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42–513 PDF 2008

S. HRG. 110–387

REVISED ENERGY OUTLOOK

HEARING

BEFORE THE

COMMITTEE ON 

ENERGY AND NATURAL RESOURCES 

UNITED STATES SENATE

ONE HUNDRED TENTH CONGRESS

SECOND SESSION

TO

RECEIVE TESTIMONY ON THE ENERGY INFORMATION 

ADMINISTRATION’S REVISED ANNUAL ENERGY OUTLOOK

MARCH 4, 2008

(

Printed for the use of the 

Committee on Energy and Natural Resources 

(II)

COMMITTEE ON ENERGY AND NATURAL RESOURCES 

JEFF BINGAMAN, New Mexico, Chairman

DANIEL K. AKAKA, Hawaii 

BYRON L. DORGAN, North Dakota 

RON WYDEN, Oregon 

TIM JOHNSON, South Dakota 

MARY L. LANDRIEU, Louisiana 

MARIA CANTWELL, Washington 

KEN SALAZAR, Colorado 

ROBERT MENENDEZ, New Jersey 

BLANCHE L. LINCOLN, Arkansas 

BERNARD SANDERS, Vermont 

JON TESTER, Montana 

PETE V. DOMENICI, New Mexico 

LARRY E. CRAIG, Idaho 

LISA MURKOWSKI, Alaska 

RICHARD BURR, North Carolina 

JIM DEMINT, South Carolina 

BOB CORKER, Tennessee 

JOHN BARRASSO, Wyoming 

JEFF SESSIONS, Alabama 

GORDON H. SMITH, Oregon 

JIM BUNNING, Kentucky 

MEL MARTINEZ, Florida

ROBERT M. SIMON, Staff Director 

SAM E. FOWLER, Chief Counsel 

FRANK MACCHIAROLA, Republican Staff Director 

JUDITH K. PENSABENE, Republican Chief Counsel 

(III)

C O N T E N T S 

STATEMENTS 

Page

Bingaman, Hon. Jeff, U.S. Senator From New Mexico ........................................ 1

Caruso, Guy, Administrator, Energy Information Administration, Department 

of Energy ............................................................................................................... 5

Domenici, Hon. Pete V., U.S. Senator From New Mexico .................................... 2

APPENDIX 

Responses to additional questions .......................................................................... 37

(1)

REVISED ENERGY OUTLOOK 

TUESDAY, MARCH 4, 2008 

U.S. SENATE, COMMITTEE ON ENERGY AND NATURAL RESOURCES, Washington, DC. 

The committee met, pursuant to notice, at 10:03 a.m. in room 

SD–366, Dirksen Senate Office Building, Hon. Jeff Bingaman, 

chairman, presiding. 

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

SENATOR FROM NEW MEXICO 

The CHAIRMAN. Ok. Why don’t we go ahead with the hearing. 

Thank you very much for joining us today. 

Mr. Caruso, thank you for being here. We’re always glad to hear 

from you, and look forward to discussing your Administration’s recently revised Annual Energy Outlook. 

We know that EIA has just completed this year’s energy outlook 

last December. They had just completed it when the Energy Independence and Security Act was signed into law. We’re very appreciative that on your own initiative you took the effort to re-run 

those models so that we might all begin to better understand the 

effects of the new energy legislation. 

Because it is clear that the effects of the legislation will be substantial, I believe we’ve made some great strides toward reducing 

our energy dependence and curbing global warming pollution. In 

2006, 60 percent of our oil, gas and other transportation fuels came 

from foreign sources. As I understand your projections now in 2022, 

only 51 percent of those fuels will come from foreign sources. 

This is a substantial achievement. It reverses the long standing 

trend of becoming more and more reliant on imported oil. It appears that OPEC will meet tomorrow and decide not to increase oil 

production despite new record high prices for oil. 

We hit a new high of $103.95 per barrel yesterday. OPEC’s decision to sit by and watch as oil prices skyrocket highlights how important it is to wean ourselves off of imported oil to the maximum 

extent possible. This bill that was signed into law takes a strong 

step away from oil dependency and toward greater efficiency and 

home grown biofuels. 

I’m also glad to see that your revised outlook suggests that EISA 

will lead to substantially reduce—that’s the initials of that bill that 

was signed into law, will lead to substantially reduce growth in 

greenhouse gas emissions. Through the greenhouse gas emissions 

reduction requirements included in that bill’s renewable fuel standVerDate 0ct 09 2002 16:41 May 23, 2008 Jkt 040443 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 G:\DOCS\42513.TXT SENERGY2 PsN: MONICA
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ard. Congress passed and the President signed into law the country’s first global warming legislation. 

Your testimony states that you now expect energy-related carbon 

emissions in 2030 to be 500 million metric tons below what was 

published or expected prior to the passage of this legislation. This 

again is a substantial change, a substantial decrease and a step in 

the right direction. It demonstrates that government policy can and 

will move toward reducing greenhouse gas emissions. I hope we 

will use this first step to build momentum toward more comprehensive global warming legislation. 

I also want to thank Mr. Caruso for his responsiveness to Congress’ request that EIA facilitate more transparency on refinery capacity and utilization. Both Senator Domenici and I co-sponsored 

an amendment that was adopted as part of the recent legislation 

requiring EIA to analyze refinery outage data and report its findings to the Secretary of Energy. EIA has now decided to go one 

step further and publish aggregate data on refinery outages every 

month in its Petroleum Supply Monthly. 

This kind of data transparency is critical to the free and properly 

functioning markets that we depend upon. I applaud EIA for making the efforts. Again, thank you for being here. Let me call on 

Senator Domenici for his comments. 

STATEMENT OF HON. PETE V. DOMENICI, U.S. SENATOR FROM 

NEW MEXICO 

Senator DOMENICI. Mr. Chairman, fellow Senators, this ought to 

be a red letter hearing. The crowd should fill this place and reporters that are interested in reporting something good that was done 

by Congress, not only good, but exceptionally good, should be here. 

Because Mr. Caruso’s agency is the best in the world and they’re 

probably as close to right on predictions as anyone around. 

The Administrator has come before us to discuss the law we 

passed to change CAFE ́ standards. In that same bill we added 

biofuel production, as you may recall, and we also added some additional appliance efficiencies. Those were your specialty, Mr. 

Chairman. 

Now the Administrator tells us that he is able to predict the impact of changing the CAFE ́ standards, adding to the biofuels standard and improving appliance efficiency. He’s giving us a report on 

the impact of that law, and those provisions, on America’s energy 

consumption. It turns out that for the first time, our use of crude 

oil that is imported is going to come down, rather than continue its 

upward spiral. 

Now, people will say, by how much? It’s substantial. Two million 

barrels a day less by the year 2030, a time when people are expected to be using more oil elsewhere in the world. 

Second, we didn’t talk very much when we passed that bill. Commerce did its part. We had a say in the rest of the bill, but the 

Commerce committee worked on that provision. 

By raising the CAFE ́ standard, we said that we’re going to have 

a different kind of automobile mix in the next 10 years and then 

thereafter. By doing that, we will save huge amounts of carbon dioxide, Senator Craig. You know we’re out talking about what new 

thing we should impose on ourselves to reduce carbon dioxide emisVerDate 0ct 09 2002 16:41 May 23, 2008 Jkt 040443 PO 00000 Frm 00006 Fmt 6633 Sfmt 6633 G:\DOCS\42513.TXT SENERGY2 PsN: MONICA
3

sions. Of course there’s going to be a battle royal as to whether 

we’re going to impose a substantial cost on our economy or not. 

But the energy bill we passed last year is going to cause us to 

save. I’ve got it down here where you could understand it: It’s going 

to save in carbon dioxide emissions what 71, 500-megawatt coal 

plants would have emitted over that 23-year period. Senator Bingaman, just think of that. 

By changing those car standards we are going to reduce the carbon dioxide by the equivalent of 71, 500-megawatt coal burning 

plants. What they would have emitted over 23 years? Now whatever else one wants to say about the excellent report that Mr. Caruso and his agency have given us here today, it is extremely important that we send our message out to the Senate and all those 

who worked hard with this committee to pass the major energy bill 

and the two that followed, that we can have an impact on the deleterious effect of being so dependent on crude oil. 

But you can’t change it quickly. Our dependence is pervasive, 

and you’ve got to change it gradually. But we have changed it forever just on the CAFE ́ standard change. 

Now if we can just look around and see if there’s other things 

where we can produce—more American owned resources—we will 

truly be making some headway in terms of what we must do for 

our country. We’re not there, but I’m very positive that we are 

making progress because we did do something that for years said 

we couldn’t. 

We were told it would have a measurable effect. You recall, Senator Bingaman, we were told by the expert from Oak Ridge National Laboratory, were we not, that if we passed the CAFE ́ standard bill on an amendment of Senator Dianne Feinstein, that would 

be the biggest step you can take in reducing carbon dioxide and in 

reducing our dependence upon crude oil. 

He was just theoretically telling us that. Now we did it, and we 

have the experts saying what the result will be. We’ve never 

passed anything to have this big an effect to your knowledge, have 

we, Mr. Caruso? 

Mr. CARUSO. No, sir. 

Senator DOMENICI. I have my additional remarks—a prepared 

statement—that I will not give. I ask you to include them, Mr. 

Chairman, as if read. Thank you very much. 

[The prepared statement of Senator Domenici follows:]

PREPARED STATEMENT OF HON. PETE V. DOMENICI, U.S. SENATOR FROM

NEW MEXICO

Administrator Caruso, I want to start by thanking you for your hard work on this 

year’s energy outlook. It is important that we take the information that you provide 

into account as we seek ways to increase America’s energy security. 

Our efforts in Congress have led to three pieces of landmark energy legislation 

in the past three years. First we passed the Energy Policy Act of 2005, then the 

Gulf of Mexico Energy Security Act of 2006, and last year we passed the Energy 

Independence and Security Act of 2007. That legislation will:

• Raise CAFE ́ standards; 

• Increase biofuels production; and 

• Improve appliance efficiency.

Each of these measures was intended in part to reduce America’s reliance on imported oil, which has grown steadily over the years. 

4

When I first came to the Senate in 1973, imports accounted for 28 percent of our 

oil supply. Thirty-five years later, oil imports account for more than sixty percent. 

EIA projects that level to diminish only slightly by 2030, even as alternative fuels 

account for a much greater percentage of our energy supply. 

I am deeply concerned about the long-term impacts this dependence will have—

I believe it threatens our economic strength, our national security, and our standing 

in the world. 

In the 25 years preceding our most recent energy bills, Americans spent $1.76 trillion on foreign oil. Looking forward, EIA has projected that we will spend closer to 

$8.5 trillion over the next 25 years. 

As we seek to reduce our dependence on imported oil, we must also address global 

climate change. I believe the bipartisan legislation we have passed in the last three 

years has, and will continue to, make a difference on both fronts. EIA is projecting 

over 16 gigawatts of new power plant capacity by 2030—that is a big deal. I also 

believe that there is additional room for bipartisan solutions to address both global 

climate change and our nation’s dependence on foreign oil. This week I will be introducing a bill that establishes a Clean Energy Investment Bank. I expect bipartisan 

support for this measure which seeks to facilitate substantial additional investments 

into clean energy projects throughout the United States. 

The energy bill we passed last December shows that Congress can reduce greenhouse gas emissions without harming the economy or increasing the price of energy—your data makes this clear. The five-billion metric ton reduction that will result from our most recent bill is equivalent to the carbon dioxide emissions that 71 

500-MW coal plants would have emitted over the same 23-year period. It shows that 

our legislative options are not limited to a potentially devastating cap-and-trade system. 

The data in this year’s Annual Energy Outlook is encouraging—it shows that 

some progress has been made. These estimates would have been worse in the absence of Congressional action. More importantly, however, this Outlook should be 

seen as a warning for the future, and an indication of the significant work that remains. 

The price of oil reached an all-time high yesterday—$103.95 per barrel. It broke 

a record that was set during a supply shock nearly 30 years ago. It will be a serious 

undertaking to address this growing challenge. Equally daunting is our seeming inability to accurately estimate the massive growth of the world’s new energy consumers and the difficulty of the world’s producers to keep pace with rising demand. 

Just four years ago, EIA estimated that the price of oil would rise from approximately $24 to $29 per barrel by 2010. We must ask how our estimates could be so 

far off the mark in such a short time. And, we must re-examine our policies in light 

of these new factors. 

It has never been more important to develop an effective energy policy—one that 

will reduce our dependence on foreign oil and reduce our carbon emissions. 

In my view, such a policy will focus on three types of initiatives:

• Those that increase production of our domestic resources; 

• Those that accelerate research, development, and deployment of renewable and 

alternative sources of energy; and 

• Those that enhance our nation’s ability to conserve energy.

In terms of production, EIA projects that a great deal of our domestic oil will come 

from development of reserves in the Gulf of Mexico. It is no coincidence that just 

two years ago the Congress passed legislation to open more of this area. We are now 

seeing the import-reducing benefits of that work in EIA projections. 

With energy prices near all-time highs, it is time to revisit the debate over responsible energy production on the Arctic Coastal Plain of Alaska as well. It is time to 

inventory our resources and produce more oil and gas on the Outer Continental 

Shelf—we must know what we have to work with and then we must produce it. 

At the same time, we should advance the next generation of fuels and technologies, such as oil shale, coal-to-liquids, and advanced batteries. As I mentioned, 

I plan to introduce legislation this week that would establish a mechanism to help 

ensure that clean energy projects receive the financing they need to find success. 

I look forward to working with you, Mr. Chairman, on legislation that will help 

many of these initiatives become reality.

The CHAIRMAN. Sure, we will include those in the record. Mr. Caruso, why don’t you go right ahead with your testimony? 

5

STATEMENT OF GUY CARUSO, ADMINISTRATOR, ENERGY 

INFORMATION ADMINISTRATION, DEPARTMENT OF ENERGY 

Mr. CARUSO. Mr. Chairman, members of the committee, thank 

you very much for this opportunity to present the Energy Information Administration’s updated Annual Energy Outlook. As you 

know EIA does not promote, formulate or take positions on policies. 

Our views should not be construed as representing those of the Department of Energy or the Administration. 

My written statement provides an overview of the Annual Energy Outlook 2008 reference case, which incorporates EIA’s assessment of portions of the Energy Independence and Security Act of 

2007. I’ll refer to it as EISA 2007 that was enacted last year. This 

2008 reference case replaces the earlier released version that we 

issued shortly before that enactment. EISA 2007 provisions with 

the greatest effect, as Senator Domenici just mentioned, are the 

new fuel economy standards for light-duty vehicles, the new renewable fuel standard and new efficiency standards for various types 

of equipment. 

My oral presentation today focuses on highlights in the areas of 

energy prices, consumption, production, imports, renewable energy 

use and greenhouse gas emissions. As implied earlier, our projections are based on current laws and regulations that are in place 

as of February 2008. The updated 2008 reference case also includes 

additional revisions that reflect historical data issued after the December early release; our latest Short Term Energy Outlook, when 

these runs were made, which was January 2008; a more current 

economic outlook; and updates to correct modeling problems in the 

earlier released version. 

Starting with energy prices, real world oil prices in real terms in 

the AEO2008 reference case decline gradually from current levels 

to $57 per barrel in 2016, or about $68 when looked at in nominal 

dollars. As expanded investment in exploration and development 

brings new supplies to the world oil market, we do expect prices 

will trend downward over this period between now and 2016. As 

shown in figure 1 of my written testimony, real prices then begin 

to rise after 2016 as demand continues to grow and higher cost 

supplies are brought to the market. In 2030, the average real price of oil is $70 per barrel in constant 2006 dollars or about $113 dollars per barrel in nominal dollars. 

We recognize that there is uncertainty in our long term price projections and due to unpredictable changes in energy markets and 

geopolitical concerns. For this reason, we project a range of oil 

prices using different assumptions from what are in the reference 

case. Under our high-price case, for example, oil prices in 2030 

reach about $185 per barrel in nominal dollars. 

Projections for natural gas prices are also higher than those in 

our 2007 outlook, but coal price projections have not risen substantially. Electricity prices, which follow fuel prices, are expected to 

rise in real terms through 2009 then decline until 2015, before rising again through 2030. 

Total energy consumption, as shown in figure 3, is projected to 

grow by 19 percent between 2006 and 2030 at a rate of about 0.7 

percent per year or less than one-third the rate of growth in gross 

domestic product, which we project to be 2.4 percent per year. Total 

6

consumption of liquid fuels, both oil and renewable liquids, shown 

in figure 4, grows at an average annual rate of 0.4 percent in the 

AEO2008 reference case, increasing from 20.7 million barrels a day 

in 2006 to 22.8 million barrels per day in 2030, led by growth in 

transportation fuels which account for 68 percent of total liquid demand in 2006, increasing to 73 percent in 2030. 

Total consumption of natural gas, shown in figure 5, is projected 

to increase about 10 percent over its 2006 level by 2016, and then 

decline by about 5 percent from that 2016 level by 2030. Industrial 

natural gas use is lower than in previous editions of the outlook 

because of the higher delivered natural gas prices, lower economic 

growth and a reassessment of natural gas in the energy-intensive 

industries, which clearly are increasing their efficiency in the use 

of natural gas. 

Under current laws and regulations, natural gas is expected to 

lose market share to coal in the electric power sector as a result 

of a continued increase in natural gas prices in the later half of the 

projection period and slower growth in electricity demand, largely 

attributable to slower economic growth. 

Coal consumption is projected to grow at a faster rate toward the 

end of the projection period, particularly after 2020, as coal use for 

new coal-fired generating capacity grows rapidly under current 

policies. 

Nuclear generating capacity increases from about 100 gigawatts 

in 2006 to 115 gigawatts in 2030, including more than 16 gigawatts 

of capacity at newly-built nuclear power plants and 2.7 gigawatts 

expected from upgrades of existing plants. These are partially offset by 4.5 gigawatts of retirements. 

Total marketed renewable energy consumption is the fastest 

growing segment of this outlook. It is projected to grow by 3 percent per year in the reference case. Rapid growth in the projected 

use of renewable fuels in transportation in AEO2008 reflects the 

EISA 2007 renewable fuels standard. 

Ethanol use grows from 5.6 billion gallons in 2006 to 24.3 billion 

gallons in 2030. This is about 16 percent of the total gasoline consumption by volume in that year, and that’s divided between corn 

and cellulosic feedstocks in this outlook. 

Biomass-to-liquids technology plays a significant role in compliance with EISA 2007—its requirement for cellulosic renewable 

fuels. While the situation is very uncertain at this early stage, our 

current view is that available quantities of cellulosic biofuels prior 

to 2022 will be insufficient to meet the new RFS targets. As a result, the modification-of-applicable-volumes provision included in 

EISA 2007 is expected to be triggered, reducing the overall RFS 

target in 2022 from 36 billion gallons to about 32.5 billion gallons. 

The use of renewable technologies for electricity generation is 

stimulated by improved technology, existing State RPS programs, 

the availability of the renewable production tax credit for eligible 

generation placed in service before the end of 2008, and higher fossil fuel prices. Total renewable generation in the AEO2008 reference case, including combined heat and power and end use generation, grows by 2.2 percent per year. 

Turning to liquid energy production and imports, U.S. crude oil 

production grows from 5.1 million barrels per day in 2006 to a peak 

7

of 6.3 million barrels per day in 2018, primarily due to increased 

production from the deep waters of the Gulf of Mexico and from the 

expansion of enhanced oil recovery operations in onshore areas 

supported by higher crude oil prices. Domestic production subsequently declines to 5.6 million barrels a day in 2030 as increased 

production from newer and smaller discoveries is inadequate to offset the declines in large fields in Alaska and the Gulf of Mexico. 

Total domestic liquids supply, which includes crude oil, natural gas 

plant liquids, refinery processing gains and other refinery inputs 

such as biofuels, grows from 8.3 million barrels per day in 2006 to 

10.5 million barrels per day in 2030. 

Differences between the updated AEO reference case and the 

prior early release version are driven largely by EISA 2007, although they also reflect some of the other updates mentioned earlier. 

Net imports of crude oil and refined products in 2030 are 2.4 million barrels a day lower in the updated reference case then in the 

early release version. The net imports share of total liquid supplied, including crude oil and refined products, is significantly affected by EISA 2007, dropping from 60 percent in 2006 to 51 percent in 2022 and then increasing to 54 percent in 2030, as shown 

in figure 9 of my statement. 

Compared to previous AEOs, lower projected growth in energy 

consumption and greater reliance on renewable fuels yields a lower 

projection in energy-related carbon dioxide emissions. In the 

AEO2008 reference case, greenhouse gas emissions are projected to 

increase at an average annual rate of 0.6 percent, as shown in figure 14. Over the period 2008 to 2030 projected cumulative energyrelated carbon emissions are 5.3 billion metric tons lower in the updated AEO reference case than they were in the early release 

version. Projected increases in energy-related carbon emissions primarily result from continued reliance on coal for electricity generation and on petroleum fuels in the transportation sector. 

In conclusion, Mr. Chairman, in addition to its work on baseline 

projections that I have reviewed this morning, EIA has also responded to a request from this committee and others for analysis 

of the energy and economic impacts of alternative proposals to limit 

greenhouse gas emissions and other policy proposals. We look forward to providing whatever further analytical support that you 

may require on energy-related topics. We believe that such analysis 

can identify both potential synergies and potential conflicts among 

different energy-related objectives that are currently under discussion in this committee and elsewhere. 

This concludes my testimony, Mr. Chairman and members of the 

committee. I would be happy to answer any questions you may 

have. Thank you. 

[The prepared statement of Mr. Caruso follows:]

PREPARED STATEMENT OF GUY CARUSO, ADMINISTRATOR, ENERGY INFORMATION

ADMINISTRATION, DEPARTMENT OF ENERGY

Mr. Chairman and Members of the Committee: I appreciate the opportunity to appear before you today to discuss the long-term outlook for energy markets in the 

United States. 

The Energy Information Administration (EIA) is the independent statistical and 

analytical agency within the Department of Energy. We do not promote, formulate, 

8

* All figures have been retained in committee files. 

or take positions on policy issues. Our mission is to produce objective, timely, and 

relevant data, projections, and analyses that are meant to assist policymakers, help 

markets function efficiently, and inform the public. The energy projections that I 

will discuss today are widely used by government agencies, the private sector, and 

academia as a starting point for their own energy analyses. However, our views are 

strictly those of EIA and should not be construed as representing those of the Department of Energy or the Administration. 

The Annual Energy Outlook 2008 (AEO2008) reference case discussed today includes the impact of the Energy Independence and Security Act of 2007 (EISA2007) 

that was enacted in December and replaces the early release version issued shortly 

before that enactment. The specific EISA2007 provisions that are modeled in 

AEO2008 include updates to the renewable fuel standard (RFS) and to the corporate 

average fuel economy (CAFE ́ ) standard for new light-duty vehicles; updated and 

new appliance energy efficiency standards for boilers, dehumidifiers, dishwashers, 

clothes washers, and walk-in refrigerators and freezers; lighting energy efficiency 

standards; provisions to reduce energy consumption in Federal buildings; and industrial electric motor efficiency standards. Consistent with the general approach used 

in the AEO, the reference case does not consider those sections of EISA2007 that 

require appropriations for implementation or sections with highly uncertain impacts 

on energy markets. The updated reference case also includes additional revisions 

that reflect: historical data issued after the early release version of the AEO2008

was completed, the EIA Short-Term Energy Outlook released in January 2008, a 

more current economic outlook, and updates to correct modeling problems in the 

early release version. 

The AEO2008 is intended to represent an energy future based on given technological and demographic trends, current laws and regulations, and consumer behavior as derived from known data. EIA recognizes that projections of energy markets 

are highly uncertain and subject to political disruptions, technological breakthroughs, and other unforeseeable events. In addition, long-term trends in technology development, demographics, economic growth, and energy resources may 

evolve along a different path than expected in the projections. The complete 

AEO2008, which EIA will release in April, includes a large number of alternative 

cases intended to examine these uncertainties. The following discussion summarizes 

the highlights from the AEO2008 reference case. 

ENERGY PRICES

EIA has raised the reference case path for world oil prices in AEO2008, although 

the upward adjustment is smaller than the last major adjustment, introduced in 

AEO2006. In the AEO2008 reference case, real world crude oil prices (defined as the 

price of light, low-sulfur crude oil delivered in Cushing, Oklahoma, in 2006 dollars) 

decline gradually from current levels to $57 per barrel in 2016 ($68 per barrel in 

nominal dollars), as expanded investment in exploration and development brings 

new supplies to the world market. After 2016, real prices begin to rise (figures 1 

and 2),* as demand continues to grow and higher cost supplies are brought to market. In 2030, the average real price of crude oil is $70 per barrel in 2006 dollars, 

or about $113 per barrel in nominal dollars. 

In developing its oil price outlook, EIA explicitly considered four factors: (1) 

growth in world liquids consumption, (2) the outlook for conventional oil production 

in countries outside the Organization of the Petroleum Exporting Countries (OPEC), 

(3) growth in unconventional liquids production, and (4) OPEC behavior. With the 

forces driving demand outside the United States as strong or stronger than previously expected and with global supply projections somewhat weaker, trends in 

total world liquids production are similar to those in the Annual Energy Outlook 

2007 (AEO2007) reference case but the oil prices are higher. 

Current oil prices are above EIA’s reference case estimate of the long-run equilibrium price, driven by recent strong global economic growth, shortages of experienced personnel, equipment, and construction materials in the oil industry, and political instability in some major producing regions. EIA’s expectations regarding the 

ultimate size of both conventional and unconventional liquid resources have not 

changed since the AEO2007. Of course, geopolitical trends, the adequacy of investment and the availability of crude oil resources and the degree of access to them, 

and the market behavior of key OPEC producers are all inherently uncertain. To 

evaluate the implications of uncertainty about world crude oil prices, the AEO2008

includes alternative high and low price cases (figure 2). 

9

The price of natural gas also is higher in the AEO2008 reference case. The real 

wellhead price of natural gas (in 2006 dollars) declines from current levels through 

2016, as new supplies enter the market. After 2016, real natural gas prices rise to 

$6.56 per thousand cubic feet ($10.52 per thousand cubic feet in nominal dollars) 

in 2030 (figure 1). The higher prices reflect an increase in production costs associated with trends that were discussed in AEO2007 but not fully reflected in its reference case. The higher natural gas prices also are supported by higher oil prices. 

Minemouth coal prices in the AEO2008 reference case, both nationally and regionally, are generally similar to those in the AEO2007 reference case. Average real 

minemouth coal prices (in 2006 dollars) fall from $1.21 per million British thermal 

unit (Btu) ($24.63 per short ton) in 2006 to $1.14 per million Btu ($22.51 per short 

ton) in 2020, as prices moderate following a substantial run-up over the past few 

years. After 2020, prices rise due to demand growth, reaching $1.19 per million Btu 

($23.24 per short ton) in 2030 (figure 1). In nominal terms, the average minemouth 

price of coal in the AEO2008 reference case is $1.91 per million Btu ($37.29 per ton) 

in 2030. 

Electricity prices follow trends in the delivered prices of fuels to power plants. 

From a peak of 9.3 cents per kilowatthour (2006 dollars) in 2009, average delivered 

electricity prices in the AEO2008 reference case decline to 8.5 cents per 

kilowatthour in 2016 and then increase to 8.8 cents per kilowatthour in 2030. In 

nominal dollars, the average delivered electricity price reaches 14.1 cents per 

kilowatthour in 2030. 

ENERGY CONSUMPTION

Total primary energy consumption grows by 19 percent between 2006 and 2030 

(figure 3), at a rate of 0.7 percent per year or less than one-third the rate of growth 

in gross domestic product (GDP) (2.4 percent per year). Energy intensity, as measured by primary energy use per dollar of GDP (2000 dollars), declines at an average 

annual rate of 1.7 percent from 2006 to 2030. Since 1992, the energy intensity of 

the U.S. economy has declined on average by 2.0 percent per year, in part because 

the share of industrial shipments accounted for by the energy-intensive industries 

has fallen from 30 percent in 1992 to 21 percent in 2006. In the AEO2008 reference 

case, the energy-intensive industries’ share of total industrial shipments continues 

to decline, although at a slower rate, to 18 percent in 2030. 

Population is another key determinant of energy consumption, influencing demand for travel, housing, consumer goods, and services. Since 1990, population has 

increased by about 20 percent and energy consumption by 18 percent. Population 

in the reference case increases by 22 percent from 2006 to 2030, compared to the 

aforementioned 19 percent growth in energy consumption. The rest of this section 

reviews consumption trends for each major energy source. 

Total consumption of liquid fuels grows at an average annual rate of 0.4 percent 

in the AEO2008 reference case, from 20.7 million barrels per day in 2006 to 22.8 

million barrels per day in 2030 led by growth in transportation uses, which account 

for 68 percent of total liquid fuels demand in 2006, increasing to 73 percent in 2030 

(figure 4). Improvements in the efficiency of vehicles, planes, and ships are more 

than offset by growth in travel. 

EISA2007 requires new light-duty vehicles, including both cars and trucks, to 

reach an average fuel economy of 35 miles per gallon (MPG) by 2020, based on the 

Environmental Protection Agency (EPA) test value used to measure compliance with 

the CAFE ́ standard. The EPA CAFE ́ test value generally differs from the estimated 

MPG value on the fuel economy label and typically exceeds the actual on-the-road 

fuel economy of a new vehicle by a significant margin. Despite these differences, the 

higher fuel economy standards in EISA2007 significantly improve the in-use fuel 

economy of the stock of light-duty vehicles. In the reference case, the average inuse fuel economy for the stock of light-duty vehicles in 2030 increases to 28.0 miles 

per gallon, 38 percent above its 2006 level. EISA2007 also results in a shift in the 

mix of transportation vehicle fuels. Total biofuel consumption reaches 2.8 quadrillion Btu (29.7 billion gallons) in 2030 in the revised AEO2008 reference case, 2.3 

quadrillion Btu (24.4 billion gallons) more than in 2006. This represents about 11.3 

percent of total motor vehicle fuel, on a Btu basis, in 2030. 

Total consumption of natural gas increases from 21.7 trillion cubic feet in 2006 

to 23.9 trillion cubic feet in 2016, then declines to 22.7 trillion cubic feet in 2030 

(figure 5). Industrial natural gas use is lower than in previous AEOs because of the 

higher delivered natural gas prices, lower economic growth, and a reassessment of 

natural gas use in the energy-intensive industries in AEO2008. Under current laws 

and regulations, natural gas is expected to lose market share to coal in the electric 

10

power sector as result of a continued increase in natural gas prices in the latter half 

of the projection and slower growth in electricity demand. 

Total coal consumption increases from 22.5 quadrillion Btu (1,114 million short 

tons) in 2006 to 30.1 quadrillion Btu (1,557 million short tons) in 2030, growing by 

1.2 percent per year. Coal consumption grows at a faster rate toward the end of the 

projection period, particularly after 2020, as coal use for new coal-fired generating 

capacity grows rapidly. About 91 percent of the coal is currently used for electricity 

generation. Coal remains the primary fuel for electricity generation and its share 

of generation (including end-use sector generation) is expected to increase from 

about 49 percent in 2006 to 54 percent in 2030. Growth in coal use by coal-to-liquids 

(CTL) plants is lower than in previous AEOs as a result of EISA2007. Investment 

dollars that would have previously gone into CTL capacity now flow to biomass-toliquids (BTL) capacity. However, there is a great deal of uncertainty about this projection. 

Total electricity consumption, including both purchases from electric power producers and on-site generation, grows from 3,814 billion kilowatthours in 2006 to 

4,974 billion kilowatthours in 2030, increasing at an average annual rate of 1. 1 percent (figure 6). In comparison, electricity consumption grew by annual rates of 7.3 

percent, 4.2 percent, 2.6 percent, and 2.3 percent in the 1960s, 1970s, 1980s, and 

1990s, respectively. The most rapid growth (1.7 percent per year) occurs in the commercial sector, as building floorspace is expanded to accommodate growing service 

industries. Growing use of electricity for computers, office equipment, and small 

electrical appliances is partially offset in the AEO2008 reference case by improved 

energy efficiency. 

Total marketed renewable fuel consumption grows by an average of 3.0 percent per 

year in the reference case, from 6.8 quadrillion Btu in 2006 to 13.7 quadrillion Btu 

in 2030. About 45 percent of the demand for renewables in 2030 is for grid-related 

electricity generation (including combined heat and power), and the rest is for dispersed heating and cooling, industrial uses, or transportation uses. 

The rapid growth in the use of renewable fuels for transportation in AEO2008 re- flects the updated RFS in Section 211(o) of the Clean Air Act as amended by 

EISA2007. The updated RFS sets a requirement for 36 billion gallons of total renewable fuels by 2022, including 21 billion gallons of advanced biofuels. Included are 

requirements for 1 billion gallons of biodiesel by 2012 and 16 billion gallons of cellulosic biofuels, both of which count toward the advanced biofuels requirement. The 

remaining 4 billion gallons of advanced biofuels may come from any source. The difference between advanced biofuels and total renewable fuels may be met by corn 

ethanol. Diesel fuels that are derived from biomass feedstocks count 1.5 times their 

physical volume as credits towards meeting the RFS requirements owing to diesel’s 

higher energy content relative to ethanol. 

While the situation is very uncertain, the current state of the industry and our 

present view of projected rates of technology development and market penetration 

of cellulosic biofuel technologies suggest that available quantities of cellulosic 

biofuels prior to 2022 will be insufficient to meet the new RFS targets for cellulosic 

biofuels, triggering both waivers and a modification of applicable volumes as provided for by paragraphs 7(D) and 7(F), respectively, of Section 211(o) of the Clean 

Air Act as amended by EISA2007. The modification of volumes reduces the overall 

target in 2022 from 36 billion gallons to 32.5 billion gallons. The modified cellulosic 

biofuel requirement is projected to be met by a combination of domestic cellulosic 

ethanol, imported cellulosic ethanol, and biomass-to-liquids diesel, but the specific 

mix is again highly uncertain. 

Ethanol use grows from 5.6 billion gallons in 2006 to 24.3 billion gallons in 2030 

(over 16 percent of total gasoline consumption by volume) (figure 7). Ethanol use 

for gasoline blending grows to 13.3 billion gallons and E85 consumption to 11.0 billion gallons in 2030. The ethanol supply is expected to be produced from both corn 

and cellulosic feedstocks, with corn accounting for 15.0 billion gallons of ethanol production in 2030. The AEO2008 reference case also expects strong growth in ethanol 

imports after 2010, reflecting the pending expiration of the tariff on imported ethanol in January 2009. Biodiesel use reaches 1.3 billion gallons in 2030 (about 1.6 

percent of total diesel consumption by volume). Consumption of diesel liquids produced from biomass (BTL) grows to 4.2 billion gallons in 2030, 4.9 percent of total 

diesel consumption by volume. 

Excluding hydroelectric power, renewable energy consumption for electric power 

generation grows from 0.9 quadrillion Btu in 2006 to 3.1 quadrillion Btu in 2030. 

The higher level of nonhydroelectric renewable energy consumption in the AEO2008

reference case primarily reflects a revised representation of State renewable portfolio standard (RPS) programs, which require that specific and generally increasing 

shares of electricity sales be supplied by renewable resources such as wind, solar, 

11

geothermal, and sometimes biomass or hydropower. Previous AEOs placed more 

weight on the ‘‘escape clauses’’ incorporated in many State RPS programs, given 

that the consumer costs of these programs would increase significantly if the Federal production tax credit (PTC) for qualifying renewable energy expired as provided 

for under current law. The new representation, which assumes that the State RPS 

goals will be met absent a clear contrary indication, results in significant additional 

growth of renewable generation from wind, biomass, and geothermal resources. 

ENERGY PRODUCTION AND IMPORTS

Net imports of energy are expected to continue to meet a major share of total U.S. 

energy demand. The increased use of biofuels resulting from EISA2007, much of 

which is domestically produced, and the reduction in transportation fuel demand 

due to the new fuel economy standards both serve to moderate growth in energy 

imports. Higher fuel prices over the projection period also spur increased domestic 

energy production and moderate energy demand growth, also tempering growth in 

imports. Furthermore, the net import share of total U.S. energy consumption in 

2030 is 27 percent, a decline from the 30-percent share in 2006. 

Liquids and Other Petroleum Products 

U.S. crude oil production grows from 5.1 million barrels per day in 2006 to a peak 

of 6.3 million barrels per day in 2018, primarily due to increased production from 

the deep waters of the Gulf of Mexico and from the expansion of enhanced oil recovery operations in onshore areas supported by higher crude oil prices. Domestic production subsequently declines to 5.6 million barrels per day in 2030, as increased 

production from new smaller discoveries is inadequate to offset the declines in large 

fields in Alaska and the Gulf of Mexico (figure 8) Total domestic liquids supply, including crude oil, natural gas plant liquids, refinery processing gains, and other refinery inputs (e.g., ethanol, biodiesel, BTL, and liquids from coal) grows from 8.3 

million barrels per day in 2006 to 10.5 million barrels per day in 2030. 

The net import share of total liquids supplied, including crude oil and refined 

products, drops from 60 percent in 2006 to less than 51 percent in 2022, and then 

increases to 54 percent in 2030 as crude oil imports grow rapidly at the end of the 

projection to meet liquids demand (figure 9). Net crude oil imports in 2030 are 11. 

1 million barrels per day in 2030 and net product imports (including net ethanol 

imports) are 1.3 million barrels per day in 2030. 

Natural Gas 

Total domestic natural gas production, including supplemental natural gas supplies, increases from 18.6 trillion cubic feet in 2006 to 20.1 trillion cubic feet in 2022 

before declining to 19.6 trillion cubic feet in 2030 in the AEO2008 reference case. 

While onshore conventional production declines steadily from 6.6 trillion cubic feet 

in 2006 to 4.4 trillion cubic feet in 2030, lower-48 offshore production grows from 

3.1 trillion cubic feet in 2006 to a peak of 4.5 trillion cubic feet in 2017 as new resources come online in the Gulf of Mexico. After 2017, lower-48 offshore production 

declines to 3.5 trillion cubic feet in 2030. Lower-48 production of unconventional 

natural gas, particularly gas from shale, is expected to be a key contributor to 

growth in U.S. natural gas supplies, increasing from 8.5 trillion cubic feet in 2006 

to 9.5 trillion cubic feet in 2030. The Alaska natural gas pipeline is expected to be 

completed in 2020, later than previously anticipated, because of delays in the resolution of issues between Alaska’s State government and industry participants. 

Net pipeline imports of natural gas fall from 2.9 trillion cubic feet in 2006 to 0.3 

trillion cubic feet in 2030 in the AEO2008 reference case (figure 10), reflecting both 

resource depletion in Alberta and Canada’s growing domestic demand. Total net imports of liquefied natural gas (LNG) to the United States increase from 0.5 trillion 

cubic feet in 2006 to 2.8 trillion cubic feet in 2030. U.S. LNG regasification capacity 

increases from 1.5 trillion cubic feet in 2006 to 5.7 trillion cubic feet in 2009 with 

the addition of six new regasification facilities that are currently under construction 

(four along the Gulf Coast and two off the coast of New England). Given global LNG 

supply constraints, overall capacity utilization at the U.S. LNG import facilities is 

expected to remain below 50 percent through 2030. The future direction of the global LNG market, with many new international players entering LNG markets and 

strong competition for available supply, is one of the key uncertainties in the 

AEO2008 reference case. 

Coal 

As coal demand grows in the AEO2008 reference case, U.S. coal production increases at an average rate of 1.0 percent per year (figure 11). On a Btu basis, 60 

12

percent of domestic coal production originates from States west of the Mississippi 

River in 2030, up from an estimated 49 percent in 2006. 

ELECTRICITY GENERATION

Absent new environmental policy initiatives that would serve to accelerate the retirement of existing coal-fired power plants, the slowing rate of electricity growth 

reduces the need for new generating capacity. In the AEO2008 reference case, the 

natural gas share of electricity generation (including generation in the end-use sectors) remains between 20 percent and 21 percent through 2017, before falling to 14 

percent in 2030 (figure 12). The coal share remains between 48 percent and 49 percent through 2018, before increasing to 54 percent in 2030. Net additions to coalfired generating capacity in the AEO2008 reference case total 103 gigawatts from 

2006 to 2030, including 4 gigawatts at CTL plants and 30 gigawatts at integrated 

gasification combined-cycle plants. Given the assumed continuation of current energy and environmental policies in the reference case, carbon capture and sequestration (CCS) technology does not come into use during the projection period. 

Nuclear generating capacity in the AEO2008 reference case increases from 100.2 

gigawatts in 2006 to 114.8 gigawatts in 2030. The increase includes 16.4 gigawatts 

of capacity at newly-built nuclear power plants and 2.7 gigawatts expected from 

uprates of existing plants, partially offset by 4.5 gigawatts of retirements. Total 

electricity generation from nuclear power plants grows from 787 billion 

kilowatthours in 2006 to 917 billion kilowatthours in 2030 in the AEO2008 reference case, accounting for about 18 percent of total generation in 2030. Additional 

nuclear capacity is built in some of the alternative AEO2008 cases, particularly 

those that project higher demand for electricity or even higher fossil fuel prices. 

The use of renewable technologies for electricity generation is stimulated by improved technology, existing State RPS programs, the availability of the renewable 

production tax credit for eligible generation placed in service before the end of 2008, 

and higher fossil fuel prices. Total renewable generation in the AEO2008 reference 

case, including combined heat and power (CHP) and end-use generation, grows by 

2.2 percent per year, from 385 billion kilowatthours in 2006 to 654 billion 

kilowatthours in 2030 (figure 13). 

ENERGY-RELATED CARBON DIOXIDE EMISSIONS

Carbon dioxide emissions from energy use in the AEO2008 reference case increase 

from 5,890 million metric tons in 2006 to 6,859 million metric tons in 2030, an average annual increase of 0.6 percent (figure 14). The energy-related carbon dioxide 

emissions intensity of the U.S. economy falls from 520 metric tons per million dollars of GDP in 2006 to 339 metric tons per million dollars of GDP in 2030, an average decline of 1.8 percent per year. Increases in carbon dioxide emissions primarily 

result from a continued reliance on coal for electricity generation and on petroleum 

fuels in the transportation sector. 

CONCLUSION

As I noted at the outset, while EIA does not take positions on policy issues, its 

data, analyses, and projections are meant to assist policymakers in their energy policy deliberations. In addition to the work on baseline projections that I have reviewed this morning, EIA has also recently responded to requests from this Committee and others for analyses of the energy and economic impacts of alternative 

proposals to limit greenhouse gas emissions and other policy proposals. We look forward to providing whatever further analytical support that you may require on energy-related topics. We believe that such analyses can help to identify both potential 

synergies and potential conflicts among different energy-related objectives that are 

currently under discussion in this Committee and elsewhere. 

This concludes my testimony, Mr. Chairman and members of the Committee. I 

would be happy to answer any questions you may have.

The CHAIRMAN. Thank you very much. Let me start with a few 

questions. 

You cite three areas that we legislated in as having influenced 

the changes in your forecast. I think the CAFE ́ standard, the increased renewable fuel standard, and increased efficiency standards for various appliances, lighting included. Is there any way to 

give us a break down as to how much of the reduction in greenVerDate 0ct 09 2002 16:41 May 23, 2008 Jkt 040443 PO 00000 Frm 00016 Fmt 6633 Sfmt 6602 G:\DOCS\42513.TXT SENERGY2 PsN: MONICA
13

house gas emissions that you are able to now project, results from 

each of these three? 

Mr. CARUSO. One of the reasons it’s very difficult to disaggregate 

that is that there are a number of other factors going on that I 

mentioned, including the reduced economic growth outlook and a 

number of other modeling changes we’ve made. So to isolate just 

those provisions would be very difficult. I can tell you in broad 

terms that the CAFE ́ standards, by far, have the largest impact. 

We have almost two and a half million barrels a day less oil demand in 2030 then we had without them. The other major impact 

on greenhouse gas emissions is the efficiency standards that were 

enacted for a number of types of equipment, largely in the residential sector. We have a significant reduction in demand in the electricity sector. Much of the new electricity generated beyond 2020 

would have been coal so that has a significant impact on emission 

levels. 

I would be pleased to ask my team to provide a more detailed 

break out, but I have to raise a little flag here in that there’s a 

number of other moving parts——

The CHAIRMAN. Right. 

Mr. CARUSO [continuing]. Making it often difficult to 

disaggregate some of the effects of the law, for example, the 

biofuels impact. We have more biofuels-to-liquids in this outlook as 

direct result of the renewable fuel standard. One of the things that 

did was reduce the amount of investments we see going into coalto-liquids, for example. That had an impact on reducing greenhouse 

gas emissions. 

We could make an attempt to actually quantify that. I’d be happy 

to provide that for the record, Senator Bingaman. 

[The information referred to follows:]

The energy impacts of the Energy Independence and Security Act of 2007 (EISA) 

and its individual provisions can be measured in several different ways. For example, individual or grouped provisions can either be added to a variety of Annual Energy Outlook baselines that do not include EISA, or subtracted from a baseline that 

includes EISA. Other impact measures can be obtained by assuming that both EISA 

standards and those in existence prior to EISA are binding without alteration 

throughout the projection period, so that energy impacts can be calculated based on 

the difference in standards and measures of equipment stock turnover and utilization. This latter approach, which essentially adopts a ‘‘frozen efficiency’’ baseline reflecting the existing standard, tends to produce larger estimates for the impact of 

changes in efficiency standards. 

EIA has made several different calculations to provide ranges of impact estimates 

that would be suitable for a variety of purposes. Using National Energy Modeling 

System model runs that add or subtract EISA provisions to current baselines, EIA 

found that EISA reduces total U.S. energy consumption between 3.2 and 4.1 quadrillion Btu (2.7 to 3.3 percent) in 2030. Those same calculations suggest that cumulative energy-related carbon dioxide emissions between 2008 and 2030 are reduced 

by 4.0 to 4.9 billion metric tons (2.7 to 3.2 percent). With respect to the three groups 

of provisions in EISA that were represented in the AEO2008 reference case projections for 2030, the renewable fuels standard (RFS) reduces net petroleum imports 

by 0.3 to 0.6 million barrels per day (1.9 to 4.9 percent), the energy efficiency standard (EES) provisions reduce electricity use by 130 to 148 billion kilowatthours (2.6 

to 2.9 percent), and the Corporate Average Fuel Economy (CAFE ́ ) standard reduces 

light duty vehicle consumption by about 1.2 to 1.4 million gasoline-equivalent barrels per day (12.1 to 12.9 percent).If measured against a frozen-efficiency standard, 

which the National Highway Transportation and Safety Administration (NHTSA) 

and the Office of Management and Budget (OMB) use—where vehicle efficiency does 

not improve above the floor set by the previous CAFE ́ standards, the CAFE ́ standard in EISA reduces light duty vehicle gasoline-equivalent barrels per day by between 2.1 and 2.2 million barrels per day (17.9 to 18.2 percent).

14

The CHAIRMAN. Let me ask about this change in your projection 

as to the rate of growth of gross domestic product. You’re now projecting that it will grow at a rate of 2.4 percent per year between 

2000 up to 2030. I think. Yes. 

Mr. CARUSO. Yes. 

The CHAIRMAN. Between now and 2030. How much of a reduction 

is that from what you had earlier thought? Is that consistent with 

what OMB and CBO are projecting? 

Mr. CARUSO. The answer to the first part of the question is in 

the earlier version of this outlook we were using 2.6 percent GDP 

growth. So we’ve reduced that by two-tenths of 1 percent. CBO and 

OMB typically only go out about 10 years. So it’s consistent with 

their projections. But not many projections by public forecasters go 

out to 2030. 

We’ve used our own, in-house, macroeconomic analysis as well as 

the consulting firm, Global Insights, to come up with these numbers. The main reason for the revision is the macroeconomic analysts now are having a re-look at the impact of productivity, which 

is such a big part of that sharp growth we saw in the 1990s and 

even in the early part of this decade. We now see less productivity 

over the next couple decades. 

There also is some effect of the higher energy prices in that lower 

GDP projection. 

The CHAIRMAN. Let me just ask one final question. Do you, in 

this projection, do you assume that the production tax credit for renewable energy will be renewed or that it will expire? 

Mr. CARUSO. We assume it will expire as the law currently indicates. We have run cases in the past where if you assumed extension in perpetuity it makes a huge difference in the renewable fuel 

numbers that are in the outlook. They would be significantly higher. 


Caruso030408a.eps
15

We have done that case in previous annual energy outlooks, and 

extension beyond 2008 would make a huge difference. 

The CHAIRMAN. All right. 

Senator Domenici. 

Senator DOMENICI. Thank you, Mr. Chairman. Let me start by 

saying the EIA projects that increased oil production will result in 

a gradually lower oil prices between now and 2016. However we 

have recently seen financial sector analyses which conclude that 

unprecedented investments will be required to merely maintain existing production levels from aging oil fields and projecting that 

100 million barrel per day may be the maximum production level 

possible in the near future. These production constraints are combined with concerns that demand appears to be increasingly inelastic. 

At Deutsche Bank, for one example, is forecasting the possibility 

of $150 per barrel of oil by 2015. I’m told that this is higher than 

your high case for that year. Can you explain the difference? 

Mr. CARUSO. Yes. I think the fundamental difference is that we 

do believe that the higher prices will stimulate more investment in 

the new development of liquid resources. I think it’s very important 

to make a distinction between crude oil alone which I think the 

Deutsche Bank report really focused on. 

For example, our latest outlook to 2015 indicates a total liquid 

demand and supply for 2015 of about 97 million barrels a day. Of 

that 97 million barrels a day only 77 million barrels a day is crude 

oil. There’s going to be a lot of unconventional liquids, including 

biofuels and other contributors to the supply—natural gas liquids 

for example. 

All that having been said, the main point that Deutsche Bank is 

making is that because of the decline rates in older fields, which 

I mentioned in our reference case in Alaska and the Gulf of Mexico, 

it still requires a huge investment effort. I’m not in any way belittling the effort it’s going to take. But we think that companies, 

with the stimulus of higher prices, will make those investments if 

access is available and the above ground risk is permitted. 

Senator DOMENICI. You identified LNG markets as a key uncertainty associated with the 2008 outlook. Is the EIA attempting to 

account for OPEC-like behavior among natural gas exporting nations in your existing model or updates to it? 

Mr. CARUSO. We don’t explicitly try to model a gas OPEC. But 

one thing we do to try to capture that uncertainty is the high and 

low natural gas price cases. For natural gas that makes a huge difference. 

With a high price case for natural gas you have a much lower 

demand for LNG. We see LNG as the marginal supplier to the gas 

market, so to the extent high, natural gas price reduces demand, 

we think most of that will come out of LNG. 

Another example of uncertainty is whether there will be an Alaskan natural gas pipeline, which we have in this outlook coming on 

stream in 2020 at two trillion cubic feet per year. To the extent 

that that either comes on later or sooner, almost all of that two 

trillion cubic feet per year would have to be supplemented by LNG 

to the extent that it would fall short of our timing or the volume. 

16

Senator DOMENICI. Now that pipeline is the one we’ve already 

approved. 

Mr. CARUSO. It’s still being——

Senator DOMENICI. I mean we did——

Mr. CARUSO. Yes, at the Federal level, but now it’s——

Senator DOMENICI. The State hasn’t completed——

Mr. CARUSO [continuing]. The State government is negotiating 

with the off-takers. 

Senator DOMENICI. Are they ever going to get that done, Senator? 

No, excuse me, I didn’t——

Senator MURKOWSKI. We are eternally optimistic. We are encouraging it every step. 

Senator DOMENICI. Great. Mr. Chairman, I have some additional 

questions. I’ll wait another round or submit them for the record. 

Thank you. Thank you, Mr. Caruso. 

Mr. CARUSO. Thank you, Senator. 

The CHAIRMAN. Thank you. 

Senator Craig. 

Senator CRAIG. Thank you very much, Mr. Chairman and Mr. 

Caruso. I think the points that both Senator Domenici and our 

Chairman made, are valuable for us to see that when policy is put 

in place that you can take it into the out years and make those 

kinds of projections. It is significant that a two million barrel a day 

impact out there in 2030 is powerful stuff. 

You’ve cast some doubt as it relates to the ability to get to where 

we want to get in relation to ethanol production or the nonpetroleum liquids. Let me use this as an example because our frustration has ended up in Senator Domenici introducing the Clean Energy Investment Bank. I’m a co-sponsor of that because we saw the 

Department of Energy, in our opinion, falling short in its ability to 

move expeditiously once we acted to bring on board loan guarantees, grants, those kinds of things to go out to the outer edge of 

science and technology to bring cellulosic production on line. 

I have been watching very closely a facility in Canada that is 

substantially financed. It now has a demonstration plant up and 

running. It seems to be working at a capacity of about a million 

gallons a day of cellulosic. 

For the last 4 years this particular company has been waiting for 

DOE loan guarantees and grant programs in order to get the financial backing they need to move up into the next level of commercial 

scale production. I guess my question comes to that. Have you considered these types of delays in your projections, those that might 

be tied to the ability of this government to move expeditiously? 

Have you considered that once proven on a commercial scale 

there will be a significant influx of capital? For example, into cellulosic, to get us to where we get in those out years with the numbers we looked at, 32 billion and beyond in gallons annualized. I 

think the only way we’re going to get there to meet those liquid energy non-hydrocarbon types of liquids is moving in an expeditious 

way there. Have those factors gone into consideration when you 

make these projections? 

Mr. CARUSO. Yes. We’ve tried to look as hard as we can at the 

economics and the technology. We’ve worked closely with the program offices in the Department of Energy—got their latest assessVerDate 0ct 09 2002 16:41 May 23, 2008 Jkt 040443 PO 00000 Frm 00020 Fmt 6633 Sfmt 6602 G:\DOCS\42513.TXT SENERGY2 PsN: MONICA
17

ment of how things are going and the time scale they’re on, particularly on cellulosic. 

Senator CRAIG. Yes. 

Mr. CARUSO. Which as you point out is really critical to being 

able to get to 36 billion gallons. 

Senator CRAIG. Right. 

Mr. CARUSO. We’ve got the corn ethanol going up rapidly. 

Senator CRAIG. Yes. 

Mr. CARUSO. Reaching 15 billion gallons as scheduled in the 

EISA. It’s the cellulosic component that we think may be lagging 

behind a bit, and fail to meet the targets that were set in EISA 

2007 by 2014 and 2015. 

There is a provision within the EISA as it amends the Clean Air 

Act that if the targets are missed by 20 percent or more for 2 consecutive years, the EPA Administrator can then adjust the volumes—and we have that being triggered. That’s the reason why we 

think that the cellulosic volumes will fall behind a bit, and that’s 

the reason that we come up with the conclusion that instead of 36 

billion gallons of alternative fuels in 2030, we project 32.5. 

Senator CRAIG. So that’s the shortfall? 

Mr. CARUSO. The shortfall is about 3.5 billion gallons from meeting the targeted amount in the bill. It’s largely the result of our 

assessment of where the technology and economics are at this point 

as we look out for 5 years. First of all to get to the 2012 target that 

was set actually in the EPACT 2005. 

Senator CRAIG. Yes. Yes. 

Mr. CARUSO. Then updated in EISA 2007. I think if someone 

were here from the program office they would say that they are 

really working extremely hard and spending a lot of money to try 

to facilitate the breakthroughs in that technology. But as of the 

time that we’ve consulted with them, we think this is a pretty realistic assessment. 

As time goes on we certainly would continue to work with——

Senator CRAIG. Yes. 

Mr. CARUSO [continuing]. NREL and other program offices to update that. 

Senator CRAIG. I don’t disagree they’re hustling now. But as a result of some heavy pushing on the part of many of us here and 

when I look at these numbers of dollars going offshore everyday 

verses putting some risk capital out there. Not quite sure where it 

takes us, but knowing that we’ve got to do it. 

I look at that as a reasonable risk investment in relation to 

bringing technology on line. I think many of us do here. That’s why 

we’ve urged it. Thank you. 

The CHAIRMAN. Senator Barrasso. 

Senator BARRASSO. Thank you very much, Mr. Chairman. Thank 

you very much, Mr. Caruso, for being here. You know the Washington Post business section front page story forecast for crude oil 

rise to $105 on new trading high was in today’s paper. They talk 

not just about supply and demand of oil, but also supply and demand of dollars in the world currency market. Do you try to take 

that into effect or into account as you try to work on some of these 

things? 

18

Mr. CARUSO. As you can imagine, trying to relate the influx of 

speculative money into the commodities market has been a topic, 

really, of heightened interest. Most recently, the direct correlation, 

it seems, between the decline of the dollar and moneys flowing out 

of foreign exchange index funds into commodity index funds—including oil—seems to have put some upward pressure on the price 

of oil and other energy. We have a short term modeling effort that 

we use to publish our short term outlook. 

In a hearing before Senator Dorgan 2 months ago, we tried to 

look at what is the impact of some of these other, what we would 

consider non-fundamental, factors. Our model does continue to 

show the track pretty well of fundamental factors with the trend 

of the price. But clearly during short-term periods other factors, including commodity index funds and geopolitical events do move 

that price above and below that trend analysis. 

To try to predict it is extremely difficult. 

Senator BARRASSO. Reading the report it almost seems like you 

think this is almost at a high point now. Then we’re going to look 

at a decline over the next number of years, almost cut in half of 

this price. So would this be something you would consider a bubble 

now—that we’re going to be able to work through? 

Mr. CARUSO. Yes. I think it’s difficult to say whether this is the 

peak because there’s so much uncertainty on the geopolitical front 

and on some of the issues such as the value of the dollar. In the 

longer run we do think, as I mentioned to Senator Domenici, that 

high prices do stimulate investment on the supply side. We’ve seen 

it in deep water in the United States, Brazil and Angola. 

We’ve seen it in unconventional gas with the shale gas, Barnett 

Shale, and in the Piceance Basin unconventional gas there. So we 

do think that over time the economics should prevail, but——

Senator BARRASSO. I mean you read the reports: does a company make an investment? At $100 barrel oil it pays to put in windmills, 

you know, solar panels all of these things that lower prices that we 

may be predicting for the future then it isn’t as cost effective to do 

it in terms of the return on the investment. So I’m trying to make 

that balance. 

Mr. CARUSO. Yes. That’s why we do the high price case—to say, 

what if we’re wrong. You know, we’ve been wrong for the last several years. So the track record is very clear. 

Senator BARRASSO. Last week we had some people here talking 

about the Strategic Petroleum Reserve. I think they’re putting 70 

million barrel—70,000 barrels a day which is about a million barrels every 2 weeks, 25 million barrels a year. The paper today talks 

about as long the supply and demand are still relatively tightly balanced there’s not a lot of spare production refinery capacity that, 

you know, any little incremental demand can spook a market or 

can drive prices disproportionate to that amount. 

I know you don’t make policy recommendations. But I don’t know 

if you share the information. Because we were discussing whether 

this is the wise time to be paying $100 a barrel to put 70,000 barrels a day into the Strategic Petroleum Reserve when we may be 

able to get it a lot cheaper next year or 5 years from now. 

Mr. CARUSO. You’re right. The direction is clearly upward. Again 

referring back to Senator Dorgan’s hearing in December, I was 

19

asked had we, had EIA been asked to do an analysis and at that 

time we had not. 

So I went back and as I promised I asked our people to look at 

that. I used 100,000 barrels a day as the hypothetical build for the 

first 10 months of 2008. Our analysis shows that it has about a $2-

per-barrel impact on the global market based on our, the same 

modeling effort that I mentioned. That’s about four or five cents 

per gallon converted into gasoline. 

Senator BARRASSO. Because it seems that just doing the math. 

I’m out of time, Mr. Chairman. To get from the 750 million barrels 

we have there now to the 1.5 billion that they’re trying to get to. 

You’re going to be putting, I mean, 70 to 100 thousand barrels 

a day for the next 25 to 30 years. So, ok. Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you. 

Senator Dorgan. 

Senator DORGAN. Mr. Chairman, thank you very much. First of 

all, Mr. Caruso, thank you for your report. I think I share the 

thoughts expressed by Senator Domenici and some others. I think 

there’s some good news in this report. 

I am struck however, you talked about trying to predict the short 

term issues is very, very difficult. Then we predict 2030. You know, 

we don’t know what’s going to happen in 24 months let alone 24 

years. What you have done is useful. 

Keynes used to say in the long run we’re all dead. We’re interested in the long run nonetheless, but I’m very interested in the 

short run. I want to ask you a couple of questions that relate to 

some things Senator Barrasso asked you because I have been very 

interested in this. 

When you did your modeling with respect to SPRO, taking oil out 

of the supply, putting it underground, you talk about $2 per barrel 

of oil. Did you consider that this is sweet, light crude as a subset 

and therefore will have a different impact on the price of oil? 

Mr. CARUSO. Yes. 

Senator DORGAN. You did. 

Mr. CARUSO. We did take into account the quality of the crude. 

We looked at what had been the impact of the different types of 

crudes, looking back over the past several years. 

Senator DORGAN. There are some who estimate that because it’s 

sweet, light crude it has as much as a 10-percent influence on the 

price. I want to talk about two things. I want to talk about SPRO 

and I’ll come back to that in a moment. 

I want to talk about this issue of the markets setting the price 

that have a disconnect to supply/demand. In today’s newspaper it 

talks about Lawrence Goldstein, an economist at the Energy Policy 

Research Foundations says that yet, ironically you’re looking at triple digit oil prices because the price is being set by non-physical 

investors. Wall Street Journal has an article talking about hedge 

funds and the excess speculation of hedge funds in the futures market. 

It talks about investment banks and the new speculation in the 

new futures market for oil by investment bankers who are actually 

off buying storage, a new phenomenon. Investment banks can take 

oil off the market, put it in storage and wait until the price goes 

20

up. So you have a substantial amount of additional speculation in 

the futures market. 

We have Fadel Gheit who’s an analyst with the Oppenheimer 

Company said at this table. He says, ‘‘There is absolutely no shortage of oil. I’m convinced oil prices shouldn’t be a dime above $55 

a barrel.’’ That was 3 months ago. 

Oil speculators include the largest financial institutions in the 

world. I call it the world’s largest gambling hall open 24/7. Unfortunately it’s totally unregulated. This is like a highway with no cops 

and no speed limit. Everybody is going 120 miles an hour. 

I am fairly convinced and I’m not an expert in this area. But I’m 

fairly well convinced that in the short term what we have is an unbelievable amount of speculation in these futures markets, which 

means, in the short term, that you move away from the supply/demand relationships we are led to expect would set the price. That 

we now have, as I related to this morning’s quote about the price 

being set by non-physical investors. Tell me your analysis of that, 

Mr. Caruso. 

Mr. CARUSO. The way we’ve approached that, as I did at the 

hearing in December, is looking at the short term factors, the fundamental factors—typical macroeconomics, supply/demand, inventory levels and spare productive capacity. We looked and tracked 

that as to the history, and the tracking was reasonably good in 

terms of the kind of modeling characteristics. 

We were sometimes a little below, sometimes a little above. Our 

trend-line analysis indicated that those fundamental factors can explain most of the change in the price over the last 5 or 6 years. 

That’s what we’ve been using in our short term outlook, which currently, by the way, is about a $90 price. So $100, $104, I think it 

may have reached today——

Senator DORGAN. Have you had a? 

Mr. CARUSO [continuing]. Means that there’s something else 

going on. 

Senator DORGAN. Right. 

Mr. CARUSO. There’s clearly been a surge in moneys coming into 

commodity markets, including energy, which has had some upward 

effect on the price above the trend line. Then we’ve seen other periods where you see that money, the open interest, actually go down. 

So there have been periods over this 5 to 6 year timeframe where 

it’s actually gone above the trend and also gone below the trend. 

So I think something is clearly going on. As I mentioned earlier 

it is very difficult to say whether that number is $5 or $10. But 

I would, I think, strongly disagree that it’s $50. 

Senator DORGAN. Yes. The implication of your answer is that 

there’s about a 10-percent increase as a result of speculation. At 

least when you said your number is 90, it’s 103. 

Let me ask you. Have you reached out and talked to the analysts 

who have been describing this publicly? Their analysis, that as 

they review these things there’s no justification for the price above 

$50, $60, $70. Whatever it is they conclude. 

Have you reached out and talked to those folks to understand 

their analysis? 

21

Mr. CARUSO. Yes. We talked to them all the time. In fact we have 

them in and have what we call forecasting seminars to try to understand what we find. 

When we meet with many of them they really don’t have a quantitative assessment. It’s mostly a qualitative assessment. 

Senator DORGAN. You shook your head affirmatively when I 

talked about the hedge fund positions in the futures market and 

the investment banks. Investment banks buying storage. You know 

all those things? 

Mr. CARUSO. We have the same information that is publicly 

available. We don’t have any, you know, we don’t get any reporting 

directly from those entities. 

Senator DORGAN. You think that entry in those futures markets 

on the demand side has an impact on price? The question is just 

what impact. 

Mr. CARUSO. I think it has had some impact. As I pointed out 

earlier, in some cases we’ve actually seen where that impact has, 

compared to our trend line analysis, actually been below it. When 

in some cases they’ve perceived for whatever reason that they 

should go short and actually had to——

Senator DORGAN. I understand. But I’m talking as you——

Mr. CARUSO. Right now it’s been mostly upward. 

Senator DORGAN. I don’t mean to be talking about the manure 

and you keep talking about the pony. But the fact is what we’re 

seeing at the moment is a trend line of substantial new speculation 

in futures market that’s putting upward pressure on prices beyond 

that which would normally exist with the supply/demand relationship. 

Mr. Chairman, are you going to have a second round because I 

do want to ask about SPRO at some length, but——

The CHAIRMAN. Yes, we certainly will. 

Senator Murkowski. 

Senator MURKOWSKI. Thank you, Mr. Chairman. Thank you, Mr. 

Caruso. I want to go back to the gas line that Senator Domenici 

raised. 

I think the last time we had the forecast that you presented we 

were again pushed back an additional 2 years. As I think I commented at that time that every time you come in and calculate 

where the Alaska gas line in the natural gas equation. We’re 2 

years further. I don’t know if I want to see you next year if that’s 

going to be the prognosis. 

Mr. CARUSO. I think that’s a safe assumption. 

Senator MURKOWSKI. I would like to think that we’re going to 

have this gas line. I do remain eternally optimistic that the State 

and the industry will figure out how we advance this. My question 

to you is what degree of confidence do you have that Alaska gas 

does become part of that picture? 

2020 is a ways off now. In the interim the economy of the lower 

48, the rest of the country is going to be seeking that gas from 

somewhere. You’ve noticed some of the factors in your report, extra 

LNG, re-gasification capacity. 

If some of those issues can be worked out does the Alaska gas 

get locked out of the market at some point in your calculation if 

in fact those commitments have not been made? 

22

Mr. CARUSO. I don’t really think so. The reason is that we see 

the LNG as being more of a supplier on the margin because there’s 

such a long lead time, as you know, in the building of that line. 

There will be a large advance notice once the construction starts. 

We’re thinking it’s, at least, probably a 9-year process. So I don’t 

think that just the existence of new re-gasification terminals will 

deter the pipeline. As is noted in our report, the ones that are 

under construction, under permit and construction, are double 

what we think LNG imports will be in 2030. 

Senator MURKOWSKI. What about domestic shale opportunities 

that you’ve noted that you expect some increase in production 

there? 

Mr. CARUSO. Shale gas? 

Senator MURKOWSKI. Yes. 

Mr. CARUSO. Yes, I think that’s directly related to the price, to 

the extent that the natural gas price stays high. We could even see 

more shale gas under the reference case price scenario. We have 

that as the fastest growing source of domestic gas in this outlook. 

So it is important, but I don’t think it’s enough to lock out Alaskan gas. We think the economics of Alaskan gas under our current 

estimate, which is, as you know, subject to change as costs go up, 

still make it very attractive. 

Senator MURKOWSKI. Let me ask then about oil production. Yes? 

Senator DOMENICI. Can I ask for clarification? You and Mr. Caruso were speaking about shale gas. That’s not the shale oil in Colorado. That shale gas, where does it come from? 

Senator MURKOWSKI. It’s from Colorado, but there’s some newer 

opportunities over on the East Coast that is being explored right 

now. 

Mr. CARUSO. The biggest places for shale gas right now are in 

Texas and Oklahoma, the Barnett Shale. There’s also some in the 

Rockies as well. But it’s not directly related to the shale oil prospect. 

Senator DOMENICI. Shale gas is just a gas that you can get out 

of the ground——

Mr. CARUSO. Exactly. 

Senator DOMENICI. It’s called——

Senator MURKOWSKI. Oil deposits, yes. 

Mr. CARUSO. Yes, sir. 

Senator DOMENICI. We’re not using a version of shale. 

Mr. CARUSO. No. 

Senator DOMENICI [continuing]. Up in Colorado, that’s not even 

in the equation yet. 

Mr. CARUSO. It’s gas produced from a shale formation, much like 

the Bakken shale in North Dakota is now producing a fair amount 

of new oil. 

Senator DOMENICI. Thank you, Senator. 

Senator MURKOWSKI. With the oil production you’ve indicated 

that you expect to see domestic oil production rising because of 

what we’re seeing with the high prices. That’s going to encourage 

enhanced oil recovery but then we’re going to see a decline there. 

But we’re not necessarily seeing any new areas of production of domestic supplies of oil coming online. 

23

So, what does it look like 10, 20 years from now, if in fact, we 

have no new oil production domestically? Of course, this will then 

lead to my next question about the Alaska production. As you know 

there is a point where our Trans Alaska pipeline reaches a level 

where the flow of oil within that gas line requires or mandates that 

that line be shut down because you cannot efficiently, you can’t 

move it down the line. 

So if we don’t have increased production up North whether 

through ANWR or NPRA or any of the other opportunities that we 

have. We not only lose what remains up in the North Slope in 

terms of the production that we’ve been seeing. Give me the scenario for oil domestically if we don’t see those new areas of production. 

You have the Alaska line going down. The way I describe it, it 

sounds pretty grim. But can you speak to that? 

Mr. CARUSO. I think the only area where we see new production 

coming on line in this outlook is the deep water of the Gulf of Mexico. The other increase is in enhanced oil recovery, which has been 

stimulated by the higher prices. We’re seeing some of that on 

shore. 

But due to lack of access we really don’t see any new significant 

increases. As you pointed out that we have a continued decline in 

Alaska, although we do have the line continuing—the TAPS, Trans 

Alaska Pipeline System—continuing to operate throughout this 

timeframe. 

So, we have a short term gain which goes from about five million 

barrels a day in domestic crude oil production this year to a bit 

over six million in 2016. Then the decline continues again so that 

by the end of the 2030 timeframe we’re about back to where we are 

now, a little over five million barrels a day. So we have a short 

term increase in domestic supply of crude and then a decline. 

Senator MURKOWSKI. Did you do a run to assess the impact on 

prices if we were to be successful in opening ANWR in an analysis 

in terms of the cost? 

Mr. CARUSO. We have not done that analysis, Senator. 

Senator MURKOWSKI. I know that you had done it in previous 

years anticipating what——

Mr. CARUSO. Oh, opening——

Senator MURKOWSKI [continuing]. A million barrels of extra production would be. 

Mr. CARUSO. I’m sorry. Yes, we did do that in previous years. We 

have not done it for this Annual Energy Outlook. But we had done 

that at the request of Congress. I think the last one we did was 

2007. 

Senator MURKOWSKI. There are many of us who still believe that 

having an additional million barrels into production domestically 

would help with the price in this country and make a difference, 

so. Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you very much. Let me ask a few additional questions. Then we’ll just proceed here through our second 

round. 

24

* Charts have been retained in committee files. 

I passed out a couple of things to you there. One is a chart* that 

called U.S. mid range abatement curve. This was developed by 

McKenzie and Company. 

It’s included in a publication by McKenzie and Company that the 

conference board came out with on reducing greenhouse gas emissions. How much would it cost? The other chart is similar but I’m 

trying to determine who prepared it. It looks like it’s prepared in 

Europe because it’s Euros per ton of CO2 reduced. 

I guess what my initial idea from reading these is that this 

would be a very useful thing for us to have agreement on, if we 

could, for purposes of making policy. If in fact these are accurate 

and you can reduce greenhouse gas emissions much more substantially through building insulation which is what this one chart indicates, then you can through a voided deforestation over here on the 

right or one other of the items on the right. Then clearly that’s 

where we ought to concentrate our efforts; on the areas that the 

greatest bang can be achieved for the dollar spent or the Euros 

spent or whoever spending it. 

Senator DOMENICI. Where did you find that? 

The CHAIRMAN. I’m looking at this chart now. You see building 

insulation is the on the far left hand which indicates that you save 

substantial amount of money by investing in building insulation, as 

I read this. 

Senator DOMENICI. All those things. 

The CHAIRMAN. Yes. All of those on the left you save a lot of 

money by going ahead and doing. On the right it’s going to cost you 

money. Then you get into the question of whether it’s worth the 

cost involved to go ahead and do those things. I mean in terms of 

the impact on the environment and other questions. 

But I guess I have two questions. First whether you have reviewed these particular charts and have any opinion on whether 

they are valid or whether your agency is capable of giving us an 

assessment of your own version of this so that we could have that 

for policymaking purposes. I think it would be very useful if we 

had a consensus within the Federal Government and within the 

country on what abatement measures yield the greatest results in 

terms of greenhouse gas emissions. 

Do you have any reaction to this? 

Mr. CARUSO. Yes. I think the answer to your question is we 

would certainly take a crack at it and do our best. The couple comments are that some of these have already been implemented in 

the EISA bill. 

The CHAIRMAN. Right. 

Mr. CARUSO. Some of our people have been in contact with the 

McKinsey analysts and have some disagreements as you might expect. I don’t know what the actual costs are. So clearly we 

wouldn’t—our numbers would be different and we’d be happy to 

take a crack at it. 

The CHAIRMAN. I’d appreciate it if you would. I would request 

that you do that. You know one obvious example of where I think 

we’re not in agreement on how to make policy is the President’s 

budget suggests we eliminate the Weatherization program. 

25

If in fact the greatest bang for the buck is putting more money 

into building insulation you would think we would want to go 

ahead and do that. So that’s——

Senator DOMENICI. If it was being done effectively. 

The CHAIRMAN. Yes. I think you’d want to know that. But presumably there’s some assumption built in here that it can be done 

effectively. 

Senator DOMENICI. Oh, of course. 

The CHAIRMAN. If it’s done effectively you have tremendous savings. I’ve never heard anybody argue that the reason we’re not 

funding weatherization at the Federal level this year is because we 

don’t think it can be effective. I mean it’s just a question of priority 

of that compared to other things we want to put money into, as I 

understand it. So, at any rate I would appreciate it. 

Let me ask one other question. 

Senator DOMENICI. Senator, what is it that you want him to do? 

The CHAIRMAN. I would like him to see if he could look at these 

various graphs that we’ve distributed here and come up with their 

own. 

Senator DOMENICI. Ok. 

The CHAIRMAN. So that they would be telling us that in their 

opinion there are certain abatement measures we could take that 

would be the highest yielding in terms of greenhouse gas emission 

reductions. There are others that are going to cost us a lot more. 

Senator DOMENICI. I think that’s an excellent idea in general. 

Excuse me for interfering. 

The CHAIRMAN. No, go ahead. 

Senator DOMENICI. But I think some experts have concluded that 

these are the effective items. Shouldn’t he be permitted to consider 

others? 

The CHAIRMAN. Oh, sure. If there are some other measures that 

you think make more sense than the ones on these charts. But the 

McKenzie one, the way it was represented to me, is they looked at 

250 different options for abatement of greenhouse gas emissions, 

and tried to rank those in order of highest yielding—lowest or highest cost then lowest yielding. 

If you can come up with more than 250, I’d be glad to have you 

include more. 

Mr. CARUSO. Our comparative advantage, of course, is in those 

options directly related to energy and some of these are non-energy. But we will certainly do our best—— 

The CHAIRMAN. Ok. 

Mr. CARUSO [continuing]. Using what is in our database and our 

technology database. 

[The information referred to follows:]

The greenhouse gas abatement curve from page 20 of Reducing U.S. Greenhouse 

Gas Emissions: How Much at What Cost by McKinsey and Company is based upon 

a complex methodology and numerous assumptions. EIA is working with McKinsey 

and Company to better understand the methodology and assumptions used. The 

greenhouse gas emissions abatement options contained in the report are based on 

energy projections contained in EIA’s Annual Energy Outlook 2007. EIA hopes to 

assess the impact of updating the baseline to the Annual Energy Outlook 2008 reference case, which reflects the Energy Independence and Security Act of 2007; provide some insights on the general approach used in the McKinsey report; and provide greenhouse gas marginal abatement supply curves derived from National Energy Modeling System simulations. For now, EIA recommends that reviewers careVerDate 0ct 09 2002 16:41 May 23, 2008 Jkt 040443 PO 00000 Frm 00029 Fmt 6633 Sfmt 6621 G:\DOCS\42513.TXT SENERGY2 PsN: MONICA
26

fully note the caveats contained in the McKinsey report. For instance, McKinsey’s 

analytical approach does not consider the cost of regulation, implementation, and 

any related Federal funds. For example, taking Chairman Bingaman’s weatherization example, the McKinsey study does not specify any of the policy options that 

might be necessary to induce homeowners to improve building shell efficiency, such 

as price incentives or mandated building standards. On page xiv of the Executive 

Summary, under the abatement section that would include weatherization, they 

state, ‘‘While this category of abatement options would cost the least from a societal 

point of view, persistent barriers tomarket efficiency will need to be overcome.’’ 

Similar caveats about costs and policy options appear on pages 3 and 32 of the report. Additionally, the savings shown in the McKinsey study are based on optimal 

sequencing among demand-side and supply-side options. EIA believes that the sequence in which carbon-mitigating measures are implemented will have a bearing 

on their effectiveness and costs. For example, if weather stripping and energy-efficient windows are installed after wind-power generation is added to the grid supplying electricity to that home, the carbon-saving value of the weatherization program would be diminished.

The CHAIRMAN. That would be great. Let me just ask one more 

question. Could you give us a sense of how much of EIA’s forecasted biodiesel consumption is expected to come from imports? 

I know that our domestic biodiesel industry is going through a 

difficult period here. What do you project in the future as far as 

imports of biodiesel verses domestic production of biodiesel? 

Mr. CARUSO. In this particular outlook we don’t have any finished biodiesel imports as part of biodiesel supply. The reason is 

because the $1 per gallon tax credit is set to expire after 2008. The 

second reason is that the EISA requirement for one billion gallons 

of biodiesels per year after 2011 is well within the domestic biodiesel capacity. 

So we think that the domestic biodiesel industry will be able to 

provide supply competitively. Therefore we don’t expect finished 

biodiesel imports. We do expect perhaps some palm oil imports 

which would then be used as an input or a feedstock to create biodiesel. But in this outlook we don’t have any finished biodiesel imports. 

The CHAIRMAN. All right. 

Senator Domenici. 

Senator DOMENICI. Mr. Chairman, I want to say to you that I 

thought this was a very important hearing. For the first time for 

this Senator, I was exceptionally pleased to find that we have a 

credible agency finding that legislation that we spent a lot of time 

on—that we were told would have a big impact on American people 

in terms of oil imports and CO2 emission—that we did it, part of 

it after many years of contrarianism. It is rather refreshing to find 

that what we did is really effective. 

I think Senators that worked on it with us ought to know that 

there are certain things that we can do. They’re hard, but these 

were very effective. I think there are a few left. Lots of them left 

when you get to CO2. 

I still think our energy challenges could be devastating. I want 

to close my remarks without a question by saying I believe, as I’ve 

said publicly, that the cost of oil is so high when compared to previous eras when we were so dependent and oil was $10, $20 a barrel, that I think it is making us poor. 

I think we are just literally getting poorer because so much of 

our wealth must go for this. We get nothing. You know there’s no 

27

quid pro quo from the standpoint of our own growth, and I think 

our dependence on foreign oil is causing very serious consequences. 

I think the people don’t know what they’re feeling, but they’re 

feeling this along with many other things. This is part of the real 

hardship feeling among our people. I think it’s going to get worse. 

That’s why I think a little good news is important. This is good 

news. Maybe if we find a few more, we should try to take a chance 

on them. I want to say, one example would be the offshore drilling 

that was such a success in bidding. You know, some of the Floridian waters we released in a bill that we fought hard for had had 

a moratorium on them. 

I think it’s incumbent upon us as energy leaders to see what else 

we have in the offshore that we could take a look at. I think to just 

leave it out there because people have been crying moratorium is 

irresponsible. A moratorium made sense perhaps with $10 a barrel 

oil. It may not make sense with 110 from the standpoint of an impact on the American people. Thank you. 

The CHAIRMAN. Thank you very much. 

Senator Dorgan. 

Senator DORGAN. Mr. Chairman, I would say to Senator Domenici, the same principle I think holds true with respect to a moratorium or an issue of filling SPRO. What might hold true at $27 a 

barrel oil may not hold true at $103 a barrel oil. I want to come 

back to the SPRO issue. 

That is that when oil is bouncing around $100, $200 and $3 a 

barrel and you’re pulling up to the gas pump and paying a lot of 

money for a gallon of gasoline. I understand what you have said 

today is that the activities of the Federal Government at this point 

to put oil underground is increasing the price of gas. You say about 

four or five cents a gallon right? 

Mr. CARUSO. Yes, sir. 

Senator DORGAN. Five cents a gallon? 

Mr. CARUSO. Yes, sir. 

Senator DORGAN. So, I mean, you look at the numbers of this. 

Others say it has a higher impact because it’s a subset of oil, sweet, 

light crude which is pretty valuable subset of oil. But at any rate, 

the decision by our government to at record prices of oil be taking 

oil out of the supply side and sticking it underground has the impact of increasing the price of gasoline. 

Mr. CARUSO. That’s correct, sir. 

Senator DORGAN. I have a piece of legislation I’ve introduced 

here in the Congress. I’ve changed it since I’ve introduced it. I’m 

probably going to offer it to the bill that’s on the floor today that 

would shut down, have a pause for at least 1 year if the price of 

oil is above $75 a barrel. 

It seems to me that just as Senator Domenici talked about a 

moratorium might be useful in one circumstance, but not another. 

I happen to on the Lease 181, just to go back to that point. I happen to think we ought to go back again and try to get more of that. 

We pared that back. You know the four of us that introduced the 

original legislation to be able to get some additional resources out 

of the Gulf of Mexico. It was a broader piece of legislation which 

I support. 

28

We had to pare it back in order to get it passed, but I think with 

the price of oil where it is, we ought to go back and revisit a portion of that and try to get more. If you look at where the potential 

is, the Gulf, off the West Coast or Alaska, by far the most significant capabilities come from the Gulf if you just look at the three. 

So I’d like to see us go back and get more of what was Lease 181. 

But at least at the moment what I’m hoping we’ll be thoughtful 

as a Congress in how we address these things. The issue of buildings as being the biggest bang for the buck in conservation makes 

a lot of sense to me. So there’s a lot of things we can do. 

But there’s a lot of things we shouldn’t do. We shouldn’t sit 

around and take a look at the increased speculation in the futures 

market and say well, that doesn’t matter. We don’t maybe understand it, but it doesn’t matter. I think it does matter with respect 

to the price of oil. On this issue of SPRO, my belief is that at $100 a barrel for oil, 

we ought not to be taking oil out of supply and increasing gas 

prices. That ought not be an affirmative action by the Federal Government. That’s just dumb headed in my judgment. 

So I’m hoping that we can stop that. I’m hoping a group of us 

would say this has nothing to do with the oil companies. It has to 

do with the public policy by the Federal Government. 

Now you’ve said earlier, Mr. Caruso, that you don’t make policy 

and you don’t recommend policy. You come and give us the numbers and I appreciate that. I did want to say that I think your report does describe a couple of things that are important. 

I and some others on this panel felt that we should move on 

CAFE ́ . So we moved on CAFE ́ standards. Your analysis is that’s 

going to have a significant impact going forward. We opened up 

some additional production. That has an impact. 

There’s a series of things we’ve done with respect to renewable 

fuels. Tell us again the significant portions of policy from the legislation that we have completed here in the Senate that you think 

give us the best opportunity in the longer term to be less dependent on foreign oil. 

Mr. CARUSO. The three are the CAFE ́ standards, and any others 

that would improve vehicle efficiency, efficiency standards for appliances and other equipment, and the renewable fules standard 

that has already been passed in EISA. But as Senator Bingaman 

indicated in this cost abatement curve there are probably areas 

where more could be done. 

Senator DORGAN. Lighting standards are important? 

Mr. CARUSO. Yes, sir. 

Senator DORGAN. You know, we did, I believe SEER 13 standards 

for air conditioning. I mean those things sound like a foreign language to people. But the fact is these required efficiencies that 

we’ve been pushing on and been successful in have made a big difference. Haven’t they? 

Mr. CARUSO. They definitely have. I think the results are clear 

with both the RFS and CAFE ́ with 2.4 million barrels a day less 

oil demand in this outlook than there was a year ago. The cumulative reduction in carbon dioxide emissions which I mentioned—

you can attribute over five billion tons to the energy bill that you’ve 

passed. 

29

Senator DORGAN. Mr. Caruso, if you were running things, you 

wouldn’t be putting oil underground at this moment, would you? 

Mr. CARUSO. I have to defer that to my bosses at this point. 

Senator DORGAN. All right. Mr. Caruso, thank you. 

The CHAIRMAN. Senator Sessions. 

Senator SESSIONS. Thank you, Mr. Chairman. Mr. Caruso, I likewise have been intrigued but I likewise have a concern about storing this amount of oil at the current high prices. Let me ask you 

about domestic production. 

It seems to me we that have more interest in this country than 

just CO2 reduction. Would you agree that national security is an 

important issue for us? 

Mr. CARUSO. Definitely, sir. 

Senator SESSIONS. That cost for the consumer is an important 

issue? 

Mr. CARUSO. Yes, sir. 

Senator SESSIONS. It seems to me that the producing of oil and 

gas in this vast land of Alaska, ANWR or off our shores meets 

those standards. It helps us be more energy independent. It 

wouldn’t be produced if the producers didn’t think that they could 

make a profit by producing it cheaper than we could buy on a 

world market. 

What about the national interest in maintaining more of our 

wealth? If we don’t produce oil and gas in our Nation, that does 

not mean we won’t utilize oil and natural gas. We’re going to see 

more natural gas imported. We’re going to continue to see a rise 

in imports of our oil. 

For those who are trying to stop the utilization of oil, I don’t see 

how they’re making any progress overall other than denying us the 

right to produce what we have here. 

Would you agree that there are a lot of economic and other reasons for producing oil and gas at home rather than sending our 

money to Venezuela and other places that seem to be hostile to our 

interest? 

Mr. CARUSO. Yes. That’s what our analysis indicates to the extent that new regulations and law would support that—it would reduce oil imports and reduce our trade deficit as well. 

Senator SESSIONS. It would create jobs in the United States instead of jobs in Saudi Arabia or Iran or Venezuela, the countries 

that are producing so much of the world’s oil and gas. 

Mr. CARUSO. Yes, sir. 

Senator SESSIONS. It creates revenue whenever there’s a production of oil and gas either to the Federal Government and now to 

some degree in the Gulf of Mexico. The States are able to receive 

some of those royalties from the sale of the oil and gas instead of 

having those royalties go to a foreign country when we consume it. 

We’re helping those States with their financial condition as well as 

the jobs created in those States. Wouldn’t you agree? 

Mr. CARUSO. Yes, I agree with you. We need a significant amount 

of investment to meet the projected demands I mentioned to Senator Murkowski—earlier that the decline rate in the older fields 

alone requires significant new investments just to maintain our 

production levels even at the level that they’re at now. 

30

Senator SESSIONS. I just couldn’t agree more. I just don’t agree 

with that we have an emotional feeling that if we produce oil and 

gas off our shores and in Alaska and in throughout the United 

States that we’re not producing today that’s somehow this makes 

us more dependent on oil and gas than we would be otherwise. 

Really I don’t think that’s true. 

I think it helps our economy. It helps our Nation. It helps create 

jobs. 

To me one of the things that seems to be a possibility, a real possibility, of a practical breakthrough solution of large proportions 

would be the continual improvement of the hybrid and a plug-in 

hybrid or fully electric automobile improved batteries. Would you 

agree that we’re making some progress toward that? In your projections what kind of projections do you make? 

Mr. CARUSO. We do have a significant increase in the alternatively fueled vehicles in this outlook, including hybrids. We do 

not have much if at all of the plug-in version of the hybrids as of 

now mainly because battery technology still is not sufficient to, we 

think to——

Senator SESSIONS. This day it’s not. But there was an article in, 

a big article, in Barron’s recently about oil and the problems with 

oil and the individual who promotes clean fuels at Toyota, that’s 

his job within the corporation. 

If you read the article carefully, it concludes that the future lies 

with plug-in hybrids. He indicated nuclear energy. So the combination of clean nuclear energy that could charge the batteries of our 

automobiles and could drive throughout the day would be a huge 

breakthrough if that could be made a reality, would it not? 

Mr. CARUSO. It definitely would be a huge potential if that battery technology can be developed at a reasonable cost. So many of 

our miles are driven fairly close to home, so plug-in hybrids have 

great potential, but based on our current assessment the battery 

technology isn’t there yet. 

Senator SESSIONS. If we continue to work it you would have the 

potential of reducing CO2. You would have the potential of reducing 

our dependence on foreign oil. Maybe, break the tide of tight supplies a little bit and take us in the right direction. 

So it would help us meet our CO2 goals as well as our economic 

goals. Thank you, Mr. Chairman. 

The CHAIRMAN. Senator Salazar. 

Senator SALAZAR. Thank you very much, Senator Bingaman for 

this hearing. Director Caruso, I guess first I have some questions 

concerning your charts. If I look at figure 2 where you have world 

oil prices are higher in 2008. You have your projections out into the 

future. 

If I’m reading that chart correctly, now in 2008, what you have 

us there is about $85 or so a barrel. Then moving on down to 2015, 

it seems that we’re around $58 or so a barrel. How confident are 

you? What’s the basis for you making that kind of prediction that 

we’re going to go down from $100, I guess it’s $103 today or something like that, down to $58 a barrel in 2015. 

Mr. CARUSO. This is our reference case. We use that as our, you 

know, base case. So it’s our view that the longer-term impact of the 

31

current high oil prices and high prices we’ve experienced for several years will lead to two things. 

One, more exploration and development and investment in the 

upstream that will bring on both conventional and unconventional——

Senator SALAZAR. Let me ask you this question. I mean, from my 

point of view, you know, and from many people I talk to, we’re 

looking at, I think at $100 a barrel oil today. We see China coming 

into the market and competing for finite resource. We see India 

and others, rest of the world coming on board. 

I’m not confident in these projections in any way, shape or form. 

I mean, it seems to me if we’re at 100 dollar a barrel oil today that 

we may very well be there in 2010 and 2012 and 2015. Now your 

conclusion, as the expert that’s informing us is that that’s not the 

case. That by the year 2015 you think we’ll be down to $58 a barrel. Are you confident in that conclusion? 

Mr. CARUSO. No, I think the way I’d rather characterize it is that 

that’s one scenario. But we also recognize that we’ve been wrong 

and been too low in our price projections in the last several years. 

That’s why we also do a high price scenario which is in the same 

chart, where prices essentially don’t retreat. They just keep going 

up—in fact, reach in nominal terms $185 by 2030. 

So our view is we need to do this on a risk basis. We think 

there’s a significant risk that the reference case could be wrong, 

and therefore we should look at the high price case. 

Senator SALAZAR. Just a factual question for you on that same 

chart why is it that you would have the high water mark there for 

2008 at approximately $80 to $83 a barrel when in fact we’ve gone 

up to $100. 

Mr. CARUSO. That’s the annual average, so it averages the 

whole——

Senator SALAZAR. So if we look at the 2008 average that’s what 

you will predict it will be is around $80. 

Mr. CARUSO. That’s our current assessment, $85. 

Senator SALAZAR. Let me ask you, moving onto figure 4 on the 

liquid fuel consumption, following up on my colleague Jeff Session’s 

comments there. I see us at, you know, approximately 15 million 

barrels per day in 2010 for the transportation sector and that trajectory continues to move upward into 2020 and 2030. If we were 

able to move forward with some of the policies that have been advocated by Senator Sessions, Senator Bingaman, myself, with respect to advance vehicle technologies and plug-in hybrids, could 

that projection come down? 

Mr. CARUSO. Yes, sir. Definitely. It’s come down as I mentioned 

earlier by about 2.4 million barrels a day just from what you did 

in EISA 2007. 

Senator SALAZAR. That was based on the increase in CAFE ́

standards. 

Mr. CARUSO. CAFE ́ standards, yes, sir. 

Senator SALAZAR. Ok. 

Mr. CARUSO. We do have a significant increase in alternatively 

fueled vehicles as part of the fleet mix, but as I mentioned to Senator Sessions, it doesn’t include hardly any plug-in hybrids. So a 

breakthrough in that area would change that number and to the 

32

extent it changes it would really depend on how significant the cost 

reductions would be in battery technology. 

Senator SALAZAR. So just a comment to my friend, Jeff Sessions 

from Alabama, you know I always talked about the set America 

free agenda as a way in which we could unify the country especially because of the foreign policy and implications here. I think 

that when we talked about these advanced vehicle technologies and 

moving forward with hybrid plug-ins and the like, I think it’s an 

absolute agenda that’s an imperative for us. I hope we’re able to 

do a lot more with that. 

Let me move to on figure number 7, you have set forth the projections with respect to renewable fuels. We were very active in 

pulling the RFS together out of this committee. Are those projections that you have there for 2020 and 2030 around the different 

items that are part of this RFS portfolio from your point of view 

achievable? 

Mr. CARUSO. Yes, sir. The projections we have are achievable. We 

do show a relatively small shortfall compared with the EISA values. 

As I mentioned, instead of 36 billion gallons in 2030 we are in 

this outlook assuming or projecting 32.5 billion and the main reason for that shortfall is the assumption on the ability of the cellulosic portion of that EISA requirement to be met. There are provisions that if along the way any component does not meet the 

EISA requirements, the EPA Administrator has an option to adjust 

that. Therefore, we have a small adjustment around 2016 and then 

again in 2022. 

Senator SALAZAR. Mr. Chairman, may I ask one more quick question? 

The CHAIRMAN. Sure. 

Senator SALAZAR. The amount they have for cellulose based ethanol. I look at 2020 and that looks, your projecting about 2.5 billion 

gallons. My understanding from those who are involved at the National Renewable Energy Lab in Golden, Colorado as well as the 

company that is putting forward a demonstration project in Georgia, they believe they’re about a year away or so from being able 

to move forward with the commercial deployment of cellulosic ethanol. 

If they are correct that we are within a year or two from being 

able to commercially deploy cellulosic ethanol would these numbers 

change looking out at 2020 and 2030 with respect to the green portion of the graph where you have those allocations for cellulosic 

ethanol? 

Mr. CARUSO. I don’t have the details of what the Georgia company and the NREL have said, but we do think that if there are 

significant breakthroughs in technology, these numbers would 

change, definitely. They’re based on our best current judgment having talked to the NREL people as to where they are right now and 

where they might be by 2014 and 2015 when they have to meet 

these certain targets. 

As of now this is our best judgment. But I definitely agree that 

there’s a great deal of uncertainty in this, and that if some of these 

technological breakthroughs occur these numbers would change upward. 

33

Senator SALAZAR. Thank you very much, Administrator Caruso. 

The CHAIRMAN. Thank you. 

Senator Murkowski. 

Senator MURKOWSKI. Thank you. Mr. Caruso, on the alternative 

energies and the renewables, you are predicting some good increases and you just spoke to that to Senator Salazar. But in terms 

of the market share that we see coming from the renewable energy 

sector. 

If I understand your presentation here, you only anticipate it to 

grow by a few percentage points over the next couple decades. Why 

is it that we don’t see a more pronounced growth then? You mentioned to somebody and it might have been to Senator Dorgan that 

your analysis does not include a continuation of the production tax 

credits that we have. Is that part of the reason? 

Mr. CARUSO. It’s definitely part of the reason, yes. The assumption that the renewable, I mean the production tax credit for renewables is allowed to expire at the end of 2008 makes a huge difference in the——

Senator MURKOWSKI. What would it look like? Did you do the 

analysis? 

Mr. CARUSO. We have done it; I think Senator Bingaman has 

asked us to do that. I would hesitate to want to give you a number 

off the top of my head, but I remember it being a significant 

change. I would be happy to provide that for the record. 

[The information referred to follows:]

In its Annual Energy Outlook 2008 (AEO2008) reference case, EIA assumes, consistent with laws in effect as of January 1, 2008, that the production tax credit 

(PTC) for new wind and other renewable generation will expire at the end of 2008. 

The Congressional Joint Committee on Taxation (JCT) requested that EIA model a 

scenario assuming a 10-year extension of the PTC based on the current structure 

of the law. By 2018, the assumed PTC expiration date in the JCT analysis, wind 

capacity with the extension is projected to grow to almost 72 gigawatts, compared 

to a 2018 capacity of approximately 31 gigawatts in the AEO2008 reference case. 

Through 2030, wind capacity with a 10-year PTC extension is projected at almost 

74 gigawatts, suggesting little additional growth after the 2018 assumed expiration, 

but still significantly higher than the 40 gigawatts projected in the AEO2008 reference case by 2030. A 10-year extension of the PTC is also projected to spur additional development in geothermal, landfill gas, and open-loop biomass generation, 

although the impact on the additional capacity of these resources is substantially 

less on an absolute basis than for wind, with less than 3 gigawatts of additional 

combined capacity for those resources by 2018 when compared to the AEO2008 reference case.

Senator MURKOWSKI. I think that would be helpful to know what 

that actually looks like——

Mr. CARUSO. By——

Senator MURKOWSKI [continuing]. Because a lot think that continuation of those protection tax credits is going to be very, very 

important. It sounds like you would agree in terms of what’s going 

on. 

Mr. CARUSO. It would be very important nationally as well as for 

a lot of States that have their own RPS programs. I can also say 

that even with these relatively conservative assumptions on the 

production tax credit, the renewables component is the fastestgrowing segment of the energy mix in this outlook. That’s the first 

time I think I’ve been able to say that in 6 years of presenting 

these outlooks. 

34

Senator MURKOWSKI. As I go back home, I don’t care what part 

of the State I am in, I am inundated with questions about what 

are you guys going to do back here about the high price of fuel? 

In some of my smaller and more remote communities, I was out in 

a community just last week. They’re paying seven bucks a gallon 

for their gasoline. Home heating fuel is absolutely through the roof. 

If we were to do one thing short term that would reduce the price 

of fuel, what would that be? 

Mr. CARUSO. The problem is that, as you know too well——

Senator MURKOWSKI. Here’s the silver bullet. 

Mr. CARUSO [continuing]. It’s a long-term issue and that involves 

requiring investment whether you’re on the supply side or on the 

demand side in terms of efficiency. So in the short run it’s really 

up to the consumer. They have to respond to the prices, as you indicated. Sometimes it’s not possible because there is very little you 

can do in the short run. 

Senator MURKOWSKI. You don’t have any choice. Yes. 

Mr. CARUSO. Yes. 

Senator MURKOWSKI. So what you’re saying is that in reality I 

can’t tell my constituents that there is any one thing that we can 

do short term, short of——

Mr. CARUSO. Behavioral. 

Senator MURKOWSKI. Consuming less. But when it’s 50 below, 

it’s kind of tough to tell people well, don’t fill up your home heating 

fuel tank, so. 

Mr. CARUSO. But the one thing you can say is that whatever we 

do, we should start now with even long-term solutions. I think 

what this outlook revision shows is that the EISA bill of 2007 was 

the beginning of many of these policy changes. 

Senator MURKOWSKI. We’re making some headway. But to the individual it looks pretty glum right now. So, thank you. 

Mr. CARUSO. Thank you, Senator. 

Senator SALAZAR [presiding]. Senator Sessions. 

Senator SESSIONS. Administrator Caruso, let me ask you a little 

bit about a sore spot that I’m hearing. I’m not able to give an answer to and that is why diesel fuel consistently is substantially 

more expensive than gasoline. Historically, I was under the impression that diesel fuel was a less expensive product. How is this occurred? 

Mr. CARUSO. I think that’s directly related to the refinery tightness we have in this country, the lack of investments that have 

been made in the refinery—sector that is, the secondary conversion 

of the crude oil after it leaves the primary distillation has been——

Senator SESSIONS. Explain that a little more. 

Mr. CARUSO. When crude oil goes into a refinery it goes through 

the first process which is primary distillation. It gets separated 

into broad categories of different products. But then it has to be 

further refined to make more specific products such as gasoline or 

diesel. 

Senator SESSIONS. It takes more refining and costs more to 

produce the gasoline. 

Mr. CARUSO. Yes, and not enough investment has been made to 

increase the amount of the middle distillate part of the barrel 

35

which is where the diesel comes from. That’s led to the tightest of 

supply. 

Senator SESSIONS. If you were in the business of marketing diesel fuel why wouldn’t you want there to be a shortage of refineries 

so that the price would spike up and you could do well. 

Mr. CARUSO. The main reason I would want to make the investments is that I could gain market share from my competitor and 

would have a greater——

Senator SESSIONS. But it’s not happening very effectively. Would 

you agree? I mean something, it seems to be an aberration in the 

marketplace to me. 

This complaint about we can’t find a place to build a refinery, I 

don’t think is accurate. I believe there are areas in my State that 

would welcome a refinery if they were confident that it was well 

managed. We have refineries already in our State. 

So I’m just a little bit unhappy about this. I hear it from truckers. I hear it from consumers. You buy a car that’s diesel that gets 

better gas mileage and all of a sudden you’re paying 40 cents more 

a gallon. 

Why don’t we have more diesel refineries? 

Mr. CARUSO. I think we will, but right now there’s also a global 

tightness. Europeans have moved very heavily into diesel-powered 

vehicles. Therefore there really isn’t enough diesel availability. 

Normally, when you have a market aberration as you indicated, 

one solution is you could import that product from abroad and 

that’s what happens a lot with gasoline, but right now there’s very 

little excess diesel-making capability available in refineries abroad 

such as in Europe or Singapore. 

Senator SESSIONS. Are they buying our diesel fuel? Are we shipping diesel to Europe? 

Mr. CARUSO. Not that I’m aware of. If it is, it’s quite small. 

Senator SESSIONS. It seems to me then in our process what happens in Europe is not so important. 

Mr. CARUSO. The reason it’s important is that if our prices got 

high enough to attract imports that would put downward pressure 

on the price. That hasn’t been happening, especially in the winter 

time when that same middle distillate part of the refinery output 

also supplies our home heating oil. 

Senator SESSIONS. Let me cut to the core of the question. Most 

of us try to understand that the free market works and prices tend 

to work in. But with regard to diesel I’m baffled why we’re not seeing an adjustment. I am not such a pure free market person as to 

believe they aren’t aberrations and dysfunctions that can occur 

within the system that would artificially allow these prices to remain higher. 

Do you see anything that we could do to encourage more refining 

capacity or otherwise to bring diesel fuel to a more natural price 

level? 

Mr. CARUSO. I think anything to facilitate investment. As you 

pointed out, you think there are siting issues——

Senator SESSIONS. But you know you got to subsidize diesel fuel 

when it’s at this rate? 

Mr. CARUSO [continuing]. That would be subsidized——

36

Senator SESSIONS. There’s something else in regulating or so political things that are frustrating the production of diesel fuel that 

leaves me concerned. 

Mr. CARUSO. I wouldn’t recommend subsidies. I’m just saying 

that right now there does appear to be an insufficient investment 

in diesel-making capability and, to the extent that there are any 

regulations or laws that are impeding that, I would look there, but 

right now you’ve got peak heating oil demand for that same part 

of the barrel. 

Senator SESSIONS. From a global warming perspective the Europeans have concluded and I’ll ask you if you disagree that diesel 

gets better mileage and has less CO2 emissions. 

Mr. CARUSO. Absolutely. The more than 50 percent of new car 

sales in Europe are diesel as of——

Senator SESSIONS. We’re less than 10? 

Mr. CARUSO. Way less than 10, we’re probably less than 2. 

Senator SESSIONS. So, one reason I think price is a factor. Thank 

you. My time is up, Mr. Chairman. 

Senator SALAZAR. Thank you very much, Senator Sessions. Unless you have any additional questions we will conclude the hearing. The hearing is adjourned. Thank you very much, Administrator Caruso. 

Mr. CARUSO. Thank you, Senator Salazar. 

[Whereupon, at 11:46 a.m. the hearing was adjourned.] 

(37)

APPENDIX 

RESPONSES TO ADDITIONAL QUESTIONS

DEPARTMENT OF ENERGY, 

CONGRESSIONAL AND INTERGOVERNMENTAL AFFAIRS, 

Washington, DC, May 2, 2008. 

Hon. JEFF BINGAMAN, 

Chairman, Committee on Energy and Natural Resources, U.S. Senate, Washington, 

DC. 

DEAR MR. CHAIRMAN: On March 4, 2008, Guy Caruso, Administrator, Energy Information Administration, testified regarding EIA’s revised Annual Energy Outlook. 

Enclosed are the answers to 11 questions that were submitted by Senators 

Domenici and Dorgan for the hearing record. 

If we can be of further assistance, please have your staff contact our Congressional Hearing Coordinator, Lillian Owen, at (202) 586-2031. 

Sincerely, 

LISA E. EPIFANI, 

Assistant Secretary. 

[Enclosures.] 

RESPONSES TO QUESTIONS FROM SENATOR DOMENICI

Question 1. You noted in your testimony that previous ElA forecasts assumed that 

the Federal Production Tax Credit for renewable electricity would expire, thereby 

rendering renewable electricity expensive enough to trigger the so-called ‘‘escape 

clauses’’ included in many State RPS programs. However, in its 2008 assessment 

of increased renewable electricity demand, EIA ‘‘assumes that the State RPS goals 

will be met’’ even though the PTC is set to expire at the end of this year. 

Given that the federal PTC is set to expire at the end of 2008 and numerous attempts to extend the energy tax credits have failed, why has EIA assumed that 

State RPS targets will be realized? Why, wouldn’t the expiration of the PTC trigger 

the State RPS ‘‘escape clauses’’ as EIA has predicted in previous forecasts? 

Answer. This year’s Annual Energy Outlook reference case continues to assume, 

for modeling purposes, that the production tax credit for renewable electricity expires as currently called for in the law. However, we are now assuming that the 

States with renewable portfolio standards will continue to try and stimulate renewables, even if the tax credit is not extended. Extending the federal tax credit would 

certainly make it less expensive for these States to do so, and make renewables 

more attractive in all States, but we have not assumed that this occurs in the reference case. It is certainly possible that the expiration of the production tax credit 

might lead some utilities in States with renewable portfolio standards to use alternative compliance mechanisms, rather than building new renewable facilities, but 

we believe that most would try to find ways to stimulate the required renewables. 

Question 2. If the PTC is extended by the end of this year, how does that change 

EIA’s renewable electricity forecast? 

Answer. The impact would depend on the length of the PTC extension. If the extension were only for a year to two, there might be a near-term increase in renewable generation but the longer-term trend would continue to be driven by the renewable portfolio standards that exist in many States. A longer-term extension of the 

PTC could lead to significantly larger growth in renewable generation than we currently project in the EIA reference case. 

Question 3. You testified that total renewable generation in the reference case 

grows by 2.2% per year through 2030. How much growth can be attributed to combined heat and power use? How much can be attributed to end-use generation? 

Answer. In absolute terms, most of the increase in renewable ueneration between 

2006 and 2030 occurs in the power sector as a result of investment in new wind 

38

facilities. However, end-use renewable generation does grow at a faster rate, 4.6 percent per year. Most of the increase in end-use renewable generation is projected to 

come from increased biomass use in biomass-to-liquids plants that also produce electricity for sale, followed by a much smaller increase in photovoltaic generation stimulated by programs to encourage the use of roof-top solar systems. 

Question 4. You testified that the slowing rate of electricity growth reduces the 

need for new generating capacity. Has EIA examined the role of Demand Response 

in contributing to this reduction? 

Answer. It is very difficult to separate out all of the forces contributing to slowing 

electricity demand growth. Across the country, regional wholesale electricity organizations, State public utility commissions, and the utilities that they regulate are trying to increase their investments in demand side management programs. Reports 

on these programs are generally available on each region’s web site. For example, 

information on New England’s demand response programs is available at http://

www.iso-ne.com/genrtionlresrcs/dr/index.html, and information on New York’s is 

available at http://www.nyiso.com/public/products/demandlresponse/index.jsp. Although the demand for electricity continues to grow, the rate of growth has been 

slowing for more than 50 years. In the 1950s, the use of electricity increased 9.0 

percent per year. However, in every decade since then growth has slowed, falling 

to 7.3 percent per year in the 1960s, 4.2 percent per year in the 1970s, 3.1 percent 

per year in the 1980s, 2.4 percent per year in the 1990s, and only 1.2 percent per 

year between 2000 and 2005. It is likely that a portion of the slowing growth is due 

to utilities’ investments in demand-side management. EIA’s projections continue to 

reflect this trend, with the projected growth in electricity demand slowing further 

to 1.1 percent per year between 2006 and 2030. 

Question 5. According to the EIA forecast, the most rapid growth in total electricity consumption occurs in the commercial sector. In its assessment, has EIA included the anticipated energy savings from the 2007 Energy Independence and Security Act—including establishing a Director of Commercial High-Performance 

Green Buildings and a Zero Net Energy Commercial Building Initiative—on the 

electrical consumption of commercial buildings? 

Answer. The specific EISA2007 provisions that are modeled in AEO2008 include 

the renewable fuel standard (RFS), new corporate average fuel economy (CAFE ́ ) 

standard for new light-duty vehicles, new appliance and lighting energy efficiency 

standards, provisions to reduce energy consumption in Federal buildings, and new 

industrial electric motor efficiency standards. Any anticipated energy savings from 

the Federal buildings provisions and efficiency standards affecting the commercial 

sector are included in the EIA projections. Activities under the Zero Net Energy 

Commercial Building Initiative are not included because they depend on future appropriations, which are uncertain. The coordination, negotiation, and promotion efforts of the Director of Commercial High-Performance Green Buildings are not included because these activities are beyond the level of detail modeled in AEO2008. 

Question 6. Has EIA assessed the anticipated energy savings from the efficiency 

portions of the 2007 Energy Independence and Security Act (i.e., the appliance 

standards; lighting standards, including the phase-out of incandescent light bulbs; 

federal building targets; and commercial buildings)? 

Answer. As noted in the answer to the previous question, the specific EISA2007 

provisions that are modeled in AEO2008 include the renewable fuel standard (RFS), 

new corporate averne fuel economy (CAFE ́ ) standard for new light-duly vehicles, 

new appliance and lighting energy efficiency standards, provisions to reduce energy 

consumption in Federal buildings, and new industrial electric motor efficiency 

standards. EIA is currently developing separate impact assessments for major 

EISA2007 components, however, results for these analyses are not yet available. 

Question 7. Your analysis asserts that in the absence of policy changes, carbon 

capture and sequestration will not be deployed by 2030. Increased oil production in 

the 2008 Outlook is, in part, attributed to enhanced oil recovery using carbon dioxide, however. How significant is the contribution of this enhanced oil recovery to domestic production, and the CO2 comes from a man-made source, would EIA credit 

those operations with reducing the amount of CO2 emitted in the coming years? 

Answer. In the reference case of the AEO2008, domestic oil production from CO2-

enhanced oil recovery is projected to more than triple, increasing from 350,000 barrels per day (or 6.8 percent of total domestic production) in 2006 to 1.3 million barrels per day (or 23.4 percent of total U.S. production) in 2030. However, the projected use of CO2 from industrial sources is not driven by emission requirements 

but, rather, is strictly an economic decision to increase oil production. If a greenhouse gas reduction policy were enacted, rules and procedures for measuring, monitoring and crediting CO2 sequestered in oil fields would have to be established. Once 

39

such rules were established, EIA would be able to estimate how much of the CO2

sequestered in oil fields would be credited against industrial emissions. 

Question 8. Your testimony contends that the recently-passed biofuels mandate 

will not be fully met and will require waivers and other reductions. Has EIA looked 

at how much more significant our biofuels shortfall will be if the tariff is, in fact, 

renewed and imports are not available to make up the difference? 

Answer. EIA has not examined the impact of extending the tariff past 2009. If 

the tariff was extended, imported fuels would be more expensive relative to domestically produced fuels and the level of imports after 2009 would he lower than in the 

AEO2008 reference case. Imports would not be likely to disappear completely, as the 

AEO2008 reference case projects imports of 800,000 gallons in 2008 compared to 

460,000 gallons in 2007, with the tariff in place. Imported biofuels are projected to 

contribute 3.4 billion gallons towards the Advanced Fuels requirement in 2022, so 

to what degree this amount would decrease is unclear. It is also possible that cellulosic ethanol or other bioluel technologies would become more profitable relative 

to imports and thus lead to more domestically produced bioluels. 

RESPONSES TO QUESTIONS FROM SENATOR DORGAN

Question 1. The Energy Information Administration’s budget request for FY 09 is 

$110.6 million. The Senate had provided your full request for FY 08 at $105 million 

but had to cut it back to $95.5 million to get to the President’s demand that we 

cut $22 billion across the board for domestic programs. Can you explain your priority areas for your increase in your Fiscal Year 2009 budget request? 

Answer. The FY 2009 budget request increase supports five critical activities that 

were deferred due to EIA’s FY 2008 $95.5 million program. Specifically, the $12.2 

million increase in support services for FY 2009 would allow EIA to: address critical 

and growing petroleum survey data quality deficiencies, in order to reflect changes 

in the industry and assure statistical validity, accuracy, and reliability (+$3.7M); 

implement monthly ethanol and biodiesel surveys, as yell as a weekly ethanol survey, mandated by the Energy Policy Act of 2005 (+$3.4M); resume replacing the 

aging National Energy Model, which is critical to improving our ability to assess 

and project supply, demand and technology trends impacting U.S and world energy 

markets (+$3.3M); enhance the availability and timeliness of international oil, gas, 

and coal markets data and analyses (+$1.1M); and provide for mandatory Information Technology infrastructure upgrades and strengthen cyber-security to protect 

market-sensitive data (+$0.8M). 

Question 2. Your projections indicate that the U.S. will not achieve the Renewable 

Fuels Standard targets that were recently increased to 36 billion gallons by 2022 

in the enemy bill signed by the President in December. You assume we will produce 

about 8.6 billion gallons of cellulosic ethanol by 2022. Let me remind you that since 

we enacted the first renewable fuels standard of 7.5 billion gallons by 2012 in 

EPACT 2005, we are now on pace to exceed that goal in next year in 2009. So if 

we can produce nearly 8 billion gallons of corn ethanol in 4 years, what basis do 

you have to assume that we will only produce 8.6 billion gallons of cellulosic ethanol 

by 2022? 

Answer. The recent expansion of corn ethanol capacity and production was driven 

by favorable corn prices, high crude oil prices, and the phase-out of methyl tertiary 

butyl ether (MTBE) as a gasoline additive. The renewable fuels standard in the Energy Policy Act of 2005 may have reduced the risk of investment in corn ethanol 

capacity, but it has not been the primary driver of the corn ethanol expansion over 

the last two years as evidenced by the fact that ethanol use has exceeded the 

EPACT 2005 requirement. 

The production of ethanol from corn is a known technology. When ethanol demand 

increased, reflecting both the elimination of MTBE and the rapid increase in oil 

prices that increased the attractiveness of ethanol as a volume enhance in conventional gasoline, investors responded by adding capacity very quickly, which is still 

occurring. 

Cellulosic ethanol is not currently cost-competitive with corn ethanol. Significant 

technological advancements will be necessary before cellulosic biofuel production 

will begin to penetrate motor fuel markets. Another challenge arises from the saturation of the market for EIO blends by existing and planned corn ethanol capacity. 

As more ethanol is added to the market it must compete based on energy content 

rather than volume. The Energy Department’s first round of funding for development of cellulosic biofuels technology is expected to result in 6 plants being built 

with a combined capacity of 140 million gallons of cellulosic ethanol per year by 

2011. A second round of funding is expected to result in 3 more cellulosic ethanol 

plants with combined capacity of about 6 million gallons per year by 2012. 

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Question 3. In your assumptions, you also indicate that the existing 54 cent tariff 

on imported ethanol will not be renewed in 2009, leading to a significant increase 

of imported ethanol. What basis do you have to make that assumption? 

Answer. For modeling purposes, the Annual Energy Outlook 2008 reference case 

is based on the laws and regulations that were in effect at the time the projections 

were formulated. Currently, the ethanol import tariff is scheduled to expire in December 2008. In past editions of the Annual Energy Outlook, the ethanol blending 

tax credit was extended indefinitely past its scheduled expiration. Since the stated 

purpose of the import tariff is to offset the blending tax credit for foreign ethanol, 

the import tariff received the same treatment as the blending tax credit. For the 

AEO2008 reference case, the assumption regarding the ethanol blending tax credit 

was changed to make it consistent with all of the other policies represented, i.e., 

based on laws and regulations in place as of early this year. Without the blending 

tax credit, the stated purpose of the import tariff is voided and, therefore, the ethanol import tariff was also assumed to expire as scheduled.

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