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44–739—PDF 2007

S. HRG. 110–537

ADVANCED TECHNOLOGY VEHICLES:

THE ROAD AHEAD

HEARING

BEFORE THE

SUBCOMMITTEE ON ENERGY, NATURAL RESOURCES,

AND INFRASTRUCTURE

OF THE

COMMITTEE ON FINANCE

UNITED STATES SENATE

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

MAY 1, 2007

(

Printed for the use of the Committee on Finance

COMMITTEE ON FINANCE

MAX BAUCUS, Montana, Chairman

JOHN D. ROCKEFELLER IV, West Virginia

KENT CONRAD, North Dakota

JEFF BINGAMAN, New Mexico

JOHN F. KERRY, Massachusetts

BLANCHE L. LINCOLN, Arkansas

RON WYDEN, Oregon

CHARLES E. SCHUMER, New York

DEBBIE STABENOW, Michigan

MARIA CANTWELL, Washington

KEN SALAZAR, Colorado

CHUCK GRASSLEY, Iowa

ORRIN G. HATCH, Utah

TRENT LOTT, Mississippi

OLYMPIA J. SNOWE, Maine

JON KYL, Arizona

CRAIG THOMAS, Wyoming

GORDON SMITH, Oregon

JIM BUNNING, Kentucky

MIKE CRAPO, Idaho

PAT ROBERTS, Kansas

RUSSELL SULLIVAN, Staff Director

KOLAN DAVIS, Republican Staff Director and Chief Counsel

SUBCOMMITTEE ON ENERGY, NATURAL RESOURCES, AND INFRASTRUCTURE

JEFF BINGAMAN, New Mexico, Chairman

KENT CONRAD, North Dakota

JOHN F. KERRY, Massachusetts

BLANCHE L. LINCOLN, Arkansas

RON WYDEN, Oregon

MARIA CANTWELL, Washington

KEN SALAZAR, Colorado

CRAIG THOMAS, Wyoming

GORDON SMITH, Oregon

ORRIN G. HATCH, Utah

JIM BUNNING, Kentucky

TRENT LOTT, Mississippi

MIKE CRAPO, Idaho

(II)

C O N T E N T S

OPENING STATEMENTS

Page

Bingaman, Hon. Jeff, a U.S. Senator from New Mexico, chairman, Subcommittee on Energy, Natural Resources, and Infrastructure, Committee

on Finance ............................................................................................................ 1

Thomas, Hon. Craig, a U.S. Senator from Wyoming ............................................ 2

WITNESSES

Chernoby, Mark, vice president, advanced vehicle engineering, DaimlerChrysler Corporation, Auburn Hills, MI ............................................................ 3

Vieau, David, CEO, A123 Systems, Watertown, MA ............................................ 5

Eberhard, Martin, CEO, Tesla Motors, San Carlos, CA ....................................... 8

McManus, Dr. Walter, University of Michigan Transportation Research Institute, Ann Arbor, MI ............................................................................................. 10

Baxley, Phillip, president, Shell Hydrogen, LLC, Houston, TX ........................... 12

ALPHABETICAL LISTING AND APPENDIX MATERIAL

Baxley, Phillip:

Testimony .......................................................................................................... 12

Prepared statement .......................................................................................... 31

Bingaman, Hon. Jeff:

Opening statement ........................................................................................... 1

Chernoby, Mark:

Testimony .......................................................................................................... 3

Prepared statement .......................................................................................... 34

Eberhard, Martin:

Testimony .......................................................................................................... 8

Prepared statement .......................................................................................... 37

Kerry, Hon. John:

Prepared statement .......................................................................................... 41

McManus, Dr. Walter:

Testimony .......................................................................................................... 10

Prepared statement .......................................................................................... 42

Thomas, Hon. Craig:

Opening statement ........................................................................................... 2

Vieau, David:

Testimony .......................................................................................................... 5

Prepared statement .......................................................................................... 49

COMMUNICATION

National Hydrogen Association .............................................................................. 63

(III)

(1)

ADVANCED TECHNOLOGY VEHICLES:

THE ROAD AHEAD

TUESDAY, MAY 1, 2007

U.S. SENATE,

SUBCOMMITTEE ON ENERGY,

NATURAL RESOURCES, AND INFRASTRUCTURE,

COMMITTEE ON FINANCE,

Washington, DC.

The hearing was convened, pursuant to notice, at 10:04 a.m., in

room SD–215, Dirksen Senate Office Building, Hon. Jeff Bingaman

(chairman of the subcommittee) presiding.

Present: Senators Salazar and Thomas.

OPENING STATEMENT OF HON. JEFF BINGAMAN, A U.S. SENATOR FROM NEW MEXICO, CHAIRMAN, SUBCOMMITTEE ON

ENERGY, NATURAL RESOURCES, AND INFRASTRUCTURE,

COMMITTEE ON FINANCE

Senator BINGAMAN. Why don’t we ask the witnesses to please

take a chair at the witnesses table and we will go ahead and get

started here.

This is a hearing of this new subcommittee in the Finance Committee. This is the Subcommittee on Energy, Natural Resources,

and Infrastructure. Today we are hearing testimony on advanced

technology vehicles.

As we discuss energy policy and what policy path we ought to

pursue, we obviously turn to the issue of transportation. Right now,

over 50 percent of the nearly 21 million barrels of oil that we use

each day in the U.S. is imported; 70 percent of that oil consumption

is used in the transportation sector. In 2007, we expect Americans

to use over 14 million barrels of oil to drive to work and do their

chores, to travel within their communities and take vacations.

We also will use over 4 million barrels of fuel in industrial transportation. Ten million gallons of that fuel will be imported. These

numbers suggest that in order to achieve energy security we need

to reduce our use of imported fuels.

In the tax code, we have several incentives aimed at encouraging

manufacturers and consumers across many industries to build and

purchase more fuel-efficient vehicles. There are tax credits for the

purchase of vehicles that feature technologies that will increase

fuel efficiency. We have tax penalties that apply to the purchase of

the least fuel efficient vehicles. The tax code also features credits

against both the income tax and excise taxes for bio-based fuel

blends that displace imported fuels.

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Our vehicle tax credits have minimum emission standards as

well, and our alternative fuel credits are intended to encourage

clean-burning fuels. It is my hope that this hearing can help us establish a record regarding how the market has responded to some

of these current tax incentives and what we should change in the

tax code in order to get better policy implemented.

In particular, we sought testimony today from manufacturers

who employ cutting-edge power storage technologies, manufacturers who are active in the traditional and diesel markets, producers

of alternative transportation fuel who can speak to fueling station

needs, and scholars from the automotive industry who have long

studied the response of the industry to Federal energy policies. I

think this will be a very useful hearing, and we have some very

distinguished witnesses here.

Before I introduce the witnesses, let me call on Senator Thomas

for any comments he has.

STATEMENT OF HON. CRAIG THOMAS,

A U.S. SENATOR FROM WYOMING

Senator THOMAS. Thank you very much, Mr. Chairman. I am

glad you are having this hearing.

It seems like we are in kind of a difficult situation in this whole

business of energy, trying to understand. I think we all know we

are going to have to make some tremendous changes over a period

of time. I think we are all fairly confident that can happen.

I think the real challenge is in the shorter period, how we get

there and how we can make movement without creating real problems with the economy, and be able to get there, but without great

pain. So, gas-fueled automobiles are the core of our transportation

system, and have been for a very long time. Technology is changing

those, and that is, of course, what we are here to talk about.

One thing that has not changed until now is, still, today’s vehicles continue to be powered generally by gasoline, and that is our

system. That is the way we are. Despite the prices approaching $4

a gallon in parts of the country, it is unlikely that our reliance in

the near future is going to change all that much.

But what will the system look like in 15 or 20 years? That is

really where we are, and that is, I think, the challenge. What do

we do in the fairly short term, what do we do in the longer term,

and how do we get there?

So as we look at these issues, it is important to keep in mind,

I think, that technology must be used to produce safe, efficient, and

reliable modes of transportation. Average Americans must be able

to afford the transportation of the future, and preferably without

large government subsidies. Changes need to result in more friendly environmental measures, in that we do no harm.

I think one of the real challenges that we have, frankly, in terms

of the policy, is people look and hear about alternatives and say,

oh, yes, that is going to be great, but they do not think about the

difficulty that is going to be there and the difficulty in making

those changes, as if it is going to happen, just happen like that.

Well, it is not going to happen like that.

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So we need to make sure that we get it moving in the best direction, and that’s what we’re here for today, and we appreciate what

you all do.

Thank you, Mr. Chairman.

Senator BINGAMAN. All right. Let me just briefly introduce each

of the witnesses, and then just have them speak to us, maybe from

left to right the way we are facing the panel here.

Each take 4, 5, or 6 minutes to sort of give us the main points

that we need to try to understand here, and then both Senator

Thomas and I will have some questions, and maybe there will be

other members who will have come to ask questions as well.

Senator THOMAS. A little more from the right than from the left.

Senator BINGAMAN. You think more questions from the right? It

is possible.

Let me also mention, Senator Kerry, who very much wanted to

be here to hear your testimony, Mr. Vieau, is having to be at the

funeral for Jack Valente this morning and is not able to be here

right now. I do not know if he can come before the hearing adjourns or not.

First, we have Mr. Mark Chernoby, who is vice president for Advanced Vehicle Engineering with DaimlerChrysler Corporation in

Auburn Hills, MI. Next, David Vieau, who is the CEO of A123 Systems in Watertown, MA; Mr. Martin Eberhard, who is the CEO of

Tesla Motors in San Carlos, CA; Dr. Walter McManus at the University of Michigan Transportation Research Institute in Ann

Arbor; and Mr. Phillip Baxley, who is president of Shell Hydrogen

in Houston, TX.

Thank you all very much for being here. Why don’t we start with

you, Mr. Chernoby? Please give us your thoughts as to what we

need to focus on as we consider any changes in the tax code relative to these issues.

STATEMENT OF MARK CHERNOBY, VICE PRESIDENT, ADVANCED VEHICLE ENGINEERING, DAIMLERCHRYSLER CORPORATION, AUBURN HILLS, MI

Mr. CHERNOBY. Thank you, Mr. Chairman. Mr. Chairman and

members of the committee, thank you for inviting me to testify before you today on the subject of advanced technology vehicles.

DaimlerChrysler is committed to developing new advanced technologies that reduce the effects that our products have on energy

consumption, climate change, and the environment in general. We

are engaged in developing and producing technologies that will address these issues in the near, mid-, and long term.

For example, we continue to improve the fuel efficiency of our

gasoline-powered engines. As the comment was made earlier, gasoline is going to be here with us very strongly in the near term, and

we need to continue to focus on incremental improvements in those

technologies, as we see in our line of new four-cylinder world engines being produced right here in the United States.

We are also in joint development with GM and BMW to develop

advanced hybrid systems, which we will launch next year. Our first

consumer hybrid products, the Dodge Durango and the Chrysler

Aspen hybrids, will be on sale in 2008.

4

In addition, Orion bus, a subsidiary of DaimlerChrysler, has sold,

or has on order, more than 1,400 diesel hybrid buses to transit authorities in the U.S. and Canada.

Within our test fleets, we are the only manufacturer to have a

fleet of plug-in hybrids on the road today, as well as more than 100

fuel cell vehicles—hydrogen fuel cell vehicles—in operation around

the world. While I would be pleased to further discuss these important initiatives, today I would like to focus on advanced clean diesel technology.

DaimlerChrysler is the world leader in this technology. This

leadership is demonstrated through a broad range of dieselpowered vehicles, as well as our involvement in expanding the biodiesel fuel industry.

Our worldwide experience with diesels has led us to conclude

that they are an important addition to our product portfolio, helping our country meet its common goals for energy security and reducing the effects of greenhouse gases on the environment.

This year, we have seven light-duty clean diesel offerings here in

the United States. These vehicles are approved for the use of B5

biodiesel fuel, and selectively approved for the use of B20 biodiesel

fuel in the Ram heavy-duty pickup and medium-duty cab/chassis

trucks. Today’s diesel-powered vehicles absolutely are clean, quiet,

energy efficient, powerful, and exceed customer expectations for

hauling, towing, and general utility.

In Europe, more than 50 percent of the light-duty fleet is powered by diesels, while our U.S. sales are currently approximately

3 percent. The European consumer values diesel’s improvement in

fuel efficiency, performance, and the associated reduction in CO2

emissions.

In terms of U.S. energy objectives, diesel can be a key part of our

country’s strategy to reduce reliance on petroleum. Today’s advanced technology clean diesels achieve approximately 20 to 40

percent—20 to 40 percent—better fuel economy than an equivalent

gasoline engine, and the lifetime fuel savings are substantial.

For example, based on data from today’s EPA 2007 Fuel Economy Guide, a diesel Grand Cherokee will use 418 fewer gallons of

fuel each year than the gasoline-powered Grand Cherokee. This

fuel savings is nearly 3 times what you would get if you compared

a hybrid Honda Civic, which would only save 154 gallons of fuel

per year, compared to the gasoline-only Civic.

With these benefits, one may wonder why we have not seen more

significant penetration of diesels in the U.S. Market. Several factors have influenced the consumers’ decision on diesel-powered vehicle purchases.

First, there are price premiums on diesel engine options. An advanced technology diesel engine costs several thousand dollars

more than an equivalent gasoline engine. Furthermore, diesel fuel

often costs more than gasoline. An additional reason why diesel has

not significantly penetrated the U.S. passenger and light truck

market is the lack of a consumer tax credit incentive.

As part of the Energy Policy Act of 2005, Congress enacted the

section 30B tax credit for purchases of advanced technology vehicles. The credit has been pivotal in establishing consumer acceptVerDate 11-MAY-2000 10:56 Oct 21, 2008 Jkt 000000 PO 00000 Frm 00008 Fmt 6633 Sfmt 6633 44739.000 SFIN1 PsN: SFIN1
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ance of hybrid passenger cars, but to date the section 30B tax credits have not helped to promote clean diesel technologies.

The section 30B rules require diesels to meet more stringent

emission standards than the EPA currently requires. In short, 30B

requires meeting emission standards that do not take effect for another 2 years in order to qualify for consumer tax credits. Because

of the different stages of technology development, no passenger car

or light truck diesel vehicle offered today meets these emission requirements.

New technologies will help DaimlerChrysler’s diesel passenger

cars and light trucks meet the EPA emission standards on schedule

by 2009. In the meantime, in 2007 and 2008, we will continue producing early entrant diesels that we hope will establish a marketplace foothold for deployment of these new technologies in a broad

array of vehicles.

To help foster clean diesel, which is one of the goals of the 2005

legislation, DaimlerChrysler would urge the committee to consider

modifications to the section 30B tax credit that would encourage

pre-2009 diesel purchases.

For example, we strongly support legislation introduced by Senator Biden that would eliminate the special emission requirements

under section 30B for ‘‘lean burn’’ vehicles. Enactment of this legislation would be a small—in terms of the budgetary impact—but

important step in Congress’s pursuit of a multifaceted U.S. advanced technology vehicle strategy.

I would also note that introduction of diesel passenger vehicles

and light trucks would establish an altogether new market for biodiesel and renewable diesel, so, not only can we reduce our reliance

on foreign oil by encouraging diesel, we can also help grow the

marketplace for alternative diesel fuels, whose production Congress

is trying to encourage.

I appreciate the opportunity to testify before you today.

Senator BINGAMAN. Well, thank you very much.

[The prepared statement of Mr. Chernoby appears in the appendix.]

Senator BINGAMAN. Mr. Vieau, go right ahead.

STATEMENT OF DAVID VIEAU, CEO, A123 SYSTEMS,

WATERTOWN, MA

Mr. VIEAU. Mr. Chairman and members of the committee, knowing of the committee’s efforts to foster new technology, to slow

down global warming, and to reduce dependency on foreign oil, I

want to thank you for the opportunity today to share the story of

A123 Systems and the work that we are doing to bring about a

plug-in hybrid vehicle revolution.

A123 Systems started just 5 years ago with some licensed technology from MIT in Boston. We got $100,000 from the Department

of Energy as an SBIR grant. We had five people and a goal of creating game-changing batteries for portable electrical devices and

for transportation.

Today we have over 300 employees, we have raised over $100

million in private equity, and we are operating facilities from our

headquarters in Watertown, MA; TJ Technology Division in Ann

6

Arbor, MI; and the High Motion Division in Toronto, Canada. And

we are producing millions of batteries annually.

What we did is, we focused on what we consider are very practical commercial applications of a new nanophosphate technology

that we inherited from MIT. We created batteries that had better

power, better safety, and better life than that previously available.

The first application to demonstrate this was with Black & Decker’s DeWalt division, where we created a new generation of power

tools that demonstrated 4 times the power and twice the life of any

product in that category ever produced.

What this did for an American company is, we demonstrated that

A123 technology was not a lab curiosity, that in fact it was a real,

competing technology on a global scale.

What we are doing now is, we are working in the automotive

world and beginning to apply our technology in the transportation

space. If you, for example, take a look at the nickel metal hydride

technology that is currently used in the Toyota Prius hybrid vehicle—which has been very successful—that weighs in at 100 pounds;

if the same product were made for the same application using A123

technology today, it would weigh 20 pounds. The smaller size, the

smaller weight, basically leads to more powerful vehicles.

Plug-in hybrid vehicles operate very similarly to a hybrid vehicle,

but they use a higher-capacity battery, providing much longer performance on electric power and much, much less use of gas.

Today, we are developing batteries for General Motors’s Saturn

Vue plug-in hybrid vehicle. We are a partner with General Electric

to produce a fuel-cell hybrid bus using battery power. We have

teamed with BAE Systems, the world’s largest hybrid bus drive

maker, to create a battery system that will save 3,400 pounds per

bus in the weight of the battery system.

But we all have to realize that the time that it is going to take

to commercialize plug-in hybrid vehicles with the automakers and

the makers of the hybrid vehicles will take 3 to 5 years of very

closely coordinated effort.

Scaling the cells. What we make today—I have a sample up here

that is used in a power tool, and a sample of the product that we

are developing for the automotive application. You can see, there’s

a difference between the two. Scaling the size, scaling the power,

performance, and reliability is what the engineering work that we

are currently doing is about.

Teaming with the system makers and the car makers to create

full-scale battery systems that operate in vehicles with automotive

reliability and safety is what this is all about over that time. But

in the meantime, we can take advantage of the benefits of plug-in

hybrid vehicles by converting existing hybrid vehicles into plug-in

hybrid vehicles by use of an add-on module. A123 recently acquired

High Motion out of Toronto, Canada, a firm that has created an advanced and a novel system that utilizes our batteries to convert

standard hybrid vehicles into plug-in hybrid cars.

Our standard hybrid vehicle uses a 1 kilowatt-hour battery, and

it has improved, by demonstration in that Prius example, mileage

from 25 to 45 miles per gallon. The high-motion pack that we are

installing in the Prius, and the sample that we have outside, is a

5 kilowatt-hour pack. It can yield 100 to 150 miles per gallon for

7

people who drive less than 40 miles a day, which is 4 out of 5

Americans.

The beautiful part about this design is that it is small enough

to fit in the trunk space of a car, unobtrusively and without removing storage area. It can be installed in two hours or less, and it

complements the existing hybrid system in the sense that we do

not remove the hybrid system or modify the vehicle design in any

significant way.

By the end of this year, there will be one million hybrid vehicles

in the United States; in 8 years, there will be 15 million. Allowing

users, or incentivizing users to upgrade their vehicles from the hybrid design to the plug-in hybrid design is going to not only increase public awareness, it is going to broaden the market adoption.

It is going to help us gather a lot of experience in applying these

systems, and it is going to accelerate the benefits that we achieve

for our country in terms of reduced consumption of gasoline.

The CLEAR Act and the lessons that have been demonstrated by

this committee in providing incentives for hybrid electric vehicles

have successfully stimulated HEV demand, and we have moved

from 25 mile-per-gallon to 45 mile-per-gallon vehicles. We need to

do the same thing from 45 miles per gallon to 150 miles per gallon

with plug-in hybrid electric vehicles.

The problem today is, the plug-in hybrid electric vehicles do cost

too much, and at $2.70 or $3 a gallon, there is still inequity in

terms of the value and the trade-off on the cost per mile. Early

plug-in hybrid vehicle tax incentives can create and stimulate demand, which will drive manufacturing efficiencies and reduce costs

over time.

We have been working with your staff and with others to create

tax incentives for the OEM, original equipment, car maker plug-in

hybrid vehicles that we expect to see on the road in the next 3 to

5 years, and we have been working with them on module tax incentives that will allow us to, in the near term, provide plug-in hybrid

capability.

We have also worked to provide incentives for additional research to lower material costs and for grants to expand manufacturing in the U.S. to even the global playing field for battery technology.

Over the past 17 years, advanced battery technology has been a

focus area in Japan and Asia, and the Asian governments have

funded it substantially. No one has understood this any better than

you, Mr. Chairman. Overall, we have lost much commercialization

edge and we are far behind on a global basis in the development

of battery technology. Your act, S. 1115, recognizes the need for a

level playing field. It is in our best interests to own the battery

technology.

We have a few comments on S. 1115 that I would like to share

with you. In section 303, it proposes 30-percent grants to fund expansion of existing manufacturing facilities. We really believe that,

because there are no existing manufacturing facilities for highvolume production of lithium-ion batteries, that this should be applied to new facilities as well.

8

In section 302, it suggests loan guarantees, which we believe will

be interesting, but will burden already strained balance sheets of

start-up companies, so grants would be preferred.

And sections 304 and 305 suggest pooling technology between

competitors. We believe that entrepreneurs are fiercely competitive

and not very good sharers of technology, and we must preserve the

confidentiality and the intellectual property that is being developed.

Our conclusion is that new technologies open the door for changing the game in transportation. Outside, we parked a 150 mile-pergallon plug-in hybrid vehicle made possible by batteries that we

have developed in conjunction with TJ Technologies of Michigan,

and High Motion in Toronto.

We can turn the Nation’s vulnerability of dependence on foreign

oil into an automotive renaissance, and we believe it can start

today. Thank you very much.

Senator BINGAMAN. Thank you very much.

[The prepared statement of Mr. Vieau appears in the appendix.]

Senator BINGAMAN. Mr. Eberhard, why don’t you go right ahead?

STATEMENT OF MARTIN EBERHARD, CEO, TESLA MOTORS,

SAN CARLOS, CA

Mr. EBERHARD. Good morning, Chairman Bingaman, Ranking

Member Thomas, and members of the committee. Thank you for

the opportunity to testify.

The efforts of this committee properly reflect our country’s renewed emphasis on global climate change and dependence on oil

from nations that do not have our best interests in mind always.

These concerns are my own top priorities and are the reasons I

founded Tesla Motors.

Four years ago, I had no bias toward electric cars, or any other

technology. I set out, from an engineer’s perspective, to understand

which technologies could best break America’s dependence on oil.

After considerable research, I came to the conclusion that electric

cars are by far the more efficient technology, even when the electricity is made from coal, more so with cleaner sources. Electric

cars have the added advantage of being the only kind of car that

breaks the trade-off between performance and efficiency.

Tesla intends to become a major car company with a full line of

highly efficient, but highly desirable electric cars. Our strategy is

to enter the high end of the market, where customers are prepared

to pay a premium, then move down market as quickly as possible

to higher production levels and lower prices with each successive

model of car.

This strategy allows us to change rapidly the public perception

of electric cars, opening the market for many electric car models.

Tesla Motors is not looking for government handouts. Our business

model is sensible. Our cars are designed to be desirable and profitable, and I must answer to shareholders who expect a decent return on their investment.

However, there are two ways that the tax system can help catalyze consumer acceptance of zero emissions vehicles. The first is to

restore and enhance the EV tax credit. Until 2006, taxpayers who

9

purchased electric cars could claim up to $4,000 tax credit, and

now this credit is gone.

Over the years, many have proposed measures to restore, and

even enhance, this tax credit; none of these measures passed. I suspect that this is in part because, after the rewrite of California’s

zero emissions mandate, no car companies offered electric cars for

sale anyway.

Meanwhile, new legislation created tax credits for purchases of

hybrid cars, up to $3,400 for a car that still, in fact, burns gasoline

and emits carbon dioxide. This is the piece of legislation described

by Bill Ford as the ‘‘Buy Japanese’’ bill.

Please do not misunderstand me: hybrids are fine. They usually

have higher gas mileage than their non-hybrid equivalents. But in

the end, they are gasoline-powered cars. The only way to put energy into your Prius is through its gas tank.

However, a real electric car does a whole lot more to reduce our

dependence on foreign oil and reduce our emissions of greenhouse

gases than any hybrid ever can. We should encourage new car buyers to consider an electric car instead of a gasoline car, or even instead of a hybrid.

For this reason, I propose reconsidering some of what Senator

Rockefeller proposed in his Alternative Fuel Promotions Act a few

years back, and that is to reinstate the EV tax credit and increase

this credit for advanced technology electric vehicles, specifically

providing a tax credit of up to 10 percent of the EV purchase price

up to $4,000 and an additional $5,000 credit for any EV that has

at least a 100-mile range, and do not sunset this credit for another

4 years. Two, is to give a tax deduction for the cost of installation

of charging stations.

The second way that the tax system can help catalyze consumer

acceptance is to level the playing field with large SUVs. Under the

Jobs and Growth Creation Act of 2003, Congress raised the deduction ceiling for heavy-class vehicles—those over 3 tons—to

$100,000, bumped the ‘‘bonus deduction’’ to 50 percent, and continued the accelerated 5-year depreciation schedule.

This, in effect, made virtually all 3-ton, so-called business-use

SUVs fully deductible in the first year. More than 50 vehicle models qualified for this tax break, and many were sold because of it.

The American Jobs Creation Act of 2004 lowered this SUV loophole to $25,000, while retaining both the 50 percent bonus deduction and the 5-year depreciation schedule. This deduction is still

claimed by many Americans who use their SUVs at least 50 percent for business uses.

While I certainly sympathize with the need to help sell Hummers, I would like to propose a similar incentive program for zero

emissions, zero gasoline vehicles. Surely an accountant, a home inspector, or an attorney can use an electric car to visit his clients

just as well, and getting those business people out of gas-guzzling,

3-ton SUVs and into cars that burn no gasoline is good for America

and good for the environment.

I, therefore, propose leveling the playing field for electric cars

purchased for business use, amend the American Jobs Creation Act

to allow zero emissions vehicles also to qualify for a $25,000 reducVerDate 11-MAY-2000 10:56 Oct 21, 2008 Jkt 000000 PO 00000 Frm 00013 Fmt 6633 Sfmt 6633 44739.000 SFIN1 PsN: SFIN1
10

tion, a bonus deduction of 50 percent of the car’s cost, and an accelerated depreciation schedule.

Note that the Energy Policy Act of 2005 provided incentives for

practically every type of alternative automotive vehicle except electric cars. Why? Did somebody really kill the electric car? I am here

to inform you that rumors of the electric car’s demise have been

greatly exaggerated.

To quote Rick Wagoner, CEO of General Motors, at the opening

of the most recent L.A. Auto Show: ‘‘Why electricity? First, electricity offers an outstanding benefit, beginning with the opportunity to diversify fuel sources upstream of the vehicle. In other

words, electricity that is used to drive the vehicle can be made from

the best local fuel sources—natural gas, coal, nuclear, wind, hydroelectric, and so on—so before you even start your vehicle you are

working toward energy diversity. Second, electrically driven vehicles are zero emissions vehicles. When the electricity itself is made

from a renewable source, the entire energy pathway is emissionsfree. Third, electrically driven vehicles offer great performance,

with extraordinary acceleration, instant torque, improved driving

dynamics, and so on.’’

I could not agree with Mr. Wagoner more. Electric cars are far

from dead and need to be included, even highlighted, in every government program that promotes energy independence and minimizes global climate change. They are our best hope.

I also have a lot to say about batteries and our dependence on

batteries from foreign countries. Particularly, domestic manufacturing of batteries is what we need to do, but I do not have the

time for that now. With another 3 minutes, I could talk about that

further. But I encourage you to please read my written testimony

if the subject interests you.

Once again, thank you very much for your time. I hope you find

my testimony helpful.

Senator BINGAMAN. Thank you very much. We will have some

questions once we finish with the other two witnesses.

[The prepared statement of Mr. Eberhard appears in the appendix.]

Senator BINGAMAN. Dr. McManus, go right ahead.

STATEMENT OF DR. WALTER McMANUS, UNIVERSITY OF

MICHIGAN TRANSPORTATION RESEARCH INSTITUTE, ANN

ARBOR, MI

Dr. MCMANUS. Thank you, Mr. Chairman, members of the committee, ladies and gentlemen. It is an honor to be here today to

share my views on how advanced technology vehicles can help us

overcome our oil dependence and reduce our greenhouse gas emissions.

The views that I will express today are mine, not the university’s

or the organization that I head, and they are the result of 25 years

as an economist, 17 of which I spent in the auto industry at General Motors, JD Power & Associates, and in my current position.

Vehicles are responsible for 20 percent of America’s greenhouse

gas emissions and 40 percent of our oil dependency, and things are

going to get worse. By mid-century, the world’s vehicle population

is expected to be 2 billion, triple today’s level.

11

To limit global vehicle emissions to just 50 percent more than

what they are today, the average fuel economy of cars and trucks

on the road mid-century is going to have to be 60 miles per gallon.

Now, let us turn to look at various features in the tax code or

government programs that affect the fuel economy and the greenhouse gas emissions of vehicles. First, I would say that today’s

market is distorted against oil conservation.

There are a number of Federal market-based programs that encourage conservation, and some of them have already been mentioned. They include the fines that are part of CAFE for automakers that do not meet the standard; the gas guzzler tax, which

really applies only to high-end luxury cars and sports cars and not

to trucks at all; and then also consumer tax deductions or tax credits for advanced technology vehicles.

However, these programs that encourage conservation are more

than offset by other programs that go the opposite direction, and

they would include: probably the biggest is the car/truck distinction

in CAFE, as well as the car/truck differential in the tax code. We

just heard some mention of that by my fellow witness here.

Then, also, the flex fuel provision in CAFE, while it may help reduce our dependence on foreign oil, does not necessarily help with

greenhouse gas emissions. In sum, the existing regulations and existing programs tend to favor oil consumption rather than oil conservation.

Now, I just want to say a couple of things about CAFE. Automakers, many of them say that CAFE did not work, and they point

to the fact that the price of gasoline and oil was going up at the

same time that CAFE was being implemented.

However, CAFE continued to increase for cars and trucks for several years after the price of gasoline started to come down, and average fuel economy continued to increase at that time, so the price

increase alone would not have been sufficient to get the increase

that we got in fuel economy.

Going forward, if you look at how much the penalty is for violating CAFE—today it is now $55 for each mile per gallon above

the standard that a manufacturer’s fuel economy is—it is really not

sufficient, in itself, to get compliance with CAFE, or probably even

to get increased fuel economy at all.

The gas guzzler tax, which applies only to those high-end luxury

and sports cars, is, on average, about $585 per mile per gallon, so

it’s 10 times what the CAFE fine is.

In addition, the work that we have done at UMTRI, as well as

some other academic researchers, say that the value that consumers put on fuel economy is about $600 per mile per gallon.

In order to have an influence on automakers and on consumers,

either the fee or the rebate on either side would have to be in that

order of magnitude, similar to the gas guzzler tax and about $600,

at least, depending on how much you want.

Of course, not all auto manufacturers have complied with CAFE.

European manufacturers are usually the ones that have not complied. The Big Three in Detroit have complied.

I would say that the reason they complied is because non-compliance is unlawful, illegal behavior and, therefore, there were more

12

serious considerations than just dollars and cents that motivated

their compliance.

I want to kind of get back to my recommendations, recognizing

my time. The inconsistencies in the current policies have reduced

the effectiveness of instruments that are directed specifically at reducing oil consumption and greenhouse gas emissions. Any attempt

to correct or to stimulate more technology development that does

not take account of these inconsistencies will have problems succeeding.

I would suggest that the committee should consider a fee-bate

policy to replace the complex and often conflicting incentives provided by current vehicle tax policy. Fee-bates complement CAFE by

using the power of the market to guide consumers toward costeffective, high fuel economy vehicles. Together, CAFE and fee-bates

address both the supply and the demand side of the energy challenge.

Thank you.

Senator BINGAMAN. Thank you very much.

[The prepared statement of Dr. McManus appears in the appendix.]

Senator BINGAMAN. Mr. Baxley, go right ahead.

STATEMENT OF PHILLIP BAXLEY, PRESIDENT,

SHELL HYDROGEN, LLC, HOUSTON, TX

Mr. BAXLEY. Mr. Chairman and members of the committee,

thank you for the invitation to testify. My testimony today will

focus on Shell’s progress in developing hydrogen as a transportation fuel, and the infrastructure required for its growth.

First, let me begin with a description of how Shell sees hydrogen

fitting into our energy portfolio. Shell Hydrogen is part of the larger Shell Renewables, Hydrogen, and CO2 Group within Royal

Dutch Shell.

Shell believes that fossil fuels will continue to be the most affordable and accessible energy source, fueling economic growth and

powering our lives for decades to come. It has been estimated that,

with current rates of growth, the global energy demand may double

by 2050.

It is also estimated that alternative energies can provide approximately one-third of that energy mix. Therefore, at Shell we see our

ability to manage CO2 emissions to be important to the delivery of

energy products and fundamental to future growth.

Hydrogen can be an important part of that path forward and is

part of a broad energy portfolio Shell is developing to meet the energy challenge before us.

Before I go further into hydrogen, I would like to mention that

Shell is also investing in wind energy, thin-film solar energy, second-generation biofuels, and synthetic fuels from coal and natural

gas.

Now, more than 50 million tons of hydrogen are produced, transported, and used by a wide variety of industries around the world

each year. Most of that hydrogen available today is used in our refineries to produce cleaner fuels.

In fact, hydrogen is so common that most Americans live already

within 60 miles of a major hydrogen production facility. So in anVerDate 11-MAY-2000 10:56 Oct 21, 2008 Jkt 000000 PO 00000 Frm 00016 Fmt 6633 Sfmt 6633 44739.000 SFIN1 PsN: SFIN1
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swer to the perennial question, when is the hydrogen economy coming, I would say that in many respects it is already here. Shell Hydrogen is building hydrogen fueling infrastructure in three key

markets: the United States, Europe, and Asia.

We introduced Tokyo’s first hydrogen refueling station, opened

the first hydrogen and gasoline station right here in Washington,

DC—and, Senator Thomas, I think you have been out to visit the

station—and we sponsored the first hydrogen refueling stations in

Luxembourg and Amsterdam. In the United States, we are also

working to introduce hydrogen fueling stations in Los Angeles and

the New York metropolitan areas.

Our experience shows that we can supply and deliver hydrogen

today safely and reliably. Our aim now is to move to the next level,

from single stations to urban mini-networks.

We will continue to coordinate the availability of our hydrogen

stations with the automakers’ roll-out of the first small-scale mass

production of hydrogen vehicles within the 2015 to 2025 time

frame.

Shell believes that any roll-out of a retail hydrogen network

should be focused in regions of the country where the cars will be

first introduced, and we believe that the commercial roll-out of fuel

cell vehicles, with the proper hydrogen infrastructure, is an immense task, and that the successful introduction of these new vehicles and this new fuel depends on an unprecedented coordination

between government, energy companies, and automakers in these

formative stages.

In order to make hydrogen more available and more affordable,

Shell is looking for new feedstocks. In a world increasingly sensitive to carbon emissions and energy diversity, we are looking for

ways to produce hydrogen with less carbon, or store the carbon associated with hydrogen production, as well as secure feedstocks

readily available in this country.

Shell is developing technologies for carbon capture and storage

with several large-scale projects under development worldwide. We

are also investing in novel technologies to produce green hydrogen,

forming alliances and joint ventures to develop technologies that

we believe will produce hydrogen from biomass and other renewable sources.

Energy companies and automakers are working to make hydrogen transportation a reality within the next decade, but we need

the Federal Government’s continued involvement and support.

Let me outline five ways I think the government can engage to

make the hydrogen economy a reality sooner. Public acceptance

does not happen overnight. An enhanced education and outreach

program directed at students, consumers, and permitting authorities will aid in the challenges of siting and permitting hydrogen

stations.

We need increased coordination of Federal, State, and local hydrogen station permitting processes. We need to encourage early

adoption by government organizations of hydrogen vehicles for fleet

application and fuel cell-based portable and backup power systems.

Similarly, we need to encourage support to municipalities to lease

or purchase hydrogen-fueled autos and bus fleets.

14

Finally, the government has a key role in working with automakers and hydrogen suppliers to develop ways to ensure coordination of the vehicle and infrastructure roll-out, especially in early

markets.

This is an exciting time to be in the energy and transportation

business. We are shaping the future with our choices. Shell considers hydrogen an important part of the broad energy portfolio

that we are developing to meet the energy challenge before us all.

Thank you for allowing me to speak today. I would be happy to

answer any questions you have.

Senator BINGAMAN. Thank you very much.

[The prepared statement of Mr. Baxley appears in the appendix.]

Senator BINGAMAN. Thank you all for your excellent testimony.

We will just take 5-minute rounds here. Let me start with a general question. One of the things that is urged on us, and I think

with some good reason, is that we try, in the tax code, to be performance-based instead of technology-based, instead of picking a

particular technology and saying, all right, you get a tax incentive

for using this technology.

I think we have demonstrated over the years that we are pretty

inept at choosing the right one. Perhaps the fact that we provided

an incentive for hybrid electric vehicles, but allowed the incentive

for electric vehicles to lapse, is a good example of that.

But is it possible to do a technology-neutral tax incentive that

works so that, if you have vehicles with improved vehicle fuel efficiency, whether they are diesel, whether they are hybrid electric,

whether they are electric, whether they are hydrogen-based, whatever the technology that they use, they are entitled to the same incentive? Does that make sense or is that too simple? Mr. Chernoby,

maybe you have a thought, or any of the rest of you?

Mr. CHERNOBY. That absolutely makes perfect sense. If you think

about the testimonies you heard here today, we at DaimlerChrysler

believe that there are going to be a broad range of these technologies that enter the marketplace, and 30B has shown us that

this technique works. It makes a difference. And these technologies

are going to stage in the marketplace over time.

What 30B does is, it helps us kick-start these technologies in the

marketplace, and that is exactly the kind of incentive we want to

move forward with. So we absolutely think it can be technologyneutral, and we think that that links very well with the reality of

the multiple technologies that are going to enter the marketplace

over the next decade.

Senator BINGAMAN. Mr. Vieau, did you have a thought?

Mr. VIEAU. Well, I think that if we see the legislation—and some

of it has been drafted today—in our particular case we focused on

kilowatt-hours of power in a battery, but it really translates into

electrons driving wheels, and overall it drives efficiency.

So, as you have seen a hybrid electric vehicle take mileage from

25 to 45 miles per gallon, and the proposal made today is to put

a larger battery pack that would get you to 125, say, 100 to 150

miles per gallon, it seems to me that you could make that conversion away from electrons and into miles per gallon, in terms of the

efficiency that it brings, which makes it somewhat lacking consideration for the means by which you get there.

15

Senator BINGAMAN. Mr. Eberhard, did you have a thought?

Mr. EBERHARD. I absolutely agree. I think that performancebased measurement is the right way to do it. I think the rub comes

in how you compare the different technologies of clean diesel versus

what is the actual gas mileage or mileage of a hybrid vehicle

versus an electric vehicle.

So, the trick comes in how you define what the equivalent miles

per gallon is for a car that burns no gasoline, for one that burns

gasoline occasionally, for one that burns diesel.

Senator BINGAMAN. Now, does EPA currently do that, and do

they do it properly, in your view?

Mr. EBERHARD. The EPA does provide a couple of different measures for comparing miles per gallon for electric cars versus gasoline. I have not actually looked at diesel. I do not know a lot about

that. And I think that there is still work to be done there.

The number that is used for computing CAFE mileage for an

electric car is different than the window sticker that an electric car

company would be required to put in the window, for example. I

think that our company is submitting some suggestions about how

that ought to be done to the EPA.

Senator BINGAMAN. All right. What kind of a sticker are you expecting to have to put in your window to sell your Roadster?

Mr. EBERHARD. We will be putting a sticker that says how many

kilowatt-hours we consume per mile.

Senator BINGAMAN. But not the number of miles per gallon?

Mr. EBERHARD. That is debatable. It seems we may be putting

in an equivalent miles per gallon number on the window based on

one conversion factor or another. We are in discussion with the

EPA on that subject now.

Senator BINGAMAN. All right.

Do any of the rest of you have a comment? Yes, Mr. Baxley?

Mr. BAXLEY. Can I just make a general comment? There are

three points on the question you asked. The first is, we at Shell feel

very strongly that it is important for government to continue to

support technology and innovation across the spectrum.

So, continue to set up the tax code to support broad innovation

in technologies, vehicle technology, infrastructure technologies—

that is one of the hallmarks of the industry—and not be too specific

about picking technologies.

But the second and third things are that it is important to continue to support and fund the government agencies that are helping to drive those things forward—all the things forward—the education, the technologies, coordination between the different organizations.

A third thing, though, to overlay a little bit on this debate is, I

think it is important for government to move, especially in the

United States, to the next step around the CO2 question. That is,

get a consistent, stable, CO2 policy that we can hang a lot of these

things on that will drive a lot of these debates around what we do.

What is the right choice? Because the big thing out there is CO2. So there are really three parts. It is continuing to foster technology innovation through the tax code, continuing to make sure

that the finance group in this organization makes sure the funding

is available for supporting the technology initiatives in the departVerDate 11-MAY-2000 10:56 Oct 21, 2008 Jkt 000000 PO 00000 Frm 00019 Fmt 6633 Sfmt 6633 44739.000 SFIN1 PsN: SFIN1
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ments, and the third thing is, supporting, as best possible, getting

a stable set of policies around CO2.

Senator BINGAMAN. Senator Thomas?

Senator THOMAS. Thank you.

Mr. Chernoby, what would a shift to diesel fuel mean to the current refining structure?

Mr. CHERNOBY. Well, if you look at the current fuel availability,

it depends upon, obviously, what magnitude of shift. Like the comment you made earlier, significant near-term shifts in any one energy source are difficult. It takes time to have a major shift.

But we think we can have a reasonably significant penetration,

especially in the light truck market, where all the research has

shown that there is a tremendous market pull for diesel technology, to have a big impact on actual fuel consumption, and clearly a direct link to CO2 reduction. So we think that could be done

without a major shift in refining capacity.

Senator THOMAS. If we need to develop a new source of diesel

fuel to meet the demand, how would you react to the technology

that produces clean-burning diesel from coal?

Mr. CHERNOBY. Well, obviously, on anything produced from coal

we have to look at wells to wheel and give strong consideration to

making sure we are managing carbon throughout the entire

stream.

But if that technology works, absolutely. And the biodiesel work

that the government has strongly supported is another extremely

attractive alternative that supports many avenues of energy security, as well as CO2 reduction.

Senator THOMAS. But diesel actually comes from oil, right?

Mr. CHERNOBY. Yes. Currently, yes.

Senator THOMAS. Which is what we are trying to conserve. Yes.

All right.

What about the distribution system, Mr. Vieau, for your system?

Is there a distribution system? What kind of a job is that to put

it in place?

Mr. VIEAU. The modules that we are talking about are installable

by a qualified technician, and the plan overall, and the suggestion

or proposal, is that this become a nationwide distribution system

with certified and qualified modules.

Senator THOMAS. Do you plug it in? You just plug it in in your

garage?

Mr. VIEAU. Oh, yes. So the energy itself is a standard household

outlet, and using the standard household extension cord you plug

it in, and in 3 or 4 hours you can charge the system up.

Senator THOMAS. Hybrids to plug-ins. What is the difference?

Mr. VIEAU. Well, a hybrid electric vehicle is principally driven by

a gas motor with electric assist. The battery is relatively small, and

the battery and the motor work together in harmony to improve

fuel mileage.

In a plug-in hybrid, you have a larger battery system, and that

larger battery system increases the amount of miles driven on electricity. So you still have that synergy between the gas motor and

the electric energy, but what you have done is you have increased

the amount of energy storage. That plug-in hybrid, by the name,

17

means that you can actually plug it into an outlet and you can get

energy from that source.

Senator THOMAS. All right.

Mr. Eberhard, how much additional power generation is going to

have to come online to support the system that relies on plug-in

cars?

Mr. EBERHARD. There have been studies already that look at this

question. Understand, the electric generation facility in this country is designed to provide power at the peak. The peak in the afternoon typically is what the grid and the electric providers have to

be able to provide energy for.

The nice thing about electric cars is, they tend to charge at night.

People tend to come home and charge at night, during the leastused portion of the electric cycle. What this means is, something

like 40 percent of American cars could be powered by electricity

without any upgrade whatsoever to the grid or generating capacity.

Beyond that, that is a problem I would like to have. I think that

we have an opportunity as we go forward, if we get up to 40 percent of our cars being electric, to consider large-scale generation of

electricity through solar, wind, and the like to make up the difference.

Senator THOMAS. I see.

Dr. McManus, just in general terms, what do you think is our

best alternative to reduce our demand on petroleum?

Dr. MCMANUS. Well, I think a lot of the things that people have

been discussing already today, but technology neutrality would be

very important so that it is by a common metric. And I would say

the common metric should be greenhouse gases and oil dependence.

We would want to look at both of those measures simultaneously

in the analysis.

Then, also, while incentives and credits and so on do encourage

investment, there should also be on the other side, for falling short

of targets or goals, fees or penalties; either they have to be big

enough that they encourage compliance or maintain compliance for

some kind of behavior that is illegal.

Senator THOMAS. Thank you.

Very quickly, Mr. Baxley, how do you make hydrogen?

Mr. BAXLEY. Thank you for that question. Actually, the beauty

of hydrogen is, you can make it in so many ways. In fact, in a lot

of ways it is much more like electricity than it is like gasoline.

So currently we make it, as I mention, on a large scale from natural gas, but you can also make it from solar, from wind, from biomass, from coal, from nuclear, and that, in fact, is the strength of

hydrogen. It is a universal fuel. It is unique in that sense.

Senator THOMAS. What do you mean, make it from wind? What

does that mean?

Mr. BAXLEY. Well, make it from wind, meaning you convert wind

to hydrogen through the process called electrolysis. Well established. In fact, we are doing it in some of our retail projects. We

actually have a device called an electrolyzer mounted on the canopy

above the hydrogen dispenser, and we actually make it on-site, converting wind energy off the grid directly to hydrogen. The same

with solar.

Senator THOMAS. That is interesting.

18

Mr. Chairman, Senator Orrin Hatch sends his deep regret that

he is not in attendance today. As a long-term close personal friend

of Jack Valente, he is present at the funeral this morning.

As many of you know, Senator Hatch is intensely interested in

promoting advanced vehicle technologies and would certainly like

to be here under any other circumstances. If I could put that in the

record, please.

Senator BINGAMAN. We will certainly include that in the record.

Senator Salazar?

Senator SALAZAR. Thank you very much. Thank you very much,

Chairman Bingaman, for holding this important hearing.

Let me just say, as we move forward at looking at advanced technology for increasing efficiencies and alternative fuels, one of the

big challenges that we have is, there are so many ideas. Our big

challenge, really, is how is it that we decide which ones we can

really support, given the fiscal conditions of the Federal budget

today?

There are a group of us, including the Chairman of this committee, Chairman Bingaman, who sponsored legislation last year

that we called Set America Free legislation. This year, it is called

the DRIVE Act. You may be familiar with it.

Included in there are a number of different incentives that would

try to move us to a much higher fuel efficiency and to address

many of the objectives which you have testified about in the panel

today.

I would like any of you—all of you maybe—starting with you,

Mr. Chernoby, to comment on some of those ideas. But one of the

ideas we had in Senate bill 339, sponsored by Senator Bingaman,

myself, and a number of other Senators, is an idling reduction tax

credit.

That is a tax credit that would be given up to $3,500 for the purchasing of idling reduction technology for heavy-duty trucks. It is

technology that Gates Corporation and others have actually been

out deploying and are trying to move forward into the market. We

use a lot of diesel in those heavy vehicles simply by the amount

of time that they spend idling.

Second, plug-in hybrid, electric hybrid, and hydrogen vehicle

prizes, a continuation of the 2005 Act, where we had the Freedom

prizes in that law.

Third, the Advanced Technology Motor Vehicles Manufacturing

credit. What we are doing there is trying to incentivize the national

manufacturers to transform their fleet systems over to these new

technologies, and so we would have a credit that would be worth

35 percent of eligible investments in research, manufacturing, and

engineering.

We would have consumer incentives to purchase plug-in hybrid

vehicles. You have referenced those consumer incentives and how

they might be enhanced. Tax incentives for private fleets. Reducing

the incentives to guzzle gas, which I think, Mr. Eberhard, you referred to. Biofuels tax credits. Production incentives for cellulosic

biofuels. So there is a lot in there.

I guess my question to you is, if you were to have the two or

three most important things that we could do to move forward with

this advanced vehicle technology that you have referenced today,

19

what would they be? And you have to keep your answers short,

since I only have a few minutes.

So why do we not start with you, Mr. Chernoby?

Mr. CHERNOBY. I would say, make sure you conduct a deep dive

analysis. If you had a broad range or a technology-neutral incentive, it is likely that there are certain technologies in the near term

that are going to see the biggest usage of that incentive, not broadly across the base. And as you go through time, that technology

will be kick-started and the next one will kick in, like my partner

here.

Senator SALAZAR. So by ‘‘diving deeper,’’ you mean by the best

efficiency, the more mileage that one gets out of a gallon of gas?

Mr. CHERNOBY. Yes. In terms of number-one availability in the

marketplace where, if you put a technology-neutral plan out there,

I think you would see things like hybrids and diesels would be the

focus in the next couple years. Then after we get those technologies

kick-started in the marketplace, naturally the incentive could move

to the plug-in hybrid technology, which is probably out in that 3-

to 5-year window.

So we would advocate, the technology-neutral approach does

have budgetary fiduciary responsibility. You still manage the

money, and what it will do is, the market will drive to the place

of the greatest penetration, driving the greatest improvement to

the environment and energy security. Over time, the market will

shift to the next one.

Senator SALAZAR. Thank you.

Mr. Vieau?

Mr. VIEAU. Yes. There is an important part of all these vehicle

strategies, whether they use hydrogen, they use fuel cells, they utilize the grid for electricity. All of these advanced strategies utilize

batteries. All of them do.

The transition that has been announced by General Motors, and

by the industry overall, is a long-term view in which we will have

electric motors driving the wheels as opposed to the internal combustion engine. If you do that, you need a battery source. Most of

these large energy storage systems cannot deliver the power required to make the wheels go around, so batteries need to be there.

One of the points that we have been trying to stress is that we

need to drive a significant amount of research and development of

American resources to develop competency here so that we as a Nation have the ability to design and build battery systems for the future. It is going to be here for the next 100 years, so it is a very

important point.

Senator SALAZAR. So you would say a major push, then, on advanced technology with batteries?

Mr. VIEAU. Absolutely. And doing it sooner, right now.

Senator SALAZAR. All right.

Mr. Chairman, I know my time is up, but could I have a 30-

second response from each of the other witnesses?

Senator BINGAMAN. Yes.

Senator SALAZAR. Mr. Eberhard?

Mr. EBERHARD. I absolutely agree about battery technology. I

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portant. Today we are getting all of our batteries manufactured in

Asia, and that could one day be a big problem for us.

I think that in terms of looking at motivating the industry to

move in the correct direction in a technology-neutral way, you

should focus on three factors. First is the actual energy consumption per mile of a vehicle in a well-to-wheel way. Second is the actual petroleum consumption—that is to say, domestic or foreign oil

consumption—per mile. Third, is the greenhouse gas emissions per

mile. These are the things we should be focusing on in the industry

to figure out how to reduce all three of those.

Senator SALAZAR. All right.

Dr. McManus?

Dr. MCMANUS. Yes. I would just add to it that rebates or credits

are always very popular, but as you said, the Federal budget has

limitations. By also adding fees on the other side for those vehicles

that are dirty or very oil-dependent, that would not only help shift

the market toward cleaner vehicles, but it would also help finance

the credits and investments that need to be made.

Senator SALAZAR. Thank you.

Mr. Baxley?

Mr. BAXLEY. Yes. Just let me make a quick comment. First of all,

the challenges that you are struggling with as a committee are the

same ones we struggle with in Shell, as to which way this is all

going. There are no silver bullets. We have not found them.

So my message is, you need to work on pushing the technologies

forward, as the other speakers have said. You need to make sure

the incentives are there. But picking one winner is difficult to do.

There are some common platforms.

The second thing to consider is, you need to think not only about

the technology platform of the vehicle, you need to think about,

how does it affect the diversification of the feedstock, the fuel you

are going to use? That is another element that we worry about,

which is, you have a platform, but where is the fuel coming from?

So, diversifying your supply and your energy system.

The third thing that you need to worry about then, and perhaps

separate from that, is the CO2 footprint. That is where I got back

to, we need to do something about the CO2 policy.

I think the fourth thing, to me, is you cannot take and say, all

right, it is all batteries now, because the message that will come

out from your leadership around that is—never mind anything else

in the longer term or any other options—we have picked this option.

That is what you want to make sure you are careful to avoid, because there are near-term solutions or long-term solutions, and the

market will help decide those. You need to help facilitate that. So

I agree that there is a lot of value in batteries. I just do not want

the message to come back that, hey, let us just do batteries and

all the other stuff is going to wait for later.

Senator SALAZAR. Thank you, Mr. Baxley.

Thank you, Mr. Chairman, for allowing me to go over my time.

Senator BINGAMAN. Sure.

Let me follow up on this battery issue. Very broadly speaking,

we can try to provide tax incentives for consumers to purchase

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using vehicles. Then the other thing we can do through the tax

code is to support the creation of some of these technologies, the

manufacturers of some of these technologies here in this country.

What is the best incentive for us to use to do that? Is it an investment tax credit if you are willing to put in an advanced battery

production facility here? Is it something more generic than that?

What is the right public policy to try to encourage the development

of some of these advanced technology manufacturing facilities in

this country?

Any of you have thoughts? I know you have quite a bit in your

testimony about that, Mr. Eberhard, but you do not seem to come

down on a specific recommendation. But if you had any thoughts,

I would be anxious to hear them.

Mr. EBERHARD. I think that the manufacturing tax credits and

the like are the right approach. I think that, one way or another,

we need to encourage domestic manufacture of the high-volume of

commodity cells. I think that as we move into the future and think

about other forms of energy, energy storage is going to be a key

issue for us.

Right now, all of the batteries in the world, pretty much, are

made in Asia—Japan, Korea, and coming up very, very fast is

China. I think very soon, most batteries in the world will be made

in China. This is not a good position to be in if we are making all

of our transportation dependent on that. I think, one way or another, we want that manufacturing here in the U.S.

Senator BINGAMAN. Mr. Vieau, the battery cells that you use are

made in Asia, as I understand it.

Mr. VIEAU. That is correct.

Senator BINGAMAN. What do we need to do to get to a situation

where we could make those here?

Mr. VIEAU. The batteries themselves, in an automated fashion,

have a tremendous capital intensity to them. We have taken advantage of the Chinese market to be able to take advantage of

some low-cost labor and low-cost overhead to be able to create batteries that can compete on a global scale and minimize the capital

outlay.

The amount of money to produce 60,000 to 100,000 electric vehicles, for a battery factory to provide that, is a $100 to $200 million

capital outlay. Start-up businesses always have limited access to

capital. To get tax credits there is certainly some benefit, but actually having grants or having matching grants, we find funding from

private sources and funding from government to incentivize and

put it in here.

The challenge for us in this particular case, we would much prefer to make batteries here, but if we make batteries that are not

cost-effective it will retard the process of the integration of this into

the vehicle. We need to make batteries that are cost-effective.

We need to lower the cost of these battery systems so that, long

term, we do not need tax incentives for customers to be interested

in buying these vehicles. We need to cut those costs.

So, we have a two-edged sword here. We want to reduce the cost

of the batteries to make them more available to users on a costeffective basis, but we want to provide jobs in America. I think

there may be a mix of activities which will take advantage of what

22

we do best in North America, and what is done in the lowest-cost

parts of the world to make this a real solution.

Senator BINGAMAN. I guess I would wonder, conceivably you

could set up a grant program that anybody who is willing to establish a manufacturing facility for commodity cells for advanced batteries gets a grant. There again, we would be very much trying to

pick a specific technology that we, in our ultimate wisdom here in

Congress, have decided is the answer.

Is there a more generic solution to this that will allow us to—

the concern obviously is, we do not want to replace the importation

of enormous amounts of oil with the importation of enormous

amounts of other manufactured items that we are using to avoid

the use of oil. I do not know exactly how we get from here to there.

Yes, Mr. Vieau?

Mr. VIEAU. Well, the Koreans are a good example of a market

that did not have an advanced battery technology capability, and

not too long ago, within the last 10 years, they made a decision and

they have invested, I think, over $700 million to try to create a capability. They did it through major manufacturing corporations,

and they have become the number two, and leading towards the

number one, maker of advanced battery technology.

So I think we have to make a decision of whether this is really

important for us, and if it is important for us as a country, we need

to get proactive and bullish about putting the money up there to

get it done. And, certainly we have the technology.

Senator BINGAMAN. And the $700 million the Koreans invested,

did they invest that in manufacturing facilities, in research and development?

Mr. VIEAU. All of the above.

Senator BINGAMAN. They partnered with some of their cabals

and then went ahead with it, is that what they did?

Mr. VIEAU. Yes. They had competing interests in manufacturing,

competing companies. There was money invested both in research

and development, and also in manufacturing.

Senator BINGAMAN. All right.

Senator Thomas?

Senator THOMAS. All right. Thank you.

Given the long distances, Mr. Chernoby, that people live—I grew

up in Wapatee, WY, 40 miles from town—how are we going to use

batteries for people who live out in the rural areas?

Mr. CHERNOBY. Well, if you think about, obviously, the broad

portfolio of technologies, that is what we are focused on at

DaimlerChrysler. We think in the end—and somebody else commented on the panel—there is probably not going to be one winner

here.

If you think about the rural customer who drives primarily highway, high speed, 40 to 100 miles, or maybe you go on vacation, you

take a long trip on a highway, the diesel technology probably is a

superior choice to a hybrid, which provides very little benefit and

actually can be a detriment on the highway.

Now, when we move to the eventuality of the plug-in hybrid,

could part of that trip be on electricity, like Mr. Vieau mentioned?

Absolutely. It will provide a benefit as long as we make sure the

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upstream energy source is clean that is actually going into that

battery through the plug.

So there is going to be some potential with batteries. You also

have to remember, batteries are not only a hybrid play. If we get

to the eventual point of a hydrogen economy, a hydrogen fuel cell

car, again, is electrically driven and requires battery storage.

So, batteries play across many of these technologies and are here

to stay. We are convinced, battery technology will be a very important part of our future no matter where this portfolio might shift

and go.

Senator THOMAS. All right.

Mr. Eberhard, very briefly, in battery research, what is the next

major breakthrough that you want to achieve, and what will be the

impact, moving forward, on that?

Mr. EBERHARD. Today we can build a car that has a 200-mile

range right now without even any major breakthroughs. Lithium

ion batteries have been increasing in capacity historically by 8 percent per year. That is a doubling every 10 years. That has been historically true for the last 20 years. We see every indication of that

happening, once again, for the next 10 years. So 10 years is not——

Senator THOMAS. So this range in mileage would be a breakthrough that you would look for?

Mr. EBERHARD. Range in mileage. But the point is, the majority

of the improvements that have come in this technology have not

come through major breakthroughs, although there have been some

that have come along. It has come, rather, through the year-byyear improvement in the factories. That is why it is so important

that we bring this technology here to the U.S. It is like chip fabrication.

Senator THOMAS. All right. Thank you.

Dr. McManus, if you were a politician, would you favor the fee

to cause people to do these things?

Dr. MCMANUS. Well, I might not call it a fee. But, yes, it is an

effective way to get change in behavior. We have taxes that we pay.

There is the gas guzzler tax. I mean, one of the things that I think

might help is, if we are talking about investment, if the fees are

directly tied to investment. Then instead of going into the general

fund, they would be earmarked for investment, that would be a little more palatable.

Senator THOMAS. I hope we can do most of it by incentives.

Mr. Baxley, I know you and your company look a lot into this

whole thing. What would you say would be the breakdown of usage

over a period of 25 years? Where will we be in terms of feedstock?

What do you see we will be using?

Mr. BAXLEY. That is difficult for me to really forecast where we

would be there. I would go back to saying that we continue to see

that, largely, the world and the United States will be dependent on

petroleum products through at least the rest of this century.

But increasingly, as we grow, as our economy grows, as our

usage grows, the energy usage, as I said, is going to probably double between now and 2050. That means that we cannot be complacent.

Although we are going to have continued growth in our use of petroleum and in the need for petroleum and petroleum substitutes—

24

like gas-to-liquids technology, like clean diesels from bio-sources—

we need to find other ways to solve the energy situation. Those are

the areas we are working on.

But as I said, when we look out between now and 2050, we see

a large element of renewable energy. We see a large element of

biofuels in the mix. But in these scenarios we do depend on so

many assumptions, and it is really difficult to nail that down. That

is why we pursue a number of options, prudently. We think hydrogen is among those.

Biofuels is an important element of that. The timing of when

those exactly emerge is very difficult to predict. It depends on technology, it depends on societal factors, it depends on political factors.

Senator THOMAS. Right. I think the real challenge we all have is,

we know there are some changes coming in the future, significant

changes. We know, on the other hand, that there are demands that

are right there now. These significant changes are a while off.

So I hope we get a balance between looking at the alternatives

out there in the future and how we are going to meet our needs

in the near future, because we have 10 years of challenge before

us before we make huge changes as to how we will be able to continue. So, like coal to oil and coal to electricity, using that fuel is

certainly an interesting one.

Mr. BAXLEY. Senator Thomas, may I reiterate just one more

point, though? And that is that I really do feel that, in this situation where there is so much complexity about what technology

might win, the issues of diversification and energy security, the

issues of CO2, those are all important factors, and they are all complicating factors. It is much, much more complicated than it used

to be.

My guidance is to make sure you take advantage of the marketplace as much as possible. The innovation in the United States, the

innovation of small businesses in the United States—take advantage of that. Let them go after that. Let them solve the problems.

Consumers will make those choices about the value of import dependency and CO2. Senator THOMAS. Thank you. I agree with you.

Senator BINGAMAN. Senator Salazar?

Senator SALAZAR. Just a comment on that comment, Mr. Baxley.

While, yes, letting consumers make those choices, at the end of the

day, one of the major drivers that brings us here to the formation

of this committee and the legislation before the Energy Committee—and we are trying to do in the agriculture bill—really has

to do with the driver of national security.

Sometimes when you look at what we have been paying for gaso- line, given $20 a barrel oil, probably the last 30 years has not

placed the United States in the best national security situation

that we would have been if we had been much more aggressive in

terms of trying to get rid of the over-addiction on oil. So, just a

quick comment.

A couple of questions. Mr. Chernoby, first, for you. You talk

about biodiesel, or diesel, as one of the advanced technologies that

we really ought to embrace and incentivize as one of those things

that has happened. As we look at the agenda of alternative fuels

25

and efficiency, one of the major limitations that we have heard

from witnesses in other committee hearings we have had has been

with respect to the biodiesel aspect of a renewable fuels portfolio,

whatever that might be. There are great limits on that.

So can you comment on, how much of our energy should we put

into the expansion into biodiesel, given the limitations as I understand them, relative to the amount we might be able to generate

from renewable resources?

Mr. CHERNOBY. Well, in the long term, that is why we are focused on all these joint programs with the Department of Energy,

as well as the fuel providers and energy providers, to try to understand, what are the different types of biomass that we can be using

to produce biodiesel?

The biomass we are using today—grain, corn, et cetera—may not

be the biomass of the future, which would open up extra capacity

in terms of how much can be processed into the biofuels we need

to reach our Nation’s goals.

Senator SALAZAR. Let me just follow up on that. Right now, I

know we create diesel from petroleum. We do it out of soy. We do

it out of spent grease and oils from restaurants. There are a couple

other feedstocks that are on the line. How promising are those

feedstocks in terms of expanding the diversity of feedstocks used

for biodiesel?

Mr. CHERNOBY. Well, based on the very early work of the Department of Energy, I would say very promising. But we still have a

couple years of research, I think, to pore through to really know for

sure.

Senator SALAZAR. All right.

Mr. Vieau, on the battery technology, following up on Chairman

Bingaman’s question to you, South Korea decided they were going

to be able to do this by investing in a whole host of things. The

number I think you used was $700 million into a new battery initiative.

Mr. VIEAU. That is correct.

Senator SALAZAR. Is that something we should be doing here in

Congress, and is that the amount of money that we would be talking about in terms of manufacturer investment tax credits, as well

as research and development, to try to get this manufacturing base

created here in the United States that creates jobs here in the

United States? What is the magnitude of what you think we ought

to be doing to try to create this industry here in the U.S.?

Mr. VIEAU. I think the pool-based tax incentives for vehicles have

been proven to work with the hybrid vehicle. I think it should be

done for electric vehicles and plug-in hybrid vehicles. The numbers

there in the range of $3 to $5 billion over 7 years are numbers that

have been talked about, and I think would be significant.

I think, in the area of battery development—and I am not talking just about the cells, I am talking about the materials that are

used in it. We have companies all over America that have great

competencies in designing and developing the fundamental chemistries and the ingredients that go in batteries. We need to emphasize that, as well as research and development activity in the range

of $300 to $500 million over 5 years in additional spending.

For manufacturing incentive, I think we need to put in there——

26

Senator SALAZAR. That was $300 to $500 million?

Mr. VIEAU. $300 to $500 million dollars in research activities for

batteries and battery-related materials that will advance that.

There are a couple of objectives of this. One is a significant reduction in the cost for a given energy. The other one is dramatic improvements in the energy and the efficiency of these cells, which

will drive Mr. Eberhard’s goals.

The last one is the manufacturing base, which I think needs in the range of $300 to $500 million to stimulate manufacturing activity here beyond what would naturally take place to give us a jumpstart on this activity.

I do tend to agree with my colleague, I think, in the sense that

we do not like, as citizens in this country, to have the government

paying for things. We want manufacturing companies to build this

and we want consumers to create demand, and we want the natural competitive forces to take place.

But we are 15 to 20 years behind right now as a Nation. The single-largest and most successful advanced battery technology in the

last 15 years has occurred by A123 Systems that had 5 people 5

years ago. We do not have a large, established lithium ion advanced battery technology capability in this country today. If we

want to have it, we are going to have to step up and do it.

Senator SALAZAR. And is that because we have not paid the same

amount of attention to this technology and the investment into the

development of this technology as South Korea or any other countries that have done so?

Mr. VIEAU. That is correct. The Japanese, I believe, have done

so. They led the way in the early 1990s. Quite a bit of the technology that was employed then had its roots in the national labs

in the U.S. in the 1980s. So, it was not like we are in a vacuum

of technology, but we did not capitalize on it.

I am not sure why the manufacturing organizations in place at

the time did not capitalize on it. But the Japanese certainly did,

and they did a great job of it, and followed by that, the Koreans.

Now the Chinese are taking advantage of that.

Senator SALAZAR. Thank you, Mr. Chairman.

Senator BINGAMAN. Let me just follow up on that for a minute,

Mr. Vieau. If history is any guide, would we not expect the Japanese to come to market with plug-in hybrid vehicles here in the

very near future, I mean, just as they came to market with hybrid

electric vehicles some time ago? What does that do to the marketplace, as you see it, for your technology and for the opportunity for

American manufacturers?

Mr. VIEAU. Well, there have been announcements by some of the

leading Japanese automakers that they will be producing plug-in

hybrid vehicles in the relatively near future, within the next few

years. Those announcements have been made, so we do expect

them to show up here.

I think it is confirmation that this is heading in the right direction. They have successfully deployed hybrid vehicles on a global

scale, and they are making big investments in plug-in hybrid vehicles because they see the benefit that can be brought from those

vehicles.

Senator BINGAMAN. All right.

27

Senator Salazar, did you have more questions? If you do, go right

ahead.

Senator SALAZAR. Thank you very much, Chairman Bingaman. I

did have a couple more questions.

Mr. Eberhard, in your written testimony you talked about your

company that has been in formation over 4 years, and you talked

about the possibility of moving forward at the manufacturing plant

in New Mexico, I think, by 2009.

You referred to the fact that now the Roadster, I think, that you

have parked out here is probably marketed at $90,000 or $100,000.

But this new car that you will manufacture in 2009 in New Mexico

will be a $50,000 family type of passenger vehicle.

Assuming that you get there with that vision in 2009, 2010, what

is it that the U.S. Senate could do the most of to help you, and

companies similarly situated, move forward with the expansion of

your market and being able to move forward with that vision?

Mr. EBERHARD. I think the single biggest thing you can do for

me right now is to fund and support the Department of Energy

loan guarantee program. I think this is a very big piece for us that

would help us move forward more quickly. I think we are on a trajectory to be a large-volume manufacturer as quickly as we can,

which is still a rather slow process and rather capital-intensive.

Senator SALAZAR. When you talk about large volume, what kind

of manufacturing do you contemplate?

Mr. EBERHARD. The Roadster, our first car, is designed to be

built up to a few thousand cars per year only. The Whitestar, the

car we will build in New Mexico, the plant is designed to build in

the tens of thousands of cars per year, which is still a small step,

but it is a giant step forward for us. The third car after that, we

contemplate a car in the hundred thousand cars-per-year capacity,

which will require further capital.

Senator SALAZAR. All right.

Have you chosen your location in New Mexico?

Mr. EBERHARD. Yes, we have. It is just outside of Albuquerque.

Senator SALAZAR. All right.

And so would your testimony be that the loan guarantees that

are currently available through EPAct are good enough or that we

need to change those in a new bill?

Mr. EBERHARD. I think that they are good enough, so long as

they get properly funded. I believe that those are already helpful

to us.

Senator SALAZAR. All right.

Maybe you can follow up on that later on if you want.

Mr. EBERHARD. I will follow up.

Senator SALAZAR. Mr. Baxley, I did not mean to be overly offensive to you and Shell. I value what Shell does in my State of Colorado, and I value what they are trying to do with oil shale, and

also what you have done to try to embrace a broad array of menu

items on this energy portfolio that we are trying to move forward

with, so I appreciate that very much.

I want to ask you a question about hydrogen. You said in your

testimony that hydrogen is common, available lots of different

places within 60 miles of most Americans, and that you are moving

28

forward with creating markets not only here in the U.S., but in

other places.

Yet, when you talk about the time frame for the point where you

think we will be able to move forward with hydrogen as a real alternative for powering our vehicles, you talked about the 2015 to

2025 time frame. Is there any way to expedite that time frame, and

how do you arrive at that time frame in the first place?

Mr. BAXLEY. All right. That is a great question. First of all, let

me just, one more time, put in perspective that the amount of hydrogen we make in the United States now that is made in our refineries and our chemical plants, if you took that hydrogen that we

have been making for over 50 years now, have great experience

with it, and you converted it to fuel and you could get it to gasoline

stations fairly easily, that is actually enough hydrogen that, if you

took every passenger car in the United States and made it a fuel

cell vehicle, which makes it at least twice as efficient as current

gasoline engines, we already have enough hydrogen manufactured

in this country to power all those vehicles.

There is a lot of hydrogen out there. We know how to manufacture it. We know how to manufacture it economically. The challenge is getting it from the points of manufacturing to the retail

environment. So, that really is one challenge, putting the hydrogen

at retail stations. So, adding hydrogen to an existing, usually already pretty crowded retail station——

Senator SALAZAR. So, Mr. Baxley, then it is not a question of a

technology barrier that we have to break though here with respect

to at least the manufacturing and availability of hydrogen.

Mr. BAXLEY. Correct.

Senator SALAZAR. We have the hydrogen.

Mr. BAXLEY. Correct.

Senator SALAZAR. So the barrier here is the deployment of hydrogen and the infrastructure to be able to have hydrogen available

to those who would be driving hydrogen-powered vehicles. Is that

the barrier?

Mr. BAXLEY. That is one of the major factors. And so one of the

biggest factors is really getting out and making sure that the permitting process for this new fuel is put in place in the municipalities. We are working on that around the country, but it needs higher level coordination. It needs more exposure.

It needs more funding to make sure that all the standards that

need to be put in place around hydrogen are put in place so it

makes it easier to do, and quicker, and we can do thousands of stations, instead of doing one at a time now. The one in Washington,

here, took us over 2 years just to get through all those processes.

Senator SALAZAR. Why is it so difficult to go through that permitting process at the local level? Is it that there is a lack of understanding of hydrogen or is it that it is so new, that people just do

not understand, or are there inherent dangers with respect to hydrogen and filling stations?

Mr. BAXLEY. No. It is just that the standards organizations have

not issued national standards for hydrogen deployment at retail

stations. There are local standards, there are other standards.

Senator SALAZAR. Is there a role there that the U.S. Congress

might be able to play if hydrogen is going to be a fuel that is going

29

to be available around the country? Is there a role that we could

play here in the U.S. Congress in terms of some national standards?

Mr. BAXLEY. Yes. And that is one of the five points I mentioned.

In fact, I think it was first or second of the points I mentioned,

which was making sure that the activities that are going on within

the different agencies, Department of Transportation, Department

of Energy, to work on standards, to fund that activity and to staff

that activity, with industry, make sure those are fully funded. That

is an important thing to move forward.

Also, we found it extremely beneficial for government to express

leadership around commitment to hydrogen. California is a great

example, where the Governor, mayors, and so forth say, we want

to see hydrogen fuel as one of the options, and that really helps the

local politicians say, oh, all right, this is something we really

should spend time making sure happens.

Senator SALAZAR. All right. Let me assume we work through that

permitting barrier and that we have a more receptive local government and more expedited processing of permit applications for filling stations.

Then what are the other barriers that would keep us from moving faster? I mean, 2015. I had this conversation with Senator

Bingaman. But I do not know that we have that much time. 2015

still seems to me to be a long way away.

Mr. BAXLEY. It may seem that way to you. It seems like very

soon to me, given all the things that really should be put in place

to make that happen. But the second challenge, the second thing

that slows things down a bit, is consumer and community acceptance, just unfamiliarity with a new technology like hydrogen.

So there is a lot of education that we do at Shell and other energy companies, the auto companies do, local governments, to go

into communities and spend a lot of time with them, telling them

about the benefits of hydrogen.

Senator SALAZAR. All right. So let us assume we can conquer the

education barrier. What is the other barrier?

Mr. BAXLEY. And the third thing is very simple: the availability

of the fuel cell vehicles. That is the real challenge. That is what

drives it.

Senator SALAZAR. That is next.

Mr. BAXLEY. Yes. That is what drives the 2015 to 2025 time

frame, because that is when we practically think, one, we can be

there. We know how to manufacture it. We can put things in place,

but it will take a while to get the standards in place, it will take

a while to get the community accepting it, and we are working

through that in what we call the Lighthouse program, and our focused mini-networks I mentioned between now and 2015.

Senator SALAZAR. Well, what could we do to advance the availability of these fuel cell vehicles? I mean, if that is the ultimate

barrier, what is it that we can do in the Congress?

Mr. BAXLEY. Well, I would encourage you to continue funding the

progressive technologies, like fuel cell vehicles, like plug-in hybrids,

like the technology path forward. The batteries are a critical part

of fuel cells. But continue to fund the work by auto companies, by

small businesses around the technologies needed to advance to

30

these next platforms, whether they are fuel cell vehicles, whether

they are fuel cell power plants, whether there are hydrogen sensors

that are needed to control systems, or whatever is needed to make

those vehicles a reality.

There is a whole host of things. It is not just one thing to single

out, but there is a whole suite of advanced technologies where companies need to have a way to at least get a tax benefit, or a benefit,

policy benefit, around investing in those high-risk areas.

Senator SALAZAR. Thank you very much, Mr. Baxley. Thanks to

the panel.

Mr. Chairman, thank you for your patience. It has been a great

hearing.

Senator BINGAMAN. Good. Well, thank you very much. Thank you

all.

I understand we have a couple of vehicles outside that people can

look at. DaimlerChrysler has a vehicle. I believe A123 has a vehicle

we can look at. Thank you very much. I know Mr. Eberhard has

had his Roadster here that I had a chance to ride in last week.

Those are out by the Russell building, I believe, across the street.

So, at any rate, we will try to go down and see those.

But thank you again for being here. I think it has been a useful

hearing.

[Whereupon, at 11:32 a.m., the hearing was concluded.]

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