets its own rates. LIPA thus 
ultimately recovers from its customers any increased cost of power it 
purchases from generators, although the lack of automatic pass-through 
likely delays the impact.
     \91\Other New York utilities, such as Niagara Mohawk Power 
Corporation and New York State Electric & Gas Corp. currently operate 
under fixed consumer retail rates, and have been able to obtain long-
term supply contracts.
---------------------------------------------------------------------------
    Recent experience in California demonstrates that completely 
insulating consumers from wholesale electricity prices can financially 
devastate the affected utilities, especially if, as in California, they 
must buy all their energy requirements in the spot market. While the 
New York market rules permit and encourage bilateral contracts and 
other hedging strategies, we cannot ignore the warning of the 
California experience.
    As electric power supplies increase, customers ought gradually to 
receive more complete price signals to encourage more flexible and 
efficient demand. \92\ Until we reach that point, however, we must 
ensure price stability for customers during volatile markets. The 
complete pass-through of energy costs, such as Con Edison and Orange & 
Rockland currently enjoy, must be modified. The PSC should cap Con 
Edison's rates once power prices reach a certain per kilowatt hour 
level. Below that level, customers would,pay the passed-through market 
price. Above that level, Con Edison would swallow a substantial portion 
of the difference. Such billing would limit customers' exposure to 
market volatility extremes while sending them appropriate price signals 
reflecting the market price of the electricity they use. At the same 
time, Con Edison would have an incentive to employ long-term supply 
contracts and other hedges to moderate the cost of power should market 
prices exceed the rate ceiling established. \93\
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     \92\ Evidence shows that customers react to price signals by 
reducing demand, and often do so relatively quickly. For example, 
according to Hal R. Varian, economics professor and Dean at the 
University of California at Berkeley, when the electric bills of San 
Diego residents more than doubled last summer, power consumption 
dropped 5 percent within a few weeks. See, The New York Times, January 
11, 2001, p. C2.
     \93\The Attorney General opposes alternative bill mitigation 
proposals that would not accomplish these goals. One proposal would 
permit customers to postpone payment of that portion of their electric 
bills representing extremely high levels, and make up the difference 
during months when prices are below a certain threshold. This proposal 
would still expose customers to the full cost of power, albeit leveled 
over a year's bills. Others have proposed to keep rates at or below a 
certain pre-determined level throughout the year by offsetting higher 
summer peak market price levels with a variety of customer credits 
otherwise owed by Con Edison. Since customers are entitled to these 
rate offsets whether or not power prices rise, this approach to rate 
mitigation is unsatisfactory, and would conceal from customers what is 
occurring in the power market.
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VI. Demand for Electricity Must be Reduced to Minimize the 
        Environmental and Public Health Impacts of Generation and to 
        Assure Market Competition and Stable Prices
    Aggressive measures to reduce demand, together with construction of 
clean and renewable power plants, will greatly reduce the environmental 
and public health impacts of electricity generation and foster 
competitive markets and lower electricity bills. Reducing electricity 
use avoids the need for existing power plants to produce that amount of 
electricity, and the corresponding emissions. Over the long-term, an 
energy policy is sustainable only if it includes environmental factors 
among its objectives. When new, more efficient power plants start 
supplying electricity to the grid, the need for existing, dirtier power 
plants should be reduced. But only if demand is simultaneously reduced 
while clean supply is increased will the State ensure a net gain for 
the environment and for the consumer. \94\
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     \94\If the growth in demand is not reduced, there will be a need 
for both the existing power supply and new capacity. The addition of 
even the cleanest natural gas plant will result in a net addition of 
emissions if the State does not ensure that older, dirtier plants are 
displaced by cleaner new ones.
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    What appears like a small action to reduce demand can have a large 
impact. For example, replacing just one incandescent light bulb with a 
compact fluorescent bulb (which uses 70 percent less energy to produce 
the same amount of light) can save a consumer over $38, save 337 kWh of 
electricity, and avoid over 300 pounds of the greenhouse gas 
CO2 in 3 years. If all 6,766,000 households in New York 
State replaced just one bulb, over $260 million would be saved, 2.2 
billion kWh would be saved (more than the electricity generated at an 
100 MW power plant), and over one million tons of CO2 
emissions would be avoided in 3 years. (See Appendix.)
    New York already ranks as the second most efficient State in per 
capita energy use nationwide (in large part due to the natural 
efficiency of apartment living). \95\ Nonetheless, opportunities for 
improved efficiency and conservation abound. A 1997 study claims that 
cost-effective investments in energy-efficient technologies could 
reduce New York's electricity use by 34 percent. \96\
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     \95\American Council for an Energy Efficient Economy. National and 
State Energy Use and Carbon Emissions Trends. September 2000, Http://
www.aceee.org/pubs/e001.pdf
     \96\ American Council for an Energy Efficient Economy. Energy 
Efficiency and Economic Development in New York, New Jersey and 
Pennsylvania. February, 1997.
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    New York State has several programs to compensate for market 
barriers that discourage energy efficiency. But existing programs are 
not sufficient to create the environmentally sound, reliable, and 
balanced energy portfolio that is in the State's best interests. The 
Attorney General recommends significantly expanding these programs (see 
Section I.D.). The Attorney General is similarly using his legal 
authority to direct litigation settlement funds to energy efficiency 
and renewable power investments. In addition, utility portfolio 
standards would over the long-term lead to significant savings--perhaps 
1,000 MW through efficiency and 3,000 MW through renewable energy--that 
will shift New York's energy policy to a more sustainable framework.
    Together, the funding proposals below would direct approximately an 
additional $120 million per year (on top of existing programs) to 
energy efficiency, conservation, and renewable energy programs in New 
York State. (See table 2.) This expansion could result in a savings of 
over 600 MW over the next 2 years--an amount sufficient to avoid 
capacity shortfalls--and a necessity if New York State's electric grid 
is to maintain reliability and to minimize price spikes. At the same 
time,-these energy savings will avoid enormous quantities of harmful 
pollutants--millions of tons of NOx, SO2, and 
CO2--and lead to substantial consumer savings.
    If New York's funding levels for efficiency and renewables were 
increased from the current level of $242 million per year to $360 
million per year, as recommended, New York will still spend less per 
capita than many other States in the Northeast. (See Table 3.)

                                                     Table 2
     Summary of Attorney General's Proposals to Expand Funding for Current Efficiency and Renewable Programs
----------------------------------------------------------------------------------------------------------------
                                                                  Estimated                            Estimated
                                                                    Annual                               Annual
                                                                   Capacity                             Capacity
               Programs                    Current Funding (in     Savings    Proposed Funding Level    Savings
                                          millions of dollars)       from                                 from
                                                                   Current                              Proposed
                                                                   Funding                              Funding
----------------------------------------------------------------------------------------------------------------
System Benefits Charge (NYSERDA's       $150 million per year        200 MW  $150 million per year        200 MW
 EnergySmart Program)\97\.               until 2005.                          until 2010.
NYPA Energy Services\98\..............  $60 million per year....   20-60 MW  $160 million per year     53-160 MW
                                                                              until 2010.
LIPA Clean Energy Initiative\99\......  $32 million per year          28 MW  $50 million per year          45 MW
                                         until 2004.                          until 2010.
Power Plant Settlements...............  $0......................       0 MW  Approximately $20          20-40 MW
                                                                              million.
TOTAL.................................  $242 million per year...    248-288  $360 million per year       318-445
                                                                         MW   plus settlement funds.          MW
----------------------------------------------------------------------------------------------------------------
\97\Estimated savings from the funding proposals are based upon NYSERDA projections, see SBC Proposed Operating
  Plan For New York EnergySmart Programs (2001-2006) February 15, 2001, p. 2.
\98\ Estimated savings are based upon the past experience in New York and other States. Between 1990 and 1997,
  the State's investor-owned utilities spent $1.2 billion on efficiency or demand-side management (DSM)
  programs, avoiding the need for over 1,300 MW of capacity. These programs included rebates for efficient
  appliances and lighting, consumer education, and low income weatherization projects. The NYPA spent $255
  million on DSM investments between 1990 and 1996, avoiding the need for 84 MW of capacity. See, NYSEPB, New
  York State Energy Plan and Final Environmental Impact Statement. November 1998. p. 3-60, 3-62.
\99\ Estimated savings based on LIPA's current projections of 144 MW per $160 million spent over 5 years. See,
  LIPA, Clean Energy Initiative, May 3, 1999, p. 21.

                                 Table 3
 Comparison of Demand Side Management and Renewable Energy Spending Per
                          Capita By State\100\
------------------------------------------------------------------------
               State                    Annual DSM Spending Per Capita
------------------------------------------------------------------------
Connecticut........................  $35.95
Massachusetts......................  $25.91
New Jersey.........................  $28.85
New York...........................  $13.30
Attorney General's Proposed Funding
               Level
New York...........................  $19.78
------------------------------------------------------------------------
\100\American Council for an Energy-Efficient Economy. A Review and
  Early Assessment of Public Benefit Policies Under Electric
  Restructuring, Volume 2. Summary Table of Public Benefit Programs and
  Electric Utility Restructuring., Http://www.aceee.org/briefs/
  mktabl.htm. See also, U.S. Census 1999 population estimates, Http://
  quickfacts. census.gov/qfd/index. html.

A. Market Barriers to Energy Efficiency
    Despite the financial and environmental benefits of efficiency, 
many opportunities are not taken due to the numerous market barriers to 
energy efficiency investments. Efficiency often requires a higher 
capital outlay (e.g., to better insulate a home, get a more efficient 
refrigerator or motor) and many consumers look only to the up-front 
cost rather than to the lifetime cost when making purchasing decisions. 
\100\ Within companies, purchasing agents may be responsible only for 
initial costs while another person is responsible for utility bills. In 
home or office building and renovations, the person making the capital 
outlay (e.g., the builder) rarely pays the monthly energy bills, and 
thus has no incentive to build in efficiency. Stores with limited shelf 
space often do not offer more efficient products because they are 
usually more expensive, and thus take longer to sell.
---------------------------------------------------------------------------
     \101\Most consumers lack information on the energy, cost, and 
environmental savings that would enable them to comparison shop for 
more efficient appliances.
---------------------------------------------------------------------------
    Efficiency investments are also diffuse. Unlike a power plant, 
which can generate 100 or 500 MW, efficiency savings come in small 
increments of a few kilowatts or less. Thus, to ``generate'' efficiency 
savings of 100 or 1,000 MW, many actors must be involved, and each must 
reject the incorrect assumption that his/her actions won't make a 
difference. For these reasons, most programs to stimulate efficiency 
focus on information disclosure and subsidies (such as tax credits, 
mail-back rebates to consumers, or payments to sellers) to lower the 
initial cost, as well as efforts to encourage retailers to sell 
efficient products.
B. The Legislature Should Enact Tax Incentives to Purchase Efficient 
        Appliances
    Since major home appliances account for approximately one-third of 
residential energy consumption, the Legislature should pass a sales tax 
exemption \102\ for all major home appliances having the EnergyStar 
label. \103\ Past experience with short-term sales tax exemptions 
suggests that retailers could show significant interest in this 
initiative. \104\ During last year's sales tax exemption on clothing, 
for example, many stores offered a matching 8 percent-off sale.
---------------------------------------------------------------------------
     \102\The Senate Majority Leader has introduced legislation that 
includes a sales tax exemption for efficient products and other 
products that promote conservation. See, S.0002-Bruno.
     \103\EnergyStar is a voluntary partnership between the EPA, DOE, 
manufacturers, utilities and retailers. Partners promote energy 
efficiency by labeling qualifying products with the EnergyStar logo. 
EnergyStar-approved products are 10-75 percent more efficient than the 
Federal efficiency standard. The NYSERDA is an EnergyStar partner and 
promotes EnergyStar products.
     \104\The sales tax exemption could also encourage consumers in 
neighboring States to buy appliances from New York State businesses.
---------------------------------------------------------------------------
    If implemented before the coming summer, this incentive could 
impact air conditioner sales and thus summer peak demand. Other major 
appliances and products (i.e. refrigerators, clothes washers, dish 
washers, furnaces, efficient windows, and lighting) also use 
significant amounts of energy: While not purchased by any individual 
very often, the cumulative annual sales of these appliances in New York 
are significant. For example, according to the Association, of Home 
Appliance Manufacturers, 440,700 room air conditioners, 481,800 
refrigerators, 297,700 clothes washers, and 133,400 electric clothes 
dryers were sold in New York State in 1996. \105\
---------------------------------------------------------------------------
     \105\ Association of Home Appliance Manufacturers, Major 
Appliances--Estimated Distributor Sales by State. See http://
www.aham.org/indextrade.htm.
---------------------------------------------------------------------------
    While it is nearly impossible to predict with precision the cost or 
impact of the sales tax exemption on efficient products, conservative 
estimates suggest a positive outcome. If, for example, an exemption 
steered only 10 percent of air conditioner purchases to more efficient 
models, it could save 8,814 MWh per year and would cost the State (in 
lost tax revenue) perhaps $1,762,800 per year, while saving ratepayers 
$1,181,076 per year.
    The sales tax exemption would additionally draw attention to 
efficient products and show the environmental and economic benefit of 
purchasing such products. Consumer education on the impacts of energy 
conservation and each individual's ability to contribute is critical to 
implementation of energy efficiency programs.
C. The Legislature Should Create an Efficiency Portfolio Standard
    Electricity retailers, unlike electricity generators, have direct 
contact with electricity consumers through monthly bills. This contact 
provides an opportunity to educate consumers. However, absent a 
legislative mandate, retailers lack incentive to conserve energy 
because the more they sell, the greater they profit. \106\ The 
Legislature should bring retailers into the State's energy efficiency 
efforts by enacting an Efficiency Portfolio Standard, requiring retail 
sellers of electricity to achieve certain levels of efficiency 
improvements in their service area.
---------------------------------------------------------------------------
     \106\ Since distribution costs are essentially fixed, higher sales 
lead to both higher revenue and proportionately higher profits. See 
also Section VI.E.3. for proposal to correct these existing market 
disincentives against efficiency.
---------------------------------------------------------------------------
    Retailers could achieve these gains through direct installation of 
efficiency measures and include the cost of the installation in their 
prices. They could also provide rebates, promotions or education. For 
example, using bill inserts and instructing employees (such as those 
answering telephone inquiries or installing equipment) to highlight 
efficiency and conservation opportunities, retailers could accomplish 
significant savings. A re-institution of the utility compact 
fluorescent bulb rebate program could be an important promotion. \107\
---------------------------------------------------------------------------
     \107\ Replacement of incandescent bulbs with energy efficient 
compact fluorescents has the potential to significantly reduce energy 
consumption and consumer costs. See Appendix A-1.
---------------------------------------------------------------------------
    While an EPS is a new concept, it has two strong antecedents. Many 
States have implemented a Renewable Portfolio Standard that requires 
utilities to buy a minimum percentage of electricity from renewable 
sources. In addition, before restructuring, utilities were required to 
achieve certain energy savings through rate conditions that effectively 
acted like an EPS. Indeed, before restructuring, utilities were able to 
reduce electrical usage through efficiency measures by over 1,300 MW 
over 7 years when State regulations granted utilities incentives to 
accomplish that result. \108\ (A further precedent is provided by New 
York City's program to install--at its expense--water conservation 
devices in hundreds of thousands of homes and apartments. This program 
successfully reduced water use significantly.)
---------------------------------------------------------------------------
     \108\NYSEPB, New York State Energy Plan and Final Environmental 
Impact Statement, November 1998, p. 3-62. The demand-side management 
programs cost the utilities $1.277 billion between 1990 and 1997.
---------------------------------------------------------------------------
D. The Comptroller Should Report Annually on Energy Efficiency and 
        Renewable Energy Programs
    Both to enhance public support for and understanding of efficiency 
and renewable programs, as well as to ensure that the money in these 
programs is spent most effectively, the Legislature should direct the 
Comptroller to prepare an annual report on the implementation of 
efficiency and renewable programs. As noted above, three major State 
programs currently operate the NYSERDA's EnergySmart program (using SBC 
funds), the NYPA's Energy Services programs, and LIPA's Clean Energy 
Initiative. While the PSC requires the NYSERDA to report on the 
implementation of EnergySmart, the NYPA and LIPA have no reporting 
requirement. In addition, there should be verification of progress on 
the Renewable and Efficiency Portfolio Standards.
    The Comptroller's annual report, prepared in coordination with the 
NYSERDA, NYPA, LIPA, PSC and retailers, should include:

      total funds expended on efficiency, conservation and 
renewable energy;
      total MWh and MW saved as a result of the programs;
      a running list of all completed projects and a list of 
all planned projects;
      total energy cost savings to consumers;
      comparative effectiveness of programs; and
      remaining barriers to additional efficiency, conservation 
and renewable energy projects.

    Accurate accounting of efficiency and renewable energy projects is 
essential to understanding how future energy needs should be met. The 
Attorney General would commit to assisting the Comptroller with this 
report and in investigating opportunities to remove remaining legal 
barriers to a sound energy policy.
E. The PSC Should Improve Pricing and Revenue Signals to Encourage 
        Flexible Demand and Conservation
    In addition to tax incentives, Portfolio Standards, and direct 
subsidies through the NYSERDA, NYPA and LIPA, significant opportunities 
exist to amend pricing mechanisms to foster efficiency and 
conservation:
1. Utilities Should Widely Advertise Offers for Different Time-of-Day 
        Rates to Residential Customers to Encourage Load Shifting
    The Public Service Law requires large electric utilities to offer 
residential customers the option of paying different rates for 
different times of day of instead of paying one rate for all 
electricity used. \109\ For example, instead of paying 13 cents per 
kilowatt-hour 24 hours a day, a customer could pay 6 cents during the 
night and 15 cents during the day. Despite this law, it appears that 
few utilities effectively offer this service to customers. \110\ Since 
this pricing could shift demand away from peak times, the PSC should 
require utilities to advertise its availability. Time of use pricing 
reduces electricity bills for customers who have the flexibility to use 
certain appliances, such as the clothes washer and dryer, dishwasher, 
or water heater, at times when the price is cheapest. This pricing also 
sends truer price signals to the customer, as it is far more expensive 
for the utilities to buy electricity during peak periods than in off-
peak periods.
---------------------------------------------------------------------------
     \109\See, PSL Sec. 66(27). This law applies only to corporations 
with annual gross revenues in excess of $200,000,000.
     \110\In a December 20, 2000 Order, the PSC required electric 
utilities to file a report identifying measures that could be taken to 
reduce peak demand. While several of the utilities indicated that 
``real time pricing'' for their very large users of electricity (i.e. 
commercial and industrial) might be included in their portfolio of 
strategies to reduce demand, very few identified programs that could 
reduce peak demand from residential customers. Only New York State 
Electric and Gas (NYSEG) offers residential customers both time of use 
pricing (to customers who use 35,000 kWh or more annually) and day-
night pricing (to customers who use 1,000 kWh or more per month). ConEd 
indicated that residential customers would be eligible to participate 
in its Direct Load Program which would reward customers who voluntarily 
allow ConEd remotely to control their central air conditioning units 
during peak.
---------------------------------------------------------------------------
    Given the failure of utilities to offer or advertise time of use 
pricing, significant peak demand reductions may be achievable if the 
PSC requires more aggressive efforts. The PSC should ensure that each 
retailer offer reasonable time-of-day (or at least day-night) pricing 
to all customers, and provide consumers an analysis of the possible 
savings from such pricing. Appropriate means of financing time-of-day 
meters will need to be analyzed.
2. Direct Metering or Submetering Should be Expanded
    While time-of-day meters would enable direct metered customers to 
shift some power use to off-peak periods, consumption is not measured 
individually in many apartments, but rather through the building's 
``master'' meter. Studies have indicated that residents in master-
metered buildings tend to consume significantly more electricity than 
residents with direct meters or submeters. Consideration should be 
given to the possibility of converting master-metered buildings in New 
York State to direct metering or submetering. \111\ In master-metered 
buildings, individual residents do not pay for their electricity 
directly. Rather, electricity charges are included in the rent. These 
tenants thus have no direct price signal associated with their 
electricity consumption.
---------------------------------------------------------------------------
     \111\ Current Energy Code requires all residential new 
construction to have separate meters for each dwelling (See, 9 NYCRR 
Sec. 7813.52(b)). Between 1951 and 1979, however, the PSC banned 
submetering. Thus, much of the housing built during this time--
including most public housing and other publicly assisted co-ops--have 
master meters. The Energy Code states that whenever more than 50 
percent of a residential building's electrical system is replaced in a 
12 month period, each dwelling unit is to be provided with a separate 
meter. See, 9 NYCRR Sec. 78 10.6.
---------------------------------------------------------------------------
    Direct metering and submetering use direct market forces to 
encourage conservation. For example, a NYSERDA pilot project in 1981 
showed an energy savings potential of 18-26 percent from submetering. 
\112\ If comparable energy savings were achieved in the approximately 
400,OQO apartments in 1,800 master-metered buildings in the Con Ed 
service area, \113\ demand in the New York City load pocket would be 
reduced significantly. The considerable costs involved when converting 
to direct metering or submetering can be offset by the savings in the 
electricity bills over time.
---------------------------------------------------------------------------
     \112\NYSERDA, Facilitating Submetering Implementation, Report 96-
7, May 1996, p. A-2.
     \113\Ibid., p. S-1.
---------------------------------------------------------------------------
    Efforts to expand direct metering and submetering are ongoing, and 
should continue. For example, as part of its Residential Innovative 
Opportunities program, the NYSERDA has pilot projects to enhance 
submetering of cooperative apartment buildings, and has provided 
technical advice to building operators interested in converting to 
submetering.
3. Utilities Should be Given Incentives to Encourage Energy Efficiency 
        and Clean Distributed Generation
    While generators of electricity are allowed to sell their power at 
market value in the current restructured environment, the transmission 
and distribution retailers--the utilities--have remained regulated 
monopolies. That is, the rates received by the utilities from their 
customers for the transmission and distribution of electricity is still 
set through rate agreements with the PSC.
    Among the most central issues raised by the restructured 
marketplace is whether the utilities' profits should be linked directly 
to sales.
    Under the current rate structure there is a rate cap, which means 
the more electricity a retailer sells, the greater the retailer's 
profits. But, a retailer's fixed costs for distribution do not increase 
substantially when marginally more electricity is sold, and thus the 
rate of profit increases for each additional kilowatt-hour of 
electricity sold. As a consequence, clean distributed generation, 
energy conservation or efficiency--all of which reduce a retailer's 
sales--is usually not in a retailer's best interests despite its 
significant benefits to consumers and the public.
    If the rate structure rewarded retailers for reductions in demand, 
energy conservation would more likely become a priority for retailers 
and consumers. The PSC should develop a formula for the distribution 
charge that rewards (or at least does not discourage) efficiency, 
distributed generation, and similar efforts.
F. The Federal Government Should Implement New Appliance Efficiency 
        Standards
    The DOE should implement the new appliance energy efficiency 
standards \114\ to reduce energy use in an important sector. Not only 
would this help New York's energy efficiency efforts, but since New 
York receives significant pollution from upwind States, efficiency 
efforts elsewhere can improve New York's air.
---------------------------------------------------------------------------
     \114\See, 66 Fed. Reg. 33 13-33, January 12, 2001 (clothes 
washers); 66 Fed. Reg. 3335-56, January 12, 2001 (commercial heating 
and cooling equipment); 66 Fed. Reg. 4473-97, January 17, 2001 (water 
heaters); and 66 Fed. Reg. 7169-7200, January 22, 2001 (residential air 
conditioners).
---------------------------------------------------------------------------
    In 1977, the DOE promulgated efficiency standards for residential 
refrigerators, residential room air conditioners, and fluorescent lamp 
ballasts. These standards have been very successful in leading 
manufacturers to produce far more efficient products, often 25 percent 
or more efficient than previous models. The DOE estimates that the 
standards already promulgated will save enough energy to eliminate the 
need for over 13,000 MW of generation capacity nationwide.
    In early 2001, the DOE announced the adoption of new energy 
efficiency standards for four additional types of appliances--
residential central air conditioners and heat pumps, residential 
clothes washers, residential water heaters, and commercial heating and 
cooling equipment. These new standards are projected to save consumers 
and businesses more than $19 billion through the year 2030 and to 
alleviate the need to build 91 new 400-megawatt power plants. The 
residential central air conditioner standard alone is estimated to 
avoid the need for 53 of these plants. \115\ It is critical that these 
standards be adopted by the new administration and fully implemented.
---------------------------------------------------------------------------
     \115\See, New Efficiency Rules Cut Need for 91 New Power Plants, 
Environment News Service, Washington, DC, January 19, 2001. A 'more 
complete description of the standards can be found at Http ://
www.eren.doe.gov/buildings/codes--standards/stkappl.htm.
---------------------------------------------------------------------------
VII. Challenge and Encourage New Yorkers to Assist in Reducing Demand
    Every New Yorker can help to save energy, clean the air, and 
prevent climate change. By implementing these measures, consumers will 
also save on their electricity bills. State officials should use 
available opportunities to educate the public on efficiency, renewable 
power and conservation options.
    An average U.S. family spends close to $1,500 a year on its home 
utility bills (both heating fuel and electricity bills). Businesses 
spend much more. Unfortunately, not even including inefficient 
appliances, a large portion of that energy is wasted through actions 
such as running an almost empty dish or clothes washer, or uninsulated 
attics, walls, floors, and basements. Lights left on when no one is 
around, at home or in stores or offices after hours, consume 
electricity needlessly. The DOE estimates that the amount of energy 
wasted nationwide is about the same amount of energy that we get from 
the Alaskan pipeline each year. \116\
---------------------------------------------------------------------------
     \116\DOE, www.eren.doe.gov/comsumerinfo/energy savers/
introbody.html. Electricity generated by fossil fuels for one home plus 
the energy that is generated in the home (for example, a boiler) emits 
twice as much carbon dioxide as does one typical car in 1 year. Every 
kilowatt hour of electricity avoided in New York State saves almost one 
pound of CO2 from entering the atmosphere.
---------------------------------------------------------------------------
    Individual consumers can do many things at home to save 
electricity, reduce air pollutants, and reduce their energy bills. 
Table A-2 in the Appendix illustrates ways, many of which are free and 
available immediately, to save electricity. For example, if a household 
increases the air conditioner thermostat in summer by merely three 
degrees, it would save 937 kWh/yr, and $126 annually. If all New York 
households did the same, then 6.3 million MWh of energy would be 
avoided, along with over 3 million tons of carbon dioxide. Avoiding 
this amount of carbon dioxide is tantamount to removing 600,000 cars in 
1 year.
                                appendix

                                                    Table A-1
                        Electricity Savings: Incandescent vs. Compact Fluorescent Lights
 Savings show result of replacing one incandescent bulb with a compact fluorescent bulb in one household and in
                                    each of the 6,766,000 households in NYS.
----------------------------------------------------------------------------------------------------------------
                                                                     23 watt compact       SAVINGS OVER 3 YEARS
               Bulb Type                 100 watt incandescent         fluorescent           BY REPLACING BULB
----------------------------------------------------------------------------------------------------------------
Purchase Price........................  $0.75..................  $11.00.................
Life of the Bulb......................  750 hours..............  10,000 hours...........
Number of Hours Burned per Day........  4 hours................  4 hours................
Number of Bulbs Needed................  about 6 over 3 years...  1 over 6.8 years.......
Lumens................................  1,690..................  1,500..................
Total Cost of Bulbs...................  $4.50..................  $11.00.................
Total energy used over 3 years........  438 kWh per household..  100.74 kWh per           337.26 kWh per
                                        2.964 billion kWh if      household.               household
                                         all households.         682 million kWh if all   2.282 billion kWh if
                                        100 w (4 hrs/day)(365     households.              all households
                                         days/year).             23 w (4 hrs/day)(365     (equivalent to the
                                        (3 years) = 438000 watt-  days/year).              power generated from
                                         hours or 438 kWh.       (3 years) = 100740        an 86.8 MW power
                                        438 kWh (6,766,000) =     watts-hours or 100.74    plant, 24 hours every
                                         2.964 billion kWh.       kWh.                     day.)
                                                                 100.74 kWh (6,766,000)
                                                                  = 682 million kWh.
Total Cost of Electricity for 3 years   $58.69.................  $13.50.................
 (avg price in 1999: 13.4 cents/kWh).
Total Cost over 3 years (cost of        $63.19 per household...  $24.50 per household...  $38.69 per household
 energy + cost of bulbs).               $427,543,540 if all      $165,767,OQO if all      $261,776,540 if all
                                         households.              households.              households
Total CO2 emissions over 3 yrs (avg     436.56 lbs per           100.41 lbs per           336.15 lbs. per
 emission rate: 996.7 lbs/MWh or         household.               household.               household
 0.9967 lbs/kWh).                       1,476,882 tons if all    339,687 tons if all      1,137,195 tons if all
                                         households.              households.              households
                                        438 kWh (.9967 lbs/kWh)  100.74 kWh (.9967 lbs/
                                         = 436.56 lbs.            kWh) = 100.41 lbs.
                                        436.56 lbs (6,766,000)/  100.41 lbs (6,766,000)/
                                         2000 = 1,476,882 tons.   2000 = 339,687 tons.
Total SO2 emissions over 3 yrs (avg     22.38 lbs per household  0.52 lbs per household.  21.86 lbs. per
 emission rate: 5.1 lbs/MWh or 0.00511  75,711 tons if all       1,759 tons if all         household
 lbs/kWh).                               households.              households.             73,952 tons if all
                                        438 kWh (.00511 lbs/     100.74 kWh (.00511 lbs/   households
                                         kWh) = 22.38 lbs.        kWh) = 0.52 lbs.
Total NOx emissions over 3 years (avg   0.83 lbs per household.  0.19 lbs per household.  0.64 lbs. per
 emission rate: 1.9 lbs/MWh or 0.0019   2,807 tons if all        643 tons if all           household
 lbs/kWh).                               households.              households.             2,164 tons if all
                                        438 kWh(.0019 ;bs/kWh)   100.74 kWh(.0019 lbs/     households
                                         = 0.83 lbs.              kWh) = 0.19 lbs.
----------------------------------------------------------------------------------------------------------------

                                                    Table A-2
 Electricity Savings, Electricity Cost Savings, and Carbon Dioxide Emissions Avoided By Implementing Efficiency
                    and Conservation Measures in One Household and in All New York Households
----------------------------------------------------------------------------------------------------------------
                                                                                             CO2
                                     Electricity saved     Electricity saved     Money     avoided   CO2 avoided
        Household Measure            for one household        for all NY       saved for   for one    for all NY
                                         (kWh/yr)          households (MWh/       one     household   households
                                                                 year)         household   (lbs/yr)   (tons/yr)
----------------------------------------------------------------------------------------------------------------
Replace a 1970's refrigerator w/a  2,197...............  14.9 million........      $294      2,190     7,408,770
 new EnergyStar refrigerator.
Increase AC thermostat by 3F       937.................  6.3 million.........      $126        934     3,159,410
 degrees for cooling.
Replace 5 incandescent light       562.................  3.8 million.........       $75        560     1,894,480
 bulbs with compact fluorescent.
----------------------------------------------------------------------------------------------------------------
Source: U.S. Energy Information Administration, Household Energy Consumption and Expenditures 1993, and Rocky
  Mountain Institute's calculations at www.rmi.org (1999)

                               __________
   Statement of Thomas E. Stewart, on Behalf of the Ohio Oil and Gas 
    Association And The Independent Petroleum Association of America
    Committee members, good morning. I am Thomas E. Stewart and I serve 
as the executive vice president of the Ohio Oil & Gas Association, a 
trade association whose one thousand three hundred members are involved 
in the exploration, production and development of crude oil and natural 
gas resources within the State of Ohio. This Association has 
represented the Ohio industry since 1947. I am also testifying on 
behalf of the Independent Petroleum Association of America (IPAA). IPAA 
represents the thousands of independent petroleum and natural gas 
producers throughout the nation.
    Today's hearing continues the Environment and Public Works 
Committee's examination of environmental laws and their interaction 
with the nation's energy supply and demand. My testimony today will 
focus primarily on several environmental issues and how they impact the 
petroleum and natural gas exploration and production (E&P) industry.
    Let me begin by describing the unique nature of the industry and 
the specific challenges we face in the context of Federal environmental 
law. The petroleum and natural gas E&P industry is distinguished by its 
breadth and diversity. Oil and gas are natural resources that are found 
in 33 States, 12 of which are represented on this committee. There are 
over 850,000 producing oil and natural gas wells in the country in 
areas ranging from arid plains to forests to wetlands.
    The operation of these wells has been regulated since the 1920's 
with an increasing emphasis on environmental controls since the 1960's. 
This regulation has been and continues to be done effectively by the 
States--a reality that has been recognized by the Congress and by the 
EPA. Because of the diverse conditions associated with oil and natural 
gas production, the regulatory process must be flexible and reflect the 
unique conditions in a State or areas within a State. It requires the 
technical expertise that has been developed in each State and which 
does not exist within the EPA. For this reason Federal law has 
generally deferred regulation of this industry to the States. 
Additionally, because so much of Federal law is written based on 
regulating small numbers of point sources, some laws have created 
particular problems for the oil and gas E&P industry. In some instances 
this has resulted in specifically crafted provisions to address the oil 
and gas E&P industry.
    Complying with environmental regulations remains a significant cost 
for the E&P industry, with estimates of annual costs ranging from about 
$1.6 billion to more than $2.6 billion. These costs are particularly 
significant during times of low commodity prices, such as occurred 
during the 1998-99 oil price crisis. Equally important is understanding 
that independent producers, who range from large publicly traded 
companies to small business operations, drill 85 percent of the wells 
within the United States. The common factor for these independents is 
that their revenues and hence their ability to meet these environmental 
costs comes solely from the exploration, production and sale of crude 
oil and natural gas from the wellhead. Unlike the large major 
producers--the integrated oil and gas industry--the independents have 
no means of passing on production and regulatory costs through other 
operations, such as refining and marketing. Ohio's producers are 
``price-takers'' rather than ``price-makers.''
    Consequently, the industry places great emphasis on cost effective 
regulation, limiting paperwork burdens, and avoiding duplicative 
regulatory requirements. In general, the unique problems associated 
with the diverse nature of the E&P industry have been addressed, making 
the burden of regulation manageable. However, there have been 
exceptions and there are issues that need attention.
Safe Drinking Water Act, LEAF v. EPA and Hydraulic Fracturing
    For example, the most compelling environmental issue currently 
confronting the oil and natural gas E&P industry is a movement to have 
U.S. EPA regulate hydraulic fracturing under the Safe Drinking Water 
Act (SDWA).
    Hydraulic fracturing is a common and necessary procedure used by 
producers to complete crude oil and natural gas wells by stimulating 
the well's ability to flow increased volumes of oil and gas from the 
well's reservoir rock into the wellbore. It is necessary in order to 
obtain production from wells that, for lack of proper stimulation, 
would not naturally yield economic volumes of crude oil and natural 
gas. Massive numbers of hydraulic fracturing have been performed in 
Ohio and throughout the United States, dramatically increasing the 
nation's oil and gas resource base.1
    At the time the SDWA was enacted, the States had already developed 
extensive Underground Injection Control (UIC) programs to manage liquid 
wastes resulting from oil and gas operations and the reinjection of 
produced waters. By 1980 Congress--recognizing the need for further 
State flexibility--modified the SDWA to give States ``primacy'' based 
on comparable State oil and gas UIC programs. These changes were made 
because Congress recognized that the approach it had envisioned was 
inconsistent with the realities of UIC regulation. It recognized that 
the State UIC programs were well structured and that EPA could not 
fashion a Federal program with the flexibility needed to deal with the 
different circumstances existing in the various States.
    At no time during these debates--in 1974 or in 1980--was there any 
suggestion of including hydraulic fracturing in the UIC waste 
management requirements. Nor was it an issue in the 1986 or 1996 
reauthorizations of the SDWA. The reason is clear. Hydraulic 
fracturing--while it temporarily injects fluids into underground 
formations--is not the underground injection that the SDWA was designed 
to regulate. There have been over a million hydraulic injection 
operations during the past 50 years. States have regulated its use in 
their well permitting processes. It does not create environmental 
problems.
    Nonetheless, in the mid-1990's the Legal Environmental Assistance 
Foundation (LEAF), after years of failing to make an environmental case 
against coalbed methane development, petitioned the U.S. EPA to 
regulate hydraulic fracturing under the UIC program. EPA rejected LEAF, 
arguing that Congress never intended UIC to cover hydraulic fracturing. 
LEAF appealed to the 11th Circuit Court of Appeals.
    In 1997, the 11th Circuit Court decided the LEAF v EPA case. The 
Court never addressed the environmental risks of hydraulic fracturing; 
it merely decided that the plain language of the statute could include 
hydraulic fracturing as underground injection. This decision compels a 
revision to the SDWA because its basis is so fundamental that adverse 
regulatory action is inevitable.
    Initially, EPA responded to the LEAF decision by requesting the 
Groundwater Protection Council (GWPC) to study coalbed methane wells. 
After evaluating 10,000 wells, it found one complaint--the LEAF case 
Alabama well that EPA had already concluded was not a fracturing 
problem. However, LEAF went back to the Court to force EPA action. EPA 
then compelled Alabama to develop a UIC regulation that requires the 
use of federally certified drinking water for fracturing jobs, water 
that must be purchased from willing cities and trucked to the well 
development operations.
    LEAF filed a second case--likely to be decided this year--arguing 
that EPA erred in the Alabama regulation. LEAF argues in part that EPA 
should have first written a nationally applicable rule. If EPA loses 
this case, all hydraulic fracturing jobs could be federally regulated. 
The National Petroleum Council estimates that 60 to 80 percent of all 
the wells drilled in the next decade to meet natural gas demand will 
require fracturing.
    Even if EPA wins the LEAF II case, the likely result would be a 
rash of cases raising the hydraulic fracturing issue in Federal Circuit 
Courts across the country. Given the ``plain language'' nature of the 
original case, most attorneys believe that such cases would produce 
similar results--a forced Federal regulation in each State.
    Not considered an issue at the time the SDWA was passed, Congress 
did not specifically exclude hydraulic fracturing. Two decades later, a 
court ignored the facts of the issue and changed the scope of the law 
on a technicality. Now, a legislative resolution is essential to 
clarify the original intent of Congress and the definition of 
underground injection. Industry believes that Congress should address 
this issue quickly through a bipartisan effort. A clear opportunity 
exists to bring the States and EPA together on this matter and produce 
an environmentally sound resolution that would prevent the loss of key 
energy supplies.
Clean Water Act, Endangered Species and Clean Air Act
    While hydraulic fracturing represents the most compelling issue 
that needs legislation, there are others that require attention as 
well. For example, because many oil and natural gas producers are small 
businesses, paperwork burdens are always an issue. Here, some issues 
that affect producers are:

      Under the Clean Water Act, producers are required to 
submit Spill Prevention, Control, and Countermeasure (SPCC) Plan 
updates every 3 years (EPA has proposed to extend this period to 5 
years). These SPCC plans provide details about the facility's 
operations and spill control measures. Producers must also submit 
Emergency and Hazardous Chemical Inventory Forms under the Emergency 
Planning and Community Right-To-Know Act (EPCRA), but must do so 
annually. Most of these EPCRA forms do not change and the same 
objective could be achieved by filing every 3 years with annual reports 
that would identify any significant changes. It would reduce the 
paperwork burden with no environmental detriment.
      Additionally, the requirements that trigger the need for 
a stormwater construction permit under the Clean Water Act are 
changing. The construction area subjected to these permits is being 
reduced from five acres to one acre. As a result, oil and gas 
production facilities--which have typically not been required to get 
these permits--will now be subjected to this regulatory requirement. 
While EPA has indicated that it will craft the permit requirements to 
minimize burdens to the producer; this process needs to be carefully 
monitored as it is implemented to avoid undue delay in developing 
production sites.

    Not all issues are related to procedures or paperwork. Others 
relate to interpretations of laws that can adversely affect natural gas 
and oil exploration and development. Historically, these problems have 
related more to obtaining permits for operations than to meeting 
emissions limitations. For example:

      Under the Clean Water Act, some projects require Section 
404 dredge and fill permits. While this process is managed by the Corps 
of Engineers, it involves interactions with agencies that have 
jurisdiction with regard to wetlands. Moreover, the definition of a 
wetland has been confusing and in dispute for decades. The result of 
these factors has been permitting uncertainty. Part of the concern 
results from different objectives of the agencies involved in the 
permitting process. While their responsibilities will not change, it is 
essential that they all recognize the need to develop domestic energy 
supplies and work toward achieving this national objective in a cost 
effective, environmentally sound process.
      The Endangered Species Act raises similar issues. When 
Federal Land Managers--principally the Bureau of Land Management--
develop resource management plans (RMPs) one of their important 
considerations is habitat management for endangered species. Oil and 
natural gas exploration and production is a temporal process. It 
involves drilling activities for a limited period of time followed by 
production activities that can include well maintenance efforts while 
the well produces. When the well is depleted, it is closed and plugged 
and the area returns to its prior condition. Over the years these 
activities have become less intrusive to the environment. The 
Department of Energy's 1999 report, Environmental Benefits of Advanced 
Oil and Gas Exploration and Production Technology, demonstrates the 
types of actions that are taken. The key point here is that oil and gas 
E&P coexists with nature. This reality needs to be recognized as RMPs 
and other permit actions are developed, including habitat management 
plans that protect endangered species and encourage energy supply. 
Addressing this important balance does not require sacrificing the 
principles of the Endangered Species Act, it merely requires greater 
efforts to define alternatives that can accommodate both national 
objectives whenever possible.
      Recently, there has been discussions of aggregating 
individual oil and gas wells in a particular geographic area for 
purposes of defining a ``major source'' under Title V of the Clean Air 
Act. If that is done, it would impose a whole host of additional 
regulatory burdens on the producing industry with little benefit to the 
environment. The question of how to determine when Federal clean air 
regulation should apply to E&P facilities has already been raised in 
the context of the operation of Section 112 as amended in 1990. 
Congress concluded that individual oil and gas wells should not be 
aggregated for the purpose of determining whether they represented a 
major stationary source. This decision reflected the reality of oil and 
gas E&P operations. While there may be several wells in an area, there 
is no certainty that they are operated by the same entity; in general, 
they are not. Unfortunately, the issue has arisen with regard to 
whether the definition of major source under Title V with regard to 
whether facilities permitted by the Federal Government should be 
interpreted consistent with Section 112. While the definitional 
limitations are not replicated in Title V, we believe that EPA should 
use the same approach. In particular, since aggregation would not 
result in appreciably different control requirements, it makes no 
environmental sense to capture oil and gas E&P operations under the 
permitting burdens of Title V.

    While issues such as endangered species have greater impact on oil 
and gas development in the Western United States, similar issues have 
also impacted development in the Appalachian Basin. For example, in the 
Wayne National Forest of Ohio, Carlton Oil Corporation, a small oil and 
gas producer, for an extended period has been seeking to obtain a 
permit from the Bureau of Land Management (BLM) to drill a development 
well on a Federal lease tract. Since applying for the permit in 
February 2000, the producer has been waiting while the Forest Service 
has performed an environmental assessment taking into account new 
information, if any, regarding endangered species and the relationship 
of that information to the Forest Plan. It is ironic that the producer 
already operates two other wells on the same property. Even more ironic 
is that continuous oil and gas operations have existed in this area 
since 1860. While this producer has been waiting for the Federal 
process to resolve itself, his requisite permits issued by the State of 
Ohio have been issued and expired. Needless to say, he is frustrated 
with a process that stymies the drilling of a simple and common 
development natural gas well in what is the most mature oil and gas 
producing province within the United States. Meanwhile, Ohioans have 
joined the national chorus demanding answers to why natural gas 
supplies are tight.
    These types of issues reflect an ongoing dilemma that needs to be 
addressed. Without altering the underlying requirements of 
environmental law, the energy supply implications of new regulations, 
guidance, resource management plans, interagency memorandums of 
understanding, and other planning and review processes need to be 
identified early and become a part of the decisionmaking process. This 
step would assure that where possible these actions could be tailored 
to address both environmental and energy needs. Such an approach has 
been included in Section 101 of S. 388 and S. 389, the National Energy 
Security Act of 2001.
Pipeline Issues
    There are pipeline issues as well. Congress, in its 1996 amendment 
to the Pipeline Safety Act of 1992, directed the U.S. Department of 
Transportation (``USDOT'') to define the term ``gathering line'' for 
purposes of jurisdiction in its gas pipeline safety regulations. This 
is important because gathering lines are generally exempt from 
regulation unless they are located within urbanized settings. USDOT 
failure in the past to address this issue has created a regulatory 
vacuum that has resulted in uncertain and vague application of 
regulatory standards within the States.
    In 1999, U.S. DOT issued a Request for Comments on the issue of 
whether and how to modify the definition and regulatory status of gas 
gathering lines for the purposes of pipeline safety regulation. In 
response to USDOT's request, an industry coalition comprised of 
representatives from across the country and from small independent 
producers to the large integrated companies, proposed a unified 
definition for the pipeline safety program for gas gathering. That 
definition was filed with the agency on April 24, 2000. The American 
Petroleum Institute published a recommended practice document based on 
this definition.
    Establishing regulatory stability in the arena of pipeline 
construction and operation is an important goal for the regulated 
community, particularly for the Appalachian oil and gas industry. The 
Appalachian Basin is the country's oldest natural gas producing field. 
It has been producing and gathering natural gas without safety mishaps 
for over a hundred years. It is located in very close proximity to 
major population areas of the country, especially the northeast. At a 
time when consumption of natural gas is expected to increase, it is 
imperative that a nationally driven gathering pipeline regulatory 
program be established that acknowledges the safety record of the 
Appalachian region and that enhances the region's ability to collect 
its naturally high quality gas and deliver it to transmission and 
distribution systems.
    On March 8, 2001 representatives of the Gas Gathering Industry 
Coalition, to include the Appalachian industry, met with USDOT 
representatives to discuss the agency's plans with regard to its open 
rulemaking on the definition of gas gathering for the Pipeline Safety 
program. DOT conceded that it has yet to act on the need to establish a 
promulgated rule. The agency has offered to reconsider its reluctance 
to review the Industry Coalition proposal and committed to providing a 
response to industry's request that a public meeting be held to further 
discuss the development of a rulemaking. It is essential that the DOT 
be given the appropriate support and guidance for bringing to 
resolution this long outstanding issue. It is also essential that any 
such resolution enhances the movement of gas rather than create 
unnecessary regulatory burdens.
    Pipeline issues also extend to the downstream industry that seeks 
to deliver finished petroleum products to the consumer. In Ohio, 
Marathon Ashland Petroleum LLC is proposing to build a 14'' diameter 
petroleum products line to connect supply from its Catlettsburg, KY 
refinery to one of the fastest growing areas--Central Ohio. The Midwest 
faces unique challenges in the petroleum industry as it lacks the 
refining capacity to manufacture enough gasoline, diesel fuel, jet 
fuel, etc. to satisfy consumer demand. As a result, States like Ohio 
rely on Gulf Coast refineries for 25 percent of their petroleum 
products--most of which travels through capacity-constrained pipelines. 
There is an obvious need for more petroleum products into the Midwest. 
Marathon Ashland Petroleum's proposed project (Ohio River Pipe Line) 
will bring up to 80,000 barrels/day of refined product into Central 
Ohio. Nonetheless, the project has suffered many permit and legal 
delays and 3 years later not a single mile of pipeline has been laid.
    Marathon Ashland has endured 3 years of environmental reviews and 
evaluations of streams, wetlands, rivers, cultural resources, and State 
and federally listed threatened or endangered species. Even though the 
company has met, and many times significantly surpassed, the 
requirements of the requested permit, the approval process is not yet 
complete nor is it streamlined to the point where approvals can occur 
in an acceptable timeframe. Additionally, there is broad subjectivity 
in interpreting the regulations and oftentimes there are conflicting 
requirements between the multitude of State and Federal agencies 
involved. Primary agencies involved in the process include the U.S. 
Army Corps of Engineers, the USEPA, the U.S. Fish and Wildlife Service, 
the Ohio EPA, the Ohio Department of Natural Resources, the USDOT's 
Office of Pipeline Safety (OPS) and the State Historical preservation 
offices. The lengthy process and uncertainty associated with this 
project is symbolic of the significant challenges for companies wanting 
to invest in infrastructure.
Inadvertent Targets, TMDL
    The industry also faces issues where it becomes the inadvertent 
target of a Federal regulatory initiative. For example:

      EPA has initiated a new program to address Total Maximum 
Daily Loadings (TMDLs) on streambodies throughout the United States. 
The effort is one of a long line of efforts to try to grapple with non-
point source pollution of water bodies. While the Clean Water Act has 
enjoyed great success with its point source control program, non-point 
source control has been elusive because of its diverse nature. 
Moreover, because it largely must address drainage from agricultural 
and forest lands, it has always had to yield to the realities--both 
technical and political--that control of these sources requires 
something other than a Federal mandate. The E&P industry finds itself, 
therefore, in a vulnerable position. In looking at a typical streambody 
under the TMDL effort, the point sources will be controlled and 
therefore not likely to be further controlled and the agricultural and 
forest non-point sources will be deferred until a control strategy can 
be developed. This leaves small non-point sources as the only remaining 
targets for EPA to address. While they will not resolve the TMDL 
problems, they can provide a public relations victory. E&P operations 
meet this characterization. They are small but do construction work 
that can produce runoff even when managed properly.
      The Clean Air Act has elements that can create similar 
vulnerability. Its history is clear. State and local regulators do not 
want to impose tough regulations on their citizens if they can shift 
the control elsewhere. It is much easier to push for auto emissions 
controls or fuel standards that are the responsibility of distant 
industries than to require local inspection and maintenance control 
programs. Visibility regulations are an example where the premise is 
based on emissions from facilities hundreds of miles away. It creates 
opportunities for regulators in one State to demand action by other 
States. In these circumstances there are many western States where 
there are few sources and those are regulated for local reasons or 
under new source requirements. The E&P sources become potential targets 
not because they are significant but because they are there.
    These types of events do not improve the nation's environmental 
management, but they can threaten its energy supply without any 
judgment that such regulations would be appropriate or necessary. 
Balanced decisions are necessary--decisions based on cost effective 
regulation and sound environmental management needs.
                                 ______
                                 
                               attachment
    Mr. Stewart serves as the Executive Vice President of the Ohio Oil 
and Gas Association, having been elected to that position in September, 
199l. At OOGA, Mr. Stewart is director of staff, editor of the 
Association's publications and an advocate for the industry as a 
registered legislative agent.
    Mr. Stewart serves as an Ohio representative to the Interstate Oil 
and Natural Gas Compact Commission (IOGCC). Ohio Governor George 
Voinovich appointed Mr. Stewart to the position in 1997. At IOGCC, 
Stewart chairs the Public Outreach Committee. Stewart also serves on 
numerous other committees of national organizations that address issues 
impacting independent oil and gas producers. He is the Northeast 
Regional Vice President of the National Stripper Well Association and a 
charter member of the Cooperating Association Council of the 
Independent Petroleum Association of America (IPAA).
    Prior to joining OOGA, Mr. Stewart has 15 years' experience in the 
oil and gas industry as an oil and gas producer and provider of 
contract drilling services. He is the third generation of his family 
making their livelihood in the domestic oil and gas industry.
    OOGA is a statewide trade association with over 1,300 members who 
are actively involved in the exploration, development and production of 
crude oil and natural gas within the State of Ohio. The Association's 
mission is to protect, promote, foster and advance the common interests 
of those engaged in all aspects of the Ohio crude oil and natural gas 
producing industry.
    1 An oil and gas producer performs a fracturing procedure to 
increase the flow of oil and gas from rock, known to contain oil and 
gas, but where the rock's natural permeability does not allow oil and 
gas to reach the wellbore in sufficient volumes. These reservoirs are 
called ``tight'' and wells drilled to them must either be plugged and 
abandoned or stimulated to enhance well flow. During a fracture 
procedure fluid is pumped into the reservoir rock using necessary force 
to split the rock. In other words, to frac a well is to create drainage 
ditches that penetrate deep into the reservoir rock.
    Hydraulic fracturing is currently the most widely used process for 
stimulating oil and gas wells. Most often it is a one-time process 
performed on a well. According to the 1989 SPE Monograph on Recent 
Advances in Hydraulic Fracturing, the procedure is a standard operating 
practice that by 1988 had been performed over 1 million times. At that 
time, 35-40 percent of all wells were fractured, and about 25-30 
percent of the total U.S. oil reserves have been made economically 
feasible by the process. By 1988, SPE experts Stated that fracturing 
was responsible for increasing North America's oil reserves by 8 
billion barrels.
    Since 1951, over 73,000 wells have been drilled to the Clinton, 
Berea and Ohio Shale zones of Ohio. Between 1970 and 1992, a 
combination of commodity market conditions and government tax policy 
caused a boom in tight-formation drilling. During that period, 58,874 
wells were drilled in Ohio of which 54,198 wells were productive--a 
91.4 percent success rate. Of these wells, 55,046 were drilled to the 
Clinton, Berea and Ohio Shale. The Clinton comprised 78.4 percent 
percent of that population. With very limited exceptions, hydraulic 
fracturing was used to complete all of these wells. Exploitation of the 
tight Clinton sands would not have been possible without fracturing. 
The hydraulic fracture process made the modern Ohio oil and gas 
industry.
    According to a recent statement issued by the Ohio Department of 
Natural Resources, Mineral Resources Management Agency, the regulatory 
agency has not identified a single incident of groundwater 
contamination associated with a hydraulic fracturing operation.
                               __________
Statement of Jason S. Grumet, Executive Director, Northeast States for 
                Coordinated Air Use Management (NESCAUM)
    Thank you Mr. Chairman. My name is Jason Grumet and I am the 
Executive Director of the Northeast States for Coordinated Air Use 
Management (NESCAUM). NESCAUM is an association of State air pollution 
control agencies representing Connecticut, Maine, Massachusetts, New 
Hampshire, New Jersey, New York, Rhode Island and Vermont. The 
Association provides technical assistance and policy guidance to our 
member States on regional air pollution issues of concern to the 
Northeast. On behalf of our eight member States, I would like to 
express our appreciation for this opportunity to address the 
subcommittee regarding the interaction between environmental regulation 
and our nation's energy policy.
    The issues before the subcommittee this morning are numerous and 
complex. I commend the subcommittee for its efforts to develop policy 
approaches that are mindful of the necessary connection between 
sustainable energy and environmental policies. Through thoughtful 
dialog and determined policy, the dual goals of clean air and plentiful 
low cost energy are mutually reinforcing. However, it is equally true 
that efforts which focus myopically only on energy or the environment, 
to the exclusion of the other, are doomed to fail.
    The present focus on our nation's energy supply presents challenges 
and opportunities. It is understandable yet regrettable that our body 
politic tends to focus its attention on energy policy primarily during 
moments of predicted or realized scarcity. It is at these times when 
the fundamental vulnerability of our nation's dependence on a 
monoculture of imported petroleum is most pronounced. Unfortunately, it 
is at these same moments when long-term strategies to achieve real 
energy security are often eschewed in favor of quick fixes that promise 
immediate price relief at the pump or at the switch. A meaningful 
national energy policy must address both the supply and demand sides of 
our energy equation. On the supply side, we must develop a diverse 
portfolio of sustainable energy sources that can be developed without 
exacting an unacceptable toll on the natural environment and public 
health. On the demand side, we must begin to confront the careless 
waste and inefficiency that far too often describe our nation's 
consumption of scarce energy resources.
    It is worth noting that Congress has boldly grappled with these 
questions before. The Energy Policy Act of 1992, explicitly 
acknowledged the unsustainable course of our hydrocarbon economy and 
set a reasoned goal to diversify our motor fuels supply using 
domestically produced non-petroleum alternatives. Under EPACT, 75 
percent of the vehicles procured by the Federal Government were slated 
to operate on non-petroleum alternative fuels by 1999. By last year, 
EPACT established the goal that a full 10 percent of our nation's motor 
fuel be displaced by non-petroleum alternatives. By 2010, EPACT 
envisions that a minimum of 30 percent of our nation's motor fuel will 
be derived from non-petroleum sources.
    Our progress toward these goals has been woeful. At present, less 
than 1 percent of the motor fuel used on this nation's highways is 
derived from non-petroleum alternatives and there are no meaningful 
Federal efforts underway to achieve the EPACT goals for 2010. In fact, 
the Energy Information Association recently reported that U.S. oil 
demand is forecast to jump from the current 20 million barrels per day 
to 26 million barrels per day by 2020. Last year alone, our nation 
spent over $100 billion for imported oil. On March 15, of this year, 
the Associated Press reported that our nation's trade deficit surged to 
an all time high of $435.4 billion (up 31.3 percent) on a huge rise in 
imports of oil. As a founding member of the Governors' Ethanol 
Coalition, I recognize Chairman Voinovich, that you appreciate better 
than I the need to promote domestically produced renewable fuels. I 
respectfully submit that had our nation directed the necessary public 
and private resources and technological commitment toward achieving the 
promise of EPACT, the substance and mood of today's discussion and the 
scope of our policy options would be very different.
    I would now like to briefly discuss three specific environmental 
regulatory policies that present opportunities to better harmonize our 
nation's air quality and energy policy goals. First I will review two 
recent EPA efforts to address the toxic emissions from motor vehicles. 
Then I will review the basis for the Northeast States' view that 
Congress must act to lift the oxygen mandate in the Federal 
Reformulated Gasoline Program.
Mobile Source Toxics
    As we chart a long-term course to harmonize our environmental and 
energy needs, we must begin to grapple more effectively with the 
problem of toxic air pollution resulting from the combustion of motor 
fuels. Over a decade ago, Congress reacted to the growing body of 
evidence identifying motor vehicles as the dominant source of toxic air 
pollution in the nation by adopting Section 202(l) of the of the Clean 
Air Act Amendments of 1990 (Act). The Clean Air Act requires the Agency 
to produce a study on the ``need for, and feasibility of, controlling 
emissions of air toxic pollutants which are . . . associated with motor 
vehicles and motor vehicle fuels (sec. 202(l)(1)).'' The Act instructs 
the Agency to focus on ``those categories of emissions that pose the 
greatest risk to human health.'' Section 2020(l)(2) then directs the 
Agency to ``promulgate regulations . . . to control hazardous air 
pollutants from motor vehicles and motor vehicle fuels.'' These 
standards--at a minimum for benzene and formaldehyde--should ``reflect 
the greatest degree of emission reduction achievable through the 
application of technology which will be available.''
    In its legislative history, Congress instructed EPA to ``broadly 
characterize the urban air toxic problem by conducting ambient 
monitoring'' in order to determine the ``true scope of the problem.'' 
Congress characterized EPA's previous efforts in the area of regulating 
air toxics as ``this record of false starts and failed opportunities.'' 
It stated explicitly: ``The Environmental Protection Agency has not 
made sufficient use of the existing authorities available under section 
112 of the Clean Air Act to protect public health.''
    Unfortunately, EPA's efforts to carry out the requirements of this 
section and the intent of Congress over the last decade have been 
uninspired. In 1993, EPA identified mobile source emission from on-road 
vehicles as the No. 1 source of hazardous air pollutant emissions in 
the country. However, EPA failed to promulgate a regulatory 
determination as required by statute to address these toxic 
contaminants. In 1998, EPA published the results of the Cumulative 
Exposure Project (CEP), which estimated that ambient concentrations of 
seven cancer-causing compounds exceed Federal-health protective 
thresholds in every census tract in the country.
    In the Northeast, and across the country ambient levels of four 
pollutants: benzene, 1,3 butadiene, formaldehyde and acetaldehyde 
exceed health-based cancer and non-cancer thresholds by one and 
sometimes two orders of magnitude. The CEP, and subsequent analysis by 
the NESCAUM States conclude that mobile sources are responsible for the 
vast majority of emissions of these four compounds. In the face of this 
information, EPA still failed to act. Finally, earlier this month under 
Court order, EPA promulgated regulations under 202(l) that set a 
backstop to prevent the average toxicity of gasoline from increasing, 
but offers no new strategies to mitigate the unacceptable risks posed 
by mobile source air toxic emissions. The Northeast States are 
disappointed that it has taken the Agency 10 years to promulgate 
regulations under Section 202(l) that will provide no air quality 
benefits to our member States. These views are expressed rather 
strongly in comments NESCAUM delivered on the rule proposal that I 
would like to submit to the record (attachment 1).
    The most valuable aspect of the recently promulgated rule is EPA's 
forthright acknowledgement of the gaps in the Agency's understanding 
about key aspects of the mobile source air toxics problem and its 
commitment to work with the States and other interested parties to cure 
these inadequacies and propose new regulations no later than July 2003. 
Specifically EPA commits to: 1) evaluate and re-assess the need for, 
and level of controls for both on-highway and nonroad sources of air 
toxics; 2) develop better air toxics emission factors for nonroad 
sources; 3) improve estimates of air toxics exposures in 
microenvironments; 4) improve consideration of the range of total 
public exposure to air toxics; and 5) increase our understanding of the 
effectiveness and costs of vehicle, fuel, and nonroad controls for air 
toxics.
    While we trust the sincerity of EPA's commitment to address these 
issues through a robust research agenda and welcome the opportunity to 
contribute to this process, we recognize that the questions that EPA 
now seeks to address are the very same questions that the Agency failed 
to confront over the past decade. We ask that this subcommittee join 
the States in working to support this effort and conduct the oversight 
necessary to ensure that this critical section of the Act is fully and 
faithfully executed.
Diesel Emission Control Efforts--Consent Decrees
    Diesel engines remain the life-blood of commercial transportation 
in this country. However, the failure to date to adequately control the 
pollutant emission from diesel engines has exacted an unacceptable and 
unnecessary toll on the health of our citizens, especially those who 
reside in urban areas where diesel vehicles are most concentrated. Two 
ongoing initiatives hold potential to dramatically improve the 
environmental performance of diesel engines and diesel fuels. The 
stakes are very high. If successful, these efforts will enable our 
nation to continue to responsibly rely on diesel engines for years to 
come. However, if these efforts fail, our nation will continue to be 
forced to choose between the economic benefits provided by the diesel 
engine and the health of our citizens.
    First, 1998, five diesel engine manufacturers (Caterpillar, 
Cummins, Detroit Diesel, Mack Trucks, and Volvo) entered into binding 
consent decrees to remedy the most substantial violation of our clean 
air laws since the passage of the Clean Air Act. In essence, these 
engine makers had designed and marketed over one million engines that 
appeared to meet the emission requirements when tested in a controlled 
laboratory environment but then dramatically exceeded these standards, 
by as much as 300 percent, when operated on our nation's highways. This 
flouting of our environmental laws will result in excess emissions of 
roughly 100 million tons of NOx over the course of the next 20 years. 
To mitigate the consequences of this illegal behavior, engine 
manufacturers committed to a host of activities including the early 
introduction of cleaner engines in 2002, a commitment to retrofit non-
complying engines when they are brought in for engine rebuilds, and a 
commitment to design engines to meet a ``not to exceed'' (NTE) standard 
to ensure that engines when operated on the road reflect the emission 
profile promised in the laboratory. These commitments were the product 
of months of intensive negotiations that enabled the defendant 
companies to avoid potential criminal penalties and also allowed these 
companies to continue to market non-complying engines until the 
transition to cleaner engines could be economically completed in 2004.
    It has come to our attention that many of these same companies are 
now seeking relief from their own consent decree commitments. I would 
like to submit to the record a letter dated February 5, 2001 from the 
Detroit Diesel Company to Administrator Whitman seeking relief from the 
commitment to market clean engines beginning in 2002 (attachment 2). 
This request comes on the heels of a series of requests to create 
exceptions to the NTE requirements and a growing body of evidence that 
the rebuild programs established in the consent decrees will not 
realize their promised environmental benefits. Even if all these 
programs are implemented as promised, the consent decrees still would 
allow 12 million tons of excess NOx to pollute our States and frustrate 
our attainment efforts. We simply cannot afford to weaken the 
commitments that form the basis of these consent agreements. If some 
engine manufacturers cannot fulfill the commitments established under 
the consent agreements, alternative reduction obligations must be 
established that more than offset these failures. Anything less 
unfairly rewards those companies that have failed to live up to their 
commitments at the competitive expense of those companies that have 
strived to succeed.
    The consent decrees were negotiated in private through a legal 
process largely void of the public engagement we have come to rely on 
under the Administrative Procedures Act. Because of this, States and 
other interested parties have been largely shut out of these negotiated 
settlements. We urge this subcommittee to look into the recent 
developments in the implementation of the consent decrees in order to 
ensure that the public receives the full benefit of the legal bargain.
Diesel Emission Control Efforts--2007 Rule
    The Northeast States wish to express our appreciation to the 
Administration and EPA for their decision to move forward with the 
implementation of the new diesel standards for model year 2007 and 
later engines. This rule is critical to State efforts to attain the air 
quality standards for ozone and to protect the public from toxic air 
pollutants such as particulate, formaldehyde, and acetaldehyde. The 
rulemaking process that produced this regulation was both extensive and 
inclusive. During the rulemaking process, EPA garnered written input 
from over 370 stakeholders and worked closely interested parties in the 
development of the final rule. The broad support for this rule is 
evident in a March 19, 2001 letter to Administrator Whitman. A broad 
coalition including automobile manufacturers, trucking associations, 
environmental groups, States, and truck and engine manufacturers joined 
together to express our appreciation for the enormous public health and 
environmental benefits that will be achieved by under this regulation. 
I wish to submit a copy of this letter for the hearing record 
(attachment 3).
    While some continue to assert that this rule poses a long-term 
threat to the refiners of diesel fuel and the makers of diesel engines, 
nothing could be farther from the truth. In fact, this rule must be 
fairly understood to have saved the diesel engine from inevitable 
demise due to the unacceptable threat it has to date posed to public 
health. Once this rule is fully implemented the words ``clean'' and 
``diesel'' will for the first time rightfully belong in the same 
sentence. By promulgating a comprehensive approach that simultaneously 
addresses both diesel engines and the quality of diesel fuel, the 
Agency has created a role for the continued reliance on diesel-powered 
engines for years to come.
    The 2007 clean diesel rule rests on a successful history of 
technology advancing environmental regulation. Time and again, our 
nation has proven that when given adequate lead-time and clear 
performance standards, American industries possess the technological 
knowledge and innovative ability to produce products that meet our 
public health and environmental needs. The Northeast States are 
concerned by reports that the Administration is considering upsetting 
this time honored dynamic by imposing a third-party technical review, 
such as by the National Academy of Sciences, on the clean diesel rule. 
While certainly well intended, this idea is likely to do far more harm 
than good by creating a climate of uncertainty that could lead refiners 
and engine manufacturers to postpone investment in technology research, 
development and physical plant upgrades that form the basis of their 
compliance strategy.
    EPA has provided more than 5 years of lead time for fuel providers 
and the manufactures of emission control equipment to put in place the 
necessary infrastructure and technical changes needed to meet the 
requirements of the rule. Through the Federal Clean Air Act Advisory 
Committee (CAAAC), Congress has already established a forum that EPA 
effectively employs to secure meaningful and timely public input on 
ongoing regulatory initiatives. Already, the Agency maintains a Mobile 
Source Technical Review Subcommittee of the full FACA Committee 
comprised of technical experts from industry, academia, States and 
public health advocacy organizations. This subcommittee is well suited 
to oversee progress on implementation of the 2007 rule. In contrast, 
formation of a third party review to question the basis of the 
standards has potential to become a self-fulfilling prophecy for 
failure by undermining the certainty corporations need to invest for 
success. Moreover, third party reviews defeat the democratic process 
envisioned and required under the Administrative Procedures Act. We 
believe the Agency conducted an extensive, inclusive and effective 
rulemaking process. Those who disagree have already sought to 
legitimately express their concern through the judicial process. 
Anointing a group technically trained individuals to second-guess the 
Agency's rulemaking process, disconnected from the transparency and 
public participation required under the Administrative Procedures Act, 
is undermining to this regulation in particular and to the rulemaking 
process in general.
Reformulated Gasoline, MTBE, Ethanol and the Oxygen Mandate
    Our region has much at stake in the debate over RFG, MTBE and 
ethanol. Seven of our eight States have or are participating in the 
Federal RFG program. The use of RFG in the Northeast has provided 
substantial reductions in smog forming emissions and has dramatically 
reduced emissions of benzene and other known human carcinogens found in 
vehicle exhaust. However, the unique characteristics of MTBE pose 
unacceptable risks to our region's potable groundwater. Groundwater 
testing conducted throughout the northeast has detected low levels of 
MTBE in roughly 15 percent of the drinking water tested. Nearly 1 
percent of samples tested contained MTBE at or near State drinking 
water standards. MTBE's unpleasant taste and odor at higher 
concentrations and the frequency of MTBE detections poses a 
disproportionate and unacceptable threat to our region's drinking 
water.
    The challenge facing us all is to mitigate the environmental and 
economic harms caused by MTBE contamination without sacrificing the 
environmental and public health benefits provided by RFG and without 
undermining a reliable supply of low-cost gasoline. Unfortunately, the 
law as currently written prevents both EPA and the States from 
effectively facing this challenge. The oxygen standard leaves States to 
choose between the ``rock'' of MTBE contamination and the ``hard 
place'' of a summertime ethanol mandate that will result in either 
environmental backsliding, gasoline price increases or a combination of 
both.
    It is simply not possible to protect air quality, water quality and 
ensure gasoline price stability unless the oxygen mandate is lifted or, 
at a minimum, modified to require EPA to waive this requirement upon 
State request. Unless the oxygen requirement is lifted or waived, a 
substantial reduction in MTBE use creates a de facto summertime ethanol 
mandate. While ethanol usage is far preferable to MTBE from a 
groundwater perspective and promotion of ethanol can further a host of 
energy, agricultural, and environmental goals, an ethanol mandate in 
the summertime reformulated gasoline program is not sound environmental 
or economic policy for the Northeast. Due to its high volatility and 
resulting increase in evaporative emissions, the use of ethanol during 
the summertime ozone season may actually exacerbate our urban and 
regional smog problems, absent further protections.
    The tension between environmental quality and fuel costs posed by a 
de facto ethanol mandate in RFG is demonstrated by recent EPA and State 
actions. On March 15, 2001 Administrator Whitman announced that EPA was 
proposing to relax the environmental performance requirements for RFG 
containing ethanol out of concern for summertime price increases like 
those experienced in Chicago and Milwaukee last summer. The lead to the 
EPA press release reads:

  ``Administrator Christie Whitman today told the Speaker of the House 
    and members of the Illinois and Wisconsin congressional delegations 
    that EPA is very close to reaching a decision that should help 
    reduce the costs for blending ethanol into gasoline.''

    The release quotes Administrator Whitman stating,``. . . I recently 
directed EPA staff to finalize an upward adjustment to the VOC standard 
. . . which will provide greater flexibility than the .2 pounds that 
was originally proposed.'' I would like to submit a copy of the EPA 
statement to the hearing record (attachment 4).
    In plain terms, EPA is weakening the environmental performance of 
RFG blended with ethanol out of concern over price increases. If 
ethanol cannot be relied upon as a cost-effective means to satisfy the 
RFG requirements in the States where it is produced, we in the 
Northeast shudder at the potential cost implications and/or the 
weakening of environmental performance requirements that will result 
from imposition of a de facto ethanol mandate in our region.
    EPA's decision to incrementally weaken the RFG program to 
accommodate ethanol is even more unfortunate when one realizes that the 
Agency could provide far more robust consumer protection without 
weakening the environmental performance of RFG laws by granting State 
requests to waive the oxygen mandate altogether. On March 27, 2001 a 
diverse group of State environmental agencies, water quality agencies, 
oil companies, fuel suppliers, retailers, and refiners, wrote to 
Administrator Whitman to urge EPA to act quickly to approve 
California's petition for relief from the oxygen standard. I would like 
to submit a copy of this letter to the record (attachment 5). This 
broad support for lifting the oxygen mandate by rule or through statute 
remains the key to fixing the RFG program. I would like to thank 
Senator Inhofe for his efforts last year to advance legislation that 
enabled States to waive application of the oxygen standard. The 
Northeast States look forward to continuing to work with you and 
Chairman Smith in the full committee to pass such legislation this 
year.
    In the absence of Federal efforts, States are left to choose 
between continued MTBE contamination and an ill designed and unwise 
summertime ethanol mandate. The State of Connecticut is on the leading 
edge of this unfortunate choice having adopted a legislative ban on 
MTBE which takes effect in 2003. In a March 14, 2001 report from Arthur 
J. Rocque, Commissioner of the Connecticut Department of Environmental 
Protection (DEP), to the State Legislature, the Commissioner writes:

  ``The ban on MTBE effective in the year 2003 is not prudent for the 
    State of Connecticut and we recommend that the Environment 
    Committee consider changing the date of the ban. If this action is 
    not taken, Connecticut's position in the region as the first and 
    only State to ban MTBE while required under the Clean Air Act to 
    comply with the Federal reformulated gasoline program (RFG) will 
    likely result in one of several undesirable options. These options 
    could include: the delivery of special or non-compliant gasoline or 
    an increase in the price of gasoline conservatively estimated in 
    the range of 3-11 cents per gallon.''

    I would like to submit a full copy of the Connecticut Report for 
the record (attachment 6). There is no question that it is possible to 
dramatically increase domestic ethanol production. Similarly there is 
no question that it is possible to ship massive quantities of ethanol 
to the Northeast by barge, rail and truck. The question remains at what 
cost. While our region embraces the goal of increasing renewable fuels 
nationally and sees great promise in the development of a biomass 
ethanol industry in the Northeast, we are convinced that there are 
policy approaches to achieve these legitimate ends that are far 
preferable to mandating the use of ethanol in summertime RFG.
Conclusion
    In sum, the Northeast States are committed to working with Congress 
and the Administration to develop mutually supporting and sustainable 
air quality and energy policies. I'd like again to thank the 
subcommittee for the opportunity to testify here today.
                               __________
Statement of Bob Slaughter, General Counsel, National Petrochemical and 
                      Refiners Association (NPRA)
    Good morning, I am Bob Slaughter, General Counsel of the National 
Petrochemical and Refiners Association (NPRA) and I thank you for this 
opportunity to offer our views on national energy policy. NPRA 
represents almost 500 companies, including virtually all of the 
domestic refining capacity and most petrochemical manufacturers with 
processes similar to refiners.
    Our members supply consumers with a wide variety of products that 
are used daily in homes and businesses. These products include 
gasoline, diesel fuel, home heating oil, jet fuel, lubricants and the 
chemicals that serve as the ``building blocks'' in making products as 
diverse as plastics, clothing, medicine and computers. For many of our 
members, energy is both an input and output. Thus, discussion of the 
direction for our nation's energy policy is of vital and direct 
interest to them. NPRA's members are eager to be part of the dialog to 
identify ways to develop additional energy supplies, enhance national 
security and use energy more efficiently.
    In this testimony, we would like to:

      provide our perspective on the current energy situation 
and how it developed;
      highlight several key regulatory programs that have made, 
or will soon make, it more difficult to meet consumers' energy needs; 
and
      identify fundamental policy principles that we think 
should be used to shape new energy policy directions.

    In the past year or so, consumers have experienced supply and cost 
impacts from disruptions in heating oil, gasoline, natural gas and 
electricity markets. While weather, unforeseen equipment problems in 
the energy supply and distribution infrastructure, and changes in 
consumer demand patterns all can play a role in increasing costs, 
government policy also is a major determinant of whether adequate 
supplies of energy will be available at reasonable cost.
    It has been many years since we've had a serious national debate on 
energy policy. For much of the last decade or two, low prices and 
plentiful supplies have enabled consumers to take energy for granted. 
As a result, policies have often been pursued in a piecemeal fashion 
and without the necessary attention to their impact on our overall 
supply of energy and on the mix of individual energy supply sources. As 
a nation, we have not seen the ``big picture'' because we often have 
not examined the cumulative impact of regulatory programs nor have we 
fully balanced other important national goals such as environmental 
improvement with the need to maintain reliable domestic energy 
supplies. Too often, we have not acknowledged the difficult tradeoffs 
inherent in major policy decisions. We have, at times, even assumed 
that these tradeoffs do not exist. Although as electricity customers in 
California can attest, reality does eventually intrude.
    Thus, our recent energy situation has been characterized by: 1) 
significant concerns about heating oil prices in the Northeast last 
winter after a prolonged cold snap; 2) shortages of gasoline in the 
Midwest early last summer with prices that exceeded $2 per gallon; 3) 
natural gas prices that hit a record high this winter resulting in 
consumer heating bills estimated at triple last year's levels; and 4) 
rolling blackouts in California and very high electricity prices 
throughout the West with concerns being voiced about the ability to 
meet electricity demand this summer in cities such as New York and 
Chicago.
    Overall, our national energy policy, such as it has been, has 
resulted in the following:

      Domestic oil production is declining.
      Domestic natural gas production, while growing, still has 
not returned to where it was in the early 1970's.
      Imports of crude oil and refined petroleum products are 
increasing.
      Refining capacity is stretched to its limit and the 
prospects for expansion are limited by regulatory policies.
      The nation's energy delivery infrastructure is aging and 
increasingly overwhelmed by demand, with new construction and/or 
expansion made more difficult by regulatory impediments.

    According to the Energy Information Administration's (EIA) Annual 
Energy Outlook 2001, total U.S. energy consumption in 2000, by fuel 
source, was:

      39 percent oil
      23 percent natural gas
      22 percent coal
      16 percent nuclear, hydropower and non-hydro renewables

    While on the surface this may seem like a reasonably diverse mix of 
energy use, critical sectors of the economy are much more heavily 
reliant on a particular energy source.
    For example, barring unforeseen technological advances, petroleum 
products will be needed to provide the vast majority of transportation 
fuels for at least the next decade or longer. EIA estimates that 
petroleum use for transportation will increase by 5.6 million barrels 
per day (MMB/D) between 1999 and 2020.
    However, domestic refiners are increasingly challenged in just 
meeting existing demand. Since 1983, the number of U.S. refineries has 
decreased from 231 to the 152 that are operating now. While total 
refining capacity has remained relatively stable throughout this 
period, demand has increased dramatically. Thus, for a substantial 
period of the last year, refineries were running at or near their 
operational maximum. The overall U.S. refinery utilization rate peaked 
at 97 percent last summer but was as high as 94 percent in December 
(based on EIA data). As the attached graph from the recent National 
Petroleum Council (NPC) study (``U.S. Petroleum Refining: Assuring the 
Adequacy and Affordability of Cleaner Fuels'') shows, U.S. demand for 
petroleum products exceeds domestic refining capacity, hence the growth 
in refined petroleum product imports (see attachment 1).
    Due to both financial and regulatory constraints, it is rather 
unlikely that new refineries will be constructed in the United States. 
Indeed, there has been no new refinery built in about 20 years. Rates 
of return for refineries have averaged about 5 percent in the last 
decade, roughly equivalent to the return from a passbook savings 
account--but with much greater risk. In the same period, refiners were 
required to make substantial capital investments to meet environmental 
requirements--investments that the NPC estimated were greater than the 
book value of the refineries themselves.
    Since there are few currently viable substitutes for petroleum-
based transportation fuels, the emphasis in the environmental arena has 
been on reducing emissions and making petroleum products cleaner 
burning. Since the Clean Air Act Amendments of 1990, refiners have had 
to:

      reduce the volatility of gasoline (as measured by its 
RVP);
      introduce oxygenated fuels in carbon monoxide 
nonattainment areas;
      reduce on-highway diesel fuel sulfur levels;
      introduce Federal reformulated gasoline in 1995 with a 
second phase requiring even more stringent emission reductions in 2000.

    And, refiners face even more challenges ahead. As this chart 
demonstrates (see attachment 2), an avalanche of new environmental 
requirements faces refiners--most of which fall within the same narrow 
time period for implementation. While I will address a couple of these 
programs later, the investment requirements that refiners face will be 
substantial and may raise questions about their continued viability. 
NPRA estimates that some $20 billion must be spent over the next decade 
to comply with newly issued or anticipated gasoline and diesel fuel 
requirements. The recent closure of one Midwest refinery is a reminder 
that we cannot assume that all existing refineries will continue to 
operate.
    Thus, for domestic refiners to maintain or grow capacity, 
expansions must be made at existing sites. The alternative is to meet 
increased demand with increased imports of petroleum products. 
Unfortunately, EPA's permitting programs and the retroactive 
reinterpretation of its rules has made expansion of existing capacity 
an even more formidable challenge. I will discuss this in more detail 
later. Further, the product distribution structure is already severely 
challenged, even without new fuel requirements. This chart (attachment 
3) was prepared by ExxonMobil and identifies current fuel requirements 
within different regions of the United States. A complicating factor in 
recent years has been the addition of area-specific and State 
requirements (so-called ``boutique'' fuels) to the Federal programs 
already in place. As you can see from this map, more than 16 categories 
of gasoline are represented (14 shown in color on the map plus 
conventional gasoline meeting Northern and Southern volatility 
requirements) . Assuming three grades (regular, midgrade and premium) 
of each type of gasoline, there are almost 50 distinct gasolines 
represented on this chart. That is before any new requirements are 
considered. Pipelines and fuel terminal operators struggle to keep all 
these grades separate. In the future, they could be faced with the need 
for additional segregations and new storage tanks to maintain 
compliance and fuel integrity. Yet, they, too are faced with additional 
constraints on their operations and, like refiners, find it difficult 
to expand their facilities. Recent experience with the Longhorn 
pipeline is an example of new constraints that pipelines face since 
Longhorn had to commit to not carrying fuels containing MTBE in order 
to gain permits and the necessary approvals.
    The proliferation of these many different requirements has led to 
increased volatility in gasoline markets and to reduced flexibility in 
shifting available supplies to areas that need fuel the most. As we saw 
in the Midwest last summer and California previously, differing fuel 
specifications can severely limit the ability to move supplies to areas 
that are short.
    When demand exceeds supply, market economics operate so that price 
becomes the allocation mechanism for any available supplies, hence the 
type of price spikes seen last summer in Chicago. The former chairman 
of the Federal Trade Commission (FTC), Robert Pitofsky, in reference to 
the Commission's report on Midwest gasoline prices, noted that ``while 
there were many short-term causes of the increases, the underlying lack 
of U.S. refinery capacity threatens similar price spikes in the future 
in the Midwest and elsewhere.''
    Looking ahead, fundamental changes in energy markets have increased 
the potential for supply constraints and price volatility. Due to these 
changes, it is even more important that future government policies be 
fully evaluated to determine and understand the impact on energy 
supplies. However, first we must deal with several ongoing initiatives 
that we believe pose threats to future energy supplies.
    The first is EPA's New Source Review enforcement program, which, 
for refiners, began in 1999. Let me be clear, the refining industry is 
not arguing against enforcement, rather we are asking for fairness in 
ensuring compliance by all. EPA has been engaging in retroactive 
reinterpretation of its permitting rules--what we see as regulation 
through enforcement rather than through a public rulemaking process. In 
doing this, EPA has focused on two energy providers that already face 
increasing difficulties in meeting consumers' energy needs--utilities 
and domestic refineries. In short, EPA is seeking to fine those who 
acted in good faith but who failed to comprehend the incomprehensible--
EPA's reinterpretation of the rules after the fact.
    EPA has reinterpreted its rules covering modifications to existing 
facilities long after those modifications have been completed. 
Companies have been faced with potential fines in the millions and 
pressed to make binding commitments for installing specific, additional 
emissions reduction technologies at their facilities. Three have 
settled with EPA simply in order to get on with their business, others 
are talking with EPA and others have already begun or are considering 
legal challenges to EPA's actions. EPA's enforcement reinterpretations 
center on two key elements of the NSR permitting requirements, 1) the 
provisions allowing exemptions for routine maintenance, repair and 
replacement activities, and 2) calculation of whether an action 
resulted in significant emissions increases using a discredited method 
for determining emissions based on ``potential'' rather than actual 
emissions.
    Senators Inhofe and Breaux have recently sent a letter to Vice 
President Cheney questioning EPA's approach. We agree with their 
concern that unless addressed,``. . . EPA's implementation of NSR 
permitting requirements will continue to thwart the nation's ability to 
maintain and expand refinery capacity to meet fuel requirements.'' We 
also agree that ``EPA's NSR interpretations have created great 
uncertainty as to whether projects long recognized to be excluded from 
NSR permitting can be undertaken in the coming months to assure 
adequate and reliable energy supplies.''
    Also as noted earlier, refiners face an avalanche of new regulatory 
requirements that will require many facility modifications. The effect 
of the uncertainties surrounding EPA's NSR interpretations will be to 
slow down future modifications necessary to produce complying fuels and 
to discourage expansions of refinery capacity. Remember, that the 
industry's ability to meet consumers' demands for fuels today in part 
depends on these modifications now questioned retroactively by EPA. If 
refiners had not acted--and they acted in compliance with 
interpretations of the law and regulations at the time--we would be 
worse off today and quite likely be facing reduced fuel supplies and 
higher costs. Unless capacity can be further expanded to meet 
increasing demand, domestic fuel supplies will grow tighter and markets 
more volatile.
    NPRA hopes that this committee will give thorough review of EPA's 
NSR program implementation a high priority. Further, it may well be 
time to reassess this program. Of course, for the sake of equity, 
consideration of future action will need to consider those who have 
settled with EPA so as not to place them at a disadvantage.
    Companies need greater certainty if they are to move forward. The 
current uncertainty threatens the implementation of key environmental 
programs such as the Tier II low sulfur gasoline program. This program 
begins in just a few years and will require numerous refinery 
modifications. Yet, because it is both difficult to determine when an 
NSR permit is needed and quite time-consuming to secure permits, the 
current state of the program may prevent the timely introduction of 
cleaner burning fuels.
    This is a key time not only to address the problems of the past, 
but also to consider improvements for the future. For example, 
flexibility in meeting requirements could be enhanced by greater use of 
market-based incentives in permitting programs. The effectiveness of 
market-based incentives has been demonstrated in the successful sulfur 
dioxide trading program implemented under the acid rain provisions of 
the Clean Air Act. Administrator Whitman, in her recent letter issuing 
EPA's fiscal year 2000 Annual Report, highlighted the importance of 
these types of incentives.
    Ideas such as cap and trade, averaging and ``bubbling'' (setting an 
emissions target for a facility, not for individual processes or pieces 
of equipment) should be explored as ways to provide assurances of 
environmental improvements without further constraining refiners' 
ability to operate and their ability to produce needed fuel supplies. 
The bottom line is that fuel supplies will be further strained unless a 
more flexible, efficient and streamlined permitting process can be 
developed. NPRA urges the Administration to review EPA's existing 
enforcement initiative and to include improvements in the permitting 
process as essential elements of national energy policy.
    One need only look to California to see some of the impediments 
that overly complex and confusing permitting processes can play in 
impeding the development of energy supplies. We understand that, in 
response to the electricity shortages, Governor Davis has ordered an 
expedited process to be applied to new electric generation capacity. 
Another EPA initiative that could severely jeopardize fuel supplies and 
economic growth is the ultra-low sulfur diesel program that was quickly 
adopted in the waning days of the previous Administration. The refining 
industry is committed to lowering sulfur in diesel fuel, having offered 
its own proposal to reduce sulfur by 90 percent from today's levels. 
However, EPA adopted a less cost-effective program by choosing a 
reduction of 97 percent and an effective date of 2006. As a result, 
future diesel fuel supplies are in jeopardy and vital parts of the 
economy are at risk. Most goods in the United States are shipped by 
truck, including agricultural products.
    Regarding the threat to fuel supplies, Charles River Associates (in 
a study commissioned by API) determined that the EPA proposal would 
result in an average supply shortfall of 12 percent versus current 
supplies. However, that is a national average and regional shortfalls 
could be greater--Charles River Associates estimates that the Rocky 
Mountain region could face a shortfall of 37 percent.
    And, to make matters more difficult, the program's effective date 
forces refiners to make major investments in the same timeframe that 
they must modify refineries to produce low sulfur gasoline. These 
overlapping timeframes raise serious questions about the availability 
of the engineering and construction resources needed to tackle both 
programs simultaneously. As a result, the previously mentioned National 
Petroleum Council study cautioned that``. . . a significant risk of 
inadequate supplies will result.''
    During the course of the rulemaking, the agricultural community, 
food marketers, trucking industry and even the Department of Defense 
raised concerns about diesel fuel availability and cost. The nation's 
largest producer of truck engines also questioned EPA's analysis of the 
rule, indicating that its estimate of the potential engine costs (using 
a combination of as yet unproven technologies) to meet the heavy duty 
truck standards is some six times higher than EPA's.
    NPRA tried many times to convince EPA to study this rule further 
before deciding on a standard that could mortgage future fuel supplies. 
We urged that they take the time to fully appreciate the energy supply 
impacts as well as the environmental benefits through an independent 
analysis by a third party such as the National Academy of Sciences. We 
would continue to welcome such an assessment. Meanwhile, we are 
pursuing every avenue, including litigation, to focus attention on and 
fix a rule that we think will have severe supply consequences. Simply 
put, we are very concerned about the current timeframe for this rule 
and think it should be adjusted. Such a step would correct the supply 
problems associated in this rule without undercutting its environmental 
benefits.
    A third area of concern for future energy supplies relates to 
efforts to reduce the use of MTBE. The Clean Air Act Amendments of 1990 
require the use of oxygenates, such as MTBE in Federal reformulated 
gasoline (RFG) to ensure that an average of 2 percent oxygen by weight 
is maintained in this fuel. Oxygenates, like MTBE and ethanol, can 
assist in the production of cleaner burning fuels. They help expand the 
overall amount of gasoline supplies, add octane for better fuel 
performance and help reduce the use of other blending components that 
may make it more difficult to achieve lower emissions. However, 
oxygenates also present tradeoffs. MTBE can move farther and faster 
through the soil and into groundwater supplies should there be a spill 
or leak. Ethanol requires the use of lower volatility blendstocks to 
compensate for the increase in evaporative emissions otherwise 
associated with ethanol fuels. Since ethanol rapidly separates out from 
the gasoline blend when even small amounts of water are present, 
ethanol blends generally cannot be shipped through pipelines, requiring 
special blending equipment and additional storage tanks at fuel 
terminals.
    Several States, including California, New York and Connecticut, 
have set deadlines for ending the use of MTBE in gasoline due to 
groundwater concerns. However, MTBE does currently play a significant 
role in supplementing gasoline supplies. MTBE represents about 4 
percent of the nation's gasoline supply on average, and even more in 
RFG areas on the coasts--11 percent. Thus, we must fully understand the 
implications of actions to reduce its use on gasoline supplies.
    NPRA supports strong underground tank enforcement and prompt clean-
up of water already affected by MTBE. Further, if MTBE use is reduced, 
the 2 percent RFG oxygen mandate should be eliminated, while the air 
toxics reductions achieved in RFG with the help of oxygenate blending 
are maintained. Renewables, such as ethanol, can help expand our fuel 
supplies, but, given the logistics constraints on their shipment, they 
must be allowed to be used where they make the most sense. Ethanol will 
continue to grow in importance as a source of fuel octane, but forcing 
its use through mandates will increase consumers' fuel costs.
    In closing, let me address the question of what should guide future 
energy policy. We suggest the following as key guidelines to follow:

    1. Don't pick a favorite. The nation is best served by a diverse 
portfolio of energy supplies. Natural gas is a good example of a fuel 
whose consumption pattern has been changed by government policy. A few 
of us still remember the 1970's when concerns about natural gas 
supplies led, for a time, to prohibition of its use for electricity 
generation. More plentiful supplies in much of the intervening period 
have generally erased that memory. Yet, environmental policy objectives 
have led to increased natural gas use for electricity generation. This 
trend seems likely to continue absent a serious commitment to improving 
clean coal technology or a change in attitude regarding nuclear power. 
Indeed, natural gas use for electricity generation (excluding 
cogeneration) is projected by EIA to triple over the next two decades. 
EIA expects that 89 percent of new electricity generation built between 
now and 2020 will be gas-fired. Absent additional natural gas supplies 
in the United States (and Canada) and additional pipeline capacity to 
transport these supplies, questions arise regarding the continued 
availability of natural gas and natural gas liquids as reliable and 
affordable petrochemical feedstocks that allow domestic petrochemical 
producers to be competitive in global markets.
    2. Provide access. Many areas in the United States have been placed 
``off limits'' for oil and gas exploration and development. We 
understand concerns for protecting the environment of these areas. 
However, technology is available to minimize the development 
``footprint'' and to help prevent adverse impacts. If we are to enhance 
domestic supplies, access is needed to promising areas for domestic oil 
and gas development.
    3. Encourage new technologies to revitalize traditional energy 
sources. For example, domestic coal reserves are considerable and coal 
could continue to play a key role in our energy equation if ``clean 
coal'' research and development was given greater emphasis and 
encouragement. Contributions made in one energy sector can have 
important benefits in others. For instance, coal could make an 
important contribution in powering future electricity generation in an 
environmentally acceptable manner and thus allow natural gas (and 
natural gas liquids) to provide reliable feedstocks for petrochemicals 
where there are few, if any, substitutes.
    4. Don't forget the full energy supply chain. While a focus on 
``upstream'' issues such as improved access to promising acreage is 
important in order to expand the ``input'' side, oil and gas are raw 
materials that must be converted into consumer products and delivered 
to end users. As noted earlier, there is a critical need to remove 
existing impediments to expanding refinery capacity as well as to 
continue to seek policy enhancements that can maintain, or increase, 
domestic supplies. Similarly, emphasis should be placed on improving 
our domestic product distribution infrastructure.
    5. Strike a sensible balance. As we know from our own lives, 
decisions involve tradeoffs. We all could probably agree that we should 
work to preserve the dramatic environmental improvements that have been 
made in the last few decades. However, we all also can agree that 
Americans would like to continue to improve their lifestyles and 
encourage further economic growth. In order to honor all these goals, 
we must first fully understand the implications of policy choices and 
then carefully weigh the tradeoffs inherent in those choices. Recently, 
we have not focused on our nation's energy needs as much as we should. 
We need to strike a better balance between environmental goals and our 
need for reliable energy supplies. These need not be incompatible 
goals, but we do need to work on the right balance. There are policy 
tools that can help us make more informed decisions and more fully 
understand the tradeoffs we face. Thus, you might consider the 
development of energy impact analyses for major rulemakings. Similarly, 
periodic review of the cumulative effects of regulations could help us 
understand whether the balance is shifting too far in one direction or 
the other.
    6. Pursue improvements in how regulations are made. Lessons have 
been learned about how to develop more effective, and more efficient, 
regulations. It is time to put those lessons to work for us in 
developing national energy policy. We should set performance goals 
rather than mandating the use of specific technologies or setting 
product specifications. The command and control approach stifles 
innovation. We should avoid overlapping leadtimes for regulatory 
programs whenever possible. Costs will be greater for programs that 
must compete in the same time period for necessary goods and services 
to ensure compliance. We should enhance flexibility through market-
based mechanisms and incentives. Emissions credit trading has been 
demonstrated to lower compliance costs. Incentives could help encourage 
earlier introduction of cleaner fuels without jeopardizing refiners' 
viability through unrealistically stringent mandates. We must rely on 
the best information available to inform our policy choices. Use of 
sound science and cost-benefit analyses would help us better understand 
the tradeoffs in policy decisions.

    Finally, while I have concentrated on how to enhance energy 
supplies today, we cannot forget about the demand side of the equation. 
Improving the efficiency of energy use should also play a vital role in 
helping us meet our energy needs. For example, lighter weight materials 
can assist in improving vehicle fuel economy. Incentives for the 
purchase of higher fuel economy vehicles might also be considered. 
Improvements in our roads to improve traffic flow and reduce congestion 
can also help conserve our energy resources.
    Thank you again for the opportunity to share our views. I look 
forward to responding to your questions.
                               __________
  Statement of Carlos J. Porras, Communities for a Better Environment
    Honorable members of the Senate Committee on Environment and Public 
Works: Thank you for this opportunity to address the committee. My name 
is Carlos J. Porras. I am the Executive Director of Communities for a 
Better Environment (CBE), a 23-year-old environmental health and 
justice organization with over 20,000 members throughout California. 
CBE works directly with people who live in some of the most polluted 
urban areas of California, many of whom live in the shadows of oil 
refineries, to identify feasible, cost-effective means to reduce 
pollution and improve safety while still retaining jobs. Since the time 
it was signed into law by President Richard Nixon, to the time it was 
amended by President George Bush, Sr., the Federal Clean Air Act has 
enjoyed bi-partisan support. Implementation and enforcement of the Act 
has brought the nation slowly and gradually closer to the day when all 
Americans will breathe healthful air, while also allowing the longest 
sustained economic expansion in the nation's history. The Clean Air Act 
displays a delicate balance of environmental and economic interests 
that has served the nation well.
1. Southeast Los Angeles: A Toxic Hotspot
    Some of CBE's work has focused in Southern California on the 
communities of Southeast Los Angeles County (SELA). SELA is a 
predominantly Latino community that is also home to the highest 
concentration of toxic chemical generating facilities in the nation. 
CBE's research has uncovered a strong correlation between the location 
of facilities listed on the toxic release inventory (TRI) and the 
percentage of people of color living in the area.\1\  This correlation 
has been called ``environmental racism,'' or ``environmental 
injustice.'' Additionally the closer one looks at our communities the 
more one recognizes the congestion caused by multiple toxic facilities, 
this is a phenomenon called ``toxic hot spots.''
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     \1\CBE Report, ``Holding Our Breath.''
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2. Powerine/CENCO: A Case Study in the Importance of the Clean Air Act 
        New Source Review Requirements
    I came to work in the environmental arena not in as a back-packer 
or hiker, but out of necessity from being a labor union president whose 
members were subjected to frequent accidents, explosions, and releases 
from one of the worst refineries in California--Powerine. After a 
struggle of many years, Powerine ceased operating in 1995. Now a new 
company called CENCO seeks to reopen the refinery without first 
installing the Best Available Control Technology (BACT), in plain 
violation of the Federal Clean Air Act.
    Santa Fe Springs, the home of the Powerine Refinery, is located in 
the southern portion of Los Angeles County, 12 miles from downtown Los 
Angeles. The area of Santa Fe Springs is slightly more than 9 square 
miles with a resident population of 16,400 and a daytime employment 
population of approximately 80,000.\2\  The ethnic composition of city 
residents is 67 percent Latino.
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     \2\City of Santa Fe Springs, Discovering Santa Fe Springs, 
California, Undated Pamphlet.
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    Powerine was identified by the South Coast Air Quality Management 
District (``SCAQMD'' or ``Air District'') as having the worst record 
for air quality violations and public complaints of any refinery in the 
South Coast Air Basin.\3\  The SCAQMD levied hundreds of thousands of 
dollars of fines on Powerine for various violations of the Health and 
Safety code, including criminal violations, and numerous toxic chemical 
releases that have endangered the health and safety of area workers and 
residents.\4\  The Santa Fe springs Fire Department Chief has stated 
that ``The Powerine Refinery generates and abnormally high number of 
releases [[of toxic gases].''\5\ 
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    \3\SCAQMD statement (October 1989).
     \4\Los Angeles Time (Mar. 23, 1989); SCAQMD data bases for Jan.1, 
1990--April 7, 1994.
     \5\Los Angeles Times (Oct. 5, 1989).
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    Powerine is among a small handful of refineries in the State still 
using the deadly chemical hydrofluoric acid (HF), which was used as a 
chemical warfare weapon during World War One. A May 1989 Los Angeles 
Times article revealed that Powerine was not adequately equipped to 
handle a major HF leak. An accidental release of HF from Powerine could 
kill hundreds, or even thousands, of area workers and residents.
    In addition to accidental releases, Powerine was responsible for 
significant ongoing emissions, including releases of such highly toxic 
and/or carcinogenic chemicals as lead, mercury, benzene, cadmium, 
xylene, toluene, and a long list of other toxic chemicals.\6\  Indeed, 
despite Powerine's classification as a ``small'' refinery, it poses 
almost twice as great a cancer risk to the surrounding community than 
does the Chevron Richmond refinery, one of the largest refineries in 
the nation,\7\  with a throughput approximately five times larger than 
Powerine's.
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     \6\Draft Environmental Impact Report (DEIR) Powerine Oil Company 
Reformulated Fuels Project (Feb. 16, 1994), p. 4-14.
     \7\Powerine existing cancer risk level is 14.7 per million. DEIR 
p. 3-12. Chevron Richmond existing cancer risk level is 8.4 per 
million. DEIR for Chevron Richmond Reformulated Fuels Project p. 
IV.D.16.
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    Powerine was also responsible for dumping massive quantities (over 
400,000 tons) of ``criteria'' pollutants into the air each year, such 
as nitrogen oxides (NOx), sulfur oxides (SOx), particulate matter 
(PM10), and volatile organic compounds (VOCs).\8\  NOx and 
VOCs form ozone, which is known to cause permanent lung scarring, 
asthma and emphysema, among other problems. PM10 has been 
labeled one of the most serious public health threats, causing 
respiratory illnesses such as asthma and emphysema,\9\  and can carry 
cancer-causing chemicals deep into the lungs. VOCs are not only ozone-
precursors, but many are also highly toxic chemicals in their own 
right. Despite its small'' size, Powerine was ranked the ninth worst 
emitter of PM10 in the entire four-county South Coast Air 
District, and among the top 20 worst for ROCs and SOx.\10\  For 1991 
and 1992, Powerine was the twelfth worst overall polluter in the 
basin.\11\  Air samples taken downwind from Powerine reveal elevated 
levels of air contaminants.\12\ 
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    \8\SCAQMD, ``The Top 20 Polluters for 1991 and 1992'' (June 30, 
1993).
     \9\Draft Final Socio-Economic Report for 1991 Air Quality 
Management Plan, SCAQMD, p. 4-1 (May 1991).
     \10\Los Angeles Times (Jan. 9, 1992).
     \11\SCAQMD, ``The Top 20 Polluters for 1991 and 1992'' (Jun.30, 
1993).
     \12\DEIR p. 3-11.
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    For decades, the predominantly Latino community of Santa Fe Springs 
and the neighboring areas which live downwind of the refinery, have 
borne the brunt of Powerine's toxic pollution. The clustering of 
environmental hazards in communities of color has been deemed 
``environmental racism.''
    My involvement with Powerine stems from the fact that the refinery 
is located directly upwind from the city maintenance yard where 
approximately 75 members of the City Employees' Association report to 
work. I was the President of that union for several years, during which 
time employees voiced concern over unidentified noxious odors, 
accidental fires, ominous clouds, and paint eroding from cars parked 
near the refinery. These concerns, coupled with the cancer-related 
deaths of several yard employees prompted the Employees Association to 
take action to protect the health and safety of yard employees 
threatened by the Powerine facility.
    Between February 15, 1989 and October 31, 1990 there were 46 
separate complaint dates listed by the Fire Department. These included 
complaints about black smoke, gas oil, and rotten egg odors, 
SO2 releases, and a release of deadly hydrogen fluoride gas. 
On March 15, 1989, Powerine and three company officials were fined 
$177,750 for knowingly releasing pollutants into the air between 
December 18, 1987 and January 2, 1989. Thirty-eight different charges 
were originally filed against Powerine for these releases. The fine was 
among the largest ever levied. Deputy District Attorney Fred Macksoud 
said that some of Powerine's emission violations remained uncorrected 
for as long as a year. ``This case was an aggravated case,'' Macksoud 
said, ``We put a heavy hand on these people so they'll learn not to 
violate clean air rules.'' In addition to fines of the company, three 
company officials were personally fined for their failures in their 
responsibilities to oversee faulty equipment responsible for 
releases.\13\ 
---------------------------------------------------------------------------
    \13\L.A. Times, (March 23, 1989), attached.
---------------------------------------------------------------------------
    On January 7, 1992, Santa Fe Springs fire fighters were awakened by 
an explosion at the Powerine refinery. The three alarm fire took nearly 
4 hours to knock down. The explosion and fire were caused by a propane 
leak that was ignited by a nearby heater. One worker was hit in the 
face with a piece of flying equipment and was hospitalized with an eye 
injury. Fire hydrant water supply was too low because water pressure 
had not been increased by Powerine as required. (Santa Fe Springs Fire 
Department Incident Report No. 200601, January 7, 1992; Daily News, 
January 8, 1992).
    In 1993 Powerine settled a personal injury lawsuit with Patty 
Guthrie. She was working across the street from Powerine when a 
vaporized acid cloud from Powerine was accidentally released onto Ms. 
Gutherie's worksite (Johnson Trucking Co.). Powerine's incident report 
confirmed that the release was a result of a breakdown of a sulfur 
unit. While Powerine did not comment on the case, the woman was awarded 
$850,000. She alleged that she suffered from traumatic emphysema, which 
allows a person to inhale, but not to exhale. Her attorney commented 
``Her life has been cut short and she's going to have to be provided 
for.'' (Daily News, Jan. 9, 1993) Finally, after decades of such 
problems, the Powerine refinery ceased operations in 1995.
3. CENCO Attempts to Resurrect the Powerine Refinery
    This history of accidents is highly relevant to the matter before 
the committee today. A new company, owned by televangelist Pat 
Robertson's Charitable Trust, has proposed to reopen the Powerine 
Refinery. CBE and the United States Environmental Protection Agency 
have sued CENCO in Federal District Court to require the company to 
comply with requirements of the Clean Air Act.
    The story of the Powerine Refinery points out the importance of the 
Clean Air Act. It was years of inadequate enforcement of the Act and 
repeated violations of the Act that resulted in Powerine's long line of 
accidents and releases, and ultimately to the closure of the facility. 
If the South Coast Air District and EPA had aggressively enforced the 
requirements of the Act, Powerine could have been made to run cleaner, 
more safely, and possibly more profitably.
    The proposed re-opening of the refinery by CENCO points out the 
importance of enforcing the Clean Air Act's New Source Review 
Requirements (``NSR'')--the very provisions that have been put into 
question. The Act requires new facilities, major expansions, and 
facilities proposed for re-opening after long closures, to install Best 
Available Control Technology (BACT), through a process call New Source 
Review. The importance of the New Source Review requirement could not 
be clearer than in the case of Powerine. It is obvious that prior to 
opening, CENCO must upgrade the refinery to incorporate the Best 
Available Control Technology. This is the only way to ensure that when 
and if the refinery reopens, it will not again become the worst 
refinery in the State. It is also important for CENCO to comply with 
other New Source Review requirements such as the analysis of safer 
alternative technologies, such as the use of sulfuric acid rather than 
hydrofluoric acid, and the consideration of alternative locations 
farther from population centers. If this body weakens those New Source 
requirements, we can only expect a return to Powerine's days of 
accidents, explosions, and toxic chemical releases.
    The New Source Review requirement was one of the most important 
compromises in the Clean Air Act. Rather than requiring all existing 
facilities to install modern technology immediately, NSR requires 
installation of Best Available Control Technology only for new 
construction, major expansions, or reopening of facilities after 
permanent closure. Congress believed that the NSR process would result 
in the gradual modernization of all of the nation's major polluting 
facilities as those facilities were expanded and rebuilt, when such 
retooling is most cost-effective. If this body weakens this 
requirement, then we can expect a future of continued operation of 
obsolete, polluting, and dangerous refineries and other heavy 
industries.
4. Refineries are the No. 1 stationary source of air pollution
    The story of Powerine and CENCO is by no means unique. A Report 
released by CBE and the Contra Costa Building and Construction Trades 
Council just this week concludes that the incidence of serious refinery 
accidents is on the rise in recent years in at least one California 
County.\14\  The Report recommends stricter enforcement of existing 
laws and adoption of new community and worker safeguards.
---------------------------------------------------------------------------
     \14\CBE and Contra Costa Building and Construction Trades Council 
Report, ``No Accident!'' (April 2001).
---------------------------------------------------------------------------
    The United States' 164 Petroleum Refineries are the single largest 
stationary sources of air pollution in the country. In 1998 there were 
27 refineries in Texas, 24 in California, 20 in Louisiana, 6 in 
Pennsylvania, 6 in New Jersey, and 6 in Illinois. Most of these 
refineries are decades old, and some are over a century old. 
Modernizing these facilities is a key to achieving clean air throughout 
the nation.
    Refineries are the single largest stationary source of volatile 
organic compounds (VOCs), the primary precursor of urban smog--
releasing over 246,069 tons of VOCs each year. Refineries are the 
fourth largest industrial source of toxic emissions, releasing over 58 
million pounds per year. Refineries are the single largest source of 
benzene emissions--a chemical known to cause cancer in humans--
releasing over 2.9 million pounds per year. Refineries also release a 
wide variety of other toxic chemicals, including MTBE, toluene (7 
million pounds), xylenes (4.2 million pounds), methyl ethyl ketone (4.1 
million pounds), among numerous others.\15\  Refineries are the second 
largest industrial source of sulfur dioxide emissions, which create 
acid rain, the third largest industrial source of nitrogen oxides, 
which contribute to smog, and the fourth largest industrial source of 
particulate matter emissions.\16\ 
---------------------------------------------------------------------------
    \15\``Oil Refineries Fail to Report Millions of Ponds of Harmful 
Emissions,'' U.S. House of Representatives, Minority Staff, Special 
Investigations Division, Committee on Government Reform, Prepared for 
Rep. Henry Waxman. (Nov. 10, 1999) (Hereinafter, ``Waxman Report'') pp. 
i, 3.
     \16\Waxman Report, p. 4.
---------------------------------------------------------------------------
    In addition to these reported emissions, government reports 
estimate that 80 million pounds of refinery VOC emissions go unreported 
each year, including 15 million pounds of toxic pollutants and 1 
million pounds of benzene.\17\  These inaccurately reported emissions 
point out the need for continuous emissions monitors (CEMs) at 
refineries and other major sources of pollution. CEMs are clearly 
provided for in the Clean Air Act, but the requirement has not yet been 
enforced adequately.
---------------------------------------------------------------------------
     \17\Waxman Report, p. ii.
---------------------------------------------------------------------------
    A recent study demonstrates that non-smokers living downwind of 
refineries experience markedly decreased lung capacity.\18\  In 1995 
U.S. EPA estimated that 4.5 million persons living within 30 miles of 
oil refineries were exposed to benzene at concentrations that posed 
cancer risks higher than the Clean Air Act's acceptable risk threshold, 
and some experience benzene cancer risks as high as 180 times the 
acceptable threshold.\19\  Numerous studies show that communities 
burdened by hazardous wastes produced by these facilities and others 
are disproportionately often communities of color.\20\ 
---------------------------------------------------------------------------
    \18\Detels, et al., American Journal of Public Health (Mar. 1991).
     \19\EPA, ``Regulatory Impact Assessment for the Petroleum Refinery 
NESHAP: Revised Draft for Promulgation,'' 211-212 (July 1995).
     \20\See, e.g., ``Toxic Wastes and Race,'' Civil Rights Commission 
of the United Church of Christ. (1987)
---------------------------------------------------------------------------
5. There are Cost-Effective Means to Drastically Reduce Refinery 
        Pollution While Saving or Even Creating New Jobs
    More than half of refinery VOCs come from ``fugitive emissions''--
leaks from refinery valves, storage tanks, flanges, seals, 
connectors.\21\  As the Waxman report concludes, many of these leaks 
can be sealed by ``simply tightening a valve with a wrench.''\22\  The 
Report further concludes that eliminating such leaks would be 
equivalent to removing the VOC exhaust emissions from five million new 
cars.\22\ Indeed, the Clean Air Act itself requires such leak detection 
and reporting.\23\ 
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    \21\Waxman Report at p. 3.
     \22\Waxman Report, p. iii.
     \23\40 CFR 60.482.
---------------------------------------------------------------------------
    Through Clean Air Act enforcement actions, CBE has reached 
agreements with numerous refineries throughout California to install 
technologies to reduce VOC and other emissions. For example, CBE's 
collaboration with the International Longshore and Warehouse Workers 
Union indicated that several oil companies in Los Angeles had failed to 
install marine vapor recovery equipment required by the Clean Air Act 
to capture toxic gases released during oil tanker loading. The 
equipment is similar to vapor recovery nozzles common at gas stations. 
Through a series of enforcement actions the companies, (Ultramar, GATX, 
and Chevron), agreed to use the required equipment, reducing VOC 
emissions by over 95 percent. Some of the companies agreed to reduce 
VOC emissions further by installing ``leakless'' bellows valves on 
their refineries. Not only did the companies remain in operation, but 
they have enjoyed some of their most profitable periods in the time 
since the agreements were reached. In fact, some of the companies 
report that the newer leakless technology has reduced their operating 
cost since it reduces the amount of ongoing inspection and maintenance 
required.
    CBE has a history of identifying technologies that not only reduce 
pollution and increase safety, but also save money in the long run. For 
example, CBE worked with Chevron's Richmond, California refinery to 
conduct a pollution prevention audit that resulted in installation of 
technologies that reduced lead emissions by 97 percent, reduced nickel 
emissions by 86 percent, and reduced chromium emissions by 67 
percent.\24\  CBE reached an agreement with Unocal's Rodeo refinery, 
now owned by Tosco, to reduce its toxic air pollution by 143 tons per 
year (a 28 percent reduction) through installation of leakless valves 
and valve tightening. CBE has worked with numerous other companies to 
capture pollution that would otherwise have been released into the 
atmosphere and turn it into usable product. CBE worked with companies 
in the South San Francisco Bay Area, to identify technologies that 
reduced heavy metal discharge by over 90 percent, while saving enough 
money to pay for itself within 5 years.\25\  CBE's work recognizes that 
pollution is often wasted product. Pollution prevention can result in 
the recapture of marketable product that otherwise would have been lost 
to the environment.
---------------------------------------------------------------------------
     \24\31:8 Environment 45 (Oct. 1989)
     \25\CBE Report, ``Clean, Safe Jobs: A Sustainable Manufacturing 
Model.'' (1994)
---------------------------------------------------------------------------
    Contrary to popular belief, enforcement of strict environmental 
laws can have a positive impact on the economy. A Boston University 
study showed that strict air pollution regulations on Los Angeles area 
refineries actually had a positive impact on employment, probably due 
to the hiring of people to install and maintain abatement equipment. 
The study further found that productivity at refineries forced to 
install pollution control equipment was higher than at other similar 
refineries not subject to such regulation because the need to invest in 
pollution abatement equipment accelerated management decisions to 
invest in other more productive technology.\26\  Similarly, an MIT 
study showed ``a consistent and systematic positive correlation between 
stronger State environmentalism and stronger economic performance 
across four of the five indicators. States with stronger environmental 
standards tended to have higher growth in their gross State products, 
total employment, construction employment, and labor productivity than 
States that ranked lower environmentally.''\27\  These conclusions have 
lead some labor organizations, such as the Building and Construction 
Trades Union, to collaborate with CBE and other environmental groups 
with the understanding that environmental enforcement can mean more 
jobs building and operating pollution control equipment.
---------------------------------------------------------------------------
     \26\Berman and Bui, National Bureau of Economic Research (1998).
     \27\Meyer, ``Environmentalism and Economic Prosperity: An Update'' 
(Feb. 16, 1993).
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6. Conclusion
    On behalf of Communities for a Better Environment and its 20,000 
members, I urge this committee to leave the Act in tact, and ensure 
that future generations will enjoy a better environment. Recent 
research indicates a startling connection between environmental health 
and learning, concluding that children who live in high pollution areas 
have statistically lower test scores. Approximately 12 million children 
in this country suffer from learning, developmental or behavioral 
problems, and the number of learning disabled children enrolled in 
special education programs increased nearly 200 percent over the last 
20 years. Soaring rates of childhood asthma, especially among inner 
city youth, have been a particular concern. The resulting respiratory 
problems often diminish learning capacity and achievement. 
Increasingly, scientists and regulators alike are linking these adverse 
health effects among children to environmental pollution. With the 
health of our children at stake, it is clear that we must redouble our 
efforts to reduce harmful air pollution, not roll-back important 
protections that are critical to achieving healthful air quality.
    In particular, CBE recommends the following public policy actions:

    1. Toxic Use Reduction: Polluters should be encouraged to reduce 
the use of toxic chemicals and to replace such chemicals with non-toxic 
alternatives. The best way to reduce the release and disposal of such 
chemicals is to prevent their use in the first place.
    2. Pollution Prevention: Polluters should be required to prevent 
chemicals from entering the environment, rather than focusing resources 
on much more expensive efforts to remediate pollution after it has 
contaminated soil, air, or water.
    3. Precautionary Principle: The precautionary principle common in 
the medical field should be applied equally to the environmental field. 
Chemicals should be demonstrated to be safe prior to their introduction 
into the environment.
                                 ______

                                 

   ``The first steps toward accident prevention are identifying the 
   hazards and assessing the risks. Once information about chemical 
 hazards in the community is openly shared, industry, government, and 
  the community can work together toward reducing the risk to public 
                          health and safety.''
    ``The County recognizes that regulatory requirements alone will not 
guarantee public health and safety, and that the public is a key stake 
holder in chemical accident prevention, preparedness, and response at 
the local level. Preventing accidental releases of regulated substances 
is the shared responsibility of industry, government, and the public. 
The first steps toward accident prevention are identifying the hazards 
and assessing the risks. Once information about chemical hazards in the 
community is openly shared, industry, government, and the community can 
work together toward reducing the risk to public health and safety.''
    ``The success of a Safety Program is dependent upon the cooperation 
of industrial chemical and oil refining facilities within Contra Costa 
County. The public must be assured that measures necessary to prevent 
incidents are being implemented, including changes or actions required 
by the Department or the Stationary Source that are necessary to comply 
with this chapter.'' \1\
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     \1\Industrial Safety Ordinance, Ordinance No. 98-48, adopted by 
the Contra Costa Board of Supervisors, 1998.
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                           executive summary
    No Accident! presents the results of an analysis of County records 
of industrial hazardous materials incidents and accidents. In 1999 and 
2000, fires, explosions and toxic releases continued to kill and injure 
workers and sicken hundreds of nearby residents. Major accidents 
continued at the rate of almost one per month despite various new 
agency efforts to prevent chemical spills.
    Analysis of the most recent data on file reveals an alarming 
failure of industry and government to come to terms with the problems 
of industrial accidents. Data maintained by the Contra Costa County 
Hazardous Materials Division reveals that:
      The County experienced 13 major accidents \2\ in 1999 and 
12 major accidents in 2000. Four workers lost their lives during the 
period, making it the deadliest 2-year period in County refinery 
history.
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     \2\This study reviewed official incident report records on file at 
the Contra Costa County Hazardous Materials Division. See the 
discussion of methodology below.
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      Refineries are responsible for the vast majority of major 
accidents and serious incidents.
      A large percentage of accidents were actually worse than 
the facility first reported, which may have prevented appropriate 
response and investigation. Some facilities, especially Chevron's 
Richmond refinery, failed to notify the County of some accidents until 
confronted by offsite complaints.
      County staff failed to verify self-reported facility 
claims by conducting on-scene investigations 95 percent of the time in 
connection with serious incidents and 80 percent of the time in 
connection with major accidents.
      Many accidents recur at the same ``repeat offender'' 
processes that are never made fully reliable.

    No Accident! concludes with a number of recommendations for action 
to address the need for industrial safety, including proposals designed 
to:
      Fulfill the promise of easy access to information 
regarding industrial hazards.
      Improve the accuracy of this information.
      Focus inquiry on industrial processes most likely to 
cause accidents.
      Ensure the effective participation in problem solving by 
the communities most at risk.

    It is no accident that Communities for a Better Environment and the 
Contra Costa Building and Construction Trades Council present this 
report at the time that the County Board of Supervisors are considering 
the effectiveness of the Industrial Safety Ordinance and the need to 
increase participation by affected communities. Although the County has 
made some progress in taking regulatory initiatives to control 
industrial hazards, much remains to be done. The first step is to 
understand the scope of the continuing problem.
                              methodology
    Communities for a Better Environment (CBE) and the Contra Costa 
Building and Construction Trades Council (CCBCTC) have tracked fires, 
explosions and toxic releases at Contra Costa County refineries since 
1989. Increasing media coverage has also generated information about 
major chemical spills in the area. More recently the Hazardous 
Materials division of Contra Costa Health Services has begun to compile 
its own data. This report is based on that data.
Definitions
    CBE and CCBCTC have used a consistent methodology to analyze data 
on accidents in producing reports over the years. \3\ Although Contra 
Costa County ordinances have repeatedly changed the definitions of 
``major accident'' and ``serious incident,'' CBE and CCBCTC have 
consistently analyzed data using the following definitions:
---------------------------------------------------------------------------
     \3\See Neighborhoods at Risk, A Report on Industrial Accidents in 
Contra Costa County: 1989-1996 (July 29, 1996) and Rising Risks to 
Refinery Communities, the Troubling Trend of Toxic Spills in Contra 
Costa County California 1989-1997 (July 8, 1997).
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    Serious Incident--an unplanned event at a facility that uses, 
stores or manufactures hazardous materials or waste that causes or has 
the potential to cause a significant impact on or offsite. If a serious 
incident causes an injury, death or offsite impact, it becomes a 
``major accident.''
    Major Accident--an incident in which the release of toxic gases, 
fire or explosion causes a serious impact to workers, the community, or 
the environment. These impacts include death, injury, illness, shelter-
in-place orders (confinement), evacuations, and activation of the 
Community Warning System.
    By contrast, the current Industrial Safety Ordinance defines 
``major accident'' more restrictively to include only those incidents 
that result in the release of a Regulated Substance and meet one or 
more of the following criteria: (1) result in one or more fatalities; 
(2) result in greater than 24 hours of hospital treatment of three or 
more persons; (3) cause property damage (on and/or offsite) initially 
estimated by the Stationary Source at $500,000 or more; (4) meet the 
definition of a Level 3 or Level 2 Incident in the Community Warning 
System incident level classification system defined in the September 
27, 1997 County guideline for the Community Warning System; or (5) 
result in flammable vapor clouds of more than 5,000 pounds. The current 
ISO has also eliminated entirely the definition of ``serious 
incident.''
Data Compilation
    CBE reviewed summary lists issued monthly by the County to identify 
possible serious incidents and major accidents. For events that 
appeared to meet the definition of serious incident, CBE reviewed the 
initial intake form on file at the County as well as subsequent 
documentation for that event. Incidents meeting the serious incident 
criteria were entered into a data base containing the facility 
identification, the date, and a summary description of the incident. 
For each incident, other data elements were extracted from available 
documentation, including whether action was taken by the County, 
whether an on-scene investigation was conducted, whether the incident 
was more severe than initially estimated, whether workers were injured, 
whether a fire or explosion occurred, whether flaring or a pressure 
relief valve was triggered, whether a vapor cloud or smoke was 
released, whether a written report was prepared, and whether a root 
cause investigation pursuant to the ISO was undertaken.
    In some cases, lengthy notes were condensed to a brief description. 
In other cases, only brief descriptions of the incident were available, 
lacking some essential information. \4\
---------------------------------------------------------------------------
     \4\See the discussion below of the problems of self-reporting and 
the County's failure to investigate incidents.
---------------------------------------------------------------------------
    Finally, CBE reviewed all serious incidents to determine whether 
they met the criteria for a major accident.
Potential For Error
    Given the lack of independent monitoring data, the reliance on the 
County's current incident reporting program creates the potential for 
error in analyses such as this. In cases where data supplied to the 
County was flawed or incomplete, the classification of incidents as 
major accidents may also introduce a potential for error. Other 
potential sources of error include hand written incident forms by 
County staff which are illegible in some cases, the large number of 
incidents, missing forms in County files at the time of review, missing 
or incomplete information, lack of standard terms, and self-reporting 
by involved parties.
                              conclusions
The Rate of Major Accidents Remains Unacceptably High
    There were 25 major accidents in Contra Costa County industrial 
facilities in 1999 through 2000. This is more than one major accident 
every month. In comparison, the previous analysis reported one major 
accident every 5 weeks during the period January 1996 to June 1997. \5\ 
Clearly, major accidents continue at the same unacceptably high rate.
---------------------------------------------------------------------------
     \5\See Rising Risks to Refinery Communities, the Troubling Trend 
of Toxic Spills in Contra Costa County California 1989-1997 (July 8, 
1997) p. 1.

    Note that the data for the 1999/2000 period confirms the conclusion 
in the previous analysis that the rate of reported major accidents has 
risen since 1989. In the period from 1989 to June 1997, the reported 
major accident rate was one every 2 months. However, in the last 18 
months of this period, from January 1996 to June 1997, the reported 
major accident rate was one every 5 weeks, leading CBE/CCBCTC to 
suspect an increase in the statistic. The data for the last 2 years 
showing more than one major accident reported every month confirms this 
conclusion.
    Concern should be heightened by the fact that the County has 
adopted and implemented new programs to reduce these incidents. While 
some progress has been made in implementing new safety procedures and 
equipment, the fact that significant numbers of incidents continue to 
occur indicates that not enough has been done.
    Some observers attribute the increase in major accidents to better 
reporting by industry. There is no doubt that since 1989 industry has 
improved its reporting in response to requirements developed by the 
County. The question remains whether the rate is tolerable to 
communities and workers.
Refineries Are Responsible for the Vast Majority of Major Accidents and 
        Serious Incidents
    With 23 out of 25 major accidents, refineries were the leading 
source of major accidents in 1999 and 2000. This most recent data is 
consistent with past studies, which also indicate that refineries are 
the leading source of major accidents.
    With 7 major accidents at both the Rodeo and Avon Facilities, Tosco 
had the poorest record in the County. Chevron had 6 major accidents in 
the 2-year period. The Shell refinery in Martinez had 2 major 
accidents.
    Chevron is not covered by one of the new County programs designed 
to reduce industrial accidents, the Industrial Safety Ordinance, 
because it is located in the city of Richmond rather than in County 
jurisdiction. Richmond has failed to adopt a parallel Industrial Safety 
Ordinance, despite the passage of a City Council action and the 
participation of Richmond City staff in a parallel environmental review 
process with the. County. Because of this lack of action, Chevron 
enjoys less safety oversight than any facility in the County. It 
appears that workers and local residents may have paid a price for this 
lack of oversight.
    In addition to major accidents, serious incidents at Contra Costa 
industrial facilities continue to plague the region. Review of County 
Hazardous Materials Division files shows that most of these incidents 
occur at oil refineries. Chevron, Tosco Rodeo, the Avon refinery 
(Tosco/Ultramar), and Shell were responsible for 202 of the total 216 
serious incidents in 1999 and 2000. The fact that refineries in the 
County are responsible for 94 percent of serious incidents is 
consistent with past analyses.

    It may well be that refining industry pressures to exceed past 
performance and to increase competitive advantages have overwhelmed 
remedial efforts. Many facilities may have engaged in cost cutting 
measures, increased production and delayed maintenance, which in turn 
may have out-paced any new safety improvements. During this period, 
refineries have been bought, sold, and affected by mergers. These 
industry efforts together with other market forces have led most oil 
companies to post extremely high profits in 1999 and 2000.
Major Accidents Continue to Kill and Injure Workers
    Worker deaths and injuries on the job continue to occur at alarming 
rates at Contra Costa County refineries. In 1999 and 2000, at least 16 
injuries and 4 deaths were reported to the Contra Costa County 
Hazardous Materials Division. In fact more injuries may have occurred 
because workplace injuries are not always reported to the County. 
Worker injuries are usually reported to CAL OS HA, which is responsible 
for worker health and safety issues.

    When four workers were killed and one seriously injured while 
working on an operating unit at Tosco Avon, the accident became the 
County's worst. In response, the public pressured County Supervisors to 
request closure of the facility so an independent safety review could 
be conducted. Tosco reluctantly accepted the recommendation of a 
committee of various stakeholders that it submit to a broad review of 
the facility's safety culture. The review by A.D. Little revealed 
serious flaws in Tosco management's approach to safety at the facility. 
Other plants have not been subject to this kind of review.
Facilities Underestimate Incident Severity
    The survey of reports made to the County of serious incidents at 
industrial facilities indicates that in at least 29 percent of serious 
incidents the facility acknowledged that it had initially 
underestimated the problem. Because many of the County incident forms 
did not contain this information, it was unknown in over two-thirds of 
the cases whether industry had accurately reported incident 
information. Thus the underreporting problem may be even more serious.

    In several cases in 1999 and 2000, Chevron did not report serious 
incidents until neighbors or the Sheriff alerted the County of a 
problem. On one incident report, a frustrated county staff member wrote 
that Chevron was not following the notification process in a proper and 
legal manner.
    In many cases, a refinery reported a process upset that was 
expected to have no offsite impact. However, the facility was forced to 
report later that it had underestimated the problem. In some cases, 
these incidents became major accidents.
The County Usually Fails To Conduct On-Site Investigations To Verify 
        Reports
    In only 5 percent of serious incidents reported by industrial 
facilities did the County Hazardous Materials staff verify industry 
claims by going to the scene. In 95 percent of serious incidents, 
County staff relied on the facility's self-reported information to make 
decisions. This failure to verify incident reports may encourage the 
tendency noted above for facilities to underestimate the severity of 
incidents. Available data indicates that initial reports underestimated 
the severity of problems at least 29 percent of the time. The actual 
statistic may be far greater due to lack of on-scene investigation.
    Even in connection with major accidents, the County conducted an 
on-scene investigation only 20 percent of the time.

    The combination of industry's underestimation of the seriousness of 
incidents and government's failure to investigate impedes a full 
understanding of the nature, severity, and causes of accidents and 
inhibits the development of effective long-term solutions. Without 
adequate information about the problems, responses will likely be 
inadequate and workers and communities will remain threatened. . The 
fact that workers continue to be injured and killed as a result of 
chemical accidents suggests that more rigorous investigation techniques 
are justified.
    Investigation of the scene of an incident and verification of 
claims by industry officials are standard techniques that are key to 
compliance and enforcement. Rather than utilizing these techniques, the 
County has continued to rely on self-reporting by facilities that may 
be of questionable accuracy.
    In order to encourage accurate reporting and response to the 
serious problem of chemical accidents in Contra Costa County, CBE and 
CCBCTC continue to urge that onsite investigations of potentially 
serious incidents be conducted by County staff.
Recurring Incidents Demonstrate a Failure To Remediate Problems
    Many of the serious incidents and major accidents at Contra Costa 
County refineries are due to recurring problems at certain process 
units that remain unresolved and result in continuing accidents. An 
examination of County records for 1999 and 2000 shows that, over and 
over again, incidents occurred in the same problem areas, even after 
the facility claimed to have solved the problem and resumed operations.

    Chevron's refinery was the worst facility for recurring problems in 
the County with a total of 33 incidents involving the same 4 units. 
Fourteen serious incidents occurred at Chevron's FCC unit alone. Twelve 
serious incidents occurred at a related unit, the Isomax. Both the 
Isomax and the FCC units had experienced major accidents in past years. 
These units were involved in Chevron's controversial reformulated fuels 
project, which was challenged by community and environmental groups as 
increasing pollution and accident risks from increased intensive 
refining methods. Since Richmond has failed to adopt the County's 
Industrial Safety Ordinance approach, there is no adequate County 
oversight or public opportunity to examine and find root cause 
solutions. Instead Chevron controls self-investigations and solutions, 
which are apparently ineffective.
    Tosco's Rodeo refinery closely followed as the County's second 
worst facility for recurring problem units with a total of 22 incidents 
involving five units. Recurring problems caused serious incidents in 
the refinery's Unicracker unit, gas compressors, Catacarb, sulfur 
plant, and Coker unit, again and again. Several of these units have had 
major accidents in past years.
    The Tosco Rodeo Catacarb problems are particularly troubling due to 
the 1994 major accident that sickened hundreds of workers and thousands 
of neighbors. It appears that problems in the process have not been 
fully resolved by Tosco or the County. In 1994, a 16 day leak was 
blamed on delayed maintenance as officials sought to exceed past 
production records. Whether delays in maintenance continue to be a 
problem should be carefully investigated. Another factor in the 
accident was the County's failure to conduct an on-scene investigation 
to verify management's claims that emissions were not traveling 
offsite.
    Tosco Rodeo is also experiencing continuing problems at its gas 
compressors which apparently cannot accommodate various unit upsets. As 
a result, toxic gases have had to be released through flares and relief 
devices into the community and the environment. Again, gas compressor 
failures had been previously identified as a problem in a 1995 audit. 
Apparently company and County efforts were ineffective in preventing 
continuing problems. Likewise, problems at the facility's sulfur plant 
and at an area known as the sulfur pit are recurring. This area has 
experienced a number of fires over the years, which is of particular 
concern.
    One apparent success is the replacement of the old ground flare 
adjacent to Hillcrest school, which caused major accidents in 1999 and 
in previous years. However, this problem was identified in 1995 and 
thus took at least 4 years to solve. Is this the speed at which we can 
expect other serious problems to be solved?
    The Avon refinery, operated for most of the period by Tosco and 
recently taken over by Ultramar, was the fourth worst for repeat 
problems. Most of the problems resulted from the practice of attempting 
to repair units and problems while operations continued rather than 
shutting down the facility first. This troubling trend continued 
despite the tragic incident that killed four workers and seriously 
injured another while the workers attempted repair on an operating 
unit.
                            recommendations
    Based on review and analysis of Contra Costa County records of 
information reported by industry about incidents and accidents in the 
region, CBE and CCBCTC make the following recommendations to the County 
and other agencies:

    1. Make data on incidents at Contra Costa County easily available 
in a timely fashion to fenceline neighbors and the public via the 
Internet and other effective methods.
    2. Require County staff to compile and analyze incident data on a 
monthly basis and make it readily available to the public. Analysis 
should include the categories included in this study at a minimum. The 
County's Hazardous Materials Ombudsperson is the logical independent 
party to conduct this review and analysis.
    3. Require County Hazardous Materials staff to conduct on-scene 
investigations during all potentially serious incidents in order to 
verify facility claims and to gauge appropriate response. In addition, 
County staff should be required to conduct on-scene investigations of 
incidents on a regular basis by random selection to ensure accurate 
reporting by facilities.
    4. Target recurring problems with repeat offender units and 
processes at Contra Costa County facilities by County officials for 
immediate action under the ISO and other appropriate regulations. 
Surprise inspections of such repeat offenders should be conducted 
immediately.
    5. Mandate investigations by the California Air Resources Board 
(CARB) that explore linkages between its reformulated fuels 
requirements and increased and repeat accidents and harmful emissions 
at Bay Area refineries. Existing problems with the production of 
reformulated fuels must be addressed immediately in a comprehensive 
fashion by all agencies.
    6. Require facilities that violate the notification policy, either 
by delay or underestimation of the impact, to install state-of-the-art 
fence line monitoring systems, such as the one in use at Tosco Rodeo. 
Continued failure to report incidents in a timely and accurate fashion 
must be met with requirements aimed at providing the County with 
independent monitoring and with stiff penalties for the violators.
    7. Implement basic video monitoring of facility flares and sites to 
enable officials to verify immediately the extent of possible offsite 
impact during incidents. Kentucky, for example, has operated such a 
system for years. Facilities should bear the cost of such a system.
    8. Amend the County's Industrial Safety Ordinance to (a) expand the 
definition of a ``major accident'' to ensure more frequent 
investigations and root cause analyses in order to prevent more 
accidents, (b) give the Board of Supervisors the power to require safer 
systems rejected by the facility for cost or other inappropriate 
reasons, and (c) require adequate training of contract workers in 
accordance with the California State-certified apprenticeship training 
programs.
    9. Enact a parallel Industrial Safety Ordinance in the city of 
Richmond in 2001 to ensure that facilities operate under the same 
safety programs as their competitors in the County.
    10. Implement outreach programs to increase the meaningful 
participation of Environmental Justice communities in safety programs. 
Such programs should rely on the proven success of past efforts led by 
community-based organizations.
    11. Investigate the implementation of the ISO and other programs 
designed to ensure the safety of industrial neighborhoods to determine 
whether it has violated the County's promise of equal protection under 
the new Environmental Justice Policy. The Board of Supervisors should 
lead this investigation.
                               __________
      Statement of Taylor Bowlden, American Highway Users Alliance
    Mr. Chairman and members of the subcommittee, thank you for the 
invitation to appear before you today. I am Taylor Bowlden, vice 
president of the American Highway Users Alliance. The Highway Users 
represents both motorists and a broad cross-section of businesses that 
depend on safe and efficient highways to transport their families, 
customers, employees, and products. Our members pay the bulk of the 
taxes that finance the Federal highway program, and they want those 
taxes used to make highway travel safer and less congested.
    We are pleased to have this opportunity to discuss with the 
subcommittee the important issue of motor fuel consumption and demand 
in the development of our nation's energy policy. Today, I will address 
three specific issues in the purview of the Environment and Public 
Works Committee that should be considered in Congress' energy policy 
debates:

      The importance of easing traffic congestion in order to 
reduce fuel consumption;
      The need to streamline the environmental review process 
to expedite congestion relief projects; and
      The adverse impact on fuel prices and highway 
improvements associated with legislative proposals to mandate ethanol 
use in motor fuels.
Traffic Congestion and Fuel Consumption
    Most Americans observe it in their daily commutes, and more 
objective data verify that traffic congestion has grown worse in cities 
across the country during the past decade. Moreover, economic and 
demographic forecasts suggest that this trend will continue for the 
foreseeable future, although most experts agree that the annual 
increase in highway travel demand should begin to slow relative to the 
dramatic jumps reported in recent years.
    A few statistics will illustrate the problem succinctly. Since 
1970, America's population has grown by 32 percent, but the number of 
licensed drivers has doubled that pace, growing by 64 percent. The 
number of vehicles has increased by 90 percent, and the miles we drive 
those vehicles has skyrocketed by 132 percent! Yet, during the same 
period of time, road mileage has increased by a mere 6 percent.
    The statistics only make clear why congestion has grown. The 
adverse economic and social consequences are evident in the daily 
experience of ordinary commuters and commercial shippers and carriers 
across the country. Alan Pisarski, an internationally known 
transportation consultant and author of the definitive study on 
commuting (called ``Commuting in America''), made the following 
observations at a recent congressional hearing:

      When workers hit the road at 5 am and then sleep in their 
cars in parking lots at the office or at transit stations, the system 
is failing;
      When commuter routes are congested in the reverse 
direction--outbound in the morning; inbound in the evening--the system 
is failing;--When peak period spreads over so many hours that truckers 
cannot afford to get off the road and wait out the rush hour, the 
system is failing;--When small incidents cause monumental tie-ups or a 
fender-bender becomes a 100 car pile-up, the system is failing.

    And the system is failing in many parts of the country. The Texas 
Transportation Institute (TTI) estimates that in 1999 travel delay cost 
more than $75 billion in the 68 cities included in TTI's annual report 
and wasted approximately 6.6 billion gallons of fuel.
    Unless Congress and the states do something dramatic to alleviate 
congestion, the problems associated with it, including significant 
additional fuel consumption, will only get worse. A recent industry 
study shows that by the end of this decade, with only moderate economic 
growth, the number of Class 8 trucks is expected to increase by over 35 
percent, and the number of Class 3, 4, and 5 trucks will double. Why?
    Lance Grenzeback, senior vice president at Cambridge Systematics, a 
highly respected transportation research firm, told a congressional 
panel recently, AWe are seeing a customer-driven shift toward 
customized, mass-market products and services. This has expanded the 
demand for highly tailored and reliable freight services. This trend is 
accelerating with the adoption of e-commerce and e-business.
    In other words, we're moving larger numbers of smaller shipments, 
requiring more trucks.
Eliminating Congestion Chokepoints
    What can be done to ease congestion? There are many potential 
solutions, depending on circumstances in a particular area. There is no 
doubt, however, that a program targeted at eliminating the nation's 
worst traffic chokepoints would produce significant fuel and time 
savings in addition to other social and environmental benefits.
    Cambridge Systematics found that improving traffic flow at our 
nation's 167 worst bottlenecks (which comprise only a few hundred of 
the nearly four million miles of U.S. roads) would reduce gasoline and 
diesel consumption by 19,883,611,000 gallons over the next 20 years. 
These findings were contained in a study prepared in 1999 for The 
Highway Users, entitled Unclogging America's Arteries: Prescriptions 
for Healthier Highways.
    A followup study we commissioned--Saving Time, Saving Money--
estimates the value of these fuel savings at $28 billion over the next 
20 years, but again that number only considers improvements to the 
worst bottlenecks . . . system-wide road investments would increase 
those fuel-saving benefits manifold!
    The fuel saving benefits associated with bottleneck relief are just 
the tip of the iceberg. In addition, Unclogging found that fixing the 
167 traffic bottlenecks nationwide will, over the 20-year life of the 
improvements:

      Prevent almost 290,000 crashes, including nearly 1,150 
fatalities and 141,000 injuries;
      Nearly halve pollution at the bottlenecks, reducing 
carbon monoxide by 45 percent and smog-causing volatile organic 
compounds by 44 percent;
      Slash emissions of carbon dioxide, a greenhouse gas, by 
71 percent at those sites; and
      Reduce truck delivery and motorist delays by an average 
of 19 minutes per trip--nearly 40 minutes a day for commuters who must 
negotiate a bottleneck in both morning and evening rush hours.

    The overall economic value of these beneficial by-products of 
congestion relief is astonishing. According to Saving Time, Saving 
Money, businesses, commuters, and other motorists nationwide would 
enjoy more than $336 billion in economic improvements as a direct 
result of fixing these bottlenecks. The average commuter traveling 
through one of the bottlenecks twice each workday could expect to save 
$345 each year in time and fuel alone if the improvements were made. 
Copies of both of these important studies can be accessed at our web-
site at www.highways.org.
    It is important to note that alleviating congestion at a traffic 
chokepoint does not necessarily require additional road capacity at the 
particular site. Preliminary analysis of a proposed new highway 
connecting Rockville, Maryland with Fairfax, Virginia, for instance, 
indicates that the new route would carry 120,000 vehicles per day. That 
project would significantly reduce traffic volumes at the interchange 
of I-270 and the Capital Beltway, the fifth worst bottleneck in the 
country, because many commuters would no longer have to use the Beltway 
to travel from their home in one Washington suburb to their work in 
another.
    Other means of reducing congestion at a bottleneck may include new 
information technologies to help commuters choose other routes during 
heavy congestion, corridor access for bus or rail transit, flexible 
work hours at major employment centers nearby, and of course, 
additional lanes at the bottleneck. I11While a balanced approach 
incorporating all of these options may work best in many cases, it is 
also important to note that investments in transportation alternatives 
to the exclusion of additional highway capacity are unlikely to be 
successful. While noting that transit improvements, better highway 
operations, adjusted work hours, telecommuting and other efficiency 
options are vital components of an overall solution,
    TTI's Dr. Timothy Lomax testified recently that these same options 
``do not seem to offer the promise of large increases in person 
carrying capacity for the current system.''
    Dr. Anthony Downs, senior fellow at the Brookings Institute, 
observed in the same congressional hearing that transit carried 3.5 
percent of work trips in 1995, compared to 90.7 percent in private 
vehicles. ``Even if the total percentage of persons commuting by public 
transit tripled,'' Downs said, ``that would reduce the percentage using 
private vehicles by only 11.6 percent. Any reduction in congestion 
achieved through increased transit usage would be more than overcome by 
sheer population growth.''
    While we would strongly encourage Congress to develop a program 
targeted at eliminating bottlenecks in order to reduce congestion and 
conserve fuel, we recognize that some will deride such a program as 
folly because additional highway capacity will only lead to more travel 
and renewed congestion. Independent studies have differed widely on the 
question of whether and to what extent travel is ``induced'' by the 
addition of road capacity.
    Without entering that debate here, I would only repeat an 
observation made by Mr. Pisarski, the transportation consultant whose 
congressional testimony I cited previously:

  ``Most trips we make have economic transactions at their ends, and if 
    not, they have social interactions of great value to those making 
    the trips. Given that, ``induced travel,'' which seems to be so 
    reviled today, seems like a very attractive concept to me. We 
    should celebrate it, not condemn it.''
    Finally, I would note that eliminating traffic bottlenecks to 
reduce fuel consumption is a win-win approach to energy policy. It is a 
policy aimed at accommodating the public's need and desire for greater 
mobility while, simultaneously, reducing the amount of fuel needed to 
meet the demand for transportation. Many other energy conservation 
proposals, including the proposed increase in Corporate Average Fuel 
Economy standards, are aimed at changing rather than accommodating 
consumer choices, an approach in which the odds are heavily weighted 
against success.
Streamlining the Environmental Review Process
    Should Congress embrace the idea of funding a program targeted at 
eliminating traffic bottlenecks, its success will depend in large 
measure on streamlining the process for reviewing the environmental 
impact of major road projects. Today, it takes approximately 12 years 
for major highway construction projects to wend their way through the 
stages of planning, design, environmental review, and right-of-way 
acquisition. That's before a single spade of dirt can be turned! 
Typically, one to 5 years of that time is spent completing the 
necessary environmental reviews, often to the detriment of the 
environment, public safety, and mobility.
    Examples abound of proposed projects delayed by a cumbersome and 
costly review process that 60 percent of Americans in a recent 
nationwide poll said takes too long. Here in Washington, for instance, 
officials have long known that the 38-year-old Woodrow Wilson Bridge, 
bearing almost 200,000 vehicles a day on Interstate-95 crossing the 
Potomac River between Maryland and Virginia, must be replaced because 
of structural problems and inadequate capacity. Yet, it took 11 years 
from the time the first bridge improvement study was initiated until 
construction finally began in October 2000. Even as construction has 
finally begun, litigation against the project continues. Under the 
current timetable, the first span of a new bridge will open to traffic 
in autumn of 2004, approximately the same time when engineers have 
projected the old bridge will have to be closed to truck traffic 
because of structural weaknesses.
    Similarly, a bridge over the Ohio River to connect the Indiana and 
Kentucky portions of I-265 around Louisville has been in the planning 
and review process for 15 years. The ongoing environmental review, 
public hearings, and litigation make it likely that construction on the 
bridge won't begin until 2003 at the earliest. Meantime, Louisville 
motorists waste time sitting in traffic or ``taking the long way'' to 
get around town, business development is slowed because of this 
critical missing link in the area's transportation network, and local 
taxpayers foot the bill for even more environmental studies and 
litigation.
    The fact is any transportation project faces a Federal bureaucratic 
and legal obstacle course. There are at least 65 Federal laws, 
regulations, or executive orders that directly address the 
environmental effect of building roads. At least six cabinet 
departments and three independent or executive agencies have 
responsibility for administering those various provisions. Due to the 
proliferation of reporting requirements and the layers of bureaucratic 
review, the environment itself often takes a back seat to the 
cumbersome process designed to protect it.
    In TEA-21, Congress made a serious attempt to deal with this 
problem by directing the U.S. Department of Transportation (DOT) to 
work with the Environmental Protection Agency and Federal resource 
agencies to streamline the review process. Based on House and Senate 
oversight hearings held last year, it seems fair to say that the 
product of DOT's work to date has not met the expectations of those 
Members of Congress who drafted the statutory provision. We still do 
not have a review process that ensures environmental concerns will be 
raised early and that an appropriate timeframe for action can be set 
and enforced.
    Given the significant time and expense involved in the current 
environmental review process, we urge Congress to renew its effort at 
reform. Specifically, we encourage you to consider giving States the 
opportunity to play a greater role in interacting with Federal resource 
agencies and developing the necessary environmental assessments or 
impact statements. In addition, we believe Congress should designate 
transportation officials as the final arbiter of the ``transportation 
purpose and need'' of a proposed project and give those officials 
authority to set appropriate deadlines for comment by Federal resource 
agencies. We believe these reforms would expedite the review process 
while fully protecting the environmental resources that may be affected 
by a proposed project.
    It is worth noting that the economic benefits attributable to 
improvements at all 167 of the nation's worst bottlenecks would be 
increased by $30.2 billion if the time for completing the projects 
could be reduced by as little as 3 years, according to Saving Time, 
Saving Money. Since most of those improvements would require the 
preparation of an environmental impact statement, a successful program 
to expedite the environmental review could, in fact, reduce the typical 
review time from the current 5 years down to 2 years or possibly less. 
In so doing, Congress would not only have improved mobility and reduced 
fuel consumption but also reduced tailpipe emissions from idling cars 
and made highway travel significantly safer.
Ethanol's Impact on Highway Improvements
    Mr. Chairman, if Congress focuses on eliminating bottlenecks to 
reduce congestion and save fuel, and even if the environmental review 
process is streamlined in order to expedite transportation 
improvements, those projects will still cost money. No one knows better 
than the members of this committee that the Federal funding for such 
improvements comes solely from taxes paid by motorists and deposited in 
the Highway Trust Fund.
    Today, gasoline is taxed at 18.4 cents per gallon and diesel at 
24.4 cents. Gasoline blended with ethanol, however, is taxed at a lower 
rate, resulting in a revenue loss to the trust fund and a corresponding 
decrease in Federal funds distributed to the States for highway 
improvements.
    Last year, this committee considered and approved legislation, S. 
2962, that would have phased out the use of methyl tertiary butyl ether 
(MTBE) in gasoline, simultaneously establishing a nationwide renewable/
alternative fuels program, essentially mandating a large, new market 
for ethanol-blended gasoline. Given the dramatic adverse effect that 
such legislation would have on funds available for road safety and 
congestion relief projects, The Highway Users wrote to all Senators 
expressing our strong opposition to the bill.
    We understand that similar legislation may be introduced in this 
Congress, so I am taking this opportunity to reiterate a couple of 
points from our analysis of last year's bill. In addition to the 
revenue loss resulting from the lower tax rate on ethanol, a portion of 
the tax that is imposed on ethanol-blended fuel is deposited in the 
General Fund rather than the Highway Trust Fund. Last year, the General 
Fund diversion combined with the tax subsidy cost the trust fund $1.224 
billion in lost revenues. If S. 2962 had been enacted, the mandated 
ethanol market would have substantially increased the sale of ethanol-
blended fuel. By 2007, when the current ethanol tax subsidy expires, we 
estimate the trust fund's total subsidy to ethanol would have been 
$2.465 billion annually.
    With the highway funding guarantees of TEA-21, lost tax revenues 
attributable to ethanol-blended fuel will inevitably reduce the amount 
of highway funds distributed annually to the States. The loss of 
highway funding means less money will be available for projects to 
reduce congestion and conserve fuel.
    I want to commend you, Mr. Chairman, for taking the lead last year 
in addressing part of this problem. In a colloquy with other members of 
the committee, you suggested that the portion of the ethanol tax that 
is currently deposited in the General Fund should be transferred to the 
Highway Trust Fund, and other members agreed to support such an effort. 
We strongly encourage you to pursue this course at the appropriate 
time, and we look forward to working with you to accomplish that goal. 
I would note, however, that even if all the tax currently imposed on 
ethanol-blended fuel is deposited in the Highway Trust Fund, the trust 
fund will still be losing as much as $2 billion per year if Congress 
mandates a national market for ethanol while maintaining the trust fund 
subsidy.
    Mr. Chairman, these issues are of great importance to taxpaying 
motorists across the country. I appreciate this opportunity to testify, 
and I will be happy to answer any questions that you or other members 
of the subcommittee may have.
                               __________
Statement of Thomas L. Robinson, Chief Executive Officer, Robinson Oil 
   Corporation, on behalf of the National Association of Convenience 
  Stores and the Society of Independent Gasoline Marketers of America
    My name is Tom Robinson. I am Chief Executive Officer of Robinson 
Oil Corporation of San Jose, California. Our company owns and operates 
28 ``Rotten Robbie'' retail gasoline outlets located in the San 
Francisco Bay Area of California.
    I submit this statement to this subcommittee today as a 
representative of the National Association of Convenience Stores 
(``NACS'') and the Society of Independent Gasoline Marketers of America 
(``SIGMA''). NACS represents an industry of more than 120,000 retail 
outlets, 75 percent of which sell motor fuels. In 1999, convenience 
stores sold more than 117 billion gallons of motor fuels which accounts 
for more than 60 percent of American consumption.
      SIGMA is an association of approximately 260 motor fuels 
marketers operating in all 50 States. Together, SIGMA members supply 
over 28,000 motor fuel outlets and sell over 48 billion gallons of 
gasoline and diesel fuel annually--or approximately 30 percent of all 
motor fuels sold in the nation last year.
    Collectively, NACS and SIGMA members sell more than 75 percent of 
the gasoline and diesel fuel purchased by American consumers each year.
    I appreciate the opportunity to submit this statement on the 
interaction between environmental regulations and the nation's energy 
policy. The companies I represent are different from all of the 
witnesses who will give testimony at today's hearing. For all practical 
purposes, we are a surrogate for the nation's gasoline and diesel fuel 
consumers. Our primary mission is to secure adequate supplies of 
gasoline to sell to consumers at a competitive price. My company is not 
involved in the exploration or production of oil, nor does it refine 
oil. If companies like mine, independent marketers of motor fuels, are 
unable to secure this adequate supply, then we cease to be a 
competitive force in the marketplace. If independent marketers cease to 
be an effective competitive force in the marketplace, then consumers 
lose as retail gasoline and diesel fuel prices rise in response to the 
supply shortage.
    NACS and SIGMA have two primary messages for this subcommittee 
today. First, if we, collectively, do not address aggressively the 
motor fuels supply crisis that is facing this nation in the near 
future, then the price spikes we have witnessed, for the past decade in 
California and for the past 2 years in other portions of the nation, in 
gasoline, diesel fuel, and other petroleum products will become the 
norm rather than the exception. Ultimately, if we fail to act, it will 
be consumers who will pay for this inaction--through higher retail 
motor fuels prices at the pump.
    Second, the debate over the future of our nation's energy policy 
need not be confrontational. Our nation can have both a clean 
environment and affordable, plentiful supplies of gasoline and diesel 
fuel. However, in order to achieve these twin goals, all sides to the 
current debate--industry, government, consumers, and 
environmentalists--must approach this debate in a spirit of 
cooperation, not confrontation.
    These are not new points for either the associations I represent or 
for me. As a California marketer I have personally witnessed these 
events happening over and over again. I personally have had the 
opportunity to present these points to Congress in the past. 
Unfortunately, our warnings have been ignored. However, it is my 
personal hope that the renewed attention to the need for a national 
energy policy will produce the results NACS and SIGMA have been calling 
for over the years.
    The challenge facing this subcommittee and your colleagues in 
Congress today is straightforward. We must preserve current and future 
improvements in air quality while at the same time maintaining and 
expanding supplies of motor fuels. Otherwise, our nation's consumers 
will pay the price when supply shortages occur and retail prices at the 
pump spike, as they have done repeatedly over the past 3 years in 
several areas of the nation and over the past decade in California. 
These price spikes will not be limited to the additional expense of 
producing the new cleaner fuels. Rather, they will be multiples of this 
amount as the market drives prices far above the additional cost of 
manufacture in times of short supply.
    I firmly believe that our nation is facing a serious energy crisis 
in the motor fuels refining and marketing industry. Dozens of petroleum 
refineries have closed over the past two decades and new environmental 
protection mandates, such as low sulfur gasoline and diesel fuel, are 
likely to exacerbate this trend. Operating inventories of diesel fuel 
and gasoline are at historically low levels and the nation's refineries 
are operating at or near maximum capacity. Gasoline and diesel fuel 
demand is increasing by between 1 and 2 percent each year, and yet the 
number of refineries operating to meet this ever increasing demand is 
decreasing. In 1990, there were essentially six different types of 
gasoline being sold nationwide. Now, there are over 25 different 
gasoline formulations, all being transported and distributed through 
the nation's motor fuel infrastructure. The pressure of overlapping 
Federal, State and local regulations has crippled what was previously 
one of the most efficient commodity distribution systems in the world--
the United States' fungible grade motor fuels distribution system.
    As the saying goes, there is no free lunch. It should not surprise 
policymakers that after tens of billions of dollars in environmental 
compliance costs borne by refiners and marketers, the complete 
fragmentation of the motor fuels distribution system, and the 
politically motivated diverse gasoline formulations adopted by various 
States, there is a price to pay--a price that ultimately must be paid 
by consumers of gasoline and diesel fuel. As long as the motor fuels 
refining and distribution system works perfectly, supply and demand 
stay roughly in balance and retail prices remain relatively stable. 
However, if a pipeline or refinery goes down, overseas crude oil 
production is reduced, the weather disrupts smooth product deliveries, 
or a new regulatory curve ball is thrown at the motor fuels refining 
and marketing industries, we do not have the flexibility to react and 
counterbalance these forces.
    If there is one point that I really want to emphasize it is the 
point of ``no free lunch.'' Our country can have clean and 
environmentally friendly fuels and it can have plentiful supplies--
there will be a cost and it will be borne by the consumer (that is a 
given)--our job is to make the lunch, if not free, at least a fair 
bargain.
    Californians have become somewhat accustomed to motor fuels price 
volatility over the past 5 years because California is in fact the 
laboratory for the fuels programs that EPA currently is forcing on the 
rest of the country. When a refinery in California goes down, or a 
pipeline breaks, the impact on prices is almost immediate. In 
California, gasoline prices can increase by 40 cents per gallon within 
2 or 3 days. When prices get high enough to attract supply from other 
markets, then eventually the supply shortage is alleviated and prices 
start to fall.
    This is the reason I am submitting this statement today. The motor 
fuels supply problems we have witnessed in California over the past 
decade are now being visited on the rest of the nation. If we do not 
act, independent motor fuels marketers (who I am very concerned about), 
and gasoline consumers (who we all should be very concerned about), 
will suffer in the near future.
    The public policy solution to the current motor fuels supply crisis 
will not be simple, but it must be addressed. NACS and SIGMA posit that 
the solution is not the rollback of environmental protections. This 
solution is a non-starter and should be discarded. Alternatively, NACS 
and SIGMA encourage Congress to consider an effective plan to assist 
our nation's domestic refining industry to meet the challenges posed by 
ever more stringent environmental mandates and restore fungibility to 
the nation's distribution system. This will increase gasoline and 
diesel fuel supplies and keep retail prices down.
    We must collectively arrive at a public policy that assures that 
our nation's refineries, both large and small, stay in business, expand 
to meet increases in demand, and produce clean, affordable motor fuels. 
But this policy cannot be achieved without enlightened government 
policies and programs. The capital expenditures that refineries must 
make over the next 6 years in order to meet new environmental mandates 
are huge. Many refineries, particularly small, regional refineries, 
will be unable to justify those expenditures and will cease operation--
further straining motor fuels supplies. Already, this year, Premcor 
announced that it would close its Blue Island refinery rather than 
undertake the upgrades necessary to make low sulfur gasoline and diesel 
fuel. Other refineries, owned by both large and small companies, will 
follow suit in the next few years.
    NACS and SIGMA urge Congress to assist these refineries in making 
these upgrades. This assistance will be particularly important to 
small-and medium-size `` regional'' refineries because the 
environmental upgrade costs fall more heavily on these smaller 
refineries because they do not enjoy the economies of scale that some 
larger refineries possess to make these upgrades. In many cases, these 
smaller refineries represent the `` marginal'' gallon of gasoline and 
diesel fuel in many marketplaces--the gallon that is the difference 
between adequate supplies and supply shortages.
      Motor fuels marketers and refiners are not always on good 
terms. We compete daily in the marketplace for customers and market 
share. So it may seem odd to have motor fuels marketers recommend to 
Congress that assistance must be given to our nation's domestic 
refining industry. However, without adequate and diverse sources of 
gasoline and diesel fuel supply, independent marketers cannot exist. 
Thus, the solution we are proposing to Congress is the only way our 
segment of the marketing industry can survive and can continue to 
provide consumers--your constituents--with the most affordable, clean 
gasoline and diesel fuel in the world.
    NACS and SIGMA do not have a specific legislative proposal to put 
forward at this time to put our joint recommendation into operation. 
Instead, we offer the following principles which we are convinced must 
be a part of any legislative initiative: (1) greater fungibility in 
motor fuels and a stop to the balkanization of our nation's gasoline 
and diesel fuel markets; (2) fuel requirements that recognize the 
limitations and strengths of the motor fuel distribution system in the 
United States; (3) reasonable implementation plans for new 
environmental initiatives; (4) fuels programs that set performance 
goals, rather than specific formulas; and (5) while we are not 
suggesting the government bail out refineries which are not 
economically viable, we believe the economic viability of a refinery 
should not be determined by the timing of the implementation of a new 
environmental regulation. If such regulations render a refinery non-
viable, then adjustments to that regulation should be considered.
    We look forward to working with this subcommittee and others in 
Congress to explore legislative options in the months ahead. We offer 
our assistance to this subcommittee in this exploration.
    The debate over our nation's energy policy is just starting. But 
the crisis has been on the horizon for some time. We can either discuss 
potential solutions collectively now, or we can wait until the next 
price spike, and the outraged response of consumers. We encourage all 
parties to this debate to adopt fresh approaches to the problems our 
nation is facing. Both the environment and our nation's motor fuel 
consumers can be the winners in this debate, but only if all sides 
agree with the premise that environmental protection and affordable 
energy are not inherently contradictory goals. NACS and SIGMA assert 
that these goals need not be irreconcilable.
    Thank you for permitting me to submit this statement.
                               __________
         Statement of the National Association of Manufacturers
    An adequate and secure energy supply at globally competitive prices 
is necessary for the nation's economic growth. The NAM--and its more 
than 14.000 member companies and associations, including 10,000 small 
and medium manufacturers--supports the development of markets and 
policies that provide adequate, reliable and competitively priced 
energy resources with a minimum of government intervention. The NAM 
promotes an economically balanced and varied mix of energy sources' 
consistent with prudent environmental policies. The NAM is very 
concerned that many current Federal policies are working at odds with 
the fundamental need to maintain adequate future energy supplies for 
the economy and the welfare of the American people.
    The top priority of the NAM for the past decade has been to 
advocate a pro-growth, pro-manufacturing and pro-worker policy agenda. 
Durable economic growth is the only guarantor of rising living 
standards for Americans. The NAM has long recognized that a skilled 
work force, high technology and innovation are important underpinnings 
of prosperity--but so, too, are adequate energy supplies.
    Overall, U.S. manufacturers continue to strive for improved 
efficiency in the competitive world marketplace, including increasingly 
efficient uses of energy. For example, although manufacturing output 
has increased by 41 percent since 1990, industrial electricity 
consumption has increased by only 11 percent. (Overall U.S. electricity 
use has increased 22 percent during the same period). A recent NAM poll 
of its members revealed that, over the past 5 years alone, 85 percent 
of U.S. manufacturers have upgraded and improved the energy efficiency 
of their U.S.-based plants and offices.
    Despite continuing efforts to increase energy efficiency, 
increasing the supply of traditional energy sources and developing 
alternative energy sources remain critical for sustained economic 
growth. [See Appendix 1: U.S. Energy Profile). Unfortunately, 
harbingers of energy supply problems are increasingly evident in the 
United States. Last summer, electricity supply shortages occurred in 
the Midwest and Northeast. This summer, California has suffered power 
interruptions and the first-ever rotating blackout in the San Francisco 
area. One step that must be taken to address the uncertainties 
accompanying a patchwork of State restructuring laws regarding electric 
utility regulation is passage of Federal legislation. The NAM supports 
Federal legislation that would facilitate wholesale and retail 
competition and strengthen reliability and efficiency of supply as soon 
as possible.
    However, the energy-policy warning signs are not just flashing 
because of regional electricity disruptions. Also this year, the U.S. 
has already experienced tight supplies on natural gas and 
transportation fuels. The Department of Energy has just issued a 
warning of higher natural gas and potentially higher heating oil prices 
this coming winter due to insufficient supplies. The warning signs are 
here that the need for adequate energy supplies has been neglected for 
too long.
    The current Administration has created an unbalanced national 
energy policy by focusing on energy efficiency, natural gas and non-
traditional energy sources. while undermining the use of other energy 
sources. A policy that is narrowly focused on certain fuels to the 
exclusion of others, such as by promoting switching from coal to 
natural gas for electricity generation, is a recipe for disaster. 
Historically, the Federal Government has caused enormous economic waste 
when it tries to pick ``winners and losers'' in the energy marketplace. 
It has also caused waste when its energy policies are not coordinated 
with other policy objectives or considered in the context of economic 
growth.
    Of particular concern for the NAM is the apparent policy disconnect 
between favoring natural gas use and discouraging natural gas 
production. The National Petroleum Council (NPC), the Energy 
Information Administration and others are projecting dramatic increases 
in natural gas use in the next 10-20 years--especially in electricity 
generation. However, the NPC warns that not enough natural gas supplies 
are being developed to meet the NPC's estimated 7 Tcf (34 percent) 
increase in natural gas use over the next decade, which is more than 
twice the percentage growth in gas use from the 1980's to 1998. The NPC 
identifies as a critical barrier to meeting future demand projections 
for natural gas the fact that access to over 200 Tcf of natural gas 
reserves is being restricted on multiple-use Federal lands and the OCS. 
Currently, natural gas and oil exploration and production are off 
limits or significantly restricted in 40 percent of the Rocky Mountain 
region and in the OCS off of the entire East Coast, the entire West 
Coast and more than 50 percent of the Eastern Gulf of Mexico. Access to 
new coal deposits is also being systematically denied. (See Appendix 2. 
Administration Restrictions On Resource Access.)
    Denial of access to resources on multiple-use Federal lands is not 
the only policy of this Administration that discourages the use of 
traditional fuels. Since first entering office in 1993, this 
Administration has assaulted virtually every domestic energy source 
(except ``non-hydro renewables,'' which account for only about 2 
percent of total electricity generated)--particularly coal use. After 
failing in its attempt to secure a Btu tax on fossil fuels, mandated 
centralized inspections for automobiles and forced van pooling, the 
Administration focused its efforts on more indirect means by denying 
access to fossil resources to cutoff supplies and by using 
environmental restrictions to reduce production and use. (See Appendix 
3. EPA Restrictions on Energy Production and Use.) The Administration 
has even tried to use international pressure to force domestic energy-
use reductions by signing the ill-advised Kyoto Protocol in 1997. If 
ratified, this Protocol would arbitrarily impose quotas on carbon 
dioxide emissions equivalent to a reduction in fossil-fuel use by more 
than 30 percent from projected levels in 2010.
    An energy policy that emphasizes only some energy sources and 
priorities--without regard for their negative impacts on energy 
markets--threatens the sustainability of the national economy and the 
welfare of the American people. When such a policy also undermines the 
development of domestic oil, gas, nuclear. coal and hydroelectric 
power, then these ``supply side'' disincentives add up to what is 
essentially a policy of planned energy dependence by the United States 
on foreign sources.
Conclusion
    Adequate supplies of reliable and competitive energy and an overall 
energy strategy must become a priority for the next Administration. The 
NAM strongly believes that America must make progress in all of its 
energy options in order to meet the challenges of a growing population 
while increasing prosperity, national security and environmental 
protection.
Action
    The NAM will work actively with this Administration and Congress in 
the time remaining, and with the Presidential and congressional 
candidates to urge them to turn their attention to the seriousness of 
this problem and the need for prompt action to meet these concerns.
Appendix 1: U.S. Energy Profile
      During the 1990's, U.S. electricity generation grew by 22 
percent. Although the use of non-hydro renewable energy for electricity 
generation has increased by a third during this decade, it still 
represents only about a little over 2 percent of total net generation.
      Hydroelectric power produces about 12 percent of total 
electricity generation. However, it has been declining sharply in 
recent years. Delays in Federal relicensing (8-year schedule) burdens 
applicants with endangered-species and other environmental studies and 
pre-conditions, exacerbating the delays and the costs. This 
Administration has even torn down hydroelectric dams. Nuclear energy 
has increased 26 percent in the past 10 years, and now supplies 20 
percent of total generation. However, no new plants are scheduled to 
begin operating. This Administration has steadfastly opposed, and 
recently vetoed, legislation that would ensure timely construction of a 
desperately needed Federal storage facility for spent nuclear fuel. In 
the meantime, the Administration has breached its contractual 
obligation to begin removing spent fuel from the nation's nuclear 
reactors, despite receiving $17 billion in pre-payments from the 
consumers of electricity. Finally, virtually all nuclear operating 
licenses are up for renewal by 2015. NRC has indicated it expects no 
more than 85 of the 103 units will file for renewals. Coal--which 
currently provides more than 50 percent of total net generation--has 
increased almost 19 percent in the past 10 years, despite growing 
hurdles created by administrative agencies. However, no major coal-
fired electricity generating stations are being built, despite the fact 
that coal represents 90 percent of U.S. recoverable fossil energy 
reserves. Oil use in electricity has dropped dramatically since the 
1973-74 Arab oil embargo, off 30 percent in the past 10 years to 3 
percent of total generation. Petroleum is still a vital transportation 
fuel, however, and is the energy source for which we are most dependent 
on foreign sources--nearly 60 percent of our needs. As a result, 
petroleum accounts for one-third of our total trade deficit. Meanwhile, 
domestic crude oil production has fallen almost 20 percent over the 
past 10 years, as vast areas of onshore and offshore United States have 
been put off-limits to energy leasing. Worse, value-added refining is 
moving overseas, with 36 U.S. oil refineries having closed in just the 
past 8 years. No new major refineries have been built in this country 
in the past quarter-century, and regulatory hurdles complicate making 
refinery investments needed to produce adequate supplies of lower-
sulfur transportation fuels being required by EPA. America consumed 
21.4 Tcf of natural gas last year, about 15 percent of which was used 
by utilities for electricity production. Domestic natural gas 
production declined from the early 1970's peak of over 21.7 Tcf a year 
to 1986's low point of 16.06 Tcf. Production increased to 18.82 by 
1994. Has remained relatively stable for the past 6 years, (in 1999 it 
was 18.71 Tcf). Canadian imports have increased more than 130 percent 
over the past 10 years (to over 3 Tcf) to meet the increased U.S. 
demand. The National Petroleum Council (NPC) and the American 
Association of Petroleum Geologists (AAPG) predict a severe gas supply 
shortage in the next 10-15 years unless multiple-use Federal lands 
onshore and offshore--and the more than 200 Tcf in natural gas reserves 
inside them--are opened to exploration and production.
Appendix 2: Administration Restrictions on Resource Access
    Administration policies and/or regulatory actions that impede or 
prevent the development of domestic fossil-fuel resources include the 
following:

      Multi-year moratoria on Outer Continental Shelf leasing 
and drilling off of the entire Atlantic and Pacific coasts and portions 
of Alaska and the Eastern Gulf off of Florida. Army Corps of Engineers 
elimination of nationwide Wetlands Permits--100-year Flood Plain 
Exclusion (50 million acres).
      Forest Service moratorium on new road construction (40 
million to 60 million acres).
      Bureau of Land Management has proposed regulations--a 
``plain language'' rewrite of onshore oil and gas activities, that 
impose additional requirements that provide no benefits yet cause 
further delays.
      BLM permitting delays in critical areas like Wyoming 
(coal-bed methane).
      OCS permitting delays by the EPA and NOAA prevent a valid 
Federal lease (with 1 Tcf of natural gas) off of Florida, acquired in 
the mid-1980's, from going forward.
      (Monuments designation initiatives under Antiquities Act 
(millions of acres in at least seven Western States); already declared 
Escalante Staircase a monument' abrogating valid oil and gas leases and 
ending plans for a large low-sulfur coal mine. Expansive 
interpretations by Commerce Department of Essential Fish Habitat 
regulations threatening oil and gas activity in Gulf of Mexico 
Expansive interpretations of Endangered Species Act by BLM, Forest 
Service, Fish and Wildlife Service causing sometimes indefinite 
permitting delays BLM's designation of areas as Wilderness Study Areas, 
which has become de facto prohibitions of multiple use while BLM 
studies whether to ask Congress to list the area as wilderness EPA 
Interim Guidance reinterpreting CERCLA release to require daily reports 
of air emissions from hundreds of thousands of small rural engines 
would affect oil and gas production and transportation--especially 
marginal wells Department of Labor reinterpretation of Process Safety 
Management Regulations to require unnecessary and expensive regulations 
of remote unoccupied exploration and production facilities
      EPA reluctance to support legislation to clarify that 
hydraulic fracturing of gas-bearing formations should not treated as 
``underground injection'' under the Safe Drinking Water Act. As many as 
60 percent of future gas wells may need to employ fracturing technology 
Lack of cooperation and coordination between BLM, U.S. Forest Service, 
EPA and other agencies in implementing National Environmental Policy 
Act requirements for permitting and leasing processes causing 
significant delays The Interior Department's Bureau of Land Management 
State Office in New Mexico this month announced that it would soon 
begin using new guidelines for approval of San Juan basin drilling 
permits that could severely affect gas production in the second-largest 
gas field in the nation. Activity in this mature producing area (that 
accounts for some 6 percent to 7 percent of the country's gas 
production. more than half of which goes to California) is within 
projections of the BLM Resource Management Plan However. while the 
State office does a new EIS that may lead to improvements in the RMP, 
BLM is proposing new permitting guidelines that hold the potential to 
prevent drilling enough wells to even maintain current production 
levels Redundant NOAA Coastal Zone Management Act consistency 
regulations that impede OCS exploration and production activities 
without any additional environmental benefits Proposed DOI (Minerals 
Management Service and BLM) ``plain language rewrite of oil and gas 
lease forms imposing new requirements and additional administrative 
burdens will encourage litigation, making it more difficult to drill 
and produce hydrocarbons on Federal lands.
Appendix 3: EPA Restrictions on Energy Production and Use:
      NOx SIP Call: The EPA's 1998 final rule to reduce 
nitrogen oxide emissions by 85 percent throughout the eastern United 
States will result in estimated utility costs of $14.1 billion in 
capital investments, and an increased annualized cost of $2.7 billion 
for power plants and other major sources. The rule required the 
emission-reduction measures to be in place by May 1, 2003. The EPA's 
refusal to provide flexibility to States in setting their ozone 
attainment strategy, along with threats to impose a Federal 
Implementation Plan (FIP) if States did not comply with the State 
Implementation Plan (SIP) call, placed immense pressure on coal 
combustion. States have until October 2000 to submit their plans. New 
Source Performance Standards: In 1998, the EPA issued revised nitrogen 
oxide (NOx) New Source Performance Standards (NSPS) for all new and 
modified (``reconstructed'') utility and industrial boilers. A new 
``guidance'' is expected to be issued by OECA before the end of this 
year that will lower the threshold of what is a ``reconstruction,'' 
thereby forcing many additional existing power generators to install 
expensive retro-fit equipment or become subject to enforcement actions. 
Particulate Matter: The costs of compliance for coal-fired power plants 
would greatly increase if the EPA's final rule setting new ``fine'' 
PM2.5 standards and revising the ``coarse'' PM10 
standards are found to be valid by the U.S. Supreme Court. New Source 
Review (NSR): The Clean Air Act requires a pre-construction permit 
before building or making modifications to facilities that would result 
in significant new emissions. The Act explicitly allows companies to do 
routine maintenance and repair, but the EPA wants to force older 
facilities--particularly coal-burning ones--to install expensive air-
pollution control equipment. In addition, the EPA's threats of 
litigation and heavy-handed enforcement significantly contribute to 
cost burdens for these plants. For example, in November 1999, the EPA 
filed lawsuits against several coal-burning utilities, alleging 
violations of the New Source Review (NSR) rule, claiming that the 
utilities made major modifications to their facilities and, in doing 
so, failed to apply for NSR permits. In addition, the EPA is currently 
preparing to issue a final rule on NSR while also coercing existing 
sources to meet ``best available control technology'' (BACT) by a 
certain deadline.
      Ozone Non-attainment Areas: The EPA efforts to force 
States to designate areas that are not in ``attainment'' with the 
agency's revised ``Eight-Hour Ozone Standard'' (promulgated in 1997, 
and in litigation in the Supreme Court) is an attempt to circumvent a 
possible rejection of the rule by the Court, while chilling economic 
development and energy use in those designated areas. The EPA 
threatened to withhold Federal highway funds to States to force State 
compliance.
      Regional Haze Rules: New rules call for States to 
establish goals for improving visibility in Class I areas (national 
parks and wilderness areas) and to develop long-term strategies for 
reducing emissions of air pollutants that cause visibility impairment. 
Strict EPA visibility regulations could cost the refining industry $0.4 
billion to $1.0 billion--above and beyond the costs incurred for 
complying with other requirements of the Clean Air Act, such as NAAQS. 
In addition. oil and gas producers might need to invest between $0.2 
billion and $2.5 billion over the next several years, to comply with 
the proposed rule. Future exploration and development in the United 
States is likely to be hampered or curtailed, with potentially serious 
consequences for the nation. Since most new development in the United 
States is near Class I areas, the efforts of States and Federal land 
managers to comply with regional haze requirements are likely to 
preclude timely and efficient development of oil and gas resources.
    TMDL Rules: On July 11, 2000, the EPA issued the controversial 
Total Maximum Daily Loads (TMDL) rule, even though on June 30, 2000, 
Congress sent to the White House legislation that would have required 
the EPA to take a closer look at the 30,000 comments received and to 
rewrite the rule. The EPA delayed the effective . date for the rule 
until October 2001, after a congressionally imposed prohibition 
expires. Most electric-utility operations will be affected if a water 
segment they are located on or near is listed as impaired. The 
stringent TMDL standards will likely necessitate regulation of air 
deposition of pollutants into water bodies, thus opening another back 
door to air-emission regulation.
    Btu Tax on Fossil Fuels: The Administration's early advocacy of a 
Btu tax on fossil fuels would have discouraged use of fossil resources 
and reduced manufacturers' competitiveness. New Source Review 
Revisions: The EPA in 1996 issued a proposed rule for a revised NSR 
program. The EPA is currently preparing to issue the final rule and has 
been conducting discussions with the regulated community on an 
alternative (``off-ramp'') to the new NSR rule. The off-ramp, as 
proposed, would work as follows:

    Coal-burning utilities will be able to obtain relief from stringent 
new NSR rule if they, in return, agree to a suite of emission 
reductions to be achieved by a certain deadline. EPA has discussed the 
inclusion of CO2 within the bundle of emissions to be 
``voluntarily'' regulated.
    CO2 Regulation: The EPA issued a memorandum in April 
1998, asserting the EPA's authority under the Clean Air Act to regulate 
CO2 as a pollutant. It did so in absence of any scientific 
evidence to suggest that the EPA will be able to make the showing that 
CO2 is harmful to human health and the environment, as is 
necessary to designate a compound as a criteria pollutant.
    TRI Reporting: The toxics release inventory (TRI) (under the 
Emergency Planning Community Right-to-Know Act) was recently changed by 
the EPA to require electric utilities to report chemical-release data. 
Additionally, the level at which reporting is required for mercury was 
lowered by several orders of magnitude. In making these changes, the 
EPA presented no studies or supporting rationale for why communities 
should suddenly be concerned about these releases. These reporting 
requirements--without being based on actual health concerns--further 
discourage the siting of electricity generating stations.
    Mercury: In November 1998, EPA issued a draft Mercury Action Plan 
to reduce overall mercury emissions. This plan has required expensive 
testing by coal-fired power plants and is likely to result in a 
regulatory determination by December that will lead lo costly Maximum 
Achievable Control Technology standards for coal-fired utilities.
    Particulate Matter / Ozone rulemaking: The EPA proposed new NAAQS 
for Ozone and PM2.5 Particulate matter used to be the 
technical term for soot: however. the new regulatory size threshold set 
by the EPA (2.5 microns) is so small that it captures individual 
molecules of sulfates. In essence, this amounts to a back-door 
tightening of Title IV (acid rain) of the 1990 CAA.
    MTBE: Against the advice of scientists, the EPA encouraged billions 
of dollars in investments to make methyl tertiary butyl ether (MTBE) 
additives to motor gasoline. Now the agency wants to keep the 
questionable oxygenate benefits by replacement chemicals that will 
raise the price of gasoline and require more crude oil to be used to 
make each gallon of ``government gas.'' Prior to imposing oxygen 
substitutes, there should be a rigorous reevaluation of the need for an 
oxygen mandate in gasoline, in light of technological progress in 
engine manufacture and the increased overall compliance with attainment 
of the carbon-monoxide ambient air standards.
    Federally Permitted Releases: On Dec. 21, 1999, the EPA published 
an Interim Guidance on air emissions under the Comprehensive 
Environmental Response, Compensation and Liability Act and the 
Emergency Planning and Community Right-To-Know Act (collectively 
CERCLA). The Interim Guidance defines which air emissions must be 
reported under CERCLA and which are exempt from reporting as a 
federally permitted release (FPR). Identification of specific hazardous 
constituents at every emission point in a facility may not be 
technically feasible in many instances and may be prohibitively 
expensive. The Interim Guidance incorrectly requires speciation of 
emissions to qualify for the exemption, effectively eliminating the 
exemption.
                               __________
           Interstate Natural Gas Association of America,  
                                 10 G Street, NE, Suite 700
                               Washington, DC 20002, April 5, 2001.

Honorable George Voinovich, Chairman,
Subcommittee on Clean Air, Wetland, Private Property and Nuclear 
        Safety,
Committee on Environment and Public Works,
U.S. Senate,
Washington, DC 20510.

Dear Mr. Chairman: On behalf of the Interstate Natural Gas Association 
of America (INGAA), I am writing to provide additional information for 
your April 5, 2001 public hearing on the interaction between 
environmental regulation and energy policy. I request that you make 
this letter and the attached reports a part of the hearing record. For 
the record, INGAA represents interstate natural gas pipelines in the 
United States, interprovincial natural gas pipelines in Canada and 
PEMEX in Mexico.
    In 1998, the U.S. Department of Energy (DOE) predicted that U.S. 
consumption of natural gas would increase from approximately 22 
Trillion cubic feet (Tcf) in 2000 to approximately 30 Tcf by 2010. The 
INGAA Foundation followed this prediction in 1999 with a study entitled 
``Pipeline and Storage Infrastructure Requirements for a 30 Tcf U.S. 
Gas Market.'' Both DOE and the INGAA Foundation predicted that this 
demand boost would be driven primarily by a significant increase in the 
use of natural gas for electric generation, due to its superior 
environmental benefits. Approximately 6.5 Tcf of the 30 Tcf estimate 
would be attributable to electric generation.
    Because of higher natural gas prices and possible pipeline capacity 
constraints in some regions of the United States, some policymakers are 
calling for revitalized use of coal and nuclear power in the future. 
These same policymakers are questioning whether the United States is 
too dependent on natural gas for our future.
    While INGAA believes and supports the need for balanced energy 
policy, such a balanced energy policy needs to continue recognizing the 
positive benefits of natural gas-fired power generation. In fact, the 
environmental consequences of p? continuing to strive for a 30 Tcf 
natural gas market by approximately 2010 could result in serious 
environmental impacts for years to come.
    Attached is a recently completed study by the INGAA Foundation 
entitled ``Implication of Reduced Gas Use on Emissions from Power 
Generation.'' This study examines a low-use case of natural gas for 
electric generation of 4.8 Tcf in 2010, a drop of 1.7 Tcf or 24 percent 
from the predicted 6.5 Tcf figure. Coal replaces natural gas for this 
1.7 Tcf capacity drop. This potential drop in natural gas usage would 
result in the failure to reduce 10 percent of the emissions of mercury 
and nitrogen oxides (NOx), and 4 percent in carbon dioxide 
(CO2) emissions. These 111,730 million tons of NOx emissions 
alone is comparable to the NOx emissions from 4 million automobiles. 
The 108 million tons in CO2 emissions is comparable to 
similar emissions from 28 million automobiles.
    This data provides a compelling case for the Bush Administration 
and the Congress to continue to develop the exploration, production and 
pipeline infrastructure needed to reach a 30 Tcf natural gas market in 
the United States by 2010. To back off now would have serious 
environmental consequences at the very time citizens are demanding a 
cleaner environment, and most public opinion polls demonstrate a 
willingness on behalf of the public to pay reasonably higher energy 
prices for a cleaner environment.
    I hope you find these INGAA Foundation reports useful to your 
Subcommittee's deliberations, and we would be pleased to meet with you 
and/or your staff in the future to discuss these issues in more detail.
            Sincerely,
                   Cuba Wadlington, Jr., President and CEO,
                                             Williams Gas Pipeline.
    Note: Reports referred in letter are retained in committee files.

                     CLEAN AIR ACT OVERSIGHT ISSUES

                              ----------                              

                         FRIDAY, APRIL 27, 2001

                                       U.S. Senate,
                 Committee on Environment and Public Works,
                                              Salem, New Hampshire.
    The committee met, pursuant to notice, at 2 p.m. in the 
media center of Salem High School, 44 Geremonty Drive, Salem, 
New Hampshire, Hon. Bob Smith (chairman of the committee) 
presiding.

               USE OF METHYL TERTIARY BUTYL ETHER (MTBE)

    Present: Senator Smith.

  OPENING STATEMENT OF HON. BOB SMITH, U.S. SENATOR FROM THE 
                     STATE OF NEW HAMPSHIRE

    Senator Smith. This hearing of the Environment and Public 
Works Committee of the U.S. Senate will come to order. Let me 
say good afternoon to everyone, thank you all for coming.
    This hearing is on MTBE. It may not be a household word, 
unless you have it in your household. Part of the problem is to 
give attention to this issue. That is why we're here today.
    I certainly want to thank the witnesses who will be here 
for this panel and the second panel. We'll just say for the 
benefit of those who are watching, we expect this to go about 2 
hours overall, so you can plan accordingly.
    I want to also thank Salem High School for allowing us to 
use this room. It's a terrific room for this kind of function.
    I'm just going to make a brief statement, then we'll go to 
the witnesses. Since taking over as chairman of the Environment 
and Public Committee, I've tried to ensure that New Hampshire 
residents have a strong a voice in national issues and some 
local issues, of course, as we develop environmental policy 
into the next century. In the 2 years prior to my chairmanship, 
only two New Hampshire witnesses had testified before the 
committee. With these witnesses today, we have heard from 30. 
The gentleman who just came in to sit down, Bob Varney, at DES, 
has been to Washington several times. It does make a 
difference, because we have a lot of smart people in this 
State, and it's nice to showcase them around the country.
    It certainly played a major role last year in ensuring that 
our tree farmers in northern New Hampshire didn't lose their 
business because of a shortsighted EPA Clean Water Act 
regulation known as Total Maximum Daily Load (TMDL). Acronyms 
are very prevalent in Washington.
    Another issue that has enormous New Hampshire involvement 
was that of brownfields reform. I'm very pleased to report that 
on Wednesday, the brownfields cleanup bill passed the U.S. 
Senate by a vote of 99 to 0. Let me tell you, as Bob already 
knows, because he has been working on it longer than I have--
and I've been working on it for at least 10 years--we haven't 
been able to get agreement in the Senate. Now to pass it 99 to 
0, with Ted Kennedy and Jesse Helms on the same side, all in 
agreement--it's got to be good. We're very excited about the 
enactment of this bill. It's going to bring a lot of money into 
New Hampshire to clean up those sites. But more importantly, 
it's going to promote the cleanup of brownfields, even without 
Federal money because contractors now will be allowed to clean 
them up.
    That's not the subject of this hearing. What we're looking 
at now is something that's called MTBE. The actual name is 
methyl tertiary butyl ether, but we'll call it MTBE the rest of 
the day, if you don't mind.
    I've asked our witnesses to share with us their expertise 
and their testimony and their knowledge on this issue in a way 
that they see fit. This will be very valuable in our efforts to 
develop the bill to deal with this problem, not only in New 
Hampshire, but also in other States of the United States. 
California, for one, has a tremendous problem. There are two 
very prominent Democrat Senators there, Feinstein and Boxer. We 
need their help, so this bill will be bipartisan. It is a 
regional problem, not a partisan one, as you'll find out as we 
go on.
    MTBE is a clean, cheap gasoline additive that boosts 
octane. It's been added to gasoline for over two decades. So 
those of you that are watching, and you're wondering what in 
the world this stuff is, we'll try to quickly mention it. I 
know the experts will be able to give you a lot more specifics.
    The 1990 Clean Air Act Amendments amended the Act to 
require the use of reformulated gasoline through a Federal 
clean air program run by the EPA called the RFG program. That 
law requires a cleaner burning gasoline to be used in certain 
areas of the country to improve air quality. Other areas, 
including southern New Hampshire, chose to participate. The RFG 
program has been successful in achieving air quality beyond the 
requirements that we expected.
    Unfortunately, a major side-effect of MTBE use in gasoline 
is that is sometimes causes water quality problems. The RFG 
program mandates the use of oxygenate inert gasoline. MTBE is 
one of two options currently in use, and the other is ethanol. 
We'll get into that a little bit later.
    The problem, though, with MTBE, is its ability to migrate 
very quickly through the ground, through the water into the 
water table. Then it's diffused through that water very 
quickly. Even at low levels of contamination, MTBE renders 
water unusable, as we will hear from Mrs. Miller in just a 
moment, because of its foul odor and taste. In an effort to 
address the clean air concern, the impact on our drinking water 
was neglected.
    Adequate research and science might have prevented this. 
But we didn't pay attention to the science or perhaps didn't 
look for the science. Now we have several billion dollars tied 
up in cleaning up our water as a result of trying to clean up 
our air. Now we have to change the law, perhaps at the State 
level, Senator Klemm, and certainly at the Federal level.
    We need fewer ``stovepipe,'' narrow-vision solutions to 
pollution problems; and we should find more holistic solutions 
for our environmental challenges. We should ask ourselves, 
``What these laws will do to the environment? Can we look at 
the system in a holistic way, as opposed to viewing it through 
a narrow scope.''
    One of the most distressing aspects of MTBE contamination 
is that the health effects of this gasoline additive are 
largely unknown. I'm hoping that folks from UNH will have more 
to say about that. But because of MTBE, New Hampshire has spent 
a lot of money in order to provide safe water for residents 
with contaminated wells. The Department of Environmental 
Services under Bob Varney is one of the best in the country, 
believe me. I don't say that lightly. That is a fact, and I've 
talked to almost all of them all over the country.
    The State has been providing bottled water as well as 
installing and maintaining very expensive and extensive 
treatment equipment. Particularly hard hit have been the 
communities in the southern interior, such as the homes around 
Arlington Lake in Salem, Frost Road in Derry and Green Hills 
Estates in Raymond.
    New Hampshire is not alone. Many other States also have had 
gasoline leaks or spills that resulted in costly cleanups, even 
the closure of wells. It remains a major problem that will not 
go away without Federal action, but we need to do it soon.
    I'm glad to hear that Governor Shaheen has joined this 
battle with her recent request to opt out of the RFG program. 
I'm glad to hear that the State legislature is pursuing 
creative options to get New Hampshire out of the RFG program. I 
support those efforts.
    We also share the common goal for protecting New 
Hampshire's water, and I intend to work with the State in every 
way I can, with every amount of influence that I can muster as 
the chairman of this committee, to see that we get that done.
    Unfortunately, even if allowed, New Hampshire's removal 
from the RFG program is not enough. It's only a band-aid. It's 
not going to provide the cure that we need. It's not going to 
keep MTBE out of New Hampshire. It's not going to clean up 
existing contamination, and additional measures will be 
required to maintain air quality. What it might do, if just the 
RFG issue is dealt with, is raise the price of New Hampshire 
gasoline, which I don't think anybody's too excited about.
    So we've got to find a better way. We've got go beyond our 
current vision; we have to increase current air quality and 
water quality assurances.
    Last year, I had introduced a bill in the Senate, S. 2962, 
that offered a comprehensive solution. It provided cleanup 
money; it banned MTBE; and it allowed the Governors to waive 
the oxygenate mandate. I believe Mr. Varney testified that it 
protected the current air quality from backsliding.
    So why didn't that bill pass and become law? It did report 
out of committee, but it died on the Senate floor, like so many 
other pieces of legislation. Why? Because of competing regional 
interests across the country. The MTBE producers, the ethanol 
producers, the refiners, there are so many. Then you have the 
regional issues of who has MTBE in their wells and who doesn't.
    So due to all these competing interests, many of the 
proposed Federal fixes just simply died. That was the problem. 
So any legislation dealing with MTBE will have to go through 
the Committee on Environment and Public Works. When it does 
come through there, I intend to have New Hampshire taken care 
of.
    We need to work together, though. The problem is, we need 
consensus. Everybody can't get exactly what they want. That's 
what we did with Brownfields, which is why were able to get a 
99 to 0 vote. Also we saw a 85 to 1 vote on the restoration of 
the Everglades, which didn't really pertain to New Hampshire, 
unless you want your kids to go and see the alligators, and I 
think you do.
    I'm going to make sure any bill that comes in through this 
committee is one that takes care of us here. It's my intention 
now, after we hear the information and testimony from the 
experts from our State, to introduce a bill very similar to 
last year's.
    As each witness testifies, please remember that this is a 
national hearing. It will get national attention. It is being 
covered locally by the cable folks, but remember, this 
testimony will go into the committee's records. I can pass this 
out to my colleagues in the other 50 States to let them know 
how much of a problem we have here in New Hampshire, that the 
chairman of this committee has here in New Hampshire, to be 
specific. I need help for my constituents.
    So thank you, each and every one of you for coming, all of 
the witnesses and the participants. Let me also say that each 
of the witnesses, we'll give you about 5 minutes, we're going 
to turn a light on somewhere. Don't be intimidated by it. If 
you can wrap it in 5 or 6 minutes, we'd appreciate it. All of 
your remarks written will be made part of the record. We've 
allowed time to have folks come up, take the microphone. This 
will become part of the record of Congress and the Senate. If 
you can try to do it in a minute or so, we'd appreciate it, 
especially if there are a lot of people speaking.
    If you choose to not make oral remarks, maybe you don't 
feel comfortable stepping up to the microphone, you can send me 
written remarks and I will make them part of the record if you 
get them to me within the next 2 weeks. So that whatever you 
have to say will be part of the Federal record on this issue.
    Let me introduce the first panel now. I'm pleased to have 
Christina Miller, who is a homeowner in Derry, the Honorable 
Arthur Klemm, President of the New Hampshire State Senate, and 
Robert Varney, who is the Commissioner of the New Hampshire 
DES. I think, Senator Klemm, since Mrs. Miller has this 
contaminant in her well, I think we'll start with her and move 
across to you, if that's OK with you.
    [Documents submitted for the record follow:]
                                               State House,
                                    Office of the Governor,
                                 Concord, NH 03301, April 16, 2001.

The Honorable Christine Todd Whitman, Administrator,
U.S. Environmental Protection Agency,
Ariel Rios Federal Building,
1200 Pennsylvania Avenue, NW
Washington, DC 20460

Re: Intent to Opt Out of the Federal Reformulated Gasoline Program

Dear Administrator Whitman: I write to make you aware of my decision 
that the State of New Hampshire must seek withdrawal from the Federal 
Reformulated Gasoline (RFG) program immediately. Therefore, I ask the 
U.S. Environmental Protection Agency (EPA) to promptly address its 
procedures for States opting out of the RFG program (40 CFR 80.72) to 
allow a much sooner effective date than January 1, 2004. I am taking 
this action because it appears to represent the only rational, and 
legal, approach available to the State at this time to sharply reduce 
the levels of methyl tertiary-butyl ether (MTBE) in gasoline supplied 
to New Hampshire.
    As you know, MTBE is a significant and rapidly increasing threat to 
New Hampshire's groundwater and surface water resources. MTBE is 
difficult and expensive to remediate because of its high solubility and 
its ability to move quickly t.hrough groundwater. Because MTBE travels 
farther in groundwater and does not break down rapidly, it can be 
difficult to pinpoint the source of the contamination. MTBE has been 
detected in public drinking water supplies and in private wells, and 
its remediation is consuming a disproportionately large percentage of 
the funds we have set aside for all petroleum contamination needs.
    New Hampshire is particularly frustrated with existing Federal 
barriers that prevent States from readily and effectively reducing or 
phasing-out the use of MTBE in gasoline. The Federal Clean Air Act 
essentially prohibits States from controlling individual components of 
gasoline, and it expressly mandates the oxygen content of RFG. Refiners 
in the east blend MTBE in RFG in concentrations 5-10 times greater than 
conventional gasoline--because it is the most cost-effective 
alternative for meeting this mandate. Because the Federal Clean Air Act 
and 'its associated regulations provide States with virtually no 
authority to reduce MTBE in gasoline, States that use RFG are 
essentially compelled to contaminate their precious water resources. 
This is an unacceptable situation.
    From the time we first recognized this problem, it has been clear 
that there are no simple solutions. As a result, on behalf of the New 
England Governors, I asked the Northeast States for Coordinated Air Use 
Management (NESCAUM) to thoroughly study the issues and options 
surrounding RFG and MTBE. Soon after, EPA's National Blue Ribbon Panel 
on MTBE was launched. The work products of both of these initiatives--
NESCAUM's RFG/MTBE Findings and Recommendations and the Blue Ribbon 
Panel Findings and Recommendations on the Use of Oxygenates in Gasoline 
recommended elimination of the oxygenate mandate from the Clean Air 
Act. The MTBE problem requires a Federal solution, but Congress has 
made little progress to date and no Federal solution appears imminent.
    As a result, the State of New Hampshire is forced to pursue the 
only legal, rational option that exists for reducing MTBE in gasoline: 
to opt out of the Federal RFG program. I have thus directed the New 
Hampshire Department of Environmental Services (DES) to immediately 
inform EPA Region I of this action, to promptly consult with EPA's 
regional office to establish the requirements necessary to implement 
this action, and to expeditiously fulfill those requirements. Since I 
understand that a strict interpretation of the applicable Federal 
regulations (i.e., 40 CFR 80) prevents New Hampshire from opting out of 
the RFG program prior to January 1, 2004, I further request that EPA 
address these regulations to provide for an earlier opt out date and/or 
such other relief as may prevent further MTBE contamination of New 
Hampshire's water resources between now and 2004.
    As a former Governor, I am sure you understand the economic and 
environmental importance of solving the problem of MTBE contamination. 
From your experience as Governor, you are also aware of the aggressive 
steps States have taken to replace underground fuel tanks and educate 
consumers regarding spill prevention and the proper handling of 
gasoline. Given the volume of gasoline distributed, however, it is 
ultimately unreasonable to expect that there will be no releases, even 
with the most diligent gasoline handling. The pollution prevention and 
source reduction approaches that the States have found to be 
extraordinarily effective advise us to reduce, and eventually 
eliminate, the use of MTBE as a gasoline additive in the first 'place.
    I look forward to working with you so that New Hampshire can 
eliminate the risks posed to our groundwater resources by MtBE in the 
near future. Should you have any questions, please feel free to contact 
me or DES Commissioner Robert W. Varney at your convenience.
            Very truly yours,
                                  Jeanne Shaheen, Governer.
                                 ______
                                 
       Bill Summary of S. 2962 as reported in the 106th Congress
    Federal Reformulated Fuels Act of 2000--Amends the Clean Air Act 
(CAA) to authorize a State Governor, upon notification to the 
Administrator of the Environmental Protection Agency (EPA) during the 
90-day period beginning on this Act's enactment date, or during the 90-
day period beginning on the date an area in the State becomes a covered 
area as a result of reclassification as a Severe ozone nonattainment 
area, to waive oxygen content requirements for reformulated gasoline 
sold or dispensed in the State. Considers gasoline that complies with 
all other requirements for reformulated gasoline other than those 
regarding oxygen content to be reformulated gasoline.
    Requires the Administrator to promulgate regulations to ensure that 
reductions of toxic air pollutant emissions and aromatic hydrocarbon 
content achieved under the reformulated gasoline program before this 
Act's enactment are maintained in States for which the oxygenate 
requirement is waived or to apply a specified alternative performance 
standard to reformulated gasoline sold in such States.
    (Sec. 3) Authorizes the Administrator to control the sale or 
introduction into commerce of any fuel or fuel additive that causes or 
contributes to air or water pollution that may be anticipated to 
endanger public health or welfare. Permits States not subject to a 
prohibition on enforcement of certain State emission control standards 
to prescribe such control on fuel or fuel additives for water quality 
protection purposes.
    Requires the Administrator to ban the use of methyl tertiary butyl 
ether (MTBE) in gasoline. Authorizes the Administrator to establish a 
schedule to phaseout the use of MTBE preceding such ban.
    (Sec. 4) Authorizes the Administrator to approve a revision of a 
State implementation plan that excludes an area from a waiver from Reid 
vapor pressure requirements provided for ethanol if: (1) the State 
demonstrates that increases in volatile organic compound emissions 
resulting from the waiver significantly interfere with attainment or 
maintenance of the national ambient air quality standard for ozone; and 
(2) the Administrator determines the exclusion to be reasonable and 
practicable.
    (Sec. 5) Directs (currently, authorizes) the Administrator, for 
purposes of registration of fuels or fuel additives and on a regular 
basis, to require manufacturers of such fuels or additives to conduct 
tests to determine potential public health and environmental effects 
(currently, public health effects) of the fuel or additive and to meet 
other existing requirements.
    (Sec. 6) Requires motor vehicle fuel sold in the United States in 
2008 and thereafter to be comprised (on a 6-month average basis) of a 
specified percentage of clean alternative fuel. Phases in such 
percentage requirement, to require motor vehicle fuel to contain 1.5 
percent clean alternative fuel in 2011 and thereafter.
    Requires all motor vehicle fuel sold in the United States during 
2002 through 2007 to contain, on a 6-month average basis, a specified 
percentage of renewable fuel. Phases in the percentage requirement, to 
require fuel to contain 1.1 percent renewable fuel by 2007.
    Authorizes credit trading programs to permit persons who refine, 
blend, or import motor vehicle fuel with more than the required clean 
alternative or renewable fuel content or who manufacture certain 
energy-efficient vehicles to use or transfer such credits to others for 
compliance purposes. Permits the use of the vehicle manufacturer 
credits to provide any portion of the non-Federal share required for an 
alternative fuel project under Federal-aid highway provisions regarding 
the congestion mitigation and air quality improvement program or a 
voluntary supply commitment under the Energy Policy Act of 1992.
    Provides for a temporary waiver of this section's requirements upon 
State petition if: (1) implementation would severely harm the economy 
or environment of a State, region, or the United States; or (2) there 
is an inadequate domestic supply or distribution capacity to meet such 
requirements. Authorizes exemptions from such requirements for small 
refiners,
    Makes violators of this section subject to civil penalties under 
the CAA.
    (Sec. 7) Authorizes the Administrator to approve State 
implementation plan revisions that apply a prohibition on the sale of 
conventional gasoline in covered areas (areas requiring the use of 
reformulated gasoline) to a nonclassified area.
    (Sec. 8) Amends the Solid Waste Disposal Act to authorize the EPA 
Administrator and States to use funds from the Leaking Underground 
Storage Tank Trust Fund to: (1) carry out corrective actions with 
respect to a release of MTBE that presents a risk to human health or 
welfare or the environment; and (2) conduct inspections, issue orders, 
or bring actions under the underground storage tank regulation program. 
Authorizes appropriations.
    (Sec. 9) Directs the Administrator to publish analyses of: (1) the 
changes in emissions of air pollutants and air quality due to the use 
of motor vehicle fuel and fuel additives resulting from the 
implementation of this Act; and (2) the effects of motor vehicle fuel 
and fuel additives on public health and the environment.
    Requires the Administrator to publish regulations establishing 
performance requirements to ensure that, as compared with emissions due 
to the use of motor vehicle fuel and fuel additives during the period 
of 1998 through 2000, emissions due to the use of such fuel and 
additives will not be significantly greater on a per-gallon average 
basis in any region or cause air quality to be significantly worse in 
any region.
    Directs the Administrator to publish regulations establishing 
performance requirements for such fuel and additives, the use of such 
fuel and additives, and motor vehicles that are necessary to ensure 
adequate public health and environmental protection and to achieve 
specific reductions in the use of compounds or associated emission 
products that pose the greatest human health risk.
    Requires the Administrator to finalize an emissions model that 
reflects the effects of fuel characteristics or components on emissions 
from vehicles in the motor vehicle fleet during 2005.
                       mtbe background fact sheet
    Methyl tertiary butyl ether has been used as an octane booster in 
gasoline since the 1970's. The historic levels of MTBE used for octane 
enhancement are low, approximately 1 percent of the total national fuel 
market, compared to the levels found in reformulated gasoline being 
used today, approximately 3 percent of the total national fuel market.
    The reformulated gasoline (RFG) program was established by the 
Clean Air Amendments of 1990. The RFG program requires gasoline in 
certain areas to meet specific formula and performance standards that 
are stricter than standards for conventional gasoline. The RFG program 
sets minimum content requirements for oxygen and detergents as well as 
limits on the amount of benzene, aromatics and lead allowed in 
gasoline. The RFG program also limits emissions of toxic air pollutants 
and volatile organic compounds. The 2 percent oxygen requirement of the 
RFG program is currently fulfilled by adding either 15 percent MTBE or 
10 percent ethanol to gasoline.
    The RFG program has been successful, One notable success it that 
reformulated gasoline in many RFG areas exceeds the statutory 
requirement to reduce toxic emissions. This over-compliance is due to 
the dilution effect of the oxygenate additives MTBE and ethanol, 
relatively toxic-free additives.
    When leaked or spilled into the environment, MTBE can cause serious 
drinking water quality problems. MTBE moves quickly through land and 
water without significant biodegredation or natural attenuation. Once 
in undergroundwater supplies, MTBE can be detected by smell and taste 
at low concentrations. Small amounts of MTBE can render water supplies 
undrinkable.
    Cleanup of MTBE contamination is possible but difficult and 
expensive. There are several ways to remove MTBE from drinking water. 
Contaminated water may be filtered, aerated or bioremediated. All 
options require installation and use of special equipment as well as 
on-going maintenance.
    Existing programs are either not fully funded or are not structured 
to provide funding to States for cleanup of substances that move 
quickly and that ruin drinking water supplies at low levels, well below 
levels that may be hazardous to public health.
    The major sources of MTBE contamination are leaking underground 
storage tanks. Many underground storage tanks have been or are 
currently being replaced, per a recent EPA regulation, however there 
remains questions regarding the ability to employ completely sealed 
fuel storage systems. Other sources include automobile accidents, 
fueling over-fills and backyard mechanics.
    Christina, you're on.

      STATEMENT OF CHRISTINA MILLER, DERRY, NEW HAMPSHIRE

    Mrs. Miller. Good afternoon, Senator, representatives and 
other distinguished guests. Thank you for allowing me to come 
and speak about my MTBE experiences.
    My name is Christina Miller and I am a homeowner and live 
at 14 Skywalk Drive in Derry, New Hampshire. My husband and I 
have been living at this address since June 1998. When we 
purchased this property, a water test was performed and our 
water measured high in nitrates, so an additional water 
purification system was installed. No mention of MTBE was made, 
nor were any tests provided.
    In January 2000, we received a notice that our MTBE sample 
was below the 13 parts per billion limit at 9 parts per 
billion. We were retested in April 2000 and the reading was 
then 22. First of all, this indicates that anyone with any 
detection of MTBE should be cautions, because there can be 
significant fluctuations. Current studies are all short term in 
length and are still limited as to the impact to the damage of 
your liver, kidney and other carcinogens.
    Furthermore, another test in May then indicated the 
percentage had dropped again. But also, MTBE, as a known 
problem, its dispersion and control is not well understood. 
Letters we received are very confusing. On page one of a letter 
from the New Hampshire Department of Health and Human Services 
dated July 31st, 2000, which had a 9.5 MTBE level indicated 
that there are no restrictions on water usage. Then on page two 
it stated, although the MTBE concentration is below drinking 
water standards, because of the concern about possible 
fluctuations in the contaminant level, we understand that DES 
will be installing a point of entry water treatment system.
    When the MTBE levels were 22, we were warned not to use the 
water. The material provided told us how to better store 
gasoline, making us feel like we were the source of the 
problem. I don't feel provided us with enough information that 
made us more comfortable on the effects of MTBE.
    Even though I was pregnant and informed the authorities 
involved in the study, we were not offered water alternatives 
or informed in any letter about alternative water purification 
or MTBE's harmful effects on us, never mind my unborn baby. 
Since we were informed about this problem, I began to do what I 
consider a considerable amount of research on my own, but 
almost to no avail. There is not much information found on the 
effects of MTBE or the problems that it may cause in the long 
run.
    Of all the information that is out there, I have come to 
the conclusion that there was not enough testing done on MTBE 
before it had begun to be used in gasoline. In June of 2000, we 
finally started to receive bottled water. We were provided as 
much as we needed. Nice, but still a problem to take a shower, 
to do the laundry, wash our fruits and vegetables, or for 
cooking, among many other things we use faucet water for but 
take for granted.
    After repeated phone calls and what seemed like lots of 
convincing, it was finally decided we might qualify for a water 
purification system. A new water purification system was 
finally installed at our residence in September. What concerns 
us also is the fact that we received no paperwork that the 
system will be maintained and upgraded as needed for the 
lifetime of the residence.
    Also a big concern of ours is the resale value of our home, 
as we intend to sell it in the future. We are also still very 
concerned about our health, which probably won't go away for a 
while, as there still is no resolution to this problem.
    In closing, the NHDES did the right thing in testing for 
levels across the State, but should provide honest and full 
disclosure to all residents on MTBE and its possible harmful 
effects. The NHDES needs to also be proactive instead of 
reactive. We had to continually call to get results. We still 
have not been provided any notice of what the source of 
contamination is.
    Finally, if there are long term effects on our health, how 
does the State expect to respond?
    Thank you.
    Senator Smith. Thank you very much, Mrs. Miller.
    Mr. Bob Varney, Director of the Department of Environmental 
Services in New Hampshire. I've had the pleasure of working 
with him now for, well, probably more years than either one of 
us wants to admit.

  STATEMENT OF ROBERT W. VARNEY, COMMISSIONER, NEW HAMPSHIRE 
              DEPARTMENT OF ENVIRONMENTAL SERVICES

    Mr. Varney. Thank you, Mr. Chairman. I am pleased to be 
here on behalf of New Hampshire today.
    The issue of MTBE contamination has been of great concern 
to us here in the State for quite some time. It's even more of 
a problem in the southern part of our State where we have more 
gasoline usage and more potential sources of contamination, as 
well as closer proximity of residences.
    We have been very frustrated, quite frankly, in dealing 
with the MTBE issue. We very much appreciate your leadership in 
the U.S. Senate in trying to craft a compromise, as you've done 
recently with the Brownfields legislation, to help us reduce 
and eventually eliminate MTBE as soon as possible.
    Here in New Hampshire, using the best available information 
on health related issues, we have set a very protective health 
standard of 13 parts per billion for drinking water, which is 
the most protective health standard for MTBE in the country. 
California is the only other State that has set a standard. 
U.S. EPA has not even set a standard on this nationally. But we 
moved ahead on our own, because we were very concerned about 
the long term health effects on our citizens.
    We have a substantial amount of information on our website, 
and have tried the best we can with the limited resources that 
we have to help various citizens who have been impacted. 
Overall, 16 percent of our public water supplies have some 
level of MTBE contamination in them. In Rockingham County, it's 
even higher. Our private wells are also affected, and it could 
range, depending on the year, from 14 percent to 25 percent of 
our wells have some level of MTBE in them.
    The interesting thing about this is that it's not always 
directly correlated to an underground fuel tank issue. We have 
removed about 15,000 tanks in this State and have replaced them 
with about 4,000 state-of-the-art double walled or cathodically 
protected tanks. They have a 99.9 percent compliance rate for 
USD regulations which I believe is probably the highest in the 
country.
    Even so, we're still finding MTBE in places where you 
wouldn't expect it. It appears that some of it may be from 
homeowner use, in terms of lawnmowers, snowblowers, weed 
whackers, chain saws and so on, where small amounts of gasoline 
are impacting local wells. We need to work as hard as we can on 
public education.
    Overall expenses have been substantial. We've spent about 
$200,000 for various point of entry treatment systems, such as 
you've heard about today, with very limited funding available. 
One of our difficulties is having a source that we can look to 
to pick up the tab for some of these costs. Our projections are 
that it's going to cost the State as much as a $1 million to 
deal with the remediation of MTBE by the year 2006, based on 
current trends. We urge you to look very seriously at the LUST 
trust fund and other potential sources of revenue that could 
help the State and help the local communities and local 
homeowners to be able to deal with this issue quickly and cost 
effectively.
    As you know, there are various tradeoffs regarding MTBE, 
both air and water. It's not a simple solution. You know the 
issue well. Just to get that vote out of the committee was 
quite an accomplishment, I think. We look to your leadership in 
the future in Congress to try to come up with a national 
solution for MTBE. We need to work with our neighboring States 
to ensure that we don't create a boutique fuel problem where we 
have fuel supplies or huge increase in gasoline costs.
    We need to make sure that we're not replacing one problem 
with another problem, which the ethanol replacement situation 
could be, not only in terms of cost and availability but also 
in terms of remediation issues that haven't been fully studied 
yet and aren't fully understood. For example, the availability 
of ethanol in groundwater may result in benzene being more 
persistent in the environment, and that's a known carcinogen. 
So we may actually increase the risk to public health in the 
future as it relates to ethanol, and more studies are needed.
    Finally, I just want to say that we appreciate your 
efforts. We need State flexibility to be able to do the right 
thing. We need to eliminate MTBE as soon as possible, and do it 
in a way that will have the best overall impact on public 
health. Keep in mind that our violations for clean air are 
usually 1 day events. But contamination of MTBE in someone's 
water supply is a daily or even hourly impact on our citizens. 
So we need to consider that tradeoff as we look to the future 
and come up with some permanent national solutions that will be 
in New Hampshire's best interests.
    Thank you, Senator.
    Senator Smith. Thank you very much, Mr. Varney.
    Senator Klemm, welcome.

STATEMENT OF HON. ARTHUR KLEMM, PRESIDENT, NEW HAMPSHIRE STATE 
                             SENATE

    Senator Klemm. Thank you, Senator Smith.
    Let me say I appreciate your coming to the district to talk 
about this issue. I am here today to bring more awareness to an 
issue that affects all of us, my neighbors and many citizens in 
New Hampshire. As a legislator and a businessman, I am growing 
increasingly concerned with reports of MTBE manifesting itself 
in groundwater in New Hampshire, and particularly in this 
district.
    As you've heard, the Commissioner has spoken in great 
detail about the problems we have. But my understanding is that 
there are reports of MTBE causing asthma, shortness of breath, 
headaches and an inability to concentrate. MTBE has been proven 
to cause cancer in animals and is considered a carcinogen.
    Water used for drinking and bathing should have not more 
than 13 parts per billion per State law. Yet in some 
communities, such as Salem, levels have been detected as high 
as 150 parts per billion. The Town reports that over 25 private 
properties have had positive test results for MTBE. Southern 
New Hampshire has a high population and a lot of private wells.
    The New Hampshire House was unable to pass legislation this 
past year to ban the substance. But now, alongside key 
legislators in the House and Senate, we are prepared to go 
forward and make a difference.
    This year, I am working with a bipartisan group of law 
makers to promote legislation to clean up our water supply and 
alleviate future contamination. There are three pieces of 
legislation before the House and Senate this year aimed at 
taking control of this problem. House Bill 755 relates to 
groundwater contamination and is being worked on in the House 
committee. House Bill 758, relative to the sale of gasoline 
containing ethers, which I am a co-sponsor of, has been voted 
out of committee 13 to 1 and will soon move on to the Senate.
    Last, Senate Bill 189, which sets up a gasoline remediation 
and elimination fund, is being worked on in the Senate 
Environment Committee and is expected to come out of committee 
shortly.
    In conclusion, I anticipate even more communities will come 
to the legislature for help in the coming months. I am working 
out in front on this legislation because I do not think we, as 
lawmakers, want to be playing catch-up on this issue. I think 
it is in our best interest to act now to encourage cleaner 
water for our neighborhoods.
    Thank you for hearing my testimony today. I ask you to work 
with us to move forward in the interest of public health.
    Senator Smith. Thank you very much, Senator Klemm. I want 
to start by thanking you for your leadership on this issue, and 
your colleague, Senator Russ Prescott, who could not be here 
today because of another commitment.
    Senator Prescott had a meeting the other night that I 
attended with some 50 or so constituents, many of whom, like 
Mrs. Miller, who was there, had this MTBE in their wells. I 
want you to know that I welcome any efforts on your part and 
the State's part to correct this problem. It's a good impetus 
for me to put pressure on my colleagues to say that we need to 
resolve this issue.
    So I welcome your support in that and whatever you pass 
moving us in the right direction should certainly be a help.
    Let me just start with you, Senator Klemm. You have a 
convenience store, and I just met, along the border, right in 
this area of Salem, where you have these Windhams. I know, I 
met with a representative group in Washington a couple of days 
ago of convenience store owners.
    One of the problems that they raised with me, they said 
that we know that we have this problem with some of our tanks, 
but we just don't have the resources to replace them. Some of 
these people are on a margin, they have two or three employees. 
Maybe you could comment on what you're hearing from your 
colleagues in the convenience store business where you have 
those tanks, and also what you're hearing from constituents.
    Senator Klemm. Thank you for the question. Fortunately, 
under Commissioner Varney's leadership, New Hampshire was ahead 
on this problem. We set up a program for reimbursement for 
stores to take their tanks out of the ground and have them 
replaced with double walled tanks and cathodic protection and 
all of the up to date science that we have to see if any of 
these tanks are leaking.
    As Commissioner Varney has said, there are almost, I guess 
it's 99.9 percent compliance in the State because of this 
program. It's one of the ways we're looking at maybe helping, 
that the MTBE is maybe doing something very similar to the fund 
we created to replace these tanks to help homeowners in the 
State.
    Senator Smith. Mr. Varney, it's 99 percent completion on 
the tanks, is that about right, in terms of replaced tanks?
    Mr. Varney. We've had about 99 percent compliance with the 
rule. There are only eight or ten or so tanks left statewide 
that are not in compliance. One of the ways that we've done 
that, in addition to the fund that Senator Klemm just 
mentioned, is one additional provision which has turned out 
well for us also, and that's a program whereby if an operator 
can show that they don't have the resources to remove the tank, 
and in particular, there are cases where they probably don't 
even sell gasoline any more, they don't have the market and 
don't have the funds to remove the tank.
    We can actually step in and, in agreement with the owner, 
who shows that they don't have the resources, can actually 
remove the tank for them and then place a lien on the property. 
The property is then a clean property that has higher value, 
we've eliminated the threat to the neighborhood in terms of a 
leaking underground tank. For some of these property owners, 
the property may be their major asset. So at some point in the 
future, we'll be reimbursed when there's a transfer of 
property.
    That's worked out very well because it's minimized the 
impact on the small business owner that's struggling to 
survive.
    Senator Smith. You've obviously done an incredible job here 
in the State. I wish other States had done as well in terms of 
replacing those tanks. The obvious fact, though, that jumps out 
at you is that you have 99 percent or so completion of the 
replacement of the leaking tanks. Yet we still have 6,000 plus 
wells contaminated in New Hampshire, and they're growing.
    So it has to say that there are other sources. You 
mentioned a few, whether it be the lawnmower or whatever. Also 
I think you might add to the list the fact that when you put 
the nozzle back on the pump after you've pumped your gas, it 
may run off there. Certainly boats on the lakes for surface 
water, not groundwater.
    Where are the lion's share of the other contaminants, do 
you think? What corrective action, if we've gotten the tank 
problem taken care of, what other corrective action do we have 
to take to stop this increase in wells being contaminated?
    Mr. Varney. Well, a couple of things. One is the homeowner 
use that I mentioned previously. The other is simply 
discovering tanks that no one knew existed.
    Senator Smith. So there may be more out there that we don't 
know about?
    Mr. Varney. There may be other tanks out there that we're 
unaware of that even in some cases the property owner is 
unaware of. Every day I hear of different stories of people 
finding tanks that no one knew were there. So the universe 
increases over time as properties are redeveloped, as people 
look to finance and perhaps do some site research and 
investigation.
    So those would be the primary uses. But also keep in mind 
that we use gasoline for our automobiles and for many uses. Any 
spillage that's associated with those uses, even in very small 
amounts, can contaminate a well.
    Senator Smith. Let me ask the same question of both of you. 
We have in the Federal Leaking Underground Storage Tank 
program, the acronym, they used to call it LUST, and that 
didn't sound too good. So we took the L off, and it's now the 
Underground Storage Tank program. Had a little trouble with 
that acronym.
    We have about $15 billion in that Federal program right 
now. Would you both be supportive of using some of the money in 
a State like New Hampshire, where we've met our compliance 
obligations on the tanks, for the most part, as we find new 
ones, as you said we might, would you be supportive of using 
some of the dollars in that fund for remedial help for people 
like Mrs. Miller, who have the problem in their wells? Is it 
appropriate to take that money from that program, which is 
really designed to stop the tanks from leaking by replacing 
them or sealing them, but would you be in favor of taking some 
of those dollars and putting them toward immediate and urgent 
help for those who are in need?
    Mr. Varney. Yes, I would.
    Senator Smith. Is that appropriate, in your opinion?
    Mr. Varney. Yes, I do think it's appropriate, and I think 
there's a logical nexus in regard to that issue. I really do. I 
think that the resources need to be there. The States are 
struggling to do the best they can with their limited 
resources. Having the UST trust fund available to us as a 
resource could make a huge difference and improve our ability 
to respond quickly and provide the funding and the followup 
there that's needed by the local citizens.
    Senator Klemm. I also agree with what Commissioner Varney 
has said. We are working in the State house in concord to come 
up with a program very similar just to treat the MTBE problem, 
very similar to the Underground Storage Tank Fund. I think that 
if there is money available at the Federal level to help the 
citizens with their MTBE problems, I think we should use that 
money.
    Senator Smith. I think we just got item No. 1 in our 
Federal legislation to use dollars in that Underground Storage 
Tank for the help of people like Mrs. Miller.
    Mrs. Miller, let me ask you, as a person really living with 
it, it's easy for us to sit here and talk about it, but you're 
living with it in your well, what is you greatest concern? What 
is the thing that bothers you the most about this? What is it 
that you really are concerned about more than anything else?
    Mrs. Miller. Probably the greatest concern that we have is 
that we don't right now, in our area, we don't know where it's 
coming from. They've done a lot of testing in our area. They 
come back quarterly to take a sample to see if it changes. It 
does for us. It went all the way from 4 to 22, and no one 
really knows when it rains if it's worse, if it's dry if it's 
worse. It's something that not too many people know much about.
    So I guess that's what concerns us the most, is that it 
will be affecting our health. We do have the system, but now we 
have to deal with the system. For us, we were lucky, because 
our basement was unfinished. So it took up almost a quarter of 
our basement, because they ended up finding we were high in 
radon, too, which ended up having another whole system for us.
    So I think that's what concerns us the most. I mean, the 
look, we can get over the look of the whole system in our 
basement, because it's good for our health now that we have 
good water. But I think overall we're concerned, because how do 
we know if it's going to get worse or better? I guess there 
just needs to continue to be more research on it.
    Senator Smith. Commissioner Varney, do you have any 
specifics that you can share with us at this point as to where 
the source might be for this vein of water that's causing this, 
if in fact we've sealed most of the tanks in the area that we 
know of? I don't mean to put you on the spot. It's not a 
hostile question. I just was curious if you know what that 
source might be, or the predominant source here in this area.
    Mr. Varney. I don't. Greg McGarry from our staff, who is 
working on that issue, is here, and may know some more about 
it.
    Senator Smith. Greg, why don't you just come up, identify 
yourself for the record.
    Mr. McGarry. We're seeing a difficult situation [inaudible] 
contaminate groundwater and bedrock [inaudible] water flowing 
[inaudible] unlike groundwater in the soil, it's pretty much 
[inaudible]. Consequently, we are having difficulty making a 
determination where that [inaudible].
    Senator Smith. So again, when you say backyard mechanics, 
are there extensive examples of that in this area?
    Mr. McGarry. No, there's probably one or two [inaudible]--
washing parts [inaudible] leaking gasoline [inaudible] 
contaminated gasoline [inaudible] backyard.
    Senator Smith. Sometimes extra funds wouldn't do the job, 
because you wouldn't have the science to work it anyway. But in 
this particular case, right here in this area, if additional 
funds either at the State or Federal or both level were to be 
provided to do more studies on these kinds of sources, would 
this be helpful, or are we pretty much just going to----
    Mr. Varney. Yes, absolutely, Senator. We are, as you can 
imagine, with the increase in MTBE contamination, we're 
stretched thin on this issue. We have very limited resources 
and we're trying to deal with multiple sites, multiple 
problems, multiple sources of pollution, where it's pollution 
you can't see, you're not sure where it is, you're not sure 
where it came from, you're not sure when it occurred. To do all 
of the investigation work in a timely and accelerated fashion, 
you need resources available to be able to do that, to be able 
to bring on additional consultants who would work under our 
direction would accelerate the process substantially.
    Senator Smith. You have done or are doing a study on this 
aren't you?
    Mr. Varney. Yes, we are.
    Senator Smith. Has that been completed or do you know? Has 
that study been completed, sir?
    Mr. McGarry. No.
    Senator Smith. What's the timeline on that, roughly?
    Mr. McGarry. [inaudible] depending on the hydraulics used, 
depending on the concentration [inaudible] so it's literally a 
moving target that's very difficult to get a handle on on a 
technical basis.
    Senator Smith. When you think about the number of wells 
that are now contaminated, you could probably extrapolate to 
30,000 or 40,000 wells or more over the next few years if this 
continues. But whether there's MTBE in the gasoline or not, the 
fact that there might be gasoline or whatever it is in your 
drinking water or in your bathing water is not a comforting 
thought.
    Now, tell how the problem is exacerbated by the fact that 
it is MTBE in the gasoline as opposed to just gasoline moving 
into the water without MTBE. If we took MTBE out these folks 
are still going to have gasoline in their water.
    Mr. McGarry. Probably they're not.
    Senator Smith. All right, that's what I want to hear.
    Mr. McGarry. Probably they're not. The vast majority of 
public and private wells or water supplies that have been 
affected contain only MTBE or extremely low concentrations of 
other gasoline additives.
    Senator Smith. It moves quickly where the rest of those 
liquids don't.
    Mr. McGarry. Right, the soil can tend to hold back some of 
the other gasoline components, bacteria in the soil is also 
capable of consuming much of those gasoline components at low 
concentration. But MTBE moves very quickly, bacteria, not 
particularly thrilled with consuming the MTBE, in part because 
it's a man-made compound.
    Senator Smith. I might want to have you, Nancy, when you 
come up here, expand on that a little bit yourself. I'd be 
interested in hearing that. Thank you very much, Fred.
    Mrs. Miller, is there anything now that any of us need to 
do to help you in the immediate? We all know we're trying to 
get this taken care of. But is there anything at the Federal 
level or at the State level or at the DES level or whatever to 
help you? Is your water OK now as far as the treatment that 
you're getting? What are your needs that you want to let us 
know about right here now that we can deal with?
    Mrs. Miller. I think our water right now is fine. I guess 
[inaudible] to let us know [inaudible] as well as [inaudible] 
get a letter from the DES explaining what the level means. I 
guess the only thing we were concerned about was that we do 
have the system and they do maintain it, we don't pay anything 
for it, it's all paid for by the State. I guess just having 
something letting us know that. I mean, we don't plan to move. 
But if we do, who's to say that the people that are going to 
buy it believe us that we don't pay for anything? I mean, it's 
very nice that we don't pay for it. I don't think I would 
believe it if I went to a house to buy it that everything's 
free right now.
    I guess that's what I find it hard to believe, that we will 
never have to pay for it. I don't want the system to just sit 
in our basement, if the money runs out and then we will have to 
pay for it, then that will make it a problem for us.
    Senator Smith. Thank you very much. Does any other witness 
wish to make concluding remarks before we move on to the next 
panel?
    I want to thank you all for being here. We appreciate it. 
If you'd like to stay, I want to go to the Q&A period, we can 
have everyone come up and maybe some of the members of the 
audience may have a question. If you have to leave, we 
understand.
    Thank you. One other question. Is what Mrs. Miller's 
problem is fairly reflective, fairly symptomatic of everybody 
else's problem in this region? Are there people out there that 
don't have the equipment that she has in her basement, or ar we 
getting there? Are there people out there that are really 
suffering right now, can't use their water? Where are we on 
that?
    Mr. Varney. We have been very quietly working with local 
homeowners for many years around the State dealing with 
gasoline contamination in their wells, helping not only to 
provide bottled water initially and point of entry water 
treatment systems but even locating new supply sources to put 
in a community public water supply so they would have a water 
line instead of an individual well.
    So it's something we've been dealing with for a long, long 
time. Because of the characteristics of MTBE, the problem is 
worsening and it's putting a big strain on our resources here 
in the State. So any Federal support, Federal funding that 
could be provided would be put to very good use.
    Senator Smith. Thank you very much to all of you for your 
testimony, especially Mrs. Miller, thank you.
    As the next panel comes up, I want to take a moment to 
introduce the two folks who are sitting behind me. Chris 
Hessler does all the clean air issues for me on the Environment 
and Public Works Committee, as one of the deputy staff 
directors on that committee. Of course Melinda Cross, who 
assists Chris and helps me a lot. She's from Newmarket. So 
somebody from Newmarket made good and moved out into the world.
    So I'm delighted to have both of them with me. For all of 
you that have technical questions, they would probably be the 
best ones to ask, either formally or informally.
    I'd like to introduce the second panel. Moving from right 
to left, Dr. Nancy Kinner, who's a professor at the University 
of New Hampshire. Bill Holmberg, who's a resident of Bowe, New 
Hampshire, and biofuels producer. Patty Aho, Maine Petroleum 
Association. It's great to have all three of you here. We 
appreciate your coming and providing you testimony.
    Again, same rules. You have 5 or 6 minutes to summarize. 
Your written statement will be made part of the record and if 
you wish to add anything to it, you'll have 2 weeks to do that, 
if you find something else you need to add to it.
    So I'll start with you, Dr. Kinner.

  STATEMENT OF NANCY KINNER, PROFESSOR OF CIVIL ENGINEERING, 
                  UNIVERSITY OF NEW HAMPSHIRE

    Ms. Kinner. Thank you very much, Senator.
    If we could have the lights down. What I'm going to talk 
today about is really going to tie in with the first panel. 
It's about the fate, transport, and remediation of MTBE in 
groundwater.
    I just wanted to give you a little bit of background. I'm 
the director of the Bedrock Bioremediation Center, which is a 
U.S. EPA funded research center at the University of New 
Hampshire. We have a national test site for remediation of 
chlorinated solvents, and will be opening up a site on gasoline 
MTBE. One of our main goals is to actually do independent third 
party testing of innovative and emerging technologies for 
treatment of these contaminants in bedrock.
    If we look at MTBE, as became clear in the first panel, 
it's very soluble in water. It's readily dissolved into 
groundwater or into precipitation, so that if we have a 
release, for instance, of uncombusted fuel, that MTBE in the 
gasoline can dissolve in precipitation and then be carried down 
as rainfall to the earth's surface, and then as runoff go into 
either surface water or infiltrate into the groundwater. If we 
have some kind of a gasoline spill or release, the MTBE will 
travel with that gasoline down through the soil and then the 
gasoline, because it's insoluble in water, and lighter than the 
water, will pool on top of the groundwater, and then the MTBE, 
because it's so soluble in water, will dissolve into the 
groundwater.
    To give you an idea of the scope of this, if gasoline 
contains about 10 percent MTBE and the temperature is 77 
degrees Fahrenheit, the solubility of MTBE is such that we 
could have up to 5 million micrograms per liter of MTBE in 
water right below that gasoline. To put it in perspective, the 
MTBE advisories and regulations range anywhere from 70 
micrograms per liter, which is the EPA health advisory, down to 
the 13 micrograms per liter primary drinking water standard in 
New Hampshire.
    Once MTBE gets into that water, it stays there. It won't 
adhere to rock or soil, as Fred mentioned earlier. This is 
unlike other gasoline contaminants, benzene, toluene, 
naphthalene, that all like to stick to surfaces. But MTBE 
moves. It travels along at the same velocity as the 
groundwater.
    So if the groundwater in an area moves in inches per year, 
the MTBE will move in inches per year. If it moves in feet per 
day, it's moving very rapidly with the water.
    As a result, plumes of MTBE can travel for miles from the 
source, potentially. One gallon of gasoline can contaminate up 
to 4 million gallons of groundwater with MTBE. So that if we 
talk about remediation, we need to have upwards of 10,000fold 
reductions to meet those regulatory and advisory levels. Now, 
remediation in different environments is progressively harder. 
If we look at surface water, it's relatively easy. It's an 
oxygenated environment, relatively easy to see where the 
water's going and to pump out the contaminated water.
    As we move to soil and then to bedrock, treatment gets 
progressively harder, because it's difficult to know where the 
water actually goes in the soil and bedrock. We don't know the 
pathways because we can't see them like we could a river.
    If we look at remediation technologies, they break down 
into two broad categories, what we call ex situ treatment, 
which is to pump the water out of the ground and treat it at 
the surface. We have a small unit like that on Mrs. Miller's 
well, that's called a point of entry unit, where we're just 
treating her water.
    Ex situ contrasts with in situ. In situ treatment is where 
we actually do the treatment in the ground. Now, ex situ 
treatment has some problems associated with it. To treat the 
groundwater completely, we must get all the contaminated water 
out of the ground. That's hard to do, because MTBE spreads so 
far and so wide in groundwater. We don't know where those 
pathways are.
    This is unlike those other contaminants we were talking 
about that stick to the soil and we know they're very 
localized. In situ remediation primarily centers on using the 
microbes that live in the ground to degrade the MTBE. These 
microbes are naturally occurring, and they basically use that 
MTBE as an energy source, just like we would use hamburgers. 
They degrade it to CO2 and water.
    The microbes, however, need other materials to do that 
degradation. For example, they need oxygen or nitrates. The 
advantage of in situ treatment is that we don't have to pump 
all of that water out of the ground to treat it. However, 
there's no free lunch, because the natural rate of in situ 
treatment is relatively slow. For example, if the concentration 
of MTBE was about 1,000 micrograms per liter, it would take 13 
years with the natural rate of microbial degradation to get 
down to those advisory levels.
    Also, we have another problem with these microorganisms in 
that sometimes they don't take the MTBE all the way to 
CO2. They'll stop at an intermediate organic, 
something like tert-butyl alcohol, which is not a very good 
contaminant to have, either.
    In some cases what we can do is what's called enhanced in 
situ remediation, and in this case, we add materials to the 
ground to accelerate that natural rate of remediation. That's 
called bioremediation. For example, out at a naval air station 
in California, they've added oxygen to the ground and in that 
case, the concentration of MTBE in 1 year has gone from about 
800 to 7 micrograms per liter.
    The challenge here, though, is distributing those materials 
in the ground.
    Senator Smith. Could you just take a second and go into the 
cost of that? Is that cost prohibitive? Can you give us any 
idea on that?
    Ms. Kinner. On that particular site, it's not cost 
prohibitive. Obviously it costs several million dollars to do 
the whole thing. But you're cleaning up the whole plume of 
groundwater, not just the water that's coming up in somebody's 
well. It's on the same order of magnitude of cleanup of other 
contaminants.
    So in conclusion, the problem with MTBE is its overwhelming 
solubility in water, and its desire to stay there and to travel 
with that groundwater. To put this in perspective, MTBE ranks 
as the fourth most produced organic chemical in the United 
States. There were about 10.5 million gallons of MTBE produced 
per day in 1998. So there's a lot of MTBE out there. Even if we 
banned it today, the MTBE pollution in the groundwater would 
continue to be a huge problem nationwide, because it keeps on 
moving and gets degraded very slowly.
    So I think what we need to do is certainly put some money 
into the search to develop and test innovative technologies to 
deal with this problem.
    Thank you, Senator.
    Senator Smith. Thank you very much, Professor Kinner.
    Let me express my apologies to Jeff Rose, who I didn't know 
was sitting there. I apologize, Jeff. Jeff Rose does all of my 
environmental work here in the State. He has set up one other 
hearing and a number of other meetings and works very closely 
with the Department of Environmental Services and all the folks 
here in the State. I'm pleased to have him here, and apologize. 
I didn't know you were sitting back there, Jeff.
    The next guest is Mr. Holmberg. Please proceed.

    STATEMENT OF WILLIAM C. HOLMBERG, PRESIDENT, BIOREFINER

    Mr. Holmberg. Mr. Chairman, thanks for the opportunity to 
be here today. I have just learned a great deal from Dr. Kinner 
and may change my presentation based on what she had to say.
    Senator Smith. Well, if you learned something, it will be 
worth it, right?
    Mr. Holmberg. Right. Maybe I should wait until I hear from 
the other person here.
    I've been involved in the area of biofuels for about 26 
years, in the government, in the private sector, and managing 
association programs. I'm not going to focus a great deal on 
the issue of MTBE, because you're doing a wonderful job of 
covering that issue here. But I want to thank you for this 
opportunity. Also, thank you for the fact that you came to the 
environmental inaugural ball in January and made a very 
impressive speech, and added to the success of that effort in 
Washington. Thank you for that.
    Senator Smith. You might have to speak up a little louder, 
Bill, or put that microphone closer to you.
    Mr. Holmberg. The primary issue before you today is MTBE, 
and I fully agree that it should be banned and phased out of 
the gasoline pool. I ask that you consider a phase-out schedule 
that accommodates the reality of the problem and the economic 
consequences of such action.
    Consequently, I suggest that you set up a legislative 
process so that the States are authorized to make the decision, 
rather than making a decision at the Federal level. Because 
it's different in every State, different circumstances, 
different levels of MTBE utilized, different contamination of 
the groundwater. Also there's the issue of a basic public 
relations attack on MTBE from those who benefit from the demise 
of that particular gasoline additive. I'm not suggesting that's 
the case here at all. I'm just suggesting that nationwide, that 
creeps into the formula.
    It's interesting to note that MTBE is used in many parts of 
the world, continually so, for the last 10 years. Dr. Kinner 
just pointed out that it's still in great use. But it's 
interesting to note that the amount of public outcry has 
diminished significantly. I think that's probably because the 
wells are being cleaned up, and the tanks are being sealed up. 
Again, back to that attack by those who have a vested interest 
in the demise of MTBE they are relaxing their attack, and that 
helps.
    It's also interesting to note that the people who launched 
that covert attack are the same folks that did not support you 
legislation last year. I think you recognize that that's 
probably the case.
    The advance of the biorefinery concept that I have been 
working on, which is the conversion of cellulosic biomass to 
biofuels, bioenergy and biochemicals, is of great importance to 
the northern New England States. Because, essentially, you have 
no fossil reserve or gas or coal, and you're dependent on some 
form of transportation fuel. Given the present path we're on, 
that dependence is simply going to increase with the passage of 
time.
    What you do have in these three northern New England States 
is vast reserves of biomass. They can be converted into 
biofuels, biochemicals and bioenergy, electricity and thermal 
energy. It not only includes agriculture and forestry residues, 
but it includes rights of way, park, yard and garden trimmings, 
the clean biomass portion that goes to the dump. We here in New 
Hampshire have done a tremendous job of cleaning up or 
recycling biomass. It ideally is set up for a biorefinery.
    With gasoline prices possibly reaching $2 a year, and as 
people are beginning to talk about energy, I think it's clear 
to appreciate that we've got to find a way to reduce our 
dependence on all those fossil fuels that are imported into New 
Hampshire, principally the transportation fuels. Biomass 
presents that opportunity.
    There is action required on two fronts. One is a steadily 
expanding market for biofuel. The renewable fuels standard that 
was in your legislation last year, S. 2962, reported out of 
your committee, is the best instrument to achieve that. The 
Renewable Fuels Act of 2001, S. 670, is out there now being 
considered. I ask that you include a renewable fuels component 
in your legislation, or co-sponsor S. 670.
    When you start thinking out of the box, then we have to 
recognize that over the past almost 50 years, that hundreds of 
millions of dollars of Federal funds have been spent on the 
technology to convert cellulosic biomass to biofuels, 
biochemicals and bioenergy. The oil and gas industry estimates 
that that is in excess of $7 billion. We've got to find a way 
to take those hundreds of millions of dollars and put them to 
good work for the New England States.
    Thank you.
    Senator Smith. Thank you very much, Mr. Holmberg.
    Ms. Aho.

    STATEMENT OF PATRICIA W. AHO, EXECUTIVE DIRECTOR, MAINE 
                     PETROLEUM ASSOCIATION

    Ms. Aho. Thank you very much, Senator Smith. I'm Patty Aho. 
I'm the Executive Director of the Maine Petroleum Association. 
We are a division of the American Petroleum Institute, and as 
such, I also oversee the issues of concern to our members here 
in New Hampshire.
    As you indicated in your opening remarks and as the other 
two members of my panel have indicated today, a great deal of 
the focus of attention during the last few years has been on 
ethers and gasolines, specifically MTBE. But as the discussions 
regarding MTBE have occurred, there have also been discussions 
regarding the use of ethanol as an alternative to the use of 
MTBE in gasoline. I'd like to address you very briefly in 
regard to ethanol issues that we would face here in northern 
New England, in New Hampshire and in Maine, regarding ethanol.
    As was indicated briefly by Mr. Holmberg, ethanol is not 
widely available here in northern New England. There is very 
little, if any, that is currently available. Ethanol is 
primarily available in the midwest, and that poses some 
questions in regard to the use of ethanol in gasoline here in 
New Hampshire or here in northern New England.
    Over the last few years, there have been a number of 
various forum and studies that have occurred regarding the 
availability of ethanol and the infrastructure that would be 
needed here in order to use it and make it more widely 
available. Last year, the Coalition of Northeastern Governors 
hosted a forum here in New Hampshire regarding bioethanol, the 
economic issues, the infrastructure issues it would mean to 
northern New England, as well as to the northeast.
    In Maine, we have a State agricultural products utilization 
commission that has recently contracted to do a feasibility 
study on creating a bioethanol refinery in northern Maine. A 
subcommittee of your committee recently heard from the 
executive director of NESCAUM, the North Eastern Sates for 
Coordinated Air Use Management, who indicated that yes, you 
could bring ethanol into the northeast and the New England 
area. The question becomes at what cost.
    Unfortunately, the cost has become an issue and we've seen 
that the Commissioner of the Department of Environmental 
Protection in Connecticut has recently even indicated that 
price ranges may be from 3 to 11 cents per gallon right now, if 
you look at ethanol as a substitute for MTBE. The cost and 
availability are clearly issues here in northern New England.
    Coupled with that, though, is the infrastructure question 
that it would take in order to provide ethanol in our gasoline. 
Your terminals provide you product into New Hampshire in the 
Portsmouth-Newington area. You also receive product from the 
Portland Harbor area as well a the Boston harbor terminals. 
Those terminals don't have the infrastructure needed right now 
in order to support ethanol. Ethanol needs to be separated and 
segregated before it can be blended into the gasoline. Those 
terminals don't have the equipment for blending ethanol into 
gasoline when it's picked up by trucks and taken to gasoline 
stations.
    Gasoline stations in New Hampshire or Maine and northern 
New England right now also probably might need to do other 
types of retrofits in order to make sure that the underground 
tanks and pipes are compatible for ethanol-containing gasoline. 
So there are clearly availability and infrastructure problems.
    These discussion arise usually in terms of can we use 
ethanol as a replacement for MTBE in reformulated gasoline. The 
reason for that obviously is because of the 2 percent oxygenate 
mandate that's required under the Clean Air Act for the 
Reformulated Gasoline Program.
    So we would encourage you to repeal the 2 percent oxygenate 
mandate part of that so that the Reformulated Gasoline Program 
and refiners do not have to meet that particular oxygenate 
mandate. We think that then discussions regarding alternatives 
to the use of MTBE would take different tones and also would 
have different solutions available if the 2 percent oxygenate 
mandate were actually repealed.
    We appreciate very much the opportunity to present 
information to you this afternoon and we will continue to work 
with you, your committee, as well a the State legislators and 
regulators on these particular serious issues that we're all 
facing. Thank you very much.
    Senator Smith. Thank you very much, Ms. Aho, for your 
testimony. We appreciate it.
    On that RFG requirement, isn't it true that if we did 
repeal the RFG mandate or waived it, that it would have no 
impact on clean air itself? Does it harm the air to remove that 
mandate?
    Ms. Aho. To the extent that I think you would still be able 
to have fuel formulas that provide a clean air benefit, no, I 
don't think you would be harming the air.
    Senator Smith. Again, the problems associated with using 
ethanol in New Hampshire, you spoke correctly, I think, about 
the cost, the estimates do run up to 11 or 12 cents a gallon 
more. Maybe Dr. Kinner could comment on this, what about the 
impact of using it on the air itself, in terms of what ethanol 
would do to the air here in New Hampshire or in New England as 
opposed to other regions of the country?
    Ms. Aho. I think I will defer.
    Ms. Kinner. To the extent that ethanol increases certain 
air emissions, then you would have to take those into account. 
Volatile organic compounds can be increased with the use of 
ethanol. So that would be one of the, not necessarily 
tradeoffs, but it would certainly be one of the considerations 
that any State environmental group would have to take into 
consideration.
    Senator Smith. Mr. Holmberg?
    Mr. Holmberg. Two points. One is if you take the 2 percent 
oxygenate requirement out of RFG, that means you pull out 
either MTBE or ethanol, both high octane additives. Refiners 
have to get octane someplace, and they routinely will turn to 
the aromatics. That brings in the benzene issue, and benzene is 
a known carcinogen.
    So we have to be very careful about what we replace in 
gasoline in terms of taking out the oxygenate.
    Senator Smith. Would you be supportive of legislation, 
however, that would not guarantee ethanol all the market if we 
replace, if we take out MTBE, but would allow ethanol to 
compete in areas where it's not an environmental problem, or to 
compete? Would you have any problem with legislation that did 
that, or are you insisting on a mandate for ethanol?
    Mr. Holmberg. I'm not insisting on a mandate and----
    Senator Smith. You are or not?
    Mr. Holmberg. Not. And your legislation last year didn't 
call for a mandate, either.
    Senator Smith. It didn't, but the ethanol people blocked my 
bill.
    Mr. Holmberg. That was the point I was trying to make.
    Senator Smith. So their market was tripled in my 
legislation, basically on a free market approach. But the bill 
was blocked by ethanol Senators coming to the floor, coming to 
vote before, because it didn't have enough.
    Mr. Holmberg. That's one of the key points that I wanted to 
bring up in my testimony, that there's rationale for the 
existing ethanol industry to oppose the advance of ethanol from 
cellulosic biomass. They want to control the market and they 
want to have access to their ability to control the price 
structure. They don't want too much corn going into that 
industry. There's competition involved. Increased production 
threatens the tax incentives. There are just lots of reasons 
why the major ethanol producers are opposed to the kind of 
ethanol industry I think the nation needs and should be 
instituted here in the northern New England States.
    Senator Smith. So you're saying that ethanol can be used 
here?
    Mr. Holmberg. It can be used here. It can be made here.
    Senator Smith. You disagree with that?
    Ms. Aho. No, sir, I don't. It can certainly be used here. 
Efforts are underway to study the feasibility of creating a 
bioethanol refinery plant in Maine. So there are efforts 
underway to see if it can be made here as well.
    I don't disagree with either of those two points. What I do 
have problems with, though, is in people searching or looking 
toward ethanol as the panacea or solution to simply removing 
ethers from gasoline. It's in those discussions that then we 
run into trouble in northern New England, because if you were 
to do that as of, say, the beginning of next year, we don't 
have the ethanol availability here nor do we have the 
infrastructure here to support that in order to use ethanol in 
gasoline.
    Senator Smith. Dr. Kinner, in watching your presentation 
there, you have a, aren't you working on something? Can you 
tell me a little bit about that, the Bedrock Bioremediation 
Center there?
    Ms. Kinner. We're looking at chlorinated solvents, which 
behave quite differently than MTBE or gasoline. But the whole 
point of that study site is for us to actually develop the 
methods to monitor and to remediate chlorinated solvents in 
bedrock. In particular, we're looking at competent or deep 
bedrock, which is a very difficult problem to deal with.
    So we actually have our first test going on starting this 
summer, an independent evaluation of a commercial product which 
is to remediate TCE in bedrock. So we actually set up a full 
test array and actually monitor very carefully whether or not 
that TCE is being degraded and what it's being degraded to, to 
make sure that that's an acceptable compound as well.
    Senator Smith. In your presentation, you talked about the 
pump-and-treat cleanups and trying to solve all the problems. 
If we proceeded down that road now in terms of dollars, putting 
dollars into that kind of holistic approach of trying to clean 
up the entire aquifer, if you will, are we just maintaining or 
just treading water? If MTBE continues to come into the supply, 
are we staying ahead of it by doing that, or are we wasting 
money?
    Let me qualify ``wasting money.'' We're not wasting money 
if we're helping people be able to use their water, obviously. 
But if we were to put a lot of money into that approach, will 
we ever get ahead of it that way or do we have to do that in 
combination with getting at the source? Are we staying ahead if 
we didn't get the source, we haven't found the solution to the 
source, are we still staying ahead?
    Ms. Kinner. I think in most remediationsites, one of the 
first things that you try to do is to locate the source and 
eliminate the source. That's a pretty standard rule of thumb. I 
believe in the case for Mrs. Miller, the difficulty there is 
that it's a bedrock well. So finding the source is much more 
difficult.
    To give you an analogy why that's hard, if you think about 
contaminant moving through soil, it's like a contaminant moving 
through the streets of Manhattan, lots of pathways, you can 
pretty much get from point A to point B pretty easily. But if 
you look at roadways in northern New Hampshire, there are very 
few, and you don't always know where they're going if you're on 
one of those logging roads.
    So when you're looking in bedrock, you don't know where 
that contaminant came from, because it's not just a direct path 
from a higher elevation to a lower elevation. So it makes it 
very difficult to find the source in bedrock. In some cases, it 
may be that it is almost impossible to find the source so we 
have to remediate the water that's contaminated as a fall-back 
position.
    Senator Smith. Carl Sagan asked a question many, many years 
ago, I can't remember how many--30 or 40, I guess. He said, 
``Someday we're going to have this little rover and we're going 
to shoot it up to Mars and we're going to run it all around 
Mars' surface. It's going to take samples and send it back.'' 
Everyone said, ``What is he talking about, how is that going to 
happen?''
    I'm asking you to look into the future a little bit. If we 
were to take an approach on this to work very closely with the 
Mrs. Millers out there, and help them through remediation, put 
the dollars into the remediation, and say, ``We're going to buy 
on to all of this other pump and treat. We're going to leave 
that alone, because in 20 years, 25 years--you can give me your 
best guess--we're not going to be producing automobiles that 
burn gasoline any more. Therefore, we're going to take our 
problem away. We're going to go to hybrid automobiles or 
hydrogen vehicles. We're not going to be filling them up at the 
pump with gasoline.''
    Are we going to hit Armageddon before we get to that point, 
with the manufacture of automobiles to such a point that it's 
going to cause us so many environmental problems we're never 
going to recover, or should we just put the money into the 
research to get there sooner with the automobiles, the hybrid 
and hydrogen vehicles?
    Ms. Kinner. I think certainly, if we look into the future, 
gasoline for fueling vehicles may be eliminated. But I think 
the short-term problem for somebody like Mrs. Miller is, she's 
only the tip of the iceberg. These MTBE plumes are moving. So 
we get more and more people impacted as those plumes move. 
Those systems are extremely expensive when you look on an 
individual scale.
    For instance, Commissioner Varney mentioned that they'll be 
spending upwards of a million dollars. The systems are 
expensive to put in. Economy of scale is not with you on a POE 
(point of entry) unit. They're also very expensive to maintain. 
So that by just treating those individual wells, it's somewhat 
problematic in the short term.
    Senator Smith. Right. But if we assume that we were to 
treat those just as we're doing now for Mrs. Miller but put 
money into moving quicker to get at the source, which is the 
automobile, the fuel used in the automobile or are you 
suggesting we do all three? In other words, do the remediation, 
do the kind of research, the pump and treat, the research you 
showed up on the slide, and at the same time move forward as 
quickly as we can toward cleaner, more efficient automobiles?
    Mr. Kinner. I think if we can eliminate gasoline being 
used, it would save a lot of problems on a large scale.
    Senator Smith. So the sooner, the better?
    Ms. Kinner. Yes. But I do think that no matter what, 
looking at the projections that are out there, we have an MTBE 
problem here for a long time to come. Because once it gets into 
the environment, that degradation is very, very slow.
    Senator Smith. We have no idea how long that degradation 
takes at this point?
    Ms. Kinner. It varies in different environments. Because on 
the slide, I was mentioning that typically, the organisms use 
oxygen to do the degradation. But in many of these aquifers, 
there is no oxygen present, because they're very deep down and 
the only source if oxygen is from the air diffusing down into 
the environment. So 13 years is somewhat perhaps optimistic in 
some of these deeper situations. I believe Mrs. Miller's well 
is down about 300 feet.
    Senator Smith. Thank you very much.
    Mr. Holmberg, I just want to be sure, do you support an 
ethanol market mandate or not?
    Mr. Holmberg. I support the provisions that were in your 
legislation last year and in S. 670.
    Senator Smith. Which gives them a portion of the market but 
allows for the flexibility of areas such as New Hampshire or 
California or some other place to use another alternative if 
they wish?
    Mr. Holmberg. Yes. I would like to make the point that 
ethanol, when you talk about hybrids, electric vehicles or fuel 
cells, that ethanol is the preferred fuel for fuel cells 
production of hydrogen. Once you start that process, the 
opportunity to expand the ethanol industry in northern New 
England is tremendous, and the market for ethanol is assured 
all the way out to any future that I can see, because of the 
ability to convert it to hydrogen.
    Senator Smith. Does any witness have anything they wish to 
add?
    [No response.]
    Senator Smith. I want to say thank you to this panel. It 
was a fantastic panel, as was the first one, very informative.
    Before we go to the Q&A for the folks in the audience, I 
just would like to make a couple of announcements. I want to 
certainly thank Channel 17, Salem Cable Access, for their gavel 
to gavel coverage, and New Hampshire Public Television, who is 
also covering this. These aren't things like missing planes in 
China, this is pretty heavy stuff and it's very difficult to 
understand, and we very much appreciate your covering this. I 
know it's of fantastic interest to your viewers, and I commend 
you for doing it.
    One other announcement, lest I forget. On May 30, we intend 
to have a hearing--somewhere in the sea coast, I don't think 
we've pinned it down just yet. We're going to be bringing, at 
that hearing, a lot of new technology that's quite incredible. 
It's really something you don't want to miss. We have a number 
of people who are going to be testifying and talking about 
hydrogen vehicles, maybe give you a chance to ride in a 
hydrogen bus, hybrid car, and see some new technology and some 
incredible things that are happening on all of the 
environmental issues, air, land and water. It will be a very 
exciting hearing. It's called the New Technologies hearing.
    Also to remind everyone that if you wish to add testimony 
or put testimony in the record, we'll keep the record open for 
2 weeks, until 2 weeks from today.
    So with that, if the other witnesses are still here, I 
would invite you to come back up. Maybe you could slide another 
chair up or something. Then if the people in the audience have 
questions, if you would just walk up to the microphone and 
please identify yourselves for the record.
    I do have a sign-in, so what I'll do is I'll start with 
that. If you signed up here I'll call you in the order you've 
signed up, and then if there's somebody else that wants to ask 
a question beyond that, then feel free to do it.
    Richard Norris. Use that microphone right there. Please 
feel free to direct your question to any of the witnesses or 
any of the panel behind me, my staff or me. Preferably the 
staff and the witnesses.

                  STATEMENT OF RICHARD NORRIS

    Mr. Norris. Thank you, Mr. Chairman. I said earlier to you 
that I would be quite brief, and I will. The reality of being 
brief is enhanced by your announcement that you plan a 
technology hearing later in which a subject matter that 
interests me will be expanded on, and that is the question of 
going to a different source of energy. Separating hydrogen from 
water, for example, hydrogen from oxygen. Because the 
contaminant we get from that is water, again, that goes on the 
ground. Your concern is of course within the environment.
    I'm just concerned about one thing, and that is the old 
story about the Arkansas traveler who's only concerned with the 
hole in his roof when it rains. I hope that you will keep your 
attention on what we can do to improve our sources of energy 
and the possibility of hydrogen is one of them. We are alerted 
to it by, I think, is it Dean Kamen and his first group that is 
talking about a small personal motor vehicle that would be 
powered by hydrogen.
    The point for me is simply that hydrogen, as a source of 
fuel, is becoming real, and I hope you and your committee will 
keep it in your mind. I won't say more, because I'll go and 
watch carefully for your hearing on the sea coast on 
technology.
    Senator Smith. Dean Kamen is a very bright guy, and I'm 
hoping we'll be able to have him testify. Maybe he'll announce 
what this new little gadget is, but don't hold your breath on 
that one.
    I hope I can read this--Doug Bogan, is that correct? Doug 
Bogan.

 STATEMENT OF DOUG BOGAN, DIRECTOR, NEW HAMPSHIRE CLEAN WATER 
                             ACTION

    Mr. Bogan. My name is Doug Bogan, I'm New Hampshire Program 
Director for Clean Water Action. It's a national environmental 
group obviously concerned about water quality issues. Senator 
Smith, I would like to thank you for putting together this 
program today and commend you for making this issue a priority. 
Because it has been a priority of my organization and others in 
State and throughout the country for some years.
    I mostly have comments, and may have a question or two 
along the way. But I do feel that in the discussion that we've 
had so far today the origins of this problem have been given 
short shrift. There hasn't been enough discussion of why we 
have MTBE in our gasoline to begin with. From our perspective, 
having watched this for many years, the story of MTBE is really 
a sordid tale of willful neglect on the part of the Government, 
miscommunication between different agencies, particularly 
within the Environmental Protection Agency itself, and really a 
determination to seek really the cheap fix with regard to air 
quality.
    Now, some of you know that my organization has been 
involved in air quality issues as well as water quality issues. 
We certainly want to see cleaner air in New Hampshire and 
throughout the region. But we do feel that the use of MTBE and 
the whole Reformulated Gasoline Program was really flawed from 
the get-go, because it really tried to solve the problem of air 
pollution through tinkering with the fuel formula for gasoline 
rather than really going to the source of the problem, the fact 
that we use so much gasoline, to begin with, and that we don't 
use it efficiently, and that it's not burned cleanly, and that 
MTBE is not really the best solution to that problem.
    Then again, of course, we have the ensuing problem of water 
contamination that was known 10, 15 years ago. We know that EPA 
scientists were aware of it. Evidently it didn't get passed on 
to the right officials at the right time. We really feel that 
there was a neglect of the available data then. We obviously 
know a lot more about the problem now. We do feel that the 
Government, both at the State and Federal level, needs to move 
on to admit that there were mistakes made, but to use the 
available science to solve this problem.
    It really comes down to the basic metaphor we use a lot, I 
actually just heard it last night at a meeting in UNH talking 
about Rachel Carson, that if you come into your house and you 
see water running down the stairs from the bathroom upstairs, 
and you go up and you find the bathtub has been running, 
overflowing, and it's spilling out over the floor, well, you 
could go grab a mop and a bucket and you could try to mop it 
all up. But the much simpler and real long term solution to the 
problem is you go up and you turn off the tap.
    I think that's the real problem we have here, is that we're 
not doing enough to turn off the tap to deal with the problem 
at its source. So we encourage you to pursue that. We do feel 
that the people here today and through the last few years that 
have become aware of this problem, whether indirectly or 
directly through their own drinking water, deserve a better 
answer, and they deserve a better solution than, well, we'll 
just treat your water and we'll provide you bottled water. They 
really need to know that the problem is going to be solved, 
that the source will be eliminated.
    We feel that the people should not have to worry about the 
safety of their drinking water. Everybody has a right to clean, 
safe drinking water. We shouldn't have to live in fear of 
whether there will be health damage many years down the road 
because of contaminants like MTBE as well as the many other 
ones that we know about.
    So I do want to point out that I don't think it was 
mentioned here today that the State of New Hampshire, as I 
understand it, was not required to use MTBE to use the 
Reformulated Gasoline Program. The State opted into the program 
with the certain purpose of reducing air pollution in the 
region. But as I said before, we don't feel that it was the 
best way to go about the problem. It may have been cheaper, but 
we're seeing the consequences now, that there are many, many 
costs that weren't taken into account.
    Just a real quick calculation of some of the costs of 
remediating these private wells. I've heard an estimate of 
6,000, 7,000 wells that may be exceeding the State's new 
standard for MTBE. It's estimated that it may cost $4,000 for 
the immediate cost, capital cost of setting up the remediation 
and another $1,000 per year after that. That all adds up to 
about $35 million for these 7,000 wells throughout the State in 
the first year, and then another $7 million each year after 
that. That's a huge price to pay, if people even know and find 
out that they have contaminated water. Many people probably 
won't find out until it's really too late.
    So we should be avoiding those kinds of costs, we should 
address the problem at the source. We do feel that there are 
alternatives and we feel that we need to get to the source of 
the problem with air pollution, too. I know, Senator, you've 
been doing a good job looking at that issue, particularly with 
the power plants that need to be cleaned up. We now know that 
they are a much more addressable source of the nitrogen oxides 
that lead to smog that MTBE was mainly originally created to 
address.
    So I do want to commend you, Senator, for making this an 
issue, making it a priority. I also want to applaud you for 
your leadership in State and particularly in the U.S. Senate to 
get something moving on this issue so that we can have safer 
drinking water in the future.
    Senator Smith. Thank you very much, Doug. I'd like to make 
a response to your question from a political sense, but before 
I do that, if Bob or Nancy or anybody wants to make a comment 
on the technical aspects of his question. I don't know the 
history of when you put the MTBE here in the State in regard to 
the requirement, but if you wish to comment on that.
    Mr. Varney. Sure. The opt-in by the State of New Hampshire 
was first of all done at a time when the concerns about MTBE 
were not readily known to our agency as well as to the State 
legislature or Governor's office, etc. We also know about the 
fuel distribution system in New Hampshire, and we looked at it 
analytically and determined that we were going to get RFG fuel 
whether we opted into the program or not, given our 
relationship to the markets, to ourselves.
    By opting in, we were able to take credit for clean air 
reductions that would be associated with that opt-in provision 
and be able to include it in our State implementation plan. So 
it's pretty easy now to sit back as a Monday morning 
quarterback and look at, we should have done this, we should 
have done that. But at the time there were no negative comments 
from any environmental group. In fact, we were applauded for 
opting in at that time from the environmental community here in 
New Hampshire and in New England. Other States did the same.
    The key for us is having the flexibility so that we cannot 
doubt and do it in a way where we don't have to sacrifice water 
quality for the sake of clean air, where we can opt out and do 
the right thing, eliminate the oxygenate requirements and be 
able to opt out sooner than the current EPA regulations allow 
us to do. Having that kind of flexibility available to the 
States is what we need.
    Senator Smith. Anybody else wish to comment? Mr. Holmberg.
    Mr. Holmberg. On the history, the reason that oxygenates 
came along in reformulated gasoline with the passage of the 
Clean Air Act was that as lead was being phased out of 
gasoline, the level of aromatics in gasoline went up amazingly. 
This was a real threat to human health and contamination of the 
groundwater. So that's why the oxygenates came in in 1990.
    Senator Smith. And I'll just add the political. Certainly 
the U.S. Congress deserves its share of the blame. In 1991 or 
1990, when the Clean Air Act was amended with this provision, 
there was very little science, really, done. Some speculate 
that there was science there that we didn't look at. Whether 
that's the case or not, there was a mad rush to clean up the 
air. We didn't do enough research on this particular product, 
in my view. Therefore, all of us collectively made a mistake, 
but I think made a mistake with good intentions.
    I think it certainly lends a lot of credence to the 
argument that we ought to investigate and thoroughly analyze 
the science as we know it. Unfortunately, there's not a lot of 
exact science in some of these issues. That's the problem.
    Did you want to comment, Dr. Kinner?
    Ms. Kinner. Yes. The one thing I think that needs to come 
out here is that these point of entry systems that have been 
installed are not treating the problem in the groundwater. They 
are just treating what comes up to that person's well. That 
problem is only the tip of the iceberg of what's out there. So 
that if we just use POE systems I admit we're treating people's 
water, like Mrs. Miller, which we have to do, but we're still 
leaving that contaminant in the groundwater, polluting the vast 
majority of the groundwater. So I think we need to look at a 
broader based solution to what is in the environment.
    The other thing I'd add is I think before you go to a 
solution like ethanol, you really have to think about what are 
the implications of that ethanol when it gets to the 
groundwater as well, and how is that going to interact with 
things like benzene and toluene which sorb on the soil and they 
move more readily with ethanol present. So I think before we 
jump into that solution we ought to do a little bit of 
background research as well.
    Mr. Bogan. I do have a couple questions, if I may.
    Mr. Varney, isn't it true that the State had an opportunity 
back in 1998 to opt out of the program, and the State of Maine 
I believe did do at that time? Could you explain?
    Mr. Varney. Sure. As you know, Doug, and it's been 
explained to you on numerous occasions, New Hampshire and Maine 
are in different categories as it relates to the Clean Air Act. 
So what they're able to do, because they did not have an 
approved SEP, was to be able to opt out of the program. 
Whereas, with us, where we did the right thing and had an 
approved SEP, approved by the Federal EPA, we have this 2004 
requirement placed upon us as it relates to opting out.
    Second, Maine has not banned MTBE. That's been widely 
reported by various parties. There is still MTBE in Maine. So 
they have reduced their MTBE as we're trying to reduce it. But 
the analogy to Maine, we're comparing apples to oranges. It's a 
very different situation in New Hampshire, because we're 
treated differently under the Clean Air Act.
    What we're trying to resolve is to have the Federal 
Government reward us for doing the right thing and don't 
penalize us for doing the right thing, which is what the 
current situation is.
    Mr. Bogan. Wasn't there a choice, though, at the time, of 
how you would meet the requirement to deal with the air 
pollution problem? I mean, you didn't have a gun to your head 
that you've got to use MTBE or you've got to----
    Mr. Varney. No, we didn't specify MTBE. We have RFG, which 
is a regional fuel. We don't have a State specific fuel. We 
don't have the authority to specify the characteristics of 
fuels according to Federal law. So we're using every authority 
that's available to us under the current laws and regulations 
that exist at the Federal level. That's what's guiding us at 
this time.
    Senator Smith. The next person on the list is Mary Ellen 
Martin. Mary Ellen, if you'd like.
    While you're coming up, let me just indicate, the idea, the 
intention here in terms of the thrust of Mr. Bogan's question 
is to ban MTBE, to waive the oxygenate requirement, not 
backslide on the Clean Air Act. By that, I mean not walking 
away from the Clean Air requirements.
    The problem politically we have, I know it's very 
frustrating for me as a Senator from New Hampshire, and indeed, 
the chairman of the Environment and Public Works Committee, to 
have to say this. But we have some really tough competing 
interests that we've got to work on, which is why this hearing 
is helpful in getting this information back. No. 1, you've got 
the MTBE producers.
    You may say, so? Well, we told them to produce this product 
and they did it. They have their own interests in Congress. I 
think Texas and Utah, I believe, are the predominant States 
that produce MTBE. Maybe they want some kind of transition 
money to move into something else. So do we buy them off by 
providing remedial help, Mrs. Martin, and at the same time 
providing help to them? That's an issue. I'm not saying that's 
what we'll do, but that's an issue.
    Second, you have the refiners. They have certain 
requirements. You have the ethanol producers. They are a huge, 
huge voting block in the U.S. Senate, and they are tough 
customers. Whatever you feel about ethanol, the point is, it 
really gets down, in some cases, to profit versus the health of 
our citizens.
    Frankly, I'm going to put health first. That's what I hope 
I can convince my colleagues of back there. We gave you triple 
the market, and you want all of the market and we can't get 
this taken care of. That's not right. That's the message I'm 
taking back. Whether we win that argument or not, I don't know. 
But I think we win it morally, that's for sure. If we can get 
it done politically, then we'll get this done.
    I don't want to create false impressions. It's tough. It's 
going to be a tough, tough issue. I intend to do everything I 
can to get it done. The folks at New Hampshire DES have been 
tremendous in their help, not only with their political help 
but also with their knowledge and input as we try to draft a 
bill. But this will be all helpful as we go back to draft 
legislation.
    I know that we've talked to Senator Prescott the other 
night, Senator Klemm, too, there were some people at that 
meeting who said, what do we do, do we pass a bill at the State 
level or what do we do. I wouldn't discourage anybody from 
passing whatever they thought. I think it's anything you want 
to pass you feel deals with the problem from the State 
perspective to be helpful. If it doesn't fit with the Federal 
law, then it's my job to try to get the Federal law changed to 
fit with what New Hampshire's done.
    So you don't hurt me at all in my effectiveness by doing 
it. So feel free to do whatever you need to do in that regard.
    Mary Ellen Martin.

                 STATEMENT OF MARY ELLEN MARTIN

    Mrs. Martin. I loved that last statement, sir. Thank you 
for that last statement. That will be a great help to Senator 
Klemm and I in the next couple of weeks.
    I'd like to begin by just answering a question that you 
posed, Senator, on the difference between the cleanup of 
gasoline with and without MTBE. I just happen to have in my 
little extensive tote bag back there a reference. The health 
and environmental assessment of MTBE that was done by U.C. 
Davis, reported in November 1998. The cost to remove MTBE from 
drinking water is 40 to 80 times higher than treating for 
conventional gasoline with no MTBE. The cost to remove MTBE 
from groundwater is 50 to 100 percent higher than treating for 
conventional gasoline with no MTBE.
    So adding to the already copious testimony of the need for 
treatment, I would like to agree with Mr. Bogan to some degree. 
We've covered that very extensively. We are swimming in this 
stuff, we have to address treatment of this stuff. But we 
really need to address the issue of preventing this stuff from 
getting into our water in the first place. This is one of the 
primary directions of legislation which Senator Klemm and I and 
several of the local senators who are also sponsoring have 
going in New Hampshire.
    USTs are not a problem in the equation in New Hampshire. I 
understand that in other parts of the country they are, but 
they're irrelevant here. The talk of cleanup as it continues to 
affect more and more citizens I think is going to be more and 
more frequent, by more and more bodies and more and more 
interest groups.
    I think Mrs. Miller and her neighbors in Derry, as well as 
the folks here in Salem deserve a little bit of more 
explanation as to why we are sitting here in this mess to the 
degree that we are. While Commissioner Varney and I spoke 3 
years ago when I began to try and move this elephant up the 
mountain, i.e., address this issue of MTBE in our water supply, 
nevertheless, when we had that opportunity to opt out, when we 
had all the knowledge that Maine had at that time, and Maine's 
own field people had discovered the plume of MTBE back in 1986, 
and taken it to a national awareness level.
    So the knowledge was out there. I don't think anyone would 
condemn us for what we did back in 1990. Granted, we're not on 
the primary cutting edge of information and maybe shouldn't be 
expected to be. But what we did or didn't do in 1997 I think we 
could bring into question, as well as how we proceeded from 
that point.
    Now, I'd like to make note of the fact that addressing the 
issue of the parts per billion was done as a result of a 
legislative initiative. This was not something we proceeded on 
within the Department, as well as the notification level was 
something that was mandated to the Department by the 
legislature.
    At this point in time, I would like to ask Commissioner 
Varney why he seems to have felt from 1997 to the present that 
the credit that we were obtaining for using MTBE in the RFG 
program, the credits we obtained that were being applied one 
way or another to meet your requirements under the Clean Air 
Act, why those credits seemed more important than moving 
forward on water, why that issue has been a roadblock in every 
of the six or seven pieces of legislation we've tried to move 
forward in the past 6 years, while the escalation of the water 
problem in every one of our issues and every one of our 
hearings has been given short shrift, while we constantly 
focused on these counterfeit air credits.
    Second, I just feel that as far as the citizens of our 
State are concerned, while we appreciate the struggle of the 
two Goliaths that Bob's having to deal with up in Washington, 
the two Goliaths being agriculture and the oil industry, that's 
political perception and it's kind of a long way away from your 
neighbors and the people here in Derry who are dealing with 
those wells.
    What we're doing here in New Hampshire can have immediate 
relevance to your situation. We have constantly been told over 
the course of this 3 years that we could not act as a State to 
address the additives or formulation of fuel. Repeatedly, 
repeatedly we've been told this. Yet under Section 211(C)(4)(a) 
of the Clean Air Act, where it specifically says, indeed, that 
no State or political subdivision may prescribe or attempt to 
enforce any control or prohibition respecting any 
characteristic or component of a fuel or fuel additive in a 
motor vehicle or motor vehicle engine, that is, however, 
prescribed by the statement for the purpose of motor vehicle 
emissions control.
    None of the legislation we have brought forward has been 
for the purpose of motor vehicle emissions control. It has been 
to address the pollution of our water and the pollution of our 
people. That legislation has not been able to move because we 
have been repeatedly told that we did not have the authority to 
address this.
    In addition, Senator, we now have a legal opinion which 
I've provided to your staff out of a firm in Washington, DC. 
which indeed does say under our State police powers, we have 
every authority to address the preservation and prevention of 
the pollution of our water, as well as the public health 
interests of our citizens.
    So at this point I would just like to close by saying, we 
intend to move forward with this with legislation next week. 
There's action in both the House and the Senate, and I would 
encourage any and all citizens in New Hampshire who are 
concerned about this issue to stay plugged in for what's 
happening next week. Because we are going to move it next week.
    Senator Smith. Thank you very much.
    I see this lady was trying to get the microphone and I 
don't have--come on up, because the next person I have is a 
man, and I know that's not you.

                  STATEMENT OF MARGO HARRISON

    Mrs. Harrison. I apologize for the way I'm dressed. I was 
planting trees today as part of a town program for planting 
trees.
    I wanted to thank Dr. Kinner, your presentation was 
wonderful. The main point, a great deal has been said today 
about everybody's special interest and how long this is going 
on. Of course, everyone, motherhood and apple pie, clean air, 
clean water, this is the proposition. We're 90 percent water. 
There was a thing at the Motor Vehicles Department that 80 
percent of New Hampshire is covered with trees and the rest is 
underwater.
    I have a couple quick questions and then get to the point. 
I had understood from reading the paper that MTBE is very 
volatile. We have a lot of lakes in town. If it spills from 
people filling their boats up with gas or whatever, it just 
evaporates and we don't have to worry about it. But the 
impression I'm getting today is au contraire, that if it spills 
and then it somehow gets into the, sinks to the bottom of the 
lake or you're filling your boat up before you take off, you're 
adding to the problem.
    A neighbor of mine who enjoys his snowmobiles very much 
spills enough gas in his driveway so that he was sweeping it 
down the driveway into the street. We called the fire 
department. It seemed to us there was so much gas, the fire 
department said, don't worry about it. Well, should you or 
shouldn't you?
    Anyway, my main point is, I walk around my neighborhood 
every day trying to get in shape. There are dozens of gas cans 
that people use to fill up their boats. They're tipped over, 
upside down, they're all over the place. Now, why not public 
education? Why not give out flyers every time people fill up 
their car with gas? Where is all this stuff? Here are all these 
specialists who know about this, but we don't until we have a 
problem with our wells.
    It would be very easy to hand things out at gas stations or 
wherever people pick up this potentially lethal chemical and 
help people handle it better. There are two streets up in my 
neighborhood where we're paying half a million dollars to put 
in a special water line because there are some contaminated 
wells. Well, I don't know if it's deep rock contamination, I 
doubt it, most of the wells around the pond I live on are just 
a couple of hundred feet deep, if that.
    So there's probably people working under boats or their 
cars or whatever. But they didn't know. It seems to me that we 
should address that as well, very aggressively, so that people 
know to look and don't find themselves pregnant with a 
contaminated well, rather than after the fact.
    Well, I would just like to urge that more along that line 
be done and that your slide show have much wider distribution, 
Dr. Kinner. Very, very well done. Thank you.
    Senator Smith. Could I have your name, please?
    Mrs. Harrison. Margo Harrison.
    Senator Smith. Thank you.
    Does anybody have a response?
    Ms. Kinner. She asked a question about the volatility of 
MTBE. When you think about MTBE and its volatility, you're 
correct, it is much more volatile than something like benzene 
in gasoline. But that's only if you have a beaker of it sitting 
right here and air above it. The minute we put that MTBE in 
gasoline, now it's in something it likes to be in. So it may 
still be volatile, but it then gets into water, its volatility 
goes down very, very low, because this is something it likes to 
be in even more.
    So it's a question of where you like to be when you think 
about those things, it's a relative scale. Does that explain it 
for you? Ms. Aho. I would like to respond to that. The American 
Petroleum Institute has tried to disseminate quite a bit of 
information in regard to the proper stewardship of gasoline. 
You're absolutely correct, everybody has to handle gasoline 
appropriately, not just the terminals or the gasoline station 
operators, but all of us as homeowners as well.
    We have materials on our website that we try to get out to 
people in the State of Maine. We have worked with the 
Department of Environmental Protection to make sure that 
information like that is disseminated. We'd be more than happy 
to work with the Department of Environmental Services here as 
well to get that information out to homeowners in regard to 
proper handling and care of gasoline.
    Senator Smith. The only other name that I have on the list 
here is James Robodosi. Come on up, and if there's anyone else, 
please feel free to just come up and we'll take your question.
    Mr. Robodosi. Good afternoon, thank you very much for being 
here. Thank you, Senator Smith.
    My name is Jim Robodosi. I live on Blake Road. I started 
the Blake Road neighborhood, bringing the water up to our area. 
We have 32 homes in our area that have wells, 28 of our homes 
contaminated with MTBE. We were able to pass the amendment to 
get water brought up to us, that will be some time in August 
hopefully.
    I can feel with Mrs. Miller, how she is. We have 6.9 in our 
parts per billion of MTBE in our wells. The gentleman down the 
street has 160 parts per billion. But the thing that kind of 
made me think was that, a question that you asked Mrs. Miller, 
what can we do to make you feel more comfortable or whatever, 
and she said that she has a filtration system in her home.
    Dr. Kinner took my point right away when she made the point 
that it only takes care of the small picture, right where it 
is, and doesn't take care of the whole picture. I'd still be 
leery, because the MTBE is still in the ground, even though it 
is filtered.
    My other question is, our reservoirs, and we have large 
filtration systems, but from what I understand, they're sand 
filtration systems. Does sand filter out MTBE? Because as I 
understand, the homes in our area that have the filtrations are 
all activated charcoal. I just want to make the point that you 
folks are all doing a great job here, the big picture. But us 
small people, we're an orphan site, which wasn't brought up at 
all. We don't know where ours came from.
    I'm not a backyard mechanic, and I don't like to be 
stereotyped that way. I have no idea how it got there. Yes, 
we'd like to get water up there and taken care of. But I'm not 
sure, 13 years or more, that's a long time.
    Also, I just want to let people know that the small people, 
myself, my neighbors and whatever, are dealing with this every 
day. We have to pay $350 a year for 20 years to have water 
brought up to our homes, because there's no funding for orphan 
sites. There's only funding for the LUST fund. I think we need 
to look into orphan sites now.
    Thank you very much. Have a good afternoon.
    Senator Smith. Thank you very much.
    Yes, sir, just identify yourself, please.

                     STATEMENT OF HAL LANG

    Mr. Lang. Thank you. My name is Hal Lang, and I'll identify 
myself three ways. One is an enlightened user of gasoline 
products, such as chain saws, etc., as a selectman for the town 
of Paloma, where you have 20 to 30 wells contaminated with 
MTBE, and as a member of the legislature sitting on the 
Science, Technology and Energy Committee, where we've heard 
bills on MTBE for the last 3 years.
    First of all, I want to commend you for what you're trying 
to do, what you've attempted in the past year and continue to 
do and for holding this. I would make several recommendations 
for solving the problem, and I think the first and most 
important one is getting relief from the RFG requirement in New 
Hampshire. That is one method to stop at least the bulk of the 
stuff getting into the environment. At least give us a chance 
to try and get a handle on what's in there now.
    I think, and it would be a question that maybe could be 
answered by understanding the basic reasons for having RFG is 
probably moot. With the later model vehicles, with improvements 
and especially if we go to low sulfur fuel, we really get the 
benefits we would derive, we would get with conventional 
gasoline. A comment there, we've dealt with conventional 
gasoline for years, we know how to deal with it. It is a 
problem, it's a toxic chemical. But at least we did not create 
the problem we have now with MTBE.
    The other thing is education. The woman is absolutely 
correct. I mentioned I was an enlightened user. When I fill up 
my chain saws now, I try to make sure I don't spill any 
gasoline, and when I do, I have something to catch it. Because 
I'm now aware that I can contaminate my own well with a minor 
spill. The people of this country, this State and this nation, 
need to have an appreciation of what they can do themselves. I 
think it will help change behavior, because that is obviously a 
source of contamination.
    I would urge you as another method in which you propose is 
pushing forward as quickly as you can the requirement for more 
energy efficient vehicles and boats. Obviously marine vehicles 
are a major source of untreated gasoline, unburned gasoline 
getting into our surface waters, because they're very 
inefficient. We know that these, for instance, four stroke 
versus two stroke marine engines are much more efficient than 
the two strokes. They put less raw gasoline into our surface 
waters and therefore would help reduce contamination.
    I think there are several avenues we can look. We identify 
the problem and look at all the items, the methods of 
pollutants getting into our waters. We should deal with each 
one of those. There's things we can do at the local level, at 
the State level, we would hope you would help us at the Federal 
level.
    I think again the idea of your non-gasoline vehicles, 
moving that, that will benefit this country immensely. We're 
talking about we need to drill in the Arctic national wildlife 
to get maybe a couple of days worth of supply. We can solve 
that immediately if we just made these things more efficient by 
5 percent. Going obviously with hybrid vehicles and pushing 
that technology, that is where the major investment can be made 
and where there is a big payback.
    I think again the problem with the legislation, as you're 
aware, Senator, is that it was very specific. It should have 
allowed us the flexibility for solving the problem. I'm sure 
you've taken that message, but I would urge you to take it 
again. Give the States the flexibility of finding ways to solve 
the clean air issues with the most efficient way that we can 
do. Let the manufacturers do it. The testimony we hear often 
from the American Petroleum Institute is, we've been told we 
had to use 2 percent. So go tell them, I'll remove that. I 
understand the problems that you have with that.
    Finally, as was mentioned before, there is a House bill 
coming up next Thursday, House bill 758, which came from my 
committee, it was sponsored by Representative Martin. The big 
issue, the contention point is, what is the most rapid way and 
most effective way for New Hampshire to get out from under the 
RFG requirement. I'm under the impression certainly that when 
we opted in, even though it was a voluntary opt-in, not 
mandated, we cannot opt out in 2004.
    It is the opinion of some that, to heck with that, we will 
just mandate that we won't allow gasoline to come into the 
State with MTBE or a high percentage of MTBE. But the testimony 
we hear is that you can do all you want, the distributors are 
under Federal mandate to bring it in. Now, what we are 
directing in the modified version of House bill 758 is Bob 
Varney and DES to submit by no later than next January the 
commission request for opt-out in the hope that we can get that 
as quickly as possible.
    So if I could get a comment on that, are we doing the right 
thing?
    Mr. Hessler. I think the short answer is that it's useful 
to explore all of the potential avenues at the State level. 
There are a variety of legal opinions, some of them need to be 
tested as to whether they actually have some authority that 
folks would like to see explored, such as the authority to ban 
a specific substance, like MTBE.
    If that, the main problem with a State specific answer is 
that you could easily wind up with a State specific gasoline, 
which would be substantially more expensive than either RFG or 
your conventional gasoline. So that's why the Federal solution, 
which would allow the gasoline producers to provide a single 
cleaner burning fuel than RFG without this MTBE problem for all 
the States that want to use the RFG, would not only take care 
of your air quality problem but would also protect the gasoline 
prices. So that's the value of the Federal approach on this.
    Mr. Lang. I guess the basic question, what gets us there 
quicker and surer?
    Mr. Hessler. I think that's a political question----
    Mr. Lang. There's two different answers to that one, too. 
We know that for certain if we direct opt-out by 2004, that's 
certain, I think. But I'm not sure that's the quickest and most 
efficient way to get that.
    Mr. Hessler. Certainly if legislation were to go through 
before 2004, that would enable the nation's gasoline producers 
to respond more quickly. I think the real difficulty there, 
though, as Senator Smith pointed out a couple of times during 
the hearing, this is somewhat of a titanic clash of interests. 
He put forward a very reasonable bill that's market oriented, 
was the least expensive solution to the problem, and yet it 
didn't pass muster for policy reasons.
    So there's a very high political hurdle in Washington that 
he has been trying to take on directly. So we'll continue to 
work in his direction and try and get over that hurdle. But I 
don't think that precludes folks at the State level doing all 
they can as well.
    Mr. Lang. Mind if I ask a couple more questions? I really 
appreciate your taking the time to listen to them.
    Is there any way that the EPA can grant us opt-out? Can 
they grant us absolution, or whatever we need, or some 
permission, if we come up with an alternate fuel that doesn't 
have 2 percent oxygenate requirement, doesn't meet the 2 
percent oxygenate requirement but we can demonstrate we can 
keep our air clean, has EPA the ability to give us permission 
to opt out?
    Mr. Hessler. Lots of people could answer this, but I'll 
simply say that the current Federal regulation says that those 
States that have opted in may not opt out until 2004. The 
primary logic for that was to not allow for fragmented gasoline 
markets, where folks were either opting in and out at odd 
times, driving up the number of specialized gasolines that the 
gasoline producers would have to supply around the nation. That 
was the purpose for that 2004 date.
    I think that what's happening here at the State level may 
test whether there's an opportunity to change that. I don't 
know if anybody else wants to comment.
    Mr. Varney. That was actually the subject of a letter from 
Governor Shaheen to EPA Administrator Whitman recently on that 
very issue, to reevaluate the EPA rulemaking that includes that 
2004 provisions, and to revise that rule so that opt-out can 
occur faster. So we've already made that request to the head of 
the EPA as part of the submission last week.
    Mr. Lang. One final comment, maybe it's a question. First 
of all, I want to thank Dr. Kinner for the comments she made. I 
think one of the problems we had when we entered into this 
thing with RFG, we really didn't evaluate the implications, the 
total implication of switching to this form of fuel. When we 
talk about things like ethanol, I think we need to evaluate it. 
Because some of the things I understand, some of the byproducts 
of ethanol are formaldehyde. That's my understanding, I may be 
wrong in that. Again, what are we going to get ourselves into?
    So there's no, to me, gasoline is a toxic chemical with 
different variety of toxic compounds, and we'll replace it with 
a different toxic compound, we need to understand the full 
implications before we move in any single direction. I do 
appreciate those people that understand that, and I think give 
us the wherewithal to determine our own destiny and we'll get 
there.
    Senator Smith. Let me just make one point. I'm not here to 
axe the ethanol industry, they have performed a valuable 
function in helping throughout the country to meet the clean 
air requirements. But the issue here is that if you ban MTBE, 
then there is going to be a race to the market, if you will. 
Ethanol feels they can fill that. All we're saying is, you can 
fill it wherever you can fill it, if it doesn't harm the region 
where they fill it.
    That's not the position of the majority. Not all, the 
majority of the ethanol States is, the majority of the ethanol 
States are adamant that they get the market, period. That's why 
the legislation that I have, which I thought was pretty 
reasonable, but I'm not saying it's just because of me, but we 
had support for the legislation, but not enough to get it 
through. We moved to the direction of the ethanol by providing 
about triple the market. That was not enough.
    Again, I think it's important to understand here, this is 
not about filling the market for ethanol. This is a health 
concern here, there's an environmental concern here. I think we 
have to make that point. To me, it's not--well, it's somewhat 
different, but it's similar also in the sense you've got floods 
in the midwest. We don't say, well, we don't have any rivers in 
whatever, in some States, therefore we're not going to help you 
where you're flooding.
    We have a problem here, we have a problem in California as 
well, and there are other regions in the country where this is, 
using ethanol is a problem. So I'm not against ethanol, I'm 
just against it being forced to be used in New Hampshire or any 
other State where it's not good to use it right now. Maybe the 
infrastructure in the future, or maybe the mix problem that 
causes the smog, maybe that's resolved down the road.
    You're right, formaldehyde is a byproduct. Let's not create 
more problems. Let's go slowly here. I think usually, with the 
States opportunity to opt out, what the States know is usually 
best. But we do have some Federal law here that has to be, the 
Federal law has to be changed, otherwise we pass something that 
may be in violation of Federal law, you'll be in $25,000 fines 
or something.
    So we want to be sure we work this together. That's why 
it's helpful to have this dialog.
    Mr. Lang. Thank you very much, Senator. I really wish you 
Godspeed on this journey, and anything we can do in the State, 
I'm sure you know you can count on us to help you.
    Senator Smith. We appreciate it very much.
    Let me make this last question.

                    STATEMENT OF HOWIE GLEN

    Mr. Glen. Thank you, Senator.
    My name is Howie Glen, I live in Salem. I came here today 
because I've been in the gasoline business for 44 years. So I 
wanted to come and listen.
    I have to just emphasize to Senator Klemm to please do 
whatever you can to get this additive out of the gasoline. You 
can handle that. I have to, I just want to commend Commissioner 
Varney. I've watched him over the years and I've dealt with him 
over the years. I am an independent gasoline station operator, 
I have two small stations. In the last 11 years, thanks to all 
the rules and regulations of DES, I have spent approximately 
$350,000 of my money to keep my stations clean.
    Last week, I heard people say that you were dropping the 
ball on the air quality. Last week, one of my stations, I had 
to spend $7,000 to upgrade a vapor recovery system because DES 
ruled that they were going to use California standards and it 
was out of code. So I had to have that done.
    I think that anybody that can have a 99.9 percent rating 
deserves a lot better than some of the things I heard here 
today about the Department of Environmental Services. I think 
that they's done a job, I think they're trying to control the 
issue, they come and inspect my stations. Although you don't 
like to have it done, you're glad it's done once they leave and 
say everything's all right. Then it's OK, he's a good guy. Say 
it's bad, that's a different issue.
    I have to commend them. I think they've done an excellent 
job, they've worked hard with what they've had to work with. 
People complain about a contaminant in a well, and I own a 
station that's comparatively close to these people on Blake 
Road. I have one and it's been checked.
    We do what we have to do, we try to run a clean business 
and we try to make a living. But when you have to take over a 
period of 11 to 12 years $350,000 out of your pocket to stay in 
that business, a lot of times you say, maybe it's time to close 
up and give in to the big guys and let them have it. But we've 
fought it, we'll continue to fight it. We do what we have to 
do.
    I commend you, Commissioner, I think you've done an 
excellent job. Senator Klemm, I know you can do what has to be 
done to get it out of the product. Thank you very much.
    Senator Smith. Don't give in to the big guys yet, hang in 
there.
    Anybody else? All right. Go ahead. Let's try to make it as 
quick as you can.

                    STATEMENT OF BOB MAGUIRE

    Mr. McGuire. I'll be very brief, Senator. My name's Bob 
McGuire, I'm a representative from here in Salem.
    I just want to cal your attention to a floor bill that we 
have, it's House bill 758 in the Senate. Essentially what it 
does, it may take care of a couple of issues, some concern was 
expressed earlier, a couple of issues. One was the mandate, 
once removed, doesn't put a time specific date or levels for 
the removal of the MTBEs. The floor amendment, the correct 
amendment to House bill 758 does do that. It does have a 
specific time schedule and limits on the MTBE, time period by 
which they have to be removed.
    Those are two concerns that we have. There's a group that 
may be a little more proactive, and there seems to be tendency 
to be. Our attitude is to take of the Mrs. Millers and the 
other people from the Blake Road area here as quickly as 
possible, and be their advocates. That's where we are.
    So we are requesting that DES, our fellow representatives 
and members of the Senate do familiarize themselves with this 
floor amendment, and if it's at all possible, for us to receive 
as much support as possible for it. Thank you again for your 
good work.
    Senator Smith. Thank you very much, Bob.
    Mr. Coburn. Thank you, Senator, I'll try to be equally 
brief. My name is Ken Coburn, and I work for Bob Varney, 
running the air division.
    Senator you recognized the presence of your staff members, 
Chris Hessler and Melinda Cross. I want to recognize on behalf 
of the State their efforts. There was a period in June and July 
last summer when I made 5 day trips to Washington in a 10-day 
period, spending innumerable hours with Chris and Melinda, 
negotiating with Senator Bond's staff and Senator Grassley's 
staff and Senator Daschle, the ethanol States, trying to get a 
deal done. As you know, that was put forth by yourself in S. 
2962, an excellent bill. I urge that you put forth a similar 
effort this session.
    One of the reasons that those efforts were so difficult may 
be of interest to the committee and perhaps to the viewers is 
that for frame of reference, all Federal support of State air 
programs, all 50 States, through EPA's budget, is about $200 
million a year. The ethanol subsidy is about $800 million a 
year. One company of that takes home $400 million a year, twice 
as much as all Federal assistance for State air programs.
    It's unconscionable. A State ban is not the way to go. 
There's no State ban that I'm aware of that has proven 
effective. The only place where they have been effective is in 
the States that have solely used ethanol in the first place. A 
Federal solution is necessary.
    So in terms of what we're seeking, we do want the oxygenate 
mandate repealed so that we're neither required to use MTBE or 
nor ethanol. We'd like it to be sooner than 2004 if that's at 
all possible. We would like incentives for new technologies. 
I'm certainly pleased that you're bringing that hearing to New 
Hampshire, and options for other alternatives like mass transit 
and then certainly remediation funding.
    I think I can speak for all of us in the State and DES and 
on behalf of Commissioner Varney that we stand ready to assist 
in that quest however we can. Thank you very much.
    Senator Smith. Thank you very much, Ken. I think in 
reference, one of the dangers we face is that out of 
frustration and anger, and I know that the California Senators 
are about at that point, is to just simply throw your hands up 
and say, OK, let's just ban it, period. What happens then is 
that the ethanol folks move into the market. That's not good 
for New Hampshire.
    So it's very, very complicated. I'm not making excuses, but 
it is very, very complicated to try to work through this and to 
deal with the regional and competing interests. We're going to 
do our best. I appreciate your comments, Ken, I appreciate 
yours, Commissioner Varney is working with us and providing the 
technical help that we need to try to work through that.
    I thought we had a deal that would work, but unfortunately, 
that didn't happen.
    I want to in closing say thank you again to all of the 
audience for being here and those who asked questions. 
Certainly we thank the witnesses, Christina Miller, who's a 
resident of Derry who has this in her well, and Commissioner 
Varney, Senator Klemm, Professor Kinner, Bill Holmberg, and 
Patty Aho. Thank you so much for being here. I thank my three 
staff members as well, Jeff Rose, Chris Hessler and Melinda 
Cross.
    Also again in closing, I thank Channel 17--you get a little 
commercial here--Channel 17, Salem cable access, for covering 
this and also New Hampshire Public Television. We'll see you on 
May 30 with another hearing that will be of interest. We're 
going to work very hard in the next 30 days to try to work this 
out, to try to get some resolution to this MTBE issue at the 
Federal level, which hopefully will complement what's going on 
at the State level.
    Final point, Mr. Holmberg?
    Mr. Holmberg. Please understand that Big Ethanol has their 
own agenda and that agenda sometimes does not coincide with the 
best interests of the nation.
    Senator Smith. You're correct on that.
    Mr. Holmberg. We have to work with others to counterbalance 
that power.
    Senator Smith. They are tough, but they are very important.
    Mr. Holmberg. I'd like to make the point that it is unfair 
to condemn the fuel ethanol industry because of the sins of a 
few corporations. Let's work together to bring a clean ethanol 
industry into New England.
    Senator Smith. Absolutely. Working together is the only way 
you're going to get anything accomplished.
    Thanks again to everyone, and let me also remind you that 
if someone has a question or comment that you would like to 
submit for the record, you have 2 weeks to do it. Just send it 
to the committee in Washington, the Environmental and Public 
Works Committee, and we'll put it in the record.
    This hearing is adjourned.
    [Whereupon, at 4:05 p.m., the committee was adjourned, to 
reconvene at the call of the Chair.]
    [Additional statements submitted for the record follow:]
                Statement of Christina Miller, Derry, NH
    Good Afternoon, Senators, Representatives and other distinguished 
guests. Thank you for allowing me to come and speak about my MTBE 
experiences.
    My name is Christina Miller and I am a homeowner and live at 14 
Skylark Drive in Derry NH. We have been living at this address since 
June 1998. When we purchased this property, a fairly thorough water 
test was performed and our water measured high in nitrates so an 
additional water purification system was installed. No mention of MTBE 
was made nor were any tests provided.
MTBE
    During 1999, the MTBE problem was highlighted in many States across 
the country and examined in TV and other news reports. During the New 
Jersey investigation U.S. Rep Bob Franks NJ, reported that ``The 
Environmental Protection Agency knew about potential threats to public 
health and drinking water supplies years before the agency allowed the 
widespread use of a potentially cancer-causing gasoline additive to 
combat air pollution. The 1987 EPA internal memo assessing the health 
effects of MTBE noted that it could be toxic, causing neurological 
problems or tumors when inhaled or absorbed by the skin. The memo also 
stated that the chemical had been found in groundwater in four States, 
affecting up to 20,000 people.'' USC and others have investigated the 
linkages of liver disease and cancer related problems.
This is a Problem Across all America--Not Just New Hampshire
    So far, tens of thousands of private drinking water wells and a 
handful of municipal water supplies have been contaminated by MTBE in 
the United States and further spreading of the chemical through 
underwater springs and aquifers is likely, say researchers. Among the 
worst examples of MTBE pollution so far are South Tahoe, California, 
where about half the drinking water wells have been contaminated, and 
Santa Monica, California, where 80 percent of the public water supply 
has been contaminated. Both cities now have to import water from 
elsewhere at costs of up to $3 million a year. In Maine, more than 
5,000 private drinking water wells were found contaminated, forcing 
residents to hook into municipal water lines. The MTBE predicament 
could be costly for oil and gas companies who are already being held 
responsible for some of the pollution, according to the Environmental 
Protection Agency (EPA). Estimates for cleaning up MTBE are around $1 
million per well, because current cleanup technologies for the chemical 
are limited. Several lawsuits around the country name gasoline 
operators as defendants in MTBE contamination cases, including ones 
filed by the South Tahoe Water District, a San Francisco-based 
environmental group called Communities for a Better Environment, and a 
group of five private citizens in North Carolina, to name a few. A 
number of energy companies, including Shell Oil, are responding to the 
threat of more numerous legal challenges by sponsoring research into 
microbial treatment--the cheapest MTBE remediation technology currently 
available. Microbial treatment uses bacteria to breakdown MTBE into its 
harmless components. Other methods of cleanup are significantly more 
expensive and include absorption using activated carbon, photo-
oxidation using ultra violet light, and chemical oxidation using 
substances like hydrogen peroxide. Because of the financial and 
technological hurdles, many contaminated areas have yet to be cleaned 
up--and are instead simply sectioned off to reduce spreading while more 
cost-effective treatments are found. While MTBE's destructive nature in 
water may have come as a surprise to most, officials at the EPA say the 
chemical's troublesome characteristics were never a mystery to them--
even before the U.S. Clean Air Act went into place.
My Experience
    In January 2000, we received a notice that our MTBE sample was 
below the limit (9 parts per billion). We were retested in April 2000 
and the reading was 22. First of all this indicates that anyone with 
any detection of MTBE should be cautious because of these significant 
fluctuations. Current studies are all short term in length, and are 
still limited as to the impact and damage to liver, kidneys and as a 
carcinogen. Further more, another test in May then indicated the 
percent had dropped again. Thus, although MTBE is a known problem, its 
dispersion and control is not well understood.
    Letters we received are very confusing. On page one of a letter 
from NH Department of Health and Human Services dated July 31, 2000, 
(with a 9.5 MTBE level) indicated that there are ``no restrictions on 
water usage'', yet on page two it stated ``although the MTBE 
concentration is below drinking water standard, because of the concern 
about possible fluctuations in the contaminant level, we understand 
that DES will be installing a point-of-entry water treatment system.''
    When the MTBE levels were 22, we were warned not to use the water. 
The materials provided told us how to better store gasoline and I don't 
feel provided us with enough information that made be more comfortable 
about the effects of MTBE. Even though I was pregnant and informed the 
authorities involved in this study, we were not offered water 
alternatives or informed in any of the letters about alternative water 
purification or MTBE's harmful effects on us, never mind my unborn 
baby. Since we were informed about this problem, I began to do what I a 
considerable amount of research on my own. But almost to no avail. 
There is not much information found on the effects of MTBE or the 
problems that it may cause in the long run. Of all the information that 
is out there, I have come to the conclusion that no one has done enough 
testing on MTBE.
    In June of 2000, we finally started to receive bottled water. We 
were provided as much as we needed. Nice, but still a problem to take a 
shower, do the laundry, wash our fruits and vegetables, and for 
cooking, among many other things you use faucet water for, but take for 
granted. After repeated phone calls and what seemed like lots of 
convincing, it was finally decided we ``might'' qualify for a water 
purification system.
The System
    A new water purification was installed finally at our residence in 
September. What concerns us also, is the fact that we received no paper 
work that this system will be maintained and upgraded as needed for the 
lifetime of the residence and our ability to resell our home in the 
future may be directly related to proving the status of this system. We 
are also still very concerned about our health, which probably won't go 
away for a while since there still is no resolution to this problem.
    In closing, the NHDES did the right thing in testing for levels 
across the State but should provide honest and full disclosure to all 
residents on MTBE and its possible harmful effects. The NH DES needs to 
also be very proactive. We had to continually call to get results. We 
still have not been provided any notice of what the source of 
contamination is. Finally, if there are long-term effects on our 
health, how does the State expect to respond?
                               __________
         Statement of New Hampshire State Senator Arthur Klemm
    Thank you Senator Smith. Let me say, I appreciate your coming to 
the district to talk about this issue. I am here today to bring more 
awareness to an issue that affects all of us, my neighbors, and many 
citizens in New Hampshire.
    As a legislator and a businessman, I am growing increasingly 
concerned with the reports of MTBE manifesting itself in the 
groundwater in New Hampshire and particularly this district.
    The Commissioner will go into more of the technical details but my 
understanding is that there are reports of MTBE causing asthma, 
shortness of breath, headaches, and an inability to concentrate. MTBE 
has been proven to cause cancer in animals. It is considered a 
carcinogen.
    Water used for drinking and bathing, should have not more than 13 
parts per billion. Yet in some communities, such as Salem, levels have 
been detected as high as 150 parts per billion. The Town reports that 
over 25 private properties have had positive test results for MTBE. 
Southern NH has a high population and a lot of private wells.
    The NH House was unable to pass legislation this past year to ban 
this substance. Now, alongside key Legislators in the House and Senate, 
we are prepared to make a difference.
    This year, I am working with a bi-partisan group of lawmakers to 
promote legislation to clean up our water supplies and eliminate future 
contamination.
    There are three pieces of legislation before the House and Senate 
this year aimed at taking control of this problem.
    HB 755, relates to groundwater contamination. That bill is still in 
the House Committee.
    HB 758, relative to the sale of gasoline containing ethers. I am 
co-sponsor of that bill which was voted out of committee 13-1 and will 
soon move on to the Senate.
    And last, SB 189, sets up a gasoline remediation and elimination 
fund. This bill is still in the Senate Environment Committee, they are 
expected to vote on it soon.
    In conclusion, I anticipate even more communities will come to the 
legislature for help in the coming months. I am getting ``out in 
front'' on this legislation because I do not think we, as lawmakers, 
want to be playing ``catchup'' on this issue. I think it is in our best 
interest to act now to bring cleaner water to our neighbors.
    Thank you for hearing my testimony today. I ask you to work with us 
to move forward in the interest of the public's health.
                               __________
 Statement of Robert W. Varney, Commissioner, New Hampshire Department 
                       of Environmental Services
                              introduction
    Good afternoon Mr. Chairman, members of the committee. My name is 
Robert Varney; I am the Commissioner of the New Hampshire Department of 
Environmental Services (``DES'' or the ``Department''). I am pleased to 
be here today to present the State of New Hampshire's views on the 
gasoline additive methyl tertiary butyl ether (MTBE), the effect this 
compound has had on the water resources of our State, and the costs 
associated with the investigation and remediation of MTBE 
contamination. Our testimony also addresses the significant constraints 
imposed by the Clean Air Act Amendments of 1990 on the State's ability 
to remove MTBE from our gasoline supply. Thank you for this opportunity 
to address this important issue with you.
                               background
    MTBE was first introduced in the 1970's to help replace lead in 
gasoline. MTBE's desirable blending characteristics, its relatively low 
cost, and its favorable impact on--octane rating made it an attractive 
gasoline additive. As a result, it was mixed with conventional gasoline 
at concentrations of approximately 2 percent by volume in regular 
grades and up to 9 percent in premium grades. In addition, the use of 
ethers, and in particular MTBE, was dramatically increased in 1995 with 
the introduction of Federal reformulated gasoline (RFG) requirements as 
part of the 1990 Amendments to the Federal Clean Air Act (CAA). Because 
its high oxygen content enables more complete combustion (reducing CO 
emissions, particularly in carbureted engines), and its relatively low 
vapor pressure reduces evaporative emissions (reducing VOC and air 
toxics emissions), MTBE was chosen by most refiners to meet he Federal 
oxygenate requirement (minimum 2 percent oxygen by weight) for RFG when 
it was mandated in the CAA. The presence of MTBE (and other ethers) in 
RFG also dilutes the concentration of more harmful toxics and 
carcinogens that are normally present in gasoline, such as benzene. The 
CAA requires the use of RFG in certain ozone nonattainment areas, and 
RFG was adopted for use in New Hampshire's ozone nonattainment areas 
(the State's four southeastern counties) in 1991 to help meet New 
Hampshire's emission reduction obligations under the CAA.
    There is no Federal maximum contaminant level (MCL) for MTBE in 
drinking water. New Hampshire law requires that the State drinking 
water standard, for any compound for which no Federal standard exists 
and where the compound has been shown to cause cancer in laboratory 
animals, must be protective to a risk of one cancer incidence in a 
population of one million. In 1990, in consultation with the New 
Hampshire Department of Health and Human Services (DHHS), DES adopted a 
State criterion for MTBE of 100 parts per billion (ppb). In 1997, this 
was lowered to 70 ppb, again after consultation with DHHS based on a 
review of more recent studies on the health effects of MTBE.
    In 1999, DES and DHHS, at the request of the State legislature, 
performed further review of the available information on the human 
health effects of MTBE, focused particularly on research and analysis 
performed since 1997. As a result, in May 2000, DES set New Hampshire's 
MTBE standard at 13 ppb. One other State, California, has also adopted 
a State MCL of 13 ppb. Nationally, New Hampshire and California now 
have the most stringent MTBE drinking water standard.
            mtbe in public water supplies and private wells
    New Hampshire first monitored for MTBE in drinking water in 1987. 
From 1987 to 1995, a total of 92 public water supplies reported first-
time detects of MTBE, for an average of 11 new public water supply 
detects per year. In 1996, after one full year of RFG use in New 
Hampshire's four southeastern counties, 35 public water supplies 
reported first time detects of MTBE. Since 1996, an average of 40 
public water suppliers per year have reported first time detects. DES 
believes that the observed increase in average new detects from 11 per 
year to 40 per year is directly related to RFG usage in New Hampshire.
    In the year 2000, 16.2 percent (or 187) of public water supplies 
had reported MTBE detects. In the four RFG counties, the percentages 
are higher than statewide averages, ranging from 18.6 percent in 
Merrimack County to 24.5 percent in Rockingham County. In contrast, the 
six ``non-RFG'' counties have MTBE detects in just over 8 percent of 
public water supplies. This further confirms the relationship between 
RFG in gasoline and MTBE in groundwater.
    Fortunately, the detected concentrations of MTBE are between 0.5 
and 5 ppb in approximately 85 percent of public water supplies with 
detectable MTBE, as compared with the MCL of 13 ppb. Only 2 of the 8 
systems that currently have MTBE concentrations above 13 ppb do not 
have treatment systems installed, and these two are expected to take 
corrective action over the next several months.
    New Hampshire has about 200,000 private residential wells that 
provide approximately 35 percent of the population with its drinking 
water. These wells are largely unregulated, in contrast with public 
water supplies that are subject to the rigorous standards established 
in the Safe Drinking Water Act. As a result, comprehensive water 
quality testing of private residential wells rarely occurs, although it 
is widely recognized that contaminants with significant public health 
implications exist in these wells at predictable frequencies, including 
radon, arsenic and MTBE. Consequently, this population of wells has not 
been universally tested for MTBE. In December 2000, DES announced an 
ongoing private well testing initiative to increase public awareness of 
the need for periodic and more extensive water testing for contaminants 
of concern, including MTBE.
    Although the available data are limited, we know that MTBE 
contamination has had an impact on a significant number of private 
residential wells. For the period from 1995 to 2000, of 269 private 
wells tested by the DES laboratory, 39 (14 percent) experienced 
detections of MTBE, with concentrations below the 13 ppb MCL in 27 
wells (10 percent) and above the MCL in 12 wells (4.4 percent). In the 
year 2000 alone, 105 private wells were sampled, and MTBE detected at 
levels below the MCL in 24 wells and above the MCL in 5 wells. This 
indicates an increasing trend in both the number of residential wells 
sampled--which we attribute to the increased attention to MTBE--and the 
rate of MTBE detection. Not surprisingly, these detection rates are 
comparable with those found during a 1998 study by the State of Maine, 
in which MTBE was detected in 15.8 percent (or 150) of 951 private 
wells sampled. Considering the available date from New Hampshire and 
Maine, with approximately 200,000 residential wells in New Hampshire, 
it is reasonable to project that between 30,000 (15 percent) and 40,000 
(20 percent) of New Hampshire's wells may have detectable levels of 
MTBE, with levels above the 13 ppb MCL in around 8,000 wells (4 
percent).
           state funding for remediation and water treatment
    The State of New Hampshire has taken aggressive action to address 
MTBE contamination.. Among the specific measures the Department has 
undertaken are the following:

      In 1998, DES set in motion a process to reduce the risk 
to citizen exposure to MTBE-contaminated drinking water. DES began 
having all drinking water laboratories do what DES's lab had already 
been doing: test for MTBE along with other volatile organic compounds 
they routinely analyze for in drinking water samples.
      DES requested all public water suppliers to notify their 
consumers whenever MTBE has been detected in concentrations over 5 ppb.
      All municipal public water supplies have been tested for 
MTBE. (None currently exceed the State's drinking water standard.)
      DES has implemented an educational outreach plan for the 
prevention of gasoline spillage. This ongoing effort includes: radio 
and television public service announcements; DES web page information; 
numerous press releases, interviews with news media; presentations at 
public forums; conference displays; and coordination with other 
organizations. In cooperation with Northeast States for Coordinated Air 
Use Management and the private sector, DES also launched ``Gas Care,'' 
a national spill prevention program that Governor Shaheen participated 
in launching through the taping of a video news release.
      DES has continued its aggressive underground storage tank 
(UST) program that replaces old, sometimes leaking tanks with new, 
state-of-the-art tanks throughout the State. This program has a 
compliance rate of nearly 100 percent. Over 13,000 old tanks have been 
removed and replaced with over 4,600 owner-purchased and installed new 
leak-resistant tanks. The success of this program has translated into a 
substantial decline in UST gasoline leaks.
      DES sponsors an active household hazardous waste 
collection program that includes collecting old gasoline. DES 
contributes $250,000 annually to municipalities for this program, which 
serves 150 communities statewide.
      In 2000, the Legislature passed and Governor Shaheen 
signed HB 1569 which instructed DES to analyze levels of MTBE in all 
grades of gasoline in the six counties outside the reformulated 
gasoline area. DES expanded the scope of the study to include gasoline 
sampling in all ten of the State's counties. The analyses found MTBE 
and four other oxygenates in gasoline. This finding was unexpected, and 
resulted in a requirement for the reporting of analytical results for 
these other oxygenates in drinking water and groundwater. DES has also 
requested the New Hampshire Department of Health and Human Services to 
review the data available regarding these compounds to determine if 
drinking water standards should be established for these contaminants 
as well.
      DES and the New Hampshire Marine Trades Association 
instituted a ``Clean Marine Initiative'', aimed at reducing pollution 
from motorboat outboard engines. In an effort to achieve quicker 
introduction of the new low pollution marine outboard engines, DES and 
the Marine Trades Association entered into an agreement to promote the 
sale of these cleaner engines. Twenty one dealers have signed the 
agreement, setting high goals for the sales of low pollution marine 
engines, half of all engines sold in the year 2000 and more than 90 
percent by the year 2003, well ahead of the mandated introduction of 
clean marine engines in 2006. (This initiative received an 
Environmental Merit Award from EPA-New England last week.)
      In the summer of 2001, DES will undertake a focused 
investigation of private water supplies near automobile junkyards, 
which we suspect may be a source of groundwater contamination, 
including MTBE. Thirty junkyards will be chosen at random throughout 
the State and sampling will be conducted of private wells near each of 
these facilities to determine if groundwater has been affected.

    Through 1999 when the drinking water criterion for MTBE in New 
Hampshire was 70 ppb, the number of private wells that were known to 
have had a concentration of MTBE exceeding that level was small. To 
deal with MTBE contaminated wells, nine point-of-entry (POE) treatment 
systems were installed by the Department of Environmental Services 
through 1999. However, with the reduction in the drinking water 
standard to 13 ppb and an increased awareness by the public of the MTBE 
contamination, the number of POEs installed in 2000 was 25. The 
installation costs alone of those treatment systems was nearly 
$160,000. The installation cost, coupled with short term bottled water 
use and sampling and maintenance of the nine systems previously 
installed, resulted in a total POE cost due to MTBE contamination in 
excess of over $190,000.
    More significant than the costs that the State of New Hampshire 
incurred last year for non-UST sites is the projected future costs 
associated with the investigation and remediation of MTBE 
contamination. The assessment of MTBE contaminated sites has absorbed 
significant personnel resources, and based on our best estimates of the 
number of new sites we expect to discover in the future, this demand 
for contracted engineering work and DES staff time will increase 
significantly. We are estimating, and need to budget for, a total cost 
for engineering consulting services for the investigation and 
remediation of MTBE contamination of $150,000 per year for the next 5 
years. This is in addition to the more than $1,000,000 in State 
personnel time that we estimate will be needed to deal with MTBE 
contaminated sites. Moreover, there will continue to be a need to 
install POE treatment systems for those homes whose wells have been 
contaminated by MTBE. We have every reason to expect that the number of 
POEs needed in the coming years will increase, with the cost of 
installation of new systems increasing from $150,000 next year to 
$270,000 5 years out. The operation and maintenance expenses for all of 
the POEs installed by the State increasing to well over $100,000 per 
year in the next few years. We are also preparing to deal with the need 
to extend public drinking--water supplies in those areas where there 
has been widespread contamination of private wells. For our budget 
planning purposes, we are estimating a need for $200,000 per year to 
address the State's cost share for the extension of public drinking 
water supplies in those areas. In sum, we project total annual costs of 
$740,000 in 2002, increasing to $991,000 in the year 2006 to deal with 
MTBE contamination at non-USTR sites..
    These costs are for only those sites not associated with 
contamination from leaking underground storage tank facilities. For UST 
sites, we estimate that approximately 200 such systems have been 
installed specifically to treat MTBE, of which 100 are currently in 
operation. The estimated costs associated with these systems is over $1 
million for installation, plus $1,600 per year per system for annual 
operation. Current operation and maintenance costs for the 100 systems 
are estimated at $160,000 per year.
    Currently, two existing dedicated State funds and a federally 
funded program are being used to investigate and provide water 
treatment systems to residents whose drinking water is contaminated by 
MTBE. For MTBE contamination associated with a leaking underground 
storage tank (LUST), the funding sources consist of the LUST Trust 
Cooperative Agreement with the U.S. Environmental Protection Agency and 
the State Oil Discharge and Disposal Cleanup Fund (ODD Fund). The ODD 
Fund is available for reimbursement of owners of underground storage 
tanks who incur costs in cleaning up oil discharges in groundwaters and 
surface waters and soils of the State. This Fund cannot be used when 
the source of the problem is either unknown or not associated with a 
LUST site. Expenditures from the LUST Trust Cooperative Agreement are 
similarly limited to LUST sites alone.
    The New Hampshire Oil Pollution Control Fund (OPCF) is used to fund 
the investigation and cleanup of MTBE contamination from unknown 
sources or sources not associated with a LUST site. The OPCF is funded 
by a fee of $0.001 per gallon of petroleum imports into the State, and 
was originally established principally to clean up a major petroleum 
spill in surface waters such as Portsmouth Harbor, the Piscataqua 
River, and Great Bay. The costs previously discussed for the 
installation and operation of private treatment systems for MTBE 
removal were funded solely from the OPCF. As the number of private and 
public water supplies discovered with MTBE contamination increases, the 
demands on the OPCF for treatment and remediation will become a major 
drain on this fund. Long-term use of the OPCF for MTBE related issues 
will rapidly deplete the fund, leaving the State vulnerable to a major 
spill in the River and Great Bay and without sufficient funds to clean 
up extensive MTBE contamination.
    The State of New Hampshire and its municipalities, its businesses, 
and its citizens have expended considerable funds in addressing MTBE 
contamination of public water supplies and private wells. It is 
entirely proper for the Federal Government to provide funding 
assistance in the cleanup of ``orphan'' MTBE contaminated sites. The 
Federal Government currently assesses $0.001 per gallon on all 
petroleum products sold in the country. The revenue from that tax, 
which in fiscal year 2000 amounted to $189 million, is placed in the 
Federal LUST Trust Fund. The Trust Fund currently has a balance of 
about $1.5 billion. Interest alone from the Fund nearly equals the 
annual appropriation of--approximately $70 million that goes to EPA for 
the LUST Trust Cooperative Agreements to the States. The Trust Fund was 
established to assist the States in the cleanup of contamination caused 
by gasoline only from leaking underground storage tank sites. Thus, 
addressing these ``orphan'' MTBE contaminated sites from the Fund has 
not been permitted. New Hampshire believes annual appropriations from 
the Fund should at least equal revenue to the Fund, including interest. 
This would amount to over $200 million per year being returned to the 
States for the cleanup of contamination. In addition, individual States 
should be permitted to use a portion of those moneys for remediation of 
MTBE sites not associated with leaking underground storage tanks. This 
will provide a minimum of Federal support to assist States in dealing 
with the unforeseen and unintended consequences of reliance on MTBE as 
a fuel additive.
clean air act constraints on new hampshire's ability to eliminate mtbe 
                      from the state's fuel supply
    As set forth above, there is abundant evidence that MTBE has become 
a significant and rapidly increasing contamination threat to the 
State's groundwater and surface water resources. MTBE is difficult and 
expensive to remediate. Further, it can be difficult to pinpoint the 
source of the contamination, and we are finding that an increasingly 
disproportionate part of the funds we have dedicated for petroleum 
remediation are caused by contamination problems related primarily to 
MTBE. We have aggressively undertaken preventive and remedial measures 
to address this contamination epidemic. New Hampshire also has 
aggressively pursued avenues to reduce and eliminate MTBE from our 
State's gasoline supply, but the State is severely limited by the 
Federal Clean Air Act in what measures it can take.
    The Clean Air Act (1) prohibits States in almost all instances from 
controlling individual components of gasoline and (2) expressly 
mandates the oxygen content of RFG (the ``oxygenate mandate''), leaving 
States with practically no authority to implement and enforce 
regulations to reduce MTBE levels in gasoline. Refiners use MTBE in 
conventional gasoline to help meet performance standards, and in RFG 
(which typically contains 5-10 times as much MTBE as conventional 
gasoline) because it is the most cost-effective alternative for meeting 
the oxygenate mandate in the East. Thus, virtually all gasoline 
supplied to the Northeast contains some level of MTBE. Even if it were 
legal to control MTBE at the State level, to do so could result in the 
supply of a gasoline that is actually more hazardous to public health 
and the environment than what we currently have. Also, it would most 
likely result in the requirement of a formulation for gasoline that is 
not presently available, which potentially exposes consumers and 
businesses to extreme variability in pricing and supply. Attachment A, 
a memorandum to Commissioner Robert W. Varney from DES's Air Director 
Ken Colburn, provides a more comprehensive discussion of the barriers 
that States face relative to reducing MTBE levels in gasoline.
    In addition to the difficulties States face in trying to enforce 
actions to reduce MTBE levels in gasoline, there is also an absence of 
workable substitutes for MTBE. The only currently possible alternative 
to MTBE to meet the oxygenate mandate is ethanol. However, ethanol is 
not considered to be a workable substitute for States in the Northeast. 
Although not final, a recent study entitled Health, Environmental, and 
Economic Impacts of Adding Ethanol to Gasoline in the Northeast States, 
conducted jointly by the New England Interstate Water Pollution Control 
Commission (NEIWPCC) and the Northeast States for Coordinated Land Use 
Management (NESCAUM), helps to identify the impacts to public health, 
the environment, and the regional economy of widespread use of ethanol 
as a gasoline additive in the Northeast. The State of Connecticut 
currently has by statute instituted a ban on MTBE beginning in January 
2003. However, knowing that a ban of MTBE in the presence of an 
oxygenate mandate would essentially result in an ethanol mandate, and 
in consideration of the preliminary findings of the NEIWPCC/NESCAUM 
study, the State's Department of Environmental Protection (DEP) 
recently wrote to environmental leadership in the legislature 
recommending that the effective date of the MTBE ban be delayed. 
Attachment B contains a copy of the letter from the Connecticut DEP to 
the State's Legislative Environment Committee which provides more 
information on the concerns with using ethanol in gasoline. It is clear 
that ethanol does not provide the solution to this problem.
    Ultimately, the only rational and legal action that is currently 
available to States to reduce MTBE is to opt-out of the Federal RFG 
program. This would eliminate the oxygenate mandate and reduce the need 
for oxygenate additives such as MTBE and ethanol. For these reasons, 
New Hampshire Governor Jeanne Shaheen last week issued Executive Order 
2001-02, which directs DES to take immediate steps to opt out of the 
RFG program. Attachment C contains copies of Executive Order 2001-02 
and a letter of intent from Governor Shaheen to EPA Administrator 
Whitman. Even that action, however, prevents timely action to reduce 
MTBE, as the existing Federal regulation pertaining to RFG opt out 
requests (40 CFR 80.72) prohibits an effective date for opt out earlier 
than January 1, 2004.
    As you know from your efforts on S. 2962 in Congress last session, 
States have few options to address MTBE in light of current Federal 
law. The Clean Air Act needs to be revised to eliminate the oxygenate 
mandate. New Hampshire, as have other States, has enjoyed the notable 
air quality benefits of the RFG program, and would prefer to maintain 
RFG's considerable air quality upside. We also respect the desire on 
the part of Federal policymakers to maintain regional consistency in 
fuel formulations. However, New Hampshire alone uses roughly 650 
million gallons of gasoline per year. We also have one of the most 
successful tank replacement programs in the nation. Given the volume of 
gasoline that is distributed, it is unreasonable to expect that there 
will be no releases into the environment, even with the most diligent 
handling. To address the problem of MTBE contamination, we must pursue 
a pollution prevention approach that reduces, and ultimately 
eliminates, the use of MTBE as a gasoline additive.
    Thank you again for this opportunity to provide the State of New 
Hampshire's perspective on this important issue.
                                 ______
                                 
                              Attachment A
                                    State of New Hampshire,
                      Department of Environmental Services,
TO: Robert W. Varney, Commissioner
FROM: Kenneth A. Colburn, Director Air Resources Division
DATE: March 8, 2001
RE: State Level Regulation of Ethers in Gasoline
Purpose
    As you know, legislation is proposed this session in New Hampshire 
to restrict the use of gasoline ethers such as methyl tertiary-butyl 
ether (MTBE) in the State (i.e., HB 755, HB 758). The purpose of this 
memo is to examine the implications of regulating the total ether 
content of gasoline at the State level.
    During the last 3 years, there have been significant efforts in New 
Hampshire's Legislature to reduce and/or phase-out the use of MTBE as a 
gasoline additive because of its negative impact on the State's water 
resources. Specifically, MTBE, when introduced into the environment, 
travels much more readily in groundwater than gasoline, and is not 
broken down (biodegraded) as rapidly as most other components of 
gasoline. Although the legislative focus has generally been on MTBE, 
its negative characteristics are believed to be shared by other 
gasoline ethers, including tertiary-amyl methyl ether (TAME), ethyl 
tertiary-butyl ether (ETBE), and di-isopropyl ether (DIPE). Because of 
their favorable blending characteristics (e.g., relatively high octane, 
low vapor pressure), ethers have been used in gasoline for over 20 
years. However, the use of ethers, and MTBE in particular, was 
dramatically increased in 1995 with the introduction of Federal 
reformulated gasoline (RFG) requirements as part of the 1990 Amendments 
to the Federal Clean Air Act (CAA).
    DES's own efforts to monitor the presence of ethers in gasoline, 
and to track the presence and treatment of ethers in ground and surface 
water supplies, show that removing ethers from gasoline could reduce 
contamination of New Hampshire's water resources resulting from 
gasoline spills and leaks. However, State legislation to control 
individual fuel components conflicts with Federal statutory and 
regulatory requirements relative to fuel formulation, and may have 
significant environmental, regulatory, and economic ramifications.
Background
    MTBE was first introduced in the 1970's to help replace lead in 
gasoline. MTBE's desirable blending characteristics, its relatively low 
cost, and its favorable impact on octane rating made it an attractive 
gasoline additive. As a result, it was mixed with conventional gasoline 
at concentrations of approximately 2 percent by volume in regular 
grades to 9 percent in premium grades. In addition, because its high 
oxygen content enables more complete combustion (reducing CO emissions, 
particularly in carbureted engines), and its relatively low vapor 
pressure reduces evaporative emissions (reducing VOC and air toxics 
emissions), MTBE was chosen by most refiners to meet the Federal 
oxygenate requirement (minimum 2 percent oxygen by weight) for RFG when 
it was mandated in the CAA. The CAA requires the use of RFG in certain 
ozone nonattainment areas, and RFG was adopted for use in New 
Hampshire's ozone nonattainment areas (i.e., the State's four 
southeastern counties) in 1991 to help meet New Hampshire's emission 
reduction obligations under the CAA. The presence of MTBE (and other 
ethers) in RFG also dilutes the concentration of more harmful toxics 
and carcinogens that are normally present in gasoline, such as benzene.
    It is not clear when other ethers (TAME, ETBE, DIPE) were 
introduced into gasoline, but DES studies have shown that they are 
often present in both conventional gasoline and RFG. Although 
commissioned for the purpose of studying the volume of RFG that is 
delivered outside areas where it is required, DES's Study of 
Reformulated Gasoline Distributed Outside of New Hampshire's Four 
County Nonattainment Area \1\ published in December 2000, revealed that 
other ethers are used in gasoline supplied in New Hampshire. Out of 180 
samples tested, 162 were found to contain TAME, in concentrations 
varying from 0.2 percent to 5.5 percent by volume. ETBE and DIPE were 
found in only a few samples, generally in low concentrations. These 
findings do, however, indicate that efforts to reduce MTBE 
contamination in water resources should include consideration of all 
gasoline ethers (TAME, ETBE, DIPE).
---------------------------------------------------------------------------
     \1\The Study of Reformulated Gasoline Distributed Outside of New 
Hampshire's Four County Nonattainment Area is available on the DES web 
site. See http://www.des.state.nh.us/ard/rfgstudy.
---------------------------------------------------------------------------
Control of Gasoline Additives
    Designed to maintain consistent national fuel specifications, the 
language of Section 211(c) of the CAA leaves little flexibility for 
States to regulate fuels and fuel additives. Section 211 (c)(4)(A) of 
the CAA specifically prohibits States from prescribing or attempting to 
enforce any control or prohibition of a fuel or fuel additive.
    Section 211 (c)(4)(C) describes how a State can petition EPA, via a 
revision of its State Implementation Plan (SIP), to allow it to 
regulate a fuel additive (a process referred to as ``securing a Section 
211(c) waiver''). However, EPA is authorized to approve such requests 
only if it determines that State regulation is necessary to achieve or 
maintain a national ambient air quality standard (NAAQS). MTBE is used 
a component of gasoline by refiners and is not required to be a part of 
either conventional gasoline or RFG. The performance requirements of 
gasoline do not change whether MTBE is used or not. In addition, as an 
oxygenate, MTBE is considered to be helpful in reducing carbon monoxide 
(CO) emissions from vehicles. \2\ Thus, it would be extremely difficult 
to make a case that reductions in the use of MTBE in New Hampshire 
would contribute to attainment or maintenance of a NAAQS.
---------------------------------------------------------------------------
     \2\Oxygenated fuels were introduced in the late 1980's as a 
mitigation strategy for CO nonattainment areas (e.g., Denver, New York 
City). The presence of oxygenates, such as MTBE, in gasoline helps 
promote more complete combustion of the fuel, which reduces CO 
emissions, particularly in older technology vehicles. However, the CO 
benefit of oxygenates in gasoline is negligible in today's cars, and 
the CO benefit in the overall fleet is reduced as older vehicles are 
replaced by new vehicles.
---------------------------------------------------------------------------
    The Administrator of the U.S. Environmental Protection Agency (EPA) 
has the authority to control or prohibit fuel additives, but only if an 
acceptable justification for the action is provided, including 
consideration of all available relevant medical and scientific data. In 
response to the growing concerns regarding MTBE in water, EPA appointed 
an independent Blue Ribbon Panel of experts to investigate the use of 
oxygen additives in gasoline. In the final report, entitled Blue Ribbon 
Panel Findings and Recommendations on the Use of Oxygenates in 
Gasoline, \3\ the Panel called for a significant reduction in the use 
of MTBE in gasoline, and recommended that Congress and EPA take action 
to lift the oxygen mandate. EPA has shown support for the Panel 
recommendations and has encouraged Congress to pass legislation that 
responded to the Panel's recommendations. To date, legislation that 
would solve this problem has not moved forward. EPA is also taking 
action to control MTBE under the Toxic Substances Control Act (TSCA) as 
a backup to the needed congressional action. However, a TSCA rulemaking 
is procedurally burdensome and may take several years to complete. \4\
---------------------------------------------------------------------------
     \3\Report of EPA's National Blue Ribbon Panel on MTBE, see http://
www.epa,gov/otag/consumer/ftjels/oxypanel/rec721.pdf.
     \4\See also http://www.epa.gov/otag/consumer/fuels/mtbe/
f00010.htm.
---------------------------------------------------------------------------
    Some States have adopted rules to regulate MTBE. However, in the 
absence of an approved Section 211(c) waiver, a State may not be able 
to defend enforcement of such a rule, and could be subject to 
litigation for implementation of a rule that conflicts with Federal 
law. Regardless, EPA would continue to enforce RFG in New Hampshire as 
it has traditionally done. If gasoline supplied to an RFG area 
continues to meet the RFG specifications, EPA probably won't take any 
action. However, if a State rule on gasoline resulted in deliveries 
that did not meet RFG specification, a supplier/distributor who 
delivered such fuel (or a retailer who sells it) could be subject to 
Federal fines of $25,000 per day. Given the alternative between meeting 
the intent of a State rule that is not enforceable and complying with 
Federal requirement that is, suppliers would almost certainly choose 
the latter.
    Two notable instances where States have proposed restricting or 
banning the use of MTBE and been challenged are California and New 
York. In both cases, the Oxygenated Fuels Association (OFA, which 
represents MTBE manufacturers) has filed complaints against the States 
for controlling of a fuel additive in violation of Section 211 
(c)(4)(A).
    Neither suit has yet been resolved, but it does appear that OFA has 
a strong case in both States based on Section 211(c) of the CAA and 
Federal supremacy.
    Some States that have implemented rules to regulate fuel 
characteristics and/or components have not been challenged. The State 
of Minnesota adopted a rule that effectively bans MTBE as a gasoline 
additive. The State did not seek a Section 211(c) waiver. The State has 
not been challenged on this rule, in part because there is a ready 
supply of ethanol (and political support for its use) to meet the 
oxygen requirements of RFG where it is required. The State of Maine has 
implemented a rule which controls the vapor pressure of gasoline in 
certain parts of the State. Even though this rule is not technically 
enforceable under Section 211(c), the gasoline industry has complied 
voluntarily with the rule. In addition, Maine represents only a small 
portion of the regional gasoline market, and any party who might be 
inclined to challenge the rule has thus far chosen not to do so. \5\
---------------------------------------------------------------------------
     \5\Maine's unique status with respect to policy and fuels is 
discussed further in a separate memorandum.
---------------------------------------------------------------------------
Potential Economic Impacts
    When DES studied the distribution of RFG in New Hampshire last 
fall, \6\ some combination of ethers was found in all 180 samples 
analyzed. Of the 140 samples taken from areas outside where RFG is 
required, \7\ all contained some concentration of MTBE and/or other 
ethers, although only seven of the samples contained enough oxygen (2 
percent by weight) to possibly certify as RFG. The gasoline supply and 
distribution industry has testified that virtually all gasoline (both 
RFG and conventional) currently supplied to New Hampshire, and the 
region, contains some concentration of MTBE. Thus, a State prohibition 
on gasoline ethers would in effect require a boutique fuel that is not 
currently available in this region, making it more likely that such a 
rule, or its enforcement, would be challenged.
---------------------------------------------------------------------------
     \6\The Study of Reformulated Gasoline Distributed Outside of New 
Hampshire's Four County Nonattainment Area is available on the DES web 
site. See http://www.des.state.nh.us/ard/rfgstudy.
     \7\RFG is presently required to be sold in Hillsborough, 
Merrimack, Rockingham, and Strafford Counties, also referred to the 
State Implementation Plan as New Hampshire's ``four county area.'' The 
four county area includes all of New Hampshire's classified 1-hour 
ozone nonattainment areas. This area represents roughly 70 percent of 
the State's gasoline consumption.
---------------------------------------------------------------------------
    Given a reasonable amount of time to respond, it may be possible 
that conventional gasoline (which has no specific requirement relative 
to the oxygen content) without ethers can be supplied to New Hampshire. 
However, because RFG is presently required to contain 2 percent oxygen 
by weight, the supply of gasoline that meets the standards for RFG 
without any ether additives is much more in question. In addition, MTBE 
is used as an octane enhancer in gasoline. The extent to which there 
may be a problem for refiners to meet their octane goals in gasoline 
without the option of ethers is unknown.
    The two major reports completed to date which assessed alternative 
gasoline formulations and oxygenate options are NESCAUM's RFG/MTBE 
Findings and Recommendations \8\ and EPA's Blue Ribbon Panel Findings 
and Recommendations on the Use of Oxygenates in Gasoline \9\. Both 
reports concluded that MTBE and ethanol are the only practical 
alternatives for meeting the oxygenate mandate in the short term (2-4 
years). Unless the oxygenate mandate in RFG is relaxed through 
congressional action, a prohibition or control on ethers in gasoline 
would effectively create an ethanol mandate. Because of its alcohol 
characteristics (e.g., affinity for water, increased evaporability), 
ethanol must be transported and stored separately from other products, 
and requires a specially refined base gasoline product, known as RBOB, 
\10\ for blending. In addition, a terminal operator must modify the 
facility (i.e., install additional plumbing) to allow blending of the 
ethanol.
---------------------------------------------------------------------------
     \8\Prepared by NESCAUM at the request of New Hampshire Governor 
Jeanne Shaheen in her capacity as Chair of the New England Governor's 
Conference, see http://www.nescaum.org/RFG/RFGPh2.shtml.
     \9\Report of EPA's National Blue Ribbon Panel on MTBE, see http://
www.epa.gov/otaci/consumer/fuels/oxypanel/rec721.pdf.
     \10\RBOB is Reformulated Blend for Oxygenate Blending. It contains 
no oxygenate, has low octane, and is made specifically for blending 
with ethanol.
---------------------------------------------------------------------------
    In the summer, the vapor pressure (measure of evaporability 
relative to temperature) of gasoline is required by EPA to be lower 
than in the winter to help limit evaporative emissions of volatile 
organic compounds (VOC) from gasoline. Ethanol tends to raise the 
overall vapor pressure when blended with gasoline, thus RBOB must have 
a lower base vapor pressure than comparable feedstock gasoline used for 
MTBE blending. RBOB can be produced cost-effectively for wintertime 
blending with ethanol because the vapor pressure requirements are not 
as restrictive. However, the cost of producing RBOB for summertime 
blending (when the vapor pressure of gasoline is required to be lower) 
has made ethanol use in the summer economically infeasible in the 
Northeast because it cannot compete with MTBE/ether blends.
    Ethanol is used predominantly in areas where it is produced, such 
as in the Midwest, where ethanol is in ready supply, support for its 
use is strong, and the oil industry has responded to the demand for 
RBOB. At the present time, the only supplier using ethanol in the 
Northeast is Getty, who made a commitment over 10 years ago to use 
ethanol in wintertime gasoline blends in some areas along the east 
coast. Getty originally made the commitment because its projections 
suggested that they could supply ethanol blends cost effectively. 
Getty's supplier of ethanol is Archer-Daniels-Midland, which transports 
it by both rail and barge to Getty terminals. The RBOB necessary to 
blend with the ethanol is supplied via special contract with a single 
refinery in Lyndon, New Jersey, and thus ethanol blending is limited to 
areas proximal to that particular refinery. Conversations with 
officials from Getty indicate that none of the gasoline distributed to 
its facilities in New Hampshire contains any ethanol. DES testing of 
gasoline samples this past fall (see footnote 1) supports that 
conclusion. An additional downside to ethanol blending from the 
standpoint of terminal operations is that separate storage must be 
dedicated to ethanol at a time (winter) when extra storage for heating 
oil would be extremely useful.
    In recent bills proposing to control MTBE, the gasoline supply and 
distribution industry has testified to the operational complications of 
supplying gasoline blends to New Hampshire that are not presently 
available in this region. In addition, potential price and supply 
volatility increases as the number of suppliers decreases. Given New 
Hampshire's small share of the regional gasoline market, the number of 
suppliers willing to make a special ``boutique'' gasoline for the State 
is likely to be limited. It is extremely difficult to predict the 
impact that requiring a unique gasoline for New Hampshire would have on 
supply and pricing.
Potential Health and Environmental Impacts
    There may also be unanticipated health and environmental impacts 
from regulation of gasoline ethers. NESCAUM's report (RFG/MTBE Findings 
and Recommendations, see footnote 4) found, among other things, that:
    `` . . . gasoline refiners that supply the Northeast have 
overcomplied with RFG toxic performance standards by more than 75 
percent, in part due to the presence of MTBE. This substantial margin 
of overcompliance may be lost if MTBE (which is used both as an 
oxygenate and an octane enhancer) is reduced or eliminated from RFG.''
    In order to prevent increases in air toxics that are likely to 
accompany decreases in MTBE and other ethers, it may be necessary to 
seek additional controls on those components of gasoline that directly 
result in air toxic emissions (e.g., benzene, aromatics, and olefins). 
However, as mentioned previously, approval of a Section 211(c) waiver 
request is contingent on EPA finding that such a request is necessary 
to achieve attainment of a NAAQS. Since there is no NAAQS for air 
toxics, a Section 211(c) waiver request that includes measures designed 
solely to reduce emissions of air toxics is not likely to be approved 
by EPA.
    The impacts to groundwater from spills of ethanol blend gasolines 
have not been fully studied. Preliminary studies by the New England 
Interstate Water Pollution Control Commission (NEIWPCC) on the 
characteristics of ethanol, storage issues, and impacts resulting from 
releases of gasoline containing ethanol suggest that, while ethanol 
blends overall may be better than MTBE/ether blends from the standpoint 
of groundwater contamination, other toxic constituents of gasoline 
(e.g., benzene, toluene, ethylene, xylene) may actually travel further 
through the groundwater with ethanol blends. This is because organisms 
in the soil which break down petroleum products prefer ethanol over 
other components of gasoline. However, the NEIWPCC report is expected 
to conclude that this result would still be preferable to having MTBE 
present in gasoline.
Conclusion
    At the present time, virtually all gasoline supplied to New 
Hampshire contains at least some MTBE and/or other ethers. \11\ In 
addition, because MTBE is the additive of choice for meeting the 
Federal oxygenate mandate in RFG, gasoline in areas of New Hampshire 
where RFG was adopted (Hillsborough, Merrimack, Rockingham, Strafford 
counties), contain significantly higher levels of MTBE and other 
ethers.
---------------------------------------------------------------------------
     \11\See the DES special study ``Study of Reformulated Gasoline 
Distributed Outside of New Hampshire's Four County Nonattainment Area 
``, available on the DES website: http://www.des.state.nh.us/ard/
rfgstudy.
---------------------------------------------------------------------------
    Because of the potential for contamination of water resources by 
MTBE and other ethers from releases of gasoline into the environment, 
the desire to take action at the State level to ban or restrict their 
use is justified. However, the existing language of Federal statute, 
specifically Section 211(c) of the Federal CAA, places significant 
restrictions on States' ability to regulate the use of ethers in 
gasoline. Legally, a State can only enforce its own regulation of fuels 
if it has EPA' s blessing (an approved waiver from Section 211(c) of 
the CAA). The States of New York and California have adopted State bans 
on MTBE, and their actions have been challenged by MTBE stakeholders, 
who appear to have a strong case. New Hampshire should monitor these 
cases closely to help assess its ability to defend potential actions to 
regulate ethers in gasoline and the associated legal expenses.
    In addition to possible legal challenges, because virtually all 
gasoline supplied in this region contains some concentration of ethers 
primarily MTBE), the implementation of a rule that regulates the ether 
content of gasoline may create a ``boutique'' gasoline in New 
Hampshire. Some States, including Minnesota and Maine, have implemented 
rules which regulate gasoline formulation in an effort to reduce the 
use MTBE as a fuel additive, and the gasoline industry has complied 
voluntarily. This is believed to be because, in both instances, the 
formulation required has been reasonably available in the region. A ban 
on ethers in New Hampshire would effectively be a requirement to supply 
a new gasoline formulation, particularly in areas where RFG is required 
(i.e, New Hampshire's four county area, roughly 70 percent of the 
State's gasoline consumption). Requiring a gasoline that is not 
commercially available may have significant impacts on the supply and 
pricing of gasoline, and the extent of these impacts are difficult to 
predict.
                              Attachment B
                                      State of Connecticut,
                    Department of Environmental Protection,
                                                    March 14, 2001.

Senator Donald E. Williams,
Representative Jessie O. Stratton,
Co-Chairpersons, Environment Committee,
Room 3200, Legislative Office Building,
Hartford, CT 06106.

Re: Annual Report Pursuant to Public Act No. 00-175, An Act Concerning 
the Use of MTBE

Dear Co-Chairpersons Williams and Stratton: This is to followup to my 
letter of 12/29/00 updating you on the status of the Department of 
Environmental Protection's (the ``Department's) efforts pursuant to 
Public Act No. 00-175, An Act Concerning the Use Of MTBE. According to 
this act, the Department is required to submit an annual report to the 
Environment Committee outlining the Department's progress on a plan to 
eliminate methyl tertiary butyl ether (``MTBE'') as a gasoline 
additive. As stated in my letter of 12/29/00, the Department decided to 
delay the submission of our annual report to await the completion of 
the regional study evaluating ethanol as an alternative to MTBE. This 
study, conducted by the Northeast States for Coordinated Air Use 
Management (NESCAUM) and the New England Water Pollution Control 
Commission (NEIWPCC) while not yet final, contains several significant 
findings, which warrant your attention and consideration.
    The findings outlined in the NESCAUM/NEIWPCC study lead the 
Department to conclude that the ban on MTBE effective in the year 2003 
is not prudent for the State of Connecticut and we recommend that the 
Environment Committee consider changing the date of the ban. If this 
action is not taken, Connecticut's position in the region as the first 
and only State to ban MTBE while required under the Clean Air Act to 
comply with the Federal Reformulated Gasoline Program (RFG) will likely 
result in one of several undesirable options. These options could 
include the delivery of special or non-compliant gasoline or an 
increase in the price of gasoline conservatively estimated in the range 
of 3-11 cents per gallon. If the legislature does not initiate a 
legislative change this session the Department is prepared to recommend 
changing the date in the next legislative session.
    These conclusions are based on the findings highlighted in the 
attached summary. If there are any questions regarding the Department's 
activity regarding MTBE, please contact Tomn Tyler, my Legislative 
Liaison, at 424-3001. Thank you for your consideration of this matter.
            Sincerely,
                       Arthur J. Rocque, Jr., Commissioner.
                                 ______
                                 
            Annual Report Pursuant to Public Act No. 09-175
                   an act concerning the use of mtbe
    The following is a synopsis or the key findings from the NESCAUM/
NEIWPCC study.
Background
    The Federal reformulated gasoline program (RFG) was designed to 
reduce emissions from motor vehicles. To comply with the RFG program, 
gasoline must achieve a set of emission performance standards and meet 
a minimum oxygen content requirement. Currently, approximately three-
quarters of all gasoline sold in the northeast market is RFG. Refiners 
have opted to sell an RFG blend containing MTBE at 11 percent by 
volume, which translates into approximately 1 billion gallons of MTBE 
sold annually in the Northeast. The RFG program has provided 
substantial reductions in emissions of smog-forming pollutants, benzene 
and other hazardous air pollutants from motor vehicles. However, 
substantial evidence indicates that the unique chemical and physical 
properties of MTBE pose an unacceptable risk to the region's potable 
water supply. The challenge facing policymakers is to maintain the air 
quality benefits of RFG while reducing the threat that MTBE poses to 
the region's water resources.
    Cost Implications of Eliminating MTBE
    MTBS and ethanol are the only two oxygenates currently produced in 
quantities sufficient to meet the demand created by the RFG program. 
Therefore, under current Federal law eliminating MTBE represents a de 
facto mandate for ethanol. The consequences of introducing hundreds of 
millions of gallons of ethanol into the region's gasoline pool by 2003 
will have significant economic impacts by potentially increasing the 
cost of gasoline in Connecticut by a range of 3-11 cents per gallon. 
However, the 2003 date puts Connecticut on a more accelerated phase-out 
schedule than other States regionally or nationally and this may result 
in costs outside the range or the projected 3-11 cent increase per 
gallon. The increase in cost is the result of several key factors:
      Fuel Reformulation Costs--Formulation changes associated 
with eliminating MTBE are likely to increase the cost of gasoline 
production due to the need for process changes and equipment 
modifications as well as the inclusion of replacement blend components 
which are more expensive than MTBE. Critical factors in the cost 
effectiveness equation are the timeframe for phase-in, the relative 
supply and demand for fuel constituents, and the longer term prospects 
for developing ethanol production capacity in the New England.
      Infrastructure Costs--Due to ethanol's unique properties, 
notably its affinity for water, a new infrastructure to transport 
millions of gallons of ethanol from the mid-west and internationally 
will need to be developed. The existing distribution systems have water 
infiltration problems that cause ethanol to separate out of gasoline. 
Ethanol will require different handling and transport methods than have 
been used for MTBE. California has estimated that U wilt cost 
approximately $60 million and will take up to 24 months to modify 
storage tanks. Unloading facilities and the installation of blending 
equipment at distribution terminals. The NESCAUM/NEIWPCC study 
estimates that the cost for the Northeast would be roughly $48 million.
      Economic Costs--Projections show that in 2003 
approximately 13 billion gallons of gasoline will be sold in 
Connecticut. A one-cent per gallon increase translates to about $15 
million of outflow from the State. Since most RFG is produced outside 
the region, increased gasoline prices represent a substantial outflow 
of economic resources from the regional economy. The NESCAUM/NEIWPCC 
study cites a 1999 U.S. Department of Energy report estimating that the 
average cost of RFG produced at east coast refineries would increase by 
3.9 cents per gallon if all MTBE were replaced by 2004 under a 
nationwide ban on ethers. Connecticut is the only State in New England 
that has banned MTBE by 2003. This makes projecting potential increases 
in gasoline prices difficult. While difficult to predict with accuracy, 
unilateral action by Connecticut will result in per-gallon increases in 
the cost of gasoline beyond those predicted for national or regional 
actions. The NECAUM/NEIWPCC study clearly shows that a longer lead-time 
that enables a coordinated regional phase-out of MTBE would translate 
into cost savings on projected increases in gasoline prices.
Environmental Impacts of MTBE v. Ethanol
    Gasoline spilled or leaked into the environment is a major source 
of water pollution, and at elevated levels, gasoline and its 
constituents can adversely affect drinking water quality. Both ethanol 
and MTBE exhibit a high solubility in water and high mobility in the 
subsurface. Because it biodegrades quickly in the environment, ethanol 
poses significantly less risk to water resources than MTBE. However, in 
certain instances, the environmental transport properties of ethanol 
can make other gasoline constituents more soluable in groundwater, and 
potentially inhibits the degradation or other more toxic components in 
gasoline such as benzene end toluene. While the potential increases in 
exposure from ethanol do not compare with the risks born by MTBE, it 
raises another issue for consideration and management.
Waiver Request
    Under Section 211(k) of the Clean Air Act States may receive a 
waiver from the oxygenate requirement of the RFG program. This is not 
to be confused with a waiver from the use of MTBE. The State of 
California submitted a waiver request to the U.S. Environmental 
Protection Agency (EPA) in 1999. At the time of this writing, EPA has 
yet to even propose a decision in response to California's request. 
While the Department intends to seek a waiver as part of a regional 
strategy a waiver request will not serve as a timely solution for 
Connecticut in the absence of a waiver, an amendment to the Federal 
Clean Air Act would be required to enable the State to comply with RFG 
requirements. Non-compliance will result in Federal sanctions and the 
loss of millions of dollars in transportation funding. In addition, 
Connecticut will still need to make up the difference in the emissions 
shortfall that has been credited to the RIG program.
Public Education and Outreach on Effective Gasoline Management
    There are opportunities fur enhancing current public education and 
outreach efforts on the importance of a safe and effective gasoline 
management. Department has already initiated a public outreach effort 
and has met several times with representatives from petroleum marketing 
and fuel additive industry groups to establish a campaign to educate 
the public on the proper handling of gasoline. This group plans to 
utilize aspects of a campaign called ``Gas Care'' that was launched by 
the Alliance for Proper Gasoline Handling in 2000. Also, the 
Department's efforts in enhancing compliance with the I-95 Federal 
Underground Storage Tank regulations have served as an important 
measure in promoting effective gasoline management. However, while 
Department's efforts have resulted in over 8,500 tanks now in 
compliance with these requirements, there are over 5,100 non-compliant 
tanks remaining. This universe represents a labor-intensive effort 
which currently is severely understaffed.
                              Attachment C
                        executive order 2001-02
    An order pertaining to reducing water contamination resulting from 
the use of Methyl tertiary Butyl Ether (MTBE) in Reformulated Gasoline

    WHEREAS, MTBE has become a significant and rapidly increasing 
contamination threat to groundwater and surface water resources in the 
State of New Hampshire; and
    WHEREAS, 16 percent of New Hampshire's public water supplies have 
some level of MTBE contamination; and
    WHEREAS, 27 percent of the private well samples analyzed for MTBE 
by the Department of Environmental Services' laboratory in the year 
2000 had some level of MTBE and 4 percent had MTBE concentration in 
excess of the State's drinking water standard of 13 ppb; and
    WHEREAS, a study conducted by the Department of Environmental 
Services found MTBE in all gasoline across the State, at levels up to 
12.4 percent, and that other oxygenates with similar characteristics to 
MTBE were found in all ten counties, with levels up to 5.5 percent; and
    WHEREAS, MTBE is considered a potential human carcinogen at high 
doses by the U.S. Environmental Protection Agency; and
    WHEREAS, due to its high solubility in water and its ability to 
move quickly through groundwater, MTBE from leaking storage tanks and 
spills tends to move further than other components of gasoline and is 
more difficult to remediate; and
    WHEREAS, MTBE does not break down as rapidly as other gasoline 
constituents once released into the environment; and
    WHEREAS, the State of New Hampshire and its citizens and businesses 
are incurring significant costs to deal with the increasing presence of 
MTBE contamination, namely in undertaking remedial steps to remove the 
threat of continuing contamination at individual sites, providing 
alternative drinking water supplies to homes affected by MTBE 
contamination, and substantially increasing staff time spent on MTBE 
contaminated sites and related issues; and
    WHEREAS, the State of New Hampshire has aggressively pursued all 
available, legal options to reduce the concentration of MTBE in 
gasoline sold in the State and the threat posed by MTBE contamination 
in its water resources, including:

    Initiating exhaustive assessments of MTBE and a task force 
    to seek a regional gasoline solution; working with dealers to 
    promote cleaner marine engines; and helping to launch a national 
    public education program regarding the proper handling and disposal 
    of gasoline;
    Conducting one of the strongest underground storage tank 
    replacement programs in the country, achieving a compliance rate of 
    over 99 percent;
    Establishing a new safe drinking water standard for MTBE of 
    13 parts per billion, the most protective primary drinking water 
    standard in the country; and
    Formally requesting relief from Federal requirements; and

    WHEREAS, MTBE was added to gasoline in the mid-1 970's to help 
replace lead because it added octane and improved combustion in 
gasoline engines, resulting in cleaner emissions; and
    WHEREAS, Title I of the Federal Clean Air Act Amendments of 1990 
(CAA) mandated significant emission reductions from New Hampshire's 
ozone nonattainment areas (i.e., Hillsborough, Merrimack, Rockingham, 
and Strafford counties), and in order to help satisfy these 
requirements, in 1991 New Hampshire decided--by opting in to the 
Federal Reformulated Gasoline (RFG) program--to require cleaner-burning 
gasoline in these counties starting in 1995; and
    WHEREAS, because the CAA expressly mandates the oxygen content of 
RFG, requiring that it have at least 2 percent oxygen by weight, RFG 
contains approximately 11 percent MTBE by volume--five to ten times the 
amount historically found in gasoline in the Northeast; and
    WHEREAS, because the ability of States to regulate the properties 
and composition of gasoline--including its oxygen content--is expressly 
limited by the CAA, State action to ban MTBE is unlikely to withstand 
legal challenge; and
    WHEREAS, even if MTBE were eliminated, the CAA oxygen mandate would 
still force New Hampshire to use other oxygenates--such as ethanol--
that are not readily available, could lead to unacceptable price and 
supply impacts, and need to be analyzed to ensure that we understand 
public health and environmental issues associated with these 
alternatives; and
    WHEREAS, despite these and other actions, the number of MTBE 
detections in the State's water resources continues to rise, and 
despite the State's vigorous efforts to advance Federal legislation to 
eliminate the CAA oxygen mandate, neither Congress nor the U.S. 
Environmental Protection Agency appear likely to address this problem 
in the foreseeable future; and
    WHEREAS, the only remaining option available to the State of New 
Hampshire is to opt out of the Federal RFG program and to make up for 
the emission reductions that RFG provides by adopting other emission 
control measures; and
    WHEREAS, the air quality benefits that have been achieved through 
the RFG program should be maintained, and diminishing or 
``backsliding'' from these air quality benefits is unacceptable from 
the standpoint of public health; and
    WHEREAS, protection of New Hampshire's economic well-being, natural 
environment, public health, and quality of life demands that the 
State's air and water quality be enhanced simultaneously, rather than 
treated as mutually exclusive goals;
    NOW, THEREFORE, I, JEANNE SHAHEEN, GOVERNOR of the State of New 
Hampshire, by the authority vested in me pursuant to Part II, Article 
41 of the New Hampshire Constitution, do hereby order and direct the 
Department of Environmental Services (DES) to prepare and submit to the 
U.S. Environmental Protection Agency the documentation necessary for 
New Hampshire to opt-out of the Federal Reformulated Gasoline program 
immediately, pursuant to my request that the Administrator of the U.S. 
Environmental Protection Agency revise the Code of Federal Regulations 
Title 40, Part 80, Subpart D, Section 80.72(c) to allow for an 
accelerated opt-out of the Federal Reformulated Gasoline program; and
    FURTHERMORE, I order and direct DES to work with the New Hampshire 
General Court to adopt in this legislative session any provision 
necessary to accomplish this goal, including control measures 
sufficient to replace the emission reduction benefits achieved by RFG, 
to provide adequate funding and statutory flexibility for remediation 
of MTBE-contaminated sites and water resources by extending the sunset 
date of the Oil Discharge and Cleanup Fund to January 1, 2010, and 
increasing the reimbursable limit of that fund from $1 million to $1.5 
million for MTBE (and other petroleum) contaminated sites; and
    FURTHERMORE, I order and direct DES to continue to promote and 
participate in efforts to develop acceptable regional or Federal 
approaches to reduce the threat of MTBE contamination, including but 
not limited to elimination of the oxygen mandate, waivers from Federal 
fuel requirements, cleaner reformulations of fuels, and other such 
measures; and
    FURTHERMORE, I order and direct DES to analyze and transmit to my 
office and the General Court, the results of any State, regional or 
national studies on the environmental fate and transport of ethanol in 
air, surface water and groundwater, to ensure a full understanding of 
the potential environmental and public health consequences of ethanol 
as an alternative to MTBE; and
    FURTHERMORE, I order and direct DES to analyze and transmit to my 
office the results of litigation concerning MTBE, and to recommend any 
actions which, based on the outcome of the litigation, may allow the 
State to better address the issue of MTBE contamination; and
    FURTHERMORE, I order and direct DES to take all reasonable steps to 
encourage the Federal Government to appropriate adequate funding to 
States for the costs incurred to remediate MTBE-contaminated sites and 
water resources and to prevent future contamination.
  Given at the Executive Chamber in Concord, this sixteenth day of 
                                           April, two thousand one.
                               __________
        Statement of William C. Holmberg, President, Biorefiner
    My name is Bill Holmberg. I am a resident of Bow, New Hampshire. I 
have been involved in environmental issues, renewable energy, as well 
as biofuels and other transportation fuels, since 1971. My involvement 
includes government service at EPA, FEO/FEA and DOE, president of 
energy-oriented associations and startup companies promoting the 
biorefinery concept in the private sector.
    Thank you Mr. Chairman for the opportunity to present thoughts 
which I believe are of importance to Northern New England and the 
nation in terms of energy, the environment and economic well being. 
First, I want to congratulate you for your position on ANWAR. I believe 
it wise, and will briefly explain why later in this testimony. I also 
want to thank you for attending and speaking at the Environmental 
Inaugural Ball in the nation's capital this past January. You helped 
make the Ball a great success.
    The primary issue before you today is the fate of MTBE. I agree 
that MTBE should be banned and phased out of the gasoline pool. But, I 
ask that you consider a phaseout schedule that accommodates the reality 
of the problem and the economic consequence of such action. May I also 
suggest that leaving the decision up to the States has merit because of 
the different perceptions of the problem in the separate States? This 
is primarily due to the status of leaking underground storage tanks, 
the movement of groundwater and its relationship to the aquifer, the 
amount of MTBE used in a State, and the focus of public relations 
attacks by those benefiting from the demise of MTBE. I appreciate the 
distribution problems of providing different fuel formulations to 
individual States; but, perhaps the States in a region (New England, 
for example) could coalesce in the best interests of the environment, 
water quality, and the economics of the region.
    It is interesting to note that MTBE is still widely used in many 
parts of the country, but complaints have subsided appreciably. Again, 
dealing with the underground storage tank problem is likely the primary 
reason. In addition, I believe the relaxation of the public relations 
attack is also a contributing factor. I ask that you consider the 
possibility that the forces that covertly orchestrated those attacks 
are the same forces that failed to support your MTBE legislation that 
was successfully reported out of the Environment and Public Works 
Committee during the last Congress. That failure is geared to the 
reality that these forces are determined to control the ethanol market, 
and have little interest in seeing the industry expand into the routine 
use of cellulosic biomass as a feedstock to produce ethanol.
    The advance of the biorefinery concept (the conversion of 
cellulosic biomass to biofuels, bioenergy and biochemicals) is of vital 
importance to the Northern New England States. These States essentially 
have little significant fossil fuel reserves--oil, gas or coal. They 
have, however, vast reserves of cellulosic biomass--agriculture and 
forestry residues, rights-of-way, park, yard and garden trimmings, and 
the clean biomass portion of municipal wastes that go to landfills. 
Those biomass reserves are renewable and represent the sustainable 
economic and energy security of New Hampshire, Vermont and Maine, other 
New England States, and large regions elsewhere in the nation.
    Mr. Chairman, $2 per dollar gasoline prices, and perhaps higher, 
are being predicted for this summer. This situation could only worsen 
in future years. But, a reasonable transition to an ever increasing 
reliance on biofuels made from feed grains and cellulosic biomass as 
well as Biodiesel made from oil-seed, animal fats, tallow and used 
cooking oil, will slow the rise in cost of fossil-based transportation 
fuels and also bring healthy, new competition to the marketplace and a 
new industrial base to the region.
    This long sought-after transition requires action on two fronts:

      A steadily expanding market for biofuels. The Renewable 
Fuels Standard that was included in your legislation last year, S. 
2962, as reported out of your committee, can best achieve this goal. I 
seek your consideration of again including that provision in your new 
legislation, or as an alternative, cosponsoring S. 670, the Renewable 
Fuels Act of 2001.
      New, ``out-of-the box'' thinking and action to 
commercialize the emerging biorefinery concept through concentrated, 
aggressive and coordinated government actions at the Federal and State 
levels. Studies on the value of including biomass as feedstocks to 
produce biofuels, bioenergy and biochemicals, and accompanying 
research, have been going on for more than half a century. Hundreds of 
millions of dollars of public funds have been spent. The American 
Petroleum Institute sites a number in excess of $7 billion.

    This year alone, the President's budget calls for well over a 
$100,000,000 to be spent by DOE and USDA. Only biopower (electricity 
and thermal energy) have achieved a modest level of success.
    There are increasing levels of biochemicals entering the 
marketplace, but this technology was well developed before the advent 
of petrochemical feedstocks. The first gallon of cellulosic biomass 
ethanol has yet to enter the marketplace.
    The nation needs a ``man on the moon'' type priority approach to 
truly launch the Biorefinery concept. The Northern New England States 
need a cooperative and aggressive program to take advantage of their 
most promising energy resource--biomass--and to put it to work to the 
benefit of New Hampshire, Vermont and Maine. The technologies to launch 
the process are in hand today. The bureaucratic and political will to 
harness these technologies come up short. I seek your support for a 
``man on the moon'' approach to overcome these shortcomings and I would 
be pleased to work with your staff to develop a plan. Perhaps a good 
place to start this planning is in the Conservation Center of the 
Society for the Protection of New Hampshire Forests. You saw their 
innovative approach to energy on Monday. Thank you for speaking at 
their Earth Day event.
    In terms of ANWR--given available data, it is possible to calculate 
that, with passage of last year's S. 2962, or this year's S. 670, there 
will be more gallons of finished fuel entering the transportation 
market by 2010 than if exploratory and production drilling at ANWR 
proceeds.
    Furthermore, if the increased ethanol production were reacted with 
isobutylene to produce ethyl tertiary butyl ether (ETBE), the amount of 
non-petroleum based automotive fuels would be twice the amount of 
finished product that could be produced at ANWR. ETBE is being used in 
Europe in increasingly large volumes as a clean-burning gasoline 
additive with great success, with no reported problems. In addition, 
butane, the feedstock used to produce isobutylene, is in surplus supply 
because of the need to reduce the vapor pressure of gasoline sold in 
several parts of the nation during summer months. The phaseout of MTBE 
(also containing isobutylene) will exacerbate that surplus, as will the 
increased production of natural gas that frequently contains natural 
gas liquids that include butanes.
    Therefore, with the passage of S. 670, the need for oil from ANWR 
is marginalized. Add ETBE to the process and the need for ANWR is 
further diminished.
    You have expressed concern over the ozone forming potential of 
ethanol in gasoline. This concern is well founded in ozone non-
attainment areas during the summer months. This is caused by the 
increased vapor pressure of the fuel when ethanol is added to gasoline 
in small amounts. There are two available solutions to the problem and 
two on the horizon:

      Oil refiners can provide lower vapor pressure gasoline 
for blending with gasoline. This is done in the Chicago/Milwaukee 
region.
      Ethanol can be used as E-85 in flexible fuel vehicles--
the vapor pressure problem goes away when the amount of ethanol in 
gasoline exceeds 22 percent.
      Ethanol is converted to hydrogen, which is then used as 
an automotive fuel in an engine or fuel cell.
      Ethanol is used as ETBE, which has superior blending 
characteristics, but only after it is well established here in the U. 
S. that ETBE does not cause problems in water supplies. The 
Environmental Research Group at the University of New Hampshire could 
explore this issue.

    The solutions to the automotive fuel problems are in hand. 
Aggressive, concerted and regional actions are needed to release them 
into full commercialization. You expressed concern about the 
importation of ethanol into States like New Hampshire. Two 
considerations:

      The provision in S. 670, giving a 1.5 credit to biomass 
ethanol compared to 1 credit for starch or sugar-based ethanol, coupled 
with aggressive, regional actions, should soon make it possible to soon 
produce ethanol here in the New England States; and
      S. 670 contains carefully designed protections for 
Northeastern refiners and motorists. First, the Clean Alternative Fuels 
Program section allows refiners to meet their gradually increasing 
targets by trading credits, rather than having to purchase the physical 
``wet barrels'' of alternative fuel, including ethanol. In this way, 
refiners can make the best choice based upon fuel availability and 
pricing, and transportation considerations. In addition, the 
legislation allows for suspension of the requirement if the EPA 
Administrator and Secretaries of Energy and Agriculture determine that 
insufficient supplies of ethanol and other alternative fuels could 
distort motor fuel prices.

    I am taking advantage of your offer to modify my testimony based on 
what we learned or heard at your hearing. Several points:

      One of the main justifications for including the 
oxygenate requirement in reformulated gasoline (RFG) in the Clean Air 
Act Amendment of 1990, was the steps the major oil companies took to 
provide needed octane while lead was being phased out--which they, of 
course, fought. Their octane preference was aromatic hydrocarbons--
benzene, toluene and xylene (BTX). Benzene is a known and potent 
carcinogen; toluene and xylene, to some degree, convert to benzene in 
the combustion process as well as in the catalytic converters. As I 
recall, BTX levels were raised from about 20 percent of the gasoline 
content, when lead was used, to about 32 percent after lead was no 
longer available. There are additional problems with BTX in vehicle 
performance and in the efficiency of catalytic converters. Perhaps the 
main issue here is that the public can get used to the more invisible 
cancer threat of BTX, but the smell, taste and concern about MTBE 
demands action. That action is appropriate, but the results should not 
be more BTX.
      Ethanol should be the answer, but that ethanol should be 
produced in all regions of the country from the most available 
feedstocks--for NNE, biomass is the logical feedstock.
      Concerns about ethanol were raised at your hearing:

    1. Formaldehyde emissions. I don't think that is the case. 
Formaldehyde emission should come down. Acetaldehyde emissions may 
increase and lead to formations in the atmosphere that should be 
watched. Studies to date indicate no significant consequences. The 
attachment covers this issue.
    2. Leakage of 95 percent ethanol (plus the denaturant) from storage 
tanks in terminals where the ethanol, a solvent, would react with 
previously spilled fossil hydrocarbons and transport the blend into the 
groundwater. Because there is BTX in those hydrocarbons, benzene could 
then be detected in this water. That concern should be investigated and 
followed by the Environmental Research Group at the University of New 
Hampshire. The attachment also covers this issue.
    3. That tactics of certain elements of the ethanol industry, in 
terms of not supporting S. 2962 at the critical point in the 
legislative process. These elements have a vested interest in 
controlling the capacity of the industry and the feedstocks being 
used--the biomass resources of Northern New England do not fit into 
their corporate goals. As I said in my closing comments, ``Please do 
not taint the future fuel ethanol industry with the sins of a small, in 
number, but a powerful part of the industry.''

    It's important to understand that the vast renewable biomass 
reserves of New England and the nation (that go beyond forest and wood-
lot residues and include waste streams identified above) represent 
unwanted competition to the most powerful industries in the world. To 
the most powerful--they are very profitably processing fossil 
hydrocarbons (domestic and foreign), and we are proposing to process 
local, renewable, living carbohydrates. To the powerful carbohydrate 
processing businesses--they can command the starch and sugar 
feedstocks, and we are proposing to process the yet uncontrollable 
cellulosic fraction of biomass--including massive carbohydrate waste 
streams. Complicated, but just bringing up the issues can be an 
important first step leading to a better understanding of the 
difficulties in birthing the biorefinery industry.
    Thank you, Mr. Chairman, for this opportunity to express my 
thoughts and to be of service to Northern New England and the nation.
                               __________

                

                               __________

   Statement of Patricia W. Aho, Executive Director, Maine Petroleum 
                              Association
    I appreciate this opportunity to present information pertaining to 
issues surrounding the use of ethanol in gasoline in New Hampshire and 
Maine. The Maine Petroleum Association is a division of the American 
Petroleum Institute, which is a national trade association representing 
nearly 500 companies engaged in all sectors of the U.S. oil and natural 
gas industry, including exploration, production, refining, 
distribution, and marketing. As Executive Director of the Maine office, 
I also oversee issues of concern to our members in New Hampshire.
                               background
    Federal reformulated gasoline (RFG) is currently required to be 
used in four southern New Hampshire counties Hillsborough, Strafford, 
Rockingham, and Merrimack. Conventional gasoline is used in the 
remainder of New Hampshire. Conventional gasoline is used in Maine 
except in the summer ozone season when 7.8 RVP conventional gasoline is 
required in Maine's southern counties. The RFG gasoline which is 
supplied to New Hampshire uses predominately MTBE as the oxygenate to 
meet the requirements of Federal law and regulations that require a 
minimum of 2 percent oxygen by weight. Over the past few years, 
attention has focused on alternatives that may be used in lieu of MTBE. 
The focus of many discussions by policymakers and regulators in New 
Hampshire and Maine has been to determine whether ethanol is a viable 
alternative.
                          ethanol availability
    Last summer, the Coalition of Northeastern Governors hosted a forum 
on ethanol blending in gasoline in the Northeast and Mid-Atlantic. 
Because ethanol is not widely available in the Northeast, the forum 
presented information regarding the economic issues associated with its 
use in gasoline and the associated development of a regional 
infrastructure which would be necessary in order to ensure long term 
production capability. Additionally, the forum discussed issues 
regarding cellulosic biomass ethanol technology, which is of interest 
in New Hampshire and Maine because of its potential to be produced from 
biomass waste, including agricultural, wood and municipal solid waste.
    Currently, the Agricultural Products Utilization Commission in 
Maine has issued a request for proposal to study the feasibility of 
building and financially sustaining a biomass-ethanol plant in northern 
Maine. What is important to note from both of these ongoing efforts, is 
that there is very little, if any, current production capacity for 
ethanol in either New Hampshire or Maine. API undertook an analysis of 
the cost and benefits of State-level oxygenate mandates to expand 
ethanol production in January 1999. This study provides an overview 
regarding Federal ethanol subsidies, and the market structure of the 
industry. It indicates that the total capitalization of a 15 million 
gallon per year ethanol plant is roughly $30 million. Thus the capital 
necessary for the startup of an ethanol plant would be significant here 
in northern New England. (I have attached a copy of the study to this 
statement.)
    Recent testimony before this committee's Subcommittee of Clean Air, 
Wetlands, Private Property and Nuclear Safety by Jason Grumet, 
Executive Director of the Northeast States for Coordinated Air Use 
Management (NESCAUM) acknowledged that the Northeast and northern New 
England do not currently have an available supply of ethanol. He said, 
`` it is possible to ship massive quantities of ethanol to the 
Northeast by barge, rail and truck. The question remains at what 
cost.'' Recently, Comm. Arthur Rocque, Connecticut Department of 
Environmental Protection has acknowledged that it is not prudent for 
the State of Connecticut to ban the use of MTBE effective October 2003, 
and bases his concern on a study evaluating ethanol as an alternative 
to MTBE which has been conducted by NESCAUM, and the New England Water 
Pollution Control Commission (NEIWPCC). In fact, Comm. Rocque indicates 
that to the State of Connecticut, banning MTBE would pose undesirable 
options to the State including: ``the delivery of special or non-
complaint (sic) gasoline or an increase in the price of gasoline 
conservatively estimated in the range of 3-11 cents per gallon.'' Comm. 
Rocque has indicated that the Department of Environmental Protection in 
Connecticut is prepared to recommend changing the date during the next 
legislative session.
                         ethanol infrastructure
    New Hampshire receives its gasoline from marine barge shipments 
which come into terminals in Portsmouth and Newington, and from trucks 
which may pick-up products from terminals in Portland, Maine, Boston 
harbor, Springfield, Massachusetts and even as far away as Albany, New 
York. Gasoline containing ethanol needs to be transported and stored 
differently than does gasoline which contains ethers. Ethanol must be 
transported and stored separately from the gasoline until the point 
where it is loaded into the truck at the terminal rack, for delivery to 
retail locations. Terminals which are located in New Hampshire, 
Massachusetts, or Maine, which would be supplying gasoline with 
ethanol, would need to build new storage tanks and retrofit terminals 
with new blending equipment in order to supply the product. Many of our 
terminals may have difficulties in receiving siting approvals for such 
additional storage capacity; space constraints may prove to be a 
significant challenge in expanding existing petroleum terminals.
    Exacerbating the separation and segregation requirements, are the 
number of fuels required in the northern New England area. New 
Hampshire requires two different fuels, Maine requires two different 
fuels also. Recently, some proposals have seemed to address only MTBE 
used in RFG rather than all fuels, which would result in an even 
greater strain on the gasoline infrastructure. If ethanol were required 
to be used to comply with the Federal oxygenate mandate in reformulated 
gasoline, then the terminals servicing New Hampshire marketers would in 
turn have to carry even more types of gasoline. Our refinery and 
distribution system is currently stretched to the breaking point. There 
are over 45 different types of gasoline required nationwide, so any 
additional requirements for gasoline would pose significant challenges 
for the industry.
    Other infrastructure issues also arise with the consideration of 
gasoline containing ethanol, including possible changes that might be 
needed to either underground or aboveground storage tank systems. For 
example, some fiberglass reinforced plastic tanks may not be compatible 
with ethanol, and there are questions whether premature failure of leak 
monitoring systems, and other parts of the fuel dispensing equipment at 
a gasoline station may occur.
    Ethanol is predominately produced in the Midwest and would have to 
be transported into the Northeast. Until such time as any ethanol is 
produced in the New England area, the alternative for transporting 
ethanol from the Midwest include barge, tanker, rail or truck. 
Infrastructure for this type of transportation will need to be 
developed prior to any ability to move significant quantities of 
ethanol to Northeast terminals for blending.
    Finally also it is important to note that gasoline containing 
ethanol cannot be co-mingled with gasoline containing ethers. Terminals 
and gasoline stations would not be able to intermingle the two products 
in its tanks. Thus proposals which attempt to phase-down the use of 
MTBE or ethers in gasoline, without removing the Federal oxygenate 
mandate, are not feasible.
                               conclusion
    In conclusion, I appreciate the opportunity to present information 
to you today; API is committed to working with Congress, the 
Administration, and State policymakers and regulators to develop 
appropriate energy policies for our future. Thank you very much.
                                 ______
                                 
                               attachment
         [From the American Petroleum Institute, January 1999]
  The Costs and Benefits of State-Level Oxygenate Mandates to Expand 
                           Ethanol Production
    Considerable research has been carried out over the last several 
decades to address questions relating to the cost and benefits of 
ethanol programs at the Federal and State levels. Proponents argue that 
ethanol programs support agricultural production and boost farm income 
in particular States. In addition, various environmental benefits are 
attributed to ethanol use, and it is claimed that its use reduces the 
risk of dependence on foreign oil. New legislation that would 
significantly increase ethanol demand, e.g., requiring oxygenated motor 
fuel use statewide, is currently being considered by various State 
legislatures. \1\ On the other hand, opponents to ethanol subsidies 
argue that the cost to taxpayers and to consumers, e.g., in terms of 
decreased tax revenue, and increased gasoline and food expenditures, 
outweigh the benefits to farm producers and processors. The principal 
purpose of this paper is to assess the likely costs and benefits of 
additional State level mandates being considered by various State 
assemblies that, if implemented, would significantly increase ethanol 
demand and production. Before turning to this issue, a brief 
description of existing Federal and State ethanol subsidies is provided 
as well as a characterization of the market structure of the ethanol 
industry.
---------------------------------------------------------------------------
     \1\Minnesota mandated the use of oxygenated fuel year round in 
both attainment and non-attainment areas in 1997 to be phased in over a 
number of years. Ethanol is the sole oxygenate in use in Minnesota.
---------------------------------------------------------------------------
Federal Ethanol Subsidies
    The rationale for tax exemptions on alternative fuels at the 
Federal level grew out of energy security concerns associated with the 
1973-74 Arab oil embargo. The objective was to displace gasoline by 
subsidizing renewable fuels. The nation's dependence on foreign oil 
would decline as oil imports dropped, or so it was thought. A Federal 
exemption of 4 cents per gallon for alcohol fuels was initiated with 
the enactment of the Energy Tax Act (P.L. 95-618) in 1978, representing 
the full amount of the Federal gasoline tax. The magnitude of the 
Federal tax exemption has been changed periodically since that time, 
most recently with the Omnibus Budget Reconciliation Act of 1990 that 
established a rate of 5.4 cents per gallon of motor fuel containing 10 
percent alcohol by volume. \2\ This translates into a 54 cents tax 
exemption per gallon of ethanol. The act also introduced a tax credit 
of 10 cents per gallon of ethanol for small ethanol producers (less 
than 15 million gallons per year). The Energy Policy Act of 1992 
extended the tax exemption to gasohol containing less than 10 percent 
alcohol. Mixtures containing 7.7 percent alcohol receive an exemption 
of 4.16 cents per gallon, and the exemption for the 5.5 percent mixture 
is 3.08 cents per gallon.
---------------------------------------------------------------------------
     \2\Motor fuel blenders have the alternative of taking an income 
tax credit of 54 cents per gallon of ethanol.
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Magnitude and Types of State Level Ethanol Subsides and Mandates
    States have justified ethanol subsidies on grounds ranging from 
local economic masons to environmental and energy security concerns. 
The levels and types of subsidies vary by State as seen in Table 1. 
Common types of programs include production subsidies, tax exemptions 
on motor fuel taxes, and guaranteed loans at below market rates for new 
production facilities. For example, Minnesota has provided a 5 cents 
per gallon blenders' credit, a 20 cents per gallon producers' subsidy, 
and low interest loans of up to $500,000 per plant through the Ethanol 
Production Facility Loan Program. More generally, the magnitudes of 
State level ethanol subsidies of the major producing States range from 
zero to 40 cents per gallon of ethanol.

    Statewide year-round use of motor fuel with 2.7 percent oxygen was 
mandated in Minnesota in October 1997. \3\ This will roughly double the 
amount of ethanol consumption in the State when fully implemented. Such 
mandates go far beyond the already considerable levels of existing 
Federal aid State ethanol subsidies, and if enacted by a significant 
fraction of States, will result in soaring levels of ethanol demand and 
an aggressive expansion in ethanol production.
---------------------------------------------------------------------------
     \3\The 2.7 percent oxygen requirement effectively precludes the 
use of oxygenates other than ethanol.
---------------------------------------------------------------------------
Market Structure of the Industry
    U.S. ethanol production is concentrated in both large and small 
plants, e.g., large plants exceeding 130 million gallons per year 
account for over 50 percent of U.S. capacity while plants with capacity 
of 45 million gallons per year or less account for roughly 23 percent 
of total capacity as seen in Figure 1. \4\ Previous research [see, 
e.g., USDA, ERS, 1988, USDA, Office of Energy, 1986] shows that unit 
production costs at larger plants can be up to 45 percent less than 
those at smaller plants, i.e., increasing returns-to-scale 
characterizes ethanol production With average \5\ ethanol production 
costs of roughly $1 00 per gallon, this suggests a range of between $85 
per gallon and $125 per gallon across large aid small producers under 
current feedstock prices While the magnitude of these costs would 
change with changing corn prices, the differential, reflecting 
production economies, would remain. A natural question to ask is why 
small and medium size plants are built. Them are several reasons, 
primary among them are icing constraints and subsidies for small 
producers.
---------------------------------------------------------------------------
     \4\Plant production by State is given in Table A-2 of the 
appendix.
     \5\This reflects a weighted average across wet and dry ethanol 
plants at current corn prices. Average wet miller production casts are 
$ .85 per gallon while these of dry millers are $1.25 per gallon. Wet 
millers supply roughly 60 percent of the ethanol brought to market, dry 
millers the remainder.

    The total capitalization of a 15 million gallon-per-year ethanol 
plant is roughly $30 million of which $8 million goes for construction, 
$10 million toward equipment, $6 million for engineering and design, 
and $6 million to working capital for startup of operations, The sale 
of common stock typically provides between 40 and 50 percent of the 
required capital with bank loans with terms ranging between 7 to 10 
years supplying the rest. \6\ Given existing producer subsidies and 
State mandates, bankers do not have to assume that the plant will be 
profitable, i.e., they provide financing at near zero risk! This 
follows since the loans are likely to be repaid even if the ethanol 
plant is an economic failure in States where producer subsidies exist. 
Assuming a $.20 per gallon producer subsidy, a 15 million gallon plant 
receives $3 million per year. This provides $30 million over a 10-year 
period, enough to build the plant (and pay back bank loans) and cover 
startup costs. State mandates that insure the continuation of local 
demand for ethanol, and shareholder equity, further reduce the risk of 
non-recoverable loan default to near zero. Bank financing of larger 
plants would put more bank capital at risk, and the evidence to date 
suggests that capital constraints become binding over the 15 million to 
30 million gallon per year plant size. Hence, for the independent 
producers, capital constraints limit plant size before significant 
returns-to-scale can be realized. Large companies, e.g., ADM and 
Cargill, not subject to such capital constraints, build and operate 
large plants to realize lower unit production costs.
---------------------------------------------------------------------------
     \6\ Some States provide low interest loans of up to $500,000 per 
plant for small producers.
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The Costs of State Oxygenate Mandates
    A relevant policy question associated with any public expenditure 
(be it a highway, public park or a subsidy for motor fuel) is whether 
the societal benefits of the product or service will likely exceed the 
societal costs? In some cases the answer to this question is relatively 
straightforward, e.g., even at the time of project commencement the net 
benefits of the Federal interstate highway system were recognized, 
while in other cases the optimal amount of government support for a 
project may be less clear, particularly in its early stages, e.g. the 
optimal level of public expenditures targeted at global warming.
    In the case of public expenditures for ethanol production, the 
evidence to date strongly suggests that societal costs have 
significantly exceeded societal benefits. In fact, there is widespread 
agreement among economists that ethanol production would not take place 
without the current level of Federal and State subsidies since it 
cannot compete on a level playing field with readily available 
substitutes. It follows that State mandates that significantly increase 
ethanol demand by requiring ethanol use in attainment as well as non-
attainment areas, as in Minnesota, lead to further resource 
misallocation and waste. The cost-benefit analysis of the Minnesota 
program presented below provides evidence in support of this view.
Motorists Could Pay More For Motor Fuel
    At a time when crude oil and hence gasoline prices are at historic 
lows, motorists could pay more for motor fuel under expanded oxygenate 
mandates like those in Minnesota (notwithstanding low corn prices and 
existing ethanol subsidies). This is borne out in the Energy 
information Administration's most recent weekly retail price data 
listed in Table 2. The estimates characterize prices of motor fuel sold 
in attainment areas (conventional), carbon monoxide non-attainment 
areas (oxygenated) and ozone non-attainment areas (RFG). The average of 
5 weekly observations running from 11/9/98 to 12/7/98 reveals that 
oxygenated fuel in PADD 2 was selling for roughly $.03 per gallon more 
than conventional fuel. Since Minnesota is the only State in PADD 2 
with an oxygenate requirement, oxygenated fuel prices in PADD 2 are 
Minnesota prices. Furthermore, ethanol is the sole oxygenate in use in 
Minnesota.
    This data squares with a recent report Ethanol Programs: A Program 
Evaluation Report prepared by the State of Minnesota, Office of the 
Legislative Auditor in February 1997 that on p.9 states ``. . . the 
retail price of gasohol (in Minnesota) will exceed the price of 
conventional gasoline by about 2 to 3 cents per gallon over the next 
several years''. \7\
---------------------------------------------------------------------------
     \7\It is important to note that this conclusion could change given 
a significant relative price change between corn and crude oil.

    Before Minnesota imposed its statewide mandate, the use of an 
oxygenate was required under Federal law in the Twin Cities 
metropolitan area for one-third of the year. Given that roughly one-
half of total State vehicle miles traveled fall within the Twin Cities 
area it follows as a crude approximation that one-third of one-half, or 
one-sixth, of all gasoline consumed in the State fell under the Federal 
oxygenate mandate. Hence, the year-round statewide oxygenate mandate is 
directly attributable to the remaining 5/6 of total State consumption 
not covered under Federal law.
    Given that roughly 2 billion gallons of gasoline are consumed in 
Minnesota each year, and that gasohol blends currently sell for roughly 
$.03 per gallon more at the pump than straight gasoline \8\ [Table 2 
above], it follows that the statewide oxygenate mandate could cost 
Minnesota and visiting out-of-state motorists $50 million per year (516 
x 2 billion gallons x $.03 per gallon) in additional motor fuel costs 
(upon full program phase-in).
---------------------------------------------------------------------------
     \8\The average PADD 2 conventional fuel price is taken as a proxy 
for the Minnesota conventional fuel price in this analysis.
---------------------------------------------------------------------------
State Taxpayers Will Pay Higher Taxes or Face Reduced Government 
        Services
    In addition, the State mandate (to be phased in over time) will 
eventually increase ethanol demand by roughly 132 million gallons (.077 
x 2 billion gallons gasoline x 5/6 x 1.03) per year. \9\ This implies a 
producer subsidy of $26.4 million per year (132 million gallons x $.2 
per gallon). According to the Minnesota State Report [1997), ethanol 
production capacity in Minnesota stood at roughly 92 million gallons 
per year in 1997, with an additional 37.5 million gallons of capacity 
(3 plants) under construction, and 105 million gallons of capacity (6 
plants) in the planning stage. Total production capacity will be 235 
million gallons if and when all 9 plants come on line. Below market 
rate loans for plant construction for 9 plants will add roughly $.3 
million per year to taxpayers bills. \10\ The total increase in 
subsidies due to the oxygenate mandate, to be paid in large part by 
Minnesota taxpayers, is estimated to be $26.7 million per year.
---------------------------------------------------------------------------
     \9\The first factor in parenthesis specifies the percent ethanol 
blend with gasoline required to meet a 2.7 percent oxygen requirement 
while the last factor takes into account the energy differential 
between straight gasoline and the ethanol blend.
     \10\The current $05 per gallon blender's credit is due to be 
phased out and therefore not included as a public expenditure.
---------------------------------------------------------------------------
Federal Taxpayers Subsidize State Ethanol Expansion
    Federal tax revenue will decline by $71.3 million per year (132 
million gallons x $54 per gallon) due to the Minnesota oxygenate 
mandate, plus $8.6 million per year (132 million gallons x $.10 per 
gallon x .65) as a result of the subsidy to small producers. The 
Federal subsidy for small producers (less than 15 million gallons per 
year) is $.10 per gallon, and roughly 65 percent of all Minnesota 
plants that will be in production after the 9 new plants come on line 
fall under the definition of small producer. The total Federal subsidy 
for Minnesota's statewide oxygenate mandate is estimated to be $ 79.9 
million per year.
    In sum, for States actively considering oxygenate mandates such as 
that recently passed in Minnesota, the timing could not be worse. With 
no recovery in crude oil prices on the horizon, at least over the near 
term, additional oxygenate mandates could result in a significant 
increase in motor fuel outlays for consumers in those States. The total 
program costs are estimated at $156.6 million per year, as seen in 
Table 3 on page 9.
                the benefits of state oxygenate mandates
The Minnesota Agricultural Sector will Benefit from State Oxygenate 
        Mandates
    Increased ethanol production will result in an increase in the 
demand for corn, positively impacting the farm sector. Corn production 
in Minnesota is roughly 1.1 billion bushels. An increase in demand of 
132 million gallons of ethanol due to the State oxygenate mandate 
translates into a demand increase of 52.8 million bushels of corn 
assuming a coefficient of .4 bushels of corn per gallon of ethanol, or 
4.8 percent of current production. A price increase at the local level 
of 5.04 to 5.05 per bushel, or 2.3 percent at the current corn price of 
$2.14 per bushel, could be expected to result from an increase in 
demand of this magnitude [Personal Communications, Economic Research 
Service (ERS), 1998]. \11\ Production margins (gross value of 
production less variable and fixed costs) for Minnesota corn producers 
are estimated by ERS to be $79.94 per acre at $2.19 per bushel of corn. 
This translates into $.64 per bushel given a yield of 124 bushels per 
acre. Hence, net income to Minnesota corn producers is estimated to 
increase by $25.8 million (52.8 million bushels x $.64 per bushel) due 
to the increase in ethanol demand as a result of the oxygenate mandate. 
This estimate assumes that demand is filled entirely through Minnesota 
production. It could be the case that a fraction of the demand is 
filled through out-of-state production though with Minnesota corn 
prices significantly lower than those in surrounding States, this 
fraction is likely to be low. Furthermore, the estimate assumes that 
demand would be filled entirely through additional production and would 
not simply be filled by diverting from exports or other uses. To the 
extent that this is not the case, the benefits reported here are 
overestimates.
---------------------------------------------------------------------------
     \11\The change in the national average corn price due to this 
demand increase would be negligible.
---------------------------------------------------------------------------
    There will also be indirect benefits accruing to the agricultural 
sector, e.g., the co-products of additional ethanol production will add 
value to the sector as will the increase in demand for agricultural 
supplies. The output multiplier associated with feed grains, derived 
from the U.S. input-output accounts [Survey of Current Business, Vol. 
77, No. 11, November 1997], is employed to derive a rough estimate of 
these indirect benefits. The multiplier (2 in the case of feed grains) 
indicates the increase in economy-wide output necessary to bring $1 of 
product (in this case corn) to market. In other words, for every dollar 
of corn brought to market an additional dollar of economic activity is 
generated throughout the economy. This implies an additional $115.6 
million in production given that $115.6 million ($2.19 per bushel x 
52.8 million bushels) in additional corn is produced due to the State 
oxygenate mandate. Assuming a 10 percent profit margin on this 
production yields an additional $11.6 million in benefits. Hence, the 
total benefits to the agricultural and related sectors are estimated to 
be $37.4 million per year, also given in Table 3.
There Will Be Winners and Losers in the Agricultural Sector
    Not all farm producers would benefit from an aggressive ethanol 
expansion program. As stated above, corn prices would likely increase 
resulting in increased acreage planted to corn. Higher corn prices 
result in higher prices of other feed grams and wheat as producers 
substitute these commodities for corn in their feed rations. The 
acreage planted to these commodities also increases due to increases in 
feed demand other than corn. The situation is different for soybean 
producers as soybean and corn production compete for the same acreage. 
Given the increase in acreage planted to corn, flower acres are planted 
to soybeans. The soybean enterprise shrinks and profitability declines 
with ethanol expansion. \12\
---------------------------------------------------------------------------
     \12\In addition, corn oil, a co-product of ethanol production, 
substitutes for soybean oil further driving down the domestic demand 
for soybeans.
---------------------------------------------------------------------------
Minimal Environmental and Energy Security Benefits
    Given that the State mandate applies to areas already in 
attainment, environmental benefits will be negligible. Also, 132 
million gallons of ethanol per year will displace roughly 102 million 
gallons of gasoline per year (2.4 million barrels of crude per year). 
The United States imports roughly 3,285 million barrels of crude and 
product per year. Hence, the energy security benefit associated with 
this program is also negligible. It is important to note that given the 
diversification of U.S. imports of crude by country of origin that has 
occurred over the last several decades, the energy security value of 
import reduction (even at levels significantly greater than considered 
here) has declined.
    The result is unambiguous. As seen in Table 3, the societal cost of 
the State oxygenate mandate is roughly 4 times greater than the 
societal benefit resulting in an annual net loss of $119 million, This 
result reflects the significant misallocation of resources associated 
with ethanol production. It is important to recognize that the 
statewide oxygenate mandate requires the use of an oxygenate in 
attainment areas that otherwise could simply have used straight 
gasoline. Inherent in each gallon of ethanol produced over and above 
the level required to meet Federal mandates is a resource cost to 
society equal roughly to the production cost differential between 
ethanol and straight gasoline. With ethanol production costs at roughly 
$1.20 per gallon in Minnesota and wholesale gasoline prices at $.30 per 
gallon, the resource loss (or societal waste) associated with the 
Minnesota oxygenate mandate is estimated to be $119 million per year 
(132 million gallons x $.90 per gallon).

    One might presume that such large losses would be unacceptable to 
the agents bearing them. It should be pointed out, however, that a 
large part of the program cost is subsidized at the Federal level, 
resulting in less of a burden to Minnesota taxpayers and consumers. As 
well, benefits flow to a narrow group of producers (increasing the 
incentive to lobby) while costs are spread over the entire population 
(decreasing the incentive to lobby).
Conclusions
    There is movement in some State legislatures to adopt statewide 
oxygenate mandates similar to the program put in place in Minnesota in 
1997. The proponents argue that mandates will benefit corn producers 
directly by increasing the demand for corn, and indirectly in that the 
corn producers will realize the value-added of additional ethanol 
production, further boosting their incomes. While proponents are 
correct in asserting that mandates will benefit corn producers by 
increasing the demand for corn, this paper has clearly shown that the 
additional benefits to the agricultural sector do not compensate for 
the program costs. In particular, the implementation of statewide 
oxygenate mandates could increase fuel costs to motorists and reduce 
Federal and State tax revenue. These costs are roughly 4 times as large 
as the benefits to the agricultural sector. The result is unambiguous. 
State residents, e.g., in Iowa, would be worse off given the 
implementation of such a program.
    It is important to point out that the claim made by proponents that 
the value-added of additional ethanol production will be realized by 
corn producers in the States where the mandates are enacted may or may 
not be true, depending upon the particular State. While this may in 
part be true in States like Minnesota, where ownership structures of 
ethanol plants are predominantly cooperatives (with corn producers as 
members), it is clearly not true in States like Iowa, where the entire 
ethanol production in the State can be attributed to two large 
corporations. In this case the value-added of ethanol production flows 
not to corn producers in the State, but rather to the shareholders of 
the two large corporations. Hence, corn producers in Iowa will not 
realize the value-added of additional ethanol production in the State 
(unless they own stock in the corporations producing the ethanol).
    Were an aggressive national program put in place, household food 
expenditures would also be likely to rise, adding to total program 
costs. In addition, transporting the ethanol from producers to distant 
consumers would be expensive given that ethanol moves by rail or barge 
rather than through pipelines. The former modes of transportation are 
inefficient relative to the later.

References
    Charles River Associates, The Effect of Ethanol Tax Subsidies on 
the U.S. Economy, September 1995.
    State of Minnesota, Office of the Legislative Auditor, Ethanol 
Programs: A Program Evaluation Report, February 1997.
    U.S. Department of Agriculture, Office of Energy, Fuel Ethanol and 
Agriculture: An Economic Assessment, Agricultural Economic Report 
Number 562, August, 1986.
    U.S. Department of Agriculture, Economic Research Service, Ethanol: 
Economic and Policy Tradeoffs, Report 1988-201-025:60429, January, 
1988.
    U.S. Department of Agriculture, Office of Energy, Personal 
Communications, December 1998.
                               __________
 Statement of Thomas L. Adams, President, Oxygenated Fuels Association 
                                 (OFA)
    Mr. Chairman--Our nation continues to face an energy crisis. 
Additionally, as you are well aware, the overwhelming majority of 
citizens continue to express a strong desire for cleaner air. One of 
the tools that is successfully employed in battling both the energy 
supply and clean air dilemmas is Methyl Tertiary Butyl Ether (MTBE). 
However, it is being challenged by some who have concerns about its 
perceived threat to groundwater and surface water. As President of the 
association representing international and domestic companies engaged 
in the manufacture and sale of MTBE, we urge you to avoid a rush to 
judgment that could seriously impact the nation's precarious energy 
supply and potentially undo the clean air strides that have been made.
    A summary of my testimony is as follows:

      MTBE plays a key role in improving air quality.
      MTBE makes up roughly 4 volume percent of the U.S. 
gasoline pool (11 percent or more in many major metropolitan areas) and 
with refineries operating at near capacity levels, elimination of this 
component could have lasting negative impacts on price and supply of 
gasoline.
      MTBE is not a human health threat. In fact, there are 
many examples of the significant role played by MTBE in improving the 
health of all Americans. Despite press accounts, no national or 
international agency has ever classified MTBE as a carcinogen.
      Where gasoline components have contaminated drinking 
water sources, the cause of the problem is a release of gasoline due to 
leaks from underground storage tanks.

    I would like to now briefly address the benefits of MTBE, health 
effects concerns, its impact on water quality and the options that the 
nation has as alternatives to its use.
The Environmental Benefits of MTBE
    It is important to review the accomplishments of the Reformulated 
Gasoline (RFG) program, and the role that MTBE has played in those 
accomplishments. The Clean Air Act requires that all RFG must contain 2 
percent, by weight, of oxygen. There are two primary oxygenates being 
used in the RFG gasoline pool today: MTBE and ethanol. MTBE is a 
product that is made by combining methanol and isobutylene. It is 
manufactured by refineries and by chemical companies. Congress was wise 
enough to allow the marketplace to determine the most cost effective or 
efficient source of oxygen for RFG. For a variety of environmental, 
commercial, and performance-related reasons, MTBE has become the 
oxygenate-of-choice for making RFG for those regions outside the Mid-
West. MTBE is used in 80-85 percent of all the RFG produced today.
    The RFG program consists of two phases: Phase I--the period from 
1995 through 1999. Phase II started at the beginning of 2000.
    EPA has compiled data for the United States showing that Phase I 
RFG has surpassed the requirements of the Clean Air Act. An analysis of 
the Phase I RFG produced by refiners shows that the fuel reduces ozone-
forming compounds, such as VOCs, by over 28 percent--that's 44 percent 
above the 15 percent requirement of the law. Emissions of air toxics 
are reduced by approximately 30 percent--that's almost twice as much as 
required by law.
    Ambient air monitoring confirms that the RFG program is working. 
Testing shows that benzene levels have declined by 31 percent between 
1994 and 1997; levels of ethyl benzene, another toxic component of 
gasoline, have declined 52 percent during the same period. RFG areas 
also showed significant decreases in other vehicle-related VOC 
concentrations. EPA has testified that the emissions reductions 
required for Phase I RFG--which have been met and exceeded--and the 
emissions reductions of Phase II RFG--which are already nearly met--are 
equivalent to taking more than 16 million vehicles off the road.
    As a key component of RFG, MTBE contributes to the environmental 
benefits of RFG in several ways. First, by adding MTBE to gasoline, 
refiners dilute or displace gasoline components such as aromatics 
(benzene, toluene and xylene) which contribute to the formation of 
ozone and emissions of toxics and PM (particulate matter). These 
compounds themselves are hazardous air pollutants. EPA has acknowledged 
that if oxygenates were not used to produce RFG, levels of aromatics 
may have to be increased to provide the necessary octane.
    Second, by adding MTBE to RFG, refiners improve the combustion of 
the gasoline, resulting in fewer emissions of smog-forming pollutants, 
such as VOCs and carbon monoxide, as well as Particulate Matter. Use of 
MTBE reduces harmful exhaust emissions, which due to their highly 
reactive nature causes a disproportionate amount of smog formation.
    Third, MTBE has a lower vapor pressure--the rate at which it 
evaporates--than the primary competitive product, ethanol, and many 
other volatile components of gasoline. Lower vapor pressure equates to 
lower evaporative emissions of VOCs.
    Fourth, oxygenates, like MTBE, play a particularly important role 
in significantly reducing emissions from millions of small engines 
without catalytic converters. In California, these small, off-road 
engines used in recreation, gardening and forestry account for a 
significant level of toxic air emissions from mobile sources.
Health Effects of MTBE
    The detections of MTBE in a small percentage of nation's drinking 
water supplies have prompted questions concerning the health effects of 
MTBE. Those with a desire to see MTBE removed from the marketplace have 
gone further to suggest that little is known about the health effects 
of MTBE. In fact, nothing could be further from the truth.
    MTBE's first contribution to the health of Americans was as a 
replacement for lead in gasoline in the late 1970's. MTBE was added to 
maintain octane in the fuel. Under the Clean Air Act, the refiners' 
ability to use MTBE in unleaded fuel was subject to EPA approval. The 
refiners made the appropriate demonstrations, including providing 
information on the known health effects of MTBE, and EPA approved the 
use of MTBE at concentrations of up to 7 percent, by volume. In 1981, 
EPA approved a blending of MTBE in unleaded gasoline to a maximum of 11 
weight percent. In the early 1980's, refiners created an industry study 
group, managed by the American Petroleum Institute.
    The industry group sponsored a toxicology testing program and 
submitted the results to EPA. In 1986, a Federal Interagency Testing 
Committee, acting under authority of the Toxic Substances Control Act, 
recommended additional testing of MTBE based on expected increased 
production levels, potential exposure as a gasoline component, and the 
need to complete data sets. The industry agreed to conduct such testing 
and established a program under EPA oversight and guidelines. From 1988 
until 1992, the industry testing group sponsored and/or conducted all 
of the tests required by EPA. Progress reports on these tests were 
submitted to EPA for inclusion in the public docket. In 1988, EPA 
approved the blending of MTBE in unleaded gasoline to a maximum of 15 
percent by volume.
    In addition to the industry-sponsored tests, toxicologists at EPA's 
laboratory in Cincinnati, Ohio conducted the first examination of the 
risks of exposure to MTBE by ingestion. The peer-reviewed study, 
reported in the Journal of the American College of Toxicology, did not 
identify any adverse long-term effects associated with exposure to 
MTBE. Regretfully, MTBE is repeatedly and incorrectly treated as ``the 
skunk at the garden party.'' The popular media characterize it as a 
``probable'' or ``possible'' carcinogen.
    In 1999, the International Agency for Research on Cancer (IARC), 
part of the World Health Organization, conducted a review of the 
existing research on the chronic (long-term) effects of exposure to 
MTBE. IARC can classify a substance into one of five categories: Group 
1 carcinogenic to humans; Group 2A--probably carcinogenic to humans; 
Group 2B possibly carcinogenic to humans; Group 3--unclassifiable as to 
carcinogenic risk to humans; and Group 4--probably not carcinogenic to 
humans. The IARC review put MTBE in Group 3, concluding that there is 
``inadequate evidence in humans for the carcinogenicity'' of MTBE. Such 
a finding places MTBE in the same category as caffeine, tea, and 
fluorescent lighting.
    As an aside, you might find it interesting to know that MTBE has 
been used by physicians for years to dissolve gall stones within the 
human body. Other respected and recognized expert bodies who have 
recently examined the scientific weight of evidence on MTBE and have 
also declined to list it as a known, probable, possible or likely human 
carcinogen include the California Proposition 65 Scientific Advisory 
Panel Carcinogen Identification Committee and the Federal National 
Toxicology Program (NTP).
    In May 2000, the National Institute for Environmental Health 
Sciences (NIEHS) released its congressionally mandated report on 
cancer-causing substances. The report declined to list MTBE as a 
cancer-causing agent or as an agent likely to cause cancer, but did, 
however, add ethanol-based beverage alcohol to the list of known 
carcinogens. As recently as December 20, 2000, the European Union 
environmental agency's Classification Labeling Committee announced that 
it had determined that MTBE was not classifiable as a human carcinogen 
and that it would not ban MTBE.
    In summary, we do not believe there is any credible evidence that 
indicates MTBE presents a significant risk to human health from either 
a short-term exposure or over a longer term. Over 80 studies have 
concluded there is no risk to human health. Ethanol on the other hand 
has been classified as a known human carcinogen. What is clear is that 
MTBE has resulted in reduced cancer risk by reducing hazardous air 
pollutants.
Impact on Water Quality
    While MTBE quietly labored as the workhorse of the Clean Air Act 
since 1992, few in the public took notice until MTBE was detected in a 
few, isolated sources of drinking water, principally in California. A 
recent study (``A Screening Level Assessment of Household Exposures to 
MTBE in California Drinking Water,'' Williams, P.R., et.al.) in the 
March 2000 edition of Soil, Sediment & Groundwater indicates that the 
average MTBE concentrations in California have steadily declined over 
the 1995-99 time period. The source of MTBE contamination of drinking 
water supplies in most cases is leaking underground gasoline storage 
tanks. For example, the South Lake Tahoe area in California is served 
by seven local gas stations. According to testimony given during the 
California public hearings on groundwater contamination by MTBE, all of 
these stations were leaking gasoline into the groundwater; not 
surprisingly, this gasoline eventually found its way into the water 
supply for South Lake Tahoe, California. Violations of existing 
regulations included evidence of disabled dispenser sensors, poor 
installation, disabled leak detection, and inadequate documentation of 
annual inspections.
    This problem primarily can be attributed to inefficiencies in 
California's tank program. Some 107 agencies and authorities have 
jurisdiction over gasoline tanks in California. For primarily this 
reason, the EPA has not certified California's UST Program. Studies and 
field experience show that leaking underground tanks of gasoline have 
been the main source of MTBE in the isolated instances where it has 
been found in groundwater in the past. Other studies show that spills 
of gasoline with MTBE on surface soils or water are not a significant 
threat to drinking water supplies. Like other gasoline components, MTBE 
will easily volatize into the atmosphere within days. It also easily 
biodegrades in these surface waters. As a result, any contamination 
that might occur from a surface spill is generally of short duration.
    It is important to have some context in evaluating the frequencies, 
and levels, of MTBE detections in drinking water supplies. The majority 
of detections of MTBE in groundwater have been at 2 ppb or less. To put 
the term ppb (parts per billion) in perspective, 1 ppb equates to a 
time span of 1 second in 31.7 years. Therefore, 2 ppb equates to a time 
span of less than 5 seconds in the life of the average person. There is 
currently no enforceable Federal standard for MTBE in drinking water, 
although EPA has recently required public water systems to monitor for 
MTBE in their drinking water supplies and report that information to 
EPA. The EPA has established an MTBE Drinking Water Guideline based 
only on aesthetics of 20-40 ppb noting that there ``is little 
likelihood that an MTBE concentration of 20 to 40 ppb in drinking water 
would cause adverse health effects in humans.''
    Last, if there is a problem with MTBE in groundwater, the answer is 
to fix the source of the problem--leaking underground storage tanks. A 
most recent report by the General Accounting Office (GAO) states that 
while State compliance with Federal equipment requirements is high, 
operational and maintenance problems could lead to spills, leaks and 
health risks.
Alternative Oxygenates
    Much has been made of ethanol as a potential substitute for MTBE as 
a fuel oxygenate. In those areas of the country where reliance on 
ethanol makes some economic sense, it is already the oxygenate of 
choice and Federal law itself is, of course, neutral as to which 
oxygenate may be used. However, greatly expanded use of ethanol makes 
little sense.
    First, expanding ethanol use will come at the expense of air 
quality. Use of ethanol is not as effective at combating air toxics and 
even increases levels of certain toxics called aldehydes; and 
peroxyacyl nitrates (PAN). Ethanol is less effective at controlling 
criteria air pollutants as well. NESCAUM (the Northeast States for 
Coordinated Air Use Management) has previously commented that, 
``Greater emissions of volatile organic compounds (VOCs) would occur 
during the early and late portions of the [Northeast] region's ozone 
season since gasoline blended with ethanol is more volatile than 
similar gasoline without ethanol. `` In addition, the higher volatility 
ethanol-blended gasoline can contribute to an overloading of an 
automobile's evaporative canister and subsequently lead to higher CO 
emissions. EPA has acknowledged that the increased use of ethanol will 
result in increased NOx emissions.
    Oxygenates like MTBE go to work in an engine at the point where 
most pollution is produced: the cold cycle. For the first three to 4 
minutes after you start your ignition, your car's engine produces the 
majority of its emissions. Because oxygenates combust at low 
temperatures with MTBE combusting at far lower temperatures than 
ethanol--fuel chemistry clearly demonstrates that MTBE is the most 
effective component of pollution control when the car is still 
relatively cold. In addition, to meet the other Federal specifications, 
RFG without oxygenates would have to increase its ratio of aromatics. 
The result of this change is two-fold: first, there will be a certain 
increase in air toxics from automobiles; and second, more ozone 
precursors from the use of aromatics will be created. In fact, if 
ethanol is used to replace MTBE, it is more volatile than MTBE and 
therefore would increase evaporative emissions.
    It is not at all clear that greater reliance on ethanol will help 
resolve any problems with water quality. Gasoline contains a range of 
aromatics, such as benzene, toluene, and xylene that are among its most 
toxic components. In subsurface conditions, studies have indicated that 
ethanol, as part of gasoline, will extend the benzene plumes by 20 
percent to 27 percentor more by interfering with the biodegradability 
of these aromatics, thus creating the potential for a significant 
source of toxic water contaminants. Given that ethanol can't be blended 
at the refinery and must be blended at the terminal, this raises a 
concern about ethanol and it's handling in pure form. Of course, IARC 
has classified ethanol as a known carcinogen.
    Even if expanded ethanol production were a good idea, ethanol 
cannot be produced in sufficient quantities economically to satisfy 
America's needs within the RFG program. Indeed, it is unlikely that 
ethanol can meet its current demands in the Midwest while cost-
effectively supplying any new markets on either coast. Just take a look 
at the cost of ethanol based RFG in the Chicago area. A congressional 
Research Service Study issued on June 16, 2000 indicates that RFG with 
ethanol ran roughly 50 cents per gallon higher than MTBE gasoline with 
25 cents of that differential attributed to the RFG program with 
ethanol blending as the oxygenate. This is due to the difficulty in 
making the non-oyxgenated hydrocarbon portion of the RFG for ethanol 
known as RBOB. The supplies of gasoline components that can be used 
with ethanol in RFG are more limited, which contributes to a tighter 
RFG supply and higher cost. Imagine trying to make an ethanol based RFG 
that is thousands of miles away from the ethanol supply and which could 
be further complicated by transportation difficulties and potential 
summer droughts.
    MTBE has extended the nation's supply of gasoline, contributing to 
the historic low gasoline prices around the country in recent years. 
Ethanol, due to it's high volatility problem, and the restrictive 
consequences it places on refiners, has a net impact of reducing the 
nation's gasoline supply, and thereby increasing the nation's gasoline 
prices.
    Ethanol has logistical problems, including its inability to be 
carried in gasoline blends through pipelines, the most efficient way to 
transport fuels. Further, ethanol costs the American taxpayer 53 cents 
for every gallon consumed. As CBS News described ethanol, it is 
``probably the most economically inefficient, unwarranted form of 
corporate welfare in our entire Federal budget.'' (Eye on America 
segment, 3/26/96) The American Road and Transportation Builders 
Association stated in testimony before the U. S. Senate Environment and 
Public Works Committee that the current ethanol tax subsidy deprived 
the Federal Highway Trust Fund of approximately $1.1billion/year. In a 
nutshell, ethanol, in spite of all the State and Federal welfare it 
receives is not an effective or economically viable alternative.
Conclusion
    It is clear that there is no credible evidence that MTBE presents a 
significant risk to human health, either from short-term exposures or 
over a longer term. What is clear is that MTBE has resulted in 
significant reductions in cancer risk by reducing hazardous air 
pollutants. It has also helped clean the air and we as a nation 
continue to need to continuously combat the issue of dirty air. The 
pressure to address the groundwater contamination problems created by 
leaking underground storage tanks puts several questions in stark 
relief.
    First, is there a need to replace MTBE? The answer is no. Detection 
data indicates that as underground storage tank compliance improves, 
detections of MTBE in drinking water supplies decrease. Nationally, 
measured in the mid 90's when our UST compliance was only 20 percent to 
40 percent, less than 1 percent of the community water system 
detections had concentrations exceeding 20 ppb. Therefore, the risks to 
drinking water supplies are decreasing with time, not increasing as 
some claim.
    Second, is there a viable replacement for MTBE? Again, the answer 
is no. Alternatives to MTBE, including ethanol, are more expensive and 
more difficult to transport. Industry experts estimate that even under 
ideal circumstances, replacing MTBE with ethanol will raise prices at 
the pump a minimum of seven cents or more a gallon. But prices could 
rise much higher than that if shortages of ethanol and, as a result, of 
gasoline develop. Currently, refiners use about 286,000 barrels a day 
of MTBE; total ethanol capacity is far less than half of that today, 
and most of that ethanol is already committed to supplying octane in 
other gasolines.
    Third, if you restrict or prohibit the use of MTBE, can you be 
certain that you will not increase the risks of adverse health effects? 
Some refiners claim that they can make RFG without oxygenates that 
meets the Federal Phase II requirements, but is there any third-party 
independent confirmation? EPA has such a question pending before it in 
the form of request from California, but it seems very reluctant to say 
yes or no. Possibilities do not always equate to practice. Oxygenates 
in Phase I RFG allowed for over-achievement. Eliminating oxygenates 
from Phase II requirements may effectively limit the possibility of 
similar results.
    Finally, what are the other consequences of taking MTBE out of the 
gasoline supply? As described above, MTBE constitutes a significant 
percentage of the gasoline pool. If you take away that volume, what are 
the supply and price ramifications? I think we have seen the answer to 
that in the spike in gasoline prices across the nation last summer.
    President Bush recently stated to the National Energy Policy 
Development Group, that if we have a price spike in refined product, 
``It's going to be because we don't have enough capacity, refining 
capacity--we're not generating enough product.''
    Our present energy problems will only be compounded by removing 
this beneficial product from our gasoline supplies. I urge you to avoid 
a rush to judgment.
    I thank you again for the opportunity to offer written comments on 
this important issue.
                                 ______
                                 
             Salem Revisited: Updating the MTBE Controversy
                 (By Richard O. Faulk and John S. Gray)
    ``I am wronged. IT Is a shameful thing that you should mind these 
folks that are out of their wits''
What Does ``Salem'' Have to Do With MTBE?
    Martha Carrier, the casualty of those ``out of their wits,'' was 
hanged as a witch on August 19, 1692 in Salem, Massachusetts. In all, 
20 innocent persons were executed in 1692 as a result of hysteria 
attending the Salem witch trials. After the executions, letters 
criticizing the trials were sent to the colony's Governor, who then 
precluded the use of ``spectral and intangible evidence'' in trials. No 
prosecution was successful thereafter.
    More than 300 years later, Martha Carrier's statement illustrates 
an almost identical problem that plagues the current controversy 
surrounding Methyl Tertiary Butyl Ether (``MTBE''), a gasoline additive 
accused of polluting water supplies and endangering public health when 
leaked from underground storage tanks (``USTs''). Like the Salem witch 
trials, UST litigation is presently engulfed in hype--including dire 
predictions of environmental and health disasters that will flow from 
MTBE contamination. And like the ``spectral and intangible'' evidence 
used in Salem, unreliable evidence is being used to indict MTBE. But as 
in the witch trials, MTBE will be vindicated if reliable evidence is 
used to judge the controversy.
A Real Public Health and Environmental Crisis?
    Is the MTBE controversy a real public health and environmental 
crisis? Or is it simply one more example of American regulatory and 
legal hysteria? Does this controversy mark the beginning of yet another 
mass tort explosion? Or is it simply another unsubstantiated crusade 
designed to waste millions of dollars and unnecessarily preoccupy 
judicial resources? A careful and reflective inquiry suggests that 
rumors that the class action lawyers have ``struck gold'' are, at best, 
premature, and, at worst, utterly false. Although a number of lawsuits 
regarding MTBE have been filed, their certifiability as class actions 
is doubtful, and their long-term viability is questionable. The 
noticeable lack of individual consumer complaints belies the existence 
of a significant controversy, and the few suits filed by municipal 
water suppliers already appear to be transparently designed to upgrade 
previously contaminated or deteriorated systems, more than to address 
real dangers of MTBE contamination.
Unreliable Evidence and Exaggerated Claims
    Moreover, at this point, personal injury claims cannot survive 
judicial scrutiny. Serious health problems, such as cancer, have not 
been associated with exposure to MTBE and probably will never be linked 
in a scientifically reliable way. The U.S. government's National 
Toxicology Program has refused to list MTBE a carcinogen, and the World 
Health Association has reached the same conclusion. Recently, a major 
report to the entire European Union determined that MTBE does not 
present a risk to the health of its citizens or the quality of its 
water. Empirical studies conclusively show that MTBE levels in 
California water are minimal and that they are far below levels that 
could impact human health or compromise water utility. Indeed, the 
extent of water supplies that are actually compromised appears to be 
relatively slight. Hence, despite the hyperbolic antics of a few 
lawyers and public officials, the problem, if any, is primarily 
localized and focused, instead of national and comprehensive--hardly a 
compelling script for a mass tort drama.
A Crisis in Containment
    Additionally, there is compelling evidence that the alleged MTBE 
``crisis'' did not arise from any problems with MTBE itself, but rather 
from failures to contain gasoline stored in USTs. These lapses were 
compounded by ineffective enforcement of UST regulations designed to 
prevent gasoline leaks into the environment. The U.S. Government, for 
example, delayed enforcement of its UST regulations for 10 years after 
they were issued. Recently published research demonstrates major and 
chronic failures of enforcement by responsible agencies, especially in 
California, which resulted in massive non-compliance and which 
unreasonably delayed detection and remediation of gasoline leaks on a 
statewide basis.
Diminishing Risks and Shrinking Damages
    As compliance with UST regulations increases, however, the 
upgrading of UST systems and the remediation of past leaks not only 
reduces the risks of future pollution, but also lowers the damages, if 
any available for past leakage. The number of potentially injured 
parties is shrinking dramatically, as are the amounts reasonably 
necessary to compensate them. For example, although plaintiffs are 
currently seeking ``stigma'' damages for diminished property values, 
the law typically precludes such recoveries unless the plaintiffs have 
suffered a true loss as the result of a diminished sale price, instead 
of a ``paper'' loss while still owning the property. Even then, 
emerging concepts such as Risk-Based Corrective Action (``RBCA'') and 
``Brownfields'' initiatives deflate the amount of recoverable damages 
substantially.
A Valuable Product Unfairly Maligned
    This article, published in two parts, discusses and evaluates the 
current controversy surrounding MTBE. It examines (i) the 
administrative, legislative and litigation history of MTBE in the 
context of the Clean Air Act and State environmental statutes, (ii) the 
importance of applicable UST regulations, (iii) the question of MTBE 
toxicity for personal injury claims and public health concerns, and 
(iv) the scope of property damages available to persons who are not 
physically impacted by MTBE contamination. Certain supporting 
references are attached, as are excerpts from an updated version of 
this paper regarding the emerging ethanol controversy and breaking 
international news. From this evaluation, we conclude that the MTBE 
controversy is not a real public health or environmental crisis, but 
rather yet another speculative product of the American legal industry. 
The facts, as opposed to the allegations, demonstrate that MTBE is a 
valuable product that is unfairly and outrageously maligned.
                               __________
  Statement of Clint Norris, Chief Operating Officer, BC International
    Thank you for the opportunity to provide testimony for 
consideration by your full committee. I met one of your staffers, Jeff 
Rose, on April 23, 2001 in Salem, NH, and he fully explained your 
reasons for postponing the hearing. Unfortunately, I will be unable to 
attend on the revised hearing date, but am submitting my comments in 
writing. It is my intent that they will be additive and meaningful--and 
also brief. Individually, I have worked not only in industry, but also 
have served as policy and strategy advisor to governments via a role as 
a periodic consultant to the United Nations. My firm, BC International, 
has been actively involved biomass ethanol development, not only in New 
England, but throughout the USA and worldwide since the early 90's. We 
are currently participating in several U.S. DOE/NREL-supported projects 
to locate ethanol plants in the Southern and Western US, using various 
wastes to make ethanol. We have also been engaged in feasibility work 
in the Northeast, and have spent some considerable effort looking at 
viability of forest based feedstocks over the past few years. We are 
very familiar with the issues and are pleased to discuss them in this 
forum. We are also engaged in the use of biomass to make other 
petroleum based products in order to use our own country's renewable 
resources as the fossil based supplies get more expensive over time.
    There are more than environmental reasons for addressing the issue 
of renewable fuels. There are also strategic issues regarding reducing 
our foreign-sourced energy dependences; there are economic issues 
associated with a serious trade deficit and its impact on our nation's 
capital resources; there are inter-generational issues associated with 
affordable energy and its future availability; and there are public 
health issues. Weaving a policy that successfully integrates all the 
needs will require courage and a rhetoric filter of grand proportions 
in order to do what is best to address these issues. The following 
facts may be helpful.
    1. Alcohol (Ethanol) has been around for thousands of years. People 
drink it with their food, at ballgames, in their back yards, etc. They 
spray it on their bodies via personal care products, use it as an 
antiseptic to dress wounds, gargle with it in mouthwash, spray it in 
their hair in hairsprays, etc. It is also used industrially as a 
solvent. It is generally safe, but it is a chemical and it can be 
toxic, as all chemicals are. To gage toxicity, as a reference point, 
Merlot wine generally contains 13 percent ethanol, or 130,000,000 parts 
per billion. When ethanol breaks down or is burned, it can give off 
acetaldehyde, but acetaldehyde also breaks down to acetic acid 
(vinegar), then to carbon dioxide and water.
    2. In contrast, MTBE has only been around for a very few years. No 
one would think of drinking it, spraying it on their bodies, pour it on 
a wound or gargle with it. If water is contaminated with 0.2 parts per 
billion, it has a turpentine-like taste, and to gage toxicity of MTBE--
it can be toxic at levels below 10 parts per billion. When MTBE is 
burned it gives off formaldehyde, which also further breaks down, 
eventually, to carbon dioxide and water.
    3. NRC reported that measurements in the countryside to determine 
MTBE presence from vehicles which used it were relatively easy to make. 
In contrast, ethanol and acetaldehyde were difficult to detect beyond 
background levels that are always present, due to the nature of living 
matter as it undergoes its natural breakdown and return to the earth. 
Thus, our environment does have a ``natural'' level of ethanol-based 
compounds in it.
    4. The Health Effects Institute of Cambridge, MA was commissioned 
to do a study on the effects of oxygenates used in gasoline. It's a 155 
page report. On pages 103-6, ethanol is mentioned. The study concludes 
that reproductive, development, and long term effects of exposure to 
ethanol from its use in fuel is not expected to cause any effects. The 
reason is because exposure levels are not expected to increase blood 
levels significantly--the increase in levels would be much lower than 
those found endogenously in the blood. As a point of reference, the 
report states``. . . ethanol is a product of many catabolic pathways 
and is present in blood even in the absence of ingested alcohol.''
    5. Currently, national ethanol production is located primarily in 
the Midwest. By utilizing improved technologies that cost effectively 
make ethanol from biomass wastes and resources, the biomass-rich 
Northeast also has the potential to become an ethanol production 
center. I believe that specific measures to support biomass ethanol 
should be a component of policies to support renewable fuels. This will 
ensure that the economic and environmental benefits of ethanol 
production both continue in the Midwest and spread to other regions of 
the nation, as ethanol markets and production expands.
    6. If a national policy is not forthcoming in the short term, and 
States seek to ban the use of MTBE (such as Gov. Shaheen's recent 
order), a default mandate will be created for some alternative, most 
likely ethanol. Other alternatives have some limitations. Alkylates--
potentially attractive to refiners--require additives to get fuel 
octane to necessary levels. The additives are normally ``BTX''--
benzene, toluene, and xylene. BTX burns with more particulates and 
toxics, which results in loss of air quality vs levels already 
achieved. This is called backsliding and the EPA Blue Ribbon Panel 
specifically recommended against backsliding.
    7. A renewable fuels program preserves the original non-
environmental policy intent of the oxygenate mandate, and allows 
accomplishment of other broad policy goals the 2 percent oxygenate 
mandate originally sought to advance. Some of these policy goals 
include greater economic development, greater fuel diversity, and 
increased national security. Consistent with these goals, I support 
thoughtful policies to develop renewable fuel use nationwide.
    8. NESCAUM reported that 1.3 billion gallons per year of MTBE are 
presently used in gasoline in the Northeast. Assuming a 5.7 percent 
ethanol blend in gasoline, replacement of a 10 percent MTBE blend with 
ethanol would require about 750 million gallons per year of ethanol. 
Abundant biomass resources and a potentially large Northeast market for 
ethanol provide the region with the opportunity to establish itself as 
a leader in the nascent biomass-to-ethanol industry supplying the 
northeast needs. Abundant biomass resources also exist to ensure ample 
ethanol production to guard against any supply disruptions.
    9. Increased use of ethanol will help protect against price spikes 
by creating an additional supply source for fuel. Gas prices have risen 
sharply last year in part due to U.S. reliance on imported fuel and a 
decrease in international petroleum production. Increasing the 
diversity of domestic fuel sources will improve price stability in the 
U.S.
    10. Nationally, no new petroleum refineries have been built since 
the 70's. This has put great stress on those refineries trying to meet 
the nation's needs during the past 3 decades of growth. Chemical plants 
that run greater than a nominal 85 percent sales to capacity ratio are 
generally at increased risk of running into supply chain reliability 
problems. Our nation's refineries are running at levels exceeding 90 
percent. The use of ethanol, in addition to being one of the safer 
alternatives, will provide some relief for these stressed refineries by 
acting as a fuel extender.
    11. The nation's infrastructure is quietly developing in a way that 
will bring even greater relief to the heavily burdened refining 
industry. Ford, General Motors and Daimler-Chrysler are all making 
flexible fuel vehicles (FFV's). An example is the standard Taurus. FFVs 
can run up to 85 percent ethanol (E-85) in their gas tanks. These 
growing numbers of vehicles are creating a corresponding growth in 
demand for E-85, which in turn provides even more relief for the public 
concern over refinery-dependent price spikes.
    With your continued leadership, we can develop a policy solution 
that facilitates the phase-out of MTBE while also continuing to advance 
the development of renewable fuels. I firmly believe that a consensus-
based legislative outcome can meet the broad range of policy needs, 
including: fuel security, economic development, cleaner air, the 
protection of water quality, mitigation of global warming, and 
reduction of biomass wastes. I look forward to working with you and 
other stakeholders on this issue. Please do not hesitate to contact me 
with any questions. Thank you for your leadership and initiative on 
this issue.
                               __________
       Letter from Gahagan & Associates Submitted for the Record
                             mtbe & ethanol
Dear Senator Smith: Thank you for the opportunity to provide testimony 
for consideration by your full committee on April 23, 2001 in Salem, 
NH. My firm has been actively involved in ethanol and biomass ethanol 
development in New England for the past 3 years. We are currently 
participating in a U.S. DOE/NREL-funded feasibility study to locate an 
ethanol plant in Northern Maine. For the past 2 years, I have been a 
participant in NESCAUM's MTBE Task Force that covers New England and 
the Mid-Atlantic States. We are also founders and principals of 
Northeast BioEnergy, LLC (``NEB''), an ethanol plant developer.
    NEB has been formed in response to the expected phase down of MTBE 
and the need to replace it with ethanol. Unlike the mid-West which has 
over the past 25 years developed a corn ethanol industry that now 
produces in the order of 1.5 billion gallons of ethanol per year as an 
oxygenate without MTBE, Eastern and Western States each consume in the 
order of 1.5 billion gallons of MTBE per year. Because corn does not 
grow well in the East or the West, mid-Western corn producers will be 
hard-pressed to meet timely demand for an additional 3 billion gallons 
per year of ethanol.
    In response to the opportunity to develop an ethanol industry in 
the Northeast, NEB has adopted a three-phase approach to developing 
regional ethanol and biomass ethanol resources and supplies:

    Phase One: Start with known and available proven conventional 
tuber/grain processing technology; import corn and other grains from 
the mid-west; this is necessary primarily for project finance. Because 
of existing infrastructure at candidate plant sites, it may be (net) 
less expensive to bring in grain v. corn ethanol; feasibility for this 
is being evaluated this Spring.
    Phase Two: Add E-10, a dedicated energy crop; this proprietary 
tuber/cellulose combination has been developed in cooperation with the 
University of Idaho; we're bringing in seed for trails in Maine this 
spring; it will take 2-3 seasons to produce any significant volume; 
tuber will be processed using Phase One technology; cellulose will be 
used as a soil additive or animal feed supplement pending Phase Three--
conversion to biomass ethanol. E-10 projects 1000 gallons per acre from 
the tuber; plus an additional 500 gallons per acre from the cellulose 
stock. This compares very favorably against corn--about 325 gallons per 
acre. There is no difference between ethanol produced from corn and 
ethanol produced from biomass.
    Phase Three: Add cellulose (biomass wood residue) technology; the 
incremental cost of adding emerging cellulose technology to a 
conventional tuber/grain processing plant is expected make the 
cellulose increment financeable; starting up with Phase Three 
technology cannot be financed at this time because it is unproven. 
Significant biomass resources in the Northeast, combined with E-10 and 
mid-West grain supplements could eventually meet the demand for an 
estimated 1 + billion gallons per year MTBE replacement in the New 
England States.

    In the context of our support for a national domestic renewable 
fuels program that includes ethanol from both corn and biomass 
resources, Northeast legislators and regulators should be aware of the 
need to support this phase-in approach to ethanol production in the 
Northeast as MTBE is being phased out.
    NEB is pleased to be working with a major regional oil refiner and 
distributor for ethanol offtake agreements. This company has for many 
years had a strategic interest in the introduction of new fuel 
formulations that provide environmental benefits. Their recent 
introduction of an ultra low sulfur gasoline is a recent example.
    The geopolitical, environmental, and economic merits of producing 
domestic renewable fuels from corn and other emerging energy crops have 
been well documented by others. Nevertheless, here are a few target 
points for you to consider:

    1. Henry Ford's proposed and preferred choice of fuel for his cars 
was ethanol. Unfortunately, Mr. Ford didn't have the muscle to take on 
the Oil Trust. Congress imposed a heavy tax on ethanol; petroleum 
interests won over agricultural interests.
    2. In the 1920's, American engines required more octane. We had a 
choice to use either ethanol or lead to meet the demand for higher 
octane. Lead was patented; ethanol was not; commercial considerations 
won over agricultural interests. Use of lead was the first petroleum 
strike against U. S. public health.
    3. In the 1970's, we had a choice to replace lead with ethanol for 
U.S. public health reasons. In the name of free market, benzene won. 
Use of benzene was the second petroleum strike against U. S. public 
health.
    4. In the 1980's, American engines required more oxygen. We had a 
choice to use either ethanol or MTBE to meet the demand for higher 
oxygen. In the name of free market and foreign oil interests, MTBE won. 
Use of MTBE was the third petroleum strike against U.S. public health. 
Lead, benzene, MTBE--three petroleum strikes and you're out!
    5. While I fundamentally believe in the free market, I've come to 
accept that when it comes to U.S. public health and foreign oil, we 
should learn from our so-called free market mistakes. We should 
recognize there's no free market and little if any free choice when we 
mobilize to protect U.S. petroleum interests in the Middle East.
    6. In the name of U.S. public health, we've now mandated lead, 
benzene and MTBE out. In the name of U.S. public health and domestic 
renewable fuels, maybe it's (finally) time to remember Henry Ford and 
mandate ethanol in. After all, we've had at least 6,000 years of 
experience learning how to manage and control interactions between 
alcohol (ethanol) and the human body, far longer than we've been trying 
to control interactions between automobiles and fuel. Wouldn't we 
rather deal with something as familiar as a .08 Federal alcohol 
standard, especially when compared to the unknown, unforeseen, 
unpredictable consequences of whatever is to be the next petroleum-
derived lead, benzene or MTBE type solution?
    7. Just as it could have been a U.S. public health and domestic 
renewable fuels winner against lead and benzene, ethanol is still the 
most cost-effective, environmentally friendly U.S public health 
alternative to MTBE. There are volumes and volumes of technical 
information that can be provided by the Renewable Fuels Association 
(RFA) and many others to support this statement.
    8. Ethanol is certainly the least toxic of all alternate options to 
MTBE. For example, substitution of iso-octanes frequently results in 
lower octane numbers and the addition of BTX which means higher toxics 
and a backslide in air quality levels that have already been achieved. 
On a toxics-weighted basis, ethanol is clearly a safer alternative for 
a large-scale public use such as transportation fuel.
    9. A Renewable Fuel Standard that does not specify ethanol could 
open the door for unproven and potentially risky alternatives. Ethanol 
is a fully proven renewable.
    10. Ethanol can be transported by pipeline. It is being done in 
commercial applications today.
    11. Use of ethanol in summer months need not be harmful to the 
environment. All RFG must meet the same VOC performance requirements, 
whether MTBE or ethanol is used as the oxygenate. Because ethanol 
slightly increases the volatility of the resulting blend when mixed 
with gasoline, refiners have to produce a lower volatility blendstock 
when ethanol RFG is used. Thus, evaporative emissions are the same.
    12. Use of ethanol would not (alone) cause consumer costs to 
increase. Midwest gas prices rose last summer primarily because of an 
inability to provide just-in-time supply due to a pipeline failure. 
This caused regional shortages and the resulting supply/demand price 
response. Prices went up for both RFG and conventional gasoline (where 
ethanol is not used and no volatility adjustment is made). Midwest 
ethanol RFG still averaged 5-10 cents below RFG in other areas of the 
country, including the Northeast.
    13. According to energy experts, a primary cause of price 
volatility is limited U.S. refining capacity--now nearing a ``maxed-
out'' state. With no new refineries added since the 70's, use of 
ethanol in the fuel supply would be a welcome extender to the limited 
ability of the industry to respond to summer demand, and in fact could 
reduce the upward pressure on prices.
    14. Oxygenates are required to produce reformulated gasolines that 
meet the performance requirements of the Clean Air Act. In the absence 
of oxygenates, refiners could again dramatically increase the use of 
aromatics, such as benzene, toluene and xylene. This would mean 
significant backsliding from the toxic benefits currently provided by 
RFG.
    15. If you remove 11 percent of the Northeast's gasoline supply 
because of the MTBE ban, it would be wise to replace that volume with 
something other than additional petrochemicals derived from imported 
crude oil.
    16. From a financing perspective, it will be more difficult to 
finance ethanol projects in the Northeast if there is regulatory 
uncertainty. A change in the status quo could not only diminish 
environmental quality; it would not be good for business.
    17. The development of a corn ethanol industry in mid-Western 
States over the past 25 years from 20 million gallons ethanol per year 
in 1978 to more than 1.6 billion gallons ethanol in 2000 provides 
tangible, viable evidence for the environmental and economic value of 
domestic ethanol. New England would be wise to follow the example of 
mid-Western States and adopt domestic ethanol as a replacement for 
MTBE. This may require subsidies at the State level similar to those in 
mid-Western States as shown below:
      Alaska 6-8 cents/gal excise tax exemption (60 to 80 
cents/gal ethanol)
      Connecticut--1 cent/gal excise tax exemption (10 cents/
gal ethanol)
      Hawaii--4 percent sales tax exemption
      Idaho--2.1 cents/gal excise tax exemption (21 cents/gal 
ethanol)
      Illinois--2 percent sales tax exemption
      Iowa--1 cents/gal excise tax exemption (10 cents/gal 
ethanol)
      Minnesota--20 cents/gal producer payment
      Missouri--20 cents/gal producer payment
      Montana--30 cents/gal producer payment
      Nebraska--20 cents/gal producer payment
      Ohio--1 cent per gallon of E10 income tax credit
      South Dakota--20 cents/gal producer payment
      Wyoming--40 cents/gal producer payment.

    From a regional as well as a national perspective, encouragement of 
domestic renewable fuels such as ethanol is in our best interest. At 
this time, ethanol represents the most market-ready alternative to 
MTBE. With ethanol as the substitute, there is no need to backslide in 
either air or water quality.
            Respectfully submitted,
                            Hayes Gahagan, Principal & CEO.

                     CLEAN AIR ACT OVERSIGHT ISSUES

                              ----------                              

                         WEDNESDAY, MAY 2, 2001

                                       U.S. Senate,
                 Committee on Environment and Public Works,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 9:33 a.m. in room 
628, Senate Dirksen Building, Hon. Robert C. Smith (chairman of 
the committee) presiding.

     SCIENCE OF GLOBAL CLIMATE CHANGE AND GREENHOUSE GAS EMISSIONS

    Present: Senators Smith, Voinovich, Wyden, Chafee, Corzine, 
Reid, Clinton, Inhofe, Warner, Specter, and Lieberman.

  OPENING STATEMENT OF HON. BOB SMITH, U.S. SENATOR FROM THE 
                     STATE OF NEW HAMPSHIRE

    Senator Smith. The hearing will come to order.
    Senator Voinovich is going to be chairing the hearing. He 
will be here shortly, but I thought since the time has gone 
past 9:30 that I would begin.
    Also, I would indicate that I have to leave. I will be in 
and out of here during the hearing. I apologize for that to the 
witnesses and to my colleagues.
    Just a brief statement before I recognize Senator Wyden: 
Local climate change is an issue that has generated a lot of 
discussion across the political spectrum. Unfortunately, I 
think from my perspective a lot of that discussion has been 
driven more by politics. When President Bush recently confirmed 
what everyone in the room already knew, that the Kyoto Protocol 
was dead, he was loudly jeered. While there are those who will 
continue to demand the Administration reverse itself, the 
reality is that if we, the Senate, were to vote on Kyoto today, 
it would be turned down by a pretty strong bipartisan vote, I 
believe. I think that was shown in 1997 with a vote of 95 to 0, 
that this body would not support the provisions of the Kyoto 
Protocol.
    Kyoto may be a lightning rod, but the treaty itself is 
flawed and I think a false issue. To continue to push forward 
on this failed treaty is to invite continual bipartisan 
bickering and, ultimately, in my view delay a productive 
discussion on climate change.
    I applaud the President for taking Kyoto off the table. I 
know that will invite some controversy, but efforts to paint 
the President's position as extreme or reckless are not 
warranted. I think we have proven that again with the 
bipartisan vote here. The purpose for such charges must be 
looked at.
    I suggest that what we need is not more attacks, but 
instead let's get beyond Kyoto and focus on collective efforts 
of a more serious examination of this issue. Our challenge is 
to look at the issue based on a hard examination of what we 
know, what we do not know, and what we must do in the name of 
prudence.
    Not to steal the thunder of any witnesses who may be coming 
here today, but I would like to briefly just boil down the 
state of the science that I believe is necessary for 
policymakers to understand.
    First, what do we know for certain? Well, I think we know 
three things. Atmospheric concentrations of greenhouse gases 
are increasing. Human activities are responsible for a 
significant portion of that increase, No. 2, and at some point 
the increased concentrations will cause serious changes in the 
chemistry of our planet. I think those are facts that are 
pretty much not disputable.
    What don't we know? Pretty much everything else about 
climate change. All the projections about sea level rises, 
temperature increases, the future rate of concentration 
increase, and the cost of emission reductions, all of those 
things are speculation. They are derived from models or 
assumptions and predictions, and the uncertainty in the results 
of this work is tremendous.
    So how do we craft policy with that kind of uncertainty? 
Well, I guess I would have to say cautiously, very cautiously. 
Many of those who have supported the Kyoto Protocol have argued 
that, because emissions related to human activities have the 
potential to lead to adverse climate changes over the course of 
this new century, we must err on the side of caution by 
dramatically reducing industrial emissions of CO2.
    To that I say, caution is a good thing, but only when 
appropriately applied. We should apply the precautionary 
principle not only to the examination of possible harm from 
emissions, but also to the possible harm to the economy from 
overly aggressive emission curves. An appropriate policy should 
recognize both the economic and the environmental hazards of 
too little or too much action regarding climate change. How far 
away is Armageddon, if there is an Armageddon? Is it tomorrow? 
Is it a hundred years from now, a thousand years from now? We 
don't know the answer to that question.
    If we are too aggressive, we could damage our economy and 
cripple our ability to address this issue and other 
environmental matters. If we are too timid, we could invite the 
environmental peril that could cause economic ruin in parts of 
the nation.
    I believe all of us would like to make a policy decision 
based on more complete information. We should aggressively seek 
necessary information, so that we may make intelligent 
decisions. But also we know that we are not going to have all 
the information we would like to have. It is not exact science. 
The steps we eventually do take to address environmental 
concerns should be consistent with sound economic and energy 
policies as well.
    I want to say, many companies--and I've talked to many of 
them--are pursuing this type of activity today. Hundreds of 
American companies are investing in energy efficiencies that 
make good short-term economic sense and at the same time avoid 
emissions in significant quantities.
    For example, to boast a little bit about New Hampshire, 
more than 73 companies and public entities are committed to 
using energy efficient heating, cooling, and lighting fixtures 
in more than 22 million square feet of office space. This will 
result in a reduction of 2.5 billion pounds of CO2, 
an annual energy savings of $10 million. That is just New 
Hampshire.
    It is not just New Hampshire. Similar efforts in Ohio--the 
chairman knows where that is [laughter]--will result in the 
elimination of 45 billion pounds of CO2 emissions 
annually. Investments in energy efficient technologies in 
Oklahoma have prevented the release of 3.8 billion pounds of 
CO2. You don't hear too much about these things from 
some of the critics.
    Chevron has invested billions to reduce gas from flaring. 
Just a single project currently in the planning phase will 
reduce greenhouse emissions by 100 million metric tons over the 
20-year life of the project. This is only one idea that Chevron 
is working on.
    CMS Energy is also working on similar efforts that will 
result in the reduction of nearly 3 million metric tons of 
carbon per year.
    I ask unanimous consent, Mr. Chairman, that the written 
testimony be inserted into the record.
    Senator Voinovich. Without objection.
    [The prepared statement of Senator Smith follows:]
    Statement of Hon. Bob Smith, U.S. Senator from the State of New 
                               Hampshire
    Global climate change is an issue that has generated a great deal 
of excitement across the political spectrum. Unfortunately, much of 
that excitement has been driven by politics. For example, when 
President Bush recently confirmed what everyone in this room already 
knew--that the Kyoto Protocol was dead--he was loudly jeered.
    While there are those who will continue to demand the 
Administration reverse itself, the reality is that if we, the Senate, 
were to vote on Kyoto today, it would certainly be defeated by a strong 
bipartisan vote.
    We made it very clear by an overwhelming 1997 vote of 95-0, that 
this body would not support the provisions of the Kyoto Protocol. Kyoto 
may be a political lighting rod, but the treaty itself is a false 
issue. To continue to push forward on this failed treaty is to invite 
continual partisan bickering and ultimately delay a productive 
discussion on Climate Change.
    I, for one, applaud the President for taking Kyoto off of the 
table.
    Efforts to paint the President's position as extreme or reckless 
are not warranted, and the purpose for such charges must be closely 
examined. I strongly suggest that what we need is not more attacks but, 
instead, to get beyond Kyoto and focus our collective efforts on a more 
serious examination of the issue.
    Our challenge is to look at the issue based on a hard examination 
of what we know, what we do not know, and what we must do in the name 
of prudence.
    Not to steal the thunder of any of our excellent witnesses today, 
but let me attempt to boil down the state of the science that I believe 
is necessary for policymakers to understand.
    First, what do we know for certain? Just three things:

    1. Atmospheric concentrations of greenhouse gasses are increasing.
    2. Human activities are responsible for a significant portion of 
that increase.
    3. Like a high school chemistry experiment, at some point the 
increased concentrations will cause serious changes in the chemistry of 
our planet.

    What don't we know? Pretty much everything else about climate 
change. All of the projections about sea level rises, temperature 
increases, the future rate of concentration increase and the cost of 
emission reductions are speculation; they are derived from models based 
on assumptions and predictions. The uncertainty in the results of this 
work is tremendous.
    So, how do we craft policy from that much uncertainty? Cautiously. 
Very cautiously. Many of those who have supported the Kyoto Protocol 
have argued that because emissions related to human activities have the 
potential to lead to adverse climate changes over the course of this 
new century, then we must err to the side of caution by dramatically 
reducing industrial emissions of CO2 and other greenhouse 
gases.
    To that I say, caution is a good thing, but only when appropriately 
applied. We should apply the precautionary principle not only to the 
examination of possible harm from emissions, but also to the possible 
harm to the economy from overly aggressive emission curbs. An 
appropriate policy should recognize both the economic and environmental 
hazards of too little or too much action regarding climate change. If 
we are too aggressive we could damage our economy and cripple our 
ability to address this and other pending environmental matters. If we 
are too timid we could invite environmental peril, that could cause 
economic ruin in parts of the nation.
    I believe all of us would like to make a policy decision based on 
more complete information. We should aggressively seek necessary 
information so that we may make an intelligent decision, and the steps 
that we eventually do take to address environmental concerns should be 
consistent with sound economic and energy policies.
    The steps that we consider today should be based on sound science--
to buy time. Many companies are pursuing this type of activity today. 
Hundreds of American companies are investing in energy efficiencies 
that make good short-term economic sense, and at the same time avoid 
emissions in significant quantities.
    For example in New Hampshire: More than 73 companies and public 
entities are committed to using energy efficient heating, cooling, and 
lighting fixtures in more than 22 million square feet of office space. 
This will result in a reduction of 2.5 billion pounds of 
CO2--an annual energy saving of $10 million. Similar efforts 
in Ohio will result in the elimination of 45 billion pounds of 
CO2 emissions annually. Investments in energy efficient 
technologies in Oklahoma have prevented the release of 3.8 billion 
pounds of CO2.
    Chevron has invested billions in efforts to reduce gas flaring. In 
just a single project, currently in the planning phase, will reduce 
greenhouse emissions by 100 million metric tons over the 20 year life 
of the project. This is only one of many ideas Chevron is working on.
    CMS Energy is also working on similar efforts that will result in a 
reduction of nearly 3 million metric tons of Carbon per year.
    This is the direction our policy should lead. These are actions 
that make good economic sense, and may even lead to the development of 
technologies that all the world will buy from us in the future in order 
to address their own emissions. At the same time, we can begin to make 
slow our rate of emissions to buy more time for us to understand the 
problem we face.
    One thing is for certain we all care about our children and future 
generations. We owe it to future generation to leave them a healthy 
environment and a solid strong economy. The choices we make today will 
determine that future.
    Senator Smith. This is the direction that our policy should 
lead. What happens when we export that technology to those 
nations, to get them to buy it, to those nations who now are 
saying they either can't or won't adhere to any treaty, Kyoto 
or otherwise? These are actions that make good economic sense 
and may even lead to the development of further technologies 
that the world will be buying from us. At the same time we 
begin to make slow our rate of emissions, buy more time for us 
to understand the problem we face.
    One thing for certain: I hope we can all agree that we all 
care about our children and we care about the future. We owe it 
to the future, all of our children and grandchildren, to leave 
them a healthy environment and a solid, strong economy. The 
choices we make today will determine that future. I believe 
that if we look at the science we know, try to find out the 
science we don't know, take the technology that we have and 
export it around the world, and use it here effectively in the 
United States, we will reduce the emissions, Mr. Chairman, that 
we are concerned about, including carbon, and we will do it in 
a way that will enhance our environment and enhance our 
economy.
    Thank you, Mr. Chairman. I will turn the gavel over to you.

  OPENING STATEMENT OF HON. GEORGE V. VOINOVICH, U.S. SENATOR 
                     FROM THE STATE OF OHIO

    Senator Voinovich [assuming the chair.] Thank you very 
much. I appreciate the fact that you began the hearings this 
morning.
    Today's hearing is on the science of global climate change 
and the options and obstacles related to reducing net 
greenhouse gas emissions. It was suggested by Senator Lieberman 
earlier this year--and I thought it was a good idea--to bring 
the best and brightest people here before this committee to 
discuss this issue.
    I would like to thank our chairman for allowing me to chair 
this important full committee hearing.
    It has been almost 4 years since this committee had a 
hearing on climate change science. Since then not only has the 
issue evolved, but the membership of this committee has 
changed. There are eight new members of this committee, 
including myself. Therefore, I thought it would be important to 
hold this hearing, so that all of the members of this committee 
would have an update on this very, very important issue.
    The state of the science has evolved, and I think it is 
important for us to hear from the leading scientists as to what 
we currently understand and what we don't understand regarding 
climate change. Most of the information the public hears is 
media summaries, taken from political summaries which summarize 
the UN's IPCC reports. That's the Intergovernmental Panel on 
Climate Change. I would like to make it clear that is the 
United Nations Intergovernmental Panel on Climate Change. That 
is out of the United Nations. They try to summarize these 
studies. With all of these summaries, no wonder it is difficult 
for everyone to understand what is going on.
    Today we will see if we shed a little light on the state of 
the science. We will also take a look at some of the options 
and obstacles related to reducing net greenhouse gas emissions. 
Some of the topics I hope we cover include carbon sequestration 
and energy efficiency. In dealing with reduction issues it is 
important to understand what can reasonably be accomplished and 
at what cost. If actions are warranted, we need to make sure we 
understand the effects of those actions, or perhaps inactions.
    First and foremost, we need to understand the science and 
what it means, where the questions are, and what further 
research needs to be completed. I am sure most of us remember 
back in the seventies when the media reported on the coming Ice 
Age and how the planet would be covered in a sheet of ice, 
which dramatically changed to predictions of global warming in 
the late eighties and nineties. We need to make sure we do not 
get our understanding of the science from Time magazine or 
summaries by politicians, but instead turn to the scientists 
conducting the actual research.
    There is an article in Science News, November 1969. 
```Earth's Cooling Climate.'' ``How long the current cooling 
trend continues is one of the most important problems of our 
civilization,'' says Dr. Mitchell of the Environmental Science 
Services Administration.''
    Here's an article in the Science Digest. This is February 
1973. ``Brace Yourself for an Ice Age.'' ``The idea of another 
Ice Age is not a new one but recently scientists have been 
confronted with the possibility that it may be much sooner than 
anyone thought.''
    Time magazine, ``Another Ice Age?'' This is back in June 
1974. It warned of expanding arctic saying, ``ice and snow 
covering in the northern hemisphere had suddenly increased by 
12 percent in 1971 and the increase has persisted ever since.''
    Of course, last but not least is the Environmental 
Magazine, February 1996, and the front cover is ``Global 
Warming.''
    On Kyoto, I would like to say a few words about the treaty. 
I know the international press, some countries, and even some 
here in the United States have criticized President Bush for 
killing the Kyoto Treaty. The Kyoto Treaty was dead long before 
President Bush was sworn into office. The treaty was dead when 
Bill Clinton signed it December 11, 1998. In fact, the treaty 
was probably dead before the negotiations at Kyoto even began. 
The treaty that came out of the Kyoto negotiations could not 
have survived the Byrd-Hagel test as found in the Byrd-Hagel 
resolution passed in the 105th Congress on July 25, 1997.
    It passed in the Senate 95-0. Although I was not a member 
of the Senate at the time, it is interesting to note that many 
members of this committee voted for it, including Senators 
Smith, Warner, Inhofe, Bond, Specter, Campbell, Baucus, Graham, 
Lieberman, Boxer, and Wyden. I believe Senator Reid is the only 
member of the committee at that time who didn't cast a vote on 
that resolution.
    Now one could argue that there was never a meeting of the 
minds between the U.S. negotiators and their European 
counterparts at Kyoto. When the U.S. negotiators returned from 
Kyoto in 1997, they announced that the U.S. would get 
meaningful credits for international trading and carbon sinks. 
However, last fall at the Hague negotiations broke down when 
the EU rejected the U.S. trading program and the carbon sink 
proposal, despite significant concessions by the United States. 
Apparently, the two sides did not understand each other's 
position back in 1997.
    Cynics would say that many of the countries that are 
publicly berating the United States are privately relieved that 
the treaty has been pronounced dead since compliance would have 
been difficult, if not impossible, for many of them. As the 
Economist magazine pointed out last month, the only European 
countries that are likely to meet the Kyoto targets are Britain 
and Germany. Japan and the rest of Europe are no further along 
in this issue than the United States of America.
    At this point I think it is important not to play partisan 
games with this issue. We all want to make sure that we do the 
right thing that protects our environment without causing 
unnecessary harm to the economy. I would like to have the 
following questions answered today:

      What is the current state of the science?
      Where do people agree and disagree?
      Where do we need more scientific research?
      If we do, what areas of technology do we need to 
do more research.
      I would like to know, what is the appropriate 
role of the Federal Government?

    I am sure these questions are just the tip of the iceberg, 
and I don't expect we will be able to answer all of them today, 
but we should start to get answers.
    We have tried to put together today a balanced hearing, 
representing all sides of this issue, and I think we have 
succeeded. Our first panel will discuss the state of the 
science. Both witnesses have been involved in the research at 
IPCC. Our second panel will include a mix of technology, 
science, and business experts. I look forward to their 
testimony.
    I notice that the ranking member of this committee, Senator 
Reid, is here. Under protocol, Senator, we'll call on you for 
the next statement.

  OPENING STATEMENT OF HON. HARRY REID, U.S. SENATOR FROM THE 
                        STATE OF NEVADA

    Senator Reid. Thank you very much. I appreciate very much 
your concern about this issue, and I am very happy that we are 
conducting this hearing.
    For every year that goes by without Congress or the 
President making a serious effort to reduce greenhouse gases, 
the odds increase that my grandchildren are going to inherit a 
warmer, more chaotic world. We hear a lot of talk about Senator 
Byrd's amendment on the Senate floor, but we can only hear from 
Senator Byrd himself, who just within the past week has stated 
in a meeting similar to the one in which we are now gathered 
that he had no intention of his amendment being grounds for 
wiping out the Kyoto Treaty. He thought his amendment would 
lead to some discussions, discussions that Third World 
countries should have more involvement. We could hear more from 
Senator Byrd, but I only want to say that his amendment and 
those who voted for it, it was certainly not an effort to--or 
at least the vast majority of those who voted for it--to 
somehow ``deep six'' that treaty.
    A recent study by scientists at MIT, the Massachusetts 
Institute of Technology, calculates there is a one-in-four 
chance that the world will warm between 5 and 7 degrees 
Fahrenheit in the next hundred years.
    I have this chart up just to take a brief look at it. Mr. 
Chairman, I am from a State that gambles; I don't gamble 
myself----
    [Laughter.]
    Senator Reid. [continuing] but I think this chart gives 
pretty good odds that we have a problem here in the world.
    I would hope that we are going to spend more time on this 
complicated subject than the committee has to date. This is the 
Environment Committee, and we have spent far too little time on 
this very important issue.
    I applaud the chairman for allowing this hearing to go 
forward. I appreciate very much, Senator Voinovich, your taking 
the time to chair this committee.
    We need to do more. This committee hasn't looked at this 
matter directly for more than 2 years. Can you imagine that? 
The Environment Committee of the Senate on an issue of this 
importance, we simply have ignored it for 2 years, and that is 
not good.
    Our committee has the responsibility and the jurisdiction 
to develop legislation that reduces manmade emissions that 
cause, or have the potential to cause, harm to the environment 
and public health. It is far past time for this committee to do 
its duty and produce some proposals, helping them work together 
to develop bipartisan legislation to reduce emission of 
greenhouse gases.
    Mr. Chairman, we are on the Senate floor now, and in the 
next couple of weeks we are going to talk about education, and 
we should; it's a very important issue. But I would hope that 
we can spend some time this year debating this issue and coming 
up with some concrete proposals. We may not be able to do 
everything that needs to be done, but, hopefully, we can do 
something.
    I understand some of my colleagues have been put in the 
difficult position by the President's decision to reverse his 
campaign promise on reductions of carbon dioxide from power 
plants. We don't need to beat a dead horse, but even his EPA 
Director gives a speech talking about the United States leading 
the charge in reducing carbon dioxide. Four days later her legs 
are literally cut out from under her, the President saying, no, 
we are not going to reduce carbon dioxide the way that she had 
talked about.
    It is time for leadership and progress. I would say 
President Bush is a good person. I know he means to do the 
right thing. I just think he is getting bad advice. I would 
like to see this committee help to be part of the advice that 
he gets. I would like this committee to be a laboratory of new 
bipartisan issues for cutting greenhouse gases. I have no doubt 
that the Administration is equally interested in such progress.
    There has been a lot of talk about voluntary versus 
mandatory requirements to reduce these gases. My colleagues 
know that the nation has a Senate-ratified commitment to reduce 
emissions to 1990 levels. That was to have been accomplished 
through voluntary measures. Unfortunately, we failed miserably 
using voluntary means. We are now about 13 percent above our 
target.
    So what we need is a comprehensive approach--excuse me, I 
have allergies. I hope it is not caused by the global warming, 
but it is bad.
    [Laughter.]
    So what we need is a comprehensive approach that achieves 
real net reductions by a time certain. I don't know any other 
way to get the ball rolling.
    Carbon dioxide and other greenhouse gas emissions must come 
down. The Senate has already made that policy decision. 
Scientists at the IPCC and elsewhere can help us help to 
determine which policy options are most useful and when they 
should be implemented. But it is time for opponents of that 
decision to work with us on real world reduction strategies. It 
is now our job to figure out how to accomplish that goal in the 
most effective and expeditious way. I am glad that we have some 
witnesses here on the second panel to tell us about policies we 
might adopt to move in the right direction.
    I would hope also that the Administration's energy policy 
plan, even though it doesn't sound as though it moves in the 
right direction for climate purposes or for protecting the 
environment, really will do that. We need a plan that reduces 
harmful emissions, not increases them. Press accounts 
describing the Administration's plan say it would simply result 
in burning more fossil fuels. That is really shortsighted and 
irresponsible and has little or no chance of getting wide 
bipartisan support. Emphasizing increased and efficient fossil 
fuel use when we know that carbon concentrations in the 
atmosphere are higher than they have been for some say 400,000 
years is a little bit like handing Nero a fiddle to play while 
Rome burns.
    I believe, Mr. Chairman, a strong and supportable energy 
plan would first emphasize renewable energy, energy efficiency, 
and conservation. Then, once all the economically viable energy 
is wrung out of these resources, we can turn to cleaner and 
safer uses of coal and other traditional fuels.
    Mr. Chairman, we had a hearing 1 day this week in another 
committee, one of the Appropriations subcommittees, and there 
it was determined that the States of South Dakota--I'm sorry it 
leaves me temporarily what the other state would be--could 
produce enough electricity by windmills to produce all the 
necessary energy that the whole United States would use. It was 
also determined there that the State of Nevada in a 100-square-
mile plot where the Nevada Test Site now stands could produce 
enough electricity by solar to power all the United States. Now 
we know that is not going to happen tomorrow, but I think we 
need to get on with having proper incentives to get that 
started. No one can disagree, I don't think, that we should 
continue burning fossil fuels the way we have. Geothermal, 
wind, and solar, we need to share these abundances that we have 
in States with lots of wind and lots of sun with the rest of 
the country.
    Finally, Mr. Chairman, I want to try to be constructive. I 
want results, but I am not interested in amending the Clean Air 
Act or any other environmental statutes as part of an energy 
plan that doesn't make tangible cuts in greenhouse gases.
    I would like unanimous consent to include in the hearing 
record a summary of a recent study showing that reducing carbon 
emissions can be done cost-effectively.
    Thank you for your patience.
    Senator Voinovich. Without objection, that will be part of 
the record.
    We are going to follow the ``early bird'' rule, and the 
next Senator I am going to call upon for a statement is Senator 
Wyden.

  OPENING STATEMENT OF HON. RON WYDEN, U.S. SENATOR FROM THE 
                        STATE OF OREGON

    Senator Wyden. Thank you, Mr. Chairman. I commend you for 
holding a very important hearing, and I also want to associate 
myself with the remarks of the distinguished Democratic Leader.
    Mr. Chairman and colleagues, very briefly, I want it 
understood that I believe there is no plausible scientific 
deniability about the human contribution to climate change. 
There has been one objective scientific report after another 
that has documented the fact. There is no plausible scientific 
deniability about the human contribution to climate changes. 
The challenge now, as our colleagues have talked about, is to 
work in a bipartisan way to deal with the problem. I think 
Chairman Voinovich put it pretty well; we should not spend our 
time in partisan bickering.
    Toward that end, Senator Larry Craig and I, a Republican 
who is a senior member on the Natural Resources Committee in 
Agriculture, he and I today are going to introduce a 
comprehensive bill to use trees as a key complement of our 
strategy to fight this problem. This is an approach that will 
bring together industry and the environmental community to 
address 25 percent of the problem. We are not going to deal 
with the entire problem using a tree that absorbs carbon 
dioxide from the atmosphere, but you can deal with a very 
significant portion of this problem under the approach that 
Senator Larry Craig and I will be introducing today.
    So I hope our colleagues on both sides of the aisle will 
join us on this legislation in creating a revolving loan fund 
for private landowners to plant trees and keep them to 
sequester carbon. It is easy to administer. It is 
scientifically sound.
    To give you an idea why something like this makes sense, it 
costs between $2 and $20 per ton to store carbon in trees. 
Alternative strategies can cost up to $100 per ton.
    I think the distinguished Democratic Governor has made a 
very fine statement. I concur in it entirely. I happen to agree 
with what Chairman Voinovich has said, that we ought to get 
away from partisan bickering.
    Folks, the scientific evidence is compelling here. Humans 
are contributing to this problem. Let us get on with forging a 
bipartisan approach to deal with it, one that makes sense, as 
Senator Smith said before he left, from the environmental 
standpoint and from the economic standpoint. Two Senators, 
Senator Craig and I, introduced legislation to try to advance 
that goal and look forward to working with our colleagues on a 
bipartisan basis.
    Senator Reid. How many trees do you have to plant?
    Senator Wyden. You have got to plant a significant number, 
Harry, but the point is that the savings relative to the 
alternative, $100 per ton compared to $2 and $20 per ton, are 
just staggering. There are approaches that could bring us 
together, that could allow me to go to Jim Inhofe and say, 
``Jim, Larry and I can work with you in a way that is going to 
make sense for industry and make sense from an environmental 
standpoint, deal with a quarter of the problem.'' Let's get on 
with it.
    I think that is why Chairman Voinovich said let's get 
beyond the partisan bickering, and I would say it is time.
    Senator Voinovich. Well, I would be interested in your 
legislation because one of the goals I had as Governor of Ohio 
was that I think we planted 11 million trees a year. Many of 
the States are involved and it would be interesting to see how 
that national program would fit in with the legislation that 
you have and maybe encourage the private sector to do a lot 
more than what they are now doing.
    Senator Chafee?

OPENING STATEMENT OF HON. LINCOLN CHAFEE, U.S. SENATOR FROM THE 
                     STATE OF RHODE ISLAND

    Senator Chafee. Thank you, Mr. Chairman. I also would like 
to thank you for calling this hearing, the first one in a 
number of years. Being new here, I am very interested in 
hearing the testimony. I know there is going to be a great deal 
of debate just within this semicircle as well as within the 
scientific community, and I look forward to that debate.
    My own common sense tells me that every once in a while 
when you read in the newspapers about somebody who pulls into 
the garage and falls asleep in their car, and the coroner the 
next day says they died of carbon monoxide poisoning, that we 
have to do something on this subject. Therefore, I was 
disappointed in the new Administration backing away from 
addressing carbon dioxide in a comprehensive, multi-pollutant 
approach.
    I also was disappointed that the new Administration is 
going to oppose the Kyoto agreement on global warming. This was 
not because I thought the Kyoto Protocol was a flawless 
document. The negotiations at Hague demonstrated that future 
work was necessary to reach a consensus on several aspects of 
that accord. But, instead, the Kyoto Protocol is a good 
framework for future negotiations on global climate policy. 
Without that foundation, the rest is tenuous. I do think it is 
incumbent on the United States to be a leader on this subject.
    So I do look forward to working with my colleagues and also 
to hearing from the scientists. Six of the seven of the 
panelists are doctors and other leaders in industry, and I look 
forward to hearing their testimony.
    Thank you, Mr. Chairman.
    [The prepared statement of Senator Chafee follows:]
Statement of Hon. Lincoln Chafee, U.S. Senator from the State of Rhode 
                                 Island
    I would like to welcome our witnesses and to thank Chairman Smith, 
subcommittee Chairman Voinovich, and Senators Reid and Lieberman for 
holding today's full committee hearing on the important and critical 
issue of global climate change.
    The science supports the notion that human activities are 
disrupting the balance of carbon dioxide, methane and other greenhouse 
gases in the atmosphere, resulting in global climate alterations. A 
recent Intergovernmental Panel of Climate Change (IPCC) report 
estimates that the earth may warm anywhere between 2.5 to 10.4 degrees 
Fahrenheit over the next century. The world's leading atmospheric 
scientists are telling us that global warming is already occurring and 
the hottest 10 years on record have all occurred since 1980, with 1998 
recorded as the hottest year ever.
    Two decisions by the new Administration have spurred intense 
discussion in recent weeks: to back away from addressing carbon dioxide 
in a comprehensive multi-pollutant approach; and second, to oppose the 
Kyoto agreement on global warming. Like many of my colleagues, I was 
disappointed with these decisions. This was not because I thought the 
Kyoto Protocol was a flawless document--the negotiations at the Hague 
illustrated that future work was necessary to reach a consensus on 
several aspects of Kyoto accord. Instead, the Kyoto Protocol is a good 
framework for future negotiations on global climate policy. Without the 
foundation, the rest is tenuous.
    I am interested in learning from our witnesses today where the 
scientific consensus lies on climate change; what effects humans may 
have on the change and how quickly it may occur; and what options may 
exist for stabilizing greenhouse gases in the atmosphere.
    I look forward to working with my colleagues on the Committee and 
in the Senate as we review the science and determine the best course of 
action for addressing greenhouse gas emissions and global climate 
change.
    Senator Voinovich. Thank you, Senator.
    Senator Corzine?

OPENING STATEMENT OF HON. JON S. CORZINE, U.S. SENATOR FROM THE 
                      STATE OF NEW JERSEY

    Senator Corzine. Thank you, Mr. Chairman. I join my other 
colleagues in complimenting you on having this hearing because 
this is one of those issues, at least among the community that 
I represent, people are most concerned about.
    It really is as far-reaching an issue that we face today I 
think as a nation and as a globe. It is complex. We have made 
progress. There are good ideas that come in a bipartisan way, 
but we need to deal with the science, economics, and I think 
the politics of moving forward on this agenda. The pollutants 
bill was something that I was disappointed to see we were 
subtracting pieces from. Inattention and inaction I don't think 
is tolerable or consistent with the science, and the health and 
viability of our global ecosystems are too vital for us to talk 
indefinitely. I think we need to move forward.
    I will leave the rest of my statement, with your approval, 
for unanimous consent and submit it. But I think this is 
terrific that we are having this and I hope we do that to the 
fullest possible extent, so that we have a real understanding 
of the issues as we approach deriving solutions and putting 
them on the table for folks in general.
    Thank you.
    Senator Voinovich. Thank you.
    Senator Inhofe?

 OPENING STATEMENT OF HON. JAMES M. INHOFE, U.S. SENATOR FROM 
                     THE STATE OF OKLAHOMA

    Senator Inhofe. Thank you, Mr. Chairman. When you were 
talking about some of the Time magazine articles and the 
hysterias of the past, I was reminded that many years ago when 
I was in high school, they were saying that because of the 
changes in water levels and climate changes that within 50 
years, which would have been the year 2000, the entire State of 
California would have slid into the Pacific Ocean, which would 
have solved some of the problems, of course, that they are 
facing today.
    [Laughter.]
    In the last few weeks there has been a lot of negative 
press about President Bush's carbon and Kyoto decisions, but 
with the allegations of politicized science, a looming 
recession, and a national energy crisis, I think that President 
Bush did the right thing.
    There are three issues that I want to address today, and I 
have scratched off some of this, Mr. Chairman, because it would 
be redundant of some of the things that you have said, but 
there are a couple of things I am going to say in a different 
way.
    First of all, the science and politics of the United 
Nations' Intergovernmental Panel on Climate Change, IPCC, keep 
in mind, as you pointed out, that it is the United Nations. 
Second, the science and politics of U.S. National Assessment, 
and, third, the need for more research in a number of areas.
    As for the IPCC report, I am very interested in hearing 
about allegations that--and I will list about five of them 
here: A portion of the UN's process, the 18-page summary for 
policymakers, misleads readers and even distorts the underlying 
scientific conclusions. Second, the scientists did not write 
this document. Third, allegations that--perhaps the most 
disturbing--this summary was subsequently and materially 
altered. Fourth, the IPCC summary is designed to reflect policy 
decisions rather than the underlying science. Last, one of the 
most prominent scientists involved, a lead author, and many 
other scientists do not agree with or approve of the 
conclusions with which their names are associated. Now these 
are very serious charges, and if true, the IPCC report should 
not be the basis of any policymakers' actions, other than 
possibly investigate and formally object to such actions.
    Second, regardless of the IPCC process, the U.S. First 
National Assessment of Climate Change must be based on sound 
and objective science, based on the weight of the evidence, so 
that this assessment can be used to develop our nation's 
domestic and international strategies on climate change. It is 
an analysis of the effects of global climate change on the 
environment, agriculture, water, health, society, biological 
diversity, and on and on. The report is being prepared by the 
U.S. Global Change Research Program, a group that includes 
representatives from different Federal agencies. The total 
amount of taxpayer spending dedicated to detour assessment-
related activities nears an estimated $10 billion, and it would 
be $1.4 billion for the year 2000.
    In fact, Representatives Knollenberg and Emerson and I so 
strongly believed that it was so important that this assessment 
be an objective and sound work that we joined a suit against 
the National Assessment through the VEGA-chartered committee 
charges that the process, No. 1, violated the United States 
Global Change Research Act of 1990 by producing a report 
lacking certain specific issues, areas covered. Second, that 
same organization was in violation for producing a report 
including several issue areas not requested by Congress or by 
the statute, but by political appointee in the White House. 
Third, that same organization ignored the Emerson amendment to 
the relevant Fiscal Year 2000 House-passed appropriations bill 
acceded to in Public Law 106-74 requiring the underlying 
science be performed prior to producing a report reportedly 
based on those conclusions.
    If we are going to develop effective policies to deal with 
the issues surrounding climate change, the IPCC and the 
National Assessment must be of the highest integrity. There has 
never been a more compelling case to have a policy decision 
based on the objective weight of scientific evidence.
    Last December the Department of Energy's Energy Information 
Administration released a study on regulating CO2 
emissions from utilities. The study concluded that the 
mandatory regulation of CO2 from utilities will cost 
between $60 and $115 billion per year by the year 2005. The 
mandatory regulation of CO2 would make the price and 
availability of energy a national crisis at a scale our nation 
has never before experienced.
    Well-thought-out, reflecting-consensus environmental 
regulations can certainly provide benefits to the American 
people, but as regulatory experts Wendy Gramm and Susan Dudley 
of the George Mason University's Mercatus Center recently wrote 
in an article in the Atlantic Journal, ``When regulations are 
rushed into effect without adequate thought, they are likely to 
do more harm than good.''
    If you do not do it in the extreme way that so many of the 
environmentalist groups want--and we see all the commercials 
detailing horror stories, while the energy crisis which would 
be caused by developing policies based on the IPCC report or 
the National Assessment so far would be a real live horror 
story. Let's not forget, when the price of energy rises, that 
means the less fortunate in our society must make the decision 
between keeping the heat and the lights on or paying for other 
essential needs. There is a real human cost to implementing 
policies based on political science rather than sound science.
    Last, No. 3, regardless of the state of the science right 
now, I do fully support public and private research into 
climatic change science, energy efficiency, and alternative 
energy sources. Senator Reid talked about the potential of 
solar and wind energy. That would be great if we could get to 
that point, and I would very much support that. By doing these 
things, we will put our nation and the planet in a position to 
address carbon in our atmosphere, should the science 1 day show 
a need to do so.
    Thank you, Mr. Chairman.
    Senator Voinovich. Thank you.
    Senator Clinton?

OPENING STATEMENT OF HON. HILLARY RODHAM CLINTON, U.S. SENATOR 
                   FROM THE STATE OF NEW YORK

    Senator Clinton. Thank you, Mr. Chairman. Obviously, this 
is an important hearing and there are differing points of view 
to be considered and reconciled. So I thank you for bringing us 
here together.
    Obviously, this is a hot topic, literally and 
metaphorically, for all of us. I think it is indisputable that 
global warming and the impact of human activity on our 
environment is certainly one of the most pressing problems 
facing us, and as decisionmakers, we are going to have to 
confront what it means.
    I have a very simple approach to it, and that is, if we 
look at statistics that are gathered from many different 
sources, it is apparent to me that a lot of the difficulties 
that we are confronting because of rising temperatures are 
likely to get worse. Today, for example, is the Fourth Annual 
Asthma Awareness Day here on Capital Hill, hosted by the Asthma 
and Allergy Network and Mothers of Asthmatics. I am proud to be 
an honorary co-chair along with a number of my colleagues here, 
including Senators Voinovich, Inhofe, and Corzine.
    We know from any mother's perspective that increased 
temperatures actually worsen conditions for asthma sufferers. 
Pediatric asthma rates are reaching epidemic proportions in New 
York and other places in the country, and that is just one 
element of the kind of challenge that we are facing which has a 
relationship to what the temperature is and how we deal with 
the challenges that are posed by rising temperatures.
    We know that air quality is still a very big difficulty in 
many parts of New York and other parts of the country. I am 
certainly devoted to cleaning up the air, as many of us are, of 
dealing with the pollutants that we know are in the atmosphere 
and causing damage. But I don't think there can be any doubt 
that there is a link between increasing temperatures and 
increasing smog in cities like New York and many other places, 
and that that increased smog can exacerbate respiratory 
diseases.
    Now how are we going to judge the sound science? Obviously, 
we are going to listen to researchers and scientists. I agree 
with Senator Wyden that, at least as I review the evidence, the 
debate is over. It is just a question of what we are going to 
do in order to address rising temperatures and their impacts.
    Another cost that we are paying, in addition to asthma and 
respiratory disease, and the hospitalization that is often 
accompanied with pediatric asthma, is the seeming increase in 
severe weather events. According to rough estimates from FEMA, 
the Federal Energy Management Agency, disaster relief for 
severe storms and flood-related events is increasing. Now some 
could say you shouldn't build on the side of a river, but when 
you have 100-year floods happening twice in 5 years, it might 
raise some serious issues as to what exactly is going on.
    We are facing this issue today in part because we haven't 
been willing to really work as hard as we need to in order to 
come up with some solutions. I was disappointed, like many 
others, when the Administration reversed itself and the 
President's campaign promise on CO2 and declared the 
Kyoto Protocol dead. Now I have been pleased, however, that 
since that declaration of death, there does seem to be an 
effort to breathe some clean air into the life of that corpse 
in the White House and that they are actively working on the 
issue and attempting to come up with some response, because the 
United States must be a leader in addressing global warming.
    We know that we are the largest producer of manmade carbon 
dioxide. I am worried greatly that the Administration's energy 
proposals will worsen an already very difficult situation. I 
look at the proposed budget, and I think everyone around this 
table would agree we do need to invest more in renewables; we 
do need to do the research to find out whether those wind farms 
that Senator Reid talked about would be viable. They seem to 
be. I have talked to a number of utility executives who are 
beginning to invest in them, but the President's budget has 
rather significant cutbacks in renewable energy, energy 
efficiency and conservation, in the Partnership for a New 
Generation of Vehicles.
    There is a lot of things we could be doing right now, but 
nobody wants to take the political risk of increasing the 
amount of mileage required from some of our vehicles, trying to 
work out an incentive program for utilities to even do more to 
cut emissions. I think this is one of those issues that people 
will look back on and say, What were they thinking of? Were we 
so selfish, so self-centered about our needs that we did not 
work out the best possible realistic solution to what was a 
looming environmental and energy crisis? I don't think that we 
really can withstand that kind of scrutiny either now or in the 
future.
    That is why I am pleased to be part of an effort that must 
be bipartisan, where the Administration not only has to work 
with Congress, but with people of good faith around the world. 
We can't let the perfect be the enemy of the good. We say that 
a lot in this committee.
    There were certainly problems with Kyoto, and if they can 
be fixed, if we can come up with a set of standards that 
actually do move us forward, then we should, but let's not 
forget that, in the wake of Rio, we adopted voluntary 
standards, and we're worse off today than we were then.
    So I think that, just as previous generations came up with 
the law of the seas and came up with treaties to deal with 
Antarctica and made some other rather significant steps forward 
in international cooperation, we ought to be looking to do the 
same here. So I am very grateful that the chairman would hold 
this important hearing. I look forward to working with my 
colleagues on addressing these very important issues.
    Senator Voinovich. Thank you very much.
    We are very fortunate today to have two distinguished 
witnesses, Dr. Richard S. Lindzen and Dr. Kevin E. Trenberth. 
Please come to the table.
    As you are probably familiar, the rules of the committee 
are that the statement that you make, your opening statement, 
should not exceed 5 minutes. I think you are familiar with the 
light system. The reason for that, to limit the opening 
statements, is to give the committee an opportunity to ask 
questions of you. Hopefully, if there are some things that you 
didn't get out in your opening statement, you can get them out 
when you respond to the questions being asked by members of the 
committee.
    Our first witness is Dr. Richard S. Lindzen. He is the 
Alfred P. Sloane Professor of Meteorology at the Massachusetts 
Institute of Technology. Dr. Lindzen.

STATEMENT OF RICHARD S. LINDZEN, ALFRED P. SLOANE PROFESSOR OF 
       METEOROLOGY, MASSACHUSETTS INSTITUTE OF TECHNOLOGY

    Dr. Lindzen. Thank you, Senator Voinovich, for the 
opportunity to appear before you. Holding to 5 minutes, I will 
refer you to my written testimony for some details.
    As concerns the science of this issue, despite the 
statements of some Senators today, I think the public 
presentation of the issue of global warming over the past 12 
years has, by the very nature of the presentation, forced 
confusion and irrationality to dominate the discussion. On the 
one hand, the issue is presented as a complex, multifaceted 
problem involving atmospheric composition, heat transfer, 
weather, temperature, ocean dynamics, hydrology, sea level, 
glaciology, ecology, and even epidemiology--all topics that are 
individually filled with uncertainty. On the other hand, we are 
assured the science is settled.
    What exactly is this settled science? That is rarely 
explained. I think in some ways Senator Smith came as close as 
anything I have heard this morning. Then instead of explaining 
it, the usual procedure is to claim it is supported by 
thousands of outstanding scientists involved in the UN's IPCC 
procedure. That, too, has to be considered in some detail.
    Finally, it is presumed whatever it is that is settled 
implies a wide array of catastrophe scenarios endangering the 
very existence of future generations.
    Finally, solutions like those envisioned in the Kyoto 
Protocol are proposed without making it clear, although it is 
widely agreed, that adherence to the Kyoto agreement would have 
almost no impact on climate. Now to question such a situation 
is to be marginalized as a skeptic while no degree of 
counterfactual exaggeration is held to be out of the 
mainstream.
    The detailed testimony points out that there are numerous 
facts that are universally agreed upon in the field that are 
not--universal, at least widespread agreement--are not 
supportive of catastrophic scenarios. Also, there is pretty 
good agreement that the large computer models of the climate, 
which are the basis not only of the scenario predictions, but 
also of the chart that was shown from MIT, are broadly 
unsuccessful and unreliable. Again, I will go into some details 
on that.
    However, the problem we have since the Rio agreement is, as 
a nation, we have signed onto the precautionary principle. That 
really takes the scientific pressure off of models to be 
correct. What we basically require now or claim is that the 
models represent things that are possible; that is, they cannot 
be disproven. This is a very difficult situation in order to 
consider acting upon them. This does not define what 
``possible'' means and generally puts us in the awkward 
situation of having to act on anything anyone wishes.
    The IPCC does deserve some consideration, if not 
necessarily to criticize it severely, at least understand what 
the procedures mean. The procedures are in many ways extremely 
opaque, and certainly the claim of support by thousands of 
outstanding scientists is more a mantra than a reasonable 
statement.
    That this can lead to policies that are detrimental to the 
economy and even to the environment has often been noted, but 
less frequently has it been noted, but perhaps more important, 
given my provincial outlook, is the fact that the present 
situation is also detrimental to science and its ability to 
soundly answer important questions to the benefit of society.
    I would maintain that we have, to a very large extent, 
built into our scientific process a predilection for alarmism. 
There is no easier way to justify science than alarmism. The 
very fact that meetings such as this do in general endorse more 
research will convince the scientists that the way to get more 
support for research is to promote alarmism. I think one of the 
main things we can do is figure out how to support science 
without causing it to have this bias.
    Thank you.
    Senator Voinovich. Thank you.
    Dr. Trenberth, who is the Head of the Climate Analysis 
Section, Climate and Global Dynamics Division, National Center 
for Atmospheric Research. Thank you for being here.

    STATEMENT OF KEVIN E. TRENBERTH, HEAD, CLIMATE ANALYSIS 
SECTION, CLIMATE AND GLOBAL DYNAMICS DIVISION, NATIONAL CENTER 
                    FOR ATMOSPHERIC RESEARCH

    Dr. Trenberth. Thank you, Mr. Chairman.
    I am also lead author of the Intergovernmental Panel on 
Climate Change; in fact, on the same chapter as Dr. Lindzen. 
However, I was also involved in writing the technical summary 
and the draft of the policymakers' summary, the summary for 
policymakers. I am happy to answer any questions about that 
procedure.
    I would just emphasize that the IPCC process is a very open 
process. There are two major reviews, and people from all parts 
of the political spectrum do take part. The objective of the 
IPCC is to produce the best statement, along with the 
uncertainty, that can be made relevant to policy.
    The conclusion from the IPCC in the latest round was that 
there is new and stronger evidence that most of the warming 
observed over the last 50 years is attributable to human 
activities. What I thought I would do now is just quickly run 
through some of the main points of the findings--the scientific 
findings.
    As Senator Smith noted earlier, there are some certainties. 
The greenhouse gases are increasing in the atmosphere and these 
are from human activities, especially the burning of fossil 
fuels. They have long lifetimes. Carbon dioxide has a lifetime 
of over a century. Therefore, they accumulate in the 
atmosphere. So even with constant emissions, concentrations in 
the atmosphere still increase. Carbon dioxide has increased 
more than 30 percent in the last 200 years, most of that since 
World War II, and also the other greenhouse gases are 
increasing. These are greenhouse gases. They produce global 
warming--that is, global heating.
    First, some of that heating increases temperature, and we 
know that temperatures have increased about 1.2 degrees 
Fahrenheit in the last 100 years, .7 degrees in the last 30 
years. That is a more confident number. The year 1998 is the 
warmest year and the 1990's is the warmest decade, and we 
believe that is true in the last thousand years, based upon 
paleoclimatic evidence.
    There is a lot of other evidence to support the reality of 
this warming. Glaciers are melting around the world. Sea level 
is rising. Arctic ice is thinning and also retreating, 
especially in summertime. The temperatures in the ocean clearly 
show that the oceans are warming, and snow cover is decreasing 
in general.
    There are changes in the atmospheric circulation which 
complicate matters. This relates to weather events, and in this 
past winter, temperatures were well below average, in fact, 
across much of the lower 48 States, but there were record high 
temperatures in Alaska, 9 degrees Fahrenheit above normal. 
Similarly, it was very warm throughout Europe.
    So this kind of structure to the variability from year to 
year sometimes complicates perceptions as to what is happening. 
Global warming doesn't mean it warms everywhere and in a steady 
fashion.
    Over the United States, in particular, it has become 
wetter. We now understand that this is because of the general 
warming of the tropical oceans, and the wetness of the United 
States means that that moderates the temperatures in fact. We 
also know that more of this rainfall, this wetness, comes from 
very heavy events. So there is an increased risk of flooding as 
a consequence.
    Now another consequence of global warming, the heating of 
the planet, is that there is more drying at the surface. In 
fact, most of the heat goes into evaporating surface moisture 
along as there is moisture around. If there is not, then things 
dry out, we get droughts, and we get heat waves.
    A consequence of the increased drying is that there is more 
moisture in the atmosphere, and there are good observations to 
show that the humidity in the atmosphere has increased by over 
10 percent over the United States in the last 20 years or so. 
That humidity, that increased moisture in the atmosphere, 
provides fuel for all of the weather systems. Consequently, it 
rains harder when it does rain and it even snows harder. As a 
result, there is an increased risk of flooding, and we are 
seeing examples of that right now.
    Computer models that we use for attributing the causes of 
the climate change, and also for making future projections, 
have a number of uncertainties. First, there are uncertainties 
as to what the projections of carbon dioxide and so on would be 
in the future. So, instead of making predictions of those, 
there are various projections or scenarios that are put 
forward, and they are used for planning purposes, but they 
should not be confused with true predictions of what is going 
to happen.
    There are better estimates of natural variability from 
climate models and also from past climate records, and they 
indicate fairly clearly now that the global mean temperatures 
are outside the realm of natural variability and have been 
since about 1980 or so. So we can account for a lot of the 
structure of the global mean temperature changes.
    However, global mean temperatures are more like the canary 
in the coal mine. They are really an indicator of what is going 
on. They are not the most important thing. The other changes, 
in precipitation--for instance, I think water resources--are 
probably a much bigger issue for society.
    The best estimates in the future are that the global mean 
temperature will increase about 3 to 6 degrees Fahrenheit over 
the next 100 years or so, and other numbers have been put 
forward. Some extreme numbers I don't think are very viable. 
They have often appeared in news reports, but I think some of 
the reporting of the IPCC results is misleading in that regard.
    Let me just close by saying that, while our models are 
imperfect, to assume that the climate is not changing--which 
Senator Smith was referring to--that also uses a model which we 
are certain is wrong. Thank you.
    Senator Voinovich. Thank you.
    I would like to welcome Senator Warner. Senator Warner, 
before we ask the witnesses questions, would you like to make 
an opening statement?
    Senator Warner. No, Mr. Chairman. Thank you very much.
    Senator Voinovich. Thank you, Senator Warner.
    Dr. Lindzen, you had an opportunity to hear Dr. Trenberth's 
statement in regard to the various conclusions that have been 
made in terms of increase in warming because of fossil fuels, 
the 30 percent more in greenhouse gases, and so forth, 
glaciers, sea levels--frightening stuff. The question I have 
is, Do you agree with the information that has just been 
presented before this committee by Dr. Trenberth?
    Dr. Lindzen. It is hard to know because, analyzed 
carefully, I am not altogether sure what he was relating to 
what. I think, for example, the statement that increasing 
carbon dioxide is occurring there is universal agreement on. I 
think the statement that increasing carbon dioxide and other 
greenhouse gases, we should realize they have already amounted 
to half the increase we expect by a doubling of CO2, 
will more likely cause warming, increase in temperatures, than 
decrease. I don't think there is any question, moreover, that 
man, like the butterfly, has an impact on climate.
    What I think is important to realize is those statements 
have no policy implications because, if they are not 
quantified, if they are not significant, they could just as 
well be compatible with a negligible impact from CO2 
as a serious impact. So when one draws upon universal 
agreement, one had better be aware that one is also drawing 
upon triviality.
    The questions then boil down to more serious ones of 
quantification. Kevin mentioned storminess, but he does not 
mention that the main source of energy for extra tropical 
storms is the equator-to-pole temperature difference, and that 
is predicted to decrease in a warmer world. So we only hear one 
side rather than the other on that.
    He speaks about glaciers retreating, but he doesn't mention 
that there are quite a few glaciers retreating in regions where 
the temperature is decreasing rather than increasing, and that, 
in fact, over Scandinavia the glaciers are advancing again, and 
there has been very little movement any place since around 
1970.
    In speaking about increased rain over the United States, 
this amounts to a few percent, and Tommy Karl presented that, 
but I know of no hydrologist who thinks we can measure that. So 
I am not sure how he did it.
    As far as ice thinning over the Arctic, that was a report a 
couple of years ago, but a report came out only a few weeks ago 
in Geophysical Research Letters that pointed out the errors in 
that.
    Kevin mentioned the thousand-year record, but Wally 
Broerker just came out with an article in Science pointing out 
that the methodology of that measurement, which just uses a 
handful of tree rings to give you accuracy, claimed accuracy of 
a couple of tenths of degree, is inappropriate.
    So there is an evolving area of science. The science where 
there is agreement and where one speaks of things being settled 
is not policy-relevant. The policy-relevant parts are highly 
uncertain and often suggestive of much less impact.
    On top of that we have--back to the issue of Kyoto, and 
that is, if you adhere to Kyoto and you expected, let's say, 6 
degrees global warming, Kyoto would knock it down to 5.5. If 
the Third World participated, it would knock it down to maybe 
4, 3.5. There is nothing Kyoto would do that would change the 
fact that, if you really expect a global warming, you would 
still have it.
    Finally, as far as models go, just to give you a 
perspective, they are so far incapable of predicting or dealing 
with or replicating ice ages, warm climates of the past, and so 
climate dynamics is very poorly handled. There are all sorts of 
sources of natural variability, and that means internal, 
nothing forced, that they can't handle. Yet, all the statements 
you have heard about man's demonstrated role assume that models 
correctly produce internal variability.
    Senator Voinovich. Thank you.
    Senator Reid?
    Senator Reid. Dr. Lindzen, I know you are a scientist, and 
I am sure you have all kinds of scientific degrees, but common 
sense to me dictates that all this stuff going into the air 
which can be quantified over all the many years it has isn't 
good for the environment. Would you agree with that? If I see 
all this stuff going into the air, including fossil fuels----
    Dr. Lindzen. It is certainly true of many things, although 
I would say that Senator Chafee's relating CO to CO2 
is indicative. Remember CO2 per se is odorless, 
invisible, nontoxic, essential to life, and a product of 
breathing. So to refer to that in the same sentence as carbon 
monoxide, which is poisonous, or soot, which is adversely 
impacting health in obvious ways, I think confuses the issue. 
It doesn't help it.
    Senator Reid. Well, but, Doctor, what I want you to do, 
rather than try to belittle we Members of the Senate, I think 
what you should do is answer my question. That is, all this 
black stuff belching into the air from diesel fuel, power 
plants, automobiles, is that good for the environment?
    Dr. Lindzen. Of course not.
    Senator Reid. OK, then, let's take the next point. The next 
point would be, what we are trying to do here, rather than 
determine exactly whether a model is right and whether they can 
replicate the Ice Age, what we want to do--I am speaking for 
myself--what I want to do is figure out a way to cut down the 
use of fossil fuel, for a couple of reasons. One is I 
personally believe, although I am not a scientist, that it is 
not good for my grandchildren. No. 2, I think anything we can 
do here in the United States to cut down the use of fossil fuel 
is good for our economy, because if we can stop importing so 
much of this foreign oil, it would be better for us in so many 
ways. Would you agree with that?
    Dr. Lindzen. I am in no position as a scientist to offer 
any expert agreement or disagreement on those matters.
    Senator Reid. Well, you would agree as a scientist that we 
would be better off producing electricity with wind or solar or 
geothermal than we would be by burning fossil fuel. You would 
agree with that?
    Dr. Lindzen. Not at all.
    Senator Reid. Tell me why.
    Dr. Lindzen. Well, because I haven't studied them. I know 
that wind-generated electricity has its problems.
    Senator Reid. Tell me what problems.
    Dr. Lindzen. Well, bad for birds, among other things. It 
also is very space-intensive. It also has the problem that I 
speak about without expertise that, when you have large-scale 
wind generation plants, you will impact the wind itself. The 
wind doesn't exist independently of the devices, and you could 
very well end up with a wind farm, if it is too large, that 
kills its own wind. That is a bit wasteful of both terrain, 
land, and economic resources.
    As far as panels go, it is again a space issue, an 
environmental usage issue, as to whether Nevada wants large 
parts of Nevada used to be covered by panels. These things, as 
you say, can be assessed, but to ask somebody to agree that 
this is better, I mean that doesn't make sense to me. Maybe it 
does to you.
    It seems to me that with fossil fuels we have available 
from Australia and elsewhere new forms of coal that are almost 
chemically indistinguishable from hydrocarbons. Whether those 
have advantages or not I don't know. There are clean coal 
technologies. I am no expert on them, but they have to be 
assessed as well.
    Senator Reid. Tell me what you are an expert in.
    Dr. Lindzen. Climate dynamics, the physics of climate.
    Senator Reid. I see. I guess the problem I am having is 
that, for example, Dr. Trenberth stated that the assumption 
that warming is not happening also relies on models. Would you 
tell me what uncertainty is related with those models that he 
talks about?
    Dr. Lindzen. First, I think you have to distinguish warming 
meaning a change in temperature and warming meaning man's 
causing it. There is very little question that warming is going 
on. There is very little question that it is very hard to know 
how to attribute it.
    When he says that models are also responsible for the 
possibility that man's activities may not cause much warming, 
this is a statement that you have at least conceptual models 
that the feedbacks may not be as positive as they are in 
existing models.
    He showed us that carbon dioxide alone, if it increased, 
doubled, would not cause more than about 2 degrees Fahrenheit 
warming, and that is not a huge amount. The claims that it 
would cause much more are due to the fact that most existing 
models amplify what carbon dioxide does by having clouds and 
water vapor come in and make Nature worse.
    Senator Reid. Dr. Trenberth, would you respond to that?
    Dr. Trenberth. There are uncertainties in models, indeed, 
but the models are good enough, we believe, to be able to 
attribute the climate change to why it is happening now. The 
real problem is that the models are probably not good enough to 
make really reliable predictions in the future. In that sense, 
there is a lot of work to be done.
    Professor Lindzen is correct that the warming from carbon 
dioxide alone, when you double the amount of carbon dioxide in 
the atmosphere, would be around, I would say, 2.5 degrees 
Fahrenheit, but the best estimate overall is that about 5 
degrees Fahrenheit would be the overall warming that would 
occur. A lot of that comes from the fact that a lot of the heat 
goes into evaporating moisture, putting more water vapor in the 
atmosphere, and water vapor is a powerful greenhouse gas and 
that provides a positive feedback.
    Senator Reid. One final thing. I know my time is gone, Mr. 
Chairman. Both of you have done a lot of work in this field, 
that's true. I would like to know from what funding sources 
that you have received your money for these studies. Would you 
both do that and make it part of the record?
    Dr. Trenberth. For myself, and many of my colleagues, in 
fact, my main line of research is not on climate change. I am 
more an expert originally on El Nino. I find that when we look 
at El Nino, there are changes going on and we run headlong into 
the fact that the climate is changing.
    My institution is supported by the National Science 
Foundation and I have grants with NASA and NOAA.
    Senator Reid. Dr. Lindzen?
    Dr. Lindzen. My funding is also from DOE, NASA, NSF.
    Senator Reid. Thank you very much. Thanks, Mr. Chairman, 
for your patience.
    Senator Voinovich. Thank you.
    Senator Reid. I would say also that Senator Lieberman, who 
is the ranking member of the subcommittee, is on his way. He 
will, along with Senators Corzine and Clinton, who are members 
of the subcommittee, will be here. I have to go to the Capitol. 
Excuse me.
    Senator Voinovich. Thank you.
    Senator Chafee?
    Senator Chafee. Dr. Trenberth, welcome. You said in your 
opening statement that in the 2001 plenary the IPCC carefully 
crafted the following: ``In the light of new evidence, and 
taking into account the remaining uncertainties, most of the 
observed warming of the last 50 years is likely to have been 
due to the increase in greenhouse gas concentrations.'' Could 
you just expand on that and your reaction to the relative 
strength or weakness of that finding?
    Dr. Trenberth. Perhaps it is worth commenting briefly on 
the procedures in the IPCC. The scientists are primarily 
involved in writing the overall document and the technical 
summary. For the policymakers' summary, a draft is put forward 
by the scientists, and I was involved in that, but then it goes 
through an intergovernmental meeting where each word and line 
is approved and actually modified in an intergovernmental 
process.
    The way that is supposed to work is that the politicians 
take for themselves how to say things and the scientists defend 
actually what can be said. There were 42 scientists at that 
meeting that were defending what could be said. But there was a 
lot of negotiation over that particular wording, and that 
wording was actually crafted at the meeting itself. It was a 
compromise between a lot of different positions that were being 
put forward at the meeting.
    Dr. Lindzen. Could I mention in my testimony I do have the 
wording in the draft submitted by the scientists and the 
wording that emerged, if you wanted to look at the two.
    Senator Chafee. Very good. Thank you.
    I still have some time. I would like to ask Dr. Lindzen to 
just elaborate on how man and the butterfly impact on climate, 
in particular.
    Dr. Lindzen. This is the nature of a chaotic system. There 
is a distinguished professor at MIT, Ed Lorenz, who asked, if 
you have a system that is unpredictable, as in many respects 
our weather is, would the fluttering of a butterfly lead to a 
different evolving path for the weather? And the answer was, 
yes, it could eventually. It might be negligible. It might be 
rare. It might be very difficult to specify. But it became a 
popular theme for people studying chaos to muse on. I was 
simply saying, if people can muse on the impact of the 
fluttering of a butterfly's wings, then, of course, man has an 
impact; we're klutzier than a butterfly.
    Senator Chafee. Thank you, Mr. Chairman.
    Senator Voinovich. Senator Inhofe?
    Senator Inhofe. Thank you, Mr. Chairman.
    Getting back to this process, for both of you, I would like 
to kind of pursue that a little bit. If one of you wrote a 
scientific report, which you do with regularity, and there is a 
process by which both the House and the Senate and the 
bureaucracy would come together to negotiate what your work 
actually said, do you really believe that the final 
congressional summary of the report would accurately reflect 
the science and the research? Dr. Trenberth?
    Dr. Trenberth. Well, my response to what came out of the 
Shanghai meeting in this particular case was that, first, the 
report actually roughly doubled in length. I certainly 
preferred the original draft. There is a tendency for some 
sectors of the United Nations to want to have certain things 
mentioned, such as the Asian monsoon or in Africa. Statements 
were carefully inserted. This can change the balance of the 
document a little bit, but the statements that are in there are 
actually accurate.
    The heaviest lobbying that went on in Shanghai was actually 
from Saudi Arabia, who was clearly trying to water down and 
undermine the whole process, I would say.
    Senator Inhofe. Dr. Lindzen, you said a minute ago, in 
response to one of the questions that was asked by Senator 
Chafee, that in your opening statement, a part you didn't get 
to in your summary, you had some examples of what was said, of 
statements that were the scientific statements as opposed to 
the political statements. Would you give an example or two?
    Dr. Lindzen. Well, let me first give an example of what 
Kevin mentioned as an alteration. In the original draft, the 
statement about man's responsibility read, ``From the body of 
evidence since the second assessment, we conclude that there 
has been a discernible human influence on global climate.'' I 
would mention ``discernible'' doesn't tell you anything, 
because if it is below a certain value, it means we have no 
problem.
    Studies are beginning to separate the contributions to 
observe climate change attributable to individual external 
issuances, both anthropogenic and natural. This work suggests 
that anthropogenic greenhouse gases are a substantial 
contributor to the observed warming, especially over the past 
30 years, going back to that. However, the accuracy of these 
estimates continues to be limited by uncertainties in estimates 
of internal variability, natural and anthropogenic forces, and 
the climate response to external forces.
    I think, by and large, that is a good statement. It was 
changed to, ``In the light of new evidence, and taking into 
account the remaining uncertainties, most of the observed 
warming over the last 50 years is likely to have been due to an 
increase in greenhouse gas concentrations.'' There is a 
profound difference between these statements, but it was 
intended.
    The same thing, the chapter Kevin and I worked on on 
physical processes pointed out many difficulties with models 
that were crucial to their prediction of significant warming, 
whether they were peripheral--concerning clouds; there were 
arguments about water vapor. There are all sorts of things in 
there.
    The summary statement was, ``Understanding of climate 
processes and their incorporation in climate models have been 
proved, including water vapor, sea ice dynamics, and ocean 
detransport.'' Not a clue that there were questions.
    Senator Inhofe. That is a very good answer, and I don't 
want you to repeat any other examples, but in your written 
statement are there other examples? A few?
    Dr. Lindzen. Yes.
    Senator Inhofe. All right. There is a statement that you 
had made, Dr. Lindzen, quoted here. ``If we view Kyoto as an 
insurance policy, it is a policy where the premium appears to 
exceed the potential damages and where the coverage extends to 
only a small fraction of the potential damages.'' Would you 
like to elaborate on that?
    Dr. Lindzen. Sure. All I am saying is you have estimates of 
damages to the most likely forming scenario. You have estimates 
of GDP reduction from implementing Kyoto. At this point they 
are comparable or perhaps even the GDP looks a bit larger than 
the savings you incur by preventing the climate damage. 
Economists can argue over that. But then you come to the 
stunning fact that Kyoto will not change the climate much. So 
you are left with both the damages and the cost but no 
coverage. I don't think that is a reasonable insurance policy.
    Senator Inhofe. Thank you very much. Thank you, Mr. 
Chairman.
    Senator Voinovich. Senator Corzine?
    Senator Corzine. I guess with respect to that last 
response, I would love to hear Dr. Trenberth's comments on 
whether that tradeoff was exactly how other scientists would 
have assessed that cost-benefit analysis, because I think it is 
through that peer review and peer challenge that you can 
actually get to conclusions, if I understand the scientific 
process. So I would ask if you have any comments on that.
    Then I have a whole series of issues that I'm confused when 
there are views expressed that the quantitative data, aside 
from the amount, the historic quantitative data, is in place 
and appears to be under challenge, whether we have had a global 
mean warming trend, whether you can use ice core delvings to 
actually draw scientific conclusions. Are there real debates 
about those issues? My reading--and, again, sometimes it is 
more popular press than the scientific press--would lead me to 
believe that there is an overwhelming weight of scientific 
argumentation with regard to a number of those kinds of 
statistical bases of historic review.
    So those two areas: Why is there a debate today that I read 
in Dr. Lindzen's commentary on quantitative data from an 
historical perspective, leaving aside modeling, which always 
has some probability analysis associated with it? And then his 
comment on cost-benefit work that follows on from Senator 
Inhofe's question.
    Dr. Trenberth. Well, first, looking at Kyoto, there are 
three options for dealing with this problem. One is to stop it 
from happening, cut emissions. The second is to adapt to the 
problem as it goes along, and the third one is to do nothing.
    It doesn't seem as though it is possible to stop the 
problem, and I don't think ``doing nothing'' is an option, 
quite frankly. That means we have to adapt to the problem and 
plan for it.
    What Kyoto does is it buys us about 15 years for when 
preindustrial levels of carbon dioxide would double is another 
way of looking at it. It doesn't solve the problem, but it 
gives us more time to plan and to adapt to the climate change 
as it is happening.
    Senator Corzine. To study the real impacts of whether it is 
occurring, to give greater weight to the probability 
assessments that the models would have because you would have 
new information, presumably?
    Dr. Trenberth. Right. The models can get better, and we can 
actually get into the whole business of really doing climate 
predictions, presumably, eventually.
    With regard to the evidence, there is a lot of evidence and 
a lot of different variables that we can look at. It is very 
easy to point to one particular thing and say, oh, this 
suggests--like this cold winter in the Midwest, in the center 
of the country this year, global warming can't be happening, 
but, in fact, if you look around and look at it globally, you 
can see that this is part of an overall pattern, and Alaska had 
its warmest winter on record.
    So there is a lot of natural variability. There are 
uncertainties in all of these things that scientists actually 
like to argue about, but the IPCC statement is an overall 
assessment, and it takes into account all of the evidence. What 
we find with some of the naysayers is that their evidence is 
often very selective. IPCC takes into account all of the 
evidence.
    Senator Corzine. So you find a state of consensus stronger, 
significantly stronger, than we are hearing from your 
colleague?
    Dr. Trenberth. I would make that statement, yes.
    Senator Corzine. Thank you.
    Senator Voinovich. Senator Clinton?
    Senator Clinton. Dr. Trenberth, I would like to ask you, 
what are your policy recommendations? I know that Dr. Lindzen 
suggests that there is no policy-relevant content to the 
information that is available at this point in time, but I 
would like to ask you to respond to that. I would appreciate 
any recommendations that you think do flow naturally from the 
understanding of the science as it is viewed today, because I 
agree with you that we can do nothing; we can adapt; we can try 
to reverse. What is it that you would recommend that this body 
take under consideration as policy to flow from the findings 
that you have put forth?
    Dr. Trenberth. Essentially, the IPCC has made the statement 
that global warming is happening in their best assessment. We 
have attributed the recent climate change over the last, in 
particular, 30 years to the human influence on climate. There 
is a direct follow-on from that to say that these climate 
changes, therefore, are only going to have a greater impact in 
the future and it is likely to be disruptive. Probably the 
biggest impact on society is through extremes: the droughts and 
the floods, in particular.
    So there is a cost to climate change. I think when we are 
considering the economy, we should not just be considering the 
costs of mitigation, but also the costs of climate change and 
the fact that they are put off in some other agency, like FEMA 
or somewhere else, and not considered. It is very hard to point 
your finger and say, ``yes, this particular flood was caused by 
climate change,'' but the evidence does suggest often that 
there is a contributing factor, and that will probably only get 
worse. So I would encourage the cost of climate change to be 
considered in the economic decisions that are being made.
    My personal viewpoint is that there should be a very broad 
portfolio dealing with energy considerations. I find renewable 
energy sources and conservation measures and incentives to cut 
down on waste--not leave all the lights on in a building for 
security measures when it is not needed and then turn the air 
conditioning on to get rid of the surplus heat. Incentive 
structures to take that kind of thing away seem to be 
desirable, and a similar thing for automobiles in terms of gas 
mileage.
    I am from New Zealand, and New Zealand's main source of 
power is hydroelectric power. I think it is one which is often 
overlooked. There are certainly environmental costs attached to 
that, as there are with wind farms or solar farms, so that one 
has to look at the tradeoffs on these things. I think a broad 
portfolio on all fronts is needed.
    Senator Clinton. I am also interested in your points about 
how greenhouse gases stay in the atmosphere and accumulate over 
a long period of time, and that while we are debating this 
issue, it is either getting worse or there is no impact. But if 
you were to go back to Senator Reid's point about being a 
gambler, it strikes me as a bad bet not to take what would be 
prudent measures and provide a policy framework to encourage 
such prudent measures while we continue to try to further plumb 
what the meaning of a lot of these changes is.
    You have in your written testimony written about water and 
the impact of climate change on our water supplies, and 
particularly the safety of our drinking water. Could you 
elaborate what your concerns are about drinking water supplies 
and the access to water? I know we have seen some rather 
alarming trends with the Great Lakes having the second year of 
the lowest level that has been recorded. So the issues of water 
and temperature are ones that I would like you to briefly 
address.
    Dr. Trenberth. Thank you, yes. Global warming produces 
increased drying, and this means that there is increased 
evaporation, and plants are apt to wilt somewhat sooner than 
they otherwise would without global warming.
    The moisture in the atmosphere then is lying around. There 
are increases in moisture, and it gets gathered up by all of 
the weather systems. For example, a thunderstorm. It reaches 
out and gathers the water vapor that is available and dumps it 
down. The evidence suggests that when it rains now, it is 
raining harder than it was--about 10 percent harder--than it 
was 20 or 30 years ago.
    There are a number of consequences of that. The first one 
is that more of the water runs off, and therefore, there is a 
risk of flooding as a result of that. It also means that less 
of it soaks into the soils and is then subsequently available 
for agriculture. So that exacerbates the risk of drought when 
the storms go away.
    When there is runoff, a lot of the water runs off across 
the surface of the earth rather than soaking in through the 
soils. If it goes through the soils, there is a filtration 
process which cleans the water. If it runs off across the 
surface, it picks up all kinds of chemicals. Water is a 
solvent. It picks up fecal matter from fields, and so on, and 
water supplies get contaminated. There are many examples around 
the United States, and especially in other countries, where 
there are stomach upsets and health problems often not related 
to any big picture thing. They are often isolated in small 
communities, mountain communities, and so on, but they are 
related to contamination of water supplies in this fashion.
    Management of water, consequently, I believe, will be a 
major issue in the future, first, because when we get it, we 
are probably getting too much of it. Then, second, when we 
don't have it, it would be best if we could save it for later 
use. So I think this will be a big pressure point on society, 
given the increased demand.
    Senator Clinton. Thank you.
    Senator Voinovich. Thank you.
    Senator Lieberman, the ranking member of the subcommittee, 
is here. Senator Lieberman, would you like to make a statement?

  OPENING STATEMENT OF HON. JOSEPH I. LIEBERMAN, U.S. SENATOR 
                 FROM THE STATE OF CONNECTICUT

    Senator Lieberman. Thanks very much.
    Senator Voinovich. By the way, I should acknowledge the 
fact that the two of us met earlier and you suggested that we 
ought to have this hearing, and my response was I thought it 
was a great idea because so many of us are in the dark in terms 
of this whole issue of climate change, global warming. We have 
had a very lively meeting here this morning.
    Senator Lieberman. Thank you, Mr. Chairman. The first thing 
I wanted to do was to thank you for convening this hearing. In 
the normal course of life in the Senate, wouldn't you know it, 
on the morning it is held I am detained in the ongoing 
negotiations on the education bill that is on the floor. So I 
apologize to you, my colleagues, and to the witnesses.
    I have read the testimony that you have given. I just would 
say a few words and ask that my full statement be included in 
the record, if I might.
    Senator Lieberman. To me, this is an issue that really will 
test our political leadership here in this country, all of us, 
and around the world because it is an issue which I believe, as 
a layperson following the science, that there is compelling 
evidence that, in fact, the planet is warming. While we are 
beginning to see some consequences of it, as Senator Stevens 
said yesterday at a Commerce Committee hearing, that he was 
struck by the creeping of the ocean waters into Arctic 
villages, for instance.
    Nonetheless, the great test here is that the worst 
consequences of this will not happen in the lives of many of us 
here now. So this calls on us to truly be trustees, stewards of 
the planet and protectors of those who follow us here. I hope 
we can rise to that challenge.
    The Senate has followed deliberations here, often funding 
programs to at least begin to deal with the problem. We had 
that now legendary Byrd-Hagel resolution some period of time 
ago. I do think the resolution is subject, at least by my 
understanding, my participation in it, there is some 
misunderstanding because a number of us who are quite intensely 
concerned about global warming voted for it for two reasons.
    One was we thought the main thrust of it was not to oppose 
Kyoto, but to say that ultimately this problem was only going 
to be solved and American leadership was only going to make 
sense if the developing nations also were part of the solution; 
they're not standing aside as part of the problem. I think the 
resolution has been misinterpreted or misunderstood, and 
understandably so, since then, but I hope that we can come back 
and rebuild a consensus to do something about this problem.
    I was troubled by the Administration's unilateral statement 
of intention of essentially withdrawal from Kyoto or pull away 
from it. I am encouraged, on the other hand, by the stories I 
read that within the Administration there is a group meeting 
studying global warming, hearing from experts with varying 
opinions on it, which I appreciate it.
    I guess I was troubled a few days ago when Vice President 
Cheney gave that speech up in Toronto outlining some of the 
upcoming proposals for a National Energy Policy, and in the 
entire speech there was not one mention of climate change and 
the consequences of the investments that he was talking about 
in coal and other greenhouse gas-emitting energy technologies 
on our climate. So I think we have a lot of work to do together 
here. I hope this kind of hearing in which we all learn will be 
the basis for the Senate to go forward and try to find common 
ground.
    I remember a few years ago, Mr. Chairman, the late Senator 
Chafee, John Chafee, and I put in a measure which we thought 
was really a small step forward and would not engender any 
opposition. We simply said in the proposal that we should 
create a means to give credit to greenhouse gas-emitting 
sources, industries particularly, for reducing those greenhouse 
gas emissions prior to any national scheme for requiring those 
reductions, but so that they would get credit for their 
initiative today. John Chafee and I found that we were, I 
wouldn't say roundly attacked, but at least opposed by people 
on all sides, one side thinking we were putting the proverbial 
camel's nose under the tent and the other side feeling that we 
were not obviously asking as much as was required by the facts 
here.
    So having had that experience, I understand the perils of 
trying to form a consensus here, but I hope through our 
leadership on this committee--and I thank you again for 
convening this hearing--that we can openmindedly assess the 
facts and finds some ways to move forward.
    I remember being at a seminar on global warming several 
years ago, and there was a Congressman there from the House. It 
happened to be a Republican. When it was over, he said--they 
were scientists we were listening to--he said, now if you all 
are right and we act in response to your advice, we will 
essentially save the planet as we know it; if you're wrong and 
we're just hyperventilating, overreacting, we will have taken 
action to reduce air pollution, to make America more energy-
independent. Either way, it is not a bad result, and I agree. 
So we hope we can find ways to continue to move forward.
    Thanks, Mr. Chairman, for allowing me to say a few words 
today. I look forward to the testimony of the second panel. I 
thank both of the witnesses.
    Senator Voinovich. OK, thank you, Senator.
    The witnesses would agree that human beings have 
contributed to warming the atmosphere? Both of you agree to 
that, that there is a thing called global warming that is 
occurring and that we contribute to it in some fashion? Do both 
witnesses agree to that?
    Dr. Trenberth. I would agree.
    Dr. Lindzen. Sure, as long as you put no numbers on it.
    Senator Voinovich. OK, all right. I am going to get into a 
practical situation. If we assume that wind, solar, hydro, and 
some of these other things that are being talked about cannot 
currently or in the near future respond to the energy demands 
of the United States of America, and we take into consideration 
that we are seeing some astronomic increases in energy costs 
going on throughout our country--particularly in my own State, 
the heating bills of people there and the businesses have been 
just extreme, particularly for businesses.
    I believe, for example, that the heating energy cost thing 
is really contributing substantially to the recession that we 
are in today in this country. We have to look at more nuclear, 
and let's say, contrary to what Senator Reid said, moving away 
from fossils, that we have to take advantage of the 250 years 
of coal fossil fuel we have available today in this country. 
There are some who argue that we should have mandatory caps on 
the amount of CO2 emissions.
    The question is, if we do go forward and we burn coal, and 
we use the best clean coal technology that is available, what 
do you think about the issue of having some type of mandatory 
cap on CO2 connected with that? Now the President 
has basically said he is not for that, CO2 should 
not be part of that consideration. The issue is, should we 
mandate a cap on it at a national level or should we rather say 
that there is no question that there is a problem that man is 
contributing and that fossil fuel probably is one of the 
contributors to it, and that we ought to be doing everything to 
encourage people to reduce CO2, including 
sequestration, and so forth, but not make it mandatory, in 
light of the fact the cost involved in that kind of thing would 
be very expensive, and therefore, drive up the cost of energy 
in this country? Do you understand the question?
    Dr. Trenberth. I think perhaps I can comment somewhat 
sensibly on it at least. One of the problems with the cap is, 
how do you trace who exceeded their allotment? This is part of 
the problem actually also with Kyoto. What would the penalty 
actually be? I think there are a lot of problems with a cap, 
and that probably isn't the way you would want to go about 
doing things.
    The whole timeline is a considerable issue. This is true 
also with Kyoto. On the one hand, there is a need for binding 
targets, but the timelines that are needed have to take into 
account the changes in technology that are needed. So if you 
are dealing with the motorcar, a 10-year timeline is a 
reasonable timeline. If you are dealing with a coal-fired power 
station, then the lifetime of the power station is 35 or 40 
years, and what you want to do is to make sure that, when that 
power station has reached its fruitful life, that maybe new 
technology is used to replace it, if you don't want to write 
that thing off and have a big economic cost as a result. So the 
way in which you go about doing these things and multiple 
timelines seem to me to be a useful thing to do.
    Another part of this with regard to caps and related things 
is that this is a global problem--and this is one of the things 
we have just been highlighting with Kyoto--is that there are 
not targets for a number of developing countries. I think that 
is, indeed, a problem. On the other hand--well, I won't comment 
further on Kyoto. I think that Kyoto is a useful basis for 
moving ahead perhaps, but it does require then international 
negotiations also in order to really deal with this problem, 
but leadership by the United States in showing how we might go 
about it could be a big step forward.
    Senator Voinovich. Dr. Lindzen?
    Dr. Lindzen. Yes, I said to Senator Reid, the we don't 
pretend expertise on energy policy, but there is one 
mathematical statement one can make. If one needs to optimize a 
policy for economical, efficient, and pollution-free energy 
reduction, one does not generally aid the optimization by 
putting additional constraints on it. We have to decide our own 
priorities, and if this is not per se a priority, the others 
will not be helped by it. You can do a better job without it.
    Senator Voinovich. Any of the other Senators here want to 
ask questions of the witnesses?
    [No response.]
    I want to thank you very much. This has been very helpful 
to me, and I think I am less confused than I was before.
    Dr. Trenberth?
    Dr. Trenberth. You were citing some magazines before, and I 
just thought I might add one to your collection. The latest 
issue of Environment magazine, the May issue, the cover story 
is on human influence on climate, and, in fact, the cover story 
is by myself. It is actually a summary and a commentary on the 
latest IPCC report.
    Senator Voinovich. Thank you very much. I will get it.
    I really appreciate the two of you being here today.
    Our next panel--and I appreciate their patience here this 
morning--is Dr. John R. Christy, Dr. Jae Edmonds, Dr. Rattan 
Lal, Mr. James E. Rogers, and Dr. Marilyn A. Brown.
    I think the witnesses are all familiar with the procedure 
here. They had a chance to watch it.
    Our first witness will be Dr. John R. Christy. Dr. Christy 
is an Associate Professor, Department of Atmospheric Science, 
the University of Alabama at Huntsville. Dr. Christy, thank you 
for being here.

    STATEMENT OF JOHN R. CHRISTY, PROFESSOR, DEPARTMENT OF 
    ATMOSPHERIC SCIENCE, UNIVERSITY OF ALABAMA IN HUNTSVILLE

    Dr. Christy. Thank you, Mr. Chairman and committee members. 
Actually, I was promoted 3 or 4 years ago to professor. I am 
also Alabama State Climatologist and recently served as one of 
the lead authors of the IPCC. I am glad to be back in front of 
this committee to testify about climate change again.
    I will refer to the figures that are in the back of your 
written testimony I have submitted.
    I want to say first that carbon dioxide, the agent thought 
to exert the largest part of human-related climate change, is 
literally the lifeblood of the planet. The green world you see 
around you would not be here without it. Carbon dioxide means 
life, and at several times its current value promoted the 
development of the plant world we now depend on and enjoy. 
Carbon dioxide is not a pollutant.
    Now will CO2 affect the climate significantly? 
The models suggest the answer is yes, though I have serious 
doubts. A common feature of climate model projections with 
CO2 increases----
    Senator Voinovich. Dr. Christy, I wear hearing aids, and 
you are speaking very fast, and I am having a hard time 
understanding. Could you slow down a little bit? I know you 
want to get what you can in in the 5-minutes, but if you could 
slow down----
    Dr. Christy. Excuse me. A common feature of climate model 
projections with CO2 increases is a rise in the 
global temperature of the atmospheric layer from the surface to 
30,000 feet. This temperature rise itself is projected to be 
significant at surface, with similar or increasing magnitude as 
one rises through this layer we call the troposphere.
    Over the past 22 years, calculations of surface 
temperature, indeed, show a rise between 0.5 and 0.6 degrees 
Fahrenheit. This is about half the total rise in the last 100 
years. In the troposphere, however, there are estimates which 
include the satellite data that Dr. Roy Spencer of NASA and I 
produced, which show there is only a slight warming, 0 to 0.15 
degrees Fahrenheit, as shown in figure 1. New evidence, shown 
in figures 2 and 3, corroborate that many different systems 
show the same thing: the bulk of the atmosphere has not warmed 
in the past 22 years.
    Now since my last appearance before this committee there 
has been 1 year above the 20-year average and two below it. 
Rather than seeing a rise in global temperature that increases 
with altitude, as climate models project, we see that in the 
real world since 1979 the warming decreases substantially with 
altitude.
    Am I coming across?
    Senator Voinovich. Yes, thank you.
    Dr. Christy. So the reality of the past 22 years may only 
indicate that the climate experiences large, natural variations 
in the vertical temperature structure which climate models have 
yet to reproduce. However, this means that any attention drawn 
to the surface temperature rise over the past 20-plus years as 
evidence of climate change must also acknowledge the fact that 
the bulk of the atmosphere that was projected to warm has not.
    One modeler told me recently that the surface versus 
troposphere difference was the largest problem they faced. 
Well, this is a curious phenomenon, but we don't live 30,000 
feet in the atmosphere and we don't live in a global average. 
We live in specific places on the earth.
    Making projections for local regional places is virtually 
impossible. I will show an example from Alabama, figure 4. You 
will see several climate model runs of temperature showing 
Alabama's temperature from 1860 to the present and then beyond 
to 2100. It is clear that the model runs did not do especially 
well over the time period of observations, and none predicted 
the cooling that we have actually experienced in the State of 
Alabama. If in trying to reproduce the past we see such errors, 
we can only expect to see similar errors in the predictions.
    I want the committee to be very, very skeptical of media 
reports in which weather extremes are used as proof of human-
induced climate change. Weather extremes occur somewhere all 
the time. For example, the U.S. temperature for last November/
December combined was estimated to be the coldest since records 
began in 1895. That does not prove that the United States or 
the globe is cooling or that climate is changing unnaturally. 
What it demonstrates is that extremes occur all the time.
    Other climate data gives similar nonalarmist results, and 
therefore, are overlooked by the media. As we showed in the 
IPCC, hurricanes have not increased; thunderstorms, hail, and 
tornadoes have not increased. Droughts and wet spells, as shown 
in figure 5, in the United States have not increased or 
decreased.
    I will skip that piece right there; I see the yellow light.
    I am decidedly an optimist about this situation. Our 
country is often criticized for producing 25 percent of the 
world's anthropogenic CO2. However, we are rarely 
recognized and applauded for producing with that CO2 
25 percent of what the world really wants and needs: its food, 
technology, medical advances, defense, and so on. As figure 7 
shows, we in the United States will continue to produce more 
and more of the world wants with increasing energy efficiency.
    In summary, I would say, as someone who actually produces 
and analyzes climate information, that I find pronouncements 
today about climate change catastrophes due to increased 
greenhouse gases to be very overly alarmist. Thank you.
    Senator Voinovich. Thank you, Dr. Christy.
    Dr. Edmonds, who is from the Pacific Northwest National 
Laboratory. Dr. Edmonds.

     STATEMENT OF JAE EDMONDS, PACIFIC NORTHWEST NATIONAL 
            LABORATORY, BATTELLE MEMORIAL INSTITUTE

    Dr. Edmonds. Thank you, Mr. Chairman and members of the 
committee, for the opportunity to testify here this morning on 
energy and climate. My presence here today is possible because 
the U.S. Department of Energy has provided me and my team at 
the Pacific Northwest National Laboratory long-term research 
supports, and without that support, much of the knowledge base 
on which I draw today would not exist. That having been said, I 
come here today to speak as a researcher, and the views I 
express are mine alone.
    I will focus my remarks on two matters: first, the timing 
of the global response decline or change needed to stabilize 
the concentration of greenhouse gases in the atmosphere and, 
two, the need to expedite the development of technologies to 
achieve this goal at reasonable cost. My remarks are grounded 
in a small number of important observations.
    The United States is a party to the Framework Convention on 
Climate Change, which has as its objective the stabilization of 
greenhouse gas concentrations in the atmosphere at a level that 
would prevent dangerous anthropogenic interference with the 
climate system. This is not the same as stabilizing emissions. 
Because emissions accumulate in the atmosphere, the 
concentration of carbon dioxide will continue to rise 
indefinitely even if emissions are held at current levels or 
slightly reduced. Limiting the concentration of CO2, 
the most important greenhouse gas, means that the global energy 
system must be transformed by the end of the 21st century. 
Given the long life of energy infrastructure, preparations for 
that transformation must start today.
    In 1996, Drs. Wigley, Richels and I published an economics-
based analysis of carbon emissions time paths that would 
stabilize CO2 concentrations. This work indicates 
that an energy transition must begin in the very near future.
    For example, for a global concentration of 550 parts per 
million, global CO2 emissions must begin to break 
from present trends within the next 10 to 15 years. Given that 
it takes decades to go from energy research to the practical 
application of the research within some commercial energy 
technology, and then perhaps another three to four decades 
before that technology is widely deployed throughout the global 
energy market, we will likely have to make this deflection from 
present trends with technologies that are already developed.
    To reduce global emissions even further would require a 
fundamental transformation in the way we use energy, and that 
will only be possible if we have an energy technology 
revolution. That will only come about if we increase our 
investments in energy R&D.
    The global energy system, and not just the United States 
energy system, must undergo a transition from a one in which 
emissions continue to grow throughout the century into one in 
which emissions keep and then begin to decline. Coupled with 
significant global population and economic growth, this 
transition represents a daunting task, even if the 
concentration as high as 750 parts per million is eventually 
determined to meet the goal of the Framework Convention.
    A credible commitment to limit cumulative emissions is also 
needed to move new energy technologies off the shelf and into 
widespread adoption in the marketplace. The cost of stabilizing 
the concentration of greenhouse gases will depend on many 
factors, including the desired concentration, economic and 
population growth, and the portfolio of energy technologies 
that might be made available. Not surprisingly, if the costs 
are lower, the better and more cost-effective the portfolio of 
energy technologies that can be developed.
    The Global Energy Technology Strategy Program to address 
climate change is an international public/private sector 
collaboration advised by an eminent steering group. Analysis 
conducted during the first phase of that program supports the 
need for a diverse technology portfolio. No single technology 
controls the cost of stabilizing CO2 concentrations 
under all circumstances. The portfolio of energy technologies 
that is employed varies across space and time. Regional 
differences inevitably lead to different technology mixes in 
different nations, while changes in technology options over 
time inevitably lead to different technology mixes across time.
    Recent trends in public and private spending on energy 
research and development in the world and in the United States 
suggests that the role of technology in addressing climate 
change may not be fully understood or appreciated. Although 
public investment in energy R&D has increased slightly in 
Japan, it has declined somewhat in the United States and 
dramatically in Europe, where reductions of 70 percent or more 
since the 1980's are the norm. Moreover, less than 3 percent of 
this investment is directed at technologies that, although not 
currently available commercially at an appreciable level, have 
the potential to lower the cost of stabilization significantly.
    Mr. Chairman, thank you for this opportunity to testify. I 
will be happy to answer your and the committee's questions.
    Senator Voinovich. Thank you, Dr. Edmonds.
    Our next witness is Dr. Rattan Lal, School of Natural 
Resources at the Ohio State University, which is my alma mater. 
Dr. Lal, we are very happy to have you here.

  STATEMENT OF RATTAN LAL, SCHOOL OF NATURAL RESOURCES, OHIO 
                        STATE UNIVERSITY

    Dr. Lal. Thank you, Senator. I feel greatly honored to be 
here to be part of this very important hearing.
    In addition to the strong support that I receive from the 
State of Ohio and Ohio State University, I have also received 
support from the Natural Resource Conservation Service of the 
USDA for the last 10 years. We are also developing a program 
now with three National Laboratories: the Pacific Northwest 
National Laboratory, the Oak Ridge National Laboratory, and the 
Los Alamos National Laboratory.
    I want to address three issues in this very short time. No. 
1, we have heard today that the source of carbon dioxide is 
primarily fossil fuel combustion. I want to indicate a couple 
of other sources which are also important. No. 2, what is the 
impact of laws on the carbon from the other sources on the 
quantity of those resources? And, No. 3, agriculture is often 
blamed as the cause of environmental problems, and I would like 
to state a potential that agriculture can, indeed, be a 
solution to the problems.
    Senator I especially want to come back to the point that 
you raised that Ohio has been growing 11 million trees, and I 
want to indicate what those trees might be doing toward 
potential sink in soil of the carbon.
    No. 1 problem: The carbon dioxide concentration has changed 
from about 600 gigatons in the pre-industrial era to 770 
gigatons now. A gigaton is a billion tons. There are two 
sources from which that problem came. Fossil fuel combustion 
contributed 270 gigatons. In comparison to that, deforestation, 
biomass burning, and soil cultivation with respect to plowing 
contributed 136 gigatons. Out of that 136 gigatons, soil 
cultivation, plowing, et cetera, contributed somewhere between 
60 and 90 gigatons. So soil and deforestation have been in the 
past a very important source of carbon. The difference is, 
while fossil fuel carbon we cannot reverse, the carbon in soil 
and trees that we have lost we can reverse, and that also can 
have an important impact on the natural resources and the 
economy.
    The No. 2 point which I want to raise is, what impact did 
have the loss of carbon from soil on the quality of the soil, 
on the quality of the water resources? First of all, most of 
our nation's soils have lost over one-third to one-half of 
their soil carbon pool since the start of agriculture. That 
carbon pool amounts to 10 to 20 tons of carbon per acre so far 
that we have lost in the middle of the United States. This loss 
of carbon from soil has resulted in decline in soil quality, 
which means we have put more fertilizers, performed extractive 
operations, applied other inputs to produce the same yield that 
we would have if the quality of our soil had not deteriorated.
    Because of the loss of soil carbon, the results are 
increased soil erosion, sedimentation, flooding, leaching of 
pollutants, and transport of other contaminants into the 
natural waters. The dangers of nonpoint-source pollution are 
exacerbated by erosion and reduction in the capacity of soil to 
bar chemicals. These problems have resulted in considerable 
environmental issues that need to be addressed.
    My third point then is, how can agriculture be a solution 
to this problem? First of all, there are two things we can do. 
We can restore the degraded soils. Whether they are degraded by 
erosion, by mining--we have quite a lot of mineland 
activities--or by other processes, those soils can be restored 
and reclaimed. Some of the carbon that we lost, 20 or 30 tons 
per acre, some of it, maybe 60 percent of it, can be put back 
through restoration.
    Some of the techniques for restoration include CRP, the 
Conservation Reserve Program; a wetlands reserve program; 
mineland reclamation, restoring vegetative buffers and strips 
along riparian zones.
    Adopting conservation tillings, we have only about to 30 or 
40 percent of the conservation tillings and rotation. I think 
that is another very important one. Forestation, as you 
mentioned, is a very important one.
    The potential of all these practices is about 270 gigatons 
of carbon sequestration a year in the United States compared to 
a total potential, including forest fire models, if you combine 
soil and forest, about 520 gigatons. This potential is about 70 
percent of the commitment the United States would have under 
the Kyoto Protocol.
    This is a truly win/win situation. It improves soil/water 
quality. It increased agricultural and forest production. It 
reduces gaseous emissions, and as Senator Lieberman said, you 
cannot go wrong. Either way, this is the best option.
    I thank you, Senator, for giving me the opportunity to be 
here.
    Senator Voinovich. Thank you, Dr. Lal.
    Our next witness is James E. Rogers. Mr. Rogers is 
Chairman, President, and CEO of the Cinergy Corporation. Mr. 
Rogers, thank you for being here today.
    Again, thank you all for your patience.

  STATEMENT OF JAMES E. ROGERS, CHAIRMAN, PRESIDENT AND CHIEF 
             EXECUTIVE OFFICER, CINERGY CORPORATION

    Mr. Rogers. Mr. Chairman and members of the committee, I 
would like to thank you all very much for giving me the 
opportunity to share my thoughts on global climate change.
    It was my pleasure to testify before this committee last 
year on the need for a comprehensive environmental emissions 
reduction program for coal-fired plants, where you would have a 
reduction of SOx, NOx, and mercury, and also address the 
CO2 issue. My views have not changed since that 
hearing. With the growing demand for more electric generation, 
energy producers, now more than ever, need certainty that could 
come from a comprehensive, longer-term reduction program that 
this Congress should pass, certainly should consider and pass.
    In addition, I believe that Congress must consider at the 
same time the uncertainties and challenges posed to my industry 
by the climate change issue. If legislative remedies are 
intended to build some kind of certainty into our planning 
process, climate change must be on that environmental roadmap.
    Now our company has a lot at stake. We are the largest non-
nuclear utility. We are heavily dependent on coal. We burn 30 
million tons of coal a year, and we have worked hard to reduce 
the impact of our coal-fired plants on the environment. We 
spent $650 million in emission controls and clean coal 
technology in the last decade. We are spending $700 million to 
reduce NOx over the next 3 years. We just spent a billion for 
gas-fired plants that are environmentally more friendly than 
coal-fired plants with respect to their emissions.
    As I sit here and look at the challenges that we have and I 
think about the issues and I listen to the science this morning 
and the discussion on this panel, you all have had the 
opportunity to hear from several very distinguished witnesses 
regarding the state of the science on the climate issue. Mr. 
Chairman, you asked a question with respect to the 
uncertainties, and I thought you got a clear answer, as clear 
as you can get. But it is clear that there are uncertainties. 
But, notwithstanding the uncertainties, I believe that it is 
prudent to start taking measured steps now to begin to address 
the risks.
    I thought it was interesting that Senator Chafee pointed 
out that six out of seven people on these panels have Ph.D.'s. 
I happen to be the one who doesn't. I actually find that an 
advantage.
    I come from the business world and, as a lawyer, deal with 
ambiguities, uncertainties, improbabilities, and that is what 
this issue really is all about, if you think about it. I would 
suggest to you that, as policymakers, you need to think about 
this as we do as business people. You need to view the climate 
issue as a risk mitigation challenge.
    What does that mean? What that means is we need to come up 
with a very pragmatic, common-sense approach to the issue. We 
need to focus in the first instance on no-regrets first steps 
and lay the groundwork for future transformation of the energy 
production fleet in the United States.
    First steps should focus on activities that provide other 
benefits as well as reduce carbon. We can reduce other harmful 
emissions. We can decrease fuel consumption. We can lower 
production costs. We can decrease the need for new generating 
plants. We can focus on conservation and demand-side 
management. These are the kinds of first steps that we need to 
be taking.
    We need, to say it in another way, to take first steps that 
hold the industry roughly where it is today. Let the debate 
continue. Let the scientific analysis continue. But this is a 
do no harm strategy.
    We are at a tricky point in terms of our understanding of 
where we are, but what we ought to be doing is looking at ways 
to flatten out the carbon growth curve, allow technology to 
develop, and to continue the analysis. To me, those first steps 
are critical, and we cannot plan to provide energy for the 
people of this country unless we have certainty with respect 
not only to SOx, NOx, and mercury, but also with respect to the 
climate change issue.
    Longer term--and this is a long-term issue we need to 
address--longer term we need to continue to fund R&D programs 
for new technologies to generate zero emission power. So, as I 
sit here before you this morning, I am kind of reminded of the 
fact that for 25 years I had Neil Armstrong on my board of 
directors. I haven't been around that long, but he has 
certainly served on that board for that period of time.
    As I think about what this country did 40 years ago, when 
we really as a country stepped up and focused on putting a man 
on the moon, we need that same kind of commitment and passion 
in trying to attack the technological puzzle that is wrapped 
around this whole climate change issue. We need to take first 
steps, as I suggested, but we also need to make a commitment on 
a longer-term basis to deal with it, because we have the 
capability within this country to develop the technology to 
deal with these issues. We just need to get on about it and 
recognize that, yes, there are uncertainties; yes, there are 
ambiguities, but we must take the first step. That is the only 
way we can provide reliable, affordable energy to people and at 
the same time achieve our environmental goals in this country.
    Thank you.
    Senator Voinovich. Thank you.
    Our next witness is Dr. Marilyn A. Brown. Dr. Brown is the 
Director of Energy Efficiency and Renewable Energy Program at 
the Oak Ridge National Laboratory. Thank you, Dr. Brown, for 
being here and, again, your patience.

STATEMENT OF MARILYN A. BROWN, DIRECTOR, ENERGY EFFICIENCY AND 
    RENEWABLE ENERGY PROGRAM, OAK RIDGE NATIONAL LABORATORY

    Dr. Brown. Thank you, Mr. Chairman and members of the 
committee, for inviting me to talk with you today. I am also 
the lead author of a recently published report called 
``Scenarios for a Clean Energy Future,'' and I would like to 
highlight some of its key findings for you.
    That report was co-authored by researchers of five 
Department of Energy national laboratories. It was funded by 
the Energy Department and the Environmental Protection Agency, 
but the views I am expressing today are not necessarily those 
of those two funding agencies.
    This study is the most comprehensive assessment to date of 
technologies and policies that can be deployed to address the 
nation's energy challenges. It involves the analysis of 
hundreds of technologies and policies. The focus is the United 
States and the timeframe is the next 20 years.
    The study creates a range of scenarios that characterize 
how the future might unfold under different sets of policies. 
First, we have the business-as-usual scenario, which is really 
a forecast. If policies continue as they are today, what will 
happen? The other two major scenarios are defined by policies 
that assume that the public and political leaders have a 
greater sense of resolve to address the nation's energy needs 
and environmental challenges.
    So under the business-as-usual forecast, we see a 
continuing increase in energy consumption in this country, 
about 10 percent more in each of the next two decades, and 
there is a concomitant increase in carbon emissions, about 
proportionate to energy use.
    In the moderate scenario, one of these alternative policies 
scenarios, we define an array of market-based policies that 
range from a 50 percent increase in energy research to an 
expanded set of voluntary programs such as those currently in 
operation at DOE and EPA, and a system of tax credits to 
promote efficient appliances, vehicles, and non-hydro renewable 
electricity.
    In the advanced scenario we are a bit more aggressive, and 
we define policies that include, for instance, doubling our 
current energy R&D budgets and voluntary agreements between 
industry and the government to reduce the energy content of our 
industrial products, as well as agreements between government 
and automakers to achieve various fuel economy goals, renewable 
portfolio standards, and, finally, a domestic carbon cap and 
trading system.
    So we have these three scenarios. I am going to focus 
mostly on where we get with the advanced scenario, but just 
keep in mind we get between a third and a half as far with the 
moderate set of more market-based policies.
    So under this advanced scenario, the United States consumes 
20 percent less in the year 2020 than it would under the 
forecast that assumes today's policies. That savings is enough 
to meet the energy needs of all the businesses, consumers, and 
industries in the three largest energy-consuming States of the 
United States: California, Texas, and Ohio. It will bring us 
down essentially to where we are today in terms of our energy 
needs.
    By 2020, U.S. carbon emissions would be reduced back to 
1990 levels. In addition, NOx, SOx, and mercury emissions would 
be significantly reduced. We would save consumers money on 
their energy bills. In particular, $122 billion in reduced 
energy costs in the year 2020 would be achieved. Some but not 
all energy prices would rise. Because of the carbon cap and 
trade system and other policies, the amount of energy required 
to drive our economy would be so much reduced that the total 
energy bill would be less in the aggregate than it would be 
today.
    Oil consumption is cut by 5 million barrels per day. This 
results in a reduction of $23 billion in reduced transfer of 
wealth from U.S. oil consumers to world oil exporters in the 
year 2020.
    Finally, electricity demand would be cut 22 percent 
relative to the forecasters' growth rate, just a few percentage 
more than today's electricity requirements.
    What evidence do we have that such technologies are real 
possibilities and not just wishful thinking? In my testimony, 
if you will take a look at figure 3, we show the progress that 
has been made in improving the efficiency of today's 
appliances, in particular, the household refrigerator. Back in 
1970 those units that, hopefully, you no longer have in your 
basement cooling beer, they consumed nearly 2,000 kilowatt 
hours per year. Today's new refrigerator consumes approximately 
600 kilowatt hours, and that is the result of a major research 
effort funded by the Department of Energy, along with Federal 
standards that regulate the power consumption of appliances.
    I have many other technology opportunity examples in my 
testimony. I will just quickly segue to the conclusions. This 
Clean Energy Future study identifies a set of policy pathways 
that could speed the development and introduction of cost-
effective, efficient, and clean energy technologies into the 
marketplace. These technologies are good for business, they are 
good for the consumers, and they are good for the economy and 
the environment.
    To secure these benefits, the nation needs to move forward 
on many fronts to develop policies to remove the market 
barriers, to conduct the research, to accelerate this 
technological progress, and to conduct programs to facilitate 
deployment. These, in combination with the political leadership 
that the world expects of the United States, are all essential 
ingredients of a clean energy future and of a balanced national 
energy and environmental policy.
    Thank you.
    Senator Voinovich. Thank you very much.
    Mr. Rogers, in your opinion, what would the Kyoto Treaty, 
if implemented, do to your company, the utility industry, and 
our nation's economy? You also in your testimony talked about 
technology incentives. I am a little bit concerned about the 
Federal Government--and Dr. Brown, you talked about incentives 
also--I am concerned a little bit about the Federal Government 
choosing technology winners and losers. How would you structure 
an incentive program that doesn't preclude technologies which 
we may not even be aware of today, and then what would the 
Federal Government's role be in this?
    Mr. Rogers. Let me first address the Kyoto Protocol. 
Senator Voinovich, it is pretty clear that, given the 
tremendous growth in our economy in the decade of the nineties, 
it would be very difficult today during the timeline of the 
Kyoto Protocol to reduce CO2 7 percent below the 
1990 levels. So, to me, the possibility--there is a very low 
probability that we could hit the 1990 level. It is just not 
doable given the growth in the economy today and still at the 
same time provide affordable, reliable power to fuel the 
economy of this country.
    That was the Kyoto Protocol. That doesn't say that we 
shouldn't step up and make some commitments with respect to 
climate change and CO2 going forward. I think the 
important point here is, as we debate and as the science 
continues to evolve, we need to flatten the curve. That is to 
me a no-regrets way to think about this issue going forward. So 
it is pretty clear to me the adverse impact it could have on 
the cost of power and the economy to get back to 1990, but I 
don't think that in any way takes away from trying to flatten 
the curve going forward.
    With respect to technology, I agree with you, the 
government shouldn't be in the business of picking winners and 
losers. The government should also create the right environment 
for investment. To the extent that we step up and deal from a 
policy standpoint with SOx, NOx, mercury, and we deal in a 
clear way with CO2, and give some certainty to what 
the requirements are going to be, it is the giving certainty 
with respect to future reductions that will drive the 
development of technology.
    There are different kinds of technology. There is 
technology with respect to reducing emissions. There is no 
silver bullet answer for CO2 today, but that is not 
to say that it might not get developed over the next 5 to 10 
years.
    At the same time, we will encourage technology with new 
electric production. We know we have investments in renewables. 
Our own company is invested in wind. We have invested in fuel 
cells. We have invested in micro-turbines. So there is a number 
of new technologies that we in the industry are already 
investing in as we look down the road. But it is certainly with 
respect to future environmental requirements that will be the 
force that drives it. That is the technology.
    We, as you know, were successful in the early 1990's with 
coal gasification. The reality is, to make that commercial and 
economic, you have to have those first steps. So, again, 
funding coal gasification is something that happened in the 
decade of the 1990's. We need to consider to look at it for new 
state-of-the-art technologies and move it forward.
    Senator Voinovich. My comment is that we need new 
technology and we need to go forward, but one of the things I 
keep hearing here in the Senate from some of my colleagues is 
it is wind, it is solar, it is water. From a realistic point of 
view, if you look at the energy needs of this country, these 
are good things and we need to move forward with them, but the 
fact is our energy needs are going up, which forces us to look 
at: What do we currently have and how do we deal with it, and 
how do we provide the energy to this country and at the same 
time think about the consumers that are involved? They really 
haven't been at the table and, frankly, have not been concerned 
lately because they have been kind of on a honeymoon in terms 
of energy costs, but now we are starting to see that the 
chickens have come home to roost.
    These prices are starting to go up. They are starting to 
have an impact on--I had hearings in Cleveland with the 
Catholic charities and with Lutheran on housing and heating 
costs and the impact that it is having on the least of our 
brothers and sisters. How do you reconcile dealing with these 
environmental needs and the energy needs and also think about 
the impact that this is going to have on just the ordinary 
citizen, and beyond that, what impact it is going to have on 
the economy of the United States of America?
    I think somebody made the point earlier that--was it some 
25 percent were contributing, but nobody talks about the 25 
percent that we are contributing to the economy, providing the 
goods and services to people that people need. That is the 
problem that we all have to grapple with in terms of moving 
forward in this area.
    There is no question that the panelists all agree that we 
need to have more technology and start looking at these things, 
hoping that as we rachet those things up, the demands for some 
of these other things will either level off or ultimately come 
down, which would be good for everyone.
    Mr. Rogers. Senator Voinovich, I thought you made a very 
good point. I mean, we can't solve it all with renewables. We 
understand that. We have got to continue to use coal. Fifty-one 
percent of the electricity in this country is produced by coal.
    I would quickly suggest there are some in the coal industry 
who think to deal with climate change means the end of coal. I 
don't believe that. I believe that we can still address the 
issue and we will still use coal. We're at a delicate point now 
because you are right, if you look back over the last 10 to 12 
years, all across the country new power plants haven't been 
built, electric rates have generally decreased in real terms 
dramatically, and even for our own company they have decreased 
in model terms over the last 10 years as coal prices have come 
down.
    The fact of the matter is that we are in a different part 
of the cycle than we have been in the last 10 years. We are in 
a part of the cycle where we have to build new generation to 
meet the needs. But the question is: What kind of generation? 
What is the right mix of generation? What are our environmental 
commitments as we go forward?
    I wanted to tell you I cannot--I just bought a $1 billion 
worth of gas-fired. I am not convinced that I want to build 
more gas-fired or buy more gas-fired generation, given that the 
current price of natural gas, which has doubled in the last 
year.
    So then the answer is, well, how do I meet the demands of 
my customers? I would like to build a state-of-the-art coal 
plant, but the reality is nobody in this country is going to 
turn--while there has been a lot proposed, there has been no 
dirt turned on coal plants. Because the uncertainty with 
respect to SOx, mercury, and CO2 is great, it makes 
it very difficult for anybody to make that bet, given those 
uncertainties.
    Senator Voinovich. Senator Lieberman? Thank you.
    Senator Lieberman. Thanks, Mr. Chairman.
    Mr. Rogers, maybe I will pick right up with you because I 
appreciate very much what you have said. I take it you believe 
that, one way or the other, there are going to be 
CO2 reductions required of your industry in the 
future?
    Mr. Rogers. I agree.
    Senator Lieberman. I am going to read from the end of your 
statement because I think it is important. This is the written 
statement. You said, ``My company seeks comprehensive multi-
emission power plant legislation because we want long-term 
clarity and certainty built into our environmental compliance 
planning process. I think there is general agreement on both 
sides of the aisle that this approach makes sense.
    ``For me, this line of reasoning dictates the necessity of 
including a carbon commitment in the legislation. Without some 
sense of what our carbon commitment might be over the next 10, 
15, or 20 years, how can I or any other utility CEO think we 
have a complete picture of what major requirements our plants 
may face.''
    So I appreciate that statement, and, of course, I agree 
with you on the first part that, one way or the other, there 
will be CO2 reductions required. I take it what you 
are saying is the obvious, which is that you need a certain 
picture of the future to make the kinds of enormous investments 
that are required, and to do it in a rational way.
    Mr. Rogers. I think it is critical that we address today--I 
mean, again, I don't know if ``balance'' is the right word 
between our need for affordable energy in this country to fuel 
our economy and our environmental goals, because it seems to be 
a tradeoff. You either get one or you get the other. I don't 
think that--we ought to be smart enough to solve to get both.
    Senator Lieberman. Right.
    Mr. Rogers. So it is my judgment that if we get clarity on 
the environmental policy from Congress, then we can go to work 
and invest in the technologies, go to work to hit the deadlines 
that are set out there. But we also have to be realistic.
    The other thing that I did, Senator Lieberman, is list what 
I thought were the criteria in terms of any kind of legislation 
on CO2, including reasonable timelines, recognizing 
this problem took a long time for us to get to where we are and 
it is going to take a long time to work our way out of it. But 
it is my firm belief we have to get started now on the problem.
    Quite frankly, from my standpoint, if you guys just kind of 
put it off for 5 years or for 10 years, and I go build a plant 
with a 40-year life, I still have to deal with the issue then, 
but I had to be able to plan my way into it.
    Senator Lieberman. I really hope just on the basis of 
exactly what you are saying we can re-engage the Administration 
in this question and see if we can find a way to add carbon to 
the three other pollutants that the Administration is committed 
to regulating, and what was originally talked about I thought 
was a pretty creative, non-command-and-control approach to this 
with market-based trading based on the Clean Air Act. I hope we 
can find our way to back this.
    The final question for you, if I may, just listening to Dr. 
Edmonds' testimony about timelines and years by which we have 
to really begin to deal with this, how much time generally is 
necessary for you to plan for the development of a power plant?
    Mr. Rogers. Once you make the decision that you want to 
build a power plant, it takes a couple of years to get all the 
environmental permits that you need to get it done, the lineup, 
the equipment. It then for coal planning could take you between 
three and 5 years to build. There are no overnight answers when 
you are building base-low plants.
    We have been able to satisfy ourselves by building these 
simple cycle gas-fired plants that you could put on the ground 
pretty quickly, in a year or 18 months, but the requirements 
just to build a new coal plant, there is a long lead time 
associated with that.
    Senator Lieberman. Thanks.
    Dr. Lal, I appreciated your testimony. I was actually at 
Kyoto when the pact was agreed on, and some of the most intense 
discussions were over sequestration. As you probably know, last 
year at the Hague again the battle continued because in some 
sense I think some of us around the world feel that the United 
States' focusing on sequestration is in a sense trying to buy 
our way out without reducing our use. I always feel this is all 
about the result, and there are various ways to achieve the 
result. What you are talking about depends on new technologies, 
and what Dr. Brown has talked about, et cetera, et cetera.
    I wonder if you have thought about what Federal programs 
might be important for implementing the kinds of agricultural 
and forest measures that you have described in your testimony.
    Dr. Lal. Thank you, Senator. Two points: One, yes, I was at 
the Hague meeting, and I was also disappointed that the sinks 
were not accepted in the discussion. First of all, the U.S. 
probably has lost about 3 to 5 gigatons of carbon compared to 
the world soils having lost 66 to 90 gigatons, historic loss. 
We think most potential, in fact, even in developing countries, 
such as in Africa, South Asia, where the natural resources have 
been tremendously depleted, I am very much surprised often that 
that part equalized very well. How can we put that carbon back? 
Restoring degraded land, set aside land programs. CRP, the 
Conservation Reserve Program, has been a success.
    Conservation tilling certainly has a potential, but it has 
not been followed even in Ohio on a permanent basis. One crop 
is grown with conservation tilling and the next crop is not. 
While conservation tillings can lead to carbon sequestration, 
about 200 to 400 pounds per acre per year, if you plow next 
year, it goes back up again. So somehow the policy that the 
farmers are encouraged to adopt conservation tilling on a 
permanent basis would certainly be a solution.
    Reforestation of steep lands, degrading lands, minelands, 
in eastern Ohio, we worked with AEP on that program over the 
last 50 years, reclaiming mineland, put in about 35 tons of 
carbon back into the land over a 50-year period. So any 
forestation, in addition to sequestering carbon in the biomass, 
trees, obviously puts carbon back into the soil. I might 
mention that the residence time of carbon that goes in the soil 
is much longer than it is in the trees.
    So there are certain programs that we could support. 
Conservation tilling is one of them. Putting in cover crops, 
perhaps eliminating summer farrow in the western part of the 
region that is followed, putting any biomass back on the land. 
We have almost a billion tons of biosolids produced which are 
now considered as a liability. Ultimately, they could really 
prove to be an asset if they are put back on the land properly.
    Senator Lieberman. Thanks. I appreciate that answer.
    So I think all of you here, in one way or another, for the 
most part testify to the fact that this is a significant 
problem, but that there are many ways to go at it, including 
reduction of current emissions, as Mr. Rogers said; new 
technologies, as Dr. Brown said; sequestration, as Dr. Lal 
said, and the kind of focus and intensity that other witnesses 
have talked about because of the timelines involved here.
    So, anyway, I thank you very much for your helpful 
testimony. I hope we can go forward and find common ground and 
make something happen. Thank you.
    Senator Voinovich. Senator Chafee?
    Senator Chafee. Well, thank you, Mr. Chairman, once again, 
for having the hearing.
    Mr. Rogers, welcome and thank you for your patience also.
    It is heartening to hear your recognition that something 
has to be done, and your company's recognition of that. Could 
you comment on your competitors and how they are facing this 
issue and the reality that you have that something has to be 
done? How are your competitors reacting? How does that affect 
your company?
    Mr. Rogers. That is a tough question. I will say, let me 
just speak for the entire utility industry. If you look back to 
the mid-nineties and you look at how the electric utility 
industry stepped up on the climate challenge, I remember us 
sitting around saying, ``Can we hit a goal of reducing 40 
million tons a year on a voluntary program?'' when we stepped 
up in Vice President Gore's proposal with respect to the 
climate challenge. We all struggled with ourselves: Can we do 
it? Well, in 1999 we were able to do 120-plus million through a 
voluntary program. There has not been another industry in this 
country that has stepped up and dealt with the CO2 
issue the way the electric utility industry has over the last 
five to 6 years.
    Within my industry there are differing points of view with 
respect to this, and it is really a function of whether you 
generate electricity with nuclear or gas or coal. Everybody's 
position is almost a direct result of what their generation 
emits happens to be. But I think there are a number of 
companies in our industry, all of which are competitors of 
mine, who see the world in a similar way, that we have to deal 
with this issue; it is the right thing to do because it is a 
long-term problem, but we have got to get about doing it.
    One of the ways we talk about technology--and Senator 
Voinovich asked the question a few moments ago, how do you do 
it or pick it? One of the things we could well do as a program 
is, as part of the doing it now, you get credit to the extent 
you invest in technologies that could either lead to reductions 
of emissions of CO2 or new technologies that allow 
you to generate electricity in a more environmentally benign 
way or with less CO2 emissions than the current 
technologies.
    So there are a lot of ways, short of the government 
stepping up and investing, to stimulate investment going 
forward. I thought Dr. Brown, if you read carefully her 
testimony, there is a whole list of things. I think there are 
companies in our industry that are all--I mean, I am not the 
largest investor in wind. Florida Power and Light is the 
largest investor. If you look at other companies in the 
industry, we are all slowly but quietly positioning and moving 
ourselves to deal with this.
    Our challenge competitively, I would much rather know the 
rules because I am so dependent on coal. It is more valuable to 
me than guys who are dependent on nuclear. So, from my vantage 
point, the way I see the competition playing out, I need to 
know that answer for my shareholders and, most importantly, for 
my customers.
    Senator Chafee. Thank you, sir.
    Senator Voinovich. I visited the Gavin plant last week. The 
Gavin plant is one of the largest producers of electricity in 
the United States, the coal-fired facility. They put up a $600 
million scrub around the facility, and they are just finishing 
up with a new $200 million investment to deal with the NOx 
problem. They are going to be reducing NOx by about 90 percent. 
So there is still a little bit going on.
    I posed a question to them about the issue of 
CO2, and the reaction was that, first of all, the 
technology out there in terms of CO2 and what you do 
about it is not there. Their concern was that the cost of going 
the next step and dealing with CO2 would be very, 
very prohibitive and drive up the cost of their energy. It gets 
back to the old issue of, do you put a mandatory cap on what 
you can put out? The issue is, what is that cap? I think it was 
one of the witnesses earlier who said that he wasn't certain 
about a cap because, how do you figure it when you have a lot 
of people all over the world who are contributing to this 
problem?
    The issue is, if you did NOx, SOx, mercury, and came up 
with a program that didn't mandatory cap CO2, what 
would you recommend in exchange for not having the caps in 
terms of your industry dealing with this issue of 
CO2?
    Mr. Rogers. Senator Voinovich, a way to think about it that 
goes to your question and gives you specificity with respect to 
what to do going forward is you could have what I would call a 
voluntary opt-in program where, once you opt in, you have 
certain specific requirements. Every company would have to make 
the judgment with respect to what it did with respect to its 
competitive position going forward.
    The point of the matter is that it allows companies in our 
position that want to build coal plants, and are prepared to 
make commitments with respect to CO2--because the 
issue, and you said it right, I mean there is no technology 
today that reduces CO2 that you could put on the 
back end of your plant like you can do for SOx or NOx. But you 
do have the capability--I mean we have invested in co-
generation for companies like BP, where we are putting 800 
megawatts of co-generation in to buy heat and power that is 
very efficient in their Texas City plant. We are doing it with 
GM, our company is. We are doing it with Eastman Kodak in 
upstate New York, where we go in and operate the facilities and 
at the same time put in co-generation to buy heat and power 
that is significant reductions in CO2.
    So my point here is that you might not be able to reduce it 
for existing plants, but there is a whole set of other things 
that you can do. Most importantly, you can go after the issue 
with respect to incremental generation that has to be built in 
this country. As Vice President Cheney said in his speech in 
Toronto, he said we have to build one new power plant every 
week for the next 20 years. Now I am not going to quarrel with 
whether that is true or not, but if it is anywhere in that 
direction, we are going to have significant incremental 
emissions going forward.
    What I am suggesting to you, we need to be creative at 
coming up with an approach, whether it is a voluntary opt-in 
with a mandatory level or a combination carrot stick in terms 
of mandatory/voluntary pieces of this, but we need to deal with 
the incremental emissions. That is really going to be one of 
our greatest challenges.
    Senator Voinovich. Dr. Lal, Senator Lieberman talked about 
Kyoto. Why were the Europeans not willing to give us credit for 
sequestration?
    Dr. Lal. There are two reasons, Senator, that I can think 
of. When I talked to my colleagues from Norway, from Britain, 
from Germany, and other scientists and foresters, they were 
certainly agreed to the principles. The main problem is the 
land mass available for carbon sequestration in the United 
States, Canada, and Australia which does not exist with the 
countries in the European community. Therefore, that major one 
piece that is natural to the United States, to us here, is not 
available there. They do not have the possibility. That is one 
part.
    Second, I think there is clearly quite a lot of lack of 
information on soil carbon sequestration, on forest carbon 
sequestration that may be applied to get away from the fossil 
fuel combustion. I think it is important to make it clear to 
policymakers across the Atlantic that this is, indeed, a win/
win situation for all parties concerned, including natural 
resources, a good thing to do either way. I think it would be 
understood.
    My suggestion to my colleagues here at USDA and other 
places was perhaps we need to have a fact sheet which explains 
what carbon sequestration, what sink means, what could it do 
for the improvement of natural resources universally, 
especially in developing countries of Africa, South America, 
and Asia, which are now the so-called countries in dissent who 
are so much against it. I think it is a lack of understanding 
and information. We need to do a bit more public relations.
    Senator Voinovich. It is interesting listening to Dr. Lal. 
If you go back in your career, one of the bills that I was 
responsible for when I was in the State legislature was our 
reclamation act, which is a model for the rest of the country. 
Today if you travel to Ohio and go over the former strip mines 
and see all that land restored, and your testimony today makes 
me feel even better about the fact that we did it at the time, 
or our farmland preservation program in the State to try to 
preserve the farmland and our tree planting program. I must say 
that at the time that we were doing these things I didn't fully 
appreciate the impact that it would have on the issue of 
climate change. So it is a side benefit that we never 
anticipated.
    Senator Lieberman?
    Senator Lieberman. Thanks, Mr. Chairman. First of all, I 
want to tell you that unexpectedly I did spend a lot of time in 
and over Ohio last fall.
    [Laughter.]
    I was impressed by the greenery that I saw from land and 
air, and I thank you for the role you played in it.
    Dr. Brown and Dr. Edmonds, you both talked about the role 
technology, new technologies, can play in helping us deal with 
this problem. This is, after all, an age of technologies, new 
technologies, and it seems like that is the place we should 
look for help in solving this and other problems.
    Dr. Edmonds, if I read and heard you correctly, you said 
that you are concerned about current trends in research and 
development of new technologies in these areas, greenhouse gas-
causing areas particularly. I wonder if you could elucidate on 
that a bit and what concerns you.
    Dr. Edmonds. Thank you, Senator. One of the things that we 
learned in this Global Energy Technology Strategy Program--and 
I would be happy to make the summary report available to the 
staffs.
    It took 3 years of research. It was a public/private 
collaboration. It included sponsors from both the public sector 
and the private sector in the United States and around the 
world.
    One of the important findings that came out of that work 
was that, while a wide array of portfolio was needed to manage 
the risks that are associated with climate change, that, in 
fact, over the course of the period of time since the 1980's 
that in the United States and elsewhere the support for energy 
R&D in both the public sector and the private sector has 
declined. It has declined in the United States. If you go to 
Europe, you will find that it has declined precipitously. 
Declines of 70 percent or more are commonplace. This is a cause 
for alarm. So that was the first thing that struck me.
    Senator Lieberman. The first response to that would be for 
us, presumably, to increase investment in research and 
development through the Department of Energy and to create 
incentives for the private sector to do the same.
    Dr. Edmonds. Certainly, it would benefit us all to make 
those investments across the wide portfolio of energy R&D, and 
it is a wide portfolio. It ranges all the way from the basic 
sciences, the biological sciences that are going to be needed 
to undergird the development of a competitive commercial 
biomass industry, for example, to make the soil carbon not only 
the option that it is today, but to enhance it. That is going 
to require research.
    Also, the second thing that I think was really striking was 
that, while we do a pretty good job, I think, in allocating 
resources to the problem of addressing energy security, and 
therefore, we have a portfolio that includes solar, wind, 
geothermal, energy conservation, nuclear, and the performance 
of fossil fuels, those need to be continued. All the analysis 
we have done is predicated on the successful performance of 
those technologies.
    In addition, there is a whole suite of technologies which 
have particular leverage for the climate problem that are 
attractive candidates. They include the soils. They include 
captured sequestration of carbon, of fossil fuel use which 
would allow us to take advantage of this enormously abundant 
and inexpensive resource that is available to us. I think that 
is an important element.
    Also, the undergirding of research to make a hydrogen 
economy eventually possible, and that includes investments in 
material sciences, investments in fuel cell technology, and, 
finally, the investments in commercial biomass. It could start 
as tree planting. One of the things that is really interesting, 
if you take this long-term perspective that we have, is that 
tree planting always turns into biomass. It turns into biomass 
because trees grow, mature, and they stop taking up carbon. 
Eventually, you want to harvest them, turn them into energy, 
and use that land to grow the trees again.
    Senator Lieberman. Thanks. That was an excellent answer.
    Dr. Brown, let me ask you to become involved here and 
generally what the Federal Government can do to stimulate some 
of the new technologies that your report describes very well, 
and if you have any response to the question Mr. Rogers has 
posed in passing which is, what can we do to help them put 
something on the other end of that plant to reduce carbon 
emissions?
    Dr. Brown. Well, I guess I would like to underscore that, 
while we do need to invest in energy R&D, both basic and 
applied, to be able to continue to grow this portfolio of 
options, there are a lot of options that are cost-effective 
today, and every year there are more and more of them. In 
industrial facilities, for instance, the utilities that are 
used, the steam, the motors and drive systems, we have shown 
time and time again that you can go into those plants and you 
can conduct an audit and recommend that, for modest 
investments, there are opportunities to save a lot of energy 
with a one-, at most one-and-a-half, year payback.
    So I would like to suggest this: While it does take a long 
time for us to grow our energy supply options, probably more so 
for the central power plants, a little less so for the co-
generation and distributed power, that it hardly takes us any 
time to make the energy that we are using go further. So I 
would just like to reinforce that there is a whole suite of 
programs in place. They are in the Administration's proposed 
budget proposed to be significantly cut. I would argue that 
that is really cutting an energy supply resource because the 
savings can allow our energy supplies to go further.
    So it is not just the R&D program, which I really think is 
underinvested in. These are public/private partnerships where 
by sending a signal, a commitment, by the Federal Government, 
we work with our private companies and work together to develop 
solutions, there are also important deployment activities where 
we need to develop the software assessment, tools, the 
validated performance data to be able to show that 
opportunities that are cost-effective do exist.
    Senator Lieberman. Thanks. That was an excellent and 
hopeful answer. Thanks to the panel. They are very helpful to 
us.
    Senator Voinovich. The challenge I think is that there is a 
smorgasbord of things that we can give consideration to. We 
have a major problem in this country with something called New 
Source Review that came about as a result of a couple of years 
ago a reinterpretation of regulation under the Air Act that 
basically said that some of the things that utilities have done 
over a period of years required permits, and they didn't get 
them.
    One of the things we have to really grapple with now is to 
clear the air on that because there are just a lot of folks 
around that are not doing things that could make them more 
efficient, do a better job, because they are in limbo in terms 
of what it is that they can or cannot do. Some companies like 
Mr. Rogers' have paid a fine and agreed to do some things, and 
so forth. I think that is one area that has to be looked at.
    Then the next question is you have ``X'' number of dollars 
available and the government is involved; do you provide it in 
reductions, in credits given to companies to buy energy-
efficient machinery? For example, in Cincinnati, Ohio at 
Cincinnati Milicrom they have two types of injection molding 
machines. One of them burns an enormous amount of energy. The 
other one burns very little energy, but it is very, very 
expensive. They are advocating that we should reward people for 
buying the machinery that uses the very little amount of 
energy. So that is one investment you could make.
    Another would be some new technology that would help get 
into a new area of producing energy--biomass or whatever it 
would be, fuel cells--and how you allocate these resources in a 
way that makes the most sense overall. There is no question 
that we have a real challenge on our hands.
    I want to thank the panelists. I thought that you have 
different points of view, but I think there is a coming 
together that it is time in this country that we look at our 
energy needs, our environmental needs, and try to the best of 
our ability harmonize those so that we come up with some 
national energy policy that makes sense and takes into 
consideration the fact that the consumers are also in the room, 
and for the past number of years they haven't been there. They 
are real concerned about what we are doing in this area.
    I am sure that we will be calling upon some of you to help 
us grapple with this problem. I believe that if we put each 
other's shoes on, we can come up with something that is going 
to really be meaningful for our country. I really believe if we 
don't come up with this energy policy that is sensible, we are 
in deep trouble in terms of our competitive position in the 
world marketplace, and we should be leaders.
    Maybe we ought to go back and try to rewrite Kyoto and come 
back and say this thing started out maybe pie in the sky and 
wasn't realistic. Let's get real and come back with some stuff 
that we are willing to do and you are going to have to be 
willing to do it. It may not be as ambitious as what some would 
like it to be, but it does move us along in a way that makes 
sense.
    Thank you very much for coming today.
    [Whereupon, at 12:28 p.m., the committee was adjourned, to 
reconvene at the call of the chair.]
    [Additional statements submitted for the record follow:]
  Statement of Hon. Harry Reid, U.S. Senator from the State of Nevada
    I'm glad we're having this hearing, Mr. Chairman. I hope it leads 
to action soon.
    For every year that goes by without Congress or the President 
making a serious effort to reduce greenhouse gases, the odds increase 
that my grandchildren are going to inherit a warmer and more chaotic 
world.
    A recent study by scientists at the Massachusetts Institute of 
Technology calculates that there is a one in four chance that the world 
will warm between 5 and 7 degrees Fahrenheit in the next 100 years. I 
don't like those odds at all. Not when we're talking about the future. 
I hope we're going to spend more time on this complicated subject than 
the committee has to date. The committee hasn't looked at this matter 
directly for over 2 years.
    Our committee has a responsibility and the jurisdiction to develop 
legislation that reduces manmade emissions that cause or have the 
potential to cause harm to the environment and public health. It is far 
past time for this committee to do its duty and produce some proposals.
    I hope we can work together to develop bipartisan legislation to 
reduce emissions of greenhouse gases. I understand that my colleagues 
have been put in a difficult position by the President's decision to 
reverse his campaign promise on reductions of carbon dioxide from power 
plants.
    But, it's time for leadership and progress. I would like this 
committee to be the laboratory of new bipartisan initiatives for 
cutting greenhouse gases. We will just have to hope that the 
Administration is equally interested in such progress.
    There has been a lot of talk about voluntary versus mandatory 
requirements to reduce these gases. My colleagues know that the nation 
has a Senate-ratified commitment to reduce emissions to 1990 levels. 
That was to have been accomplished through voluntary measures. 
Unfortunately, we have failed miserably using voluntary means. We're 
now about 13 percent above our target.
    So, what we need is a comprehensive approach that achieves real net 
reductions by a time certain. I don't know of any other way to get the 
ball rolling.
    Carbon dioxide and other greenhouse gas emissions must come down. 
The Senate has already made that policy decision. Scientists at the 
IPCC (International Panel on Climate Change) and elsewhere can help us 
how to determine which policy options are most useful and when they 
should be implemented. But, it's time for opponents of that decision to 
work with us on real world reduction strategies.
    It's now our job to figure out how to accomplish that goal in the 
most effective and expeditious way. I'm glad we have some witnesses 
here on the second panel to tell us about policies we might adopt to 
move in the right direction.
    Unfortunately, from what little I've heard about the 
Administration's energy policy plan, it doesn't sound as if it moves in 
the right direction for climate purposes or for protecting the 
environment.
    We need a plan that reduces harmful emissions, not increases them. 
Press accounts describing the Administration plan say it would simply 
result in burning more fossil fuels. That's short-sighted and 
irresponsible. It has little or no chance of getting wide, bipartisan 
support.
    Emphasizing increased and inefficient fossil fuel use--when we know 
that carbon concentrations in the atmosphere are higher than they've 
been in 400,000 years--is a little bit like handing the Emperor Nero a 
fiddle to play while Rome burns.
    A strong and supportable energy plan would first emphasize 
renewable energy, energy efficiency and conservation. Then, once all 
the economically viable energy is wrung out of those resources, we can 
turn to cleaner and safer uses of coal and other traditional fuels.
    As my colleagues may have heard me say before, Nevada has a wealth 
of clean and climate-friendly renewable resources, particularly 
geothermal, wind and solar. We are more than willing to share our 
abundance with the nation. But, I can't support a plan that relegates 
these sources to obscurity. It wouldn't make economic or environmental 
sense for my State.
    Finally, Mr. Chairman, I want to be constructive and I want 
results. But, I'm not interested in amending the Clean Air Act or any 
other environmental statutes as part of an energy plan that doesn't 
make tangible cuts in greenhouse gases.

                               __________
  Statement of Hon. Max Baucus, U.S. Senator from the State of Montana
    Thank you, Mr. Chairman, for calling this timely hearing on such an 
important issue. I would also like to thank our distinguished panel of 
experts for testifying today.
    There was a time when I would have found it hard to believe that 
humans could do anything that would affect the weather. It was just 
something we had to learn to live with. But now, I accept the view of 
most scientists that our everyday activities are slowly changing the 
world's climate. In fact, there is evidence that a majority of the 
global warming of the past 50 years is attributable to human 
activities. While the effects may seem barely perceptible at first, 
they will grow over time and result in major changes that I have come 
to believe will alter our children's future.
    If left unchecked, many believe the growth in these emissions could 
have potentially serious effects. Rising global temperatures are 
expected to raise sea level, change precipitation and other local 
climate conditions. Changes in regional climates could alter forests, 
crop yields and water supplies. Such shifting climate patterns and more 
frequent violent weather, such as floods and droughts, could mean more 
trouble for Montana's and the nation's farming and ranching families 
and communities.
    I believe that we need to take action to address the consequences 
of climate change. Kyoto was an important first step. Although most 
agree that it would have been impossible for the United States and 
other developed nations to meet the emissions targets contained in the 
Kyoto Protocol, I don't think that abandoning the entire Protocol was 
the best approach. We can still work toward implementing some of the 
market-based mechanisms that were adopted in principle and Kyoto. We 
can still work to engage the entire world in trying to reach a workable 
solution. In reality, we have to engage the entire world, including 
developing nations.
    The simple fact is, developing countries, such as China, India and 
Brazil, emit about 40 percent of the world's greenhouse gases. We can't 
reach a solution by addressing only 60 percent of the problem. Unless 
all countries participate, we risk giving our competitors an unfair 
advantage. The participation of developing countries is absolutely 
necessary.
    Whether we like it or not, the world still looks to the United 
States to take the lead on this and many other important global issues. 
We can continue to advance the science of climate change and to pioneer 
research and development into advanced technologies that improve the 
efficiency of our power plants, automobiles and other greenhouse gas 
emitting facilities, technologies that we can export to the rest of the 
world. The worst thing we could do is abandon the issue entirely.
    I look forward to hearing the expert testimony of today's 
witnesses. I and my colleagues certainly appreciate your insight and 
knowledge on this issue.
                               __________
 Statement of Hon. Jon S. Corzine, U.S. Senator from the State of New 
                                 Jersey
    Thank you, Mr. Chairman. I want to commend you for holding this 
hearing on what I believe to be the most important environmental issue 
that we face--climate change. Mr. Chairman, this issue is enormously 
complex in every aspect. Scientifically. Economically. Politically.
    But complexity is no excuse for inattention or inaction. Because 
the health and viability of the global ecosystems upon which we all 
depend are at stake.
    I won't dwell here on the range and scope of potential climate 
change impacts, which are well documented elsewhere. Suffice it to say 
that no other issue that will come before this committee demands more 
serious attention. So I look forward to today's testimony on science 
and mitigation options, and I hope that this hearing is the beginning 
of a sustained effort. Because the time to act is now.
    The Intergovernmental Panel on Climate Change recently released its 
Third Assessment Report, and the science is increasingly clear and 
alarming. We know that human activities, primarily fossil fuel 
combustion, have raised the atmospheric concentration of carbon dioxide 
to the highest levels in the last 420,000 years. We know that the 
planet is warming, and that the balance of the scientific evidence 
suggests that most of the recent warming can be attributed to increased 
atmospheric greenhouse gas levels. We know that without concerted 
action by the U.S. and other countries, greenhouse gases will continue 
to increase. Finally, we know that climate models have improved, and 
that these models predict warming under all scenarios that have been 
considered. Even the smallest warming predicted by current models--2.5 
degrees Fahrenheit over the next century--would represent the greatest 
rate of increase in global mean surface temperature in the last 10,000 
years.
    Mr. Chairman, when I consider these findings, I conclude that we 
need to begin now to mitigate climate change. We can and should improve 
the science of climate change. But a call for more research should not 
obscure or minimize what we already know.
    Mr. Chairman, the Senate--and the Environment Committee in 
particular--needs to provide leadership on this issue. President Bush 
has pulled back from the Kyoto protocol, leaving a policy vacuum in his 
wake. He has pledged to craft an alternative to Kyoto, but in the 
meantime, he will soon issue an energy policy proposal that, by all 
reports, will not address climate change in a meaningful way. If this 
is true--and I sincerely hope that it is not--then we can only conclude 
that President Bush is not serious about addressing climate change.
    So the task of dealing with climate change would appear to fall to 
us. Mr. Chairman, current and future generations are depending on us. 
To give you one example, the people of New Jersey are depending on me 
to protect their treasured Atlantic Ocean beaches. Like all coastal 
areas, these beaches are threatened by projected changes in sea levels 
due to climate change. I am concerned about this impact. I am concerned 
about climate change impacts across New Jersey, the country and the 
globe.
    I look forward to hearing from our witnesses. I hope that they can 
help us to identify sensible mitigation policy options that the 
committee can continue to work on. Thank you.
                               __________
     Statement of Richard S. Lindzen, Alfred P. Sloan Professor of 
           Meteorology, Massachusetts Institute of Technology
    I wish to thank Senator Voinovich, Senator Smith and the 
Environment and Public Works Committee for the opportunity to clarify 
the nature of consensus and skepticism in the Climate Debate. I have 
been involved in climate and climate related research for over 30 years 
during which time I have held professorships at the University of 
Chicago, Harvard University and MIT. I am a member of the National 
Academy of Sciences, and the author or coauthor of over 200 papers and 
books. I have also been a participant in the proceedings of the IPCC 
(the United Nation's Intergovernmental Panel on Climate Change). The 
questions I wish to address are the following: What can we agree on and 
what are the implications of this agreement? What are the critical 
areas of disagreement? What is the origin of popular perceptions? I 
hope it will become clear that the designation, ``skeptic,'' simply 
confuses an issue where popular perceptions are based in significant 
measure on misuse of language as well as misunderstanding of science. 
Indeed, the identification of some scientists as ``skeptics'' permits 
others to appear ``mainstream'' while denying views held by the so-
called ``skeptics'' even when these views represent the predominant 
views of the field.
    Climate change is a complex issue where simplification tends to 
lead to confusion, and where understanding requires thought and effort. 
Judging from treatments of this issue in the press, the public has 
difficulty dealing with numerical magnitudes and focuses instead on 
signs (increasing v. decreasing); science places crucial emphasis on 
both signs and magnitudes. To quote the great 19th Century English 
scientist, Lord Kelvin, ``When you can measure what you are speaking 
about and express it in numbers, you know something about it; but when 
you cannot measure it, when you cannot express it in numbers, your 
knowledge is of a meager and unsatisfactory kind.''
    As it turns out, much of what informed scientists agree upon is 
barely quantitative at all:

      that global mean temperature has probably increased over 
the past century,
      that CO2 in the atmosphere has increased over 
the same period,
      that the added CO2 is more likely to have 
caused global mean temperature to increase rather than decrease, and
      that man, like the butterfly, has some impact on climate.

    Such statements have little relevance to policy, unless 
quantification shows significance.
    The media and advocacy groups have, however, taken this agreement 
to mean that the same scientists must also agree that global warming 
``will lead to rising sea waters, droughts and agriculture disasters in 
the future if unchecked'' (CNN). According to Deb Callahan, president 
of the League of Conservation Voters, ``Science clearly shows that we 
are experiencing devastating impacts because of carbon dioxide 
pollution.'' (Carbon dioxide, as a ``pollutant'' is rather singular in 
that it is a natural product of respiration, non-toxic, and essential 
for life.) The accompanying cartoon suggests implications for severe 
weather, the ecosystem, and presumably plague, floods and droughts (as 
well as the profound politicization of the issue). Scientists who do 
not agree with the catastrophe scenarios are assumed to disagree with 
the basic statements. This is not only untrue, but absurdly stupid.
    Indeed, the whole issue of consensus and skeptics is a bit of a red 
herring. If, as the news media regularly report, global warming is the 
increase in temperature caused by man's emissions of CO2 
that will give rise to rising sea levels, floods, droughts, weather 
extremes of all sorts, plagues, species elimination, and so on, then it 
is safe to say that global warming consists in so many aspects, that 
widespread agreement on all of them would be suspect ab initio. If it 
truly existed, it would be evidence of a thoroughly debased field. In 
truth, neither the full text of the IPCC documents nor even the 
summaries claim any such agreement. Those who insist that the science 
is settled should be required to state exactly what science they feel 
is settled. In all likelihood, it will turn out to be something trivial 
and without policy implications except to those who bizarrely subscribe 
to the so-called precautionary principle a matter I will return to 
later. (Ian Bowles, former senior science advisor on environmental 
issues at the NSC, published such a remark on 22 April in the Boston 
Globe: ``the basic link between carbon emissions, accumulation of 
greenhouse gases in the atmosphere, and the phenomenon of climate 
change is not seriously disputed in the scientific community.'' I think 
it is fair to say that statements concerning matters of such complexity 
that are not disputed are also likely to be lacking in policy relevant 
content. However, some policymakers apparently think otherwise in a 
cultural split that may be worthy of the late C.P. Snow's attention.)
    The thought that there might be a central question, whose 
resolution would settle matters, is, of course, inviting, and there 
might, in fact, be some basis for optimism. While determining whether 
temperature has increased or not is not such a question, the 
determination of climate sensitivity might be. Rather little serious 
attention has been given to this matter (though I will mention some in 
the course of this testimony). However, even ignoring this central 
question, there actually is much that can be learned simply by sticking 
to matters where there is widespread agreement. For example, there is 
widespread agreement:

      that CO2 levels have increased from about 
280ppm to 360ppm over the past century, and, that combined with 
increases in other greenhouse gases, this brings us about half way to 
the radiative forcing associated with a doubling of CO2 
without any evidence of enhanced human misery.
      that the increase in global mean temperature over the 
past century is about 1F which is smaller than the normal interannual 
variability for smaller regions like North America and Europe, and 
comparable to the interannual variability for the globe. Which is to 
say that temperature is always changing, which is why it has proven so 
difficult to demonstrate human agency.
      that doubling CO2 alone will only lead to 
about a 2F increase in global mean temperature. Predictions of greater 
warming due to doubling CO2 are based on positive feedbacks 
from poorly handled water vapor and clouds (the atmosphere's main 
greenhouse substances) in current computer models. Such positive 
feedbacks have neither empirical nor theoretical foundations. Their 
existence, however, suggests a poorly designed earth which responds to 
perturbations by making things worse.
      that the most important energy source for extratropical 
storms is the temperature difference between the tropics and the poles 
which is predicted by computer models to decrease with global warming. 
This also implies reduced temperature variation associated with weather 
since such variations result from air moving from one latitude to 
another. Consistent with this, even the IPCC Policymakers Summary notes 
that no significant trends have been identified in tropical or 
extratropical storm intensity and frequency. Nor have trends been found 
in tornadoes, hail events or thunder days.
      that warming is likely to be concentrated in winters and 
at night. This is an empirical result based on data from the past 
century. It represents what is on the whole a beneficial pattern.
      that temperature increases observed thus far are less 
than what models have suggested should have occurred even if they were 
totally due to increasing greenhouse emissions. The invocation of very 
uncertain (and unmeasured) aerosol effects is frequently used to 
disguise this. Such an invocation makes it impossible to check models. 
Rather, one is reduced to the claim that it is possible that models are 
correct.
      that claims that man has contributed any of the observed 
warming (i.e., attribution) are based on the assumption that models 
correctly predict natural variability. Such claims, therefore, do not 
constitute independent verifications of models. Note that natural 
variability does not require any external forcing natural or 
anthropogenic.
      that large computer climate models are unable to even 
simulate major features of past climate such as the 100 thousand year 
cycles of ice ages that have dominated climate for the past 700 
thousand years, and the very warm climates of the Miocene, Eocene, and 
Cretaceous. Neither do they do well at accounting for shorter period 
and less dramatic phenomena like El Ninos, quasi-biennial oscillations, 
or intraseasonal oscillations all of which are well documented in the 
data.
      that major past climate changes were either uncorrelated 
with changes in CO2 or were characterized by temperature 
changes which preceded changes in CO2 by 100's to 1000's of 
years.
      that increases in temperature on the order of 1F are not 
catastrophic and may be beneficial.
      that Kyoto, fully implemented, will have little 
detectable impact on climate regardless of what one expects for 
warming. This is partly due to the fact that Kyoto will apply only to 
developed nations. However, if one expected large global warming, even 
the extension of Kyoto to developing nations would still leave one with 
large warming.

    None of the above points to catastrophic consequences from 
increasing CO2. Most point toward, and all are consistent 
with minimal impacts. Moreover, the last item provides a definitive 
disconnect between Kyoto and science. Should a catastrophic scenario 
prove correct, Kyoto will not prevent it. If we view Kyoto as an 
insurance policy, it is a policy where the premium appears to exceed 
the potential damages, and where the coverage extends to only a small 
fraction of the potential damages. Does anyone really want this? I 
suspect not. Given the rejection of the extensive U.S. concessions at 
the Hague, it would appear that the Europeans do not want the treaty, 
but would prefer that the United States take the blame for ending the 
foolishness. As a practical matter, a large part of the response to any 
climate change, natural or anthropogenic, will be adaptation, and that 
adaptation is best served by wealth.
    Our own research suggests the presence of a major negative feedback 
involving clouds and water vapor, where models have completely failed 
to simulate observations (to the point of getting the sign wrong for 
crucial dependences). If we are right, then models are greatly 
exaggerating sensitivity to increasing CO2. Even if we are 
not right (which is always possible in science; for example, IPCC 
estimates of warming trends for the past 20 years were almost 
immediately acknowledged to be wrong so too were claims for arctic ice 
thinning ), the failure of models to simulate observations makes it 
even less likely that models are a reliable tool for predicting 
climate.
    This brings one to what is probably the major point of 
disagreement:

    Can one trust computer climate models to correctly predict the 
response to increasing CO2?

    As the accompanying cartoon suggests, our experience with weather 
forecasts is not particularly encouraging though it may be argued that 
the prediction of gross climate changes is not as demanding as 
predicting the detailed weather. Even here, the situation is nuanced. 
From the perspective of the precautionary principle, it suffices to 
believe that the existence of a computer prediction of an adverse 
situation means that such an outcome is possible rather than correct in 
order to take ``action.'' The burden of proof has shifted to proving 
that the computer prediction is wrong. Such an approach effectively 
deprives society of science's capacity to solve problems and answer 
questions. Unfortunately, the incentive structure in today's scientific 
enterprise contributes to this impasse. Scientists associate public 
recognition of the relevance of their subject with support, and 
relevance has come to be identified with alarming the public. It is 
only human for scientists to wish for support and recognition, and the 
broad agreement among scientists that climate change is a serious issue 
must be viewed from this human perspective. Indeed, public perceptions 
have significantly influenced the science itself. Meteorologists, 
oceanographers, hydrologists and others at MIT have all been 
redesignated climate scientists indicating the degree to which 
scientists have hitched their futures to this issue.
    That said, it has become common to deal with the science by 
referring to the IPCC ``scientific consensus.'' Claiming the agreement 
of thousands of scientists is certainly easier than trying to 
understand the issue or to respond to scientific questions; it also 
effectively intimidates most citizens. However, the invocation of the 
IPCC is more a mantra than a proper reflection on that flawed document. 
The following points should be kept in mind. (Note that almost all 
reading and coverage of the IPCC is restricted to the highly publicized 
Summaries for Policymakers which are written by representatives from 
governments, NGO's and business; the full reports, written by 
participating scientists, are largely ignored.) In what follows, I will 
largely restrict myself to the report of Working Group I (on the 
science). Working Groups II and III dealt with impacts and responses.
      The media reports rarely reflect what is actually in the 
Summary. The media generally replace the IPCC range of ``possible'' 
temperature increases with ``as much as'' the maximum despite the 
highly unlikely nature of the maximum. The range, itself, assumes, 
unjustifiably, that at least some of the computer models must be 
correct. However, there is evidence that even the bottom of the range 
is an overestimate. (A recent study at MIT found that the likelihood of 
actual change being smaller than the IPCC lower bound was 17 times more 
likely than that the upper range would even be reached, and even this 
study assumed natural variability to be what computer models predicted, 
thus exaggerating the role of anthropogenic forcing.) The media report 
storminess as a consequence despite the admission in the summary of no 
such observed relation. To be sure, the summary still claims that such 
a relation may emerge despite the fact that the underlying physics 
suggests the opposite. The media's emphasis on increased storminess, 
rising sea levels, etc. is based not on any science, but rather on the 
fact that such features have more graphic impact than the rather small 
increases in temperature. People who have experienced day and night and 
winter and summer have experienced far greater changes in temperature, 
and retirement to the sun belt rather than the Northwest Territory 
represents an overt preference for warmth.
      The summary does not reflect the full document (which 
still has not been released although it was basically completed last 
August). For example, I worked on Chapter 7, Physical Processes. This 
chapter dealt with the nature of the basic processes which determine 
the response of climate, and found numerous problems with model 
treatments especially with clouds and water vapor. The chapter was 
summarized with the following sentence: ``Understanding of climate 
processes and their incorporation in climate models have improved, 
including water vapor, sea-ice dynamics, and ocean heat transport.''
      The vast majority of participants played no role in 
preparing the summary, and were not asked for agreement.
      The draft of the Policymakers Summary was significantly 
modified at Shanghai. The IPCC, in response to the fact that the 
Policymakers Summary was not prepared by participating scientists, 
claimed that the draft of the Summary was prepared by a (selected) 
subset of the 14 coordinating lead authors. However, the final version 
of the summary differed significantly from the draft. For example the 
draft concluded the following concerning attribution:

    From the body of evidence since IPCC (1996), we conclude that there 
has been a discernible human influence on global climate. Studies are 
beginning to separate the contributions to observed climate change 
attributable to individual external influences, both anthropogenic and 
natural. This work suggests that anthropogenic greenhouse gases are a 
substantial contributor to the observed warming, especially over the 
past 30 years. However, the accuracy of these estimates continues to be 
limited by uncertainties in estimates of internal variability, natural 
and anthropogenic forcing, and the climate response to external 
forcing.

    The version that emerged from Shanghai concludes instead:

    In the light of new evidence and taking into account the remaining 
uncertainties, most of the observed warming over the last 50 years is 
likely to have been due to the increase in greenhouse gas 
concentrations.

    In point of fact, there may not have been any significant warming 
in the last 60 years. Moreover, such warming as may have occurred was 
associated with jumps that are inconsistent with greenhouse warming.
      The preparation of the report, itself, was subject to 
pressure. There were usually several people working on every few pages. 
Naturally there were disagreements, but these were usually hammered out 
in a civilized manner. However, throughout the drafting sessions, IPCC 
``coordinators'' would go around insisting that criticism of models be 
toned down, and that ``motherhood'' statements be inserted to the 
effect that models might still be correct despite the cited faults. 
Refusals were occasionally met with ad hominem attacks. I personally 
witnessed coauthors forced to assert their ``green'' credentials in 
defense of their statements.
    None of the above should be surprising. The IPCC was created to 
support the negotiations concerning CO2 emission reductions. 
Although the press frequently refers to the hundreds and even thousands 
of participants as the world's leading climate scientists, such a claim 
is misleading on several grounds. First, climate science, itself, has 
traditionally been a scientific backwater. There is little question 
that the best science students traditionally went into physics, math 
and, more recently, computer science. Thus, speaking of ``thousands'' 
of the world's leading climate scientists is not especially meaningful. 
Even within climate science, most of the top researchers (at least in 
the US) avoid the IPCC because it is extremely time consuming and non-
productive. Somewhat ashamedly I must admit to being the only active 
participant in my department. None of this matters a great deal to the 
IPCC. As a U.N. activity, it is far more important to have participants 
from a hundred countries many of which have almost no active efforts in 
climate research. For most of these participants, involvement with the 
IPCC gains them prestige beyond what would normally be available, and 
these, not surprisingly, are likely to be particularly supportive of 
the IPCC. Finally, judging from the Citation Index, the leaders of the 
IPCC process like Sir John Houghton, Dr. Robert Watson, and Prof. Bert 
Bolin have never been major contributors to basic climate research. 
They are, however, enthusiasts for the negotiating process without 
which there would be no IPCC, which is to say that the IPCC represents 
an interest in its own right. Of course, this hardly distinguishes the 
IPCC from other organizations.
    The question of where do we go from here is an obvious and 
important one. From my provincial perspective, an important priority 
should be given to figuring out how to support and encourage science 
(and basic science underlying climate in particular) while removing 
incentives to promote alarmism. The benefits of leaving future 
generations a better understanding of nature would far outweigh the 
benefits (if any) of ill thought out attempts to regulate nature in the 
absence of such understanding. With respect to any policy, the advice 
given in the 1992 report of the NRC, Policy Implications of Greenhouse 
Warming, remains relevant: carry out only those actions which can be 
justified independently of any putative anthropogenic global warming. 
Here, I would urge that even such actions not be identified with 
climate unless they can be shown to significantly impact the radiative 
forcing of climate. On neither ground independent justification or 
climatic relevance is Kyoto appropriate.
                                 ______
                                 
   Responses by Dr. Richard S. Lindzen to Additional Questions from 
                              Senator Reid
    Question 1. Have you received funds for climate related research 
from non-governmental sources? If so, please generally identify those 
sources.
    Response. I already answered this question in the hearing. The 
answer remains ``no.'' That said, I have no objections in principle to 
such support. However, private sources have demonstrably favored 
scientists supportive of global warming.

    Question 2. ``Broadly unsuccessful and unreliable'' are the terms 
that you used to describe the climate models employed by your 
colleagues at MIT. Why would they bother using such flawed instruments?
    Response. I cannot speak for my colleagues, but several answers are 
commonly offered:

  a. They are using the models, not to make forecasts, but to see what 
    possibilities exist for interactions.
  b. The models, themselves, are considered ``works in progress.''

    Question 3. Dr. Trenberth stated that your assertions and 
assumptions that warming is not happening at the rate generally 
accepted by a majority of the scientific community also rely on models. 
Could you respond, including an indication of which models you rely 
upon and the uncertainty associated with those models?
    Response. What I believe Dr. Trenberth was referring to was not any 
specific model, but rather a model input. I was speaking of the 
response of models to the known increase in anthropogenic greenhouse 
gases. ALL current large scale models show much more warming than has 
been observed. They get around this by putting arbitrary amounts of 
sulfate aerosol into their models so as to cancel the effect of 
greenhouse gases. Thus, models with widely varying responses to 
greenhouse gases can all be made to roughly agree with the surface 
record of the past century.

    Question 4. You quoted from an old National Research Council (1992) 
and maintain that it remains relevant. Policymakers should``. . . carry 
out only those actions which can be justified independently of any 
putative anthropogenic global warming.'' Since you acquire that opinion 
by association, what would constitute satisfactory independent 
justification?
    Response. I am not sure what you are talking about. All the 
recommendation was meant to say was that the degree of uncertainty did 
not warrant actions that were not worth pursuing in their own right. 
The degree of uncertainty has not changed appreciably since the earlier 
NRC report.

    Question 5. Can the climate system tolerate infinite anthropogenic 
increases in carbon dioxide and other greenhouse gases without change?
    If the answer is no, what and when is the breakpoint that must be 
avoided to prevent significant harm to private property, the 
environment and public health?
    If your answer is that it is not possible to know that yet, what 
information would be necessary to determine that anthropogenic 
emissions should be reduced and, given the residence time of these 
gases in the atmosphere, how far in advance must we have that 
information to take policy action to avert significant harm to private 
property, the environment and public health?
    Response. There is no physical possibility of infinite 
anthropogenic increase in carbon dioxide and other greenhouse gases. As 
noted in the recent NRC report to the White House, the earth remained 
thriving during earlier periods with far more carbon dioxide than have 
been forecast in any current scenario. However, levels about 3-4 times 
those at present would likely create sufficient changes as to require a 
measure of adaptation beyond what normal climate changes call for. We 
have, in my opinion, at least a century to monitor the system in order 
to see if actions will be needed to preclude such a possibility. This 
will leave, in my opinion, adequate time to take suitable measures 
especially since we can reasonably assume that we will have greater 
resources at that time to do so. Should I prove wrong, evidence over 
the next 30 years will show this. A program of measures concentrating 
on the most short lived substances should then provide mitigation while 
longer term measures of mitigation and adaptation are prepared. Rushing 
at present seems likely to incur the very harm to the environment, 
private property and public health that you wish to avoid. After all, 
the warming over the past century has been accompanied with great 
increases in wealth, health, and general well being. It would, 
therefore, be difficult to justify great expense to avoid that measure 
of warming, and warming over the next century may, in fact, be even 
smaller quite apart from any actions we take. Indeed, one matter on 
which there is widespread scientific agreement, is that the measures 
agreed to by diplomats at Kyoto would have no discernible impact on 
climate regardless of what views one may hold on the matter.
                               __________
 Statement of Dr. Kevin E. Trenberth, National Center for Atmospheric 
                                Research
Introduction
    My name is Kevin Trenberth. I am the Head of the Climate Analysis 
Section at NCAR, the National Center for Atmospheric Research. I am 
especially interested in global-scale climate dynamics; the 
observations, processes and modeling of climate changes from 
interannual to centennial time scales. I have served on many national 
and international committees including National Research Council/
National Academy of Science committees, panels and/or boards. I served 
on the National Research Council Panel on Reconciling observations of 
global temperature change, whose report was published in January 2000. 
I co-chaired the international CLIVAR Scientific Steering Group of the 
World Climate Research Programme (WCRP) from 1996 to 1999 and I remain 
a member of that group as well as the Joint Scientific Committee that 
oversees the WCRP as a whole. CLIVAR is short for Climate Variability 
and Predictability and it deals with variability from El Nino to global 
warming. I have been involved in the global warming debate and I have 
been extensively involved in the Intergovernmental Panel on Climate 
Change (IPCC) scientific assessment activity as a lead author of 
individual chapters, the Technical Summary, and Summary for Policy 
Makers (SPM) of Working Group (WG) I.
    The IPCC is a body of scientists from around the world convened by 
the United Nations jointly under the United Nations Environment 
Programme (UNEP) and the World Meteorological Organization (WMO) and 
initiated in 1988. Its mandate is to provide policymakers with an 
objective assessment of the scientific and technical information 
available about climate change, its environmental and socio-economic 
impacts, and possible response options. The IPCC reports on the science 
of global climate change and the effects of human activities on climate 
in particular. Major assessments were made in 1990, 1995 and now 2001. 
Each new IPCC report reviews all the published literature over the 
previous 5 years or so, and assesses the state of knowledge, while 
trying to reconcile disparate claims and resolve discrepancies, and 
document uncertainties.
    WG I deals with how the climate has changed and the possible 
causes. It considers how the climate system responds to various agents 
of change and our ability to model the processes involved as well as 
the performance of the whole system. It further seeks to attribute 
recent changes to the possible various causes, including the human 
influences, and thus it goes on to make projections for the future. WG 
II deals with impacts of climate change and options for adaptation to 
such changes, and WG III deals with options for mitigating and slowing 
the climate change, including possible policy options. Each WG is made 
up of participants from the United Nations countries, and for the 2001 
assessment, WG I consisted of 123 lead authors, 516 contributors, 21 
review editors, and over 700 reviewers. The IPCC process is very open. 
Two major reviews were carried out in producing the report, and 
skeptics can and do participate, some as authors. The strength is that 
the result is a consensus report. The SPM was approved line by line by 
governments in a major meeting. The rationale is that the scientists 
determine what can be said, but the governments determine how it can 
best be said. Negotiations occur over wording to ensure accuracy, 
balance, clarity of message, and relevance to understanding and policy. 
The latest report (IPCC 2001) reaffirms in much stronger language that 
the climate is changing in ways that cannot be accounted for by natural 
variability and that ``global warming'' is happening. A summary and 
commentary is given in Trenberth (2001).
    Observed Climate Change Analyses of observations of surface 
temperature show that there has been a global mean temperature increase 
of about 1.2 F over the past one hundred years. The calendar year 1998 
is the warmest on record, exceeding the previous record held by 1997. 
Preliminary annual global mean temperatures in the latest year, 2000, 
were about the same as for 1999. The 1990's are the warmest decade on 
record. Synthesis of information from tree rings, corals, ice cores and 
historical data further indicates that these years are the warmest in 
at least the past 1000 years for the Northern Hemisphere, which is as 
far back as annual-resolution hemispheric estimates of temperatures can 
be made. The melting of glaciers over most of the world and rising sea 
levels confirm the reality of the global temperature increases. The 
warming is observed over land and ocean, and over both hemispheres. It 
is not an urban heat island effect. Further supporting evidence comes 
from the substantial retreat and thinning of Arctic sea ice, increased 
temperatures throughout the upper layers of the global oceans, 
decreases in Northern Hemisphere snow cover and in the freezing season 
of lakes and rivers.
    There is good evidence for decadal changes in the atmospheric 
circulation and for ocean changes. These mean that increases in 
temperature are not uniform or monotonic; some places warm more than 
the average and some places cool. A good example is the past winter, 
where it was cold and temperatures were well below average in most of 
the lower 48 States, but Alaska had its warmest winter on record, 
averaging 9 F above normal. Similarly it was very warm throughout 
Europe.
    Changes in precipitation and other components of the hydrological 
cycle vary considerably geographically. It is likely that precipitation 
has increased by perhaps 1 percent/decade in the 20th Century over most 
mid and high latitude continents of the Northern Hemisphere. Over the 
United States, surface temperatures have not risen as much as over 
Eurasia and instead it has become wetter, with more very heavy events, 
and this pattern has been shown to be a response to the general warming 
of the tropical oceans (Hoerling et al. 2001). Changes in climate 
variability and extremes are beginning to emerge.
    One persistent issue has been the discrepancy in trends from the 
so-called satellite temperature record and that at the surface. The 
satellite record begins in 1979 and measures microwave radiation from 
the Earth coming from about the lowest 5 miles of the atmosphere. 
Consequently it does not measure the same thing as the surface 
temperature. Climate models run with increasing greenhouse gases 
suggest that warming in the lower atmosphere should be larger than at 
the surface whereas the observed record shows much less warming from 
1979-1999 and this has been highlighted by skeptics. However, when 
observed stratospheric ozone depletion is included, the models suggest 
that the surface and tropospheric temperatures should increase at about 
the same rate. In fact this is what has happened from about 1960 to the 
present based on balloon observations that replicate the satellite 
record after 1979. The shorter satellite record is influenced by El 
Nino and effects of volcanic eruptions, and thus the Mt. Pinatubo 
eruption in 1991 leads to a relative downward trend in the lower 
atmosphere. Other effects, such as from cloudiness changes, have not 
been quantified but also influence the two records differently. 
Accordingly, the small trend in the satellite record is not 
inconsistent with the observed larger trend in surface temperatures 
(NRC 2000).
Human Influences
    The amount of carbon dioxide in the atmosphere has increased by 
about 31 percent since the beginning of the industrial revolution, from 
280 parts per million by volume (ppm) to 367 ppm, owing mainly to 
combustion of fossil fuels and the removal of forests. In the absence 
of controls, future projections are that the rate of increase in carbon 
dioxide amount may accelerate and concentrations could double from pre-
industrial values within the next 50 to 100 years. Several other 
greenhouse gases are also increasing in concentration in the atmosphere 
from human activities (especially biomass burning, agriculture, animal 
husbandry, fossil fuel use and industry, and through creation of 
landfills and rice paddies). These include methane, nitrous oxide, the 
chlorofluorocarbons (CFCs) and tropospheric ozone, and they tend to 
reinforce the changes from increased carbon dioxide. However, the 
observed decreases in lower stratospheric ozone since the 1970's, 
caused principally by human-introduced CFCs, contribute to a small 
cooling.
    Human activities also affect the tiny airborne particulates in the 
atmosphere, called aerosols, which influence climate in other ways. 
Aerosols occur in the atmosphere from natural causes; for instance, 
they are blown off the surface of deserts or dry regions. The eruption 
of Mt. Pinatubo in the Philippines in June 1991 added considerable 
amounts of aerosol to the stratosphere which, for about 2 years, led to 
a loss of radiation at the surface and a cooling. Human activities 
contribute to aerosol particle formation mainly through injection of 
sulfur dioxide into the atmosphere (which contributes to acid rain) 
particularly from power stations, and through biomass burning. A direct 
effect of resulting sulfate aerosols, which are seen as the milky 
whitish haze from airplane windows, is the reflection of a fraction of 
solar radiation back to space, which tends to cool the Earth's surface. 
Other aerosols (like soot) directly absorb solar radiation leading to 
local heating of the atmosphere, and some absorb and emit infrared 
radiation. A further influence of aerosols is that many act as nuclei 
on which cloud droplets condense, affecting the number and size of 
droplets in a cloud and hence altering the reflection and the 
absorption of solar radiation by the cloud. Because man-made aerosols 
are mostly introduced near the Earth's surface where they can be washed 
out of the atmosphere by rain, they typically remain in the atmosphere 
for only a few days and they tend to be concentrated near their sources 
such as industrial regions. They therefore affect climate with a very 
strong regional pattern and usually produce cooling. In contrast, the 
greenhouse gases are not washed out. Their long lifetimes ensure a 
buildup in amounts over time, as is observed to be happening.
    The determination of the climatic response to the changes in 
heating and cooling is complicated by feedbacks. Some of these can 
amplify the original warming (positive feedback) while others serve to 
reduce it (negative feedback). If, for instance, the amount of carbon 
dioxide in the atmosphere were suddenly doubled, but with other things 
remaining the same, the outgoing long-wave radiation would be reduced 
and instead trapped in the atmosphere. To restore the radiative 
balance, the atmosphere must warm up and, in the absence of other 
changes, the warming at the surface and throughout the troposphere 
would be about 1.2 C. In reality, many other factors will change, and 
various feedbacks come into play, so that the best IPCC estimate of the 
average global warming for doubled carbon dioxide is 2.5 C. In other 
words, the net effect of the feedbacks is positive and roughly doubles 
the response otherwise expected. The main positive feedback comes from 
increases in water vapor with warming.
    In 2001, the IPCC gave special attention to this topic. The many 
issues with water vapor and clouds were addressed at some length in 
Chapter 7 (of which I was a lead author, along with Professor Richard 
Lindzen (M.I.T.), and others). Recent possibilities that might nullify 
global warming (Lindzen 2001) were considered but not accepted because 
they run counter to the prevailing evidence, and the IPCC (Stocker et 
al. 2001) concluded that ``the balance of evidence favours a positive 
clear sky water vapor feedback of the magnitude comparable to that 
found in the simulations.''
    Increases in greenhouse gases in the atmosphere produce global 
heating (``global warming'') which leads to expectations for increases 
in global mean temperatures (often mistakenly thought of as global 
warming), but other changes in weather are also important. In 
particular, surface heating enhances the evaporation of moisture and 
thus enhances the hydrological cycle (see Trenberth 1999). Global 
temperature increases signify that the water-holding capacity of the 
atmosphere increases and, together with enhanced evaporation, this 
means that the actual atmospheric moisture should increase, as is 
observed to be happening in many places. Because water vapor is a 
powerful greenhouse gas, this provides a positive feedback. It also 
follows that naturally occurring droughts are likely to be exacerbated 
by enhanced drying. Thus droughts, such as those set up by El Nino, are 
likely to set in quicker, plants wilt sooner, and the droughts may 
become more extensive and last longer with global warming. Once the 
land is dry then all the solar radiation goes into raising temperature, 
bringing on sweltering heat waves. Further, globally there must be an 
increase in precipitation to balance the enhanced evaporation. The 
presence of increased moisture in the atmosphere implies stronger 
moisture flow converging into precipitating weather systems. This leads 
to the expectation of enhanced rainfall and snowfall events, which are 
also being observed in many areas. In general, it is observed that 
where an increase in precipitation occurs, more falls as heavy events, 
increasing risk of flooding.
Modeling and Attribution of Climate Change
    The best climate models encapsulate the current understanding of 
the physical processes involved in the climate system, the 
interactions, and the performance of the system as a whole. They have 
been extensively tested and evaluated using observations. They are 
exceedingly useful tools for carrying out numerical climate 
experiments, but they are not perfect, and so have to be used carefully 
(Trenberth 1997). Key issues in global climate change remain those of 
first detecting whether the recent climate is different than should be 
expected from natural variability, and second attributing the climate 
changes to various causes, including the human influences. The latest 
models have increasingly been able to reproduce the climate of the past 
century or so. Also their estimates of natural variability are 
compatible with those from the paleoclimate reconstructions. As a 
result, they can break down the contributions to the warming into 
components. Increases in solar luminosity probably were responsible for 
some of the warming from about 1910 to 1950 (perhaps as much as 0.3 F), 
but the warming of about 0.7 F in the past 30 years can only be 
accounted for by the increases in greenhouse gases in the atmosphere. 
Consequently, after much debate in the final plenary, the IPCC (2001) 
carefully crafted the following: ``In the light of new evidence, and 
taking into account the remaining uncertainties, most of the observed 
warming over the last 50 years is likely to have been due to the 
increase in greenhouse gas concentrations.''
    In 1995 the IPCC assessment concluded that ``the balance of 
evidence suggests a discernible human influence on global climate'' 
(IPCC 1996). Since then the evidence has become much stronger--from the 
recent record warmth, the improved paleo-record that provides context, 
better understanding of the role of stratospheric ozone depletion, 
improved modeling and simulation of the past climate, and improved 
statistical analysis. Thus the headline in IPCC (2001) is ``There is 
new and stronger evidence that most of the warming observed over the 
last 50 years is attributable to human activities.'' The best 
assessment of global warming is that the human climate signal emerged 
from the noise of background variability in the late 1970's.
    Biggest impact is likely to be felt by making the extremes more 
extreme. For any change in mean climate, there is likely to be an 
amplified change in extremes. The wide range of natural variability 
associated with day-to-day weather means that we are unlikely to notice 
most small climate changes except for the extremes. Extremes are 
exceedingly important to both natural systems and human systems and 
infrastructure, as we are adapted to a range of natural weather 
variations, and it is these extremes that exceed tolerances and cause 
nonlinear effects: the so-called ``straw that breaks the camel's 
back.'' For instance, floods that used to have an expected return 
period of 100 years may now recur in 50 or 30 years. In practice, this 
effect may be experienced in floods through dams or levees that break, 
inundating the surrounding countryside and urban areas, resulting in 
loss of life, water damage, and more subtle effects such as polluted 
drinking waters.
    The attribution of the recent climate change to the increases in 
greenhouse gases in spite of uncertainties related to aerosols has 
direct implications for the future. Because of the long lifetime of 
carbon dioxide and the slow penetration and equilibration of the 
oceans, there is a substantial future commitment to further global 
climate change even in the absence of further emissions of greenhouse 
gases into the atmosphere. Future projections of climate change depend 
on future emissions. They are given by the IPCC and not detailed here. 
In spite of differences among models and the many uncertainties that 
exist, the models produce some consistent results. All show 
considerable warming. All show larger changes over high northern 
latitudes and the northern continents, including North America, because 
land warms up faster than the oceans. Further research is needed to 
understand why the models respond as they do, and to reduce the 
uncertainties. While some changes arising from global warming are 
benign or even beneficial, the rate of changes as projected exceed 
anything seen in nature in the past 10,000 years and are apt to be 
disruptive in many ways. The economic effects of the weather extremes 
are substantial and clearly warrant attention in policy debates. 
References Hoerling, M. P., J. W. Hurrell, and T. Xu, 2001: Tropical 
origins for recent North Atlantic climate change. Science, 292, 90-92. 
IPCC, 1996: Climate Change 1995: The Science of Climate Change. Eds. J. 
T. Houghton et al., Cambridge University Press, Cambridge, U.K. 572 pp.
    IPCC, 2001: Climate Change 2001: The Scientific Basis. Eds. J. T. 
Houghton, et al., Cambridge University Press, Cambridge, U.K. (in 
press). Lindzen, R. S., M-D. Chou, and A. Y. Hou, 2001: Does the Earth 
have an adaptive infrared iris? Bulletin of the American Meteorological 
Society, 82, 417-432.
    National Research Council (NRC) 2000: Reconciling observations of 
global temperature change. National Academy Press. 85 pp. Stocker, T., 
G. K. C. Clarke, H. Le Treut, R. S. Lindzen, V. P. Meleshko, R. K. 
Mugara, T. N. Palmer, R. T. Pierrehumbert, P. J. Sellers, K. E.
    Trenberth, and J. Willebrand, 2001: ``Physical Climate Processes 
and Feedbacks'' Chapter 7 of Climate Change 2001: The Scientific Basis. 
Eds. J.
    T. Houghton, et al., Cambridge University Press. Cambridge, U.K. 
(in press). Trenberth, K. E., 1997: The use and abuse of climate models 
in climate change research. Nature, 386, 131-133. Trenberth, K. E., 
1999: Conceptual framework for changes of extremes of the hydrological 
cycle with climate change. Climatic Change, 42, 327-339. Trenberth, K. 
E., 2001: Stronger evidence for human influences on climate: The 2001 
IPCC Assessment. Environment, 43, 4(May), 8-19.
      Any opinions, findings, conclusions, or recommendations 
expressed in this publication are those of the author and do not 
necessarily reflect those of the National Science Foundation.
    The National Center for Atmospheric Research (NCAR) is sponsored by 
the National Science Foundation.
                                 ______
                                 
                      [From Environment, May 2001]
    Stronger Evidence of Human Influence on Climate: The 2001 IPCC 
                               Assessment
                        (By Kevin E. Trenberth)
    The third assessment from Working Group of the Intergovernmental 
Panel on Climate Change (IPCC), \1\ issued in January 2001, affirmed 
previous findings but with much stronger language. Its message is 
clear: The Earth's climate is changing in ways that cannot be accounted 
for by natural variability--``global warming'' is indeed happening. 
This article provides an outline of the IPCC process, as well as a 
summary of and commentary on the main findings of Working Group I.
---------------------------------------------------------------------------
     \1\IPCC, Climate Change 2001: The Scientfic Basis, J.T. Houghton 
et al., eds. (Cambridge U.K.: Cambridge University Press, 2001) (in 
press).
---------------------------------------------------------------------------
    IPCC reports on the evolving science of global climate change, 
focusing special attention on the ways in which human activities affect 
the climate. IPCC reviews the evidence for climate change and the 
possible causes and considers how the climate system responds to 
various agents of change. Because our climate models are simplified 
versions of the real world and are still being improved upon, IPCC 
evaluates the ability of models to describe the processes involved in 
the climate system and the functioning of the system as a whole. The 
panel seeks to attribute recent observed changes to possible causes, 
especially the human influences, and then, using climate models, 
projects future change from those causes.
    Climate changes have occurred in the past naturally for various 
reasons, over periods ranging from decades to millennia. Fluctuations 
in the sun's energy output and other factors that influence the amount 
and fate of the energy that reaches the Earth's surface have caused 
natural climate change. And now, by greatly changing the composition of 
the atmosphere, humankind is performing an enormous geophysical 
experiment. \2\ Human actions alter the Earth's environment in ways 
that cause climate change. \3\ Legitimate debates go on about the 
extent and rate of change and what, if anything, can be done about it, 
but that the experiment is underway is not in doubt.
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     \2\R. Revelle and H.E. Suess, ``Carbon Dioxide Exchange between 
Atmosphere and Ocean and Question of an Increase of Atmospheric 
CO2 during the Past Decades'' Tellus 9(1957): 18-27.
     \3\F.S. Rowland, ``Climate Change and Its Consequences: Issues for 
the New U.S. Administration:' Environment, March 2001, 28-34.
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    Land use (e.g., farming and building cities), storage and use of 
water (e.g., dams, reservoirs, and irrigation), generation of heat 
(e.g., furnaces), and the use of fossil fuels are the human-induced 
environmental changes that most influence the climate. The use of 
fossil fuels introduces visible particulate pollution (called aerosols) 
and gases such as carbon dioxide (CO2) into the atmosphere, 
both of which alter the balance of radiation on Earth. These gases are 
relatively transparent to incoming solar radiation, yet they absorb and 
reemit outgoing infrared radiation. The resulting blanketing effect is 
known as the greenhouse effect, and the gases involved are called 
greenhouse gases. Not all greenhouse gases are the result of human 
activities. There is a large natural greenhouse effect that makes the 
Earth habitable. The increase in CO2 levels over the last 
century or two from human activities, as well as the introduction of 
other greenhouse gases more recently, mean that more energy stays in 
the system. Global warming and the associated climate change are the 
expected results.
Observed Climate Change
    Records of surface temperature show that a global mean warming of 
about 0.7 degrees C has occurred over the past 100 years. IPCC reports 
this change as 0.6 plus/minus 0.2 degrees C, but this is a linear fit 
to what is obviously not a linear trend (see Figure 1 below for the 
instrumental record of global mean temperatures). Temperatures 
increased most noticeably from the 1920's to the 1940's; they then 
leveled off from the 1950's to the 1970's and took off again in the 
late 1970's. The 1990's mark the warmest decade on record, and 1998 is 
by far the warmest year on record, exceeding the previous record held 
by 1997. Preliminary annual global mean temperatures in the year 2000 
were about the same as for 1999. Synthesis of information from tree 
rings, corals, ice cores, and historical data further indicates that 
the 1990's are the warmest decade in at least the past 1,000 years for 
the Northern Hemisphere, which is as far back as annual-resolution 
hemispheric estimates of temperatures can be made. \4\ The melting of 
glaciers over most of the world and rising sea levels confirm the 
reality of the global temperature increases.
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     \4\Reconstructions of temperature and rainfall make use of 
multiple proxy indicators at individual sites around the world but have 
to be merged, reconciled, and combined to give regional and larger area 
averages. Sufficient data with annual resolution now exist to do this 
for the Northern Hemisphere for the past 1,000 years but not for the 
Southern Hemisphere or for beyond the past millennium. See M.E. Mann, 
R.S. Bradley, and M.K. Hughes, ``Global-scale Temperature Patterns and 
Climate Forcing over the Past Six Centuries,'' Nature 392, 23 April 
1998, 779-87; and M.E. Mann, R.S. Bradley, and M.K. Hughes, ``Northern 
Hemisphere Temperatures during the Past Millennium: Inferences, 
Uncertainties, and Limitations,'' Geophysical Research Letters 26 
(1999): 759-62.

    There is good evidence from measurements of sea level pressure, 
wind, and temperature over the 20th century for decadal changes in the 
atmospheric circulation and some evidence for similar ocean changes. 
For instance, these include changes in winds over the North Atlantic 
and Europe related to the phenomenon known as the North Atlantic 
Oscillation and changes in El Nino. \5\ Such observations signal that 
increases in temperature are not uniform or monotonic. For example, 
some places warn more than the average, while other places cool. 
Changes in precipitation and other components of the hydrological cycle 
also vary considerably geographically. For instance, it is likely that 
precipitation has increased by perhaps 1 percent per decade during the 
20th century over most mid-and high-latitude continents of the Northern 
Hemisphere. Changes in climate variability are also being seen and 
changes in extremes are beginning to emerge. Perhaps of greatest note 
are the Observed increases in the heat index (which measures humidity 
and temperature effects on comfort) and the observed trend toward more 
intense precipitation events.
---------------------------------------------------------------------------
     \5\J.W. Hurrell, ``1995: Decadal Trends in the North Atlantic 
Oscillation Regional Temperatures and Precipitation,'' Science 269 
(1995): 676-9; K.E. Trenberth and T.J. Hoar, ``The 1990-1995 El Nino-
Southem Oscillation Event: Longest on Record,'' Geophysical Research 
Letters 23 (1996): 57-60; and K.E. Trenberth and T.J. Hoar, ``El Nino 
and Climate Change,'' Geophysical Research Letters 24 (1997): 3057-60.
---------------------------------------------------------------------------
    One persistent controversy in climate change science has been the 
discrepancy between the trend seen in the so-called satellite 
temperature record and that seen in the temperature record from the 
Earth's surface. The controversy stems in part from the fact that the 
two data sets do not measure the same phenomenon. The satellite record, 
which begins in 1979, measures microwave radiation from the lowest 8 
kilometers of the Earth's atmosphere and thus depicts temperatures in 
that part of the atmosphere, which are quite different from those at 
the surface. Climate models that assess the scenario of increasing 
greenhouse gases suggest that warming in the lower atmosphere should be 
greater than that at the surface. But here is the point of contention 
for skeptics: The observed satellite record shows less warming from 
1979-1999. Consequently, doubt has been cast on the veracity of both 
the surface temperature record and the models. However, when the 
observed stratospheric ozone depletion is included in the models, the 
models predict that the surface and tropospheric temperatures increase 
at about the same rate. In fact, this is what has happened from about 
1960 to the present based on balloon observations, which replicate the 
satellite record after 1979. Because the satellite record includes only 
two decades, the influence of El Nino and the eruption of Mt. Pinatubo 
in 1991 leads to a disproportionate relative downward trend in 
temperatures observed in the lower atmosphere. Other effects, such as 
changes in cloud cover, have not been accounted for by the models and 
may also affect the two records differently. Accordingly, the different 
short-term trend in the satellite record is not at odds with the 
warming in the surface record.
The Climate System and Its Driving Forces
    Because we humans live in and breathe the atmosphere, it is natural 
for us to focus on the atmospheric changes. But the atmosphere is only 
one element of a greater climate system that involves interactions 
among various internal components and external forcings. The internal, 
interactive components include the atmosphere, the oceans, sea ice, the 
land and its features (including the vegetation, albedo, biomass, and 
ecosystems), snow cover, land ice, and the hydrology of the land 
(including rivers, lakes, and surface and subsurface water). The 
factors that are normally regarded as external to the system include 
the sun and its output, the Earth's rotation, sun-Earth geometry and 
the slowly changing orbit, the physical components of the Earth system 
such as the distribution of land and ocean, the topographic features on 
the land, the ocean-bottom topography and basin configurations, and the 
mass and basic composition of the atmosphere and the oceans. These 
factors determine the mean climate, which may vary from natural causes. 
Climate variations arise naturally when the atmosphere is influenced by 
and interacts with other internal components of the system and 
``external'' forcings.
    The continual flow of radiation from the sun provides the energy 
that drives the Earth's climate. About 31 percent of that radiation 
gets reflected back into space by molecules, tiny airborne particles 
(aerosols), clouds, or by the Earth's surface and thus plays no part in 
the climate. The sun's massive energy input leads to warming. To 
maintain a balance, the Earth radiates back into space, in the form of 
``long-wave'' or infrared radiation, roughly the same amount of energy 
that it receives. The amount of radiation lost from the top of the 
atmosphere to space corresponds to a global mean surface temperature of 
about -19 degrees C, much colder than the annual average global mean 
temperature of about 14 degrees C. The higher mean temperature of the 
Earth, given the amount of energy radiated from its surface, can be 
explained by the existence of the atmosphere. The Earth's atmosphere 
intercepts the bulk of energy emitted at the surface and, in turn, 
reemits energy both toward space and back to the Earth. The energy that 
escapes into space is emitted from the tops of clouds at various 
atmospheric levels (which are almost always colder than the surface) or 
by atmospheric gases that absorb and emit infrared radiation. These 
greenhouse gases, notably water vapor and CO2, produce a 
blanketing effect known as the natural greenhouse effect. Water vapor 
gives rise to about 60 percent of the current greenhouse effect and 
CO2 accounts for about 26 percent. \6\ Clouds also absorb 
and emit infrared radiation and have a blanketing effect similar to 
that of the greenhouse gases. But because clouds also reflect solar 
radiation, they act to cool the surface. Though on average the two 
opposing effects offset one another to a large degree, the net global 
effect of clouds in our current climate, as. determined by space-based 
measurements, is a small cooling of the surface.
---------------------------------------------------------------------------
     \6\J.T. Kiehl and K.E. Trenberth, ``Earth's Annual Global Mean 
Energy Budget,'' Bulletin of the American Meteorological Society 78 
(1997): 197-208.
---------------------------------------------------------------------------
Human Influences
    The amount of CO2 in the atmosphere has increased by 
about 31 percent since the beginning of the Industrial Revolution, from 
280 parts per million (ppm) by volume to 367 ppm. This increase is due 
mainly to combustion of fossil fuels and the removal of forests. 
Projections of future CO2 concentrations suggest that, in 
the absence of controls, the rate of increase may accelerate and thus 
double the concentrations of CO2 from pre-industrial levels 
within the next 50 to 100 years. Human activities (especially biomass 
burning; agriculture; animal husbandry; fossil fuel extraction, 
distillation, and use; and the creation of landfills and rice paddies) 
have increased the atmospheric concentrations of several other 
greenhouse gases (methane, nitrous oxide, chlorofluorocarbons (CFCs)) 
and tropospheric ozone. These other greenhouse gases tend to reinforce 
the changes caused by increased CO2 levels. However, the 
observed decreases in lower stratospheric ozone since the 1970's, 
caused principally by human-introduced CFCs and halocarbons, contribute 
a small cooling effect.
    Aerosols enter the atmosphere naturally when they are blown off the 
surface of deserts or dry regions, blasted into the atmosphere during 
volcanic eruptions, or released during forest fires. They impact 
climate in various ways. For instance, the aerosols introduced into the 
atmosphere during the eruption of Mt. Pinatubo in the Philippines in 
June 1991 blocked enough radiation for 2 years to cause observable 
cooling. Human activities contribute to aerosol particle formation 
mainly through emissions of sulfur dioxide (SO2) (a major 
source of acid rain), particularly from coal-burning power stations and 
through biomass burning. Sulfate aerosols, visible as a milky, whitish 
haze from airplane windows, reflect a fraction of solar radiation back 
to space and hence work to cool the Earth's surface. Some aerosols, 
like soot, absorb solar radiation and lead to local warming of the 
atmosphere. Other aerosols absorb and reemit infrared radiation. 
Aerosols play still another role. By acting as the nuclei on which 
cloud droplets condense, they affect the number and size of droplets in 
a cloud and thereby alter the reflective and absorptive properties of 
clouds. \7\ Aerosols from human activities are mostly introduced near 
the Earth's surface and are often washed out of the atmosphere by rain. 
They typically remain aloft for only a few days near their sources. 
Aerosols therefore have a very strong regional affect on the climate, 
usually producing cooling.
---------------------------------------------------------------------------
     \7\Recent evidence highlights the possible importance of this 
effect, although the magnitude is very uncertain, See J.M. Hansen, M. 
Sato, A. Lacis, and R. Ruedy, 'The Missing Climate Forcing,'' 
Philosophical Transactions of the Royal Society of London 352 (1997): 
231-40.
---------------------------------------------------------------------------
    The determination of the climatic response to the changes in 
heating and cooling is complicated by feedbacks. Some of these 
feedbacks amplify the original warming (positive feedback) and others 
serve to reduce warming (negative feedback). If, for instance, the 
amount of CO2 in the atmosphere were suddenly doubled while 
all other factors remained constant, the amount of energy absorbed by 
the atmosphere would increase. With additional energy trapped in the 
system, a new balance would have to be reached. To accomplish this 
balance the atmosphere would have to warm up. In the absence of other 
changes, the warming at the surface and throughout the troposphere 
would be about 1.2 degrees C. \8\ In reality, many other factors could 
change as a result of doubled CO. concentrations, and various feedbacks 
would come into play. When the positive and negative feedbacks are 
considered, the best IPCC estimate of the average global warming for 
doubled CO2 is 2.5 degrees C. The net effect of the 
feedbacks is positive and, in fact, roughly doubles the global mean 
temperature increase otherwise expected. Increases in water vapor that 
accompany warming contribute the strongest positive feedback.
---------------------------------------------------------------------------
     \8\K.E. Trenberth, J.T. Houghton, and L.G. Meira Filho, ``The 
Climate System: An Overview:' in J.T. Houghton et al., eds., Climate 
Change 1995: The Science of Climate Change (Cambridge, U.K.: Cambridge 
University Press, 1996), 51-64.
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Modeling of Climate Change
    To quantify the response of the climate system to changes in 
forcing, the complex interactions and feedbacks among the components 
must be accounted for (see Figure 2). Numerical models of the climate 
system based upon sound, well-established physical principles are the 
tools used to estimate climate change. Experiments can be run with 
climate models in which concentrations of greenhouse gases or other 
influences, like aerosols, are varied. The best models capture the 
current understanding of the physical processes involved in the climate 
system, the interactions among the processes, and the performance of 
the system as a whole. The predictive powers of a model can be tested 
by running the model with known forcings from the past through it and 
then comparing the results to actual climate records. Though models are 
exceedingly useful tools for carrying out numerical climate 
experiments, they do have limitations and must be used carefully. \9\ 
The latest models have been able to reproduce the climate of the past 
century or so with increasing accuracy (see Figure 3 on page 15). Thus 
the global mean temperature record is well replicated within limits 
imposed by natural fluctuations merely by specifying the changes in 
atmospheric composition and changes in the sun.
---------------------------------------------------------------------------
     \9\K.E. Trenberth, ``The Use and Abuse of Climate Models in 
Climate Change Research:' Nature 386, 13 March 1997, 131-33.

Detection and Attribution
    Two main issues that must be settled before politicians are likely 
to take action: First, it must be discerned whether the recent climate 
has changed more than expected from natural variability; second, 
observed climate changes must be attributed to various causes, 
including human influences. Several key points that emerged from the 
recent IPCC assessment address these issues:

      The magnitude and rate of change of mean surface 
temperature globally, or at least in the Northern Hemisphere, over the 
past few decades is outside the range of anything deduced from paleo-
climate records of the last 1,000 years. Data are inadequate before 
that.
      Estimates of internal climate variability (how much 
climate can vary from natural causes not including changes in the sun) 
derived from models are reasonably consistent with the preindustrial 
variability deduced from paleo-climate data. Together, the estimates 
from model and paleo-climate observations provide more reliable 
estimates of the natural variability.
      Consequently, given the better sense of natural climate 
variability, detection of climate change is much clearer now than it 
was 5 years ago. Hence, it is very unlikely that recent climate change 
is natural in origin.
      The natural forcing agents (e.g., solar and volcanoes) 
over the last two to four decades are likely to have had a net cooling 
effect and, thus, cannot be a cause of the recent increase in 
temperature.
      A combination of internal climate variability, natural 
forcing, and perhaps small anthropogenic forcing can account for the 
increases in the observed globally averaged surface temperature up 
until about 1970. Increases in solar radiation may account, in part 
(perhaps 0.15 to 0.2 degrees C), for the warming between about 1920 and 
1940, even though solar changes are poorly known before 1979 when 
satellite observations began (see Figure 3). However, it is also 
probable that a natural component related to changes in North Atlantic 
Ocean circulation may have played a role.
      The rate and magnitude of the warming over the last few 
decades cannot be explained unless the net human influence is one of 
warming over the last 30 years. Uncertainties in cooling by aerosol 
forcing (especially the effects on clouds) are therefore constrained.
      The nearer the ``balance'' or the offset between positive 
anthropogenic greenhouse gas forcing and negative anthropogenic aerosol 
forcing over the last 50 years, the larger the climate responsiveness 
needs to be to explain warming over recent decades. For instance, if 
the net warming is small, the climate system must be quite sensitive to 
that warming to produce the observed temperature change. But if the 
warming is larger, the climate system must be less sensitive to produce 
the same temperature change. This has implications for future 
predictions.

    The line of argument shown by these points is open to the criticism 
that there is some circular reasoning involved. The objective of 
attributing climate change to specific causes is to account for the 
change in temperature, but the temperature change itself is invoked as 
part of the argument. Ideally, only the knowledge of forcings and 
responsiveness of the system, as given by models, are used to replicate 
the observed temperature. Neither the forcings nor the true sensitivity 
of the systems are known well enough to proceed in this manner. Climate 
modelers attempt to avoid such a trap by basing their models on sound 
physical principles. However, many parameters have to be chosen when 
developing models. Although the choices are based on knowledge of the 
processes, and the parameters are physically based, there is ample 
scope for unintentional tuning. For example, the brightness of clouds 
depends on the size and number of cloud droplets but varies from cloud 
to cloud and is not known well. Choice of a particular value for the 
model clouds may compensate for shortcomings in the amount of clouds in 
the model. Inevitably, running a model with two different sets of 
parameters yields different results, and the set that brings the model 
into best agreement with observations is chosen for further use in the 
model. It is important, therefore, to recognize that the procedure is 
not as objective as it might appear and that uncertainties remain.
    The most contentious section in the Summary for Policy Makers 
proved to be the concluding paragraph on attribution. After much 
debate, a carefully. crafted statement was agreed upon: ``In the light 
of new evidence, and taking into account the remaining uncertainties, 
most of the observed warming over the last 50 years is likely to have 
been due to the increase in greenhouse gas concentrations,'' Moreover, 
although not highlighted by IPCC, increasing evidence suggests that the 
signal of human influence on climate emerged from the noise of natural 
variability in about 1980 and will only get larger.
    The implications of these findings may be felt in the near future. 
The models predict that global temperature increases of 0.1 to 0.2 
degrees C over the next decade are likely unless volcanic eruptions 
interfere. \10\ Time will tell whether the assessment is correct, 
perhaps within a decade.
---------------------------------------------------------------------------
     \10\IPCC, note 1 above.
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Prediction of Climate Change
    Climate models have been used to project the effects of future 
global warming to the year 2100. Because human activities are not 
predictable in any deterministic sense, ``predictions'' based on human 
influences necessarily contain a ``what if'' emissions scenario. IPCC 
presumes that these predictions will be used for plan-fling purposes, 
including actions to prevent undesirable outcomes, consistent with the 
Framework Convention on Climate Change. Such actions, which are a 
consequence of the prediction, may change the outcome and thus make the 
prediction wrong. Accordingly, they are not truly predictions but 
rather projections that are tied to particular emissions scenarios. 
This is art important point, because some skeptics have ignored the 
distinction and misused it to challenge findings. For example, in 1990, 
only scenarios with increasing greenhouse gases were used. Then, in 
1995, the first primitive scenarios with aerosols were included, which 
produced a cooling. Some skeptics, pointing to this difference, claimed 
that the models had changed and were therefore suspect, when, in fact, 
it was the scenarios that had changed, not the models. In addition, for 
a given scenario, the rate of temperature increase depends on the model 
used and how, for instance, the model depicts features such as clouds. 
It is for this reason that a range of possible outcomes exists. About 
half of the spread in range of values at 2100 is due to uncertainties 
in models. The spread in values is unrelated to the scenarios and 
should not be considered as representative of anything real. The rest 
of the spread in range can accounted for by the different scenarios.
    In 2001, the future emissions scenarios were set up by the Special 
Report on Emissions Scenarios (SRES) \11\ (see the box on this page) 
and included 35 scenarios. The projections for six ``illustrative'' 
CO2 emission scenarios are given in Figure 4a. For each 
emissions scenario, IPCC calculates expected concentrations of 
CO2. In the year 2100, the projected values range from about 
550 ppm to almost 1,000 ppm, compared with 367 ppm at present. 
Projections of temperature change and sea-level rise for these same 
scenarios are shown in Figures 4b and 4c on page 18. When the range of 
uncertainties is factored in and the projections for 2100 across all 35 
scenarios are analyzed, there is an increase in the global mean 
temperature from 1.4 degrees C to 5.8 degrees C (see Figure 4b). Most 
increases fall between 2 degrees C to 4 degrees C. These numbers exceed 
those in the 1995 IPCC report, which showed temperature changes ranging 
from about 1 degree C to 3.5 degrees C. \12\ The increase is higher 
mainly because the new emissions scenarios include lower sulfur 
emissions (which are likely to be reduced for air quality reasons). The 
35 scenarios also expand the range of possibilities from the last 
report and contribute to the range in temperature projected in 2100. 
Modifications in carbon cycle models that convert emissions to 
concentrations and in climate models account for less than 20 percent 
of the deviation between the 1995 IPCC report and this year's report 
and thus do not account for much change in the range.
---------------------------------------------------------------------------
     \11\IPCC, Special Report on Emissions Scenarios, Summary for 
Policy Makers (2000).
     \12\IPCC, Climate Change 1995: The Science of Climate Change, J.T. 
Houghton et al., eds., (Cambridge, U.K.: Cambridge University Press, 
1996). For a review of the second IPCC assessment, see Climate Change 
1995: The Science of Climate Change, reviewed by W.C. Clark and J. 
Jager, Environment, November 1997, 23-8; Climate Change 1995: Impacts, 
Adaptations, and Mitigation, reviewed by R.W. Kates, Environment, 
November 1997, 29-33; and Climate Change 1995: Economic and Social 
Dimensions, reviewed by T. O'Riordan, Environment, November 1997, 34-
39.
---------------------------------------------------------------------------
    Figure 4c also shows the corresponding sea-level rise. Because heat 
penetrates slowly into the voluminous oceans, sea-level rise is 
expected to be manifested over a longer period of time than temperature 
change. Because the heat inputs that have already occurred will only 
work their way through the system slowly, even in the unlikely scenario 
of a massive reduction in greenhouse gas emissions, sea-level rise will 
continue unabated. Note again that though these projections include 
crude estimates of the effects of sulfate aerosol, they deliberately 
omit other possible human influences, such as changes in land use. \13\ 
A major concern is that the projected rates of climate change in 
Figures 4b and 4c exceed anything seen in nature in the past 10,000 
years.
---------------------------------------------------------------------------
     \13\It is estimated that conversion from forests to agriculture in 
the United States makes the surface much brighter, especially in the 
late summer and fall after crops are harvested. This means more solar 
radiation is reflected, which results in cooling.
---------------------------------------------------------------------------
    An increase in global mean temperature logically follows increased 
heating. But temperature increase, often thought of as the sole 
indicator of ``global warming,'' is not the only possible outcome. For 
example, rising concentrations of greenhouse gases enhance the 
hydrological cycle by furnishing additional energy for the evaporation 
of surface moisture. Because the water-holding capacity of the 
atmosphere is greater at higher temperatures, increased atmospheric 
moisture should accompany global temperature increases. Because water 
vapor is also a powerful greenhouse gas, it contributes a strong 
positive feedback, amplifying global warming. Naturally occurring 
droughts are also liable to be exacerbated by enhanced drying. Thus 
droughts, such as those set up by El Nino, are likely to take hold more 
quickly, wilt plants sooner, and become more extensive and longer-
lasting with global warming. When the land is dry, the energy that 
would ordinarily drive the hydrological cycle goes into raising 
temperatures, bringing on sweltering heat waves. Further, globally 
there will have to be an increase in precipitation to balance the 
enhanced evaporation. More moisture in the atmosphere implies stronger 
moisture 'flow converging into all precipitating weather systems-such 
as thunderstorms or extratropical rain or snow storms-and rain or snow 
events of greater intensity. \14\
---------------------------------------------------------------------------
     \14\K.E. Trenberth, ``Atmospheric Moisture Residence Times and 
Cycling: Implications for Rainfall Rates with Climate Change,'' 
Climatic Change 39 (1998): 667-94.
---------------------------------------------------------------------------
    For any change in mean climate, there, is likely to be an amplified 
change in extremes. Because of the wide range of natural variability 
associated with day-to-day weather, most small climate changes will 
probably go unnoticed: the extremes, however, will be easily detected. 
Extremes play an exceedingly important role for natural and human 
systems and infrastructure, All living organisms are adapted to a range 
of natural weather variations, New extremes could he devastating to 
ecosystems. Extremes that exceed tolerances of a system can cause 
nonlinear effects: the so-called ``straw that breaks the camel's 
back,'' For instance, floods that historically have had an expected 
return period of 100 years may now recur in 50 or 30 years. \15\ More 
frequent extreme floods may overstress dams and levees, causing breaks 
and the consequent damage to infrastructure, loss of human life, and 
contamination of drinking water.
---------------------------------------------------------------------------
     \15\K.E. Trenberth, ``The Extreme Weather Events of 1997 and 
1998:' Consequences 5 (1999): 2-15.
---------------------------------------------------------------------------
    The changes in extremes of weather and climate observed to date 
have only recently been compared to the changes projected by models. 
many of which agree with recent observed trends. Models project that 
higher maximum temperatures, more hot days. and more heat waves are all 
likely. The largest temperature increases are expected mainly in areas 
where soil moisture decreases arc apt to occur. Increases of daily 
minimum temperatures are projected to occur over most land areas and 
are generally larger where snow and ice retreat. A decreased number of 
frost days and cold waves is likely. Changes in surface air temperature 
and surface humidity will mean increases in the heat index and 
increased discomfort. Increases in surface air temperature will lead to 
a greater number of days during which cooling (such as from air 
conditioning) might be considered desirable for comfort and fewer days 
during which space heating is required for comfort. Precipitation 
extremes are expected to increase more than the mean, as will the 
frequency of extreme precipitation events. A general drying is 
projected for the mid-continental areas during summer, as a result of 
higher temperatures and increased drying not offset by increased 
precipitation in these regions. Theoretical and modeling studies 
project increases in the upper limit of intensity of tropical cyclones 
in addition to appreciable increases in their average and peak 
precipitation intensities. Changes in El Nino are also likely, but 
their nature is quite uncertain. \16\
---------------------------------------------------------------------------
     \16\The 1997-1998 El Nino is the biggest recorded event by several 
measures. The last two decades have been marked by unusual El Nino 
activity. See Trenberth and Hoar, 1996 and 1997, note 5 above. A key 
question is how is global warming influencing El Nino? Because El Nino 
is involved with movement of heat in the tropical Pacific Ocean, it is 
conceptually easy to see how increased heating from the buildup of 
greenhouse gases might interfere. Climate models certainly show changes 
with global warming, but none simulate El Nino with sufficient fidelity 
to have confidence in the results. So the question of how El Nino may 
change with global warming is a current research topic.
---------------------------------------------------------------------------
Humans Are Changing the Climate
    In 1995, the IPCC assessment concluded that ``the balance of 
evidence suggests a discernible human influence on global climate.'' 
\17\ Since then the evidence has become much stronger-the recent record 
warmth of the 1990's, the historical context provided by the improved 
paleo-record, improved modeling and simulation of the past climate, and 
improved statistical analysis. Thus the headline in the new IPCC report 
states, ``There is new and stronger evidence that most of the warming 
observed over the last 50 years is attributable to human activities.'' 
\18\ The best assessment of global warming is that the human 
contribution to climate change first emerged from the noise of 
background variability in the late 1970's. Hence, climate change is 
expected continue into the future. The amplification of extremes is 
likely to cause the greatest impact. Although some change arising from 
global warming may be benign or even beneficial, the economic effects 
of more extreme weather will be substantial and clearly warrant 
attention in policy debates.
---------------------------------------------------------------------------
     \17\Trenberth, note 14 above.
     \18\IPCC, note 1 above.
---------------------------------------------------------------------------
    Because of the long lifetime of CO2 in the atmosphere 
and the slow heat penetration and equilibration of the oceans, there is 
already a substantial commitment to further global climate change, even 
in the absence of further emissions of greenhouse gases. IPCC 
considered implications for stabilizing CO2 and greenhouse 
gases at various concentrations up to four times pre-industrial levels 
and concluded that substantial reductions in emissions, well below 
current levels, would be required sooner or later in all cases. Even 
full implementation of the Kyoto Protocol would merely slow the time of 
doubling of CO2 concentrations from pre-industrial values by 
perhaps 15 years (for instance from 2060 to 2075). \19\ Moreover, these 
projections emphasize that even stabilizing concentrations would not 
stop climate change because of the slow response of the system; for 
this reason, temperature increases and especially sea-level rise would 
continue for many decades thereafter. As we begin to understand that 
our geophysical experiment might turn out badly, we are also 
discovering that it cannot be turned off abruptly.
---------------------------------------------------------------------------
     \19\T.M.L. Wigley, ``The Kyoto Protocol: CO2, 
CH4 and Climate Implications,'' Geophysical Research Letters 
25 (1998): 2285-8.
---------------------------------------------------------------------------
    The IPCC report provides the evidence that global warming is 
happening and now the question arises, What, if anything, should be 
done about these findings? The options include: do nothing, mitigate or 
stop the problem, adapt to the changes as they happen, or find some 
combination of these options. Different value systems come, into play 
in deciding how to proceed. Considerations include those of population 
growth, equity among developed and developing countries, 
intergenerational equity, stewardship of the planet, and the 
precautionary principle (``better to be safe than sorry''). Those with 
vested interests in the current situation frequently favor the first 
option, extreme environmentalists favor the second, and those who have 
a belief that technology can solve all problems might favor the third. 
In rationally discussing options, it is helpful to recognize the 
legitimacy of these different points of view. This problem is truly a 
global one because the atmosphere is a global commons. These immense 
problems cannot be solved by one Nation acting alone. Unfortunately, to 
date, international progress toward mitigating and preparing for the 
possible outcomes of global warming is inadequate.
    The evidence presented by the IPCC report suggests that there is a 
strong case for slowing down the projected rates of climate change 
caused by human influences. Any climate change scenario is fraught with 
uncertainties. But a slowing in the warming process would allow 
researchers to improve projections of climate change and its impacts. 
Actions taken to slow down climate change would provide time to better 
prepare for and adapt to the changes as they appear. Natural systems 
and human systems, many of which have long amortization lifetimes 
(e.g., power stations, dams, and buildings), are then less likely' to 
be dislocated or become obsolete quickly. Therefore, we must plan 
ahead. Greater energy efficiency and expanding use of renewable 
resources, such as solar power, are clearly key steps toward slowing 
the rate of climate change.
    Kevin E. Trenberth heads the Climate Analysis Section of the 
National Center for Atmospheric Research (sponsored by the National 
Science Foundation) in Boulder, Colorado. He participated as a lead 
author of a chapter, as well as a lead author of both the Technical 
Summary and the Summary for Policy Makers of the third IPCC Working 
Group I report. He can be reached at (303) 497-1318 or 
[email protected].
                                 ______
                                 
   Responses of Dr. Kevin E. Trenberth to Additional Questions from 
                            Senator Corzine
    Question 1. Dr. Lindzen's testimony describes the state of 
scientific consensus about climate change as ``lacking in policy 
relevant content.'' Do you agree with this assessment and, if so, why?
    Response. I do not agree that the scientific consensus about 
climate change is ``lacking in policy relevant content.'' Some relevant 
points follow. The assessment has determined:

    1) The climate is changing.
    2) The global change is significant and outside of the realm of 
natural variability.
    3) The change in the last 50 years is mostly caused by human 
activities.
    4) The biggest contributor is the observed increases in carbon 
dioxide in the atmosphere which arise mostly from emissions from fossil 
fuel burning. However, there are several other factors (e.g. methane) 
and activities (such as deforestation) that also contribute.
    5) The slow response of the climate system, especially the oceans, 
means that we have not yet seen the full change already mandated by our 
activities.
    6) The prospects are that changes will continue and will grow in 
magnitude, but not in a straightforward way.
    7) Changes are likely to occur at a rate that is much greater than 
anything seen historically (in the last 10,000 years).
    8) Change itself is thus likely to be disruptive--unless we can 
plan for and adjust to the expected changes beforehand. Some changes 
might be beneficial, but prospects are for more extremes (like floods 
and droughts) which are not.
    9) Our current observing, modeling and prediction capabilities 
limit our ability to plan very reliably. However, projections scope out 
the magnitude of the anticipated changes.
    10) The long lifetime of carbon dioxide means that we cannot stop 
the problem, at best we can slow it down. But that would buy time for 
better planning and adaptation.
    11) The atmosphere is global, contributions from all countries 
count.
    12) Effects will be uneven, across countries, across societies, and 
across rich and poor, although the latter are more vulnerable. They 
will affect everyone, regardless of their contributions to the problem. 
There will be winners and losers.
    Even what seems to be a benign change can be disruptive. For 
instance, I recently had a call from a scientist from Greece who had 
been working in Crete. The winters there have become drier, the rainy 
season has shifted more into the spring and is now more intense when it 
occurs. The change in rainfall has meant that the primary crop of 
olives has insufficient moisture when developing, and the quality and 
quantity have gone down. The new climate is less suitable for olives. 
These changes are believed to be related to global warming.
    Accordingly I believe that the above findings have direct relevance 
to policies on:

      The need to reduce emissions of greenhouse gases into the 
atmosphere to slow the rates of change
      To improve observations of how the climate is changing
      To increase research that will lead to better predictions 
of how the climate will change
      To make plans to deal with the effects of climate change, 
and perhaps compensate victims of climate-related disasters
      The need for the U.S. to play a leadership role 
internationally on this whole issue

    Question 2. Can you please offer your assessment of the integrity 
of the IPCC Assessment Report process? Do you believe the IPCC takes 
into account the best scientific literature available, and produces 
credible scientific documents?
    Response. Yes.
    The IPCC process involves scientists from many nations. A 
deliberate attempt is made to involve scientists from developing 
countries--although they may not contribute a lot to the report, they 
contribute to the understanding and acceptance of the report. 
Scientists from all political and ideological persuasions are included 
and are encouraged to be involved. The process is very open. Well known 
skeptics are involved as lead authors, contributors and as reviewers 
(including Dr. Lindzen). For the Third Assessment IPCC report, Working 
Group I consisted of 123 lead authors, 516 contributors, 21 review 
editors, and over 700 reviewers. Two major reviews were carried out: 
the first by scientists, the second with comments by anyone, including 
governments and NGO's. All comments are taken into account and all are 
addressed, with a file of the answers kept by IPCC Technical Support 
Unit and overseen by independent editors, two per chapter. A key point 
is that the assessment is performed by scientists who have as their 
objective to produce the best statement about the state of the science.
    Each new IPCC report reviews all the published literature over the 
previous 5 years or so, and assesses the state of knowledge, while 
trying to reconcile disparate claims and resolve discrepancies, and 
highlight uncertainties. The report cannot be selective in what it 
deals with. It is the most credible document imaginable. The result is 
very much a consensus document. It has all of the advantages implied by 
that but also the disadvantages: It is not necessarily the latest or 
greatest, it is too long for readability, but because it does sort out 
what can be reliably stated, and it is a useful reference. The greatest 
weakness is that all chapters are written in parallel, and also the 
working groups operate in parallel. Several plenary sessions of all 
authors help to cut down on conflicts, gaps, and duplication, but that 
some of those problems remain is almost inevitable. The summaries 
provide more digestible material for most readers.
    Only in the Summary for Policy Makers do governmental officials get 
involved in a word by word approval process, in which how things are 
said is determined by governments, but what is said is vigorously 
defended by the scientists that are present.

    Question 3. Dr. Lindzen expresses dissatisfaction in his testimony 
that certain positive feedbacks are poorly accounted for in current 
models. In your testimony, you note that the likely net effect of all 
feedbacks is positive. Can you elaborate on the significance of this 
for interpreting the outputs of climate models?
    Response. There are shortcomings of our understanding of the 
processes involved and how they are depicted in models. These arise 
from inadequate observations and theoretical underpinnings associated 
with the incredible complexity of dealing with scales from molecules 
and cloud droplets to the planetary-scale atmospheric circulation, as 
well as computational limitations. Several steps are done:

    1) Individual processes are dealt with as best possible given the 
understanding and computational limitations.
    2) The processes are assembled in models and then the model 
components are tested with strong constraints. The components include 
modules of the atmosphere, the oceans, the land and sea ice, and the 
land surface. For instance the atmosphere can be simulated with 
specified ocean (sea surface temperature) conditions, etc.
    3) The climate system model as a whole is then tested against 
observations when it is run in an unconstrained mode.

    One strong test is to simulate the annual cycle of seasonal 
variations. Another is to simulate measured variability from year to 
year. Yet another is to simulate past climates (paleoclimate), based on 
reconstructions of conditions thousands or millions of years ago using 
tree rings, ice cores etc.
    All models have some shortcomings, and some are better than others. 
Note that feedbacks are not explicitly inserted, they arise from the 
above process. However, it is not possible to pass all of these tests 
without inferring aspects related to the feedbacks.
    In particular, with no feedbacks, a doubling of carbon dioxide 
concentration in the atmosphere is estimated to produce a global mean 
temperature increase of 1.2 degrees C. The best estimate with all 
feedbacks is 2.5 degrees C. The dominant feedback is from water vapor. 
Increased heating produces increases in evaporation and atmospheric 
moisture content and, as water vapor is a greenhouse gas, it has a 
positive feedback. Professor Lindzen believes this feedback may be 
overestimated but the evidence does not support his views, as outlined 
in my testimony. It has been shown that without positive water vapor 
feedbacks, it is not possible to get close to passing these tests.

    Question 4. I represent a coastal State, New Jersey. I am therefore 
particularly concerned about a projected rise in sea level from three 
to 35 inches by 2100. Can you elaborate on the projected Atlantic coast 
impacts of climate change over that time period?
    Response. Rising sea level is a major problem for small island 
States and coastal regions. The central estimate for 2100 is about 20 
inches increase. But sea level will continue to rise much more further 
into the future.
    Sea level varies naturally with tides and with storms. Therefore 
there is some resiliency to its effects. However, the effects can be 
catastrophic if all three are combined: higher sea level at high tide 
and a storm surge. An example is that during a major El Nino, sea level 
rises by 6 to 12 inches along the coast of California. In early 1998 
the rise was 8 inches. When storms and high tides combined with this, 
it led to tremendous coastal erosion and a number of examples of houses 
along the coast toppling into the sea.
    There are many other effects and these are all nicely summarized in 
a two-page spread of National Geographic, February 2001, called Earth 
Pulse, about 8 pages from the front of that issue (unfortunately with 
no page numbers). Effects include infiltration of fresh water systems 
in the water table by salt water, loss of coastal wetlands, and beach 
erosion. Protective dikes and powerful pumps are used in some places to 
keep the sea out (e.g. New Orleans area, where the problem is 
exacerbated by subsiding land).
    Other risks on the Atlantic coast are enhanced versions of things 
seen in recent years. More prolonged droughts, but also more risk of 
inundations from decaying tropical storms. Hurricane Floyd in 1999 on 
the heals of a drought might be a case in point.

    Question 5. The recently published National Assessment on climate 
change, coordinated by the USGCRP, stated that climate change would 
affect the Northeast's ecosystems, such as bays and estuaries. Can you 
give us an example of an ecosystem or species that would be adversely 
impacted by minimal changes in temperature?
    Response. I am not an expert in ecosystems and I cannot answer the 
specific question. However, Northeast bays and estuaries would be 
affected not only by temperature changes, but also changes in 
precipitation, runoff, salinity, and storminess. Water quality would 
likely change. Seasonal changes in snow cover and melt, and ice on 
rivers and streams would likely increase runoff in winter or early 
spring instead of late spring. Algal blooms are projected as likely to 
increase, limiting other aquatic vegetation. However, details of what 
would happen in this area are quite uncertain and also depend on water-
borne pollutants. While change is likely, its detailed nature and 
impact on specific species is not so clear.

    Question 6. What further studies can be done to understand how 
oceans play an important part in climate change and the reduction of 
greenhouse gases? What other climate components or processes would you 
recommend that Federal research be focused on?
    Response. We do not have a global observing system for the oceans. 
Nor are many other observation systems for climate adequate. The 
foremost need, in my view, is to develop an observing system for the 
oceans that is global. Up till now this has not been practical, but new 
technology now makes it possible and plans have been developed. The 
observing system has space-based components, including altimeters to 
measure sea level, passive radiometers to measure sea surface 
temperature, ocean color, and precipitation, and active sensors 
(including radars) to measure surface winds (or wind stress) and 
precipitation. However, satellite borne instruments cannot see below 
the surface, and an in situ observing system is also vital. 
Implementing the plans for the ``ARGO'' array of profiling floats is 
essential to provide measurements of temperature and salinity so that 
we can begin to track the ocean state. This is vital 1) to know how the 
oceans are changing, 2) to provide observations that can be used to 
improve and validate models, and eventually 3) to provide initial 
states of the oceans for climate predictions. The latter have now begun 
for El Nino in the equatorial Pacific but the need is global.
    I would also recommend complementary improvements in atmospheric 
and land surface observations, so that they can be used for climate 
purposes. Many observations taken now are used for weather prediction 
and insufficient care is taken to enable the smaller climate signals to 
be reliably tracked. Infrastructure is needed to merely keep track of 
how well the observing system we now have is performing and to nip 
problems in the bud.
    I also recommend that increased funding for research programs such 
as CLIVAR, which is short for ``Climate variability and 
predictability.'' It is an international program under the World 
Climate Research Programme (WCRP), but with a strong U.S. component and 
a project office in Washington, DC. under the U.S. Global Change 
Research Program (i.e. it is a multi-agency program). Many process 
studies are planned under CLIVAR and these are targeted at improving 
understanding and modeling capabilities to predict El Nino and natural 
climate variability, as well as make climate change projections more 
reliable. A new set of implementation plans has just been developed for 
U.S.CLIVAR. Sister international programs under the WCRP include those 
devoted to the Global Energy and Water Cycle (GEWEX), The Climate and 
the Cryosphere (CLIC), and the Stratospheric Processes And their Role 
in Climate (SPARC). Climate modeling is the integrating thread that 
pulls all of these together, and substantial further research and 
computational resources are needed, as documented in a recent NRC 
report.
                                 ______
                                 
  Response by Dr. Kevin Trenberth to Additional Question from Senator 
                                  Reid
    Question. Have you received funding for climate related research 
from non-governmental sources? If so, please generally identify those 
sources.
    Response. No, I have not received any funding from non-governmental 
sources for climate related research, although I did receive some funds 
from the Electric Power Research Institute to help publish my book 
``Climate System Modeling'', Cambridge University Press, 1992, 788 pp.
                               __________
   Statement of John R. Christy, University of Alabama in Huntsville
    Mr. Chairman and committee members, I am pleased to accept your 
invitation to speak to you again about climate change. I am John 
Christy, Professor of Atmospheric Science and Director of the Earth 
System Science Center at the University of Alabama in Huntsville. I am 
also Alabama's State Climatologist and recently served as one of the 
Lead Authors of the IPCC.
Carbon Dioxide
    The concentration of carbon dioxide (CO2) is increasing 
in the atmosphere due primarily to the combustion of fossil fuels. 
Fortunately (because we produce so much of it) CO2 is not a 
pollutant. In simple terms, CO2 is the lifeblood of the 
biosphere. The green world we see around us would disappear if not for 
atmospheric CO2. These plants largely evolved at a time when 
the atmospheric CO2 concentration was many times what it is 
today. Indeed, numerous studies indicate the present biosphere is being 
invigorated by the human-induced rise of CO2. In and of 
itself, therefore, the increasing concentration of CO2 does 
not pose a toxic risk to the planet. It is the secondary impact of 
CO2 that may present challenges to human life in the future. 
It has been proposed that CO2 increases could cause climate 
change of a magnitude beyond what naturally occurs that would force 
costly adaptation or significant ecological stress. For example, 
enhanced sea level rise and/or reduced rainfall would be two possible 
effects likely to be costly to those regions so affected. Data from the 
past and projections from climate models are employed to provide 
insight on these concerns.
Climate Models
    Climate models attempt to describe the ocean/atmospheric system 
with equations which approximate the processes of nature. No model is 
perfect because the system is incredibly complex. One modest goal of 
model simulations is to describe and predict the evolution of the 
ocean/atmospheric system in a way that is useful to discover possible 
environmental hazards which lie ahead. The goal is not to achieve a 
perfect forecast for every type of weather in every unique geographic 
region, but to provide information on changes in large-scale features. 
If in testing models for current large-scale features one finds 
conflict with observations, this suggests that at least some 
fundamental process, for example heat transfer, are not adequately 
described in the models.
Global Averages
    A common feature of climate model projections of global average 
temperature changes due to enhanced greenhouse gasses is a rise in the 
temperature of the atmosphere from the surface to 30,000 feet the true 
bulk of the atmosphere. This temperature rise itself is projected to be 
significant at the surface, with increasing magnitude as one rises 
through this layer called the troposphere. Most people use the term 
Global Warming to describe this possible human-induced temperature 
rise.
    Over the past 22-years various calculations of surface temperature 
do indeed show a rise between +0.52 and +0.63 F (0.29 and 0.35 C 
depending on which estimate is used.) This represents about half of the 
total surface warming since the 19th century. In the troposphere, 
however, the values, which include the satellite data Dr. Roy Spencer 
of NASA and I produce, show only a very slight warming between +0.00 
and +0.15 F (+0.00 and +0.08 C) a rate less than a third that observed 
at the surface (Fig. 1). New evidence shown in Figs. 2 and 3 continues 
to show the remarkable consistency between independent measurements of 
these upper air temperatures.
    Since the last time I testified before this committee, 1998 was 
above the long term average, but 1999 and 2000 were below. So, rather 
than seeing a warming over time that increases with altitude as climate 
models project, we see that in the real world the warming decrease 
substantially with altitude.
    It is critically important in my view to correctly model 
tropospheric temperature changes because this is where much of the 
global atmospheric heat is stored, moved about and eventually expelled 
to space. This layer also has a strong influence on surface temperature 
through radiation processes. It is conceivable that a model which 
retains too much heat in the troposphere, may also retain too much at 
the surface when integrated over long time periods.
    It is certainly possible that the inability of the present 
generation of climate models to reproduce the reality of the past 22+ 
years may only reflect the fact that the climate experiences large 
natural variations in the vertical temperature structure over such time 
periods. By recognizing this however, any attention drawn to the 
surface temperature rise over the past two decades must also 
acknowledge the fact that the bulk of the atmospheric mass has not 
similarly warmed.
Regional Averages
    This disparity between observations and model results is a curious 
and unexplained issue regarding the global average vertical temperature 
structure. But we do not live 30,000 feet in the atmosphere, and we do 
not live in a global average surface temperature. We live in specific 
places. Local and regional projections of surface climate are very 
difficult and challenging. An example from Alabama's past is useful 
here only to illustrate the difficulty of providing local predictions 
with a high level of confidence.
    In Fig. 4 you will see several climate model runs which attempt to 
reproduce Alabama's temperature from 1860 to the present, and one that 
attempts to predict its temperature out to 2100. These complex models 
incorporate solar changes, increasing CO2, aerosol cooling 
(a highly uncertain hypothesis) and so on. It is clear that the model 
runs did not do especially well over the time period of observations, 
with none predicting the actual cooling we have seen in Alabama over 
the last century. If in trying to reproduce the past we see such 
errors, one must assume that predicting the future of regional climate 
will be at least as difficult.
    The models may have done fairly well in the global average, and may 
have done acceptably well in many geographic locations, but these 
results do not give me the confidence to understand how the weather 
will be different in the coming century. (Please note that every 
century is different from its predecessor because of natural 
variations.) If in trying to reproduce the past we see such model 
errors, one must assume that predicting the future would produce 
similar opportunities for errors on a regional basis.
Weather Extremes and Climate Change
    I want to encourage the committee to be suspicious of media reports 
in which weather extremes are given as proof of human-induced climate 
change. Weather extremes occur somewhere all the time. For example, in 
the 48 conterminous States, the U.S. experienced the coldest combined 
November and December in 106 years, yet that does not prove U.S. or 
global cooling.
    Has hot weather occurred before in the US? In my region of Alabama, 
the 19 hottest summers of the past 108 years occurred prior to 1955. In 
the midwest, of the 10 worst heatwaves, only two have occurred since 
1970, and they placed seventh and eighth. Hot weather has happened 
before and will happen again.
    Similar findings appear from an examination of destructive weather 
events. The intensity and frequency of hurricanes have not increased. 
The intensity and frequency of tornadoes have not increased. The same 
is true for thunderstorms and hail. (Let me quickly add that we now 
have more people and much more wealth in the paths of these destructive 
events so that the losses have certainly risen, but that is not due to 
climate change.) Droughts and wet spells have not statistically 
increased or decreased (Fig.5). Last summer's drought in Texas was not 
the worst that State has seen. In fact, temperature trends for summers 
in Texas are actually slightly downward.
    One century is a relatively short time in climate scales. When 
looking at proxy records of the last 2000 years for drought in the 
Southwest, the record suggests the worst droughts occurred prior to 
1600 (Fig. 6). The dust bowl of the 1930's appears as a minor event on 
such a time scale. This should be a warning that with or without any 
human influence on climate we should be prepared for a significant, 
multi-year drought. (Low cost energy would help mitigate the costs of 
transporting water to the stricken areas.)
    When considering information such as indicated above, one finds it 
difficult to conclude the climate change is occurring in the United 
States and that it is exceedingly difficult to conclude that part of 
that change might have been caused by human factors.
    In the past 150 years, sea level has risen at a rate of 6 4 in. (15 
cm 10 cm) per century and is apparently not accelerating. Sea level 
also rose in the 17th and 18th centuries, obviously due to natural 
causes, but not as much. Sea level has been rising naturally for 
thousands of years (about 2 in. per century in the past 6,000 years). 
If we look at ice volumes of past interglacial periods and realize how 
slow ice responds to climate, we know that in the current interglacial 
period (which began about 11,000 years ago) there is still more land 
ice available for melting, implying continued sea level rise.
    One of my duties in the office of the State Climatologist is to 
inform developers and industries of the potential climate risks and 
rewards in Alabama. I am very frank in pointing out the dangers of 
beach front property along the Gulf Coast. A sea level rise of 6 in. 
over 100 years, or even 50 years is minuscule compared with the storm 
surge of a powerful hurricane like Frederick or Camille. Coastal areas 
threatened today will be threatened in the future. The sea level rise, 
which will continue, will be very slow and thus give decades of 
opportunity for adaptation, if one is able to survive the storms.
Summary
    Regional climate change, including that part that might be human 
related, is essentially impossible to predict at this point. Will there 
be an increase in 3-year droughts or a decrease? No one knows. I can 
say with a high degree of certainty that some regions will see an 
increase and some a decrease, because the climate is always changing.
    I am decidedly an optimist. As Fig. 7 shows we in the U.S. will 
continue to produce more and more of what the world wants (its food, 
products, technology, defense, medical advances, and so on) with less 
and less energy. I remember as a college student at the first Earth Day 
being told it was a certainty that by the year 2000, the world would be 
starving and out of energy. Such doomsday prophesies grabbed headlines, 
but have proven to be completely false. Similar pronouncements today 
about catastrophes due to human-induced climate change sound all too 
familiar and all too exaggerated to me as someone who actually produces 
and analyzes climate information.

                               __________

   Statement of Jae Edmonds, Pacific Northwest National Laboratory, 
                      Battelle Memorial Institute
    Thank you Mr. Chairman and members of the Committee for the 
opportunity to testify here this morning on energy and climate change. 
My presence here today is possible because the U.S. Department of 
Energy has provided me and my team at PNNL long-term research support. 
Without that support much of the knowledge base upon which I draw today 
would not exist. That having been said, I come here today to speak as a 
researcher and the views I express are mine alone. They do not 
necessarily reflect those of any organization. I will focus my remarks 
on two matters: 1. The timing of the global response to climate change 
needed to stabilize the concentration of greenhouse gases in the 
atmosphere, and 2. The need to expedite the development of technologies 
to achieve this goal at reasonable cost.
    My remarks are grounded in a small number of important 
observations. First, the United States is a party to the Framework 
Convention on Climate Change (FCCC). The FCCC has as its objective the 
``stabilization of greenhouse gas concentrations in the atmosphere at a 
level that would prevent dangerous anthropogenic interference with the 
climate system.'' (Article 2) This is not the same as stabilizing 
emissions. Because emissions accumulate in the atmosphere, the 
concentration of carbon dioxide will continue to rise indefinitely even 
if emissions are held at current levels or slightly reduced. Limiting 
the concentration of CO2, the most important greenhouse gas, 
means that the global energy system must be transformed by the end of 
the 21st century. Given the long life of energy infrastructure, 
preparations for that transformation must start today.
    Second, research that I have conducted with Tom Wigley at the 
National Center for Atmospheric Research and Richard Richels at EPRI 
indicates that, to attain global CO2 concentrations ranging 
from 350 parts per million volume (ppmv) to 750 ppmv, global emissions 
of CO2 must peak in this century and then begin a long-term 
decline. Recall that the average concentration in 1999 was 368 ppmv and 
pre-industrial values were in the neighborhood of 275 ppmv. The timing 
and magnitude of the peak depends on the desired CO2 
concentration as well as on a variety of factors shaping future U.S. 
and global technology and economy. In 1997 global fossil fuel carbon 
emissions were approximately 6.6 billion tonnes of carbon per year with 
an additional approximately 1.5 billion tonnes of carbon per year from 
land-use change such as deforestation. (The values for land-use change 
emissions are known with much less accuracy than those of fossil fuel 
emissions.) Values taken from the paper Drs. Wigley, Richels and I 
published in Nature in 1996 for alternative CO2 
concentrations, peak emissions and associated timing are given in the 
table below:

 
----------------------------------------------------------------------------------------------------------------
                 CO2 Concentration (ppmv)                     350        450        550        650        750
----------------------------------------------------------------------------------------------------------------
Maximum Global CO2 Emissions (billions of tonnes carbon          8.5        9.5       11.2       12.9       14.0
 per year)...............................................
Year in which Global Emissions Must Break from Present         Today       2007       2013       2018       2023
 Trends..................................................
Year of Maximum Global Emission..........................       2005       2011       2033       2049       2062
Year 2100 Global Fossil Fuel Emissions (billions of                0        3.7        6.8       10.0       12.5
 tonnes carbon per year).................................
----------------------------------------------------------------------------------------------------------------

    The time path of emissions will have a profound effect on the cost 
of achieving atmospheric stabilization. The emissions paths we 
developed were constructed to lower costs by avoiding the premature 
retirement of capital stocks, taking advantage of the potential for 
improvements in technology, reflecting the time-value of capital 
resources, and taking advantage of the workings of the natural carbon 
cycle-regardless of which concentration was eventually determined to 
``prevent dangerous anthropogenic interference with the climate.'' It 
is also important to note that the transition must begin in the very 
near future. For example, for a global concentration of 550 ppmv, 
global CO2 emissions must begin to break from present trends 
(i.e. deviations of more than 100 million tonnes of carbon from present 
trends) within the next 10 to 15 years. Given that it takes decades to 
go from ``energy research'' to the practical application of the 
research within some commercial ``energy technology'' and then perhaps 
another three to four decades before that technology is widely deployed 
throughout the global energy market, we will likely have to make this 
deflection from present trends with technologies that are already 
developed. To reduce global emissions even further will require a 
fundamental transformation in the way we use energy and that will only 
be possible if we have an energy technology revolution and that will 
only come about if we increase our investments in energy R&D.
    The table above shows that the global energy system, not just the 
United States energy system, must undergo a transition from one in 
which emissions continue to grow throughout this century into one in 
which emissions peak and then decline. Coupled with significant global 
population and economic growth, this transition represents a daunting 
task even if a concentration as high as 750 ppmv is eventually 
determined to meet the goal of the Framework Convention. A credible 
commitment to limit cumulative emissions is also needed to move new 
energy technologies ``off the shelf' and into wide spread adoption in 
the marketplace.
    Stabilizing the concentration of greenhouse gases in the atmosphere 
will require a credible commitment to limit cumulative global emissions 
of CO2. Such a limit is unlikely to be achieved without 
cost. The cost of stabilizing the concentration of greenhouse gases 
will depend on many factors including the desired concentration, 
economic and population growth, and the portfolio of energy 
technologies that might be made available. Not surprisingly costs are 
higher the lower the desired concentration of greenhouse gases. They 
are higher for higher rates of economic and population growth. And, 
they are lower the better and more cost effective the portfolio of 
energy technologies that can be developed.
    It is not well recognized that most long-term future projections of 
global energy and greenhouse gas emissions and hence, most estimates of 
the cost of emission reductions, assume dramatic successes in the 
development and deployment of advanced energy technologies occur for 
free. For example, the Intergovernmental Panel on Climate Change 
developed a set of scenarios based on the assumption that no actions 
were implemented to mitigate greenhouse gas emissions. The central 
reference case that assumes technological change as usual is called 
IS92a. This central reference scenario assumes that by the year 2100 
three-quarters of all electric power would be generated by non-carbon 
emitting energy technologies such as nuclear, solar, wind, and hydro, 
and that the growth of crops for energy (commercial biomass) would 
account for more energy than the entire world's oil and gas production 
in 1985. Yet with all these assumptions of technological success, the 
need to provide for the growth in population and living standards 
around the world drive fossil fuel emissions well beyond 1997 levels of 
6.6 billion tonnes of carbon per year to approximately 20 billion 
tonnes of carbon per year. Subsequent analysis by the IPCC as well as 
independent researchers serves to buttress the conclusion that even 
with optimistic assumptions about the development of technologies that 
the concentration of in the atmosphere can be expected to continue rise 
throughout the century.
    My second point follows directly from the preceding observations. 
Technology development is critical to controlling the cost of 
stabilizing CO2 concentrations. Improved technology can both 
reduce the amount of energy needed to produce a unit of economic output 
and lower the carbon emissions per unit of energy used.
    The Global Energy Technology Strategy Program to Address Climate 
Change is an international, public/private sector collaboration \1\ 
advised by an eminent Steering Group \2\. Analysis conducted at the 
Pacific Northwest National Laboratory as well as in collaborating 
institutions during Phase I supports the need for a diversified 
technology portfolio. No single technology controls the cost of 
stabilizing CO2 concentrations under all circumstances. The 
portfolio of energy technologies that is employed varies across space 
and time. Regional differences in such factors as resource endowments, 
institutions, demographics and economics, inevitably lead to different 
technology mixes in different nations, while changes in technology 
options inevitably lead to different technology mixes across time.
---------------------------------------------------------------------------
     \1\Sponsors of the program were: Battelle Memorial Institute, BP, 
EPRI, ExxonMobil, Kansai Electric Power, National Institute for 
Environmental Studies (Japan), New Economic and Development 
Organization (Japan), North American Free Trade Agreement-Commission 
for Environmental Cooperation, PEMEX (Mexico), Tokyo Electric Power, 
Toyota Motor Company, and the U.S. Department of Energy. Collaborating 
research institutions were: The Autonomous National University of 
Mexico, Centre International de Recherche sur l'Environnment et le 
Developpement (France), China Energy Research Institute, Council on 
Agricultural Science and Technology, Council on Energy and Environment 
(Korea), Council on Foreign Relations, Indian Institute of Management, 
International Institute for Applied Systems Analysis (Austria), Japan 
Science and Technology Corporation, National Renewable Energy 
Laboratory, Potsdam Institute for Climate Impact Research (Germany), 
Stanford China Project, Stanford Energy Modeling Forum, and Tata Energy 
Research Institute (India).
     \2\Richard Balzhiser, President Emeritus, EPRI; Richard Benedick, 
Former U.S. Ambassador to the Montreal Protocol; Ralph Cavanagh, Co-
director, Energy Program, Natural Resources Defense Council; Charles 
Curtis, Executive Vice President, United Nations Foundation; Zhou Dadi, 
Director, China Energy Research Institute; E. Linn Draper, Chairman, 
President and CEO, American Electric Power; Daniel Dudek, Senior 
Economist, Environmental Defense Fund; John H. Gibbons, Former 
Director, Office of Science and Technology Policy, Executive Office of 
the President; Jose Goldemberg, Former Environment Minister, Brazil; 
Jim Katzer, Strategic Planning and Programs Manager, ExxonMobil; Yoicbi 
Kaya, Director, Research Institute of Innovative Technology for the 
Earth, Government of Japan; Hoesung Lee, President, Korean Council on 
Energy and Environment; Robert McNamara, Former President, World Bank; 
John Mogford, Group Vice President, Health, Safety and Environment BP; 
Granger Morgan, Professor, Carnegie-Mellon University; Hazel O'Leary, 
Former Secretary, U.S. Department of Energy; Rajendra K. Pachauri, 
Director, Tata Energy Research Institute; Thomas Schelling, 
Distinguished University Professor of Economics, University of 
Maryland; Hans-Joachim Schellnhuber, Director, Potsdam Institute for 
Climate Impact Research; Pryadarshi R. Shukla, Professor, Indian 
Institute of Management; Gerald Stokes, Assistant Laboratory Director, 
Pacific Northwest National Laboratory; John Weyant, Director, Stanford 
Energy Modeling Forum; and Robert White, Former Director, National 
Academy of Engineering.
---------------------------------------------------------------------------
    Technologies that are potentially important in stabilizing the 
concentration of CO2 include energy efficiency and renewable 
energy forms, non-carbon energy sources such as nuclear power and 
fusion, improved applications of fossil fuels, and technologies such as 
terrestrial carbon capture by plants and soils, carbon capture and 
geologic sequestration, fuel cells and batteries, and commercial 
biomass. Many of these technologies are undeveloped or play only a 
minor role in their present state of development. Energy research and 
development by both the public and private sectors will be needed to 
provide the scientific foundations needed to achieve improved economic 
and technical performance, establish reliable mechanisms for monitoring 
and verifying the disposition of carbon, and to develop and market 
competitive carbon management technologies. For example, advances in 
the biological sciences hold the promise of dramatically improving the 
competitiveness of commercial biomass as an energy form.
    Recent trends in public and private spending on energy research and 
development in the world and in the United States suggest that the role 
of technology in addressing climate change may not be fully understood 
nor appreciated. Although public investment in energy R&D has increased 
slightly in Japan, it has declined somewhat in the United States and 
dramatically in Europe, where reductions of 70 percent or more since 
the 1 980's are the norm. Moreover, less than 3 percent of this 
investment is directed at technologies that, although not currently 
available commercially at an appreciable level, have the potential to 
lower the costs of stabilization significantly.
    In summary, stabilizing the concentration of greenhouse gases at 
levels ranging up to 750 ppmv represents a necessary but daunting 
challenge to the world community. Energy related emissions of 
CO2 must peak and begin a permanent decline during this 
century. The lower the desired concentration, the more urgent the need 
to begin the transition. Both a credible global commitment to limit 
cumulative emissions and a portfolio of technologies will be needed to 
minimize the cost of achieving that end including technologies that are 
not presently a significant part of the global energy system. Their 
development and deployment will require enhanced energy R&D by both the 
public and private sectors. Unfortunately, current trends in energy R&D 
are cause for concern.
    Mr. Chairman, thank you for this opportunity to testify. I will be 
happy to answer your and the committee's questions.
                                 ______

               

                               __________

Statement of Rattan Lal, Director, Carbon Management and Sequestration 
 Program, Ohio Agriculture Research and Development Center, Ohio State 
                        University, Columbus, OH
Soil Carbon Sequestration To Reduce Net Gaseous Emissions
    Mr. Chairman, members of the Committee on Environment and Public 
Works. I am Rattan Lal, Professor of Soil Science and Director of the 
Carbon Management and Sequestration Program at The Ohio State 
University. I am especially thankful to Senator Voinovich for the 
opportunity to offer testimony on ``Soil Carbon Sequestration to Reduce 
Net Gaseous Emissions.''
    Let me begin by expressing my appreciation of strong cooperation 
with several institutions and organizations across the country. During 
the past decade, the program at The Ohio State University (OSU) has 
been supported by USDA-Natural Resource Conservation Service (NRCS). I 
cannot thank NRCS enough for its past, present and future support. We 
have also worked with scientists from USDA-Agricultural Research 
Service (ARS). The multi-institutional team comprised of OSU/NRCS/ARS 
has published 12 books, which constitute a major literature on this 
topic. In addition, OSU also has on-going programs with the Pacific 
Northwest National Laboratory and the Oak Ridge National Laboratory. 
Being a founding member of the ``Consortium for Agricultural Soils 
Mitigation of Greenhouse Gases (CASMGS),'' the OSU team is 
collaborating with faculty from ten universities in developing a long-
term program on soil carbon sequestration. Following up on the research 
done for estimating the potential of U.S. cropland and grazing lands to 
sequester carbon, OSU/NRCS group is now working with USDA-Forest 
Service (FS) to estimate the potential of U.S. forest soils to 
sequester carbon. We are presently formulating a program with the Los 
Alamos National Laboratory, in cooperation with the Ohio Coal 
Development Office and American Electric Power, to develop a long-term 
program on soil C sequestration, soil quality and net primary 
productivity of different ecosystems, with immediate focus on 
reclamation of mineland sites in Ohio, West Texas and New Mexico. We 
are also working with USDA-Economic Research Service (ERS) on the topic 
of soil degradation and its effects on productivity and the C dynamics. 
We are working with these partners because we share the same values and 
goals of ``sustainable management of soil and water resources, reducing 
net emissions, and creating a clean environment.''
    The basis of our shared commitment is the mutual concern about the 
quality of the nation's soil and water resources and the environment. 
We realize how important and critical the quality of soil resources is 
for maintaining high economic agricultural production while moderating 
the quality of air and water. Advances in soil science, especially 
those in relation to efficient use of water and nutrients by input-
responsive and high yielding varieties, broke the yield barriers, 
ushered in the Green Revolution, and brought about a quantum jump in 
agricultural production in the post-World War II era. Gains in 
agricultural production globally during the second half of the 20th 
century saved millions from starvation, and once again proved the neo-
Malthusian views wrong. Now we want to use the knowledge of soil 
science in addressing another important and global issue of the modern 
era--reducing net emissions of greenhouse gases into the atmosphere.
    The atmosphere is a classic example of a common pool resource that 
is prone to exploitation. With industrialization and expansion of 
agriculture, through deforestation and plowing, comes soil degradation 
and emission of gases into the atmosphere. Indeed, the atmospheric 
concentration of three important greenhouse gases (carbon dioxide, 
methane and nitrous oxide) has been increasing due to anthropogenic 
perturbations of the global carbon and nitrogen cycles. For example, 
the pre-industrial concentration of carbon dioxide at 280 parts per 
million (0.028 percent or 600 billion tons or Gt) increased to almost 
365 ppm (0.037 percent or 770 Gt) in 1998 and is increasing at the rate 
of 0.5 percent/yr or 3.8 Pg/yr. The historic gaseous increase between 
1850 and 1998 has occurred due to two activities: (1) fossil fuel 
burning and cement production which has contributed 270 (+30) Gt of 
carbon as CO2, and (2) deforestation and soil cultivation 
which has emitted 136 (+55) Gt. Of this, the contribution from world 
soils may have been 78 (+17) Gt of which 26 (+9) Gt may be due to 
erosion and related soil-degradative processes. In comparison with the 
global emissions, cropland soils of the United States have lost 3 to 5 
Gt of carbon since conversion from natural to agricultural ecosystems.
    Greenhouse gases are released into the atmosphere when trees are 
cut down and burnt, soils plowed, and wetlands are drained and 
cultivated. In addition, excessive soil cultivation and inappropriate 
or inefficient use of nitrogenous fertilizers can result in emission of 
greenhouse gases from soil to the atmosphere. Finally, accelerated soil 
erosion can lead to a drastic reduction in soil organic carbon (SOC) 
content. Although the fate of the carbon that is transported by wind 
and water is not well understood, it is believed that a considerable 
portion of the eroded carbon may be mineralized and emitted into the 
atmosphere. It is estimated that soil erosion annually emits 1.1 Gt of 
C globally and 0.15 Gt from soils of the United States. Although 
agricultural processes are presently not the main source of gaseous 
emissions, they have clearly been a significant source. Yet, the 
emissions of C from soils are reversible through conversion to a 
restorative land use and adoption of recommended agricultural 
practices. These estimates of the amount of lost C, crude as these may 
be, provide a reference point about the sink capacity through land use 
conversion and adoption of recommended practices.
    Soil organic matter (SOM), of which 58 percent is carbon, is one of 
our most important national resources. It consists of a mixture of 
plant and animal residues at various stages of decomposition and by-
products of microbial activity. The SOM is a minor component of the 
soil (1-3 percent), but plays a very important role in biological 
productivity and ecosystem functions. Enhancing SOM content is 
important to improving soil quality, reducing risks of pollution and 
contamination of natural waters, and decreasing net gaseous emissions 
to the atmosphere. The SOM pool can be enhanced through: (1) 
restoration of degraded soils and ecosystems, and (2) intensification 
of agriculture on prime soils.
    Enhancing the SOM pool is an important aspect of restoration of 
soils degraded by severe erosion, salinization, compaction, and 
mineland disturbance. Degraded soils have been stripped of a large 
fraction of their original SOM pool. There are 305 million hectares 
(Mha) of moderately and severely degraded soils worldwide. U.S. 
cropland prone to moderate and severe erosion is estimated at 20.4 Mha 
by wind erosion and 24.3 Mha by water erosion. An additional 20 Mha are 
prone to salinization, and 0.6 Mha of land strip-mined for coal is in 
need of restoration.
    Land conversion and restoration transforms degraded lands into 
ecologically compatible land use systems. The Conservation Reserve 
Program (CRP) is designed to convert highly erodible land from active 
crop production to permanent vegetative cover for a 10-year period. In 
addition to erosion control, land under CRP can sequester carbon in 
soil at the rate of 0.5 to 1.0 t/ha/year (450 to 900 lbs C/acre/yr). 
Erosion control also involves establishing conservation buffers and 
filter strips. These vegetated strips, ranging from 5 to 50 m wide 
(16.5 to 165 ft. wide) are installed along streams as riparian buffers 
and on agricultural lands to minimize soil erosion and risks of 
transport of non-point source pollutants into streams. The rate of C 
accumulation in soil under conservation buffers is similar to that of 
the land under CRP. The USDA has a voluntary program to develop 3.2 
million km (2 million miles) of conservation buffers.
    Wetlands are also an important component of the overall 
environment. Approximately 15 percent of the world's wetlands occur in 
the United States (40 Mha or 100 million acres) of which 2 Mha (5 
million acres) are in need of restoration. Natural wetlands have a 
potential to accumulate carbon (net of methane) at the rate of 0.2 to 
0.3 t/ha/yr (180 to 270 lbs/acre/yr).
    Surface mining of coal affected 30,375 ha (75,025 acres) of land in 
the U.S. during 1998. Restoring minelands, through leveling and using 
amendments for establishment of pastures and trees, has a potential to 
sequester 0.5 to 1 t C/ha/yr (450 to 900 lbs C/acre/yr) for 50 years. 
Similar potential exists in restoring salt-affected soils.
    The overall potential of restoration of degraded soils in the 
United States is 17 to 39 million metric tons or Tg per year for the 
next 50 years. Intensification of agriculture involves cultivating the 
best soils using the best management practices to produce the optimum 
sustainable yield. Some recommended agricultural practices, along with 
the potential of SOC sequestration are listed in Table 1. Conversion 
from plowing to no till or any other form of a permanent conservation 
till has a large potential to sequester carbon and improve soil 
quality. There is a strong need to encourage the farming community to 
adopt conservation tillage systems.
    Adoption of recommended practices on 155 Mha (380 million acres) of 
U.S. cropland has a potential to sequester 58 to 170 Tg C/yr. Grazing 
lands, rangeland and pastures together, occupy 212 Mha (524 million 
acres) of privately owned land and 124 Mha (300 million acres) of 
publicly owned land.
    Total soil C sequestration potential of U.S. grazing land is 22 to 
98 Tg C/yr.
    The potential of U.S. forest soils to sequester C is 48 to 86 Tg C/
yr (Birdsey, 2001).
    Thus, the total potential of U.S. agricultural and forest soils 
(Table 2) is 145 to 393 Tg C/yr or an average of 270 Tg C/yr.
    Total U.S. emissions were 1840 Tg CE/yr in 1999 (USEPA, 2000), and 
are increasing at 2 percent/yr. Thus, the emissions in 2001 are about 
1914 Tg C/yr, of which the contribution of all agricultural practices 
is 42.9 MMTCE/yr. Therefore the potential carbon sequestration in U.S. 
soils represents 14 percent of total U.S. emissions, and 6.3 times the 
emissions from agricultural activities. Thus, soil C sequestration 
alone can reduce the net emissions. The U.S. commitment under the Kyoto 
Protocol is reducing emissions by about 660 MMTCE. Thus, soil C 
sequestration can account for 40 percent of the commitment.
    The current net C sinks are estimated at 270 Tg/yr, which comprise 
only 21 Tg/yr of soil C sequestration (USEPA, 2000). If the full 
potential of soil C sequestration is realized, the total sink capacity 
can be 519 Tg C/yr (Table 3), which is 78 percent of the commitment 
under the Kyoto Protocol. These statistics indicate the need for a 
serious consideration of determining what fraction of the total 
potential is realizable, at what cost and by what policy instruments.
    There is a widespread perception that agricultural practices cause 
environmental problems, especially those related to water contamination 
and the greenhouse effect. Our research has shown that scientific 
agriculture and conversion of degraded soils to a restorative land use 
can also be a solution to environmental issues in general and to 
reducing the net gaseous emissions in particular. Thus, soil carbon 
sequestration has a potential to reduce the net U.S. emissions by 270 
Tg C/yr. This potential is realizable through promotion of CRP, WRP, 
erosion control and restoration of degraded soils, conservation 
tillage, growing cover crops, improving judicious fertilizer use and 
precision farming.
    Actions that improve soil and water quality, enhance agronomic 
productivity and reduce net emissions of greenhouse gases are truly a 
win-win situation. It is true that soil C sequestration is a short-term 
solution to the problem of gaseous emissions. In the long term, 
reducing emissions from the burning of fossil fuels by developing 
alternative energy sources is the only solution. For the next 50 years, 
however, soil C sequestration is a very cost-effective option, a 
``bridge to the future'' that buys us time in which to develop those 
alternative energy options.
References
    1. Birdsey, R. 2001. Potential carbon storage in forest soils of 
the U.S. Unpublished, USDA-FS.
    2. Lal, R., J. Kimble, E. Levine and B.A. Stewart (eds). 1995. 
Soils and Global Change. Advances in Soil Science, Lewis Publishers, 
Chelsea, MI, 440 pp.
    3. Lal, R., J. Kimble, E. Levine and B.A. Stewart (eds). 1995. Soil 
Management and Greenhouse Effect. Advances in Soil Science, Lewis 
Publishers, Chelsea, MI, 385 pp.
    4. Lal, R., J.M. Kimble, R.F. Follett and B.A. Stewart (eds). 1998. 
Soil Processes and the Carbon Cycle. CRC. Boca Raton, FL, 609 pp.
    5. Lal, R., J.M. Kimble, R.F. Follett and B.A. Stewart (eds). 1998. 
Management of Carbon Sequestration in Soils. CRC, Boca Raton, FL, 457 
pp.
    6. Lal, R., J.M. Kimble, R.F. Follett and C.V. Cole. 1998. The 
Potential of U.S. Cropland to Sequester C and Mitigate the Greenhouse 
Effect. Ann Arbor Press, Chelsea, MI, 128 pp.
    7. Lal, R., J.M. Kimble and B.A. Stewart (eds). 2000. Global 
Climate Change and Pedogenic Carbonates. Lewis/CRC Publishers, Boca 
Raton, FL, 378 pp.
    8. Lal, R., J.M. Kimble and B.A. Stewart. 2000. Global Climate 
Change and Tropical Ecosystems. Lewis/CRC Publishers, Boca Raton, FL, 
438 pp.
    9. Lal, R., J.M. Kimble and B.A. Stewart 2000. Global Climate 
Change and Cold Regions Ecosystems. CRC/Lewis Publishers, Boca Raton, 
FL.
    10. Lal, R., J.M. Kimble and R.F. Follett (eds). 2001. Assessment 
Methods for Soil Carbon. CRC/Lewis Publishers, Boca Raton, FL, 676 pp.
    11. Follett, R.F., J.M. Kimble and R. Lal (eds). 2000. The 
Potential of U.S. Grazing Lands to Sequester Carbon and Mitigate the 
Greenhouse Effect. CRC/Lewis Publishers, Boca Raton, FL, 442 pp.
    12. Lal, R. and J.M. Kimble. 1997. Conservation tillage for carbon 
sequestration. Nutrient Cycling in Agroecosystems, 49, 243-253.
    13. Lal, R., R.F. Follett, J.M. Kimble and C.V. Cole. 1999. 
Managing U.S. cropland to sequester carbon in soil. J. Soil Water 
Conserv. 54: 374-381.
    14. Lal, R. (ed) 2001. Soil Carbon Sequestration and the Greenhouse 
Effect. Special Publication, Soil Science Society of America, Madison, 
WI.
    15. Lal, R. 1999. Soil management and restoration for C 
sequestration to mitigate the greenhouse effect. Prog. Env. Sci. 1: 
307-326.
    16. Lal, R. and J.P. Bruce. 1999. The potential of world cropland 
to sequester carbon and mitigate the greenhouse effect. Env. Sci. & 
Policy 2: 177-185.
    17. Lal, R. 2000. Carbon sequestration in drylands. Annals Arid 
Zone 38: 1-11.
    18. Izaurralde, R.C., N.J. Rosenberg and R. Lal. 2001. Mitigation 
of climate change by soil carbon sequestration. Adv. Agron. 70: 1-75.
    19. Lal, R. 2001. World cropland soils as a source or sink for 
atmospheric carbon. Adv. Agron. 71: 145-191.
    20. Lal, R. 2000. We can control greenhouse gases and feed the 
world--with proper soil management. J. Soil Water Conserv. 55: 429-432.
    21. Lal, R. 2001. Potential of desertification control to sequester 
carbon and mitigate the greenhouse effect. Climate Change.
    22. USEPA 2000. Inventory of U.S. Greenhouse Gas Emissions and 
Sinks: 1990-1999 (draft). EPA 23RR-00-001.
    Table 1. Recommended practices for soil C sequestration. Practice 
Potential rate of soil carbon sequestration (t/ha/yr) Conservation 
tillage & mulch farming Compost and manuring Elimination of summer 
fallow Growing winter cover crops Integrated nutrient management/
precision farming Improved varieties and cropping systems Water 
conservation and water table management Improved pasture management 
Afforestation/reforestation Fertilizer use in forest soils Restoration 
of eroded mineland and otherwise degraded soils 0.1-0.5 0.05-0.5 0.05-
0.4 0.2-0.5 0.1-0.4 0.05-0.4 0.05-0.3 0.05-0.3 0.08-0.4 0.8-3.0 0.3-1
    Source: Lal et al. (1998); Follett et al. (2000); Birdsey (2000) 
Table 2. Total potential of U.S. agricultural soils for C 
sequestration. Strategy Potential of soil C sequestration (MMT C/yr) 
Land conversion and restoration Intensification of cropland Improved 
management of grazing land Improved management of forest soils Total 
17-39 58-170 22-98 48-86 145-393 (270 + 175)
    Source: Lal et al. (1998); Follett et al. (2000); Birdsey (2000)
    Table 3. Potential sink capacity of terrestrial ecosystems. 
Activity Sink capacity (Tg C/yr) Above-ground forest Soils Landfill 
Total 247 270 *2 519
    *The soil sink potential can be realized through policy 
intervention, and needs to be adjusted for hidden C costs of input 
used.
                                 ______
                                 
  Responses of Rattan Lal to Additional Questions from Senator Corzine
    Question 1. What are your recommendations for carbon sequestration 
on a project level?
    Response. Soil carbon plays an important role in the global carbon 
cycle. World soils contain 2300 billion tons of carbon to 1-meter 
depth, of which 1,550 billion tons is organic carbon and 750 billion 
tons is inorganic carbon. In comparison, world biota (trees, shrubs, 
grasses, plants, etc.) contain 560 billion tons of carbon. The 
atmospheric pool contains 760 billion tons, and is presently increasing 
at the rate of about 3.5 billion tons per year. Therefore, the soil 
carbon pool is about 4.1 times the biotic pool, and about 3 times the 
atmospheric pool.
    There are 4 other points that are important with regards to soil 
carbon pool:

    (i) There is a direct link between the soil carbon pool and the 
atmospheric pool. Change in soil carbon pool by 1 billion ton 
translates into the atmospheric concentration of carbon dioxide by 0.47 
parts per million by volume.
    (ii) The mean residence time of carbon in soil is longer than that 
in the biota, which is 25 years in soil and about 5 years in the biota 
on a global scale.
    (iii) The carbon pool in world's managed soils is now lower than 
their potential capacity because of the historic loss (because of 
plowing, low input agriculture, biomass removal or burning) and 
prevalence of soil degradative processes (e.g., erosion, compaction, 
etc.) The historic loss of soil carbon pool is estimated at 60 to 90 
billion tons for soils of the world and 3 to 5 billion tons for those 
of the U.S. The strategy is to increase soil carbon pool through 
management techniques that enhance carbon sequestration.
    (iv) There is a close inter-dependence between soil carbon and the 
biotic carbon pools. Increase in soil carbon pool leads to increase in 
the biotic pool because of an overall improvement in soil quality.

    Question 2. Would you agree that carbon sequestration should be 
conducted on project level?
    Response. Yes, implementation of ``projects'' for carbon 
sequestration is a good strategy. However, a ``project'' must be 
considered in a broader context. The project may involve: (i) 
restoration of degraded soils (e.g., mineland soils and steeplands, 
eroded soils), (ii) adoption of improved management practices on 
croplands, and (iii) implementing improved management of grazing land. 
Improved management of disturbed/degraded soils may involve 
afforestation and use of amendments. Agricultural intensification on 
cropland may involve conversion from plow till to no till farming, 
application of manure, integrated nutrient management with precision 
farming, growing winter cover crops, elimination of summer fallow, and 
changing methods of irrigation. Further, highly erodible land (HEL) can 
be taken out of production and converted to Conservation Reserve 
Program (CRP).
    Adoption of improved practices on grazing land may involve 
establishing different species, and injecting manure in the rangeland. 
All land use projects have soil carbon sequestration as an integral 
component of carbon balance.
    In all projects, including these involving afforestation, it is 
utterly important to monitor ``total or ecosystem carbon.'' The 
ecosystem carbon involves both above ground (biomass) and below ground 
(soil carbon) pools.
    Similar to the carbon in the biomass (above ground), methodology 
exists to monitor and verify soil carbon pool and fluxes. The project 
level information on carbon sequestration is incomplete unless full 
accounting is done for both above ground (biomass) and soil carbon pool 
and fluxes.

    Question 3. In the absence of rules for sinks projects under the 
Kyoto Protocol, would it be possible to trade credits via a voluntary 
national scheme?
    Response. Yes, private trading is already being done and must be 
encouraged. There is a U.S. voluntary carbon trading market. Several 
utility companies, including Greenhouse Emissions Management Consortium 
(GEMCO), are already trading credits. The AEP is involved in a large 
venture in Brazil, Bolivia and Belize. This is an encouraging 
development.
    As a soil scientist, a major concern I have about carbon trading is 
the value of carbon. Soil carbon is currently being traded (by GEMCO 
and others) at a price of $3 to $6 per ton of carbon. This is too low a 
value because at a sequestration rate of 100 to 200 lbs/acre/year, 
farmers will practically get nothing for their efforts. Thus, there is 
an urgent need to identify parameters necessary to assess the 
``societal'' value of soil carbon for trading carbon credits. The 
societal value must consider onsite benefits and ancillary effects of 
soil carbon sequestration.

    Question 4. Should a partnership be established now between 
companies that manage forests for harvest?
    Response. Yes, partnerships can be established. The objectives are 
to plant forest on degraded soils and save the existing forest 
especially in the tropical rainforest ecosystem. When forest is planted 
on degraded soils, companies that manage forests must monitor both 
biomass and soil carbon. Further, the land already cleared (for 
pastures or cropland) must be managed judiciously to reduce the need 
for clearing new land.
                               __________
 Statement of James E. Rogers, Chairman, President and Chief Executive 
                         Officer, Cinergy Corp.
    Mr. Chairman and members of the committee, my name is Jim Rogers 
and I am the chairman, president, and CEO of Cinergy Corp. I would like 
to thank you for giving me the opportunity to share my thoughts on 
global climate change and suggest how Congress might consider this 
critical issue, especially in the context of developing a comprehensive 
emission reduction strategy for the electricity industry.
Introduction
    It was my pleasure to testify before this subcommittee just 2 weeks 
short of a year ago on the need for a coordinated comprehensive 
emissions reduction program for coal-fired power plants.
    My views have not changed since that hearing. With the growing 
national demand for more electric generation, energy producers more 
than ever need the certainty that a comprehensive longer-term program 
would bring. I believe that Congress, in considering a long-term 
comprehensive approach to power plant emissions, must consider the 
uncertainties and challenges posed to my industry by the climate change 
issue. If indeed, the legislation is intended to build some kind of 
``certainty'' into our planning process, climate change must be on that 
environmental road map.
    There are those in my industries and others who believe any plan 
that considers climate change will doom the coal industry. I disagree 
and, in fact, am a firm believer that no climate change policy--one 
that is accepted by the public--can be successful if it ignores our 
most plentiful domestic natural resource.
    Coal-fired power plants, which supply more than half of the 
nation's electricity, face a battery of existing and proposed emission 
control requirements from Federal and State agencies and even 
neighboring countries. These requirements and proposed new programs are 
focused primarily on the reductions of four power plant emissions: 
Sulfur dioxide, nitrogen oxides, mercury and carbon dioxide.
    Because these regulatory initiatives are largely uncoordinated and 
often conflicting, the electric power industry faces enormous 
uncertainties as it tries to develop appropriate plans to upgrade 
plants and add pollution control equipment. Utility planners are even 
more challenged by the need to ensure their customers continue to 
receive reliable and affordable energy.
    But, the unfortunate results of today's regulatory soup are 
unnecessarily high costs for both shareholders and consumers, longer 
downtimes for our generating stations and continued uncertainty in an 
industry that is critical to the U.S. economy. Our progress on clean 
air has not been what it could--or should--be. We appreciate the 
interest expressed by Chairman Smith, Chairman Voinovich, Ranking 
Member Reid and Ranking Member Lieberman in promoting a legislative 
solution to this vexing regulatory problem. I am optimistic that this 
Congress and the new Administration will work together to reduce power 
plant emissions in a comprehensive manner and I look forward to working 
with you to make that happen.
Cinergy's Environmental Commitment
    Cinergy has a lot at stake. We are one of the nation's leading 
diversified energy companies with a total capitalization of $9.0 
billion and assets of $12.0 billion. Our Energy Merchant segments owns 
or operates nearly 21,000 megawatts of electric and combined heat plant 
generation in the U.S. and overseas. Approximately 14,000 of those 
megawatts comprise our core system of 14 baseload stations and seven 
peaking stations located in Ohio, Indiana and Kentucky, where we serve 
1.5 million electric and 500,000 retail gas customers.
    While we have made substantial investments in renewable energy, 
combined heat and power plants, microturbines and fuel cells and other 
emerging technologies, much of the electricity we produce here in the 
U.S. is generated by coal-fired power plants located in the Ohio River 
valley.
    Last year, Cinergy burned 29.2 million tons of coal in our 
generating stations and we project our coal consumption will continue 
to grow in the foreseeable future. As you can see from the chart, coal 
is vital to the Midwestern economy, supplying 80 percent of the 
generation in 1999.
    We're proud that the fuel we've purchased has provided a livelihood 
to thousands from West Virginia to Illinois. But we're equally proud of 
our environmental record, which tells the story of progress made in 
reducing the emissions from our coal-fired power plants.
    Since 1990, we've invested more than $650 million in scrubbers, 
precipitators, low nitrogen oxide burners, selective non-catalytic 
reduction units and a clean coal technology project at our Wabash River 
Station in Indiana. These technology improvements have resulted in a 47 
percent decrease in our sulfur dioxide emission rate and a 25 percent 
drop in our emissions rate for nitrogen oxides. The future promises 
even more.
    Over the next 5 years, we plan to buildup to 11 selective catalytic 
reduction units on our power plants, significantly reducing our 
nitrogen oxide emissions. We will also install sophisticated computer 
software to improve our plants' coal combustion process and boiler 
efficiency. We have already pioneered with success the use of selective 
non-catalytic reduction at one of our Ohio plants and will explore 
further use of this technology.
    Our goal is clear: We will strive to reduce the impact the 
company's coal-fired power plants have on our environment as cost-
effectively as possible in order to keep electricity costs reasonable. 
Congress can help put the logic back in environmental policy with a 
comprehensive multi-emission bill that sets the course for cleaner air, 
fuel diversity and reasonable goals. By passing such legislation, you 
can remove one of the ``question marks'' that hang over our industry as 
we struggle to meet a growing need for electric power.
    A comprehensive approach must address reasonable timetables for 
further reductions in sulfur dioxide and nitrogen oxides and new 
reductions of mercury. It must fix New Source Review and give utilities 
maximum flexibility to meet the nation's environmental goals while 
still keeping the lights on.
The Climate Challenge
    Obviously, I am not a climate scientist but I have tried to follow 
the scientific debate that has occurred over the years on global 
climate change.
    Most atmospheric scientists seem to agree that human activities are 
affecting the climate on Earth although there is still debate over the 
significance, timing and impact on the planet. While the science will 
certainly advance in the years to come, I am convinced that it is 
prudent to take action now to address what we do know.
    This does not mean we must act precipitously and without careful 
and complete debate over the proper long-term response. We should 
remember that this problem has been created by two centuries of 
industrialization. We cannot change our way of life overnight and we 
will be mired in endless debate if we try.
    But we need to start down the road.
    The U.S. electric utility industry, in fact, began that journey 7 
years ago, becoming one of the earliest industrial sectors to take a 
major step to dramatically reduce its carbon emissions. Beginning in 
1994 with the Climate Challenge, Cinergy and other utilities 
representing more than 70 percent of the electric generation in the 
United States, enrolled in a voluntary carbon emission reporting and 
reduction program. Under the Climate Challenge the electric utility 
industry reduced, avoided, or sequestered 124 million tons of 
CO2 equivalent green house gases in 1999.
    The industry believes that future voluntary programs to reduce or 
offset greenhouse gas emissions can be just as successful. Even though 
the Climate Challenge pledged carbon reductions and offsets only 
through the year 2000, many of the programs initiated under the 
Challenge will continue to deliver reductions and offsets for many 
years.
           cinergy's commitment to addressing climate change
    As an original participant in the Climate Challenge, Cinergy has 
been actively involved in a number of projects, both at home and 
abroad, to reduce or offset our carbon emissions. Ten years ago, 
Cinergy's operating companies, PSI Energy and The Cincinnati Gas & 
Electric Company, were more than 95 percent coal-fired. Our profile 
today is much different. Through our Cinergy Solutions, Global Power 
and Capital and Trading affiliates, we have invested in natural gas, 
combined heat and power, cogeneration and renewable projects that now 
account for 32 percent of our total electric production. Another 
Cinergy affiliate, Vestar, provides energy facility and infrastructure 
improvements and energy management services to large users, making them 
more energy efficient. We have chosen to invest many of our R&D dollars 
in so-called ``disruptive technologies'' that are already beginning to 
alter the way traditional utilities do business. These technologies 
fall into categories such as e-commerce, information management, 
digital utility, retail services and distributed generation--all of 
which contribute either directly or indirectly to increased 
efficiencies and reduced carbon emissions. Cinergy has partnered with 
The Nature Conservancy and other utilities in operating a 125,000-acre 
tropical forest preservation and management project in Belize. It is 
estimated that this project will sequester five million tons of carbon 
as well as protect the forest from being developed for agricultural 
purposes. We are investing over $2 million in cooperation with The 
Nature Conservancy, Ducks Unlimited, the National Wild Turkey 
Federation, Quail Unlimited and local communities to plant three 
million trees and thousands of acres of native grasses here in the 
United States. These projects not only sequester carbon but they also 
enhance the local environment and can be effective land conservation 
tools.
                pragmatism must underpin our next steps
    All these projects and plans say one thing loud and clear: The 
electric utility industry has already begun successfully addressing the 
climate change issue and is positioned to make further progress in the 
years ahead. This is not to say that we can do everything all at once 
without massive impacts on the reliability and cost of electricity. 
President Bush's recent letter to Senator Hagel and others on climate 
change highlights the reality that some cures may be unacceptably 
disruptive, at least in my industry. For example, Cinergy has not and 
cannot support the Kyoto Protocol. We have the same concerns regarding 
developing nation coverage that the Senate recognized in its 95-0 
support for the Byrd-Hagel Resolution back in 1997. We cannot, as the 
Kyoto Protocol requires, turn back the clock to 1990 in a few short 
years. Cinergy, like most electric power companies in this country, fed 
the decade's economic boom with progressively higher demands for 
electricity. This robust growth led to similar growth in our carbon 
emissions. As a practical matter, we cannot return to those levels by 
the end of this year or by the end of this decade. As I read the 
President's letter, I noted his concern about global climate change and 
his desire to address it in a reasonable, timely matter and in a way 
that doesn't disrupt our economy. He said ``no'' to Kyoto but he didn't 
put global climate change on the shelf. I agree with the President's 
view and believe we need to move beyond the debate over the Kyoto 
Protocol to create a workable climate change program. I also agree with 
the President's view that carbon dioxide should not be regulated as a 
``pollutant'' under the Clean Air Act. The tools provided in the Act to 
fight smog in Los Angeles or acid rain in New Hampshire are 
inappropriate to address the slow buildup of greenhouses gases 
worldwide. There are no silver bullets out there that can ``fix'' the 
greenhouse gas problem quickly. Global climate change is the most 
challenging environmental issue we've ever faced. We have technologies 
that can scrub most of the sulfur dioxide, nitrogen oxides and reduce 
mercury and particulates out of our smokestacks There is no such 
technology for carbon. That doesn't mean, of course, that power 
generators cannot go forward with a program to reduce greenhouse gases 
through other means, as the industry has demonstrated in the Climate 
Challenge program.
    FIRST STEPS IN IDENTIFYING SOLUTIONS TO THE CLIMATE ISSUE
    While global climate change is a long-term problem that demands a 
long-term solution, we need to take steps now to begin reducing our 
greenhouse gas emissions. Congress should base any response on three 
truisms: First, the national economy depends on an ample supply of 
energy and those of us who produce that energy can only do so if we are 
able to use all the fuel sources available to us. This country is 
facing a looming energy shortage and we simply can't turn our backs on 
the abundant supply of fossil fuels that are providing most of 
America's electric generation. Second, voluntary programs, economic 
incentives and market approaches and flexibility are the keys to cost-
effective greenhouse gas reductions. Third, there must be a recognition 
that a greenhouse gas strategy for the nation and, specifically, for 
the electric utility industry, must consist of both a near-term program 
that focuses on flattening our carbon growth curve and long-term goals 
that focus on the technological solutions that ultimately will be 
needed. Based on these considerations, a short to mid-term program 
should have the following attributes.
Reasonable Goals
    The program should not set these early goals so high as to knock 
current generating stations out of the box. We need these plants for 
the foreseeable future and companies should be allowed to recoup the 
capital investments they have made to supply their customers with 
electric power.
Broad Goals
    Congress should consider setting industry goals but should not try 
to impose these goals or targets on a unit-by-unit or generating 
station by generating station basis. Since there is no technological 
fix to reduce greenhouse gases on existing plants, targets aimed so 
narrowly would result in many of these plants being closed.
Consideration of Growth and Costs
    Congress should consider both economic growth and the costs 
involved. Goals could be based on current emission levels or 
established by using a future level. A growth factor based on the most 
efficient generation available or a cost ceiling may provide 
appropriate safeguards.
Flexibility
    Industry should have full flexibility in meeting any goal. On-
system reductions, efficiency gains, demand side management, 
renewables, co-generation, carbon sinks, sequestration, carbon 
internment and reductions in other greenhouse gases such as methane--
all must be recognized and endorsed as appropriate strategies.
Market-Based Mechanisms
    Private sales and allowance trading should also be included. We 
know that market forces can work to keep costs in check and they should 
be employed here to the greatest extent possible.
Credibility
    Congress should update Section 1605(b) of the Energy Policy Act to 
ensure all reductions are quantifiable, credible and independently 
verified. For the purposes of any future international agreement, the 
U.S. Government needs to stand by those demonstrated reductions.
Technology Promotion
    A short-term policy ought to provide appropriate mechanisms to 
ensure that current technologies get into the marketplace. On the 
fossil fuel side, I'm thinking about the many advances that have been 
made in developing clean coal technologies but, for economic reasons, 
haven't been deployed. On the renewables and alternative generation 
side, I believe Congress should provide more economic incentives to 
jump start emerging wind, solar, fuel cell and microturbine 
technologies.
Incentives
    To encourage widespread participation, the policy should include 
proper incentives such as New Source Review reform and financial 
assistance.
Safe Harbor for New Generation
    In order to ensure continued development of needed generation 
during this period, we should consider creating a 10-20 year safe 
harbor for new facilities that meet ``best carbon reduction 
practices.'' In the long run, technological solutions are the best hope 
for achieving a maximum level of carbon dioxide reductions. Legislation 
should encourage government and the private sector to work together to 
speed the development and deployment of new energy-efficient 
technologies and a mechanism to scrub greenhouse gases out of the 
fossil fuel energy production chain. In fact, the real solution to 
global climate change lies in our ability to develop breakthrough 
technologies that will decouple energy production from greenhouse 
gases. With sufficient resources and attention, I have no doubt that we 
can and will achieve that goal. If global climate change is as serious 
a threat as many experts say, the United States should attack this 
technological puzzle as single-mindedly as it did nearly 40 years when 
our best scientists focused on putting a man on the Moon. In summary, 
Congress needs to address the climate change issue and develop an 
initial climate change program for the industry as part of the 
comprehensive multi-emission bill. My company seeks comprehensive 
multi-emission power plant legislation because we want long-term 
clarity and certainty built into our environmental compliance planning 
process. I think there is general agreement on both sides of the aisle 
that this approach makes sense. For me, this line of reasoning dictates 
the necessity of including a carbon commitment in the legislation. 
Without some sense of what our carbon commitment might be over the next 
10, 15 or 20 years, how can I or any other utility CEO think we have a 
complete picture of what major requirements our plants may face? 
Further, I know from personal experience that it's impossible to build 
new coal baseload power plants since the economics cannot be determined 
without knowing what requirements the plant will face on carbon. 
Congress has a unique opportunity to make a difference in our nation's 
long-term air quality and to take affirmative action toward 
establishing a workable global climate policy. Cinergy stands ready to 
do what we can to help. I thank you for the opportunity to speak to you 
today and I look forward to taking your questions.
                                 ______
                                 
Responses of James E. Rogers to Additional Questions from Senator Smith
    Question 1. What is a reasonable market penetration or generation 
capacity growth for renewables over the next 5 years, assuming today's 
economic factors?
    Response. Cinergy is one of the leading U.S. electric utilities to 
have actively invested in renewable energy projects over the last 3 
years. Since 1998, we've invested more than $260 million in renewable 
energy projects, generating over 300 megawatts of electricity here in 
the United States and in Europe. These projects include wind energy, 
run-of-the-river hydroelectric, landfill gas recovery, fuel cells and 
biomass.
    Our primary emphasis has been the development of a wind energy 
strategy, which we believe holds the greatest immediate promise of 
adding to the company's ``green energy'' portfolio.
    Renewable energy resources currently supply approximately 1 percent 
of electric energy consumed in the United States. Of all the renewable 
resources, wind generation is the least expensive and is the fastest 
growing technology being installed both in the U.S. and worldwide, with 
an annual growth rate in excess of 30 percent. During the course of 
this year alone, 1,500 megawatts of wind generation will be installed 
in this country, of which Cinergy's contribution will be approximately 
10 percent.
    Provided that the Production Tax Credit is maintained, I would 
expect that renewable energy generation capacity could form between 
three and 5 percent of the nation's electricity supply within the next 
5 years. Renewable energy does not have to be a high cost alternative 
to more traditional fossil sources of supply. With the Production Tax 
Credit at its current level, a wind energy project in a good wind 
location can supply power for as cheaply as 2.5 c/kWh over the 20-year 
period, which is below what a new gas-fired plant can supply, given 
today's fuel prices.
    In order to achieve a three to 5 percent market penetration for 
renewables in the next 5 years, a consistent long-term policy needs to 
be implemented, either through a long-term extension of the Production 
Tax Credit or establishment of a phased-in Federal renewable portfolio 
standard. The temporary termination, in June 1999, of the Production 
Tax Credit, resulted in an abrupt halt to all but a handful of wind 
energy projects. Its reintroduction several months later renewed 
interest in wind energy--an interest we maintain today.
    This situation could be repeated next year and is illustrative of 
the need for a consistent, long-term policy on the Production Tax 
Credit.
    Cinergy is currently planning to increase its renewable energy 
generation capacity to be in excess of 5 percent of our overall 
generating capacity within the next 5 years. I would envision this to 
be a reasonable objective for market penetration nationwide over the 
next 5 years, as part of a responsible and well-balanced energy policy.

    Question 2. Your comments regarding the need for certainty and a 
multi-pollutant bill that covers carbon dioxide have been echoed by 
other industry leaders in private, but few have come forward apparently 
because of the President's campaign promise reversal. What might 
motivate them to most effectively and constructively encourage the 
Administration and Congress to move forward on legislation?
    Response. Over the last 3 years as chairman of the Edison Electric 
Institute's CEO Environmental Committee, I have seen our industry's 
thinking evolve on the climate issue to a point today where I believe 
the majority of my fellow CEOs would support a sensible, cost-effective 
greenhouse gas reduction program.
    The industry certainly doesn't speak with one voice but I sense 
that most of us are prepared to address this issue constructively, 
acknowledging that we have responsibility to do our part in reducing 
the emissions that contribute to climate change.
    I have said to this committee that a multi-pollutant bill is 
necessary because we, the sector that is entrusted to produce the 
energy that fuels our economy, can best do our job if we know what 
emissions we need to control and when we need to control them. Ideally, 
Congress would give us a long-term environmental road map and the 
flexibility to make power plant emission reductions in the most 
economic way possible.
    To me, and others, it makes no sense to pursue a comprehensive 
multi-pollutant bill without dealing with carbon dioxide. This issue is 
ripe now and we need to deal with it. No CEO wants to be in the 
position of having to invest hundreds of millions of dollars to control 
SO2, NOx and mercury while still being left to ``guess'' on 
carbon dioxide.
    The electric utility industry needs a long-term carbon program--not 
the draconian one that Kyoto would have inspired. We need a commitment 
to technology and to the future of coal. Finally, it needs assurances 
that the government will be partner and not an antagonist as we move 
together to address climate change.

    Question 3. When could your company cost-effectively reduce carbon 
dioxide emissions to 1990 levels? How much would it cost and what would 
need to be done?
    Response. With our company's baseload generation more than 95 
percent coal-fired, our only alternative would be to convert most, if 
not all, our units to natural gas. I would venture to say that this 
would be the same strategy employed by most Midwest utilities that rely 
on coal, resulting in a virtual one-fuel economy. Such a strategy would 
be expensive and shortsighted. It would significantly drive up the cost 
of energy with its negative effects on the overall economy. And, 
because natural gas-fired turbines also emit carbon dioxide, 
eventually, with increased demand for electricity, you'd see the 
emissions creep up again.
    What distinguishes carbon dioxide from other power plant emissions 
is that there is currently no technological fix. And that's where I 
think, as I mentioned in my testimony, that the Federal Government and 
the private sector need to concentrate their efforts. Let's get the 
best scientists on the job with all the tools possible at their 
disposal to invent a technology that can reduce or eliminate carbon 
dioxide from a power plant's flue gas. Let's put in place the proper 
incentives to encourage the private sector to improve operating 
efficiencies and develop carbonless energy technologies.
    With a technological solution comes the opportunity to make serious 
reductions in carbon emissions, without jeopardizing the economy.
                               __________
    Statement of Marilyn A. Brown, Director, Energy Efficiency and 
        Renewable Energy Program, Oak Ridge National Laboratory
    Mr. Chairman and members of the committee, thank you for inviting 
me to summarize for you the findings of a recent study that examines 
the ability of energy-efficient and clean energy technologies to reduce 
U.S. greenhouse gas emissions.
    I am Marilyn Brown, Director of the Energy Efficiency and Renewable 
Energy Program at the Oak Ridge National Laboratory in Oak Ridge, 
Tennessee, and I am one of the lead authors of the study completed late 
last year titled Scenarios for a Clean Energy Future. \1\
---------------------------------------------------------------------------
     \1\The report is posted on the World Wide Web at http://
www.ornl.gov/ORNL/Energy--Eff/CEF.htm
---------------------------------------------------------------------------
Introduction
    The Clean Energy Future study is the most comprehensive assessment 
to date of technologies and market-based policies to address the 
energy-related challenges facing this Nation. It involved the analysis 
of hundreds of energy-related technologies and 50 policies. The focus 
is the United States, and the timeframe is the next 20 years. Thus, it 
is not a global or long-term study; rather, it is an assessment of what 
could be done here and now.
    The study was commissioned by the U.S. Department of Energy and was 
co-funded by the U.S. Environmental Protection Agency. It was prepared 
by researchers from five DOE national laboratories: Argonne National 
Laboratory, Lawrence Berkeley National Laboratory, the National 
Renewable Energy Laboratory, Oak Ridge National Laboratory, and Pacific 
Northwest National Laboratory.
    The Clean Energy Future study concludes that accelerating the 
development and deployment of energy-efficient and renewable energy 
technologies could significantly reduce air pollution and greenhouse 
gas emissions, oil dependence, and economic inefficiencies, at no net 
cost to the economy. The overall economic benefits of the technologies 
and policies that are modeled result in energy savings that equal or 
exceed the cost of implementing the policies and of investing in the 
technologies.
Barriers to Energy Efficiency and Clean Energy Policies
    Like many other analyses, the Clean Energy Future study describes a 
large reservoir of highly cost-effective, energy-efficient technologies 
that are available or could soon be available to U.S. consumers; yet 
many of these technologies remain unexploited. These technologies could 
save us money, make our power system more reliable, make our society 
less energy wasteful, and preserve our environment--so why aren't we 
using them? If energy-efficient technology is cost-effective, why isn't 
more of it hitting the markets? If individuals and businesses can make 
money from energy efficiency, why don't they just do it?
    Although some like to assert that markets are perfect, practical 
experience tells us otherwise. Energy markets, like many markets, are 
plagued by barriers that can impede the adoption of new products, even 
those that are beneficial and economical. These market failures and 
barriers include:
      Misplaced incentives (for instance, these often occur in 
apartment buildings where landlords pay the utility bills, giving 
tenants no incentive to conserve)
      Distorting fiscal and regulatory policies (for example, 
electricity rates that do not reflect the real-time cost of electricity 
production)
      Unpriced costs (such as the health problems associated 
with burning hydrocarbons: because energy prices do not include the 
full cost of environmental externalities, they understate the societal 
cost of energy), and
      Unpriced benefits (such as the public benefits associated 
with energy R&D: because the benefits of private-sector investments in 
R&D extend beyond any individual firm, investments are insufficient 
from a public perspective).
    The existence of market barriers that inhibit investment in 
improved energy technologies is a primary driver for public policy 
intervention. In many cases, feasible, low-cost policies and programs 
can be put in place to eliminate or compensate for market imperfections 
and barriers, enabling markets to operate more efficiently for the 
benefit of the society.
Scope of the Study
    Scenarios for a Clean Energy Future assesses promising energy 
technologies and a range of public policies that could reduce the 
bamers to their use. It does so by developing scenarios that 
characterize how the future might unfold under different sets of 
policies. Three primary scenarios are presented: a business-as-usual 
(BAU) forecast and two alternative policy cases that reflect increasing 
levels of public commitment and political resolve to solving the 
nation's energy-related problems.
      The BAU forecast assumes that current energy policies and 
programs continue, resulting in a steady but modest pace of 
technological progress and improved efficiencies.
      The Moderate scenario is defined by an array of market-
based policies including a 50 percent increase in cost-shared Federal 
energy R&D, expanded voluntary programs, and tax credits for efficient 
appliances, vehicles, and non-hydro renewable electricity.
      The Advanced scenario is defined by more aggressive 
policies including a doubling of Federal energy R&D; voluntary 
agreements to promote energy efficiency in vehicles and industrial 
processes; appliance efficiency standards; renewable portfolio 
standards; and a domestic carbon cap and trading system.
    The impacts of these policies are examined using various assessment 
methods and modeling tools. A modified version of the Energy 
Information Administration's National Energy Modeling System is then 
used to quantitatively integrate the impacts of each scenario's 
policies.
Results
    The BAU scenario forecasts that U.S. energy consumption will 
increase from nearly 100 quadrillion Btu (quads) in 2000 to 110 quads 
in 2010 and 119 quads in 2020. Carbon dioxide emissions are forecast to 
increase at a comparable rate, to 1,770 million metric tons of carbon 
(MtC) in 2010 and 1,920 MtC in 2020 (see Figure 1). While there is 
necessarily great uncertainty associated with any specific forecast, 
all indications are that, without change, the United States is on a 
path toward increasing energy consumption and carbon emissions well 
into the foreseeable future.

    Under the Advanced scenario, the United States consumes 23 quads 
(20 percent) less energy in 2020 than is predicted under the BAU 
forecast. That savings amounts to almost 25 percent of our current 
energy use, and it is enough to meet the current energy needs of all 
the citizens, businesses, and industries located in the top three 
energy-consuming States--Texas, California, and Ohio. Other key 
findings of the Advanced scenario include the following:
      By 2020, U.S. CO2 emissions have been reduced 
to 1990 levels [avoiding 565 MtC compared with the BAU forecast. By 
2010, carbon emissions are approximately 300 MtC less than in the BAU 
case.
      Clean energy technologies and policies could shave $122 
billion off the U.S. energy bill in 2020 ($189 billion in gross energy 
savings minus $67 billion in carbon permit costs). These savings far 
outweigh any costs of implementation. (See Figure 2.)

  Under the Advanced scenario, voluntary agreements to 
increase the fuel efficiency of cars and light trucks, combined with 
other measures, could cut U.S. oil consumption by 5 million barrels per 
day. This would result in an estimated $238 reduction in transfer of 
wealth from U.S. oil consumers to world oil exporters, in the year 
2020, and reducing the cost to the U.S. economy of a future oil price 
shock such as we are presently experiencing. .
      hnproving the energy efficiency of U.S. buildings and 
industry through voluntary programs, tax credits, efficiency standards, 
and other measures could reduce electricity demand by 22 percent 
relative to the BAU forecast--all at a negative net cost.
    Two policies that are key to the energy and emissions savings in 
the Advanced scenario are increased resources for R&D in energy 
efficiency and clean energy, and a domestic carbon trading system.
      The Advanced scenario assumes that the Federal Government 
doubles its spending for cost-shared energy R&D, resulting in an 
overall increase of $2.8 billion per year (half Federal appropriations 
and half private-sector cost sharing).
      A carbon trading system sets limits on the quantities of 
carbon emissions that can be released annually. Companies that produce 
emissions can comply with the cap by either reducing their emissions or 
purchasing emissions permits from other companies. The Federal 
Government would collect revenues from the emissions permits and 
transfer them to taxpayers. The goal of this policy is to change the 
relative price of carbon-based fuels without lowering personal incomes.
A Sampling of Technology Opportunities
    The foundation of a clean energy future is efficient, clean energy 
technologies and sources. These technologies deliver the reductions in 
energy consumption, energy costs, and polluting emissions envisioned in 
the report. But what evidence do we have that these new technologies 
are real possibilities, not just wishful thinking? Consider the outcome 
of a major R&D effort that began in the late 1970's to improve the 
efficiency of household refrigerators, as one example.
    Between 1977 and 1982, DOE invested approximately $5 million in R&D 
to make home refrigerators more energy-efficient. Working in a public/
private partnership with compressor and appliance manufacturers, DOE 
and two Federal laboratories identified ways of improving the 
performance of refrigerator compressors, motors, insulation, and 
controls, and they provided test data for use in the setting of 
national standards. These technology investments, in conjunction with 
the issuance of appliance standards, cut the energy use of the average 
new refrigerator in half by the year 1990 and saved U.S. consumers $9 
billion in energy costs from 1981 to 1990 (1999 dollars) (see Figure 
3).

    In 1997, a DOE-industry cooperative R&D effort developed a 
prototype ``fridge of the future'' that used nearly half as much energy 
again, as refrigerators then on the market and surpassed the 2001 
efficiency standard for refrigerators. These developments in 
combination with the 2001 U.S. standard will save consumers billions of 
dollars each year.
    With these advances, we are approaching the technical limits of 
home refrigerator/freezer technology. However, in other cooling 
applications, opportunities abound. For example, in Senator Reid's 
State of Nevada, a natural gas-powered absorption chiller will be 
installed this summer in the Clark County Government Center for 
performance testing. This novel technology promises dramatic 
improvements in efficiency and emissions over chillers now on the 
market, and it uses no ozone-depleting refrigerants. These, and other 
building efficiency opportunities are highlighted in the Clean Energy 
Future study, including lower-cost compact fluorescent lamps, light-
emitting diodes (LEDs) to replace incandescent traffic lights, heat 
pump water heaters, and switch mode power supplies to reduce standby 
losses.
    Numerous opportunities exist in the industrial sector, as well. 
Just this week, Delphi Automotive Systems is hosting an event in 
Saginaw, Michigan, to celebrate the success of nickel aluminide trays 
used in its steel carburizing heat-treating furnaces. Nickel aluminide 
alloys, developed through a DOE-industry R&D partnership, are 
extraordinarily strong, hard, and heat-resistant. Their use in fixtures 
for high-temperature manufacturing can cut energy use by 5 to 10 
percent by making it feasible to operate furnaces at higher 
temperatures and with fewer shutdowns. Nearly 100 such emerging 
technologies for improving industrial energy efficiency are modeled in 
the Clean Energy Future study. These include, for example, near net 
shape casting technologies for reducing the cost of producing iron and 
steel, and improved black liquor gasification that could make kraft 
pulp mills net electricity exporters.
    In the realm of the here and now, improvements to industrial 
utility systems (steam, compressed air, motors, and pumps, etc.) offer 
tremendous energy-saving opportunities. Industrial motor systems, for 
example, use 25 percent of all the electricity consumed in the United 
States. In the Advanced scenario they are a source of considerable 
energy savings, based on the presumption of expanded technical 
assistance and voluntary programs. For instance, this scenario doubles 
the funding for DOE's ``Best Practices'' program, which encourages the 
use of energy-efficient motor, steam, and process heating systems. In 
just the 5 most recently completed projects, annual energy savings of 
131 trillion Btu were realized with an annual cost savings of $17 
million, and an average payback on investment of 1.2 years. Full 
implementation of proven, cost-effective energy-efficient technologies 
could save 11 to 18 percent of the power used in motor-driven 
industrial systems, saving billions of dollars annually.
    In transportation, the Clean Energy Future study underscores the 
availability of a collection of fuel-economy improvements to gasoline-
powered vehicles that could be rapidly accelerated into the market 
through a combination of R&D, incentives, and voluntary agreements 
between government and automakers. These technologies include a range 
of engine technology improvements (such as advanced valve-timing and 
lift controls, friction reductions, direct injection, and 4- and 5-
valve designs) as well as gasoline-hybrid technology and lightweight 
materials substitution, especially aluminum and plastics. Altogether 
the Advanced scenario policies and technologies improve the fuel 
economy of gasoline-powered passenger cars from 28 to 44 miles per 
gallon by the year 2020.
    Over the course of these same two decades, the Clean Energy Future 
study indicates that other propulsion systems and alternative fuels for 
passenger vehicles could be propelled into the market with an 
aggressive slate of polities. These include fuel cells, which account 
for 2.2 million of the passenger cars and light trucks sold in the 
Advanced scenario in 2020, and turbocharged direct injection diesels, 
which account for 2.6 million of light duty vehicles sold in 2020. 
Expanded R&D is critical to achieving the technology breakthroughs 
necessary for such growth in market shares of these novel, fuel-saving 
systems.
    In the electricity sector, combined heat and power is singled out 
in the Advanced scenario as a highly promising distributed energy 
resource. By locating power-producing equipment near industrial plants 
that require electricity, it is possible to also put the waste heat 
from the power generation to use in the industrial process. This 
enables the efficiency of the U.S. electric grid-which has ranged 
between 28 and 33 percent over the past four decades, to be 
dramatically increased. Through policies such as expanded research, tax 
credits, and interconnection standards, combined heat and power 
technologies in the Advanced scenario reduce U.S. energy consumption by 
nearly 2.5 quads in the year 2020.
    The expanded research budget portrayed in the Advanced scenario 
also drives down the cost and improves the performance of natural gas 
combined cycled plants and nonhydro renewable power. In combination 
with other incentives for low-carbon power, these policies grow the 
nonhydro renewable contribution to 10 percent of electricity production 
in 2020, with the bulk of the increment coming from wind power. 
Research on turbines that operate in less-windy regimes promises even 
more opportunities for wind power. Economic turbines in less windy 
regimes means that wind power can be used closer to eastern loads 
without the need for large transmission investments. Natural gas grows 
to one-third of power generation, just surpassing coal's contribution. 
In addition to lowering the nation's carbon emissions, a revised fuel 
portfolio such as this would significantly reduce local air pollution.
Conclusion
    Energy conservation does not have the rugged, dramatic appeal of 
oil drilling or coal mining. It does not wow us with massive dams, 
dramatic cooling towers, or tall smokestacks. But energy conservation 
makes a tremendous amount of energy available. In fact, over the past 
25 years, energy efficiency has become the No. 1 domestic source of 
energy available for use by U.S. consumers. In 1999, almost a quarter 
of the energy we used was energy that would have been lost to waste 
without the energy-efficiency technologies that have been developed and 
implemented since the Arab oil embargo of 1973-74. A Btu saved is a Btu 
available to power our homes, industries, and cities, Energy efficiency 
is a clean energy source, producing no emissions or runoff. It improves 
our balance of payments, and we need not go to war periodically to 
defend it.
    Clearly, following current approaches to energy policy in this 
Nation will bring substantial increases in carbon and other polluting 
emissions over the next 20 years. The BAU case in Scenarios for a Clean 
Energy Future projects carbon emissions 31 percent and 43 percent above 
1990 levels by 2010 and 2020, respectively. Virtually any future based 
on continuing current trends would include large increases in carbon 
emissions. The inescapable conclusion is that, absent major shifts in 
policy and the economy, the United States will be ever further from 
stabilizing its carbon emissions.
    The Clean Energy Future study identifies a set of policy pathways 
that could speed the introduction of cost-effective, efficient, clean 
energy technologies into the marketplace. These technologies are good 
for business, good for consumers, good for the economy, and good for 
the environment. To secure these benefits, the Nation needs to move 
forward on many fronts--on policies to remove market barriers, R&D to 
accelerate technology advancements, and programs to facilitate 
deployment of the new technologies. These, in combination with the 
political leadership that the world expects of the United States, are 
all necessary ingredients of a clean energy future.
    Thank you for this opportunity to talk with you today. I would be 
happy to answer any questions.
Biographical Sketch
    Marilyn Brown is the Director of Oak Ridge National Laboratory's 
Energy Efficiency and Renewable Energy Program. During her 18 years at 
ORNL, she has researched the design and impacts of policies and 
programs aimed at accelerating the development and deployment of 
sustainable energy technologies. She currently manages a $110 million/
year program of research to develop and assess advanced energy 
efficiency and renewable energy technologies. Prior to coming to ORNL 
in 1984, she was a tenured Associate Professor in the Department of 
Geography at the University of Illinois at Urbana-Champaign, where she 
taught graduate and undergraduate seminars on technological change, 
resource geography, and statistical analysis. She has received two NSF 
grants and funding from numerous other sources to support her research 
on the diffusion of energy innovations. She has a Ph.D. in geography 
from the Ohio State University where she was a University Fellow, a 
Masters Degree in resource planning from the University of 
Massachusetts, and a BA in political science (with a minor in 
mathematics) from Rutgers University. She has authored more than 140 
publications and has received awards for her research from the American 
Council for an Energy-Efficient Economy, the Association of American 
Geographers, the Technology Transfer Society, and the Association of 
Women in Science. Dr. Brown sits on the boards of several energy and 
environmental organizations and journals.
                                 ______
                                 
     Response of Dr. Marilyn A. Brown to Additional Question from 
                            Senator Corzine
    Question. The Clean Energy Future report contains strong 
conclusions about our ability to achieve greenhouse gas reductions at 
negative cost. By contrast, the IPCC's Third Assessment Report 
concludes that the cost of implementation of viable energy technologies 
.may at times be substantial, and must overcome other market barriers. 
To the extent that the two reports are directly comparable, can you 
highlight the differences in assumptions, data and/or methodology 
between the two reports?
    Response. The IPCC's Third Assessment Report draws its conclusions 
about the cost of climate change mitigation by reviewing the 
literature. It does not rely on a single analysis, but rather 
integrates and summarizes the findings of studies that had been peer 
reviewed and published by approximately mid-2000. Since the Scenarios 
for a Clean Energy Future was not published until November 2000, its 
findings were not included in the IPCC's literature review. 
Nevertheless, some of the studies reviewed in the Third Assessment 
Report use methodologies and data that are similar to the Scenarios for 
a Clean Energy Future; others use very different approaches.
    Based on a review of the ``Summary for Policymakers: Climate Change 
2001: Mitigation'' (one part of the Third Assessment Report), I am 
struck by how similar its conclusions are to those of the Scenarios for 
a Clean Energy Future. For instance, consider the summary Table SPM 
(Estimates of Potential Global Greenhouse Gas Emission Reductions in 
2010 and in 2020), from the IPCC report. It concludes the following 
regarding net direct costs per tonne of carbon avoided:

      Buildings: ``Most reductions are available at negative 
net direct costs.''
      Industry: ``More than half available at net negative 
direct costs.''
      Transportation: ``Most studies indicate net direct costs 
less than $25/tC.''
      Electricity generation: ``Limited net negative direct 
cost options exist.''

    The Scenarios for a Clean Energy Future draws very similar 
conclusions about the cost of reducing U.S. carbon emissions to 
approximately 1990 levels, by 2020.
    One notable difference between the two studies is in the 
transportation sector. The Scenarios for a Clean Energy Future assumes 
that a doubling of Federal energy R&D resources (in combination with 
various supporting policies) produce several technology breakthroughs. 
These, in turn, enable sizable greenhouse gas emission reductions, 
particularly in the second decade (2010-2020), at no net direct cost.
    The two studies also agree that successful implementation of ``no-
cost'' greenhouse gas mitigation options requires policy initiatives 
that address the market and institutional barriers impeding adoption of 
cost-effective emission-reduction measures. Chapter 2 of the Scenarios 
for a Clean Energy Future overviews these barriers as a basis for 
selecting the policy scenarios that are modelled in the report.
                                 ______
                                 
    Responses of Dr. Marilyn A. Brown to Additional Questions from 
                              Senator Reid
    Question 1. What is a reasonable market penetration or. generation 
capacity growth rate for renewables over the next 5 years, assuming 
today's economic factors?
    Response. The Business-As-Usual (BAU) scenario of the Scenarios for 
a Clean Energy Future report (CEF) provides a basis from which to 
answer the above question once updated for events that have occurred 
since its development, i.e. since early 1999. Table 1 shows the CEF BAU 
estimates of generation capacity for renewables from 1999 through 2006. 
The most striking features of these estimates are their small size and 
lack of significant growth over time.

                                                     Table 1
                       Renewable Electric Generating Capacity in the CEF BAU Scenario (GW)
----------------------------------------------------------------------------------------------------------------
                                                   1999    2000    2001    2002    2003    2004    2005    2006
----------------------------------------------------------------------------------------------------------------
Wind............................................    2.68     2.8    2.99    3.18     3.2    3.22    3.24    3.27
Biomass.........................................    1.72    1.76    1.84     1.9    1.91    1.93    1.97    2.02
Geothermal......................................    2.88    2.94    3.07    3.01    2.93    2.87    2.95    2.92
Other...........................................    3.85    3.97    4.02     4.1    4.17    4.24    4.32     4.4
Total non-hydro renewables......................   11.13   11.47   11.92   12.19   12.21   12.26   12.48   12.61
----------------------------------------------------------------------------------------------------------------

    These CEF BAU-scenario values in Table 1 are essentially the same 
as those of the EIA's Annual Energy Outlook 1999 on which the CEF BAU 
scenario is based. As shown in Table 2, in the most recent Annual 
Energy Outlook 2001, the ETA has increased its estimate of the 
penetration of wind to reflect actual market installations and changes 
in market conditions. However even this Outlook, released only 7 months 
ago, has severely underestimated the market penetration of wind with 
its market projection of only 4.4 GW by 2005. Wind plants currently on 
order to be installed in 2001 will reach this level this year (2001), 
not in 2005.

                                 Table 2
            Estimates of Renewable Electric Capacity in 2005
------------------------------------------------------------------------
                                      AE099      AEOO1       DOE/GPRA
------------------------------------------------------------------------
Wind..............................       3.24       4.43        8.4-10.5
Biomass...........................       1.97       1.68         3.6-4.1
Geothermal........................       3.08       3.15         3.2-3.4
Other.............................       4.32       4.24         4.3-4.6
Total non-hydro renewables........      12.61       13.5       19.5-22.6
------------------------------------------------------------------------

    This rapid growth in actual wind capacity is largely the result of 
continuing improvements in wind technology, the extension of the 
Federal production tax credit for wind, mandates by the States for 
increased use of renewables, and recent volatility in natural gas 
prices. The Interlaboratory Working Group that produced the CEF has not 
examined the impact of all these recent market factors on the 
penetration of renewables. However it is fairly clear that their 
continued presence will yield significant growth in wind, biomass, and 
geothermal over the next 5 years. An independent estimate made for the 
DOE Office of Energy Efficiency and Renewable Energy in 2000 as part of 
its response to the Government Performance and Results Act \1\ projects 
that by 2005 nonhydro renewables could contribute as much as 22 GW (see 
Table 2). Given the recent rapid penetration of wind, these DOE/EERE 
estimates appear most reasonable.
---------------------------------------------------------------------------
     \1\NREL, 2000, Projected Benefits of Federal Energy Efficiency and 
Renewable Energy Programs fiscal year 2001-FY 2020, National Renewable 
Energy Laboratory, Golden CO, July.

    Question 2. What would be the most cost-effective incentive or 
program that the Federal Government could offer to encourage a 
reduction in greenhouse gases to 1990 levels? What's the earliest that 
the level could be achieved, without serious harm to the economy?
    Response. These are difficult questions, which I can only partially 
address. The Scenarios for a Clean Energy Future describes a set of 
public policies and programs that reduce U.S. carbon emissions to 
approximately 1990 levels by the year 2020. It also concludes that such 
an ``advanced'' scenario would not cause serious harm to the economy. 
To drive emissions down faster would require even more aggressive 
policies. A few examples of such policies are listed below:

      Buildings: mandate the demand-side management programs 
run by electric utility companies in the 1980's and first half of the 
1990's, which were responsible for a substantial fraction of the energy 
efficiency improvements already realized in the buildings sector.
      Industry: establish tax incentives for new capital 
investments in energy equipment to accelerate the rate at which 
technological innovation diffuses into industries, thereby more quickly 
retiring outmoded and inefficient production equipment and facilities.
      Transportation: enact greenhouse gas standards for motor 
fuels that would be specified as a limit on the average greenhouse gas 
emissions factor of all motor fuels.
      Electricity: require all coal-fired power plants to meet 
the same emissions standards as new plants under the Clean Air Act, 
thereby removing the ``grandfathering'' clause that has allowed higher 
polluting, older coal-fired plants to continue to operate unabated.

    Additional work would be required to model the costs and impacts of 
such policies. Indeed, there are numerous alternative packages of 
policies that would need to be assessed for costs and environmental 
(and other) impacts, in order to answer your question. It is my 
personal opinion that accelerated reductions would be more costly, but 
if promoted by smart policies they still might not cause serious harm 
to the economy.
    I believe that enhanced Federal investment in energy R&D is the 
most effective Federal program for achieving significant long-term 
reductions in greenhouse gases. Reducing the costs and improving the 
performance of an array of clean energy technologies are essential 
enablers of low-cost/no-cost solutions. The Scenarios for a Clean 
Energy Future report documents the sizable benefits that could arise 
from a stronger program of energy R&D.
    The study concludes that the following policies, in combination 
with doubling the Federal energy R&D budget, were most important in 
achieving the emission reductions of the advanced scenario:

      Buildings: efficiency standards for equipment and 
appliances; voluntary labeling and deployment programs.
      Industry: voluntary programs and voluntary agreements 
with individual industries and trade associations.
      Transportation: voluntary fuel economy agreements with 
auto manufacturers; ``pay-at-the-pump'' auto insurance.
      Electricity Generation: renewable energy portfolio 
standards and production tax credits.
      Cross-Economy Policies: domestic carbon trading system.

    These would make up my short list of potentially most cost-
effective policies and programs, in terms of cost of carbon reduction. 
However, many other policies are extremely promising, and are not in 
our ``short list'' because they are narrower in scope and impact. An 
example is the development of a national interconnection standard that 
would facilitate the development of distributed energy resources.
                               __________
 Statement of Florentin Krause, Ph.D., Director, International Project 
                      for Sustainable Energy Paths
Short Summary
    This report identifies and corrects shortcomings in recent modeling 
studies on the economics of reducing greenhouse gas emissions in the 
U.S. The major assessments of the Kyoto Protocol--by the U.S. Energy 
Information Administration, the Clinton White House Council of Economic 
Advisers, the U.S. Department of Energy Interlaboratory Working Group, 
and the Stanford Energy Modeling Forum--are found to be seriously 
incomplete. Each study is shown to omit one or several of four major 
cost-reducing policy options, resulting in cost estimates that are far 
too pessimistic.
    The present study is the first to integrate all cost-cutting policy 
options into a coherent least-cost policy framework. Three domestic 
policies--a national carbon cap and permit trading program, 
productivity-enhancing market reforms and technology programs, and 
recycling of permit auction revenues into economically advantageous tax 
cuts--are combined with international emission allowance trading. In 
analyzing this integrated least-cost approach, the present study 
introduces no new models. It relies on established, peer-reviewed 
methodologies used in the major U.S. assessments to date.
    This reassessment leads to the following principal findings:

    1) The U.S. could meet the emission reduction targets set forth in 
the Kyoto Protocol by 2010 and exceed them by 2020 while increasing 
economic output from baseline growth projections.
    2) In 2010, an integrated least-cost strategy would produce an 
annual net output gain of about $50-60 billion/yr or roughly 0.5 
percent of GDP. By 2020, this gain grows to $120 billion/yr or 1 
percent of GDP. On a cumulative net present value basis, the U.S. would 
gain $250 billion by 2010 and $600 billion by 2020.
    3) Most of these economic gains can be flexibly achieved through a 
purely domestic no-regrets strategy or through an international 
approach.
    4) A strong synergy exists between a national energy policy aimed 
at safeguarding the economy and a least-cost policy aimed at slowing 
climate change. By reducing consumption of oil and natural gas relative 
to rising business-as-usual trends, a climate policy would help protect 
the U.S. against energy price shocks.
    5) Net economic benefits can be realized in the early years of 
implementation and continue to grow over time. As energy-using 
equipment and capital stocks turn over, market, organizational, and 
institutional reforms have the effect of speeding up and completing the 
penetration of currently available, highly cost-effective energy 
efficiency technologies that require little or no time-consuming 
research, demonstration, and commercialization.
    6) Potential economic savings from energy productivity gains far 
exceed the costs of technology R&D programs. Together with expanded 
markets under a climate protection policy, these have the effect of 
accelerating cost reductions for renewable energy sources and other 
low-carbon technology options.
    7) Postponing least-cost emissions reduction policies or embarking 
on suboptimal policies would result in lost opportunities for the U.S. 
economy of $50-150 billion/yr in 2010.
    8) In the context of an integrated least-cost strategy, credits for 
carbon sinks and constraints on the use of the Kyoto flexibility 
mechanisms are of only minor significance.
    9) An integrated least-cost approach would more effectively 
insulate U.S. industries from competitiveness problems than a global 
emissions trading approach applied in isolation. Productivity gains and 
tax shifts would reduce production costs and export prices in most 
industries below baseline levels rather than merely limiting increases 
in costs and prices.
    10) The perception that emission reduction targets such as those of 
the Kyoto Protocol are unavoidably costly or unfair is the result of 
outdated modeling assessments. Integrated economic analysis such as 
that contained in this report is needed as an input for future climate 
negotiations.

    The findings of this study are in qualitative agreement with the 
Economists' Statement on Climate Change signed by over 2,500 economists 
including eight Nobel laureates in 1997, which states: ``Economic 
studies have found that there are many potential policies to reduce 
greenhouse-gas emissions for which the total benefits outweigh the 
total costs. For the United States in particular, sound economic 
analysis shows that there are policy options that would slow climate 
change without harming American living standards, and these measures 
may in fact improve U.S. productivity in the longer run.'' (Italics 
added for emphasis).
                           executive summary
    Conventional wisdom has it that implementing the Kyoto treaty would 
unavoidably lead to slower economic growth and higher costs for U.S. 
consumers and businesses. Recent energy supply problems have heightened 
these concerns. As a result, many policymakers in the U.S. feel that 
they are faced with an unhappy tradeoff between the environmental 
advantage of early and stronger climate policy action and the perceived 
economic benefit of later and weaker action.
    This purported conflict between economic and environmental goals 
has strongly shaped the U.S. stance in the U.N. climate negotiations. 
In order to reduce domestic economic impacts, the U.S. has called on 
developing countries to make emission reduction commitments of their 
own, and it has demanded the unrestricted use of the Kyoto flexibility 
mechanisms and large credits for carbon sinks.
    These positions have centrally contributed to the recent collapse 
of the U.N. Conference of Parties (COP) negotiations: many participants 
and observers saw the U.S. positions on sinks and flexibility 
mechanisms as indirect attempts to rewrite the Kyoto targets. More 
recently, the U.S. administration has entirely rejected the treaty in 
its current form.
    The present report finds that U.S. perceptions of national 
interests in the pre-and post-Kyoto negotiations have been greatly 
distorted by flawed and outdated economic modeling studies. What has 
been missing in the assessments so far is an integration of individual 
policy options into a coherent least-cost framework drawing on all 
major cost-reducing policies simultaneously. New information presented 
in this report shows that such an economically efficient, integrated 
energy and climate approach would allow the U.S. to fully meet emission 
reduction targets such as those set forth in the Kyoto Protocol and 
significantly exceed them by 2020, and do so while increasing economic 
output, not decreasing it.
    By 2010, an integrated least-cost strategy would produce a gain of 
$50-60 billion/yr to the U.S. economy (constant 1997 dollars). These 
gains grow to $120 billion/yr by 2020--before accounting for the 
benefits of slowing climate change. The cumulative gain over the next 
decade would be more than $250 billion, growing to a cumulative $600 
billion over the second decade (net present value in 1997 dollars). The 
present report also shows that these positive economic impacts are 
neither dependent on--nor materially augmented by--U.S. proposals on 
sinks and flexibility mechanisms.
    Furthermore, the present analysis shows that an integrated least-
cost approach to climate mitigation solves two problems with one policy 
strategy. The most important element of a money-saving climate 
strategy--increased energy productivity investments--is also the most 
cost-efficient way for overcoming current energy supply problems in the 
U.S. Large opportunities for cost-effective investments in demand-side 
efficiency and cogeneration reduce not only the projected use of coal, 
but also of natural gas and oil. By doing so, a climate-oriented energy 
policy protects U.S. consumers and firms from rising costs of energy 
services and from risks of supply disruptions in the electricity, oil, 
and gas markets.
    These conclusions arise from a fresh examination of the key 
economic analyses of the Kyoto Protocol that were published during 
1997-2000, either by the U.S. Government itself or as an outflow of 
major academic projects. In the present report, we subject these 
studies to an analytical review and integrate their findings into an 
internally consistent economic perspective. We then use this 
perspective to evaluate the U.S. position in the U.N. climate treaty 
negotiations and proposed responses to energy challenges at home.
           a least-cost strategy: flexibility with no regrets
    To minimize abatement costs, climate change mitigation needs to 
combine four major policy approaches:

    (1) Economy-wide policies that send uniform and consistent price 
signals to all economic actors through taxes or, alternatively, through 
domestic emission caps that are linked to a permit auction and trading 
scheme (cap-and-trade systems). The price and cost of permits adds a 
carbon charge to energy prices that works in the same manner as a 
carbon tax.
    (2) Domestic reforms based on cost-benefit tested incentives, 
standards, and voluntary agreements. These reforms would reduce market, 
organizational, institutional, and regulatory barriers to highly 
profitable energy efficiency investments and other no-regrets 
technology options. Also included here are targeted technology R&D and 
commercialization programs for reducing the costs of renewable energy 
sources and other low carbon technologies.
    (3) Linkage of emissions tax revenues or permit auction revenues 
with tax shifts and subsidy reforms, such as cuts in taxes on payrolls 
or investments, to offset revenues received from taxes on emissions or 
permit auctions. Such fiscal reforms can further increase energy 
efficiency and total factor productivity in the economy, adding a 
second no-regrets element that produces economic and environmental 
double dividends.
    (4) Trading of emission allowances with other countries that have 
lower-cost abatement opportunities than those available in the domestic 
economy. This is the `flexibility' strategy based on the Kyoto 
mechanisms: international emissions trading (IET), Joint Implementation 
(JI), and the Clean Development Mechanism (CDM).

    A fifth element consists of suitable adjustment policies that 
shield carbon-intensive industries and their workers from having to 
bear a disproportionate burden, such as border tax adjustments and 
regional adjustment funds. These policies do not improve economic 
efficiency per se but help reduce political conflicts that might 
otherwise impede or prevent timely action.
    At the center of the present review is the treatment of these 
strategies for minimizing mitigation costs and social impacts in the 
studies supporting U.S. policy development. Since most cost assessments 
to date incorporate the first policy option--price signals based on a 
carbon tax or permit trading system--our focus is on whether the other 
cost-reducing options were included in each assessment, or omitted from 
analysis.
                how adequate are u.s. cost assessments?
    Our review shows that all the major economic assessments being 
cited in the U.S. debate on the Kyoto treaty are significantly 
incomplete (Table 1). Though each major cost-reducing policy option is 
examined in at least one study, no study examines the joint application 
of all domestic no-regrets options, or for that matter, the joint 
application of the domestic no-regrets options and international 
trading.

    This observation calls into question claims that the U.S. lacks 
affordable domestic mitigation options, or that the U.S. is heavily 
dependent on international trading mechanisms and credits for carbon 
sinks if it is to reduce costs to acceptable levels. The validity of 
these claims can only be established through an analysis in which all 
of the major cost-reducing policy options described above are 
implemented jointly.
    The present report is the first to offer such an integrated least-
cost analysis. We reexamine the economics of cutting carbon emissions 
in the U.S. by calculating what the economic impacts of the Kyoto 
targets or similar targets would be if the U.S. were to implement its 
provisions using an integrated least-cost policy approach. In pursuing 
this analysis, we do not introduce any new models or modeling 
techniques, but rely on procedures and results that have already been 
developed and used in the U.S. government's own studies.
                       methodology of this report
    An integrated analysis of the above four policy options requires 
the joint evaluation of carbon charges and market and institutional 
reforms. A convenient and operational approach to this task has been 
developed by the U.S. Department of Energy's Interlaboratory Working 
Group (IWG). It is based on the familiar economic concept of the 
tradeoff curve between GDP growth and carbon emission reductions. 
Conventional economic instruments such as carbon taxes or permit 
auctions move the economy along that curve while cost-effective market 
reforms and tax shifts move the economy toward the curve or shift the 
curve itself.
    The standard modeling approach is depicted in Figure ES. 1a: a 
carbon charge is implemented to reduce emissions to their target level. 
In conventional models the historical tradeoff curve for the economy is 
described as the production possibilities frontier, i.e., the best the 
economy can do given available inputs of labor, capital, and 
technology. As a result, emissions can only be reduced by moving the 
economy along the tradeoff curve to a point with lower emissions. This 
movement is brought about by energy price effects from carbon taxes or 
permit auctions, which lead to adjustments in the mix of energy and 
non-energy inputs by consumers and businesses. These economic 
substitution effects somewhat reduce GDP.

    The concept of no-regrets policies rests on the empirical 
observation that the economy does not operate fully at the frontier of 
optimal economic and technological efficiency. The tradeoff curve of 
conventional models is only an apparent frontier. Cost-benefit tested 
market reforms--such as the utility demand-side management programs of 
many States, the appliance efficiency standards of the U.S. Department 
of Energy, and marketing and information efforts like the U.S. 
Environmental Protection Agency's Energy Star and Green Lights 
programs--represent a move toward the actual frontier by eliminating 
market, organizational, and institutional barriers to cost-effective 
investments. By increasing energy efficiency and total factor 
productivity, more GDP can be produced with fewer emissions. Similarly, 
economically efficient tax shifts reduce dead-weight losses from the 
tax system. In both cases, the economy's tradeoff curve is shifted 
outward toward higher GDP/carbon ratios.
    When carbon charges and no-regrets policies are implemented jointly 
(Figure ES. 1b), much of the targeted emissions reduction is provided 
by market reforms. As a result, required carbon charges are smaller, 
and so are GDP losses from economic substitution effects. Depending on 
their design, tax shift reforms can partially or more than fully offset 
these losses. Assuming that losses are just offset, the net economic 
impact of carbon mitigation becomes equal to the net change in the 
total cost of energy services (lighting, heating, cooling, driving, 
etc.) brought about by market reforms and technology programs.

    The present study is the first integrated analysis of these 
policies and effects. Emissions reductions and economic gains from 
cost-benefit tested market reforms and technology programs (arrow c in 
Figure ES. 1b) are derived from the U.S. Department of Energy's Clean 
Energy Futures study (CEF), which was published in November 2000. This 
major analysis was conducted by the U.S. DOE's Interlaboratory Working 
Group, a team of experts from five national laboratories. The CEF study 
represents a highly conservative assessment of these non-price 
policies, and it combines them with domestic permit trading. However, 
it does not cover tax shifts or international trading, and it analyzes 
levels of emission reductions that remain well below the Kyoto target 
for 2010. Other studies have suggested that the U.S. has further 
options that would permit emission reductions up to and beyond this 
target at favorable cost.
    The impacts of carbon charges (arrow a in Figure ES. 1b) are 
derived from the work of the Energy Modeling Forum (EMF-16) at Stanford 
University. The groups participating in this Forum analyzed the 
economic impacts of the Kyoto Protocol on the basis of standardized 
runs for a number of different economic models, including the model 
used by the Clinton Administration's Council of Economic Advisers in 
its official evaluation of the Kyoto treaty. These studies provide the 
best available basis for calculating the substitution effects of carbon 
charges on the U.S. economy. They also analyze international trading 
and the Kyoto flexibility mechanisms. However, they do not cover market 
reforms or tax shifts, and they omit the important effects of these 
domestic no-regrets policies on the international allowance market. Our 
study derives central (average) estimates from this comparative work 
(labeled `EMF-16 Mean' in the accompanying charts and tables).
    Gains in GDP from tax shifts (arrow b in Figure ES. 1b) are derived 
from a number of U.S. Government and academic studies. These studies 
show that tax shifts can be designed with widely varying effects on 
GDP, ranging from a partial offset of losses (weak double dividend) to 
more than a complete offset leading to net gains (strong double 
dividend). For our central estimates, we assume that tax shifts will 
just offset the GDP losses from economic substitution effects caused by 
carbon charges.
    Following the arrows in Figure ES. 1b, the total economic impact of 
an integrated climate policy is calculated as the sum of these effects. 
Interactions between carbon charges and net savings in energy service 
bills are already accounted for in the models used in the above 
studies. We additionally include the environmental co-benefits 
associated with lower fossil fuel consumption and, in our global 
trading analysis, the cost of purchasing international emission 
allowances. The details of these calculations are documented in the 
main report.
                 solving two problems with one strategy
    Conventional wisdom has it that domestic action to reduce carbon 
emissions in the U.S. is expensive because of a lack of cheap low-
carbon technologies. The central proposition--that the U.S. lacks cost-
saving opportunities for domestic emission reductions in its energy 
system--is at odds with the U.S. government's own authoritative studies 
by the national laboratories. Our review of this and other work shows 
that a strong overlap exists between a national energy policy aimed at 
safeguarding the U.S. economy and a least-cost oriented climate policy.
    This synergy is clearly demonstrated in the Clean Energy Futures 
study by the national laboratories. It not only offers a comprehensive 
analysis of the nation's domestic technological options in fighting 
climate change; it also illustrates how an integrated least-cost 
strategy aimed at the climate problem can help the U.S. deal with 
vulnerability to oil price shocks, disproportionate growth in the 
consumption of gas, demand and supply imbalances in electricity 
markets, and resulting volatility in energy prices.
    To correctly perceive the national economic interests of the U.S. 
in the international negotiating process, it is important to understand 
these interactions. Beginning with the energy supply picture, Figures 
ES.2a and ES.2b compare the growth in U.S. oil, gas, and electricity 
requirements in 2010 and 2020 for the CEF reference case (business as 
usual or BAU scenario), and for the climate policy case (CEF `Advanced' 
scenario). The level of demand and the mix of energy supplies in the 
CEF reference case is based on a widely used forecast issued by the 
U.S. Energy Information Administration (EIA).

    Relative to the baseline projections of the EIA, the CEF climate 
policy scenario not only reduces the consumption of carbon-intensive 
coal, but also of oil and gas. Specifically, oil consumption is 10 
percent lower in 2010 and 21 percent lower in 2020. Electricity 
requirements change by the same percentages, and natural gas 
consumption is lower by 7 percent in 2010 and by 12 percent in 2020.
    Indeed, the CEF analysis shows that with certain electricity market 
improvements, gas-fired cogeneration of heat and power could reduce 
total U.S. gas requirements even further than shown in Figure ES. 2, at 
a net cost saving for consumers and firms, while reducing U.S. carbon 
emissions by 26 and 40 MtC in 2010 and 2020.
    These results suggest that a least-cost oriented climate policy 
does not need to worsen U.S. supply problems in the natural gas or 
electricity markets. On the contrary, a least-cost approach would help 
relieve and prevent these problems. Moreover, such relief is not a 
transient respite but keeps on growing over the next two decades, as is 
evident from comparing Figures ES.2a and ES.2b.
    Unlike with purely supply oriented approaches, this substantial 
relief of U.S. energy supply problems does not arise from lowered 
economic activity or reduced energy services (driving, lighting, 
heating, cooling, etc.). As is evident from comparing Figures ES. 2 and 
ES. 3, the need for growth in conventional energy sources is alleviated 
by investments in energy efficiency, and to a secondary degree, in 
renewable energy sources. In the CEF scenario, the combined 
contribution of efficiency and renewables to total energy services 
triples from 7 percent in the reference forecast to about 20 percent by 
2010, and quadruples to about 30 percent in 2020.
    As the CEF study documents, not only are more efficient demand-side 
technologies currently available, they also are highly cost-effective. 
By clearing away the market, organizational, and institutional barriers 
that currently hamper the rapid diffusion of these technologies, the 
U.S. can cut its energy bills while simultaneously gaining important 
breathing space for readying a new generation of cheaper and cleaner 
energy supply technologies. At the same time, the U.S. can avoid 
excessive investments in long-lived energy supply facilities that would 
further lock in yesterday's technologies.
               money savings from domestic market reforms
    The overlap between a least-cost climate policy and national energy 
policy extends to the economic realm. The key sources of this synergy 
are cost-benefit tested market reforms that facilitate cost-effective 
energy efficiency investments, combined with increased R&D efforts.
    The EIA reference case excludes all such market reforms (beyond 
those already in place or under way in the base year). This assumption 
reflects past policy trends and considerations of political economy. 
Though market reforms are economically worthwhile on their own in the 
absence of climate change, many policymakers hesitate to advocate such 
government actions unless they also represent a least-cost path for 
realizing other clearly identified societal objectives. The broader 
environmental objective of reducing greenhouse gas emissions is 
operative in the Clean Energy Futures policy scenario but is not 
considered in the EIA's Annual Energy Outlook forecast, which is a 
business as usual perspective.
    The assumptions used in the CEF scenarios regarding the 
effectiveness of expanded market reforms are a highly conservative 
extrapolation of past experience with such programs. Only a portion of 
all new and replacement investments in energy using equipment is 
shifted toward higher efficiency technologies compared to the reference 
case. For example, in the buildings sector, this fraction is about a 
third in 2010 and half in 2020. Even with these conservative 
assumptions, market reforms are shown to have powerful economic 
effects. They include:

    (1) Productivity gains from energy efficiency investments;
    (2) Accelerated reductions in the costs of current and emerging 
technologies;
    (3) An expanded array of no-regrets efficiency technologies;
    (4) Lower (pre-tax) prices for fossil fuels and a relatively 
cheaper electricity supply mix at lower levels of total demand; and
    (5) Avoided pollution damage and control costs.

    Figure ES. 4 shows economic results for the CEF scenario when 
market reforms are implemented without a climate policy component, 
i.e., without a carbon cap and permit auction system. The annual cost 
for investments, program delivery, and R&D is about $30 billion/yr. 
These costs are far exceeded by the roughly $45 billion/yr in reduced 
expenditures on energy that occur on account of higher energy 
productivity and reduced demand alone, assuming the same energy prices 
as in the EIA reference case (demand effect). However, reduced energy 
demand produces a sizable additional economic benefit from its effect 
on energy prices, which adds another benefit of close to $40 billion/yr 
(price effect). Finally, the co-benefits of reduced environmental 
damages from air pollution and other impacts add a saving of roughly $5 
billion/yr.
    Net gains--calculated as (demand effect) plus (price effect) plus 
(avoided pollution damages) minus (investments and program costs)--are 
$60 billion/yr in 2010. For the sake of simplicity, we refer to these 
savings as net energy bill savings. More precisely, they are a 
reduction in the total national cost of energy services (i.e., in the 
total expenditures on energy carriers plus levelized investments and 
program and R&D costs, some of which deliver energy services through 
efficiency improvements rather than energy consumption). These net 
energy bill savings are 8 percent in 2010, equivalent to 0.5 percent of 
projected GDP.
    By 2020, these figures double to $123 billion/yr (including $12 
billion/yr in avoided pollution damages), equivalent to 16 percent of 
the national energy bill or one percent of GDP. If the EIA reference 
projections of future U.S. energy prices should turn out to be too 
low--as would be the case if recent trends persist--the economic 
benefits of market reforms could be significantly larger still.
    As the CEF study shows, the energy productivity savings from no-
regrets market reforms are far greater than the funds needed to pay for 
the accelerated introduction of renewable energy sources or other 
carbon-reducing technology options.
                  cutting carbon emissions at a profit
    With its conservative assumptions, the CEF study's market reforms 
alone produce about 30 percent of the U.S. Kyoto target in 2010 and 
about half in 2020. When a $50/tC charge is added, the CEF scenario 
leads to a roughly 60 percent realization of the Kyoto target in 2010 
and 85 percent in 2020.
    This roughly doubling of emissions reductions brought about by the 
carbon charge diminishes net economic savings by only a small fraction. 
The national cost of energy services rises by only $6 billion/yr in 
2010 and $3 billion/yr in 2020, respectively, relative to the no-
carbon-charge case. (In this calculation, which adopts a national 
perspective, the carbon charge payments themselves cancel, since they 
are merely a transfer payment).
    Our report finds that even though the CEF scenarios do not reach 
the Kyoto target, the U.S. can fully achieve that level of emission 
reductions at a net economic gain--even if a purely domestic strategy 
is used. The key to this outcome is a combination of the above-
discussed no-regrets market reforms with tax shifts that offset the 
negative GDP effects of a cap-and-trade permit system or carbon tax, as 
qualitatively illustrated in Figure ES. 1 above.
    Again, the EIA forecast used as the reference case in the CEF study 
does not include any no-regrets options for implementing carbon 
charges, i.e., growth-enhancing tax shifts. Though they are 
economically worthwhile on their own, such tax shifts require new 
sources of government revenues to offset reductions in existing, more 
distortionary taxes. Climate policy scenarios do include new revenues 
from carbon taxes or emissions permit auctions, but no such new source 
of revenues is available in the EIA reference case.
    Figure ES. 5 shows how market reforms and tax shifts play out in 
the aggregate in 2010. The chart compares the Kyoto analysis of the 
Energy Modeling Forum with an integrated least-cost approach in which 
the CEF scenario is extended to reach the Kyoto target. Under a 
domestic permit trading system alone, a high permit price of $230/tC is 
required to reach the Kyoto target. The resulting economic losses based 
on the mean of estimates from the Energy Modeling Forum are of the 
order of $130 billion/yr. Co-benefits of reduced pollution reduce this 
figure to about $110 billion, or one percent of projected year 2010 
GDP.
    When domestic market reforms are added, the permit price required 
to reach the Kyoto target drops to less than $140/tC. This reduces GDP 
losses from substitution effects. At the same time, market reforms 
trigger cost-effective energy productivity investments, which cut the 
costs per unit of energy service as well as the nation's total bill for 
energy services. As a result of these savings, economic losses shrink 
by about two-thirds to $40 billion.

    When tax shifts are also included, GDP losses from substitution 
effects are eliminated entirely. Depending on the extent and 
effectiveness of tax shifts (we model 50 to 150 percent offset of 
substitution losses), U.S. economic output in 2010 increases by an 
amount that ranges from less than 10 to more than $90 billion per year 
(again including environmental co-benefits of about $20 billion).
    For the midpoint level of effectiveness (100 percent offset), tax 
shifts just compensate for the GDP impacts of the carbon charge. What 
remains, then, are the reductions in the total cost of energy services 
from market reforms (simply referred to as net energy bill savings), 
plus the environmental co-benefits of reduced carbon emissions. With a 
carbon charge of roughly $140/tC, net savings from market reforms are 
lower than they would be in the absence of carbon charges, but the co-
benefits of avoided pollution compensate much of this effect. The total 
economic gain is about $50 billion/yr, equivalent to about half a 
percent of projected GDP in 2010.
                   extending the time horizon to 2020
    The extension of the above analysis to 2020 is of great importance 
for the U.S. policy debate and the U.N. negotiations in that it 
indicates whether emission reductions can be profitably maintained or 
even increased over the following decade as economic growth continues 
to push the reference forecasts beyond current emissions levels.
    Using the CEF results for 2020, we examine a domestic least-cost 
strategy, again consisting of permit trading, market reforms, and tax 
shifts. We analyze two alternative emission reduction targets. In the 
first case, it is assumed that the U.S. Kyoto target for 2010 
(i.e.,1990 emission levels minus 7 percent) will be maintained in the 
subsequent decade. In the second case, the target is increased to the 
minus 20 percent level originally proposed at Kyoto by the Alliance of 
Small Island States (AOSIS), a group of countries most vulnerable to 
sea level rise.
    As expected, the U.S. energy system in 2020 is more responsive to 
both market reforms and carbon charges. The Kyoto target is reached at 
$65/tC--roughly half the charge required in 2010. Expanding emission 
reductions to minus 20 percent of 1990 levels requires only a modest 
further increase in the carbon price, to $77/tC.
    Net economic benefits are roughly $120-125 billion/yr in 2020, 
equivalent to 0.9 percent of projected GDP. This is more than double 
the economic gains achieved with the same strategy in 2010. When the 
year 2020 emission reduction target is extended from minus 7 to minus 
20 percent of 1990 levels, net economic gains are somewhat lower but 
still of the same order of magnitude as for the Kyoto target. The 
higher carbon charge necessary in 2020 to achieve the minus 20 percent 
target does lead to reduced net savings in energy service bills. 
However, this effect is partially offset by larger environmental co-
benefits.
    The more than doubling of net benefits between 2010 and 2020 is 
explained by three factors: (a) money-saving productivity investments 
are far from saturation in 2010, and are continuing to penetrate the 
capital stock in the period between 2010 and 2020; (b) capital stock 
turnover in many important categories of energy-using equipment, and 
thus the penetration rate of demand-side efficiency programs, is 
inherently faster than economic growth, on account of short (10-20 
year) equipment lifetimes; and (c) the costs of advanced low-carbon 
technologies decline at an accelerated pace, due to learning curve 
effects and R&D impacts.
    Examining the CEF scenarios for the entire period from now until 
2020, it is evident that a domestic no-regrets strategy of permit 
auctions, tax shifts, and market reforms already becomes significantly 
profitable within the first couple of years of implementation. From 
there, it grows more lucrative year by year as the capital stock turns 
over.
    These findings call for a revision of conventional wisdom, which 
presumes an economic advantage from postponing most emission reductions 
to later years. Larger emissions reductions do become easier to achieve 
in later years, as more time is allowed for the adjustment process in 
the economy. However, because growing levels of emissions reductions 
below the baseline become profitable even in the early years, foregoing 
the early reductions implied in the Kyoto target would amount to a 
significant opportunity cost for U.S. consumers and firms.
                      international implementation
    The positive economic picture found so far further improves when a 
domestic least-cost strategy is integrated with the Kyoto flexibility 
mechanisms. Here, we analyze the limiting case of unrestrained global 
emissions trading. Other scenarios with only a supplementary role for 
trading are discussed in the subsequent section. Figure ES. 6 compares 
the international trading case of the EMF-16 analysis with the results 
for the CEF/Kyoto strategy combining international flexibility with 
domestic no-regrets action.
    As a point of reference, the chart begins with the domestic worst-
case policy based on a carbon tax without tax shifts or market reforms. 
When global trading is incorporated into this policy case, the carbon 
price drops by more than 80 percent from $230/tC to about $40/tC. Total 
mitigation costs decline by two thirds or more.

    While global trading can reduce U.S. mitigation costs by 
significant percentages, it alone cannot prevent economic losses. By 
contrast, domestic market and fiscal reforms can produce net benefits 
on their own. If these gains are enhanced by international allowance 
trading, the carbon price drops from about $40/tC to $11/tC, due in 
part to feedback effects of U.S. domestic no-regrets policies on the 
international allowance market.
    Our analysis shows that a fully integrated `flexibility with no 
regrets' strategy yields economic benefits of $57 billion/yr in 2010. 
Figure ES. 7 shows the individual components of this aggregate result. 
The graph also shows that tax shifts are of lesser importance in the 
context of an international strategy: economic substitution losses are 
diminished on account of the much lower carbon price.

                  summary of results for 2010 and 2020
    The main results of our review are summarized in Figure ES. 8. 
These results support several conclusions. The first conclusion is that 
with an integrated least-cost policy mix, the U.S. can meet targets 
such as those set forth in the Kyoto Protocol at a net economic gain 
ranging from about 0.5 percent of GDP in 2010 to about 1 percent of GDP 
in 2020. Insofar as some of the total benefits are from avoided 
environmental damages (in areas other than climate change), not all of 
these economic gains may show up in the country's GDP accounts, but 
they are economic gains nonetheless.

    The second conclusion is that postponing carbon mitigation in the 
U.S., or reducing abatement efforts to less than the U.S. target under 
the Kyoto Protocol, brings with it significant lost opportunities for 
the U.S. economy. Such lost opportunities are of the order of $50-60 
billion per year in 2010, and about $120 billion per year by 2020.
    The full opportunity cost of inaction is measured by the sum of 
foregone annual economic gains in the period between now and 2020. By 
the end of the first Kyoto commitment period in 2012, U.S. consumers 
and businesses would forego cumulative economic gains of about $250 
billion (net present value of growing annual gains, discounted to the 
year 2001 at a 5 percent real discount rate, constant 1997 dollars). 
For the entire period until 2020, this figure rises to more than $600 
billion.
    The third conclusion is that positive net economic impacts are 
centrally driven by productivity-enhancing market reforms. A focus on 
international rather than domestic strategies is misplaced, because GDP 
losses from carbon charges can be minimized through either domestic tax 
shifts or international trading. The implication of this finding for 
the U.N. FCCC negotiations is further discussed below.
                  how important is emissions trading?
    Our analysis shows that the economic significance of international 
allowance trading has been exaggerated. To measure the significance of 
trading, the appropriate point of reference is the `no trading' case 
examined in the EMF-16 assessments, in which the only policy is a 
domestic permit trading system or carbon tax. The mean of the EMF-16 
estimates of the impact of the U.S. Kyoto target for this policy case 
is a GDP loss of about $110 billion/yr in 2010.
    Relative to our average derived from the EMF-16 global trading 
case, the domestic least-cost approach of the CEF/Kyoto scenario 
improves economic results by eliminating all GDP losses and generating 
a net benefit instead. The economic improvement is roughly $(110+50) = 
$160 billion/yr in 2010. This figure is far larger than what is 
achieved in the EMF-16 `global trading' case, which reduces mitigation 
costs by only about $75 billion (Figure ES. 9).

    When the CEF/Kyoto scenario is expanded to incorporate 
international trading, results improve further to about $170 billion/
yr, or by roughly $10 billion/yr. It is this marginal improvement of 
$10 billion/yr relative to the domestic gain of $160 billion/yr that 
measures the marginal significance of international trading.
    These proportions indicate that trading adds no more than a roughly 
5 percent improvement. About 95 percent of theoretically feasible 
abatement cost reductions can be achieved through domestic market and 
fiscal reforms alone. While a $10 billion absolute gain could certainly 
be worth pursuing, the purported major significance of international 
trading turns out to be an artifact of incomplete modeling analyses of 
domestic policy options.
    Not only that, a one-sided reliance on international trading would 
be expensive for U.S. consumers and firms. Figure ES. 9 implies that in 
the absence of domestic market and fiscal reforms, global allowance 
trading as assumed in the EMF-16 scenario would saddle the U.S. economy 
with opportunity costs of roughly $(160-75) = $85 billion/yr in 2010.
    Rather than obtaining emission reductions at negative net cost from 
domestic action, U.S. energy users would end up paying for investments 
abroad that provide carbon reductions at a positive cost. The fact that 
this cost burden would be lower than in the absence of trading does not 
change the fact that exclusive reliance on trading (i.e., a lack of 
domestic action) would result in a sizable economic penalty.
                     how robust are these findings?
    A sensitivity analysis of our results shows that international 
trading can provide a certain amount of insurance against domestic 
policy failures, as well as against the large variation in GDP 
estimates from current economic models. This effect is illustrated in 
Figure ES. 10, which shows high/low sensitivity ranges for the domestic 
and international CEF/Kyoto least-cost strategies. Our sensitivity 
tests include both a fourfold variation in predictions from economic 
models (highest versus lowest GDP loss for a given carbon price); a 
range of ancillary benefit estimates; and variations in tax shift 
offsets and no-regrets emission reductions by plus or minus a third.

    As shown in the chart, the uncertainty band under international 
trading is only half as wide as under the domestic strategy. Equally 
important, trading shifts the full range of economic outcomes into 
positive territory. Of course, the workability and reliability of the 
proposed international flexibility mechanisms is as yet untested and 
represents a source of uncertainty itself. In practice, something less 
than full global trading may be implemented initially.
               negotiations on sinks and supplementarity
    Just as a least-cost integration of all policy options reduces the 
marginal significance of international trading, so does it diminish the 
importance of credits for sinks. Figure ES. 11 shows the savings the 
U.S. would obtain if it were to gain agreement for 100 MtC in such 
credits for 2010.

    In the context of a least-cost strategy, sinks add savings of $2 
billion/yr in 2010. Relative to the roughly $170 billion in savings 
already obtained by the CEF/Kyoto strategy (see Figure ES. 9 above), 
sinks represent a mere 1 percent effect.
    Similar findings apply to the impact of constraining the Kyoto 
flexibility mechanisms to a supplementary role. The U.S. negotiating 
position has strongly emphasized unlimited use of the Kyoto flexibility 
mechanisms in meeting national targets while the EU has proposed a 
roughly 50 percent limit that would require countries with targets to 
undertake most reductions at home. Meanwhile, various studies including 
analyses in EMF-16 have pointed out that the U.S. would likely be a net 
beneficiary of moderate flexibility constraints, but have found those 
constraints detrimental from a global economic efficiency perspective.
    From the perspective of an integrated strategy of domestic no-
regrets reforms plus international trading, U.S. insistence on 
unconstrained use of the Kyoto mechanisms turns out to be even more 
misplaced. First, in a least-cost approach to mitigation, 
supplementarity constraints are economically insignificant for the U.S. 
Second, if the U.S. proposal for 100 MtC in credits for sinks is 
combined with a least-cost mitigation strategy as outlined above, sinks 
plus domestic no-regrets options already supply about 250 MtC, or just 
about half of the U.S. Kyoto target.
    The least-cost economics of the U.S. position on supplementarity, 
and of various negotiating outcomes regarding supplementarity and 
sinks, is shown in Figure ES. 12. It combines three outcomes for sinks 
(no credits, half credits, full credits = 100 MtC) with three 
flexibility limits (100 percent = unconstrained, 50 percent limit, and 
30 percent limit).

    We show the net economic impact of each outcome relative to the EIA 
baseline projection used in the CEF business as usual case. A least-
cost strategy including unconstrained international trading and full 
sinks (the U.S. negotiating position) results in an absolute economic 
gain of $59 billion relative to the business-as-usual reference case 
(see Figures ES. 8 and ES. 11 above).
    The marginal effects of alternative outcomes, at less than $3 
billion/yr in either direction, are in the 5-percent range--hardly the 
impact that could justify the collapse of international negotiations.
                   what about individual industries?
    Although the overall economy-wide impacts of a well-designed 
climate policy are positive, this does not necessarily mean that 
impacts on some individual sectors of the economy could not be adverse. 
Even if the U.S. approach to date--emphasizing global trading and 
credits for sinks rather than no-regrets market, institutional, and 
fiscal reforms--is economically inefficient for the U.S. economy, might 
it nevertheless represent a sensible strategy for protecting the 
competitiveness of important trade-exposed or disproportionately 
carbon-intensive industries?
    Our study finds that the perceived advantages of a global trading 
strategy for U.S. industries rest on comparisons with ill-designed 
domestic climate policy scenarios that mainly rely on a carbon charge. 
Relative to this analytical ``straw man,'' global trading does show 
significant economic benefits for the U.S., both in terms of aggregate 
costs and sectoral competitiveness impacts.
    However, an integrated analysis of cost-reducing policy options 
shows that a global trading strategy pursued in isolation not only 
incurs large opportunity costs for U.S. businesses and consumers in the 
aggregate, but also is inferior in maintaining the competitiveness of 
trade-exposed energy-intensive industries.
    Here, a sense of proportions is helpful. Figure ES. 13 shows that 
the share of U.S. employment in trade-exposed energy-intensive 
industries is on the order of 1 percent of total employment. All other 
industries, including more than 90 percent of U.S. manufacturing 
employment, is found in industries where energy costs represent less 
than 3 percent of production costs or--in the case of transportation 
services--where trade competition is inherently limited. The effect of 
carbon charges on the competitiveness of these industries necessarily 
must be minimal.

    In addressing competition from developing countries without carbon 
charges, U.S. industries including the energy-intensive basic materials 
industries would be better served by an integrated no-regrets strategy. 
This is borne out by Figure ES. 14, which shows how a $50/tC carbon 
charge would affect U.S. export prices if this charge is combined with 
the market reforms of the CEF scenario, and if revenues are recycled 
into a payroll tax cut. In 2010, no industry would see export prices 
rise by more than 3 percent, and only about 5 percent of industries 
would see price increases of more than 1 percent. Such changes would 
easily be swamped by ordinary exchange rate fluctuations unrelated to 
climate policy.
    The overwhelming majority of U.S. industries--three quarters in 
2010, and about 95 percent in 2020--would see a decline in the prices 
of their exports. Energy productivity investments and tax rebates have 
the net effect of reducing production costs despite the application of 
the $50/tC charge. An integrated least-cost strategy including 
international allowance trading would further enhance the 
competitiveness of U.S. industries.

    The U.S. has advocated the global trading approach as a way of 
generating meaningful participation by the developing countries, who 
would be induced to undertake domestic emission reductions to sell 
permits. Such global trading has also been viewed as a policy that 
would relieve pressure on the U.S. coal industry.
    Our assessment finds that global emission allowance trading would 
have some such effect. However, it comes with a large price tag for 
U.S. consumers and businesses as a whole. Choosing the global trading 
approach over an integrated least-cost approach for the sake of 
protecting the U.S. coal industry would save an estimated 10,000 to 
20,000 coal mining jobs at an opportunity cost of close to $100 
billion/yr, or $5-10 million/yr per job saved. An adjustment fund 
providing direct assistance to affected coal workers and their 
communities would be 50 to 100 times cheaper and could be financed with 
just 3 percent of domestic permit auction revenues.
            meaningful participation by developing countries
    Some policymakers believe that the current exemption of developing 
countries from binding emission reduction commitments is providing 
these nations with an unfair competitive advantage and is undermining 
the effectiveness of global climate protection efforts. This perceived 
imbalance along with other cost concerns has led to attempts by the 
U.S. to rewrite the U.N. climate treaty through the post-Kyoto 
negotiating process, and more recently, to its outright rejection.
    The present analysis suggests that the perception of the Kyoto 
Protocol as burdensome and unfair is unfounded simply because its 
implementation could be achieved at a net economic gain for the U.S. 
while at the same time improving the competitive position of U.S. 
industries. This finding points to a way out of the present diplomatic 
stalemate. It also offers a promising way of obtaining the earliest and 
whole-hearted participation of developing countries: self-interested 
U.S. leadership in implementing the Kyoto target through the full use 
of no-regrets policy options.
    Such leadership would likely set in motion an irresistible economic 
process. First, energy productivity oriented market reforms would be 
widely imitated throughout the developing world. Second, domestic 
market reforms in the U.S. and other OECD countries would not only 
accelerate technological innovation but also speed the diffusion of 
more efficient vehicles, appliances, and industrial equipment to 
developing countries. A principal mechanism would be foreign direct 
investments by U.S. and other OECD multinationals whose technological 
priorities continue to be strongly influenced by policies adopted in 
the U.S.
Conclusions
    Flawed and incomplete cost assessments have severely distorted the 
U.S. policy debate on climate policy and on the Kyoto Protocol. The 
integration of existing studies into a coherent least-cost policy 
framework turns conventional wisdom upside down. It shows that if U.S. 
climate policies embrace market and fiscal reforms, carbon-cutting 
investment shifts result in cumulative net economic gains of $250 
billion by the end of the first Kyoto commitment period and $600 
billion by 2020--before counting the benefits of avoided climate risks 
and damages.
    Our analysis also shows that an energy strategy aimed at mitigating 
climate change would simultaneously relieve current U.S. energy 
problems and help safeguard the U.S. economy. Though mitigation will 
involve significant administrative and political challenges, meeting 
these challenges offers tangible economic rewards for U.S. consumers 
and improved competitiveness for U.S. firms. Conversely, inaction and 
delay carry significant opportunity costs.
    In view of these results, objections to emission reduction goals 
such as the Kyoto target as too costly or unfair must be considered 
economically uninformed. Likewise, the U.S. insistence in recent 
international negotiations on certain outcomes regarding sinks and 
flexibility constraints would seem to be misguided. Given that the U.S. 
can meet and exceed targets such as those of the Kyoto Protocol at 
significant economic gains, and given recent evidence of increased 
global warming risks, it is in the national interest of the U.S. that 
carbon and other greenhouse gas emissions be speedily curtailed, both 
domestically and globally. Future U.S. climate policy should be based 
on improved information regarding the nation's economic and technology 
options.
                               __________
Statement of Kalee Kreider, Global Warming Campaign Director, National 
                          Environmental Trust
    The National Environmental Trust appreciates this opportunity to 
submit testimony for this hearing before the Senate Committee on 
Environment and Public Works. The National Environmental Trust (NET) is 
a non-profit public interest group working to protect public health and 
the environment. The impacts of global warming present one of the most 
challenging sets of environmental policy issues that we face. NET 
supports the development and implementation of appropriate, 
comprehensive domestic and international policies to mitigate global 
warming. We especially advocate the leadership of the United States, 
the world's largest emitter of greenhouse gas emissions, in the 
international arena. In order to fully address the threat of global 
warming, countries must negotiate a binding treaty that will achieve 
real, verifiable global reductions of greenhouse gas emissions. In 
addition, the U.S. must implement strong domestic energy policy to 
reduce U.S. greenhouse gas emissions and transition our economy away 
from inefficient, polluting fuels toward clean energy technologies.
    It is with great confidence that we state that the science of 
global warming is no longer disputed. The U.S. National Academy of 
Sciences determined just last year that global warming is ``undoubtedly 
real,'' and taking place ``at a rate substantially larger than the 
average warming during the twentieth century.'' The third and most 
recent study by the Intergovernmental Panel on Climate Change (IPCC)--a 
panel comprised of over 1,200 of the world's leading scientists, 
concluded this year that:

  ``In light of the new evidence and taking into account the remaining 
    uncertainties, most of the observed warming over the last 50 years 
    is likely to have been due to the increase in greenhouse gas 
    concentrations . . . . Emissions of CO2 due to fossil-
    fuel burning are virtually certain to be the dominant influence on 
    the trends in atmospheric CO 2 concentration during the 21st 
    Century.''

    The IPCC also found that unique natural ecosystems such as prairie 
wetlands, alpine tundra, and cold water ecosystems likely will not be 
able to adapt to warming, and that sea-level rise would erode 
coastlines, including along the U.S. Atlantic coast. The incidence of 
vector-borne diseases such as malaria, dengue fever, and Lyme disease 
are predicted to occur into Northern latitudes where they were not 
previously experienced. We are particularly concerned with the 
projected impacts of global warming on U.S. agriculture.
    It is against this backdrop that the environmental community 
reacted with alarm and grave concern at the abrupt and unilateral 
actions of the Bush Administration, just months into taking office, on 
both domestic and international climate change policy. President Bush's 
decision on March 13, 2001 to abandon his campaign pledge of requiring 
mandatory reductions of carbon dioxide emissions from power plants 
dealt a critical blow to a credible domestic policy on climate change. 
Power plants are responsible for 40 percent of U.S. greenhouse gas 
emissions (and 10 percent of international greenhouse gas emissions), 
and policies to address what is perhaps the greatest industrial source 
of greenhouse gases in this country are imperative to addressing the 
problem.
    Recognizing both the science and the impacts of global warming, 
senior representatives of the utility industry, in concert with members 
of the environmental community, were engaged in a dialog about cutting 
carbon dioxide from power plants, prior to the President's devastating 
announcement. The utility sector recognizes, as does most of the 
country, that climate change is a real phenomenon with human causality 
and profound potential consequences--and that domestic policies must be 
enacted to begin to deal with climate change now. The utility industry, 
much of which faces significant capital investments in the near future, 
is cognizant that policies and directions are needed now to begin to 
address carbon dioxide emissions over the long term. Utilities were 
engaged in discussions on this issue because they are looking for the 
regulatory certainty that multi-pollutant power plant legislation would 
bring--that is, legislation that seeks reductions in multiple 
pollutants, at the same time, rather than via piecemeal approaches. 
This legislation would allow the utility sector to make long-term 
investment strategies with the knowledge that they would not face new, 
unexpected, and costly regulatory and investment hurdles down the road.
    Because the Administration has chosen not to honor this campaign 
commitment, and because they are prepared to introduce energy 
legislation that would continue U.S. dependence upon the dirtiest 
fossil fuels, we believe it is imperative that the Congress, and this 
committee specifically, move forward with legislation on a 
comprehensive, multi-pollutant bill to reduce emissions of the power 
plant pollutants of mercury, nitrogen oxides, and carbon dioxide.
    On the international policy front, we are distressed at the Bush 
Administration's unilateral decision to abandon the the Kyoto Protocol, 
an agreement that has been years in the making and that has engendered 
the cooperative participation of 165 countries in a complex negotiating 
process. We strongly urge the Administration to carefully consider the 
hard-fought wins in the Kyoto Protocol--especially the market-based 
flexible mechanisms in the Kyoto Framework--mechanisms that would keep 
the costs of compliance and implementation of the treaty as low as 
possible. These mechanisms are perhaps the most important part of the 
framework, aside from the binding targets and timetables.
    The flexible mechanisms in the Kyoto Treaty include emissions 
trading, the Clean Development Mechanism (CDM), and Joint 
Implementation (JI). The common feature of these mechanisms is that 
they would achieve real emissions reductions in the most cost-effective 
places and manners. In particular, these mechanisms offer the ability 
for countries such as the U.S. to export clean technologies that reduce 
global greenhouse gas emissions but allow share in the `credits' or 
benefits.
    Joint Implementation would allow industrialized countries to 
jointly agree to a project undertaken in one country, for which the 
other takes the initiative, and hence receives credits. This would 
allow for the sharing of benefits or activities that one country has 
either the resources or technologies for that another does not, but for 
which real emissions reductions are achieved. The CDM is similar to JI, 
but would allow an industrialized country to undertake a project or 
activity in a developing country, also to result in real emissions 
reductions, with prearranged agreement as to how the credits would be 
shared by the two countries. Emissions trading is a mechanism akin to 
the trading of sulfur dioxide credits under the domestic sulfur dioxide 
(``acid rain'') program. It operates based upon a cap-and-trade 
premise, whereby an upper level amount, or cap, is established for the 
amount of pollutants that can be emitted in a certain area (for 
instance, the entire United States), and entities within that area that 
emit those pollutants can share or trade pollutant credits. This 
enables the involved entities to seek the lowest-cost, `easiest' 
reductions first, thus keeping the costs down while also `buying' time 
for the harder reductions, which will conceivably occur later, but 
which will have the benefit of new technologies that can be developed 
in the interim.
    In both the domestic and the international arenas, we would also 
like to point out that voluntary approaches, while they may be useful 
in some situations to deal with environmental issues, have failed to 
deal with the problem of climate change. The 1992 United Nations 
Framework Convention on Climate Change (UNFCCC), unanimously passed by 
the U.S. Senate and ratified during the first Bush Administration, has 
failed to cut greenhouse gas emissions. That treaty obligated this 
country and others to voluntarily reduce our emissions of greenhouse 
gases to 1990 levels by 2000. Instead, United States emissions' of 
greenhouse gases were 13 percent above 1990 levels in 2000, and they 
continue to rise. The Kyoto Protocol was negotiated by the world 
community in response to the failure of the voluntary approach of the 
UNFCCC. Binding targets and timetables are essential tools to help this 
country and other industrialized nations begin to grapple with the 
choices and policies that will reduce atmospheric concentrations of 
greenhouse gases to the point where they are stabilized and even 
reduced.
    As evidenced by the testimony of witnesses today, and of many 
others in the energy sector, there are many tried and true policies 
that we can enact today to begin to address climate change on a 
domestic and international basis.
    In particular, NET supports the following policies:

      Completion of a binding international agreement to cut 
emissions of the six major greenhouse gases.
      Advancement of domestic policies to use fossil fuel 
reserves more efficiently, particularly with regards to electricity 
generation, transportation, and buildings.
      Passage of a national Renewable Portfolio Standard that 
would allow consumers to choose the source of their electricity.
      Passage of a comprehensive bill to cut the four major 
pollutants emitted from coal-fired power plants (NOx, SOx, mercury and 
carbon dioxide).

    In summary, we have watched with great interest and concern the 
evolution of this topic in the Congress over the past several years. We 
are gratified that the debate in this arena has moved from one of 
questioning the science and the collective wisdom of international, 
multidisciplinary scientists to one where we are seeking real, near-and 
longer-term solutions to what is probably the greatest environmental 
issue facing this country, and the world.
                               __________
Statement of John W. Clark, Senior Vice President for Governmental and 
                 Public Affairs, CMS Energy Corporation
    Mr. Chairman, I am. John W. Clark, Senior Vice President of CMS 
Energy. We appreciate being given an opportunity to provide testimony 
on this important matter. CMS Energy is an integrated energy company 
with annual sales of $11 billion and assets of about $16 billion 
throughout the U.S. and in selected foreign markets, with businesses in 
electric and natural gas utility operations; independent power 
production; natural gas pipelines, gathering, processing and storage; 
oil and gas exploration and production; and energy marketing, services 
and trading.
    A quick reading of nearly every major news publication on any given 
day reveals the extent to which the interplay between U.S. energy 
security, environmental policy, and the economy at large has risen to 
the top of the national agenda. CMS Energy commends the Committee for 
its leadership in examining a particularly critical element of the 
debate: whether and how voluntary efforts to reduce pollutants and 
other emissions, including CO2 emissions, can be effective, 
and what needs to be done to establish the framework for putting them 
into place.
    We believe CMS Energy is an industry leader and well credentialed 
in this area through its successful effort to establish one of the 
world's largest climate change mitigation projects.
    That effort, the Atlantic Methanol Production Company (AMPCO) on 
Bioko Island in Equatorial Guinea just off the coast of West Africa, is 
particularly innovative. As CMS began drilling and extracting liquids 
and condensate from its oil and gas operations in Equatorial Guinea, 
one of the by-products was an extraordinary amount of residue, or 
excess dry gas for which there was no market. Consequently, and in fill 
compliance with local laws and environmental regulations, we began to 
flare that gas in order to ensure its disposal.
    That struck the company as both a waste of potentially valuable 
resources and as unnecessarily harmful to the environment. Determined 
to find a productive use for the gas, CMS decided to convert the gas 
into methanol for trading in the world market, thus giving rise to the 
AMPCO project. At the same time, we knew that there would be 
substantial benefit to the environment--the gas is flared at a rate of 
up to 135 million cubic feet per day, or enough to fuel a 500 MW power 
plant. Since methanol, like any commodity, is subject to price 
volatility, we began to explore the prospects for gaining recognition 
for AMPCO's substantial emissions reductions and materializing economic 
benefit from them, Over time, those reductions could help sustain the 
project's economics, so there was a clear market-based incentive for us 
to pursue the effort.
CMS Energy's Experience with the USIJI Program
    That effort led the company to initiate a proposal to the U.S. 
Initiative on Joint Implementation, which is a pilot program 
established pursuant to the U.N. Framework Convention on Climate 
Change, or the Rio Treaty. While it is a global program, the USIJI is 
administered within the United States by an interagency panel, which 
includes among others the Departments of Energy, State and Commerce and 
the U.S. Environmental Protection Agency. After nearly a year's worth 
of discussions and after providing volumes of data and information to 
the USIJI staff, the AMPCO project was accepted into the program 
earlier this year. USIJI estimates that the elimination of the flared 
gas will result in reductions of nearly 3 million metric tons per year 
of CO2-equivalent emissions, or nearly 75 million metric 
tons throughout the project's estimated 25-year lifespan. These 
reductions will be verified as the plant goes operational by an 
independent third party. The volume of reductions is the largest that 
USIJI has approved for an existing project.
    There were significant residual benefits in our effort to gain 
acceptance for AMPCO into the USIJI program. Equatorial Guinea, which 
until then had chosen not to accede to the Rio Treaty, was induced to 
sign the treaty and thus became more filly integrated in the global 
environmental regime solely because of this project. And as a partner 
in the project, Equatorial Guinea emerges in a truly win-win position: 
it gains all of the benefits of the initial investment, it grows its 
economy, it gains valuable technology and knowledge transfer, and it 
will share in the economic benefits that will accrue through trading 
and monetizing emissions reductions.
Policy Implications
    CMS Energy believes that its experience with the USIJI program can 
offer some valuable insights to the Committee's efforts. Applying the 
knowledge and lessons we've learned from AMPCO's acceptance into the 
USIJI, we believe that a serious, well designed effort to establish a 
voluntary emissions reduction program, coupled with a rigorous, market-
based emissions trading effort, can provide companies with a sound 
economic rationale to undertake and sustain substantial reductions of 
greenhouse gas emissions, including CO2. For the program to 
be effective, it would need to have a balanced mix between the types of 
voluntary commitments that industry would make, and the incentives that 
would provided in exchange for the implementation of those commitments. 
It would also need to allow flexibility in the types of mechanisms that 
companies can use to comply.
    CMS Energy believes that there would be multiple benefits to flow 
from the adoption of such a program. First and foremost, there would be 
substantial enthusiasm from companies such as CMS to participate, which 
would result in commensurately high levels of emissions reduced. 
Second, if properly designed, the program would provide economic 
incentives in proportion to the commitment that companies undertake to 
reduce their emissions. Accordingly, as the program succeeds it will 
induce companies to expand their own commitments, and demonstrate to 
skeptics the value of participation. Third, the program would 
demonstrate to America's international partners and allies that there 
are effective, market-friendly and verifiable ways to reduce emissions 
that do not require the adoption of a mandatory, command-and-control 
regime such as the Kyoto Protocol in its present form. Indeed, if a 
voluntary program succeeds and matures in ways that we believe it is 
capable of, it could well help to reshape the debate in the 
international community on how to address collectively climate change 
issues. Last, the successful implementation of a voluntary, market-
based program would accomplish its objective of reducing emissions 
without inspiring the principal concern that many in the Congress and 
private sector have expressed about the Kyoto Protocol: that compliance 
would do irreparable harm to the U.S. economy.
Practical Considerations
    Moving for a moment from the theoretical, allow me to offer some 
practical considerations about how such program would work and what 
might hinder it. Say for example that CMS Energy committed to a newly 
established voluntary program. The questions that arise immediately are 
how to establish a baseline, what volume of reductions to commit to, 
how to begin implementing that commitment, and how to account for 
natural growth in demand.
    One of the attractive features of the AMPCO project for its 
acceptance into the USIJI program was the ease with which we could 
establish the baseline emissions and measure the reductions. It was a 
relatively simple proposition: the flare was there, and with the 
project in place it would be extinguished, and the reductions would be 
calculated on the difference. Calculating the baseline and levels of 
reductions from other emissions projects can be far more complicated, 
however, depending on what type of project is under consideration. It 
can be quite confusing to establish baselines and determine resulting 
reductions for efforts such as fuel switching, replacing old or 
inefficient equipment, recovering or reinjecting vented or flared gas, 
repairing gas leaks, or implementing demand-side management efforts. 
Efforts such as these are extremely useful and should be recognized in 
any voluntary program, but clear and specific guidelines will be needed 
to provide companies with a sufficient level of comfort and assurance 
that they will be justified in making the expense to implement them.
    CMS Energy has undertaken a very preliminary analysis of its 
current and projected emissions of CO2 equivalent from 2000 
-2005. Specifically, we've looked at two alternative views of the 
company's future starting from the same point--our current level of 
CO2 equivalent emissions. One view shows a fairly sharp 
growth in emissions based on what would happen if we proceed with 
business as usual. Another view shows a far more gradual growth of 
emissions based on what would happen with an aggressive effort to 
institute a number of improvements, upgrades, and applications of new 
technologies to a variety of our existing and planned projects. 
Assuming we had the economic incentive through a voluntary program to 
implement these efforts, we can obtain significant reductions of 
CO2 equivalent reductions by 2005.
    An important fact that emerged from our analysis is that both views 
of our future showed growth in total emissions--with one alternative 
growing at a sharper rate than the other. This reflects the fact that 
there will always be natural growth in demand. Accordingly, it is 
eminently clear that any voluntary program will have to account--and 
not penalize companies--for normal growth. Without such an allowance, a 
voluntary program would be predicated on the totally unrealistic 
assumption that the US economy and resulting electricity demand would 
remain flat, and would make it more difficult and less attractive for 
companies to participate.
    If companies could be rewarded along the way with a clear set of 
incentives for implementing commitments, they would have both a road 
map and an economic justification for achieving substantial amounts of 
emissions reductions. Moreover, as companies exceed their commitments, 
they should be able to market their excess reductions to other 
participating companies that anticipate shortfalls, That creates an 
additional incentive for companies to cut emissions aggressively, and a 
disincentive for others to fail to meet their commitments. It also 
facilitates the development of a robust trading market, which can be 
expanded to include international projects and purchasers.
    A CO2 emissions trading market is already in its 
infancy. CMS Energy, for instance, has reached preliminary agreements 
with a foreign company for the sale of a parcel of AMPCO's emissions 
reductions, at a price that suggests the potential for real value for 
the reductions. Our experience is emblematic of an evident willingness 
of foreign companies to purchase emissions reductions from the United 
States. But the existing market is illiquid, transactions involve a 
great deal of risk for both buyers and sellers, and the process is 
beset with a great deal of uncertainty stemming from the lack of clear 
rules and definitions. A voluntary emissions reduction program that 
facilitates and rewards emissions trading, and provides clear rules on 
baselines, eligibility of projects, measurement of reductions, and 
flexibility for companies to meet commitments would allow the emerging 
marketplace to flourish.
Recommendations
    The practical considerations that I have mentioned form the basis 
for CMS Energy's recommendations for a voluntary emissions reduction 
program. Some of the recommendations are obvious and have been touched 
upon in my testimony, but I will conclude with a comprehensive list:
      First, the program must be voluntary. Command and control 
regimes are inefficient, costly, politically untenable, and have the 
potential to do grave economic harm to the United States.
      Second, the program needs to offer clear guidelines to 
companies about how to formulate their corporate-wide CO2 
equivalent emissions baselines--what can and cannot be counted in terms 
of their emissions--as well as project-level baselines for greenhouse 
gas emissions.
      Third, the program needs to offer precise rules about 
what projects are eligible and what constitutes and qualifies as a 
reduction. Companies will be discouraged from making major capital 
expenditures to upgrade existing operations or reconfigure new ones to 
obtain greater emissions reductions if they are uncertain the 
reductions will be recognized. Obviously, to improve prospects for 
success, as broad a range of acceptable projects and activities as 
possible should be encouraged. We believe the existing USIJI process 
and the DOE's 1605(b) program respectively offer a good basis from 
which to construct a framework for evaluating and implementing 
international and domestic projects, and for establishing which 
existing projects should be ``grandfathered'' into the new program. 
Both programs, however, would need to be refined dramatically and their 
rules made more specific and transparent to eliminate uncertainties and 
bureaucratic inefficiencies. On the other hand, we believe that 
reforming the USIJI and 1605(b) programs does not require legislation.
      Fourth, in order to be credible the program requires 
monitoring and verification, which also has the potential to add costs. 
These costs must be reasonable or the program becomes self-defeating.
      Fifth, in measuring reductions from the baseline, the 
program must account for growth in demand. There may be several ways to 
provide such an accounting, such as establishing an allowance for 
increased demand as companies commit to gross levels of reductions, or 
by structuring the program so that they commit to a better standard of 
efficiency like achieving lower CO2 emissions per kilowatt-
hour.
      Sixth, the program should rely on a rigorous, well-
defined emissions trading program. The trading effort should be equally 
clear as the program itself on definitions of acceptable reductions for 
trades and should establish transparent rules for ownership and/or 
title to reductions, for allowing transferability (secondary, tertiary, 
and ongoing trades), for allowing portability (the ability of companies 
to take their reductions with them as they withdraw from projects, or 
sell them to new buyers as they enter). To ensure maximum flexibility 
and effectiveness, the trading effort must permit the use of credits 
and offsets generated by domestic and overseas projects of American 
companies and encourage the participation of foreign buyers.
      Lastly, and perhaps most importantly, the incentives must 
be significant and increase proportionally as companies establish and 
make progress in implementing their voluntary commitments. 
Fundamentally, the program must offer an economic rationale to be 
effective and encourage fill implementation. The list of possible 
incentives is large and need not be debated here, but for illustrative 
purposes can include tax relief, reform of the New Source Review rules, 
protection from further mandatory emissions reductions during the 
compliance period, and baseline protection or fill credit for past 
reductions in the event of the adoption of a mandatory regime. Not only 
will these types of incentives encourage success, they will also create 
a platform to provide value to the reductions and thereby facilitate an 
emissions trading regime.
    Mr. Chairman, thank you for the opportunity to present these views.

                     CLEAN AIR ACT OVERSIGHT ISSUES

                              ----------                              

                       WEDNESDAY, AUGUST 1, 2001

                                       U.S. Senate,
                 Committee on Environment and Public Works,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 9:01 a.m. in room 
406, Senate Dirksen Building, Hon. James M. Jeffords (chairman 
of the committee) presiding.

         IMPACT OF AIR EMISSIONS FROM THE TRANSPORTATION SECTOR

    Present: Senators Jeffords, Lieberman, Inhofe, Chafee, 
Carper, Clinton, Corzine, and Voinovich.

OPENING STATEMENT OF HON. JAMES M. JEFFORDS, U.S. SENATOR FROM 
                      THE STATE OF VERMONT

    Senator Jeffords. The hearing will come to order.
    Last week, this committee learned about the impact of power 
plant emissions on public health and environment. Today, we 
will take a similar look at the transportation sector and after 
the recess will take a look at our industrial sources. That 
will complete a broad survey of the impacts of energy use on 
society.
    Before I start my opening statement, I would like to ask 
Senators and witnesses to try to keep their opening statements 
to 5 minutes. I will certainly try to keep that rule. We are 
covering a sizable topic this morning and will need to keep 
things moving. Also, several members have committee duties 
elsewhere, so there may be a fair amount of coming and going. 
Witnesses shouldn't let that distract them. As usual, any 
additional written material that Senators or witnesses may have 
can be entered into the record.
    America and its political leaders are committed to clean 
air. Improved air quality results in healthier, longer lives 
for our citizens, clean air, ecosystems, more abundant crops 
and a stronger economy. Transportation is one of the main 
drivers of that economy. Transportation touches every aspect of 
our lives. Our transportation system is one of the most 
advanced in the world and is truly the foundation of our strong 
economy. Even the most advanced system can be improved. With 
American ingenuity and technology, and with little additional 
cost, we can create new engines that are equally as powerful 
but far less polluting. Our goal today is to ensure that our 
Federal Government is doing all it can to create a cleaner, 
more efficient and less polluting transportation system for the 
nation.
    Earlier this week, the National Academy of Sciences 
released a report on corporate average fuel economy or CAFE 
standards. The report is helpful but it tells us what we 
already know, improving fuel efficiency can save consumers 
money, cut greenhouse gas emissions, and reduce our dependence 
on oil. That's no surprise.
    The report also said that market forces alone aren't going 
to make these things happen. That is why I believe that the 
Federal leadership must pull technology in an experimentally 
sound direction. As many of you know, I am not too pleased with 
the Administration's policy on climate change. An entirely 
voluntary and unilateral approach is not the best route. It 
won't get us far enough, fast enough.
    The report also suggests that our current approach with 
CAFE hasn't been effective. The average fuel efficiency of all 
the vehicles has remained more or less flat for 15 years. In 
this same time, greenhouse gas emissions from the sector have 
risen 12 percent over the 1990 levels. We may need a new 
approach to fuel economy if we can't fix CAFE and increase 
these standards substantially. There are just too many negative 
environmental problems from wasting energy, including global 
warming.
    The Clean Air Act allows carbon dioxide from vehicles to be 
regulated as a pollutant. Clearly the potential impacts of 
carbon on the environment and public health are enormous. 
Perhaps this committee should consider a national cap and trade 
program for carbon emissions from the transportation sector. 
That might be a more effective way to stimulate innovation and 
less carbon intensive fuel inefficiency.
    I have tried for many years to encourage cleaner fuels in 
vehicles. During the debate on the Energy Policy Act of 1992, I 
offered a successful amendment to require certain levels of 
alternative fuel production. That amendment came back from 
conference saying the Department of Energy ``may'' require 
alternative fuels production instead of the ``shall'' that was 
in my amendment. Had that amendment survived, we might be 
worrying less about greenhouse gas emissions and other 
pollution today.
    According to EPA's Green Vehicle Guide, while good fuel 
efficiency does not necessarily mean clean emissions, a car 
that burns less fuel, generally pollutes less. That would make 
sense. It could also cost the manufacturers less in the amount 
of precious metals necessary for catalysts.
    We shouldn't just focus on cars. Passenger cars have been 
getting cleaner and they will get even cleaner as a result of 
the recent rules on emissions and low sulfur fuel. Trucks and 
nonroad sources have a long way to go. EPA has moved slowly to 
set standards for these nonroad sources like airplanes, 
locomotives, marine diesel and recreational engines. These 
sources are a growing part of the many areas pollution problem. 
Approximately 120 million people still live in areas that don't 
meet the national standards for ozone and carbon monoxide. 
These pollutants and fine particulates are partly due to 
emissions from the transportation sector. They are also 
associated with asthma and other illnesses.
    A study published earlier this year in the Journal of the 
American Medical Association by a group of doctors found 
something interesting and distressing about the link between 
pollution and asthma. The Olympic Committee in Atlanta made 
great efforts to reduce traffic congestion during the 1996 
Games. Increased use of transit and telecommuting cut traffic 
and emissions significantly. Doctors found a corresponding 
reduction in the rate of childhood asthma events. The morals of 
that story are that the cars have to get still cleaner and a 
better transit system can help prevent pollution.
    I want to touch on the subject of toxic air pollutants from 
mobil sources before I turn to the next speaker. The Clean Air 
Act amendments of 1990 directed EPA to issue a rule to control 
toxic air pollutants that most the greatest risk to human 
health or about which significant uncertainties remain. Last 
year, EPA finally issued its rule. It simply said these toxics 
must not increase beyond the averages of 1998-2000 levels, with 
future regulation to be set in 2004.
    In 1998, the entire transportation sector was responsible 
for emitting 2.3 million tons or 4.6 billion pounds of toxic 
air pollutants such as benzene and 20 other hazardous 
chemicals. Some are known as probable carcinogens.
    I hope you can see why I think the EPA's rule is not 
adequate to protect public health. Instead, EPA should have 
heeded the words of George Perkins Marsh, a great per mater and 
environmentalist. He said, ``We are never justified in assuming 
a forest to be insignificant because it measures our unknown or 
even because no physical effect can now be traced to its 
origin.'' Marsh believed that we have a responsibility and the 
ability to help solve the problems we create. We all have to 
think ahead and shape our society to protect our children and 
environment from essential harm, even when there isn't perfect 
proof. We must strengthen CAFE standards, reduce the vehicle 
contributions of carbon to the atmosphere and cut emissions 
that undermine human health. I am hopeful that this morning's 
witnesses will give us some ideas on how to meet these 
challenges.
    Before I recognize the next speaker, I would like to remind 
all members that we are to have a business meeting today in S-
211 in the Capitol after the first vote to consider six pending 
nominations. I encourage all Senators to attend.
    Senator Lieberman?

  OPENING STATEMENT OF HON. JOSEPH I. LIEBERMAN, U.S. SENATOR 
                 FROM THE STATE OF CONNECTICUT

    Senator Lieberman. Thanks for convening this series of 
hearings on the impact of various sectors of our country on 
public health and the environment. I regret that I could not be 
at the hearing last week on the emissions from the utility 
sector but I am pleased to be here for a while this morning.
    I know you have been planning this hearing for some time 
but as I believe you may have indicated, the time could not be 
better in light of the National Academy of Sciences long 
awaited report on fuel efficiency standards that was issued on 
Monday. I've read the accounts of the report with great 
interest and have been particularly struck by the statement 
that technologies exist according to the National Academy of 
Sciences that ``could improve fuel efficiency in cars and in 
light trucks by 20 to 40 percent over the next 10 to 15 
years.'' Once you figure in the fuel savings, this can be done 
without any real additional cost to the consumers. In addition, 
I think the report notes memorably that ``It is appropriate for 
the Federal Government to ensure fuel economy levels beyond 
those expected to result from market forces alone.''
    This morning, we are going to hear about the environmental 
consequences of emissions from cars, trucks and other types of 
gasoline-powered vehicles, much of which would be mitigated if 
our vehicles didn't guzzle so much gasoline. For instance, in 
looking over the testimony to be given today, I was 
particularly impressed by the statements about the health 
impacts of the mobil source toxics and smog causing pollutants.
    If we raise our fuel efficiency standards to 40 miles per 
gallon by the year 2012, already the standard at which Japan is 
aiming, we would reduce our nation's emissions by 148 million 
pounds of toxics and 320 million pounds of smog-causing 
hydrocarbons and nitrogen oxides. That would represent a 16 
percent decrease in each of those emissions. I'm not explicitly 
proposing that this be our target, but the fact that Japan is 
looking at it tells us something about its viability.
    I think we have to acknowledge also the contribution of 
these emissions to global warming. That is why I'm particularly 
pleased that you've convened this series of hearings, Mr. 
Chairman. Faced with what is now a failure of leadership from 
the White House on the critical issue of climate change, I 
think it really becomes Congress' responsibility to get America 
back in the battle against global warming with a program of 
credible domestic action.
    Fuel efficiency standards are clearly part of such a 
program because the transportation sector represents about 30 
percent of our nation's greenhouse gas emissions and about 8 
percent of the world's. America's transportation sector 
produces about 8 percent of the world's greenhouse gas 
emissions.
    A final word that is related, which that the energy we 
consume in our automobiles, particularly the gasoline 
obviously, carries another environmental cost and that is the 
cost of the increased production that results from increased 
demand. In the House of Representatives today, there apparently 
will be a vote on President Bush's proposal to drill for oil in 
the Arctic National Wildlife Refuge. When many of my colleagues 
sponsored legislation in the Senate to prevent such drilling 
and to declare the Refuge the permanent reserve it ought to be, 
those who opposed this bill stressed the need to bring oil to 
the market to satisfy the demand of American drivers but 
doesn't it make more sense to meet that demand with more fuel 
efficient vehicles than by despoiling one of America's great 
natural treasures? I think so.
    I'm encouraged as I look at the testimony to be delivered 
today that Mr. Dana of the Automobile Manufacturers Association 
has endorsed the approach found in the Clear Act, a measure 
introduced by Senator Hatch, that I co-sponsored, that would 
create tax incentives for the purchase of alternative fuel and 
hybrid vehicles. I hope that we can find more and better ways 
like the Clear Act to shift our automobile fleets in a manner 
that reduces our emissions.
    Again, I thank you for your leadership here. I think you 
give all of us here in Congress an outside hope that Congress 
will take the initiative on cleaning up air pollution and in 
dealing with the problem of climate change. I look forward to 
the testimony of the excellent group of witnesses we are 
privileged to have before us today.
    Thank you.
    Senator Jeffords. Thank you very much, Senator.
    We now have Mr. Rob Brenner, Acting Assistant Administrator 
for Air and Radiation, U.S. Environmental Protection Agency 
here in Washington, DC. Please proceed.

 STATEMENT OF ROB BRENNER, ACTING ASSISTANT ADMINISTRATOR, AIR 
      AND RADIATION, U.S. ENVIRONMENTAL PROTECTION AGENCY

    Mr. Brenner. Chairman Jeffords and Senator Lieberman, thank 
you for this opportunity to discuss one of the cornerstones of 
EPA's Air Quality Management Program, our work to reduce air 
pollution from mobil sources. Through initiatives ranging from 
the first tailpipe standards in the mid-1970's to the voluntary 
diesel, truck and bus retrofits announced earlier this year, 
this important program has brought healthier air to millions of 
Americans across the country. Combined the health benefits of 
these efforts are enormous.
    Our Tier II passenger vehicle standards alone will prevent 
more than 4,000 premature deaths each year, along with tens of 
thousands of respiratory illnesses. The benefits from our new 
diesel standards will be even greater. We have more work ahead 
of us, however, and I will discuss that during the next few 
minutes. With your permission, Mr. Chairman, I would also like 
to submit a longer statement for the record.
    Senator Jeffords. You certainly can.
    Mr. Brenner. Cars, trucks and buses give Americans the 
mobility we grave and that has come to define us as a society. 
These same sources that give us so much freedom also create 
pollution that poses significant environmental and public 
health risks. Mobil sources are major contributors of harmful 
nitrogen oxides, carbon monoxide, volatile organic compounds 
and particulate matter. We've made tremendous progress in 
reducing mobil pollution since Congress passed the 1970 Clean 
Air Act. In 1975, our first automobile tailpipe standards 
allowed NOx emissions of 3.1 grams per mile.
    Today the emissions allowed are less than 140th of that 
amount, making cars significantly cleaner. New trucks and buses 
will be more than 90 percent cleaner than current models 
starting in 2007. Our on highway and mobil source programs will 
reduce emissions of 21 mobil source toxics from nearly 1 
million tons or 40 percent between 1996 and 2007.
    We have made this progress by selecting the right 
combination of tools for each task. For example, we recognize 
fuels and vehicles operate as a system and that effective 
regulations must address both components. By requiring 
significant sulfur reductions in gasoline and diesel fuels, we 
enable vehicle manufacturers to achieve large reductions in 
tailpipe emissions. In our recent diesel rule, EPA set 
performance standards for buses and trucks but we allowed 
manufacturers to meet those standards using market-based 
mechanisms such as banking and trading. At the same time, we 
recognized it is important to look for ways to reduce harmful 
emissions from diesel buses and trucks that are on the road 
today, so we developed a voluntary retrofit program in 
partnership with business, municipalities and emission control 
manufacturers. We are already more than halfway toward meeting 
our goal of retrofitting 100,000 diesel vehicles this year. We 
anticipate using similar combinations of tools to meet future 
challenges.
    No matter what the task, one goal will remain constant, to 
continue to reduce pollution from mobil sources and seek energy 
efficiency while the U.S. population and economy grow and or 
demand for mobility continues. Our remaining priorities include 
implementing the new truck and passenger vehicle standards, 
setting new standards for off-road vehicles and developing 
initiatives such as the commuter choice program and the green 
vehicle website to encourage transportation efficiency and 
reduce congestion. To meet these priorities we will continue to 
use a variety of tools from performance-based emission 
standards to partnership-based voluntary programs and will use 
the valuable lessons we have learned as the mobil source 
program has evolved.
    I remain optimistic that we can continue to work together 
to accomplish many of our goals. Many of you no doubt remember 
the heated debates in the early years of automobile tailpipe 
standards. Each time a new standard was discussed, there was 
tremendous controversy but this committee continued to support 
our pollution reduction goals and industry, despite its initial 
reluctance, used ingenuity to meet them often sooner and at 
lower cost than originally estimated.
    The process of developing those standards has come a long 
way. As we were developing the Tier II passenger vehicle 
standard last year, the automobile manufacturers willingly came 
to the table and worked constructively with EPA, the States and 
other stakeholders. Although I realize that such cooperative 
efforts won't always be possible, we value industry's insights. 
With their help and the continued guidance of this committee, 
we can continue to reduce mobil source pollution and make great 
strides in protecting the health of the American public.
    Thank you and I'd be happy to answer any questions you 
might have.
    Senator Jeffords. Thank you.
    I'd like to allow Senator Inhofe to make a statement 
because I know he has another important commitment.

 OPENING STATEMENT OF HON. JAMES M. INHOFE, U.S. SENATOR FROM 
                     THE STATE OF OKLAHOMA

    Senator Inhofe. Thank you, Mr. Chairman.
    That is a problem and I know it is one that is difficult to 
deal with but I want everyone here to know and the members of 
this committee, every committee and subcommittee hearing we 
have had in this committee this year has coincided exactly with 
an Armed Services Committee hearing. It is a difficult thing to 
deal with, I know. I hope we will be able to do that and I know 
Senator Lieberman has the same problem I do. We have to be 
there, we have probably the next Chief of the Air Force and his 
nomination hearing is very significant. Senator Smith is not 
here because he is there. Senator Warner is not here because he 
is down there.
    To me, this hearing is very significant. Having served as 
Chairman of the Clean Air Committee as well as the 
Transportation Committee, I feel you really need to be in the 
middle of this but I wanted to get that in the record. Perhaps 
we can work together with that committee and figure a way.
    Senator Jeffords. We will try to do that and I appreciate 
your being here. Please proceed.
    Senator Inhofe. Let me do an opening statement because I 
won't be able to stay.
    In a recent report entitled, ``U.S. Downstream, the EPA 
takes another bite out of America's steel supply,'' Merrill 
Lynch concluded that EPA's clean air regulations will clearly 
have the impact of reducing existing U.S. refinery capacity. 
The reduction in refinery capacity predicted by Merrill Lynch 
is the result of poorly thought out and implemented 
regulations. We had a chart we used at one time that showed 
this. Congress and the executive branch must also do a better 
job in understanding how these various layers of regulation 
impact our industry.
    For example, right now, during the time many of these rules 
came on line, we were at 100 percent refinery capacity. If 
you're at 100 percent refinery capacity and get hit with a 
number of regulations, such as Tier II and sulfur, diesel 
rules, it's going to aggravate that problem and the people who 
are going to pay for that are the people who can afford it the 
least. In the near future there will be some real opportunities 
to rethink how to balance our energy and environment needs, for 
example, the upcoming Administration review of the heavy duty 
sulfur-diesel regulation.
    I hope the environmental goals of this regulation--I 
support the environmental goals but have serious concerns about 
the impacts this regulation will have on rural America and 
specifically in rural Oklahoma. The Farm Bureau and the Farmers 
Union were all in town during the consideration of the Farm 
bill. They consider this to be more significant than many of 
the other things we talked about.
    Let us not forget, when the price of energy rises, it means 
the less fortunate in our society must make a decision between 
keeping the heat and lights on and paying for other essential 
needs. Again, I am supportive of the environmental goals of 
clean air regulations but we owe the American public a full and 
fair evaluation of any regulations that will affect fuel 
supplies as well as the consequences of regulations on meeting 
the difficult emission standards. As the President has said, 
``Just as we conduct environmental impact assessments, we must 
think about assessing the energy impact of regulatory 
programs.''
    Finally, on the CAFE standards, in a recent article 
entitled, ``Why Governments Phase Standards for Fuel Efficiency 
Should Be Repealed, not Increased,'' Mrs. Charlie Koontz 
states, ``The CAFE Program has failed to accomplish its 
purposes. Oil imports have not decreased; in fact, they have 
increased from about 35 percent of supply in the mid-1970's to 
56 percent today. Likewise, consumption has not decreased. As 
fuel efficiency improves, consumers have generally increased 
their driving offsetting nearly all the gains in fuel 
efficiency. Not only has the CAFE Program failed to meet its 
goals, it has had tragic even if unintended consequences. As 
vehicles were being made lighter to achieve more miles per 
gallon and meet the standards, the number of fatalities from 
crashes rose. We need to carefully examine these issues before 
going forward with any expansion of the CAFE standards.''
    As the ranking member of the Transportation Subcommittee I 
also have concerns about the nexus between environment, energy 
and transportation policies which I really wanted to get into 
in the course of this hearing but will not be able to do it 
because I won't be able to stay.
    Thank you, Mr. Chairman, for allowing me to come out of 
order.
    Senator Jeffords. You're quite welcome.
    Senator Chafee, do you have an opening statement?

OPENING STATEMENT OF HON. LINCOLN CHAFEE, U.S. SENATOR FROM THE 
                     STATE OF RHODE ISLAND

    Senator Chafee. Yes. I would like to thank you for holding 
this hearing. I do believe examining mobile sources of 
emissions is an important step for the committee as we identify 
impediments to our clean air goals. In determining the best 
methods for reaching these goals, we must consider the impact 
of automobiles and other mobile sources. I believe this hearing 
will shed some light on some serious problems and hopefully an 
equal number of solutions.
    It is vital to our nation's environment and economy that 
America leads the way in a fight to reduce emissions from the 
transportation sector. I believe if Congress raises CAFE 
standards, technology will be developed to meet those 
standards. If Congress provides financial incentives to produce 
new vehicle technologies and alternative fuels, ingenuity will 
prevail, and the technology will be developed. Our economy will 
not suffer and if history repeats itself, the United States 
will become the leader in the field. Jobs will be created to 
manufacture the new technologies and will export the new 
technologies around the world. I believe it will be a potential 
boon to our economy.
    Thank you and I look forward to the testimony.
    Senator Jeffords. Senator Carper?

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

    Senator Carper. Thank you for holding the hearings and to 
our witnesses, welcome. We are delighted that you are here.
    I want to begin by expressing my gratitude for the 
scheduling later today of votes on a number of nominees for 
positions within EPA. I know Administrator Whitman appreciates 
that as well.
    I also serve, as some of you, on the Energy Committee and 
we have been in the throes of a host of hearings on how to 
conserve energy. Some of you sitting on this panel have 
authored legislation which is going to be very helpful as we 
seek to conserve our energy resources in the years to come.
    I would observe that today in the United States, over half 
the oil that we use comes from sources outside the United 
States, some of it controlled by people who don't like us very 
much. As we seek to find ways to use less energy, it is 
imperative that we keep in mind that over half the oil we 
consume, we consume in our cars, trucks, vans and SUVs.
    I am one who actually believes that part of the solution is 
producing more energy, natural gas and oil, nuclear, solar, 
wind and geothermal, hydroelectric but at the same time, it is 
imperative that we find ways to conserve energy. Since we use 
so much of it in the vehicles we drive, that is obviously a 
good place to start.
    I am much encouraged by the technology being developed that 
actually finds its way onto the roads of our country in hybrid 
vehicles, in the fuel cell vehicles being developed and I would 
add there is very good technology being used in Europe on 
diesel, a highly efficient diesel engine that we need to be 
mindful of to see how we can learn from those works as well.
    Again, thanks for holding this hearing and to our 
witnesses, welcome. We look forward to hearing from you.
    Senator Jeffords. Senator Corzine?

OPENING STATEMENT OF HON. JON S. CORZINE, U.S. SENATOR FROM THE 
                      STATE OF NEW JERSEY

    Senator Corzine. Thank you. I will be brief and say that I 
think this series of hearings you are holding with regard to 
pollution of a whole series of economic sectors is important. 
The transportation sector is probably as important as any. We 
have 18 or 21 counties in the State I represent not meeting the 
ozone standards. There is an enormous amount of thoughtful work 
being done with regard to controlling air pollution through 
auto vehicles and fuel efficiency as a side benefit which I 
think are absolutely essential for us to deal with. The whole 
subject of how we utilize mass transit, particularly in the 
northeast corridor in the most densely populated State in the 
country without a mass transit system couldn't be a more 
important issue, both with regard to energy and air pollution.
    I think this hearing is a tremendous step in making sure we 
understand all the various factors. I appreciate the witnesses' 
help and also the expeditious nature with which you are dealing 
with the appointments the President has put forward.
    I look forward to participating in the hearing. I have a 
full statement for the record.
    Senator Jeffords. Full statements will be entered in the 
record.
    [The prepared statement of Senator Corzine follows:]
 Statement of Hon. Jon S. Corzine, U.S. Senator from the State of New 
                                 Jersey
    Thank you, Mr. Chairman. I want to thank you for holding this 
hearing on the environmental and health impacts of the transportation 
sector.
    Mr. Chairman, air pollution is a serious problem in New Jersey. 
Take ground-level ozone, known as smog, for example. As of July 29, 
nine areas in New Jersey had logged a total of 14 exceedances of the 
current ``1-hour'' standard for ozone this year. That number increases 
to 114 exceedances if you use the ``8-hour'' standard that will be 
phased in. So we continue to have a serious problem with smog in New 
Jersey, to say nothing of airborne toxics and other problems.
    Mr. Chairman, although some of our air pollution comes from out of 
State, much of it is generated within our borders. New Jersey is the 
most densely populated State in the nation. It is also a major 
transportation corridor for traffic moving up and down the east coast. 
Put these factors together, and you have millions of cars and trucks 
moving along New Jersey roads each day. In 1999, more than 213 million 
vehicles traveled a total of more than 5 billion miles on the New 
Jersey Turnpike alone. So it's clear that in spite of the progress we 
have made in cleaning up cars, a major part of the solution to New 
Jersey's air pollution lies in the transportation sector.
    And we have made progress, Mr. Chairman. I don't want to minimize 
that fact. Today's cars are 90 percent cleaner than in 1970. We are 
poised to make further progress with the phase in of EPA's so-called 
``Tier 2'' standards beginning in 2004. These standards will result in 
cleaner cars and cleaner fuels, and will close the loophole that 
currently allows the increasingly popular sports utility vehicles to 
meet dramatically lower emissions standards than cars.
    But in spite of our progress, many challenges remain. Emissions of 
carcinogenic air toxics, such as benzene, continue to be a problem. 
Emissions of carbon dioxide have continued to rise over the last 30 
years, to the point where the American transportation sector accounts 
for about 8 percent of the world's greenhouse gas emissions.
    So we need to continue to focus on ways to improve the 
environmental performance of our transportation system. With respect to 
climate change, I want to echo my colleagues in highlighting the 
findings released earlier this week by the National Research Council. 
This report concluded that there are cost-effective ways to increase 
vehicle fuel economy standards over the next 10 to 15 years without 
compromising performance or safety. Increasing fuel economy would 
reduce both greenhouse gases and our dependence on foreign oil. 
Congress should act on these findings and modify the Corporate Average 
Fuel Economy standards to require increases in fuel economy.
    I think we also need to improve our mass transit systems. In New 
Jersey, we have two light rail projects that are just getting 
underway--the Hudson-Bergen rail and the Newark-Elizabeth rail. When 
these systems come on line, it will take cars off the road and reduce 
pollution. I think it's essential that we continue to invest in Amtrak.
    Looking beyond the technologies of today, I am encouraged by the 
prospect of next-generation technologies such as fuel cells, that offer 
the potential for huge gains in energy efficiency and huge reductions 
in pollution. New Jersey companies are working hard to develop and 
commercialize these technologies. But I think the Federal Government 
should do what it can to speed the development of this promising 
technology.
    With that, I conclude my remarks and look forward to the testimony 
of today's witnesses.
    Senator Jeffords. Senator Clinton?

OPENING STATEMENT OF HON. HILLARY RODHAM CLINTON, U.S. SENATOR 
                   FROM THE STATE OF NEW YORK

    Senator Clinton. I wanted to begin to thank our witnesses. 
I won't be able to stay for all of the testimony because of 
another committee but I want to thank Mr. Brenner and I 
particularly want to welcome Mr. Omar Freilla from the New York 
City Environmental Justice Alliance. I thank Omar for being 
here. They have done a lot to try to improve the air quality 
for New York City residents and to address issues of 
environmental justice.
    You will get to hear about an exciting project they are 
working on at Hunts Point Market to try to limit the emissions 
that are particularly prevalent in that area.
    Before I conclude and have my statement submitted, I want 
to say how pleased I am to hear from press reports this morning 
that Administrator Whitman has decided to move forward with the 
full clean-up plan for the Hudson River that was originally 
proposed this past December. We don't have all the details yet 
but this appears to be a significant environmental victory, not 
just for New York and New Jersey but for communities around the 
country that are plagued by contaminated sediments.
    I know this is not a final decision. I spoke with the 
Governor of New York the other evening who has the right to 
review the decision and to make comments. He certainly supports 
the full dredging recommendation if that indeed is the final 
decision. It won't be officially announced until September but 
this is very welcome news for people who have been concerned 
about this issue for 20 years, particularly as it affects our 
country's largest Superfund site. I wanted to add my words of 
support to what I hear will be the decision.
    Again, Mr. Chairman, I want to thank you for moving this 
committee along so expeditiously to deal with the real problems 
that are on New Yorkers' minds and Americans' minds. This issue 
about how we cut pollution from our transportation sources is 
absolutely critical and has a big impact on health, something 
you and I have discussed, that we are having increasing 
evidence and awareness of. I thank you for making this a 
priority of the committee.
    Senator Jeffords. Thank you.
    Senator Voinovich?

  OPENING STATEMENT OF HON. GEORGE V. VOINOVICH, U.S. SENATOR 
                     FROM THE STATE OF OHIO

    Senator Voinovich. Thank you. My remarks will be very 
brief.
    I thank you for scheduling this hearing on mobile source 
emissions. It is a very important issue. Too often I think we 
concentrate on the stationary sources and lose sight of how 
much problems are caused by cars and mobile emissions.
    As we move forward with the multiple emission strategy for 
utilities, we need to keep in mind that utility emissions are 
only a part of the problem. This hearing is very helpful to 
increasing our understanding of the overall environmental and 
health impacts of air emissions from all sources. However, as I 
said last week, the committee also needs to look at the 
available control technologies for mercury and CO2 
and how we go about crafting a bipartisan approach to those 
issues.
    I know many of my colleagues from the northeast point to 
Ohio and other midwestern States as the source for most of 
their quality problems. The fact of the matter is that we could 
shut down every utility in Ohio and the northeastern States 
would still not comply with the air quality standards for the 
most part because of mobile emissions.
    Over the last 10 years, my State--I am particularly 
sensitive to this because a lot of the people we are talking 
about are in my State--has spent more on emissions reductions 
than New York, New Jersey, Massachusetts, Connecticut, Vermont, 
Rhode Island, Maine, New Hampshire, Maryland, Delaware and 
Washington, DC. combined. By 1995, Ohio had spent $3.7 billion 
on pollution controls. We reduced air toxins from approximately 
381 million pounds in 1987 to 144 million pounds in 1996.
    When I began my term as Governor, eight of our cities were 
in nonattainment for ozone. Currently, all 88 Ohio counties are 
in attainment of our current national ambient air standards. I 
am very proud of that. No single State has done more to improve 
air quality in the last 10 years than Ohio and I reiterate we 
still have a lot more to do because we are a large industrial 
State. We have a lot of power plants, we have a lot of 
emissions and we have a problem we need to keep working on.
    Ohio was one of the first States to implement an enhanced 
INM Program. In fact, we implemented our program before any of 
the northeastern States. Mr. Chairman, I know your State of 
Vermont operates a basic INM Program, although they are in the 
process of having an enhanced program approved by EPA. Our 
enhanced INM Program in Ohio was not without controversy. I 
implemented that program as Governor of Ohio. We started to 
move it through the State. The legislature came back and passed 
legislation that did away with the enhanced program. I had to 
veto that bill. I took all kinds of heat like I have never 
taken in our State because of what I did. Everywhere I went, I 
had pickets and so forth.
    I notice some representatives here from environmental 
groups and there wasn't one environmental group that stood up 
and said anything good about the fact that we were staying at 
the table and taking the heat and continued that INM Enhanced 
Emission Program in our State. That was a very, very difficult 
thing for us to do and I am very proud of it. We could have 
backed off. For example, the State of Pennsylvania got into the 
same controversy and they just pulled the plug and moved away 
from it.
    The point I'm making is that we did try very hard to do the 
job we were being asked to do. During the OTEC process, the 
ozone transport assessment group, again, some of the other 
States dropped out of it. We stayed in it, participated in it, 
even voting for the report based on 65 percent reductions. 
Unfortunately, the EPA opted for the more stringent 85 percent 
level which was not supported by the modeling data.
    The data show that the biggest threat to air quality in the 
northeast, in addition to their coal and oil fired utilities, 
is the emissions from their cars. Their problem is compounded 
by their population density and the resulting traffic 
congestion--big problem.
    According to testimony by Taylor Bolden of the American 
Highway User Alliance at our subcommittee hearing in April of 
this year, ``Improving the traffic flow at our nation's 167 
bottlenecks which comprise only a few hundred of the nearly 4 
million miles of U.S. roads would reduce gasoline and diesel 
consumption by almost 20 billion gallons over the next 20 
years. This would go a long way toward reducing air pollution, 
particularly in areas which need it the most''--of course that 
is our urban cities.
    In addition, this committee needs to look closely a 
renewable fuels requirement. If we were to use more ethanol 
nationwide, our air quality would improve and we would decrease 
our dependence on foreign oil. For example, in my State, 40 
percent of the gasoline has an ethanol portion in it, about 10 
percent ethanol.
    I look forward to working with you on this issue. We need 
to understand mobile sources better and the ways in which to 
deal with that problem. I look forward to the testimony of the 
witnesses.
    Senator Jeffords. Thank you.
    Mr. Brenner, sorry we interrupted your statement. You have 
made an excellent statement. As I mentioned in my opening 
statement, EPA's Green Vehicle Guide says that ``While good 
fuel efficiency does not necessarily mean clean emissions, a 
car that burns less fuel generally pollutes less.'' Could you 
tell us how much increase in fuel efficiency might reduce 
transportation emissions other than carbon dioxide?
    Mr. Brenner. When you have more fuel efficient vehicles, 
one of the advantages is that there is less fuel needed in the 
overall supply system because the vehicles overall will not 
need as much gasoline or diesel fuel to power them. That means 
all through the system where you produce the gasoline at 
refineries, where it travels through pipelines and you can get 
evaporative emissions from the pipelines, where you get 
evaporative emissions from gasoline stations, at all those 
steps there is less fuel working its way through the system and 
therefore fewer emissions all around the country. That's the 
added advantage besides the green house gas advantages you 
mentioned.
    Senator Jeffords. As you know, EPA collects and estimates 
data on greenhouse gas emissions from vehicles and stationary 
sources on a regular basis. Would the agency be capable of 
developing a greenhouse gas emissions registry like the one 
used in the Toxic Release Inventory Program?
    Mr. Brenner. I believe we would be capable of doing that. 
We'd have to think about how to deal with some of the more 
difficult sources of greenhouse gases, some of the sources of 
methane or some of the other gases where we don't know quite as 
much as we do with CO2. I think we could at least 
make a good start on a registry and then try to build on that 
over time.
    Senator Jeffords. As you know, in May several environmental 
groups submitted a petition asking EPA to regulate greenhouse 
gas emissions from new motor vehicles. Can you give the 
committee a general idea of how the agency will be responding 
and when?
    Mr. Brenner. Yes, Mr. Jeffords. The petition came in to us 
a couple of years ago and we went through an evaluation of the 
set of legal issues and then decided what we could do was 
propose it for comment. We received something on the order of 
6,000 comments on that petition. The comment period closed I 
believe last May.
    We are now in the process of evaluating those comments and 
then we will be issuing a determination as soon as we can work 
our way through all those comments and come to a decision.
    Senator Jeffords. Why didn't the EPA take strong action to 
require new reductions in the mobile source toxics rule?
    Mr. Brenner. I'm glad you asked about that because I think 
here has been a good deal of misunderstanding about that 
rulemaking.
    We developed that rule and we looked at the future projects 
for air toxics. What we saw was one of the numbers I mentioned 
in my opening statement, that from the period 1996 to 2007, 
toxic emissions are going to decline by a million tons from the 
mobile source sector. We are going to continue to make 
tremendous progress on toxic emissions. Even after 2007, as you 
know there are additional standards such as the diesel 
standards that we will be phasing in.
    We believe that you need to look at that rulemaking in the 
context of all the other activities we have underway that are 
reducing toxics. One of the reasons that we decided to take a 
small additional set of reductions, benzene from gasoline, 
early on was that we were concerned about some of the issues 
that Senator Inhofe raised, that refiners are facing a set of 
difficult challenges for producing fuels and we didn't want to 
load additional challenges on them right away. We wanted to be 
able to phase it in with the other work underway. That is why 
we will do a review in 2004 of mobile source air toxics to see 
if additional controls are necessary.
    Senator Jeffords. Senator Lieberman?
    Senator Lieberman. Thanks, Mr. Brenner, for some excellent 
testimony.
    I was struck in your testimony by your description of the 
record that EPA has in establishing standards for emissions 
control that have really driven technology and improved public 
health enormously. In talking about the Tier 2 program 
standards which will go into effect in 2004, you cite some 
standards that frankly are the kinds we usually hear only from 
the public health organizations but we should be hearing from 
EPA.
    That is that Tier 2 will prevent 4,300 premature deaths 
annually. That is quite remarkable, not to mention the 2 
million tons of NOx emissions avoided per year by 2020. Then 
you add also the tens of thousands of respiratory illnesses 
prevented, but 4,300 premature deaths annually prevented by the 
Tier 2 standards I think we should see the real danger and 
impact the emissions have on peoples' health but also feel some 
pride and gratitude at the projected results. I thank you for 
pointing that out.
    It does seem to me that in view of the NAS report on CAFE 
standards that came out earlier this week that we should be 
looking to increase the efficiency of our vehicle fleet even 
more because this would reduce emissions as you indicated in 
answer to Senator Jeffords. I wonder if there is any particular 
estimate that you have or you can obtain and submit for the 
record of the health and environmental benefits that would 
result from increases in fuel efficiency?
    Mr. Brenner. We can make an effort to submit that for the 
record. It is a bit difficult because as I said, these are 
mostly fugitive emissions prevented throughout the system and 
it is harder for us to estimate those types of emissions than 
tailpipe emissions but we should be able to at least come up 
with a rough estimate and will be happy to submit that for the 
record.
    Senator Lieberman. Good. I'll look forward to that.
    Regarding the diesel/sulfur rule, I appreciated 
Administrator Whitman's recent response to Chairman Jeffords in 
which she stated that ``The technology review under the diesel/
sulfur rule would be conducted by the Clean Air Act Advisory 
Committee pursuant to the requirements of the Federal Advisory 
Committee Act.'' Can you provide us with anymore details 
regarding plans for that review?
    Mr. Brenner. The plans are not completely firmed up yet but 
I can give you a sense of what our plans are. What we want to 
do is have EPA do the biennial review that is called for in the 
rulemaking of both engine technologies and fuel supply and then 
in addition to EPA's review, we want to create a Federal 
advisory committee of technical experts and stakeholder 
representatives to present us with their own assessment of 
these two sets of issues, the fuel supply issues and engine 
technology issues. We want to include representatives with 
expertise from the refining industry, the marketing industry, 
from the public health community and the States and make sure 
that we are able to tap into the expertise that exists outside 
of EPA, and do it in an open process under the Federal Advisory 
Committee Act. The plan would be to start this and complete it 
next year.
    Senator Lieberman. I appreciate the answer and we look 
forward to monitoring progress on that.
    Regarding the petition that's been filed to regulate 
CO2 from new vehicles, I wonder what standard you 
are going to use to evaluate that petition and when you would 
anticipate a decision on that?
    Mr. Brenner. I'm not able to give you as clear an answer as 
I would like on what standard we will use. The petition raises 
some difficult legal issues for us. There are some significant 
questions that have been raised regarding our legal authority 
to proceed with that type of regulation.
    One of the things our attorneys are doing is sorting 
through the comments which raise both sides of the legal issue 
and trying to sort out what our view would be as to the 
standard we would use for evaluating the petition and the 
process we would use for setting a standard if we decide it is 
appropriate to set one.
    Senator Lieberman. My time is up. Thank you.
    Senator Jeffords. Senator Chafee?
    For the interest of the members, I do it on the early bird 
system, so as you come in time you will be ordered as to when 
you get to ask questions.
    Senator Chafee. In your testimony, you said that since 
1975, the average auto fuel economy measured in miles per 
gallon has doubled but that has entirely occurred before 1987, 
and in the past 14 years, new car fuel economy has been roughly 
unchanged, kind of falling off the wagon since 1987.
    You also say that the average fuel economy of the new 
passenger vehicle fleet in the 2001 model year is 2 miles per 
gallon below the 1988 peak. We certainly have a lot of work in 
front of us.
    What are the mechanics? How is this going to happen? Is it 
going to come from EPA, from Congress, from the Department of 
Transportation? What exactly are the mechanics of moving 
forward?
    Mr. Brenner. The manufacturers have been responding to 
consumer demands. There is also some good news. There are 
continuing developments in these technologies such as improved 
aerodynamics, less rolling resistance of tires and other types 
of actions that have enabled Ford and other manufacturers to 
commit to make some significant improvements in fuel economy, 
especially for their sport utility vehicles. They are talking 
on the order of 25 percent over the next few years. That is one 
mechanism that will be underway as far as actions the auto 
manufacturers have already undertaken.
    The next potential mechanism is that the National Academy 
of Sciences did a very good job of laying out the issues that 
public policymakers will need to consider in deciding whether 
to change the CAFE standards or use other mechanisms for 
improving fuel economy. On the one hand, they mentioned there 
are the environmental benefits that some of the other Senators 
mentioned this morning but there are also cost issues, 
potential safety issues, technology availability issues and 
there are consumer preferences. We now have those issues all 
laid before us. The Administration committed in the National 
Energy Plan to take the NAS study, with the Department of 
Transportation in the lead, and come up with some 
recommendations for appropriate next steps with respect to fuel 
economy. It sounds like the Senate will be doing the same 
thing.
    Senator Chafee. You think the Department of Transportation 
will take the lead?
    Mr. Brenner. Yes, they are the lead agency for this and we 
will work closely with them.
    Senator Jeffords. Senator Clinton?
    Senator Clinton. I'm still a little confused about the 
independent review of the diesel sulfur rule. I know the EPA 
has classified diesel exhaust as a likely carcinogen, is that 
right?
    Mr. Brenner. It's either a likely or probable carcinogen.
    Senator Clinton. I know earlier this year the Natural 
Resources Defense Council released a report showing that 
children who ride to school in a diesel school bus are exposed 
to excess exhaust on the bus at levels 23 to 46 times higher 
than the levels already considered to be likely or probable 
cancer risks by EPA. I have also seen enough of these yellow 
buses sitting there idle with the diesel exhaust going into the 
air further causing potential health problems.
    The latest statistics I have show that overall, the 
transportation sector emitted approximately 2.3 million tons of 
air toxics in 1996, including benzene, toluene and benzopyrene 
and 18 other compounds known or suspected to cause cancer, 
birth and developmental defects as well as other potential 
adverse health effects.
    I am very pleased by the effort to try to regulate diesel 
emissions. I know EPA has engaged in a retrofit program that I 
think holds great promise. We have a lot of companies in New 
York that are on the cutting edge of technology like Corning 
and Air Flow Catalyst Systems in Rochester that are 
manufacturing emission control equipment that could be used to 
help retrofit existing vehicles. I think this is an area on 
which we ought to put a lot of emphasis. Even if we do move 
forward on new fuel and emission standards, we still have a lot 
of vehicles on the road that are not going to be up to speed.
    I guess I want to parse a bit of what Senator Lieberman was 
asking so I can understand. I know earlier this week Governor 
Whitman sent a letter to Chairman Jeffords regarding a number 
of clean air related regulatory issues. One that was touched on 
was the emission standards for diesel trucks and buses. The 
rule went through the usual review process, including public 
comment. I guess I don't understand why do we need an 
additional new, independent review process?
    Mr. Brenner. The concept behind the independent review 
process is to focus on progress and implementation, not on the 
basic rule itself. As you noted, we went through a rulemaking 
process and there is a record for the rule which is being 
litigated now, so it's being examined by the courts.
    What we said when we issued the rule was, we wanted to make 
sure implementation was working smoothly, that new technologies 
were being developed for engine controls, that fuel supply was 
going to not be a problem as we moved into the years when the 
rule actually is implemented, 2006, and forward. The purpose of 
the review is to focus on implementation, to make sure that is 
working smoothly and if there are some adjustments in the 
implementation of the rules needed to make any necessary 
adjustments to ensure we have adequate fuel supply.
    Senator Clinton. I thought already within the promulgated 
rule was a biennial review process that would look at 
technology and related issues. If there is already a review 
process within the rule, why is there an independent new 
process started?
    Mr. Brenner. There is a process in the rule that EPA will 
be conducting but we also felt that it would be valuable to be 
able to obtain outside expertise from the kinds of technical 
experts I mentioned. This would be done, although the details 
haven't been worked out, under the framework of our Clean Air 
Act Advisory Committee. That is something we typically use and 
they have advised us in other areas on the implementation of 
rules. It's one of the reasons I think we've been successful in 
implementing the Clean Air Act. We've been able to take 
advantage of some very capable people, including Corning, in 
implementing our rules.
    Senator Clinton. I'm safe in concluding that there is not 
any change in the substance of the rule, only perhaps some 
fine-tuning as to expedited implementation?
    Mr. Brenner. Our plan is to focus on the implementation, 
that's right, and ensure we are doing implementation in a way 
that will ensure fuel distribution and adequate new engine 
technologies.
    Senator Clinton. Thank you.
    Senator Jeffords. Senator Voinovich?
    Senator Voinovich. You talked about the fact that the EPA 
had learned valuable lessons from the I&M Program and you've 
been more flexible in letting the States decide how to go 
forward with their I&M Program. One real concern is are you 
familiar with the 126 petitions?
    Mr. Brenner. Yes, I am.
    Senator Voinovich. And the NOx SIP call?
    Mr. Brenner. I am.
    Senator Voinovich. As you know, the 126 petitions are kind 
of an enforcement provision that deals specifically with some 
of the same things in the NOx SIP call. One thing that has been 
very difficult is originally the NOx SIP call was supposed to 
be done in 2004 and the court ruled it should be in 2004. The 
126 petitions are coming in 2003. Many of us have wondered why 
the EPA is insisting we go forward with the 126 petitions prior 
to the 2004 NOx SIP call where one gives the utilities more 
flexibility and the other is very specific about you must do 
this in order to get the job done. We believe we could get the 
job done even better if we had more time and also satisfy the 
concerns of those who filed the 126 petitions and give the 
utilities more flexibility instead of the specificity. Is there 
any possibility that could be revisited so?
    Also, from a practical point of view, on some of the things 
being required, if you come out to our State, finding people to 
do some of the things that are being required is enormous. I 
think this committee is going to find out the availability of 
the boilermaker skilled trades people that you need to do some 
of the things that are required. Some of them are just not 
there. I'd be interested in your reaction to what I've just 
said.
    Mr. Brenner. First, let me start by talking about the 
implementation issue you just raised. We have been doing some 
assessments because we wanted to make sure we track the ability 
of the pollution control industry and the power plants to 
install the NOx control equipment both for 2003, the 126 rule, 
and for the 2004, 110 rule. If you would like us to provide you 
or staffing with a briefing on what we are seeing, we'd be 
happy to do that.
    The problem in coordinating the two dates in the way you 
described is that once the EPA makes a finding, which we did 
with respect to 126, it starts a 3-year period which does end 
in 2003. We have a difficult time legally in moving away from 
2003. The other, more significant issue is a number of the 
northeast States were also involved in the rulemaking.
    Senator Voinovich. They filed the petition.
    Mr. Brenner. They filed petitions and once we made a 
positive decision on those petitions, we approved them and that 
gave them the assurance there would be controls in 2003 which 
they are looking for as part of their air quality plans. To 
change the date would require some agreement on the part of the 
northeast States. I know they have expressed concerns whether 
some of the midwest States are serious about proceeding to 
control either under 126 or 110 because having seen the air 
quality plans in place from some of the States, they have heard 
some continuing concerns as to whether the States intend to 
meet even the 110 requirement.
    I think there would be some work to do between all the 
stakeholders before we could reach an agreement that would 
harmonize those two dates.
    Senator Voinovich. I'd be interested in a briefing on it 
and see who the players are.
    Senator Jeffords. Senator Lieberman.
    Senator Lieberman. I was intrigued by something that Mr. 
Dana of the Automobile Manufacturers Alliance says in his 
testimony expressing some pride in the record of the automobile 
industry at reducing hydrocarbons, carbon monoxide and nitrogen 
oxide. It makes some fascinating comparisons to other emission 
sources--``Using a chain saw for 1 hour emits the same amount 
of hydrocarbons as driving 600 miles in a typical car, the 
distance from Washington, DC. to Atlanta; using a snow blower 
for 1 hour emits the same amount of carbon monoxide as driving 
a typical car 305 miles from Phoenix to Las Vegas; a jet ski 
emits more in only 7 hours of use than a new car does in 
traveling 100,000 miles which is the average mileage accrued 
for a decade of driving.''
    I am sure some will wince at this question but is EPA 
considering regulating or taking any actions to reduce 
emissions from those sources? I presume they are less than 
automobiles, there are more automobiles than jet skies, 
snowblowers or chainsaws. It still sounds like they are causing 
a problem.
    Mr. Brenner. We already have done some regulations and 
there are others underway. You're right that when we looked at 
the sector, we were very surprised at how large the emissions 
were especially because they tend to use the 2-stroke engines 
which produce far more pollution than the more modern 4-stroke 
engines. We have set standards for chainsaws, for snowblowers 
and other hand-held equipment. We are also about to propose 
standards for things like snow mobiles, forklifts and some of 
the other smaller engines that have been 2-stroke engines. We 
are hoping over time many will move toward adopting 4-stroke 
technology. It is a significant factor.
    Also, some things like yard equipment tend to be used 
during the summer at times when you are particularly concerned 
about ozone pollution. Those standards can be fairly important.
    Senator Lieberman. Again, it's a question of the standards 
driving technology where it otherwise wouldn't go in the normal 
course if EPA wasn't there to say this is contributing to the 
problem.
    Mr. Brenner. It's also an example of many of the companies 
that produce this equipment are small business with difficult 
problems with respect to raising capital. It's very important 
that we work closely with the companies and understand their 
problems. We've gone through small business review sessions to 
make sure we are sensitive to their concerns in developing the 
standards.
    If you would indulge me, I'd like to jump from that issue 
of small business concerns to pick up on the diesel rule?
    Senator Lieberman. It's OK with me if it's OK with the 
chairman.
    Mr. Brenner. Several questions have come up with 
implementation of the diesel rule and I didn't want to leave 
without mentioning when we designed the rule, we tried to be 
very careful to ensure there was an adequate phase-in, 
especially for small refiners.
    There is a 3-year period during which the diesel fuel 
requirements are phased in. There is an opportunity for a small 
refiner, small or large, to get a hardship exemption if it 
turns out they need more time to be able to produce the fuel 
and some of the refiners in the Rocky Mountain area were given 
the option of extending the time line for producing low sulfur 
fuel because they had a particular set of problems.
    Taken altogether, many of the refiners, almost half, have 
the ability to delay their investment by up to 4 years in 
producing low sulfur diesel fuel. I wanted to mention that 
although we are going to be doing the review of implementation, 
we also took a number of steps up front to try to implement 
this rulemaking as smooth as possible.
    Senator Jeffords. Thank you, Mr. Brenner.
    I would alert the members that we also have an executive 
session this morning for the nominees of the President. I would 
hope you all make sure you are there. We also have another 
panel here, so we will have to proceed expeditiously.
    Thank you, Mr. Brenner, for very helpful testimony.
    Our second panel consists of: Mr. Jason Mark, Clean 
Vehicles Program Director, Union of Concerned Scientists; Greg 
Dana, Vice President, Environmental Alliance of Automobile 
Manufacturers; Mr. Dan Greenbaum, President, Health Effects 
Institute, Cambridge, Massachusetts; Mr. Omar Freilla, New York 
City Environmental Justice Alliance; and Mr. Jeff Saitas, 
Executive Director, Texas Natural Resource Conservation 
Commission in Austin, Texas.
    Mr. Mark, if you would proceed. We will have everyone give 
opening statements and then we will have questions from the 
members.

STATEMENT OF JASON MARK, CLEAN VEHICLES PROGRAM DIRECTOR, UNION 
                    OF CONCERNED SCIENTISTS

    Mr. Mark. Thank you for the opportunity to testify today. 
My name is Jason Mark, a mechanical engineer and Director of 
the Clean Vehicles Program at the Union of Concerned 
Scientists. UCS is a nonprofit partnership of scientific 
citizens working at the intersection of science and policy for 
over 30 years.
    I will speak to you today about our continuing struggle to 
achieve clean air and in particular, the importance of 
improving transportation efficiency in addressing air pollution 
and global warming. Despite years of progress, 108 million 
Americans still live in areas that don't meet Federal health 
standards. Transportation accounts for more than half of 
precursors to ground level ozone or smog, and in urban areas, 
motor vehicles are typically the dominant polluter. Over 90 
percent of the cancer risks from polluted air in the Los 
Angeles region is estimated to come from cars and trucks. So 
even as vehicles are getting clean air, arriving travel is 
undoing the progress we are making to date.
    Even as tighter tailpipe standards come into effect we 
continue to be plagued by emissions that are released offboard 
the vehicle. Refining and distributing each gallon of gasoline 
results in over 6 grams of smog-forming pollution and nearly 3 
grams of toxic pollutants. These are emissions that are the 
direct result of driving even though they don't come from 
vehicle tailpipes because as we use more fuel, we create more 
pollution to make that fuel.
    The best strategy for reducing gasoline-related emissions 
is to reduce gasoline use altogether. This approach prevents 
air emissions before they are created and has the added benefit 
of addressing one of the most significant environmental 
challenges facing our country and this planet and that's global 
warming. Each gallon of gasoline yields 24 pounds of greenhouse 
gas emissions that result in climate change and U.S. cars and 
trucks emit more global warming pollution than every country in 
the world releases from all of its sources combined.
    Scientists worldwide agree that humans are having a 
measurable impact on the climate and the potential economic and 
environmental consequences are severe. Higher temperatures can 
also increase air pollution. There is a direct feedback. Smog 
which forms in the presence of heat and sunlight increases with 
even small temperature changes. One recent study by the 
Lawrence Berkley National Laboratory suggests that temperature 
increases in the Los Angeles region for the next half century 
could create nearly three million cars worth of added 
pollution. We believe there is a strong case for giving EPA the 
authority to regulate greenhouse gas emissions under the Clean 
Air Act.
    Fortunately, technology exists that can address fuel use 
and global warming pollution from vehicles. The Union of 
Concerned Scientists and the Center for Auto Safety recently 
published an analysis outlining a safe and economically sound 
path to boosting automotive efficiency using existing 
technologies such as variable valve engines being introduced on 
over 60 percent of Honda vehicles today; multispeed 
transmissions and weight savings. We estimate that passenger 
vehicles could reach an average of 40 miles per gallon over the 
next 10 years up from today's average of 24 miles per gallon. 
The greenhouse gas savings would be the equivalent of taking 
nearly 60 million cars off the road by 2012 and by using less 
fuel, we'd reduce refinery pollution. We estimate 440 million 
pounds of smog forming pollutants annually by 2012 and 200 
million pounds of toxics annually from refining and 
distribution of gasoline.
    The National Academy of Sciences recently completed its 
much anticipated evaluation of fuel economy. Their results 
confirm that technology can cost effectively boost fuel economy 
of vehicles. Using a subset of technologies we evaluated, the 
NAS estimates cars could cost effectively and cost effectively 
reach 34 to 37 miles per gallon and light trucks could reach 28 
to 30 miles per gallon.
    We believe with an additional investment of several hundred 
dollars per vehicle and using weight saving technologies that 
improve fleet safety, cars and trucks could reach an average of 
over 40 miles per gallon while still saving consumers money.
    One final point about the role of policies in achieving 
environmental goals. UCS strongly supports incentives that 
encourage industry to deliver clean, more efficient vehicles. 
We work closely with several automakers to develop tax credits 
for advanced vehicles embodied in the Clean Air Act that 
several members of this committee support. As the Senate takes 
up this important legislation, we urge you to maintain the 
environmental provisions that guaranteed credits will flow to 
vehicles that are both efficient and clean. We also urge you to 
consider incentives for cleaner trucks and buses like the 
legislation recently introduced in the House that would provide 
Federal grants to school districts who buy cleaner buses to 
protect children's health.
    Incentives only work within a framework where firm 
standards guarantee environmental gains. Virtually all the 
progress we have made to date with respect to motor vehicles 
and air pollution has been the result of government action. 
Despite repeated industry warnings that environmental rules 
will have dire consequences, the evidence demonstrates that 
past regulatory programs have been highly cost effective. Over 
the last 15 years, every major motor vehicle regulation the 
State of California and EPA have introduced has cost on average 
less than a $1 per pound of ozone precursor. That cost has 
continued to stay constant, even though standards have gotten 
tighter.
    We're making important progress but your continued support 
for key air quality programs such as passenger vehicle tailpipe 
standards, diesel engine rules and accompany local sulfur fuel 
requirements.
    The next step in improving environmental performance of 
vehicles is boosting the fuel economy of our fleet which will 
reduce emissions from gasoline production and distribution 
while lowering greenhouse gas emissions. The technology exists 
to cost effectively bring SUVs, pickups and mini-vans up to the 
fuel economy standards, cars and then boost the entire fleet to 
4 miles per gallon over the next 10 years. If this policy 
passes, it makes sense for consumers' pocketbooks and it is 
good for the environment.
    Thanks for the opportunity to testify.
    Senator Jeffords. Thank you very much.
    Our next witness is Mr. Greg Dana, Vice President, 
Environment, Alliance of Automobile Manufacturers. Please 
proceed.

 STATEMENT OF GREG DANA, VICE PRESIDENT, ENVIRONMENT, ALLIANCE 
                  OF AUTOMOBILE MANUFACTURERS

    Mr. Dana. 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 views on the impact of air 
emissions from the transportation sector on public health and 
the environment.
    Today, I'd like to make three basis points. First, the auto 
industry had done a tremendous job reducing emissions of 
criteria pollutants from motor vehicles as of today. Second, 
more reductions are on the way as we implement the Federal Tier 
2 emission requirements beginning in the 2004 model year. Under 
these requirements, light trucks will be required to meet the 
same emission standards as passenger cars. Third, zero emission 
vehicles are in the foreseeable future, not the battery 
electric vehicles that California has mandated but fuel cell 
vehicles which are being developed competitively by the 
industry without the need for further regulation. However these 
will require another 10-15 years of development. Let me expand 
on these points.
    We are a mobil society. Historically, cars and light trucks 
have been responsible for over 50 percent of the VOC and NOx 
emissions in major cities. This picture is changing very 
quickly across the United States. Even in Los Angeles, a city 
heavily dependent on motor vehicles, cars and light trucks 
represented only 29 percent of VOC and NOx emissions in 2000. 
This will shrink to just 10 percent in 2020. The new emission 
requirements for 2004 and later reduce emissions 80 percent 
further from today's clean vehicles. Attached to my written 
statement you have some color charts that show the progress we 
have made reducing emissions from the early days to the 2004 
standards.
    One of the most important aspects of the Tier 2 rulemaking 
is that it will require cars and light trucks to meet the same 
emission standards including the larger sport utility vehicles. 
This will address the concerns of many of these vehicles that 
are replacing cars for everyday transportation needs. The rule 
also requires that emission standards be met for a longer 
useful life 120,000 miles rather than today's 100,000 mile 
requirement, which means more durable emission controls.
    Another important aspect of this rule is to control sulfur 
levels in gasoline. Both improved fuel quality and 
technological improvements are needed to significantly reduce 
emissions. Cleaner gasoline with sulfur approaching near zero 
levels, capping distillation index at 1,200 or 1,150 and 
adopting other limits as recommended by the world's automakers 
in the worldwide fuel charter is absolutely critical to ensure 
the lowest possible emissions and to enable new fuel efficient 
gasoline lean burn technologies.
    EPA has also finalized a rule to significantly control 
emissions for heavy duty engines for 2007 and later model year 
trucks. As part of this rulemaking, EPA is reducing the sulfur 
content of diesel fuel to 15 ppm. This lower sulfur diesel fuel 
is critical to the light duty industry as it offers the hope of 
being able to meet the Tier 2 standards with light duty diesel 
engines. These new diesel engines are one of the many tools in 
the manufacturer's toolbox for increasing the fuel efficiency 
of the fleet. As noted in the NAS report released yesterday, 
the Tier 2 standards represent a significant challenge for 
advanced diesels and lean burn technologies.
    Automakers are working to increase fuel efficiency. 
Automakers 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 but it 
is important to understand this does not translate into CAFE 
increases because CAFE is a program which relies on the sales 
of cars that consumers must make choices for.
    In surveys, consumers indicate they want greater fuel 
economy but in their purchases, they don't want to sacrifice 
size, safety, cargo room, acceleration or other vehicle 
attributes to get it. Today, manufacturers offer more than 50 
models with fuel economy 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.
    We support the tax credit provisions in S. 760, the clean, 
efficient automobiles resulting from advanced car technologies 
or the CLEAR Act of 2001 introduced by Senators Hatch, Jeffords 
and others. 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 credits. We are working 
on slight modifications to the hybrid electric tax credits and 
would like to see tax credits for the introduction of advanced 
lean burn technology.
    It is the advancement in the development of the fuel cell 
vehicles that is most exciting. If this technology can be 
brought to market at a competitive price, it will result in 
vehicles with twice the mileage of conventional vehicles and 
zero tailpipe emissions. However, this technology is 10 to 15 
years away from the commercial market and a new fuel 
infrastructure will be required for it.
    In conclusion, the auto industry is tremendously proud of 
the achievements we have made but we will not rest until zero 
emissions are a reality. I appreciate Rob Brenner's words today 
about our cooperation on Tier 2 because we are willing to work 
cooperatively with regulators to achieve these goals. We are 
committed to the introduction of advanced technology vehicles. 
Tax credits that are being considered in this Congress will 
accelerate the market penetration of cleaner and highly fuel 
efficient vehicles that consumers will want to buy.
    Thank you.
    Senator Jeffords. Our next witness is Dan Greenbaum, 
President, Health Effects Institute, Cambridge, Massachusetts. 
Please proceed.

STATEMENT OF DAN GREENBAUM, PRESIDENT, HEALTH EFFECTS INSTITUTE

    Mr. Greenbaum. I appreciate the opportunity to testify 
before you today.
    I am the President of the Health Effects Institute. We are 
a nonprofit, research institute funded jointly and equally by 
the USEPA and the worldwide motor vehicle industry. We provide 
high quality, impartial science on the health effects of 
emissions from transportation and other sources.
    I might add that my introduction to environment and 
transportation came 30 years ago as a graduate student at MIT 
when I was asked to do a study of the environmental impacts of 
travel over Route 4 in the Ottauquechee Valley in Vermont, so I 
have been on this case for quite a while.
    Since the early 1970's as vehicle travel has grown 
dramatically, there have been concerns about air pollution 
health effects from transport. There has also been substantial 
progress in reducing the emissions from individual vehicles but 
travel volume has grown substantially offsetting much of the 
improvements achieved.
    Scientific knowledge has increased identifying health 
effects from emissions from motor vehicles at lower levels of 
exposure. Vehicles produce a number of emissions of potentially 
harmful substances. These emissions come from both the tailpipe 
and evaporation and result from a combination of the engine 
design and the fuel characteristics, an important component in 
thinking about control strategies.
    The emissions from motor vehicles come in two primary 
forms: major gaseous and particulate air pollutants, such as 
carbon monoxide and ozone to which cars contribute which can be 
found in relatively high amounts in the atmosphere and air 
toxics such as benzene, butadiene and the aldehydes which 
usually are found in lower amounts in the atmosphere but can 
have important health effects.
    To date, most of our attention has been focused on on-road 
transport for cars and heavy duty vehicles but increasingly we 
have understood that nonroad sources, the construction 
equipment, locomotives, airplanes and ships are also 
significant contributors.
    Importantly, all of the emissions from motor vehicles also 
come from other sources such as industrial processes, electric 
power generation and home heating. As a result, in most cases, 
motor vehicles contribute between 25 and 40 percent of the 
ambient levels, although for a few pollutants such as carbon 
monoxide, motor vehicle contributions are noticeably higher.
    There are also certain circumstances in which motor 
vehicles can contribute a substantially higher amount to 
personal exposure. In urban centers, mobile sources can 
contribute 2 to 10 times background levels. This can have 
important implications for the potential acute health effects 
from exposure to these pollutants, especially for the elderly, 
low income and other urban populations.
    Research over several decades has found a variety of health 
effects from different pollutants including effects on the 
lungs, heart and nervous system and the promotion of several 
different types of cancer. Overall, these effects on public 
health tend to be relatively small in comparison with some 
things we know about like smoking but because of the very large 
number of people exposed, the effects as a whole are of 
sufficient magnitude to be of significant public concern.
    Although we are still learning about these effects, there 
is much we already know. We know that ozone reduces the lung 
function of some individuals and studies have found evidence of 
increased asthma attacks and hospitalization. Mr. Chairman, you 
noted a study the CDC conducted in Atlanta around the Olympics 
earlier this year which was a recent example of this data.
    We know that PM10 and PM2.5 are 
emitted directly from both diesel and gasoline vehicles and 
also other sources and are also formed in the atmosphere. As 
you are aware, recent studies have found associations of PM 
with increased mortality and morbidity at ambient levels.
    While we still have more to learn about PM, the health data 
on PM effects have strengthened substantially over the last 5 
years with work by my institute and others.
    The air toxics which you have talked about have also gained 
attention due to a variety of characteristics and effects, most 
notably some being known carcinogens, such as benzene, and 
others such as butadiene and aldehydes being probable human 
carcinogens.
    Given these health effects, action has been taken and 
continues to be taken. However, continued growth in travel is 
expected to offset a portion of these reductions. As a result, 
continued attention to reducing emissions is likely in the 
future. Continued tightening of fuel and emission standards for 
gasoline and diesel vehicles, especially for the nonroad 
vehicles, introduction of the new technologies that my fellow 
testifiers have mentioned as well, and the need for attempts to 
encourage reduced growth in personal auto use, a potentially 
important future direction but as all of you know, an 
especially challenging one.
    In conclusion, the emissions of a variety of pollutants 
from vehicles account for some 25 to 40 percent of what we see 
in the atmosphere and in some cases, more. These have 
measurable effects on public health. As a result, a long term 
trend has been toward reducing these emissions and that trend 
is likely to continue in the future.
    However, as we continue to drive more, continue to use 
transport, some of those benefits are going to be offset and we 
are going to need to pay attention as time progresses to how we 
can continue to come back and address these important health 
effects on a regular basis.
    Thank you.
    Senator Jeffords. Mr. Freilla?

STATEMENT OF OMAR FREILLA, NEW YORK CITY ENVIRONMENTAL JUSTICE 
                            ALLIANCE

    Mr. Freilla. Good morning.
    I am here today representing the New York City 
Environmental Justice Alliance. We are an alliance of 
community-based organizations fighting the continued presence 
of racism and classism in environmental protection. Our groups 
all represent communities of color that are largely poor and 
working class. They are in neighborhoods that bear a 
disproportionate amount of environmental hazards receiving all 
of the burdens and none of the benefits.
    There are many in this room, including myself, trying to 
convince each of you that the Federal Government must do 
everything in its power to slash air pollution levels and 
dramatically improve the quality of the air we breathe. There 
is an immense amount of evidence to back up that call to 
action.
    The overwhelming consensus of public health studies in this 
area all demonstrate that more air pollution equals more asthma 
attacks and more deaths but I am sure that is no surprise to 
anyone here, so I am not going to try to convince you of the 
obvious. What concerns me more is whether or not you care.
    I live in the South Bronx in the neighborhood known as 
Hunts Point. My neighborhood is a magnet for trucks, 
approximately 11,000 trucks enter and exit each day. They head 
for one of the world's largest regional food distribution 
centers as well as 26 waste transfer stations. We are home to a 
sewage treatment plant and a sludge processing plant.
    In an adjacent neighborhood, four partially diesel fuel 
powered turbines went on line last month. From my window, I can 
see the three giant smokestacks of a power plant right on the 
water front in Queens, just two football fields away from the 
water front of my neighborhood, a waterfront that is almost 
completely inaccessible without trespassing.
    As if all that were not enough, the city plans to relocate 
the Fulton Fish Market, the world's largest fish market, to my 
neighborhood, complete with its 1,000 trucks a day.
    On an adjacent lot, developers are seeking to build a 5,200 
megawatt power plant. Whenever I walk to the subway or anyplace 
outside of my neighborhood I have to cross a 10-lane road under 
an elevated highway that carries 130,000 vehicles a day. My 
community is completely surrounded by pollution sources of 
particulate matter and toxics and no one in the neighborhood 
sees it as a mere coincidence.
    I've noticed no matter what I do I cannot keep my apartment 
clean because of the dust from outside that settles near the 
windows. I never had the problem in an apartment until last 
year when I moved into the neighborhood. It is a common 
complaint of people in my community as is asthma. It is of no 
surprise to anyone that we have one of the highest rates of 
hospitalization for asthma in the country, six times the 
national average. When I go to the laundromat, I hear mothers 
trading asthma remedies as if they were dinner recipes. Thirty-
percent of the children in my neighborhood suffer from asthma. 
It is a disease that has reached epidemic proportions in 
similar communities throughout New York as well as communities 
across the country.
    Time and time again community groups who are members of the 
New York City Environmental Justice Alliance have fought with 
city, State and Federal agencies that do not seem to value the 
lives of people of color and poor people. How else do you 
explain lax environmental reviews in communities of color on 
the one hand, and strict enforcement in white communities on 
the other?
    Our communities have been turned into sacrifice zones where 
any and all forms of environmental abuse are allowed to take 
place. You will not scratch the surface of air quality issues 
as long as you fail to focus attention on overburdened 
communities such as Hunts Point.
    With all this in mind, I urge the members of the Senate to 
act in three key areas of transportation. The first is to 
promote cleaner fuels. Diesel trucks and buses are the worst 
polluters in communities such as ours. They produce the bulk of 
particulate emissions that trigger asthma attacks in New York 
City.
    Our Alliance has been at the forefront of effort to promote 
cleaner fuels in New York. We have worked closely with the U.S. 
Department of Energy over the past few years in focusing 
attention on the most overburdened communities by co-hosting 
clean fuel forums in the South Bronx, Harlem and South Brooklyn 
with a citywide summit planned in September. Next week, EPA 
Administrator Christine Todd Whitman will come to my community 
to meet with environmental justice groups and help unveil a 
pollution control device that promises to cut emissions by up 
to 90 percent from idling trucks in the neighborhood.
    We are very excited by these developments and see measures 
such as these and the 2007 standards for diesel as vital to 
reducing air pollution in our neighborhoods. But while we 
support the need for stricter diesel standards, it must be 
pointed out that the proposed standard will not bring cities 
into compliance with air quality standards as long as existing 
fleets and nonroad engines such as construction equipment are 
not addressed.
    The second issue is to include local impacts in all air 
quality analyses. There seems to be no end in sight to the 
horrible proposals for noxious facilities that want to site in 
communities such as mine. Current practice ignores a project's 
impact on local air quality. Any increase in air emissions is 
added to the total emissions for the region as a whole. The 
result is that while a transportation project may not produce 
enough emissions to be noticeable on the regional level, at the 
local level, it could have dramatic consequences, especially 
when we're talking about levels of particulate matter and air 
toxics.
    The highest concentrations of particulates are found within 
the first quarter to a half mile of a street or highway. The 
absence of local impacts is a failure of both the Clean Air Act 
and the EPA's willingness to establish a procedure for 
accounting for local impacts.
    The third and last area is improving rail freight 
infrastructure. Almost 90 percent of goods entering New York 
City from the West travel by truck. While rail freight has the 
potential to take trucks off the road and dramatically improve 
air quality, rail lines in New York City are in such poor 
condition due to decades of neglect that they have become 
almost useless. The improvement of rail lines and the 
development of intermodal distribution centers would completely 
alter the current patterns of goods movement that results in 
clogged streets and noxious air.
    To effectively deal with emissions from motor vehicles 
requires you to emphasize the places where they are 
concentrated, cities, but ever since the era of highway 
building and loss of urban manufacturing encouraged whites to 
flee to suburbs, cities have not received much attention on 
Capitol Hill. For communities of color like ours, lack of 
attention has created a situation where many of our neighbors 
are the noxious facilities that wealthy and white communities 
neither desire nor receive. I urge you to take these issues to 
heart and begin to rectify past practices that have turned low 
income communities and communities of color into sacrifice 
zones.
    By addressing these issues, you will be addressing the need 
of our communities for cleaner air and environmental justice.
    Thank you.
    Senator Jeffords. That is most disturbing testimony. I 
appreciate your bringing it to us.
    Mr. Saitas?

  STATEMENT OF JEFF SAITAS, EXECUTIVE DIRECTOR, TEXAS NATURAL 
               RESOURCES CONSERVATION COMMISSION

    Mr. Saitas. My name is Jeff Saitas, Executive Director of 
the Texas Natural Resources Conservation Commission. We are the 
State environmental protection agency.
    We are an agency of about 3,000 employees, 16 satellite 
offices across the State and continue to have clean air issues 
right at the top of our priority list.
    I wish to make one point today. The point is an issue of 
shared responsibility and an issue of fairness. Many of you 
know we have been working very hard to clean up the air in the 
Houston-Galveston area. It has been given wide attention over 
the past few years and there really is an air quality problem 
and it does need to be fixed.
    We are finding the science to fix it is requiring us to 
reduce the nitrogen oxide emissions on the order of 75 percent. 
The point I want to make today is the State only has control 
over 64 percent of the emissions, so we are in the position of 
trying to clean the air which science says we need to cut by 
three-quarters but only have the authority to address two-
thirds from a State perspective. That remaining third, actually 
36 percent, is preempted from State control. Let me touch on 
the kinds of sources we are talking about.
    We are talking about locomotive engines, airplane engines, 
commercial marine, oceangoing vessels, construction equipment, 
agricultural equipment, forklift type equipment, small 
commercial equipment, automobiles as well as trucks.
    The Federal law says we are required to clean up the air in 
Houston, Texas by November 15, 2007. We are prepared to do so 
but addressing these preempted sources is not being done on the 
same timeline. That is critically important to the issue of 
shared responsibility and fairness. A lot of regulations are 
being put in place, some have already been promulgated, some 
will be adopted sometime very soon but a number of them will 
not be fully implemented until well past that 2007 date and the 
reductions won't be fully realized until many years down the 
road because many of those regulations only focus on 
replacement. When you buy a new engine, put the new, clean one 
in. When you talk about locomotives, that could be 30 or 40 
years from now.
    The States are put in the position to clean the air by 2007 
from the sources we have under our control; we have to carry 
the load of what should have been done by the Federal sources. 
That is not fair. I don't think from where we are today that 
much can be done with respect to 2007 as Congress and the 
nation implement an 8 hour ozone standard and a fine 
particulate matter standard. I would plead with the committee 
to please require that the Federal sources reduce their 
emissions on exactly the same timeline as you are asking the 
States to develop plans to clean the air.
    That is the only point I want to leave with you today, the 
point of fairness and shared responsibility. I will conclude a 
minute and a half ahead of schedule.
    Senator Jeffords. Thank you and that's a good challenge to 
us.
    We have a meeting in another room, S-211 in the Capitol, at 
11 a.m. in order to take action on the nominees of the 
President for EPA.
    Mr. Mark, how do you envision tax credits for cleaner 
vehicle technologies interplaying with tighter fuel economy 
standards or emission regulations?
    Mr. Mark. I think tax incentives have a critical role to 
play in encouraging and accelerating the introduction of new 
technologies such as those described by Mr. Dana into the 
marketplace but I don't see them as a substitute for strong 
fuel economy standards that would be necessary to lock in some 
of the environmental gains that these new technologies have to 
offer. The incentives help the process along but you really 
need those standards to ensure we get those environmental 
gains.
    Senator Jeffords. Mr. Dana, when do you think the industry 
will be able to achieve the 20 to 40 percent efficiency 
improvements outlined as possible in the new Academy of 
Sciences report?
    Mr. Dana. The Academy report said something like 10 to 15 
years. There are a number of technologies discussed in that 
report. Let me select one item, what has been talked about in a 
number of reports, some that Jason's group has done, something 
called integrated starter technology, some of these variable 
valve timing issues. A lot of this is dependent on what we call 
42 volt technology. We are going from a 12 volt battery in cars 
today to a higher voltage battery.
    We started working on that as an industry in 1999. It takes 
a long time to set a standard for a new power source of an 
automobile and we don't expect to see cars coming out with that 
until at the earliest one or two vehicles maybe in 2005. It 
probably won't come in across the fleet until later in the 
decade.
    All these technologies that are using electricity or 
electrical power to power devices in cars that used to run by 
belts or cams are dependent upon the higher voltage technology. 
So many of these can phase in slowly over time but each has 
their own timeframe if you're working the technology through 
the process.
    We have been increasing efficiency 2 percent per year 
exactly like this. We've been putting new technology on every 
time we develop it for the marketplace and it gets enough 
development time to get in place. I think we will continue to 
make those kinds of improvements over time.
    Senator Jeffords. Cars are clearly getting cleaner for some 
pollutants, though trucks have a long way to go. The national 
fleet continues to grow and people are driving more all the 
time. How can we keep overall emissions from growing?
    Mr. Dana. That is a problem but the good news is in spite 
of the tremendous VNT increases we have seen in the country, we 
have reduced overall pollution from automobiles because we have 
been successful in developing new technology and with the 
cleaner fuel available for 2004 and later, we will do even more 
to improve emissions from vehicles.
    It is a challenge. As Dan said, one of the problems we face 
is the fact that people do drive more and that puts a bigger 
burden on us to reduce the emissions of the vehicles.
    Senator Jeffords. Mr. Greenbaum, how many people do you 
think become seriously ill or die every year due to exposure to 
fine particulate matter?
    Mr. Greenbaum. There have been a number of estimates made 
of this. In fact, they are mostly based on a national study 
done by the American Cancer Society of some 550,000 individuals 
in the United States, looking at people who have lived in more 
and less polluted areas.
    The total estimates of mortality range in the United States 
from something around 15,000 premature deaths to as high as 
60,000 although I think most scientists would ask some 
questions about the 60,000 number. That's for all particulate 
matter air pollution. Within that, motor vehicles as I suggest 
in my testimony, on average contribute somewhere between 25 to 
40 percent of what we're looking at in terms of particulate 
matter. So you might make some estimates that would give you 
some idea within those numbers of what kinds of premature 
mortality is.
    Hospitalization, asthma hospitalizations and other things 
would be considerably higher, in the thousands and millions of 
people affected by asthma. I want to clarify that we are not 
talking here necessarily about the air pollution from cars 
causing the person to have asthma in the first place but as Mr. 
Freilla has said, we have seen a dramatic increase particularly 
in low income communities of asthma for a variety of reasons 
which science doesn't fully understand yet, so we have more 
people in the communities who will be sensitive to exposure to 
air pollution.
    Senator Jeffords. Are we on track with developing an 
adequate scientific basis for controlling fine particulate 
matter emissions from the transportation sector?
    Mr. Greenbaum. I think we've learned a tremendous amount. I 
think we know a lot more today than we knew 5 years ago about 
the connections between air pollution in general, motor 
vehicles more specifically, and in health. I sit on a National 
Academy panel that is overseeing the research program. There 
are a couple of areas where we can improve that. One is we 
don't do a very good job in this country of tracking our health 
status over time. We actually don't have a good account of how 
many people have asthma in the country and what the trends are. 
We have estimates, certain areas of the country where we have 
done that but we can't track that over time.
    The second is there are different components of emissions 
from vehicles that may contribute more or less to air pollution 
effects. There are ultra fine particles, there are some metals 
that may show up, there are different components of diesel 
exhaust and we have underway a number of studies trying to see 
if we can further target which of the things to go after to 
make sure we get rid of those that are most toxic.
    These are areas that don't say, ``Until we have the answer, 
we shouldn't do anything,'' but they are areas that say we do 
need to continue to understand these questions over the next 5, 
10, 15 and 20 years because we will be with this for a while, 
we can make better and better decisions about how to target our 
reductions.
    Senator Jeffords. Mr. Freilla, your work and your group are 
very impressive, what you have done and been able to establish. 
I am glad you were able to come here and testify this morning. 
Sometimes people in Washington forget the real people are 
affected by the decisions we make here.
    Can you suggest ways that Members of Congress can be 
regularly reminded of the local impacts? Shall we have you here 
every month, every week?
    Mr. Freilla. I think a better suggestion would perhaps be 
to require a month-long stay of each Member of Congress in 
communities such as Hunts Point. I am more than willing to open 
my home to Members of Congress who are willing to do so.
    Senator Jeffords. Good answer. You have made us all deeply 
concerned about the ramifications that we don't really 
concentrate on, so thank you very much for being here and 
letting us know what the real world is like in your area.
    Mr. Saitas, thank you for coming to testify before the 
committee again. You face quite an air quality challenge in 
several parts of Texas. I agree that the EPA needs to be taking 
much more aggressive steps on these non-road sources, 
especially in major, nonattainment areas.
    Have the States come together in any kind of a united 
proposal to ask EPA to expedite the necessary rules?
    Mr. Saitas. We are fortunate to have one of our commissions 
who is working on a committee, I believe chairing a committee 
for the Environmental Council of States, so we are 
participating through that organization and that process to try 
to bring these issues forward.
    We will continue to do so working through our Region 6 
administration of EPA and I'd have to take a moment to commend 
them. Despite the fact there hasn't been aggressive advancement 
on some of these nationwide rules, we have been able to forge, 
to the credit of the Region 6 EPA staff as well as some of the 
key organizations--for example, in Houston and in Dallas/Ft. 
Worth, American Airlines, Continental Airlines, Delta Airlines 
and Southwest Airlines entered in voluntary agreements to 
reduce emissions of their ground support equipment. We are very 
thankful for them.
    Railroad organizations did so as well, so we entered a 
memorandum of agreement to reduce emissions with them. We did 
the same thing with some of the tug organizations in the Port 
of Houston.
    We are using every avenue we can to work out some voluntary 
agreement so we can reduce emissions from those preempted 
categories. Nevertheless, there are still greater challenges in 
some of the other sources like construction equipment that is 
long overdue in terms of reducing their fair share toward the 
clean air goals.
    We will continue to work through the national 
organizations, to work with EPA through our regional office, to 
work with those industries that are contributing to part of the 
problem to help find these solutions.
    Senator Jeffords. We will be submitting to each of you 
additional questions in writing so that you may respond. As I 
say, our time schedule this morning makes it impossible for us 
to go much longer.
    Senator Voinovich?
    Senator Voinovich. Mr. Freilla, I wonder do you have any 
monitors in your neighborhood, pollution monitors?
    Mr. Freilla. Up to about a year and a half ago, because of 
community calls for an air monitor, there was none near my 
community, though there is no existing air monitor in Hunts 
Point. The closest one is in an adjacent community called 
Longwood which was installed about a year and a half ago. Prior 
to that, the nearest air monitor was in the Botanical Gardens 
which certainly doesn't emulate the conditions in the South 
Bronx.
    Senator Jeffords. Senator, I have to go to another 
committee to establish a quorum.
    Senator Voinovich. I'd be glad to hold the fort, finish my 
questions and adjourn the meeting.
    Senator Jeffords. You're in control.
    Senator Voinovich (Presiding). I think it might be a good 
idea if we looked at that issue. I know they are installing 
monitors for particulate matter all over the country in order 
to measure the real impact of particulate matter when we 
consider this new ambient air standard. That might be something 
you might talk to the Administrator about. She might locate a 
monitor in your neighborhood so you have some baseline to look 
at how things are going.
    The other thing you might mention to her is that there is a 
company in Ohio that had an emulsion that you put in diesel 
fuel which reduces pollution by about 40 percent. The 
Environmental Protection Agency is dragging their feet on it. 
If you're having a lot of trucks in your neighborhood powered 
by diesel fuel, I think your brothers and sisters would be 
interested in that. You might mention the Senator from Ohio 
indicated there is something that would help reduce diesel fuel 
emissions.
    Currently it's being used in Europe. In fact, Europe is 
encouraging people to use it. There are several areas in 
California that want to use it. It impacts you more than a lot 
of others because of all the trucks that come into your area.
    I'd like to ask all of you why don't we use more diesel 
fuel in the United States. Europe is into diesel for almost 
everything and we don't use it in this country. I'd be 
interested in knowing why.
    Mr. Dana. You're speaking about light duty market more than 
heavy duty market, I assume? People don't seem to like diesel 
in this country maybe because of some experience with it in the 
past. It's hard to say exactly why. We haven't had pressure on 
fuel economy in this country.
    When we look at surveys we do with consumers on what they 
feel is important in a vehicle, fuel economy is 25th on the 
list. Diesel is driven by fuel economy desires. The reason they 
are in Europe is because their fuel prices are much higher than 
they are in this country. I think the average in Europe is 
about 25 percent dieselization and it's going higher as part of 
an agreement with manufacturers in Europe. I think that is an 
option we have to improve and increase fuel economy.
    As we look to the future with the Tier 2 rules, those rules 
will make it a challenge to bring diesels into the market here. 
We have to look at that very carefully because it is difficult 
to make a commitment to building new engines in 2001 if you're 
not sure about where they are going in 2004-2005.
    Senator Voinovich. Do you think that ought to be looked at? 
I know I had a demonstration, kind of a contest between 
universities to take a General Motors SUV and do some things to 
it to increase the gas mileage. It was a combination of two 
things, a hybrid, an electric engine in it and they were using 
converted diesel fuel. There was a dramatic reduction in the 
pollution, emissions. I just thought, why aren't we using more 
diesel fuel if that's going to help the situation.
    The other thing I'd like you to comment is the issue of the 
alternative fuels. My colleagues say you don't have to worry 
about gasoline supply because we have the fuel cells, hybrid 
autos and so on.
    I visited a facility with the Secretary of Transportation 
in Cleveland that is trying to reduce the cost of the gizmo 
they use in a hybrid automobile. I asked when is this 
technology going to be marketable and they said 5 or 6 years. 
When I talk with people about fuel cells, they talk to me about 
10 to 15 years. In fact, the new President of General Motors 
stopped in to see me a couple of months ago and I asked him 
about it.
    The point I'm making is, and if you disagree, tell me, 
we're going to continue to be using oil for a long time to 
power our automobiles in this country. In my opinion, the real 
challenge is to deal with the issue as we have it today 
understanding that technology is coming down the pike somewhere 
and how do we deal with the current situation today and do a 
better job of getting more mileage and less emissions?
    Mr. Dana. Fuel has gotten cleaner, cars have gotten a lot 
cleaner running on the gasoline. We are looking at alternative 
fuel vehicles, we have those available today. They don't always 
make sense because they are sufficiently different than 
gasoline for the consumer market. There is not a widespread 
infrastructure to fuel cars on either ethanol, methanol or CNG, 
compressed natural gas.
    We do look down the road to fuel cell vehicles many years 
from now which to be absolutely clean require hydrogen as a 
fuel. There is no hydrogen infrastructure in the country and we 
have to get there somehow. That is going to be a big challenge. 
In the meantime, you may see people converting gasoline or 
converting methanol or converting CNG to hydrogen to run on 
fuel cells because those fuels do exist in the marketplace, 
there is an infrastructure out there for them.
    We're going to be going through a fairly major transitional 
time as we look at alternate fuels and look at other types of 
technologies coming in the marketplace in the next 5, 10 or 15 
years.
    Mr. Mark. If I could add a comment, I think you're 
absolutely right, we need to move as quickly as possible to 
deliver on the existing gasoline and diesel technologies today. 
We need to ask more of them.
    I also think we need to make this transition to alternative 
fuels which we are already seeing in some important markets for 
example, in transit buses, one out of five transit buses on 
order is going to be powered by natural gas which delivers in 
the real world a savings of for example ten times in terms of 
particulate emissions. That is critical to some of the 
communities that Mr. Freilla discussed in terms of delivering 
air quality benefits today.
    Regarding diesel emissions and diesel vehicles and the 
opportunities there, I think the challenge in the United States 
has been diesel technology continues to lag behind gasoline 
technology in terms of meeting emission standards. As we 
continually ask for tighter standards so that we can get more 
of the 108 million Americans currently breathing unhealthy air 
to be breathing healthy air, the paramount technical challenge 
for diesel is to deliver on the promise of getting to cleaner 
air.
    We think that is a very difficult challenge and that there 
are technologies available today in gasoline vehicles that 
don't make this tradeoff between fuel economy and clean air.
    Mr. Freilla. I'd like to add a comment. With respect to 
this issue, we've been working for the past two to 3 years on 
promoting clean fuels, alternative fuels in New York City and 
we've spoken with many businesses, diesel truck fleets in the 
area as well as government agencies when we have tried to 
pressure them to promote cleaner alternative fuels. We found 
too major obstacles, one of which is the lack of infrastructure 
that was referred to earlier, though that is something that can 
be remedied on the State level in terms of incentives and 
funding for constructing those kinds of facilities. There are 
companies that do construction and maintenance of alternative 
fuel infrastructure fueling stations for companies and diesel 
truck fleets.
    The second and most important obstacle is the desire to do 
so. I'm in New York City and we have one of the largest transit 
fleets on the planet but we have had many battles with the 
agency when it comes to implementing alternative fuels and 
doing something like natural gas. The facilities are there and 
in places like New York and cities across the country where you 
have truck fleets that are either buses or short range delivery 
vehicles, there is the opportunity for doing something like 
implementing natural gas. The question is, is there an 
incentive for companies?
    There are currently no real incentives when we're talking 
about monetary incentives, either tax incentives or credits for 
any of those types of measures. Currently, if a company wants 
to switch over, it is pretty much at their own cost. It either 
comes out to be about the same cost in the ideal circumstance 
but there is no incentive on their part. They are not saving 
anything.
    With respect to the issue you asked about earlier, diesel, 
we've been opposed for a long time to extending the life of 
diesel simply because of the health effects. We see diesel as 
currently the most polluting form of fuel that is available on 
the market. We are trying to move away from that, though there 
have been questions raised about fuel cells and the need for 
fueling them with hydrogen. We are talking about natural gas, 
the infrastructure for natural gas is the same infrastructure 
that would be required for hydrogen fuel cells. If we move in 
that direction, that type of infrastructure would make that 
possible.
    Senator Voinovich. One of the things we have to do is deal 
in the real world in terms of technology. Somehow the Europeans 
have reconciled and are they are getting a lot more gas mileage 
out of diesel apparently. Your unanimous opinion would be they 
sacrificed in terms of the environment because of that.
    I understand there have been some tremendous improvements 
made in diesel fuel in terms of its emissions?
    Mr. Greenbaum. My institute actually does research on 
health both in Europe and the United States, so we are quite 
familiar with the situation over there. I think as Greg Dana 
said, one of the issues there has been the difference in fuel 
prices. They also have had differential air pollution standards 
for diesel vehicles. So they have allowed diesel vehicles to 
have higher pollution levels than gasoline vehicles over time. 
They are moving as we have moved with Tier 2 toward bringing 
those together.
    They have some places, particularly in Sweden, where they 
moved much sooner than anyone else here in Europe to get to 
cleaner diesel fuel so you could get emissions down. I also 
think because the technology originated there, they also moved 
toward higher performance versions of light duty diesel 
vehicles faster. We had one disaster of production in this 
country where people couldn't drive their car the way they were 
used to and as a result, that has changed.
    One of the hopes one would have for this is diesel does 
offer not just in the vehicle but in the whole production chain 
some opportunities for significant benefits in terms of climate 
change, in terms of greenhouse gas emissions. Whatever you want 
to say about Kyoto, there are questions about trying to reduce 
those and is there a way to keep diesel actively in the 
marketplace here, cleaner diesels so you're getting diesels to 
be cleaner for ambient air pollutants and they are in turn 
pushing the gasoline vehicles and other vehicles to be more 
fuel efficient, back and forth.
    I think there is an opportunity, a challenge here because 
the Tier 2 standards have now said, understandably, that all 
air pollution levels out of any car, whether diesel or gas, 
have to be the same, so the diesel manufacturer is going to 
have to come up with the technologies. They are hard at work 
doing this to try and meet those.
    Senator Voinovich. You think it's something we ought to 
look at. If you can extend your gas mileage and cut back on the 
use of gasoline which is something we all want to do, become 
more oil independent in this nation and less reliant on foreign 
oil, and at the same time, you can do as well as or better than 
gasoline, it seems it is a ``two-fer.''
    You mentioned you thought diesel in terms of greenhouse 
gases was less.
    Mr. Greenbaum. I think there are two ways in which we deal 
with diesel as a country and it's important to understand both. 
One is the one you're talking about which is looking forward, 
can we develop diesel technologies that are clean, very fuel 
efficient for cars and also for trucks.
    However, if you ask the average person on the street their 
view of diesel, it is not shaped by what the new technology is 
going to be, it is shaped as is the case in neighborhoods like 
Mr. Freilla's by the existing diesel fleet on the street, 
highly polluting, very old and never controlled. In urban 
areas, you tend to get even the oldest trucks because the 
newest technology tends to go for long distance transport 
first.
    If we are going to deal with diesel in a serious way I 
think we have to come up with some way much more systematically 
of supporting the kinds of things going on in the South Bronx 
and other places to say, ``What do we do about the existing 
diesels,'' which are by any measure a substantial health risk.
    Senator Voinovich. Remember the days when you'd see smoke 
coming out. They have cleaned that up.
    I want to say to you, please talk to the Administrator 
about this emulsion because it costs money but it does bring 
down the pollution of diesel vehicles. It applies to not only 
the new ones but the old ones.
    I'd like to thank all of you for being here this morning. I 
apologize that more people aren't here to ask questions. I'm 
sure several will be submitting questions to you in writing.
    Without objection, the statement from Senator Reid will be 
included in the record.
    Senator Voinovich. Thank you very much for being here.
    [Whereupon, at 11:02 a.m., the committee was adjourned, to 
reconvene at the call of the chair.]
    [Additional statements submitted for the record follow:]
  Statement of Hon. Harry Reid, U.S. Senator from the State of Nevada
    Mr. Chairman, thank you for holding this important hearing. As the 
second in a series of hearings designed to assess the impacts that air 
pollution has on public health and the environment, I look forward to 
hearing from today's witnesses.
    As you know Mr. Chairman, and as I said at the hearing on 
powerplant emissions last week, every day we learn more about the 
linkage between polluted air and diseases such as asthma and lung 
cancer. The damage to the environment from air pollution regardless of 
the source should concern us all.
    I applaud your desire to better understand and address the impacts 
that the transportation sector has on human health and the environment. 
I am particularly appreciative that you are looking at all sources of 
air pollution rather than only a single component of the problem.
    With that in mind Mr. Chairman, I hope you will look broadly within 
the transportation sector to ensure that all new vehicles help 
contribute to cleaning our air.
    In particular, I hope you will consider the impacts of off-road 
vehicles on air quality. Off-road vehicles represent an important 
component of American recreation but they should not get a free pass on 
air pollution. It is unfair to regulate the efficiency and emissions of 
passenger vehicles but allow off-road vehicles to pump pollutants into 
the air unchecked.
    Mr. Chairman, I am particularly concerned about the impact that 
snowmobiles have had at Yellowstone National Park. Yellowstone Park has 
been out of compliance with the Clean Air Act at times because of 
emissions from snowmobiles. It is unbelievable to me that this amazing 
symbol of the American park system cannot meet the standards of our 
environmental laws due to emissions from snowmobiles.
    I have ridden snowmobiles in the Lake Tahoe basin. Riding 
snowmobiles is fun. However, nobody wants to degrade the environment 
they are busy enjoying by operating an inefficient machine.
    Mr. Chairman, I hope we can take a careful look at entire 
transportation sector and evaluate where our laws are adequate and how 
they might be modified to protect the environment in a more efficient, 
effective, and equitable manner.
                               __________
Statement of Robert D. Brenner, Acting Assistant Administrator for Air 
             and Radiation, Environmental Protection Agency
    Thank you, Mr. Chairman and members of the committee, for the 
invitation to appear here today. I appreciate the opportunity to 
discuss the programs this country has put in place to control air 
pollution caused by the transportation sector. I will first present an 
overview of the significant accomplishments which have been made in 
reducing harmful air pollution from transportation sources. Then I will 
discuss additional programs that will be considered to further address 
the remaining air pollution problems that are experienced by millions 
of Americans. Finally, I will conclude by briefly discussing the energy 
impacts of the transportation sector and its relationship to 
environmental concerns.
    Last week, Administrator Whitman testified before this committee on 
other air pollution matters. I would like to begin by re-stating her 
opening words. The United States should take great pride in the 
progress we have made in reducing pollution at the same time that we 
have had impressive economic growth. Over the last 30 years, we have 
reduced emissions of six key air pollutants by over 30 percent, at the 
same time that the gross domestic product has increased almost 150 
percent, vehicle miles traveled have increased 150 percent, and energy 
consumption has increased over 40 percent. This success story was made 
possible by American ingenuity spurred in large part by legislation 
that recognized the importance of a clean environment.
    In general, transportation sources contribute roughly half of the 
remaining overall pollution in our air. The contribution, however, can 
vary significantly among individual pollutants and from one city to 
another. Note that when I refer to transportation sources I mean all 
highway motor vehicles as well as mobile off-road sources. They are 
major sources of four pollutants, contributing 56 percent of the total 
U.S. emissions of oxides of nitrogen (NOx), 77 percent of the carbon 
monoxide (CO), 47 percent of the volatile organic compounds (VOCs), and 
25 percent of the particulate matter (PM10).
What Has Been Accomplished
                             clean vehicles
    Let me begin by discussing motor vehicles. Cars being built today 
are well over 90 percent cleaner than cars built in 1970. This is a 
result of a series of emission control programs, in many cases 
authorized by Congress, and fully implemented by EPA through nationally 
applicable regulations. Since the first tailpipe standards took effect 
in the 1970's, there have been increasingly more stringent standards; 
most recently Tier 1 in the mid-90's; NLEV, which is in effect today; 
and Tier 2 standards set to take effect beginning with the 2004 model 
year.
    Today, the auto industry is supportive of the Tier 2 standards 
which are about 90 percent cleaner than Tier 1. This is a good example 
of how EPA's relationship with the auto industry has changed over the 
past decade from largely confrontational to cooperation and support. We 
are pleased with this development and hope to foster an even better 
relationship with the auto industry as we seek solutions to challenging 
environmental problems in the future. We are also working hard to build 
a similar sense of constructive cooperation with other transportation-
related industries, particularly the fuels industry.
    Let me highlight a few additional points about the Tier 2 program. 
Tier 2 will take a major step toward reconciling passenger vehicles 
with clean air. For the first time it holds SUVs, minivans and pick-up 
trucks to the same emission requirements as autos. Previously, light 
trucks had a less stringent standard, because it was recognized that 
some were used for commercial purposes. Tier 2 is also fuel neutral, 
which means that gasoline, diesel and alternative fueled vehicles all 
must meet the same set of standards. Tier 2 is cost effective and its 
benefits to public health are large over two million tons of NOx 
emissions avoided per year by 2020, 4,300 premature deaths prevented 
annually and tens of thousands of respiratory illnesses prevented.
    In addition to reducing tailpipe pollutants, EPA has set tight 
limits on the amount of gasoline vapors which may be emitted when 
vehicles are operating, being refueled or parked on a summer day. 
Another system in place on 1996 and later vehicles utilizes the onboard 
computer and a series of sensors to monitor the operation of a 
vehicle's emission control equipment. Called onboard diagnostics, or 
OBD, this self-diagnostic system illuminates a dashboard light when a 
problem occurs.
    All of the programs I have just described impose requirements on 
auto companies to improve the emissions performance of new cars and 
light trucks. Of course, motorists share responsibility to properly 
maintain their vehicles and not tamper with emission control equipment. 
Inspection and maintenance (I/M) programs, currently operating in 56 
metropolitan areas, are meant to identify polluting vehicles and 
require their repair. Although EPA has established performance 
requirements for I/M programs, States are responsible for adopting and 
implementing the programs. States have a great deal of flexibility in 
designing these programs.
    A recent report from the National Research Council makes two points 
about I/M programs. First, the review committee states that ``it's 
important to emphasize that these programs are absolutely necessary to 
reduce harmful auto emissions and achieve better air quality.'' Second, 
they find the programs are not as successful as EPA and States have 
estimated. We generally agree with the findings of the report and have 
already taken actions to adopt many of the NRC recommendations. The 
primary reason that I/M programs may not be as effective as EPA and the 
States had originally projected is that emissions control systems of 
late model cars deteriorate less than those on older cars. The auto 
companies are building more durable vehicles and that is good 
environmental news. We have also learned an important lesson from our 
efforts to implement a program such as I/M which so directly affects 
the public. We now know that the best approach for programs that are 
not national in scope is to allow State and local governments broad 
flexibility in meeting environmental goals. Trying a one-size-fits-all 
approach, for example, by forcing all States to adopt centralized I/M 
programs, was not the way to go. We have learned a valuable lesson from 
this experience and will use that knowledge in designing future 
programs.
    Most large trucks and buses are powered by diesel engines. They can 
emit high levels of NOx and PM. Although cars were regulated first, 
diesel truck and bus manufacturers have had to comply with a series of 
increasingly more stringent standards beginning in the late 1980's. A 
major new program has just been established that will protect public 
health and the environment while ensuring that diesel trucks and buses 
remain a viable and important part of the nation's economy. This 
program was affirmed by the new Administration in February. Beginning 
in 2007, the makers of diesel engines will for the first time install 
devices like catalytic converters on new trucks and buses to meet the 
emission performance standards. When fully in place in 2030 the 
environmental benefits are substantial 2.6 million tons of NOx 
emissions will be avoided every year, 8,300 premature deaths prevented 
annually, and 23,000 cases of bronchitis and 360,000 asthma attacks. 
These health benefits far outweigh the cost to produce the cleaner 
engines and fuels. CLEAN FUELS
    Let me now switch from cleaner vehicles to cleaner fuels. The first 
effort to address an environmental problem linked to fuel was the 
multi-year effort to phase down and eventually eliminate lead in 
gasoline. That successful action was followed by other programs to 
require oil refiners to produce cleaner gasoline. In the late 1980's 
refiners began to reduce the evaporation rate of gasoline nationwide 
during the summer months. Included in the 1990 amendments to the Clean 
Air Act were several new clean fuel programs required by Congress. One 
required a modest reduction in the amount of sulfur in highway diesel 
fuel. Another required all gasoline sold in CO nonattainment areas to 
contain an oxygenated additive during winter months. This has proven 
successful in reducing CO tailpipe emissions, particularly in older 
vehicles. Most of the wintertime oxygenated fuels programs that remain 
today use ethanol as the additive.
    In the 1990 amendments Congress also established the reformulated 
gasoline (RFG) program. The RFG program was designed to serve several 
goals. These include improving air quality and extending the gasoline 
supply through the use of oxygenates. Congress established the overall 
requirements of the RFG program by identifying the specific cities in 
which the fuel would be required, the specific performance standards, 
and the oxygenate requirement. Today, roughly 35 percent of this 
country's gasoline consumption is cleaner-burning RFG. Neither the 
Clean Air Act nor EPA requires the use of any specific oxygenate in 
RFG. Both ethanol and MTBE are used in the RFG program, with fuel 
providers choosing to use MTBE in about 87 percent of the RFG. Ethanol 
is used in 100 percent of RFG in Chicago and Milwaukee, which are 
closer to major ethanol production centers.
    Ambient monitoring data from the first year of the RFG program 
(1995) indicated that RFG had a positive impact on reducing toxic 
emissions. RFG areas showed significant decreases in vehicle-related 
tailpipe emissions. One of the air toxics controlled by RFG is benzene, 
a known human carcinogen. The benzene level at air monitors in 1995, in 
RFG areas, showed the most dramatic declines, with a median reduction 
of 38 percent from the previous year. The emission reductions which can 
be attributed to the RFG program are equivalent to taking 16 million 
cars off the road.
    The RFG program with an oxygenate additive has been a successful 
air pollution control program. An unintended consequence, however, has 
been the contamination of numerous groundwater and drinking water 
supplies. I will address this issue later in my testimony.
    In two of the programs I mentioned earlier, Tier 2 and the 2007 
diesel program, EPA recognized the efficiencies of addressing vehicles 
and fuels as a system when establishing an emissions control program. 
Thus, in addition to setting strict exhaust emission standards for the 
vehicles and engines, we also required that cleaner, low sulfur 
gasoline and diesel fuel be available to enable those emission 
standards to be achieved. Sulfur is similar to lead in that it degrades 
the effectiveness of a catalytic converter. The Tier 2 and diesel 
regulations provide sufficient time for refiners to make the necessary 
modifications to their facilities before the low sulfur fuel is 
required. EPA has included a number of provisions that provide 
additional flexibility to refiners, particularly small refiners.
                            off-road engines
    As emissions from highway vehicles are reduced, the potential for 
reductions from other sources must be evaluated. Therefore, in 1990 
Congress instructed EPA to study the contribution of all categories of 
off-road engines and equipment to urban air pollution. Congress also 
gave EPA for the new authority to set emission limits for these 
sources. As a result of our findings that certain categories of off-
road engines contribute to air pollution in nonattainment areas, EPA 
has put in place emission control programs for the following off-road 
equipment: locomotives, large diesel engines used in construction and 
agricultural equipment, marine vessels, outboard recreational boats, 
and small gasoline engines used in lawn and garden equipment.
    In September of this year EPA will propose rules for public review 
and comment on other categories of off-road engines, including large 
gasoline and gaseous-fueled engines used in industrial equipment, such 
as forklifts. It will also address several types of recreational 
vehicles, such as all terrain vehicles, snowmobiles and off-road 
motorcycles. Finally, it will seek comment on whether EPA should 
tighten the emission standards for highway motorcycles, which have been 
unchanged since 1978.
    Virtually all of the control programs I have discussed thus far not 
only reduce emissions that cause nonattainment with the NAAQS but also 
significantly reduce toxic air pollutants. For example, compared to 
1990 levels, the programs we have in place today for highway vehicles, 
including Tier 2 and the 2007 diesel rule, will reduce emissions of 
four gaseous toxic pollutants by about 350,000 tons by 2020, a 75 
percent reduction. Diesel PM from highway vehicles will be reduced by 
220,000 tons over the same timeframe, for a 94 percent reduction. To 
further address the growing concern of public exposure to toxic air 
pollution, EPA recently identified 21 chemicals as mobile source air 
toxics. These include various compounds that are emitted from mobile 
sources, including several volatile organic compounds (VOCs) and 
metals, as well as diesel particulate matter plus diesel emission 
organic gases. We also completed a regulation which controls the toxic 
emissions from gasoline.
    One of the points I want to make in summarizing the accomplishments 
of our motor vehicle emissions reduction program is an acknowledgment 
of the success of our industry partners in meeting these requirements. 
Many of these programs set challenging performance standards but, 
almost across the board, to date auto makers, oil refiners, engine and 
equipment manufacturers and other businesses have met the challenge, in 
some cases sooner and cheaper than anyone had anticipated.
    Over the past 30 years EPA has become smarter and has changed its 
way of doing business. We now have:

      more and earlier involvement of stakeholders;
      incentives for early reductions;
      flexibility for implementation, for example, through 
phase-in rather than forcing all models to meet a new standard in one 
model year, and allowing banking and trading of emission credits;
      special provisions for small businesses, for example, we 
have convened 4 small business advocacy review panels under the Small 
Business Regulatory Enforcement Fairness Act and incorporated a number 
of panel recommendations in our final regulations;
      a new sensitivity to the market impacts of our programs.

    Our goal is to use the lessons we have learned over the years to 
make our programs even more effective in the future. Equally important, 
we plan to utilize these new approaches to tackle the challenges we 
have facing us today. I will talk about those now.
What Remains to be Done
                   health effects from air pollution
    Pollutants which are directly emitted by transportation sources are 
NOx, VOCs, fine particulate matter (PM2.5), and CO. In the 
presence of sunlight, NOx and VOCs react photochemically to produce 
ozone. NOx can be transported long distances and contribute to ozone 
many hundreds of miles from its source. More than 97 million people 
live in areas that do not yet meet the health-based 1-hour ozone 
standard (based on 1997-1999 data). The number would be even higher for 
the new 8-hour ozone standard. Reducing ozone levels will result in 
fewer hospitalizations, emergency room and doctors visits for 
asthmatics, significantly fewer incidents of lung inflammation for at-
risk populations, and significantly fewer incidents of moderate to 
severe respiratory symptoms in children.
    Not only will reducing ozone provide public health benefits, but it 
will avoid damage to ecosystems and vegetation. Ozone causes decreased 
agricultural and commercial forest yields, increased mortality and 
reduced growth of tree seedlings, and increased plant susceptibility to 
disease, pests, and environmental stresses (e.g., harsh weather). Since 
NOx emissions result in formation of ground-level ozone, reducing NOx 
emissions will reduce ozone levels and thus reduce the deleterious 
effects of ozone on human health and ecosystems.
    All particulate matter emitted from the transportation sector is 
``fine'' particulate, which means it is be deposited deep in the lungs 
when breathed in the ambient air. A substantial body of published 
scientific literature recognizes a correlation between elevated fine 
particulate matter and increased incidence of illness and premature 
mortality. The health impacts include aggravation of chronic 
bronchitis, hospitalizations due to cardio-respiratory symptoms, 
emergency room visits due to aggravated asthma symptoms, and acute 
respiratory symptoms. Based on these findings, EPA and others estimate 
that attaining the fine particle standards would avoid up to tens of 
thousands of premature deaths annually.
    The significant expansion in scientific research in recent years 
has enhanced our understanding of the effects of particles on health. 
EPA is summarizing all new information in the ongoing review of the 
particulate matter standard in a ``criteria document'' that will 
undergo extensive peer and public review.
                             epa priorities
    The first priority of EPA is to assure smooth implementation of 
programs whose regulations are set but are not yet in effect. Tier 2 is 
one such program, but even here we are very pleased that auto companies 
have certified four vehicle models to Tier 2 standards more than 2 
years ahead of schedule. Additionally, some oil companies are already 
selling cleaner, low sulfur gasoline in cities around the country. The 
2007 diesel program is another example in which some companies are 
moving ahead to introduce cleaner diesel engines and fuel, even though 
the core program requirements do not take effect for five or more 
years. EPA will conduct its own biennial assessment of progress being 
made toward implementation. In addition, EPA will request an 
independent review, which will monitor the progress of the engine 
manufacturers and the fuels industry in meeting the program 
requirements. This independent review will begin next year. The 
independent review will be conducted in an open, public process that 
will follow the requirements of the Federal Advisory Committee Act. A 
third example is our ongoing efforts to work with State officials who 
manage I/M programs and auto companies to efficiently incorporate the 
diagnostic capabilities of OBD systems into State I/M programs.
    Another major environmental priority that must be addressed is 
whether or not MTBE will be a component of our nation's future gasoline 
supply. As I mentioned previously, there is significant concern about 
contamination of drinking water in many areas of the country. Current 
data on MTBE in ground and surface waters indicate widespread and 
numerous detections of MTBE at low levels. Accordingly, EPA published 
last year an Advance Notice of Proposed Rulemaking requesting comments 
on a phase down or phaseout of MTBE from gasoline under Section 6 of 
the Toxic Substances Control Act (TSCA). EPA believes that TSCA is the 
best regulatory process available for limiting or eliminating the use 
of MTBE. Eleven States have banned MTBE, one as early as the end of 
2002. At least a dozen more States are considering similar bans.
    The Clean Air Act authorizes States to regulate fuels through State 
Implementation Plans if EPA finds such regulations necessary to achieve 
a national air quality standard. States often use this authority to 
adopt clean fuel programs that provide significant air pollution 
reduction benefits. This has resulted in a number of different 
formulations being required by States which are often referred to as 
boutique fuels. Actions taken by a growing number of States to ban the 
use of MTBE as a gasoline additive is the single biggest factor that 
threatens to proliferate boutique fuel requirements around the country. 
EPA understands the challenge that State and local ``boutique fuel'' 
requirements place on the production and distribution of gasoline in 
the U.S. These State fuel programs could limit flexibility in the fuel 
distribution system, particularly if a disruption occurs. If the number 
of special fuels were limited, while maintaining needed air quality 
benefits, greater fungibility within the distribution system could 
possibly result.
    The National Energy Policy report issued on May 17, 2001 includes a 
recommendation that directs EPA to study opportunities, in consultation 
with DOE, USDA and other agencies, to maintain or improve the 
environmental benefits of State and local ``boutique'' fuel programs 
while exploring ways to increase the flexibility and fungibility of the 
fuels distribution infrastructure, and provide added gasoline market 
liquidity. We have begun our boutique fuel assessment; we are 
consulting various stakeholders, including the States, and expect to 
make recommendations later this year.
    The issues surrounding boutique fuels and the future of MTBE are 
both related to the statutory requirement that an oxygenate must be 
added to RFG. As I have mentioned, Congress established the oxygen 
requirement in 1990 to meet multiple goals: improve air quality, 
enhance energy security, and encourage the use of renewable fuels. We 
now know that some refiners can produce clean fuels without the use of 
oxygenates. Thus, there may be better ways to achieve these goals. EPA 
strongly supports the use of renewable fuels, such as ethanol, and a 
great deal of research in this area is being done by others in the 
Federal Government.
    As emissions from automobiles and trucks are significantly reduced 
in the future as a result of the Tier 2 and the 2007 heavy duty 
emission standards, in combination with the lower fuel sulfur levels, 
the next major category of mobile source emissions to be addressed is 
large diesel engines used in construction and agricultural equipment. 
Even though modest emission requirements are in place for this 
equipment, by 2020 the category will contribute over 10 percent of the 
total NOx emissions inventory in a typical metropolitan area and 8 
percent of the PM emissions.
    Our current plans in regard to these large, off-road diesel engines 
are to conduct an initial assessment of the environmental impacts and 
the feasibility and costs of future control technology in an EPA White 
Paper which we would release for public review by the end of this year. 
One of the major issues that needs to be considered is the potential 
need to lower the sulfur levels in off-road diesel fuel to enable new 
exhaust control technology to be utilized on future engines. As we 
found with highway vehicles, this approach of comprehensively looking 
at the engines and fuel as a system is appropriate here as well. Our 
plan would be to incorporate the information we receive from the public 
review of the White Paper into a formal, proposed rulemaking to be 
published sometime next year.
    The programs I have discussed for reducing emissions from diesel 
engines affect newly produced engines only. But there are millions of 
older diesel trucks, buses and off-road equipment in use today, many of 
which spew noxious, black soot from their exhaust pipes. The hazards of 
diesel exhaust have been the subject of extensive medical research. At 
the end of last year, EPA's independent science advisory committee 
concluded that diesel exhaust is a likely human carcinogen. EPA has 
therefore initiated, in cooperation with manufacturers of diesel 
emission control systems, a major new initiative to install cost 
effective emission control equipment on older diesels. Called the 
Diesel Retrofit Program, the Agency's goal in this calendar year is to 
obtain commitment from businesses and municipalities that own fleets of 
trucks or buses to retrofit 100,000 vehicles with devices that will 
reduce exhaust emissions. I am pleased to report that we are already 
well over half way toward meeting this goal.
    Here is one such commitment. Just 3 weeks ago, Administrator 
Whitman traveled to Seattle to participate in an event announcing a 
public-private partnership to clean up the existing fleet of diesel 
engines in the Seattle area through engine retrofits and the early 
introduction of ultra low sulfur fuels. Partners with EPA in the 
program include: the Puget Sound Clean Air Agency; the city of Seattle; 
King County; the Boeing Company; Tosco Refining; the Manufacturers of 
Emission Control Association; and the Diesel Technology Forum. 
Seattle's Diesel Solutions Partnership will deliver more than a 90 
percent reduction in particulate matter and reduce air toxics in the 
fleet of retrofitted engines. As a result of this program, 25 percent 
of the 100 school bus fleet in Everett, Washington, will be low 
polluting, as well as a fleet of garbage and recycling trucks operating 
in Seattle neighborhoods.
    To improve the analytical capabilities of air pollution control 
planners, the Agency has recently embarked on an effort to develop the 
New Generation Mobile Source Emissions Model. The objective is to 
develop a comprehensive modeling system for the estimation of mobile 
source emissions (both on and off-road). The system will estimate 
emissions in conjunction with the appropriate activity data for 
criteria pollutants, particulate matter, air toxics, and greenhouse 
gases. The modeling system will be developed in coordination with 
stakeholders and users and will incorporate peer review processes 
throughout its development.
    Another important area of future work is the completion of a 
Technical Analysis Plan for possible further control of toxic air 
pollutants from transportation sources. This Plan, which EPA announced 
in December 2000, describes our continued research and analysis on 
mobile source air toxics. Based on the results of that research, EPA 
will conduct a future rulemaking to be completed by July 1, 2004, to 
promulgate any additional vehicle and fuel toxic controls that EPA 
determines are appropriate under the Act, including off-road sources.
    Let me now turn to an approach to reducing transportation-related 
emissions that is quite different from EPA's traditional methods of 
setting regulatory requirements on vehicles, engines and fuels. This 
approach addresses the impact our transportation infrastructure has on 
air quality and explores voluntary actions to reduce vehicle travel. 
First, let me mention a concept that was include by Congress in the 
1977 Clean Air Act Amendments and was significantly strengthened in 
1990 transportation conformity. Simply stated, the transportation 
conformity provision of the Act requires that transportation planners 
coordinate with air quality planners to assure that new roads or 
expansions of existing roads will not worsen air quality. Although the 
goal is straightforward, the analytical and administrative procedures 
that must be followed to demonstrate that transportation plans 
``conform'' to air quality plans in a given city or region are not so 
simple. EPA, in close partnership with our colleagues at the Department 
of Transportation, have worked closely with State, local and regional 
planners over the last several years to streamline the conformity 
regulations and reduce administrative burdens. The conformity program 
has been successful in getting transportation planners to work with air 
quality planners when highway projects are in the design stage, and in 
a number of cities around the country it has resulted in better 
projects that improve the transportation infrastructure while assuring 
no adverse impacts on air quality.
    Now let me describe an exciting new initiative EPA is undertaking 
to address the growth in number of miles driven by American motorists 
as our economy continues to grow. In 1970 vehicle miles traveled, or 
VMT, was 1 trillion miles. By the late 1990's VMT had risen to 2.5 
trillion miles, as more vehicles are driven more miles every year. The 
implication of this growth is that even as the emissions on a single 
car are dramatically reduced through new technology, the aggregate 
emissions from the entire U.S. fleet do not show a similar reduction 
simply because the number of cars on the road is continually growing. 
Directly related to that is the worsening traffic congestion in many of 
our metropolitan areas, with traffic jams becoming a fact of life, even 
in smaller towns. All of us are well aware of the increasing public 
concern with this problem. In response, we have initiated the Commuter 
Choice Leadership Initiative. This program promotes employer-provided 
commuting benefits by giving recognition, resources, tools and 
information to employers that meet a national standard of excellence in 
the commuting benefits they offer their employees. It is also a program 
that may potentially be used to achieve the goals of the conformity 
requirements I have just described.
    Initially, EPA and DOT worked with a core group of employers 
(including Intel, Disney, Kaiser Permanente, and the city of Fort 
Worth) to develop the criteria for the national standard of excellence 
the keystone of this voluntary program. In mid-April, members of the 
Federal team began outreach to employers, local, regional and State 
governments, transportation service providers and others, regarding the 
Commuter Choice Leadership Initiative program goals and requirements. 
To date, over 70 employers have joined the partnership with over 
120,000 employees enjoying commuting benefits that meet the national 
standard of excellence. This number is constantly rising: every day new 
organizations join and our goal is to have 300 employers signed up by 
2002. The Commuter Choice Leadership Initiative provides incentives for 
changing the standard American commuting pattern driving alone to work. 
The benefits that accrue especially reduced traffic congestion, 
improved air quality and reduced fuel consumption will enhance quality 
of life in communities across the nation.
Energy Issues Related to Environmental Programs
    I would like to spend a few moments talking about vehicle fuel 
economy and EPA's role in this area. The transportation sector accounts 
for almost 70 percent of the U.S. oil consumption. This fact not only 
has implications on national energy policy, but also means that the 
transportation sector contributes almost one-third of the total U.S. 
greenhouse gas emissions, primarily in the form of CO2.
    EPA has a significant role in the assessment of vehicle fuel 
economy. Our National Vehicle and Fuel Emissions Laboratory in Ann 
Arbor, Michigan, is the world's premier test center not only for 
emissions but also for fuel economy. Our engineers are involved in the 
development of advanced technologies to achieve cleaner, more fuel 
efficient motor vehicles. They also assess new technologies developed 
by the auto industry and other research facilities. In addition, EPA 
performs fuel economy testing on new models and reports this to the 
public at the start of each model year. EPA and DOE have created a 
website that provides consumers with easy access to fuel economy data. 
In addition, EPA has created the Green Vehicle Guide, a website which 
provides consumers who may be considering a new vehicle purchase with 
relative rankings of models by tailpipe emissions and gas mileage. The 
EPA mileage figures are also used on new car window stickers. EPA 
maintains the fuel economy data base that provides data to the 
Department of Transportation about Corporate Average Fuel Efficiency 
compliance and identifies gas guzzler models to the Treasury Department 
for application of the gas guzzler tax.
    Since the 1970's, EPA has also published the annual Fuel Economy 
Trends Report. Our latest report finds that, since 1975, the average 
auto fuel economy measured in miles per gallon (mpg) has doubled. This 
doubling, however, occurred entirely before 1987. For the past 14 
years, new car fuel economy has been roughly unchanged. The average 
fuel economy of the new passenger vehicle fleet in 2001 model year is 
about 2 mpg below the 1988 peak. The primary cause of this declining 
trend is the increasing popularity of light trucks, a category that 
includes minivans, sport utility vehicles, and pick-up trucks. Because 
light trucks have to meet a less stringent fuel economy standard than 
other passenger vehicles, their growing numbers pull down the average 
of the entire fleet. However, within the past 12 months Ford has made a 
voluntary commitment to raise its average SUV fuel economy by 25 
percent by 2005, and General Motors and DaimlerChrysler have said they 
would do better than Ford on light truck fuel economy.
    Our most recent Trends Report notes that there appear to be 
advanced technologies that promise substantial increases in fuel 
economy. Hybrid power vehicles, which combine an internal combustion 
engine with an electric motor, have been introduced into the market by 
Honda and Toyota, while GM, Ford, and DaimlerChrysler have announced 
plans to introduce hybrids over the next several years. In the longer 
term, fuel cells offer tremendous potential to not only improve fuel 
economy but also reduce tailpipe pollutants, depending on the fuel that 
is used.
Summary
    I have attempted to present a brief overview of the accomplishments 
of our national effort to improve the quality of the air we all 
breathe. This testimony has been focused on the transportation sector, 
which is a major part of the air pollution problem in this country, but 
which also has made tremendous advancements in reconciling 
transportation sources with environmental concerns. As I have 
mentioned, our work is not finished. Difficult air pollution problems 
remain and they will challenge the ingenuity of our industrial 
partners, our colleagues working for State and local governments, 
environmental and public health organizations and, most importantly, 
the continued support of the American public.
    Mr. Chairman, that concludes my testimony. Thank you for the 
opportunity to make these remarks. I would be pleased to answer any 
questions the committee members may have.
                               __________
   Statement Jason Mark, Director, Clean Vehicles Program, Union of 
                          Concerned Scientists
    Mr. Chairman and members of the committee, thank you for the 
opportunity to testify before you today. My name is Jason Mark, and I 
direct the Clean Vehicles Program at the Union of Concerned Scientists. 
UCS is a nonprofit partnership of scientists and citizens that has been 
working at the intersection of science and policy for over 30 years.
    I am going to speak to you today about our continuing struggle to 
achieve clean air and, in particular, the importance of improving 
transportation efficiency in addressing air pollution and global 
warming.
The State of Transportation-Related Air Quality
    Despite years of progress, we are far from solving the 
transportation-related air quality problem in the United States. 108 
million Americans still live in areas that do not meet Federal clean 
air standards,\1\  and vehicles are a major cause. According to the 
Environmental Protection Agency, transportation accounts for roughly 
half of all emissions that contribute to ground-level ozone, or 
smog.\2\  In urban areas, motor vehicles are typically the dominant 
polluter. For example, one recent government study estimates that over 
90 percent of the cancer risk from polluted air in the Los Angeles 
region comes from cars and trucks.\3\ 
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    \1\Population of U.S. regions that are out of attainment for 
meeting the current 1-hour ozone standard as of January 29, 2001. 
Source: http://www.epa.gov/oar/oaqps/greenbk/onsum.html.
     \2\Hydrocarbons (HC) and nitrogen oxides (NOx) are the key 
precursors to ground-level ozone.
     \3\South Coast Air Quality Management District. Multiple Air 
Toxics Exposure Study in the South Coast Air Basin (MATES-II). Diamond 
Bar, CA: SCAQMD. September 2000.
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    Rising vehicle travel, a changing vehicle fleet, and the realities 
of vehicle performance in the real world all pose key hurdles to 
achieving acceptable levels of air quality.
      Rising Travel. There are now more vehicles in the United 
States than licensed drivers. Combined with increasing travel rates per 
vehicle, the number of miles that Americans are driving continues to 
rise. Vehicle travel is expected to increase nearly 50 percent over the 
next 20 years,\4\  a trend that will undo the progress we are currently 
making to achieve clean air.
---------------------------------------------------------------------------
     \4\Energy Information Administration. Annual Energy Outlook 2001. 
Washington, DC: U.S. Department of Energy. December 2000.
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      Shifting Markets. SUVs and other light trucks are allowed 
to emit up to 2.5 times more smog-forming pollutants than cars under 
current tailpipe standards. While this loophole will be phased out by 
2009 under EPA's Tier 2 regulations, the fact that light trucks have 
historically been held to more lax standards has resulted in the 
average light truck on the road today emitting 47 percent more smog-
forming pollutants than the average car.\5\  nationwide, these 
loopholes have added 41 million cars worth of smog-forming pollution in 
recent years.\6\ 
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    \5\Mark, J. Greener SUVs: A Blueprint for Cleaner, More Efficient 
Light Trucks. Cambridge, MA: UCS. July 1999.
     \6\Ibid.
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      Real World Emissions. While emissions from vehicles are 
reaching very low levels as measured over government tests, real world 
emissions are typically several times higher. For example, today's 
average gasoline car emits smog-forming pollution at more than twice 
the rate measured during certification testing.\7\  Thus, while the 
auto industry often claims that their vehicles are over 96 percent 
cleaner than three decades ago, the evidence in the field does not 
quite bear this out. Similarly, a $1 billion clean air settlement in 
1998 between diesel engine makers and the EPA--one resulting from 
engine makers selling engines that are estimated to have emitted 28 
million cars worth of smog-forming pollution\8\ --reminds us that our 
big rigs have some distance to travel in staying clean over their 
million-mile lifetimes.
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     \7\Hwang, R.J. ``Getting to Zero: Comments on the Zero-Emission 
Vehicle Program,'' presented at the California Air Resources Board 
Hearing on the 2000 Zero Emission Vehicle Program Biennial Review. 
Sacramento, CA. September 7-8, 2000.
     \8\Mark, J. and C. Morey. Rolling Smokestacks: Cleaning Up 
America's Trucks & Buses. Cambridge, MA: UCS. October 2000.
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    Fortunately, new technologies are available that will take cars and 
trucks the next step toward cleaning the air. Gasoline powered vehicles 
are beginning to enter the market that are 10 times cleaner than the 
average. Diesel technology is emerging in response to new Federal 
standards that will cut pollution from heavy vehicles ten-fold.
    Even cleaner options are moving onto the road. Electric-drive 
vehicles, such as battery, hybrid, and fuel cell cars and trucks, 
promise zero or near-zero emissions. New fuels, such as natural gas, 
are cutting toxic soot pollution from transit and school buses. 
Together, this combination of cleaner fuels and advanced technology 
will be essential if we are to protect public health in the 21st 
century.
The Role of Fuel Consumption
    But even as we move to cleaner vehicles, we will continue to be 
plagued by emissions associated with the production and delivery of 
fuels. For example, the refining and distribution of each gallon of 
gasoline results in over 6 grams of smog-forming pollution and nearly 3 
grams of toxic pollutants.\9\  These emissions are a direct result of 
driving--even though they do not come from vehicle tailpipes--because 
as we use more fuel, more pollution is created to make the fuel. As new 
regulations cleanup tailpipes, these so-called upstream emissions will 
become the dominant source of vehicle pollution.
---------------------------------------------------------------------------
     \9\Friedman, D., J. Mark, P. Monahan, C. Nash, and C. Ditlow. 
Drilling in Detroit: Tapping Automaker Ingenuity to Build Safe and 
Efficient Automobiles. Cambridge, MA: UCS. June 2001.
---------------------------------------------------------------------------
    The best strategy for reducing gasoline-related emissions, of 
course, is to reduce gasoline use itself. This approach prevents air 
emissions before they are created and has the added benefit of 
addressing one of the most significant environmental challenges facing 
the planet: global warming.
    Each gallon of gasoline yields 24 pounds of the greenhouse gases 
that result in climate change.\10\  Scientists worldwide agree that 
humans are having a measurable impact on our climate. The potential 
economic and environmental consequences are severe. Higher temperatures 
can also increase air pollution. Smog, which forms in the presence of 
heat and sunlight, increases with even small temperature changes. For 
example, one recent study from the Lawrence Berkeley National 
Laboratory suggests that temperature increases in the Los Angeles 
region over the next half-century could create 2.7 million cars-worth 
of pollution.\11\  We believe there is a strong policy case, then, for 
giving EPA the authority to regulate greenhouse gas emissions under the 
Clean Air Act.
---------------------------------------------------------------------------
     \10\Ibid.
     \11\Taha, H. Potential Impacts of Climate Change on Tropospheric 
Ozone in California: A Preliminary Episodic Modeling Assessment of the 
Los Angeles Basin and Sacramento Valley. Berkeley, CA: Lawrence 
Berkeley National Laboratory. January 2001.
---------------------------------------------------------------------------
    Of course, climate change is a global issue, since emissions 
anywhere in the world have an impact on our climate. But U.S. cars and 
trucks alone emit more global warming pollution than all but three 
countries in the world\12\ --so any global effort to reduce the threat 
of climate change must address vehicles on American roads.
---------------------------------------------------------------------------
     \12\Friedman et al. 2001, op cit.
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Technological Opportunities
    Fortunately, technologies exist that can address fuel use from the 
vehicle fleet. The Union of Concerned Scientists and the Center for 
Auto Safety recently published an analysis outlining a safe and 
economically sound path to boosting automotive efficiency.\13\  Using 
existing technologies--such as variable-valve engines, multi-speed or 
continuously variable transmissions, and weight savings--we estimate 
that passenger vehicles could reach an average of 40 miles per gallon 
over the next 10 years, up from today's average of 24 mpg. The 
greenhouse gas savings would be equivalent to taking nearly 60 million 
cars off the road by 2012. By using less fuel, we would save 440 
million pounds of smog-forming pollution and 200 million pounds of 
toxics annually from refining and distributing gasoline.
---------------------------------------------------------------------------
     \13\Ibid.
---------------------------------------------------------------------------
    Boosting fuel economy to 40 mpg is also the environmentally 
responsible strategy to addressing our oil dependence. In 10 years, we 
would save more oil than is economically recoverable from the Arctic 
National Wildlife Refuge in over 50 years. Consumers would save $16 
billion per year by 2012 through lower costs at the pump.
    The National Academy of Sciences recently completed its much-
anticipated evaluation of fuel economy technology. Their results 
confirm that technology can cost-effectively boost the fuel economy of 
our vehicles. Using a subset of the technologies that we have 
evaluated, the NAS estimates that light trucks could reach 28-30 mpg at 
a cost of $1,200-1,300, and cars 34-37 mpg at a cost of $600-650. We 
believe that, for an additional investment of $600-700 per vehicle, we 
could reach a fleet average of 40 mpg while saving drivers $3,000-5,000 
at the pump over the life of their vehicle.
Policy Priorities
    I want to make one final point about the role of policies in 
achieving environmental goals. UCS strongly supports incentives 
programs that encourage industry to deliver cleaner, more efficient 
vehicles. We have worked closely with several automakers to develop tax 
credits for advanced vehicles, embodied in the CLEAR Act that several 
members of this committee have supported. As the Senate takes up this 
important legislation, we urge you to maintain the environmental 
provisions that guarantee credits will flow to vehicles that are both 
efficient and clean. We also urge you to consider incentives for 
cleaner trucks and buses, such as legislation recently introduced in 
the House that would provide Federal grants to school districts that 
replace their dirtiest, least safe diesel buses with commercially 
available clean buses that protect children's health.
    But incentives only work within a framework where firm standards 
guarantee environmental gains. Virtually all of the progress we have 
made to date with respect to motor vehicles and air pollution has been 
the result of government action. The evidence suggests that past 
regulatory programs have been highly effective. For example, the cost 
effectiveness of nearly every major vehicle emissions regulation aimed 
at reducing smog precursors over the past 15 years has been less than 
$1 per pound,\14\  even as emissions requirements have become ever more 
stringent. We have a history of overestimating costs of environmental 
programs and making dire predictions over the impact of new rules.
---------------------------------------------------------------------------
     \14\Personal communication. Tom Cackette, Chief Deputy Executive 
Officer, California Air Resources Board.
---------------------------------------------------------------------------
    Nearly 30 years ago, Federal regulators enacted new rules to 
require the first catalytic converters on passenger vehicles. The 
industry sued for a delay. In a 1973 hearing, GM's vice president for 
environmental affairs said: ``[I]f GM is forced to introduce catalytic 
converter systems across the board on 1975 models, the prospect of 
unreasonable risk of business catastrophe and massive difficulties with 
these vehicles in the hands of the public may be faced. It is 
conceivable that complete stoppage of the entire production could 
occur, with the obvious tremendous loss to the company, shareholders, 
employees, suppliers, and communities.''\15\  GM won a delay in the 
rule but went on to introduce catalytic converters on all of its models 
beginning in 1975.\16\ 
---------------------------------------------------------------------------
    \15\Applications for Suspension of 1975 Motor Vehicle Emission 
Standards, Decision of the Administrator on Remand from the United 
States Court of Appeals, District of Columbia Circuit, April 11, 1973, 
hearing transcript, at 29-30, cited in Clarence Ditlow, ``Federal 
Regulation of Motor Vehicle Emissions under the Clean Air Act 
Amendments of 1970,'' Ecological Law Journal. 1975, pp. 495-504; and 
``EPA--Auto Emission Standards,'' congressional Quarterly, March 17, 
1973, p. 600.
     \16\Doyle, J. Taken for a Ride: Detroit's Big Three and the 
Politics of Pollution. New York, NY: Four Walls Eight Windows. April 
2000.
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    As we struggle to address transportation-related air quality and 
climate change, I urge you to consider strong standards that set 
aggressive, yet achievable, goals for industry's engineers. We will 
make important progress through your continued support for key air 
quality programs such as the Tier 2 tailpipe standards and accompanying 
low-sulfur fuel requirements. The next step in improving the 
environmental performance of vehicles is boosting the fuel economy of 
our fleet. This is an issue that Congress has not addressed for over a 
decade, yet we believe the technical, economic, and environmental case 
for action is clear. The technology exists to cost-effectively bring 
SUVs, pickups, and minivans up to the fuel economy standards of cars 
and then boost the entire fleet to over 40 miles per gallon over the 
next 10 years. It is a policy path that is good for consumers' 
pocketbooks and good for the environment.
    Thank you for the opportunity to testify before the committee 
today. I would be happy to answer any questions you may have.
                               __________
 Statement of Gregory Dana, Vice President for Environmental Affairs, 
                  Alliance of Automobile Manufacturers
    Mr. Chairman, Thank you for the opportunity to testify before your 
committee regarding the impact of air emissions from the transportation 
sector on public health and the environment. 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 member companies are proud of the record they have 
achieved in reducing tailpipe emissions of hydrocarbons, carbon 
monoxide, and nitrogen oxides from motor vehicles. Cars being sold 
today are 96 percent cleaner than uncontrolled vehicles from over 30 
years ago. Compared to other emission sources:

      Using a chain saw for 1 hour emits the same amount of 
hydrocarbons as driving 600 miles in a typical car the distance from 
Washington, DC to Atlanta.
      Using a snowblower for 1 hour emits the same amount of 
carbon monoxide as driving a typical car 305 miles the distance from 
Phoenix to Las Vegas.
      A Jet Ski emits more in only 7 hours of use than a new 
car does in traveling 100,000 miles the average mileage accrued over a 
decade of driving.

    With the adoption of EPA's Tier 2 rulemaking (65 FR 6698, February 
10, 2000), which will begin to be phased in with the 2004 model year 
(the fall of 2003), emissions from cars and light trucks will be 
reduced another 80 percent from today's clean vehicles. While 
recognizing that it is a tough challenge for our engineers, the 
Alliance accepted this EPA rulemaking. This rulemaking requires that:
    Cars and light trucks meet the same emission standards for the 
heaviest light trucks, this means that emissions of nitrogen oxides 
must be reduced from 1.53 grams per mile (gpm) to an average of 0.07 
gpm.
    All cars and light trucks must meet an increased useful life of 
120,000 miles from today's requirement of 100,000 miles (this increases 
the durability of the emission control system).
    Evaporative hydrocarbon emissions (from the fuel tank and lines) 
are cut in half over today's levels.
    Diesel-powered vehicles will have to meet the same standards as 
gasoline-powered vehicles.
    This rulemaking also reduces the amount of sulfur in gasoline from 
recent high levels up to 1000 parts per million (ppm) to a cap of 80 
ppm in 2006. Cleaner fuel is a critical part of our ability to achieve 
these very stringent emission standards. Sulfur poisons the catalyst, 
and the newer catalysts that are being developed for Tier 2 vehicles 
are extremely sensitive to it. With the extremely low levels of 
emissions that are required under Tier 2, the catalyst must be 
extremely efficient for the entire useful life of the vehicle. Even 
cleaner gasoline than required by Tier 2 with sulfur approaching near-
zero levels, capping the distillation index at 1200 and adopting other 
limits as recommended by the world's automakers in the World-Wide Fuel 
Charter is absolutely critical to ensure the lowest possible emissions 
in conventional vehicle technology and to enable new fuel efficient 
gasoline lean-burn technologies.
    What is most impressive about removing sulfur from fuel is that all 
vehicles equipped with catalysts (which were first installed in 1975 
models) will become cleaner due to this change in the fuel. This is 
because the catalysts in these vehicles will now function more 
efficiently than before. So the emission reductions due to the removal 
of sulfur from gasoline are huge.
    While we support EPA's rulemaking, we also believe that more should 
be done to clean up motor vehicle fuel, including reducing sulfur 
levels even further. The Alliance supports the goals of the World Wide 
Fuel Charter, which calls for ``near-zero'' sulfur (levels below 5-10 
ppm), capping the distillation index at 1200 F and other changes in 
motor vehicle fuel. We note that the European Union is well on its way 
toward making such cleaner fuel available.
    The Alliance also strongly supports the EPA's recently finalized 
rulemaking to control the emissions of heavy-duty engines and diesel 
fuel sulfur. The reduction of sulfur levels in diesel fuel to a maximum 
of 15 ppm is critical for helping to enable tighter control of 
emissions for both heavy-duty engines and light-duty diesel 
applications. With advanced diesel engines and clean fuel, we believe 
that diesels will be able to meet the more stringent Tier 2 standards 
by using after treatment emission control devices for the first time. 
Diesel engines are one of the tools the industry has to achieve higher 
fuel efficiency along with other technologies that are mentioned later 
in my statement. The new, advanced technology diesel engines are 
nothing like the diesels from the past. These new engines are smooth 
and quiet and don't emit black smoke commonly associated with diesels. 
They are proving very popular today in Europe and are part Europe's 
strategy for reducing greenhouse gas emissions. If clean enough fuel is 
widely available, they will also be very clean, meeting the same Tier 2 
emission standards that gasoline-powered vehicles have to meet.
    There is also good news on air toxics. EPA finalized its motor 
vehicle air toxics rulemaking in March (66 FR 17230, March 29, 2001). 
EPA found that the emission reductions resulting from the Tier 2 
rulemaking has the additional benefit of reducing toxic air emissions 
to a level such that no further control is needed.
    Our efforts to reduce environmental pollutants also extends to our 
production facilities:

      Automakers have reduced toxic chemical use, and 
reformulated paints and solvents for lower emissions at auto production 
facilities.
      Automakers have developed effective waste reduction 
methods, such as reusable shipping containers for parts and recycling.
      Automakers are also working with suppliers to minimize 
the environmental impact of operation and production, such as award-
winning Brownfields redevelopment.

    Moreover, the Alliance supports efforts to create an effective 
energy policy based on broad, market-oriented principles. Policies that 
promote research and development and help deploy advanced technologies 
by providing 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.
    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 3 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, Senator Jeffords 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.
Fuel Cell Vehicles
    The most promising long-term technology offers breakthrough fuel 
economy improvements and zero emissions. Over the very long term, it 
may enable a shift away from petroleum-based fuels, assuming 
alternative fuel infrastructures can be developed. 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. Many alternative 
fuel technologies also offer reduced emissions compared to conventional 
vehicle technology. A base credit of up to $2,500 is included with an 
additional $1,500 for vehicles certified to ``Super Ultra Low Emission 
Vehicle'' 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 Infrastructure 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.
    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 proposed infrastructure and fuel incentives will help the 
distributors overcome the costs to establish the alternative fuel 
outlets, especially during initial lower sales volumes, before the 
number of alternative fuel vehicles increases to commercially 
sustainable levels.
    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 cleaner, 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, and they may 
also face psychological barriers to widespread 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, they will make consumers more comfortable with accepting the 
technology enough to change purchasing behavior. In short, tax credits 
will help bridge the gap toward 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 percent 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.
    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.
    Thank you for the opportunity to testify before the committee 
today. I would be happy to answer any questions you may have.
                               __________
    Statement of Omar F. Freilla, NYC Environmental Justice Alliance
    Good morning, my name is Omar Freilla and I am here today 
representing the New York City Environmental Justice Alliance. We are 
an alliance of community-based organizations fighting the continued 
presence of racism and classism in environmental protection. Our groups 
all represent communities of color that are largely poor and working 
class. They are in neighborhoods that bear a disproportionate amount of 
environmental hazards, receiving all of the burdens and none of the 
benefits. We are the first to breathe the dirtiest air and the last to 
see a green tree.
    There are lots of people in this room, including myself, trying to 
convince each of you that the Federal Government must do everything in 
its power to slash air pollution levels and dramatically improve the 
quality of the air we breathe. There is a mountain of evidence to back 
up that call to action. The overwhelming consensus of public health 
studies in this area all come down on the side of more air pollution 
equals more asthma attacks and more deaths. But it would seem to me 
that that should be of no surprise to anyone. No one needs a Ph.D. to 
figure out that large cities with major traffic congestion like New 
York have the dirtiest air on the planet. Anyone with a lung and half a 
brain should be able to realize that dirty air will make you sick. So 
I'm not going to try to convince you of the obvious. What concerns me 
more is whether or not you care.
    To effectively deal with emissions from motor vehicles requires you 
to emphasize the places where they are concentrated--cities. But ever 
since the era of highway building and the loss of urban manufacturing 
encouraged whites to flee to the suburbs, cities have not received much 
attention on capital hill. For communities of color like ours the 
apathy is blatantly obvious. That's because many of our neighbors are 
the noxious facilities that wealthier and whiter communities neither 
desire nor receive.
    I live in the South Bronx, in a neighborhood known as Hunts Point. 
My neighborhood is a magnet for trucks. Approximately 11,000 diesel 
trucks enter and exit each day. They head for one of the world's 
largest regional food distribution centers and 26 waste transfer 
stations. We are home to a sewage treatment plant and a sludge 
processing plant. In an adjacent neighborhood four partially diesel-
fueled power turbines went online last month. From my window I can see 
the three giant smokestacks of a power plant right on the waterfront in 
Queens, just two football fields away from the waterfront of my 
neighborhood--a waterfront that is almost completely inaccessible 
without trespassing. As if all that were not enough, the city plans to 
relocate the Fulton Fish Market--the world's largest fish market--to my 
neighborhood, complete with its almost 1,000 trucks a day. On an 
adjacent lot developers are seeking to build a 5,200-megawatt power 
plant. Whenever I walk to the subway, or anyplace outside of my 
neighborhood for that matter, I have to cross a ten-lane road 
underneath an elevated highway that carries 130,000 vehicles a day. My 
community is completely surrounded by pollution and no one in the 
neighborhood sees it as mere coincidence.
    I've noticed that no matter what I do I cannot keep my apartment 
clean because of the dust from outside that settles near the windows. I 
never had that problem in an apartment until last year when I moved 
into the neighborhood. It's a common complaint of people in my 
neighborhood. So is asthma. It is of no surprise to anyone in my 
community that we've got one of the highest rates of hospitalization 
for asthma in the country--six times the national average. When I go to 
the Laundromat I hear mothers trading asthma remedies as if they were 
dinner recipes. Thirty percent of the children in my neighborhood 
suffer from asthma. It is a disease that has reached epidemic 
proportions in similar communities throughout New York City and across 
the country.
    Time and time again the community groups that are members of the 
New York City Environmental Justice Alliance have fought with city, 
State, and Federal agencies that do not seem to value the lives of 
people of color and poor people. How else do you explain lax 
environmental reviews in communities of color on the one hand and 
strict enforcement in white communities on the other? Our communities 
have been turned into sacrifice zones where any and all forms of 
environmental abuse are allowed to take place. You will not even 
scratch the surface of air quality issues as long as you fail to focus 
attention on overburdened communities like Hunts Point. The reason is 
that as long as polluting facilities have access to a community where 
environmental enforcement is lax they will continue to pollute. This 
includes dirty-diesel dependent facilities.
    With all this in mind I urge the members of the Senate to act in 
three key areas of transportation:

    1.Promote cleaner fuels--Diesel trucks and buses are the worst 
polluters in communities like mine, they produce the bulk of 
particulate emissions that trigger asthma attacks in New York City. Our 
alliance has been at the forefront of efforts to promote cleaner fuels 
in New York City. We have worked closely with the U.S. Department of 
Energy over the past 2 years in focusing attention on the most 
overburdened communities by co-hosting clean fuel forums in the South 
Bronx, Harlem, and South Brooklyn with a citywide summit planned for 
September. Next week EPA Administrator Christine Todd Whitman will come 
to my neighborhood in Hunts Point to meet with environmental justice 
groups and help unveil a pollution control device that promises to cut 
emissions by up to 90 percent from idling trucks in my community. We 
are very excited by these developments and see measures such as these 
and the 2007 standards for diesel as vital to reducing pollution in our 
communities. But while we support the need for stricter diesel 
standards it must be pointed out that the proposed standard will not 
bring cities into compliance with air quality standards as long as 
existing fleets and non-road engines such as construction equipment are 
not addressed.
    2.Include local impacts in all air quality analyses--There seems to 
be no end in sight to the horrible proposals for noxious facilities 
that want to site in communities like mine. Current practice ignores a 
project's impact on local air quality. Any increase in air emissions is 
added to the total emissions for the region as a whole. The result is 
that while a transportation project may not produce enough emissions to 
be noticeable on the regional level its effect at a local could have 
have dramatic effects. The highest concentrations of particulate matter 
are found within the first quarter to a half-mile of a street or 
highway. The absence of local impacts is a failure of both the Clean 
Air Act and the EPA's willingness to establish a procedure for 
accounting for local impacts.
    3.Improve Rail Freight Infrastructure--Almost 90 percent of goods 
entering New York City from the West travel by truck. While rail 
freight has the potential to take trucks off the road and dramatically 
improve air quality rail lines in New York City are in such poor 
condition due to decades of neglect that they have become almost 
useless. The improvement of rail lines and the development of 
intermodal distribution centers would completely alter the current 
patterns of goods movement that result in clogged streets and noxious 
air.

    I urge you to take these issues to heart and begin to rectify past 
practices that turned low-income communities and communities of color 
into sacrifice zones. By addressing air quality issues in this manner 
you will be addressing the need of our communities for environmental 
justice.
                               __________
 Statement of Daniel S. Greenbaum, President, Health Effects Institute
    Chairman Jeffords, and members of the committee, thank you for the 
opportunity to testify before you today on the health effects of air 
emissions from the transportation sector. I come before you as the 
President of the Health Effects Institute, a non-profit, independent 
research institute funded jointly and equally by the U.S. EPA and the 
worldwide motor vehicle industry to provide high-quality, impartial 
science on the health effects of emission from transportation and other 
sources in the environment. For over two decades, we have conducted 
targeted research on the full range of emissions and health effects, 
and I am pleased to summarize our understanding for you today. For the 
record, I have also submitted a more detailed paper that describes 
these effects and trends.
    Since the early 1970's, as vehicle travel has grown dramatically, 
there have been concerns about air pollution from transport and its 
impacts on human health. There has been substantial progress to reduce 
the emissions from individual vehicles, and more recently improvements 
in the quality of fuel, resulting in reductions of some emissions by 
greater than 90 percent. At the same time, traffic volume has grown 
substantially, offsetting much of the improvement achieved. Also, 
scientific knowledge has increased, identifying health effects from 
emissions from motor vehicles at lower levels of exposure. Thus there 
continues today to be significant attention to understanding the health 
effects of, and reducing the emissions from, vehicles and fuels.
Emissions
    The combustion of gasoline and diesel fuel in vehicle engines 
produces a number of emissions of potentially harmful substances. These 
emissions are not solely the result of the combustion process, nor do 
they come only from the tailpipe of the vehicle. Rather, such emissions 
result from a combination of the engine design and the fuel 
characteristics. Evaporative emissions--from refueling, spills on to 
heated engine parts, etc.--can equal emissions from the tailpipe.
    The emissions from motor vehicles come in two primary forms: major 
gaseous and particulate air pollutants which can be found in relatively 
high amounts in the atmosphere, and air toxics which usually are found 
in lower amounts in the atmosphere but can have important health 
impacts. The gaseous and particulate pollutants to which motor vehicles 
contribute include carbon monoxide, ozone (through its atmospheric 
precursors volatile organic compounds (VOCs) and nitrogen oxides 
(NOx)), fine particulate matter PM10 and PM2.5 
(particles smaller than 10 and 2.5 microns in aerodynamic diameter 
respectively), and nitrogen dioxide. The air toxics emitted from motor 
vehicles include aldehydes (acetaldehyde, formaldehyde, and others), 
benzene, 1,3-butadiene, and a large number of substances known as 
polycyclic organic matter (including polycyclic aromatic hydrocarbons, 
or PAHs).
    All of the emissions from motor vehicles also come from other 
sources such as industrial processes, electric power generation, and 
home heating. As a result, the contribution of motor vehicles to 
ambient levels varies depending on the pollutant. In most cases, motor 
vehicles contribute between 25 percent and 40 percent of the ambient 
levels, although in a few cases (e.g. carbon monoxide, ultrafine 
particles (PM 0.1), and 1,3-butadiene) motor vehicle contributions are 
noticeably higher.
    To date, most of the attention to reducing emissions from transport 
has focussed on onroad cars and heavy-duty vehicles. Increasingly, we 
have understood that nonroad sources, including construction equipment, 
locomotives, airplanes and ships are also significant contributors to 
ambient air pollution, for some pollutants emitting amounts equal to or 
exceeding those from onroad sources.
Exposure
    While in general motor vehicles contribute a significant portion, 
although not the majority, of most air pollutants, there are certain 
circumstances in which motor vehicles can contribute a substantially 
higher amount to personal exposure. In particular, in urban centers, 
along roadsides, and especially in urban street canyons in crowded 
business districts, mobile source contributions can contribute 2 to 10 
times as much as in general background situations. (1) This can have 
important implications for the potential acute health effects from 
exposure to these pollutants and, if individuals spend a significant 
portion of their lives living in these environments, may result in 
greater contributions of vehicles to chronic health effects as well. 
This may be especially true for elderly, low-income, and other urban 
populations that could be sensitive to the effects of air pollution.
Effects
    Research over the past several decades has found a variety of 
effects from the different pollutants, including effects on the lungs, 
heart, and nervous system, and the promotion of several different types 
of cancer. Overall, the effects of these pollutants on public health 
tend to be relatively small in comparison with other risk factors such 
as cigarette smoking, but because of the large number of people exposed 
the effects as a whole are of sufficient magnitude to be of public 
concern.
    Despite some uncertainties, there is much known about the effects 
of each of these pollutants:

    Carbon Monoxide is a gas emitted directly from vehicles. High 
levels of exposure are known to be lethal; low levels found in ambient 
settings are not likely to have effects in healthy individuals but may 
cause increased incidence of cardiac effects.
    Ozone is known to reduce the lung function of some individuals and 
epidemiological studies have found evidence of increased asthma attacks 
and hospitalization related to increased ambient levels. A recent study 
conducted by the Centers for Disease Control in Atlanta before, during, 
and after the Olympics found both a distinct reduction in ozone levels 
resulting from the Olympics traffic reduction measures, and a 
coinciding reduction in childhood asthma hospitalization.
    Particulate Matter in the form of PM10 and 
PM2.5 is emitted directly from motor vehicles and other 
sources, and also formed in the atmosphere from atmospheric reactions 
with gaseous emissions (e.g. nitrogen oxides become nitrates). Although 
PM has been of concern for many decades, new studies published in the 
1990's found associations of PM with increased mortality and morbidity 
at ambient levels.

    In the past several years, several new epidemiologic studies have 
begun to strengthen the understanding of the relation between exposure 
to PM and mortality and morbidity. Recently, HEI's National Morbidity, 
Mortality, and Air Pollution Study, of the 90 largest cities in the 
United States, has found a generally consistent effect of PM and 
mortality, when common methods are applied, and after the effects of 
other pollutants are considered. HEI's Reanalysis of the Harvard Six 
Cities and American Cancer Society Studies has also reported on 
extensive additional analysis of these two studies that have been the 
basis of most U.S. and European efforts to estimate the population 
health effects of PM, and have generally confirmed the results. HEI is 
currently investigating continuing questions about the nature and 
extent of PM health effects.
    Components and Characteristics of the PM Mixture have been 
identified as potentially being most responsible for mortality and 
other risks. Diesel exhaust particulate matter has been cited as a 
probable human carcinogen by several national and international 
agencies. Hypotheses have also been put forward suggesting that 
ultrafine particles (less than 0.1 microns), particles containing 
metals (e.g. iron), and other types of particles may be the most toxic 
components of the mixture. To date these studies have not identified 
one component or characteristic that is significantly more toxic than 
others.
    Air Toxics have a variety of characteristics and effects. Most of 
those emitted from motor vehicles are animal carcinogens. Benzene is a 
known human carcinogen. Butadiene, for which vehicles are the dominant 
ambient source, was recently designated as a probable human carcinogen 
by the International Agency for Research on Cancer and a known human 
carcinogen by the U.S. National Institutes of Health. Several aldehydes 
(including formaldehyde and acetaldehyde) have also been designated as 
probable human carcinogens.
Trends and the Future
    Given the health effects of vehicle emissions, action has been 
taken, and continues to be taken to reduce emissions from both gasoline 
and diesel vehicles. The U.S. EPA took action in 1999 to further 
improve fuel formulation and reduce emissions of light duty vehicles 
(Tier 2), and in 2001 to promulgate stringent new fuel and emissions 
standards for heavy-duty vehicles. In addition, recent German 
government analyses determine that these requirements for a substantial 
reduction in diesel particulate matter emissions are expected to 
substantially reduce cancer risk from diesel.
    However, continued growth in travel is expected to offset a portion 
of these reductions. As a result, continued attention to reducing 
emissions is likely in the future. This will come in three ways:

      continued tightening of fuel and emission standards for 
petrol and diesel vehicles;
      introduction of new technologies: natural gas vehicles, 
electric and electric hybrid vehicles, and fuel cell vehicles are all 
in development or beginning to appear on the market. While these have 
certain air quality advantages, they may also raise new health 
questions (e.g. the use of methanol to power fuel cells), and will need 
to be introduced with appropriate care.
      policies to discourage growth in personal auto use--this 
is potentially the most important future direction, and at the same 
time the most challenging. Future land use and transportation policy 
can significantly affect travel behavior, but the ability to implement 
effective measures may be limited as the general public is increasingly 
used to and reliant upon the flexibility of the private automobile.

    In conclusion, the emissions of a variety of pollutants from 
vehicles account for, in general, approximately 25 percent to 40 
percent of the ambient levels of air pollution (and in some cases more, 
depending on the pollutant and location). These pollutants have been 
found to have a measurable effect on the public health. As a result, 
the long-term trend has been toward reducing emissions from motor 
vehicles, and that trend is likely to continue in the future. However, 
continued growth in vehicle travel is likely to offset at least a 
portion of the expected reductions, suggesting continued efforts to 
reduce the emissions and other impacts on public health.
                                 ______
                                 
                                  Health Effects Institute,
                                                     July 25, 2001.
Daniel S. Greenbaum,
Transport and Human Health,
Health Effects Institute,
Cambridge, Massachusetts USA
    Concerns about ambient air pollution and public health first rose 
to broad public attention in the 1950's, following significant air 
pollution episodes in London, England, Donora, Pennsylvania, and 
elsewhere that were linked to noticeable increases in hospitalization 
and premature mortality. These incidents, which involved air pollution 
largely from industrial sources and home heating, presaged public 
policy action for the past four decades to reduce air pollution and 
improve public health. Increasingly during that time, as vehicle travel 
has grown dramatically, attention has focussed on air pollution from 
transport and its impacts on human health.
    Beginning in the 1970's in the United States and in the 1980's in 
Europe, there has been substantial progress to reduce the emissions 
from individual vehicles, and more recently improvements in the quality 
of fuel, resulting in reductions of some emissions by greater than 90 
percent. At the same time, traffic volume has grown substantially, 
offsetting much of the improvement achieved. Also, scientific knowledge 
has increased, identifying health effects from emissions from motor 
vehicles at lower levels of exposure. Thus there has been, and there 
continues today to be, significant public attention to reducing the 
emissions from vehicles and fuels, and their attendant affects on human 
health.
    Since 1980, the Health Effects Institute has been producing 
extensive research on the health effects of air pollution from motor 
vehicles and other sources. (2) We have learned much during that time 
about the emissions from vehicles, personal exposure to those 
emissions, and the resulting effects. This paper attempts to review 
briefly what we know about emissions, exposure, and effects, and to 
discuss current and likely future trends.
Emissions
    The combustion of gasoline and diesel fuel in vehicle engines 
produces a number of emissions of potentially harmful substances. 
Increasingly we have understood that these emissions are not solely the 
result of the combustion process, nor do they come only from the 
tailpipe of the vehicle. Rather, it has become clear that such 
emissions result from a combination of the engine design and the fuel 
characteristics. Evaporative emissions--from refueling, spills on to 
heated engine parts, etc.--can equal emissions from the tailpipe.
    The emissions from motor vehicles come in two primary forms: major 
gaseous and particulate air pollutants which can be found in relatively 
high amounts in the atmosphere, and air toxics which usually are found 
in lower amounts in the atmosphere but can have important health 
impacts. The gaseous and particulate pollutants to which motor vehicles 
contribute include carbon monoxide, ozone (through its atmospheric 
precursors volatile organic compounds (VOCs) and nitrogen oxides 
(NOx)), fine particulate matter PM10 and PM2.5 
(particles smaller than 10 and 2.5 microns in aerodynamic diameter 
respectively), and nitrogen dioxide. The air toxics emitted from motor 
vehicles include aldehydes (acetaldehyde, formaldehyde, and others), 
benzene, 1,3-butadiene, and a large number of substances known as 
polycyclic organic matter (including polycyclic aromatic hydrocarbons, 
or PAHs).
    All of the emissions from motor vehicles also come from other 
sources such as industrial processes, electric power generation, and 
home heating. As a result, the contribution of motor vehicles to 
ambient levels varies depending on the pollutant (see Table 1). In most 
cases, motor vehicles contribute between 25 percent and 40 percent of 
the ambient levels, although in a few cases (e.g. carbon monoxide, 
ultrafine particles (PM0.1), and 1,3-butadiene) motor 
vehicle contributions are noticeably higher.

 Table 1. Contributions of Motor Vehicle Emissions to Ambient Levels of
                          Major Air Pollutants
------------------------------------------------------------------------
                                         Percent
            Pollutant                 Contribution         Reference
------------------------------------------------------------------------
Carbon Monoxide..................  1190 percent......  EPA (2000a)
PM10.............................  1120 percent-25     DETR (1999)
                                    percent.
PM2.5............................  1125 percent--30    DETR (1999)
                                    percent.
Nitrogen Oxides..................  1140 percent......  EPA (2000a)
Volatile Organic Compounds.......  1135 percent......  EPA (2000a)
Average Air Toxics...............  1121 percent......  EPA (1999a)
Urban Air Toxics.................  1142 percent......  EPA (1999)
------------------------------------------------------------------------

Exposure
    While in general motor vehicles contribute a significant portion, 
although not the majority, of most air pollutants, there are certain 
circumstances in which motor vehicles can contribute a substantially 
higher amount to personal exposure. In particular, in urban centers, 
along roadsides, and especially in urban street canyons in crowded 
business districts, mobile source contributions can contribute 2 to 10 
times as much as in general background situations. (3) For example, 
while urban background levels of PM10 in England have been 
measured at 22--25 /m3, and at street side levels have been measured at 
24--38 /m3. (DETR 1999) This can have important implications for the 
potential acute health effects from exposure to these pollutants and, 
if individuals spend a significant portion of their lives living in 
these environments, may result in greater contributions of vehicles to 
chronic health effects as well. This may be especially true for 
elderly, low-income, and other urban populations that could be 
sensitive to the effects of air pollution.
Effects
    Research over the past several decades has found a variety of 
effects from the different pollutants, including effects on the 
respiratory, neurological, and cardiac systems, and the promotion of 
several different types of cancer. One of the challenges of 
understanding these effects is that they are usually experienced as 
part of a complex mixture of pollutants, and it is often difficult to 
disentangle the specific effects of one pollutant from the effects of 
other pollutants that follow similar spatial and atmospheric patterns. 
(HEI 2000) At the same time, it is apparent that not all members of the 
population are equally sensitive to such effects, and that some 
subgroups (e.g. the elderly, asthmatics, children, people with heart 
disease) may at more risk from exposure to air pollution.
    Overall, the effects of these pollutants on public health tend to 
be relatively small in comparison with other risk factors such as 
cigarette smoking, but because of the large number of people exposed 
the effects as a whole are of sufficient magnitude to be of public 
concern.
    Despite some uncertainties, there is much known about the effects 
of each of these pollutants:

    Carbon Monoxide is a gas emitted directly from vehicles. When 
inhaled it replaces oxygen in the bloodstream, forming 
carboxyhemoglobin and interfering with the normal transport of oxygen 
to the heart and brain. High levels of exposure are known to be lethal; 
low levels found in ambient settings are not likely to have effects in 
healthy individuals but can advance the time of angina (chest pain) in 
people with coronary artery disease and may cause increased incidence 
of cardiac effects. Some recent epidemiologic studies have found 
relationships between increased CO levels and increases in mortality 
and morbidity (EPA 2000).
    Ozone is a gas formed in the atmosphere from combinations of 
nitrogen oxides and volatile organic compounds (both emitted from 
vehicles) in certain meteorologic conditions normally found in the 
summer time. It is known to reduce the lung function of some 
individuals, (see Figure 1) and epidemiologic studies have found 
evidence of increased asthma attacks and hospitalization related to 
increased ambient levels. It may also increase the lung's reaction to 
allergens and other pollutants. Although recent studies have found 
associations of daily increases in ozone with increased mortality, 
there is not comprehensive evidence that long-term exposure causes 
chronic health effects, and some evidence suggests that the lung may 
develop a form of tolerance after repeated short-term exposures (EPAQS 
1997, HEI, 1996).
    Particulate Matter in the form of PM10 and 
PM2.5 is inhalable material which is emitted directly from 
motor vehicles and other sources, and also formed in the atmosphere 
from atmospheric reactions with gaseous emissions (e.g. nitrogen oxides 
become nitrates). Although PM has been of concern for many decades, new 
short term and long-term epidemiologic studies published in the U.S. 
and Europe in the 1990's found associations of PM with increased 
mortality and morbidity at ambient levels below then-established 
national air quality limit values. It is these studies that have been 
the basis for recent action in both the European Union and the United 
States to establish more stringent standards for PM.

    In the past several years, several new epidemiologic studies have 
begun to strengthen the understanding of the relation between exposure 
to PM and mortality and morbidity. Recently, HEI's National Morbidity, 
Mortality, and Air Pollution Study (HEI, 2000a) of the 90 largest 
cities in the United States, and preliminary results from the APHEA-II 
(4) study of over 30 European cities, have found a generally consistent 
effect of PM and mortality, when common methods are applied, and after 
the effects of other pollutants are considered. The Reanalysis of the 
Harvard Six Cities and American Cancer Society Studies (HEI 2000b) has 
also reported on extensive additional analysis of these two studies 
that have been the basis of most U.S. and European efforts to estimate 
the population health effects of PM, and have generally confirmed the 
results, although the reanalysis did in several important ways extend 
and challenge our understanding. At the same time, although there has 
been progress in research to better understand the biological mechanism 
that might be causing these effects at relatively low exposure levels, 
there is not today an agreed-upon plausible biological mechanism for 
the effects.
    Components and Characteristics of the PM Mixture have been 
identified as potentially being most responsible for mortality and 
other risks. Diesel exhaust particulate matter has been cited as a 
probable human carcinogen by several national and international 
agencies (including the International Agency for Research on Cancer and 
the U.S. Environmental Protection Agency) because of findings of lung 
cancer in exposed workers, although there are limits to our ability to 
estimate a precise risk (HEI, 1999). Hypotheses have also been put 
forward suggesting that ultrafine particles (less than 0.1 microns), 
particles containing metals (e.g. iron), and other types of particles 
may be the most toxic components of the mixture. To date these studies 
have not identified one component or characteristic that is 
significantly more toxic than others. (EPA 1999)
    Air Toxics have a variety of characteristics and effects. Most of 
those emitted from motor vehicles are animal carcinogens. Benzene is a 
known human carcinogen. Butadiene, for which vehicles are the dominant 
ambient source, was recently designated as a probable human carcinogen 
by the International Agency for Research on Cancer, and a known human 
carcinogen by the U.S. National Institutes of Health. Several aldehydes 
(including formaldehyde and acetaldehyde) have also been designated as 
probable human carcinogens. In addition, several of the mobile source 
air toxics, especially the aldehydes, have exhibited evidence of acute 
respiratory effects. Recently, the U.S. Environmental Protection Agency 
identified a total of 21 air toxics emitted from motor vehicle exhaust 
(U.S. EPA 2000c)
Trends and the Future
    Given the health effects of vehicle emissions, action has been 
taken, and continues to be taken to reduce emissions from both gasoline 
and diesel vehicles. The U.S. EPA took action in 1999 to further 
improve fuel formulation and reduce emissions of light duty vehicles, 
and in 2001 to promulgate stringent new fuel and emissions standards 
for heavy-duty vehicles. The EU is on a similar path, which is expected 
to substantially reduce emissions over the coming 20 years (see Figure 
2). In addition, the requirements for a substantial reduction in diesel 
particulate matter emissions is expected to substantially reduce cancer 
risk from diesel as well (IFEU, 1999). At the same time, continued 
growth in travel is expected to offset a portion of these reductions. 
As a result, continued attention to reducing emissions is likely in the 
future. This will come in three ways:

      continued tightening of fuel and emission standards for 
petrol and diesel vehicles (in 2000, the U.S. EPA tightened fuel and 
emission standards for both light duty and heavy duty vehicles, and in 
2001 the EU is expected to tighten standards for sulfur levels in fuel)
      the introduction of new technologies: natural gas 
vehicles, electric and electric hybrid vehicles, and fuel cell vehicles 
are all in development or beginning to appear on the market. While 
these have certain air quality advantages, they may also raise new 
health questions (e.g. the use of methanol to power fuel cells), and 
will need to be introduced with appropriate care.
      policies to discourage growth in personal auto use--this 
is potentially the most important future direction, and at the same 
time the most challenging. Future land use and transportation policy 
can significantly affect travel behavior, but the ability to implement 
effective measures may be limited as the general public is increasingly 
used to and reliant upon the flexibility of the private automobile 
(Greenbaum, 1995).

    In conclusion, the emissions of a variety of pollutants from 
vehicles account for, in general, approximately 25 percent to 40 
percent of the ambient levels of air pollution (and in some cases more, 
depending on the pollutant and location). These pollutants have been 
demonstrated to have a measurable negative effect on the public health. 
As a result the long-term trend has been toward reducing emissions from 
motor vehicles, and that trend is likely to continue in the future. 
However, continued growth in vehicle travel is likely to offset at 
least a portion of the expected reductions, suggesting continued 
efforts to reduce the emissions and other impacts on public health.
References
    Department of the Environment, Transport, and Regions Source 
Apportionment of Airborne Particulate Matter in the United Kingdom, 
Report of the Airborne Particles Expert Group, London, January 1999
    Environmental Protection Agency National Air Toxics Program: The 
Integrated Urban Strategy U.S. Federal Register, Vol.64, No. 137, 
Washington, DC. July 19, 1999a.
    Environmental Protection Agency, Air Quality Criteria for 
Particulate Matter, External review Draft, Office of Research and 
Development, Washington, DC, October, 1999b.
    Environmental Protection Agency National Air Quality and Emissions 
Trends Report, 1998, EPA 454/R-00-003, Research Triangle Park, North 
Carolina, March 2000a.
    Environmental Protection Agency, Air Quality Criteria for Carbon 
Monoxide, Office of Research and Development, Washington, DC, June 
2000b.
    Environmental Protection Agency, Draft Mobile Source Air Toxics 
Study, Office of Transportation and Air Quality, Washington ,D.C July 
2000c.
    Expert Panel on Air Quality Standards Ozone HMSO Publications 
Centre, London, 1997.
    Greenbaum, DS, Shaping Transport and health policy: a case study in 
the Boston, Metropolitan Areas, Massachusetts, USA, in Health at the 
Crossroads: Transport Policy and Urban Health, T Fletcher and AJ 
McMichael, eds., Wiley 1997.
    Health Effects Institute, Diesel Emissions and Lung cancer: 
Epidemiology and Quantitative Risk Assessment, A Special report of the 
Institute=s Diesel Epidemiology Expert Panel, Cambridge, Massachusetts, 
June 1999.
    Health Effects Institute, Research Report 65, Part XI: Consequences 
of Prolonged Inhalation of Ozone on F344/N Rats; Integrative Summary, 
Cambridge, Massachusetts, April 1995.
    Health Effects Institute, Strategic Plan for the Health Effects of 
Air Pollution 2000--2005, Cambridge, Massachusetts, 2000.
    Health Effects Institute, Research Report 94, Part II, The National 
Morbidity, Mortality, and Air Pollution Study, Cambridge, Massachusetts 
2000a.
    Health Effects Institute, Reanalysis of the Harvard Six Cities and 
American Cancer Society Studies, A Special Report of the Institute's 
Particle Epidemiology Reanalysis Project, Cambridge. Massachusetts 
2000b.
    Institute fur Energie und Umweltforschung, Risk Assessment of 
Diesel and Spark Ignition Engines Emissions, Heidelberg, December, 1999
    1. While this is in general true, there is one instance--the case 
of ozone--where urban levels are generally lower than those found 
outside cities, the result of ``scavenging'' of the ambient ozone by 
high levels of ambient nitrogen oxides.
    2. The Health Effects Institute is a not-for-profit research 
institute funded jointly and equally by environmental regulatory 
agencies and the worldwide motor vehicle and fuels industry. 
Established in 1980, and overseen by an independent Board of Directors, 
HEI provides high-quality, impartial, and relevant science for public 
and private decisionmakers on the health effects of air pollution from 
motor vehicles and other sources in the environment. All of its 
research is selected competitively and overseen by a distinguished 
Research Committee of leading U.S. and European experts. Comprehensive 
results of its work are reviewed intensively by an independent Review 
Committee which has had no part in designing or overseeing the 
research. Although funded initially to inform regulatory decisionmaking 
in the United States, HEI has increasingly been called upon and funded 
by public and private officials in Europe to address key air pollution 
and health issues facing the European Union and its member countries. 
Full details about HEI and its publications can be found at 
www.healtheffects.org.
    3. While this is in general true, there is one instance--the case 
of ozone--where urban levels are generally lower than those found 
outside cities, the result of ``scavenging of the ambient ozone by high 
levels of ambient nitrogen oxides.
    4. Air Pollution and Health, A European Assessment.
                               __________
Statement of Jeffrey A. Saitas, P.E., Executive Director, Texas Natural 
                    Resource Conservation Commission
    Good afternoon, Mr. Chairman and members of the committee. My name 
is Jeff Saitas, and I am the executive director of the Texas Natural 
Resource Conservation Commission. Our agency implements a broad range 
of regulatory and nonregulatory activities that protect the health of 
Texans and their environment. The agency is led by a three-member 
commission appointed by the Governor. About 3,000 staff members work in 
Austin and at 16 regional offices around the State. Clean air issues 
continue to be one of the agency's top priorities and toughest 
challenges.
    Thank you for the opportunity to testify about our experiences 
implementing the Clean Air Act and about our suggestions for 
improvement. I had the opportunity to testify before this committee 
back in September and I appreciate the invitation to address the 
committee once again. I will highlight our current planning efforts and 
the challenges that we continue to face.
    In September I discussed the successful partnership effort between 
local, State, and Federal Governments in developing the State 
Implementation Plan for the Dallas/Fort Worth area. I also addressed 
some of the challenges we have faced due to litigation and delays in 
full implementation of Federal regulations. We have now completed a 
significant phase in our planning efforts for the Houston/Galveston 
area, again with the same partnership efforts, however the challenges 
that we face with this area are even greater. The Houston/Galveston 
area needs far more emission reductions than the Dallas/Fort Worth 
area, therefore, we are forced to count on the Federal Government more 
than ever to fulfill their commitment to this partnership.
    We will need to reduce nitrogen oxide emissions in the Houston/
Galveston area by a total of 75 percent with up to 90 percent 
reductions from industrial sources. However, the State is pre-empted 
from regulating a significant portion of the emission sources in the 
area. The State's only viable option in controlling these sources has 
been to adopt time-of-day use restrictions and even these have been 
struck down through litigation due to preemption issues. Therefore, the 
State must be able to count on the emission reductions from the Federal 
regulations.
    While some of the Federal regulations are beginning to be 
implemented now, most of the Federal rules that are most beneficial to 
the Houston/Galveston area are not scheduled to be fully implemented 
until 2006 or later. Further, full implementation of the standards does 
not equal full emission reduction benefits. Most of the Federal 
standards only apply to the purchase of new equipment. Therefore, it 
will be many years before all of today's equipment is replaced with new 
emissions controlled equipment.
    Likewise, many of the new engines will not operate at the lower 
emission level without the lower emission fuels.
    The State intends to demonstrate attainment for the Houston/
Galveston area. We are again requesting an equal commitment from the 
Federal Government in this partnership effort. If Congress feels it is 
appropriate to require States to reach attainment goals by 2007, it 
should also ensure that States are given a reasonable opportunity to 
comply by imposing Federal regulation deadlines that are in line with 
States' requirements. As future air quality standards are being 
finalized and new deadlines for attainment areas being set, it is 
critical that this point be taken into consideration to give States a 
fair chance to comply with Clean Air Act requirements.
    Thank you again for the opportunity to testify today. We look 
forward to working with the committee and all interested parties.

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