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64–534—PDF 2009

S. HRG. 111–889 

TECHNOLOGY NEUTRALITY IN ENERGY TAX: 

ISSUES AND OPTIONS 

HEARING 

BEFORE THE

COMMITTEE ON FINANCE 

UNITED STATES SENATE 

ONE HUNDRED ELEVENTH CONGRESS 

FIRST SESSION 

APRIL 23, 2009 

( 

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 

BILL NELSON, Florida 

ROBERT MENENDEZ, New Jersey 

THOMAS R. CARPER, Delaware 

CHUCK GRASSLEY, Iowa 

ORRIN G. HATCH, Utah 

OLYMPIA J. SNOWE, Maine 

JON KYL, Arizona 

JIM BUNNING, Kentucky 

MIKE CRAPO, Idaho 

PAT ROBERTS, Kansas 

JOHN ENSIGN, Nevada 

MICHAEL B. ENZI, Wyoming 

JOHN CORNYN, Texas 

RUSSELL SULLIVAN, Staff Director 

KOLAN DAVIS, Republican Staff Director and Chief Counsel 

(II) 

C O N T E N T S 

OPENING STATEMENTS 

Page 

Baucus, Hon. Max, a U.S. Senator from Montana, chairman, Committee 

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

Grassley, Hon. Chuck, a U.S. Senator from Iowa ................................................. 3 

Bunning, Hon. Jim, a U.S. Senator from Kentucky ............................................. 15 

WITNESSES 

Metcalf, Gilbert E., Ph.D., professor of economics, Tufts University, Medford, 

MA ......................................................................................................................... 4 

Greene, David, Ph.D., corporate fellow, Oak Ridge National Laboratory, Center for Transportation Analysis, National Transportation Research Center, 

Knoxville, TN ........................................................................................................ 6 

Urbanchuk, John M., Ph.D., director, LECG, LLC, Wayne, PA .......................... 8 

ALPHABETICAL LISTING AND APPENDIX MATERIAL 

Baucus, Hon. Max: 

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

Prepared statement .......................................................................................... 29 

Bunning, Hon. Jim: 

Opening statement ........................................................................................... 15 

Grassley, Hon. Chuck: 

Opening statement ........................................................................................... 3 

Prepared statement .......................................................................................... 32 

Greene, David, Ph.D.: 

Testimony .......................................................................................................... 6 

Prepared statement .......................................................................................... 33 

Responses to questions from committee members ......................................... 45 

Metcalf, Gilbert E., Ph.D.: 

Testimony .......................................................................................................... 4 

Prepared statement .......................................................................................... 51 

Responses to questions from committee members ......................................... 64 

Urbanchuk, John M., Ph.D.: 

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

Prepared statement .......................................................................................... 68 

COMMUNICATIONS

AGC Flat Glass North America .............................................................................. 75 

Arthur J. Gallagher and Co. ................................................................................... 78 

Alliance of Automobile Manufacturers .................................................................. 82 

Kortie, John and Bethanna ..................................................................................... 85 

(III) 

(1) 

TECHNOLOGY NEUTRALITY IN ENERGY TAX: 

ISSUES AND OPTIONS 

THURSDAY, APRIL 23, 2009 

U.S. SENATE, COMMITTEE ON FINANCE, Washington, DC. 

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

room SD–215, Dirksen Senate Office Building, Hon. Max Baucus 

(chairman of the committee) presiding. 

Present: Senators Bingaman, Lincoln, Wyden, Schumer, Stabenow, Cantwell, Nelson, Carper, Grassley, Snowe, and Bunning. 

Also present: Democratic Staff: Bill Dauster, Deputy Staff Director and General Counsel; Cathy Koch, Senior Advisor, Tax and Economics; and Pat Boulisman, Natural Resource Advisor. Republican Staff: Kolan Davis, Staff Director and Chief Counsel; Jim 

Lyons, Tax Counsel; and Emilia DiSanto, Special Counsel and 

Chief Investigator. 

OPENING STATEMENT OF HON. MAX BAUCUS, A U.S. SENATOR 

FROM MONTANA, CHAIRMAN, COMMITTEE ON FINANCE 

The CHAIRMAN. The hearing will come to order. 

Justice Oliver Wendell Holmes wrote: ‘‘[T]he best test of truth is 

the power of the thought to get itself accepted in the competition 

of the market. . . .’’ 

Today we consider a new thought in the marketplace of ideas 

about tax incentives. The thought is that, in the creation of energy 

tax incentives, the government might not pick and choose among 

different technologies. 

The thought is, the government might just set a performance 

standard, regardless of the technology employed. We can encourage 

things like reduction of greenhouse gas emissions, improvement in 

efficiency, or increased energy content. Then we would leave the 

job of picking the best technology to the competition of the market. 

Folks call this sort of incentive ‘‘technology neutral.’’ 

There are several reasons why a tech-neutral approach to energy 

tax incentives might make sense. 

First, it might well provide more bang for our energy-tax buck. 

By tying receipt of these credits to a common standard, we may be 

able to set this level of incentives more efficiently. 

Second—and this may come as a surprise to many in the room— 

sometimes government gets it wrong. 

Consider the credit that Congress enacted in 1980 to stimulate 

oil shale, tar sands, and synthetic fuels from coal. The idea sounded good at the time. But many companies exploited the credits. 

2 

Some sprayed coal with chemicals for no reason other than to line 

their pockets. 

Third, a technology-neutral approach might mean that we have 

to change the tax code less often. Technology is bound to change 

faster than Congress can act. So there is appeal to instituting a series of incentives that we do not have to update all the time. 

We have already taken some steps toward technology neutrality 

in recent legislation. For example, as part of last year’s farm bill, 

Congress enacted the first-ever credit for cellulosic biofuels. This 

might sound like a credit that picks a specific technology. But, in 

fact, we have passed a technology-neutral credit for cellulosic 

biofuels. Another example is the approach that we took on coal incentives in last year’s energy tax bill. We removed the bias toward 

integrated gasification combined cycle facilities. And we put in its 

place a requirement that all recipients of clean coal tax credits 

meet at least a 65-percent standard for capture and storage of carbon dioxide. 

This approach sounds sensible. Congress should not pick winners 

and losers. We should set a level playing field of standards for energy tax incentives. And we should let the marketplace foster competition. 

But we need to be aware of pitfalls. For example, a couple of 

years ago Congress modified the Alternative Fuels Tax Credit. 

That is a 50-cent-a-gallon credit for a range of alternative fuels, including liquefied petroleum gas, compressed natural gas, liquid 

coal, and biomass-based fuel. 

In modifying the definition of biomass-based fuel, the credit was 

inadvertently opened to apply to what is called ‘‘black liquor.’’ 

Black liquor is a by-product of the pulp-making process that has 

been used to power paper mills since the 1930s. Paper companies 

learned that they could benefit from the Alternative Fuels Credit 

by mixing a small amount of diesel with the black liquor and then 

registering with the IRS. 

Unless we plug this loophole, the Federal Government is liable 

for billions in credits for black liquor in 2009 alone, even though 

the credit was never intended for this fuel. So in this case, a more 

technology-neutral approach led to a dramatic spike in the use of 

a credit for an unforseen purpose. 

We are working to undo that unintended consequence. But our 

experience with black liquor suggests that we should exercise caution as we consider a tech-neutral approach. We have to make sure 

that we write the incentives correctly. 

This committee has done a lot of energy tax incentives in recent 

months. And I am proud of what we have achieved. But as we prepare for the next energy debate, including climate change legislation, it may be time to consider an alternative means of promoting 

alternative energy. 

And so, let us consider a new thought in the marketplace of ideas 

about tax incentives. Let us see if there is sense in getting the government out of the business of picking and choosing among different technologies. And let us see if technology-neutral incentives 

3 

* For additional information on this subject, see also, ‘‘Tax Expenditures for Energy Production 

and Conservation,’’ Joint Committee on Taxation staff report, April 21, 2009 (JCX–25–09R), 

http://www.jct.gov/publications.html?func=startdown&id=3554. 

might just be a thought that gets accepted in the marketplace of 

ideas.* 

Senator Grassley? 

OPENING STATEMENT OF HON. CHUCK GRASSLEY, 

A U.S. SENATOR FROM IOWA 

Senator GRASSLEY. Thank you, Mr. Chairman. 

Hockey players have goals, and soccer players have goals. So, as 

we look at whether it makes sense to design technology-neutral energy tax incentives, we first need to consider what goals our energy 

tax policies seek to achieve. 

Some of the goals that have been mentioned for energy tax policy 

are a reduction of dependence upon foreign oil, a reduction in the 

use of fossil fuels, and reduction in carbon dioxide emissions. Depending on what goal or goals are selected, vastly different results 

emerge. 

For instance, if the only goal in the fuels arena is the reduction 

of dependence on foreign oil, then of course energy tax incentives 

that encourage more domestic drilling and oil production are appropriate. However, if the goal is solely a reduction of carbon dioxide 

emissions or a reduction in the use of fossil fuels, then those same 

energy tax incentives to encourage more domestic drilling and oil 

production are inappropriate. 

Simplifying the energy tax incentives by creating technologyneutral tax incentives is obviously a noble ambition; however, getting consensus on what the goal should be and what should be 

used in developing energy tax incentives can be a little like herding 

cats. Even if lawmakers agree on what goals should be used—and 

that is a big if—controversial issues arise. For example, whether 

nuclear energy should qualify for technology-neutral energy tax incentives will certainly be a controversial issue. 

Also, the energy tax incentives that the Finance Committee has 

developed over the years have been extremely successful. For instance, in wind energy in the United States, it has made great advances with the help of the Production Tax Credit, which I first authored in the early 1990s. Or look at the Volumetric Ethanol Tax 

Credit that was part of the Transportation bill of a few years ago. 

It has helped the ethanol industry reduce our dependence on foreign oil, improve our national security, and reduce carbon dioxide 

emissions. 

As we move forward now in designing energy tax incentives, we 

need to be careful not to undo all the good work that this very committee has done. Even the proponents of technology-neutral tax incentives do acknowledge that certain technologies need more assistance in their early stages of development than others. They agree 

that this justifies a departure from technology-neutral energy tax 

incentives. 

I am interested in hearing the thoughts of the panelists, as well 

as other people on this issue. I look forward to the discussion. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you, Senator. 

4 

Now I would like to introduce the panel. Our first witness is Dr. 

Gilbert Metcalf, professor of economics at Tufts University. Thank 

you, Dr. Metcalf, for taking the time to come and visit us and tell 

us your views. 

Dr. METCALF. Thank you. 

The CHAIRMAN. Next, Dr. David Greene, corporate fellow of Oak 

Ridge National Laboratory, and a visiting researcher at the University of California at Davis Institute for Transportation Studies. 

Welcome to you, Dr. Greene. 

Dr. GREENE. Thank you. 

The CHAIRMAN. You bet. 

And finally, Dr. John Urbanchuk, director of the consulting firm, 

LECG. What does that stand for? 

Dr. URBANCHUK. Well, it is an acronym these days, but it used 

to stand for Law and Economics Consulting Group. 

The CHAIRMAN. Thank you. Thank you, gentlemen. Our usual 

practice is that your statements will be included in the record automatically, and I would ask each of you to speak for about 5 minutes. 

So I will start with you, Dr. Metcalf. 

STATEMENT OF GILBERT E. METCALF, Ph.D., PROFESSOR OF 

ECONOMICS, TUFTS UNIVERSITY, MEDFORD, MA 

Dr. METCALF. Chairman Baucus, Senator Grassley, members of 

the committee, thank you for the invitation to testify this morning 

on the issue of technology neutrality. 

I want to make the following points in my testimony today. First, 

technology neutrality can be defined in a variety of ways. I will primarily focus on technology neutrality in terms of specific policy 

goals that motivate energy tax policy. Second, efficiency is best 

achieved by setting taxes on energy sources that have negative 

externalities associated with their production or consumption. 

Third, a second-best technology neutrality can be achieved through 

the use of subsidies, but it is more difficult to do so. 

In thinking about technology neutrality today, I want to focus on 

two externalities in particular. First is the concern with global climate change. Fossil fuel combustion in the United States is responsible for 80 percent of domestic greenhouse gas emissions, thus we 

should be encouraging a shift from fossil to renewable fuels. 

A second concern is our heavy reliance on petroleum products 

and the dominance of this fuel in the transportation sector. Many 

have argued that our heavy reliance on oil constrains our foreign 

policy and makes us vulnerable to macroeconomic shocks when oil 

prices rise. 

Before assessing the concept of technology neutrality, we need to 

define it. In a general sense, it means that the tax code should not 

favor one fuel over another after taking into account any positive 

or negative externalities arising from energy use. While conceptually straightforward, it is more difficult in practice to identify 

whether certain technologies are advantaged or disadvantaged by 

the code. 

My written testimony describes a number of potential measures. 

Here, I would just like to focus on a measure in terms of dollars 

per ton of carbon dioxide not emitted or barrels of oil saved. 

5 

The benefit of this approach is that it calibrates the tax code’s 

impact to the policy goals we care about. If the tax subsidy per ton 

of avoided greenhouse gas emissions from technology X is twice 

that of reducing emissions from technology Y, then we can say that 

our policy favors technology X over Y in this dimension. 

What about policy distortions? First, let me note that a subsidybased approach achieves the important goal of adjusting relative 

prices of polluting and non-polluting energy sources in the right direction. We can provide the right incentive to fuel users choosing 

between polluting fuel X and clean fuel Y by raising the price of 

X or lowering the price of Y; a tax or a subsidy can be effective on 

the margin of choosing among fuel sources where some cause pollution. 

This creates a problem, however, on a different margin. Efficiency requires that consumers make decisions taking into account 

the full cost of using commodities, including any pollution costs. 

Raising the cost of polluting fuel X raises the overall cost of energy 

and encourages a reduction in energy consumption. This is efficient. Subsidizing the clean substitute undermines this consumer 

substitution effect as it leads to a lower cost of energy overall. 

Second, subsidies that appear to be technologically neutral may 

not be neutral at all in the sense of equalizing the subsidy cost per 

unit of activity that Congress is trying to discourage. Consider the 

tax credit for hybrid vehicles. Table 5 in my written testimony 

shows the subsidy cost per gallon of gasoline saved through this 

credit for a variety of vehicles. The table illustrates a couple of 

points. 

First, the credit per gallon of gasoline saved varies from zero to 

over $11 per gallon. Second, certain high-mileage vehicles are excluded from the subsidy because they do not use specified technology. Note that the Corolla gets nearly the same mileage as the 

Tribute hybrid. This is a particularly egregious violation of technology neutrality. The tax credit provides no incentive to make the 

internal combustion engine more efficient. 

Let me discuss two additional design points. The first concerns 

additionality: does the policy lead to incremental reductions in pollution or simply subsidize activities that would have occurred anyway? As Chairman Baucus has just noted, a good example of this 

is the Alternative Fuels Mixture Credit. Paper firms are taking the 

credit for mixing diesel fuel with black liquor, a by-product of 

paper-making that historically has been used by the industry as a 

fuel source. 

This is troubling on two levels. First, it is highly inefficient if 

credits are being provided for activities that would have been undertaken in the absence of the subsidy. Moreover, if the tax credit 

is raising the demand for diesel fuel in order to make the biofuel 

eligible for the credit, then it is having the perverse effect of raising, rather than lowering, demand for petroleum products. 

A second important design issue is the interaction between tax 

policy and other policies. A simple example here is the interaction 

with the hybrid vehicle tax credit and CAFE standards. Allowing 

tax credits for hybrids encourages the production and purchase of 

high-mileage vehicles. Producing more hybrids relaxes the CAFE 

6 

mileage constraint for auto makers and allows them to sell more 

low-mileage vehicles. 

I have identified a number of problems with the current approach. Energy-related subsidies lower, rather than raise, the cost 

of consuming energy. Much of the subsidy may be inframarginal, 

and the policy can be undermined through interaction with other 

policies. 

Let me briefly mention alternatives that avoid most, if not all, 

of these pitfalls. Focusing on our concern with climate change and 

oil consumption, optimal policies will raise the cost of emitting 

greenhouse gases and consuming oil. A carbon pricing mechanism—either a carbon fee or a cap-and-trade system—and an oil 

consumption tax are straightforward ways to achieve these goals. 

Both of these approaches address the problems identified above. 

They ensure that energy consumption internalizes the cost of 

externalities and achieves a socially efficient mix of energy and 

non-energy consumption. They avoid problems of inframarginal 

subsidies and perverse incentives. Finally, they complement, rather 

than work at cross purposes with, other energy policies. 

In conclusion, current energy tax provisions can perhaps be best 

viewed as a transitional policy until policies such as carbon pricing 

are put in place. In the meantime, Congress should consider how 

they might best modify the existing subsidies to achieve true technological neutrality. 

This requires measuring the subsidy cost of producing the externality in question. Policies should provide a level playing field in 

the sense that the subsidy per unit of externality avoided should 

be comparable across technologies. They should also consider the 

extent to which true reductions in the externality occur. 

This is all very easy to say, but difficult to do. So long as our 

energy policy is built around providing subsidies for activities we 

wish to support as opposed to taxing those activities we wish to 

discourage, we will always face difficult design problems that complicate our efforts to achieve efficient and cost-effective outcomes. 

Thank you for the opportunity to testify today. 

The CHAIRMAN. Thank you, Dr. Metcalf, very much. 

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

The CHAIRMAN. Dr. Greene, you are next. 

STATEMENT OF DAVID GREENE, Ph.D., CORPORATE FELLOW, 

OAK RIDGE NATIONAL LABORATORY, CENTER FOR TRANSPORTATION ANALYSIS, NATIONAL TRANSPORTATION RESEARCH CENTER, KNOXVILLE, TN 

Dr. GREENE. Yes. Good morning, Mr. Chairman, Senators, and 

distinguished guests. Thank you for inviting me to participate in 

this hearing. 

I will address primarily incentives for energy-efficient and low 

greenhouse gas-emitting vehicles. 

The market system is, and will be, the fundamental mechanism 

by which we achieve our national energy goals. But markets run 

into difficulties in several areas. Externalities such as greenhouse 

gas emissions and the market power of the OPEC cartel are wellknown examples. 

7 

But markets for energy efficiency have another important flaw: 

they under-value future energy savings. Here is how. As a rule, car 

buyers must pay more up front to obtain fuel savings in the future. 

Most assessments treat the future fuel savings as if they were certain, but they are not. Many key factors are uncertain, especially 

the future price of gasoline and the fuel economy a vehicle will actually get on the road. 

As a result, the fuel savings from increased energy efficiency are 

not a certain amount, but an uncertain probability distribution. 

What matters to consumers is the net savings, the future fuel savings minus the up-front costs, a number which is relatively even 

more uncertain. 

Economists have learned over the past 2 decades that consumers 

are, as a general rule, loss-averse, meaning they weigh the potential for loss more than the potential for gain in evaluating risky 

choices. Given uncertainty and loss aversion, the market may 

under-value fuel savings by a factor of two or more relative to the 

risk-neutral expected value. 

Incentives for purchasing energy-efficient low greenhouse gasemitting vehicles can get around this problem by moving the market signal to the initial purchase of the vehicle. The implications 

of uncertainty and loss aversion match up almost exactly with the 

views expressed by manufacturers to the 2002 National Research 

Council Committee on the CAFE standards. Manufacturers stated 

that consumers were willing to pay for only technologies which 

paid back their cost in 2 to 4 years. 

But an important exception, which was mentioned by Senator 

Grassley: I think we can replace our current patchwork of tax incentives for alternative fuels and vehicles, for HEVs, PHEVs, natural gas, electric, flex fuel, E85, fuel economy, et cetera, with the 

simpler, yet more flexible and more efficient technology-neutral incentive structure. 

On the vehicle side, nearly all of our current incentives could be 

replaced by a unified vehicle incentive system, usually referred to 

as a ‘‘feebate’’ system. Feebates consist of a graduated rebate for 

energy-efficient or low greenhouse gas-emitting vehicles and a 

graduated levy on energy-intensive or high greenhouse gas-emitting vehicles, both relative to a benchmark. The concept is very 

flexible. Feebate systems can be formulated in an infinite number 

of ways. 

Because the incentive occurs at the purchase of the vehicle, it is 

not subject to the uncertainty and loss aversion problem, and a 

feebate rate equivalent to an extra $1 per gallon of gasoline consumed over the life of the vehicle would have more leverage on new 

vehicle fuel economy than a $2 per gallon tax on gasoline. 

Several EU countries have adopted feebate systems for CO2

emissions in 2008, and I am currently leading a study of potential 

feebate systems for the State of California on behalf of its Air Resources Board, which is considering such a system. 

The U.S. gas guzzler tax is essentially half of a feebate system, 

but applies only to passenger cars. It is specified in terms of dollar 

penalties per half MPG step below 22.5 MPG, but the average rate 

per 100th of a gallon per mile is approximately $1,800. In terms 

8 

of dollars per gram of CO2 per mile, this amounts to approximately $20. 

The French have a system they call Bonus/Malus, which is a kind of feebate system. It uses a rate of approximately $1,500 per 

100th of a gallon per mile, or $17 per gram of CO2 per mile. But 

this rate does not apply to the final step for vehicles below 60 

grams of CO2 per kilometer. That is approximately 100 miles per 

gallon, better than 100 miles per gallon. 

The French government set a much higher value for the lowestemitting vehicles in order to provide a strong incentive for developing novel technologies, such as PHEVs, EVs, and fuel cell vehicles. Modifying the feebate rate to provide a greater incentive for 

advanced near-zero emission technologies is one approach to addressing the early barriers to a fundamentally different source of 

energy for transportation. 

In my written testimony I show a series of feebate rates, from $500 to $2,500 per 100th of a gallon per mile, as well as their 

equivalents in terms of carbon prices per gallon and surcharges for 

gasoline. But really, as you have already noted, the feebate is attempting to accomplish multiple objectives. Just to overcome the 

uncertainty/loss aversion effect, a feebate of $1,250 per 100th of a 

gallon would be justified. A feebate rate of $2,000 per 100th of a gallon per mile would give a 50 mile-per-gallon vehicle an incentive of $4,000 relative to a 25 

mile-per-gallon vehicle. A 100 mile-per-gallon vehicle would receive 

an incentive of $6,000, assuming a constant rate. These are roughly 

comparable, I think, to the incentives in effect today, although they 

are probably not enough to support the early phases of a transition 

to a completely different energy source, such as hydrogen or electricity. 

The market’s response to the problems of greenhouse gas emissions and oil dependence is hindered by the inherent uncertainty 

of future fuel savings and consumers’ loss aversion. As a consequence, fiscal incentives for increasing the energy efficiency of 

motor vehicles and reducing their greenhouse gas emissions can be 

especially effective policy tools. Most of the existing incentives for 

energy-efficient, low-emission vehicle technologies could be replaced 

by a technology-neutral feebate system. 

Thank you. I look forward to trying to answer your questions. 

The CHAIRMAN. Thank you, Dr. Greene, very much. 

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

The CHAIRMAN. Dr. Urbanchuk? 

STATEMENT OF JOHN M. URBANCHUK, Ph.D., 

DIRECTOR, LECG, LLC, WAYNE, PA 

Dr. URBANCHUK. Well, thank you very much. Good morning, 

Chairman Baucus, Ranking Member Grassley, members of the 

committee. I am pleased to be here this morning to discuss the role 

of the tax code in energy policy and the issue of whether technology-neutral energy incentives, including in the area of fuels, vehicles, electricity and efficiency, should be developed. 

Experience both in the U.S. and around the globe has demonstrated that well-crafted tax incentives are an effective means to 

encourage the production and use of renewable energy. Alternative 

9 

sources of energy, specifically renewable forms, have been deemed 

in the national interest as a way of reducing dependence on imported energy and enhancing national security, improving environmental quality and, importantly in this environment, facilitating 

economic growth. 

As with all tax policy, Congress should conduct prudent oversight 

to ensure that, over time, various tax incentives continue to reflect 

the Nation’s tax and energy policy goals. As Congress considers 

both new tax incentives and revisits existing ones, there are three 

major factors that should be considered when determining the form 

and structure of an incentive. 

The first of these is industry economics. The value of a tax incentive that is designed to encourage the production and use of a particular energy source should be set at responsible levels. Common 

sense would dictate that the incentive should be structured in a 

manner that makes an activity economically viable, but does not 

provide an unintended windfall for recipients. In addition, the 

value of the incentives should not create perverse incentives that 

encourage activities counter to responsible energy policy or those 

that impede achievement of national energy policy goals. 

The second factor is innovation in technology development. Energy policy should be structured in a manner that incentivizes and 

spurs the development of cleaner and more efficient ways to generate and distribute energy. A corollary to this is the role energy 

tax policy can play in promoting conservation and in helping direct 

the flow of private investment capital to cleaner and more efficient 

sources of energy, and to industries with the potential for rapid 

commercialization. 

An additional consideration is the role of energy policy or tax policy in stimulating job creation and economic growth, particularly in 

nascent industries such as wind and solar and second-generation 

biofuels. Thus, Congress should consider the potential to develop 

new technology, promote innovation, and build needed infrastructure when considering energy tax policy. 

The third is really the focus of what we are talking about here, 

and that is technology neutrality. To the degree possible, energy 

tax incentives should be structured in a manner that treats competing technologies and processes in an equitable fashion. That 

said, Congress should set parameters, such as requiring various 

fuels to meet quality standards and specifications established by 

organizations such as ASTM, that ensure the desired policy goal of 

an incentive is being met. These three equally important factors 

should be weighed when Congress considers energy tax policy. 

However, it is instructive to note that these factors do not exist in 

isolation; rather, they interact with each other, thereby complicating the job of the policymaker. 

The issue of technology neutrality is particularly vexing, especially with regard to the development of alternative fuels. In its 

purest form, technology-neutral energy tax policy would apply 

equally to all forms of energy and not give preferential treatment 

to one energy source over another. 

However, national policy, as outlined by the Energy Independence Security Act of 2007 (EISA), mandates the use of 36 billion 

gallons of renewable fuels by 2022 and provides important research 

10 

and development incentives for solar and geothermal sources, as 

well as for programs aimed at improving energy efficiency and conservation. 

On the face of it, the development of energy tax policy that supports these goals would effectively violate the basic premise of technology neutrality by providing favorable tax incentives for renewables such as cellulosic ethanol or advanced biofuel feedstocks, including biomass biodiesel, and the R&D incentives for solar and 

geothermal. 

As you know, the EISA provides a cap of 15 billion gallons of ethanol from corn starch and calls for a billion gallons of biomass biodiesel, and requires the remaining 20 billion gallons of renewable 

fuels to come from cellulose and other advanced biofuel feedstocks. 

While we are on track to meet the 15 billion gallons of renewable 

fuels from traditional green ethanol, the ability to produce the required amount of cellulosic ethanol and biodiesel is, frankly, questionable. 

Now, while we have the technology for this, it is going to require 

the incentives be in place to provide the investment for these new 

facilities. The economic viability of any alternative fuel or energy 

source in today’s environment of relatively low oil and gasoline 

prices and reduced demand due to the recession is seriously threatened. 

That makes the continuance of existing tax incentives, such as 

the Volumetric Ethanol Excise Tax Credit (VEETC), Small Ethanol 

Producer Tax Credit, and Biodiesel Blenders Credit all the more 

important in helping level the playing field for these alternatives 

to petroleum-based fuels. These incentives, particularly the ethanol 

tax incentives which continue through 2010, also play a major role 

in helping attract the investment capital needed to build and commercialize the second-generation ethanol industry. 

As was pointed out earlier, the application of technologyneutral tax policy can, in fact, provide unintended consequences. A 

great deal has been talked about with regard to the black liquor 

issue. My written statement goes into more detail. I am not going 

to spend a lot of time talking about that right now, other than to 

point out that the paper industry is following a long-standing industry practice and taking advantage of an existing technology 

neutrality tax incentive, and revoking the industry’s eligibility for 

this incentive would in fact violate the technology neutrality concept. 

There are other examples, such as policies that would improve 

mileage or reduce emissions for vehicles without regard to fuel 

type, or incentives to develop clean coal and coal-derived technologies. These outcomes may in fact be positive or negative. The 

key point that I would like to make is that the full range of outcomes and consequences must be evaluated when tax policy is 

being developed. 

Tax incentives have long supported public policies designed to 

stimulate the development of renewal energy markets and industries both in the U.S. and abroad. Tax incentives are often complementary to other types of renewable energy incentives. They are 

powerful and highly flexible tools. They can be targeted to encourage specific renewable energy technologies and to impact selected 

11 

renewable energy market participants, especially when used in 

combination with other policy tools. 

With that, I thank you very much and look forward to answering 

questions. 

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

The CHAIRMAN. Thank you, gentlemen, very much. 

I have an obvious question. Just to be a devil’s advocate here, 

why do we have this Production Tax Credit, for example, and for 

renewable energy, or on fuels, why even have, say, a biodiesel credit or maybe an ethanol credit, when we have renewable energy 

standards and we have renewable fuel standards? 

Why do those standards, in and of themselves, not provide (A) 

sufficient incentive, and (B) are they not technology-neutral? Add 

to that, do they not just add unnecessarily to the cost of the Production Tax Credit because we have an upcoming electricity standard, and add unnecessarily to the cost of, say, the biodiesel and 

other alternative fuel standards because we have a renewable fuel 

standard? 

So why do we have all these credits? Why do we have all these 

incentives when technologies are going to be developed anyway due 

to the renewable electricity standard, as well as renewable fuel 

standard? They are just adding to the cost to taxpayers because 

people are getting all these credits and are doing something they 

would otherwise do if prompted and pushed by the electricity 

standard or by the fuel standard. Who wants to take a crack at 

that? Dr. Metcalf, I see you grinning. 

Dr. METCALF. I would not claim to be able to explain why we 

have these credits, but I can certainly note that it does raise the 

cost to the Federal Government if we have a standard on the one 

hand and then have a credit on the other. I talked about the issue 

of additionality. The question is, if we are giving people tax credits 

for activities that they would already do, either because it is costeffective for them to do it or because we have another policy in 

place that says that they have to do it, then this is wasted money 

in the sense that it is not getting behavioral change. 

A good example of that is, we now have Renewable Portfolio 

Standards coming in place at the State level. California has a 20- 

percent RPS coming into effect in 2010, and that is driving up the 

cost of the Production Tax Credit. 

The CHAIRMAN. Now, we do not have a national electricity standard yet, but I would expect we may get one. 

Dr. METCALF. Right. 

The CHAIRMAN. As you say, States have them. Some do. 

Anyone else have a similar or different view? 

Dr. URBANCHUK. Well, I am going to talk not on the electricity 

side, but on the renewable fuel side. As was pointed out, we do 

have the renewable fuel standard of the Energy Independence and 

Security Act. 

The CHAIRMAN. Right. 

Dr. URBANCHUK. That provides a requirement to use renewable 

fuels—the requirement to use renewable fuels, not necessarily to 

produce renewable fuels. 

The CHAIRMAN. Right. 

12 

Dr. URBANCHUK. That standard effectively provides a floor for 

the use of ethanol and biodiesel and promotes the development of 

second-generation feedstocks. We do not have a series of production 

incentives or production credits, but rather their incentives. The 

Excise Tax Credit, the Volumetric Excise Tax Credit, or Blenders 

Credit really is an incentive to use that and to level the playing 

field with that alternative made from a domestic biomass source 

with a very, very well-capitalized and very well-financed petroleum 

industry. 

So essentially what we have is a system that incents or requires 

the use, but not necessarily the production, provides the incentive 

to maintain and increase production. I think importantly, as we 

move forward, in respect to that goal of reducing petroleum, the 

fossil fuel use, we will develop the technologies that will get us 

there. 

We essentially need those incentives to encourage the development of those new technologies. Similarly, in the issue of other industries, those incentives do provide an important role in channeling private investment capital into industries that will effectively help us achieve socially desirable goals. 

The CHAIRMAN. What about the provisions in the President’s 

budget where the President suggests repealing section 199, and 

also oil depletion, and I think intangible drilling costs, for example. 

Are those good ideas? Are those incentives for the oil and gas industry that have outlived their usefulness, particularly as we are 

driving toward—I think most Americans—less reliance on OPEC. 

Well, that cuts the other way, I guess; it all depends on where you 

drill. Also, addressing climate change. Yes? 

Dr. METCALF. I think they do make good sense, particularly repealing the expensing of intangible drilling costs and percentage 

depletion. I think the issue here is that we want to be discouraging 

the consumption of petroleum, and anything that reduces subsidies 

to petroleum contributes to lower world oil prices and increased 

consumption of petroleum. 

I think this just simply runs counter to our goals of reducing 

emissions of greenhouse gases and improving energy security. I am 

not the first person to point this out, but policies that encourage 

domestic production are our Drill America First policy, and it is not 

clear that that is a smart idea. 

The CHAIRMAN. My time has expired, anyway. 

Senator Bingaman, you are next because Senator Grassley is 

temporarily absent. 

Senator BINGAMAN. All right. Thank you all for being here. 

Let me ask Dr. Greene about his feebate proposal, which I have 

admired his work on for several years now. Do I understand that 

your thought is that a feebate would be an alternative to CAFE, 

as well as an alternative to a low-carbon fuel standard? I mean, I 

am just wondering as to your thoughts as to whether we do 

feebate, plus low-carbon fuel standard, plus CAFE, plus renewable 

fuel standard, or do we just do feebate? 

Dr. GREENE. Yes. I think that is a very good question, Senator. 

My view is that feebates are, at this point, a system that we do 

not have a lot of practical experience with around the world. In 

2008, about a half-dozen EU countries implemented CO2-based 

13 

feebate systems. I think it probably would not be wise to get rid 

of our CAFE system right away and implement a feebate system, 

but rather to first try them both together and, once we gain confidence that the feebate system is working and can replace the 

CAFE system, then I think that would be a desirable thing to do. 

I think we are already in a situation where we are going to have 

a lot of confusion, as you alluded to. We are going to have greenhouse gas emission standards from the EPA. We are going to have 

CAFE standards from the National Highway Traffic Safety Administration. So, just as Senator Baucus said, why do we need the renewable fuel standard and incentives, why do we need a CAFE system and a feebate system and a greenhouse gas emission standard 

at the same time? I think there are some legitimate reasons. Manufacturers complain frequently that consumers are not on board, 

and consumer demand is not consistent with the CAFE standards. 

A feebate system helps to match up the consumer demand with the 

requirements for fuel economy. 

Senator BINGAMAN. As I understand what you are working on 

there in California and what you have advocated for, you would 

have this feebate system based on greenhouse gas emission performance rather than on any other energy security issue. Could you 

explain that? Is there a reason why you could not have a couple 

of different metrics that are performance standards that you are 

looking at in order to design a feebate system rather than just the 

one? 

Dr. GREENE. There is no inherent reason why you could not have 

more than one objective. However, obviously, this will complicate 

the system. In my own view, reducing greenhouse gas emissions 

and achieving energy independence are mostly consistent goals. 

The area of conflict, of course, comes when you are talking about 

coal-to-liquids or something like that that has extra greenhouse gas 

emissions relative to gasoline. Research that I have done suggests 

that that conflict is very much exaggerated and that we can do 

both of these things at the same time. 

Senator BINGAMAN. In the case of Europe, you indicated there 

are some countries there that have implemented a feebate-type system. Have they specified that it relates just to the greenhouse gas 

emissions? 

Dr. GREENE. Yes, primarily. The tax systems for motor vehicles 

in Europe are unbelievably complicated, and there are taxes on almost everything. But there have been, in the past year, about half 

a dozen countries adopting systems like feebates, and they do it for 

carbon dioxide emissions. 

Senator BINGAMAN. All right. I will stop with that, Mr. Chairman. Thank you. 

The CHAIRMAN. Thank you very much, Senator. 

Senator Nelson, you are next. 

Senator NELSON. Thank you. 

Dr. Metcalf, you state that the current policy can best be viewed 

as a transitional policy, so I take it you are suggesting that renewable energy and energy conservation incentives will no longer be 

needed once we have—if we are able to—a cap-and-trade system in 

place. 

14 

Dr. METCALF. I think that we would be able, in the long run, to 

replace many of the subsidies that we have with carbon pricing, 

that that would have a lot of the desirable impact that we are looking for. I think that there would continue to be some useful activities in addition to carbon pricing. 

One is energy research and development. R&D is a pure public 

good, and the private market simply does not do enough of it, so 

we are certainly going to need to be investing more there. I think 

we also have some market failures and problems in markets that 

lead to inefficient levels of energy conservation and energy efficiency, so I think there is a place for standards and programs to 

encourage energy efficiency to complement carbon pricing. 

Senator NELSON. But the carbon pricing, if we passed a cap-andtrade, would take care of most of that, with the exceptions that you 

are talking about. 

Dr. METCALF. I think it would make a Production Tax Credit, for 

example, for renewable energy no longer necessary. 

Senator NELSON. All right. 

Let me ask any of you all, by the way we have done it with subsidizing specific technologies, there is some discouraging of certain 

innovation. Let me give you an example. In my State, we are starting to see, because of the heat and humidity in my State, some encouraging signs of algae as a source of a biofuel, generating electricity and so forth. Yet, the current energy tax credits did not see 

this potential energy source. So how should we restructure the tax 

incentives so that we do not discourage the innovation? 

Dr. METCALF. So, I think a performance-based approach is precisely the way to go. In this era in which we continue to provide 

Production Tax Credits or excise tax credits for renewable fuels, it 

should be based on a performance metric, that this is a fuel that 

is not a fossil-based fuel, it does not release carbon dioxide or other 

greenhouse gases, and therefore there should be a broad sort of eligibility criteria. That is the reality, that we can never predict what 

will be happening 20 years from now in terms of new technologies, 

so we want to try to develop as broad and comprehensive a definition that targets our goals. 

Senator NELSON. Mr. Chairman, by the way, if this technology 

ever were to work, what it does is, you stick algae in plastic tubes, 

the heat of the sunlight and so forth, and what it does is, it produces ethanol and at the same time absorbs CO2. 

The CHAIRMAN. Right. It is being discussed in Montana as well, 

and in lots of other States in conjunction with coal-fired power 

plants. Right? 

Senator NELSON. Yes. That is right. Co-locate the algae producing ethanol that absorbs CO2 next to a coal-fired plant. 

The CHAIRMAN. Maybe. 

Senator NELSON. Well, this is where we want to get the incentives. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you very much. 

Senator Bunning, you are next. 

15 

OPENING STATEMENT OF HON. JIM BUNNING, 

A U.S. SENATOR FROM KENTUCKY 

Senator BUNNING. Thank you, Mr. Chairman. 

I am going to make a statement rather than question our witnesses because I think it is interesting we are holding a hearing 

on technology neutrality and energy policy. I have long said that 

our tax policy should be goal-oriented and not technology driven. 

I believe it is wrong to pick winners and losers. Instead, we should 

consider reasonable goals and let the marketplace find the best 

way to create efficiencies and decrease emissions. 

That is why I was troubled to read the testimony of today’s witnesses. There was certainly no neutrality towards one of the most 

abundant sources of American-made energy called coal. Advanced 

coal technologies are reducing greenhouse gas emissions and reducing our dependency on foreign oil. 

The first time we had an oil crunch was 1974. We were 34 percent dependent on foreign oil. Now we are almost to 70—not quite, 

65 percent—dependent on foreign oil. These are the goals that all 

three of our witnesses seem to share, yet they seem hostile toward 

the use of innovative coal technology in our energy strategy. It defies logic to me. 

Next, the written testimony talks about externalities. In simple 

terms, the externalities are a bad side effect. For example, some of 

our witnesses point out that the externalities of energy consumption are pollution and reliance on foreign oil. Then two of our witnesses make the leap of saying that a cap-and-trade, better described as cap-and-tax, is the technology neutrality solution for fixing the externalities of energy consumption. 

Nowhere in their highly academic discussion of externalities is 

there a mention of the devastating externalities of cap-and-trade. 

Some of those bad side effects are: (1) raiding the pocketbook of 

American families at a time when families are struggling to survive 

and stay in their homes; (2) a loss of more American jobs at a time 

when our economy is shedding millions of jobs; and (3) guaranteeing lower economic growth at a time when our economy is 

shrinking. Most Americans do not have the luxury of sitting in an 

ivory tower and ignoring the impact of policies on family budgets 

and jobs. 

If enacted, a cap-and-trade revenue program would institute one 

of the largest tax increases in American history. It is a tax that everyone under $250,000 included will pay, but few will benefit from 

the revenue. President Obama says he wants America to be a place 

that makes things again. It is ironic that his cap-and-trade plan 

will make it harder and more expensive to manufacture and do 

business in America. It absolutely makes no sense. 

I hope you will have a fair and wide-ranging discussion today 

about true technology neutrality. True neutrality will lead us to energy independence instead of a prolonged recession. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you very much, Senator. 

Senator Snowe, you are next. 

Senator SNOWE. Thank you, Mr. Chairman. 

I want to get to the issue that has been much discussed publicly 

in recent days regarding the black liquor because I do think it is 

16 

important to issue a number of clarifications with respect to this 

issue. First and foremost, it is a legitimate tax credit. It has been 

utilized by the industry because it has been certified by the Internal Revenue Service. 

The Congress fully intended that this black liquor is a by-product 

of the pulp process to be considered as part of alternative fuels. In 

fact, in the 2007 Technical Corrections Act it indicated the provision changes that were referenced in section 6426 from liquid hydrocarbons to liquid fuel for the purposes of Alternative Fuel Excise Tax Credit payment provisions. So, it was fully intended. The 

industry is using it as was intended. 

In fact, it used de minimis fossil fuels, 1⁄10th of 1 percent compared to other industries that are using a disproportionate amount 

of fossil fuels—to those who have suggested that somehow it is increasing the use of fossil fuels. This is an industry that got ahead 

of the curve in using alternative sources of energy, whereas other 

industries are behind the curve in using alternative energies. 

I think the logic stands on its head today when we are thinking, 

in the midst of the worst economic crisis since the Great Depression, an industry is going to be punished by rescinding this invaluable tax credit for them. An industry that employs 1.2 million people in this country, is one of the top 10 manufacturing employers 

in 42 States, an industry that did get ahead and became fuel efficient, is now hanging on for survival in this terrible economic crisis 

through no fault of its own, but rather due to the excessive greed, 

irresponsible and fraudulent behavior on Wall Street that not only 

perpetrated financial constraints on access to capital markets so 

they could not even avail themselves of affordable credit, not to 

mention the multi-trillions of dollars that we have had to expend 

as taxpayers in this country to rescue these financial institutions. 

We just recently enacted a fiscal stimulus plan of $787 billion, expressly for the designed purpose of retaining or saving more than 

3 million jobs. Here is an industry that has 1.2 million employees 

across this country, many of whom are in rural America. 

So I think it does stand logic on its head. It up-ends the rationale 

that supposedly was used for this tax credit to reward those who 

use existing alternative sources, that already have done it, to create a level playing field between encouraging those who have not 

used it, have not looked to alternative sources, and those who do 

to create the fairness involved within an industry so that we are 

not picking, as many have said, winners and losers. So I do think 

it is critically important. 

This industry—in my State, for example, I have just visited one 

paper company, Domtar. They made $15 million last year. Their 

decline occurred during what happened on a national level in the 

fourth quarter of 2008, as it did with the entire industry, where 

they lost the equivalent amount in the first few months. So they 

are going to have to temporarily shut their doors on May 5th. I emphasize ‘‘temporary’’ because that is what we want it to be. This 

tax credit is a lifeline. 

So I am stunned by the amount of criticism that is derived. At 

a time when we are trying to save jobs, here is an industry using 

a legitimate tax credit, and they are causing a loophole because 

they have used this process in the past. Since the 1930s, this procVerDate Nov 24 2008 17:34 Mar 14, 2011 Jkt 000000 PO 00000 Frm 00020 Fmt 6633 Sfmt 6633 R:\DOCS\64534.000 TIMD
17 

ess has been there. Well, we have had the worst economic crisis 

since the 1930s, so this is where we stand today. There are going 

to be 44 mills this year that are going to close their doors for some 

period of time in 2009. They have already lost $2 billion in the last 

quarter of this last year in 2008. So I think that that dramatically 

reflects the dire circumstances which we face. We should be doing 

everything we can to salvage this industry. 

I know, Dr. Urbanchuk, you mentioned in your statement that, 

if we were to revoke this incentive, that it would violate the technology neutrality factor that you think is one of three factors involved in determining the form and the structure of tax incentives. 

You also mentioned industry economics as one of the three factors 

as well. Certainly that would alter the industry if we were to have 

this incentive revoked this year? I mean, how would that affect the 

industry economics? Do you think it would be appropriate to revoke 

this incentive this year? 

Dr. URBANCHUK. Well, Senator Snowe, as you pointed out, there 

are the three factors that I talk about, industry economics, innovation and technology, and of course technology neutrality. Revoking 

the paper industry’s eligibility obviously would violate the neutrality concept we talk about, but moreover, in the environment 

that we find ourselves in, I think it would be inappropriate to remove that incentive this year given the economic circumstances 

facing this industry. At the same time, I think it also sends a negative message. If you take a look at the role that tax policy and incentives can play in stimulating investment in new technology, I 

agree that it would be inappropriate with regard to that. 

Senator SNOWE. Thank you. 

Thank you, Mr. Chairman. I hope that we will be able to work 

on this issue in this committee and that we will not be in a bad 

position, the industry will not be, because it is crucial to their survival and crucial to job creation and salvation in this country at 

this moment in time. Thank you very much. 

The CHAIRMAN. Thank you, Senator. We will take a good look at 

it. It is controversial, and we will just do the best we can with it. 

Senator Stabenow? 

Senator STABENOW. Thank you, Mr. Chairman. 

I would just associate myself with the concerns that Senator 

Snowe had raised on that particular issue of importance to northern Michigan, or around Michigan. 

Thank you for coming in today. I have a number of thoughts, as 

you have been speaking. One thing I wanted to point out is that, 

as we are talking about taxes and as you have talked about taxes 

for using particular kinds of fuel or technology incentives for—one 

person indicated using, rather than making. 

The incentives are there and maybe we would be using that fuel 

anyway, maybe we would be developing it anyway. One area of the 

tax code, where clearly without incentives we are losing ground, is 

in manufacturing these items. So we may have a tax credit for 

wind or for solar, but we have lost ground over the last decade in 

that the manufacturing of those new technologies has gone to other 

countries because of aggressive manufacturing strategies. 

We have taken a major step to help bring that back in the recovery plan with a 30-percent manufacturing tax credit. In my State, 

18 

we are literally seeing the difference. We are seeing solar panel 

plants being announced now, as well as wind, and so on. So I 

would just first make the point that I think technology neutrality 

around issues of use or so on is one thing, but we have a specific 

need to make sure that we are capturing the jobs and the economic 

development from all of the pieces of alternative energy, and one 

that we have missed up until very, very recently, has been the jobs. 

Seventy percent of the jobs in wind come from building the wind 

turbine. There are 8,000 parts in a large wind turbine. I always 

like to remind people, we can make every single one of those in 

Michigan. But the reality is, that is a different kind of tax policy. 

Would anyone want to respond to that statement, and would you 

agree that that is different when we are trying to incentivize particular economic activity, and that manufacturing is something 

that is important to incentivize? 

Dr. GREENE. I would agree with that. I think, on the example 

you cited of wind, Germany had a very aggressive policy to introduce wind power into their electricity grid and heavily subsidized, 

essentially, the wind power. As a result, now I think they lead the 

world in technology and manufacturing of wind power. 

So I think, to the extent that we can be innovative like that and 

establish a lead in manufacturing, not just in creating the technology but in making the technology here, I think this will benefit 

us in the long run as the world turns more and more to renewable 

energy and energy sources that do not affect the climate. 

Dr. URBANCHUK. I want to also step in on this. A large part of 

this comes down to, particularly with regard to technology neutrality and the goals you set, whether they are replacing fossil 

fuels, imported oil, or improving national security, improving environmental quality, reducing carbon footprints, or economic vitality 

and viability—and that is one of the things that we have talked 

about. As you may know, an awful lot of work has been directed 

in the area of biofuels and other renewables. 

I continually remind people that this is a manufacturing sector 

industry, making ethanol or making biodiesel, whether it is from 

grain or from cellulose, whether you are using coal in a coal-toliquids process or you are building wind turbines or solar panels, 

these are economically important manufacturing sector industries 

that we have grown and can continue to grow, and I believe that 

that is a legitimate goal that tax policy should play in terms of providing incentives for it. They are not at all divorced from the other 

goals. 

Senator STABENOW. No, I understand. 

Dr. URBANCHUK. So we have to keep all those things in perspective. 

Dr. METCALF. Senator, the only thing I would add to that is that 

I think stability of policy is very important. The on-again/off-again 

nature of Production Tax Credits has led to bottlenecks in production of wind turbines that are costly to industry, so I think that 

needs to be taken into account also. 

Senator STABENOW. Thank you. I know I am out of time, but I 

cannot relinquish the mike without just indicating that I would 

hope we would look at other kinds of programs in addition to 

feebates, such as what has been dubbed a scrapping program that 

19 

Germany has, or what’s been called ‘‘cash for clunkers,’’ which, instead of taxing consumers at a time of tremendous recession and 

job loss, that we would be focusing on incentives like those that 

have been done in other countries now, for vehicles to be purchased, turning in older vehicles that are less fuel-efficient for 

newer fuel-efficient vehicles. There is a way to do that without taxing consumers and adding more cost to the industry. 

Thank you, Mr. Chairman. 

Dr. GREENE. Could I just comment on that, quickly? 

Senator STABENOW. Yes. 

The CHAIRMAN. Briefly. Yes. Very briefly. 

Dr. GREENE. Yes. I think that one option also is to introduce a 

feebate system that initially is a net subsidy. In other words, depending on how you structure the benchmark, the feebate system 

could be revenue-neutral, it can be revenue-generating, or it can be 

a net subsidy. I think, especially in a time when the economy is 

suffering, introducing a feebate system that is a net subsidy and 

then gradually phasing that subsidy out would be even more effective in stimulating new vehicle sales because it subsidizes precisely 

that: new vehicle purchases. 

Senator STABENOW. Thank you. 

The CHAIRMAN. Senator Carper? 

Senator CARPER. Thanks, Mr. Chairman. 

To our witnesses, welcome. I am sorry I missed your testimony. 

I have three simultaneous hearings going on, and it is tough to be 

in three places at once. I am one of those people who is in favor 

of cloning humans so we can go to all the hearings. [Laughter.] 

People would say, boy, it is remarkable, how he gets around. But 

anyway, I could not be here when you testified, so I am going to 

ask you each to just take maybe a minute apiece and give us, 

again, your take-aways, your principal take-aways for us, and then 

I have a couple of specific questions. Take it away. 

Dr. URBANCHUK. Well, what I have outlined is that there are 

three factors that have to be taken into consideration with regard 

to developing energy tax policy, one being industry economics, the 

other being technology and innovation and the role that it plays, 

and then the issue of technology neutrality. 

With regard to the last issue of technology neutrality, it is incumbent upon policymakers to think through carefully all of the 

potential outcomes and how they interrelate to both the industry’s 

economic situation and the impact on technology and development, 

keeping in mind that it is very difficult—it is impossible—to figure 

out where we are going to be 20, 30 years hence in terms of technology. So you want to have policies that provide adequate incentives for the development of new technologies that, on the face of 

things today, may not appear to be viable but very, very clearly 

might as we move through time. 

Senator CARPER. All right. Thank you. 

Please? 

Dr. GREENE. Yes. I think, to summarize my testimony, I pointed 

out that there is a problem in the market for motor vehicle efficiency in that future fuel savings are an uncertain factor and consumers are loss-averse, so, when they look at the fact that more 

money has to be paid up front to buy a more efficient vehicle and 

20 

the fact that the future fuel savings are uncertain, they weigh the 

potential for loss more than for gain. This results in a very serious 

under-valuing of future fuel savings. A feebate system, which is a 

graduated tax on inefficient vehicles and subsidy for efficient vehicles, puts the incidence right on the purchase decision, so it gets 

around that problem. 

Such a system could replace most, if not all, of the current subsides we now have for cleaner and more efficient vehicles. I think 

that was the gist of what I said. 

Senator CARPER. All right. Thank you. 

Dr. METCALF. I think the main take-away point I would leave 

you with is that technology neutrality really needs to be defined in 

terms of specific policy goals, environmental and national policy 

goals. So thinking about climate change and greenhouse gas emissions, we want to make sure that our policies lead to an equal subsidy per ton of CO2 reduced. This is hard to do with subsidies. It 

is hard to do with a subsidy-based program. 

To give you one quick example, the Production Tax Credit for 

wind and geothermal, it is 2 cents per kilowatt hour, 2.1 cents per 

kilowatt hour currently. That looks like technology neutrality. 

However, if geothermal is, to a large extent, replacing coal-fired 

power while wind is replacing natural gas, then it actually turns 

out that the subsidy per ton of CO2 is higher for wind than for geothermal. So it makes it difficult to have a truly technologically neutral policy through the subsidy system. 

Senator CARPER. All right. Thank you. 

I sit on another panel called Environment and Public Works. We 

are going to have an opportunity later this year to hopefully mark 

up and report out climate change legislation. I am an advocate of 

a cap-and-trade approach. 

I believe, one thing that intrigues me—I studied a little bit of economics at Ohio State—very little—and a little more at University 

of Delaware in a graduate program. But one of the things that has 

intrigued me as Governor, and here in this role is, how do you harness market forces to incentivize the kind of behavior that we seek 

in our society? I think cap-and-trade does that pretty well. Some 

of my colleagues talk about a tax on carbon. I think most of the 

people who talk about that being a better option probably would 

not vote for one. So, we will see where we end up. 

But my question is, since we currently do not have a price on 

carbon, and dirty fossil fuels are often cheaper, or appear to be 

cheaper than clean energy, many of the energy tax incentives try 

to level the playing field, as you know, making clean energy either 

competitive or cheaper than dirty fossil fuel energy. 

Let me just ask, would putting a price on carbon through an 

economy-wide greenhouse gas tax, a cap-and-trade approach, make 

these tax incentives obsolete? 

Dr. METCALF. I think in large measure it would. If we put a significant price and a stable price that is growing over time so that 

it sends a consistent and stable signal to industry that the United 

States is serious about carbon pricing, we can do this through a 

cap-and-trade system or a carbon fee. We can do it either way. It 

really will have the incentive effects, in a technologically neutral 

way, to reduce emissions, including the potential for coal if this 

21 

makes carbon capture and sequestration viable. So, I think this 

really is the most efficient way to proceed. 

Senator CARPER. Thank you. 

Dr. GREENE. If I could. While I agree it is the most efficient and 

it is a cornerstone of climate policy, I think that it is not enough 

for the transportation sector for the reasons that I have outlined 

in my testimony. I also want to agree that we will not seriously 

meet the kind of goals we seem to be setting for climate change 

without carbon capture and storage. With carbon capture and storage, then we can use our coal. 

Senator CARPER. All right. Thank you. 

The last panelist, please. 

Dr. URBANCHUK. Well, I do not have too much more to add to 

that. I think it is very important to keep in mind that, as we look 

at the development of the technologies, particularly with regard to 

coal and the use of coal—I am a Pennsylvanian, so we have a little 

bit of coal as well. It has tremendous potential. I think the evaluation of that potential, in the light of today, is probably unfair, and 

really we need the incentives to develop the storage and sequestration technologies that make it much more acceptable from a carbon 

perspective. 

Senator CARPER. Yes. All right. 

The CHAIRMAN. Thank you very much. 

Senator CARPER. Thanks so much. 

The CHAIRMAN. Next is Senator Cantwell. You were skipped earlier when you were not here. 

Senator CANTWELL. Thank you, Mr. Chairman. Sorry, I had to 

step out to give testimony at another hearing. Thank you for having this important hearing and for our witnesses. I know that part 

of this is about reform of the tax code as it relates to these alternative renewable resources and looking at parity. So, I firmly believe that we need to move forward on that. 

In 2007, I introduced a bill that would provide parity for a Production Tax Credit for energy- or heat-generating technologies certified to be carbon-neutral. So when we are having this discussion—I am certainly no expert on technology—but it seems to me 

a carbon-neutral standard by the Energy Department certification 

would be a way that we could stimulate those new energies without 

picking winners and losers. 

But I actually have a more specific question for Dr. Urbanchuk 

about the biodiesel credit and your testimony. I have been a strong 

supporter of the credit; obviously it expires at the end of the year. 

In particular, I have been working on legislation to change that to 

a production credit from the blender credit that it is today. 

I obviously think we have come some distance in this development of the industry, but we obviously need to go a lot further. So 

I wondered if you would expand on your testimony as to why you 

think a production credit, as opposed to a blender credit, would be 

a more positive way to go. 

Dr. URBANCHUK. Well, there are two aspects to your question. 

The first is, as you point out, the existing Blender Credit expires 

at the end of this year. I believe a multi-year credit is far preferable to a single-year credit, particularly with regard to the message that that sends to the investment community and to people 

22 

involved in producing that. The reduction of risk is an important 

aspect. 

The transformation from an excise credit to a production credit, 

I think, has a couple of key benefits. One, obviously, it would simplify the administration of the system for the government, for the 

IRS. It would also simplify the system from the perspective of taxpayers as well. 

So, there, I think there are important economies to be gained by 

those two things. I think the other factor is, and this is tied again 

to current issues, while Congress appropriately shut down the 

splash-and-dash loophole for biodiesel by its very formal blender’s 

credit, it enhances the exploitation for future transshipment 

schemes for biodiesel, and that creates obvious trade problems. 

A production incentive, on the other hand, would focus the incentive on the U.S. industry and, if properly structured, would stop 

those transshipment issues. I think they are important aspects to 

that as well. 

Senator CANTWELL. It just makes it simpler, right? 

Dr. URBANCHUK. Simpler and more efficient from an administration perspective. 

Senator CANTWELL. We could continue with the blender credit 

and then try to address and close loopholes, or we could try to get 

it correct from a production perspective and be more specific as to 

whom we are giving the credit to and the types of uses. 

Dr. URBANCHUK. That is correct. 

Senator CANTWELL. Dr. Greene, did you have any comment about 

the subject you were discussing with my colleague Senator Carper 

about, if you had an Energy Department carbon-neutral credit—I 

mean, in trying to reach parity, basically the Department of Energy 

would certify which of those energy solutions were carbonneutral, or the carbon-neutral standard. Do you think that is a way 

we could go in trying to get a parity law? 

Dr. GREENE. I am not clear exactly what the carbon-neutral 

standard would be. In other words—— 

Senator CANTWELL. It would be a way for the department to certify that these resources can be used for a production credit for any 

energy- or heat-generating technology certified to be carbonneutral. 

Dr. GREENE. I think this is probably not my area of expertise. 

Senator CANTWELL. All right. All right. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you, Senator. 

Senator Lincoln? 

Senator LINCOLN. Thank you, Mr. Chairman. I appreciate you 

bringing us together today. This is a good discussion, and one we 

need to have. 

I would like to just take one moment, however, to address an 

issue that I think has already come up this morning, and it was 

the use of alternative fuel credits by the paper industry. I noticed, 

Dr. Urbanchuk, in your testimony you noted that some were outraged over the fact that the industry is receiving this incentive. 

Although they might not have been the original intended beneficiary of the Alternative Fuel Credit, and I think that is probably 

still to be determined, I do hope that the committee will be cauVerDate Nov 24 2008 17:34 Mar 14, 2011 Jkt 000000 PO 00000 Frm 00026 Fmt 6633 Sfmt 6633 R:\DOCS\64534.000 TIMD
23 

tious as we tread forward—treading lightly hopefully—to avoid any 

unnecessary rhetoric that exists out there in that industry. 

The Finance Committee has a history of support for incentivizing 

conservation in the use of renewable energy in the forest products 

industry, which is important to our State. In fact, in December of 

2007 the committee’s energy package included a repeal of the Third 

Party Sale rule for the section 45 Renewable Electricity Credit so 

that the industry could use the advance, and for the on-site production in the use of renewable electricity from biomass, which is an 

important, certainly, feedstock that will have to be, I think, a part 

of the equation in terms of moving to renewable fuels and renewable energy. 

So it was unfortunate that energy package did not become law, 

but the committee was right to do so then, and we need to continue 

working to encourage and reward the use of biomass for renewable 

energy, because I do think, as I said, it has, certainly, a role to 

play. So I know I joined last night in introducing a proposal, along 

with Senator Roberts and Senator Snowe, that would allow electricity from biomass to be used on-site to qualify for that section 

45 credit, which I think is going to be important. 

Many places are doing that now, and giving them the credit to 

continue to do that and to be competitive, I think, is critical. I 

know that, according to the American Forest and Paper Association, in 2005, the industry produced 28.5 million megawatt hours 

of biomass-based electricity, which avoided the use of more than 

200 million barrels of oil. 

So as we look at what we are trying to do, which is to replace 

some of those carbon-emitting fossil fuels, I hope that we will certainly be hopeful and objective about that. So, I appreciate that, 

Mr. Chairman. I want to move forward on that and certainly look 

at how we can do it fairly, and I trust your judgment, and certainly 

your leadership, to help us get through that. So, thank you. 

Just to touch back on what my colleague Senator Cantwell mentioned, that biodiesel credit is critically important. Dr. Urbanchuk, 

I want to thank you for your comments—I was not here, unfortunately, earlier—but your comments on biodiesel. My biodiesel producers back in the State would say ‘‘hallelujah and amen, brother’’ 

to everything you said about the short-term nature of our biodiesel 

policies. I think that is really critical for us to recognize, talking 

about the frame or the length of these incentives. 

Predictability is everything. In this economy, being able to seek 

out the capital that you need, to make the investments to move in 

a relatively new industry, it is essential to have some predictability 

in terms of what you can expect in those incentives in the tax code. 

You talked about a multi-year extension. Do you have any length 

of time that you would put on there? Just multi-year? 

Dr. URBANCHUK. No, I have not thought about it in terms of a 

specific time period. 

Senator LINCOLN. A length of time. 

Dr. URBANCHUK. I do, however, think that a multi-year incentive 

as opposed to single individual years that have to be reauthorized 

every year really does help from a significant perspective, in terms 

of reducing risk and providing the assurance that we are serious 

about moving toward those stated policy goals of reducing use of 

24 

fossil fuels and imported petroleum, improving national security, 

improving environmental quality, and improving our economic sector as well. 

Senator LINCOLN. Well, thank you. I appreciate it. I do not know 

what the magic number is, but I definitely know predictability is 

not something we are used to exercising or dishing out in the U.S. 

Senate. So, I hope we will change and look towards the real difference we can make in the economy and the job creation, and 

more importantly, the environment. 

Dr. Metcalf, you said that the ‘‘existing structure for hybrid vehicle credits is an egregious violation of tech neutrality, and a clear 

example of inefficient allocation of resources across fuel savings’ 

capital investments.’’ I completely agree. It does not make a whole 

lot of sense to me to have a per-manufacturer cap on a credit that 

excludes good high-mileage hybrids from the credit simply because 

people want to buy them. 

So, I also think we need to stop trying to fool ourselves into 

thinking that the combustion engine is going to go away. I think 

anything we can do to improve what we are doing now is going to 

make a great deal of sense, as well as making the investment in 

newer technologies. 

If you were to take a look at the vehicle credits and decide to 

keep them in some of the same form, what should that credit look 

like? Did somebody already ask this? 

Dr. METCALF. I think the simplest way to do it is a benchmark 

miles-per-gallon if you want to stay with a credit approach as opposed to the feebate, which I think has a lot to say for it, and provide a credit for any vehicle that exceeds that. 

Could I make a comment on the black liquor? I am sorry Senator 

Snowe has left. Because I feel like black liquor is being tarnished 

a bit here today. It is a good example of where a credit is being 

provided for something that we value and think is an important activity, but it is an example where we may not be getting additional 

activity because of the credit. I do not think we need limit this to 

black liquor. 

I think when oil and gas prices were very high, a lot of wind facilities that were going in would have gone in with or without the 

Production Tax Credit. So this issue of additionality is not just one 

that is an issue for the paper industry and black liquor, so I think 

it really is important not to focus on that but to think more broadly 

about using tax dollars wisely to get the biggest bang for the buck. 

Senator LINCOLN. I think so, too. I think it is important to recognize some of what Senator Carper mentioned, and that is that, 

when you start talking about cap-and-trade, those credits are going 

to have to have value. To have that value, you have to make that 

kind of investment. If they do not have value, then you are not 

going to have the subsequent activities that you need to have because people are not going to use them. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Senator Wyden, you are next. 

Senator WYDEN. Thank you very much, Mr. Chairman. This has 

been an excellent hearing, and good witnesses. 

It seems to me that the current system of tax credits just defies 

common sense. You look, for example, at wind. I think virtually evVerDate Nov 24 2008 17:34 Mar 14, 2011 Jkt 000000 PO 00000 Frm 00028 Fmt 6633 Sfmt 6633 R:\DOCS\64534.000 TIMD
25 

erybody on the committee supports wind, but wind works where 

the wind is blowing. We have certain areas in eastern Oregon, for 

example, where that is very much a part of our future. But one of 

the reasons Senator Lincoln, I, and a number of colleagues are interested in biomass is that it is something you can use everywhere. 

You can use it wherever it is, and you do not need the wind to 

blow. I think Senator Lincoln has put it very well in terms of the 

biomass potential in terms of using that sawdust, in effect, to heat 

a plant. I think we can go much, much further than that. You look 

at the amount of wood waste that is on the floor of these plants, 

and you are not just going to heat the plant, you are going to heat 

the entire town that way. So, we very much need your input in 

terms of getting this parity standard. 

Dr. Greene, tell me a little bit more about how particularly we 

get a fair shake for these half-credit technologies. It is almost like 

what you need is a pay-for-performance kind of standard. I know 

Dr. Greene and Dr. Metcalf have been interested in that. I would 

be interested in your thinking on that. 

Dr. GREENE. Yes. I completely agree with Professor Metcalf 

about the hybrid vehicle incentives we have in place now. I do 

think that a feebate system, whether it is—— 

Senator WYDEN. I have not gotten to feebates yet. You are going 

to get feebates in just a quick second. 

Dr. GREENE. Later. 

Senator WYDEN. But tell me, particularly using the biomass 

issue, how we could have a pay-for-performance kind of approach 

there, because it seems to me you are going to get real results 

there if you look at something along the lines of what biomass’s potential is. 

Dr. GREENE. Well, I think you will get this with a carbon capand-trade system, and I will let Professor Metcalf elaborate on 

that. 

Senator WYDEN. Professor Metcalf? 

Dr. METCALF. Again, we want the biggest bang for the Federal 

dollar that we spend on this. We want to make sure that we are 

subsidizing activities, that the subsidy leads to new activity that 

would not already take place. I think this is difficult. If we are 

thinking open-loop biomass, for example, do we know how much activity would occur in the absence of a credit, and then how much 

we get because of the credit? I think these are tough measurement 

problems. 

A performance-based standard certainly starts from the proposition that we want to reward all carbon-free activity and we want 

to try to make that as general a definition as possible, so, if we ask 

DOE to provide definitions for carbon-free technology and then 

allow all such technologies that pass that test to get the credit, 

then I think that is a great approach to take. 

Senator WYDEN. I will follow that up with you because I think 

these half-credit technologies, in particular—it is almost like you 

say to yourself, what has evolved in terms of Federal policy is who 

has the best lobbyist and who can figure out how to fan out across 

the Capitol and wend their way through the lobbying system rather than what is most effective. So, we are going to follow that up 

with you. 

26 

Now on to the feebate question for you, Dr. Greene. The theory 

here, of course, is what I have been interested in with the Oil Save 

proposals, a technology neutrality tax credit for fuel-efficient vehicles so as to provide consumer tax incentives for the purchase of 

more fuel-efficient cars and light trucks. The idea would be to tie 

the credit to how much better their fuel mileage was compared to 

CAFE. 

Would something like this not be, again, another practical way 

to use the tax code to wring more fuel efficiency out of the system 

we have as opposed to, I think, continuing these debates about 

CAFE and just battling to raise the standards a little bit at a time? 

Dr. GREENE. Well, I think we discussed earlier the possibility 

that you could replace the CAFE system eventually with a kind of 

a feebate system, an incentive system. I think that is likely to be 

true, but we do not have much experience with these systems yet, 

so I think for the time being it is useful to have both of them at 

the same time. So, I think that is very similar to what you are proposing. 

Senator WYDEN. Any information you can give us—and I know 

my time is up, and I appreciate the chairman—on how you would 

actually, in the transition, go forward with both retaining CAFE 

and beginning transition to something like a feebate, sort of a stepby-step path to how you would do it, that would be very helpful. 

Mr. Chairman, thank you. 

The CHAIRMAN. Thank you, Senator, very much. 

Joint Tax has prepared lots of material. One I am looking at 

right now is a pamphlet that compares selected energy production 

tax credits. It lists them and then has the statutory credit amount 

in 2008. The next column is the credit amount stated in dollarsper-million British thermal units of heat energy. On this list there 

are six. Wind power is at the top in terms of efficiency, 72 cents 

per million Btu of heat energy. 

In geothermal, it calculates to be the same, 72 cents. Open-loop 

biomass is actually cheaper, it is 34 cents, at 1 cent per kilowatt 

hour incentive. Advanced nuclear is about 61 cents. They are all 

pretty close. But then you get down to ethanol, and it is at a current 45 cents per gallon. The credit amount in dollars per million 

Btu is almost $6. Biodiesel, for all its popularity, at least in my 

State of Montana, has current incentives of $1 per gallon, and it 

costs $8.45 per million Btu. 

So I wonder if maybe, Dr. Metcalf, you could just comment on 

that in terms of what it says and what you think its implications 

are, and what, if anything, we should do about that. 

Dr. METCALF. That is a great question, Senator. I think it is a 

really important way to be thinking about technology neutrality. 

So this table provides a credit amount in dollars per million 

Btus, and it is very high for ethanol and biodiesel, which would 

suggest that these are relatively inefficient. 

I think the problem goes beyond the numbers in this table. For 

example, if you look at the top two numbers, wind and geothermal, 

it appears that we have technology neutrality between those two 

sources, but in fact we do not if geothermal is really replacing coalfired power while wind is replacing gas, because we are paying 

27 

more per ton of CO2 reduction for wind, because we are replacing 

a less carbon-intensive fuel. 

On the ethanol, I have done some research elsewhere that looked 

at the interaction between our mandates for ethanol and the excise 

tax credits. I tried to be as generous as I could towards ethanol in 

terms of carbon reductions and energy consumption. I was finding 

that the cost of reducing a ton of CO2 through the excise tax ex- emption for ethanol is about $1,700 a ton of CO2. This is about 80 

times higher than the current price of permits in the European 

Union’s emission trading scheme. It is just a huge cost. In terms 

of oil savings, it is about $150 to $200 per barrel of oil saved, so 

it is a very inefficient and expensive way to get savings. 

The CHAIRMAN. Dr. Greene, do you have a thought on that same 

subject? 

Dr. GREENE. Well, I agree with that. I think the problem with 

corn-based and starch-based ethanol production is that the fuel 

cycle greenhouse gas reductions are relatively small, and there may 

not be any at all. So with that kind of relatively poor leverage, subsidizing ethanol is relatively expensive. 

I think we have, over the years, subsidized ethanol primarily as 

our security policy to reduce our dependence on oil. There again, 

it is a more expensive policy than, say, improving fuel economy. 

The CHAIRMAN. There are lots of facts. It is really interesting. It 

is not quite so much the case. You see a lot of wheat producers who 

moved out of wheat and started to produce corn, because a lot of 

corn is going to produce not just feed, but ethanol. That drove up 

the price of wheat because there is much less wheat being produced 

in certain parts of the country. So we get a lot of side effects whenever we try to rifle-shot a particular incentive for credit. But as you 

know, ethanol enjoys a lot of popularity in the Congress. 

I will let you, Dr. Urbanchuk, speak as well. Go ahead. 

Dr. URBANCHUK. Well, I just wanted to point out that what we 

are finding is that a lot of the science behind the calculation of the 

carbon footprint of ethanol and biodiesel is imperfect. I think there 

is still a substantial amount of discussion about the baselines from 

which those calculations are made. So I recognize the numbers; I 

take them with a grain of salt. 

Similarly, with regard to some of the other indirect effects, such 

as land use, as you know there is some substitution of land between corn, soybeans, and wheat, but relatively little when it 

comes to corn and wheat. There is some substitution, but they have 

to be looked at in a global context. I suspect that the impacts of 

grain prices that we have seen over the last year or so are very, 

very complex. 

The CHAIRMAN. Very complex. 

Dr. URBANCHUK. And are due to far more other factors than just 

the increase in ethanol. 

The last point is the other important role that the current incentives played with regard to starch-based ethanol. As you know, we 

are capped at 15 billion gallons of starch-based ethanol by 2015, 

with the additional 21 billion gallons to come from bio-based biomass, biodiesel, and advanced bio-feedstocks, including cellulose. If 

you do not have a healthy grain-based ethanol system and one that 

provides for profitability, you are never going to get to that next 

28 

section. So I think the future development of biomass feedstocks for 

alternative fuel production really is contingent on the kinds of incentives that we have today. 

The CHAIRMAN. Well, I thank you all very much. I am going to 

have to conclude this hearing, but you have been very helpful here. 

I also thank Joint Tax for the pamphlet that they produced for today’s hearing. I think we are all agreed that technology neutrality 

is a good goal. Congress’s incentives, energy incentives, are just too 

much spread over the lot. As we all know, too, it is difficult, very 

difficult. But I think it is a worthy goal, anyway, and we should 

do our very best to pursue it. So, thank you very much. 

The hearing is adjourned. 

[Whereupon, at 11:43 a.m., the hearing was concluded.] 

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