U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

For sale by the Superintendent of Documents, U.S. Government Printing Office

Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800

Fax: (202) 512–2250 Mail: Stop SSOP, Washington, DC 20402–0001

30–716 PDF 2006

S. HRG. 109–666

ENHANCED ENERGY SECURITY ACT

OF 2006

HEARING

BEFORE THE

COMMITTEE ON 

ENERGY AND NATURAL RESOURCES 

UNITED STATES SENATE

ONE HUNDRED NINTH CONGRESS

SECOND SESSION

ON

S. 2747

TO ENHANCE ENERGY EFFICIENCY AND CONSERVE OIL AND NATURAL 

GAS, AND FOR OTHER PURPOSES

JUNE 22, 2006

(

Printed for the use of the 

Committee on Energy and Natural Resources 

(II)

COMMITTEE ON ENERGY AND NATURAL RESOURCES 

PETE V. DOMENICI, New Mexico, Chairman 

LARRY E. CRAIG, Idaho 

CRAIG THOMAS, Wyoming 

LAMAR ALEXANDER, Tennessee 

LISA MURKOWSKI, Alaska 

RICHARD M. BURR, North Carolina, 

MEL MARTINEZ, Florida 

JAMES M. TALENT, Missouri 

CONRAD BURNS, Montana 

GEORGE ALLEN, Virginia 

GORDON SMITH, Oregon 

JIM BUNNING, Kentucky 

JEFF BINGAMAN, New Mexico 

DANIEL K. AKAKA, Hawaii 

BYRON L. DORGAN, North Dakota 

RON WYDEN, Oregon 

TIM JOHNSON, South Dakota 

MARY L. LANDRIEU, Louisiana 

DIANNE FEINSTEIN, California 

MARIA CANTWELL, Washington 

KEN SALAZAR, Colorado 

ROBERT MENENDEZ, New Jersey

BRUCE M. EVANS, Staff Director 

JUDITH K. PENSABENE, Chief Counsel 

BOB SIMON, Democratic Staff Director 

SAM FOWLER, Democratic Chief Counsel 

JOHN PESCHKE, Professional Staff Member 

DEBORAH ESTES, Democratic Counsel 

(III)

C O N T E N T S 

STATEMENTS 

Page

American Institute of Architects ............................................................................ 60

Bayh, Hon. Evan, U.S. Senator from Indiana ....................................................... 2

Bingaman, Hon. Jeff, U.S. Senator from New Mexico .......................................... 7

Callahn, Kateri, President, Alliance to Save Energy ............................................ 39

Coleman, Hon. Norm, U.S. Senator from Minnesota ............................................ 4

Domenici, Hon. Pete V., U.S. Senator from New Mexico ..................................... 1

Dorgan, Hon. Byron L., U.S. Senator from North Dakota ................................... 9

Karsner, Alexander, Assistant Secretary, Office of Energy Efficiency and Renewable Energy, Department of Energy ............................................................ 10

Lashof, Daniel A., Science Director, Climate Center, Natural Resources Defense Council ........................................................................................................ 29

Lieberman, Hon. Joseph I., U.S. Senator from Connecticut ................................ 1

Nadel, Steven, Executive Director, American Council for an Energy-Efficient 

Economy ................................................................................................................ 46

Salazar, Hon. Ken, U.S. Senator from Colorado ................................................... 24

Thomas, Hon. Craig, U.S. Senator from Wyoming ............................................... 9

APPENDIX 

Responses to additional questions .......................................................................... 63

(1)

ENHANCED ENERGY SECURITY ACT OF 2006

THURSDAY, JUNE 22, 2006

U.S. SENATE, 

COMMITTEE ON ENERGY AND NATURAL RESOURCES, 

Washington, DC. 

The committee met, pursuant to notice, at 10:05 a.m., in room 

SD–366, Dirksen Senate Office Building, Hon. Pete V. Domenici, 

chairman, presiding. 

OPENING STATEMENT OF HON. PETE V. DOMENICI,

U.S. SENATOR FROM NEW MEXICO 

The CHAIRMAN. I have an opening statement and I’m sure you 

do, but in deference to other Senators’ time, why don’t we proceed 

to have our two Senators comment first, Senator Bayh and then 

Senator Coleman. We are glad that you are here and we understand that you are co-sponsors of this legislation and would like to 

be heard this morning. So we welcome you. Your statements will 

be made a part of the record as if read. We would welcome whatever you would care to say. Please proceed, Senator Bayh first and 

Senator Coleman second. 

[The prepared statement of Senator Lieberman follows:]

PREPARED STATEMENT OF HON. JOSEPH I. LIEBERMAN,

U.S. SENATOR FROM CONNECTICUT

Thank you, Mr. Chairman. I am grateful to the members of the Energy and Natural Resources Committee for allowing me to testify in support of the Enhanced Energy Security Act. I was proud to cosponsor this bill with Senator Bingaman last 

month. 

As you know, the Enhanced Energy Security Act is based on the Vehicle and Fuel 

Choices for American Security Act, a bill that Senators Bayh, Brownback, Coleman, 

and I introduced with six other colleagues last November. Twenty-six Senators, including Senator Bingaman, have now cosponsored that bill, which I like to call the 

Set America Free Act. Seventy-nine Congressmen and Congresswomen have cosponsored its companion bill in the House of Representatives. 

The Set America Free Act’s core provisions fall within the jurisdiction of this committee. Senator Bingaman has taken that core, has slightly amended and supplemented it, and has reintroduced it as the Enhanced Energy Security Act. He also 

has taken those of the Set America Free Act’s provisions that fall within the Finance Committee’s jurisdiction and has introduced them as the Enhanced Energy 

Security Tax Incentives Act, of which I am also an original cosponsor. 

As the Ranking Minority Member of this Committee, and as someone who has 

earned the respect of Senator Domenici, the committee’s esteemed Chairman, Senator Bingaman has had the wherewithal to bring about today’s hearing. I commend 

him and Chairman Domenici for doing so. It is an unmistakable sign of the momentum that continues to gather behind the Set America Free Act. 

Like that bill, the Enhanced Energy Security Act requires the Executive Branch 

to use means readily at its disposal to save, by 2016, 2.5 million barrels per day 

from projected oil consumption in that year. It goes on to require 7 million barrels 

per day in savings by 2026 and 10 million barrels per day in savings by 2031. CurVerDate 0ct 09 2002 11:05 Nov 14, 2006 Jkt 109666 PO 30716 Frm 00005 Fmt 6633 Sfmt 6621 P:\DOCS\30716.TXT SENERGY2 PsN: PAULM
2

rently, we import just over 10 million barrels per day of crude oil and consume just 

over twice that amount. 

Americans are alarmed both by the steady rise in gas prices and by the increasing 

volatility in those prices. The main reason fuel prices are high and volatile is that 

the price of oil is high and volatile. The fundamental reason for that, in turn, is 

the narrowness of the margin between global oil demand and global oil production. 

We might never again see a comfortable margin, because while we have not yet 

drained all the oil deposits in the world, the demand of countries such as the U.S., 

China, and India is growing just as quickly as production. 

Many Americans are also concerned that the U.S. is being thrust into increasing 

competition over oil with nations such as China, and they do not like seeing our 

economy held hostage to the caprice of those unstable and even hostile countries 

that supply much of the world’s oil. 

The U.S. can not drill its way out of this bind. Oil is a commodity that trades 

in a global market. Any modest amount of oil produced by new wells in the U.S. 

would be merely a trickle in the stream of global production, and thus would not 

have any appreciable effect on the price we pay for oil. 

The only permanent solution to high fuel prices is to end our oil addiction. The 

Set America Free Act would do just that. What is more, in the process of making 

our cars, trucks, and busses more efficient and increasing the use of fuels derived 

from crops, the act would reduce greatly the amount of global warming pollution 

that our vehicles add to the atmosphere. 

Energy independence, economic security, and curbing global warming—the Set 

America Free Act advances us toward each of those vital goals. So I am honored 

to testify today in favor of Senator Bingaman’s Enhanced Energy Security Act. I respectfully ask this committee to schedule a vote on the bill and to report it favorably 

to the Senate floor. 

Thank you, Mr. Chairman.

STATEMENT OF HON. EVAN BAYH, U.S. SENATOR

FROM INDIANA 

Senator BAYH. Thank you very much, Mr. Chairman, for convening these hearings and for your leadership on this important 

issue. It is good to be with you again this morning. And to Senator 

Bingaman, thank you for your leadership. We wouldn’t be here if 

it hadn’t been for your very good work on this issue. I also should 

thank members of the committee who could not be present today, 

who have endorsed this legislation, as well as our colleague, Senator Lieberman, who has done great work in this area and has 

helped to bring us to this point today, as well as to our friend and 

colleague, Norm Coleman, who I’ve had the pleasure of collaborating with on several other issues. 

Mr. Chairman, I hope this can be an example of bipartisan cooperation that can characterize more of our work here in the U.S. 

Capitol. 

In fact, Mr. Chairman, this is an all too infrequent occurrence, 

working across the aisle to advance our Nation’s interests, making 

common cause on our common challenges. The energy challenge 

that faces our country, as you know well, Mr. Chairman, is not a 

democratic issue or a republican issue, it is an American issue and 

it is appropriate that we work on it together and I’m hopeful that 

perhaps this can serve as a template for solving the other challenges that face us, finding the common ground that we need to 

build upon to create America’s future. 

This is the right issue on which to start, Mr. Chairman, because 

our energy dependency and our future independence will be one of 

the defining challenges of our generation. It affects so much that 

is important to this country. It affects our economy, our national 

security, our finances, our environment and we need to make 

3

progress on this issue, Mr. Chairman, if we are going to set our 

children free. We need to bring the same level of urgency and focus 

to this issue that we did to the question of putting a man on the 

moon. It will take that kind of effort to make the progress that 

America deserves. I hope we can begin to make that progress starting today. 

The approach that Senator Coleman and I and Senator Bingaman and others adopt makes real progress, Mr. Chairman. We empower American workers to produce the next generation of highmileage vehicles for use by American consumers. We rely increasingly on America’s farmers and their crops to produce America’s 

energy sources. If the Nation of Brazil can derive almost 37 percent 

of its fuel from bio-based fuels, certainly we can do better here in 

this country. Mr. Chairman, I would simply note that in next year’s 

Indianapolis 500, those motor vehicles, some of the most powerful 

on earth, they go 230 miles an hour, they will be powered 100 percent by ethanol in next year’s 500. If we can do that with those 

race cars, we can do a better job with America’s family vehicles. 

Our approach involves having American scientists and engineers 

make the discoveries that will truly make us independent in terms 

of our energy needs in the long run. And the progress, Mr. Chairman, will be substantial. The experts estimate that over the next 

10 years, we will reduce America’s petroleum consumption from 

what it would otherwise be by about 2.5 million barrels per day, 

100 percent of what we are currently importing from the Middle 

East. That doesn’t solve all of our problem but it is a material step 

in the right direction. And over the next 20 years, we would reduce 

our anticipated consumption by 7 million barrels per day—again, 

a major step in the right direction. 

The time has come to act, Mr. Chairman. We need a greater 

sense of urgency, more than ever. We import more petroleum today 

than we did on 9/11. Almost 5 years after that attack, we have 

made virtually no progress. We must do better than that. We find 

ourselves in the unacceptable position of too often funding both 

sides of the War on Terror. That must stop and it can stop by increasing our energy independence and reducing our need for imported petroleum. 

Finally, Mr. Chairman, we are exporting way too many American 

jobs today and importing way too much oil. The time has come to 

reverse that process. Our proposal would accomplish that. 

So, let me just conclude by recalling the spirit that prevailed 

across our country, certainly in my State and I know in yours as 

well, following the 9/11 attacks. I literally had people stopping me 

on the street, asking, what can I do? What can I do to help my 

country? There was a palpable desire on the part of the American 

people to help us meet the challenges that we face. 

Mr. Chairman, we gathered here today to give them that answer, 

to support this set of initiatives. And if we do, I think the chances 

are good that some day we might look back at this as the beginning 

of solving this problem. Much as Winston Churchill said at the end 

of the Battle of Britain, an important turning point in another 

great struggle for mankind, when he said that this was certainly 

not the end. Perhaps it was not the beginning of the end, but it 

was definitely the end of the beginning. So let us bring that same 

4

focus, that same sense of urgency and commitment to the beginning of meeting America’s energy challenges. That is why we are 

here today. Mr. Chairman, I thank you for your courtesy and for 

your leadership. 

The CHAIRMAN. Thank you very much, Senator. Now, Senator 

Coleman, we welcome your remarks. 

STATEMENT OF HON. NORM COLEMAN, U.S. SENATOR

FROM MINNESOTA 

Senator COLEMAN. Thank you very much, Mr. Chairman. I want 

to thank you first personally. I was listening to Senator Bayh’s remarks and the Americans say, what can we do? Mr. Chairman, I’ve 

had a number of conversations with you where you’ve asked the 

question, what can we do? What do we do? What should we be 

doing that we’re not doing? And I think through the leadership—

bipartisan leadership of Senator Bingaman, the ranking members, 

Senator Bayh and others, I think we’ve laid on the table, through 

the Vehicle Fuel Choices for American Security Act, from which 

this legislative effort stems, 26 co-sponsors, a bipartisan approach 

and some very specific things that we can do. 

First, let me second the comments of my colleague from Indiana. 

I think there are few topics Congress can address right now that 

are more important to the future of this Nation than energy security. We talk about whether it is freeing our Nation from dependence on foreign oil or limiting. There is a lot of discussion about 

it, but clearly, this is a matter of national defense. This is a matter 

of economic security. This is a matter of defense of our way of life. 

I think what some folks see as a challenge, I see, and I think my 

colleagues see, as an opportunity for economic stimulus and 

growth. 

We set an ambitious plan in this Enhanced Energy Security Act, 

saving 2.5 million barrels of oil per day in 10 years, roughly the 

amount of oil that we import today from the Middle East. I think 

many would dismiss this as too ambitious a goal, but as Senator 

Bayh talked about, and I believe, at one point in time we told 

Americans that we were going to walk on the moon. At the time, 

we didn’t have the capacity to get to the moon, not to mention get 

back. I think because we had a singular focus and a commitment 

and we stayed the course of that commitment, it happened. The innovative spirit of America, the relentless drive to get something 

done, that’s the key. Lay out the objective, and this bill lays out 

a very clear objective and then challenges—let us kind of marshal 

our energies to make it happen. I think that the failure to act—

clearly, the threat is real. It doesn’t take much imagination to consider the foreign policy implications of having to worry about what 

Hugo Chavez is thinking this morning about selling oil to America. 

Right now, I don’t think he has a choice, but at some point he will, 

with the political stability in Nigeria. 

Mr. Chairman, countries that aren’t free produce two-thirds of 

the world’s oil and have nearly 80 percent of the world’s proven oil 

reserves. Looking to our economy, Chairman Greenspan was recently before the Foreign Relations Committee and we held a hearing on this subject. He pointed out that world oil markets are now 

subject to a degree of strain not experienced in a generation and 

5

that the lack of excess capacity means there isn’t enough of a buffer between supply and demand to absorb shut-downs of even a 

small part of the world’s production. If terrorists attack just one 

major oil supply that exceeds our economy, we will pay a heavy 

price. 

So the imperative is clear. America must unleash itself from its 

foreign oil dependency. I think the solution is clear: Technology, renewable energy, and energy conservation. This bill provides some 

important initiatives, that will promote, by the way, E-85 fueling 

infrastructures, speed the development of cellulosic ethanol, while 

investing in the development of efficient vehicle technologies and 

assisting auto manufacturers to transition to fuel-efficient vehicle 

production. 

I believe that much of the ability to reduce petroleum demand 

will rest with our ability to accelerate technology for electric hybrids and infrastructure for renewable fuels. This year, Brazil will 

have the liberty of not having to import. The liberty—not to say 

that it won’t, but it will have the liberty of not importing foreign 

oil. I’ve been to Brazil. I’ve talked to their leaders. I’ve witnessed 

what they have done first-hand. And what they did was simply had 

a focused, concentrated effort over 30 years. It took a long time but 

they started in the 1970’s and they are there today. In the 1970’s, 

their leadership realized 85 percent dependence on foreign oil was 

unacceptable. They did something about it. They made a commitment to investing in ethanol production, mandated an aggressive 

percentage of gasoline be blended with ethanol, and ultimately ensured that flex fuel vehicles were widely available. A similar commitment by the United States could also reap significant rewards. 

In fact, in a recent study—and I’m going to have it submitted, 

if I can, into the record—by AllianceBernstein of Wall Street, 

they’ve laid out kind of an interesting view of research on strategic 

change. They noted—they talked about how cellulosic ethanol could 

be a game changer, a game changer resulting in, perhaps, a reduction of 40 percent of the demand for petroleum. 

Mr. Chairman, renewables are a real option. One of the problems 

we have is half the E-85 pumps—it’s one thing to have renewables, 

but half the pumps in the Nation are in one State, my State. I 

think 246 out of 600 E-85 pumps. But we can change that. Notably, 

the alternative fueling infrastructure incentives in this bill would 

make an estimated $20 million available per year for these pumps. 

I think it is obvious that our current foreign oil dependence is untenable, that our economy and national security is in peril if we 

don’t do something about it. But hopefully, that’s not the end of the 

story. 

I truly believe we can gain a great deal of energy independence 

through existing and emerging energy saving and renewable energy technology that will protect and grow American jobs. Mr. 

Chairman, hybrids are a few years away. Again, I cite the 

AllianceBernstein study: Hybridization—Toyota is coming out with 

a lithium battery, I’m told, in a couple years. It could get 70 miles, 

stay charged and that will drive down, that will drive down. But 

what we’ve got to do is we’ve got to support those technologies. We 

have to be there to move the ball forward. Cellulosic isn’t here 

today but we have a stake in it being here in the near-term future. 

6

The Enhanced Energy Security Act moves us toward independence and continued prosperity and I commend the committee for 

considering this proposal. Thank you, Mr. Chairman. 

[The prepared statement of Senator Coleman follows:]

PREPARED STATEMENT OF HON. NORM COLEMAN, U.S. SENATOR FROM MINNESOTA

First of all, I want to thank you, Chairman Domenici, for holding this hearing, 

and I want to recognize Senator Bingaman’s efforts on this bipartisan legislation. 

The Vehicle and Fuel Choices for American Security from which this legislative effort stems has 26 cosponsors and speaks to bipartisan interest in taking an aggressive approach to energy independence. 

There are few topics Congress could address right now more important to the future well-being of the nation than our energy security. Freeing our nation from dependence on foreign energy is truly a matter of national defense—defense of our national security, defense of our economy, defense of our way of life. But, what some 

folks forget is that this challenge presents a powerful opportunity for economic stimulus and growth. 

The Enhanced Energy Security Act sets an ambitious plan for saving 2.5 million 

barrels of oil per day in 10 years, roughly the amount of oil we currently import 

from the Middle East. Many would dismiss such an ambitious goal, but the moon 

was also once out of reach—we all know the power of America’s innovative, relentless spirit when called to an objective, no matter how formative. 

Quickly, the threat to national and economic security is real and growing. It does 

not take much imagination to consider the foreign policy implications of having oil 

imports rest on the whims of Hugo Chavez in Venezuela or the political stability 

of Nigeria. Countries that aren’t free produce more than two-thirds of the world’s 

oil and have nearly 80 percent of the proven reserves. 

Looking to our economy, just consider the recent comments of Alan Greenspan 

who has pointed out that world oil markets are now subject to a degree of strain 

not experienced in a generation and that the lack of excess capacity means there 

isn’t enough of a buffer between supply and demand to absorb shutdowns of even 

a small part of the world’s production. If a terrorist attack on one of our major oil 

suppliers succeeds, our economy will pay a heavy price. 

The imperative is clear: America must free itself from its oil dependence, and I 

believe the solution is also clear: renewable energy and energy conservation. The 

Enhanced Energy Security Act and its parent bill, the Vehicle Fuel Choices for 

American Security Act, include important initiatives that will promote E85 fueling 

infrastructure and speed the development of cellulosic ethanol, while investing in 

the development of efficient vehicle technologies and assisting auto manufacturers’ 

transition to fuel-efficient vehicle production. These initiatives will help make America a leader in renewable fuel and energy conservation technology that U.S. businesses can then export to countries like China and India where there is a projected 

125% increase in the demand for oil from 2003 to 2025. 

I believe much of the reduction in petroleum demand will rest with our ability 

to produce renewable fuels. This year, Brazil will have the liberty of not having to 

import a drop of foreign oil. I been to Brazil, witnessed their success firsthand, I’ve 

sat down with their leaders and talked renewables, and what I’ve learned is that 

Brazil’s success was the result of a determined, concerted effort over 30 years to 

reach oil independence. 

In the 70s, the Brazilian leadership realized its 85 percent dependence on foreign 

oil was unacceptable and they did something about it. Investing billions of dollars, 

Brazil directed provided heavy government support for ethanol production, mandated an aggressive percentage of gasoline be blended with ethanol, and ultimately 

ensured flex fuel vehicles were widely available. A similar commitment by the 

United States could also reap significant rewards. In fact, a recent 

AllianceBernstein study found that ethanol could eventually replace a large fraction, 

around 40 percent, of gasoline demand. 

Of course, mandating that every gallon of gasoline contain ethanol in this country 

would be difficult, which is why it’s so important to have heavy federal in E85 

pumps so that ethanol can be made widely available. Notably, the alternative fueling infrastructure incentives in this bill would make an estimated $20 million a 

year available for these pumps. 

I think it’s obvious our current foreign oil dependence is untenable, that our economy and very national security is in peril if we don’t do something about it, but 

thankfully, that’s not the end of the story. I truly believe we can gain a great deal 

of energy independence through existing and emerging energy saving and renewable 

7

energy technologies that will protect and grow American jobs. The Enhanced Energy 

Security Act moves us towards independence and continued prosperity, and I commend the Committee for considering this proposal.

The CHAIRMAN. Thank you very much, Senator. Before you leave, 

and we’re going to proceed, we have a lot of witnesses, but I just 

want to lay before the two of you and the two of us, a simple proposition that it becomes more and more obvious to this Senator with 

the passage of each day that while we are all complaining about 

the high price of crude oil, one thing that it is bringing to the 

American economy is an opportunity for innovative technology because the price is justifying investment. And I lay before you now, 

and it is being addressed by some very intelligent people, it is a 

very simple proposition, and that is, why is that high price not 

bringing more investment? And it seems that question is being answered in the following manner. 

One of the reasons is, there is no assurance that the price is 

going to stay that high. Now, that is bringing some very imaginative thinking to the proposition of how one might resolve that 

issue. Such things as a floor and where would a floor be? Is $38 

or $40 a sufficient floor to assure that there will be investments of 

all types, in terms of things like coal gasification. Now, you must 

have heard these propositions from Jet Blue and others, where 

they are talking about that kind of thing. Very, very interesting 

propositions. They find their ways through your different proposals, 

at least the basic notion that it is time to invest because the price 

is awful. What you are competing with is very, very high, finally. 

So you don’t want to let that get away from you. You want to get 

the alternatives on while that is true. 

I want to thank you for your testimony and for your proposals. 

I don’t know where this is going for the remainder of this a short 

year, but there are many good ideas there and I thank you for 

them. 

Senator Bingaman, would you like to make your opening remarks? I’ll follow with mine and then we’ll proceed with the witnesses. 

Senator BINGAMAN. I’m glad, too. Let me also just thank both 

Senator Bayh and Senator Coleman for their leadership on this. 

The legislation that we are considering this morning in the committee, of course, is built on—is essentially the parts of the legislation that they introduced, which this committee has jurisdiction of 

and which, I think, have a great deal of merit and we appreciate 

your leadership. 

The CHAIRMAN. Thank you. 

Senator BINGAMAN. Did you want me to give an opening statement? 

The CHAIRMAN. Yes, please. 

STATEMENT OF HON. JEFF BINGAMAN, U.S. SENATOR

FROM NEW MEXICO 

Senator BINGAMAN. Let me go ahead and begin, Mr. Chairman, 

on a subject that is a little different than the subject of this hearing, and acknowledge that today is the 1-year anniversary of a 

sense of the Senate resolution that we passed related to greenhouse 

gas emissions and global warming. I wanted to thank you for the 

8

continued effort that we are making to move ahead on that issue 

and the workshop that we had earlier and the white paper we’ve 

issued. I think all of that has been positive. 

The topic of today’s hearing is S. 2747, and as I indicated, it is 

a piece of legislation that essentially takes provisions that were 

earlier introduced, that should be in the jurisdiction of this committee. The earlier legislation contained tax provisions as well and 

went to the Finance Committee. 

So what we’ve done is to get the provisions that relate to this 

committee and put them together in legislation, S. 2747, dealing 

primarily with the issue of energy efficiency. I think energy efficiency, along with the use of alternative fuels and alternative energy sources, provide us with the best near-term options to begin 

balancing energy demand and supply and reducing the cost of energy. Clearly, this needs to be part of what we do, in a very conscious way, by changing our policies and beginning to move toward 

reducing our addition to foreign oil, which the President spoke 

about in his State of the Union speech. I hope we get some good 

testimony on the provisions in this legislation. I believe we may 

also get some additional ideas for legislation from some of the testimony from the second panel, which I think would be good. 

Let me thank Secretary Karsner for his appearance today. I believe this is his first appearance since his confirmation and I look 

forward to hearing his comments. I am somewhat disappointed 

that the written testimony the Department has submitted is not 

more detailed in response to the specific provisions in this legislation. I thought, frankly, we would get more direct interaction with 

the administration on what steps they propose will help us to end 

this addiction to oil, which the President spoke of. Clearly, the proposals in this legislation, I think, move in that direction. I hope we 

can get into those questions in the question and answer period. 

Thank you very much. 

The CHAIRMAN. Thank you. Again, good morning. And this morning we have a hearing on my colleague, Mr. Bingaman’s bill, S. 

2747, which essentially is enhanced energy efficiency as a means 

of reducing our consumption of gas and oil. I’m pleased that we are 

having the hearing and look forward to the testimony. There is no 

doubt much can be done to improve the ways in which we use energy. We can do many things as private citizens that make economic sense. We can reduce the amount of gasoline we consume by 

driving less. We can reduce the amount of natural gas and electricity we consume by producing more efficient appliances and exercising more care in how cool or warm we keep our homes, depending upon the season. We can build more efficient residences 

and commercial buildings. We can use more energy produced from 

renewable energy, solar, wind and biomass and we can reduce our 

use of water, which requires enormous amounts of energy to store 

and then move to consumers. 

These are just a few of the steps that most consumers are faced 

with, that the higher prices of last year look them in the eye and 

cause them to make some changes. The question we as legislators 

now face is, what can we do to help consumers understand how to 

reduce their energy consumption and the cost that they must endure? 

9

We did a great deal in the energy bill of 2005 that addresses energy conservation and improved energy efficiency. But that was before increased global demand for oil and natural gas and Hurricanes Katrina and Rita drastically changed our lives, and how dependent we are on imported petroleum and how even the slightest 

interruption of domestic supplies can affect our daily lives. 

Our hearing today marks, I think, the beginning of a search for 

additional ideas that we might undertake to address our energy 

needs and I welcome my friend’s contribution to the start of this 

effort to find new ideas and, I hope, some new solutions. 

Before we hear our witnesses, I want to take a moment to recall 

that on this date, a year ago, we passed, as you indicated, a sense 

of the Senate resolution regarding the need to establish a system 

of reducing greenhouse gas emissions in the U.S. economy. We 

have not made great progress, but that is looked upon by many as 

a significant achievement, the mere fact that we made the finding 

and then the Senate adopted it. Since then, our committee has had 

several hearings and a very successful conference, as you’ve indicated, and I look forward to seeing where this all ends up. 

Now, having made your statement, I look now to Senator Thomas to see if he has any opening remarks and then to the distinguished Senator Dorgan, if he has any. 

STATEMENT OF HON. CRAIG THOMAS, U.S. SENATOR

FROM WYOMING 

Senator THOMAS. Thank you, Mr. Chairman. I am pleased that 

you are having this hearing. I think one of the great things to look 

forward to is some alternatives that we can have for energy and 

the demands of energy that we have and to look at the ways we 

can do that and to the incentives we can put in place to cause it 

to happen. 

I just want to make one point that I think we also need to remember, that we have two challenges, at least, before us. One is 

the long-term challenge of finding some alternatives and some new 

ways to produce. We also have the challenge of our needs in the 

short-term. So, we can’t get so consumed with our long-term energy 

that we don’t take a look at doing what we can with the things that 

we do know how to do and to exploit those things we already have. 

So, I hope we can find this balance and I think this hearing will 

be part of doing that. Thank you, sir. 

The CHAIRMAN. Thank you very much. 

STATEMENT OF HON. BYRON L. DORGAN, U.S. SENATOR

FROM NORTH DAKOTA 

Senator DORGAN. Mr. Chairman, thank you very much. I am the 

ranking member of a committee that is meeting two floors above 

us, the Commerce subcommittee, so I will have to be in and out. 

But I want to thank you. You know, as the old saying goes, talk 

is cheap and energy prices are high, but I’ve been very proud to 

be a part of this committee working on the previous energy bill and 

now working on things that really will matter. I think the proposals by you and the proposals by Senator Bingaman recognize 

that the least expensive and most readily available forms of energy 

are achieved through efficiency and conservation in the short-term, 

10

because we use a prodigious amount of energy and waste a great 

deal of it as well. As Senator Thomas said, we’ve got to do a lot 

of things and a lot of things right, in the short, intermediate and 

long terms to address these issues. I think that the hearing you are 

holding today is exactly the right thing at the right time and I appreciate your leadership and the leadership of Senator Bingaman. 

The CHAIRMAN. Thank you, Senator. Now, this is your first opportunity to appear before us. I remember the day we had you before us, how excited you were to take this job on. And now I understand you have been over there for a while. You still have a smile 

on your face and you look just as rosy as you did when you were 

willing to accept the job. I know this bill has presented a very difficult challenge, an analytical challenge for you and a policy analysis challenge, but we look forward to your testimony. Your remarks will be made part of the record. We urge that you make 

them brief for oral presentation, considering that they are already 

in the record as presented. 

With that, would you please proceed and then we’ll ask questions, if we have any. 

STATEMENT OF ALEXANDER KARSNER, ASSISTANT SECRETARY, OFFICE OF ENERGY EFFICIENCY AND RENEWABLE 

ENERGY, DEPARTMENT OF ENERGY 

Mr. KARSNER. Thank you, sir. Chairman Domenici, ranking 

member Bingaman and members of the committee, I am pleased to 

offer preliminary comments on some of the provisions of S. 2747, 

the Enhanced Energy Security Act of 2006, and I will also report 

on the status of the Office of Energy Efficiency and Renewable Energy’s work to implement the energy efficiency provisions of the 

Energy Policy Act of 2005. 

I will begin with the comments on S. 2747. When EPAct 2005 

was signed last August, it addressed many energy issues that had 

sought attention for many years. It was only a month later when 

Hurricane Katrina hit and slammed—

The CHAIRMAN. We can’t hear you very well, sir. 

Mr. KARSNER. Oh, forgive me, sir. It was only a month later 

when Hurricane Katrina hit, forcing home new energy realities and 

forcing our country to take an even closer look at our energy 

vulnerabilities. We, as a Nation, needed to take more comprehensive action. And I would like to express my gratitude to this committee for your diligence in pursuing new legislative paths and initiatives to advance our national energy efficiency goals at this very 

critical time. 

Unfortunately, the administration has not had sufficient time to 

review or coordinate its interagency review of S. 2747 and, therefore, does not, at this time, have a formal position on the legislation. I would note, however, that some portions of S. 2747 overlap 

with current EPAct provisions and that it would be productive to 

resolve any issues of redundancy or duplication that are inherent 

in the legislation. Many sections of S. 2747 contribute effective energy-efficiency ideas to the mix of proposals our Nation needs to reduce oil consumption. 

For example, I am generally supportive of the School Bus Idling 

Program to save fuel and reduce pollution and believe the proVerDate 0ct 09 2002 11:05 Nov 14, 2006 Jkt 109666 PO 30716 Frm 00014 Fmt 6633 Sfmt 6602 P:\DOCS\30716.TXT SENERGY2 PsN: PAULM
11

posals for near-term vehicle technology to promote electric propulsion appear to be sufficiently flexible and aligned with the President’s Advanced Energy Initiative. 

The ‘‘Golden Carrot’’ style incentive program, in section 402, for 

high-efficiency consumer products, could definitely prove effective, 

especially if it were to be enhanced to ensure that winning companies make a sufficient commitment to bring those products to market. 

The section on energy-saving performance contracts could potentially provide increased flexibility for the Federal Government to 

use energy service companies. Inside the Department of Energy, we 

are inclined to support the energy efficiency resource programs proposed in section 404, a measure that was not included in the final 

version of the EPAct but supported by the administration at that 

time. 

Other measures, such as the Efficient and Safe Equipment and 

Replacement Program, would at this time require further review. 

Looking at title I, the national oil savings plan to reduce oil use 

on a fixed schedule, we believe that the targets might not be able 

to be met, even with the most aggressive technology push. While 

the advanced energy initiative is expected to help achieve these 

long-term goals, there remain national uncertainties in technology 

development and commercial uptake that make it imprudent to legislate an arbitrary end result. 

In addition, the President has asked Congress for the authority 

to reform and increase passenger car CAFE standards but has indicated that highway safety, technology, and economics need to be 

considered in the balance when determining the maximum feasible 

fuel economy standard. 

In title II, we have additional concerns. For example, while the 

President and Secretary Bodman are both committed to Federal 

leadership in using the Federal fleet of vehicles to advance fuel efficiency and flexible fuels, we believe there are aspects of the technical language in S. 2747 regarding Federal fleet requirements that 

need further review and discussion. We look forward to working 

collaboratively with you and the members of the committee to resolve these issues. 

Similarly, we are not yet convinced of the effectiveness of vehicle 

retirement programs with respect to the cost and life cycle energy 

savings under the present economic analysis. With regard to section 206, EPAct already authorizes grants to support activities for 

auto companies producing fuel-efficient vehicles. We believe a series of new loan guarantees legislation would largely be unnecessary. 

EPAct also provides tax credits to reduce the cost of alternative 

fuel distribution addressed in section 207 of S. 2747. In title IV, the 

national media campaign language is virtually identical to that enacted in EPAct. 

I would also like to comment on the proposed renewable portfolio 

standards. The administration continues to believe that RPS standards are best left to the States. Under Secretary Garman provided 

congressional testimony before this committee on March 8, 2005, 

explaining this position. 

12

I would now like to briefly address EERE’s implementation of 

EPAct 2005, with more complete comments in my written testimony that have been submitted for the record. 

Targeting our national imperative to reduce energy consumption, 

EPAct introduced a broad range of energy efficiency initiatives, 

programs, standards and studies, many of which built upon the 

work that was already in progress at the Department of Energy. 

For example, section 105 provides long-term authority to extend 

Federal energy savings performance contracting—ESPCs—until 

September 30, 2016. This extension has renewed interest in Federal energy savings projects after the 1-month hiatus in Federal 

ESPC authority. EERE has reinvigorated its super ESPC program 

to increase the potential for cost-effective energy savings through 

private investment in Federal energy efficiency projects. 

Appliance and equipment standards are cost-effective energy saving tools, based on published benefit/cost analysis of past rules. The 

Department is committed to addressing the backlog of mandated 

rulemakings and meeting all of its statutory requirements. By this 

August, we will be sending you another status report on our 

progress on appliance standards. We expect to report that we will 

be on schedule for all items and, to the extent possible, I am hopeful that we will find ourselves slightly ahead of schedule. 

Section 110 directed DOE to explore the impact of extending daylight savings time. That study is presently underway and in concurrence. Another study on the energy conservation implications of 

the widespread adoption of telecommuting by Federal employees is 

also in the concurrence process. 

Section 134 authorized the Energy Efficiency Public Information 

Initiative, a comprehensive national plan to inform consumers that 

builds upon the outreach efforts ongoing within DOE. Consistent 

with this authorization, a number of consumer awareness programs are underway. For example, last October, Secretary Bodman 

launched the ‘‘Easy Ways to Save Energy’’ campaign, which includes an education and awareness effort with the Alliance to Save 

Energy and private industry to disseminate energy savings information through radio and television public service announcements, 

websites, newspaper advertising, and media campaigns. 

In conclusion, I hope this gives you some understanding of the 

administration’s perspective on S. 2747 and a fair overview of the 

energy efficiency responsibilities that our office assumed with the 

enactment of the EPAct. In many important ways, EPAct has 

served to buttress our efforts and help emphasize the necessity of 

energy efficiency onto the national stage. We look forward to working with you as we dedicate ourselves to developing energy efficient 

and renewable energy technologies and promoting significant improvements in the energy efficiency of our country. 

Thank you very much. 

[The prepared statement of Mr. Karsner follows:]

PREPARED STATEMENT OF ALEXANDER KARSNER, ASSISTANT SECRETARY, OFFICE OF

ENERGY EFFICIENCY AND RENEWABLE ENERGY, DEPARTMENT OF ENERGY

Chairman Domenici, Ranking Member Bingaman, and Members of the Committee, I am pleased today to offer preliminary comments on some of the provisions 

in S. 2747, the ‘‘Enhanced Energy Security Act of 2006’’. I will also report on the 

status of the Office of Energy Efficiency and Renewable Energy’s (EERE) work to 

13

implement the energy efficiency provisions of the Energy Policy Act (EPACT) of 

2005. 

COMMENTS ON S. 2747

When EPACT 2005 was signed last August, it addressed many energy issues that 

had sought attention for years. However, only a month later, Hurricane Katrina hit, 

slamming home new energy realities and forcing our country to take an even closer 

look at our energy vulnerabilities. We, as a Nation, needed to take more comprehensive action, and I would like to thank this Committee for your diligence in pursuing 

new legislative paths and initiatives to advance our national energy efficiency goals 

at this critical time. 

The Administration has not had sufficient time to review or coordinate its interagency review of S. 2747 and therefore does not have a formal position on this legislation. I would note, however, that some portions of S. 2747 overlap with current 

EPACT provisions and that it would be productive to resolve any issues of duplication that are inherent in the legislation. 

Looking at the Title I national oil savings plan to reduce oil use on a fixed schedule, we believe that the targets might not be able to be met, even with aggressive, 

technology-forcing increases in CAFE standards that may not fully account for highway safety. While the Advanced Energy Initiative is expected to help achieve these 

long-term goals, there remain natural uncertainties in technology development and 

commercial uptake that make it imprudent to legislate an arbitrary end-result. In 

addition, the President has asked Congress for authority to reform and increase passenger car CAFE standards but has indicated that highway safety, technology, and 

economics need to be considered when determining the maximum feasible fuel economy standard. 

In Title II, we have additional concerns. For example, while the President and 

Secretary Bodman are both committed to Federal leadership in using the Federal 

fleet of vehicles to advance fuel efficiency and flexible fuels, we believe there are 

aspects of the technical language in S. 2747 regarding Federal fleet requirements 

that need further review and discussion. We look forward to working with the committee to resolve these issues. 

Similarly, we are not convinced of the effectiveness of vehicle retirement programs 

with respect to cost and life-cycle energy savings under economic analysis. With regard to Section 206, EPACT already authorizes grants to support activities for auto 

companies producing fuel efficient vehicles, and we believe new loan guarantees 

would be largely unnecessary. EPACT also provides tax credits to reduce the cost 

of alternative fuel distribution addressed in Section 207 of S. 2747. In Title IV, the 

‘‘National Media Campaign’’ is virtually identical to that enacted in EPACT. 

I would also like to comment on the proposed Renewable Portfolio Standard 

(RPS). The Administration continues to believe that RPS standards are best left to 

the States. Under Secretary Garman provided Congressional testimony before this 

Committee on March 8, 2005, explaining this position. 

EPACT 2005 IMPLEMENTATION

I would now like to address EERE’s implementation of EPACT 2005. Targeting 

our national imperative to reduce energy consumption, EPACT introduced a broad 

range of energy efficiency initiatives, programs, standards, and studies, many of 

which built upon work that was already in progress at the Department of Energy 

(DOE). 

EERE’s Federal Energy Management Program Provisions 

While EPACT’s first section in Title I appropriately addresses energy savings in 

facilities administered by Congress, the next set of sections broadens Federal programs for energy efficiency that are conducted by EERE’s Federal Energy Management Program, or FEMP. 

Section 102, Energy Management Goals, re-establishes the statutory energy reduction goals for Federal buildings. Updating the 1985 energy consumption figures, 

the new goal uses a base year of Fiscal Year (FY) 2003 and requires reductions of 

two percent per year in energy use per square foot, leading to a 20 percent reduction 

by FY 2015. 

The law allows agencies to exclude certain buildings from this goal under stringent criteria and gave the Department of Energy 180 days to provide guidelines for 

these exclusions. The guidelines have been finalized and issued to the Federal agencies. Formally titled the Guidelines Establishing Criteria for Excluding Buildings 

from the Energy Performance Requirements of Section 543 of the National Energy 

Conservation Policy Act as Amended by the Energy Policy Act of 2005, they are availVerDate 0ct 09 2002 11:05 Nov 14, 2006 Jkt 109666 PO 30716 Frm 00017 Fmt 6633 Sfmt 6621 P:\DOCS\30716.TXT SENERGY2 PsN: PAULM
14

able on FEMP’s web site at: http://wwwl.eere.energy.gov/femp/pdfs/exclusionlcriteria.pdf. 

To further assist agencies in adjusting to the new goals, EERE is drafting a 

memorandum to Federal agencies to clarify how the differing reporting requirements of EPACT and Executive Order 13123 (still in effect) will be addressed and 

to provide guidance to agencies in establishing their 2003 baseline. EERE plans to 

provide each agency with its FY 2003 energy consumption, costs, and square footage 

data formatted in ways that allow agencies to easily assess their baseline data according to default and new building inventory categories. We are also convening 

working group meetings with agencies to revise the Annual Reporting Guidance to 

reflect the EPACT 2005 requirements. 

To promote operations and maintenance (O&M) best practices in the Federal sector, EERE is developing an O&M Best Practices Guide and training materials including a comprehensive on-line training program for Federal energy managers and 

building operators. EERE will continue conducting its Energy Savings Expert Team 

(ESET) facility assessments, launched last fall in response to the President’s call for 

agency action to conserve energy. The teams initially conducted site assessments at 

28 large Federal installations and identified potential natural gas savings of 970 billion Btu. DOE is following up with all sites to assess whether the ESET recommendations are implemented, to provide technical assistance to agencies should 

they choose to use energy savings performance contracts instead of direct appropriations to implement projects, and to help with project planning for more capital-intensive projects. 

Additional efforts include promoting the Resource Efficiency Manager (REM) concept in the Federal sector. REM salaries are paid for by the savings they help generate. EERE will also demonstrate advanced energy efficient technologies in Federal 

buildings, with a goal to test or demonstrate one new advanced energy efficient 

technology each year. One of the steps toward this goal is working with industry 

to develop deployment opportunities for advanced energy efficient technologies. 

Section 103, Energy Use Measurement and Accounting, requires all Federal agencies to install metering and advanced metering where cost-effective, according to 

guidelines developed by the Department of Energy in consultation with a number 

of interest groups. After meeting with representatives from industry, energy efficiency advocacy organizations, national laboratories, universities, and Federal facility managers, EERE has issued the Guidance for Electric Metering in Federal Buildings, located on the web at: http://www1.eere.energy.gov/femp/pdfs/

advlmetering.pdf. Agencies must submit their implementation plans by August 3, 

2006, and progress reporting under the advanced metering requirement will begin 

in FY 2007. 

Section 104, Procurement of Energy Efficient Products, seeks to harness the energy savings that can be achieved economically through the purchase of energy-efficient products and equipment. DOE has drafted the regulations necessary to carry 

out Section 104; the regulations are being reviewed internally. We have also drafted 

the premium efficiency standard for electric motors of 1 to 500 horsepower as required under Section 104(d). 

The Department will continue to develop and revise its widely-used energy efficient product procurement recommendations and will seek to expand its bulk purchasing program to encompass additional technologies, agencies, and building types 

each year. Over, the longer term, we will work with EPA, State, and local government organizations and non-government organizations (NGOs) to establish and participate in a broad-based network of public agencies, institutions, and leading corporations committed to using ENERGY STAR and FEMP criteria in their purchasing, with affiliated suppliers who agree to provide compliant energy-efficient 

products. 

Section 105 provides long-term authority to extend Federal Energy Savings Performance Contracting (ESPC) until September 30, 2016. This extension has renewed 

interest in Federal energy savings projects, after the 13-month hiatus in Federal 

ESPC authority. 

EERE has reinvigorated its Super ESPC program to increase the potential for cost 

effective energy savings though private investment in Federal energy efficiency 

projects. 

EERE continues to increase outreach and education of ESPC to the Federal agencies that actually implement the energy efficiency projects. Our ESPC education 

campaign includes new informational and promotional materials in the most current 

media formats and direct communications with Senior Energy Officials of every 

major Federal agency. We plan to increase by 50 percent the number of ESPC training workshops conducted during the next two fiscal years. 

15

EERE will continue to conduct detailed data analysis of ESPC metrics including 

cost effectiveness, financing costs, and project cycle times to help improve ESPC results. Specific improvements include reducing project cycle time from the current 12 

to 18 months to 9 to 12 months and modifying contracts to obtain the best possible 

financing rates. 

Under Section 109, DOE is required to issue a new Federal building energy efficiency standard, through the rulemaking process, within one year of the passage of 

EPACT 2005. The provisions of this section require that buildings be designed to 

30 percent below the American Society of Heating, Refrigerating, and Air-Conditioning Engineers (ASHRAE) standard or the International Energy Conservation 

Code (depending on building type) if life-cycle cost effective. We are working on a 

rulemaking to implement Section 109. 

EERE’s Building Technologies Program Provisions 

Turning now to the building sector, EPACT 2005 could not have arrived at a more 

propitious time. Drivers in the marketplace, such as high electricity and natural gas 

prices, along with excellent progress in R&D on building technologies are bringing 

energy efficiency and renewable energy into mainstream markets, and significantly 

improving the business case for energy efficiency and renewable energy. 

But when it comes to energy efficiency, the case for the Nation is even more compelling than the business case. That is something that President Bush recognized 

when he outlined the Advanced Energy Initiative during his State of the Union address, with a proposal to increase clean-energy research and break America’s dependence on foreign sources of energy and to promote clean energy by changing the 

way we power our homes, businesses, and automobiles. 

DOE has an aggressive goal for the future of buildings. By 2020, DOE aims to 

have cost-competitive net-zero-energy homes in this country. Such buildings would 

be 60 to 70 percent more efficient than conventional practice in their energy use, 

and would use renewable energy such as solar photovoltaics to meet their remaining 

energy requirements. A related goal is to have zero-energy commercial buildings as 

well by 2025. We have set interim targets to develop residential and commercial 

building design packages that incrementally improve energy efficiency and incorporate renewables in a cost effective manner. 

I’d like to review our progress across the 12 EPACT sections for which the Building Technologies Program is responsible, ranging from expanded authorizations for 

appliance standards to assisting the Department of Treasury develop the technical 

requirements for tax incentives. This extensive focus on energy efficiency in the 

building sector reflects the significant opportunities for energy efficiency improvements in residential and commercial buildings, appliances and equipment. In particular, I’d like to highlight our appliance standards work, progress on solid state 

lighting R&D, and our Energy Star activities. 

Appliance and equipment standards are cost effective energy-saving tools, based 

on published benefit-cost analyses of past rules. The Department is committed to 

addressing the backlog of mandated rulemakings and meeting all of its statutory requirements. In our report to Congress, submitted on January 31, 2006, pursuant to 

Section 141, we presented a multi-year schedule that is ambitious and achievable 

and will enable the Department to produce at least one new or amended standard 

for all products in the backlog no later than June 2011, five years from the issuance 

of this plan. By June 2011, the Department will issue standards for the following 

18 products in the backlog:

• Residential furnaces and boilers • Mobile home furnaces 

• Small furnaces 

• Residential water heaters 

• Direct heating equipment 

• Pool heaters 

• Distribution transformers, MV dry-type and liquid-immersed 

• Electric motors (1-200 hp) 

• Incandescent reflector lamps 

• Fluorescent lamps 

• Incandescent general service lamps 

• Fluorescent lamp ballasts 

• Residential dishwashers 

• Ranges and ovens (gas and electric) and microwave ovens 

• Residential clothes dryers 

• Room air conditioners 

• Packaged terminal air conditioners and heat pumps 

• Residential central air conditioners and heat pumps

16

Since the passage of EPACT, and consistent with the schedule delivered to Congress, we are making great progress. I would like to summarize what we have done 

in the past year. 

By this August, we will be sending you another status report on our progress on 

appliance standards. We expect to report that we will be on schedule for all items, 

and perhaps slightly ahead of schedule on selected items. For example, EPACT 2005 

included 15 prescribed standards, which DOE promptly codified en masse in its October 18, 2005 technical amendment. 

In regard to test procedures, EPACT 2005 prescribed 11 test procedures. Adopting 

these is a more technical exercise, so it takes a little longer. The proposed rule to 

codify the prescribed test procedures will be issued this June, with a final rule expected by November 2006. 

On the standards side, I am happy to report that DOE is on schedule in getting 

the EPACT 2005-required rulemakings up and running. For residential dehumidifiers and commercial clothes washers, DOE held a ‘‘framework workshop’’ in April 

2006 to kick off the rulemaking. Comments have been received and the analysis is 

underway. I note that Congress has required a second rulemaking for commercial 

clothes washers—this will begin after the first rule is issued. 

The commercial refrigeration standards rulemaking is in a similar state—the 

‘‘framework workshop’’ was held in May 2006. In July, we’ll be having a ‘‘framework 

workshop’’ to kick off the standards rulemaking for beverage vending machines. 

There are three other activities related to EPACT 2005 and Appliance Standards 

that I’d like to close with: 

First, there are two future revisions for the commercial refrigeration products’ 

standards and two revisions to the statutorily prescribed standard for automatic 

commercial ice makers—we have planned for these future activities required by 

EPACT 2005. 

Second, EPACT 2005 requires a rulemaking for a niche part of the ceiling fan 

light kit market. This final rule is due January 1, 2007. EPACT 2005 did not allow 

DOE enough time to complete a full rulemaking for this niche set of products, but 

it did offer ‘‘default’’ standards in case DOE misses its deadline—DOE plans to codify the ‘‘default’’ standards on January 2, 2007 through a technical amendment in 

the Federal Register. 

Third, we are working on the determination analysis for battery chargers and external power supplies. DOE plans to make the determination by August 2008. As 

indicated in the April 24th Unified Agenda, if this determination is positive, the 

DOE will issue a final rule for these products by August 2011. 

While the appliance standards authorizations in Title I are the most significant 

for our work in the building sector, there are several additional sections that offer 

new authority that we are taking advantage of immediately. 

Section 131 of EPACT 2005 provided additional authorization for the ENERGY 

STAR program. Our analysis suggests that this joint effort between the Department 

of Energy and the Environmental Protection Agency has been successful in promoting the adoption of energy efficient technologies by consumers and businesses. 

EPACT 2005 recognized that success, and provided for acceleration of new ENERGY 

STAR criteria for clothes washers and dishwashers. 

I’m pleased to report that we published the new specifications for these appliances 

on December 20, 2005, and March 8, 2006, respectively. These criteria go into effect 

on January 1, 2007. Taken together, we estimate purchase of these ENERGY STAR 

appliances will save $89 million in energy bills and 10.4 billion gallons of water per 

year. We are also on track to update the specifications again over the next three 

years, effective January 1, 2010. 

Section 912, the Next Generation Lighting Initiative, directs the Secretary to 

carry out a program of research, development, demonstration, and commercial application activities to advance solid-state lighting (SSL) technologies for application in 

general illumination. Relative to today’s options, the SSL technologies will be longer 

lasting, more energy efficient, cost competitive, and have less environmental impact. 

Prior to the passage of EPACT, the Department’s SSL program had competitively 

selected an industry partner, the Next Generation Lighting Industry Alliance (administered by the National Electrical Manufacturers Association), and signed a 

Memorandum of Agreement (MOA) in February 2005. A Determination of Exceptional Circumstances which provides special guidance on the intellectual property 

for inventions developed under the SSL program was signed in June 2005. 

EERE’s existing lighting R&D program produced numerous advancements in SSL. 

For example, 15 solid-state lighting patents were submitted in FY 2005 as a result 

of DOE-funded research projects. These patents demonstrate the value of DOE’s 

SSL projects to private companies and notable progress toward commercialization. 

17

One company, Cree Lighting, demonstrated a white light emitting diode (LED) device with a record-setting efficacy of 65 lumens per watt. The improvement in 

brightness was enabled by balancing multiple interrelated design parameters, including novel chip design. The results are particularly significant because they were 

achieved in a pre-production prototype using Cree’s standard XLampTM package, 

rather than a laboratory device. 

With the additional impetus provided by the passage of EPACT, the program continues to produce technical achievements. For example, researchers from the University of Southern California, University of Michigan, and Universal Display Corporation have achieved a record efficiency of 24 lumens per watt in a white organic 

light-emitting diode (OLED) device. The new OLED device is 50 percent more efficient than a standard incandescent light bulb and 20 percent more efficient than 

the team’s previous record OLED. 

Relative to the commercialization of future products, EERE hosted an LED Industry Standards Workshop in March 2006 to provide a forum for greater cooperation 

and coordination among standards organizations. DOE presented details of the proposed DOE ENERGY STAR criteria for LED products, which will be made public 

later this year. With DOE leadership, the group will continue to coordinate, provide 

updates, and accelerate process in solid-state lighting. 

I would also like to say a word about the Tax Credit section in Title XIII, Energy 

Policy Tax Incentives Subtitle C-Conservation and Energy Efficiency Provisions. The 

Department has been working with representatives from State energy offices, industry and other organizations to develop an understanding of the technical requirements for implementation of the tax credits. The Department is also working closely 

with the U.S. Department of the Treasury to ensure that the regulations address 

all the technical issues related to the tax credits. The Department of the Treasury 

has the primary responsibility for developing the specific regulations, establishing 

definitions and procedures, to implement these measures. 

Other Energy Efficiency Provisions 

EERE is also responsible for a variety of additional studies, outreach initiatives, 

and programs. Many are underway. 

For example, Section 110 directed DOE to explore the impact of extending daylight savings time. That study is underway. Another study on the energy-conservation implications of the widespread adoption of telecommuting by Federal employees 

is in the concurrence process. 

Section 134 authorized the ‘‘Energy Efficiency Public Information Initiative,’’ a 

comprehensive national plan to inform consumers that builds upon the outreach efforts ongoing at DOE. Consistent with this authorization, a number of consumer 

awareness programs have already begun. For example, last October Secretary 

Bodman launched the ‘‘Easy Ways to Save Energy Campaign’’ which includes an 

education and awareness effort with the Alliance to Save Energy and private industry to disseminate energy saving information through radio and television public 

service-announcements, websites, newspaper advertising, and media campaigns. 

Other collaborative efforts such as ‘‘Powerful Savings,’’ ‘‘EnergyHog,’’ and ‘‘The 

Power is in Your Hands’’ combined the best skills of government, the private sector, 

and non-governmental institutions to provide the public with tools to conserve energy and save money. 

Several EPACT sections engage our Weatherization and Intergovernmental Activities Program (OWIP). EPACT Section 123 provided aggressive new goals and 

planning requirements for the State Energy Program (SEP). We have invited States 

to review, and, if necessary, revise State Energy Conservation Plans and are encouraging regional collaboration, where appropriate. EERE notified the States of these 

requirements in January through the SEP annual program guidance and will send 

formal invitation letters to governors by June 30. 

CONCLUSION

I hope this gives you some understanding of the Administration’s perspective on 

S. 2747, and a fair overview of the energy efficiency responsibilities that our office 

assumed with the enactment of EPACT. In many important ways, EPACT has 

served to buttress our efforts and help launch the necessity of energy efficiency onto 

the national stage. We look forward to working with you as we dedicate our efforts 

to developing energy efficient and renewable energy technologies and promoting improvements in the energy efficiency of our country.

The CHAIRMAN. Thank you very much. 

Senator Bingaman. 

18

Senator BINGAMAN. Thank you very much. Mr. Karsner, one of 

the key provisions in this legislation tries to set a target for the 

amount of oil that could be saved and, I think, for 10 years from 

now I think it begins. Your testimony, as I understand it, and I 

think this is an exact quote, would be, ‘‘imprudent to legislate an 

arbitrary end result.’’ The confusion I’ve got on this is that the 

President, in his State of the Union speech, and this is another 

quote, he said that he was committing the country to ‘‘replace more 

than 75 percent of our oil imports from the Middle East by 2025.’’ 

Now, that’s a pretty specific target, as I understood it. 

We wrote a letter—when I say ‘‘we,’’ I mean about 20 of us here 

in the Senate. We wrote a letter to Secretary Bodman, after the 

President’s State of the Union speech, asking him to please tell us 

how you’re going to do this, how you are going to reduce imports 

from the Middle East by 75 percent by the year 2025. We wrote 

that letter on the 21st of February. We haven’t received an answer 

yet. 

We’re trying, in this legislation, to establish a much more modest 

goal than what the President called for but what we thought was 

a somewhat realistic goal and do it in a responsible way by saying 

10 years from now, we should have some goal that we’re working 

at, it should be some quantitative goal that seemed to be consistent 

with the view the President was taking in setting his quantitative 

goal. I’m just wondering how you reconcile the position that you 

are taking here in opposition to any arbitrary end result with the 

position the President took in his speech. 

Mr. KARSNER. Yes, sir. I think it is not a question of the goal or 

the aspiration of the goal or the objective. Indeed, as you point out, 

we are at least as—or more—aggressive in our objectives and in 

our targets than the legislation indicates. The question is actually 

opposition to legislating a mandate, fixing a law, as to what the 

end result might be. In industry, we would call these objectives 

‘stretch targets,’ putting something very ambitious before us and 

then designating a plan to reach those stretch targets. So at the 

Department of Energy, beginning with the release of the Advanced 

Energy Initiative, we began putting together coherent plans that 

would meet the stretch targets. 

By way of example, the President’s objective that cellulosic ethanol become commercial by 2012, cellulosic ethanol being a very, 

very important part of the formula to displace petroleum, then 

going further and saying that we could displace up to 30 percent 

of gasoline consumption, at the present measures, by 2030. Those 

are stretch targets. Other people in the private sector have come 

out with similar stretch targets—25 percent by 2025, by way of example. They are far enough out that our own stretch targets 

shouldn’t be viewed as exclusive, even though they are ambitious. 

We are looking to collaborate both with the committee and really, 

all people of goodwill who were interested in resolving this problem, to make those targets more acute and more poignant. 

Senator BINGAMAN. Well, perhaps you could give us what those 

stretch targets are that you have embraced and the extent to which 

they are consistent with what the President talked about in his 

State of the Union speech and then what the plans are to reach 

those stretch targets. Because I think that is what we were asking 

19

for in our letter to Secretary Bodman is to tell us what the plan 

is to reach this stretch target, which I think is a very major 

stretch. Quite frankly, to say that we are going reduce imports 

from the Middle East by 75 percent by the year 2025, that’s a real 

stretch. But I have yet to see any plan that would get us there, and 

if you have such a plan that you’ve developed, I’d be anxious to 

have it. If you could maybe respond to us or see if Secretary 

Bodman could put that together and respond to the letter we sent, 

that would be helpful. 

Mr. KARSNER. Yes, sir. We will. 

[The information follows:]

With respect to the President’s goal of reducing oil imports, programs under the 

Advanced Energy Initiative, if successful in achieving major breakthroughs in all vehicles and fuels initiatives, such as expanding the use of ethanol, specifically cellulosic ethanol, could displace the need for up to 5 million barrels of oil per day by 

2025. Through investments in transportation technology, the AEI will allow the 

greater use of ‘‘homegrown’’ ethanol made from cellulosic biomass, which is now discarded as waste. The funding will make ethanol feedstocks such as wood chips, corn 

stover (stalks) or switch grass cost-competitive. Also the AEI will accelerate research 

in the next generation of battery technology for hybrid vehicles and ‘‘plug-in hybrids.’’

Senator BINGAMAN. On page 2 of your testimony, you note that 

EPAct authorizes grants to support activities for auto companies 

producing fuel-efficient vehicles. Could you tell us what progress 

has been made to date to implement those provisions, when you 

think that program will be up and running, when you expect the 

first loan guarantee to be entered into, whatever you could tell us 

about that. 

Mr. KARSNER. What I can tell you is that we have had a significant dialog with the auto companies, particularly those that are 

partnered with the program, and asked them to cull their own 

portfolios in technology to propose ways that the loan guarantees 

might enhance their ambitions to get to manufacturing and production of more fuel efficient vehicles. Thus far, there has been limited 

interest by only one or two of the automobile companies in pursuing those loan guarantees. With regard to standing up the loan 

guarantee program, as Under Secretary Garman has testified, 

there is a process at DOE presently for creating an Office of Loan 

Guarantees and they anticipate taking applications before the end 

of the year. 

Senator BINGAMAN. OK. My time is up. Go right ahead, Mr. 

Chairman. 

Thank you. 

Mr. KARSNER. Thank you, sir. 

The CHAIRMAN. The note I just passed out here indicated we 

have three stacked votes at 11:10 a.m. Now, I don’t think, Senator, 

that we could possibly be finished by then. I merely indicate we’ll 

leave and——

Senator BINGAMAN. Come back for it. 

The CHAIRMAN [continuing.] Come back, just so that everybody 

understands. 

Mr. Karsner, let me indicate that in reading your testimony, I 

want to tell you that I was very impressed and appreciative of your 

stating with specificity all of the efficiency measures that are being 

implemented pursuant to the law that we passed. Senator BingaVerDate 0ct 09 2002 11:05 Nov 14, 2006 Jkt 109666 PO 30716 Frm 00023 Fmt 6633 Sfmt 6602 P:\DOCS\30716.TXT SENERGY2 PsN: PAULM
20

man had been pushing goals for years and there are still many of 

them that you acknowledge have not been implemented; right? 

Mr. KARSNER. Correct. 

The CHAIRMAN. But you are pushing hard, are you not, in terms 

of, across the board, the appliance standards and all the others? 

Are we making some headway? Could you just articulate for a 

minute or two for the public what is going on in that area? 

Mr. KARSNER. Yes, sir. As you know, I’ve been on the job for a 

very short time, but in that short time, the two things you just 

mentioned have been amongst my highest priorities, as I committed during my confirmation hearings. That is to say, the appliance standards and implementation of the EPAct provisions are 

things that I insist on a weekly briefing on, in terms of both issues 

and, as I had committed to you, Senator Bingaman, at that time, 

we would analyze the critical path and see where we might be able 

to accelerate or, if you want, lubricate the machinery of decisionmaking so that we could look at ways to get to the fastest pace of 

implementation possible. I am comfortable that the team is very, 

very committed, that they are on schedule, that they are working 

hard to see where gains could be made and that we are also reaching out to all of the stakeholders, very assertively, to work collaboratively where we can to see where consensus might be drawn in 

future discussions. 

The Energy Policy Act itself provides a very prescriptive path for 

my job for the duration. There are very many helpful provisions 

that, if implemented and executed, will lead to these savings that 

are desired at a very fast pace. I think it goes without saying that 

it remains the highest priority in terms of the tools we have at the 

Department of Energy to throttle the current energy balance and 

to affect the situation now. So therefore, it remains my highest priority. 

The CHAIRMAN. You mentioned in your remarks, when you were 

addressing the mandated target for savings on crude oil, you alluded to the President seeking additional authority with reference 

to auto emissions standards. And not having received that, could 

you discuss that whole proposition with us a bit and the relationship of that target to the fuel efficiency standards for automobiles 

and what you talked about in giving the President more authority 

and economic considerations? 

Mr. KARSNER. Well, the President has already used his authority 

on CAFE for light-duty vehicles and trucks and he would like the 

comparable authority for the other classes of vehicles so that the 

administration might have the capacity to review and raise, as may 

be necessary, combined with the other considerations that are economic and highway safety. I believe that the administration has 

put that forward to Congress already and I believe the administration has demonstrated that it is willing and able and assertive 

about reviewing CAFE standards and making gains where it can. 

The CHAIRMAN. Do you have any way of telling us what the 

CAFE standards would have to be to achieve the target that this 

legislation mandates for the saving of crude oil, of imported crude 

oil? 

Mr. KARSNER. I do not have that information. I would be pleased 

to bring back our technical experts to talk about it in more detail. 

21

Obviously, there is a sensitivity there with respect to how much 

technology can be deployed over the same timeframe versus how 

much increased efficiency is necessary out of the vehicle. So there 

are really several moving pieces and it is a moving target and that 

is part of the difficulty in legislating an absolute end result. If one 

assumes that the technology doesn’t get to the market fast enough, 

then of course, that number would shoot very, very high, which 

may not even be possible under current manufacturing standards. 

The CHAIRMAN. One of the problems with the Bingaman legislation you have alluded to, is the mandated target of savings with 

no policy leeway, just telling you, here is a target, do it. And I understand the frustration of the Senator. He has expressed it in his 

questions. He’d like to know how you are going to get there. 

On the other hand, you have also expressed the administration’s 

position that that target seems a bit too difficult. You have been 

caught in a box because maybe the President has alluded to a higher target in general terms, but I think there is a difference. One 

is legislated and mandated by law and one is not, which I think 

is going to be difficult for this legislation. But I merely comment 

on that. 

Let’s see if these Senators on this side have any questions of this 

witness before we proceed. 

I will submit some questions in writing, Mr. Secretary. 

Mr. KARSNER. Thank you. 

Senator THOMAS. Thank you, Mr. Chairman. I have one. We have 

a number of things out there playing now about some conversion 

from coal, for instance, to fuel and this and that. It seems like the 

implementation of the current regulations is very slow. Some of 

these things are designed to provide incentives and we have companies waiting to go but the Department hasn’t yet set forth the regulations that allow them to apply for the incentives to go ahead with 

their plants. Do you have any comment on that? 

Mr. KARSNER. My only comment is that the pace of government 

is also new to me and I’m trying to, at least within the domain that 

I work in, accelerate things where possible. I know that my colleague, Jeff Jarett, is working very aggressively and ambitiously in 

terms of the coal-to-liquids projects. 

Senator THOMAS. It just seems as if this is a pretty regulatory 

thing that has already been authorized, and yet the years have 

gone by and people are standing around waiting to make investments to do the things that we’re talking about here and they seem 

to be slow. You talked about efficiency requirements by the States, 

urging the States to do that; was that correct? 

Mr. KARSNER. I’m sorry, sir. Specifically what? 

Senator THOMAS. I think you said in your statement that you 

wanted the States to do the efficiency standards. 

Mr. KARSNER. That was with regard to the renewable portfolio 

standards and a national mandate versus a State-by-State mandate policy. 

Senator THOMAS. But when we have the movement of vehicles 

and so on, is that a reasonable thing to do? 

Mr. KARSNER. I think that the vehicle efficiency standards, the 

CAFE standards, are not part and parcel of the renewable portfolio 

standards that I mentioned in my statement. 

22

Senator THOMAS. OK. The bill that we’re talking about directs 

the Secretary to conduct R&D for electric-driven transportation 

technology and research and those kinds of things and provide—

isn’t it more appropriate to allow the companies to do this with private dollars? 

Mr. KARSNER. There are some things that the private sector 

would not otherwise take on because it is too far off of their planning horizons, so the type of research and development that is 

needed at this early stage for moving on to lithium ion batteries, 

for example, is something that we are doing collaboratively with 

the private sector. 

Senator THOMAS. Well, I hope so, because if we don’t do it with 

our own private sector then foreign companies will do it and we’ll 

be looking for somewhere else to do those things. So I think sometimes I get the feeling that the bureaucracy is a little academic oriented, looking way off into the future and not paying much attention to what we are, where we are currently, in terms of these 

kinds of things, like the coal-to-liquid structure and designated 

streams and those kind of things. I know there are other questions 

and we’re pressed on time, but we will continue to work with you 

because we need to move forward, both on the shorter term and on 

the very long term and make those things—get them into place. 

Mr. KARSNER. I agree, sir. 

The CHAIRMAN. Let’s see. Senator Alexander. 

Senator ALEXANDER. Thanks, Mr. Chairman. Mr. Secretary, 

thank you for coming. I’d like to pursue your comments about the 

renewable portfolio standard. Now, the renewable portfolio standard would be a requirement that we use renewable materials to 

produce electricity; correct? 

Mr. KARSNER. That’s correct, sir. 

Senator ALEXANDER. And what percent of our electricity in the 

United States today is produced by renewable materials or processes? 

Mr. KARSNER. I believe it is under 2 percent, excluding hydropower. 

Senator ALEXANDER. How much? 

Mr. KARSNER. Under 2 percent. 

Senator ALEXANDER. Under 2 percent. And your testimony is 

that—well, how many States have renewable portfolio standards 

today? 

Mr. KARSNER. I believe it is approximately 25, but I could report 

on that for the record. 

[The information follows:]

Lawrence Berkeley National Laboratory staff report that twenty states plus the 

District of Columbia have renewable energy portfolio standards in place, as of May 

2006. Three more states, Minnesota, Illinois and Vermont, have established renewable energy goals.

Senator ALEXANDER. So a couple of dozen have it. And how high 

are—what are their goals? They are well above 2 percent, are they 

not? 

Mr. KARSNER. Many different States have many different goals, 

based on what their renewable resource is in that State, generally 

speaking. So there is really a patchwork of different renewable 

portfolios. 

23

Senator ALEXANDER. But the range might be what? 

Mr. KARSNER. On the top end of it, you might find 20 percent. 

Others do it in terms of quantitatively assessing the amount of 

megawatts that ought to be delivered by renewable energy. 

Senator ALEXANDER. And these include some major States—for 

example, California and Pennsylvania. So even though, nationally, 

it is only 2 percent in terms of renewables producing electricity, 

some two dozen States, including many large States, have their 

own standards. And they define renewables differently in those 

States; is that correct? 

Mr. KARSNER. I believe that’s right. 

Senator ALEXANDER. Well, for example, in Pennsylvania, I believe, a renewable might be coal waste to turn into electricity. And 

in Tennessee, we might want to use incremental hydro. And in 

Connecticut, I believe, they even define renewables as fuel cells. Do 

you think that is appropriate for different States to have different 

definitions of what they mean by renewable? 

Mr. KARSNER. I do. I think it should be substantially driven by 

the available renewable resources in that State, in terms of how 

much penetration they might expect for that State’s development. 

Senator ALEXANDER. If there were a national renewable portfolio 

standard, would the primary beneficiary of that be wind power? 

Mr. KARSNER. I think wind power is a substantial beneficiary on 

the State-by-State RPS, so I’m not sure that there would be any 

great gain for wind power with a national RPS. 

Senator ALEXANDER. Well, for example, if there were a requirement that a State like Tennessee have a 10 percent or 20 percent 

renewable standard and wind were one of the only ways it could 

get there and it couldn’t get there, then it would end up, in effect, 

paying a tax on its electric bills to cause some other State to do 

that; is that not right? 

Mr. KARSNER. That is one of the reservations I have about a national renewable portfolio standard. It could be seen as punitive to 

those States that lack the renewable energy resource so that people 

in Tennessee or Florida might pay substantially more. 

Senator ALEXANDER. It might transfer well from one part of—

from the southeast to another part of the State. Maybe it’s an unintended consequence because of the different sorts of renewable resources. 

Mr. KARSNER. That is the general position. 

Senator ALEXANDER. And that would be on top of whatever—if 

wind were the example, then that subsidy would then be on top of 

whatever the renewable production credit is for wind power in the 

Federal tax code today? 

Mr. KARSNER. Right. I don’t think that a renewable portfolio 

standard concept, in general, always implies that there need be a 

subsidy. For example, the State renewable portfolio standard in 

Texas has driven down wind prices to make them much, much 

lower than they were. 

Senator ALEXANDER. But that’s a State renewable. See, I’m talking about a Federal renewable standard. 

Mr. KARSNER. Right. 

24

Senator ALEXANDER. If you required a State, in effect, to use a 

renewable resource that it could not use, then that would transfer 

wealth from that State to another part of the country. 

Mr. KARSNER. It would certainly impose higher costs. 

Senator ALEXANDER. Would you anticipate that over the next 5 

years, that more States would have renewable portfolio standards? 

Mr. KARSNER. I would anticipate that, and in fact, I would encourage that. We’re hopeful that all States would develop for themselves, as appropriate, a renewable portfolio standard that takes 

into account the available resource they have in that State. 

Senator ALEXANDER. Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you. 

Senator Salazar. 

Senator SALAZAR. Mr. Chairman and Senator Bingaman, thank 

you for holding this hearing. It is a very important hearing and I 

have a statement for the record that I will submit for the record. 

[The prepared statement of Senator Salazar follows:]

PREPARED STATEMENT OF HON. KEN SALAZAR, U.S. SENATOR FROM COLORADO

Good morning Mr. Chairman; Ranking Member Bingaman, and members of the 

committee. I would like to thank you, Mr. Chairman, for agreeing to hold this hearing. And I welcome our colleagues, Senator Bayh and Senator Coleman, who are 

here today because of our shared commitment to securing America’s energy independence by promoting the manufacture and use of advanced technology vehicles, 

including flex-fuel vehicles able to run on either petroleum or renewable fuels. 

My own state of Colorado contributes substantially to the energy resources of our 

country. We are blessed with an abundance of natural energy resources, and the 

coal, oil and gas industries play a significant part in our state’s economy. In that 

regard, I very much appreciate your willingness, Mr. Chairman, to travel to Colorado to consider the possible development of Colorado’s vast oil shale resources. And 

I look forward to the hearing you have scheduled next week on oil & gas development in the Rocky Mountains. But as long as the United States is dependent on 

foreign oil for a significant part of our energy needs, particularly our transportation 

fuels, our economy and our national security are at risk. We need to move rapidly 

toward energy independence and energy security. 

I am therefore proud to be an original co-sponsor of S. 2747, Senator Bingaman’s 

bill under consideration today, and of S. 2025—the Vehicle and Fuel Choices for 

American Security Act of 2005—which is the basis for the oil savings and vehicle 

titles of Senator Bingaman’s bill. These broadly supported, bipartisan provisions will 

change how we power our vehicles. 

Mr. Chairman, right now, the United States consumes around 20 million barrels 

of oil every day. Fully two-thirds of the oil we consume in this country is for transportation. The massive amount of oil that we are importing is barely enough to 

cover the needs of the transportation sector alone. S. 2747 tackles this problem head 

on. It would bring more gallons of biofuels, such as cellulosic ethanol and biodiesel, 

to market. It would give consumers more choices and greater access to alternative 

fuels and advanced technology vehicles. It would lower and stabilize the cost of 

transportation fuels, and it would retool America’s vehicle fleet to run more efficiently and on alternative fuels. 

At the same time, S. 2747 would significantly reduce our dependence on the Middle East for supplies of oil and natural gas. We can achieve these results through 

policies that encourage more efficient use of energy in vehicles, electric appliances, 

lighting and industry, as well as a greater emphasis on the use of renewable sources 

of energy. 

In that regard, I am anxious to hear from Mr. Karsner what energy efficiency 

standards and goals the Department of Energy will adopt in 2007 and 2008 to implement the energy efficiency programs authorized in EPAct 2005 as well as the 

funding priorities reflected in the President’s Advanced Energy Initiative. 

Mr. Chairman, the bipartisan energy bill we passed last year was an important 

first step along a path toward greater energy security. But it was only a first step. 

I believe there is an urgent national security imperative to embrace advanced flexfuel vehicles and the renewable fuels and infrastructure to support them, as well 

as a renewable energy initiative like the one contained in this bill, to put us firmly 

25

on the pathway toward energy independence. A bold but achievable renewable energy initiative will strengthen our national security by reducing our dependence on 

foreign oil. 

I look forward to hearing today’s testimony and to further Committee action on 

S. 2747, the Enhanced Energy Security Act of 2006.

Mr. CHAIRMAN. It will be made part of the record. 

Senator SALAZAR. Let me, Mr. Karsner, just ask a question. I 

know that in your comments, you were critical of the oil savings 

targets that we have in S. 2747 and I think your term was that 

you thought it was imprudent to legislate, in your words, in this 

regard, that it was imprudent to legislate an arbitrary end result. 

In the President’s State of the Union, he obviously called for a goal 

of getting us to reduce our consumption of oil imports by 75 percent. That’s a relatively objective number with a goal that’s out 

there. Tell me how it is that what the President is trying to get 

to here, in terms of an oil savings goal where we will reduce our 

imports from the Middle East, differs from what we are proposing 

here in S. 2747? 

The CHAIRMAN. Senator Salazar, I might indicate to you that 

while I’m not going to object to your question, it is redundant in 

that Senator Bingaman asked the exact same question. But we can 

have it answered again. Maybe we can say you asked it more eloquently. 

[Laughter.] 

Senator SALAZAR. Well, maybe what you can do is to just as succinctly respond to that question. 

Mr. KARSNER. Right. I appreciate that. It is not so much at all 

that we are critical of the target. We are critical of putting a target 

into law when the target itself is dependent upon the pace and the 

pricing and the market realities and realization of the progress of 

the technology. 

Senator SALAZAR. OK. I appreciate that. Let me ask you, in 

terms of some of the other aspects of S. 2747, one of the things that 

we have included in S. 2747 is to improve efficiency of our vehicle 

fleet, for getting more advanced vehicles on the road. It sets these 

goals and helps manufacturers retool their vehicle fleets to meet 

them. 

Mr. KARSNER. Oh, absolutely. 

Senator SALAZAR. What steps has the Department taken, under 

your leadership, to try to achieve these goals since we passed 

EPAct last year? 

Mr. KARSNER. If I understand the question, you’re asking about 

the Vehicle Technologies Program and the implementation of using 

the tools of EPAct to enhance the vehicle technologies available for 

efficiency? 

Senator SALAZAR. Yes. 

Mr. KARSNER. Well, I can report more intelligently with our technical experts for the record and work for a briefing in your office 

about that. We have a very robust and well-funded vehicle technologies program and through the Fuel and Freedom Car Partnership, we are working on several aspects of that, including enhanced 

work on plug-in hybrid vehicles and battery technologies, lightweighting of the vehicle materials for use in the manufacturing assembly, and of course, the other technologies related to the uptake 

of flexible fuel and hydrogen fuel cells. But I think it would be useVerDate 0ct 09 2002 11:05 Nov 14, 2006 Jkt 109666 PO 30716 Frm 00029 Fmt 6633 Sfmt 6602 P:\DOCS\30716.TXT SENERGY2 PsN: PAULM
26

ful to give you a more exhaustive answer and briefing on that from 

our technical experts in the vehicles program. 

Senator SALAZAR. Let me ask a question on cellulosic ethanol. I 

know that in last year’s legislation, we created loan guarantees for 

projects such as cellulosic ethanol demonstration plants, and I 

know that Senator Craig, for example, has been working with the 

White House and the Department of Energy to try and get a company to establish a commercial facility in Idaho. And there have 

been, as I understand it, some problems in terms of getting to the 

point where we have a functioning set of rules that are pushing forward with those loan guarantees that would make that kind of a 

project feasible. Can you comment on whether or not, within the 

legislation that we have here, there are additional incentives that 

would help us move forward, and make those kind of incentives for 

cellulosic ethanol a greater possibility? 

Mr. KARSNER. Yes, sir. I think that the title XVII, and to a lesser 

extent, the title XV program, are both sufficient to stand up a loan 

guarantee program. Under Secretary Garman has testified on this 

and he has really led this effort within the Department of Energy 

to stand up a program. And I believe that they announced that 

they are hopeful that they will begin taking applications on that 

prior to the year end. For our own part, within the Energy Efficiency and Renewable Energy Office, we are seeking to exhaustively vet those technologies that might be available and applicable 

to a loan guarantee program at the point that it stood up. In other 

words, we are seeking to parallel process so that applicants are 

ready and able at the point that the Government is ready and able 

to take those applications. 

Senator SALAZAR. OK. I will only make one closing comment here 

and that is that during Monday’s hearing of the Energy Committee 

on the implementation of the 2005 legislation, which this committee authored, the Director of NREL and one of his subordinates 

said that they were confident that we would be at a point within 

6 years where we could commercially move forward with cellulosic 

ethanol. He also said very clearly that he thought that we had the 

technology to be able to get to the point where 70 percent of our 

oil was being replaced by biomass fuels by the year 2030. And I 

continue to believe that that is a huge opportunity for us, along 

with all the other items that we have on our menu, including oil 

shale in my State and a whole host of other things that the chairman is very interested in. Our hope in drafting the provisions of 

this bill is that we would help move the realization of that vision 

and that agenda forward, which the President started out with in 

referring to it in his State of the Union message. So, I thank you 

for your testimony, Mr. Karsner. 

Mr. KARSNER. Thank you, sir. 

The CHAIRMAN. All right. Thank you very much, Senator. 

While we are moving toward the next set of witnesses, I would 

like to state for the record to clarify some of the questions that 

have been put forward with reference to a status of loan guarantees, which were prescribed in the statute that we adopted as part 

of our 1985 overall law. And let me state for the record that I guess 

it would be fair to say that I am embarrassed to state for the 

record and it’s not to ask this witness, it’s merely to make a stateVerDate 0ct 09 2002 11:05 Nov 14, 2006 Jkt 109666 PO 30716 Frm 00030 Fmt 6633 Sfmt 6602 P:\DOCS\30716.TXT SENERGY2 PsN: PAULM
27

ment, that the Department is not ready to issue any loan guarantees, as prescribed in the law, as the major method of funding innovative technology because there has been a major battle between 

the OMB and the Department that has not been resolved to this 

point. 

Now, it is on the way to resolution. I can say that to my fellow 

Senators. It is close. I will tell you that it will be resolved soon or 

something will be resolved, I will assure you of that. 

I haven’t figured out what that resolution will be yet, but there 

are a lot of ways to skin a cat around here and this cat will be 

skinned. There will be loan guarantees and a loan guarantee office 

in the Department of Energy under the law or something will happen, because it was prescribed to be one of the major ways to take 

advantage of the high price of crude oil. I mean, anybody understands the high price of crude oil is an invitation to investment, 

but the investment is negated by the fear that the price will fall 

again and you need the incentive to help precipitate and pursue 

that investment more vigorously. 

One way being discussed is some kind of a modulation of it by 

floor. That’s going to hit us pretty soon. There is a very big discussion of establishing a floor on crude oil for certain industries to go 

with coal, the coal to liquid to diesel. 

The other way is a large use of loan guarantees, and they aren’t 

ready. So it is embarrassing that that was how we intended to 

avail ourselves of this opportunity. And anybody sitting out there 

saying, ‘‘Oh, it will happen, of course it will happen,’’ it will happen 

because the price is so high, but it will happen much more vigorously if we put the incentives in place contemplated by Congress. 

And I am very, very embarrassed that the administration is in this 

hiatus. And it just cannot stay there very much longer. It’s got to 

be resolved. Now, that’s not your fault, sir. And we could have certainly given you hell about the fact that you have no loan guarantees available. I already knew that, but there is no use beating up 

on you. You know it better than I. You said Secretary Bodman 

wants to have it a stand-up agency by the end of the year; right? 

You made that statement? 

Mr. KARSNER. Right. 

The CHAIRMAN. That may never happen if the OMB does not 

shape up. I think they may be on the way now. They have a deputy 

around here that’s got to be confirmed. That fellow has no chance. 

He won’t even appear before us here. He won’t even see this table, 

the way things are going right now. He already knows that. Having 

said that, I think we’re going to move on. 

Senator CRAIG. Mr. Chairman? 

The CHAIRMAN. Yes, sir? 

Senator CRAIG. I’m coming late to the theatre, and I apologize, 

but I do want to tell you and the committee—I was visiting with 

Senator Salazar earlier in the morning—I met with Director 

Portman and OMB staff this week. It was a closed meeting for the 

very purpose of allowing me to express my full emotion as it relates 

to the conflict—I’m using that word—of differences going on between DOE and OMB as to how to do loan guarantees. 

The CHAIRMAN. Good. 

28

Senator CRAIG. And I’ve suggested that if they can’t do it, we’ll 

hire an outside firm to come in and do it for you, because there is 

a substantial amount of finger-pointing at this moment. It’s coming 

from both sides. Here is what the Director told me. He was going 

to put a stop to that. He is working directly with DOE as we speak. 

He is fully engaged in this and he is going to complete it as rapidly 

as he can. It is on the top of his priority list. So I would suggest 

that between you and probably the ranking member and—I know 

that all of us have been involved in it. We got involved in this discussion this morning before the Foreign Affairs Committee, with 

Senator Lugar. He has dug into it. Why? For all the reasons you 

just gave. When we promise new energy policy, of the value and 

the kind that we’re talking about, to get out on the edge of these 

new technologies, and our Government wants a promise, but can’t 

deliver, then we have to figure out why it can’t. 

Thank you for being as persistent as you are. We will work with 

you on it, and maybe collectively we can get it done, and at the 

same time, in talking with Secretary Bodman, if he gets it right in 

the sense that he says, ‘‘I don’t want a program out there that just 

starts putting money at every technology.’’ Some work, some won’t 

work. Money spent, money wasted, projects gained, new technologies brought online—all of those are factors in a good vetting 

process that allows us to make sure the money that we put out 

there or assist in putting out there gets to the right project. 

The CHAIRMAN. Right. That’s right. We’re glad you arrived. You 

surely added the right conclusion to these remarks. I can tell you 

that everything you just said does not lead to the conclusion that 

the only institution that knows how to decide how to let this happen properly is the OMB. 

Senator CRAIG. Oh, I agree. 

The CHAIRMAN. That’s impossible. I mean, if there is no other 

way to do it, then we are in deep you-know-what, because they 

don’t want them. There are many of them over there that don’t 

even want to do them, so when you write them up and say, ‘‘Do 

it,’’ and then they don’t want to do it, it’s pretty messy. 

Senator CRAIG. Yes. 

The CHAIRMAN. I sure thank you and I’m sorry we had to do this 

in front of you. I hope you have a very good day. 

Mr. KARSNER. Oh, no. It has helped with my assignment, sir. 

Senator BINGAMAN. Mr. Chairman, maybe I should speak up for 

the administration here. 

[Laughter.] 

Senator BINGAMAN. But I’ll withhold, since I don’t really have 

any defense to give. 

The CHAIRMAN. I bet. You better not. You certainly have had—

by having this hearing, I’ve looked with great favor upon you. And 

that you dare to defend them today, that would be the end. 

[Laughter.] 

The CHAIRMAN. On this issue——

Senator BINGAMAN. I certainly wouldn’t want to defend them on 

this or any other issue. 

The CHAIRMAN. Thank you, sir. 

Mr. KARSNER. Thank you, sir. 

29

The CHAIRMAN. All right, let’s get the next witnesses. I didn’t 

know you were on it, too. 

Mr. CALLAHAN. Oh! The vote has started. Do you want to start 

that panel or do you want to——

The CHAIRMAN. Yes, let’s get—we’re sorry. Right now, with you 

in your places, we have the clock saying that we have to vote. So 

we’re going to acknowledge your presence and make sure everybody 

knows who you are. 

Dan Lashof, senior scientist with the Natural Resource Defense 

Council here in DC, thank you for coming. We look forward to 

hearing from you. 

Kateri Callahan; is that correct? Boy, I’m better today than 

usual. President of the Alliance to Save Energy, Washington, DC, 

thank you. 

And we have Steve Nadel, executive director of the American 

Council for Energy-Efficient Economy. 

Senator Bingaman, what do you think we ought to do at this 

point? 

Senator BINGAMAN. Mr. Chairman, I think we ought to get as 

much testimony as we can before that second bell rings. 

The CHAIRMAN. Right. Let’s start, we’re going to start now with 

you, Mr. Lashof. We have your written testimony. You proceed as 

you would like. 

STATEMENT OF DANIEL A. LASHOF, SCIENCE DIRECTOR, 

CLIMATE CENTER, NATURAL RESOURCES DEFENSE COUNCIL 

Mr. LASHOF. Thank you, Mr. Chairman and Senator Bingaman, 

for holding this hearing. Normally, I would, of course, begin by 

thanking you for having this important hearing at this time, but 

I would note that had you perhaps scheduled it this afternoon, we 

could be cheering the U.S. World Cup team now with some of our 

renewable energy. And I would just note quickly, Senator Bayh and 

Senator Coleman noted that we could learn some things from 

Brazil about their ethanol program. I’ve been told that their stock 

market closes when Brazil is playing in the World Cup, so maybe 

we want to follow that practice as well. But I am delighted to be 

here to discuss the Enhanced Energy Security Act, which NRDC 

strongly supports. 

Let me try to make five points this morning, quickly, with the 

help of three charts. 

First, President Bush was right when he said that we’re addicted 

to oil and that is a serious problem. We are currently spending 

about $1.5 billion per day on oil, as has been noted earlier. Some 

of that money ends up in the hands of extremist groups that wish 

to do us harm. And as our colleagues in the Set America Free Coalition have said, America is, in effect, funding both sides of the war 

on terror and we need to stop doing that. 

Second, the United States can’t drill its way to energy security 

and that is what this first chart shows. It shows world oil reserves. 

The United States is there on the right with just 2 percent of the 

world’s oil reserves, compared with about 70 percent in OPEC 

countries. 

In contrast, we are responsible for about 25 percent of world oil 

demand and so that shows that our leverage in affecting the world 

30

oil market and becoming more secure is primarily through the demand side. 

Third, the Enhanced Energy Security Act, I believe, offers a critical opportunity to break the gridlock that is currently blocking 

meaningful reductions in oil dependence. Title I, in particular, 

would establish a firm oil savings target and hold government 

agencies responsible for achieving that target. But it provides unlimited flexibility about how that target is to be achieved. I think 

that is an innovation in the approach that is very commendable 

and I think that is the reason we’ve seen broad bipartisan support, 

26 co-sponsors. That is S. 2025, which shares that same approach. 

Now, we’ve had testimony earlier from Mr. Karsner about whether or not it is sensible for the Government to legislate a target of 

that kind. I believe that it is critical. This is a national priority to 

reduce our oil dependence. I believe we have to have firm targets 

to require a detailed plan about how they will be achieved and then 

review that plan to see whether we are on track. Without that—

I remember even back to the 1992 Energy Policy Act. We passed 

some lovely aspirational targets. I believe the numbers were something like 30 percent of our petroleum was supposed to be replaced 

with alternative. I don’t remember the number because they were 

not, in fact, taken seriously, because they were just aspirational. So 

we have not—without a rigorous plan to hold agencies accountable 

for actually hitting these targets, we simply will not make the 

progress we need to make. 

Now, in this second chart, I show that—and this is my fourth 

point—the oil saving targets in the bill are achievable. Again, Mr. 

Karsner raised some questions about that. This shows just one way 

we could achieve the targets, from a variety of technologies and vehicle fuel-efficiency levels, but also looking at replacement tires, 

heavy-duty trucks and medium-duty trucks, as well as certainly 

ethanol and other alternative fuels. Those add up to, by 2015, 3.2 

million barrels a day. The target in the bill is 2.5 million barrels 

a day, so the potential exceeds that. And I would again emphasize 

this is just one way to get there that we looked at. Many people 

believe we could do much more with ethanol by 2015 or 2017 than 

is shown here. That would be great. Then we could reduce the pressure to make as large of gains in other areas. 

I also note that there is technology coming along every day and 

when we make a national commitment, we’ll see more. Just yesterday, UPS—with EPA—announced a new hydraulic hybrid delivery 

truck that gets a 70 percent improvement in fuel economy. That 

kind of technology, which I heard about for the first time—

The CHAIRMAN. Who did that? 

Mr. LASHOF [continuing]. Last night, is a dramatic innovation 

that could make a big difference. 

So let me just finish with my fifth point and that is, it is essential to reduce oil dependence and global warming emissions simultaneously. Mr. Chairman and Senator Bingaman, you both noted 

that today is the 1-year anniversary of the Senate resolution that 

you led us to adopting, calling for a program to reduce our global 

warming pollution that would be effective, and I think that is essential. Happily, S. 2747 emphasizes approaches that do just that: 

simultaneously reduce both oil dependence and global warming 

31

1 U.S. Senate Committee on Foreign Relations Hearing, April 4, 2006.

2Set America Free Coalition, www.setamericafree.org.

and, certainly in this regard, the energy efficiency and renewable 

energy provisions of the bill are extremely important and we 

strongly support those. It would also reduce demand for natural 

gas and make a big difference there. But we do need to choose 

wisely. 

And my last point, which is shown in this chart. There are options that some people have advocated that could as much as double the global warming emissions per gallon of gasoline equivalent. 

I think we need to avoid those. We could do that by including in 

government incentive programs, whatever their nature, a performance standard that says that at least in looking at alternative 

fuels, it has to at least do better than the conventional gasoline 

that it would be intended to replace. Thank you very much. 

[The prepared statement of Mr. Lashof follows:]

PREPARED STATEMENT OF DANIEL A. LASHOF, SCIENCE DIRECTOR, CLIMATE CENTER, NATURAL RESOURCES DEFENSE COUNCIL

INTRODUCTION

Thank you for the opportunity to testify today on the subject of enhanced energy 

security. My name is Daniel A. Lashof. I am the Science Director of the Climate 

Center at the Natural Resources Defense Council (NRDC). NRDC is a national, nonprofit organization of scientists, lawyers and environmental specialists dedicated to 

protecting public health and the environment. Founded in 1970, NRDC has more 

than 1.2 million members and online activists nationwide, served from offices in 

New York, Washington, Los Angeles and San Francisco. 

SUMMARY

Today’s energy use patterns are responsible for two growing problems that require 

urgent action to keep them from spiraling out of control—oil dependence and global 

warming. Both are serious; both warrant a much more proactive policy action than 

has occurred to date. Fortunately, we have in our tool box energy resource options 

that can dramatically reduce both oil dependence and global warming emissions, 

and policy options, such as the Enhanced Energy Security Act (S. 2747) and the Enhanced Energy Security Tax Incentives Act (S. 2748), to mobilize these solutions 

into action. 

The unsettling events of the past year—devastating hurricanes, accelerated melting of glaciers and ice sheets, steep price spikes at the gas pump, and rising tensions with oil-rich regimes—serve as a painful reminder that we are vulnerable and 

that security is now defined by factors much broader than simply our military defenses. Oil dependence poses a direct threat to our national security, our economy 

and our environment, and makes a substantial contribution to the urgent problem 

of global warming. As Secretary of State Condoleezza Rice noted in the recent Senate Foreign Relations hearing:

‘‘We do have to do something about the energy problem. I can tell you 

that nothing has really taken me aback more as secretary of State than the 

way that the politics of energy is—I will use the word warping—diplomacy 

around the world . . . It is, of course, an energy supply that is still heavily 

dependent on hydrocarbons, which makes more difficult our desire to have 

growth, environmental protection and reliable energy supply all in a package’’.1

The twin crises of oil dependence and global warming require an immediate and 

thoughtful response that will enable us to tackle both challenges together. 

There is strong bipartisan consensus around many of the solutions, most notably 

the Vehicle and Fuel Choices for American Security Act (S. 2025). Diverse coalitions 

that cross the political spectrum have come together in asking for aggressive action 

to break our oil addiction.2 A majority of the Senate has also endorsed the need to 

address global warming with a comprehensive and effective national program of 

mandatory market-based standards and incentives on emissions of greenhouse 

gases. In red and blue states alike we hear deep concern about oil and a call to acVerDate 0ct 09 2002 11:05 Nov 14, 2006 Jkt 109666 PO 30716 Frm 00035 Fmt 6633 Sfmt 6621 P:\DOCS\30716.TXT SENERGY2 PsN: PAULM
32

3 Natural Resources Defense Council, ‘‘Securing America’’ report, 2005. 

4 B.P. Statistical Review of World Energy, June 2006, page 13. 

5 Energy Information Administration, Annual Energy Outlook 2006.

6 B.P. Statistical Review of World Energy, June 2006, page 6. 

7PFC Energy, Global Crude Oil and Natural Gas Liquids Supply Forecast, September 2004. 

tion for Washington to seriously address the energy challenge ahead. Most importantly, Americans overwhelmingly support strong action to address the core of the 

problem—our demand for oil—and federal standards to enable consumers to use less 

oil. 

The Enhanced Energy Security Act stands out by focusing on the efficient use of 

energy and clean, renewable alternatives, rather than measures that would prolong 

our addiction. While measures outside this committee’s jurisdiction, such as improving vehicle fuel economy performance and transit, are essential to successfully addressing our dependence on oil, this bill provides the right foundation for energy security legislation to move America toward a less risky and more reliable energy future. NRDC also strongly supports the renewable portfolio standard provision in the 

bill, which passed the Senate last year, and the energy efficiency provisions. 

America’s Addiction to Oil Threatens our Security 

The central challenge to America’s energy security is our dependence on oil and 

the web of geopolitical and economic forces that now govern access to and control 

of this increasingly costly and strategic global commodity. As we describe in our 

2005 report ‘‘Securing America: Solving Oil Dependence through Innovation’’ (attached for the record),3 our intense rate of oil consumption already poses a clear and 

direct threat to America’s national and economic security, as well as our environment. With only 3 percent of global oil reserves, America’s greatest leverage is reducing our demand for oil through innovation, efficiency gains and clean, renewable 

alternatives. To enhance our energy security we must stop enabling the addiction 

and begin to move America beyond oil. 

‘‘America is addicted to oil’’ the President said in his State of the Union. He was 

right. We consume nearly 21 million barrels of oil per day—a quarter of the world’s 

oil production and more than China, India, Japan and all of South and Central 

America use combined—and rely on foreign suppliers for 60 percent of our daily oil 

needs. The U.S. also has by far the highest per capita oil consumption of all major 

countries.4 If we continue with business as usual, by 2025 we will import over 70 

percent of the oil we need to power our economy.5 With limited domestic supply, 

the country that leaves itself most vulnerable is the one that is most dependent on 

the volatile global market for its basic energy needs—and that country is the U.S. 

PROVEN OIL RESERVES THROUGH 2025

Billions of

Barrels 

U.S. ........................................................................................................ 23

Non-OPEC ............................................................................................. 396

Middle East ........................................................................................... 727

OPEC ..................................................................................................... 870

Total ............................................................................................... 1,266

Source: Energy Information Administration, Annual Energy Outlook 2004

First, our appetite for oil is unsustainable and it is shifting the balance of power 

toward oil rich suppliers (see figure above). The U.S. has just 3 percent of the global 

oil reserves, while the Middle East is home to two thirds of the world’s oil.6 Today 

we have the luxury of importing large amounts of oil from friendlier nations such 

as Mexico and Canada but this luxury is fleeting. At current consumption rates, 

non-Organization of the Petroleum-Exporting Countries (non-OPEC) production is 

expected to peak and begin declining as early as 2015,7 which means that oil rich 

nations, especially those in the Middle East, will take even tighter control of the 

reins of the global oil market. 

Second, there is growing evidence that higher oil prices are here to stay. Most analysts agree that market fundamentals of high demand and limited supply, and not 

speculation or market hysteria, are the primary reason for today’s high oil prices. 

These prices can be explained, in part, by continued growth in oil demand in the 

United States and explosive growth in Asia, especially China. Oil demand has 

grown a robust 5 percent since 2003, despite a doubling of oil prices during that 

33

8Simmons, Matt. Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy, John Wiley & Sons (2005). 9 Bureau of Economic Analysis, U.S. International Transactions, 2006. 

10 U.S. Senate Committee on Foreign Relations Hearing, April 4, 2006. 11 National Defense Council Foundation, Senate Foreign Relations Committee Testimony, 

March 30, 2006. 12 Institute for the Analysis of Global Security, www.iags.org. 13The Paradox of Plenty: Oil Booms and Petro-States, Studies in International Political Economy, No. 26, University of California, 1997; Zakaria, Fareed, The Future of Freedom: Illiberal 

Democracy at Home and Abroad, Norton, 2004. 

period. It appears likely that global oil demand and tight global oil supplies will 

keep fuel prices high for the foreseeable future. 

There is also little spare oil production capacity to cushion a sudden loss in supply 

and the mix of easily extractable crude oil is moving away from ‘‘light, sweet’’ toward more ‘‘sour’’ grades that fewer refineries can handle. Considering these factors, 

oil prices may abruptly jump even higher, as happened during the first two oil crises 

of 1973-75 and 1979-81. Oil prices could also decline for short periods, but unlike 

during the last two oil crises, important oil market fundamentals now favor higher 

prices lasting for much longer-and perhaps becoming a permanent feature of the 

market. 

Moreover, oil suppliers are also less able to adequately cushion the market in the 

face of rising demand. Historically, producers were accused of holding back supplies 

when prices rose. But most industry experts agree that OPEC and other suppliers 

are now pumping at or near the upper limits of their capability. Indeed, there are 

concerns that rapid exploitation degrades the long term viability of some oil fields.8

Spare capacity, often used to cushion oil price spikes, is essentially gone. 

Another reason to worry is that America’s economy is already feeling the pinch 

of persistently higher oil prices. The run-up in oil prices, including the cost of the 

new ‘‘fear premium’’, exerts an inflationary impact on everyday goods and services, 

consumers are left with less disposable income after their trips to the pump, and 

businesses of all sizes (except the oil companies) are seeing shrinking profits in the 

face of pricier fuel. Oil imports now account for a quarter of the ballooning trade 

deficit.9 At an average cost of $70 per barrel, we spend nearly $1.5 billion every day 

on oil and over $300 billion annually just for oil imports. Former Federal Reserve 

Chairman Alan Greenspan has called the cost of oil a ‘‘hidden tax’’ on consumers 

and despite the economy’s resilience to rising energy costs, the economy remains extremely vulnerable to supply disruptions and oil prices shocks in the global market, 

as we experienced in the aftermath of Hurricane Katrina.10

Finally, above and beyond the direct cost of oil dependence, we invest billions of 

dollars annually to acquire and protect access to oil resources. According to recent 

estimates by the National Defense Council Foundation, the hidden military and economic cost of oil dependence is in the range of $800 billion annually and oil supply 

disruptions like those we experienced in the 1970’s could cost the economy as much 

as $8 trillion.11 Moreover, our oil dependence has enormous environmental costs, including emissions of the greenhouse gases that cause global warming, air and water 

pollution, and the despoiling of pristine public lands. 

On a global stage of energy winners and losers, America’s over-dependence on oil 

is now a liability that comes with costly consequences. One that is particularly dangerous is the connection between oil and terror. As we describe in the joint report 

with the Institute for the Analysis of Global Security (see attached), terror networks 

have clearly identified oil as the Achilles’ heel of our economy and continue to carry 

out numerous attacks on oil infrastructure around the globe.12 The billions of dollars we export every year facilitates a massive transfer of wealth to oil suppliers 

that help finance terrorism and support the spread of hostile ideology.13 According 

to defense and national security experts, because of our oil dollars, America helps 

‘‘fund both sides of the war on terror’’. Oil has become a strategic commodity that 

can easily be used against us. 

To answer this multifaceted challenge of energy security we must pursue solutions that will tackle the core of the problem—our demand for oil—and make new 

policy commitments, such as the Enhanced Energy Security Act (S. 2747), that will 

offer lasting relief to consumers and clean, renewable energy alternatives. Scaling 

back our appetite for oil is essential to safeguarding our national security, economy 

and environment. 

TRANSPORTATION DRIVES OUR OIL ADDICTION

We are singularly dependent on oil to fuel our economy and the transportation 

sector drives our addiction. Today transportation is responsible for more than twoVerDate 0ct 09 2002 11:05 Nov 14, 2006 Jkt 109666 PO 30716 Frm 00037 Fmt 6633 Sfmt 6621 P:\DOCS\30716.TXT SENERGY2 PsN: PAULM
34

14 Energy Information Administration, Annual Energy Outlook 2006. 15 Based on Federal Highway Administration and American Public Transportation Association 

figures. 15a1AAll graphs have been retained in committee files. 16 U.S. EPA, ‘‘Light-Duty Automobile Technology and Fuel Economy Trends: 1975 Through 

2003’’. 17 Energy Information Administration, National Petroleum News, May 2005. 18 Report to Congress: Effects of the Alternative Motor Fuels Act CAFE Incentives Policy, Department of Transportation, Environmental Protection Agency, and Department of Energy, 

March 2002. 19 Calculation based on projections in EIA’s Annual Energy Outlook 2003 for energy consumption by commercial light, medium and heavy trucks. 20 Natural Resources Defense Council, ‘‘Securing America’’ report, 2005. 21 Natural Resources Defense Council, ‘‘Global Warming Science Update YTD’’, 2005. 

thirds of total U.S. oil demand; our passenger vehicles account for forty percent of 

total demand.14

Moreover, our transportation system is 97 percent reliant on oil and will account 

for 80 percent of our projected oil demand growth over the next two decades. There 

are several reasons:

• First, we are taking more trips. More Americans rode trains and buses 80 years 

ago, and transit use spiked during World War II. Then it plummeted, leveling 

off at less than half of its peak level. Meanwhile vehicle miles traveled (VMT) 

climbed steadily and is now three trillion miles per year.15 Increasing travel by 

private vehicles is exacerbated by sprawl and poorly designed communities that 

makes commutes longer and traffic worse. • Second, the fuel economy of our light duty vehicle fleet is stagnant. Thanks 

largely to the proliferation of inefficient SUVs, improvements in fuel economy 

stalled in 1988 (see figure below15a). The largest recent jump in performance 

happened in the late 1970’s, driven by policy and consumer choices in reaction 

to embargoes and price run ups.16 Despite significant technology innovation 

over the last two decades, in the absence of higher standards fuel economy performance has not advanced. • Third, petroleum continues to dominate the transportation fuel market. The 

popularity of biofuels is an extremely recent phenomenon and despite booming 

growth in the industry, biofuels account for just a few percent of the nation’s 

total fuel use. Of the 170,000 gas stations around the country, only 700 dispense 

E85 fuel, and consumer awareness about alternative fuels is still low, even 

among owners of flexible fuel vehicles (FFVs).17 Today there are 5.7 million 

FFVs on the road, less than 2.6 percent of total vehicles, but even this small 

number run on alternative fuels just 1 percent of the time. In fact, FFVs currently increase our oil use, since automakers receive excessive credits against 

their fuel economy standards for producing these vehicles, regardless of how 

much alternative fuel they actually use.18

The non-passenger vehicle fleet also contributes to the problem. Heavier vehicles 

ranging from 8,500 pounds to more than 33,000 pounds consume more than 2.8 million barrels of oil each day—more than we import from the Persian Gulf.19 The 

heaviest trucks, such as tractor-trailers weighing more than 33,000 pounds, consume two-thirds of this energy, while lighter, shorter-range trucks use the remaining third. These vehicles could be 70 percent more efficient.20

OIL DEMAND AND GLOBAL WARMING POLLUTION MUST BE REDUCED SIMULTANEOUSLY

Oil dependence is a critical link between national security and global warming. 

The oil we burn in our cars and trucks is responsible for a third of U.S. global 

warming pollution. Passenger vehicles alone contribute 1.6 billion tons of carbon dioxide and 13 million tons of smog-forming emissions from tailpipes every year. The 

recent alarming trends of arctic melting, extended drought, and severe storms suggest that the effects of global warming are being felt more rapidly than expected.21

Global warming itself threatens the security of the United States not only by supercharging hurricanes, but also because it has the potential to destabilize regimes by 

creating millions of environmental refugees and intensifying conflicts over water resources in semi-arid regions. 

To avoid catastrophic global climate change the U.S. and other nations will need 

to deploy energy resources that result in much lower releases of CO2 than today’s 

use of oil, gas and coal. To keep global temperatures from rising to levels not seen 

since before the dawn of human civilization, the best expert opinion is that we need 

to get on a pathway now to allow us to cut global warming emissions by 60-80% 

from today’s levels over the decades ahead. The technologies we choose to meet our 

35

22 National Academy of Sciences, Understanding and Responding to Climate Change: Highlights of National Academies Reports, p.16 (October 2005), http://dels.nas.edu/dels/rptlbriefs/

climate-change-final.pdf. 23 NRDC Senate Energy Committee testimony on coal liquefaction, April 14, 2006. 24 Calculated well to wheel CO2 emissions for coal-based ‘‘Fischer-Tropsch’’ are about 1.8 

greater than producing and consuming gasoline or diesel fuel from crude oil. If the coal-to-liquids plant makes electricity as well, the relative emissions from the liquid fuels depends on the 

amount of electricity produced and what is assumed about the emissions of from an alternative 

source of electricity. 

future energy needs must have the potential to perform at these improved emissions 

levels. 

Most serious climate scientists now warn that there is a very short window of 

time for beginning serious emission reductions if we are to avoid truly dangerous 

global warming without severe economic impact. Delay makes the job harder. The 

National Academy of Sciences recently stated: ‘‘Failure to implement significant reductions in net greenhouse gases will make the job much harder in the future—both 

in terms of stabilizing their atmospheric abundances and in terms of experiencing 

more significant impacts.’’ 22 In short, a slow start means a crash finish—the longer 

emissions growth continues, the steeper and more disruptive the cuts required later. 

The Enhanced Energy Security Act focuses appropriately on measures that would 

simultaneously reduce oil dependence and global warming pollution. The National 

Coal Council and others, by contrast, have proposed launching a massive program 

to replace oil with a synthetic liquid fuel produced from coal using a process known 

as Fischer-Tropsch. Such a step would have devastating environmental consequences: potentially doubling carbon dioxide emissions per gallon of gasoline replaced, and increasing the devastating effects of coal mining felt by communities 

and ecosystems stretching from Appalachia to the Rocky Mountains.23 Fortunately, 

we have better, less controversial options that can reduce our oil dependence more 

quickly, more cheaply, and more cleanly than coal-to-liquids. 

To assess the global warming implications of alternative fuels we need to examine 

the total life-cycle or ‘‘well-to-wheel’’ emissions. Coal is a carbon-intensive fuel, containing almost double the amount of carbon per unit of energy compared to natural 

gas and about 20 percent more than petroleum. When coal is converted to liquid 

fuels, two streams of CO2 are produced: one at the coal-to-liquids production plant 

and the second from the exhausts of the vehicles that bum the fuel. With the technology in hand today and on the horizon it is difficult to see how a large coal-toliquids program can be compatible with the low-CO2-emitting transportation system 

we need to design to prevent global warming. 

Today, our system of refining crude oil to produce gasoline, diesel, jet fuel and 

other transportation fuels, results in a total well-to-wheels emissions rate of about 

27.5 pounds of CO2 per gallon of fuel. Based on available information about coalto-liquids plants being proposed, the total well-to-wheels CO2 emissions from such 

plants would be about 49.5 pounds of CO2 per gallon—twice as high as conventional 

petroleum based fuels.24

Even if the CO2 from coal-to-liquids plants is captured, well-to-wheels CO2 emissions would still be higher than emissions from today’s crude oil system. Capturing 

90 percent of the emissions from coal-to-liquid plants would lower plant emissions 

to levels close to petroleum production and refining, while vehicle emissions would 

be equivalent to those from gasoline. However, even with CO2 capture, the well-towheels emissions would be 8 percent higher than from petroleum. 

This comparison indicates that using coal to produce a significant amount of liquids for transportation fuel would not be compatible with the need to develop a lowCO2 emitting transportation sector. Liquid fuel from coal contains the same amount 

of carbon as gasoline or diesel made from crude, so the potential for achieving significant CO2 emission reductions compared to crude is inherently limited. Biofuels, 

especially cellulosic ethanol, offer much greater potential to reduce oil dependence 

and cut CO2 emissions. We already use ethanol in our fuel supply and significant 

investments are pouring into the biofuels industry to help it grow. Renewable 

biofuels are a cheaper, cleaner and more readily available alternative that could displace imported oil, help revitalize the rural economy, and lower CO2 emissions. 

Transforming our transportation sector by mobilizing the use of efficient technologies, diversifying fuel choices at the pump to include clean, renewable fuels, and 

offering mass transit options for commuters, such as light rail, is essential to ensuring that our pursuit of energy security also enables us to tackle the urgent challenge 

of global warming. 

Fortunately, technology is available today that can give us a robust and effective 

program to reduce oil dependence. To cut our dependence on oil we should follow 

a simple rule: start with the measures that will produce the quickest, cleanest and 

36

least expensive reductions in oil use; measures that will put us on track to achieve 

the reductions in global warming emissions we need to protect the climate. As we 

describe in the attached report, a combination of more efficient transportation, 

biofuels, ‘‘smart growth’’ policies and oil savings measures in other sectors, could reduce our oil demand by as much as 40 percent by 2025 (see ‘‘oil savings toolbox’’ 

below).

TECHNOLOGICALLY ACHIEVABLE OIL SAVINGS 

[million barrels per day] 

Oil Savings Measures 2015 2025

Raise fuel efficiency in new passenger vehicles through tax credits 

and standards ...................................................................................... 1.6 4.9

Accelerate oil savings in motor vehicles through 

fuel efficient replacement tires and motor oil ............................... 0.5 0.6

efficiency improvements in heavy-duty trucks ............................. 0.5 1.1

Accelerate oil savings in industrial, aviation, and residential sectors 0.3 0.7

Encourage growth of biofuels industry through demonstration and 

standards ............................................................................................. 0.3 3.9

Total Oil Saved ......................................................................... 3.2 11.2

See Appendix for complete analyses. 

The Enhanced Energy Security Act (S. 2747) creates a solid foundation for tackling the core challenge of growing oil demand, and the companion tax bill provides 

needed incentives to help consumers and industry play an active role in bringing 

innovative, efficient technologies and renewable energies to market sooner. Given 

the breadth of the legislation, the following discussion focuses largely on provisions 

of the bill related to oil dependence. NRDC looks forward to working with the committee to perfect and help enact the legislation. 

CONGRESS SHOULD SET CLEAR TARGETS AND DEMAND ACCOUNTABILITY

Breaking our oil addiction requires mobilizing American ingenuity, factories and 

farms around a clear goal. The first step Congress must take is to make a binding 

national commitment to oil savings. If the past is any indicator of success for such 

a commitment, this savings goal is achievable. During world war II, American factories converted in just months from building cars to building tankers and bombers 

that became the arsenal of democracy. And after the first oil crisis in the early 

1970s, America slashed its oil imports and saved billion of dollars in fuel costs to 

keep our economy strong. From biofuels to hybrid vehicles, we have the technology 

today to make significant reductions in our oil demand. 

S. 2747 would establish the critical foundation of oil savings, starting with a commitment to reduce oil consumption by 2.5 million barrels of oil per day in ten years, 

and provide a set of tools and incentives to help achieve these goals. Crucially, the 

bill also ensures that the oil savings target is not merely aspiration by establishing 

a rigorous process for ensuring that the nation gets on track—and stays on track—

to meeting the requirement. 

We recommend the following policy measures to achieve the oil savings commitments that would be established by S. 2747. Although we recognize that not all of 

these measures are within the jurisdiction of the Energy Committee, we recommend 

that final oil savings legislation incorporate this complete toolbox in order to provide 

the greatest possible flexibility in the means for achieving the targets. 

Accelerate Oil Savings in Transportation

• Raise fuel economy performance standards for passenger cars and light trucks; 

• Provide domestic automakers and suppliers with incentives to retool factories 

and produce more efficient, advanced technology vehicles, such as hybrids and 

advanced clean diesel, to regain competitiveness with foreign rivals and keep 

jobs and profits in the U.S.; 

• Establish minimum efficiency standards for heavy trucks and replacement tires; 

• Reduce vehicle miles traveled (VMT) through increased funding for transit and 

transit-oriented development; and 

• Enable private fleet owners and consumers to use less fuel by offering incentives for fleet turnover and extending EPACT consumer tax incentives for hybrid vehicles. 

37

25 National Research Council, Effectiveness and Impact of Corporate Average Fuel Economy 

(CAFE) standards, Washington, D.C. 2002. 

Expand Fuel Choices though Clean, Renewable Biofuels

• Increase EPACT production goals for cellulosic biofuels to 1 billion gallons by 

2016; 

• Require that areas with access to biofuels and registered flexible fuel vehicles 

(FFVs) require fuel stations to install E85 pumps and provide incentives to offset capital costs of new pumps; 

• Make every new vehicle flexible fuel capable and phase out the federal fuel 

economy loophole for dual-fuel cars and trucks; 

• Implement and fully fund cellulosic biofuels production incentives authorized by 

EPACT; and 

• Ensure that alternative transportation fuels perform better than gasoline in reducing ‘‘well-to-wheels’’ emissions of carbon dioxide. 

Increase Energy Savings in Industry, Aviation and the Residential Building Sector

• Expand industrial efficiency programs to focus on oil use reduction and adopt 

standards for petroleum heating; 

• Replace chemical feedstocks with bioproducts through research and development and government procurement of bioproducts; 

• Upgrade air traffic management systems so aircraft follow the most-efficient 

routes; and 

• Promote residential energy savings with a focus on oil-heat.

Many of the necessary reforms are already included in the broadly supported Vehicle and Fuel Choices for American Security Act (S. 2025), as well as the bill before 

this committee. 

Most importantly, the Enhanced Energy Security Act includes a meaningful 

framework for oil savings. The bill provides helpful new programs to develop new 

vehicle technology, such as plug-in hybrids and lightweight materials, and accelerate the turnover of inefficient cars and trucks. The bill provides needed incentives 

for oil saving technologies, as well, such as cellulosic biofuels and advanced technology vehicles, and increased funding authorization for cellulosic biofuels. The companion tax legislation would help domestic automakers retool and produce more fuel 

efficient vehicles, assist private fleet owners in purchasing these cars and trucks, 

and help truckers install idling reduction equipment to reduce fuel use. 

However, the Enhanced Energy Security Act and the companion tax legislation 

contain several omissions that should be addressed. Specifically, the retooling incentives for auto manufactures and suppliers should be consistent between the authorizing and tax legislation (Section 208 of S. 2747 and Section 202 of S. 2748) in requiring sustained improvements in fleetwide fuel economy for automakers that take 

advantage of the production incentives, and Tier II, Bin 5 emissions compliance for 

all qualifying vehicles. This would help ensure adequate air quality protection and 

actual fuel savings in return for public dollars. 

The bill could also better address the problem of oil dependence by incorporating 

additional measures for transportation efficiency and biofuels infrastructure, which 

are essential to reducing oil dependence. Unlike S. 2025, the oil savings toolbox in 

this bill is not complete, and although some of these provisions fall outside this committee’s jurisdiction, the following measures should be included to provide the tools 

necessary to achieve oil savings. We look forward to working with the committees 

to adopt these and other improvements to the bill. 

Increased Fuel Economy Performance for Light Duty Vehicles 

A key solution to oil dependence is raising the efficiency of cars and trucks. When 

Congress first enacted fuel economy standards in 1975 in response to rising gas 

prices and the OPEC oil embargo, Corporate Average Fuel Economy standards 

(CAFE) succeeded in doubling the fuel economy of American vehicles in just ten 

years. This helped drive the oil intensity of our economy down by about one-third, 

providing better insulation from today’s high prices. 

The program also resulted in a substantial reduction in the nation’s oil dependence. According to the National Research Council, had we continued to use oil at 

the same rate, today we would be consuming 40 percent more gasoline and 3.8 million barrels or nearly 20 percent more oil.25

In the context of higher prices, fuel savings technologies are vital to the future 

of domestic automakers and suppliers. As we noted in our ‘‘In the Tank’’ report in 

38

26 University of Michigan and Natural Resources Defense Council, ‘‘In the Tank’’ report, 2005. 27Langer, Therese, Report to the National Commission on Energy Policy ‘‘Energy Savings 

Through Increased Fuel Economy for Heavy-Duty Trucks,’’ 2004. 

2005, automakers stand to lose substantial market share, profit and jobs if they do 

not make fuel economy a top priority.26

NRDC strongly supports the recently introduced ‘‘Ten-in-Ten Fuel Economy Act’’ 

as a critical part of our nation’s strategy for addressing the urgent challenges of oil 

dependence and global warming. The bill would guarantee that we save 2.5 million 

barrels of oil per day by 2025 and reduce tailpipe emission of carbon dioxide by 420 

million metric tons. 

Efficiency Standards for Tires and Heavy Trucks 

Tires may look similar, but some models are more fuel-efficient than others, while 

having comparable or superior braking, tread life (longevity), and other important 

performance attributes. The small incremental cost of fuel-efficient replacement 

tires compared with average tires sold in the replacement market quickly pay for 

themselves, and could easily save consumers at least $36 a year by boosting the fuel 

economy performance of their vehicle by 2 to 4%—a potential annual savings of $6 

billion nationally. Despite the clear benefits, only new cars are routinely equipped 

with these tires and they are not widely available in the replacement market. Congress should grant authority to set minimum tire efficiency standards. Replacement 

tires should not only be labeled, but also optimized for fuel efficiency so consumers 

can take advantage of an easy way to save fuel. 

Improving the fuel economy of heavy-duty trucks offers a major opportunity for 

oil savings. All truck classes can benefit from fuel-efficiency gains from current and 

emerging technology. Technology assessments by the American Council for an Energy-Efficient Economy (ACEEE) found that truck fuel-efficiency advances up to 70 

percent are cost-effective. In addition to tax incentives for purchases of idling reduction equipment, Congress should grant authority to set minimum efficiency standards for medium and heavy duty trucks.27

Transit 

Oil dependence is one more reason to pursue smart-growth as an alternative to 

suburban sprawl and to expand Americans’ transportation options. The potential for 

smart growth oil savings is immense. If all new construction were built in a similar 

fashion to existing smart growth developments, the nation would save over half a 

million barrels of oil per day after 10 years of construction. The attached report 

identifies ways for Congress to support local smart growth policies to reduce VMT 

and achieve oil savings. 

Renewable Energy and Energy Efficiency is Essential to Overall Energy Security 

NRDC strongly supports the renewable portfolio standard provision of the Enhanced Energy Security Act. This provision, which passed in the Senate’s version 

of the Energy Policy Act of 2005, would be a major step forward in promoting clean 

renewable energy in the United States. 

NRDC also supports the energy efficiency provisions. The financial incentives program for high-efficiency products is an excellent idea, which is similar to the Golden 

Carrot program NRDC developed in collaboration with utilities, state energy offices 

and EPA to promote the design and manufacture of a high-efficiency refrigerator. 

We recommend that the high-efficiency products provision be strengthened by 1) 

giving EPA the authority to make the awards, since EPA has more experience than 

DOE in this area, 2) authorizing a specific dollar amount for the program, 3) requiring that the products actually be in production before giving the money to the manufacturers, and 4) requiring that the award be for products that achieve a certain 

minimum percentage of energy savings. This last requirement is necessary to exclude bids for very modest, but cheap, energy savings, which can be acquired more 

easily through other programs. This program should be limited to technologies that 

advance the state of the art. 

NRDC also supports a federal energy efficiency resource program, which would require that electric utilities save a certain percentage of their consumption through 

energy efficiency programs. The energy efficiency resource program provisions in the 

Enhanced Energy Security Act should be strengthened by placing the requirement 

on the utilities instead of leaving the decision of whether to establish such a requirement to state public utility commissions. 

39

Energy Efficiency Provisions of the Enhanced Energy Security Tax Incentives Act 

Some 1.5 million barrels of oil per day are consumed in buildings where savings 

of 30%-50% and more are cost-effective and can be facilitated by tax incentives. 

NRDC strongly supports extending energy efficiency tax incentives extensions, as is 

done in the Enhanced Energy Security Tax Incentives Act. However, there are now 

better alternatives for some of these incentives that are more meaningful and more 

cost effective. The original EPAct incentives for retrofitting homes and for solar energy are based on the cost of the measures rather than their performance. This 

structure was tried in the 1970’s for both efficiency and solar, and it was an expensive failure. NRDC has concerns about adding the tax credit for 30% energy savings 

in new homes. Almost all of the 200,000 homes constructed in California annually 

already save about 28% on average, so this provision could be costly. NRDC supports the existing homes and solar energy incentives language that will soon be introduced by Senators Snowe and Feinstein. The Snowe-Feinstein bill would create 

new performance-based incentives for retrofit of both owner-occupied homes and 

rentals, while also extending the EPACT incentives for 2 years. 

CONCLUSION

NRDC is pleased to endorse S. 2747 and S. 2748, which provide an excellent foundation for breaking America’s addiction to oil, reducing natural gas demand, and 

curbing global warming. By establishing an enforceable national commitment to oil 

savings and providing flexible tools for achieving it, these proposals point the way 

to breaking the energy policy gridlock that we are stuck in today. Congress should 

seize this opportunity to increase our security, strengthen our economy, and protect 

our environment.

The CHAIRMAN. Thank you very much. We’ve got just minutes 

left on this vote. We are going to vote now and return and it will 

be your turn then. We stand in recess. 

[Recess.] 

Senator BINGAMAN [presiding]. Why don’t we go ahead again. We 

apologize for the interruption. Senator Domenici still has to stay on 

the Senate floor to speak on one of the amendments that is pending 

on this defense bill, so he asked me to come back and proceed with 

the rest of the testimony here. 

Kateri, why don’t you go right ahead. Your full statement will be 

included in the record and we are glad to hear your summary or 

whatever you would like to say. 

STATEMENT OF KATERI CALLAHAN, PRESIDENT,

ALLIANCE TO SAVE ENERGY 

Ms. CALLAHAN. Great. Thank you, Senator Bingaman. I am 

Kateri Callahan and I serve as the president of the Alliance to 

Save Energy, which, as you know, is a bipartisan, non-profit coalition of more than 100 businesses, governments, environmental and 

consumer groups who promote energy efficiency around the world. 

I would like to start, Senator, by thanking you for the leadership 

that you provide and Senator Dorgan, who is on our Board of Directors, also to express our appreciation for the leadership of this 

committee in beginning to make energy efficiency a true cornerstone of energy policy. In the Energy Policy Act of last year, just 

one of the provisions, the appliance standards, will result in energy 

savings and dollar savings for consumers of $63 billion by 2020. So 

it has been very good working with you in advancing energy efficiency. 

Notwithstanding, however, all of this good progress that has 

been made, we believe there is a need for additional government 

policies to advance energy efficiency, particularly in the transportation sector. So we are very delighted about the innovative measVerDate 0ct 09 2002 11:05 Nov 14, 2006 Jkt 109666 PO 30716 Frm 00043 Fmt 6633 Sfmt 6602 P:\DOCS\30716.TXT SENERGY2 PsN: PAULM
40

ure that you have introduced as S. 2747 and we are pleased to support and endorse that legislation. 

The question facing our country is twofold—and Senator Domenici alluded to this earlier in the day. First, and urgently, we need 

to address today’s high energy prices, which are causing plant closings and the loss of jobs, and contributing to a general malaise in 

consumers, coast-to-coast. But the second, and I would argue equally important, question is what Federal policies can be put in place 

today to insulate us against all of the future threats we have to our 

economy, our environment and our energy security because of our 

enormous and growing thirst for energy. 

We think the first and central answer to both of those questions 

is energy efficiency as our Nation’s greatest energy resource. It has 

a proven track record. We now save more energy every year than 

is provided to us by any other single resource. And if the Congress 

and the States hadn’t taken the actions that they had since 1973, 

we would need 43 percent more energy today to fuel our economy. 

The good news, though, is that we haven’t wrung out of energy efficiency everything that we can. Our national labs did a study a couple of years ago and they believe that we could essentially halt the 

growth in our energy consumption in 20 years just by putting in 

place energy efficiency programs. So it is doable and it is doable 

with technologies and practices available to us today. 

The first place to start, as I mentioned, is transportation because, in our view, that was the largest gap in EPAct 2005. We’ve 

done a study of it, Senator, and we believe that, on balance, that 

bill will save no oil whatsoever. S. 2747 puts in place aggressive 

targets for national oil savings. We very much support those. However, I know the numbers that Dan doesn’t, because I was around 

for EPAct 1992. There were goals in that bill, very important goals, 

of saving 10 percent of the use of transportation fuel by the year 

2000 and 30 percent by 2010. Well, we are still today, in 2006, at 

97 percent dependency in the transportation sector. So we think 

the surest way to oil savings would be through increases, reforms 

and CAFE standards, but we understand that is problematic in the 

Congress, even though the majority of Americans support it. It is 

also outside of the jurisdiction of this committee. So the novel approach that we would like the committee to look at is a vehicle 

feebate program. 

The idea is simple. You would provide a rebate for fuel-efficient 

vehicles that is paid for by a fee on gas guzzling vehicles. A feebate 

would encourage manufacturers to put more fuel-efficient technologies in their vehicles and it would encourage consumers to buy 

those vehicles. There are three important benefits that I want to 

mention to the approach. It is revenue neutral; the fees would pay 

the rebates, so no cost to the government; and it is market-based, 

you can align consumer preferences with manufacturers’ technology 

capability and with national policies. The nice thing about it, too, 

I think, is it would provide continual improvement. One act by 

Congress would result in putting in place a program that would 

continually increase the fuel economy of vehicles as the mid-point 

rose higher and higher into the future. 

I’m going to run out of time here in a minute, so let me just say 

that we also appreciate and support that S. 2747 is focused on savVerDate 0ct 09 2002 11:05 Nov 14, 2006 Jkt 109666 PO 30716 Frm 00044 Fmt 6633 Sfmt 6602 P:\DOCS\30716.TXT SENERGY2 PsN: PAULM
41

ing natural gas. I think Steve Nadel is going to talk here about the 

renewable portfolio standard and things we would like to see done 

to expand so that energy efficiency resources can be used effectively 

to help take us off of conventional fuels in the electricity sector. 

And while it is out of the jurisdiction of this committee, I wanted 

to mention that, because I can’t let this opportunity pass, we think 

it is critically important to extend the energy tax incentives that 

you made available in EPAct 2005. We applaud your support and 

introduction of legislation, Senator Bingaman, to do just that and 

we will work with you on it. 

Consumers and businesses in this country have been hit by the 

worst energy price shocks in years and, according to the polls, we 

see half the people in the country are spending less on other household needs and goods because they are having to spend more on energy. So the polls are telling us something needs to be done now, 

but fortunately, the polls are also saying that people want the Congress to focus more on long-term solutions than just dealing with 

today’s energy crisis. So we think we have an opportunity now to 

enact significant energy efficiency provisions that do both. They 

tackle today’s energy prices but they put us on a path for a sustainable energy future. Thank you. 

[The prepared statement of Ms. Callahan follows:]

PREPARED STATEMENT OF KATERI CALLAHAN, PRESIDENT, ALLIANCE TO SAVE ENERGY

My name is Kateri Callahan and I serve as President of the Alliance to Save Energy, a bipartisan, nonprofit coalition of more than 100 business, government, environmental and consumer leaders who promote energy efficiency worldwide to 

achieve a healthier economy, a cleaner environment, and greater energy security. 

The Alliance appreciates the leadership Senators Bingaman and Dorgan are providing as two of our Congressional Vice-Chairs, and we are grateful for the important work that this Committee has done, through design and enactment of last 

year’s energy bill which included critical energy saving provisions, to begin to make 

efficiency a cornerstone of this nation’s energy policy. The energy efficiency appliance standards alone in EPACT will result in more than $63 billion dollars in consumer savings on energy bills by 2020. 

Notwithstanding, however, these positive steps, the need for additional government policies to advance energy efficiency—particularly in the transportation sector—have never been greater so we are pleased that the Committee is considering 

new, important measures like Senator Bingaman’s Enhanced Energy Security Act 

of 2006, S. 2747, which the Alliance supports. 

The question facing our country is two-fold. First, and urgently, how can we best 

and most expeditiously tackle today’s high energy prices which are causing plant 

closings and loss of manufacturing jobs, and contributing to the general malaise of 

consumers coast-to-coast. But the second, and more important question, I believe, 

is what federal policies can be put in place today to insulate our country against 

the looming economic, environmental and energy security threats arising from our 

enormous national thirst for energy. 

A first and central answer to both questions is to more fully use our nation’s 

greatest energy resource—energy efficiency. Efficiency has a proven track record; we 

now save more energy each year through energy efficiency than we get from any 

single energy source, including oil. If we tried to run today’s economy without the 

energy-efficiency improvements that have taken place since 1973, we would need 43 

percent more energy than we use now. The very good news is that efficiency is the 

gift that keeps on giving. The National Laboratories have found that we could essentially halt the growth in energy consumption in this country within 20 years 

through aggressive policy support of energy efficiency. 

In our view the largest gap in the Energy Policy Act of 2005 was on oil savings 

and efficiency in the transportation sector. We estimate that last year’s final energy 

bill—on balance—will save no oil at all. 

S. 2747 includes aggressive targets for national oil savings. While the Alliance 

supports these targets, we do not believe that enacting goals is enough. The Energy 

Policy Act of 1992, for example, included goals to displace 10 percent of light duty 

42

vehicle fuel by 2000, and 30 percent by 2010 with alternative fuel; yet today, petroleum still accounts for 97 percent of transportation fuel. The Alliance believes administration action is needed, but Congress should not wait. 

Perhaps the surest route to oil savings would be through increases or reforms in 

CAFE standards, as in the bill introduced earlier this week by Senator Feinstein 

and others. Although there is near-universal support for boosting the standards 

among the public, the Alliance recognizes that CAFE standards are much more controversial in the halls of Congress, and are outside the jurisdiction of this committee. 

One novel approach to oil savings that could be within this committee’s purview 

is a vehicle ‘‘feebate.’’ The idea is simple: provide a rebate for fuel-efficient vehicles 

that is paid for by a fee on gas guzzlers. 

A feebate would encourage manufacturers to use more fuel-efficient technologies 

in their vehicles, and encourage consumers to purchase more efficient vehicles. It 

would save consumers money in the long run, as the savings in gasoline should be 

greater than any added vehicle cost. 

There are three important benefits of this approach. It is revenue-neutral, with 

the fees collected paying for the rebates provided. It is market-based, aligning consumer preferences with manufacturer abilities and national policy. And, it can yield 

continual improvement without further action by Congress or the Administration because as fuel economies increase, the dividing line between fees and rebates is automatically adjusted higher. 

S. 2747 also properly focuses on saving natural gas. Because supplies of natural 

gas are so tight in the United States, reducing demand for natural gas by just a 

few percent could yield significant price reductions over the next several years. S. 

2747 includes a renewable portfolio standard, but many utilities have found that 

helping their customers to save a kilowatt hour of electricity is cheaper than producing that kilowatt hour from renewable sources or even from traditional sources. 

S. 2747 recognizes the potential of these programs with a provision from last year’s 

Senate energy bill requiring state public utility commissions to consider policies to 

promote utility energy-efficiency programs. The Alliance strongly supports this provision, but would urge the committee to consider further federal action. 

And, while outside the jurisdiction of this committee, I cannot let an opportunity 

go by to emphasize the importance of extending and building on the tax incentives 

for energy-efficient buildings, equipment, and vehicles that were in EPAct 2005. 

These incentives have great potential to transform markets for energy-efficient technologies, but they are in effect for too short a time. 

Consumers and businesses in this country have been hit by the worst energy price 

shocks in many years. According to polls, about half of American households have 

cut back on other household spending because of energy costs. But polls also show 

that a large majority of Americans are rightly more concerned that Congress find 

long-term energy solutions than that Congress quickly address current prices. There 

is an opportunity now to enact significant energy-efficiency measures that can provide quick relief, but more importantly, will benefit the economy, the environment, 

and energy security for years and years to come. 

INTRODUCTION

The Alliance to Save Energy is a bipartisan, nonprofit coalition of more than 100 

business, government, environmental and consumer leaders. The Alliance’s mission 

is to promote energy efficiency worldwide to achieve a healthier economy, a cleaner 

environment, and greater energy security. The Alliance, founded in 1977 by Senators Charles Percy and Hubert Humphrey, currently enjoys the leadership of Senator Mark Pryor as Chairman; Washington Gas Chairman and CEO James 

DeGraffenreidt, Jr. as Co-Chairman; and Senators Jeff Bingaman, Byron Dorgan, 

Susan Collins and Jim Jeffords along with Representatives’ Ralph Hall, Zach Wamp 

and Ed Markey, as its Vice-Chairs. Attached to this testimony are lists of the Alliance’s Board of Directors and its Associate members. 

The Alliance is pleased to testify at a hearing on legislation to promote energy 

efficiency. Despite some positive steps in the Energy Policy Act of 2005, the need 

for energy efficiency and the potential contribution of new energy-efficiency policies 

have never been greater. 

THE NEED FOR ENERGY-EFFICIENCY POLICIES

Gasoline and natural gas prices have doubled in the last few years, and electricity 

prices also reached all-time highs. All told, recent energy price increases cost American families and businesses over $300 billion last year. These high prices have 

43

caused plant closings and loss of manufacturing jobs, and have made many low-income homeowners unable to pay their heating bills. President Bush recognized that 

our long-term energy security and environmental issues due to our wasteful use of 

fossil fuels are equally serious when he called for ending our ‘‘addiction’’ to oil. 

The problems are likely to get worse. The Energy Information Administration 

projects that oil use in the United States will grow by another 7.5 million barrels 

a day by 2030, about one-third of current consumption. While there has been a great 

deal of attention recently to growing oil demand in China and India, it is worth noting that projected growth in oil demand in the United States is nearly as great as 

in China, and three times that of India. Natural gas use in the United States is 

projected to grow by a fifth by 2030, and electricity use by half. Such growth will 

lead to higher prices, greater volatility, and increasing dependence on foreign natural gas as well as foreign oil. 

Energy efficiency has the potential to slow the growth in demand significantly, 

and thus moderate the associated price volatility, energy security concerns, and environmental impacts. Energy efficiency is the nation’s greatest energy resource—we 

now save more energy each year from energy efficiency than we get from any single 

energy source, including oil, natural gas, coal, and nuclear power. The Alliance to 

Save Energy estimates that if we tried to run today’s economy without the energyefficiency improvements that have taken place since 1973, we would need 43 percent 

more energy supplies than we use now. Much of these savings result from federal 

energy policies and programs like appliance and motor vehicle standards, research 

and development, and the Energy Star program. The existing car and light truck 

CAFE standards alone saved an estimated 2.8 million barrels of oil a day in 2000. 

And tremendous, cost-effective, potential energy savings remain. Vehicle efficiency 

has continued to improve even after CAFE standards were largely fixed in the mid1980’s, but, paradoxically, vehicle fuel economy has actually gone down—the efficiency gains have been eaten up by increased weight and power. The EPA estimates 

that if automakers had applied the technology gains since 1987 to improving fuel 

economy, average fuel economy would be 20 percent higher. The National Research 

Council found that much greater vehicle efficiency gains are possible with existing, 

cost-effective technologies that have not been widely applied yet, not even including 

hybrid-electric engines. A 2000 study by several of the national labs found that overall the United States could save 19 percent of anticipated energy use by 2020, essentially halting growth in consumption. This includes 12 percent savings for natural 

gas, 21 percent savings for petroleum, and 24 percent savings for electricity. 

OIL SAVINGS MEASURES

Perhaps the largest gap in the Energy Policy Act of 2005 was on oil savings and 

efficiency in the transportation sector. The Alliance estimates that last year’s energy 

bill, as it emerged from the conference committee, likely will save no oil at all, as 

the small savings from the hybrid-electric vehicle tax incentive and other provisions 

will be canceled out by increased gasoline use due to extension of the CAFE loophole 

for dual-fueled vehicles. Our dependence on foreign oil has steadily increased under 

the policies and programs in place today. If we truly wish to end our ‘‘addiction’’ 

to oil, Congress and the President must take further action. 

S. 2747, the Enhanced. Energy Security Act of 2006, includes aggressive targets 

for national oil savings, enough to make a real difference in oil markets and on our 

oil dependence. The Alliance supports these targets, but does not believe that passing fine goals is enough. Although the Energy Policy Act of 1992 included goals that 

alternative fuels would replace 10 percent of light duty vehicle fuel by 2000, and 

30 percent by 2010, petroleum still accounts for 97 percent of transportation fuel. 

While S. 2747 details procedures by which the administration is to achieve the goal, 

the Alliance believes greater support and likely additional legislation will be needed 

from Congress. Administration action is needed, but Congress should not wait. 

Perhaps the surest route to oil savings would be through increases or reforms in 

CAFE standards. Standards increases could be relatively quick, cost-effective, and 

could have a major impact on energy use. Although there is near-universal support 

for boosting the standards among the public, the Alliance recognizes that CAFE 

standards are much more controversial in the halls of Congress, and are outside the 

jurisdiction of this committee. Other smaller, but positive, measures in S. 2025 and 

tax provisions in S. 2748 also are outside this Committee’s jurisdiction. 

Vehicle ‘‘Feebate’’

One new approach to oil savings that could be within the committee’s purview is 

a vehicle ‘‘feebate.’’ The idea is simple: provide an incentive (rebate) to make and 

buy fuel-efficient vehicles; a premium (fee) on gas guzzlers will discourage that 

choice and pay for the incentives. 

44

In one approach the Department of Energy would apply a fee or rebate to the 

manufacturer of each new car and light truck. For each vehicle the amount would 

be based on the gallons of gasoline estimated to be used over the lifetime of the vehicle; the less gasoline a vehicle uses, the larger the rebate (or smaller the fee). 

The fee or rebate would then be determined relative to a dividing line, the midpoint mpg. The dividing line between fees and rebates would be set each year such 

that the total fees would just pay for all the rebates, so there would be no net revenue or cost to the government. Consequently, about half the vehicles would receive 

a rebate, and about half the vehicles would be assessed a fee. If you do not wish 

to influence the kind of vehicles customers buy, cars and trucks could be divided 

into several categories based on size, with a separate midpoint mpg for each category. 

A feebate would improve fuel efficiency because it would encourage manufacturers 

to use more fuel-efficient technologies in their vehicles, and encourage consumers 

to purchase more efficient vehicles. One study finds that a feebate slightly different 

from that described above would save 1.2 million barrels a day of oil by 2020; a larger feebate could save considerably more. Although improved technologies may increase the average price of cars and light trucks, the savings in gasoline should be 

greater than the added cost. 

There are several benefits to the feebate approach:

EXAMPLES OF POSSIBLE FEES AND REBATES 

Vehicle 

Fuel 

Economy 

(mpg) 

Feebate 

Toyota Prius ......................................................... 55 $1177 rebate 

Ford Escape Hybrid ............................................. 33 $693 rebate 

Honda Accord ....................................................... 27 $423 rebate

Midpoint mpg ....................................................... 21 —

Lincoln Town Car ................................................. 20 $95 fee 

Chevrolet Trailblazer ........................................... 18 $317 fee 

Ford F-150 ............................................................ 16 $595 fee 

For example, this rebate for a Prius is calculated: 25 cents per gallon * 160,000 miles * (1/21 

mpg ¥ 1/55 mpg) = $1177

• Revenue neutral: The program can be designed to cost the government NO 

money, and it would not be a tax increase. 

• Market-driven policy: The financial incentives will help push the market to 

more efficient vehicles, to align consumer demand, manufacturer requirements, 

and national policy. 

• Continual improvement: As fuel economies increase, the midpoint mpg is 

ratcheted up, encouraging continual improvement, but never out of line with the 

existing market. 

• Not tied to CAFE standards: If the feebate is large enough, market forces will 

drive up fuel economies beyond the current fuel economy standard. 

• Reduces oil consumption and greenhouse gas emissions. 

NATURAL GAS SAVINGS MEASURES

S. 2747 also properly focuses on saving natural gas. Because supplies of natural 

gas are so tight in the United States, reducing demand for natural gas by just a 

few percent points could yield significant price reductions over the next several 

years. S. 2747 includes several provisions for natural gas efficiency and electricity 

efficiency (which can yield significant savings of natural gas as an energy source), 

notably a renewable portfolio standard. 

But many utilities have found that helping their customers to save a kilowatthour of electricity is cheaper than producing that kilowatt-hour from renewable 

sources or even from traditional sources. While estimates vary widely, utility enduse energy-efficiency programs often cost around 3-4 cents per kilowatt-hour. S. 

2747 recognizes the potential of these programs by requiring state public utility 

commissions to consider policies to promote utility energy-efficiency programs, taken 

from last year’s Senate energy bill. The Alliance strongly supports this provision, 

but would urge the committee to consider further federal action as noted below. 

45

Energy Efficiency Resource Standard 

Several states are already developing innovative policies to set performance standards for utility energy-efficiency programs alongside standards for generation from 

renewable sources. Renewable and efficiency requirements can reinforce each other 

in several ways.

• Texas has separate renewable and efficiency requirements, 

• Connecticut and Pennsylvania have alternative energy portfolio standards with 

separate tiers for renewables and efficiency and other sources, 

• Hawaii and Nevada have combined standards for renewable and efficiency resources (Nevada caps the amount efficiency contributes), 

• California has a ‘‘loading order’’ that sets efficiency as the preferred resource; 

once cost-effective efficiency measures have been exhausted, utilities are to use 

renewable sources, and only ‘then traditional sources.

Like a renewable portfolio standard, an energy efficiency resource standard is a 

performance-based approach that gives utilities broad flexibility about how and 

where to achieve the energy savings. Utilities are required to implement energy-efficiency programs sufficient to save a specified amount of energy, such as one percent 

of the previous year’s sales. They can implement their own programs, hire energy 

service companies or other contractors, or sometimes pay other utilities to achieve 

the savings by buying credits. Usually, the costs of the energy-efficiency programs 

must be recovered from energy customers through utility rates, but the savings from 

avoided energy supply are greater than the efficiency cost. Note that an energy efficiency resource standard is not a requirement that the utility’s sales decrease in absolute terms or a limit on their sales at all; it is a requirement that utilities implement programs that are estimated to save a specified amount of energy. 

As a focus for federal policy, the energy efficiency resource standard has several 

advantages:

• It is readily available in all parts of the nation, 

• It is available for direct natural gas use as well as for electricity, 

• It is cost-effective today, and 

• The potential savings are enormous—if 0.75 percent savings were achieved annually nationwide, by 2020 electricity and natural gas use would be reduced by 

8 percent, with an estimated net cumulative savings to consumers of $64 billion. 

Appliance Standards 

Perhaps the only other federal policy to achieve that level of electricity and natural gas savings is appliance standards. While EPAct 2005 included a set of important new standards, additional action by Congress is needed. First, the greatest potential natural gas savings are from a standard requiring efficient residential furnaces in the Northern states, but these furnaces may not be cost-effective in all of 

the warmer states. Legislation would be useful to clarify that the Department of Energy, if warranted, could set separate levels for heating and cooling equipment in 

two climate regions. Second, the Alliance is working with manufacturers and other 

stakeholders to reach agreement on proposed federal standards for additional categories of equipment, and hopes these standards will be legislated as agreement is 

reached. Finally, the Alliance urges you to maintain vigilant oversight as DOE attempts to meet the requirements for rulemakings in EPAct 2005 while issuing longdelayed standards required in earlier bills. 

Energy-Efficiency Tax Incentives 

Other important measures to save electricity and natural gas are outside the jurisdiction of this committee. But the Alliance will not let an opportunity go by to 

emphasize the importance of extending and building on the tax incentives for energy-efficient buildings, equipment, and vehicles that were in EPAct 2005. These incentives have great potential to transform markets for energy-efficient technologies, 

but they are in effect for too short a time. ‘‘A large commercial building initiated 

when the bill’’ was signed last August will not be finished before the commercial 

buildings deduction expires in December, 2007. For Toyota hybrid vehicles, the tax 

credit will expire even earlier, phasing out between October 2006 and March 2007. 

The Alliance strongly supports the extensions that are in S. 2748, with some modifications that have been worked out with other stakeholders—notably a performance-based incentive for whole-home energy-efficiency retrofits that picks up where 

the current home improvements credit leaves off. The Alliance also supports updates 

to federal standards for certain buildings, particularly manufactured housing and 

homes with federally subsidized mortgages. 

46

CONCLUSION

Consumers and businesses in this country have been hit by the worst energy price 

shocks in many years for gasoline, natural gas, and (in some areas) electricity. 

These price increases hit the rest of the economy, as chemical plants move overseas 

and, according to polls, about half of American households cut back on other household spending. There are measures we could take, such as consumer education, 

which would have an immediate impact. But polls also show that a large majority 

of Americans are rightly more concerned that Congress find long-term energy solutions than that Congress quickly address current prices. There is an opportunity 

now, due to the high prices, to enact significant energy-efficiency measures that will 

benefit the economy, the environment, and energy security for years to come. If Congress does not act, the price volatility and supply shortages will continue to plague 

us. The Alliance urges you to seize the opportunity to take really significant measures to reduce energy waste in this nation.

Senator BINGAMAN. Thank you very much. 

Mr. Nadel—is that the right pronunciation? Why don’t you go 

right ahead. Thank you. 

STATEMENT OF STEVE NADEL, EXECUTIVE DIRECTOR, 

AMERICAN COUNCIL FOR AN ENERGY-EFFICIENT ECONOMY 

Mr. NADEL. Thank you, Senator. I appreciate the opportunity to 

be here. I am the executive director of the American Council for an 

Energy-Efficient Economy, a non-profit research organization here 

in Washington. As Kateri Callahan said, energy efficiency is our 

Nation’s No. 1 energy resource, but there is much more opportunity. Since the Energy Policy Act was passed last year, our energy problems have only gotten worse and we are very heartened 

to see that this committee is again considering energy legislation, 

including major energy efficiency provisions. I particularly wanted 

to thank you, Senator Bingaman, for taking a lead on this. 

As we look at the Energy Policy Act of 2005, and the Energy Policy Act of 1992, what we see is there are many, many provisions 

of which a few have had some significant impacts and many of 

them, unfortunately, have not had the impacts we all would have 

hoped for. They have not been followed with Appropriations, States 

haven’t followed through, et cetera. We therefore recommend that 

the committee focus on just a few major energy-saving provisions 

that will have a really big impact. Fortunately, S. 2747, I think, 

has three of the four things that we think are very important, and 

I am going to suggest a few tweaks and one significant addition. 

First, we need to do something about saving oil. That’s the biggest problem with the 2005 law and, actually, the 1992 law as well. 

We really need to take some leadership. We need some creative approaches and I think the approach in S. 2747 is a good, creative 

approach to make some significant progress. So I strongly urge this 

committee to include that in any bill that reports out. 

In addition, we are going to need some supporting policies so 

that the future administrations have many choices to choose from 

to meet those targets. Title II has some good provisions. In our 

written comments, we provide a couple of additional suggestions of 

things that—arrows that can be in the quiver, that future administrations can use to meet those targets. We think the targets are 

very achievable. We have done some analyses as well, looking just 

at the opportunities for energy efficiency savings. We can save 

more than 5 million barrels per day just from efficiency by 2020. 

And I point out that about 2 million of that comes from the indusVerDate 0ct 09 2002 11:05 Nov 14, 2006 Jkt 109666 PO 30716 Frm 00050 Fmt 6633 Sfmt 6602 P:\DOCS\30716.TXT SENERGY2 PsN: PAULM
47

trial sector, the residential sector, airplanes, and heavy vehicles. It 

is not just CAFE, it is not just passenger vehicles, there are lots 

of opportunities throughout the economy to save oil. So we urge 

this committee to take that path. 

Second, there is a provision in S. 2747 calling on States to consider setting energy efficiency performance standards. These are 

targets that utilities would need to meet that would gradually escalate over time to help lock in some electricity and, potentially, natural gas savings. 

We would recommend strengthening that provision and making 

it a national energy efficiency performance standard. We think 

there are many benefits to going national: You get much more savings, savings that all states take advantage of; it will help reduce 

energy prices nationwide; and because there are more savings, it 

will help reduce pollution nationwide. We urge that there be an energy efficiency performance standard actually included in the legislation, somewhat modeled after the renewable portfolio standard 

that is already in there. 

Third, we recommend that a provision be added on appliance and 

equipment efficiency standards. The Energy Policy Act last year included quite a few standards. We are in the process of negotiating 

with manufacturers on additional standards and we hope the committee will include whatever consensus standards we can reach 

agreement on by the time the bill moves. We have one agreement 

now. We are working on several others. 

Also, we recommend that the bill clarify current law and authorize the Department of Energy, when it sets efficiency standards on 

heating and cooling equipment, to set two standards for the United 

States instead of one. Alaska and Florida have very different climates and a one-size-fits-all approach is creating some problems. 

Either you set a very weak standard and don’t save any energy or 

set a stronger standard but it disadvantages those folks, say, in a 

warm climate. By dividing the country into two standards, we can 

save a lot of energy while reducing the burdens in those climates 

that won’t benefit. 

Finally, we recommend that the energy efficiency tax incentives 

get included. 

We thank you, Senator Bingaman and your co-sponsors, for including many of this as S. 2748. 

Overall, we estimate that the Energy Policy Act of 2005, the energy efficiency provisions, would reduce U.S. energies by about 11⁄2

percent in 2020. This is a significant savings. But those four measures I just recommended, those could save an additional 12 percent. We are talking seven times the energy savings from the Energy Policy Act of 2005 from just four provisions. So we urge you 

to consider these four provisions as you move forward with legislation. Thank you. 

[The prepared statement of Mr. Nadel follows:]

48

PREPARED STATEMENT OF STEVEN NADEL, EXECUTIVE DIRECTOR, AMERICAN COUNCIL

FOR AN ENERGY-EFFICIENT ECONOMY (ACEEE) 

SUMMARY

Introduction 

Energy efficiency is an important cornerstone for America’s energy policy. Energy 

efficiency has saved consumers and businesses trillions of dollars in the past three 

decades, including about a trillion dollars in 2005 alone. These efforts should now 

be accelerated in order to:

• Save American consumers and businesses even more money; 

• Change the energy supply and demand balance to put downward pressure on 

energy prices; 

• Decrease America’s addiction to oil, particularly oil imports; 

• Strengthen our economy (since energy savings generate American jobs and capital investment); 

• Buy us time to implement a comprehensive long-term energy strategy, and 

• Reduce the risks of global warming by moderating carbon dioxide emissions 

growth. 

Key Drivers 

Prices of heating oil, gasoline, natural gas, and coal have risen 60-100% in the 

past three years (varying by fuel), driven by rising demand, tight supplies, and limited transportation and processing infrastructure. While prices are unlikely to return to the levels of three years ago, prices can be reduced through a combination 

of reduced demand and increased supplies. However, new supplies take time to develop, so energy efficiency is the only near-term option. A 2005 ACEEE analysis 

found that reducing natural gas use by about 4% over five years could reduce natural gas prices by over 20%. Reducing demand for oil and for refined petroleum 

products is also likely to reduce prices. 

U.S. reliance on oil imports continues to rise and is projected to be near 70% of 

total U.S. oil demand by 2020. A substantial portion of this oil comes from unstable 

regions of the world. While moderate amounts of new oil are available in hard-toreach areas of the U.S., they are not enough to offset continuing rapid depletion of 

North American fields. Moreover, much greater amounts of oil are available by increasing the efficiency with which we use oil. A January 2006 ACEEE study finds 

that we can reduce U.S. oil use by more than 5 million barrels per day by 2020. 

That’s equivalent to almost doubling current U.S. oil production—which no serious 

petroleum expert views as possible. Improvements to passenger vehicles account for 

more than 3 million barrels per day of savings, but more than 2 million barrels per 

day of savings are available in the residential, commercial, and industrial sectors, 

and in heavy vehicles and airplanes. This suggests that oil-savings efforts should 

focus on all sectors, not just passenger vehicles. 

Greenhouse gas emissions, especially carbon dioxide, continue to increase. Early 

signs of the impact of global warming are becoming apparent in Alaska and other 

parts of the Arctic, and several recent papers have identified a link between warmer 

ocean temperatures and increased hurricane intensity. Energy efficiency is the most 

cost-effective way to reduce these emissions, as efficiency investments generally pay 

for themselves with energy savings alone, providing no-cost emissions reductions. 

For example, a May 2006 ACEEE study found that the planned cap and trade system for power-sector carbon dioxide emissions in the northeastern U.S. can have a 

positive impact on the regional economy provided increased energy efficiency programs are a key part of implementation efforts. 

Energy Policy Acts of 2005 and 1992

The Energy Policy Act of 2005 contained some useful energy efficiency provisions, 

particularly the new equipment efficiency standards and energy efficiency tax incentives. Other EPAct 2005 provisions may also help as well, but virtually all of these 

lack funding or other critical follow-up actions. Overall, ACEEE now estimates that 

the efficiency provisions in this law will reduce energy use in 2020 by 1.8 quadrillion Btu, which is 1.5% of projected national energy use. More than 75% of the savings are from equipment efficiency standards and efficiency tax incentives. Experience with the Energy Policy Act of 1992 showed a similar pattern—most of the savings came from a few provisions, and the majority of provisions proved to be more 

show than substance. 

49

1Specifically, national energy intensity (energy use per unit of GDP) fell 46 percent between 

1973 and 2003. About 60% of this decline is attributable to real energy efficiency improvements 

and about 40% is due to structural changes in the economy and fuel switching. Energy and GDP 

figures from Energy Information Administration, 2006, Monthly Energy Review May 2006.

Washington, DC: U.S. Dept. of Energy. Proportion of gains due to efficiency from Murtishaw 

and Schipper, 2001, Untangling Recent Trends in U.S. Energy Use. Washington, D.C.: U.S. Environmental Protection Agency. 

Key Priorities for New Legislation 

Based on this past experience, we recommend that future legislative efforts focus 

on a few provisions that will result in substantial energy savings. We recommend 

four such provisions as follows:

1. Oil savings targets—S. 2747 sets oil savings targets that OMB and 

other agencies are tasked with meeting. This is a promising provision but 

needs to be backed by complementary actions that will make the targets 

enforceable, as well as authorize a variety of policies that OMB can choose 

among in order to meet the targets. 

2. A national energy efficiency resource standard—An energy efficiency resource standard (HERS) consists of electric and/or gas energy savings targets for utilities, with flexibility to achieve the target through a marketbased trading system. An EERS is similar to a renewable portfolio standard, but for energy efficiency savings instead of renewable energy generation. Policies along these lines have been adopted by eight states and several European countries. S. 2747 encourages states to consider EERSs but 

we recommend that this section be strengthened to establish a national 

EERS, with a national market-based trading system. 

3. Equipment and appliance efficiency standards—Consensus efficiency 

standards were key successes in the last two Energy Policy Acts, and 

ACEEE is now working with industry and other stakeholders to negotiate 

additional consensus standards. We recommend that any consensus agreements that emerge be incorporated into legislation. In addition, new legislation should authorize DOE to consider separate standards for the North 

and South for heating and cooling equipment. The current one standard for 

all approach means that there will be clear winners and losers that can be 

avoided by customizing standards for each climate zone. 

4. Efficiency tax incentives—Provisions in EPAct 2005 generally expire at 

the end of 2007, largely because the 2005 conferees were under pressure 

to reduce the amounts spent on tax incentives. These should be extended, 

to at least the original expiration dates, and a few refinements should also 

be considered. 

Energy Savings 

ACEEE estimates that together these four items can reduce U.S. energy use by 

more than 14 quads in 2020, reducing energy use by about 12%. These savings 

would be more than seven times the efficiency savings of EPAct 2005. 

Conclusion 

We urge the Committee to concentrate on the largest opportunities for improving 

energy efficiency and take concrete action on legislation in these four key priority 

areas. Failure to take these steps now will make it much more likely that our nation’s energy problems will continue or even worsen, and that Congress and the nation will have to continue facing energy ‘‘crises’’ for many years to come. 

INTRODUCTION

ACEEE is a nonprofit organization dedicated to increasing energy efficiency as a 

means of promoting both economic prosperity and environmental protection. We 

were founded in 1980 and have contributed in key ways to energy legislation adopted during the past 25 years, including the Energy Policy Acts of 2005 and 1992 and 

the National Appliance Energy Conservation Act of 1987. I have testified before the 

Committee several times and appreciate the opportunity to do so again. 

Energy efficiency improvements have contributed a great deal to our nation’s economic growth and increased standard of living over the past 30 years. Energy efficiency improvements since 1973 accounted for approximately 55 quadrillion Btus in 

2005, which is more than half of U.S. energy use and nearly as much energy as we 

now get annually from domestic coal, natural gas, and oil resources combined.1

50

2 Interlaboratory Working Group, 2000, Scenarios for a Clean Energy Future. Washington, 

D.C.: Interlaboratory Working Group on Energy-Efficient and Clean-Energy Technologies, U.S. 

Department of Energy, Office of Energy Efficiency and Renewable Energy. 3For a summary of many of these studies, see Nadel, Shipley and Elliott, 2004, The Technical, 

Economic and Achievable Potential for Energy Efficiency in the U.S.: A Meta-Analysis of Recent 

Studies. Washington, D.C.: American Council for an Energy-Efficient Economy. 4 Energy Information Administration, 2006, Natural Gas Navigator: U.S. Natural Gas Residential Price. http://tonto.eia.doe.gov/dnav/ng/nglprilsumldculnuslm.htm. Visited June 

20. Washington, D.C.: U.S. Dept. of Energy. 5 Energy Information Administration, 2006, Petroleum Navigator: U.S. All Grades All Formulations Retail Gasoline Prices. http://tonto.eia.doe.gov/dnav/pet/hist/mglttlusw.htm. Visited 

June 20. Washington, D.C.: U.S. Dept. of Energy. 6 Energy Information Administration, 2006, Coal News and Markets, Week of May 5, 2006. 

http://www.eia.doe.gov/cneaf/coal/page/coalnews/coalmar.html#spot. Washington, D.C.: U.S. 

Dept. of Energy. 7 Elliott and Shipley, 2005, Impacts of Energy Efficiency and Renewable Energy on Natural 

Gas Markets: Updated and Expanded Analysis. http://www.aceee.org/pubs/e052full.pdf. Washington, D.C.: American Council for an Energy-Efficient Economy. 8 National Petroleum Commission. 2003, Balancing Natural Gas Policy—Fueling the Demands 

of a Growing Economy: Volume I, Summary of Findings and Recommendations. Washington, 

D.C.: U.S. Department of Energy. 

Thus, energy efficiency can rightfully be called our country’s largest energy source. 

If the United States had not dramatically reduced its energy intensity over the past 

30 years, consumers and businesses would have spent roughly $1 trillion more on 

energy purchases in 2005. 

Even though the United States is much more energy efficient today than it was 

30 years ago, there is still enormous potential for additional cost-effective energy 

savings. Some newer energy efficiency technologies have barely begun to be adopted. 

Other efficiency measures could be developed and commercialized rapidly in coming 

years, with policy and program support. For example, in a study from 2000, the Department of Energy’s national laboratories estimated that increasing energy efficiency throughout the economy could cut national energy use by 10 percent or more 

in 2010 and about 20 percent in 2020, with net economic benefits for consumers and 

businesses.2 Studies for many regions of the country have found similar if not even 

greater opportunities for cost-effective energy savings.3

Unfortunately, a variety of market barriers keep these savings from being implemented. These barriers are many-fold and include such factors as ‘‘split incentives’’ 

(landlords and builders often do not make efficiency investments because the benefits of lower energy bills are received by tenants and homebuyers); panic purchases 

(when a product such as a refrigerator needs replacement, there often isn’t time to 

research energy-saving options); and bundling of energy-saving features with highcost extra ‘‘bells and whistles.’’

Recent developments in energy markets indicate that the U.S. needs to accelerate

efforts to implement energy efficiency improvements:

• Oil, gasoline, natural gas, and coal prices have risen substantially in recent 

years. For example, residential natural gas prices in 2005 averaged $13.83 per 

thousand cubic feet, up 61% from the average price three years earlier (prices 

averaged $8.57 per thousand cubic feet in 2002).4 Likewise, retail gasoline 

prices are up 87% relative to three years ago ($2.917 per gallon 6/19/06 versus 

$1.558 per gallon 6/16/03).5 Even more dramatically, Powder River Basin coal 

has more than doubled in price since three years ago (spot prices of $13.80 per 

short ton in May 2006, up from about $6 per short ton in May 2003).6 Energy 

efficiency can reduce demand for these fuels, reducing upward price pressure 

and also reducing fuel-price volatility, making it easier for businesses to plan 

their investments. Prices are determined by the interaction-of supply and demand—if we seek to address supply and not demand, it’s like entering a boxing 

match with one hand tied behind our back. 

• A recent ACEEE analysis found that gas markets are so tight that if we could 

reduce gas; demand by as little as 4% over the next five years, we could reduce 

wholesale natural gas prices by y more than 20%.7 This analysis was conducted 

by Energy and Environmental Analysis, Inc. using its North American Gas 

Market Model, the same analysis firm and computer model that was employed 

by DOE and the National Petroleum Council for their 2003 study on U.S. natural gas markets.8 These savings would put over $100 billion back into the U.S. 

economy. Moreover, this investment would help bring back U.S. manufacturing 

jobs that have been lost to high gas prices while also helping to relieve the 

crushing burden of natural gas costs experienced by many households, including 

low-income households. Importantly, much of the gas savings in this analysis 

51

9 Energy Information Administration, 2006, Monthly Energy Review May 2006. Washington, 

DC: U.S. Department of Energy. 10 Energy Information Administration, 2006, Annual Energy Outlook. Washington, D.C.: U.S. 

Department of Energy. 11 Elliott, Langer and Nadel, 2006, Reducing Oil Use Through Energy Efficiency: Opportunities 

Beyond Cars and Light Trucks. Washington, DC:. American Council for an Energy-Efficient 

Economy. 12See note #9. 13 Alliance to Save Energy et al., 1997, Energy Innovations: A Prosperous Path to a Clean Environment. Washington, DC: American Council for an Energy-Efficient Economy. 14 North American Electric Reliability Council, 2005, 2005 Long-Term Reliability Assessment: 

The Reliability of Bulk Electric Systems in North America. Princeton, N.J.: North American Electric Reliability Council. 15 New York Independent System Operator, 2005, ‘‘The NYISO Issues Reliability Needs Assessment.’’ Press release of December 21. Schenectady, N.Y.: New York Independent System Operator. 16 Hassol, 2004, Impacts of a Warming Arctic: Arctic Climate Impact Assessment. http://

www.acia.uaf.edu. Cambridge University Press. 17Webster, Holland, Curry and Chang, 2005, ‘‘Changes in Tropical Cyclone Number, Duration, 

and Intensity in a Warming Environment.’’ Science, 309, 16 September, 1844-1846. 

comes from electricity efficiency measures, because much of the marginal electric load is met by natural-gas fired power plants. • The U.S. is growing increasingly dependent on imported oil, with imports accounting for more than 60% of U.S. oil consumption in 2005, of which more than 

40% came from OPEC countries.9 The U.S. Energy Information Administration 

estimates that imports will account for 68% of U.S. oil use in 2020.10 While 

moderate amounts of new oil resources are available in hard-to-reach areas of 

the U.S., much greater energy resources are available by increasing the efficiency with which we use oil. A January 2006 report by ACEEE found that the 

U.S. can reduce oil use by as much as 5.3 million barrels per day in 2020 

through improved efficiency, including more than 2 million barrels per day in 

industry, buildings, heavy duty vehicles, and airplanes.11 In other words, there 

are substantial energy savings outside of the highly contentious area of lightduty vehicle fuel economy. These 5.3 million barrels per day of oil savings are 

nearly as much as we presently import from OPEC (OPEC imports were 5.5 

million barrels per day in 2005).12 Energy efficiency can slow the growth in oil 

use, allowing a larger portion of our needs to be met from sources in the U.S. 

and friendly countries, as well as domestically produced alternative fuel sources. • Economists have increasingly raised concerns that the U.S. economy is slowing 

and that robust growth rates we have had in recent years will not be sustained. 

Energy efficiency investments can spur economic growth; they often have financial returns of 30% or more, helping to reduce operating costs and improve productivity and profitability. In addition, by reducing operating costs, efficiency 

investments free up funds to spend on other goods and services, creating what 

economists call the ‘‘multiplier effect,’’ and helping the economy broadly. This 

stimulates new economic activity and job growth in the U.S., whereas most of 

every dollar we spend on oil flows overseas. A 1997 study found that due to this 

effect, an aggressive set of efficiency policies could add about 770,000 jobs to the 

U.S. economy by 2010.13

• While the U.S. overall has ample supplies of electricity at present, demand is 

rapidly growing and several regions (such as southwest Connecticut, Texas, 

New York, and California) are projecting a need for substantial new capacity 

in the next few years in order to keep reserve margins adequate.14,15 Energy 

efficiency resource policies can slow growth rates, postponing the date that additional capacity will be needed. • Greenhouse gas emissions continue to increase. Early signs of the impact of 

these changes are becoming apparent in Alaska and other Arctic regions.16 And 

several recent papers have identified a link between warmer ocean temperatures and increased hurricane intensity.17,18 Energy efficiency is the most costeffective way to reduce these emissions, as efficiency investments generally pay 

for themselves with energy savings alone, providing no or negative-cost emissions reductions. The term ‘‘negative-cost’’ means that, because such efficiency 

investments produce net economic benefits, they achieve emission reductions at 

a net savings for the economy. This important point has been missed in much 

of the climate policy analysis modeling performed to date. Too many economic 

models are incapable of characterizing the real economic effects of efficiency investments, and so forecast inaccurate economic costs from climate policies. Fortunately, this kind of flawed policy analysis is beginning to be corrected. For 

example, a May 2006 study just released by ACEEE found that the Regional 

52

18 Emanuel, 2005, ‘‘Increasing Destructiveness of Tropical Cyclones over the Past 30 Years.’’ 

Nature, 436, 4 August, 686-688. 19Prindle, Shipley and Elliott, 2006, Energy Efficiency’s Role in a Carbon Cap-and-Trade System: Modeling Results from the Regional Greenhouse Gas Initiative. Washington, DC: American 

Council for an Energy-Efficient Economy. 20Gallop, 2005, ‘‘Gallop Poll Social Series—The Environment.’’ Princeton, N.J.: The Gallop Organization. 21Moore, David, 2001, ‘‘Energy Crisis: Americans Lean toward Conservation over Production.’’ 

Princeton, N.J.: The Gallup Organization. 22 Nadel, Prindle and Brooks, 2006, ‘‘The Energy Policy Act of 2005: Energy Efficiency Provisions and Implications for Future Policy Efforts’’ in Proceedings of the 2006 ACEEE Summer 

Study on Energy Efficiency in Buildings. Washington, D.C.: American Council for an EnergyEfficient Economy. 

Greenhouse Gas Initiative (RGGI—the planned cap and trade system for greenhouse gases in the northeastern U.S.) can have a small but positive impact on 

the regional economy provided increased energy efficiency programs are a key 

part of implementation efforts.19

Energy efficiency also draws broad popular support. For example, in a March 

2005 Gallup Poll, 61% of respondents said the U.S. should emphasize ‘‘more conservation,’’ versus only 28% who said we should emphasize ‘‘production’’ (an additional 6.5% volunteered ‘‘both’’).20 In an earlier May 2001 Gallup poll, when read 

a list of 11 actions to deal with the energy situation, the top four actions (supported 

by 85-91% of respondents) were ‘‘invest in new sources of energy,’’ ‘‘mandate more 

energy-efficient appliances,’’ ‘‘mandate more energy-efficient new buildings,’’ and 

‘‘mandate more energy-efficient cars.’’ Options for increasing conventional energy 

supply and delivery generally received significantly less support.21

However, energy efficiency alone will not solve our energy problems. Even with 

aggressive actions to promote energy efficiency, U.S. energy consumption is likely= 

to continue to rise for more than a decade, and this growth, combined with retirements of some aging resources and production facilities, will mean that some new 

energy supplies and energy infrastructure will be needed. But aggressive steps to 

promote energy efficiency will substantially cut our energy supply and energy infrastructure problems, reducing the economic cost, political controversy, and environmental impact of energy supply enhancements, while buying us time to implement 

a comprehensive, long-term energy strategy. 

THE ENERGY POLICY ACTS OF 2005 AND 1992

The Energy Policy Act of 2005 (EPAct 2005) made some useful progress on energy 

efficiency. Particularly notable were sections that established new consensus, federal 

efficiency standards on 16 products and that created energy efficiency tax incentives. Other useful provisions included the extension of authority for Energy Saving 

Performance Contracts (ESPC) in federal facilities, and a variety of mandated reports that hopefully will help spur future policy action. For example, the EPAct 

2005 provision requiring DOE to submit a plan to Congress on steps it will take 

to catch up on overdue efficiency standard rulemakings was timed just right, and 

DOE has now prepared and begun to implement this plan. In addition, a variety 

of promising initiatives were authorized in EPAct 2005, but to have an impact, need 

to be followed by appropriations. 

Unfortunately, most of the new provisions requiring funding were not included in 

either the President’s budget request or in the House appropriations bills (the Senate has yet to act). Given recent developments, such as the lack of funding for many 

of the EPAct 2005 provisions, ACEEE now estimates that the energy efficiency sections of EPAct 2005 will reduce U.S. energy use by about 1.8 quadrillion Btu 

(‘‘quads’’) in 2020, reducing projected U.S. energy use in 2020 by 1.5%. Of these savings, more than 75% will come from two key provisions—equipment efficiency standards and energy efficiency tax incentives.22

A similar pattern applies to the Energy Policy Act of 1992 (EPAct 1992). This law 

also attempted to comprehensively address U.S. energy needs, including an energy 

efficiency title. ACEEE and the Alliance to Save Energy conducted a review of this 

law five years after passage and found that many of the provisions were not fully 

implemented due to limited funding, the fact that many provisions were voluntary 

and were largely ignored, and limited follow-through. For example, provisions calling for state action were ignored by many states, and only resulted in policy changes 

in a few states. Ultimately, most of the energy efficiency savings that actually occurred came from just a few provisions including a series of new equipment effiVerDate 0ct 09 2002 11:05 Nov 14, 2006 Jkt 109666 PO 30716 Frm 00056 Fmt 6633 Sfmt 6621 P:\DOCS\30716.TXT SENERGY2 PsN: PAULM
53

23 ACEEE and ASE, 1997, Missing the Mark: Five-Year Report Card on the Energy Efficiency 

Provisions of the Energy Policy Act. Washington, D.C.: American Council for an Energy-Efficient 

Economy and Alliance to Save Energy. 

ciency standards (which accounted for more than half the savings), equipment efficiency ratings, improvements to building codes, and some R&D efforts.23

KEY PRIORITIES FOR NEW LEGISLATION

Based on the experience with EPAct 1992 and initial actions on EPAct 2005 implementation, we recommend that as the Energy Committee considers new energy 

efficiency. legislation, it concentrate on a few provisions with significant energy savings, and that the Committee not spend a lot of time on provisions that may sound 

good on paper, but are unlikely to actually save much energy in practice. Based on 

our review of a variety of bills introduced in Congress and our read of the political 

situation, we recommend that a new energy efficiency bill emphasize four areas as 

follows:

1. Oil savings targets and associated policies; 

2. Energy efficiency resource standards (energy-saving targets for utilities); 

3. Equipment efficiency standards; and 

4. Extensions and refinements of efficiency tax incentives in EPAct 2005.

Fortunately, S. 2747 (the subject of this hearing) and its companion S. 2748 address most of these items in some fashion, although in each case some further 

strengthening would be very helpful. In the remainder of my testimony I discuss 

these four priority areas, summarize the energy savings available from addressing 

these four key priorities, make some further comments on S. 2747, and then draw 

a few final conclusions. 

Oil Savings Targets 

The biggest shortfall in EPAct 2005 (and in EPAct 1992 as well) was the’ failure 

to address opportunities to use oil more efficiently. As I noted previously, U.S. dependence on oil imports is increasing and energy efficiency represents a key strategy 

for reducing this dependency. There are many strategies that can be employed to 

reduce oil use, of which improving passenger vehicle fuel economy is just one. Other 

strategies include:

• Improving the efficiency of buildings with oil and propane space heating and 

water heating. These systems are particularly common in the Northeast, and 

Midwest; and in rural areas, that lack natural gas distribution systems. • Reducing oil use in industry through such measures as improved boilers and 

process heating; increased recycling of waste materials; improved paving materials that reduce petroleum feedstock requirements; and energy efficiency improvements in off-highway equipment and operating practices. • Improving the fuel economy of heavy vehicles, such as delivery trucks and tractor trailers. • Promoting ‘‘smart growth’’ strategies so public transit is more assessable and 

driving distances are reduced. • Improving the fuel efficiency of airplanes.

S. 2747 includes a provision directing the Office of Management and budget and 

other agencies to develop and implement a plan to reach specified oil savings targets, including 2.5 million barrels per day in 2016 and 10 million barrels per day 

in 2031. These targets represent approximately 10% of projected 2016 U.S. petroleum product use and approximately 35% of projected 2031 use. We strongly support 

this section and urge the Committee to incorporate it into the next major piece of 

energy legislation it reports out. 

However, this provision is only useful if future administrations faithfully implement it. To increase the chances that this provision is fully implemented, we recommend that the following steps be taken:

1. The Committee should have legal counsel carefully review the language to make sure it is enforceable in a court of law. While we hope that 

legal action will never be needed, if legal action is clearly provided for, this 

will provide a significant incentive to future administrations to keep on 

track in implementing this provision. 

2. The Committee should work closely with the Commerce Committee to 

make sure that a variety of strategies for meeting the targets are authorized, including heavy vehicle testing and fuel economy policies and replacement tire efficiency standards. The Committee should also encourage the 

54

24See National Research Council, 2002, Effectiveness and Impact of Corporate Average Fuel 

Economy (CAFE) Standards. Washington, D.C.: National Academy Press. 25Specifically, we recommend a fee of 1-2 cents per gallon, with funds to be administered by 

the states. State allocations should be based on use of heating oil and propane by state, and 

a competitive RFP, in which states with the best program proposals receive extra funds. While 

many gas and electric utilities operate energy-saving programs, homeowners and businesses 

using heating oil and propane are generally left out. This proposed program would address this 

gap. 26Savings are documented in program evaluations, following evaluation guidelines specified 

by state utility commissions. State commissions have many resources to draw on to develop 

these guidelines, including guidelines from other states. 27 Nadel, 2006, Energy Efficiency Resource Standards: Experience and Recommendations.

Washington, D.C.: American Council for an Energy-Efficient Economy. 

Commerce Committee to develop initial near-term fuel economy targets 

(such as ones based on the 2002 National Academy study),24 so that some 

savings will start to accrue even while the OMB-led process is put in place. 

3. The Committee should work to authorize or put in place additional 

policies for achieving fuel savings such as: (a) revenue-neutral fees and rebates (‘‘feebates’’) to encourage purchase of vehicles with above-average fuel 

economy and discourage purchase of below-average vehicles; and (b) a small 

fee on heating oil and propane purchases to fund programs to help homeowners and businesses reduce use of these fuels.25

Energy Efficiency Resource Standard 

An energy efficiency resource standard (EERS) is a simple, market-based mechanism to encourage more efficient use of electricity and natural gas. An EERS consists of electric and/or gas energy savings targets for utilities, often with flexibility 

to achieve the target through a market-based trading system. An EERS is similar 

to a renewable portfolio standard, but for energy efficiency savings instead of renewable energy generation. Programs along these lines have been adopted by eight 

states and several European countries. All EERSs currently in place include enduser energy saving improvements that are aided and documented by utilities or 

other program operators.26 Sometimes distribution system efficiency improvements, 

along with combined heat and power (CHP) systems and other high-efficiency distributed generation systems, are included as well. With trading, a utility that saves 

more than its target can sell savings credits to utilities that fall short of their savings targets. Trading would also permit the market to find the lowest-cost savings. 

However, unlike other resources such as renewable energy and coal, energy-saving 

opportunities are distributed throughout the 50 states. 

Among the EERS-like laws now in operation, Texas’s electricity restructuring law 

created a requirement for electric utilities to offset 10% of their demand growth 

through end-use energy efficiency. Utilities in Texas have had no difficultly meeting 

their targets and there is discussion about increasing the targets. Hawaii and Nevada recently expanded their renewable portfolio standards to include energy efficiency. Connecticut and California have both established energy savings targets for 

utility energy efficiency programs (Connecticut by law and California by regulation) 

while Vermont has specific savings goals in the performance contract with the nonprofit organization that runs statewide programs under a contract with the Public 

Service Board. Pennsylvania’s new Advanced Energy Portfolio Standard includes 

end-use efficiency among other clean energy resources. Colorado’s largest utility has 

energy savings goals as part of a settlement agreement approved by the Public Service Commission. And Illinois and New Jersey are planning to begin programs soon. 

EERS-like programs have been working well in the United Kingdom and the Flemish region of Belgium. Italy has recently started a program, and another is about 

to start in France. Details on each of these pro ams are provided in a March 2006 

ACEEE report.27

S. 2747 includes a provision directing states to consider adoption of EERSs. However, experience under EPAct 1992 and 2005 is that few states follow up on these 

directives. Instead, we recommend that S. 2747 be amended to establish a national 

EERS, but allowing for state-based administration provided states meet certain 

basic criteria. 

We recommend that EERS targets generally start at modest levels (e.g., savings 

of 0.25% of sales annually) and ramp-up over several years to savings levels currently achieved by states with substantial experience (e.g., 0.50% of gas sales, 0.75% 

of electric sales, and 1.0% of peak electric demand annually). To ensure that costs 

will be moderate, we recommend that a market for trading of savings. credits be 

established and that a ‘‘safety valve’’ be created under which electric and gas utilities could buy credits from the implementing agency for about half of the current 

55

retail costs of each energy source (monies so collected should be used to fund publicbenefit, government-operated energy efficiency programs). 

While many EERSs are separate from a renewable portfolio standard, an option 

would be to combine renewable energy and energy efficiency in a single, combined 

portfolio standard. However, if this is done, the portfolio target should be significantly higher than if only renewable energy or if only energy efficiency were included. For example, a combined efficiency/renewables target might be 20% of 2020 

sales, and not the 10% of 2020 sales that the Senate has previously passed as a 

renewable portfolio standard. Another option will be to add additional ‘‘advanced energy resources’’ to a portfolio standard such as ‘‘advanced coal’’ that includes carbon 

sequestration or new advanced nuclear reactors. Each of these resources has supporters and detractors, so a careful political calculus is needed to see which resources add versus subtract votes. To the extent additional resources are added to 

a portfolio standard, the targets should be increased commensurately. In no case 

should utilities be allowed to reduce their renewables purchases below levels previously voted by the Senate. 

Equipment Efficiency Standards 

ACEEE, affected industries, and other stakeholders have a long history of negotiating consensus agreements on new efficiency standards. Many of these agreements 

were incorporated into the Energy Policy Acts of 1992 and 2005. ACEEE is now 

talking with industry about standards on additional products, and we expect to have 

agreements on several new standards by the end of the year. If we are successful, 

we urge the Committee to include these new consensus standards in legislation it 

works on next year. Products that may lend themselves to consensus standards include the following:

• Reflector lamps 

• Pool heaters 

• Metal halide luminaries 

• Bottle-type drinking water dispensers 

• Portable electric spas (hot tubs) 

• Single-voltage external AC to DC and AC to AC power supplies 

• Commercial hot-food holding cabinets 

• Walk-in refrigerators and freezers

In addition, we recommend that current standards law be amended to permit 

DOE to divide the country into two climate zones when setting new standards for 

heating and cooling equipment. DOE’s Office of General Counsel says they lack authority to set separate standards for different regions, and therefore must use a one 

size fits all approach. However, climate in the U.S. varies enormously from Alaska 

to Florida, and a one size fits all approach for the entire country does not make 

sense for some climate-sensitive products. For example, DOE is currently conducting 

a rulemaking on new standards for residential furnaces, a major consumer of natural gas. Condensing furnaces (e.g., those meeting the ENERGY STAR specification) 

are very cost-effective in Northern states, but may not be cost-effective in many 

Southern states. But a single climate zone approach would either mean setting a 

weak standard based on Southern needs and achieving little energy savings, or setting a stronger standard based on national average heating loads and imposing significant costs on warm states. Dividing the country into two climate regions would 

save substantial energy without imposing extra costs on warm states. An ACEEE 

analysis estimated that a condensing furnace standard in cold states would reduce 

national natural gas use by more than 150 billion cubic feet and will save consumers $3.2 billion (discounted net present value) for equipment sold by 2030. 

Manufacturers claim that imposing separate standards for the North and South 

would create difficulties for them. However, manufacturers often have separate 

models for Northern and Southern climates (e.g., furnaces in the South often have 

larger fans in order to handle larger cooling loads) and thus we think manufacturers 

are overstating the difficulties. To address this problem and the large energy and 

economic savings that are possible with regional standards, we recommend that current law be amended to grant DOE authority to consider separate standards for the 

North and South for residential heating and cooling systems. This amendment 

should require DOE to consider the advantages and disadvantages’ of regional differentiation based on criteria in the underlying law and decide whether regionally 

differentiated standards make sense for a particular product. To limit the impact 

on manufacturers, we recommend that the amendment permit only two zones and 

require zones to follow state boundaries and be fully contiguous (except Alaska and 

Hawaii). 

56

Efficiency Tax Incentives 

EPAct 2005 included a variety of very useful energy efficiency tax incentives including incentives for efficient commercial buildings, homes, appliances, heating and 

cooling equipment, and vehicles. However, pressure on conferees caused most of 

these incentives to be cut to only two years, which is too short a period to transform 

markets. S. 2748 extends most of these incentives for an additional three years and 

adds several new incentives that previously passed the Senate but were not included in the final EPAct 2005 conference agreement. In general we support the 

provisions of S. 2748, but recommend a few refinements as follows: 

Commercial buildings: EPAct 2005 included an ‘‘interim’’ provision for lighting energy retrofits. We recommend that this provision be specifically included in any extension as this is the only provision that truly applies to existing commercial buildings. If cost becomes an issue, this lighting retrofit provision could expire earlier 

than the 2010 date for the other commercial building incentives. 

New homes: EPAct 2005 includes incentives for new homes reducing energy use 

by 50% relative to a model energy code, and includes additional incentives for manufactured homes that either save 30% or that meet ENERGY STAR criteria. S. 2748 

provides a 30% savings threshold for all new homes and continues the special ENERGY STAR provision for manufactured homes. We think the 30% credit for all 

homes will prove very expensive and recommend that it be dropped if cost becomes 

an issue. Also, for manufactured homes, the current ENERGY STAR specification 

is fairly weak and saves less than 30% in nearly all cases. We recommend that the 

manufactured home credit clearly call for 30% savings and not include an ENERGY 

STAR path unless the Secretary of the Treasury determines that meeting the ENERGY STAR specification will on average save 30% (this latter option will permit 

an updated ENERGY STAR spec to be included). 

Heating and cooling equipment: We recommend that eligibility levels for a few 

products be modified in cases where very few products are on the market that qualify for the tax credits. Specifically, we recommend a 90% AFUE requirement for 

boilers and oil-fired furnaces, and that the heat pump credit specifically reference 

the highest Consortium for Energy Efficiency tier in place on Dec. 31, 2006. The 

credit for boilers and oil furnaces should also be increased to $300 to provide more 

incentive to manufacturers and consumers to develop and buy these products. 

Existing homes: From reports we have heard from program operators, the current 

incentives are not encouraging much new investment. We recommend that future 

extensions include a performance-based component that provides incentives of $800-

2,000 for reducing home energy use by 20-50%. Such a provision will offer a larger 

and more enticing incentive to consumers and will save a substantial amount of energy as contractors seek to reach and exceed the 20% savings threshold. A bill along 

these lines with broad support is now being crafted by Senators Snowe and Feinstein. Once ready, we recommend it be incorporated into future legislation. 

Appliances: S. 2748 does not extend the tax credit for efficient appliances. We recommend that this credit also be extended, but that eligibility levels be increased so 

that only the most efficient products on the market are eligible for incentives. 

Vehicles: Toyota has already hit the 60,000 vehicle cap set by EPAct 2005 for advanced vehicles. We support the provision in S. 2748 to lift this cap. However, if 

the costs of this provision prove too high, a compromise would be to set a vehicle 

cap per manufacturer per vehicle class (e.g., compact, intermediate, full size car, 

etc.) in order to encourage all manufacturers to sell full product lines of advanced 

vehicles. 

Combined heat and power plants: This provision was passed by the Senate but 

dropped by conferees. Due to volatility of energy prices and onerous interconnection 

requirements and rates imposed by some utilities, the pace of CHP installations has 

slowed. These proposed tax incentives should help reverse this trend. 

Microturbines and advanced meters: If funds are tight, we recommend that these 

provisions be dropped. Energy savings from both of these provisions are pretty small 

and not as cost-effective as the other efficiency incentive provisions. 

ENERGY SAVINGS

ACEEE has conducted a variety of analyses on savings from various energy efficiency provisions. Based on this work, we can approximate the savings from each 

of the four key priority areas discussed above. These estimates are preliminary and 

will be refined as the legislative process proceeds.

57

Oil savings target ......................................................................................... 7.4

Energy efficiency resource standard ........................................................... 5.6

Equipment efficiency standards .................................................................. 0.4

Tax incentive extensions and refinements ................................................. 0.7

Total ....................................................................................................... 14.1

These savings total more than 14 quads and represent about 12% of projected 

2020 U.S. energy use. These savings are more than seven times greater than the efficiency savings in EPAct 2005. 

ADDITIONAL COMMENTS ON S. 2747

S. 2747 contains additional provisions not discussed above as key priorities. In 

general we believe these provisions are worthwhile, although many of them are likely to have modest impacts. Below we provide brief comments on a few of these provisions. 

Deployment of advanced vehicle technologies (Section 208): This provision requires 

that manufacturers not decrease fuel economy below 2002 levels in order to be eligible for incentives. We support the intent of providing grants only to manufacturers 

who do not reduce fuel economy, but recommend that this provision be refined to 

not take effect for two years and then to require that to be eligible, manufacturers 

must exceed their 2002 fuel economy by 6%, with this eligibility floor increasing 3-

4% each year thereafter. Grants should go to companies that achieve at least minimal fuel economy improvements, but the two-year delay gives manufacturers time 

to hit initial targets. Some of these improvements are already required under recent 

actions raising fuel economy standards for light trucks. 

Renewable portfolio standard (Section 301): We support this provision. We have 

not dwelled upon it as ACEEE concentrates on energy efficiency and not renewable 

energy. However, as I noted earlier, a renewable portfolio standard and energy efficiency resource standard nicely complement each other. 

National media campaign (Section 403): A national media campaign is one of the 

few things that can be done to reduce energy use in 2006 and 2007. Such a campaign was authorized by Section 135 of EPAct 2005 but has not been funded. Section 403 of S. 2747 is a useful complement to the EPAct provision and hopefully 

has a better chance of receiving funding. 

CONCLUSION

Energy efficiency is an important cornerstone for America’s energy policy. Energy 

efficiency has saved consumers and businesses’ billions of dollars in the past two 

decades, but these efforts should be accelerated in order to:

• Save American consumers and businesses even more money; 

• Change the energy supply and demand balance to put downward pressure on 

energy prices; 

• Decrease America’s addiction to oil, particularly oil imports; 

• Strengthen our economy (since energy savings generate American jobs and capital investment); and 

• Reduce the risks of global warming by moderating carbon dioxide emissions 

growth.

The Energy Policy Act of 2005 took modest steps in this direction, particularly the 

sections establishing new appliance and equipment efficiency standards and tax incentives for advanced energy-saving equipment, vehicles, and buildings. Overall, we 

estimate that EPAct 2005 will reduce U.S. energy use by about 1.5% by 2020. 

But much more can and should be done. We recommend that Congress include 

the following provisions in new legislation:

1. Oil savings targets and associated policies; 

2. Energy efficiency resource standards (energy-saving targets for utilities); 

3. New consensus equipment efficiency standards and enhancements to 

DOE’s rulemaking authority; 

4. Buy us time to implement a comprehensive long-term energy strategy, 

and 

5. Extensions and refinements of efficiency tax incentives in EPAct 2005.

These provisions will increase energy savings relative to EPAct 2005 by more 

than a factor of seven, reducing U.S. energy use by about 12% in 2020. Failure to 

58

take these steps now will make it more likely that Congress and the nation will continue to face energy ‘‘crises’’ for many years to come. 

This concludes my testimony. Thank you for the opportunity to present these 

views.

Senator BINGAMAN. Thank you much. Let me just ask a question 

of each of you. Mr. Lashof, your testimony and your written statement also talk about the value of this renewable portfolio standard 

nationally. I think you heard some of the criticism that was stated 

by, I think, both Senator Alexander and Mr. Karsner about the 

whole idea of having a national standard rather than a State-byState standard. I thought I would give you a chance to respond to 

that, if you would like to. 

Mr. LASHOF. I’m very happy to. Thank you, Senator. I certainly 

believe that a national standard would be desirable. I believe that 

we have national interests in increasing our use of renewable energy, both to reduce the price of national gas and to reduce global 

warming pollution. And that requirement—a national standard 

makes sense for those grounds. I think, in the absence of a national 

standard, in fact, the States that do move forward to the extent 

that they impose higher costs on their customers, in part to relieve 

pressure, for example, of natural gas prices, are providing benefits 

to the entire Nation, and States that don’t have standards are free 

riders because they benefit from the reduced natural gas prices 

that result from increased use of renewables but might not be contributing to paying any early incremental costs for achieving that. 

So I think that is one reason for a national standard. 

I would also note two other things. One is, Congress seems to believe that national standards make sense in related areas. For example, the renewable fuel standard that was included in EPAct on 

the transportation fuel side is a national approach, again recognizing that there are national benefits. That, like the renewable 

portfolio standard, provides a trading program that gives you a 

great deal of flexibility for each State to make whatever contribution makes the most economic sense, whether it is by building 

those resources within their State or by getting them through the 

trading mechanism. 

The last point I would make is that unlike some of the discussion 

we heard which seemed to suggest that wind was really the only 

option and that maybe the Southeast doesn’t have renewable potential, there is enormous renewable energy potential in all parts 

of the country, using different resources. So while wind resources 

may be largest in the Midwest and the Great Plains and in the Dakotas, there are enormous biomass resources in the Southeast. And 

in the Department of Energy study of how a renewable portfolio 

standard would be achieved, it showed, in fact, that there were net 

benefits nationally. They actually found that biomass resources 

would be the largest contributor. So I believe that there are big opportunities in Tennessee and Florida and other States to contribute 

in that way to meeting a national standard. Thank you. 

Senator BINGAMAN. Thank you very much. 

Ms. Callahan, let me ask you about this feebate proposal. Most 

of the proposals that relate to vehicle fuel efficiency have been opposed by the automobile manufacturers. What is your understanding of their reaction to this proposal? 

59

Ms. CALLAHAN. Well, Senator, we have been talking to some of 

the manufacturers and are continuing a dialog with them. As you 

might suspect, their attraction to the program or not depends on 

their vehicle stock and what they are producing. The ones that 

have the more fuel-efficient vehicles tend to be more in favor of this 

kind of proposal than those who produce less fuel-efficient vehicles, 

just as an early read on it. 

One thing that I think makes this more attractive to the autos, 

and we are talking to them about, is that you could set this program up so that you had mid-points for every class of vehicle, all 

eleven different classes of vehicles. So you could offer consumers 

full choice and you would be comparing big, heavy SUVs to other 

big, heavy SUVs and setting your mid-point there. So I think there 

are ways that can have greater appeal to the auto manufacturers 

with this program than they perhaps realize at this point. And we 

are talking to them and would enjoy having support from you and 

your staff and you having some dialog with them as well. 

To answer specifically, I think Honda is leaning toward this kind 

of a program as a solution. I think that they may be the most outfront in terms of being open, with being attracted to this, in lieu 

of, at some point, a CAFE program. Because if you put this in place 

and made it work right, it would, in effect, make CAFE moot over 

the course of time. 

Senator BINGAMAN. OK. Thank you very much. 

Mr. Nadel, let me ask you about some of these tax incentives 

that you have here. You list a whole series of them that need to 

be enacted or extended. I certainly favor that and, of course, we 

have the legislation that does that. Have you looked at costing 

these out and trying to determine what kind of revenue we are 

talking about, this costing the Federal treasury, and each specific 

tax provision? 

Mr. NADEL. We had done a detailed analysis of many of these 

provisions when they were originally 5-year proposals. I don’t have 

the exact numbers with me, but based on that, with some updates, 

it should be relatively easy to come up with some cost estimates 

and I would be happy to provide those for the record. 

Senator BINGAMAN. That would be useful. If you have those, I 

think that would be helpful. Let me ask, on your energy efficiency 

resource standard, could you elaborate a little bit as to how you see 

that working as a national standard? I mean, what would it apply 

to and how would you administer it? 

Mr. NADEL. OK. It would apply to electricity and natural gas 

sales that effectively cost from the utility into the transmission and 

distribution system, same as the RPS now applies. We would recommend that the Department of Energy develop some implementing regulations, such as exactly what would the criteria be to 

evaluate the energy savings so that we knew we had reasonable 

evaluations of how much had actually been saved. But we would 

recommend that, in general, States be allowed, and we would expect most of them to actually then work with their local utilities, 

within the framework of these general regulations, to help make 

sure that each of their utilities has met the standard, with DOE 

only filling in if a State didn’t want to take that lead. But that is 

how we would see it working in broad outline. 

60

Senator BINGAMAN. OK. Do you know of any reaction from the 

utility industry to this kind of proposal? I know we’ve had various 

people in the utility industry on both sides of the question of 

whether a renewable portfolio standard made sense. How about 

with regard to the energy efficiency standard? 

Mr. NADEL. Right. We’ve been talking to a number of utilities 

about this. I think the Edison Electric Institute, who represents all 

the utilities, is a little skeptical of any mandate since they have 

been skeptical about the renewable portfolio standard, but a number of utilities have indicated interest. There is—we are working 

with one major utility now, and a Senator on this committee, to actually get a bill introduced shortly. 

Senator BINGAMAN. OK. 

Mr. NADEL. So we think there would be some utilities’ support. 

Certainly not the whole industry, but some. 

Senator BINGAMAN. OK. Well, thank you all very much for testifying. I think it has been a useful hearing and we’ve gotten a lot 

of issues out for discussion. We will try to follow up and move 

something forward legislatively. Thank you all for coming. 

Ms. CALLAHAN. Thank you, Senator. 

Mr. NADEL. Thank you. 

[Whereupon, at 12:39 p.m., the hearing was adjourned.]

[The following statement was received for the record:]

STATEMENT OF THE AMERICAN INSTITUTE OF ARCHITECTS

The American Institute of Architects (AIA) welcomes the opportunity to provide 

written testimony to the Senate Committee on Energy and Natural Resources for 

its hearing on energy efficiency and S. 2747. 

The AIA represents the professional interests of than 75,000 licensed architects 

and allied design professionals who every day express their commitment to excellence in design and livability in our nation’s buildings and cities. The AIA strongly 

supports S. 2747, which we believe will enhance energy efficiency and lead to a substantial conservation of oil and natural gas. We commend Senator Bingaman for his 

leadership on this issue. 

We believe that governmental policies, programs, and incentives should encourage 

energy conservation, especially as it relates to the built environment. We also support the aggressive development of renewable energy sources. As architects, our 

members have strongly enunciated their commitment to promoting energy efficiency 

and waste reduction in the built environment, encouraging energy-conscious design 

and technology, and supporting national programs for more efficient use of nonrenewable resources and the development of renewable energy sources. 

The AIA recognizes that a growing body of evidence demonstrates that current 

building planning, design, construction, and real estate practices contribute to patterns of resource consumption that seriously jeopardize the Nation’s environment. 

Architects accept responsibility for their role in creating the built environment. Consequently, they believe that they must alter their profession’s actions to encourage 

clients and the entire design and construction industry to work collaboratively to 

change the course of this country’s energy future. 

We believe that Congress should give a high priority to creating federal incentives 

that reduce the energy consumption footprint of the built environment. We believe 

that Senator Bingaman’s bill is a great first step. But much more needs to be done. 

First, the AIA believes that the General Services Administration (GSA) should be 

tasked with developing a baseline for the average energy consumption of each representative type of building (office building, hospital, barracks, post office, ranger 

station, etc.) operated by the federal government. 

Within one year of developing a baseline, the GSA and all federal agencies that 

construct and renovate buildings should be directed to develop requirements that all 

federal buildings constructed or renovated after January 1, 2010, shall consume no 

more than one-half the energy consumption specified by GSA’s energy consumption 

baseline. The regulations also should set a declining cap on energy consumption for 

61

newly constructed buildings and major renovations such that they meet the following minimum delivered energy performance compared to the baseline:

2015 ............................................................................................................... 60%

2020 ............................................................................................................... 70%

(This is modeled after New Mexico Executive Order 2006-0001 signed by New Mexico Governor Bill Richardson on January 16, 2006.) 

Second, the AIA proposes that the National Institute for Standards and Technology (NIST) develop a standard for measuring sustainability in buildings using 

transparent, consensus-based procedures consistent with the Technology Transfer 

Act of 1995 and 0MB Advisory Circular 119. We recommend that the standard:

a. Is developed and renewed on a regular basis through a consensus 

based process, in which all interested parties can participate; 

b. Requires clearly defined design documentation to demonstrate compliance; 

c. Requires compliance to be validated by an independent third party; 

d. Requires the development of sustainable sites avoiding the conversion 

of prime agricultural lands or wetlands, regenerating brownfield sites or 

those that result in regenerative benefits to the natural environment; 

e. Requires specific goals in the efficient use of water resources that promote application of new wastewater technologies; 

f. Requires specific goals for significant reductions in energy use, especially non-renewable energy sources, with enhanced performance assured 

through commissioning of building systems; 

g. Promotes the use of renewable energy sources; 

h. Requires reduced use of non-renewable natural resources through the 

reuse of existing structures and materials, reductions in construction waste, 

promotion of recycled content materials, and use of materials independently 

certified as from sustainable sources; 

i. Requires specific goals for improved indoor environmental quality 

through enhanced indoor air quality, thermal comfort, acoustics, 

daylighting, pollutant source control and use low emission materials and 

building system controls; 

j. Promotes the development and application of innovative designs and 

collaborative processes intended to improve environmental performance; 

k. Recognizes the life cycle value of a community or project in addition 

to construction first costs, including assessment of impact on climate 

change, acid rain, water pollution, resource depletion, and toxicity factors; 

l. Utilizes life cycle assessment data as the basis for design and construction decision making; 

m. Acknowledges national, regional and bio-climatic differences; 

n. Reduces (and eventually eliminates) on site and off site toxic elements 

in the built environment; 

o. Requires specific measurable reductions in CO2 production in the built 

environment; and 

p. Requires documentation of actual building energy and operational performance.

Third, the AIA believes that the commercial building tax deduction authorized by 

Section 1331 of the Energy Policy Act of 2005 (that provides for a deduction of up 

to $1.80 per square foot for commercial and public buildings placed in service in 

2006 and 2007 that meet an energy reduction target equivalent to 50% of ASHRAE 

Standard 90-1-2001), though well-intentioned, is not sufficient to offset the costs of 

meeting as rigorous an energy reduction target as 50% of ASRAE 90.1-2001. We believe that the deduction amount should be increased to $2.70 per square foot. 

In addition, we believe that the deduction expires far too quickly to spur the design and construction of any new energy efficient buildings; buildings to be ‘‘placed 

in service’’ during 2006 and 2007 are already designed, and construction may have 

already started. Therefore, we believe that the deduction should be made permanent. 

Finally, the AIA strongly believes that a new generation of sustainable buildings 

will require a workforce of architects and engineers sufficiently educated in the 

principles of sustainability. We believe that the National Science Foundation (NSF) 

should be authorized to establish a Sustainability Grants Program that will make 

federal monies available for:

62

• The development of a model curriculum in sustainable design for buildings that 

would be adopted and enlarged upon by schools of architecture and engineering; 

• Scholarships to architectural and engineering students who commit to completing a course of study that includes all of the elements of sustainability in 

the built environment; and 

• Competitive grants to faculty members at schools of architecture and engineering for research projects that fill critical knowledge gaps in the study of sustainability in architecture (e.g., life cycle analysis).

The American Institute of Architects commends Senator Bingaman and the members of the Senate Energy and Natural Resources Committee for recognizing the 

need for energy efficiency. The AIA fully supports the use of incentive-based programs that encourage energy efficiency throughout all sectors of the American economy. We look forward to working with the Committee and the Senate on initiatives 

that will lead to greater conservation and energy efficiency.

(63)

APPENDIX 

RESPONSES TO ADDITIONAL QUESTIONS

RESPONSES OF ALEXANDER KARSNER TO QUESTIONS FROM SENATOR BINGAMAN

FEDERAL FLEET

Question 1. On page two of your testimony in regard to the language in Title II 

of S. 2747 regarding petroleum savings requirements for the Federal fleet you note 

that ‘‘we believe there are aspects of the technical language... that need further 

review and discussion.’’ Please provide the committee with the specific language you 

are referring to and the necessary technical corrections. The provision begins on 

page 8 and continues through page 11. 

Answer. The Administration is currently reviewing this legislation. DOE might 

suggest establishing Fiscal Year 2005 as a baseline and extending the 20 percent 

petroleum consumption goal to Fiscal Year 2016 with a 2 percent reduction each 

year. 

VEHICLE RETIREMENT PROGRAMS

Question 2. On page two of your testimony you note that you are not convinced 

of the effectiveness of vehicle retirement programs. I wonder if you might explain 

to us why that is? Do you have any internal policy analysis that you could share 

with us on this? I would ask that you provide an additional explanation for the 

record as to specifically why you find them not to be effective. 

Answer. We have not conducted an internal policy analysis but there have been 

a number of studies analyzing the cost and life-cycle energy savings of vehicle retirement programs. Section 202(c) would benefit from the inclusion of a requirement 

that payments are only made with proof that a new efficient vehicle is being purchased. Otherwise payments could be made to owners of little used ‘‘extra’’ vehicles, 

which will not materially affect the consumption of petroleum. 

OIL SAVINGS

Question 3. The Secretary has noted that ‘‘. . . the programs under the President’s Advanced Energy Initiative, if successful in achieving major breakthroughs 

in all vehicles and fuels initiatives, would alone displace the need to up to 5 million 

barrels per day of 2025.’’ Please provide a detailed explanation for the record of how 

the 5 million barrels is calculated and how it breaks down along the various programs and new technologies 

Answer. The statement is based on the commercial uptake for these technologies 

and based on analysis of potential R&D breakthroughs which was similar to a National Academy of Science’s scenario looking at petroleum displacement potential 

from hybrids and fuel cell vehicles developed for an Academy report on hydrogen. 

The FY 2007 budget request seeks a 65 percent increase in funding for biomass 

research with the goal of making cellulosic ethanol cost competitive by 2012. This 

aggressive target will be accomplished through the ability to convert a wider variety 

of regionally available biomass feedstocks and agricultural wastes and the validation of those technologies and their related economics. Through partnerships with 

the private sector, the Hydrogen Fuel Initiative and related FreedomCAR activities 

seek to make it practical and cost effective for large numbers of Americans to use 

clean, hydrogen fuel-cell vehicles by 2020. The Vehicle Technologies program places 

an emphasis on the development of lithium ion batteries and other technologies for 

plug-in hybrid technologies that offer the potential to make significant reductions 

in petroleum use. 

In short, biofuels, greater efficiency through market penetration of hybrids and 

plug-in hybrids, and hydrogen fuel cell vehicles all would contribute to the oil displacement goal. 

64

ALTERNATIVE FUELING INFRASTRUCTURE

Question 4. Your testimony (page 2) states that Sec. 207 is not necessary because 

EPAct 2005 provides tax credits for E85 and other alternative fueling infrastructure. In the past, policies to encourage the use of alternative fuels have foundered 

due to the lack of refueling infrastructure or the lack of vehicles designed to use 

the alternative fuels, or both. We now have over 6 million flexible fuel vehicles that 

can run on alternative fuels and only about 600 fueling stations. Not all of the entities interested in developing alternative fueling infrastructure can take advantage 

of a tax credit. Why shouldn’t the federal government support a revenue neutral 

grant program that would help expand the fueling infrastructure? 

Answer. The scope of the tax credits provided for in EPACT 2005 is substantial 

incentive for businesses to spur new development of alternative fueling infrastructure. We believe the participation of private enterprise is essential for a sustainable 

infrastructure over the long term. Moreover, Section 207(4)(f) includes alternative 

fuels price controls that we feel would actually discourage investment in alternative 

fuels. 

EFFICIENCY PROGRAMS

Question 5. In your oral statement, you indicated that the Department would support several of the provisions in S. 2747. These included: Section 203—Assistance 

to States to reduce school bus idling; Section 204—Near term vehicle technology program; Section 401—Energy Savings Performance Contracts; Section 402—Deployment of new technologies for high efficiency consumer products; section 404—Energy 

efficiency resource programs. Please provide the Committee with any technical comments the Department may that would improve these sections. In addition, please 

indicate any other provisions in S. 2747 that the Department could support if technical changes were made to the language. 

Answer. We do not have technical comments to offer at this time. The Department 

could support Section 201 with language stipulating a 2016 goal for each Federal 

agency reduce its covered petroleum consumption by 2 percent each year, to achieve 

at least a 20 percent reduction in petroleum consumption, as calculated from the 

baseline established by the Secretary for Fiscal Year 2005. 

RESPONSES OF ALEXANDER KARSNER TO QUESTIONS FROM SENATOR SMITH

OIL SAVINGS

Question 1a. In his State of the Union address, the President announced a goal 

of reducing by our oil imports from the Middle East by 75% by 2025. The bill under 

discussion, S. 2747 calls for formulation of an action plan to achieve specific oil savings in the future. In your testimony, you stated that these targets might not have 

been achievable. Given the broadly recognized importance of reducing our dependence on oil, it is critical that we have a clear understanding of what is achievable. 

Specific question are: 

What oil savings targets does DOE recommend as being both achievable and consistent with meeting the President’s goal? 

Answer. The Advanced Energy Initiative, proposed by President Bush in his recent State of the Union Address, proposes a 22 percent increase in clean-energy research at the Department of Energy (DOE) that will accelerate breakthroughs in developing and using alternative sources of energy—which will ultimately help diversify our energy mix. Funding will help develop clean, affordable sources of energy 

that will reduce the use of fossil fuels and lead to changes in the way we power 

our homes, businesses and cars. With respect to the President’s goal of reducing oil 

imports, programs under the AEI, if successful in achieving major breakthroughs in 

all vehicles and fuels initiatives, would alone displace the need for up to 5 million 

barrels of oil per day by 2025. 

Question 1b. What are the several key measures that DOE recommends as most 

important to achieving those targets? 

Answer. Specific goals include developing advanced battery technologies that 

allow a plug-in hybrid-electric vehicle to have a 40-mile range operating solely on 

battery charge, reducing the cost of cellulosic ethanol to $1.07/gallon by 2012, and 

making progress towards the President’s goal of enabling large numbers of Americans to choose hydrogen fuel cell vehicles by 2020. The aggressive oil reduction target will be accomplished through the ability to convert a wider variety of regionally 

available biomass feedstocks and agricultural wastes and the validation of those 

technologies and their related economics and the development of lithium ion batteries and other technologies for plug-in hybrids technologies that offer the potential 

65

to make significant reductions in petroleum use. If research is successful, hydrogen 

fuel cell vehicles could also contribute to reducing oil demand, though not till about 

2020. 

Question 1c. In particular, given the importance of vehicle efficiency, what oil savings contributions does DOE recommend from increases in efficiency, and how 

should those efficiency gains be implemented? 

Answer. The FY 2007 Presidential budget request reallocated vehicle funding program resources to increase focus on plug-in hybrid electric vehicle (HEV) research. 

Our technological goals are ambitious, and progress to date is good. We have seen 

pre-competitive advances in the reduction in the cost of the next generation of batteries, as well as improvements in the cost and performance of other essential components of HEVs. Other indicators of progress include advances in the nickel metal 

hydride battery developed through DOE-sponsored R&D. Work is underway to develop the high energy batteries for plug-in HEVs. 

Question 1d. A second key factor to oil usage in transportation is total vehicle 

miles traveled. What contribution toward oil savings does DOE recommend from 

this factor, and how should that be achieved? 

Answer. The focus of the Advanced Energy Initiative is to change the way we 

power our, homes, businesses, and vehicles by employing new technologies to improve the efficiency of our oil use and develop alternative fuels to displace oil rather 

than the promotion of policies to reduce the number of miles traveled. 

FEDERAL FLEETS

Question 2. In your testimony, you indicate that the Administration is committed 

to federal leadership in advancing vehicle efficiency and alternative fuels in federal 

fleets, yet you have reservations about the specific federal fleet measures contained 

in S. 2747. 

Please outline the key features of a federal fleet program that both would achieve 

the significant oil savings as envisioned in S. 2747 and would have high likelihood 

of success. 

Answer. DOE believes that establishing Fiscal Year 2005 as a baseline and extending the 20 percent petroleum consumption goal to Fiscal Year 2016 with a 2 

percent reduction each year would be a more effective target. 

RENEWABLE PORTFOLIO STANDARDS

In your verbal testimony, you indicated that leaving RPS policies in the hands of 

the states allows states to adopt policies that are best suited to their renewable resource availabilities. However, this approach doesn’t seem to recognize that wholesale electricity markets are regional in nature. 

Question 3a. Under a federal RPS, wouldn’t power suppliers in each state be likely to use the most cost-effective resources anyway? 

Answer. The Administration opposes a national RPS because power generation 

options and renewable resources vary widely from state to state, because states hold 

different views of the types of resources that they would like to support, and because retail electricity sales are regulated largely at the state level. A national RPS 

could create ‘‘winners’’ and ‘‘losers’’ among regions of the country the winners being 

the regions with ample renewable resources, and the losers being the regions without. A national RPS could lead to higher energy bills and opposition to renewable 

energy moving into the mainstream of the Nation’s energy supply mix. 

Question 3b. Has there been any analysis of the economic differences between implementation of state-by-state versus national RPS policies? 

Answer. The Department bases its opposition to a national RPS on past Federal 

interventions in the marketplace such as the Fuel Use Act of 1978 which effectively 

curtailed the use of natural gas for electricity generation. The EIA has analyzed 

RPS provisions in various studies including Impacts of a 10-Percent Renewable 

Portfolio Standards in 2002, and Analysis of a 10-Percent Renewable Portfolio 

Standard in 2003, outlining, in part, the costs to industry of implementing a national RPS. 

Question 3c. What approach would renewable power systems developers prefer? 

Answer. A third of the states representing 35 percent of the total electricity load 

for the U.S., have adopted RPS standards. These policies are beginning to drive the 

development of the renewable energy marketplace at a healthy rate. For example, 

the RPS policies in Texas, New York, Minnesota, California, Colorado, Pennsylvania, and New Mexico are expected to deliver significant new wind capacity additions in the coming years. 

Question 3d. What about utilities and power suppliers? 

66

Answer. We believe that regional stakeholders, including utilities and power suppliers, working with governors, state legislatures, and energy companies are in the 

best position to develop a portfolio standard that will suit their states’ energy, environmental, and economic needs. If RPS standards are too aggressive, supply constraints and high costs may result, causing adverse effects in the promotion of market adoption of renewable technologies. 

RESPONSES OF ALEXANDER KARSNER TO QUESTIONS FROM SENATOR WYDEN

Question 1. Near-term Vehicle Technology Program: could the goals of this section 

be accomplished by expanding DOE authorities under the Cooperative Research 

and. Development Act? Government research alone in these areas won’t bring cleaner, safer, more fuel-efficient cars and trucks to market. 

Answer. No, the goals of Section 204 could not be accomplished by expanding 

DOE authorities under the Cooperative Research and Development Act (CRADA). 

The CRADA is one of several research tools that DOE uses extensively to engage 

industry in our programs for specific purposes. Although it is an effective tool, expanding the CRADA authority is not a substitute and would not be sufficient for 

carrying out the total core research, development, and technology validation that 

the Department performs. 

Question 2. Light-weight materials research and development: DOE, DOD and 

NASA are already funding R&D in super light-weight carbon materials and 

nanotechnologies. Is another government-wide research plan going to make a difference in the time it will take to bring new materials to market? What can be done 

to accelerate the production of lightweight materials? Would DOE support a production tax credit for light-weight materials manufacturing? 

Answer. The DOE Automotive Light-weight Materials development effort differs 

from the DOD and NASA efforts in that they have very different cost, performance, 

and operational characteristics. The DOE program has already helped bring new 

aluminum, magnesium, and polymer composites processing technologies to market 

sooner. (There is very little nanomaterials research in the DOE Materials program.) 

The production of light-weight materials for cars and trucks might be accelerated 

by tax incentives for more fuel efficient vehicles (non technology-specific). Production 

tax credits specifically for light-weight materials manufacturing might be too technology specific and could distort rational engineering and design choices. 

Question 3. Federal Renewable Portfolio Standards... your testimony notes 

that the Bush Administration opposes a Federal renewable portfolio standard (RPS) 

and instead prefers to rely on state RPS programs to encourage investment in renewable energy. Approximately 20 states have adopted RPS programs. These programs differ in how they treat various renewable energy technologies. In addition, 

some states only reward renewable energy generated in a particular state. The 

states that have acted also differ in means of enforcement. This hodgepodge of state 

RPS programs could very well stunt the development of renewable energy projects 

which rely on well-functioning regional markets that allow developers to trade renewable energy and credits across state lines pursuant to consistent rules. How can 

the Bush Administration rely solely a state-by-state approach to RPS programs 

when it supports the development of regional electricity markets? 

Answer. We believe that regional stakeholders, including utilities and power suppliers, working with governors, state legislatures, and energy companies are in the 

best position to develop a portfolio standard that will suit their states’ energy, environmental, and economic needs. If RPS standards are too aggressive, supply constraints and high costs may result, causing adverse effects in the promotion of market adoption of renewable technologies. A third of the states, representing 35 percent of the total electricity load for the U.S., have adopted RPS standards. These 

policies are beginning to drive the development of the renewable energy marketplace at a healthy rate. For example, the RPS policies in Texas, New York, Minnesota, California, Colorado, Pennsylvania, and New Mexico are expected to deliver 

significant new wind capacity additions in the coming years. 

Question 4. In reply to a question on RPS from Senator Alexander you stated that 

a national RPS would drive up energy prices in the states without a RPS or renewable energy resources of their own. Yet according to Cliff Chen, who authored a recent study of state RPS with DOE Lawrence Berkeley National Lab energy researchers Ryan Wiser and Mark Bolinger, mandatory renewable energy programs 

now used in more than half the United States have little effect on the rates consumers pay for electricity or the national economy. Why then does DOE continue 

to oppose adoption of a national RPS? 

Answer. The Administration opposes a national RPS because power generation 

options and renewable resources vary widely from state to state, because states hold 

67

different views of the types of resources that they would like to support, and because retail electricity sales are regulated largely at the state level. A national RPS 

could create ‘‘winners’’ and ‘‘losers’’ among regions of the country, the winners being 

the regions with ample renewable resources, and the losers being the regions without. A national RPS could lead to higher energy bills and opposition to renewable 

energy moving into the mainstream of the Nation’s energy supply mix. 

Question 5. Does DOE support the inclusion of wave/ocean power and incremental 

hydro in the definitions of renewable energy sources provided in S. 2747? 

Answer. Yes, DOE supports wave/ocean power and incremental hydro technologies 

as renewable energy sources. 

Question 6. Sec. 207... Funding for Alt Fuels Infrastructure: have any of the 

panelists examined which is the quickest and most cost-effective way to build out 

the infrastructure needed to deliver ethanol to U.S. consumers? 

Answer. No, a study of the quickest and most cost effective way to build out the 

ethanol infrastructure has not been undertaken. However, the Vehicle Technologies 

Program is currently developing a comprehensive ethanol strategy covering R&D 

and deployment. 

RESPONSES OF ALEXANDER KARSNER TO QUESTIONS FROM SENATOR SALAZAR

Question 1. The Enhanced Energy Security Act (S. 2747) and S. 2025, the Vehicle 

and Fuel Choices for American Security Act of 2005, on which it is based, is strong 

bipartisan legislation that will help us accomplish the President’s goal of reducing 

our dependence on foreign oil. 

Please provide me and the members of this Committee with the Department of 

Energy’s formal position on the oil savings targets set out in Title I of the bill. 

Answer. The goals established in Title I of the Enhanced Energy Security Act 

might not be able to be met even with aggressive technology-forcing increases in 

CAFE standards that disregard highway safety. While the Advanced Energy Initiative is expected to help achieve these long-term goals, there remain uncertainties 

in technology development and commercial uptake that make it imprudent to legislate an arbitrary end-result. In addition, the President has asked Congress for authority to reform and increase passenger car CAFE standards but has indicated that 

highway safety, technology and economics need to be considered when determining 

the maximum feasible fuel economy standard. As before, an arbitrary savings goal 

should not be used to set the standard. 

Question 2. During his State of the Union speech, the President of the United 

States announced a national goal to reduce 75% of our oil imports from the Middle 

East by 2025. Out of the 12 million barrels (mbd) the U.S. imports daily, only 2 

mbd actually come from the Middle East. According to the Energy Information Administration, by 2025 the United States is projected to import close to 20mbd, of 

which 5mbd will come from the Persian Gulf. The President’s oil savings target is 

therefore 3.75mbd by 2025. 

Is that goal achievable? Is it achievable using the tools contained in S. 2747 (or 

S. 2025) and without any increases in CAFE standards? 

Answer. The Advanced Energy Initiative, proposed by President Bush in his recent State of the Union address, proposes a 22 percent increase in clean-energy research at the Department of Energy (DOE) that will accelerate breakthroughs in developing and using alternative sources of energy—which will ultimately help diversify our energy mix. With respect to the President’s goal of reducing oil imports, programs under the AEI, if successful in achieving major breakthroughs in all vehicles 

and fuels initiatives, would alone displace the need for up to 5 million barrels of 

oil per day by 2025. 

Question 3. S. 2747 (and S. 2025 on which it is based) is aggressive in encouraging 

increased production of biofuels and investment in renewable fuels systems and infrastructure. In that respect, it would advance one of the goals of the President’s 

Advanced Energy Initiative. Do you agree? 

Answer. The Department of Energy and the Administration have not had sufficient time to review or coordinate its interagency review of S. 2747 and therefore 

does not have a formal position on this legislation. 

Question 4. S. 2747 sets goals for improving the efficiency of our vehicle fleet and 

for getting more advanced vehicles on the road. It sets these goals and then helps 

manufacturers retool their vehicle fleets to meet them. 

What steps has the Department taken under your leadership to encourage American Automobile manufacturers to embrace these goals and to increase market penetration of advanced vehicle technologies? 

Answer. The FreedomCAR partnership was established in 2002 to provide a 

mechanism for U.S. automobile manufacturers to work cooperatively with the FedVerDate 0ct 09 2002 11:05 Nov 14, 2006 Jkt 109666 PO 30716 Frm 00071 Fmt 6601 Sfmt 6621 P:\DOCS\30716.TXT SENERGY2 PsN: PAULM
68

eral Government in pre-competitive research areas that show the promise of significantly reducing the use of petroleum. To this end the Department of Energy provides financial assistance and technical expertise to support research activities that 

cover a broad spectrum of technologies that will have significant impact in near 

term, mid term, and long term. Near term activities are focused on increasing the 

efficiency of internal combustion engines to reduce consumption and utilizing alternative fuels, such as ethanol, to directly displace petroleum use. Mid term activities 

are focused on developing advanced hybrid vehicle technologies, such as cost effective long range batteries for plug-in hybrids that can significantly reduce petroleum 

consumption. In the long term the partnership is pursuing a new paradigm in transportation: the complete replacement of petroleum use in automobiles through the 

use of hydrogen. 

Question 5. Your prepared testimony expresses ‘‘concerns’’ with the federal fleet 

requirements in S. 2747 and questions ‘‘the effectiveness’’ of the vehicle retirement 

program ‘‘with respect to cost and life-cycle energy savings under economic analysis.’’ You also state with reference to Section 206 of the bill that new loan guarantees for the manufacture of fuel efficient vehicles ‘‘would be largely unnecessary.’’

Please explain the Department’s ‘‘concerns’’ and share with me and the members 

of this Committee the economic analysis on which the Department bases its criticism of the bill. Please also explain why additional incentives for automobile manufactures to develop new fuel efficient vehicles are unnecessary. 

Answer. Section 202(c) would benefit from the inclusion of a requirement that 

payments are only made with proof that a new efficient vehicle is being purchased. 

Otherwise payments could be made to owners of little used ‘‘extra’’ vehicles, which 

will not materially affect the consumption of petroleum. 

EPAct 2005 already authorizes grants to support the production of fuel efficient 

vehicles. There is little reason to provide loan guarantees to automobile manufacturers that typically have access to capital. These loan guarantees would be difficult 

to administer compared to loan guarantees for discreet facilities such as renewable 

energy plants, nuclear power plants, or gasification plants. 

RENEWABLE ENERGY STANDARD

Question 6. Wild swings in the price of natural gas are dramatically increasing 

costs of production for sectors of the economy ranging from farmers to the petrochemical industry. Studies by the Energy Information Administration indicate that 

increasing the use of renewable energy sources would result in reduced demand and 

lower prices for consumers and large industrial users. 

Does the Administration support measures that would ensure an increase in the 

deployment of renewable energy sources, which would in turn reduce the price of 

natural gas? 

Answer. Our main priorities are reducing America’s growing dependence on foreign oil and generating clean electricity. We have directed our resources to those 

programs with the greatest potential to contribute to those priorities. One of the 

goals is to reduce the cost of solar photovoltaic technologies so that they become 

cost-competitive by 2015, and expand access to wind energy through technology. The 

Administration is also supportive of EPAct 2005 provisions which contained $3.4 billion over ten years in tax incentives to encourage the production of electricity using 

renewable wind, solar, biomass, and geothermal energy sources, including the firstever tax credit for residential solar energy systems. Diversification of our electric 

power sector will ensure the availability of affordable electricity and ample natural 

gas supplies. 

Question 7. Several studies indicate that two of the principle barriers to increasing the use of renewables are a lack of long term markets and a lack of effective 

financing mechanisms. 

I know you have a particular interest in private-public partnerships for new alternative energy technologies. Please describe for me and the members of this Committee the steps that the Department will take under your leadership to address 

these dual barriers. 

Answer. The Office of Energy Efficiency and Renewable Energy continues to support the development of long-term energy markets that provides a diverse supply 

of reliable, affordable, and environmentally sound energy through investment, development, and public-private partnerships. EERE provides cost shared funding so 

these collaborative partnerships can research and develop transformational technologies which can then be commercialized by the private sector. Examples of formal 

partnerships include the FreedomCAR Partnership and the 21st Century Truck 

Partnership. 

69

Question 8. As you point out in your prepared testimony, the Administration has 

opposed a federal renewable energy standard, arguing that ‘‘RPS standards are best 

left to the States.’’ At least 22 states and the District of Columbia now have in place 

some sort of requirement to increase the use of renewable energy. These programs 

differ in how they treat various renewable energy technologies. In addition, some 

states only reward renewable energy generated in a particular state. The states that 

have acted also differ in means of enforcement. This hodgepodge of state RPS programs could very well stunt the development of renewable energy projects which 

rely on well-functioning regional markets that allow developers to trade renewable 

energy and credits across state lines pursuant to consistent rules. 

What is the rationale for the Administration’s stated preference for a state-bystate approach to renewable energy programs when it supports the development of 

regional electricity markets? 

Answer. The Administration opposes a national RPS because power generation 

options and renewable resources vary widely from state to state, because states hold 

different views of the types of resources that they would like to support, and because retail electricity sales are regulated largely at the state level. A national RPS 

could create ‘‘winners’’ and ‘‘losers’’ among regions of the country, the winners being 

the regions with ample renewable resources, and the losers being the regions without. A national RPS could lead to higher energy bills and opposition to renewable 

energy moving into the mainstream of the Nation’s energy supply mix. 

Question 9. Several trade organizations have charged that the lack of a single federal standard for connecting to the electric grid allows individual utilities to devise 

Byzantine procedures that hamper the ability of renewable energy companies to connect to the electrical grid. 

Would the Administration support a national ‘‘net-metering’’ standard that would 

reduce these regulatory barriers? 

Answer. The Administration supports the provisions in EPAct Sections 1252-1254, 

which require states and non-regulated utilities to analyze demand response/advance metering, net metering, and interconnection issues but allows states to make 

their own determination on standards based on that assessment. 

RENEWABLE ENERGY (PRODUCTION TAX CREDITS)

Question 10. Many in the renewable trade associations have charged that an ‘‘onagain-off-again’’ production tax credit is crippling our deployment of renewables, because reliable financial predictions are difficult to make with such short term tax 

credits. Businesses order renewable energy technologies, such as wind turbines, in 

time to qualify for tax credits, leading to significant backlogs and increased prices, 

but orders drop off again when it appears that the production tax credits may expire. As a result of these peaks and valleys in demand, the manufacturers of the 

equipment cannot expand their production capacity. 

Will the Administration support a long term extension of the production tax credits and clean energy bonds for renewables, so that consumers and producers can 

make plans to buy or to produce renewable energy technology more than one year 

at a time? 

Answer. The Administration has not developed a formal position on long-term extension of production tax credits. 

NATIONAL RENEWABLE ENERGY LABORATORY (NREL)

Question 11. In 2005, drastic personnel reductions were threatened at the National Renewable Energy Laboratory in Colorado. Shortly before the President visited NREL, the Department of Energy announced that it was allocating an additional $5 million to NREL to re-hire the researchers and staff. These budget shortfalls also required NREL to reduce or postpone research contracts with key technical partners outside of NREL and DOE. Unfortunately, sufficient funding was not 

available to restore the research contracts. Such budget uncertainties make it very 

difficult for NREL to attract and retain high quality staff members and research 

partners in today’s competitive environment. 

What steps has the Department taken or will the Department take to ensure that 

NREL will have sufficient and reliable funding in FY07, so that the laboratory can 

continue to lead the nation’s efforts to develop renewable energy sources and to offer 

new advances in energy efficiency? 

Answer. In his State of the Union address, the President announced new solar 

and biofuels initiatives designed to accelerate the contribution of these transformational technologies to the Nation’s energy portfolio. The President has requested commensurate funding increases for the Department’s Solar Technology and 

Biomass programs, through which these initiatives will be managed, as well as 

70

funding increases in its Wind and Hydrogen, Fuel Cells & Infrastructure Technologies research and development programs. Together, the Solar, Biomass, Wind, 

and Hydrogen programs form the core of NREL’s research and development capabilities, collectively accounting for 60 percent of all NREL funding. Depending on 

appropriations, NREL will likely receive increased funding in FY 2007 to support 

these initiatives. (The Department’s Preliminary Lab Tables released with the FY 

2007 Budget are estimates and may need revision.) 

It is important to note each DOE program allocates funding to various national 

labs or to competitive solicitations for industry or university researchers in ways to 

best accomplish program goals. Increased funding for a program does not necessarily translate to increased funding for each national lab currently receiving 

funding from that program. 

FEDERAL RENEWABLE ENERGY AND ENERGY EFFICIENCY PROGRAMS

Question 12. What is the total amount of money that the federal government will 

spend on renewable energy and energy efficiency research and development for 

FY06? What percentage is that of the U.S. GDP? 

What are the corresponding amounts of money and the relative share of GDP for 

our major international economic competitors, including Brazil, Canada, China, Germany, Great Britain, India and Japan? 

Answer. According to the 2006 edition of Energy Policies of IEA Countries (forthcoming), in 2005, the U.S. spent 366.09 million dollars on energy efficiency RD&D 

and 242.81 million dollars on renewable energy sources RD&D. This represented approximately 0.005% of U.S. GDP in 2005. These figures represent funding reported 

by the Energy Information Agency to the IEA, and likely exclude significant 

amounts of RD&D conducted at agencies other than DOE.

Energy

efficiency 

RD&D

($ in millions) 

Renewable

energy sources 

RD&D

($ in millions) 

% of GDP in 

national

currency 

U.S. .................................................. 366.09 242.71 0.005

Canada ............................................. 46.67 33.79 0.007

Germany .......................................... 24.33 123.51 0.005

UK .................................................... 0.00 66.49 0.003

Japan ............................................... 464.73 285.41 0.016

No RD&D information on Brazil, China and India is available as they are not 

TEA countries and do not report their data to that organization. 

Question 13. Your prepared testimony highlights certain federal energy-efficiency 

programs, such as Energy Star and Building Codes Assistance, the Federal Energy 

Management Program, and the Weatherization Program. But the President’s budget 

request for fiscal year 2007 proposes significant cuts to each of these vital programs 

designed to cut pollution and save energy. 

Do you agree with me that, at a time of record high natural gas and oil prices, 

we must invest more, not less, in technologies and practices that promise the 

quickest, cleanest and cheapest means of addressing tight energy supplies and extraordinarily high prices? 

Answer. In this year’s Department of Energy FY 2007 budget request we realigned some priorities. The Advanced Energy Initiative, proposed by President 

Bush in his recent State of the Union Address, proposes a 22 percent increase in 

clean-energy research at the Department of Energy (DOE) that will accelerate 

breakthroughs in developing and using alternative sources of energy—which, will 

ultimately, help diversify our energy mix. With respect to the President’s goal of reducing oil imports, programs under the AEI, if successful in achieving major breakthroughs in all vehicles and fuels initiatives, could alone displace the need for up 

to 5 million barrels of oil per day by 2025. As part of the Advanced Energy Initiative, $150 million has been requested for biomass; $30 million to develop better battery technology for hybrid cars; and $148 

million for the Solar America Initiative; and $44 million for wind energy research. 

Within the Building Technologies program, there are funding increases for building integration, technology validation, and market introduction as well as support 

for equipment standards and analysis. The request continues strong support for the 

development of solid state lighting technologies that can significantly reduce lighting electricity consumption in commercial buildings. Funding for energy efficient vehicle technologies, exclusive of Congressionally directed activities (i.e. earmarks) and 

transfers, is level with the FY 2006 appropriation. The FY 2007 request places an 

71

1Less expensive idle reduction technologies with much shorter payback periods may be available in the near future (Neff 2005). 

emphasis on the development of lithium ion batteries and other technologies for 

plug-in hybrids technologies that offer the potential to make significant reductions 

in petroleum use. 

The Administration also is requesting over $3 million for public energy education 

and outreach to continue our energy efficiency campaigns of the last few months. 

DOE will continue to build strategic partnerships with public and private groups 

to promote energy efficiency practices and technologies. 

Question 14. Before you came on board, Energy Department officials said the energy bill was passed too late to have significant impact on the 2007 budget. In fact, 

none of the new programs authorized in the bill were funded. 

As you prepare the FY08 budget, do you plan to fund the new program to assist 

states with building codes compliance, the pilot program for state policies to promote utility energy efficiency programs, the consumer education campaign, or other 

new energy efficiency programs in the bill? Will you continue to increase the funding for appliance standards to implement the new required rulemakings while working through the backlog of long-delayed standards? 

Answer. It would be premature to discuss the Fiscal Year 2008 budget formulation process. However, the plan that the Department has submitted to Congress 

considers both the backlog and the new requirements detailed in EPACT 2005. The 

backlog in rulemakings was not a funding issue, but a management issue that the 

Department is committed to addressing. New management processes, including review and reporting requirements, have been instituted. Productivity improvements 

in the rulemaking program are taking effect and will significantly increase the rate 

at which new standards are issued. 

In Fiscal Year 2007 the program will complete action on rulemakings started in 

Fiscal Year 2005 and prior years, and will continue work on the 13 product standards and test procedures initiated in Fiscal Year 2006. 

RESPONSE OF DANIEL LASHOF TO QUESTION FROM SENATOR BINGAMAN

NEW HYDRAULIC HYBRID TRUCKS

Question 1. In this morning’s Washington Post there is an article about new hydraulic hybrid trucks. It notes that these new UPS trucks that will be tested in Detroit have the potential to yield a 60-70 percent saving on fuel use. The trucks were 

built for EPA. Have you performed any analysis on the potential for such hybrid 

hydraulic systems? What barriers (if any) exist to the wider deployment of this technology? 

Answer. Our analysis of oil savings from heavy duty trucks includes the hybridization of local trucks greater than 10,000 pounds gross vehicle weight. Fuel economy gains of 70 percent are technically feasible with hybridization through hydraulic or electric systems. Our analysis was not specific to hydraulic hybrids. 

NRDC worked with the American Council for an Energy Efficient Economy 

(ACEEE) to evaluate the fuel savings from heavy duty vehicles. ACEEE compiled 

a list of barriers to improving heavy truck efficiency, including the greater adoption 

of hydraulic and other hybrid systems, in their January 2006 report ‘‘Reducing Oil 

Use through Efficiency: Opportunities beyond Cars and Light Trucks’’. The barriers 

to and policies for improved heavy truck efficiency from the report (pages 18-20) are 

excerpted below: 

BARRIERS

• Lack of fuel economy information: The absence of a fuel economy testing and 

labeling requirement for heavy trucks creates a failure in the current market, 

in that truck buyers lack the information to choose the most efficient truck. In 

addition, the variety in tractor-trailer duty-cycles makes trucking companies reluctant to accept claims of efficiency improvements without extended testing of 

products on their own fleets. 

• High initial cost: Efficiency technologies typically increase the purchase price of 

a truck. Many truck purchasers are unable to pay this price increment, even 

if the technologies have short payback times. For example, APUs can cost up 

to $7,000, or about three years’ worth of fuel savings. Three years is said to be 

the payback time required by truckers for efficiency technologies (Stodolsky et 

al. 2000), so some APUs would be marginal in this regard.1

72

• Driver preferences: Trucking companies have for some years experienced a severe shortage of qualified drivers and are therefore eager to retain the drivers 

they have. In some cases, fuel efficiency improvements may conflict with driver 

preferences with regard to driving practices, aerodynamic treatments, and engine settings.

• Industry structure: Truck manufacturing is not a vertically integrated industry 

for the most part. This makes marketing of efficient components directly to the 

users more difficult, especially because component manufacturers do not have 

an avenue for demonstrating their efficiency benefits within complete trucks. • Resale market: Limited value is assigned to efficiency in the used truck market. • Manufacturer risk: The manufacturers’ risks in investing in new technology, 

and the fact that competing manufacturers can often take advantage of the 

leader’s technology, serve as a barrier, particularly in light of fuel price volatility. 

POLICIES

• Fuel economy standards for tractor-trailers: There are at present no fuel economy standards for vehicles over 8,500 lbs. in the United States (or elsewhere, 

for that matter). Tractor-trailers are relatively homogeneous, making this a 

good class of vehicles for fuel economy standards from the standpoint of feasibility. In particular, because the vast majority of tractor-trailer miles are driven 

on the highway, the problem of choosing an appropriate test cycle is much simplified. • Funding for idle reduction technologies: Partial government subsidies for idle reduction technologies for a limited period of time would result in a decline in 

cost. The Energy Policy Act of 2005 authorizes $95 million in spending on antiidling; if appropriated, this would be sufficient to have a major impact. The 

funds should be applied to develop a range of technologies, however, and not 

limited to a single approach such as truck stop electrification that applies to a 

limited truck population. • Extended tax incentives for hybrids: The Energy Policy Act of 2005 includes tax 

credits for heavy-duty (as well as light-duty) hybrids. The amount of credit depends on size, fuel economy benefit, and incremental cost (see Table A-2). The 

credits will offset some of the high purchase costs of these vehicles and bring 

down the incremental costs by raising production levels. At a fuel price of $2.05 

per gallon, the credits together with three years’ fuel savings would more than 

offset incremental costs for Class 6-8 hybrids and would be almost sufficient for 

Classes 3-5 as well. The credits are only available through 2009, however, 

which is not sufficient time to allow for new product development. A five-year 

extension of the credits could greatly enhance the success of the program. • Hybrid R&D funding: Funding for hybrid research and development is also a 

determinant of the rate at which hybrids enter the market. DOE should renew 

its commitment to the ambitious fuel economy targets laid out in its ‘‘Technology Roadmap for the 21st Century Truck Program’’ (DOE 2000) and maintain funding levels for development of hybrids and other technologies needed to 

achieve those targets. • Fuel economy standards for Class 2b trucks: Fuel economy standards, feebates, 

and incentives to promote hybridization all warrant consideration for Class 2b. 

This class includes a wide range of vehicle types, but 80% are pickups (Davis 

and Truett 2002), which together with vans, panel trucks, and sport utility vehicles make up over 96% of the total. These vehicles have under-8500-lb. counterparts and bringing them under CAFE or a feebate scheme would pose no serious technical obstacles. 

RESPONSES OF DANIEL LASHOF TO QUESTIONS FROM SENATOR SMITH

OIL SAVINGS

Question 1. In your testimony, you include an ‘‘oil savings toolbox’’ that lists oil 

savings that can be achieved by several individual actions. 

Do the listed savings represent the results of an integrated analysis? In other 

words, can these savings be added, or are the savings from some factors likely to 

overlap with savings from others? 

Answer. The savings are the result of an integrated analysis. For example, the 

oil savings from fuel efficient motor oil used in on-road vehicles are calculated assuming that the savings from fuel-efficient tires are already achieved. This methodology eliminates the ‘double-counting’ of fuel savings and allows the measures presented in the toolbox to be added as shown. 

73

2Small, Kenneth and Kurt Van Dender, ‘‘The Effect of Improved Fuel Economy on Vehicle 

Miles Traveled: Estimating the Rebound Effect Using U.S. State Data, 1966-2001,’’ University 

of California Energy Institute, Berkeley, California, September 2005 3 Van Dender, Kurt, ‘‘Recent Estimates of the Rebound Effect and Their Relevance to Proposed 

CAFE Reforms for Light Trucks’’, a presentation provided to at a workshop sponsored by Resources for the Future, October 20, 2005. 

Question 2. Does the analysis include the effects of ‘‘take back,’’ which represents 

an inclination of drivers to increase vehicle miles traveled if vehicle efficiency is increased? 

Answer. The oil savings analysis does consider the effects of ‘‘take back’’, also 

known as the ‘‘rebound effect.’’ When considering improvements in light-duty vehicle 

efficiency, it is assumed that there is rebound effect of 10%, meaning a 10% increase 

in fuel economy results in a 1% increase in vehicle miles traveled. This is a conservative assumption considering recent analysis by economists Kenneth Small and 

Kurt Van Dender demonstrating that the rebound effect ranges between 2.6 percent 

and 12.1 percent2 and the average long-range value is 6.8 percent.3

RESPONSES OF DANIEL LASHOF TO QUESTIONS FROM SENATOR WYDEN

Question 1. Sec. 207... Funding for Alt Fuels Infrastructure: have any of the 

panelists examined which is the quickest and most cost-effective way to build out 

the infrastructure needed to deliver ethanol to U.S. consumers? 

Answer. A sustained and balanced set of policies that includes infrastructure requirements, tax incentives and federal funding are necessary to scale up the biofuels 

market and the availability of ethanol at the pump. Enacting these measures would 

also assure investors that there will be a growing long term market for sustainably 

made biofuels and attract the venture capital needed to quickly commercialize new 

cellulosic biofuels technologies. 

The quickest and most effective way to deliver biofuels to consumers over the next 

ten years would be to establish standards and incentives to increase the availability 

of E85 (85 percent ethanol and 15 percent gasoline) and flexible fuel vehicles. NRDC 

recommends the following measures:

(1) Require a growing percentage of all new light-duty vehicles to be flexible-fuel capable. At least fifty percent of all new vehicles should be flexiblefuel by model year 2012. Getting flexible fuel vehicles into the hands of consumers will help grow the market for biofuels and expedite consumer acceptance and demand for E85 fuel. 

(2) Eliminate CAFE (Corporate Average Fuel Economy) credits for flexible fuel vehicles to ensure that use of flexible fuel vehicles actually results 

in fuel savings. 

(3) Require a growing percentage of retail gas stations to install E85 

pumps, starting with areas that have a significant percentage of registered 

flexible fuel vehicles and local ethanol production.

To ensure that biofuels are produced from diverse sources and perform better 

than gasoline, the following policies should be adopted along with the above infrastructure requirements.

(1) Ramp up the cellulosic ethanol production required by the Renewable Fuel 

Standard (RFS) from 250 million gallons in 2013 to 1 billion gallons by 2016, and 

set interim production requirements for 2009 through 2012. 

(2) Require a growing percentage of ethanol be sold as E85 fuel over the next decade, reaching at least 40 percent of ethanol production by 2015. 

(3) Establish lifecycle greenhouse gas performance standards for renewable fuels 

that ensure growing emission reductions compared with conventional gasoline. 

RESPONSES OF KATERI CALLAHAN TO QUESTIONS FROM SENATOR BINGAMAN

FEEBATES

Question 1. Please provide for the record a more detailed explanation of how the 

concept of feebates work and how a potential program could be implemented here 

in the United States. 

Answer. The basic concept of a feebate program is to provide an incentive for efficient vehicles that is paid for by a fee on inefficient vehicles. It will work best if 

the incentives and fees are large enough to affect manufacturer and consumer 

choices, and if they are applied broadly enough to shift the full automotive market. 

But there are many ways a feebate could be implemented, with options on who adVerDate 0ct 09 2002 11:05 Nov 14, 2006 Jkt 109666 PO 30716 Frm 00077 Fmt 6601 Sfmt 6621 P:\DOCS\30716.TXT SENERGY2 PsN: PAULM
74

ministers it, on what vehicles are included, and on the amount of the fees and rebates applied. 

Who administers to whom: The fees and rebates could be applied to the manufacturers, retailers, or purchasers of new vehicles. Administration of the program 

would be easiest if it is applied to manufacturers since there are so few. Additionally, feebate analysts conclude that the greatest efficiency gains will come from 

manufacturers as they improve the technology in their vehicles, rather than from 

consumer purchasing decisions. The amount of the fee or rebate could be reported 

on the vehicle fuel economy label to increase consumer awareness and help drive 

appropriate purchasing decisions. 

The feebate system could be administered by the Department of Energy or another agency. (The National Highway Traffic Safety Administration at the Department of Transportation already administers CAFE fines to vehicle manufacturers.) 

Finally, the fees and rebates could be applied as a refundable excise tax by the Internal Revenue Service, similar to the current gas guzzler tax. 

What vehicles are covered, in what categories: In order to maximize the impact 

and prevent gaming, the fees and rebates should be applied to all light duty vehicles 

(cars, SUVs, minivans, and pickup trucks). And, it should include vehicles currently 

heavier than CAFE limits, up to at least 10,000 pounds. 

The simplest approach would be to put all vehicles in one category. However, as 

smaller vehicles would generally receive rebates, and larger vehicles be assessed 

fees, manufacturers of larger vehicles would inherently be at a disadvantage under 

such a system. 

If Congress wishes to encourage fuel-efficient technologies, without influencing 

the kind of vehicles people buy, the vehicles could be divided into several categories, 

with fees balanced against rebates for vehicles in each category. For example, vehicles could be divided based on vehicle footprint (length multiplied by width) as in 

the new light truck CAFE standards. The categories should be broad enough to ensure competition in each category and to discourage manipulating vehicles to shift 

between categories. Because most of the impact of feebates is likely to be on manufacturer technology, not customer choice, well-designed categories should only slightly reduce the savings from a feebate. Multiple categories will, however, lead to some 

vehicles receiving a rebate even though they have worse fuel economy than other 

vehicles that must pay a fee (i.e., an ‘‘efficient’’ SUV could receive a rebate in that 

category while an ‘‘inefficient’’ compact car would be assessed a fee). With multiple 

categories, manufacturers and consumers are not penalized or rewarded because of 

the kind of vehicles they make or buy. The Alliance to Save Energy recommends 

this approach to application of fees and rebates on vehicles. 

How much is the rebate or fee: If the purpose is to maximize oil savings, the fees 

and rebates should be proportional to the gallons of gasoline that the vehicle can 

be expected to use over its lifetime, or to gallons per mile (‘‘gpm’’—the inverse of 

mpg) assuming the number of miles is fixed. This is the same metric that is averaged in calculating fleet fuel economies for CAFE. 

A range of amounts have been proposed, from 25 cents per gallon to $3.00 per 

gallon, or less than $500 per .01 gpm to more than $2000 per .01 gpm. The amount 

can be set to incorporate fuel usage externality costs in vehicle choices, or to incorporate the actual cost of gasoline that consumers may not think about when buying 

a vehicle. Costs will be minimized if the feebate is phased in over a period of years 

in order to allow manufacturers time to respond with new technologies. Greene and 

coauthors estimated a $1000 per .01 gpm feebate would increase average fuel economy to 32 mpg (compared to about 24 mpg today—using the inaccurate mpg values 

employed in the CAFE program). 

The fee or rebate for each vehicle is set based on the gpm compared to a midpoint 

gpm. The midpoint gpm (or mpg) that divides between fees and rebates in a vehicle 

category can be set so that the total value of the fees is roughly the same as the 

total value of the rebates, so the program is revenue-neutral. The midpoint mpg 

should be reset periodically to maintain revenue neutrality. Assuming that average 

fuel economy improves due to the incentives from this program, the dividing line 

will be ‘‘ratcheted up’’ (e.g., the mpg value for the midpoint will increase) in response to changing markets. Unlike a static standard, a feebate creates an incentive 

for continual improvement. 

Question 2. If a feebate system were implemented what would its relationship 

with the CAFE system potentially be? 

Answer. A well-designed feebate system should increase overall fuel economy significantly. If CAFE standards remained nearly static, as they have for the past couple decades, they would effectively become irrelevant, as the average fuel economy 

for each manufacturer fleet exceeded the standards because of the feebate impacts 

(certain luxury car manufacturers might be an exception, but as they routinely vioVerDate 0ct 09 2002 11:05 Nov 14, 2006 Jkt 109666 PO 30716 Frm 00078 Fmt 6601 Sfmt 6621 P:\DOCS\30716.TXT SENERGY2 PsN: PAULM
75

late CAFE standards today, it is not clear that CAFE is having much impact on 

them anyway other than requiring them to pay fines for their violations). 

Congress might choose to retain the CAFE system as a backstop, in case the 

feebate is poorly designed or fuel economy decreases despite the pressure of the 

feebate. If Congress or the administration does choose to raise CAFE standards significantly, a feebate could serve as an incentive to exceed those standards, and could 

help move the market to make it easier to meet the increased standards. 

If both CAFE standards and a feebate system are in place, automakers may find 

it easier to respond if the policy details, such as the categories of vehicles, are coordinated. 

Question 3. Section 208, ‘‘Deployment of new technologies to reduce oil use in 

transportation ‘‘direct the Secretary of Energy to provide deployment incentives for 

a variety of projects to reduce oil used in transportation. One measure allowed is 

a ‘‘reverse auction.’’ Are you familiar with this concept and its benefits? 

Answer. A reverse auction is an auction with one buyer and many sellers, rather 

than a ‘‘conventional’’ auction with many buyers and one seller. In a reverse auction, one seller seeks the highest price from bids by multiple buyers. Sec. 108 proposes a reverse auction for incentives for cellulosic ethanol; this issue is outside the 

scope and mission of the Alliance to Save Energy. 

RESPONSE OF KATERI CALLAHAN TO QUESTION FROM SENATOR SMITH

Question 1. Your testimony supports the adoption of feebates as a means of increasing vehicle efficiencies. However, at least initially such a program would tend 

to favor foreign auto companies over domestic companies because of the types of vehicles comprising their current product lines. Please comment on the possibility of 

establishing a feebate program that works on a company-by-company basis, without 

moving funds from one manufacturer to another. Could this increase overall fleet 

efficiency just as effectively, without penalizing the U.S. auto industry? 

Answer. A feebate rewards automakers, or their customers, whose vehicles use 

less gasoline. These companies are not necessarily headquartered in other countries. 

In fact General Motors frequently points out that it makes more models that get 

at least 30 mpg than any other manufacturer. 

David Greene at Oak Ridge National Laboratories and others modeled the impact 

of a feebate on manufacturers based on their product mixes of a few years ago. They 

found that a feebate with all cars and light trucks mixed in a single category will 

likely yield net savings for some ‘‘foreign’’ manufacturers and a net cost to ‘‘domestic’’ manufacturers. However, if vehicles are divided into categories, with fees and 

rebates balanced within each category, then the distributional impacts are different. 

Some ‘‘domestic’’ manufacturers—those with relatively fuel-efficient options in a 

given category—are likely to benefit from such a feebate. 

A feebate, as usually envisioned, does not directly transfer money between manufacturers; the transfer is between the government and individual manufacturers or 

customers. A system that had no net financial impact on any manufacturer or customer would be meaningless, with no impact at all. However, a feebate could in 

principle be based on each manufacturer’s current fleet, with incentives for improvement and penalties for backsliding. Such a system should have a similar impact in 

improving overall fuel economy, though some might consider it manifestly unfair. 

RESPONSE OF KATERI CALLAHAN TO QUESTION FROM SENATOR WYDEN

Question 1. Sec. 207... Funding for Alt Fuels Infrastructure: have any of the 

panelists examined which is the quickest and most cost-effective way to build out 

the infrastructure needed to deliver ethanol to U.S. consumers? 

Answer. The mission of the Alliance to Save Energy is limited to reducing energy 

use. As we do not address such supply-side questions, I would only comment that 

production of ethanol, as of all fuels, is limited, and expansion of ethanol will only 

partially compensate for growing fuel use unless paired with greater efficiency.

76

[Responses to the following questions were not received at the 

time the hearing went to press:]

U.S. SENATE, 

COMMITTEE ON ENERGY AND NATURAL RESOURCES, 

Washington, DC, June 26, 2006. 

Mr. STEVEN NADEL, 

Executive Director, American Council for an Energy-Efficient Economy, Washington, 

DC. 

DEAR MR. NADEL: I would like to take this opportunity to thank you for appearing 

before the Senate Committee on Energy and Natural Resources on Thursday, June 

22, 2006 to give testimony regarding S. 2747, to enhance energy efficiency and conserve oil and natural gas, and for other purposes. 

Enclosed herewith please find a list of questions which have been submitted for 

the record. If possible, I would like to have your response to these questions by Monday, July 10, 2006. 

Thank you in advance for your prompt consideration. 

Sincerely, 

PETE V. DOMENICI, 

Chairman. 

[Enclosure.] 

QUESTION FROM SENATOR BINGAMAN

NEW HYDRAULIC HYBRID TRUCKS

Question 1. In this morning’s Washington Post there is an article about new hydraulic hybrid trucks. It notes that these new UPS trucks that will be tested in Detroit have the potential to yield a 60-70 percent saving on fuel use. The trucks were 

built for EPA. Have you performed any analysis on the potential for such hybrid 

hydraulic systems? What barriers (if any) exist to the wider deployment of this technology? 

QUESTION FROM SENATOR WYDEN

Question 1. Sec. 207... Funding for Alt Fuels Infrastructure: have any of the 

panelists examined which is the quickest and most cost-effective way to build out 

the infrastructure needed to deliver ethanol to U.S. consumers?

Æ