National 

Energy 

Policy 

May 2001 

Report of the 

National Energy Policy Development Group 
Reliable, Affordable, and 

Environmentally Sound 

Energy for America’s Future 

Report of the


National Energy Policy Development Group


“America must have an energy policy that plans 

for the future, but meets the needs of today. 

I believe we can develop our natural resources 

and protect our environment.” 

— President George W. Bush 
For Sale by the Superintendent of Documents, U.S Government Printing Office


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Mail: Stop SSOP, Washington, DC 20402-0001


ISBN 0-16-050814-2 

Members of the


National Energy Policy Development Group


DICK CHENEY 

The Vice President 

COLIN L. POWELL 

The Secretary of State 

PAUL O’NEILL 

The Secretary of the Treasury 

GALE NORTON 

The Secretary of the Interior 

ANN M. VENEMAN 

The Secretary of Agriculture 

DONALD L. EVANS 

The Secretary of Commerce 

NORMAN Y. MINETA 

The Secretary of Transportation 

SPENCER ABRAHAM 

The Secretary of Energy 

JOE M. ALLBAUGH 

The Director of the Federal Emergency Management Agency 

CHRISTINE TODD WHITMAN 

The Administrator of the Environmental Protection Agency 

JOSHUA B. BOLTEN 

The Assistant to the President and Deputy Chief of Staff for Policy 

MITCHELL E. DANIELS 

The Director of the Office of Management and Budget 

LAWRENCE B. LINDSEY 

The Assistant to the President for Economic Policy 

RUBEN BARRALES 

Deputy Assistant to the President and Director of Intergovernmental Affairs 

Executive Director: Andrew D. Lundquist 
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5

6

7

8

Contents 

Taking Stock 

Energy Challenges Facing the United States 

Striking Home 

The Impacts of High Energy Prices on Families, Communities, and Businesses 

Protecting America’s Environment 

Sustaining the Nation’s Health and Environment 

Using Energy Wisely 

Increasing Energy Conservation and Efficiency 

Energy for a New Century 

Increasing Domestic Energy Supplies 

Nature’s Power 

Increasing America’s Use of Renewable and Alternative Energy 

America’s Energy Infrastructure 

A Comprehensive Delivery System 

Strengthening Global Alliances 

Enhancing National Energy Security and International Relationships 

Appendix One 

Summary of Report Recommendations 

Appendix Two 

Glossary 
Overview 

Reliable, Affordable, and Environmentally Sound


Energy for America’s Future 

I

n his second week in office, President 

George W. Bush established the National Energy Policy Development 

Group, directing it to “develop a 

national energy policy designed to 

help the private sector, and, as necessary 

and appropriate, State and local governments, promote dependable, affordable, 

and environmentally sound production and 

distribution of energy for the future.” This 

Overview sets forth the National Energy 

Policy Development (NEPD) Group’s findings and key recommendations for a National Energy Policy. 

Figure 1 

Growth in U.S. Energy Consumption 

Is Outpacing Production 

(Quadrillion Btus) 

140 

120 

100 

80 

60 

America in the year 2001 faces the 

most serious energy shortage since the oil 

embargoes of the 1970s. The effects are already being felt nationwide. Many families 

face energy bills two to three times higher 

than they were a year ago. Millions of 

Americans find themselves dealing with 

rolling blackouts or brownouts; some employers must lay off workers or curtail production to absorb the rising cost of energy. 

Drivers across America are paying higher 

and higher gasoline prices. 

Californians have felt these problems 

most acutely. California actually began the 

1990s with a surplus of electricity generating capacity. Yet despite an economic 

boom, a rapidly growing population, and a 

corresponding increase in energy needs, 

California did not add a single new major 

electric power plant during the 1990s. The 

result is a demand for electricity that 

greatly succeeds the amount available. 

A fundamental imbalance between 

supply and demand defines our nation’s energy crisis. As the chart illustrates, if energy 

production increases at the same rate as 

during the last decade our projected energy 

needs will far outstrip expected levels of 

production. 

This imbalance, if allowed to conEnergy Production at 1990-2000 Growth Rates 

Energy Consumption 

Projected Shortfall 

40 

20 

0 

2000 2005 2010 2015 2020 

Over the next 20 years, growth in U.S. energy consumption will increasingly 

outpace U.S. energy production, if production only grows at the rate of the last 

10 years. 

________ 

Sources: Sandia National Laboratories and U.S. Department of Energy, Energy Information 

Administration. 

tinue, will inevitably undermine our 

economy, our standard of living, and our 

national security. But it is not beyond our 

power to correct. America leads the world 

in scientific achievement, technical skill, 

and entrepreneurial drive. Within our country are abundant natural resources, unrivaled technology, and unlimited human creativity. With forward-looking leadership 

and sensible policies, we can meet our fuviii NATIONAL ENERGY POLICY 
America’s expanding 

economy, growing 

population, and 

rising standard of 

living will be 

sustained by our 

unmatched technological know-how. 

ture energy demands and promote energy 

conservation, and do so in environmentally 

responsible ways that set a standard for the 

world. 

The Challenge 

America’s energy challenge begins 

with our expanding economy, growing 

population, and rising standard of living. 

Our prosperity and way of life are sustained 

by energy use. America has the technological know-how and environmentally sound 

21st century technologies needed to meet 

the principal energy challenges we face: 

promoting energy conservation, repairing 

and modernizing our energy infrastructure, 

and increasing our energy supplies in ways 

that protect and improve the environment. 

Meeting each of these challenges is critical 

to expanding our economy, meeting the 

needs of a growing population, and raising 

the American standard of living. 

We are already working to meet the 

first challenge: using energy more wisely. 

Dramatic technological advances in energy 

efficiency have enabled us to make great 

strides in conservation, from the operation 

of farms and factories to the construction of 

buildings and automobiles. New technology 

allows us to go about our lives and work 

with less cost, less effort, and less burden on 

the natural environment. While such advances cannot alone solve America’s energy 

problems, they can and will continue to play 

an important role in our energy future. 

The second challenge is to repair and 

expand our energy infrastructure. Our current, outdated network of electric generators, transmission lines, pipelines, and refineries that convert raw materials into usable 

fuel has been allowed to deteriorate. Oil 

pipelines and refining capacity are in need 

of repair and expansion. Not a single major 

oil refinery has been built in the United 

States in nearly a generation, causing the 

kind of bottlenecks that lead to sudden 

spikes in the price of gasoline. Natural gas 

distribution, likewise, is hindered by an aging and inadequate network of pipelines. To 

match supply and demand will require some 

38,000 miles of new gas pipelines, along 

with 255,000 miles of distribution lines. 

Similarly, an antiquated and inadequate 

transmission grid prevents us from routing 

electricity over long distances and thereby 

avoiding regional blackouts, such as 

California’s. 

“America must 

have an energy 

policy that plans 

for the future, 

but meets the 

needs of today. 

I believe we 

can develop 

our natural 

resources and 

protect our 

environment.” 

— President 

George W. Bush 

Overview • Reliable, Affordable, and Environmentally Sound Energy for America’s Future ix 
w chart 

Increasing energy supplies while protecting the environment is the third challenge. Even with successful conservation 

efforts, America will need more energy. 

Renewable and alternative fuels offer 

hope for America’s energy future. But they 

supply only a small fraction of present energy needs. The day they fulfill the bulk of 

our needs is still years away. Until that day 

comes, we must continue meeting the 

nation’s energy requirements by the means 

available to us. 

Estimates indicate that over the next 

20 years, U.S. oil consumption will increase 

by 33 percent, natural gas consumption by 

well over 50 percent, and demand for electricity will rise by 45 percent. If America’s 

energy production grows at the same rate 

as it did in the 1990s we will face an ever-increasing gap. 

Figure 2 Figure 3 U.S. Oil Consumption Will Continue to 

Increases on this scale will require 

preparation and action today. Yet America 

has not been bringing on line the necessary 

supplies and infrastructure. 

Extraordinary advances in technology 

have transformed energy exploration and 

production. Yet we produce 39 percent less 

oil today than we did in 1970, leaving us 

ever more reliant on foreign suppliers. On 

our present course, America 20 years from 

now will import nearly two of every three 

barrels of oil – a condition of increased dependency on foreign powers that do not always have America’s interests at heart. Our 

increasing demand for natural gas – one of 

the cleanest forms of energy – far exceeds 

the current rate of production. We should 

reconsider any regulatory restrictions that 

do not take technological advances into account. 

Exceed Production U.S. Natural Gas Consumption Is Outpacing Production 

(Millions of Barrels per Day) (Trillion Cubic Feet) 

Natural Gas Production at 1990-2000 Growth Rates 

Projected Shortfall 

Natural Gas Consumption 

40 

35 

30 

25 

20 

15 

10 

5 

Oil Consumption 

Oil Field Production at 1990-2000 Growth Rates 

30 

25 

20 

15 

10 

05 

0 

Projected Shortfall 

2000 2005 2010 2015 2020 

2000 2005 2010 2015 2020 Over the next 20 years, U.S. natural gas consumption will grow by over 50 percent. 

Over the next 20 years, U.S. oil consumption will grow by over 6 million barrels At the same time, U.S. natural gas production will grow by only 14 percent, if it 

per day. If U.S. oil production follows the same historical pattern of the last 10 grows at the rate of the last 10 years. 

________ years, it will decline by 1.5 million barrels per day. To meet U.S. oil demand, oil 

and product imports would have to grow by a combined 7.5 million barrels per Sources: Sandia National Laboratories and U.S. Department of Energy, Energy Information 

day. In 2020, U.S. oil production would supply less than 30 percent of U.S. oil Administration. 

needs. ervie ________ 

Sources: Sandia National Laboratories and U.S. Department of Energy, 

Energy Information Administration. 

x NATIONAL ENERGY POLICY 
We have a similar opportunity to increase our supplies of electricity. To meet 

projected demand over the next two decades, America must have in place between 1,300 and 1,900 new electric plants. 

Much of this new generation will be fueled 

by natural gas. However, existing and new 

technologies offer us the opportunity to expand nuclear generation as well. Nuclear 

power today accounts for 20 percent of our 

country’s electricity. This power source, 

which causes no greenhouse gas emissions, can play an expanding part in our energy future. 

The recommendations of this report 

address the energy challenges facing 

America. Taken together, they offer the 

thorough and responsible energy plan our 

nation has long needed. 

Components of the National 

Energy Policy 

The National Energy Policy we propose follows three basic principles: 

•	 The Policy is a long-term, comprehensive strategy. Our energy crisis 

has been years in the making, and 

will take years to put fully behind us. 

•	 The Policy will advance new, environmentally friendly technologies 

to increase energy supplies and encourage cleaner, more efficient energy use. 

•	 The Policy seeks to raise the living 

standards of the American people, 

recognizing that to do so our country 

must fully integrate its energy, environmental, and economic policies. 

Applying these principles, we urge action to meet five specific national goals. 

America must modernize conservation, 

modernize our energy infrastructure, increase energy supplies, accelerate the protection and improvement of the environment, and increase our nation’s energy security. 

Modernize Conservation 

Americans share the goal of energy 

conservation. The best way of meeting this 

goal is to increase energy efficiency by applying new technology – raising productivity, reducing waste, and trimming costs. In 

addition, it holds out great hope for improving the quality of the environment. American families, communities, and businesses 

all depend upon reliable and affordable energy services for their well being and 

safety. From transportation to communication, from air conditioning to lighting, energy is critical to nearly everything we do in 

life and work. Public policy can and should 

encourage energy conservation. 

Over the past three decades, America 

has made impressive gains in energy efficiency. Today’s automobiles, for example, 

use about 60 percent of the gasoline they 

Figure 4 

U.S. Economy is More Energy Efficient

(Energy Intensity) 

Primary Energy Use 

Quadrillion Btus 

“Here we aim to 

continue a path 

of uninterrupted 

progress in 

many fields... 

New technologies are proving 

that we can save 

energy without 

sacrificing our 

standard of living. And we’re 

going to encourage it in every 

way possible.” 

— Vice President 

Richard B. Cheney 

Energy Use at 

Constant 1972 E/GDP 

Actual Energy Use 

180 

160 

140 

120 

100 

80 

60 

40 

20 

0 

1950 60 70 80 90 00 10 20 

Improvements in energy efficiency since the 1970s have had a major impact in meeting national energy needs relative to new supply. If the intensity of U.S. energy use 

had remained constant since 1972, consumption would have been about 70 quadrillion Btus (74 percent) higher in 1999 than it actually was. 

________


Source: U.S. Department of Energy, Energy Information Administration. 

Overview • Reliable, Affordable, and Environmentally Sound Energy for America’s Future xi 
“For the electricity we need, we 

must be ambitious. Transmission grids stand 

in need of repair, 

upgrading, and 

expansion. . . . If 

we put these connections in place, 

we’ll go a long 

way toward 

avoiding future 

blackouts.” 

— Vice President 

Richard B. Cheney 

did in 1972, while new refrigerators require 

just one-third the electricity they did 30 

years ago. As a result, since 1973, the U.S. 

economy has grown by 126 percent, while 

energy use has increased by only 30 percent. In the 1990s alone, manufacturing 

output expanded by 41 percent, while industrial electricity consumption grew by 

only 11 percent. We must build on this 

progress and strengthen America’s commitment to energy efficiency and conservation. 

The National Energy Policy builds 

on our nation’s successful track record 

and will promote further improvements 

in the productive and efficient use of 

energy. This report includes recommendations to: 

•	 Direct federal agencies to take appropriate actions to responsibly conserve 

energy use at their facilities, especially during periods of peak demand 

in regions where electricity shortages 

are possible, and to report to the 

President on actions taken. 

•	 Increase funding for renewable energy and energy efficiency research 

and development programs that are 

performance-based and cost-shared. 

•	 Create an income tax credit for the 

purchase of hybrid and fuel cell 

vehicles to promote fuel-efficient 

vehicles. 

•	 Extend the Department of Energy’s 

“Energy Star” efficiency program to 

include schools, retail buildings, 

health care facilities, and homes and 

extend the “Energy Star” labeling program to additional products and appliances. 

•	 Fund the federal government’s Intelligent Transportation Systems program, 

the fuel cell powered transit bus program, and the Clean Buses program. 

•	 Provide a tax incentive and streamline 

permitting to accelerate the development of clean Combined Heat and 

Power technology. 

•	 Direct the Secretary of Transportation 

to review and provide recommendations on establishing Corporate Average Fuel Economy (CAFE) standards 

with due consideration to the National 

Academy of Sciences study of CAFE 

standards to be released in July, 2001. 

Modernize Our Energy Infrastructure 

The energy we use passes through a 

vast nationwide network of generating facilities, transmission lines, pipelines, and refineries that converts raw resources into usable fuel and power. That system is deteriorating, and is now strained to capacity. 

One reason for this is government 

regulation, often excessive and redundant. 

Regulation is needed in such a complex 

field, but it has become overly burdensome. 

Regulatory hurdles, delays in issuing permits, and economic uncertainty are limiting 

investment in new facilities, making our energy markets more vulnerable to transmission bottlenecks, price spikes and supply 

disruptions. America needs more environmentally-sound energy projects to connect 

supply sources to growing markets and to 

deliver energy to homes and business. 

To reduce the incidence of electricity 

blackouts, we must greatly enhance our 

ability to transmit electric power between 

geographic regions, that is, sending power 

to where it is needed from where it is produced. Most of America’s transmission 

lines, substations, and transformers were 

built when utilities were tightly regulated 

and provided service only within their assigned regions. The system is simply unequipped for large-scale swapping of power 

in the highly competitive market of the 21st 

century. 

The National Energy Policy will 

modernize and expand our energy infrastructure in order to ensure that energy supplies can be safely, reliably, 

and affordably transported to homes 

and businesses. This report includes 

recommendations to: 

•	 Direct agencies to improve pipeline 

safety and expedite pipeline permitting. 

•	 Issue an Executive Order directing 

federal agencies to expedite permits 

and coordinate federal, state, and local 

actions necessary for energy-related 

project approvals on a national basis 

xii NATIONAL ENERGY POLICY 
in an environmentally sound manner, 

and establish an interagency task 

force chaired by the Council on Environmental Quality. The task force 

will ensure that federal agencies set 

up appropriate mechanisms to coordinate federal, state and local permitting activity in particular regions 

where increased activity is expected. 

•	 Grant authority to obtain rights-ofway for electricity transmission lines 

with the goal of creating a reliable national transmission grid. Similar authority already exists for natural gas 

pipelines and highways. 

•	 Enact comprehensive electricity legislation that promotes competition, encourages new generation, protects 

consumers, enhances reliability, and 

promotes renewable energy. 

•	 Implement administrative and regulatory changes to improve the reliability 

of the interstate transmission system 

and enact legislation to provide for 

enforcement of electricity reliability 

standards. 

•	 Expand the Energy Department’s research and development on transmission reliability and superconductivity. 

Increase Energy Supplies 

A primary goal of the National Energy 

Policy is to add supply from diverse 

sources. This means domestic oil, gas, and 

coal. It also means hydropower and 

nuclear power. And it means making 

greater use of non-hydro renewable sources 

now available. 

One aspect of the present crisis is an 

increased dependence, not only on foreign 

oil, but on a narrow range of energy options. For example, about 90 percent of all 

new electricity plants currently under construction will be fueled by natural gas. 

While natural gas has many advantages, an 

over-reliance on any one fuel source leaves 

consumers vulnerable to price spikes and 

supply disruptions. There are several other 

fuel sources available that can help meet 

our needs. 

Currently, the U.S. has enough coal to 

last for another 250 years. Yet very few 

coal-powered electric plants are now under “As a country, 

construction. Research into clean coal we have 

technologies may increase the attractive- demanded ness of coal as a source for new generation 

plants. more and more 

Nuclear power plants serve millions of energy. But 

American homes and businesses, have a de- we have not 

pendable record for safety and efficiency, 

and discharge no greenhouse gases into the brought on line 

atmosphere. As noted earlier, these facili- the supplies 

ties currently generate 20 percent of all needed to meet 

electricity in America, and more than 40 that demand.... 

percent of electricity generated in 10 states We can explore in the Northeast, South, and Midwest. 

Other nations, such as Japan and France, for energy, we 

generate a much higher percentage of their can produce 

electricity from nuclear power. Yet the energy and use 

number of nuclear plants in America is ac- it, and we can tually projected to decline in coming years, 

as old plants close and none are built to re- do so with a 

place them. decent regard 

Enormous advances in technology for the natural 

have made oil and natural gas exploration environment.” 

and production both more efficient and 

more environmentally sound. Better tech- —Vice President 

nology means fewer rigs, more accurate Richard B. Cheney drilling, greater resource recovery and enviFigure 5 

Fuel Sources for Electricity Generation in 2000 

Hydropower 

7% 

Renewables 

2% 

Oil 3% 

Nuclear 

20% 

Natural Gas 

16% 

Coal 52% 

Electricity is a secondary source of energy, generated through the consumption of 

primary sources. Coal and nuclear energy account for nearly 75 percent of U.S. 

electricity generation. 

______ 

Source: U.S. Department of Energy, Energy Information Administration 

Overview • Reliable, Affordable, and Environmentally Sound Energy for America’s Future xiii 
“We will insist 

on protecting 

and enhancing 

the environment, 

showing consideration for the 

air and natural 

lands and watersheds of our 

country.” 

— Vice President 

Richard B. Cheney 

ronmentally friendly exploration. Drilling 

pads are 80 percent smaller than a generation 

ago. High-tech drilling allows us to access 

supplies five to six miles away from a single 

compact drilling site, leaving sensitive wetlands and wildlife habitats undisturbed. Yet 

the current regulatory structure fails to take 

sufficient account of these extraordinary advances, excessively restricting the environmentally safe production of energy from 

many known sources. 

Our policy will increase and diversify our nation’s sources of traditional 

and alternative fuels in order to furnish 

families and businesses with reliable and 

affordable energy, to enhance national 

security, and to improve the environment. This report includes recommendations to: 

•	 Issue an Executive Order directing all 

federal agencies to include in any regulatory action that could significantly and 

adversely affect energy supplies a detailed statement on the energy impact 

of the proposed action. 

•	 Open a small fraction of the Arctic National Wildlife Refuge to environmentally 

regulated exploration and production using leading-edge technology. Examine 

the potential for the regulated increase 

in oil and natural gas development on 

other federal lands. 

•	 Earmark $1.2 billion of bid bonuses from 

the environmentally responsible leasing 

of ANWR to fund research into alternative and renewable energy resources – 

including wind, solar, biomass, and geothermal. 

•	 Enact legislation to expand existing alternative fuels tax incentives to include 

landfills that capture methane gas emissions for electricity generation and to 

electricity produced from wind and biomass. Extend the number of eligible biomass sources to include forest-related 

sources, agricultural sources, and certain urban sources. 

•	 Provide $2 billion over 10 years to fund 

clean coal technology research and a 

new credit for electricity produced from 

biomass co-fired with coal. 

• Direct federal agencies to streamline the 

hydropower relicensing process with 

proper regard given to environmental 

factors. 

• Provide for the safe expansion of 

nuclear energy by establishing a national 

repository for nuclear waste, and by 

streamlining the licensing of nuclear 

power plants. 

Accelerate Protection and Improvement of the 

Environment 

America’s commitment to environmental protection runs deep. We are all aware of 

past excesses in our use of the natural world 

and its resources. No one wishes to see them 

repeated. In the 21st century, the ethic of 

good stewardship is well established in 

American life and law. 

We do not accept the false choice between environmental protection and energy 

production. An integrated approach to policy 

can yield a cleaner environment, a stronger 

economy, and a sufficient supply of energy 

for our future. The primary reason for that 

has been steady advances in the technology 

of locating, producing, and using energy. 

Since 1970, emissions of key air emissions 

are down 31 percent. Cars today emit 85 percent less carbon monoxide than 30 years ago. 

Lead emissions are down 90 percent. Lead 

levels in ambient air today are 98 percent 

lower than they were in 1970. America is using more, and polluting less. 

One of the factors harming the environment today is the very lack of a comprehensive, long-term national energy policy. States 

confronting blackouts must take desperate 

measures, often at the expense of environmental standards, requesting waivers of environmental rules, and delaying the implementation of anti-pollution efforts. Shortfalls in 

electricity generating capacity and shortsighted policies have blocked construction of 

new, cleaner plants, leaving no choice but to 

rely on older, inefficient plants to meet demand. The increased use of emergency power 

sources, such as diesel generators, results in 

greater air pollution. 

New anti-pollution technologies hold 

great promise for the environment. The same 

can be said of 21st century power generators 

that must soon replace older models; signifixiv NATIONAL ENERGY POLICY 
cant new resources for land conservation efforts; and continued research into renewable 

energy sources. All have a place in the National Energy Policy. 

The National Energy Policy will 

build upon our nation’s successful track 

record and will promote further improvements in the productive and efficient use 

of energy. This report includes recommendations to: 

•	 Enact “multi-pollutant” legislation to establish a flexible, market-based program 

to significantly reduce and cap emissions of sulfur dioxide, nitrogen oxides, 

and mercury from electric power generators. 

•	 Increase exports of environmentally 

friendly, market-ready U.S. technologies 

that generate a clean environment and 

increase energy efficiency. 

•	 Establish a new “Royalties Conservation 

Fund” and earmark royalties from new, 

clean oil and gas exploration in ANWR 

to fund land conservation efforts. 

•	 Implement new guidelines to reduce 

truck idling emissions at truck stops. 

Increase Energy Security. 

The National Energy Policy seeks to 

lessen the impact on Americans of energy 

price volatility and supply uncertainty. Such 

uncertainty increases as we reduce America’s 

dependence on foreign sources of energy. At 

the same time, however, we recognize that a 

significant percentage of our resources will 

come from overseas. Energy security must 

be a priority of U.S. trade and foreign policy. 

We must look beyond our borders and 

restore America’s credibility with overseas 

suppliers. In addition, we must build strong 

relationships with energy-producing nations 

in our own hemisphere, improving the outlook for trade, investment, and reliable supplies. 

Energy security also requires preparing 

our nation for supply emergencies, and assisting low-income Americans who are most vulnerable in times of supply disruption, price 

spikes, and extreme weather. 

To ensure energy security for our 

nation and its families, our report includes these recommendations: 

•	 Dedicate new funds to the Low Income 

Home Energy Assistance Program by 

funneling a portion of oil and gas royalty 

payments to LIHEAP when oil and natural gas prices exceed a certain amount. 

•	 Double funding for the Department of 

Energy’s Weatherization Assistance Program, increasing funding by $1.4 billion 

over 10 years. 

•	 Direct the Federal Emergency Management Administration to prepare for potential energy-related emergencies. 

•	 Support a North American Energy 

Framework to expand and accelerate 

cross-border energy investment, oil and 

gas pipelines, and electricity grid connections by streamlining and expediting 

permitting procedures with Mexico and 

Canada. Direct federal agencies to expedite necessary permits for a gas pipeline 

route from Alaska to the lower 48 states. 

Looking Toward the Future 

The President’s goal of reliable, affordable, and environmentally sound energy supplies will not be reached overnight. It will 

call forth innovations in science, research, 

and engineering. It will require time and the 

best efforts of leaders in both political parties. It will require also that we deal with the 

facts as they are, meeting serious problems in 

a serious way. The complacency of the past 

decade must now give way to swift but wellconsidered action. 

Present trends are not encouraging, but 

they are not immutable. They are among 

today’s most urgent challenges, and well 

within our power to overcome. Our country 

has met many great tests. Some have imposed 

extreme hardship and sacrifice. Others have 

demanded only resolve, ingenuity, and clarity of purpose. Such is the case with energy 

today. 

We submit these recommendations 

with optimism. We believe that the tasks 

ahead, while great, are achievable. The energy crisis is a call to put to good use the resources around us, and the talents within us. 

It summons the best of America, and offers 

the best of rewards – in new jobs, a healthier 

environment, a stronger economy, and a 

brighter future for our people. 

“The goals of 

this strategy are 

clear: to ensure 

a steady supply 

of affordable 

energy for 

America’s homes 

and businesses 

and industries.” 

— President 

George W. Bush 

Overview • Reliable, Affordable, and Environmentally Sound Energy for America’s Future xv 
CHAPTER ONE


Taking Stock

Energy Challenges Facing the United States


The U.S. economy depends on reliable and affordable energy. In 

the coming months, we face several serious long-term energy 

challenges: electricity shortages 

and disruptions in California 

and the West, dramatic increases 

in gasoline prices due to recordlow inventories, a strained supply system, and continued dependence on foreign suppliers. 

1-1 NATIONAL ENERGY POLICY 

A merica’s current energy challenges can be met with rapidly improving technology, dedicated 

leadership, and a comprehensive 

approach to our energy needs. 

Our challenge is clear—we must use technology to reduce demand for energy, repair and maintain our energy infrastructure, and increase energy supply. Today, the 

United States remains the world’s undisputed technological leader; but recent events 

have demonstrated that we have yet to integrate 21st-century technology into an energy plan that is focused on wise energy use, 

production, efficiency, and conservation. 

Prices today for gasoline, heating oil, 

and natural gas are dramatically higher 

than they were only a year ago. In California, homeowners, farmers, and businesses 

face soaring electricity prices, rolling 

blackouts, increasing financial turmoil, 

and an uncertain energy future. Our nation’s dependence on foreign sources of oil 

is at an all-time high and is expected to 

grow. Current high energy prices and supply shortages are hurting U.S. consumers 

and businesses, as well as their prospects 

for continued economic growth. 

Our national energy policy must be 

comprehensive in scope. It must protect 

our environment. It must also increase our 

supply of domestic oil, natural gas, coal, 

nuclear, and renewable energy sources. 

Our failure over the past several years to 

modernize our energy infrastructure—the 

network of transmission lines, gas pipelines, and oil refineries that transports our 

energy to consumers and converts raw materials into usable fuels—is a result of the 

lack of careful planning and lack of a comprehensive national energy plan. The United 

States faces serious energy challenges: electricity shortages and disruptions in California and elsewhere in the West, dramatic increases in gasoline prices due to record-low 

inventories, a strained supply system, and 

continued dependence on foreign suppliers. 

These challenges have developed from years 

of neglect and can only be addressed with 

the implementation of sound policy. There 

are no easy, short-term solutions. 

Our increased dependence on foreign 

oil profoundly illustrates our nation’s failure to establish an effective energy policy. 

Between 1991 and 2000, Americans used 17 

percent more energy than in the previous 

decade, while during that same period, domestic energy production rose by only 2.3 

percent. While U.S. production of coal, natural gas, nuclear energy, and renewable energy has increased somewhat in recent 

years, these increases have been largely 

offset by declines in domestic oil production. As a result, America has met almost 

all of its increased energy demand over the 

past ten years with increased imports. 

U.S. energy consumption is projected 

to increase by about 32 percent by 2020. 

Unless a comprehensive national energy 

policy is adopted, Americans will continue 

to feel the effects of an inadequate electrical transmission grid, a pipeline system 

stretched to capacity, insufficient domestic 

energy supply, and a regional imbalance in 

supply sources. It is important that we 

meet these challenges with a comprehensive energy plan that takes a long-term approach to meeting our energy needs. 

& VISITORS BUREAU CONVENTION PHILADELPHIA 

California’s Energy Challenge 

Recent and looming electricity blackouts in California demonstrate the problem 

of neglecting energy supply. They also foretell the consequences of failing to implement a long-term energy plan for our nation 

as a whole. Though weather conditions and 

design flaws in California’s electricity restructuring plan contributed, the California 

electricity crisis is at heart a supply crisis. 

Since 1995, California’s peak summer 

demand for electricity has risen by at least 

5,500 megawatts (MW), while in-state generation has failed to keep pace. California’s 

generation shortfall did not stem from a 

lack of interest in building capacity. Since 

1997, power producers filed applications to 

build an additional 14,000 MW of new capacity in California. 

In addition to a lack of new generation, a crucial transmission bottleneck in 

the middle of the state—called Path 15— 

prevents power in the south from being 

shipped to the north during emergencies. 

This year, reduced hydropower availability due to low rainfall, higher than expected unplanned plant outages, and the financial problems of California’s utilities exacerbated this growing supply–demand imbalance. As a result, California’s supply 

problem turned into a crisis, resulting in 

soaring electricity bills for homes and businesses and rolling blackouts. 

In part due to the interconnected nature of the western electricity grid, California’s critical electricity shortages have 

helped to drive up electricity costs in the 

West. 

Unfortunately, there are no short-term 

solutions to long-term neglect. It can take 

new power plants and transmission facilities years to site, permit, and construct. Despite expedited federal permitting, California’s emergency efforts to increase new 

generation by 5,000 MW by July appear to 

be falling short. Less than 2,000 MW of new 

generation is expected to be in place by 

summer. Even with aggressive conservation measures, peak demand this summer 

is projected to outstrip supply by several 

thousand megawatts. The California grid 

operator expects more than 30 days of 

blackouts. 

California officials have warned that 

the crisis may last several years. Though 

California’s efforts to increase generation 

may not suffice to prevent blackouts this 

summer, if continued and strengthened, 

they promise to limit the duration of the 

crisis. 

Recommendations: 

★ The National Energy Policy Development (NEPD) Group recommends 

that the President issue an Executive 

Order to direct all federal agencies to 

include in any regulatory action that 

could significantly and adversely affect energy supplies, distribution, or 

use, a detailed statement on (1) the 

energy impact of the proposed action, 

(2) any adverse energy effects that 

cannot be avoided should the proposal be implemented, and (3) alternatives to the proposed action. The 

agencies would be directed to include 

this statement in all submissions to 

the Office of Management and Budget 

of proposed regulations covered by 

Executive Order 12866, as well as in 

all notices of proposed regulations 

published in the Federal Register. 

★ The NEPD Group recommends that 

the President direct the executive agencies to work closely with Congress to 

implement the legislative components 

of a national energy policy. 

Conservation and Energy Efficiency 

Conservation and energy efficiency 

are crucial components of a national energy plan. Energy efficiency is the ability to 

use less energy to produce the same 

amount of useful work or services. Conservation is closely related and is simply using 

less energy. Improved energy efficiency 

and conservation reduces energy consumption and energy costs, while maintaining 

equivalent service in our homes, offices, 

factories, and automobiles. Greater energy 

1-3 NATIONAL ENERGY POLICY 
efficiency helps the United States reduce energy efficiency is projected to continue to imenergy imports, the likelihood of energy prove between 2000 and 2020. A decrease in deshortages, emissions, and the volatility of mand from 1.8 percent to 1.5 percent would reenergy prices. duce the need for new generating capacity next 

Over the last three decades, the Unit- year by about 2,000 MW. Extending that reduced States has significantly improved its en- tion over the next 20 years would reduce the 

ergy efficiency by developing and expand- need for new generation by 60,000 to 66,000 MW. 

ing the use of energy efficient technologies. While this projection shows that conserAlthough our economy has grown by 126 vation can help ensure the United States has adpercent since 1973, our energy use has in- equate energy supplies for the future, it also 

creased by only 30 percent. Had energy use shows that conservation alone is not the ankept pace with economic growth, the na- swer. Even with more conservation, the U.S. 

tion would have consumed 171 quadrillion will need more energy supplies. Today, new 

British thermal units (Btus) last year in- technologies offer new opportunities to enstead of 99 quadrillion Btus. hance our energy efficiency. As these technoloAbout a third to a half of these savings gies gain market acceptance, they will help enresulted from shifts in the economy, such as sure a reliable and affordable energy and electhe growth of the service sector. The other tric power supply for the nation. 

half to two-thirds resulted from greater energy efficiency. Technological improve- Energy Intensity 

ments in energy efficiency allow consumers The energy intensity of the U.S. economy to enjoy more energy services without com- is measured by the amount of energy used to mensurate increases in energy demand. The produce a dollar’s worth of gross domestic rate at which these efficiency improve- product (GDP). It now takes only about 56 per­ ments are made varies over time, depend- cent of the energy required in 1970 to produce a ing on the extent to which factors—such as 

energy policies, research and development, Figure 1-1 prices, and market regulations—encourage U.S. Energy Use per Capita and per Dollar of the development of new, efficient products GDP: 1970–1999 

and consumer investment in these prod- (Index: 1970 = 1) 

ucts. An increased rate of improvement in 

energy efficiency can have a large impact 

on energy supply and infrastructure needs, 

reducing the need for new power plants 

and other energy resources, along with reduced stress on the energy supply infrastructure. 

Load management is the ability to adjust 

energy loads to reflect immediate supply condi­


tions. In the very short term, direct appeals for


conservation can ease strained energy supply


markets for a time. Over the longer run, the abil­


ity to adjust demand on an as-needed basis can


be an important source of energy reserves, re­


sulting in lower energy bills for participating


customers. 1970 75 80 85 90 95 99


1.2 

1.0 

0.8 

0.6 

0 

Energy Use per Capita 

Energy Use per 

Dollar of GDP 

The impact that improvements in energy The energy intensity of the U.S. economy is measured by the 

efficiency can have on energy supply markets amount of energy used to produce a dollar’s worth of gross 

grows over time. Electricity demand is project- domestic product (GDP). By that yardstick, U.S. energy intensity declined significantly between 1970 and 1985, and ed to rise by 1.8 percent a year over the next 20 has continued to decline, albeit at a slower rate. 

years, requiring the addition of some 393,000 _______ 

Source: U.S. Department of Energy, Energy Information MW of generation capacity. At the same time, Administration. 

Measures of 

Electrical Power 

A watt is a measure of the 

amount of energy that 

can be produced during a 

specific period of time. 

1 kilowatt (KW)= 1,000 watts 

1 megawatt (MW)=1million watts 

1 gigawatt (GW)=1 billion watts 

1 terawatt (TW)=1 trillion watts 

U.S. Energy Efficiency 

Is Improving 

• New home refrigerators now use about onethird less energy than 

they did in 1972. 

• New commercial 

fluorescent lighting systems use less than half 

the energy they did during the 1980s. 

• Federal buildings 

now use about 20 percent less energy per 

square foot since 1985. 

• Industrial energy 

use per unit of output declined by 25 percent 

from 1980 to 1999. 

• The chemical industry’s energy use per unit 

of output has declined by 

roughly 40 percent in the 

past 25 years. 

• The U.S. government has reduced its energy use in buildings by 

over 20 percent since 

1985. 

• The amount of energy required to generate 1 

kilowatt-hour of electricity has declined by 10 

percent since 1980. 

Chapter 1 • Taking Stock: Energy Challenges Facing the United States 1-4 
What Causes 

Transmission 

Constraints? 

When additional electricity flow from one 

area exceeds a circuit’s 

capacity to carry that 

flow to another area, 

the overloaded circuit 

becomes congested and 

blocks a steady flow of 

power. To prevent 

transmission bottlenecks, system operators curtail transactions 

between areas or increase generation on 

the side of the constraint where the electricity is flowing and reduce generation on the 

opposite side. Transmission constraints result in price differences 

between regions that 

exceed differences due 

to line losses, because 

electricity can no longer flow freely to the affected area. 

A pressing long-term electricity 

challenge is to build enough new 

generation and transmission capacity to meet projected growth in 

demand. 

1-5 NATIONAL ENERGY POLICY 

dollar of GDP today (Figure 1-1). This reduction is attributable to improved energy efficiency, as well as to structural changes in the economy, particularly the relative decline of energyintensive industries. 

The decline in the nation’s energy intensity accelerated between 1999 and 2000, a period 

when nonenergy-intensive industries experienced rapid growth. Energy intensity is projected to continue to decline through 2020 at an average rate of 1.6 percent a year. This is a slower 

rate of decline than experienced in the 1970s 

and early 1980s, which was characterized by 

high energy prices and a shift to less energyintensive industries, but is a more rapid rate of 

decline than experienced on average during 

the latter part of the 1980s and the 1990s. 

Challenges Confronting Electricity Supply 

Our nation’s electricity supply has 

failed to keep pace with growing demand. 

This imbalance is projected to persist into 

the future. The adverse consequences have 

manifested themselves most severely in 

the West, where supply shortages have led 

to high prices and even blackouts. In other 

regions, inadequate supply threatens the 

reliability and affordability of electric power. 

Large amounts of new generating capacity are slated for installation around the 

country from 2001 to 2004. However, there 

is a geographic mismatch between where 

we will generate energy and where it is 

needed. For example, little capacity is being added where it is most needed, such as 

in California and eastern New York. 

Electricity supply conditions in the 

Southeast are expected to be tight in the 

summer of 2001, much as they have been the 

previous two years. The Northeast may also 

face supply shortages. If the temperatures of 

the summer of 2000 had been normal rather 

than unseasonably cool, New York and New 

England would most likely have experienced 

electricity supply shortfalls and price spikes. 

Critical supply problems could arise if the 

weather in the summer of 2001 is unusually 

warm or if plant outages rise above average 

levels. 

Our nation’s most pressing long-term 

electricity challenge is to build enough new 

generation and transmission capacity to 

meet projected growth in demand. Across 

the country, we are seeing the same signs 

that California faced in the mid-1990s: significant economic regulatory uncertainty, 

which can result in inadequate supply. This 

level of uncertainty can vary across the 

country, depending on state and local regulations. Of the approximately 43,000 MW of 

new generating capacity that power companies planned in 1994 for construction from 

1995 to 1999, only about 18,000 MW were 

actually built. Although plans have been announced to build more capacity than the 

country will need over the next five to seven years, this new construction assumes 

market and regulatory conditions that are 

not yet assured. Over the next twenty years, 

the United States will need 1,300 to 1,900 new 

power plants, which is the equivalent of 60 to 

90 new power plants a year (Figure 1-2). 

But even with adequate generating capacity, we do not have the infrastructure to 

ensure reliable supply of electricity. Investment in new transmission capacity has 

failed to keep pace with growth in demand 

and with changes in the industry’s structure. Since 1989, electricity sales to consumers have increased by 2.1 percent annually, yet transmission capacity has increased by only 0.8 percent annually. As 

electricity markets become more regional, 

transmission constraints are impeding the 

movement of electricity both within and between regions. 

The price spikes in the Midwest in the 

summer of 1998 were in part caused by trans-
Figure 1-2

The U.S. Needs More Power Plants 

4,500 

4,000 

3,500 

3,000 

2,500 

0 

High Electricity Demand Case 

Reference Case 

Electricity Generating Capaciity 

Existing Capacity Minus Future Retirements 

2000 2010 2020 

The nation is going to require significant new generation


capacity in the next two decades. Depending on demand, the


United States will need to build between 1,300 and 1,900 new


power plants—or about one new power plant a week.


________


Source: U.S. Department of Energy, Energy Information


Administration. 

mission constraints, which limited the region’s 

ability to import electricity from other regions 

at a time of high demand. Transmission bottlenecks contributed to the blackouts in California 

over the past year, and have been a persistent 

cause of price spikes in New York City during 

peak demand. Constraints on New England’s 

ability to import low-cost power from Canada 

could raise electricity prices during periods of 

high demand. 

Electricity is a secondary source of energy, 

generated through the consumption of 

primary sources (Figure 1-3). The largest source 

of U.S. electricity generation is coal, followed by 

nuclear energy, natural gas, hydropower, oil, and 

non-hydropower renewable energy. 

Coal 

Coal is America’s most abundant fuel 

source. The United States has a 250-year 

supply of coal. Over 1 billion tons of coal 

were produced in 25 states in 2000. About 

99.7 percent of U.S. coal production is consumed domestically, with electricity generation accounting for about 90 percent of coal 

consumption. 

After peaking in 1982, coal prices 

have generally declined. This trend is projected to continue through 2020, reflecting 

an expanding shift into lower-cost western 

coal production and substantial increases 

in productivity. While coal is expected to 

remain the dominant fuel in meeting increasing U.S. electricity demand through 

2020, energy policy goals must be carefully 

integrated with environmental policy goals. 

The Clean Air Act Amendments of 1990 and 

related state regulations require electricity 

generators to reduce emissions of sulfur dioxide and nitrogen oxide. 

Nuclear Energy 

Nuclear energy is the second-largest 

source (20 percent) of U.S. electricity generation. Nuclear power is used exclusively to generate electricity. Nuclear power has none of the 

emissions associated with coal and gas power 

plants, including nitrogen oxides, sulfur dioxide, 

mercury and carbon dioxide. Costs of electricity 

generation by nuclear plants compare favorably 

with the costs of generation by other sources. 

While the number of nuclear plants has 

declined due to retirements, nuclear electricity 

generation has steadily increased in recent 

years. Several factors have created a more favorable environment for nuclear energy: safe, 

standardized plant designs; an improved licensing process; effective safety oversight by 

the Nuclear Regulatory Commission (NRC); 

the advent of new technologies; and uncertain, 

volatile natural gas prices. This more favorable 

environment has resulted in increased re-licensing of nuclear plants and the consolidation of several plants in the hands of fewer, 

more experienced operators. 

Figure 1-3 

Fuel Sources for Electricity

Generation in 2000 

Natural 

Gas 

16% 

Hydropower 

7% 

Nuclear 

20% 

Renewables 

2% 

Coal 52% 

Oil 3% 

Electricity is a secondary source of energy, generated through the 

consumption of primary sources. Coal and nuclear energy account 

for over 70 percent of U.S. electricity generation. 

______ 

Source: U.S. Department of Energy, Energy Information Administration. 

Chapter 1 • Taking Stock: Energy Challenges Facing the United States 1-6 
Many Americans received high 

heating bills this winter as a result of sharp increases in natural 

gas prices. 

1-7 NATIONAL ENERGY POLICY 

The nuclear industry is closely regulated by the NRC, which provides oversight of the operation and maintenance of 

these plants. This oversight includes a 

comprehensive inspection program that 

focuses on the most significant potential 

risks of plant operations, and features fulltime resident inspectors at each plant, as 

well as regional inspectors with specialized expertise. In addition to rigorous inspection criteria, the installation of new 

design features, improvements in operating experience, nuclear safety research, 

and operator training have all contributed 

to the nuclear industry’s strong safety 

record. 

An important challenge to the use of 

nuclear energy is the issue of safe and 

timely long-term storage of spent nuclear 

fuel and high- and low-level radioactive 

waste. Currently, no plans exist to construct 

any new nuclear plants. However, due to 

more favorable conditions, the decline in nuclear energy generation has not been as rapid as was predicted only a few years ago, as 

evidenced by increased re-licensing. 

Natural Gas 

Natural gas is the third-largest source of 

U.S. electricity generation, accounting for 16 

percent of generation in 2000. Under existing 

policy, natural gas generating capacity is expected to constitute about 90 percent of the 

projected increase in electricity generation 

between 1999 and 2020. Electricity generated 

by natural gas is expected to grow to 33 percent in 2020—a growth driven by electricity 

restructuring and the economics of natural 

gas power plants. Lower capital costs, shorter 

construction lead times, higher efficiencies, 

and lower emissions give gas an advantage 

over coal and other fuels for new generation 

in most regions of the country. 

However, natural gas is not just an 

electricity source. It is used in many different ways, including as vehicle fuel, as industrial fuel, and in our homes. In addition, natural gas is used as a feedstock during the 

manufacturing process of such products as 

chemicals, rubber, apparel, furniture, paper, 

clay, glass, and other petroleum and coal 

products. Overall, natural gas accounts for 

24 percent of total U.S. energy consumed 

and for all purposes 27 percent of domestic 

energy produced. 

Eighty-five percent of total U.S. natural 

gas consumption is produced domestically. 

The import share of consumption rose from 5 

percent in 1987 to 15 percent in 2000, and net 

imports have comprised more than 50 percent 

of the growth in gas demand since 1990. Canada, with very large gas supplies and easy pipeline access to the lower 48 states, accounts for 

nearly all U.S. natural gas imports. Unlike oil, 

almost all natural gas is produced and sold 

within the same region. Therefore, prices are 

determined by regional, rather than global, 

markets. 

In 2000, natural gas prices moved 
sharply higher after fifteen years of generally 

flat prices. Futures prices surged by 320 percent in 2000 to an all-time high of $9.98 per 

million Btus in late December 2000—nearly 

five times higher than the $2.05 per million 

Btu average from 1991 to 1999. While prices 

have declined since the beginning of 2001, 

they remain much higher than recent levels. 

Between 2000 and 2020, U.S. natural 

gas demand is projected by the Energy Information Administration to increse by more 

than 50 percent, from 22.8 to 34.7 trillion cubic feet. Others, such as Cambridge Energy 

Research Associates, expect gas consumption to increase by about 37 percent over 

that period. Growth is projected in all sectors—industrial, commercial, residential, 

transportation, and electric generation. More 

than half of the increase in overall gas consumption will result from rising demand for 

electricity generation. 

Although high natural gas prices have 

negative effects on consumers, businesses, 

industries, and the economy as a whole, they 

also promote more rapid development and 

adoption of new energy efficient technologies, investment in distribution systems, and 

greater investment in exploration and development. Although these market responses do 

not occur rapidly enough to prevent nearterm price spikes, over time, they help to 

hold down prices. 

As a result of the sharp increase in natural gas prices, many consumers received historically high utility bills this winter. The price 

spike has had a particularly severe impact on 

low-income consumers who use natural gas 

for heating. In recent months, 5 million consumers have applied for federal and state assistance to pay their heating bills—an increase of 1 million consumers over last year. 

The projected rise in domestic natural 

gas production—from 19.3 trillion cubic feet 

in 2000 to 29.0 trillion cubic feet in 2020— 

may not be high enough to meet projected 

demand. In the near term, incremental production of natural gas is expected to come 

primarily from unconventional sources in 

the Rocky Mountain, Gulf Coast, and midcontinent regions; the North Slope of Alaska; and the offshore Gulf of Mexico. Onshore federal lands currently contribute 

about 10 percent of U.S. production, and 

federal offshore production contributes 

about 26 percent. 

The most significant long-term challenge relating to natural gas is whether adequate supplies can be provided to meet 

sharply increased projected demand at 

reasonable prices. If supplies are not adequate, the high natural gas prices experienced over the past year could become a 

continuing problem, with consequent impacts on electricity prices, home heating 

bills, and the cost of industrial production. 

These concerns will redouble if policy decisions sharply reduce electricity generation by any other source, since it is doubtful that natural gas electricity generation 

could expand to the extent necessary to 

compensate for that loss of generation. 

To meet this long-term challenge, the 

United States not only needs to boost production, but also must ensure that the natural gas pipeline network is expanded to 

the extent necessary. For example, although natural gas electricity generation in 

New England is projected to increase by 

16,000 MW through 2000, bottlenecks may 

block the transmission of necessary supplies. Unless pipeline constraints are eliminated, they will contribute to supply shortages and 

high prices, and will impede growth in electricity generation. 

Hydropower 

Hydropower is the fourth-largest 

source of U.S. electricity generation, accounting for about 7 percent of total generation in 2000. In some regions of the country, such as the Northwest and New York, 

hydropower makes a much bigger contribution to electricity generation. Although 

the United States is second only to Canada 

in hydropower generation, hydropower 

generation has remained relatively flat in 

the United States for years. 

Hydropower has significant environmental benefits. It is a form of low-cost 

electricity generation that produces no 

emissions, and it will continue to be an important source of U.S. energy for the future. Given the potential impacts on fish 

and wildlife, however, it is important to efChapter 1 • Taking Stock: Energy Challenges Facing the United States 1-8 
Hydropower is the fourth-largest 

source of U.S. electricity generation. The most significant challenge confronting this source of 

energy is regulatory uncertainty 

regarding the federal licensing 

process. 

1-9 NATIONAL ENERGY POLICY 

ficiently and effectively integrate national 

interests in both natural resource preservation and environmental protection with energy needs. 

There are two categories of hydropower projects in the United States: (1) 

those operated by federal electric utilities, 

such as the federal power marketing administrations (Bonneville, Western, Southwestern, and Southeastern); and (2) the approximately 2,600 non-federal hydropower 

dams licensed or exempted by the Federal 

Energy Regulatory Commission (FERC). 

The federal utilities have large hydropower 

systems operated by the Bureau of Reclamation and Army Corps of Engineers, and 

play an important role meeting electricity 

demand, especially in the Northwest and 

the West. Hydropower projects operate 

with multiple purposes, such as electricity 

generation, flood control, navigation, and 

irrigation. 

Although most potential for hydropower has already been developed, there is 

some undeveloped hydropower capacity in 

the United States. Much of this capacity 

could be expanded without constructing a 

new dam. 

The most significant challenge confronting hydropower is regulatory uncertainty regarding the federal licensing process. The process is long and burdensome, 

and decision-making authority is spread 

across a range of federal and state agencies 

charged with promoting different public 

policy goals. Reforms can improve the hydropower licensing process, ensuring better public participation, ensuring that effective fish and wildlife conditions are adopted, and providing interagency resolution 

before conflicting mandatory license conditions are presented. The licensing process 

needs both administrative and legislative 

reforms. In addition, FERC should be encouraged to adopt appropriate deadlines 

for its own actions during the process. 

Oil 

Oil accounts for approximately 3 percent of electricity generation. Oil is used as a 

primary source to fire electricity generation 

plants in some regions. Specifically, oil is an 

important source of electricity in Hawaii, 

Florida, and some northeastern states. Oil 

can also be used an additional source of fuel 

for electricity generation in plants that can 

use either natural gas or oil. However, electricity generation from oil is projected to decline to about one-half of one percent of total 

electricity generation by 2020. 

Renewable Energy: A Growing Resource 

Renewable energy technologies tap 

natural flows of energy—such as water, 

wind, solar, geological, and biomass sources—to produce electricity, fuels, and heat. 

Non-hydropower renewable electricity generation is projected to grow at a faster rate 
than all other generation sources, except Figure 1-4


natural gas. These sources of energy are U.S. Per Capita Oil


continuously renewable, can be very clean, Consumption: 1970–2000


are domestically produced, and can gener- (Barrels per Year)


ate income for farmers, landowners, and


others. Although its production costs gener­


ally remain higher than other sources, re­


newable energy has not experienced the


price volatility of other energy resources.


Non-hydropower renewable energy 

sources currently account for only about 4 

percent of total energy consumption and 2 

percent of total electricity generation. The 

sources of non-hydropower renewable electricity generation are biomass (the direct 

combustion of plant matter and organic residues, such as municipal solid waste use); 

geothermal (use of naturally occurring 

steam and hot water); wind; and solar. Biomass and geothermal account for most renewable electricity generation. 

35 

30 

25 

20 

0 

The most important long-term chal- 1970 75 80 85 90 95 00 

lenge facing renewable energy remains eco- Per capita oil consumption reached a peak in 1978 of 31 

nomic. Renewable energy costs are often barrels. it has fallen by 20 percent since then to 26 barrels 

greater than those of other energy sources.	 per capita. 

_______ However, these costs have declined sharply Source: U.S. Department of Energy, Energy Information Administration 

in recent years, due to improved technology. If this trend continues, renewable energy growth will accelerate. By 2020, nonhydropower renewable energy is expected 

to account for 2.8 percent of total electriciRenewable energy technologies tap 

natural flows of energy to produce 

electricity, fuels, and heat. 

U.S. DEPARTMENT OF ENERGY, NATIONAL 

RENEWABLE ENERGY LABORATORY 

ty generation. 

Transportation Energy Needs 

Oil is the nation’s largest source of 

primary energy, serving almost 40 percent 

of U.S. energy needs. In 2000, the United 

States consumed an average of 19.5 million 

barrels of oil every day. Transportation fuels account for about two-thirds of our oil 

consumption, and the industrial sector for 

25 percent. Residential and commercial 

uses, such as heating oil and propane—important fuels in the Northeast and Midwest—account for most of the rest. 

The share of oil in U.S. energy supply 

has declined since the early 1970s, the result of growth in other fuels, particularly 

coal and nuclear. Per capita oil consumption, which reached a peak in 1978, has fallen by 20 percent from that level (Figure 1-4). 

Chapter 1 • Taking Stock: Energy Challenges Facing the United States 1-10 
Net Imports 

Consumption 

20 

15 

10 

1970 80 90 00 

U.S. dependence on oil imports is a serious long-term challenge. The economic security of our nation and our trading 

partners will remain closely tied to global oil market developments. 

_______


Source: U.S. Department of Energy, Energy Information


Administration. 

Figure 1-5 In 2020, oil is projected to account for Dependence on Foreign Sources of Oil	 roughly the same share of U.S. energy consumption as it does today. (Millions of Barrels a Day) The United States has been a net importer of energy since the 1950s, and U.S. 

dependence on imports has grown sharply 

since 1985 (Figure 1-5). Today, oil accounts 

for 89 percent of net U.S. energy imports. 

Net oil imports account for most of the rise 

in energy imports since the mid-1980s, and 

have grown from about 4.3 million barrels 

per day (bpd) in 1985 to 10 million bpd in 

2000. 

World oil prices have been marked by 

notable price volatility over the past sever5 

0 

al years. For example, the average initial 

purchase price of crude oil rose from $8.03 

a barrel in December 1998 to $30.30 a barrel in November 2000. Spot prices rose 

even higher. This dramatic price swing was 

the product of several events. A series of 

production cuts by the Organization of Petroleum Exporting Countries (OPEC) in 

1998 and 1999 sharply curtailed global oil 

supplies. At the same time, rebounding demand for oil in Asia following roughly two 

years of economic weakness, and rapid 

economic growth in the United States 

boosted oil consumption and squeezed 

supplies even further. By September 2000, 

oil prices peaked as markets faced limited 

supply of crude and petroleum products 

U.S. DEPARTMENT OF TRANSPORTATION 

Domestic oil supply cannot be increased unless several access and infrastructure challenges are addressed. For 

example, U.S. refining and pipeline capacity has not kept pace with increasing demand for petroleum products. 

1-11 NATIONAL ENERGY POLICY 
ahead of the winter season, when demand 

is typically higher. In December 2000, oil 

prices fell after the market absorbed the impact of a series of OPEC production increases. 

This recent price volatility illustrates 

the effect of intermittent market power exerted by cartel behavior in a global petroleum market. Moreover, prices are set in a 

market where supply is geographically concentrated. Almost two-thirds of world proven reserves are in the Middle East. Elsewhere, Central and South America account 

for 9 percent; Africa, 7 percent; North 

America, 5 percent; Eastern Europe and the 

former Soviet Union, 5 percent; the rest of 

Asia, 4 percent; and Western Europe, 2 percent. OPEC’s huge oil reserves and production capacity and its periodic efforts to influence prices add to volatility in the market. 

Oil prices are expected to remain high 

through 2002, affecting the cost of transportation, heating, electricity generation, and 

industrial production. High oil prices mean 

high prices for petroleum products, such as 

gasoline, diesel fuel, heating oil, propane, 

and jet fuel. The summer 2001 base case average gasoline price from the Department 

of Energy Short-Term Energy Outlook is 

$1.49 per gallon. However, prices have risen 

more rapidly than anticipated since the report’s release, and a much higher summer 

average in the range of $1.50 to $1.65 per 

gallon is likely. Some areas have already experienced gasoline prices above $2.00 per 

gallon. Gasoline inventories going into the 

driving season are projected to be lower 

than last year, which could set the stage for 

regional supply problems that once again 

create significant price volatility in gasoline 

markets. 

Price Volatility in Gasoline Markets 

During the early summer of 2000, low 

inventories set the stage for a gasoline price 

run-up in the Midwest. Several pipeline and 

refinery problems sent marketers scrambling for limited supplies of both reformulated gasoline (RFG) and conventional gasoline, driving prices up rapidly. In Chicago, 

the spot price for blend stock for RFG, exChapter 1 • Taking Stock: Energy Challenges Facing the United States 1-12 

cluding ethanol, doubled in about six weeks, 

from 83 cents per gallon on April 25 to $1.65 

on June 7. Spot prices then fell back over 

the next five weeks to 84 cents on July 12 as 

extra supply began arriving. Retail regulargrade RFG prices in the Midwest rose from 

$1.47 on April 24 to just over $2.00 per gallon on June 19, before falling back to $1.43 

by July 24, showing the typical tendency of 

Because the United States is a 

mature oil-producing region, 

production costs are often higher 

than in foreign countries. 
retail prices to lag spot price changes. 

Refiners face additional challenges as 

a result of various state and local clean fuel 

requirements for distinct gasoline blends 

(“boutique fuels”). These different requirements sometimes make it difficult, if not 

impossible, to draw on gasoline supplies 

from nearby areas or states to meet local 

needs when the normal supply is disrupted. 

In 2000, very low inventories of gasoline and other refined products on the U.S. 

East and Gulf coasts increased the market’s susceptibility to external shocks, such 

as operating problems in refineries or pipelines, or short-term surges in demand. Last 

winter, heating oil prices were at nearrecord levels. During 2000, the federal government reduced the vulnerability of the 

Northeast to heating oil shortages, such as 

those experienced in January 2000, by creating a 2-million-barrel heating oil reserve 

in New Jersey and Connecticut. 

Because the United States is a mature 

oil-producing region, production costs are 

often higher than in foreign countries, particularly OPEC countries. In addition, access to promising domestic oil reserves is 

limited. U.S. oil production in the lower 48 

states reached its peak in 1970 at 9.4 million bpd. A surge in Alaskan North Slope 

oil production beginning in the late 1970s 

helped postpone the decline in overall U.S. 

production, but Alaska’s production 

peaked in 1988 at 2 million bpd, and fell to 

1 million bpd by 2000. By then, U.S. total 

oil output had fallen to 5.8 million bpd, 39 

percent below its peak. 

By 2020, U.S. oil production is projected to decline from 5.8 to 5.1 million 

bpd under current policy. However, oil consumption is expected to rise to 25.8 million 

bpd by 2020, primarily due to growth in 

consumption of transportation fuels. Given 

existing law, production from offshore 

sources, particularly the Gulf of Mexico, is 

predicted to play an increasingly important 

role in the future, accounting for a projected high of 40 percent of domestic oil production by 2010, up from 27 percent today. 

Technological advances can mitigate the 

decline in U.S. oil production by enhancing 

recovery from domestic oil reserves and 

lowering production costs. 

Our projected growing dependence 

on oil imports is a serious long-term challenge. U.S. economic security and that of 

our trading partners will remain closely 

tied to global oil market developments. 

Without a change in current policy, the 

share of U.S. oil demand met by net imports is projected to increase from 52 percent in 2000 to 64 percent in 2020. By 2020, 

the oil for nearly two of every three gallons 

of our gasoline and heating oil could come 

from foreign countries. The sources of this 

imported oil have changed considerably 

over the last thirty years, with more of our 

imports coming from the Western Hemisphere. Despite progress in diversifying 

our oil suppliers over the past two decades, 

the U.S. and global economies remain vulnerable to a major disruption of oil supplies. 

The Strategic Petroleum Reserve 

(SPR), the federal government’s major tool 

for responding to oil supply disruptions, 

has not kept pace with the growth in imports. The number of days of net oil import 

protection provided by the Reserve declined from 83 days of imports in 1992 to 54 

days of imports today. Net domestic oil imports have increased significantly since 

1992, while the SPR’s oil inventory actually 

decreased. 

Domestic oil supply cannot be increased unless several access and infrastructure challenges are addressed. U.S. refining and pipeline capacity has not kept 

pace with increasing demand for petroleum 

products. Unless changes take place, the 

net effect will likely be increased imports, 

regionally tight markets, and circumstances 

in which prices for gasoline, heating oil, 

and other products rise independently of 

oil prices. 

Greater price volatility for gasoline, 

diesel fuel, heating oil, propane, and jet fuel 

is likely to become a larger problem over 

time, unless additional refining capacity 

and expanded distribution infrastructure 

can be developed at the same time cleaner 

products are required. Increasing domestic 

oil production and reducing demand, particularly for transportation fuels, will re1-13 NATIONAL ENERGY POLICY 
quire adoption of a comprehensive national 

energy policy. 

Alternative Transportation Fuels 

Development of alternative fuels such 

as ethanol and other biofuels (liquid fuels 

derived from organic matter, such as 

crops), natural gas, and electricity, can help 

diversify the transportation sector that is so 

reliant on oil. 

Ethanol, a biofuel based on starch 

crops such as corn, is already making a significant contribution to U.S. energy security, displacing more oil than any other alternative fuel. Other biofuels, such as biodiesel, which can be made from soybean, 

canola oils, animal fats, and vegetable oils, 

are making an increasingly important conSummary of Recommendations 

tribution 

The success of the federal alternative 

fuels program has been limited, however. 

The program focuses on mandating that certain fleet operators purchase alternative fueled vehicles. The hope was that this vehicle purchase mandate would lead to expanded use of alternative fuels. That expectation has not been realized, since most 

fleet operators purchase dual-fueled vehicles that operate on petroleum motor fuels. 

Reforms to the federal alternative fuels program could promote alternative fuels use, 

such as expanding the development of an 

alternative fuels infrastructure. 

Taking Stock: Energy Challenges Facing the United States 

★ The NEPD Group recommends that the President issue an Executive Order to direct all federal agencies to include in any regulatory action that could significantly and 

adversely affect energy supplies, distribution, or use, a detailed statement on: (1) the 

energy impact of the proposed action, (2) any adverse energy effects that cannot be 

avoided should the proposal be implemented, and (3) alternatives to the proposed action. The agencies would be directed to include this statement in all submissions to the 

Office of Management and Budget of proposed regulations covered by Executive Order 12866, as well as in all notices of proposed regulations published in the Federal 

Register. 

★ The NEPD Group recommends that the President direct the executive agencies to 

work closely with Congress to implement the legislative components of a national energy policy. 

★ The NEPD Group recommends to the President that the NEPD Group continue to 

work and meet on the implementation of the National Energy Policy, and to explore 

other ways to advance dependable, affordable, and environmentally responsible production and distribution of energy. 

Note: All recommendations in this report are subject to execution in accordance with applicable law. Legislation would be sought where needed. Also, any recommendations that involve 

foreign countries would be executed in accordance with the customs of international 

relations, including appropriate diplomatic consultation. 

Chapter 1 • Taking Stock: Energy Challenges Facing the United States 1-14 
Regional U.S. Energy Challenges


MIDWEST 

Energy consumption in the Midwest is dominated by the industrial sector, the sector with the fastest-growing consumption rate 

through 2020. The transportation sector has the second-fastest consumption growth rate through 2020. States are affected by higher 

prices for natural gas, propane, and gasoline, and they expect gasoline price spikes this summer. Electricity supplies in some parts 

of the region may be tight during peak summer demand. High energy prices will drive up farm operating costs, particularly for 

fertilizer, irrigation, grain drying, and fuel for tractors. 

Illinois consumers are reeling from high heating and cooling costs. Landlords are forced to pass on these costs in the form of higher 

because of the cost of meeting cleaner-burning gasoline requirements. 

economy. 

WEST 

Energy consumption in the West is dominated by the transportation sector,


which is followed closely by the industrial sector. The region’s drought emer­


gency is exacerbating an already challenging energy picture. California is


likely to experience more severe electricity blackouts this summer. The Pacific


Northwest faces a major shortage of hydropower generation due to low water


levels. Electricity prices will remain high in the West until more supply is


added. Gasoline could be in short supply this summer in California and other states.


rents. Farmers face low commodity prices, high fuel costs, and dramatically higher fertilizer costs. A key refinery is closing in part 

Minnesota’s residential electricity use has increased due to population growth and a healthy 

Iowa imports over 90 percent of its energy. Farmers are paying twice the 1999 price of fertilizer 

because of higher prices for natural gas, which is a major component in the fertilizer production. 

California’s energy consumption has grown by about 7 percent a year, while production has remained flat. The point has been 

reached where demand is occasionally exceeding supply, which has caused rolling blackouts. The situation is likely to worsen this 

summer when demand will peak. 

Oregon’s lowest snow pack in history will result in the most severe short-term electricity problem in decades. The state will face high 

spot market prices and reports the highest gasoline prices in the country. 

Washington businesses are closing down or cutting back on production. Electricity costs of $400 per unit compared to $35 a year ago 

contributed to the closure of a major paper plant employing 800 employees. 

Colorado small business are suffering as well. A 169 percent jump in natural gas prices in one year may force small businesses to close. 

Idaho utilities are offering to pay their irrigation customers to not farm portions of their fields to reduce electricity demand and make 

that saved power available for other local customers. The low snow pack has reduced water in river systems needed for hydropower 

generation. 

Hawaii’s geographic isolation contributes to its many energy issues, such as importing 100 percent of its energy, its disproportionately 

high consumption of jet fuel and heavy reliance on tourism, and its dependence on imported oil for over 90 percent of its primary 

energy, the majority from sources in the Asia-Pacific region. Electricity is produced mainly from oil, including residuals and distillates 

from refineries and coal. Because the Islands’ electric grids are not interconnected, electric utilities must operate with high reserve 

margins. 

Nevada is covered in large part by federal lands that require federal approval for permitting new transmission and generation facilities. 

The permitting process can be protracted and cumbersome, despite efforts by federal agencies to streamline and coordinate. The desert 

climate requires both heating and cooling, the cost of which can be burdensome. While the desert climate is also conducive to geothermal, wind, and solar technologies, additional work is needed to make these technologies economically competitive. 

1-15 NATIONAL ENERGY POLICY 
NORTHEAST 

Energy consumption in the Northeast is dominated by the transportation sector. Forecasts developed by the Energy Information 

Administration indicate that the transportation sector will also remain the dominant sector with the fastest-growing consumption 

rate through 2020. Northeast states’ energy challenges include reducing vehicle pollution and interstate transport of power plant 

emissions. Heavy dependence on heating oil results in disproportionate impacts during cycles of high prices. Energy supplies in 

the region are limited by electric transmission and gas pipeline bottlenecks. 

New York is rushing to complete 11 small natural gas turbines to avoid blackouts in New York City this summer, where customers pay 

Delaware needs upgraded transmission lines to handle increasing loads. 

Traditional distributed generation using diesel generators may address these 

shortfalls, but could raise environmental problems. 

Connecticut expects no power shortages this summer, but brownouts are possible 

if there is a prolonged spike in energy use while power plants are shut down for 

market prices. 

routine maintenance. 

New Hampshire must conserve power on hot days to avoid summer blackouts. 

New Jersey regulators have had to allow utilities to raise natural gas rates by 2 percent a 

month through July 2001 to make up for money lost during the winter due to high fuel 

prices. 

SOUTH 

Energy consumption in the South is dominated by the industrial sector, followed by the 

transportation sector. The transportation sector, however, is expected to grow faster than the 

industrial sector through 2020. While no state in the region anticipates summer power 

shortages, electricity supplies in parts of the region may be tight during peak summer 

demand. 

Arkansas’ costs of natural gas and propane have doubled and then tripled, contributing to employee layoffs. 

Oklahoma’s second-largest industry is the oil and gas industry. The volatility of oil and gas markets can severely affect Oklahomans 

and the state’s economy. 

Chapter 1 • Taking Stock: Energy Challenges Facing the United States 1-16 
CHAPTER TWO


Striking Home 

The Impacts of High Energy Prices on Families, Communities, and Businesses 

Figure 2-1 

Income Spent on Energy 

(Percent) 

9.0 

8.0 

7.0 

6.0 

5.0 

4.0 

3.0 

1970 75 80 85 90 95 00 

Until recently, the share of disposable 

household income spent on energy 

steadily declined, falling to a low of 3.8 

percent at the end of 1998. Higher prices 

for oil and other energy products and 

record cold temperatures in late 2000 

bumped this share up to 4.8 percent in the 

fourth quarter. 

_______ 

Note: Plotted quarterly through the fourth 

quarter of 2000. 

Source: U.S. Department of Commerce, 

Bureau of Economic Analysis. 

2-1 NATIONAL ENERGY POLICY 

A merican families, communities, 

and businesses all depend on reliable and affordable energy for 

their health, safety, and livelihood. Energy is a critical component of nearly everything that affects our 

daily lives, from transportation to communication, from food production to medical 

services, and from air conditioning to heating. Americans expect these services to enhance our lives, and are keenly aware that 

each additional, unanticipated energy expense is a decrease in funds available for 

other needs. 

Recommendation: 

★ The NEPD Group recommends that 

the President direct the Secretary of Energy to explore potential opportunities to 

develop educational programs related to 

energy development and use. This should 

include possible legislation to create public education awareness programs about 

energy. Such programs should be longterm in nature, should be funded and 

managed by the respective energy industries, and should include information on 

energy’s compatibility with a clean environment. 

Impacts of High Energy Prices on the 

Daily Lives of Americans 

Many American families and businesses 

have already felt the strain of rising prices and 

unreliable energy supplies. Every time energy 

prices rise, American families have fewer dollars available to meet their needs. Low-income 

households, energy-intensive industries, and 

farmers generally find it difficult to make rapid 

adjustments to energy price increases. 

Rising oil prices act like a tax by foreign oil 

exporters on Americans. Changing energy prices 

impose economic costs, such as forcing plants to 

change schedules, replace machinery, or even 

shut down. These costs can eventually impact 

economic growth. So far, increased capital investment by domestic energy producers has offset 

only a small part of the dampening effects of 

higher energy costs on consumer spending. 

Families 

Energy bills for the 74 million middleclass American households consist primarily of home and transportation related expenses. Heating and cooling expenses represent about 40 percent of household energy costs. Other energy expenses include 

costs for lighting, hot water, appliances, and 

transportation. 

For almost twenty years, the share of 

household income that Americans spent on 

their energy needs steadily declined. However, between 1998 and the end of last year, 

family spending on energy rose by more 

than 26 percent, from 3.8 to 4.8 percent of 

after-tax income (Figure 2-1). 

Last winter, heating bills for many 

families tripled. Roughly 50 percent of 

American families heat their homes with 

natural gas. Because the last two months of 

2000 were particularly cold in some parts of 

the country, heating bills increased significantly relative to the previous winter. Last 

winter, average natural gas heating costs in 

the Midwest increased by 73 percent, from 

$540 to $933. New Englanders’ heating bills 

rose by 27 percent, from $760 to $967. 

Many working households can usually

accommodate such increases in energy by

cutting back on other needs. However, low-

income households often have more diffi-

cult choices to make. Energy costs for an av-

erage low-income household could total 14

percent of family income during the winter

of 2000–01, up from about 11 percent for the

previous winter. In contrast, energy costs

typically represent only about 4 percent of a

middle-class family’s household budget.

The Low Income Home Energy Assis-

tance Program (LIHEAP) is a federal block

grant program that helps low-income con-

sumers pay their energy bills. Last winter,

Higher energy prices have 1.2 million more American families applied

forced some energy-intensive for LIHEAP assistance to pay their heating

manufacturing industries to bills, bringing the total close to 5 million halt or scale back production 

and lay off workers. American families—up by 26 percent over

last year’s 3.9 million applicants. As many

as 3.6 million families in eighteen states

and the District of Columbia risk being un-

able to pay their bills and having their en-

ergy cut off because of the effects of rap-

idly increasing energy costs.

Recommendations: 

★ The NEPD Group recommends that the President take steps to

mitigate impacts of high energy costs on low-income consumers. These

steps would include:

•Strengthening the Low Income Home Energy Assistance Pro

gram by making $1.7 billion available annually. This is an increase

of $300 million over the regular FY 2001 appropriation.

•­ Directing the Secretaries of Interior and Health and Human Ser-

vices to propose legislation to bolster LIHEAP funding by using a

portion of oil and gas royalty payments.

•­ Redirecting royalties above a set trigger price to LIHEAP, when-

ever crude oil and natural gas prices exceed that trigger price, as

determined by the responsible agencies.

★ The NEPD Group recommends that the President increase funding

for the Weatherization Assistance Program by $1.2 billion over ten

years. This will roughly double the spending during that period on

weatherization. Consistent with that commitment, the FY 2002 Budget

includes a $120 million increase over 2001. The Department of Energy

will have the option of using a portion of those funds to test improved

implementation approaches for the weatherization program.

★ The NEPD Group recommends that the President support legisla-

tion to allow funds dedicated for the Weatherization and State Energy

Programs to be transferred to LIHEAP if the Department of Energy

deems it appropriate.

2-3 NATIONAL ENERGY POLICY 

The low-income elderly are particu-

larly vulnerable to disruptions in energy

supply. If they keep their homes at a reason-

able temperature, the high cost of electricity

may make it difficult for them to pay their

higher electricity bills. This could further re-

sult in an elimination of service. Another

summer of very hot weather and high en-

ergy bills could cause serious health prob-

lems for some Americans, particularly those

sensitive to high temperatures.

The Department of Energy’s Weather-

ization Assistance Program has reduced the

heating and cooling costs of low-income

households by weatherizing more than 5

million homes since its inception in 1976.

The President has requested $1.2 billion in

additional funding for this program over ten

years, roughly double the current level of

spending. Consistent with that commitment,

the 2002 budget will include a $120 million

increase over 2001.

The Department of Energy’s 

Weatherization Assistance Program 

The energy burden on low-income house-

holds, as a proportion of income, is four

times greater than for other American

households. The Weatherization Program

provides grant funding for a network of all

states and some 970 local weatherization

agencies to provide insulation, duct system

improvements, furnace upgrades, and

other cost-effective, energy-saving im-

provements based on the energy needs of

each home weatherized. Currently, each

dollar spent on home weatherization gen-

erates $2.10 worth of energy savings over

the life of the home; with additional eco-

nomic, environmental, health, and safety

benefits associated with the installations

and resulting home improvements. Typi-

cal savings in heating bills, for a natural gas

heated home, grew from about 18 percent

in 1989 to 33 percent today.

Businesses

For businesses, higher energy prices

and disruptions in energy supplymay in-

crease inflation and reduce profits, produc-

tion, investment, and employment. The im-
pact of higher energy prices takes two

forms: the higher costs of paying for the

energy to run the business, and the higher

costs when raw fuel sources are used in

manufacturing.

In some energy-intensive industries,

rising energy prices have had a significant

effect on product prices and operations.

For instance, while nonenergy producer

prices at the intermediate stage of process-

ing have risen by only 3.6 percent since De-

cember 1998, prices of industrial materials

and plastic resins, which use petroleum in-

puts, are up 14 and 23 percent, respectively.

DuPont, the leading U.S. producer of plas-

tics, chemicals, and fibers derived from oil

and natural gas, faced an increase of $1.3

billion in raw material costs last year, the

largest increase in the industry in a decade.

The company expects further disruptions

this year due to high energy costs.

The Federal Reserve has reported that

businesses have experienced higher energy

costs for a number of months, but have

been unable to pass these increases on to

customers due to intense foreign and do-

mestic competition and slowing demand.

On March 7, 2001, the Federal Reserve re-

ported that businesses across the country

experienced higher fuel and other energy

costs in February 2001, but most businesses

were unwilling or unable to pass these

costs on to consumers.

This absorption of much of the higher

costs of energy has deteriorated the profit

margins of many businesses. About one-

quarter of the increase in total unit costs of

nonfinancial, nonenergy corporations in

the final quarter of last year reflected a rise

in energy costs. A more moderate pace of

consumer spending, due in part to higher

energy prices (natural gas in particular)

also contributed to the margin squeeze. The

reduction in businesses’ purchasing power

has also constrained outlays for plants and

equipment and most likely intensified the

slowdown in business investment that oc-

curred in the last half of 2000.

Energy-intensive manufacturing in-

dustries are very sensitive to changes in en-

ergy prices, and adjust their production ac-

cordingly. Some companies have been

forced to halt or scale back production and

lay off workers. Others have deemed it

more profitable to sell their energy than to

produce their products. In the Pacific

Northwest, Georgia-Pacific’s paper mill closed

down and laid off 800 workers until diesel gen-

erators could be installed. In recent months, the

company’s average power costs soared from

$1.2 million to $10 million.

For other industries, such as computer-

driven service industries, energy is not an im-

portant component of the total cost. However,

many such businesses require a high-quality, re-

liable source of power. Even a brief loss of

power can impose significant costs on high-

technology firms.

Energy supply disruptions also im-

pose costs on firms when products or prod-

Disruptions in the supply of 

energy impose hardships on 

businesses when products or 

product inputs are damaged or 

destroyed, or when production 

runs are interrupted. 

Many companies have been 

unable to pass higher energy 

costs on to their customers, 

which has sharply reduced their 

profit margins. 

Chapter 2 • Striking Home: The Impacts of High Energy Prices on Families, Communities, and Businesses 2-4 
Farmers have been hit especially 

hard by higher fuel and oil 

prices, which accounted for over 

a third of the rise in the cost of 

running their farms. 

2-5 NATIONAL ENERGY POLICY 

uct inputs are damaged or destroyed, or

when production runs are interrupted. For

example, a survey of small businesses con-

ducted by the National Federation of Inde-

pendent Business in February, 2001, found

that more than half of the firms surveyed

that had experienced blackouts this year in

California were forced to reduce or shut

down business operations altogether during

the blackouts. About one-third lost sales, al-

most 21 percent said materials were dam-

aged or destroyed, and nearly 40 percent

had to absorb wage costs for work that was

not completed.

For businesses that seek to mitigate en-

ergy price volatility, an important factor is ac-

cess to derivatives markets. Both exchange-

traded futures and over-the-counter deriva-

tive contracts allow firms to substantially re-

duce their exposure to changes in energy

prices. A wide variety of highly liquid futures

contracts on energy products such as oil,

natural gas, and electricity allow energy users

and market participants to reduce or add fi-

nancial exposure to energy prices. More so-

Figure 2-2

Farmers Are Being Squeezed 

by Energy Prices 

(Index: 1990–92 = 100)

130

125

120

115

110

105

100

95

90

Prices 

Received 

Prices Paid 

1990 92 94 96 98 00 02

Costs for fuel, fertilizer, and electricity have boosted total prices

paid by farmers, while prices farmers receive for their products

have remained weak.

________é

Note: Prices paid are for goods, services, interest, taxes, and wages; pricesé

received are for all farm products.é

Source: U.S. Department of Agriculture.

phisticated and customizable products are avail-

able in the over-the-counter derivative markets.

As these markets become increasingly liquid

and efficient, more firms will take advantage of

these products, reducing the economy’s sensitiv-

ity to shifts in energy prices. However, most

small businesses currently lack the resources or

sophistication to take advantage of these prod-

ucts, and will therefore remain vulnerable to ris-

ing energy costs. The U.S. government should

continue to support the development of efficient

derivatives markets.

Agriculture 

Farmers need ample, affordable energy to

run their machinery and equipment. Today, farm

production costs are rising sharply, while farm

income remains low. Increasing oil prices and

interest rates, along with higher prices for other

production inputs (including hired labor),

boosted farmers’ production expenses by 4 per-

cent, or $7.6 billion, in 2000. The rise in farm

production expenses has occurred at a time of

continued weakness in the prices farmers re-

ceive for their products (Figure 2-2).

Higher fuel and oil prices accounted

for over one-third of the increase in farm

Figure 2-3

Farm Costs Are Increasing 

(Index: December 1979 = 100)

240

220

200

180

160

140

120

100

1990 91 92 93 94 95 96 97 98 99 00 01

Rising energy prices had a significant effect on product prices

in some industries that are heavily dependent on energy inputs.

The most dramatic example is the 90 percent increase in theé

price of nitrogenous fertilizer since December 1998.é

_________é

Source: U.S. Department of Labor.é
production costs. Retail diesel prices this

past winter were $1.60 a gallon, compared

to about $1.40 a year ago and only $1.00

two years ago. Propane prices were over

$1.60 a gallon this winter, compared to $1.10

a year ago. And, natural gas prices hit $10.00

per million Btus in January, after averaging

about $2.50 for most of 1998–99. Although

natural gas prices have declined, they remain

much higher than earlier levels.

Natural gas is an important component

of farm production costs. For example, it is

used to dry grain, heat farm buildings, and

run food-processing equipment. Heating

costs for poultry producers soared last win-

ter, sharply reducing earnings.

Natural gas also is a major component

in the production of fertilizers, pesticides,

and other farm chemicals. It accounts for

70 to 90 percent of the cost of producing

anhydrous ammonia, a key source of nitro-

gen fertilizer. Surging natural gas prices

have boosted the price of nitrogenous fertil-

izer by 90 percent since 1998 (Figure 2-3).

During last December and January, several

nitrogen production plants shut down, and

capacity utilization fell to 50 percent. Anhy-

drous ammonia recently sold for $330 a ton

in the Midwest, compared to $210 a ton for

all of 2000 and $160 to $170 a ton at the

start of 2000.

Depending on the region of the coun-

try and type of farming enterprises, energy-

related expenses range from 10 to 30 per-

cent of operating costs for producing major

crops. Farm operating costs are highest

where fertilizer use is heaviest and natural

gas is used for irrigation pumps, such as

wheat, cotton, and corn farms in the West

and southwestern plains states. Costs are

high for greenhouse and nursery crops that

use natural gas for heating. Perishable

crops also face problems, as energy costs

in processing are markedly higher.

Most of California’s 9.5 million irri-

gated acres use electricity to pump water.

In addition to higher bills, California farm-

ers will likly face rolling blackouts this

summer, which may disrupt farming and

processing operations. Low stream flows in

the West this year may lead to more pump-

ing of ground water, which will add to irri-

Farm production costs are rising 

gation costs in the West. As a result, the

sharply, while farmers’ 

incomes remain low. Depending costs of California’s agricultural products

on the region of the country and 

may rise significantly.

type of farming enterprises, 

In 2001, farmers’ total cash production

energy-related expenses range 

expenses are forecast to increase by an addi-

from 10 to 30 percent of 

operating costs for producing 

tional $1.5 billion to a record $179.5 billion.

major crops 

Chapter 2 • Striking Home: The Impacts of High Energy Prices on Families, Communities, and Businesses 2-6 
Even though total planted acreage is expected

to fall this year, higher natural gas prices will

raise expenses for nitrogen fertilizer. At the

same time, net cash farm income is projected to

decline from $56.4 billion in 2000 to under $51

billion in 2001, as production expenses continue

to rise.

Taken together, fertilizer, fuel, and

electricity costs for farmers are forecast to

reach $24 billion for 2001, up by about 28

percent from $18.7 billion in 1999. This in-

crease is about 9 percent of U.S. net cash

farm income, and that share could be much

higher for many individual commodities.

Transportation 

The transportation sector accounts for

nearly 30 percent of total U.S. energy con-

sumption. The major transportation fuel

sources are petroleum-based gasoline and

diesel, jet, and marine-mode bunker fuels.

Natural gas pipelines are used for product

distribution, and electricity is the primary

source of power for rail transit and liquid

pipeline transmission and distribution.

During 2000, oil prices surged to a

nine-year high, and gasoline prices skyrock-

eted. On average, fuel prices rose by 30 to

40 cents a gallon from 1999 prices, resulting

in sharp increases for most modes of trans-

Figure 2-4 

Transportation Costs Are on the Rise 

(Index: 1982 = 100) 

A recent study by a San Francisco Bay business 

group concluded that blackouts could cost California 

as much as $16 billion annually, and $5 billion in 

the Bay area alone. 

portation, with nearly a 60 percent increase

in railroad diesel fuel prices.

Price spikes have hit the travel and

trucking industries particularly hard and

have led to the closure of some operations.

Trucking bankruptcies are currently at an

all-time high. Over 3,500 motor carrier op-

erations failed in 2000, a dramatic increase

over the previous record high of 2,700 mo-

tor carrier failures in 1997. Producer prices

forintermediate diesel fuel and aviation fuel

each rose by about 140 percent from a low in

December 1998, affecting passenger and

freight transport in the highway, airline, rail,

and other transportation sectors (Figure 2-4).

For most transport operations, energy-

related expenses were 7 to 14 percent of total

operating costs in 1998–99. This share was

expected to jump to 10 to 25 percent in 2000.

Excluding private auto travel, U.S. passenger

and freight operations in 1999 generated

1990 92 94 96 98 00 01 about $600 billion in annual revenue and paid

The recent 140 percent rise in producer prices for intermedi- approximately $60 billion for fuel and power.

ate diesel and airline fuels has affected the price of passen- If the volume stayed the same in 2000, the ger and freight transport. 

_________ various increases in fuel costs for each mode

Diesel Fuel 110 

100 

90 

80 

70 

60 

50 

40 

30 

Jet Fuel 

Note: Plotted through February 2001. of transportation would yield a fuel bill of

Source: U.S. Department of Labor. 

2-7 NATIONAL ENERGY POLICY 
about $80 billion—an increase of one-third

over the prior year’s bill.

Economic Impacts of California’s 

Energy Crunch 

In California, 43 percent of small busi-

nesses surveyed in February, 2001, said the

power problem had dimmed their views

about California as an attractive place for

doing business. When asked whether they

agreed with the statement, “The electricity

problem has forced me to take concrete

steps exploring the possibility of moving

lending facilities and supplier credit.

The situation in California is of par-

ticular concern because of the major role

the state plays in the regional and national

economies. California’s economy is equiva-

lent to about 13 percent of U.S. gross do-

mestic product (GDP), and it has ac-

counted for an even larger share of U.S.

GDP growth in recent years. Some busi-

nesses and consumers have been affected

by production losses, lost wages, and

higher energy bills resulting from rolling

blackouts and higher natural gas prices.

my business out of California,” 18.3 percent

The power supply crunch in Califor-

of small business respondents said they ei-

ther agreed or strongly agreed with the

statement. More than 31 percent said they

will probably or definitely cut back on

planned business investment, and almost 20

percent are exploring a move to another

state. Half of these small businesses con-

cluded that blackouts would reduce their

earnings.

The Silicon Valley Manufacturing

Group recently estimated that its nearly 200

members lost over $100 million dollars be-

cause of one day of rolling blackouts in

June 2000. Countless more millions of dol-

lars have been lost by interruptible com-

mercial power users. Fontana-based Cali-

fornia Steel Industries estimates it lost $2.4

million in a single day after its interruptible

power was cut off twice for a total of about

12 hours. A recent study by a San Francisco

Bay business group concluded that black-

outs could cost California as much as $16

billion annually, and $5 billion in the Bay

area alone.

The example of California’s utilities il-

lustrates the potentially severe negative ef-

fects on companies whose business is

highly sensitive to energy prices. In this in-

stance, rising energy costs coupled with an

inability to pass those costs along to cus-

tomers has created a sharp increase in

short-term liabilities. Pacific Gas & Electric

has been forced to file for bankruptcy as a

result, and Southern California Edison,

while avoiding bankruptcy for the time be-

ing, has seen its access to credit markets

disappear and the value of its financial as-

nia and the West could affect the region’s

economy, as energy supply uncertainty

could reduce investment in the region.

California’s troubles could also spill over to

the national economy:

• California accounted for 11 percent

of U.S. manufacturing output in 1998. Sec-

tors in other regions that rely on those

products, or that supply inputs to Califor-

nia manufacturers, may share any pain

caused by the energy squeeze.

• Disruptions to California’s economy

could have negative impacts on our inter-

national trade. California accounts for over

16 percent of total U.S. commodity exports;

nearly 25 percent of industrial equipment

and computers, electronics, and instru-

ments exports; and over 15 percent of farm

commodity and food product exports.

• The credit problems of the Califor-

nia utilities have boosted commercial paper

rates for all lower-rated borrowers, and li-

quidity in the commercial paper market has

fallen. This will push some firms to seek

other sources of financing, which can be

more costly than commercial paper.

American consumers and businesses

are best served when markets function

freely. Free markets allow prices to reflect

changes in demand and supply, and avoid

subsidies, price caps, and other con-

straints.

Improvements in Energy Efficiency Can Help 

Improved energy efficiency strength-

ens energy security. The 42 percent decline

in the intensity of U.S. energy use since the

The Silicon Valley Manufacturing Group recently estimated 

that its nearly 200 members lost 

over $100 million dollars 

because of only one day of 

rolling blackouts in California. 

Figure 2-5 

Conservation Through 

Higher Efficiency 

Energy Consumption 

per Dollar of Real GDP 

(Thousands of Btus) 

27.0 

17.5 

15.0 

12.5 

10.0 10.6 

18.4 

42% decline 

between 1973 

and 2000 

1973 78 83 88 93 98 00 

Energy intensity is the amount of 

energy used to produce a dollar’s 

worth of gross domestic product 

(GDP). As a result of the 42 percent 

decline in energy intensity since the 

first energy crisis in 1973, the U.S. 

economy is far better prepared to


day than it was in the 1970s to ad


just to energy price or supply 

shocks. 

__________ 

sets plummet. Resulting concerns about

energy crisis in 1973 reflects a combination

Note: Real GDP in 1996 chained dollars. 

Source: U.S. Department of Energy, 

solvency have led to a withdrawal of bank-

of technological advances, conservation ef-

Energy Information Administration. 

Chapter 2 • Striking Home: The Impacts of High Energy Prices on Families, Communities, and Businesses 2-8 
forts, regulatory action, market response,

and a shift toward a service economy (Fig-

ure 2-5). Our improvements in energy effi-

ciency have prevented our current energy

problems from becoming worse.

The macroeconomic effects of a sub-

stantial rise in energy prices take two forms.

First, to the extent that energy resources are

imported, more U.S. dollars must be sent

abroad to finance energy consumption, thus

reducing funds available for investing in our

own country. Second, higher prices cause dis-

locations among certain sectors of the

economy, which could ultimately feed

through to lower GDP growth and higher in-

flation.

Reliance on Foreign Energy 

Between 1973 and 2000, U.S. depen-

dence on foreign oil rose from about 35

percent to more than 52 percent of U.S. con-

sumption (Figure 2-6). During the same pe-

riod, the import share of natural gas con-

sumption climbed from less than 5 percent

to more than 15 percent and continues to

rise.

Figure 2-6 

Dependence on Oil Imports Is Rising 

(Millions of Barrels per Day) 

Figure 2-7 

Oil Prices Have Risen Sharply 

Monthly Spot Price of West Texas 

Intermediate Crude Oil 

(Dollars per Barrel) 

90 

80 

70 

60 

50 

40 

30 

Nominal Prices 

20 

10 

0 

1970 

Real Prices 

75 80 85 90 95 

Despite the sharp rise in crude oil prices since late 1998, real prices 

still remain lower than at any time from 1974 to 1985. 

________­

Note: Real prices in 2000 dollars. Prices deflated using the ConsumerPrice Index–Urban (CPI–U) Research Series for all items linked to CPI–­

U–X1 prior to December 1977.­

Sources: Wall Street Journal; U.S. Department of Labor, Bureau of La
­

bor Statistics.­

Imports of energy products make up

nearly 11 percent of all U.S. imports. By

contrast, U.S. energy exports are relatively

small. The energy trade deficit relative to

our GDP represents the share of U.S. in-

1973 

Net Imports as a Share of U.S. Consumption 

34.8% 51.6% 

20 

18 

16 

14 

12 

10 

0 

Domestic 

Production 

Net Imports 

Consumption 

Production 

2000 

come that must be exported to purchase

foreign fuel to meet domestic energy needs.

The U.S. energy trade deficit in 2000 was

about $120 billion, most of which was spent

on oil imports.

As a share of GDP, the energy trade

deficit had fallen to as low as 0.4 percent at

the beginning of 1999, when prices for im-

ported crude oil were less than $10 a barrel.

However, by the end of 2000, these prices

had tripled to more than $30 a barrel (Fig-

1973 78 83 88 93 98 00 

Over the past few decades, U.S. consumption of oil and pe


troleum products has increasingly outpaced domestic pro


it consumes—up from about 35 percent in the early 1970s. 

duction. Today the United States imports over half of the oil 

____________ 

Note: Petroleum includes both crude oil and petroleum products. 

Source: U.S. Department of Energy, Energy Information Administration. 

ure 2-7). As a result of both the oil price

spike and growing U.S. demand, the energy

deficit deteriorated significantly to 1.3 per-

cent of GDP by the fourth quarter of last

year—the largest deficit relative to GDP

since the mid-1980s (Figure 2-8). The rise in

oil prices alone has added about 0.7 percent

of GDP to the U.S. trade deficit, compared

to 0.9 percent in the euro currency area,

and 0.8 percent in Japan.

2-9 NATIONAL ENERGY POLICY 

01 
Figure 2-8 

The U.S.Energy Trade Deficit Has Worsened 

(Percent) 

0.0 

–0.5 

–1.0 

–1.5 

–2.0 

–2.5 

–3.0 

–3.5 

1970 75 80 85 90 95 00 

The energy trade deficit relative to GDP represents the 

share of domestic income that must be exported to sup


port domestic energy needs. For the past several years, 

the United States has been a net importer of energy prod


ucts. As a consequence, our energy trade balance has 

been in deficit. By the fourth quarter of 2000, the energy 

deficit had deteriorated significantly to 1.3 percent of 

GDP—the largest since the mid-1980s. 

_____________­

Note: Plotted quarterly through the fourth quarter of 2000.­

Source: U.S. Department of Commerce, Bureau of Economic Analysis.­

Net U.S. oil imports are 4 billion bar-

rels a year, which means that each $1 in-

crease in the price of imported crude oil

boosts U.S. expenditures by about $4 bil-

lion. Given these guidelines, the $20 per

barrel increase from early 1999 to late 2000

translates into an export of roughly $80 bil-

lion a year (0.9 percent of GDP) when mea-

sured from the low price prevailing at the

end of 1998.

Impacts of Energy Prices on 

Financial Markets 

An analysis of the financial impacts of

higher energy prices can be divided into two

parts: the effects on individual firms whose se-

curities comprise the financial markets, and

the macroeconomic impact on inflation and in-

terest rates. Rising energy costs and greater

volatility in energy prices can have a negative

effect on both individual firms and the broader

financial environment, generally producing

lower asset prices and higher interest rates.

The financial market impact to date of rising

energy prices has been limited to firms with

high sensitivity to energy costs and to those

with significant exposure to the California cri-

sis. The second broad effect of rising energy

costs is an increase both in measured inflation

Financial markets react to 

energy costs and the effect those 

energy costs have on both 

individual firms and sectors of 

the market. 

Chapter 2 • Striking Home: The Impacts of High Energy Prices on Families, Communities, and Businesses 2-10 
and in expectations for future inflation. Both

factors have considerable impact on interest

rates and, therefore, on the borrowing costs for

businesses and consumers throughout the

economy.

Inflation Expectations and 

Interest Rates 

Measurable inflation, for both producers

and consumers, is a primary concern of the

Federal Reserve in conducting monetary policy.

Energy costs represent roughly 16percent of

the producer price index for finished goods and

8 percent of the consumer price index. This

means that sharply rising energy costs can have

a substantial impact on the Federal Reserve’s

decision-making process. Additional impacts

will come from the market’s anticipating Fed-

eral Reserve actions and pushing short-term in-

terest rates higher than they otherwise would

have been. Higher short-term interest rates raise

the nominal cost of borrowing for firms and in-

dividuals and can slow economic growth.

Rising energy prices can also raise the in-

flation expectations of lenders, which can result

in higher interest rates for borrowing at longer

maturities. Rising long-term interest rates can

reduce long-term investment, limiting future

economic growth and productivity gains. Such

an outcome would carry negative consequences

for growth-sensitive financial sectors, such as

equity and high-yield debt markets.

More broadly, declining credit fundamen-

tals for certain business sectors could raise bor-

rowing costs for firms not directly affected by

higher energy prices. For example, commercial

paper rates for all lower-rated borrowers have

been affected by the credit problems of the Cali-

fornia utilities, and liquidity in the market has

fallen. As a result, firms may need to seek other

sources of financing, such as bank loans (if ob-

tainable) or asset-backed loans, that can be

more costly than traditional commercial paper

issuance.

Global Financial Markets 

The upward pressure on interest rates

that may result from higher U.S. energy costs

also affects markets beyond our borders. U.S.

monetary policy and related movements in

short-term interest rates can have a significant

impact on other countries. While the effect var-

ies from region to region, many emerging mar-

ket economies, particularly in Latin America, are

vulnerable to upward moves in U.S. interest

rates.

Higher nominal interest rates in the de-

veloped countries tend to reduce the amount of

capital flowing to emerging markets. To the ex-

tent that this reduces investment, economic ac-

tivity may be further reduced. In addition, bor-

rowing in dollars is a significant source of fund-

ing for sovereign and private-sector entities

worldwide, particularly in the emerging markets.

Rising U.S. interest rates will increase the inter-

est expenses for these borrowers, diverting

funds from more productive uses and reducing

overall credit quality.

The global market for energy is highly frag-

mented and region-specific, with the exception of

oil. Nevertheless, certain nations and regions are

net importers of energy and are highly sensitive to

changing prices. Japan, a major importer of oil

and natural gas, is particularly vulnerable. Europe

is a net importer of energy, with certain excep-

tions, while emerging market nations vary widely

in their dependence on foreign energy sources.

At the macroeconomic level, rising energy

prices will increase the current account deficit of

energy-importing nations. Since current account

deficits must be financed, these nations will

most likely need to pay higher interest rates to

attract the necessary capital. As noted, this will

tend to reduce domestic investment and lower

long-term growth. In some countries, such as the

United States or Japan, changes in interest rates

and growth expectations can have substantial

global impact.

Central banks and monetary authorities

vary in the degree to which they focus on infla-

tion in setting monetary policy, making some

countries more or less likely than others to raise

interest rates in an environment of rising energy

prices.

Although Japan maintains a current ac-

count surplus due to manufacturing exports, its

role as an international creditor could diminish.

This may have additional impacts on the global

financial markets, since Japanese financial insti-

tutions are generally suppliers of global credit.

The impact of rising energy costs on the

dollar is likely to be mixed. While slower U.S.

growth generally reduces demand for dollars,

rising oil prices are likely to increase demand,

since oil contracts are usually denominated in

dollars.

2-11 NATIONAL ENERGY POLICY 
Summary of Recommendations 

★ The NEPD Group recommends that the President direct the Secretary of Energy to explore

potential opportunities to develop educational programs related to energy development and

use. This should include possible legislation to create public education awareness programs

about energy. Such programs should be long-term in nature, should be funded and managed by

the respective energy industries, and should include information on energy’s compatibility with

a clean environment.

★ The NEPD Group recommends that the President take steps to mitigate impacts of high

energy costs on low-income consumers. These steps would include:

• 	Strengthening the Low Income Home Energy Assistance Program by making $1.7

billion available annually. This is an increase of $300 million over the regular FY

2001 appropriation.

• Directing the Secretaries of Interior and Health and Human Services to propose legisla-

tion to bolster LIHEAP funding by using a portion of oil and gas royalty payments.

• Redirecting royalties above a set trigger price to LIHEAP, whenever crude oil and natural

gas prices exceed that trigger price, as determined by the responsible agencies.

★ The NEPD Group recommends that the President increase funding for the

Weatherization Assistance Program by $1.2 billion over ten years. This will roughly double the

spending during that period on weatherization. Consistent with that commitment, the FY 2002

Budget includes a $120 million increase over 2001. The Department of Energy will have the

option of using a portion of those funds to test improved implementation approaches for the

weatherization program.

★ The NEPD Group recommends that the President support legislation to allow funds

dedicated for the Weatherization and State Energy Programs to be transferred to LIHEAP if the

Department of Energy deems it appropriate.

★ The NEPD Group recommends the President recognize unique regional energy concerns

by working with the National Governors Association and regional governor associations to

determine how to better serve the needs of diverse areas of the country.

★ The NEPD Group recommends the President direct FEMA to prepare for potential energy

emergencies.

• ­FEMA should work with states’ Offices of Emergency Management as they expand

existing emergency operations plans to identify potential problems and address conse-

quences of the power shortages. FEMA should use its current Regional Incident Report-

ing System to identify any situations that might demand immediate attention.

• Using the structure of the already existing Federal Response Plan, FEMA should

conduct Regional Interagency Steering Committee (RISC) meetings for states affected

by the energy shortfalls. The RISC is a FEMA-led interagency committee comprised of

agencies and departments that support the Federal Response Plan. Either an upcoming,

scheduled RISC meeting or a special-focus RISC meeting can be held to identify the

short-term energy outlook, as well as any expected consequences, in each of the states

during the peak summer season.

Chapter 2 • Striking Home: The Impacts of High Energy Prices on Families, Communities, and Businesses 2-12 
CHAPTER THREEé

Protecting America’s Environment 

Sustaining the Nation’s Health and Environment 

Over the last three decades, Ameri-

can ingenuity has led to a reduction

in adverse environmental and pub-

lic health impacts from energy

development and use. Americans demand a

reliable energy supply and a clean environ-

ment, and we can achieve both. Spurred by

strong environmental concerns, competi-

tive forces, and environmental regulations,

businesses have developed innovative tech-

nologies and pollution-prevention tech-

niques to protect the environment. How-

ever, more can be done.

As our energy needs continue to grow

and our production and distribution system

is strained to capacity, it is clear that the

lack of a comprehensive energy policy has

environmental costs. For example, to pre-

vent blackouts, California officials must tol-

erate a large short-term increase in smog-

forming nitrogen oxides emissions. In Los

Angeles, older, dirtier power plants have

had to run longer than expected. California

is also rushing to use mid-sized “peaker

power plants” and diesel-fired emergency

backup generators to keep the lights on.

The short-term cost in increased pol-

lutant emissions of these emergency mea-

sures has been stark. Preliminary figures

from California’s South Coast Air Quality

Management District indicate emissions

have doubled in the first three months of

the year compared with last year. In addi-

tion to nitrogen oxides emissions, diesel-

fired backup generators also emit toxic

soot. But with many days of blackouts pre-

dicted in California this summer, these gen-

erators will most likely run for much longer

than expected, and could greatly increase

emissions.

In the longer term, penalties and tech-

nological improvements should offset the

impact of these increased emissions. How-

ever, California’s experience demonstrates

the environmental costs of not building an

adequate supply of clean energy.

Government’s Role 

The federal government has a unique

role in facilitating energy development

while simultaneously protecting the envi-

ronment and conserving our country’s natu-

ral resource legacy. Energy development ini-

tiatives will be successful only if they ad-

equately address their impacts on natural

resource values.

Federal, state, tribal, and local govern-

ments have the responsibility of protecting

unique natural resources and environmental

values. In fact, some environmental protec-

tions we enjoy today are often taken for

granted. For example, lead levels in ambient

air today are 98 percent lower than they

were in 1970, largely because government

regulations required that lead be removed

from gasoline. The reduced number of chil-

dren with IQs below 70 is attributed to re-

ducing lead in our environment.

As U.S. energy needs grow, additional

innovations will be necessary to continue

improving environmental conditions and to

meet new environmental challenges. As we

improve the energy production and distribu-

tion system, all levels of government must

ensure that regulatory systems protecting

public health and the environment are rigor-

ous and efficient, and encourage innovation

and improvement.

3-1 NATIONAL ENERGY POLICY 

Roughly 30 percent of

our nation’s electricity

supply is now generated

by nuclear, hydropower,

and renewable sources,

all of which have few air

emissions.

Figure 3-1 

Cleaner Air: Energy

Consumption Has Risen While 

Emissions Have Declined 

(Percent Change Since 1970) 

U.S. Coal 

Consumption 

+100% 

Gross Domestic 

Product +147% 

U.S.Energy 

Consumption +42% 

Vehicle Miles 

Traveled +140% 

150 

100 

50 

0 

-50 Key Air Emissions –31% 

1970 75 80 85 90 95 99 

Despite a marked increase in U.S. energy consumption, a combination of 

environmental regulations and technologies has decreased aggregate 

emissions of key air emissions: SO2

, 

NOx, mercury, CO, and volatile organic 

compounds. 

________ 

Sources: U.S. Department of Energy, Energy 

Information Administration, and U.S. 

Environmental Protection Agency. 

Air Quality 

Regulatory Programs 

Advances in technology and environ-

mental regulations have decreased aggre-

gate emissions of key air pollutants over

the last three decades, despite a marked in-

crease in energy consumption (Figure 3-1).

Roughly 30 percent of our nation’s electric-

ity supply is now generated by nuclear, hy-

dropower, and renewable sources, all of

which have few air emissions.

Nonetheless, fossil fuel-fired power

plants, other industrial sources, and ve-

hicles remain significant sources of air pol-

lution (Figure 3-2). These emissions can be

associated with significant health problems,

including respiratory and cardiopulmonary

disease, cancer, and birth defects. In addi-

tion, they can be harmful to forests, water

bodies, and fish, and can decrease visibility

in scenic areas.

Environmental Protection Agency’s

(EPA) Acid Rain Program, enacted as part

of the 1990 Clean Air Act Amendments, is

the only program directed primarily at re-

ducing air emissions from electric utilities.

Using flexible market-based incen-

tives instead of technology-forcing stan-

dards, the program has reduced sulfur diox-

ide (SO2

)emissions from utilities faster

than required by law for a fraction of the

initial cost estimates. By 2010, EPA expects

the program will reduce annual SO2

 emis-

sions by 10 million tons from 1980 levels,

thus avoiding significant health problems

and the costs associated with those levels.

Federal and state regulatory programs

also limit air pollution directly by restrict-

ing emissions from cars and trucks, and in-

directly by setting criteria for the fuel for

these vehicles. An individual car meeting

2004 federal requirements will emit 95 per-

cent less carbon monoxide (CO), 94 percent

fewer nitrogen oxides (NOx), and 98 percent

fewer hydrocarbons than an average car did

before laws limiting such vehicle pollution.

Although individual cars and trucks are far

cleaner today than they were in 1970, total

emissions from the fleet of highway vehicles

have remained relatively constant, because

Americans drive twice as many miles today

(2.5 trillion miles a year) as they did in 1970

(1.1 trillion miles a year).

Despite these and other achievements,

further air quality improvements can be

sought, as well as ways to address new

problems identified by recent scientific find-

ings. EPA has recently adopted new, more

stringent standards to further reduce ozone

and particulate matter. To meet public

health and environmental challenges, power

plants, industrial sources, and vehicles will

need to produce fewer potentially harmful

emissions.

Recommendation: 

★  The NEPD Group recommends

that the President direct the Adminis-

trator of the Environmental Protec-

tion Agency (EPA) to propose multi-

pollutant legislation. The NEPD

Group recommends that the President

direct the EPA Administrator to work

with Congress to propose legislation

that would establish a flexible,

market-based program to significantly

reduce and cap emissions of sulfur

dioxide, nitrogen oxides, and mercury

from electric power generators. Such

a program (with appropriate mea-

sures to address local concerns)

would provide significant public

health benefits even as we increase

electricity supplies.

• 	Establish mandatory reduction tar-

gets for emissions of three main

pollutants: sulfur dioxide, nitrogen

oxides, and mercury.

• 	Phase in reductions over a reason-

able period of time, similar to the

successful acid rain reduction pro-

gram established by the 1990

amendments to the Clean Air Act.

• 	Provide regulatory certainty to al-

low utilities to make modifications

to their plants without fear of new

litigation.

• 	Provide market-based incentives,

such as emissions-trading credits

to help achieve the required reduc-

tions.

3-3 NATIONAL ENERGY POLICY 
Cleaner, More Efficient Technologies 

Emission control technologies and

emission prevention not only decrease pol-

lution but can also contribute to economic

prosperity. Innovative emission control and

prevention technology and increasingly ef-

ficient energy systems have developed at a

brisk pace, increasing our ability to provide

cleaner, cheaper energy. Besides reducing

pollution, environmental technologies ac-

count for about $21.3 billion in U.S. ex-

ports, and support approximately 136,000

U.S. jobs.

The need to reduce emissions from

cars and trucks has contributed to techno-

logical innovations that have transformed

the domestic and global automotive indus-

tries. U.S. vehicle emission standards were

the primary driving force for the original

development of innovative technologies,

many of which have become standard de-

sign features of today’s high-tech vehicles:

sophisticated three-way catalysts, on-board

computers, oxygen sensors, and fuel-injec-

tion systems for cars and advanced fuel

systems for trucks. Technologies such as

these have allowed today’s vehicles to be

much cleaner, more efficient, higher per-

forming, more reliable, and more durable

than their counterparts of the 1960s and

1970s. Manufacturers are now working on

developing state-of-the-art pollution control

technology to further reduce emissions

from motor vehicles. For optimal perfor-

mance, this technology requires low-sulfur

fuel that, consistent with applicable law,

will be required in 2004 for gasoline and

2006 for diesel fuel. Some vehicles use al-

ternative fuels (e.g., natural gas, propane,

ethanol, and electricity); others operate

with a hybrid gasoline and electrical motor;

and others are using fuel cells.

Cleaner Electricity 

The source of energy used for power

generation significantly affects the amount

of air emissions. Clean energy can be gen-

erated from nuclear plants, hydropower fa-

cilities, wind farms, and solar energy sys-

tems with negligible (if any) air emissions.

These sources today make up about 30 per-

cent of our electricity supply. Solar and

Figure 3-2 

Sources of Pollutants from 

Energy Generation and Use 

(Percent) 

Volatile Organic 

Emissions Compounds 

S02 NO2 Mercury CO (VOCs) 

100 

90 

80 

70 

60 

50 

40 

30 

20 

10 

0 

Fuel Combustion


Other Stationary Combustion


Industrial Processes


Transportation


Miscellaneous


wind energy systems will continue to im-

prove with advances in short-term weather

and climate forecasting. Improved forecast-

ing can also maximize hydropower effi-

ciency.

Technology significantly reduces pol-

lution from coal-fired power plants, which

generate more electricity in the United

States than any other source. For example,

scrubbers can remove 95 percent of the SO2

emissions from a coal-fired power plant.

With the innovative, market-based SO2 re-

duction requirements of the Clean Air Act

Amendments of 1990, the estimated cost of

using a scrubber on a coal-fired power plant

to remove one ton of SO2

 has dropped ap-

proximately 40 percent in four years, from

$474/ton in a 1993 estimate to $282/ton in a

1997 estimate, and continues to decline.

Other existing control technologies for coal-

fired plants can reduce NOx emissions by

more than 90 percent.

A recently permitted state-of-the-art

coal-fired unit, for example, at a Kansas City

Power & Light facility, has 88 percent lower

NOx, 99 percent lower particulate matter,

and 92 percent lower SO2

 emissions than

would an uncontrolled facility.

Recent research by the Department of

Energy (DOE), EPA, and private companies

suggests that existing technologies can also

significantly reduce mercury emissions.

Technologies for 

Reducing SO2 

Emissions 

Many power plants use

flue-gas desulfurization,

or scrubbers, to reduce

SO2 emissions from

burning coal. The most

common wet scrubber,

the limestone forced-

oxidation (LSFO)

process, removes SO2

from the flue gas by

sorption and through

chemical reactions with

the limestone. LSFO

technologies can

remove up to 98 percent

of SO2 and significant

amounts of mercury.

The most common dry

scrubber, the lime spray-

drying process, is used

for plants that burn

lower-sulfur coals. A

lime slurry mixes with

the hot flue gas in a

spray dryer and reacts

with SO2 . By recaptur-

ing sorbent at the

bottom of the spray

dryer removed in a

particulate control

device, dry scrubbers

can remove up to 96

percent of SO2

.

Chapter 3 • Protecting America’s Environment: Sustaining the Nation’s Health and Environment 3-4 
Using flexible market-based 

incentives, EPA’s Acid Rain 

Program has reduced sulfur 

dioxide (SO2) emissions from 

utilities faster than required 

by law for a fraction of the 

initial cost estimates. 

Clean Coal Technologies 

New clean coal technologies are

showing that air pollution can be reduced,

and energy efficiency increased, by using

America’s abundant supply of coal.

Most conventional air emission con-

trol technologies installed on coal-fired

electric-generating boilers have been de-

signed to remove a specific pollutant from

the stack flue gas. Because these technolo-

gies may not be the most cost effective

means of reducing multiple pollutants, sev-

eral companies are developing a single-con-

trol technology to reduce multiple air pol-

lutants to levels equivalent to those

achieved by conventional controls.

For example, a First Energy plant in

New Hampshire recently pilot-tested state-

of-the-art technology that has cut NOx

emissions by 76 percent, SO2

 by44 percent,

total particulate matter by 99.94 percent,

and mercury by 81 percent. The process

uses electrically charged particles instead

of catalysts to oxidize the air pollutants into

products that are easily removed and can

be converted to gypsum, fertilizer, and con-

centrated acids. American Electric Power is

installing a wet scrubber system that it ex-

pects will remove up to 75 percent NOx and

90 percent mercury. It injects a phosphorus

mixture into the hot flue gas, causing the re-

lease of ozone. The ozone then oxidizes the

mercury into ionic mercury and the NOx

into N2

, both of which are water-soluble and

easily removed.

Technologies for Improved Efficiencies 

Two-thirds of the energy used in a con-

ventional coal-fired power plant is wasted in

the production of electricity. These losses

can be minimized through a number of inno-

vations, including installing high efficiency

steam turbines, reducing steam leaks, and

using software to optimize combustion effi-

ciency. New coal-burning power plants can

achieve efficiencies of over 40 percent using

existing technology, and companies are de-

veloping even more efficient technologies.

Wasted energy can also be recycled for use

in industrial processes or for heating build-

ings.

A family of technologies known as

combined heat and power (CHP) can

achieve efficiencies of 80 percent or more.

In addition to environmental benefits, CHP

projects offer efficiency and cost savings in

a variety of settings, including industrial

boilers, energy systems, and small, building-

scale applications. At industrial facilities

alone, there is potential for an additional

124,000 megawatts (MW) of efficient power

from gas-fired CHP, which could result in

annual emission reductions of 614,000 tons

of NOx emissions and 44 million metric tons

of carbon equivalent. CHP is also one of a

group of clean, highly reliable distributed

energy technologies that reduce the amount

of electricity lost in transmission while

eliminating the need to construct expensive

power lines to transmit power from large

central power plants.

The U.S. Department of Energy,

through its Clean Coal Technology Program,

is working with utilities and scientists to de-

velop even cleaner, more efficient electric-

ity-generating systems using coal. One of

the most promising new approaches to us-

ing coal for clean production of electricity is

integrated gasification combined-cycle

(IGCC) technology. IGCC power plants con-

vert coal to a gaseous fuel, from which most

3-5 NATIONAL ENERGY POLICY 
Clean Coal Technologies Up Close 

The Wabash River Coal Gasification Project in Terre Haute, Indiana, is one of the

cleanest, most efficient coal-burning facilities in the country. Partly funded by the

Department of Energy (DOE) as part of its Clean Coal Technology Program, the 262-

MW coal gasification facility is owned and operated by PSI Energy and Global Energy,

Inc. Instead of being directly burned, the coal is gasified and then combusted in a

combined-cycle gas turbine. This allows the coal to burn more efficiently—which

means it gets more energy than a traditional plant out of the same amount of coal. The

Wabash River Facility is over 20 percent more efficient than a typical coal-fired power

plant.

The gasification process also allows many of the impurities in the coal to be removed

before it is combusted to generate electricity. At the Wabash River project, over 99

percent of the sulfur is removed from the coal and marketed to industrial users of

sulfur. Slag is also removed and is marketed to the construction industry. The plant’s

design allows it to burn other fuels, such as petroleum coke.

DOE is currently working with Global Energy and other industry partners to see if the

plant could also be used to co-produce chemical feedstocks and transportation fuels.

Additionally, DOE and its partners are studying lessons learned from the project to

design a less expensive, more efficient coal gasification facility that would be ready for

commercial deployment by 2005.

of the impurities are removed prior to com-

bustion, and then use the gaseous fuel in a

combustion turbine to produce electricity.

Waste heat from the turbine is used to gen-

erate steam and drive a steam turbine, to

produce more electricity.

Coal gasification plants offer the flex-

ibility to burn other fuels, such as petro-

leum coke, and to make other products in

addition to electricity, such as chemical

feedstocks and transportation fuels. Hydro-

gen, which is produced directly in the coal

gasifier, can be used in fuel cell-equipped

vehicles. Methane, hydrogen, and other

gasified coal products can be recombined

into more traditional fuels, such as metha-

nol, gasoline, or diesel fuel. Because these

fuels would contain essentially no sulfur,

they would easily meet EPA’s sulfur stan-

dards for transportation fuels, and they

would be usable in fuel cell-equipped ve-

hicles designed for these fuels.

Two plants demonstrating coal gasifi-

cation technology have already been built

in the United States and have achieved over

98 percent SO2

 reduction, 90 percent NOx

reduction, particulate emissions below de-

tectable levels, and approximately 38 per-

cent efficiency. EPA believes that lessons

learned will enable the next plant of this de-

sign to achieve 42 percent efficiency, and

the research goal is to achieve 60 percent

efficiency for plants introduced after 2015.

A modern gas-fired power plant has

virtually no SO2

 or mercury emissions and

emits 97 percent less NOx and 50 percent

less carbon dioxide (CO2

) than a traditional

coal-fired plant. Natural gas as a source of

electricity generation is on the rise, in part

because it can help generators meet in-

creasingly stringent clean air requirements.

Conservation and Environmental Protection 

Conserving energy minimizes adverse

environmental effects. Government partner-

ships with businesses and consumers are

improving the energy efficiency of homes,

office buildings, transportation sources, and

industrial sites throughout the country.

EPA’s voluntary conservation and energy ef-

ficiency programs include Energy Star

products labeling; Energy Star Residential

programs for both new homes and home

improvement; Energy Star Buildings, princi-

pally for commercial buildings; and new En-

ergy Star for Industry, which focuses on

manufacturers. In 2000, business participa-

tion in EPA’s voluntary energy efficiency

Chapter 3 • Protecting America’s Environment: Sustaining the Nation’s Health and Environment 3-6 
programs

reduced NOx emissions by more

than 160,000 tons.

Through EPA’s and the Department of

Transportation’s Commuter Choice Leader-

ship Initiative, private-public employers are

offering employees a variety of commuting

options, which encourage commuting pat-

terns that save fuel and energy while reduc-

ing emissions. For example, a 10 percent re-

duction in the rate of growth in vehicle

miles traveled can result in annual savings

Federal and state regulators of 38 million barrels of gasoline (82 million

are working with businesses barrels of oil) by 2005, and can remove

and communities to mitigate 45,000 metric tons of NOx, 37,000 metric

adverse environmental tons of hydrocarbons, and 4.8 million met-

impacts by requiring develop- ric tons of carbon-equivalent emissions.

ers and operators to choose Energy efficiency and conservation in

more environmentally


friendly sites, infrastructure the home are also important factors. Ex-

routes, and operational amples include EPA’s home improvement

criteria; fostering the use of program, which involves efficient appli-

technologies that both protect ances, duct work to prevent air condition-

the environment and still ers from leaking, efficient windows, pro-

meet energy production goals;


and requiring reclamation grammable thermostats, and efficient resi-

and mitigation of any dential lighting.

environmental damage. 

3-7 NATIONAL ENERGY POLICY 

Water Quality 

Oil, gas, and coal extraction processes

can degrade water quality through their dis-

charges. Energy generation and use can also

degrade water quality by directly discharg-

ing pollutants into water bodies; changing

the temperature, timing, and flow character-

istics of water bodies; and emitting pollut-

ants into the air that are ultimately depos-

ited in water. Leaking storage tanks and

pipelines release petroleum and fuel addi-

tives that can contaminate surface water

and ground water, including drinking-water

supplies.

Federal and state regulators are work-

ing with businesses and communities to

mitigate these adverse impacts by requiring

developers and operators to choose more

environmentally friendly sites, infrastruc-

ture routes, and operational criteria; foster-

ing the use of technologies that both protect

the environment and meet energy produc-

tion goals; and requiring reclamation and

mitigation of any environmental damage.

For example, as a result of an analysis un-

der the National Environmental Policy Act

of the impacts of a new power plant in Cali-

fornia, the company building the plant

agreed to change the design to use a dry

cooling method. This change reduced

ground-water consumption by 95 percent

and eliminated both cooling tower

“blowdown” water and particulate emis-

sions, while still achieving the desired en-

ergy production. Adverse impacts to aquatic

life from cooling-water intakes, thermal dis-

charges, and hydropower intakes can be

minimized with proper design and environ-

mental controls. A cooperative government,

industry, and community-based approach

during project siting and design will help en-

sure full consideration of the effects upon

fish and aquatic resources.

Programs to reduce air pollution also

help clean up water bodies. For example,

reducing electric utilities’ air emissions of

NOx and SO2

 and vehicles’ NOx emissions

reduces eutrophication and acid deposition

in estuaries, both of which can harm fish

populations and threaten commercial and

recreational yields. For example, roughly 25

percent of nitrogen (which contributes to
eutrophication) entering Chesapeake Bay is

from air emissions. And by significantly re-

ducing SO2 air emissions, the Acid Rain Pro-

gram has helped reduce the acidification of

water bodies.

Airborne mercury emitted by coal-

fired power plants has been deposited into

thousands of water bodies, and humans can

be exposed to toxic methyl mercury when

they eat fish from these waters. The Bush

Administration will propose legislation add-

ing mercury to the list of pollutant emis-

sions from power plants that will be subject

to mandatory limits.

Fish, Wildlife, and Their Habitat 

Ecosystems provide food, shelter, and

critical breeding and spawning grounds for

fish and wildlife, and support commercial

and recreational fishing, tourism, and other

activities that contribute billions of dollars

to the U.S. economy every year. Oil and gas

exploration and production, hydropower

dams, power plants, pipelines, and other

energy-related projects can potentially af-

fect fish, wildlife, and habitat. However,

technological advances, a strong commit-

ment to environmental protection, and the

use of appropriate regulatory tools can

enable proper energy development to go

forward in an environmentally sensitive

manner. It is important to recognize and to

continue the progress in this area.

When energy development is pro-

posed, the federal government has the dual

Recommendation:Ä

★ The NEPD Group recommends

that the President direct the Secretary

of the Interior to work with Congress

to create the “Royalties Conservation

Fund.”

• This fund will earmark potentially

billions of dollars in royalties from

new oil and gas prodution in

ANWR to fund land conservation

efforts.

• This fund will also be used to

eliminate the maintenance and im-

provements backlog on federal

lands.

responsibilities of facilitating such energy

development and conserving our natural re-

source legacy.

Special efforts are often necessary to

ensure that proposed energy projects do

not diminish the vitality of these unique re-

sources. Working together, the public, busi-

nesses, and federal, state, tribal, and local

governments can ensure that environmental

impacts are carefully evaluated when con-

sidering energy exploration and production

activities. For example, such precautions

have been important for the exploration

and production that is already allowed to-

day in 42 National Wildlife Refuges.

Hydropower Generation 

Hydropower, although a clean energy

source, does present environmental chal-

lenges. Unless properly designed and oper-

ated, hydropower dams can injure or kill

fish, such as salmon, by blocking their pas-

sage to upstream spawning pools. Innova-

tions in fish ladders, screens, and hatcher-

ies are helping to mitigate these adverse im-

pacts. Ongoing dam relicensing efforts are

resulting in community involvement and the

industry’s application of the latest technolo-

gies to ensure the maintenance of down-

stream flows and the upstream passage of

fish. These efforts also have been success-

ful in identifying and removing older,

nonfunctioning dams and other impedi-

ments to fish movements.

Technological advances and 

a strong commitment to 

environmental protection 

are enabling the healthy 

coexistence of our nation’s 

diverse ecosystems with the 

development of energy 

resources. 

Ecosystems provide food, 

shelter, and critical breeding 

and spawning grounds for 

fish and wildlife, and 

support commercial and 

recreational fishing, 

tourism, enhance our 

quality of life,and other 

activities that contribute 

billions of dollars to the U.S. 

economy every year. 

Chapter 3 • Protecting America’s Environment: Sustaining the Nation’s Health and Environment 3-8 
Some natural resource areas 

are to be protected from any 

exploration. In other areas, 

energy development can 

proceed using the most 

advanced designs and 

technologies to ensure that 

proposed energy projects do 

not diminish the vitality and 

diversity of these unique 

resources. 

An example of such successful col-

laboration involves the Wanapum Dam on

the Columbia River. In coordination with

the National Marine Fisheries Service, the

GrantCounty Public Utility District No. 2

installed spillway deflectors that effectively

reduced concentrations of total dissolved

gas that can harm fish and other aquatic

life. Furthermore, through the unique col-

laboration on this project, the cost for the

spillway deflectors was a fraction of that for

deflectors installed at other hydropower

projects.

Coal, Oil, and Gas Exploration and Production 

Certain exploration and production

activities can pose environmental impacts

to wildlife habitat, unless conducted in a

way that protects the environment. In sensi-

tive areas, these effects can often be

avoided or minimized by timing exploration

and operation activities in light of migra-

tion, nesting, and other critical time periods

for wildlife. In addition, new technologies

designed to lessen these and other impacts

can be used, such as double-walled pipes to

reduce the risk of oil spills.

Surface impacts from coal mining and

oil exploration can temporarily damage

habitats during the operation phases until

reclamation is complete. To mitigate im-

pacts during mining, for example, storm-

water runoff and discharge into undis-

turbed environments are controlled. After

mining is complete, reclamation efforts re-

quired by the Surface Mining Control and

Reclamation Act restore viable habitats

through careful reconstruction of physical

and botanical resources. For instance, in

the Powder River Basin, as part of reclama-

tion, coal companies strategically place

large boulders and other rock material to

create wildlife cover and denning habitat.

Restoration of wildlife habitat on these re-

claimed areas has been quite successful.

In Alaska’s Arctic—home to such ani-

mals as polar bears, musk oxen, caribou,

wolves, and arctic fox—the bitterly cold

winters have proven to be beneficial for en-

vironmentally responsible energy develop-

ment. For example, when the North Slope is

frozen and snow-covered, seismic trains can

travel across it to gather geophysical infor-

mation. Furthermore, companies have

adopted innovative techniques to reduce the

possible impacts of exploration and devel-

opment. In Alaska’s National Petroleum Re-

serve, the “footprint” from most exploratory

wells on federal lands is short-lived and has

minimal impact due to the use of ice roads

and ice pads that melt with the spring thaw.

Advances in extended-reach drilling tech-

nologies have also served to minimize envi-

ronmental effects during energy production

activities.

A lengthy 1999 Department of Energy

study examined the environmental benefits

of new exploration and production tech-

nologies and concluded that “improvements

over the past 40 years have dramatically re-

duced industry’s footprint on the fragile tun-

dra, have minimized waste produced, and

have protected the land for resident and mi-

grating wildlife.” The same study concluded

that “it is important to tell this remarkable

story of environmental progress in E&P [ex-

ploration and production] technology.

Greater awareness of the industry’s achieve-

ments in environmental protection will pro-

vide the context for effective policy, and for

informed decision-making by both the pri-

vate and public sectors.”

Waste Management 

Vigilant management and careful dis-

posal of waste from energy extraction and

production can prevent the contamination

of our air, land, and water. Federal and state

authorities are working to ensure that en-

ergy projects maintain sound programs to

safely handle wastes from mining, drilling,

generation and transmission.

Nuclear power plants present waste

management challenges unique among en-

ergy-generating technologies. They generate

spent fuel, as well as other radioactive

waste, which must be isolated from ecosys-

tems and human contact for long periods of

time. Currently, spent fuel is stored at reac-

tor sites in a number of states, although ca-

pacity is limited. Newer technologies have

been developed to reduce the volume and

3-9 NATIONAL ENERGY POLICY 
increase the manageability of spent fuel,

but such spent fuel will still require safe

handling and long-term isolation.

While the federal government has the

responsibility to address such high-level

wastes, states have the responsibility to ad-

dress low-level wastes from nuclear plants,

such as clothing and equipment. Disposal

options for this type of radioactive waste

are limited, because siting these facilities

has been controversial. In fact, there are

only three disposal facilities active in the

United States.

Accidental Releases 

Since the passage of the Oil Pollution

Act in 1990, which, among other things, re-

quired double-hulled vessels and improved

industry readiness, oil spilled in coastal

zone waters has decreased from almost 8

million gallons in 1990 to just over 1 million

gallons in 1999. Most energy production fa-

cilities implement comprehensive risk-man-

agement plans, which reduce the potential

for accidents and help local officials pre-

pare for accidents that may arise.

In contrast, inland oil spills do not ap-

pear to be decreasing at the same rate as

coastal spills. The federal government re-

ceives many more inland oil spill notifica-

tions (9,000 notifications a year in the early

1990s versus 10,000 to 12,000 a year in the

late 1990s), and many very large inland oil

spills occur each year (over 100,000 gal-

lons). The continued problem with inland

oil spills may be due to aging pipelines,

storage tanks, and other infrastructure

components.

Since the advent of commercial

nuclear power generation, there have been

no radiation-related injuries or deaths asso-

ciated with the operation of a commercial

nuclear power plant in the United States.

The most significant incident from a

nuclear plant in the United States, at Three

Mile Island in 1979, prompted improved

safety regulation of nuclear plants. New

nuclear reactor designs promise even

higher safety levels than the reactors cur-

rently operating in this country.

Radiation exposure from nuclear fa-

cilities is extremely rare. In fact, roughly 82

percent of human exposure to radiation

comes from natural sources: radon gas; the

human body, which contains radioactive el-

ements; outer space; and rocks and soil. Ra-

don accounts for about 55 percent of our

exposure to natural sources of radiation; ra-

dioactive elements in our own bodies ac-

count for 11 percent; rocks and soil account

for 11 percent; and outer space, including

the sun, accounts for 8 percent. The remain-

ing 18 percent of average human radiation

exposure comes from man-made sources,

primarily medical and dental X-rays and

consumer products.

The safety of U.S. nuclear energy

plants has improved sharply in recent years.

A safe nuclear energy plant is one that runs

well, experiences few unplanned outages,

and has a well-disciplined work force that

follows procedures and avoids accidents.

The safety of a U.S. nuclear energy plant is

typically gauged by monitoring indicators of

its performance in these areas: unplanned

automatic reactor shutdowns, the annual

percentage of possible power generated,

and the industrial safety accident rate for

plant workers.

In 2000, for the fourth year in a row,

the number of unscheduled reactor shut-

downs was zero. The industry generated

91.1 percent of its potential maximum out-

put, breaking its 1999 record of 88.7 per-

cent, far better than the typical 80 percent

number of ten years ago.

Today, U.S. nuclear plants are more ef-

ficient and safer than ever. In the increas-

ingly deregulated marketplace, competition

has forced improvements in plant opera-

tions that have benefited safety perfor-

mance as much as economic performance.

Climate Change 

Energy-related activities are the pri-

mary sources of U.S. man-made greenhouse

gas emissions, representing about 85 per-

cent of the U.S. man-made total carbon-

equivalent emissions in 1998.

Chapter 3 • Protecting America’s Environment: Sustaining the Nation’s Health and Environment 3-10 
Forests can absorb carbon 

dioxide, which accounts for 

the largest share of greenhouse gas emissions. 

Working with the U.S. Fish 

and Wildlife Service Research, Illinova Generating 

Company has voluntarily 

committed to reforesting 

100,000 acres of bottomland 

hardwood forests on National 

Wildlife Refuges in the Lower 

Mississippi River Valley. 

Scientists continue to learn more

about global climate change, its causes,

potential impacts, and possible solutions.

The United States recognizes the seri-

ousness of this global issue as scientists at-

tempt to learn more about climate change.

The United States is making progress in re-

ducing emissions of greenhouse gases. Re-

cent data show that the rate of growth in

U.S. greenhouse gas emissions has begun to

decline, even as the U.S. economy has been

growing at an unprecedented rate. For ex-

ample, historically U.S. CO2

 emissions have

grown at roughly half the rate of GDP. In re-

cent years, however, very robust growth in

the nation’s GDP has been accompanied by

a slowdown in the growth of greenhouse

gas emissions. In both 1998 and 1999, U.S.

GDP grew by more than 4 percent a year,

while CO2

 emissions grew by less than 1.5

percent a year. In addition, the carbon inten-

sity of the U.S. economy—the amount of

CO2

 emitted per unit of GDP—declined by

15 percent during the 1990s.

The United States has reduced green-

house gas emissions by promoting energy

efficiency and the broader use of renewable

energy through a wide range of public-pri-

vate partnership programs. These programs

save energy, cut energy bills, enhance eco-

nomic growth, and reduce emissions of con-

ventional air pollutants as well as green-

house gases.

The U.S. government, businesses, and

nongovernmental organizations are seques-

tering carbon, at home and abroad. For ex-

ample, working with the U.S. Fish and Wild-

life Service Research, Illinova Generating

Company has voluntarily committed to re-

foresting 100,000 acres of bottomland hard-

wood forests on National Wildlife Refuges

in the Lower Mississippi River Valley. It is

projected that this project will sequester ap-

proximately 13.5 million tons of carbon, im-

prove fish and wildlife populations by re-

storing the natural forest wetland habitats,

and enhance the Gulf of Mexico’s near-shore

aquatic environment by restoring natural

forested wetland filters to the Mississippi

River floodplain.

Industry and the federal government

are researching various new technologies

that will reduce greenhouse gas emissions

or sequester those emissions, in geologic

formations, oceans, and elsewhere.

3-11 NATIONAL ENERGY POLICY 
Regulatory Structure 

The United States has adopted many

regulatory protections to limit the environ-

mental damage and public health conse-

quences of the exploration, extraction, pro-

duction, and use of energy. Most environ-

mental controls are implemented through

state or federal permitting or review sys-

tems, which often require time for agency

review and public participation. Facilities

may need several different permits or re-

views from different agencies, and they

may also need to meet local licensing or

zoning laws. Businesses have an interest in

moving expeditiously to respond to con-

sumers’ needs. The public also has an inter-

est in participating in the system to ensure

that appropriate health and environmental

precautions will be taken.

Regulatory requirements are not

static. New scientific information and new

control technologies result in new regula-

tions and modifications to existing regula-

tions over time. However, some level of

certainty in the regulatory environment is

important for all parties. Businesses can

plan more effectively in such an environ-

ment, and regulators can focus on ensuring

that the desired outcomes are in fact

achieved consistently. For example, studies

have shown that if electricity generators

knew today what their emission require-

ments for several emissions would be for a

defined time period, they would most likely

control emissions more cost effectively and

sooner than if their emission requirements

were decided upon one gas at a time.

Traditional permit and regulatory pro-

grams may not always be the most effective

and efficient way to protect the environ-

ment. Increasingly, regulatory programs are

considering approaches that include mar-

ket-based incentives. These types of incen-

tives offer advantages over traditional

forms of regulation because they set high

performance standards and then allow mar-

ket forces to determine the most effective

way to meet them. While not appropriate

for every situation, market-based incentives

can control pollution at a lower cost to so-

ciety than traditional regulation, stimulate

technological improvements, and be struc-

tured to achieve larger reductions in pollu-

tion than would result from traditional regu-

lations.

A good example of a U.S. market-

based program is the Acid Rain Program,

which has reduced SO2

 air emissions from

utilities at a fraction of the initial cost esti-

mates. Other emerging market-based envi-

ronmental protection mechanisms include

effluent trading, wetland mitigation banks,

tradable development rights, easement pur-

chases, off-site mitigation, and leasing or

purchasing of water rights. These programs

can reduce mitigation or pollution control

costs, increase business flexibility, and pro-

vide transparency and environmental pro-

tection for the public.

Chapter 3 • Protecting America’s Environment: Sustaining the Nation’s Health and Environment 3-12 
The environmental review process can

also be made more open, understandable,

predictable, and coordinated among federal

agencies and with state and local agencies.

It can be improved by providing greater in-

formation to clarify expectations for energy

developers, facilitating concurrent reviews

by federal agencies by standardizing certain

information needs, sharing information re-

ceived by project applicants, and seeking

opportunities to integrate required environ-

mental processes and reviews.

Recommendation: 

★ The NEPD Group recommends that the President issue an

Executive Order to rationalize permitting for energy production

in an environmentally sound manner by directing federal

agencies to expedite permits and other federal actions necessary

for energy-related project approvals on a national basis. This

order would establish an interagency task force chaired by the

Council on Environmental Quality to ensure that federal agen-

cies responsible for permitting energy-related facilities are

coordinating their efforts. The task force will ensure that federal

agencies set up appropriate mechanisms to coordinate federal,

state, tribal, and local permitting activity in particular regions

where increased activity is expected.

3-13 NATIONAL ENERGY POLICY 
Summary of Recommendations 

Protecting America’s Environment: Sustaining the


Nation’s Health and Environment


★ The NEPD Group recommends that the President direct the Administrator

of the Environmental Protection Agency (EPA) to propose multi-pollutant

legislation. The NEPD Group recommends that the President direct the EPA

Administrator to work with Congress to propose legislation that would

establish a flexible, market-based program to significantly reduce and cap

emissions of sulfur dioxide, nitrogen oxides, and mercury from electric power

generators. Such a program (with appropriate measures to address local

concerns) would provide significant public health benefits even as we in-

crease electricity supplies.

• Establish mandatory reduction targets for emissions of three main pollut-

ants: sulfur dioxide, nitrogen oxides, and mercury.

• Phase in reductions over a reasonable period of time, similar to the suc-

cessful acid rain reduction program established by the 1990 amendments to

the Clean Air Act.

• Provide regulatory certainty to allow utilities to make modifications to

their plants without fear of new litigation.

• Provide market-based incentives, such as emissions trading credits to help

achieve the required reductions.

★ The NEPD Group recommends the President direct the Secretary of the

Interior to work with Congress to create the “Royalties Conservation Fund.”

• This fund will earmark potentially billions of dollars in royalties from new

oil and gas production in ANWR to fund land conservation efforts.

• This fund will also be used to eliminate the maintenance and improvements

backlog on federal lands.

★ The NEPD Group recommends the President issue an Executive Order to

rationalize permitting for energy production in an environmentally sound

manner by directing federal agencies to expedite permits and other federal

actions necessary for energy-related project approvals on a national basis.

This order would establish an interagency task force chaired by the Council

on Environmental Quality to ensure that federal agencies responsible for

permitting energy-related facilities are coordinating their efforts. The task

force will ensure that federal agencies set up appropriate mechanisms to

coordinate federal, state, tribal, and local permitting activity in particular

regions where increased activity is expected.

Chapter 3 • Protecting America’s Environment: Sustaining the Nation’s Health and Environment 
CHAPTER FOUR

Using Energy Wisely 

Increasing Energy Conservation and Efficiency


The Department of Energy 

has installed two low-sulfur 

light bulbs as a test at its 

Forrestal Building headquarters in Washington, D.C. The 

two golf ball-sized bulbs, like 

those on the opposite page, 

are at each end of a 240-foot, 

10-inch-wide reflective 

plastic “light pipe.” 

U.S. DEPARTMENTOF ENERGY 

Energy efficiency is the ability to

use less energy to produce the

same amount of lighting, heating,

transportation, and other energy

services. For a family or business,

conserving energy means lower energy

bills. For the country as a whole, greater en-

ergy efficiency helps us make the most of

U.S. energy resources, reduces energy

shortages, lowers our reliance on energy

imports, mitigates the impact of high energy

prices, and reduces pollution. Improve-

ments in efficiency can be particularly ef-

fective in reducing energy demand when en-

ergy is most expensive.

Conservation and energy efficiency

are important elements of a sound energy

policy. Improved energy efficiency is the

result of many decisions, including those of

individual consumers; manufacturers of

cars and appliances; home builders; and

state, federal, and local government offi-

cials. The federal government can promote

energy efficiency and conservation by in-

cluding the dissemination of timely and ac-

curate information regarding the energy

use of consumers’ purchases, setting stan-

dards for more energy efficient products,

and encouraging industry to develop more

efficient products. The federal government

can also promote energy efficiency and

conservation through programs like the

Energy Star program, and search for more

innovative technologies that improve effi-

ciency and conservation through research

and development.

Since 1973, the U.S. economy has

grown nearly five times faster than energy

use (126 percent versus 26 percent). Had

Americans continued to use energy as in-

tensively as in 1970, the U.S. would have

consumed about 177 quadrillion Btus of en-

ergy last year, compared to about 99 qua-

drillion Btus actually consumed.

British Thermal Unit (Btu) 

A British thermal unit is the amount of

heat required to raise the temperature of

one pound of water one degree Fahren-

heit at sea level. Put another way, it is

approximately the same amount of en-

ergy contained in a wooden match head.

U.S. DEPARTMENTOF ENERGY 

4-1 NATIONAL ENERGY POLICY 

Figure 4-1 

New Refrigerator-Freezers 

are Using Less Energy 

Consumption per Unit for 

New Shipments 

(Kilowatt-Hours per Year) 

1,800 

1,600 

1,400 

1,200 

1,000 

800 

600 

400 

200 

0 

1972 80 85 90 95 01 

Over the last thirty years, the energy 

efficiency of refrigerator-freezer appliances has increased by approximately 

70 percent. 

________


Sources: AHAM 2000 Major Home


Industry Fact Book and BTS appliance


standard.


Improving Efficiency through 

Innovative Technologies 

One measure of energy efficiency is 

energy intensity—the amount of energy it 

takes to produce a dollar of gross domestic 

product (GDP). While about half of the 

long-term decline in energy intensity can be 

attributed to changes in the economy, especially the shift from manufacturing to services, the other half reflects improved energy efficiency. Gains in energy efficiency 

over the last three decades were built on a 

combination of technological improvements, better management practices, and 

learning to put these technologies and practices to their best use in automobiles, 

homes, offices, factories, and farms. In 

many areas the results have been quite impressive. New home refrigerators use about 

one-third of the electricity they used in 1972 

(Figure 4-1). Compact fluorescent lights use 

about 25 percent of the electricity of the incandescent bulbs they replace. Automobiles 

use roughly 60 percent of the gasoline they 

did in 1972 per mile driven. These individual 

technological improvements have resulted 

in significant reductions in energy use (Figure 4-2). 

Several new and innovative technoloFigure 4-2 

The U.S. Economy Has Become More 

Energy Efficient 

(Thousands of Btus) 

gies offer expanded opportunities to improve our energy efficiency. For example, 

advanced sensors and controls enable more 

efficient operation of buildings and factories, and allow equipment and lights to be 

turned off or dimmed when not in use. Hybrid vehicles use power electronics and 

battery storage to get more out of every gallon of gasoline consumed, and provide the 

ability to double vehicle mileage. Cogeneration of electricity and heat and combined 

heat and power allow for the productive 

use of much of the waste heat from electricity production, which accounts for 

about two-thirds of the energy used to produce electricity. 

District Energy St. Paul—


A Combined Heat and Power Plant


District Energy St. Paul, Inc., is a com­


bined heat and power plant that can


operate on natural gas, oil, or clean­


burning coal that is mixed with wood


chips. These wood wastes come from


downed trees, trimmings, and


branches. District Energy has been


able to keep its rates stable because it


is able to rely on a diverse fuel supply.


District Energy serves about 75 per­


cent of all building space in the city.


Nearly 150 large buildings and 3,200


residential units use the system. It is


the largest system of its kind in the


nation.


Recommendation:


★ The NEPD Group recommends that


the President direct the Secretary of


Energy to conduct a review of current


funding and historic performance of


energy efficiency research and devel­


opment programs in light of the rec­


20 

18 

16 

14 

12 

10 

1973 77 81 85 89 93 97 99 

The amount of energy used by the United States in relation to 

its economic output has steadily declined since the early 

1970s. 

________


Source: U.S. Department of Energy, Energy Information Administration.


4-3 NATIONAL ENERGY POLICY 

ommendations of this report. Based 

on this review, the Secretary of Energy is then directed to propose appropriate funding of those research 

and development programs that are 

performance-based and are modeled 

as public-private partnerships. 
Consumer Choices 

The two most important factors in 

consumers’ decisions about purchasing an 

energy efficient product are price and the 

life of the product. When energy prices are 

high, consumers tend to weigh energy efficiency more heavily. Unless consumers are 

informed about the price of energy, they 

may not have the incentive to select the 

most energy efficient product. 

Consumers do not receive timely signals about rising electricity costs in order to 

make adjustments to their energy use and 

efficiency. When consumers’ peak costs are 

averaged with off-peak costs, the higher 

cost of peak electricity supplies is masked. 

As a result, consumers may not recognize 

the benefits of investing in technologies that 

best target peak consumption. 

Some energy efficiency improvements are easiest and most cost effective 

to undertake when first building new factories, cars, equipment, appliances, and 

buildings. Some energy-using equipment, 

like computers, are used for only a few 

years before being replaced. Other equipment is used from five to twenty years, 

such as home appliances, home electronics, and lighting systems. Some capital 

stock, such as buildings and boilers, can 

last a half a century or more. 

The average car now lasts fourteen 

years, and newer cars have even more longevity. Vehicle efficiency improvements require significant technological changes. Development of new-car production models 

requires at least three to four years, which 

limits the rate at which new technologies 

can enter the market. Making fundamental 

changes, such as switching to the use of a 

fuel cell, would take even longer. Once 

those new vehicles are in the showroom, it 

then takes several more years before they 

constitute any sizable percentage of total 

vehicles. 

In a typical U.S. home, appliances 

are responsible for about 20 percent of the 

energy bills. Refrigerators, freezers, clothes 

washers, dryers, dishwashers, and ranges 

and ovens are the primary energy-using appliances in most households. Taking steps 

to save energy while using these appliances, and replacing old inefficient appliances with modern ones can save money. 

The federal government established a 

mandatory program in the 1970s requiring 

that certain types of new appliances bear a 

label to help consumers compare the energy 

efficiency of various products. Under this 

program, all refrigerators, freezers, clothes 

washers, and dishwashers are sold with yellow Energy Guide labels to indicate their energy efficiency. These labels provide an estimated annual operating cost of the appliance, and also indicate the cost of operating 

the models with the highest annual operating cost and the lowest annual operating 

cost. By comparing a model’s annual operating cost with the operating cost of the most 

efficient model, you can compare their efficiencies. This labeling program ensures that 

consumers have the information they need 

to make the right decisions when they purchase major home appliances. However, Energy Guide labels are not currently required 

for some products, such as kitchen ranges, 

microwave ovens, clothes dryers, on–demand water heaters, portable space heaters, 

and lights. 

The federal government not only ensures consumers have information on the 

energy efficiency of major home appliances. 

It also promotes the most energy efficient 

products through the Energy Star program, 

a joint program run by the Department of 

Energy and the Environmental Protection 

Some efficiency improvements are easiest and most 

cost-effective to undertake 

when first building new 

factories, cars, equipment, 

appliances and buildings. 

Chapter 4 • Using Energy Wisely: Increasing Energy Conservation and Efficiency 4-4 
In April 2001, the Sustainable Buildings Industry 

Council showcased a netzero-energy home featuring 

passive solar design strategies, an integrated photovoltaic system, domestic solar 

hot water, high-efficiency 

lights and appliances, and a 

host of sustainable, marketready components and 

systems. 

SUSTAINABLE BUILDINGS INDUSTRY COUNCIL 

A 48-story skyscraper at the corner of Broadway and 42nd Street in New York City has a 

photovoltaic skin that uses thin-film PV panels 

to replace traditional glass cladding material. 

The PV curtain wall extends from the 35th to 

the 48th floors on the south and east walls of 

the tower, making it a highly visible part of the 

New York City skyline. 

U.S. DEPARTMENT OF ENERGY, NATIONAL RENEWABLE ENERGY 

LABORATORY 

Agency. Energy Star is only awarded to appliances that significantly exceed minimum 

energy efficiency standards. The Energy 

Star program does not extend to all products. Energy efficiency would be further 

promoted if the Energy Star program were 

expanded to a broader range of products. 

Recommendation: 

★ The NEPD Group recommends that 

the President direct the Secretary of 

Energy to promote greater energy 

efficiency. 

• 	Expand the Energy Star program beyond office buildings to include 

schools, retail buildings, health care 

facilities, and homes. 

•	 Extend the Energy Star labeling 

program to additional products, appliances, and services. 

•	 Strengthen Department of Energy 

public education programs relating 

to energy efficiency. 

Energy efficiency can also be improved by the establishment of minimum 

energy efficiency standards. Congress enacted legislation in 1987 and 1988 to establish minimum energy efficiency standards 

for many major appliances. These standards 

apply to manufacturers, not consumers. Appliance manufacturers must produce products that meet the minimum level of energy 

efficiency. These rules do not affect the 

marketing of products manufactured before 

the standards went into effect, and any 

products made beforehand can be sold. The 

new standards will stimulate energy savings 

that benefit the consumer, and reduce fossil 

fuel consumption, thus reducing air emissions. 

These laws established minimum energy efficiency standards for many appliances, including refrigerators, refrigeratorfreezers, freezers, room air conditioners, 

fluorescent lamp ballasts, and incandescent 

reflector lamps, clothes dryers, clothes 

washers, dishwashers, kitchen ranges, and 

ovens, pool heaters, and water heaters. The 

Energy Policy Act of 1992 added standards 

for fluorescent and incandescent reflector 

lamps, plumbing products, electric motors, 

and commercial water heaters, and heating, 

ventilation, and air conditioning systems. 

Under current law, the Department of Energy can raise the minimum energy efficiency standards for these appliances if certain criteria are met, such as cost, technological feasibility, and the impact on competition among appliance manufacturers. In 

addition, the Department can set energy efficiency standards for appliances not covered by these laws. 

Recommendation: 

★ The NEPD Group recommends that 

the President direct the Secretary of 

Energy to take steps to improve the energy efficiency of appliances. 

4-5 NATIONAL ENERGY POLICY 
•	 Support appliance standards program for covered products, setting 

higher standards where technologically feasible and economically justified. 

•	 Expand the scope of the appliance 

standard program, setting standards for additional appliances 

where technologically feasible and 

economically justified. 

Energy Efficiency 

Government Agencies 

As the largest energy consumer in the 

nation, the U.S. government’s cost- and energy-saving opportunity is enormous. In 

1999, the government consumed nearly 1.1 

percent of all U.S. energy and spent nearly 

$8 billion for its vehicles, operations, and its 

nearly 500,000 buildings. 

The federal government has reduced 

its energy use in buildings by about 30 percent from 1990 levels, largely by installing 

energy efficient technologies (Figure 4-3). It 

has reduced its energy use for vehicles and 

equipment by 35 percent. Some of these improvements are attributable to the Department of Energy, whose Federal Energy Management Program helps government agencies reduce their energy and water use, manage their utility costs, and promote renewable energy. 

Recommendations: 

★ The NEPD Group recommends 

that the President direct heads of executive departments and agencies to 

take appropriate actions to conserve 

energy use at their facilities to the 

maximum extent consistent with the 

effective discharge of public responsibilities. Agencies located in regions 

where electricity shortages are possible should conserve especially during periods of peak demand. 

•	 Agencies should report to the President, through the Secretary of Energy, within 30 days of the conservation actions taken. 

State and local governments have 

unique opportunities for energy savings in 

schools, transportation, state buildings, 

and building codes. For example, the Texas 

School Energy Management Program could 

save school districts as much as $100 million in energy costs every year by helping 

school districts evaluate their energy needs 

and resources. Similarly, Wisconsin’s Energy Initiative is working with utilities to 

make basic changes to public buildings. By 

installing new lighting fixtures and taking 

other steps, Wisconsin estimates that it will 

save $60 million in state spending on energy over ten years. 

Residential and Commercial Buildings 

There are significant opportunities to 

improve the energy efficiency of buildings 

and homes through technologies and better 

practices. For existing homes, immediate 

options for improving efficiency include reducing air infiltration with caulking and 

weather stripping, installing modern thermostats, sealing ductwork, and adding insulation. These steps can reduce the 40 percent share of residential energy bills that 

Figure 4-3 

The U.S. Government is Reducing

Its Energy Consumption 

(Trillions of Btus) 

1,500 

1,400 

1,300 

1,200 

1,100 

1,000 

800 

1990 91 92 93 94 95 96 97 98 99 

During the 1990s, energy use in federal buildings decreased by 

about 30 percent. 

________


Source: U.S. Department of Energy, Energy Information Administration.


Chapter 4 • Using Energy Wisely: Increasing Energy Conservation and Efficiency 4-6 
PULTE HOMES 

Building America—Pulte Homes 

Pulte Homes Southwest Division 

has used technical assistance from 

the Department of Energy’s Building America program to create 

what one residential expert calls 

“the best production house in the 

world,” which won the 2001 National Association of Home Builders’ Energy Value Award. In Tucson, Phoenix, and Las Vegas, Pulte 

Homes has worked with the Department of Energy to redesign the 

energy features of its basic models. 

Using advanced insulation techniques, highly efficient equipment 

and windows, and right-sized heating and cooling systems, the homes 

look the same, but perform so well 

they use half the energy for heating 

and cooling at virtually no increase 

in construction costs. 

The whole building/systems engineering approach used in the 

Building America program allows 

builders to add more insulation 

and more efficient windows while 

reducing the size of the heating and 

cooling equipment. The trade-off 

means no added cost to the 

builder, better value for the buyer, 

reduced electric load for the utility, 

and improved affordability. 

go toward heating and cooling. Additional 

savings are possible when efficient appliances are purchased or major home renovations are undertaken. Installing a new, 

more efficient gas furnace can save up to 

20 percent annually on natural gas. New 

buildings offer the greatest energy efficiency opportunities and can be designed 

to be both more comfortable and more efficient, cutting heating and cooling costs by 

close to 50 percent. 

In commercial buildings, typically the 

quickest, most cost effective way to increase energy efficiency is to replace the 

lighting systems. Sensors help to avoid 24­

hour operation of lights and equipment that 

are only used for a portion of the day. As 

with homes, advances in windows, heating 

and air conditioning systems, overall building designs, and equipment and appliances 

present significant energy saving opportunities. 

Many families and businesses can 

face obstacles to realizing energy cost reductions. 

Insufficient Information 

Monthly energy bills generally report 

only total electricity or natural gas used, 

leaving families and businesses unsure 

about which energy services are most responsible for their energy use, and which 

investments could best help them reduce 

their costs. In addition, consumers may be 

unsure about the credibility of the energysaving claims of individual manufacturers, 

salesmen, and designers. This incomplete 

information causes imperfections in the 

marketplace that hinder purchases of efficient technologies that would actually save 

families and businesses money. 

Lack of Availability 

Frequently, the most energy efficient 

products cost more and are not widely 

available, especially in smaller communities. Builders who would like to construct 

more efficient homes and businesses face 

the same problem at the wholesale level. 

For example, to keep costs down, builders 

are less likely to install top-of-the-line, 

4-7 NATIONAL ENERGY POLICY 
highly efficient products. The less expensive and generally less efficient products 

are heavily stocked and deeply discounted 

due to volume ordering. The decisions 

made about the energy efficiency of buildings and homes are not usually made by the 

consumer who will ultimately pay the energy bills. The incentive is for the builders 

to choose the material that poses the least 

cost to the builder, which is not necessarily 

the most energy efficient choice. 

Lack of Automation 

People often walk out of their offices 

and homes with the lights on and the air 

conditioner running. Turning off unused appliances, electronics, and lights is not always easy. Lack of automation (e.g., daylight sensors) means that conservation 

mostly depends on people turning off 

switches. Some appliances and electronics, 

such as stereos, video tape players, and 

televisions, continue to use electricity even 

after they are turned off. 

Higher Initial Costs 

Efficient products often cost more 

than less efficient versions, especially when 

they are first introduced to the market. Unless consumers can verify the resulting savings, they may be reluctant to pay the additional costs. Businesses that adopt labeling 

programs that spell out energy savings may 

be more successful in selling a more efficient, yet initially more expensive product. 

Higher initial costs can be particularly difficult for the purchaser or builder of a new 

home or office building. 

Industry and Agriculture 

Six industries consume three-quarters 

of all industrial energy: lumber and paper; 

chemicals; petroleum refining; primary metals; food processing; and stone, clay, and 

glass. Improved energy efficiency in these 

energy-intensive industries yields even 

larger improvements in overall productivity, 

product quality, safety, and pollution prevention. Manufacturing companies generally obtain their largest savings from 

Chapter 4 • Using Energy Wisely: Increasing Energy Conservation and Efficiency 4-8 

improved efficiency of motors (motors account for 54 percent of electricity use in 

manufacturing) and from improved steam 

and hot-water systems. Many companies 

can reduce energy needs further by 

cogenerating their electricity and heat for 

steam. 

Energy use for U.S. agriculture grew during the 1960s and 1970s, peaking in 1978. High 

energy prices during the 1970s and early 1980s 

caused many farmers to find ways to reduce 

their energy costs, such as by switching from 

gasoline-powered to more fuel-efficient dieselpowered engines, adopting conservation tillage 

practices, shifting to larger multiprocessor machines, and using energy saving methods for 

drying and irrigating crops. These measures 

helped farmers reduce their energy use by 41 

percent from 1978 to 1998, while agricultural 

output grew by about 40 percent over the same 

period. 

Farmers can reap additional energy 

savings as they replace old machinery with 

more energy efficient equipment. Furthermore, farmers can adopt more advanced 

practices, such as precision farming, that 

optimize the use of machines, chemicals, 

and fertilizers to achieve energy savings. 

New seed varieties can also reduce energyintensive chemical requirements. 

Despite the opportunity for increased energy efficiency, the industrial and agricultural 

sectors face several obstacles. Because many 

manufacturing and farming operations are 

highly specialized, they need specific information on energy-saving opportunities to effectively respond to energy price signals and supply problems. 

High energy prices during 

the 1970s and early 1980s 

caused many farmers to find 

ways to reduce their energy 

costs, such as by switching 

from gasoline-powered to 

more fuel efficient dieselpowered engines and by 

adopting conservation tillage 

practices. 
Cogeneration 

In 1998, Malden Mills 

Industries, a textile 

manufacturer employing 2,300 workers 

in Lawrence, Massachusetts, installed a 

state-of-the-art combined heat and power 

(CHP) facility. The 

system uses two 4.3 

MW industrial gas turbines, retrofitted with 

ceramic combustion 

liners, that were developed as part of the 

Department of 

Energy’s Advanced 

Turbine Systems program, and that enable 

higher operating temperatures and lower 

emissions. The CHP 

system saves Malden 

Mills more than $1 

million annually. The 

liners have accumulated more than 9,500 

hours of successful 

operation and have 

cut emissions of nitrogen oxides and 

carbon monoxide to 

less than 15 parts per 

million. 

In order for manufacturing or agriculture 

to switch to more efficient energy products and 

practices, significant costs are incurred due to 

production delays, waste and spoilage, and labor costs. As a result, manufacturers and farmers tend to use readily available and reliable 

equipment when upgrading, instead of untested, 

newer products and approaches. 

Because of their large needs for both 

heat and electricity, businesses find combined heat and power (CHP) systems particularly attractive. However, replacing old, 

inefficient boilers with highly efficient CHP 

systems may add a number of new regulatory requirements (such as air permits), but 

does not offer the same tax depreciation incentives the tax code grants to power 

plants. 

Recommendations: 

★ The NEPD Group recommends that 

the President direct the Secretary of 

the Treasury to work with the Congress on legislation to encourage increased energy efficiency through 

combined heat and power (CHP) 

projects by shortening the depreciation life for CHP projects or providing 

an investment tax credit. 

★ The NEPD Group recommends that 

the President direct the Administrator 

of the Environmental Protection 

Agency (EPA) to work with local and 

state governments to promote the use 

of well-designed CHP and other clean 

power generation at brownfield sites, 

consistent with the local communities’ 

interests. EPA will also work to clarify 

liability issues if they are raised at a 

particular site. 

★ The NEPD Group recommends that 

the President direct the EPA Administrator to promote CHP through flexibility in environmental permitting. 

Conservation can be improved by car pooling, 

telecommuting, increasing public transit 

choices, and pricing highway use during 

periods of peak demand. 

Transportation 

Transportation plays a key role in a 

growing U.S. economy, comprising 16 percent of GDP in 1998, 10.5 percent of total 

employment, and 27 percent of total U.S. 

energy consumption. Trucks and automobiles account for over three-fourths of the 

sector’s petroleum use, with the remainder 

attributable to rail, ship, air, and pipeline 

systems. Mass transit ridership has increased by 21 percent since 1996. Automobiles today use roughly 60 percent of the 

gasoline they did in 1972 per mile driven, 

due in part to new technology, such as better engine and design controls, improved 

transmission, weight reduction, and improved aerodynamics. Despite the adoption 

of more efficient transportation technologies, average fuel economy for passenger 

vehicles has remained relatively flat for ten 

years and is, in fact, at a twenty-year low, in 

large part due to the growth and popularity 

of low-fuel-economy pickup trucks, vans, 

and sport utility vehicles (Figure 4-4). 

Recommendation: 

★ The NEPD Group recommends that the 

President direct the Secretary of Transportation to: 

•	 Review and provide recommendations on establishing Corporate Average Fuel Economy (CAFE) standards with due consideration of the 

National Academy of Sciences 

study to be released in July 2001. 

Responsibly crafted CAFE standards should increase efficiency 

without negatively impacting the 

U.S. automotive industry. The determination of future fuel economy 

standards must therefore be addressed analytically and based on 

sound science. 

•	 Consider passenger safety, economic concerns, and disparate impact on the U.S. versus foreign fleet 

of automobiles. 

•	 Look at other market-based approaches to increasing the national 

average fuel economy of new motor 

vehicles. 

4-9 NATIONAL ENERGY POLICY 
Opportunities for reducing oil demand in 

the transportation sector include increasing conservation, vehicle efficiency, and alternative fuels. Conservation can be improved by car pooling, telecommuting, and increasing transit 

choices. For example, an increase in the average fuel economy of the on-road vehicle 

fleet by three miles per gallon would save 

one million barrels of oil a day, or about 

half of the global shortfall between supply 

and demand that triggered the oil price increases since 1998. In addition, fuel conservation can be further improved by technologies to reduce congestion. 

A recent analysis indicates that the 

fuel economy of a typical automobile could 

be enhanced by 60 percent by increasing engine and transmission efficiency and reducing vehicle mass by about 15 percent. Several promising efficiency technologies are 

being presented to the U.S. market. For example, some automobile manufacturers 

have already introduced hybrid vehicles, 

and others have announced that they will introduce hybrid vehicles within the next several years. Advanced lightweight materials 

offer up to 6 percent improvement in mileage for each 10 percent reduction in body 

weight. Although promising, it may be many 

years before hybrids become a substantial 

part of the automotive fleet. 

Recommendations:


★ The NEPD Group recommends that


the President direct the Secretary of


Transportation to review and promote


congestion mitigation technologies


and strategies and to work with the


Congress on legislation to implement


these strategies.


★ The NEPD Group recommends that


the President direct the Secretary of


the Treasury to work with Congress on


legislation to increase energy effi­


ciency with a tax credit for fuel-effi­


cient vehicles. The NEPD Group rec­


ommends that a temporary, efficiency­


based income tax credit be available


for purchase of new hybrid or fuel cell


vehicles between 2002 and 2007.


Higher Initial Production Costs 

Because of the large economies of 

scale in automobile manufacturing, new 

technologies with limited early production 

runs often enter the market at higher initial 

costs. In this highly competitive international market, higher initial production 

costs can be a significant impediment to the introduction of new technologies. Unless U.S. 

automakers can remain competitive with their 

overseas counterparts, it is unlikely they will invest in new, more efficient technologies. Vehicle 

efficiency technologies, such as advanced engines, fuel cells, and cutting-edge electronic 

drive-train technologies, will become widely 

available only when component costs are reduced or demand is increased. 

Hybrid Vehicles 

The engine of a conventional gasoline 

vehicle is typically sized for the small 

amount of time the driver spends accelerating to enter the freeway, to 

pass another car, or to climb a hill. 

Most of the time it operates at less 

than 20 percent efficiency. An attractive alternative is to use a hybrid system that allows the engine to operate 

at peak efficiency, and get a boost 

from a battery when entering the 

freeway or climbing a hill. Not only 

does this system allow improved performance from a smaller engine, but 

the energy usually lost in stopping the 

car can be recovered and stored in 

the battery. 

What does this mean to the average 

American? Significantly improved fuel 

economy and reduced emissions. 

Figure 4-4 

Fuel Efficiency of Light

Vehicles Has Remained Flat 

(Miles per Gallon) 

New Trucks 

30 

25 

20 

15 

10 

5 

0 

New Cars 

Combined 

1980 85 90 95 

Despite the adoption of more efficient transportation technologies, 

U.S. average fuel economy has been 

flat for 10 years. In large part, this is 

due to the growth of low-fueleconomy pickup trucks, vans, and 

sport utility vehicles. 

________


Source: U.S. Department of Energy, Energy


Information Administration.


Chapter 4 • Using Energy Wisely: Increasing Energy Conservation and Efficiency 4-10 

00 
Summary of Recommendations 

Using Energy Wisely: Increasing Energy Conservation and Efficiency 

★ The NEPD Group recommends that the President direct the Office of Science and Technology Policy and the 

President’s Council of Advisors on Science and Technology to review and make recommendations on using the 

nation’s energy resources more efficiently. 

★ The NEPD Group recommends that the President direct the Secretary of Energy to conduct a review of current funding and historic performance of energy efficiency research and development programs in light of the recommendations 

of this report. Based on this review, the Secretary of Energy is then directed to propose appropriate funding of those research and development programs that are performance-based and are modeled as public-private partnerships. 

★ The NEPD Group recommends that the President direct the Secretary of Energy to promote greater energy efficiency. 

•	 Expand the Energy Star program beyond office buildings to include schools, retail buildings, health care facilities, and homes. 

• Extend the Energy Star labeling program to additional products, appliances, and services. 

• Strengthen Department of Energy public education programs relating to energy efficiency. 

★ The NEPD Group recommends that the President direct the Secretary of Energy to improve the energy efficiency 

of appliances. 

•	 Support the appliance standards program for covered products, setting higher standards where technologically 

feasible and economically justified. 

•	 Expand the scope of the appliance standards program, setting standards for additional appliances where technologically feasible and economically justified. 

★ The NEPD Group recommends that the President direct heads of executive departments and agencies to take appropriate actions to conserve energy use at their facilities to the maximum extent consistent with the effective discharge of public responsibilities. Agencies located in regions where electricity shortages are possible should conserve 

especially during periods of peak demand. Agencies should report to the President, through the Secretary of Energy, 

within 30 days on the conservation actions taken. 

★ The NEPD Group recommends that the President direct the Secretary of the Treasury to work with Congress to encourage increased energy efficiency through combined heat and power (CHP) projects by shortening the depreciation 

life for CHP projects or providing an investment tax credit. 

★ The NEPD Group recommends that the President direct the Administrator of the Environmental Protection Agency 

(EPA) to work with local and state governments to promote the use of well-designed CHP and other clean power generation at brownfields sites, consistent with the local communities’ interests. EPA will also work to clarify liability issues if they are raised at a particular site. 

★ The NEPD Group recommends that the President direct the EPA Administrator to promote CHP through flexibility 

in environmental permitting. 

★ The NEPD Group recommends that the President direct the Secretary of Transportation to: 

•	 Review and provide recommendations on establishing Corporate Average Fuel Economy (CAFE) standards 

with due consideration of the National Academy of Sciences study to be released in July 2001. Responsibly 

4-11 NATIONAL ENERGY POLICY 
crafted CAFE standards should increase efficiency without negatively impacting the U.S. automotive industry. 

The determination of future fuel economy standards must therefore be addressed analytically and based on 

sound science. 

• Consider passenger safety, economic concerns, and disparate impact on the U.S. versus foreign fleet of automobiles. 

• Look at other market-based approaches to increasing the national average fuel economy of new motor vehicles. 

★ The new NEPD Group recommends that the President direct the Secretary of Transportation to review and promote congestion mitigation technologies and strategies and work with Congress on legislation to implement these 

strategies. 

★ The NEPD Group recommends that the President direct the Secretary of the Treasury to work with Congress on 

legislation to increase energy efficiency with a tax credit for fuel-efficient vehicles. The NEPD Group recommends 

that a temporary, efficiency-based income tax credit be available for purchase of new hybrid fuel cell vehicles between 2002 and 2007. 

★ The NEPD Group recommends that the President direct all agencies to use technological advances to better protect our environment. 

•	 The Administration remains committed to investing in Intelligent Transportation Systems (ITS) and encourages the private sector to invest in ITS applications. This Department of Transportation (DOT) program funds 

the development of improved transportation infrastructure that will reduce congestion, such as traveler information/navigation systems, freeway management, and electronic toll collection. ITS applications reduce fuel 

associated with travel. 

•	 The Administration remains committed to the DOT’s fuel-cell-powered transit bus program, authored by the 

Transportation Equity Act for the 21st Century (TEA-21). This program demonstrates the viability of fuel-cell 

power plants for transit bus applications. 

•	 The Administration remains committed to the Clean Buses program. TEA-21 establishes a new clean fuel formula grant program, which provides an opportunity to accelerate the introduction of advanced bus propulsion 

technologies into the mainstream of the nation’s transit fleet. 

★ The NEPD Group recommends that the President direct the EPA and DOT to develop ways to reduce demand for 

petroleum transportation fuels by working with the trucking industry to establish a program to reduce emissions and 

fuel consumption from long-haul trucks at truck stops by implementing alternatives to idling, such as electrification 

and auxiliary power units at truck stops along interstate highways. EPA and DOT will develop partnership agreements with trucking fleets, truck stops, and manufacturers of idle-reducing technologies (e.g., portable auxiliary 

packs, electrification) to install and use low-emission-idling technologies. 

★ The NEPD Group recommends that the President direct the Secretary of Energy to establish a national priority 

for improving energy efficiency. The priority would be to improve the energy intensity of the U.S. economy as measured by the amount of energy required for each dollar of economic productivity. This increased efficiency should be 

pursued through the combined efforts of industry, consumers, and federal, state, and local governments. 

★ The NEPD Group recommends that the President direct the EPA Administrator to develop and implement a strategy to increase public awareness of the sizable savings that energy efficiency offers to homeowners across the country. Typical homeowners can save about 30 percent (about $400) a year on their home energy bill by using Energy 

Star-labeled products. 

Chapter 4 • Using Energy Wisely: Increasing Energy Conservation and Efficiency 4-12 
CHAPTER FIVE


Energy for a New Century


Increasing Domestic Energy Supplies 

A merica’s energy strength lies in 

the abundance and diversity of 

its energy resources, and in its 

technological leadership in de 

veloping and efficiently using 

these resources. Our nation has rich deposits of coal, oil, and natural gas. The United 

Figure 5-1 

U.S. Energy Production: 1970–2000 

(Quadrillion Btus) 

Coal 

Oil 

Nuclear 

25 

20 

15 

10 

5 

0 Non-hydro Renewables 

Hydropower 

Natural 

Gas 

States is the third-largest oil-producing nation in the world, despite a thirty-year decline in domestic production. While our 

economy runs primarily on fossil fuels, we 

also have long experience with hydropower 

and nuclear energy. We are pursuing the 

ability to further capture the energy of sunlight, the heat of the earth, and the power 

of wind. 

Economic factors will help determine 

the future development of our nation’s energy sources. These factors will be shaped 

not only by conservation, energy demand, 

and the cost of energy development, but 

also by the regulations that federal, state, 

and local governments put in place to balance energy needs with legitimate competing aims, including the protection of the environment. A number of factors will make 

it difficult to increase domestic energy production in response to the growing demand 

for energy: economic and technological 

factors associated with depletion of the 

fossil fuel resource base in the U.S.; regulatory uncertainty; limitations on access to 

federal lands with high potential for new 

discoveries; infrastructure constraints, 

such as electricity transmission and gas 

pipeline bottlenecks; and conflicts with legitimate land use, environmental, and other 

public policy goals. 

The United States has significant domestic energy resources, and remains a major energy producer. Between 1986 and 

2000, production of coal, natural gas, 

nuclear energy, and renewable energy increased. However, these increases have 

been largely offset by declines in oil production (Figure 5-1). 

U.S. DEPARTMENT OF THE INTERIOR, MINERALS MANAGEMENT SERVICE 

1970 80 90 00 

Production of coal, the nation’s most abundant fuel source, exceeded 1 billion tons in 2000. Electricity generation accounted 

for about 90 percent of U.S. coal consumption last year. 

________


Source: U.S. Department of Energy, Energy Information Administration.


5-1 NATIONAL ENERGY POLICY 

DRILL POSSIBLE POCKET WELL OF OIL OR GAS OF OIL OR GAS 

Even with improved energy efficiency,	 Figure 5-2 

SOUND WAVES the United States will need more energy ARE REFLECTED 

supply. U.S. energy demand is projected to BY EACH 

rise to 127 quadrillion Btus by 2020, even MATERIAL 

DIFFERENTLY 

DRILL with significantly improved energy effi- POSSIBLE POCKET WELL OF OIL OR GAS

ciency. However, domestic production is 

expected to rise to only 86 quadrillion Btus 

by 2020. The shortfall between projected 

energy supply and demand in 2020 is nearly 

50 percent. That shortfall can be made up in 

only three ways: import more energy; improve energy efficiency even more than expected; and increase domestic energy supply. 

The challenge for our nation is to use 

technology to maintain and enhance the diversity of our supplies, thus providing a reliable and affordable source of energy for 

Americans. These goals can and must be 

accomplished while maintaining our commitment to environmental protection. 

Oil and Natural Gas 

Oil and natural gas are the dominant 

fuels in the U.S. economy, providing 62 percent of the nation’s energy and almost 100 

percent of its transportation fuels. By 2020, 

the Energy Information Administration expects the United States will need about 50 

percent more natural gas and one-third 

more oil to meet demand. 

U.S. oil production is expected to decline over the next two decades. Over the 

same period, demand for natural gas will 

most likely continue to outpace domestic 

production. As a result, the United States 

will rely increasingly on imports of both 

natural gas and oil from Canada, and imports of oil and liquefied natural gas from 

producers across the globe. 

21st Century Technology 

Remaining U.S. oil reserves are becoming increasingly costly to produce because much of the lower-cost oil has already been largely recovered. The remaining resources have higher exploration and 

production costs and greater technical challenges, because they are located in geologically complex reservoirs, (e.g., deep water 

Area of 

detail 

Arctic 

National 

Wildlife 

Refuge 

Trans-Alaska 

Pipeline 

0 Miles 20 

National 

Petroleum 

Reserve 

Alpine 

Field B E A U F O R T 

Kuparuk 

River Field 

OLD: VERTICAL DRILLI 

O 

P 

LOOKING FOR OIL 

Images generated by 

supercomputers allow 

geologists to locate small 

pockets of oil or gas. 

DRILLING TECHNOLOGY 

Old drills were limited to a 

single vertical well, but 

newer wells can drill horizontally or spread in different directions to tap small 

pockets of oil. 

TRANSPORTING THE OIL 

A 14-inch pipeline connects the Alpine field to 

the Trans-Alaska Pipeline 

about 60 miles west of the 

Arctic National Wildlife 

Refuge, a site proposed 

for new drilling. 

TRANSPORTING THE OIL 

Today’s drills are sophisticated, steerable 

machines with instruments that send 

information about the exact position of the 

drill bit and properties of the rock to the 

drilling team. 

Sources: Phillips Petroleum Company, Chevron Corporation, 

BP Amoco, Magic Earth, Arctic Connections. 

6.5-9.5 

MILES 

DRILL BIT: MADE 

OF STEEL AND/OR 

TUNGSTEN 

STEERABLE 

MOTOR 

5-3 NATIONAL ENERGY POLICY 
 Chapter 5 • Energy for A New Century: 

-50’

Sea level

-100’

W

alaska

DRILL

MUD

LAYER

OIL 

LAYER

MUD/ROCK

PUMPING,

CRUSHING

AND INJECTION 

Pipeline

Permafrost

ING NEW: DIRECTIONAL AND 

MULTILATERALDRILLING

A PIPELINE 

ELEVATED

5 FT. ALLOWS 

THE CROSSING 

OF CARIBOU

DISPOSING 

OIL FIELD WASTES

Oil

Permafrost

Oil drilling sites like 

those in the Alpine 

field on Alaska’s 

North Slope are using 

cutting-edge technology in hopes of reducing environmental 

damage.

Recent advances 

are lessening the 

industry’s impact 

on the fragile Arctic 

ecosystem.

GETTING THERE

To minimize the project’s

impact on the 

environment, temporary 

ice roads are used in the 

winter, leaving few traces 

after they thaw.

DISPOSING OF WASTES

Mud and debris from drilling used to be placed in 

big reserve pits. Today,

rock cuttings are crushed, mixed with the mud, 

and sent deep into the 

earth where they originated. This minimizes the 

size of well pads.

CROSSING A RIVER

Although traditional 

pipelines are built above

ground, the pipeline to 

the Trans-Alaska Pipeline 

plunges beneath the 

Colville River, preserving 

the surface and the river 

bed environment.

OCCUPYING LESS OF THE TUNDRA

The new drilling technology allows for 

smaller surface production pads and larger 

areas explored in the earth.

Using the Latest Drilling Technology to Reduce Environmental Damage

8 MILES

5 MILES

3 MILES

2 M.

1970

1980

1985

1999

SUBSURFACE 

DRILLABLE 

AREA

DRILLSITE 

SIZE

5 

ACRES

24 

ACRES

11

ACRES

13 

ACRES

PIPELINE 

TO THE TRANSALASKA PIPELINE

EXTENDS HORIZONTALLY,

TURNING IN DIFERRENT 

DIRECTIONS TO

AVOID DIFFICULT 

MATERIALS

MULTILATERAL DRILLING 

ALLOWS ONE WELL 

TO REACH 

DIFFERENT OIL 

POCKETS 

ALPINE 

FIELD, 

ALASKA

BP Amoco

DIAMOND 

CUTTING PARTS

5-4

Source: ork Times News Service

Increasing Domestic Energy Supplies

E

OF 

New Y
21st Century Technology:


The Key to Environmental Protection and New Energy Production


Producing oil and gas from geologically challenging areas while protecting the 

environment is important to Americans and to the future of our nation’s energy 

security. New technology and management techniques allow for sophisticated 

energy production as well as enhanced environmental protection. A technology evolution has occurred in the way oil and natural gas are found. The computer, three dimensional seismic technology, and other technologies have transformed the process from one based on “feel,” to one highly dependent on the 

most advanced and sophisticated technology available. These technologies 

reduce cost and protect the environment. 

Today’s oil and gas exploration technology, for example, is boosting the success rate of pinpointing new resources. The results: fewer dry holes, reduced 

waste volumes, and a cleaner environment. Smaller, lighter drilling rigs coupled 

with advances in directional and extended-reach drilling significantly increase 

protection of the environment. 

• Advanced, more energy efficient drilling and production methods: 

— reduce emissions; 

— practically eliminate spills from offshore platforms; and 

— enhance worker safety, lower risk of blowouts, and provide better protection of groundwater resources. 

•	 With each improvement in operational performance and efficiency, more 

oil and gas resources can be recovered with fewer wells drilled, resulting 

in smaller volumes of: 

— cuttings; 

— drilling muds and fluids; and 

— produced waters. 

• Modular drilling rigs, “slimhole” drilling, directional drilling, and other 

advances enable: 

— production of oil and gas with increased protection to wetlands 

and other sensitive environments; 

— reduced greenhouse gas emissions; 

and worker safety through the use of innovative best management practices. 

Other examples of advanced technology include: 

• 	3-D seismic technology that enables geologists to use computers to 

determine the location of oil and gas before drilling begins, dramati 

cally improving the exploration success rate; 

• 	deep-water drilling technology that enables exploration and produc 

tion of oil and gas at depths over two miles beneath the ocean’s sur 

face; 

• 	 high-powered lasers that may one day be used for drilling for oil and 

gas; and 

• highly sophisticated directional drilling that enables wells to be drilled 

long horizontal distances from the drilling site. 

: 

5-5 NATIONAL ENERGY POLICY 
and harsh environments). 

While the resource base that supplies 

today’s natural gas is vast, U.S. conventional production is projected to peak as 

early as 2015. Increasingly, the nation will 

have to rely on natural gas from unconventional resources, such as tight sands, deep 

formations, deep water, and gas hydrates. 

Also, many resources are in environmentally sensitive areas that require use of less 

intrusive technologies. 

New technologies are being developed to reduce both the environmental effects and the economic costs of exploration for oil and gas. These exciting new 

technologies, like horizontal drilling and 

three-dimensional seismic technology allow for much greater precision and significantly less impact on the environment (Figure 5-2). 

Small independent businesses account for 50 and 65 percent, respectively, of 

domestic petroleum and natural gas production 

in the lower 48 states. However, even when 

new technology is available, independent producers can lack the investment capital needed 

to apply the technology and be unable to cope 

with the increased economic and technical 

risks associated with harder-to-recover resources. 

For example, most new gas wells drilled 

in the United States will require hydraulic fracturing. This is a common procedure used by 

producers to complete gas wells by stimulating 

the well’s ability to flow increased volumes of 

gas from the reservoir rock into the wellbore. 

During a fracture procedure, fluid and a propping agent (usually sand) are pumped into the 

reservoir rock, widening natural fractures to 

provide paths for the gas to migrate to the 

wellbore. In certain formations, it has been 

demonstrated that the gas flow rate may be increased as much as twenty-fold by hydraulic 

fracturing. Each year nearly 25,000 oil and gas 

wells are hydraulically fractured. 

The use of hydraulic fracturing in natural 

gas production from coal seams is one of the 

fastest-growing sources of gas production. This 

source will most likely face added controls, and 

costs to ensure that disposal (by re-injection or 

discharge) of production waters is done in an 

environmentally sensitive manner. 

For each of these issues, opportunities exist to better coordinate, improve performance, 

and meet America’s energy, public health, safety 

and environmental goals. 

Recommendation: 

★ The NEPD Group recommends that 

the President direct the Secretaries of 

Energy and the Interior to promote enhanced oil and gas recovery from existing wells through new technology. 

Anywhere from 30 to 70 percent of oil, 

and 10 to 20 percent of natural gas, is not 

recovered in field development. It is estimated that enhanced oil recovery projects, 

including development of new recovery 

techniques, could add about 60 billion barrels of oil nationwide through increased use 

of existing fields (Figure 5-3). 

Figure 5-3 

Major U.S. Oil and Gas Fields 

The United States is the most mature oil-producing region in 

the world, and much of our easy-to-find resource base has 

been delpeted. Advanced exploration and production technologies of the past two decades have played a key role in recovering additional oil and natural gas from existing fields. 

________


Source: U.S. Department of Energy, Energy Information Administration.


Public Lands Leasing 

The federal government owns about 

31 percent of the nation’s land, so it can 

have a major role in increasing energy production in appropriate places. A large portion of U.S. energy resources are contained 

in these federal lands and offshore areas. 

Public lands provide nearly 30 percent of 

Small independent businesses account for 50 

and 65 percent, respectively, of domestic petroleum and natural gas 

production in the lower 

48 states. 

Chapter 5 • Energy for A New Century: Increasing Domestic Energy Supplies 5-6 
annual national energy production, and are 

estimated to contain a substantial majority 

of the nation’s undiscovered domestic energy resources. 

Portions of federal onshore and offshore lands are off-limits to oil and gas exploration and development. Access is restricted for a variety of reasons, including 

administrative land withdrawals for competing land uses, such as national defense 

or water projects; and stipulations affecting 

surface occupancy, use, and timing for environmental compatibility. 

Recommendations: 

★ The NEPD Group recommends that 

the President direct the Secretary of the 

Interior to examine land status and 

lease stipulation impediments to federal 

oil and gas leasing, and review and 

modify those where opportunities exist (consistent with the law, good environmental practice, and balanced use 

of other resources). 

• 	 Expedite the ongoing Energy Policy 

and Conservation Act study of impediments to federal oil and gas exploration and development. 

• 	 Review public lands withdrawals and 

lease stipulations, with full public 

consultation, especially with the 

people in the region, to consider 

modifications where appropriate. 

★ The NEPD Group recommends that 

the President direct the Secretary of the 

Interior to consider economic incentives for environmentally sound offshore oil and gas development where 

warranted by specific circumstances: 

explore opportunities for royalty reductions, consistent with ensuring a fair return to the public where warranted for 

enhanced oil and gas recovery; for reduction of risk associated with production 

in frontier areas or deep gas formations; 

and for development of small fields that 

would otherwise be uneconomic. 

5-7 NATIONAL ENERGY POLICY 

Offshore 

Congress has designated about 610 

million acres off limits to leasing on the 

Outer Continental Shelf (OCS), which contains large amounts of recoverable oil and 

gas resources. These Congressional moratoria have been expanded by Presidential action through 2012, effectively confining the 

federal OCS leasing program to the central 

and western Gulf of Mexico, a small portion 

of the eastern Gulf, existing leases off 

California’s shore, and areas off of Alaska. 

Concerns over the potential impacts of oil 

spills have been a major factor behind imposition of the OCS moratoria. For areas that are 

available for possible development, it is projected that with advanced technology, we could 

recover 59 billion barrels of oil and 300 trillion 

cubic feet of natural gas. This type of exploration 

and production from the OCS has an impressive 

environmental record. For example, since 1985, 

OCS operators have produced over 6.3 billion 

barrels of oil, and have spilled only 0.001 percent 

of production. Naturally occurring oil seeps add 

about 150 times as much oil to the oceans. Additionally, about 62 percent of OCS energy production is natural gas, which poses little risk of pollution. 

For those areas that are available for 

potential coastal zone and OCS exploration 

and production activity, businesses must 

comply with a variety of federal and state 

statutes, regulations, and executive orders. 

Aspects of these, under the Coastal Zone 

Management Act and the Outer Continental 

Shelf Lands Act and their regulations, attempt to provide for responsible development while considering important environmental resources. However, effectiveness is 

sometimes lost through a lack of clearly defined requirements and information needs 

from federal and state entities, as well as uncertain deadlines during the process. These 

delays and uncertainties can hinder proper 

energy exploration and production projects. 

The Deep Water Royalty Relief Act of 

1995, granting variable royalty reductions 

for new leases in deep water, contributed to 

a significant increase in deep-water leasing 

in the central and western Gulf over the last 

five years. The opportunities created in deep 

water help spur the development of new 
technologies and infrastructure for this 

frontier area. However, substantial economic risks remain to investment in deep 

water and continued incentives could help 

draw investment in other countries. Similar 

incentives could spur development in other 

technological frontiers, such as deep gas, or 

make possible continued production from 

both offshore and onshore fields near the 

end of their economic life. 

Recommendation: 

★ The NEPD Group recommends that 

the President direct the Secretaries of 

Commerce and Interior to re-examine 

the current federal legal and policy regime (statutes, regulations, and Executive Orders) to determine if changes are 

needed regarding energy-related activities and the siting of energy facilities in 

the coastal zone and on the Outer Continental Shelf (OCS). 

Arctic Outer Continental Shelf 

It is estimated there are significant undiscovered resources in the two planning 

areas of the Arctic OCS. Geologists estimate that there are approximately 22.5 billion barrels of oil and 92 trillion cubic feet 

of natural gas in the Arctic OCS. The Beaufort Sea Planning Area encompasses approximately 65 million acres. Active leases 

within the Beaufort Sea Planning Area represent only 0.4 percent of the total acreage, 

and only 5 percent of the leased acreage is 

being actively pursued for development and 

production. The Chukchi Sea Planning Area 

encompasses approximately 63.7 million 

acres, none of which is currently leased. 

Lease offerings totaling 58 million 

acres over the past twenty years have resulted in 34 exploratory wells. Two oil discoveries are now moving toward production, but economic factors have delayed 

several others. These discoveries have estimated recoverable reserves of more than 

260 million barrels of oil. This is another 

area where periodic, well-scheduled lease 

sales can help contribute to national energy 

production. 

The high-technology oil industry 

requires an educated, technologically sophisticated work force. 

Many workers left the industry 

in the mid-1980s because of job 

insecurity caused by price 

volatility. The lack of an 

experienced work force today 

may limit the amount and 

increase the cost of future 

exploration and production 

activity. 

U.S. DEPARTMENT OF ENERGY 

Recommendation: 

★ The NEPD Group recommends that 

the President direct the Secretary of the Interior continue OCS oil and gas leasing and 

approval of exploration and development 

plans on predictable schedules. 

Onshore 

North Slope Oil and Gas 

The Alaska North Slope is a promising area for discovery of additional reserves to increase our domestic production 

of oil and natural gas. Currently, state lands 

on Alaska’s North Slope provide about 17 

percent of U.S. oil production. Oil and gas 

development in the Arctic, however, needs 

to be done in an environmentally responsible manner, using new technology and relying upon on the best available scientific 

information. Such technology is making it 

possible to explore and develop oil and gas 

with significantly less impact on the environment. Areas with potential for oil and 

gas development are the National Petroleum Reserve–Alaska (NPR–A), the Arctic 

Outer Continental Shelf, and the Arctic National Wildlife Refuge (ANWR). 

Chapter 5 • Energy for A New Century: Increasing Domestic Energy Supplies 5-8 
National Petroleum Reserve–Alaska 

The National Petroleum Reserve– 

Alaska lies between the Brooks Range and 

the Arctic Ocean. The U.S. Geological Survey (USGS) estimates a high potential for 

oil and gas resources in the NPR–A, with a 

mean estimate of 2.1 billion barrels of oil 

and 8.5 trillion cubic feet of gas. A leasing 

program was designed and initiated in 1999 

for the northeast sector of NPR–A, resulting 

in the award of 133 leases covering 900,000 

acres. Eight exploratory wells have been 

completed in the past two years, and additional exploratory wells are expected this 

coming winter. 

Recommendation: 

★ The NEPD Group recommends that 

the President direct the Secretary of the 

Interior to consider additional environmentally responsible oil and gas development, based on sound science and the 

best available technology, through further lease sales in the National Petroleum Reserve-Alaska. Such consideration should include areas not currently 

leased within the Northeast corner of 

the Reserve. 

Arctic National Wildlife Refuge 

The Alaska National Interest Lands 

Conservation Act expanded ANWR from 9 

million acres to 19 million acres, and designated 8 million acres as wilderness. Congress specifically left open the question of 

management of a 1.5-million-acre Arctic 

Coastal Plain area of ANWR because of the 

likelihood that it contains significant oil and 

gas resources. Section 1002 of the Act directed the Department of the Interior to 

conduct geological and biological studies of 

the Arctic Coastal Plain, “the 1002 Area,” 

and to provide to Congress the results of 

those studies with recommendations on future management of the area. Section 1003 

of the Act prohibits leasing of the 1002 Area 

until authorized by an act of Congress. 

In 1987, after more than five years of 

biological baseline studies, surface geological studies, and two seasons of seismic exploration surveys, the Department of the Interior recommended to Congress that the 

1002 Area be leased for oil and gas exploration and production in an environmentally 

sensitive manner. In 1995, both the Senate 

and the House passed legislation containing 

a provision to authorize leasing in the 1002 

Area, but the legislation was vetoed. 

In May 1998, the USGS issued revised 

estimates of oil and gas resources in the 

1002 Area. The 1998 USGS assessment 

shows an overall increase in estimated oil 

resources when compared to all previous 

government estimates. The estimate reaffirms the 1002 Area’s potential as the single 

most promising prospect in the United 

States. The total quantity of recoverable oil 

within the entire assessment area is estimated to be between 5.7 and 16 billion barrels (95 percent and 5 percent probability 

range) with a mean value of 10.4 billion barrels. The mean estimate of 10.4 billion barrels is just below the amount produced to 

date from North America’s largest field, 

Prudhoe Bay, since production began 23 

years ago. Peak production from ANWR 

could to be between 1 and 1.3 million barrels a day and account for more than 20 percent of all U.S. oil production. ANWR production could equal 46 years of current oil 

imports from Iraq. 

Technological improvements over the 

past 40 years have dramatically reduced 

industry’s footprint on the tundra, minimized waste produced, and protected the 

land for resident and migratory wildlife. 

These advances include the use of ice roads 

and drilling pads, low-impact exploration 

approaches such as winter-only exploration 

activities, and extended reach and throughtubing rotary drilling. These technologies 

have significantly reduced the size of production-related facilities on the North 

Slope. Estimates indicate that no more than 

2,000 acres will be disturbed if the 1002 

Area of ANWR is developed. For purposes 

of comparison, ANWR is about the size of 

the state of South Carolina, whereas the developed area is estimated to be less than 

one-fifth the size of Washington D.C.’s 

Dulles International Airport. 

5-9 NATIONAL ENERGY POLICY 
Figure 5-4 

Recommendation: Restricted Natural Gas Resource Areas 

★ The NEPD Group recommends that in the U.S. Lower 48 

the President direct the Secretary of the 

Interior to work with Congress to authorize exploration and, if resources are 

discovered, development of the 1002 

Area of ANWR. Congress should require 

the use of the best available technology 

and should require that activities will 

result in no significant adverse impact 

to the surrounding environment. 

Other Onshore Restrictions 

There is a significant potential for oil 

and gas resources on federal land in the 

lower 48 states as well. According to the 

most recent estimates from the USGS and 

the Minerals Management Service, oil resources underlying federal lands in the 

lower 48 states are estimated to be 4.1 billion barrels, and natural gas reserves are estimated to be 167 trillion cubic feet (Figure 

5-4). Much of these potential resources 

have been placed off-limits or are subject to 

significant restrictions. For example, about 

40 percent of the natural gas resources on 

federal land in the Rocky Mountain region 

have been placed off-limits. 

The Department of the Interior initiated a study to examine the energy potential and restrictions on development on federal lands in the lower 48 states. In many 

cases, limits on oil and gas development are 

appropriate. However, improved technology 

has helped to reduce the impact of oil and 

gas development on the environment. 

Exploration and Production 

To meet increased natural gas demand 

in the coming decades, total wells drilled 

annually will need to double the 1999 level 

by 2020. Very few new onshore rigs have 

been built since the mid-1980s, because the 

oil field supply and service sectors have 

been hit especially hard by price volatility. 

Major additions to the offshore rig fleet will 

also be needed just to develop existing 

leases. The lack of an experienced work 

force may limit the speed and increase the 

cost of exploration and production activity. 

21 

TCF 

31 

TCF 

24 

TCF 

137 

TCF 

Much of the nation’s oil and gas resource base resides on federal lands or in federal waters. A large portion of this is not 

open to exploration and development. For example, an estimated 40 percent or 137 trillion cubic feet of potential natural 

gas resource in the Rockies is either closed to exploration (29 

tcf) or is open to development under restrictive provisions 

(108 tcf). 

________


Source: U.S.Department of Energy, Energy Information Administration.


Electricity 

Electricity is an essential part of modern life. When supply fails to keep pace 

with demand, costs to consumers and businesses rise and reliability falls. The California experience demonstrates the crippling 

effect that electricity shortages and blackouts can have on a state or region. This 

summer, the possibility exists for more intense electricity shortfalls in the West, with 

additional problems possible in New York 

City and on Long Island. 

Electricity demand is projected to 

grow sharply over the next twenty years. 

Based on current estimates, the United 

States will need about 393,000 MW of new 

generating capacity by 2020 to meet the 

growing demand. If the U.S. electricity demand continues to grow at the high rate it 

has recently, we will need even more generating capacity. To meet that future demand, 

the United States will have to build between 1,300 to 1,900 new power plants; 

that averages out to be more than 60 to 90 

plants a year, or more than one a week. 

Over the next few years, if the demand for electricity continues to grow as 

predicted, and if we fail to implement a 

Chapter 5 • Energy for A New Century: Increasing Domestic Energy Supplies 5-10 
Electricity demand is projected 

to rise sharply over the next 

twenty years. If we fail to build 

the 1,300–1,900 new power 

plants needed to increase 

generation and transmission 

capacity, current electricity 

shortages will become more 

frequent and more widespread. 

U.S. DEPARTMENT OF ENERGY 

comprehensive energy plan that recognizes 

the need to increase capacity, we can expect our electricity shortage problems to 

grow. The result will be higher costs and 

lower reliability. 

Electricity Restructuring 

One of the most important energy issues facing the Administration and Congress is electricity restructuring. The electricity industry is going through a period of 

dramatic change. To provide ample electricity supplies at reasonable prices, states are 

opening their retail markets to competition. 

This is the most recent step in a long transition from reliance on regulation to reliance 

on competitive forces. 

Changes in Wholesale Electricity Market 

This transition from regulation to 

competition began in 1978 with enactment 

of the Public Utility Regulatory Policies 

Act, which promoted independent electricity generation. Open-access transmission 

policies adopted by the Federal Energy 

Regulatory Commission (FERC) in the late 

1980s further promoted competition in 

wholesale power markets. Congress largely 

ratified these policies with enactment of 

the Energy Policy Act of 1992, which further 

promoted non-utility generation. FERC took 

another large step to promote competition with 

its open-access rule in 1996, which provided 

greater access to the transmission grid, the highway for interstate commerce in electricity. 

Changes in the Retail Electricity Market 

Increased competition in wholesale 

power markets encourages states to open 

retail electricity markets. Under current law, 

FERC has jurisdiction over the wholesale 

power market, while states have jurisdiction 

over retail markets. Beginning in 1996, 

states began opening their retail markets to 

competition in order to lower electricity 

prices. Twenty-five states have opted to 

open their retail electricity markets to competition. 

Most new electricity generation is being built not by regulated utilities, but by independent power producers. These companies assume the financial risk of investment 

in new generation, and their success rides 

on their ability to generate electricity at a 

low cost. 

These dramatic changes affecting the 

industry led to important structural 

changes. Independent power producers, 

which were once infant industries, now 

dwarf many utilities. Utility mergers, which 

were once rare, are now commonplace. U.S. 

utilities have been purchased by foreign 

companies, and U.S. utilities have in turn 

purchased utilities abroad. While utilities 

had service areas that were limited to a 

single state or region, independent power 

producers are international companies that 

can build power plants across the globe. 

Many utilities that were once vertically integrated divested themselves of generation, 

either voluntarily or because of state law. 

Pending Congressional Action 

Since 1995, Congress has been grappling with electricity competition legislation. 

Initial efforts sought to require states to open 

their retail markets by a date certain. Subsequent efforts focused on promoting competition in electricity markets and complementing state retail competition plans. Under this 

5-11 NATIONAL ENERGY POLICY 
approach, federal legislation focused on core 

federal issues, including: 

• regulation of interstate commerce; 

• assuring open access to the interstate and 

international transmission system; 

• enhancing reliability of the grid; 

• lowering barriers to entry; 

• reforming outdated federal electricity 

laws, such as the Public Utility Holding 

Company Act and Public Utility Regulatory 

Policies Act of 1978; 

• reforming the role of federal electric utilities in competitive markets; 

• protecting consumers; and 

• clarifying federal and state regulatory jurisdictions. 

Recommendations:

★ The NEPD Group recommends that 

the President direct the Secretary of 

Energy to propose comprehensive electricity legislation that promotes competition, protects consumers, enhances 

reliability, improves efficiency, promotes renewable energy, repeals the 

Public Utility Holding Company Act, 

and reforms the Public Utility Regulatory Policies Act. 

★ The NEPD Group recommends the 

President encourage FERC to use its existing statutory authority to promote 

competition and encourage investment 

in transmission facilities. 

California Electricity Crisis 

The California electricity crisis is not a 

test of the merits of competition in electricity markets. Instead, it demonstrates that a 

poorly designed state retail competition 

plan can have disastrous results if electricity supply does not keep pace with increased demand. At heart, the California 

electricity crisis is a supply crisis. California 

allowed demand to outstrip supply, and did 

little to lower barriers to entry through reform of an inflexible siting process. The risk 

that the California experience will repeat itself is low, since other states have not modeled their retail competition plans on 

California’s plan. 

The California crisis also shows that 

state electricity markets do not stay neatly 

confined within legal and jurisdictional 

bounds. Due to regional interconnection, 

disastrous mistakes made by the State of 

California have dire effects on the entire 

West. California’s failure to reform flawed 

regulatory rules affecting the market drove 

up wholesale prices. Actions such as forcing utilities to purchase all their power 

through volatile spot markets, imposing a 

single-price auction system, and barring bilateral contracts all contributed to the 

problems that California now faces. 

Lessons Learned from Successful Deregulation 

As stated previously, 25 states have 

decided to open their retail electricity markets. A comparison of the different approaches taken by California and other 

states demonstrates that competition will 

benefit consumers if implemented effectively. A better gauge of the potential for 

retail competition to lower prices can be 

found in Pennsylvania, where electricity 

prices have fallen significantly as a result 

of competition. There is also reason to believe that the plan in Texas will have similar success. 

A major difference between the California experience and the approaches 

taken by Pennsylvania and Texas is that 

the latter states ensured they had adequate 

electricity supplies. Pennsylvania and 

Texas took steps to ensure that procedures 

for adding new power plants were efficient. Unlike California, which imports 25 

percent of its electricity, Pennsylvania is a 

net exporter of power, and Texas imports 

almost no power from other states. For 

these reasons, Pennsylvania and Texas 

have ample electricity supply to meet demand, while California is confronting a serious supply shortage. 

In addition, California required its 

utilities to divest themselves of much of 

their generation, unlike Pennsylvania and 

Texas. This action forced California utilities to rely much more heavily on buying 

power, at ever-increasing prices, instead of 

generating power themselves. 

Chapter 5 • Energy for A New Century: Increasing Domestic Energy Supplies 5-12 
Another major difference is that Pennsylvania and Texas did not require their 

utilities to purchase electricity through 

volatile spot markets. This requirement, 

combined with frozen retail rates imposed 

by the State, forced California utilities to 

purchase power at much higher costs than 

could be passed along to the consumer. As 

a result, the California regulatory plan resulted in unreliable service, destroyed the 

financial health of the State’s utilities, and 

drove one utility into bankruptcy. 

The federal government does not site 

power plants; that is a responsibility of the 

states. For that reason, delays relating to 

the construction of new power plants are 

usually the result of state action. A number 

of federal agencies, such as the Environmental Protection Agency, the Department 

of Commerce, and the Department of the 

Interior, do issue air and other permits for 

generation facilities. Some of the concerns 

about permitting or review delays in other 

states can be similarly addressed by expediting processes. These agencies, pursuant 

to President Bush’s Executive Order, have 

expedited permit-processing applications 

for energy production in California. 

Some of the concerns about permitting or review delays in other states can be 

similarly addressed by expediting 

processes.For example, in 1999–2000, the 

time for issuing air permits (including the 

time for public participation) for turbines 

was reduced to three to four months (compared to the twelve months allowed by the 

regulations) for the majority of permit applications. 

Fuels for Electricity Generation 

Electricity is not a primary source of 

energy. It is generated by the use of primary 

energy sources (Figure 5-5). Coal, nuclear 

energy, natural gas and hydropower account 

for about 95 percent of total electricity generation, with oil and renewable energy contributing the remainder. Despite this healthy 

diversity of energy sources, each type of 

electricity resource is faced with constraints 

to maintaining or expanding its contribution 

to electricity production. 

Coal 

Coal is used almost exclusively to generate electricity. Coal power plants account 

for over 50 percent of all U.S. electricity generation, and over 80 percent of generation in 

twelve states in the Midwest, Southeast, and 

West. Coal electricity generation costs are 

low, and coal prices have proved remarkably stable. In 1999, the United States produced 1.1 billion tons of coal. Production of 

coal from federal and tribal lands, which has 

increased substantially in the past decade, 

accounted for 38 percent of this total. 

Although coal is the nation’s most 

abundant fossil energy source, production 

and market issues can affect the adequacy 

of supply. Production issues include the protection of public health, safety, property, and 

the environment, and the effectiveness of 

federal and state agencies implementing 

various laws governing coal mining. These 

issues have resulted in some coal resources 

becoming uneconomical to produce. Statutory, regulatory, and administrative difficulties also may limit or prevent the production 

of some coal resources. However, technological advances in cleaner coal technology 

have allowed for significant progress toward 

reducing these barriers. There are also opportunities to protect the environment while 

lowering costs through further improvements in technology. 

Over the past decade, greater efficiencies, lower capital costs, fewer emissions 

and quicker start-up times have made power 

plants fueled by natural gas a more attractive choice for new coal generation. Recently, however, rising natural gas prices 

have renewed interest in building coal 

power plants. 

Uncertainty about future environmental controls is of particular concern for companies that operate existing coal power 

plants. Regulations under development include a variety of measures requiring reductions in emissions of nitrogen oxide, sulfur 

dioxide, and mercury. In addition, rules related to discharges to streams and coolingwater intake structures, possible regulation 

of large-volume wastes as hazardous wastes, 

5-13 NATIONAL ENERGY POLICY 
uncertainty over rules requiring air permits for certain modifications to power 

plants, and uncertainty over global and domestic efforts to reduce carbon dioxide 

emissions also play a role. This regulatory 

uncertainty discourages power producers 

from building coal power plants and is one 

reason the Unites States is relying so 

heavily on natural gas power generation to 

meet growing electricity demand. 

Much of the current uncertainty has 

resulted because regulators do not weigh 

the cumulative impacts of their proposals. 

Compliance decisions by businesses concerning each new regulation must often be 

made without the benefit of clear information regarding additional requirements that 

may be imposed. More effective and economical compliance strategies are possible 

if companies know the full range of requirements with which they must comply. 

If rising U.S. electricity demand is to 

be met, then coal must play a significant 

role. Under current policies, in the next 

two decades, nuclear electricity generation and hydropower are projected to decline. Natural gas electricity generation is 

projected to increase from about 16 to 36 

percent of total generation, which would 

require the tripling of natural gas used for 

electricity generation. Significantly, this 

projected increase in natural gas generaFigure 5-5 

Electricity Generation by Fuel: Current Trends 

(Billions of Kilowatt-Hours) 

3,500 

3,000 

2,500 

2,000 

1,500 

1,000 

500 

0 

Oil 

Coal 

Natural Gas 

Nuclear 

Renewables 

Electricity Demand 

1970 

1,392 4,804 

2020 

tion assumes that coal electricity generation will continue to account for about 50 

percent of U.S. electricity generation. If 

policies are adopted that sharply lower coal 

electricity generation, then the likely result 

is an even greater dependence on natural 

gas generation. This creates concern about 

the adequacy of natural gas supplies and 

policies. 

Clean Coal Technology 

Technology has been and will continue to be a key to achieving our energy, 

economic, and environmental goals. In recent years, technological advancements 

through efforts of both the public and private sectors have led to substantial reductions in the cost of controlling sulfur dioxide and nitrogen oxide emissions, while the 

effectiveness of control systems increased 

significantly. The Department of Energy, 

through its Clean Coal Technology Program, has worked to provide effective control technologies. These nitrogen oxide and 

sulfur dioxide control technologies have 

moved into the utility marketplace and now 

provide a means to achieve cost effective 

regulatory compliance. 

For example, most power plants that 

can use low nitrogen oxide burners have 

now installed them, and about 25 percent of 

all coal power plants have either ordered or 

installed selective catalytic reduction technology, which reduces nitrogen oxide emissions. 

Technologies like fluidized-bed combustion and integrated gasification combined cycle have been developed that further reduce emissions. Fluidized-bed combustion is a low-emitting nitrogen oxide 

combustion technology that allows the use 

of fuels, such as coal pile washer waste, 

that were not formerly usable. Integrated 

gasification combined cycle is a relatively 

new technology that uses refinery waste as 

fuel. 

Future coal electricity generation will 

need to meet new challenges to reduce 

emissions even further, especially mercury 1970 80 90 2000 10 2020 

________ 

Source: U.S. Department of Energy, Energy Information 

Administration 

emissions. The Department of Energy is 

supporting efforts to develop more cost effective control technology. Indeed, the goal 

Chapter 5 • Energy for A New Century: Increasing Domestic Energy Supplies 5-14 
Clean Coal Technology 

Clean Coal Technology 

describes a category of 

technologies that allow 

for the use of coal to generate electricity while 

meeting environmental 

regulations at low cost. 

• In the short term, 

the goal of the program 

is to meet existing and 

emerging environmental 

regulations, which will 

dramatically reduce compliance costs for controlled mercury, NOx, 

SO2, and fine particulate 

at new and existing coal 

power plants. 

• In the mid-term, the 

goal of the program is to 

develop low-cost, superclean coal power plants, 

with efficiencies 50 percent higher than today’s 

average. The higher efficiencies will reduce 

emissions at minimal 

costs. 

• In the long term, the 

goal of the program is to 

develop low-cost, zeroemission power plants 

with efficiencies close to 

double that of today’s 

fleet. 

5-15 NATIONAL ENERGY POLICY 

of these research, development, and demonstration programs is to develop and demonstrate coal power systems with near zero 

environmental emissions, while maintaining low production costs. 

Recommendations: 

★ The NEPD Group recognizes the 

importance of looking to technology to 

help us meet the goals of increasing 

electricity generation while protecting 

our environment. To that end, the 

NEPD Group recommends that the 

President direct the Department of Energy to continue to develop advanced 

clean coal technology by: 

•	 Investing $2 billion over 10 years to 

fund research in clean coal technologies. 

•	 Supporting a permanent extension 

of the existing R&D tax credit. 

•	 Directing agencies to explore regulatory approaches that will encourage advancements in environmental 

technology. 

★ The NEPD Group recommends that 

the President direct federal agencies to 

provide greater regulatory certainty relating to coal electricity generation 

through clear policies that are easily 

applied to business decisions. 

Nuclear Energy 

Nuclear energy accounts for 20 percent of all U.S. electricity generation, and 

more than 40 percent of the electricity generation in ten states in the Northeast, the 

South, and the Midwest. Despite the closure of several less efficient plants during 

the 1990s, the 103 U.S. nuclear energy 

plants currently operating produce more 

electricity today than at any time in history. 

There are a number of reasons why 

nuclear energy expansion halted in the 

1980s. Regulatory changes implemented after the Three Mile Island incident in 1979 

lengthened the licensing period to an average of fourteen years, resulting in large 

cost overruns. Increased public concern 

about the safety of nuclear energy after the 

accident often resulted in active opposition 

to proposed plants. As a result, the last 

completed nuclear energy plant in the 

United States was ordered in 1973. 

Since the 1980s, the performance of 

nuclear energy plant operations has substantially improved. While U.S. nuclear energy plants once generated electricity only 

around 70 percent of the time, the average 

plant today is generating electricity close to 

90 percent. This improved performance has 

lowered the cost of nuclear generation, 

which is now competitive with other 

sources of electricity (Figure 5-6). 

There is potential for even greater 

generation from existing nuclear energy 

plants. Experts estimate that 2,000 MW 

could be added from existing nuclear power 

plants by increasing operating performance 

to 92 percent. In addition, about 12,000 MW 

of additional nuclear electricity generation 

could be derived from uprating U.S. nuclear 

power plants, a process that uses new technologies and methods to increase rated 

power levels without decreasing safety. 

However, modifications to uprate plants 

can be expensive and require extensive licensing review and approval by the Nuclear 

Regulatory Commission (NRC). Another 

way to increase nuclear generation from existing plants is through license renewal. 

Many nuclear utilities are planning to extend the operating license of existing 

nuclear plants by twenty years, and the licenses of as many as 90 percent of the currently operating nuclear plants may be renewed. 

The nuclear energy industry is closely 

regulated by the NRC, which provides rigorous oversight of the operation and maintenance of these plants. This oversight includes a comprehensive inspection program 

that focuses on the most significant potential risks of plant operations and features 

full-time resident inspectors at each plant, 

as well as regional inspectors with specialized expertise. The NRC has made great 

strides to provide greater regulatory certainty while maintaining high safety standards. 
The installation of new design features, improvements in operating experience, nuclear safety research, and operator 

training have all contributed to the strong 

safety record of the nuclear energy industry. Since the Three Mile Island incident in 

1979, the nuclear industry’s safety record 

has significantly improved. This safety 

record has been achieved through a defense-in-depth philosophy accomplished 

by way of engineering design, quality construction, safe operation, and emergency 

planning. This philosophy provides for diverse and redundant systems to prevent 

accidents from occurring, as well as multiple safety barriers to mitigate the effects 

of accidents in the highly unlikely event 

they do occur. 

Over the last several years, utilities 

have begun purchasing nuclear plants from 

other operators as the industry undergoes 

consolidation. Several nuclear utilities 

have merged, creating management teams 

with extensive expertise in running and 

maintaining nuclear plants. These mergers 

are impeded by tax rules relating to the 

transfer of decommissioning funds. 

Utilities are also considering nuclear energy as an option for new generation. The NRC 

Figure 5-6

Nuclear Generation is Competitively Priced 

(1998 Cents per Kilowatt-Hour)

Oil 

Coal 

Gas 

Nuclear 

12

10

8

6

4

2

0

1981 83 85 87 89 91 93 95 97 98

________

Note: Fuel costs are included.é

Source: Utility Data Institute via the Nuclear Energy Institute.é

has certified three standardized nuclear power 

plant designs, and Congress enacted legislation in 1992 to reform the nuclear licensing 

process. Under this process, a utility can apply 

for a combined construction and operating license for one of these standardized designs in 

a streamlined process. This reformed licensing 

process provides for site permits—a way to resolve siting issues early in the process. Building new generators on existing sites avoids 

many complex issues associated with building 

plants on new sites. Many U.S. nuclear plant 

sites were designed to host four to six reactors, and most operate only two or three; many 

sites across the country could host additional 

plants. 

Advanced reactor technology promises 

to improve nuclear safety. One example of an 

advanced reactor design is the gas-cooled, 

pebble-bed reactor, which has inherent safety 

features. The industry has an interest in this 

and other advanced reactor designs. 

The federal government must also provide for the safe disposal of nuclear waste. At 

present, nuclear waste continues to be stored 

at local plant sites. The Department of Energy 

is over a decade behind schedule for accepting 

nuclear waste from utilities, but has made 

progress toward characterization of the 

Yucca Mountain, Nevada site. Construction of an exploratory studies facility has 

been completed, a viability assessment 

was published, and recently scientists 

placed their extensive research about 

Yucca Mountain on the record for public 

scrutiny. However, key regulatory standards to protect public health and the environment at the repository have not been 

issued. 

The Administration will continue to 

study the science to determine whether to 

proceed with the consideration of this site 

as the location for the repository. If the 

Administration decides to proceed, the 

Department of Energy must file a license 

application with the NRC. No waste will 

be sent to any location until the NRC determines it to be safe. 

Other countries have developed different approaches for nuclear waste disposal. For example, the French, British 

and Japanese rely on reprocessing, an inChapter 5 • Energy for A New Century: Increasing Domestic Energy Supplies 5-16 
Calvert Cliffs is the first U.S. 

nuclear plant to receive a 

renewed license from the Nuclear 

Regulatory Commission. The 

renewal will allow the plant to 

continue producing environmentally sound electricity for an 

additional twenty years. 

CONSTELLATION ENERGY GROUP 

dustrial approach that separates nuclear 

waste into usable fuel and highly concentrated waste. While this approach does not 

obviate the need for geologic disposal of 

nuclear waste, it could significantly optimize the use of a geologic repository. 

There is growing interest in new technology known as accelerator transmutation, 

which could be used in combination with 

reprocessing to reduce the quantity and 

toxicity of nuclear waste. 

Recommendations: 

★ The NEPD Group recommends 

that the President support the expansion of nuclear energy in the United 

States as a major component of our 

national energy policy. Following are 

specific components of the recommendation: 

•	 Encourage the Nuclear Regulatory 

Commission (NRC) to ensure that 

safety and environmental protection are high priorities as they prepare to evaluate and expedite applications for licensing new advancedtechnology nuclear reactors. 

• 	Encourage the NRC to facilitate efforts by utilities to expand nuclear 

energy generation in the United 

States by uprating existing nuclear 

plants safely. 

• 	Encourage the NRC to relicense existing nuclear plants that meet or exceed safety standards. 

• 	Direct the Secretary of Energy and 

the Administrator of the Environmental Protection Agency to assess 

the potential of nuclear energy to 

improve air quality. 

• 	Increase resources as necessary for 

nuclear safety enforcement in light 

of the potential increase in generation. 

• Use the best science to provide a deep 

geologic repository for nuclear 

waste. 

• 	 Support legislation clarifying that 

qualified funds set aside by plant 

owners for eventual decommissioning will not be taxed as part of the 

transaction. 

• 	 Support legislation to extend the 

Price–Anderson Act. 

★ The NEPD Group recommends that, 

in the context of developing advanced 

nuclear fuel cycles and next generation 

technologies for nuclear energy, the 

United States should reexamine its policies to allow for research, development 

and deployment of fuel conditioning 

methods (such as pyroprocessing) that 

reduce waste streams and enhance proliferation resistance. In doing so, the 

United States will continue to discourage the accumulation of separated plutonium, worldwide. 

★ The United States should also consider technologies, in collaboration 

with international partners with highly 

developed fuel cycles and a record of 

close cooperation, to develop reprocessing and fuel treatment technologies 

that are cleaner, more efficient, less 

waste-intensive, and more proliferationresistant. 

5-17 NATIONAL ENERGY POLICY 
Hydropower 

Although hydropower generation accounts for only about 7 percent of overall 

U.S. electricity generation, the following 

states depend heavily on this source of energy: Idaho, Washington, Oregon, Maine, 

South Dakota, California, Montana, and 

New York. 

Hydropower generation has remained 

relatively flat for years. The most significant constraint on expansion of U.S. hydropower generation is physical; most of the 

best locations for hydropower generation 

have already been developed. Potential 

does remain for some increases in hydropower generation, and capacity can be optimized by adding additional turbines and 

increasing efficiency at existing facilities. 

Also, the amount of hydropower generation depends upon the quantity of available water. A drought can have a devastating effect on a region that depends on hydropower. In fact, this year’s water availability has been a contributing factor in 

California’s electricity supply shortages. 

The amount of hydropower generation depends upon the quantity of available water. 

A drought can have a devastating effect on 

a region that depends on hydropower. In 

fact, this year’s water availability has been 

a contributing factor in California’s electricity supply shortages. 

The Federal Energy Regulatory Commission is required to incorporate mandatory conditions proposed by different state 

and federal resource agencies into hydropower licenses. Decision-making authority 

in the licensing process is diffused among a 

host of federal and state agencies, all of 

which are pursuing different statutory missions. The hydropower licensing process is 

prolonged, costly, and poses regulatory uncertainty. The challenge is to efficiently 

and effectively balance national interests in 

natural resource and environmental preservation with energy needs. 

Recommendation: 

★ The NEPD Group recognizes there 

is a need to reduce the time and cost of 

the hydropower licensing process. The 

NEPD Group recommends that the 

President encourage the Federal Energy Regulatory Commission (FERC) 

and direct federal resource agencies to 

make the licensing process more clear 

and efficient, while preserving environmental goals. In addition, the NEPD 

Group recognizes the importance of 

optimizing the efficiency and reliability 

of existing hydropower facilities, and 

will encourage the Administration to 

adopt efforts toward that end. 

• 	Support administrative and legislative reform of the hydropower licensing process. 

• 	Direct federal resource agencies to 

reach interagency agreement on conflicting mandatory license conditions 

before they submit their conditions 

to FERC for inclusion in a license. 

• 	Encourage FERC to adopt appropriate deadlines for its own actions during the licensing process. 

Natural Gas 

Currently, natural gas provides about 

16 percent of U.S. electricity generation. 

Seven states obtain over one-third of their 

generation from natural gas (Rhode Island, 

new York, Delaware, Louisiana, Texas, California, and Alaska). Perhaps more importantly, natural gas-fired electricity is projected to constitute about 90 percent of 

capacity additions between 1999 and 2020. 

The amount of natural gas used in electricity generation is projected to triple by 2020. 

Ensuring the long-term availability of 

adequate, reasonably priced natural gas 

supplies is a challenge. Low gas prices in 

1998 and 1999 caused the industry to scale 

back gas exploration and production activity. Since 2000, the North American natural 

gas market has remained tight due to strong 

demand and diminished supplies. Last 

year, natural gas prices quadrupled, which 

resulted in substantially higher prices for 

electricity generated with natural gas. 

Chapter 5 • Energy for A New Century: Increasing Domestic Energy Supplies 5-18 
High-tech power plants, like this 

combined cycle plant, are 

signaling a new age in electric 

power generation. The capability 

to co-produce electricity and a 

slate of fuels and chemicals 

makes the technology economically attractive to a broad range 

of industrial applications. 

TAMPA ELECTRIC COMPANY 

While the largest barriers to expanded 

natural gas electricity generation relate to 

production and pipeline constraints, there 

are several other barriers. Environmental 

regulations affect the use of gas for electricity generation. Although natural gas 

electric plants produce fewer emissions 

than coal-fired power plants, they still emit 

nitrogen oxides, carbon dioxide and small 

,

amounts of toxic air emissions. 

Oil 

While oil fuels only about 3 percent of total U.S. electricity generation, it is the dominant 

source of electricity generation in Hawaii, and 

provides over 20 percent of the generation in 

Massachusetts, Connecticut, Delaware, Maine, 

and Florida. Over the next twenty years, market 

conditions are expected to reduce today’s level 

of oil electricity generation by about 80 percent. 

Renewable Energy 

Hydropower is, to date, the most successful form of renewable energy. However, 

some forms of renewable energy generation—wind, geothermal, and biomass— 

have the potential to make more significant 

contributions in coming years, and the cost 

of most forms of renewable energy has declined sharply in recent years. The most 

important barrier to increased renewable 

energy production remains economic; 

nonhydropower renewable energy generation costs are greater than other traditional 

energy sources. The following chapter discusses renewable and alternative energy in 

greater detail. 

5-19 
Summary of Recommendations

Energy for a New Century: Increasing Domestic Energy Supplies 

★ The NEPD Group recommends that the President direct the Secretaries of Energy 

and the Interior to promote enhanced oil and gas recovery from existing wells through 

new technology. 

★ The NEPD Group recommends that the President direct the Secretary of Energy 

to improve oil and gas exploration technology through continued partnership with 

public and private entities. 

★ The NEPD Group recommends that the President direct the Secretary of the Interior to examine land status and lease stipulation impediments to federal oil and gas 

leasing, and review and modify those where opportunities exist (consistent with the 

law, good environmental practice, and balanced use of other resources). 

• 	 Expedite the ongoing Energy Policy and Conservation Act study of impediments to federal oil and gas exploration and development. 

• 	 Review public lands withdrawals and lease stipulations, with full public consultation, especially with the people in the region, to consider modifications where 

appropriate. 

★ The NEPD Group recommends that the President direct the Secretary of the Interior to consider economic incentives for environmentally sound offshore oil and gas 

development where warranted by specific circumstances: explore opportunities for 

royalty reductions, consistent with ensuring a fair return to the public where warranted 

for enhanced oil and gas recovery; for reduction of risk associated with production in 

frontier areas or deep gas formations; and for development of small fields that would 

otherwise be uneconomic. 

★ The NEPD Group recommends that the President direct the Secretaries of Commerce and Interior to re-examine the current federal legal and policy regime (statutes, 

regulations, and Executive Orders) to determine if changes are needed regarding energy-related activities and the siting of energy facilities in the coastal zone and on the 

Outer Continental Shelf (OCS). 

★ The NEPD Group recommends that the President direct the Secretary of the Interior continue OCS oil and gas leasing and approval of exploration and development 

plans on predictable schedules. 

★ The NEPD Group recommends that the President direct the Secretary of the Interior to consider additional environmentally responsible oil and gas development, based 

on sound science and the best available technology, through further lease sales in the 

National Petroleum Reserve-Alaska. Such consideration should include areas not currently leased within the Northeast corner of the Reserve. 

★ The NEPD Group recommends that the President direct the Secretary of the Interior work with Congress to authorize exploration and, if resources are discovered, 

development of the 1002 Area of ANWR. Congress should require the use of the best 

available technology and should require that activities will result in no significant adverse impact to the surrounding environment. 

Chapter 5 • Energy for A New Century: Increasing Domestic Energy Supplies 5-20 
★ The NEPD Group recommends that the President direct the Secretary of the Interior to work with Congress and the State of Alaska to put in place the most expeditious process for renewal of the Trans-Alaska Pipeline System rights-of-way to ensure that Alaskan oil continues to flow uninterrupted to the West Coast of the United 

States. 

★ The NEPD Group recommends that the President direct the Secretary of Energy 

to propose comprehensive electricity legislation that promotes competition, protects 

consumers, enhances reliability, promotes renewable energy, improves efficiency repeals the Public Utility Holding Company Act, and reforms the Public Utility Regulatory Policies Act. 

★ The NEPD Group recommends that the President encourage FERC to use its existing statutory authority to promote competition and encourage investment in transmission facilities. 

★ The NEPD Group recognizes the importance of looking to technology to help us 

meet the goals of increasing electricity generation while protecting our environment. 

To that end, the NEPD Group recommends that the President direct the Department 

of Energy to continue to develop advanced clean coal technology by: 

• Investing $2 billion over 10 years to fund research in clean coal technologies. 

•	 Supporting a permanent extension of the existing research and development 

tax credit. 

•	 Directing federal agencies to explore regulatory approaches that will encourage advancements in environmental technology. 

★ The NEPD Group recommends that the President direct federal agencies to provide greater regulatory certainty relating to coal electricity generation through clear 

policies that are easily applied to business decisions. 

★ The NEPD Group recommends that the President support the expansion of nuclear 

energy in the United States as a major component of our national energy policy. Following are specific components of the recommendation: 

• 	Encourage the Nuclear Regulatory Commission (NRC) to ensure that safety and 

environmental protection are high priorities as they prepare to evaluate and 

expedite applications for licensing new advanced-technology nuclear reactors. 

• 	Encourage the NRC to facilitate efforts by utilities to expand nuclear energy 

generation in the United States by uprating existing nuclear plants safely. 

• 	Encourage the NRC to relicense existing nuclear plants that meet or exceed 

safety standards. 

•	 Direct the Secretary of Energy and the Administrator of the Environmental Protection 

Agency to assess the potential of nuclear energy to improve air quality. 

• 	Increase resources as necessary for nuclear safety enforcement in light of the 

potential increase in generation. 

• Use the best science to provide a deep geologic repository for nuclear waste. 

• 	Support legislation clarifying that qualified funds set aside by plant owners for 

eventual decommissioning will not be taxed as part of the transaction. 

• Support legislation to extend the Price–Anderson Act. 

5-21 NATIONAL ENERGY POLICY 
★ The NEPD Group recommends that, in the context of developing advanced nuclear 

fuel cycles and next generation technologies for nuclear energy, the United States should 

reexamine its policies to allow for research, development and deployment of fuel conditioning methods (such as pyroprocessing) that reduce waste streams and enhance 

proliferation resistance. In doing so, the United States will continue to discourage the 

accumulation of separated plutonium, worldwide. 

★ The United States should also consider technologies (in collaboration with international partners with highly developed fuel cycles and a record of close cooperation) to 

develop reprocessing and fuel treatment technologies that are cleaner, more efficient, 

less waste-intensive, and more proliferation-resistant. 

★ The NEPD Group recognizes there is a need to reduce the time and cost of the 

hydropower licensing process. The NEPD Group recommends that the President encourage the Federal Energy Regulatory Commission (FERC) and direct federal resource 

agencies to make the licensing process more clear and efficient, while preserving environmental goals. In addition, the NEPD Group recognizes the importance of optimizing 

the efficiency and reliability of existing hydropower facilities and will encourage the 

Administration to adopt efforts toward that end. 

• 	Support administrative and legislative reform of the hydropower licensing process. 

• 	 Direct federal resource agencies to reach interagency agreement on conflicting 

mandatory license conditions before they submit their conditions to FERC for 

inclusion in a license. 

• 	Encourage FERC to adopt appropriate deadlines for its own actions during the 

licensing process. 

Chapter 5 • Energy for A New Century: Increasing Domestic Energy Supplies 5-22 
CHAPTER SIX


Nature’s Power


Increasing America’s Use of Renewable 

and Alternative Energy 

Renewable hydropower has 

long provided a significant 

contribution to the U.S. 

energy supply. Today, 

hydropower is competitive 

with other forms of conventionally generated electricity. 

A sound national energy policy 

should encourage a clean and 

diverse portfolio of domestic 

energy supplies. Such diversity 

helps to ensure that future generations of Americans will have access to 

the energy they need. 

Renewable energy can help provide 

for our future needs by harnessing abundant, naturally occurring sources of energy, 

such as the sun, the wind, geothermal heat, 

and biomass. Effectively harnessing these 

renewable resources requires careful planning and advanced technology. Through improved technology, we can ensure that 

America will lead the world in the development of clean, natural, renewable and alternative energy supplies. 

Renewable and alternative energy 

supplies not only help diversify our energy 

portfolio; they do so with few adverse environmental impacts. While the current contribution of renewable and alternative energy resources to America’s total electricity 

supply is relatively small—only 9 percent— 

the renewable and alternative energy sectors are among the fastest growing in the 

United States. Non-hydropower only account for 2 percent of our electricity needs. 

However, electricity generation from nonhydropower renewable energy grew by 

nearly 30 percent in the 1990s. Continued 

growth of renewable energy will continue to 

be important in delivering larger supplies of 

clean, domestic power for America’s growing economy. 

Renewable energy resources tap naturally occurring flows of energy to produce 

electricity, fuel, heat, or a combination of 

these energy types. One type of renewable 

energy, hydropower, has long provided a 

significant contribution to the U.S. energy 

supply and today is competitive with other 

forms of conventional electricity. However, 

there is limited growth potential for hydropower. Non-hydropower renewable energy 

is generated from four sources: biomass, 

geothermal, wind, and solar (Figure 6-1). 

The United States has significant potential 

for renewable resource development. 

These nondepletable sources of energy are 

domestically abundant and often have less 

impact on the environment than conventional sources. They can provide a reliable 

source of energy at a stable price, and they 

can also generate income for farmers, landowners, and others who harness them. 

6-1 NATIONAL ENERGY POLICY 

Figure 6-1 

U.S. Resource Potential for Renewable Energy 

Potential Kilowatts per County 

greater than 40,000 

5,000–40,000 

0–5,000 

Geothermal Resources 

Resource Potential 

Good–Excellent 

Fair–Moderate 

Wind Resources 

Resource Potential 

Moderate 

Solar Insolation Resources 

Resource Potential 

7+ kWh/M2/day 

6+ kWh/M2

/day 

4+ kWh/M2

/day 

3+ kWh/M2

/day 

Biomass and Biofuel Resources 

Good Excellent 

Almost every state has the potential for wind energy and for biomass and biofuel production. The Southwest has 

the greatest potential for solar energy, and geothermal energy resources are most abundant in the West.


____________


Source: U.S. Department of Energy, National Renewable Energy Laboratory.


Recommendation:


★ The NEPD Group recommendsthat the President direct the Secretar	­

ies of the Interior and Energy to re	­

evaluate access limitations to federallands in order to increase renewableenergy production, such as biomass,­

wind, geothermal, and solar.­

Alternative energy includes: alterna	

tive fuels that are transportation fuels other 

than gasoline and diesel, even when the 

type of energy, such as natural gas, is tradi	

tional; the use of traditional energy sources, 

such as natural gas, in untraditional ways, 

such as for distributed energy at the point of 

use through microturbines or fuel cells; and 

future energy sources, such as hydrogen 

and fusion. 

Both renewable and alternative energy 

resources can be produced centrally or on a 

distributed basis near their point of use. 

Providing electricity, light, heat, or mechani	

cal energy at the point of use diminishes the 

6-3 NATIONAL ENERGY POLICY 
need for some transmission lines and pipe	

lines, reducing associated energy delivery 

losses and increasing energy efficiency. Dis	

tributed energy resources may be renew	

able resources, such as biomass cogenera	

tion in the lumber and paper industry or 

rooftop solar photovoltaic systems on 

homes, or they may be alternative uses of 

traditional energy, such as natural gas 

microturbines. 

Recommendations: 

★ The NEPD Group supports the 

increase of $39.2 million in the FY 

2002 budget amendment for the 

Department of Energy’s Energy 

Supply account that would provide 

increased support for research and 

development of renewable energy 

resources. 

★ The NEPD Group recommends 

that the President direct the Secretary 

of Energy to conduct a review of 

current funding and historic perfor

mance of renewable energy and 

alternative energy research and 

development programs in light of the 

recommendations of this report. 

Based on this review, the Secretary of 

Energy is then directed to propose 

appropriate funding of those research 

and development programs that are 

performance-based and are modeled 

as public-private partnerships. 

Renewable Energy Technologies 

Biomass 

Biomass is organic matter that can be 

used to provide heat, make fuel, and gener

ate electricity. Wood, the largest source of 

biomass, has been used to provide heat for 

thousands of years. Many other types of 

biomass are also used as an energy source, 

such as plants, residue from agriculture or 

forestry, and the organic component of mu	

nicipal and industrial wastes. Landfill gas is 

also considered a biomass source. Biomass 

resources can be replenished through cultiMicroturbines 

Microturbines are small combustion turbines approximately the size 

of a refrigerator with outputs of 25 to 500 kilowatts. Microturbines 

can be used to power a home or small business. This technology has 

evolved largely from automotive and truck turbochargers, auxiliary 

power units for airplanes, and small jet engines. 

Compared to other technologies for small-scale power generation, 

microturbines offer a number of significant advantages, including a 

small number of moving parts; compact size; lightweight, optimal effi	

ciency; lower emissions and electricity costs; and opportunities to use 

waste fuels. For these reasons, microturbines could easily capture a 

significant share of the distributed generation market. 

vation of what are known as energy crops, 

such as fast-growing trees and grasses. 

Unlike other renewable energy 

sources, biomass can be converted directly 

into liquid fuels, called biofuels, to meet our 

transportation needs. The two most com	

mon biofuels are ethanol and biodiesel. 

Ethanol is made by fermenting any biomass 

that is rich in carbohydrates, such as corn. 

It is mostly used as a fuel additive to reduce 

a vehicle’s emissions. Biodiesel is made us	

ing vegetable oils, animal fats, algae, or even 

recycled cooking greases. It can be used as 

a diesel additive to reduce emissions or in 

its pure form to fuel a vehicle. Beyond en	

ergy benefits, development of biomass ben	

efits rural economies that produce crops 

used for biomass, particularly ethanol and 

biomass electricity generation. 

Biomass, like corn, that is 

rich in carbohydrates can be 

converted directly into 

biofuels to meet our transportation needs. The biofuel 

ethanol is mostly used as a 

fuel additive to reduce 

vehicles’ smog-causing 

emissions. In June 1992, the 

Greater Peoria Mass Transit 

District began operating 

fourteen ethanol-powered 

buses along regular city 

routes. 

U.S. DEPARTMENT OF ENERGY 

Chapter 6 • Nature’s Power: Increasing America’s Use of Renewable and Alternative Energy 6-4 
The Geysers in northern 

California is the world’s 

largest producer of renewable 

geothermal power. The drysteam field has successfully 

produced power since the 

early 1960s, when Pacific 

Gas & Electric installed the 

first 11-megawatt plant. 

Today, nearly 2,000 megawatts are on line – enough 

energy to supply the electricity needs of San Francisco 

and Oakland. 

PACIFIC GAS & ELECTRIC 

Biomass is also used to generate elec	

tricity. This is accomplished through the di	

rect combustion of wood, municipal solid 

waste, and other organic materials; co-fir

ing with coal in high efficiency boilers; or 

combustion of biomass that has been 

chemically converted into fuel oil. In the 

lumber and paper industries, wood scraps 

are sometimes directly fed into boilers to 

produce steam for their manufacturing pro	

cesses or to heat their buildings. For that 

reason, renewable energy offers a particu	

lar advantage to the lumber and paper in	

dustry, and many analysts project the indus	

try may soon become a net seller of elec	

tricity. Co-firing coal power plants with bio	

mass has environmental benefits, since co	

firing can significantly reduce emissions. 

Biomass accounts for 76 percent of renew	

able electricity generation and 1.6 percent 

of total U.S. electricity supply. 

Even gas for generating electricity can 

be produced from biomass. Gasification 

systems use high temperatures to convert 

biomass into a gas that is used to fuel a tur

bine. The decay of biomass in landfills also 

produces methane, a gas that can be cap	

tured and burned in a boiler to produce 

steam for electricity generation or for in	

dustrial processes. Using methane emis	

sions increases electricity supplies, reduces 

pollution from landfills and reduces green	

house gas emissions. The technologies to 

collect and use landfill methane to generate 

electricity are already in the market. How	

ever, they have not been successfully inte	

grated at present due to the perceived 

higher risk of new technologies. 

Recommendation: 

★ The NEPD Group recommends 

that the President direct the Secretary 

of the Treasury, to work with Con	

gress on legislation to expand the 

section 29 tax credit to make it 

available for new landfill methane 

projects. The credit could be tiered, 

depending on whether a landfill is 

already required by federal law to 

collect and flare its methane emis	

sions due to local air pollution 

concerns. 

Geothermal 

Geothermal energy is the use of steam 

and hot water generated by heat from the 

Earth to perform work. Some geothermal 

power plants use steam or hot water from a 

natural underground reservoir to power a 

generator. Others use hot water to provide 

direct heat for residential and other build	

ings, and for other applications. 

The most readily accessible resources 

for geothermal power generation in the 

United States are located in the West, 

Alaska, and Hawaii. A wide array of high	

technology geological, geochemical, and 

geophysical techniques are used to locate 

geothermal resources. In large measure, the 

technology for developing these resources 

has been adapted from the oil industry. Im	

provements in drill bits, drilling techniques, 

advanced instruments, and other techno	

logical advances have made energy produc	

tion from geothermal resources increas	

ingly efficient. 

Geothermal accounts for 17 percent 

of renewable electricity generation and 0.3 

percent of total U.S. electricity supply. 

However, the net installed capacity of U.S. 

geothermal power plants has increased sig	

nificantly, from 500 MW in 1973 to 2,800 

MW today. 

Hot water near the surface of the 

Earth can also be used directly for heat. 

These direct-use applications include heat	

6-5 NATIONAL ENERGY POLICY 
ing buildings, growing plants in green	

houses, drying crops, heating water at fish 

farms, and several industrial processes, 

such as pasteurizing milk. 

In addition, individual homeowners, 

farmers, and businesses can tap into geo	

thermal energy through geothermal heat 

pumps to heat and cool buildings. A geo	

thermal heat pump system consists of a 

heat pump, an air delivery system, a heat 

exchanger, and a system of pipes buried in 

the shallow ground near the building. In the 

winter, a heat pump removes heat from the 

heat exchanger and pumps that heat into 

the indoor air delivery system. In the sum	

mer, the process is reversed, and the heat 

pump moves heat from the indoor air into 

the heat exchanger. The heat removed from 

the indoor air during the summer can also be 

used to provide a free source of hot water. 

Geothermal heat pumps can be used almost 

anywhere in the United States, and can sig	

nificantly increase system efficiencies. 

Recommendation:


★ The NEPD Group recommends thatthe President direct the Secretary of theInterior to determine ways to reducethe delays in geothermal lease process	­

ing as part of the permitting reviewprocess.­

Wind Energy 

Wind energy has been used since at 

least 200 B.C. for grinding grain and pump	

ing water. By 1900, windmills were used on 

farms and ranches in the United States to 

pump water and, eventually, to produce 

electricity. Windmills developed into mod	

ern-day wind turbines. 

Wind turbines are used for several ap	

plications. Wind power uses the naturally 

occurring energy of the wind for practical 

purposes like generating electricity, charg	

ing batteries, or pumping water. Large, 

modern wind turbines operate together in 

wind farms to produce electricity for utili	

ties. Small turbines are used by 

homeowners, farmers, and remote villages 

to help meet localized energy needs. 

Wind turbines capture energy by using 

propeller-like blades that are mounted on a 

rotor. These blades are placed on top of 

high towers, in order to take advantage of 

the stronger winds at 100 feet or more 

above the ground. The wind causes the pro	

pellers to turn, which then turn the attached 

shaft to generate electricity. Wind can be 

used as a stand-alone source of energy or in 

conjunction with other renewable energy 

systems. Wind and natural gas hybrid sys	

tems are a promising approach that offers 

clean power to consumers. 

Wind energy accounts for 6 percent of 

renewable electricity generation and 0.1 

percent of total electricity supply. However, 

advances by research labs, universities, 

utilities, and wind energy developers have 

helped cut wind energy’s costs by more 

than 80 percent during the last twenty 

years. The industry is poised for growth. In 

some parts of the country, electricity from 

wind power can be produced at prices that 

are comparable to other conventional en	

ergy technologies. The United States has 

many areas with abundant wind energy po	

tential, namely in the West, the Great Plains 

and New England. 

Solar 

Sunlight, or solar energy, can be used 

to generate electricity; heat water; and heat, 

cool, and light buildings. Photovoltaic (so	

lar cell) systems use semiconductor materi	

als similar to those used in computer chips 

to capture the energy in sunlight and to 

convert it directly into electricity. Photovol	

taic cells have been used in everything from 

In 1996, the National 

Association of Home Builders 

constructed advanced 

townhouses featuring 

standing-seam roofs and 

other energy efficient 

materials and systems. 

The townhouse on the right 

differs from the others in that 

it has an integrated photovoltaic standing-seam roof that 

also produces electricity. 

TIM ELLISON, ENERGY CONVERSION DEVICES 

Chapter 6 • Nature’s Power: Increasing America’s Use of Renewable and Alternative Energy 6-6 
the solar cells in calculators to the space 

station Freedom. 

Another technology for harnessing the 

sun’s energy is a concentrating solar power 

system, which uses the sun’s heat to gener

ate electricity. The sunlight is collected and 

focused with mirrors to create a high inten	

sity heat source that in turn can be used to 

generate electricity through a steam turbine 

or a heat engine. 

Solar hot water systems use the sun to 

heat water for domestic or industrial use. 

Many large commercial buildings also use 

solar collectors for heat. A solar ventilation 

system can be used in cold climates to pre	

heat air as it enters a building. The heat 

from a solar collector can even be used to 

provide energy for cooling a building. 

Some architects are using careful de	

sign and new optical materials to use sun	

light to reduce the need for traditional light	

ing and to cut down on heating and cooling 

costs. For example, materials that absorb 

and store the sun’s heat can be built into the 

sunlit floors and walls. The floors and walls 

Recommendations: 

will store heat during the day and slowly re	

lease heat at night. 

While solar energy technologies have 

undergone technological and cost improve	

ments and are well established in high	

value markets like remote power, satellites, 

communications, and navigational aids, 

continued research is needed to reduce 

costs and improve performance. Solar en	

ergy accounts for 1 percent of renewable 

electricity generation and 0.02 percent of 

total U.S. electricity supply. 

Alternative Energy 

Alternative Transportation Fuels 

Alternative fuels are any transporta	

tion fuels made from a nontraditional 

source, including ethanol, biodiesel, and 

other biofuels. These can be made from 

biomass resources, including liquid fuels 

(e.g., ethanol, methanol, biodiesel) and gas	

eous fuels (e.g., hydrogen and methane). 

Biofuels are primarily used to fuel vehicles, 

but can also fuel engines or fuel cells for 

electricity generation. Alternative fuels also 

★ The NEPD Group recommends that the President direct the Administrator of the 

Environmental Protection Agency to develop a new renewable energy partnership 

program to help companies more easily buy renewable energy, as well as receive 

recognition for the environmental benefits of their purchase, and help consumers by 

promoting consumer choice programs that increase their knowledge about the 

environmental benefits of purchasing renewable energy. 

★ The NEPD Group recommends that the President direct the Secretary of the 

Treasury to work with Congress on legislation to extend and expand tax credits for 

electricity produced using renewable technology, such as wind and biomass. The 

President’s budget request extends the present 1.7 cents per kilowatt hour tax credit 

for electricity produced from wind and biomass; expands eligible biomass sources to 

include forest-related sources, agricultural sources, and certain urban sources; and 

allows a credit for electricity produced from biomass co-fired with coal. 

★ The NEPD Group recommends that the President direct the Secretary of the 

Treasury to work with Congress on legislation to provide a new 15 percent tax credit 

for residential solar energy property, up to a maximum credit of $2,000. 

★ The NEPD Group recommends that the President direct the Secretaries of the 

Interior and Energy to work with Congress on legislation to use an estimated $1.2 

billion of bid bonuses from the environmentally responsible leasing of ANWR for 

funding research into alternative and renewable energy resources, including wind, 

solar, geothermal, and biomass. 

6-7 NATIONAL ENERGY POLICY 
Alternative Fuel Vehicles 

Alternative fuel vehicles (AFVs) can run on methanol, ethanol, compressed natural 

gas, liquefied natural gas, propane, hydrogen, electricity, biodiesel, and natural gas. 

Today, more than 450,000 alternative vehicles are operating in the United States. Some 

of the barriers to using AFVs include: 

Cost—For example, a Ford Crown Victoria that runs on compressed natural gas 

costs about $4,000 more than its gasoline counterpart. 

Refueling Infrastructure—Refueling infrastructure is limited, which can make 

refueling inconvenient and travel options difficult. 

Travel Distance—Ability to travel a long distance on a single volume of fuel. Al 

ternative fuels have an energy content lower than that of gasoline, which 

means that AFVs cannot travel as far as traditional vehicles on a single tank 

of fuel. 

In the short term, natural gas and propane offer the greatest potential for market 

growth, especially in niche markets where lower fuel costs make them attractive, 

such as transit buses, school buses, shuttles, and other heavy-duty vehicles. Ethanol 

vehicles offer tremendous potential if ethanol production can be expanded. Electric 

vehicles could reach large numbers in the future if technology breakthroughs help 

bring costs down and increase driving distance. Fuel cell vehicles operating on com	

pressed hydrogen offer long-term potential. Compressed natural gas offers a distribu	

tion stepping-stone to a hydrogen-refueling infrastructure. 

include traditional energy sources, such as 

natural gas and liquid propane that are tra	

ditionally not used as a transportation fuel. 

Currently, there are approximately 

450,000 alternative fuel vehicles in the 

United States, and more than 1.5 million 

flexible-fuel vehicles that can use gasoline 

or a mixture of ethanol and gasoline. Etha	

nol is made by converting the carbohydrate 

portion of biomass into sugar, which is then 

converted into ethanol through a fermenta	

tion process. Ethanol is the most widely 

used biofuel, and its production has in	

creased sharply since 1980, rising from 200 

million gallons a year to 1.9 billion gallons. 

Today, many states are considering phasing 

out the use of MTBE (methyl tertiary butyl 

ether), an oxygenate additive for gasoline. 

If they do so, that will likely spur greater re	

liance on ethanol. 

Each year, approximately 65 percent 

of the oil consumed in the United States is 

used for transportation. As a result, vehicle 

emissions have become the leading source 

of U.S. air pollution. However, recent ad	

vances in fuels and vehicle design are help	

ing increase fuel efficiency and reduce 

toxic substances discharged into the air. 

Changes in the composition of trans	

portation fuels, such as gasoline and diesel 

fuels, are one way to improve vehicle per

formance while reducing emissions and 

lowering oil consumption. Reformulated 

gasoline contains fuel additives such as 

ethanol to increase oxygen content, which 

reduces harmful emissions such as carbon 

monoxide. Low-sulfur gasoline reduces sul	

fur oxide emissions. New diesel fuels, some 

of which have lower sulfur contents or are 

produced from clean-burning natural gas, 

can help vehicles with diesel engines 

achieve lower emissions. 

In addition to advanced transportation 

fuels, alternative fuels are being developed, 

such as biodiesel, electricity, ethanol, hydro	

gen, methanol, natural gas, and propane. 

These alternative fuels not only reduce de	

pendence on petroleum transportation fu	

els. They reduce or entirely eliminate harm	

ful emissions as well. With the exception of 

natural gas and propane, these fuels also 

have the potential of being generated from 

renewable resources, such as ethanol from 

corn. The federal government has promoted 

development of alternative fuels for many 

years and this program has helped to reduce 

U.S. reliance on oil-based fuels. 

The evolution toward more efficient, 

Chapter 6 • Nature’s Power: Increasing America’s Use of Renewable and Alternative Energy 6-8 
environmentally friendly transportation fu	

els has been mirrored by improvements in 

vehicle design, components, and materials. 

Alternative fuel vehicles, which can either 

switch between two fuels or run on a mix	

ture of two fuels such as gasoline and etha	

nol, are now available. Recent developments 

in both alternative fuel vehicles and petro	

leum-based vehicles, such as advances in 

engines, drive trains, and emission-control 

technologies, may double or triple the effi	

ciency of current vehicles. Some of these 

new technologies include hybrid electric ve	

hicles, which combine an engine with an 

electric motor, and fuel cells, which produce 

electricity by converting a fuel, generally hy	

drogen and oxygen, into water. 

A number of issues drive the research 

and marketability of advanced alternative 

fuel vehicles and petroleum-based vehicles 

in the United States. The goal of reducing 

U.S. dependence on imported oil, combined 

with the link between vehicle emissions and 

air pollution, have prompted the develop	

ment of emissions and fuel economy stan	

dards for car manufacturers. In addition, 

federal, state, and local governments have 

enacted regulations, laws, and incentives de	

signed to reduce the number of vehicle 

miles traveled and to encourage businesses 

and individuals to purchase alternative fuel 

vehicles. 

The success of the federal alternative 

fuels program has been limited, however. 

The current program focuses on mandating 

certain fleet operators to purchase alterna	

tive fueled vehicles. The hope was that this 

vehicle purchase mandate would lead to ex	

panded use of alternative fuels. That expec	

tation has not been realized, since most fleet 

operators purchase dual-fueled vehicles that 

operate on petroleum motor fuels. The 

Clean Air Act required the use of oxygen	

ates, such as MTBE (methyl tertiary butyl 

ether) and ethanol in fuel. These oxygenates 

account for 92 percent of alternative fuel 

use. Reforms to the federal alternative fuels 

program could promote alternative fuels use 

instead of mandating purchase of vehicles 

that ultimately run on petroleum fuels. 

Recommendation:


★ The NEPD Group recommends thatthe President direct the Secretary ofTreasury to work with Congress tocontinue the ethanol excise taxexemption.­

Distributed Energy 

Untapped opportunities for reducing 

energy demand loads could be realized by 

better integrating electricity supply systems 

and customers. Improved integration can 

produce a variety of benefits for tight en	

ergy markets, including reducing peak de	

mand loads, bypassing congested areas of 

transmission by placing new generating ca	

pacity closer to the consumer, and thus 

achieving greater overall system efficien	

cies. 

Current electricity load management 

efforts are typically limited to cutting off in	

terruptible or nonfirm customers, appeals 

to the public to conserve, and brownouts. 

Some utilities are incorporating current	

generation metering, sensor, and control 

technologies to take the next step: selective 

reduction of individual energy-using appli	

ances. In some areas, residents can reduce 

their monthly bills by allowing the utility to 

electronically turn off selected appliances, 

such as water heaters, on a rotating basis. If 

this option is well managed, consumers are 

unaware of the temporary loss service, and 

critical systems continue to run unimpeded. 

Advanced integrated supply-and-demand 

load management controls also allow for 

widespread “demand auctions,” in which 

consumers can decide which energy ser

vices to forego on which days. 

Distributed energy resources describe 

a variety of smaller electricity-generating 

options well suited for placement in homes, 

offices, and factories, or near these facili	

ties. Distributed energy systems have the 

distinct advantage of being brought on line 

faster than new central power plants. While 

natural gas microturbines and solar roof 

panels are the most familiar types of distrib	

uted energy, other distributed energy re	

sources include: combined heat and power, 

stationary fuel cells, generation of 

6-9 NATIONAL ENERGY POLICY 
bioenergy from landfill methane recovery, 

and small wind systems. Photovoltaic solar 

distributed energy is a particularly valuable 

energy generation source during times of 

peak use of power. 

Efficiency gains from distributed en	

ergy come from three sources. First, trans	

mission and distribution line losses (about 

5 percent) are reduced because the energy 

is generally used near the source. Second, 

the co-location with consumption makes it 

more feasible to use waste heat, displacing 

otherwise needed natural gas or electricity 

for heating purposes. And, third, the co-lo	

cation with consumption allows for the in	

tegration of on-site energy efficiency and 

generating capabilities. For example, in the 

residential market, distributed energy appli	

cations can make possible the concept of 

the “net zero energy home,” in which the 

overall level of energy produced at the 

home equals or exceeds the amount of en	

ergy used in the home. 

Despite these advantages, a number 

of impediments and competing policy ob	

jectives discourage the wider application of 

integrated electricity supply and demand 

solutions, many of which reflect the relative 

newness and lack of familiarity with these 

technologies. 

For example, the lack of standards 

governing interconnection of distributed 

energy to the grid impedes development. 

The lack of standards prevents a uniformly 

effective means of getting excess distrib	

uted energy to the grid. 

In addition, current air quality regula	

tions do not take into account the additional 

energy savings from many distributed en	

ergy technologies. Likewise, distributed en	

ergy systems purchased by consumers may 

receive different tax rates than those pur

chased by traditional electricity producers. 

Although distributed energy can alle	

viate distribution constraints, these systems 

often cannot be sited and permitted in a 

timely manner. For instance, land-use zon	

ing codes may not allow generating equip	

ment in association with residential or com	

mercial land uses, and building code offi	

cials may not know enough about solar roof 

systems to provide timely building permits. 

As with energy efficiency equipment, 

load management integrating systems, both 

controls and distributed energy, have higher 

first costs associated with lower future en	

ergy bills. 

Another barrier to development of dis	

tributed energy is the need for net metering, 

which enables consumers to install a small 

electricity project at their homes and sell 

the excess to the local utility, offsetting 

their purchases from the utility at other 

times. Net metering can lower the cost to 

consumers of distributed energy projects. 

Some consumers are reluctant to install dis	

tributed renewable energy resources be	

cause many regions do not have the regula	

tory framework under which consumers 

can sell energy back to the grid under a net 

metering system. 

Future Energy Sources 

As we look to the long-term future of 

alternative energy technologies, there is sig	

nificant promise in these technologies to 

meet an ever-growing portion of our 

nation’s energy needs. 

Hydrogen 

In the long run, alternative energy 

technologies such as hydrogen show great 

promise. Hydrogen is the most common ele	

ment in the universe and can be made from 

water. Converting hydrogen into energy is 

compatible with existing energy technolo	

gies, such as fuel cells, engines, and com	

bustion turbines. The energy for extracting 

hydrogen could come from existing, tradi	

tional fuels, or it could be derived from re	

newable energy sources, such as solar, 

nuclear, and fossil, to achieve the cleanest 

possible energy cycle. Hydrogen can be 

converted into useful energy forms effi	

ciently and without detrimental environ	

mental effects. Unlike other energy sources, 

its production by-product is water. 

In the future, hydrogen may be able to 

be used in furnaces and as a transportation 

fuel for automobiles, buses, trains, ships 

and airplanes. Hydrogen could also be con	

verted directly into electricity by fuel cells. 

Combustion of hydrogen with oxygen re	

sults in pure steam, which has many appliChapter 6 • Nature’s Power: Increasing America’s Use of Renewable and Alternative Energy 6-10 
There is a significant 

promise in renewable 

technologies to meet an evergrowing portion of our 

nation’s energy needs. Wind 

power has significant growth 

potential. The principal 

challenges to achieving this 

level of renewable energy 

generation are cost and 

market acceptance of renewable power technologies. 

U.S. DEPARTMENT OF ENERGY, NATIONAL 

RENEWABLE ENERGY LABORATORY 

cations in industrial processes and space 

heating. Moreover, hydrogen is an impor

tant industrial gas and raw material in nu	

merous industries, such as computer, metal	

lurgical, chemical, pharmaceutical, fertilizer 

and food industries. 

An energy infrastructure that relies on 

hydrogen could enable much greater use of 

distributed energy systems. These systems 

are small, modular electricity generators 

that can be placed right where they are 

needed for heating, cooling, and powering 

offices, factories, and residences. Hydrogen 

fuel cells are a promising type of distributed 

energy system that can provide the exacting 

reliability needed for the high-tech industry. 

Fuel cells can produce electricity and 

heat from hydrogen, natural gas, and petro	

leum fuels, and fuel gases derived from coal 

and biomass. What makes fuel cells unique 

is that they can use fuels without combus	

tion, simply by chemical reactions, making 

them extremely clean and efficient. 

Fuel cells were developed by the Na	

tional Aeronautics and Space Administra	

tion to generate electricity, heat, and water 

in space vehicles. The first-generation fuel 

cells for stationary power applications en	

tered the commercial market in 1995. This 

type of fuel cell is used to generate very 

high-quality electricity and heat with negli	

gible emissions in commercial and indus	

trial settings. It is most likely to be used in 

cases where users are willing to pay a pre	

mium for cleaner, more reliable power than 

is available from the commercial grid. 

The second generation of stationary 

fuel cells is currently in the demonstration 

phase, including a combined fuel cell–tur

bine hybrid. These fuel cells are expected to 

be more efficient and cost less when used 

in similar distributed energy systems. 

Smaller fuel cells for residential units are 

also being developed, and some are in the 

demonstration phase. 

Despite technical progress, high costs 

remain the main deterrent to widespread 

fuel cell use. Significant cost reductions 

must be achieved before fuel cells will be 

competitive with internal combustion en	

gines, and the size and weight of fuel cell 

systems must be reduced even more to ac	

commodate vehicle packaging require	

ments. 

The primary challenge to using more 

hydrogen in our energy systems is the cost 

of producing, storing, and transporting it. A 

serious challenge confronting a move to	

ward distributed energy is the transition 

away from centralized energy systems of 

supply and production. These challenges 

are not expected to be resolved overnight, 

but progress made in the last few years has 

already far surpassed the expectations of 

just a decade ago. 

A significant amount of promising re	

search and development has already been 

completed. The automobile industry is ag	

gressively exploring the fuel cell as the fu	

ture of the industry. Moreover, a new first	

generation class of distributed energy tech	

nologies are already hitting the market. 

Fusion 

Fusion—the energy source of the 

sun—has the long-range potential to serve 

as an abundant and clean source of energy. 

The basic fuels, deuterium (a heavy form of 

hydrogen) and lithium, are abundantly avail	

able to all nations for thousands of years. 

There are no emissions from fusion, and the 

radioactive wastes from fusion are short	

lived, only requiring burial and oversight for 

about 100 years. In addition, there is no risk 

of a melt-down accident because only a 

small amount of fuel is present in the sys	

tem at any time. Finally, there is little risk of 

nuclear proliferation because special 

nuclear materials, such as uranium and plu	

tonium, are not required for fusion energy. 

Fusion systems could power an energy sup	

ply chain based on hydrogen and fuel cells, 

as well as provide electricity directly. 

Although still in its early stages of de	

velopment, fusion research has made some 

advances. In the early 1970s, fusion re	

search achieved the milestone of producing 

1/10 of one watt of fusion power, for 1/100 

of a second. Today the energy produced 

from fusion is 10 billion times greater, and 

has been demonstrated in the laboratory at 

powers over 10 million watts in the range of 

a second. 

6-11 NATIONAL ENERGY POLICY 
Internationally, an effort is underway 

in Europe, Japan, and Russia to develop 

plans for constructing a large-scale fusion 

science and engineering test facility. This 

test facility may someday be capable of 

steady operation with fusion power in the 

range of hundreds of megawatts. 

Both hydrogen and fusion must make 

significant progress before they can be	

come viable sources of energy. However, 

the technological advances experienced 

over the last decade and the advances yet 

to come will hopefully transform the en	

ergy sources of the distant future. 

Recommendation:


★ The NEPD Group recommendsthat the President direct the Secretaryof Energy to develop next-generationtechnology—including hydrogen andfusion.­

• Develop an education campaign 

that communicates the benefits of 

alternative forms of energy, including 

hydrogen and fusion. 

• Focus research and development 

efforts on integrating current pro	

grams regarding hydrogen, fuel cells, 

and distributed energy. 

Current Markets for Renewable 

and Alternative Energy 

Advances in Technology 

Non-hydropower renewable energy 

accounts for about 4 percent of current 

U.S. energy production, divided evenly be	

tween electricity generation and transpor

tation fuels such as ethanol. Between 1990 

and 1999, renewable energy generation 

grew by 29 percent, and renewable energy 

is projected to continue to grow (Figure 

6-1). Renewable fuel consumption, includ	

ing ethanol for gasoline blending, is pro	

jected to grow at an average rate of 1.1 per

cent a year through 2020. In 2020, 55 per

cent of renewables are projected to be used 

for electricity generation and the rest for 

dispersed heating, industrial uses, and fuel 

blending. 

The success of renewables is, in part, 

the result of over twenty years of research, 

development, and demonstration conducted 

by the public and private sectors. This work 

has dramatically improved these technolo	

gies and has reduced their costs by as much 

as 90 percent. For example: 

• The Department of Energy (DOE), 

the National Renewable Energy Laboratory 

(NREL), and Alstom Energy Systems jointly 

created Advanced Direct-Contact Condens	

ers, which improve the efficiency and gener

ating capacity of electric power plants by 

providing the best surface area for condens	

ing spent steam. This technological ad	

vance, tested in geothermal applications in 

California, can improve the efficiency of 

electricity production by 5 percent and 

capacity by 17 percent. 

• United Solar Systems in Michigan 

pioneered the first commercial use of solar 

photovoltics as a building material. The 

triple-junction, thin-film technology is now 

sold as flexible solar panels, solar shingles 

for building roofs, and a peel-and-stick-on 

variety for standing seam metal roofs. 

United Solar is now building a larger manu	

facturing plant in Michigan that is five times 

the size of its existing manufacturing facil	

ity. DOE collaborates with United Solar on 

research and development helping over

come hurdles in manufacturing. As a result, 

United Solar is able to provide unique solar

electric products using a unique roll-to-roll 

manufacturing process. 

• In partnership with DOE, NREL, 

Battelle Lab, Burlington Electric and others, 

Future Energy Resources Corporation of 

Norcross, Georgia, was able to build, test, 

and operate the world’s first biomass gasifi	

cation system. The McNeil Plant, located in 

Burlington, Vermont, gasifies rather than 

combusts wood chips to power a gas boiler. 

The technology has shown itself to be com	

mercially viable, and is being considered 

worldwide by industries as a way of upgrad	

ing existing inefficient and aging boilers. 

Improved renewable and alternative 

energy technologies are becoming increas	

ingly attractive to a number of energy com	

panies seeking to build new business oppor

tunities for the future (Figure 6-3). Follow	

ing are a few examples: 

Figure 6-1 

Increases in U.S. Energy

Production: 1990–1999 

(Quadrillion Btus) 

Natural 

Gas 1.12 

Renewables 

1.18 

Nuclear 

1.57 

Coal 

0.90 

1.8 

1.6 

1.4 

1.2 

1.0 

0.8 

0.6 

0.4 

0.2 

0 

During the last decade, renewable energy sources contributed substantially 

to the growth in U.S. energy production, outpacing all fuel sources except 

for nuclear energy. 

_______ 

Source: U.S. Department of Energy, Energy 

Information Administration. 

Chapter 6 • Nature’s Power: Increasing America’s Use of Renewable and Alternative Energy 6-12 
Table 6-2 

Electricity Generated by Renewable Energy Sources: 1999 

Current net 

summer 

capacity (MW) 350 2,600 2,870 6,170 79,130 

Annual generation 

(millions of kWh) 940 4,460 13,070 36,570 312,000 

Expected growth PV: 19.3 

in generation (%) Thermal: 21 5.3 3.3 3.0 -0.1 

Cost (cents/kWh) 20 4–6 5–8 6–20 2–6 

Solar Wind Geothermal Biomass Hydropower 

Renewable energy has become a significant source of electric power in the United States. 

_______ 

Note: Capacity, generation, and growth data do not include off-grid electricity, thermal, or other nonelectricity energy 

production, municipal solid waste, or methane from landfills. 

Sources: U.S. Department of Energy, Energy Information Administration and Office of Power Technologies. 

• FPL Group announced in January 

2001 the construction of two major wind 

farms: a 300 MW facility on the Washing	

ton–Oregon border, and a 25.5 MW facility 

in Wisconsin. The company now has more 

than 1,000 MW of wind generating capacity 

in operation or under construction in seven 

states. 

• CalEnergy Company has made re	

newable and alternative energy generation 

a central focus of its power portfolio. The 

company operates 1,300 MW of geothermal, 

natural gas, hydropower, and other power 

facilities in the U.S. and abroad, with an	

other 750 MW currently under construction. 

• General Motors, Ford, 

DaimlerChrysler, Texaco, BP/Amoco, and 

Shell are collectively spending between 

$500 million and $1 billion dollars a year on 

fuel cells, hydrogen storage, and infrastruc	

ture development for passenger vehicles. 

Ongoing bus demonstrations in the United 

States and Europe are expected to commer

cialize fuel cell power hydrogen buses in 

the next five years. 

Because alternative and renewable en	

ergy resources can be used in so many dif	

ferent ways throughout the economy to pro	

duce so many combinations of energy 

types, their total use is often difficult to 

measure precisely. As of 1996, California 

alone had over 10 MW of installed distrib	

uted energy, a large increase in generating 

capacity during a period of otherwise lim	

ited growth in generation (Figure 6-3). In 

1999, several types of renewable energy 

were used to produce electricity (Table 6-2). 

On the transportation side, there are 

approximately 450,000 alternative fuel ve	

hicles in the United States. Additionally, 

there are more than 1.5 million flexible-fuel 

vehicles that can use gasoline or a high 

mixture of ethanol and gasoline. These in	

clude the Ford Taurus, the DaimlerChrysler 

Caravan, and the General Motors S10 

pickup. Ethanol is the most widely used 

biofuel, and its production is currently 1.9 

billion gallons a year, representing a nearly 

ten-fold growth from about 200 million gal	

lons a year in 1980. 

Recommendation:


★ The NEPD Group recommendsthat the President direct the Secretaryof the Treasury to work with Congressto develop legislation to provide for atemporary income tax credit availablefor the purchase of new hybrid orfuel-cell vehicles.­

Hybrid Electric Vehicles 

Hybrid electric vehicles (HEVs) com	

bine the internal combustion engine 

of a conventional engine with the bat	

tery and electric motor of an electric 

vehicle, resulting in twice the fuel 

economy of conventional vehicles. 

This combination offers the extended 

range and rapid refueling that con	

sumers expect from a conventional 

vehicle, with a significant portion of 

the energy and environmental benefits 

of an electric vehicle. The practical 

benefits of HEVs include improved 

fuel economy and lower emissions 

compared to conventional vehicles. 

The car’s flexibility will mean conve	

nient use for individuals as well as 

businesses. 

Removing Barriers to Renewable and 

Alternative Energy Growth 

Perhaps the greatest barrier to growth 

of renewable energy is cost. Currently, the 

cost of renewable energy generation fre	

6-13 NATIONAL ENERGY POLICY 
quently exceeds the costs of conventional 

electricity generation. In recent years, 

though, the costs of renewable energy have 

declined substantially. For example, the 

cost of wind energy has declined by more 

than 80 percent over the past twenty years 

and is increasingly competitive with con	

ventional electricity generation sources. 

Wind, biomass, and geothermal are all in	

creasingly competitive with conventional 

electricity generation. 

The ability of these technologies to 

meet specific market needs is another fac	

tor in how quickly their market share will 

grow. These technologies and energy 

sources provide multiple benefits to the en	

ergy producer and the consumer. For ex	

ample, many of these technologies are 

modular and can be constructed rapidly, 

adding an immediate source of new power 

in areas that otherwise might face a short	

fall. Distributed renewable energy re	

sources can enhance the reliability and 

quality of power. 

Cogeneration uses of waste products 

and heat can increase profits by reducing 

purchased electricity costs, as well as costs 

for process steam and heating or cooling. 

Several sectors, including lumber and paper, 

steel, and chemical manufacturing, are ex	

ploring the increased use of cogeneration. 

With the technological development of biom	

ass gasification, the lumber and paper indus	

try could become a seller of electricity. 

Recommendation: 

★ The NEPD Group recommends 

that the President direct the Adminis	

trator of the Environmental Protec	

tion Agency to issue guidance to 

encourage the development of well	

designed combined heat and power 

(CHP) units that are both highly 

efficient and have low emissions. The 

goal of this guidance would be to 

shorten the time needed to obtain 

each permit, provide certainty to 

industry by ensuring consistent 

implementation across the country, 

and encourage the use of these 

cleaner, more efficient technologies. 

Renewable technologies can help pro	

vide insurance against price volatility. In ad	

dition, many renewable technologies can 

help industry achieve compliance with the 

Clean Air Act and other environmental regu	

lations. In some cases, renewables can be 

more readily located in urban areas whose 

air quality does not meet regulatory require	

ments. 

With the growth rate for non-hydro	

power renewable electricity generation 

more than doubling the expected growth in 

overall electricity capacity, these energy 

sources will play a more significant role in 

electricity markets in the next two decades. 

However, the extent to which these domes	

tic resources are successfully tapped will 

depend in large part on continued techno	

logical development. 

For renewable and alternative energy to 

play a greater role in meeting our energy de	

mands, these sources of generation must be 

able to integrate into our existing distribution 

system. The tools that form the necessary in	

terface between distributed energy systems 

and the grid need to be less expensive, faster, 

more reliable, and more compact. 

Promising technologies exist that will 

improve the transmission, storage, and reli	

ability of renewable energy. An example of 

recent technological success that will allow 

for increased access to all forms of energy, 

including renewable energy, is the high-tem	

perature superconducting underground 

power transmission cables that the Depart	

ment of Energy is developing in partnership 

with industry. These cables will allow a 300 

percent increase in capacity without exca	

vation to lay new transmission lines. This 

summer, Detroit Edison is demonstrating 

this commercially viable high-temperature 

superconducting cable system in an applica	

tion that serves 14,000 customers. 

Renewable and alternative energy 

technologies, such as wind energy and com	

bined heat and power could be significantly 

expanded, given today’s technologies. They 

could be further expanded with added in	

vestment in technology. For example, wind 

energy could be developed that could be 

adapted to sites with lower wind speeds 

than is feasible today. Combined heat and 

Figure 6-3 

Growth in California’s 

Renewable Energy

Capacity 

(Thousands of Megawatts) 

4,139 

5 

4 

3 

2 

1 

0 

187 

4,097 

1,497 

1980 1985 1990 1996 

_______ 

Source: U.S. Department of Energy, 

Energy Information Administration. 

Chapter 6 • Nature’s Power: Increasing America’s Use of Renewable and Alternative Energy 6-14 
While solar energy technologies have undergone technological and cost improvements, and are well established in high value markets 

like remote power, satellites, 

communications, and 

navigational aids continued 

research is needed to reduce 

costs and improve performance. 

U.S. DEPARTMENT OF ENERGY 

Figure 6-4 

Investors Are Betting on

Distributed Energy 

(Millions of Dollars) 

Less Than $20 

Million Annually 

800 

600 

400 

200 

0 

1980 94 96 98 00 

In the last few years, surging venture 

capital investments showed strong 

support for distributed energy 

technologies. 

_______ 

Note: Data for 2000 are projected


investments.


Source: Nth Power via the Economist,


August 5, 2000.


power in buildings offers great potential for 

increased system efficiencies and lower 

costs. New developments in microturbine 

and fuel cell technologies are also highly 

promising. Performance improvements of 

other technologies, such as photovoltaic 

systems, would facilitate much wider use. 

In addition to technological performance, 

attention to several key market and regula	

tory constraints would accelerate the devel	

opment and use of renewable and alterna	

tive energy in the marketplace. 

Because many renewable and alterna	

tive energy technologies do not fit into tra	

ditional regulatory categories, they are of	

ten subjected to competing regulatory re	

quirements or to requirements that were 

never designed to address them. For ex	

ample, much of the current Clean Air Act 

does not specifically address the use of 

new, more efficient renewable energy tech	

nologies. Consequently, the Act does not 

provide significant incentives for the devel	

opment of such technologies. 

The lack of interconnection standards 

or guidelines for electricity supply and loads 

impedes the use of distributed energy tech	

nologies. As a result, developers of small re	

newable energy projects must negotiate in	

terconnection agreements on a site-by-site 

basis with local distribution companies that 

are often opposed to distributed energy 

projects because of the increased competi	

tion. Although a few states have established 

interconnection standards, there is no na	

tional standard to facilitate development of 

distributed energy (Figure 6-4). 

New combined heat and power facili	

ties may face air permitting hurdles when 

they replace marginally dirty boilers. The 

Clean Air Act does not recognize the pollu	

tion prevention benefits of the increased ef	

ficiency of combined heat and power units. 

At the same time, these combined heat and 

power investments are taxed at the 

industry’s tax rate, not at the rate they 

would receive if they were considered part 

of the utility sector for tax purposes. 

6-15 NATIONAL ENERGY POLICY 
In addition, modifications to permitting and 

siting requirements may be necessary to fa	

cilitate the incorporation of these technolo	

gies into buildings. 

The infrastructure needed for increas	

ing the use of renewable and alternative en	

ergy varies considerably. In particular, the 

alternative fuels infrastructure lags far be	

hind the existing infrastructure for conven	

tional fuels. The lack of infrastructure for al	

ternative fuels is a major obstacle to con	

sumer acceptance of alternative fuels and 

the purchase of alternative fuel vehicles. It 

is also one of the main reasons why most al	

ternative fuel vehicles actually operate on 

petroleum fuels, such as gasoline and diesel. 

In addition, a considerable enlargement of 

ethanol production and distribution capac	

ity would be required to expand beyond 

their current base in the Midwest in order to 

increase use of ethanol-blended fuels. 

The use of natural gas or electricity for 

vehicles requires enhancements to these 

distribution systems, such as compression 

stations for natural gas. While many alterna	

tive fuels can be shipped by pipeline, they 

may require separation within the pipeline 

to avoid mixing different energy products. 

Geographically dispersed renewable energy 

plants often face significant transmission 

barriers, including unfavorable grid sched	

ule policies and increased embedded costs. 

Uncertainty regarding the tax treat	

ment of these technologies and energy 

sources can discourage long-term invest	

ment. Though existing tax credits provide 

an incentive for investing in some types of 

renewable energy, the limited scope of the 

credit and its frequent expiration discour

ages investment. 

Chapter 6 • Nature’s Power: Increasing America’s Use of Renewable and Alternative Energy 6-16 
Summary of Recommendations 

Nature’s Power: Increasing America’s Use of Renewable and 

Alternative Energy 

★ The NEPD Group recommends that the President direct the Secretaries of the 

Interior and Energy to re-evaluate access limitations to federal lands in order to 

increase renewable energy production, such as biomass, wind, geothermal, and solar. 

★ The NEPD Group supports the increase of $39.2 million in the FY 2002 budget 

amendment for the Department of Energy’s Energy Supply account that would 

provide increased support for research and development of renewable energy re	

sources. 

★ The NEPD Group recommends that the President direct the Secretary of Energy to 

conduct a review of current funding and historic performance of renewable energy 

and alternative energy research and development programs in light of the recommen	

dations of this report. Based on this review, the Secretary of Energy is then directed to 

propose appropriate funding of those research and development programs that are 

performance-based and are modeled as public-private partnerships. 

★ The NEPD Group recommends that the President direct the Secretary of the 

Treasury to work with Congress on legislation to expand the section 29 tax credit to 

make it available for new landfill methane projects. The credit could be tiered, 

depending on whether a landfill is already required by federal law to collect and flare 

its methane emissions due to local air pollution concerns. 

★ The NEPD Group recommends that the President direct the Secretary of the 

Interior to determine ways to reduce the delays in geothermal lease processing as part 

of the permitting review process. 

★ The NEPD Group recommends that the President direct the Administrator of the 

Environmental Protection Agency to develop a new renewable energy partnership 

program to help companies more easily buy renewable energy, as well as receive 

recognition for the environmental benefits of their purchase, and help consumers by 

promoting consumer choice programs that increase their knowledge about the 

environmental benefits of purchasing renewable energy. 

★ The NEPD Group recommends that the President direct the Secretary of the 

Treasury to work with Congress on legislation to extend and expand tax credits for 

electricity produced using wind and biomass. The President’s budget request extends 

the present 1.7 cents per kilowatt hour tax credit for electricity produced from wind 

and biomass; expands eligible biomass sources to include forest-related sources, 

agricultural sources, and certain urban sources; and allows a credit for electricity 

produced from biomass co-fired with coal. 

★ The NEPD Group recommends that the President direct the Secretary of the 

Treasury to work with Congress on legislation to provide a new 15 percent tax credit 

for residential solar energy property, up to a maximum credit of $2,000. 

★ The NEPD Group recommends that the President direct the Secretaries of the 

Interior and Energy to work with Congress on legislation to use an estimated $1.2 

billion of bid bonuses from the environmentally responsible leasing of ANWR for 

funding research into alternative and renewable energy resources, including wind, 

solar, geothermal, and biomass. 

6-17 NATIONAL ENERGY POLICY 
★ The NEPD Group recommends that the President direct the Secretary of the 

Treasury to work with Congress to continue the ethanol excise tax exemption. 

★ The NEPD Group recommends that the President direct the Secretary of Energy to 

develop next-generation technology—including hydrogen and fusion. 

• Develop an education campaign that communicates the benefits of alternative forms 

of energy, including hydrogen and fusion. 

• Focus research and development efforts on integrating current programs regarding 

hydrogen, fuel cells, and distributed energy. 

• Support legislation reauthorizing the Hydrogen Energy Act. 

★ The NEPD Group recommends that the President direct the Secretary of the 

Treasury to work with Congress to develop legislation to provide for a temporary 

income tax credit available for the purchase of new hybrid or fuel-cell vehicles be	

tween 2002 and 2007. 

★ The NEPD Group recommends that the President direct the Administrator of the 

Environmental Protection Agency to issue guidance to encourage the development of 

well-designed combined heat and power (CHP) units that are both highly efficient and 

have low emissions. The goal of this guidance would be to shorten the time needed to 

obtain each permit, provide certainty to industry by ensuring consistent implementa	

tion across the country, and encourage the use of these cleaner, more efficient tech	

nologies. 

Chapter 6 • Nature’s Power: Increasing America’s Use of Renewable and Alternative Energy 6-18 
CHAPTER SEVENAmerica’s Energy Infrastructure 

A Comprehensive Delivery System 

One of the greatest energy chal	

lenges facing America is the need 

to use 21st- century technology 

to improve America’s aging en	

ergy infrastructure. Americans 

need a comprehensive, long-term solution 

to deliver energy to industry and consumers 

in a reliable and safe manner. 

Our energy infrastructure is com	

prised of many components, such as the 

physical network of pipes for oil and natu	

ral gas, electricity transmission lines and 

other means for transporting energy to con	

sumers. This infrastructure also includes fa	

cilities that turn raw natural resources into 

useful energy products. The rail network, 

truck lines, and marine transportation are 

also key components of America’s energy 

infrastructure. 

The energy industry has undergone 

major changes in the last two decades, and 

more are expected. These changes affect 

how our energy infrastructure operates. For 

example, while the electricity industry was 

once vertically integrated, it is increasingly 

separated into three isolated segments: gen	

eration, transmission, and distribution. 

Our energy infrastructure has failed to 

keep pace with the changing requirements 

of our energy system. Domestic refining ca	

pacity has not matched increases in de	

mand, requiring the United States to import 

refined products. Natural gas pipelines have 

not expanded sufficiently to meet demand. 

The electricity transmission system is con	

strained by insufficient capacity. Rail capac	

ity was significantly increased during the 

1970s when rail facilities were improved to 

move more coal. Since then, however, few 

additions to the coal transportation rail net	

work have been built. 

The United States needs to modernize 

its energy infrastructure. One sign of a lack 

of an energy policy in recent years has been 

the failure to maintain the infrastructure 

needed to move energy where it is needed 

most. 

Electricity 

The electricity infrastructure includes 

a nationwide power grid of long-distance 

transmission lines that move electricity from 

region to region, as well as the local distribu	

tion lines that carry electricity to homes and 

businesses. Electricity originates at power 

plants, which are primarily fueled by coal, 

nuclear, natural gas, water and, to a lesser 

extent, oil. Coal, natural gas and oil pow	

ered plants require a dependable transporta	

tion infrastructure to deliver the fuels neces	

sary for the production of electricity. A trans	

portation network for waste disposal is also 

necessary for power plants that create by	

products. 

Restructuring 

The electricity industry has undergone 

considerable changes in the last two de	

cades. These changes affect how our elec	

tricity infrastructure operates. Major indus	

try restructuring has separated once verti	

cally integrated electric utilities that sup	

plied generation, transmission, and distribu	

tion services into distinct entities. To facili	

tate competition at the wholesale level, in 

1996, the Federal Energy Regulatory Com	

mission (FERC) required transmission-own	

ing utilities to “unbundle” their transmis	

sion and power marketing functions, and 

provide nondiscriminatory, open access to 

their transmission systems by other utilities 

U.S. DEPARTMENT OF ENERGY 

7-1 NATIONAL ENERGY POLICY 

FIGURE 7-1


North American


Transmission Lines


About 204,000 miles of long-distance 

transmission lines move power from 

region to region. The four integrated 

transmission grids serving North 

America are the Western Interconnection, Eastern Interconnection, Electric 

Reliability Council of Texas, and Province of Quebec. 

______ 

Source: PA Consulting Group 

7-3 NATIONAL ENERGY POLICY 
Chapter 7 • America’s Energy Infrastructure: A Comprehensive Delivery System 7-4 
and independent power producers. At the 

retail level, some states have required utili	

ties to divest their generation assets as part 

of restructuring. These utilities currently 

supply only transmission and distribution 

services for customers who purchase elec	

tricity (i.e., generation services) from other 

firms. In addition, power marketers—who 

often do not own generation, transmission, 

or distribution facilities—buy and sell 

power on wholesale markets and market 

electricity directly to customers. 

Electricity competition has led to sig	

nificant changes in the operation of the bulk 

power grid, which are the power plants and 

high-voltage transmission facilities that 

make up the wholesale power market. More 

electricity is being shipped longer distances 

over a transmission system that was initially 

designed only to provide limited power and 

reserve sharing among neighboring utilities. 

Electric utilities that were once solely re	

sponsible for ensuring that adequate gen	

eration was available to meet demand now 

purchase a substantial amount of the power 

they need from the wholesale market, rely	

ing on independent power producers to 

build and operate plants. 

Electricity Generation 

There are roughly 5,000 power plants 

in the United States, and they have a total 

generating capacity of nearly 800,000 mega	

watts. Over the past few years, there has 

been an explosion of “merchant” power 

plants proposed by independent power pro	

ducers seeking to sell into wholesale mar

kets. In spite of this interest, a number of re	

gions of the country are experiencing capac	

ity shortages as a result of wholesale mar

ket design problems and barriers to siting 

and building new power plants. 

Over the next ten years, demand for 

electric power is expected to increase by 

about 25 percent, and more than 200,000 

megawatts of new capacity will be required. 

However, under current plans electric trans	

mission capacity will increase by only 4 per

cent. This shortage could lead to serious 

transmission congestion and reliability 

problems. 

Transmission Grid 

The United States does not have a na	

tional transmission grid. Instead, there are 

four integrated transmission grids serving 

North America: the Western Interconnec	

tion, Eastern Interconnection, Electric Reli	

ability of Council of Texas, and the Province 

of Quebec (Figure 7-1). These regional 

grids themselves are international, encom	

passing the United States, Canada, and part 

of Mexico. 

Transactions between the four inte	

grated transmission grids are very limited 

because they are interconnected at only a 

few locations through interties, so for all 

practical purposes they can be viewed as 

separate transmission grids. The four inte	

grated transmission grids break down into a 

series of smaller regions, largely defined by 

transmission constraints. Altogether, 

204,000 miles of transmission lines in North 

America move power from the point of gen	

eration to where electricity is needed. There 

are 157,810 miles of transmission lines in 

the United States. Transmission grid expan	

sions are expected to be slow over the next 

ten years, with additions totaling only 7,000 

miles. 

The transmission system is the high	

way system for interstate commerce in elec	

tricity. Transmission allows the sale of elec	

tricity between regions. In a particular re	

gion, transmission can be a substitute for 

generation, allowing that region to import 

power that otherwise would have to be gen	

erated within that region. In some cases, 

transmission expansion may be more cost	

effective than generation additions, allow	

ing a region better access to lower-cost gen	

eration. 

Transmission constraints limit these 

power flows, and result in consumers pay	

ing higher prices for electricity. The electric	

ity price spikes in the Midwest in the sum	

mer of 1998 were caused in part by trans	

mission constraints limiting the ability of 

the region to import electricity from other 

regions of the country that had available 

electricity. During the summer of 2000, 

transmission constraints limited the ability 

to sell low-cost power from the Midwest to 

the South during a period of peak demand, 

7-5 NATIONAL ENERGY POLICY 
resulting in higher prices for consumers. 

Transmission capacity limits could result in 

price pressures and reliability problems this 

summer in California, Long Island, the 

Great Lakes, the Southeast, and New En	

gland (Figure 7-2). 

Regional shortages of generating ca	

pacity and transmission constraints com	

bine to reduce the overall reliability of elec	

tric supply in the country and are reducing 

the quality of power delivered to end users. 

Power quality is becoming an increasingly 

important issue as our digital economy con	

tinues to grow. 

One factor limiting reliability is the 

lack of enforceable reliability standards. 

Since 1968, the reliability of the U.S. trans	

mission grid has depended entirely on vol	

untary compliance with reliability stan	

dards. There is a broad recognition that vol	

untary adherence with reliability standards 

is no longer a viable approach in an increas	

ingly competitive electricity market. There 

is a need to provide for enforcement of 

mandatory reliability standards. Broad sup	

port has emerged for development of these 

standards by a self-regulating organization 

overseen by FERC. 

Recommendations:


★ The NEPD Group recommends thatthe President direct the Secretary ofEnergy to work with FERC to improvethe reliability of the interstate trans	­

mission system and to develop legisla	­

tion providing for enforcement by aself-regulatory organization subject toFERC oversight.­

★ The NEPD Group recommendsthat the President direct the Secretaryof Energy to expand the Department’sresearch and development on trans	­

mission reliability and superconduc	­

tivity.­

Transmission constraints were also a 

primary factor in blackouts in northern 

California, which imports power from both 

the Northwest and southern California. 

When resources are not available in the 

Northwest, electricity supply must come 

Figure 7-2 

Current Electric Power Bottlenecks 

Transmission capacity limits could result in price pressures and reliability problems this summer in 

California, Long Island, the Great Lakes, the Southeast, and New England. The arrows in this figure depict the locations and directions of current transmission congestion. 

_____ 

Source: North American Electric Reliability Council. 

from southern California’s Path 15 transmis	

sion route. Path 15 does not have sufficient 

capacity to provide all of the power needed 

in northern California. 

Recommendation:


★ The NEPD Group recommends thatthe President direct the Secretary ofEnergy to authorize the Western AreaPower Administration to explorerelieving the “Path 15” bottleneckthrough transmission expansionfinanced by nonfederal contributions.­

Transmission constraints have been a 

persistent cause of price spikes in New York 

City in recent years. The New York Indepen	

dent System Operator (the grid operator in 

that state) estimates that the city will be 

short about 400 MW below their desired re	

serve margin of power during the summer 

peak. To fill this gap, the New York Power 

Authority is trying to install additional gen	

eration capacity in the city. Market-oriented 

approaches could also be used to create ad	

ditional capacity and alleviate some of the 

potential problems. 

If transmission constraints are not re	

moved, the result can be higher prices and 

Chapter 7 • America’s Energy Infrastructure: A Comprehensive Delivery System 7-6 
lower reliability. There are various reasons 

why transmission constraints exist. One is 

the lack of sufficient investment in trans	

mission. Transmission investment has 

lagged dramatically over the past decade 

(Figure 7-3). There is a need to ensure that 

transmission rates create incentives for ad	

equate investment in the transmission sys	

tem, especially as restructuring leads to the 

creation of transmission companies whose 

only business is operation of transmission 

facilities. FERC recognizes this need and 

has expressed a willingness to consider in	

novative transmission pricing proposals. 

Another cause of transmission con	

straints is the siting process. Under current 

law, siting of transmission facilities is a re	

sponsibility of state governments, not the 

federal government, even though the trans	

mission system is not only interstate but 

also international, extending into both 

Canada and Mexico. This stands in stark 

contrast to siting of other interstate facili	

ties, such as natural gas pipelines, oil pipe	

lines, railroads, and interstate highways. 

Federal law governing the responsibil	

ity for siting transmission facilities was 

written in 1935, nearly 80 years ago. At the 

time, transmission facilities were not interFigure 7-3 

U.S. Investment in New Electric Power Transmission 

(Millions of 1990 Dollars) 

1,400 

1,200 

1,000 

800 

600 

0 

310 

300 

290 

280 

270 

260 

0 

1990 

Transmission Investment 

System Peak Demand 

91 92 93 94 95 96 97 98 

As a result, transmission 

Growth in peak demand for electricity has far outstripped investment in transmission capacity. 

constraints could aggravate already limited supplies of 

power and could result in high prices in some areas of the 

country. 

________ 

Source: PA Consulting Group, based on data from the UDI data base. 

7-7 NATIONAL ENERGY POLICY 

state, and there was virtually no interstate 

commerce in electricity. Congress did not 

anticipate the development of an interstate 

and international transmission system. 

State decisions on where to locate 

transmission lines often do not recognize 

the importance of proposed transmission fa	

cilities to the interstate grid. For example, a 

recent decision by regulators in Connecticut 

to block a proposed transmission line to 

Long Island did not recognize the need for 

electricity on Long Island. Some state siting 

laws require that the benefits of a proposed 

transmission facility accrue to the indi	

vidual state, resulting in the rejection of 

transmission proposals that benefit an en	

tire region, rather than a single state. 

Much has changed since 1935. The 

transmission system is the highway for in	

terstate commerce in electricity. Transmis	

sion constraints are resulting in higher 

prices for consumers and lower reliability. 

The siting process must be changed to re	

flect the interstate nature of the transmis	

sion system. 

Recommendations:


★ The NEPD Group recommends thatthe President direct the appropriatefederal agencies to take actions to re	­

move constraints on the interstatetransmission grid and allow ournation’s electricity supply to meet thegrowing needs of our economy.­

• Direct the Secretary of Energy, by 

December 31, 2001, to examine the 

benefits of establishing a national 

grid, identify transmission bottle	

necks, and identify measures to re	

move transmission bottlenecks. 

• Direct the Secretary of Energy to 

work with FERC to relieve trans	

mission constraints by encouraging 

the use of incentive rate-making 

proposals. 

• Direct the federal utilities to deter

mine whether transmission expan	

sions are necessary to remove con	

straints. The Administration should 

review the Bonneville Power 

Administration’s (BPA’s) capital and 
financing requirements in the con	

text of its membership in a regional 

RTO, and if additional Treasury fi	

nancing appears warranted or nec	

essary in the future, the Adminis	

tration should seek an increase in 

BPA’s borrowing authority at that 

time. 

• Direct the Secretary of Energy, in 

consultation with appropriate fed	

eral agencies and state and local 

government officials, to develop 

legislation to grant authority to ob	

tain rights-of-way for electricity 

transmission lines, with the goal of 

creating a reliable national trans	

mission grid. Similar authority al	

ready exists for natural gas pipe	

lines in recognition of their role in 

interstate commerce. 

Another cause of transmission con	

straints is limited access to federal lands. 

The federal government is the largest land	

owner in the United States and owns most 

of the land in some western states. Limited 

access to federal lands can block needed 

transmission expansion. A case in point is a 

transmission line being built from West Vir

ginia to Virginia. Five years ago, the Depart	

ment of Energy identified that line as criti	

cal to the reliability of the transmission sys	

tem on the East Coast. Five years later, the 

line is still not complete. Improved access to 

federal land can help remove transmission 

constraints. 

Rights-of-Way on Federal Lands 

The Bureau of Land Management 

(BLM) estimates that 90 percent of the oil 

and natural gas pipeline and electric trans	

mission rights-of-way in the western United 

States cross federal lands. These lands are 

principally lands managed by either the 

BLM or the U.S. Forest Service. Rights-of	

way are authorized through an approval pro	

cess that allows the public to comment on 

proposals to locate infrastructure items, like 

utility poles, on these rights-of way. As part 

of this process, proposals are examined for 

resource and other use conflicts, and a na	

tional interest test is applied prior to ap	

proval. 

The BLM administers 85,000 rights-of	

way, including 23,000 for oil and gas pipe	

lines and 12,000 for electric transmission 

lines. It processes over 1,200 pipeline and 

electric system right-of-way applications a 

year, with an increase in applications of 

The electric power infrastructure includes a nationwide 

“power grid” of long-distance 

transmission lines that move 

electricity from the point of 

generation to where the 

electricity is needed. Over the 

next ten years, U.S. demand 

for electric power is expected 

to increase by 25 percent, 

while transmission capacity 

is expected to increase by 

only 4 percent. 

Chapter 7 • America’s Energy Infrastructure: A Comprehensive Delivery System 7-8 
Virtually all natural gas in 

the United States is moved via 

pipeline. The current domestic 

natural gas transmission 

capacity of approximately 23 

trillion cubic feet (tcf) will be 

insufficient to meet the 

projected 50 percent increase 

in U.S. consumption projected 

for 2020. 

over 10 percent a year in recent years. The 

demand for additional energy and electric	

ity is expected to increase the need for 

rights-of-way across federal lands. 

Other federal entities also deal with 

rights-of-way, each approaching the issue 

from a unique perspective. The National 

Park Service is authorized to grant leases 

and permits, but discourages rights-of-way 

corridors unless there are no practical alter

natives. The U.S. Fish and Wildlife Service 

manages National Wildlife Refuge lands for 

wildlife and habitat values, and allows corri	

dors where they were pre-existing or are de	

termined to be compatible with the pur

poses for which a refuge was established. 

The Bureau of Reclamation is authorized to 

grant rights-of-way over lands acquired or 

withdrawn for reclamation purposes, if 

compatible with authorized project pur

poses. The Bureau of Indian Affairs and 

tribal governments are authorized to grant 

rights-of-way across both tribal and indi	

vidually owned Indian lands. 

Pipelines 

After being pumped from the ground 

in domestic oil fields, oil travels through 

gathering lines to pipelines, which bring it 

to refineries, where it is transformed into 

petroleum products like gasoline, diesel 

fuel, or heating oil. These products then 

travel through pipelines and tanker trucks 

to distribution outlets for purchase by con	

sumers. Natural gas must similarly travel 

from gas fields through gathering lines to 

processing facilities, and then into pipelines 

and local distribution lines to its final desti	

nation. These pipeline systems involve a 

complex infrastructure of their own, includ	

ing pump stations or compressor stations, 

and control systems that open and close 

valves and switch product flow through 

pipes, often with the use of computer tech	

nology. 

Oil Pipelines 

The two million miles of oil pipelines 

in the United States are the principal mode 

for transporting oil and petroleum products 

such as gasoline. They account for about 66 

percent of domestic product movements 

(Figure 7-4). Increases in the demand for oil 

and changes in where it is supplied will lead 

to the need for more pipeline capacity. 

Pipelines are less flexible than other 

forms of oil transport, because they are 

fixed assets that cannot be easily adjusted 

to changes in supply and demand. Once 

built, they are an efficient way to move pe	

troleum and petroleum products. A modest	

sized pipeline carries the equivalent of 750 

tanker truckloads a day—the equivalent of a 

truckload leaving every two minutes, 24 

hours a day, 7 days a week. Replacing the 

same pipeline with a railroad train of tank 

cars, carrying 2,000 barrels each, would re	

quire a 75-car train to arrive and be un	

loaded every day. Pipelines are relatively in	

expensive to operate and are generally quiet 

and safe. Ensuring pipeline safety requires 

careful management, as multiple products 

move through a single pipeline system at 

the same time. 

Insufficient domestic pipeline capacity 

has caused peak-load problems in moving 

oil and petroleum products such as gasoline 

from one region of the country to another. 

For example, many energy analysts fore	

casted the possibility of a shortage last win	

ter in the upper Midwest of liquefied petro	

leum gas used for heating and for drying 

crops. Others were concerned about pos	

sible shortages of heating oil in New En	

gland. 

Energy supply shortages can create 

operational difficulties for the pipelines 

themselves. The complex interrelationship 

7-9 NATIONAL ENERGY POLICY 
of our energy infrastructure is evident, 

since pipelines have been shut down for 

varying time periods due to regional elec	

tricity shortages. 

For example, fuel supplies to Las Ve

gas and Phoenix became dangerously low 

when blackouts in California shut down the 

main pipeline serving those areas. The Cali	

fornia Public Utilities Commission (CPUC) 

has granted a waiver of penalties to oil 

pipelines that have interruptible contracts 

for electricity to help ensure the uninter

rupted flow of motor fuel supplies to Cali	

fornia. The California Energy Commission 

asked the CPUC to grant the waiver in or

der to minimize the threat to public health 

due to disruptions of fossil fuel supplies. 

While the waiver of penalties does not guar

antee that disruptions of power to petro	

leum product pipelines will not occur, it di	

minishes the threat by allowing disruptions 

to occur only when they are coordinated 

with the entire petroleum product delivery 

system, from refiner to pipeline to termi	

nals. Both Phoenix and Las Vegas would 

benefit from this decision because refiner

ies and pipelines from California supply the 

two cities. 

Much of the existing oil pipeline infra	

structure is old, requiring regular safety and 

environmental reviews to ensure its reliabil	

ity. The potential risk of pipeline accidents 

to human health and safety is of grave con	

cern. In June 1999, a petroleum product 

pipeline ruptured and caught fire in 

Bellingham, Washington. In addition to 

tragic loss of life, the pipeline’s 18-month 

shutdown caused an economic hardship to 

the Seattle–Tacoma Airport and other local 

businesses that relied on the pipeline for 

aviation and diesel fuels. To avoid similar 

crises, the Department of Transportation, 

which has responsibility for pipeline safety, 

has adopted regulations and other risk man	

agement approaches to ensure safety in 

pipeline design, construction, testing, 

operation, maintenance, and emergency 

response. 

Recommendation:


★ The NEPD Group recommends thatthe President direct the Secretary ofthe Interior to work with Congress andthe State of Alaska to put in place themost expeditious process for renewalof the Trans-Alaskan Pipeline Systemrights-of-way to ensure that Alaskanoil continues to flow uninterrupted tothe West Coast of the United States.­

The Trans-Alaska Pipeline System is 

the single most important crude oil pipeline 

in the United States, and is perhaps the 

most regulated oil pipeline in the world. The 

pipeline system has carried nearly one-fifth 

of all domestically produced oil for the last 

two decades. Since beginning operations in 

1977, it has transported more than 13 billion 

barrels of oil from Alaska’s North Slope 

across 800 miles to the Port of Valdez. Since 

the pipeline began operation, only 0.00014 

percent of the total amount of oil trans	

ported through it has been spilled. 

The pipeline’s federal grant and state 

lease for right-of-way expires in 2004 and 

will require renewal. That process will inFigure 7-4 

U.S. Oil Pipelines 

The two million miles of oil pipelines in the United States are the principal mode for transporting crude 

oil and refined products. They account for about 66 percent of domestic product movements.


_______


Source: U.S. Department of Transportation, Office of Pipeline Safety.


Chapter 7 • America’s Energy Infrastructure: A Comprehensive Delivery System 7-10 
Several federal agencies are 

authorized to grant rights-ofway for oil and gas pipeline 

and electric transmission 

systems on federal lands, and 

each approaches the issue 

from a unique perspective. 

Authorizing agencies include 

the Bureau of Land Management, the U.S. Forest Service 

the National Park Service, the 

U.S. Fish and Wildlife 

Service, the Bureau of 

Reclamation, and the Bureau 

of Indian Affairs. 

volve a thorough review of compliance with 

federal laws and regulations, including 

those related to safety and environmental 

impacts. Because nearly 50 percent of the 

right-of-way is owned by the State of 

Alaska, they must also renew the applicable 

state permits. To commence the formal por

tion of the federal renewal process, regula	

tions require a renewal application to be 

filed with the Alaska Office of the BLM of 

the Department of the Interior. To the ex	

tent possible, a single, joint federal/state ap	

proach should be considered. 

Natural Gas Pipelines 

Virtually all natural gas in the United 

States is moved via pipeline (Figure 7-5). 

The current domestic natural gas transmis	

sion capacity of approximately 23 trillion 

cubic feet (tcf) will be insufficient to meet 

the projected 50 percent increase in U.S. 

consumption projected for 2020. 

Some parts of the country, such as 

California and New England, already face 

capacity shortages. Several pipeline opera	

tors have applied for permits to increase 

their delivery of natural gas to California, 

but right-of-way issues and local permitting 

delays have constrained the ability to trans	

port natural gas to California, contributing 

to high prices. In addition, the natural gas 

pipeline connections from Canada are near 

capacity, so any greater U.S. reliance on 

Canadian natural gas will require increased 

pipeline capacity. 

One of the largest known reserves of 

natural gas in the United States has been 

found in the Arctic, associated with the de	

velopment of oil at Alaska’s Prudhoe Bay. 

These known gas reserves, over 35 tcf, 

would make a significant long-term contri	

bution to the nation’s energy supplies if de	

livered to the lower 48 states. It is estimated 

there may be an additional 100 tcf on the 

North Slope of Alaska. Recently, as the en	

ergy supply situation has changed, interest 

has renewed in tapping into Alaska’s natural 

gas supplies. Over the past year, the Alaska 

North Slope gas producers have been re	

viewing whether projected market condi	

tions will make transportation of this natu	

ral gas economically feasible. The North 

Slope gas producers are scheduled to com	

plete that review by the end of 2001. 

Recommendation: 

★ The NEPD Group recommends that 

the President direct the Secretaries of 

Energy and State, coordinating with 

the Secretary of the Interior and the 

Federal Energy Regulatory Commis	

sion, to work closely with Canada, the 

State of Alaska, and all other inter

ested parties to expedite the construc	

tion of a pipeline to deliver natural gas 

to the lower 48 states. This should in	

clude proposing to Congress any 

changes or waivers of law pursuant to 

the Alaska Natural Gas Transportation 

Act of 1976 that may be required. 

America needs the energy that 

Alaska’s North Slope natural gas can pro	

vide. The Administration seeks to expedite 

the construction of a pipeline to deliver this 

natural gas to the lower 48 states. 

7-11 NATIONAL ENERGY POLICY 
In addition to shortfalls in capacity, 

sources of natural gas have shifted from the 

Southwest to the deep water of the Gulf of 

Mexico, the Rocky Mountains, western 

Canada, and the Canadian Atlantic. At the 

same time, demand has shifted from the in	

dustrial Midwest to the growing population 

centers in the South and the West. An addi	

tional 263,000 miles of distribution pipe	

lines and 38,000 miles of new transmission 

pipelines will be necessary to meet in	

creased consumption and the new geo	

graphic realities of supply and demand. 

Several factors complicate efforts to 

meet the need for increased pipeline capac	

ity, including encroachment on existing 

rights-of-way and heightened community 

resistance to pipeline construction. Cur

rently it takes an average of four years to 

obtain approvals to construct a new natural 

gas pipeline. In some cases it can take 

much longer. 

The projected growth in energy de	

mand has called into question whether 

regulatory actions and permitting processes 

can keep pace with the necessary construc	

tion of new facilities for storage and deliv	

ery. Consistent federal, state, and local gov	

ernment policies, and faster, more predict	

able regulatory decisions on permitting for 

oil and natural gas pipelines are needed to 

enable timely and cost-effective infrastruc	

ture development. The permitting process 

has a positive role in protecting the environ	

ment, public health, and safety by allowing 

all interested parties an opportunity to par

ticipate effectively and fully in the delibera	

tions prior to the permit issuance. 

Recent pipeline ruptures involving a 

natural gas pipeline near Carlsbad, New 

Mexico, and an underground natural gas 

storage facility near Hutchinson, Kansas, 

highlight the need to develop technologies 

and policies that protect people, environ	

ment, and the safety of the nation’s energy 

infrastructure. The federal government has 

an important role in ensuring and improv	

ing the safety of these gas pipelines. New 

technologies need to be developed to im	

prove monitoring and assessment of system 

integrity, improve data quality for system 

Figure 7-5 

U.S. Natural Gas Transmission Pipelines 

Virtually all natural gas in the United States is moved via pipeline. The forecast of a doubling in the 

number of new natural gas wells drilled annually and an 80 percent increase in the number of active 

drilling rigs will require new pipelines. 

_____


Source: U.S. Department of Transportation, Office of Pipeline Safety.


planning, extend the serviceability and life of 

the national natural gas transmission and dis	

tribution network, provide safer transport of 

energy products, and lessen the impacts of 

the energy infrastructure on the environ	

ment. 

Recommendations:


★ The NEPD Group recommends thatthe President support legislation to im	­

prove the safety of natural gas pipelines,­

protect the environment, strengthenemergency preparedness and inspec	­

tions and bolster enforcement.­

★ The NEPD Group recommends thatthe President direct agencies to con	­

tinue their interagency efforts to im	­

prove pipeline safety and expedite pipe	­

line permitting in an environmentallysound manner and encourage the Fed	­

eral Energy Regulatory Commission toconsider improvements in the regulatoryprocess governing approval of interstatenatural gas pipeline projects.­

Chapter 7 • America’s Energy Infrastructure: A Comprehensive Delivery System 7-12 
U.S. demand for refined 

petroleum products currently 

exceeds its domestic capacity 

to produce them. The refinery 

industry is now running at 

nearly 100 percent of 

capacity during the peak 

gasoline consumption season. 

Oil Refineries 

U.S. demand for refined petroleum 

products, such as gasoline and heating oil, 

currently exceeds our domestic capacity to 

produce them. The refinery industry is now 

running at nearly 100 percent of capacity 

during the peak gasoline consumption sea	

son and is producing record levels of 

needed products at other times. The excess 

demand has recently been met by increased 

imports. 

The U.S. refining industry has experi	

enced a decade of low profitability and 

rates of return on investment. This has dis	

couraged investment in new refineries. In 

fact, almost 50 U.S. refineries closed over 

the last ten years, and no major refineries 

have been built in the last twenty-five years. 

During the last ten years, overall refin	

ing capacity grew by about 1 to 2 percent a 

year as a result of expansion in the capacity 

of existing, larger refineries. Although there 

was a significant, sustained improvement in 

margins during 2000, those gains arose out of 

a very tight supply situation and high, vola	

tile prices. Industry consolidation has been a 

key response to this poor profitability. 

The U.S. refining industry is also fac	

ing major infrastructure problems. While 

the industry expanded steadily through the 

1970s, it went through a period of consoli	

dation after the oil shocks of 1973 and 1978. 

Ongoing industry consolidation, in an effort 

to improve profitability, inevitably leads to 

the sale or closure of redundant facilities by 

the new combined ownership. This has 

been particularly true of terminal facilities, 

which can lead to reductions in inventory 

and system flexibility. While excess capac	

ity may have deterred some new capacity 

investments in the past, more recently, 

other factors, such as regulations, have de	

terred investments. 

Refiners are subject to significant en	

vironmental regulation and face several new 

clean air requirements over the next de	

cade. Refiners will face many clean fuel pro	

duction standards, which require the pro	

duction of many different kinds of gasoline 

and diesel fuel for different parts of the 

country. New Environmental Protection 

Agency rules will require refiners to pro	

duce gasoline and diesel fuel with signifi	

cantly lower sulfur content. New clean air 

requirements will benefit the environment, 

but will also require substantial capital in	

vestments and additional government per

mits. The proliferation of distinct regional 

and state gasoline and diesel product stan	

dards, the significant permitting needed, 

and the downtime to make the needed 

physical and operational changes will chal	

lenge refiners and governments to effec	

tively coordinate in order to reduce the like	

lihood of supply shortfalls and price spikes. 

7-13 NATIONAL ENERGY POLICY 
Recommendation: 

★ The NEPD Group recommends that 

the President direct the Administrator 

of the EPA to study opportunities to 

maintain or improve the environmen	

tal benefits of state and local “bou	

tique” clean fuel programs while ex	

ploring ways to increase the flexibility 

of the fuels distribution infrastructure, 

improve fungibility, and provide added 

gasoline market liquidity. In conclud	

ing this study, the Administrator shall 

consult with the Departments of En	

ergy and Agriculture, and other agen	

cies as needed. 

Since 1990, refiners have met growing 

demand by increasing the use of existing 

equipment and increasing the efficiency and 

capacity of existing plants. Even with these 

efforts, however, refining capacity has be	

gun to lag behind peak summer demand. 

Price volatility and the cyclical nature of oil 

markets inhibit investment in supply infra	

structure. While investors can withstand 

market fluctuations for some commodities, 

large investments in oil exploration and de	

velopment—such as for drilling required to 

maintain a steady supply and the pipelines 

needed to bring supply to market—are of	

ten curtailed during times of low oil prices. 

The outcome of this lack of steady invest	

ment is less supply, higher prices, and the 

abandonment of marginal oil resources that 

may never be recovered. 

Recommendations:­

★ The NEPD Group recommends thatthe President direct the Administratorof the Environmental ProtectionAgency and the Secretary of Energy totake steps to ensure America has ad	­

equate refining capacity to meet theneeds of consumers.­

• Provide more regulatory certainty 

to refinery owners and streamline 

the permitting process where pos	

sible to ensure that regulatory over

lap is limited. 

• Adopt comprehensive regulations 

(covering more than one pollutant and 

requirement) and consider the rules’ 

cumulative impacts and benefits. 

★ The NEPD Group recommends that 

the President to direct the Administra	

tor of the Environmental Protection 

Agency, in consultation with the Secre	

tary of Energy and other relevant 

agencies, to review New Source Re	

view regulations, including administra	

tive interpretation and implementa	

tion, and report to the President within 

90 days on the impact of the regula	

tions on investment in new utility and 

refinery generation capacity, energy ef	

ficiency, and environmental protec	

tion. 

• The NEPD Group recommends that 

the President direct the Attorney 

General to review existing enforce	

ment actions regarding New Source 

Review to ensure that the enforce	

ment actions are consistent with 

the Clean Air Act and its regula	

tions. 

Energy Transportation Infrastructure 

The infrastructure used to transport 

energy products includes ocean tankers; in	

land barges; specialized trucks for oil and 

refined products, such as gasoline and heat	

ing oil; railroad tank cars and coal cars; and 

the waterways, highways, and railroads 

upon which they travel. There is also a sub	

stantial inventory of river and oceanside 

port facilities that are used for moving en	

ergy materials. 

Marine Transportation 

Marine transportation of oil and re	

fined products accounts for nearly one-third 

of domestic shipments. Approximately 3.3 

billion barrels of oil and petroleum products 

and 229 million short tons of coal move 

through the nation’s ports and waterways 

every year. 

There are three kinds of ship trans	

ports of domestic energy products. Tankers 

Double-hulled tank barges 

provide distribution of 

petroleum products. 

NICOLE LEIGH REINAUER AND RTC 135 

Chapter 7 • America’s Energy Infrastructure: A Comprehensive Delivery System 7-14 
primarily carry Alaskan oil to the West 

Coast. Product tankers transport refined 

products from the Gulf of Mexico to the At	

lantic Coast, from the Gulf to the West 

Coast, and between ports within the West 

Coast. Tank barges provide coastwise distri	

bution of refined product imports, distribu	

tion from pipeline terminals, and inland dis	

tribution. In addition, 477 foreign tankers 

and 64 U.S. flag tankers deliver oil and pe	

troleum products to the United States. They 

deliver approximately 2.1 million barrels a 

day, for a total of 770 million barrels a year. 

Winter storms, extended Ships are also used to import liquefied 

darkness, and ice formation natural gas (LNG). With increasing demand 

disrupt barge and tanker for natural gas for electricity generation, 

movements. The U.S. Coast there is a potential for substantial growth in 

Guard’s fleet of ice breakers the demand for LNG imports. From 1998 to 

has become an important 1999, the number of LNG carrier arrivals in component of the energy


infrastructure for the New Boston increased by 350 percent. In addi-­

England, Mid-Atlantic, and tion, mothballed terminals at Elba Island,­

Great Lakes regions. Georgia, and Cove Point, Maryland, mayU.S. COAST GUARD reinitiate LNG imports by 2002.­

7-15 NATIONAL ENERGY POLICY 

Unlike pipelines, water transportation 

requires the positioning of vessels to where 

cargoes are located. For example, it can 

take three weeks to move a tanker from the 

Gulf of Mexico to the West Coast. Conse	

quently, tanker markets do not respond 

quickly to temporary surges in demand, 

which typically result in price spikes. 

Safety 

In accordance with the Oil Pollution 

Act of 1990, a timeline has been established 

to replace all single-hulled vessels with 

double-hulled vessels. Many have already 

been replaced. Modern navigation and port 

services also help to prevent maritime oil 

spills. Spill-response technologies and coor

dinated response plans are key to minimiz	

ing damage to property and the environ	

ment. Oil spill technology has improved dur

ing the last decade and will continue to do 

so. Risk assessments, preparedness drills, 

and cleanup strategies are all necessary 

safeguards for transporting energy goods. 

As maritime transportation grows, port and 

waterway infrastructure, as well as the 

availability of accurate and timely naviga	

tion information, will continue to be impor

tant for the safe, efficient delivery of energy. 

New England’s Dependence on 

Marine Transportation 

New England has no refineries, and its 

small oil pipeline system is not connected to 

the interstate pipeline system. As a result, 

New England must rely on tanker and barge 

shipments of petroleum products from the 

south as well as direct imports from over

seas. There is some question as to whether 

this distribution system is sufficient to meet 

the future needs of the region and, if not, 

what steps need to be taken to ensure fu	

ture economical, reliable energy supplies. 

In recent years, lower national inven	

tories, market forces, and other factors have 

combined to create much lower inventories 

for petroleum products such as heating oil 

in the Northeast. A supply system with less 

capacity in reserve is more vulnerable to 

variations in product delivery, and is less ca	

pable of absorbing the disruptions in barge 

and tanker movements that inevitably come 
with winter storms, extended darkness, and 

ice formation. A rapid change to colder 

weather affects both supply and demand: 

households need more fuel at the same time 

that harbors and rivers experience severe 

ice conditions. 

For the New England and Mid-Atlantic 

seaboards, U.S. Coast Guard icebreakers 

have become an important component of 

the infrastructure necessary to provide en	

ergy to the region. 

The Department of Energy established 

the Northeast Heating Oil Reserve to ensure 

heating oil supplies in the region. This emer

gency buffer can support a shortage for ap	

proximately ten days, which is the time re	

quired for ships to carry heating oil from the 

Gulf of Mexico to New York Harbor. 

Even with the Reserve in place, ma	

rine transportation remains the only source 

of heating oil for the New England’s winter 

months. 

Recommendation:


★ The NEPD Group supports thePresident’s budget proposal to provide­

$8 million to maintain the two-million	­

barrel Northeast Heating Oil Reserve.­

Operated by the private sector, theReserve helps ensure adequate sup	­

plies of heating oil in the event thatcolder than normal winters occur inthe Northeast United States.­

Rail Transportation 

Coal, which provides about 52 percent 

of America’s electricity, is the most impor

tant single commodity carried by rail. Over 

the past ten years, the rail share of coal 

transportation has increased, primarily as a 

result of increases in low-sulfur western 

coal, which moves long distances over rail. 

In 1999, domestic railroads carried 68 per

cent of the nation’s coal, and in 2000, they 

transported an average of 14.4 million tons 

of coal a week. 

Transportation costs account for 30 to 

50 percent of the final delivered price of 

coal to utilities. About 74 percent of U.S. 

low-sulfur coal reserves are located in Mon	

tana and Wyoming. Demand for clean coal 

from Wyoming’s Powder River Basin is ex	

pected to increase because of its environ	

mental benefits. However, rail capacity 

problems in the Powder River Basin have 

created a bottleneck in the coal transporta	

tion system. 

With little excess capacity in the rail 

lines supporting the Powder River Basin, ex	

pected increases in demand could result in 

capacity shortfalls and delays in providing 

coal to power plants that are relying in	

creasingly on “just-in-time” shipments to re	

duce inventory costs. Additionally, delays in 

other parts of the rail network, such as at 

key rail facilities, can undermine the effi	

ciency and reliability of the system. There is 

a need to eliminate bottlenecks in the coal 

transportation system. 

Infrastructure Security 

The energy infrastructure is vulnerable 

to physical and cyber disruption that could 

threaten its integrity and safety. Disruptions 

could come from natural events, like geo	

magnetic storms and earthquakes, or could 

come from accidents, equipment failures, or 

deliberate sabotage. In addition, the nation’s 

transportation and power infrastructures 

have grown increasingly complex and inter

dependent. Consequently, any disruption 

can have extensive consequences. 

Transportation facilities have weath	

ered relatively short interruptions in power 

as a result of natural disasters and accidents, 

with varying degrees of impact. In a few in	

stances, they have experienced intermittent, 

lengthy outages that have affected not only 

primary systems, but integrated services as 

well, such as voice, data, Internet, and wire	

less networks that may be used to transmit 

control information. The growing reliance on 

computer technologies, automated monitor

ing and control systems, and electronic com	

merce makes the system more efficient and 

vibrant, but also requires a greater level of 

diligence and use of safeguards. 

Accurate weather and climate fore	

casting can prevent millions of dollars in 

Chapter 7 • America’s Energy Infrastructure: A Comprehensive Delivery System 7-16 
damage to U.S. energy infrastructure. For 

example, the interaction of geomagnetic 

storms with the Earth’s magnetic field can 

cause additional current to enter transmis	

sion lines, which at times has caused re	

gional grid collapse and has destroyed 

power plant electrical transformers. Given 

sufficient warning, the industry can initiate 

protective countermeasures, such as when 

several northeastern power plants shed 20 

percent of their load during a July 2000 geo	

magnetic storm. 

Summary of Recommendations 

Improvements in forecasting can fur

ther assist in the management of energy re	

sources and materials, can prevent power 

outages in many cases, and can accelerate 

restoration of power after outages that do 

occur. Also, data from extreme weather 

events can be used to design and build infra	

structure, such as transmission lines, pipe	

lines, and hydropower dams. 

America’s Energy Infrastructure: A Comprehensive Delivery System 

★ The NEPD Group recommends that the President direct the Secretary of Energy 

to work with the Federal Energy Regulatory Commission (FERC) to improve the 

reliability of the interstate transmission system and to develop legislation provid	

ing for enforcement by a self-regulatory organization subject to FERC oversight. 

★ The NEPD Group recommends that the President direct the Secretary of 

Energy to expand the Department’s research and development on transmission re	

liability and superconductivity. 

★ The NEPD Group recommends that the President direct the Secretary of Energy to 

authorize the Western Area Power Administration to explore relieving the “Path 15” 

bottleneck through transmission expansion financed by nonfederal contributions. 

★ The NEPD Group recommends that the President direct the appropriate federal 

agencies to take actions to remove constraints on the interstate transmission grid 

and allow our nation’s electricity supply to meet the growing needs of our 

economy. 

•
 Direct the Secretary of Energy, by December 31, 2001, to examine the benefits of 

establishing a national grid, identify transmission bottlenecks, and identify mea	

sures to remove transmission bottlenecks. 

•
 Direct the Secretary of Energy to work with FERC to relieve transmission con	

straints by encouraging the use of incentive rate-making proposals. 

•
 Direct the federal utilities to determine whether transmission expansions are 

necessary to remove constraints. The Administration should review the 

Bonneville Power Administration’s (BPA’s) capital and financing requirements in 

the context of its membership in a regional RTO, and if additional Treasury fi	

nancing appears warranted or necessary in the future, the Administration 

should seek an increase in BPA’s borrowing authority at that time. 

•
 Direct the Secretary of Energy, in consultation with appropriate federal agencies 

and state and local government officials, to develop legislation to grant author

ity to obtain rights-of-way for electricity transmission lines, with the goal of cre	

ating a reliable national transmission grid. Similar authority already exists for 

natural gas pipelines in recognition of their role in interstate commerce. 

7-17 NATIONAL ENERGY POLICY 
★ The NEPD Group recommends that the President direct the Secretary of the Inte	

rior to work with Congress and the State of Alaska to put in place the most expeditious 

process for renewal of the Trans-Alaskan Pipeline System rights-of-way to ensure that 

Alaskan oil continues to flow uninterrupted to the West Coast of the United States. 

★ The NEPD Group recommends that the President direct the Secretaries of Energy 

and State, coordinating with the Secretary of the Interior and the Federal Energy 

Regulatory Commission, to work closely with Canada, the State of Alaska, and all 

other interested parties to expedite the construction of a pipeline to deliver natural 

gas to the lower 48 states. This should include proposing to Congress any changes or 

waivers of law pursuant to the Alaska Natural Gas Transportation Act of 1976 that may 

be required. 

★ The NEPD Group recommends that the President support legislation to improve 

the safety of natural gas pipelines, protect the environment, strengthen emergency 

preparedness and inspections and bolster enforcement. 

★ The NEPD Group recommends that the President direct agencies to continue their 

interagency efforts to improve pipeline safety and expedite pipeline permitting in an 

environmentally sound manner and encourage FERC to consider improvements in the 

regulatory process governing approval of interstate natural gas pipeline projects. 

★ The NEPD Group recommends that the President direct the Administrator of the 

EPA to study opportunities to maintain or improve the environmental benefits of state 

and local “boutique” clean fuel programs while exploring ways to increase the flexibil	

ity of the fuels distribution infrastructure, improve fungibility, and provide added gaso	

line market liquidity. In concluding this study, the Administrator shall consult with the 

Departments of Energy and Agriculture, and other agencies as needed. 

★ The NEPD Group recommends that the President direct the Administrator of the 

Environmental Protection Agency and the Secretary of Energy to take steps to ensure 

America has adequate refining capacity to meet the needs of consumers. 

• Provide more regulatory certainty to refinery owners and streamline the permitting 

process where possible to ensure that regulatory overlap is limited. 

• Adopt comprehensive regulations (covering more than one pollutant and require	

ment) and consider the rules’ cumulative impacts and benefits. 

★ The NEPD Group recommends that the President direct the Administrator of the 

Environmental Protection Agency, in consultation with the Secretary of Energy and 

other relevant agencies, to review New Source Review regulations, including adminis	

trative interpretation and implementation, and report to the President within 90 days 

on the impact of the regulations on investment in new utility and refinery generation 

capacity, energy efficiency, and environmental protection. 

★ The NEPD Group recommends that the President direct the Attorney General to 

review existing enforcement actions regarding New Source Review to ensure that the 

enforcement actions are consistent with the Clean Air Act and its regulations. 

★ The NEPD Group supports the President’s budget proposal to provide $8 million to 

maintain the two-million-barrel Northeast Heating Oil Reserve. Operated by the pri	

vate sector, the Reserve helps ensure adequate supplies of heating oil in the event that 

colder than normal winters occur in the Northeast United States. 

Chapter 7 • America’s Energy Infrastructure: A Comprehensive Delivery System 7-18 
CHAPTER EIGHTStrengthening Global Alliances 

Enhancing National Energy Security and International Relationships


U .S. national energy security de	

pends on sufficient energy 

supplies to support U.S. and 

global economic growth. 

Energy policies that have em	

phasized reliance on market forces have led 

to major energy security gains over the past 

two decades. Major improvements in explo	

ration and production technology, as well 

as the trend toward opening new areas 

around the globe for exploration and devel	

opment, have yielded significant dividends: 

Figure 8-1 

The U.S. Economy is More Energy Efficient

(Energy Intensity) 

Primary Energy Use 

Quadrillion Btus 

Energy Use at 

Constant 1972 E/GDP 

Actual Energy Use 

180 

160 

140 

120 

100 

80 

60 

40 

20 

0 

• The U.S. and world economies 

have diversified their sources of oil sup	

plies, largely through increased production 

in the Western Hemisphere, the North Sea, 

and Africa. 

• The world’s fuel mix is also more 

diverse, primarily because of greater reli	

ance on natural gas and nuclear power. 

• The rate of growth in U.S. oil de	

mand has slowed significantly since the 

first oil shocks of the 1970s because of 

more energy-efficient industries, structural 

changes in the economy, and greater effi	

ciencies in vehicles, appliances, and build	

ings. 

Since 1970, as the economy has 

shifted toward greater use of more efficient 

technologies, U.S. energy intensity (the 

amount of energy it takes to produce a dol	

lar of GDP) has declined by 30 percent 

(Figure 8-1). However, energy use per per	

son in the United States is expected to rise 

as is overall demand for energy. 

Measures to enhance U.S. energy se	

curity by meeting this increased demand 

must begin at home. The first step toward a 

sound international energy policy is to use 

our own capability to produce, process, 

and transport the energy resources we 

1950 60 70 80 90 00 

Improvements in energy efficiency since the 1970s have had a 

major impact in meeting national energy needs relative to new 

supply. If the intensity of U.S. energy use had remained constant since 1972, consumption would have been about 70 quadrillion Btus (74 percent) higher in 1999 than it actually was. 

________ 

Source: U.S. Department of Energy, Energy Information Administration. 

need in an efficient and environmentally 

sustainable manner. Market solutions to 

limit the growth in our oil imports would 

reduce oil consumption for our economy 

and increase our economic flexibility in re	

sponding to any domestic or international 

disruption of oil or other energy supplies. 

The United States produces 72 of the 99 

quadrillion British thermal snits (Btus) of 

8-1 NATIONAL ENERGY POLICY 

Figure 8-2 

Sources of U.S. Fuel Consumption in 1999 

(Quadrillion Btus) 

U.S. Production 

Net Imports 

40 

20 

0 

-20 

 Solar/

Geothermal

Hydroelectric

 Biofuels

Nuclear

Oil

 Coal

 Natural Gas

Wind 

The United States produced 72 of the 98 quadrillion Btus of 

energy that it consumed in 1999. We are self-sufficient in vir

tually all our energy resources, except oil, of which we import 

52 percent of our net requirements, and natural gas, of which 

we import 15–16 percent net, primarily from Canada. 

__________­

Source: U.S. Department of Energy, Energy Information Administration.­

energy that it consumes (Figure 8-2). We 

are self-sufficient in virtually all our energy 

resources except oil, of which we import 52 

percent of our net requirements, and natu


ral gas, of which we import 15 to 16 percent 

of our net requirements, primarily from 

Canada. 

We should not, however, look at en


ergy security in isolation from the rest of 

the world. In a global energy marketplace, 

U.S. energy and economic security are di


rectly linked not only to our domestic and 

international energy supplies, but to those 

of our trading partners as well. A significant 

disruption in world oil supplies could ad


versely affect our economy and our ability 

to promote key foreign and economic 

policy objectives, regardless of the level of 

U.S. dependence on oil imports. 

Our energy security also depends on 

an efficient domestic and international in


frastructure to support all segments of the 

energy supply chain. We can strengthen our 

own energy security and the shared pros


perity of the global economy by working 

cooperatively with key countries and insti


tutions to expand the sources and types of 

global energy supplies. We can also ad


vance these goals by increasing the effi


ciency of energy consumption, enhancing 

the transparency and efficient operation of 

energy markets, and strengthening our ca


pacity to respond to disruptions of oil sup


plies. Energy is fundamental to economic 

growth, and we believe that economic 

growth and environmental protection can 

be mutually achieved. 

We need to strengthen our trade alli


ances, to deepen our dialogue with major oil 

producers, and to work for greater oil pro


duction in the Western Hemisphere, Africa, 

the Caspian, and other regions with abun


dant oil resources. Greater cooperation with 

our allies in addressing the growth in oil de


mand in the transportation sector is particu


larly important, given the growing demand 

for oil and other energy resources. Signifi


cant economic and environmental benefits 

can be realized from increased energy effi


ciency and from the use of clean energy 

technologies. We need to ensure that our 

partners in the International Energy Agency 

(IEA) continue to meet their obligations for 

emergency supply reserves. Finally, we 

must continue to work with the IEA, the 

Asia-Pacific Economic Cooperation (APEC) 

forum, and others to encourage other large 

importers to consider measures to augment 

their oil reserves 

Oil Imports and Global Reserves 

The U.S. influence on overall world 

markets is substantial in terms of produc


tion and consumption. The United States is 

the world’s second largest natural gas pro


ducer and its third largest oil producer. The 

United States consumes over 25 percent of 

the oil produced worldwide, slightly more 

than half of which it imports. Nevertheless, 

because the price of our domestic and im


ported oil is determined by a world market, 

our energy security interests transcend the 

source of our physical energy supplies (Fig


ure 8-3). Given the large and projected 

growing volume of U.S. oil imports, our en


ergy and economic security will increase if 

we take the steps necessary to realize 

America’s potential as a major world oil and 

natural gas producer. 

8-3 NATIONAL ENERGY POLICY 
Figure 8-3 

Regional Sources of U.S. Oil 

Imports in 2000 

fig 3 

Other 

3% Western 

Hemisphere 

50% 

Middle East 

24% 

Eurasia 

Africa 9% 

14% 

Slightly over half of the oil the United States imports every 

day comes from the Western Hemisphere. Canada, 

Venezuela, and Mexico account for the bulk (41%) of these 

imports. 

_______ 

Source: US. Department of Energy, Energy Information Administration. 

Recommendation:


★ The NEPD Group recommendsthat the President make energy secu
­

rity a priority of our trade and foreignpolicy.­

In 2000, nearly 55 percent of U.S. 

gross oil imports came from four countries: 

15 percent from Canada, 14 percent each 

from Saudi Arabia and Venezuela, and 12 

percent from Mexico (Figure 8-4). The se


curity of U.S. energy supply is enhanced by 

Figure 8-4 

Top 10 Suppliers of U.S.Oil Imports in 2000 

1,686 

1,566 

887 

332 330 296 

613 

1,519 

1,359 

Canada 

Venezuela 

Nigeria 

Colombia 

UK 

1,800 

1,500 

1,200 

900 

600 

300 

0 

Saudi 

Mexico 

Iraq 

Norway 

Angola 

332 

Arabia 

In 2000, nearly 55 percent of gross U.S. oil imports came 

from four leading suppliers: Canada (15%), Saudi Arabia 

(14%), Venezuela (14%), and Mexico (12%). 

________­

Source: U.S.Department of Energy, Energy Information Administration.­

several factors characterizing our diplo


matic and economic relationships with our 

four top suppliers. These factors range from 

geographic proximity and free trade agree


ments to integrated pipeline networks, re


ciprocal energy-sector investments, shared 

security commitments, and, in all cases, 

long-term reliable supply relationships (Fig


ure 8-5). 

Saudi Arabia and the Middle East 

Oil Supplies 

By 2020, Gulf oil producers are pro


jected to supply between 54 and 67 percent 

of the world’s oil. Thus, the global economy 

will almost certainly continue to depend on 

the supply of oil from Organization of Petro


leum Exporting Countries (OPEC) mem


bers, particularly in the Gulf. This region 

will remain vital to U.S. interests. Saudi 

Arabia, the world’s largest oil exporter, has 

been a linchpin of supply reliability to world 

oil markets. 

Saudi Arabia has pursued a policy of 

investing in spare oil production capacity, 

diversifying export routes to both of its 

coasts, and providing effective assurances 

that it will use its capacity to mitigate the 

Figure 8-5 

Proven World Oil Reserves in January 2000 

Middle East 67% 

Central 

and 

South 

America 

9% 

Eastern 

Europe 

and the 

Former 

Soviet 

Union 

6% 

Far East 

and 

Oceania 

4% 

Western 

Europe 

2% 

North 

America 

5% 

Africa 

7% 

The world’s proven crude oil reserves remain relatively concen


trated. The Middle East holds 664 billion barrels, or roughly 

two-thirds of the world’s conventional oil reserves, followed by 

the Western Hemisphere (14%) and Africa (7%). 

_________ 

Source: U.S. Department of Energy, Energy Information Administration. 

Chapter 8 • Strengthening Global Alliances: Enhancing National Energy Security and International Relationships 8-4 
impact of oil supply disruptions in any re


gion (Figure 8-6). Algeria, Kuwait, Oman, 

Qatar, Saudi Arabia, the United Arab Emir


ates (UAE), Yemen, and other states in the 

region with which we maintain diplomatic 

relations have all, to some extent, opened 

Saudi Arabia has pursued a their energy sectors to international invest
­

policy of investing in spare ment. This development provides an impor
­ oil production capacity,


diversifying export routes to tant opportunity to further encourage for
­

both of its coasts, and eign investment in these important energy
­

providing effective assur- producing countries, thereby broadeningances that it will use its our shared commercial and strategic inter
­

capacity to mitigate the ests. By any estimation, Middle East oil pro
­ impact of oil supply disrup- ducers will remain central to world oil secu
­

tions in any region. rity. The Gulf will be a primary focus of U.S.­ ARAMCO 

Figure 8-6 

Saudi Arabia Export Pipelines 

Saudi Arabia, the world’s largest oil supplier, maintains major 

oil export ports and storage capacity on both the Gulf and the 

Red Sea. 

_______ 

ARAMCO 

8-5 NATIONAL ENERGY POLICY 

international energy policy, but our engage


ment will be global, spotlighting existing 

and emerging regions that will have a major 

impact on the global energy balance. 

Recommendation:


★ The NEPD Group recommends thatthe President support initiatives bySaudi Arabia, Kuwait, Algeria, Qatar,­

the UAE, and other suppliers to openup areas of their energy sectors to for
­

eign investment.­

Improving Market Transparency 

The United States must work with oil 

producers to improve the transparency, 

timeliness, and accuracy of the data that 

guide global oil markets. A lack of timely 

and accurate data relating to both oil pro


duction and inventory levels has contrib


uted to the price volatility witnessed in 

2000. Discussions among the major oil pro


ducers and consumer countries should be 

designed to improve the transparency, accu


racy, and timeliness of data that guide the 

market. In turn, enhanced data quality and 

increased data transparency will improve 

market efficiency. Refocusing that dialogue 

beyond short-term market developments to 

long-term issues of world economic growth, 

improving data quality, and addressing en


ergy infrastructure is needed to maintain a 

smooth flow of energy from the wellhead to 

the consumer. 

Recommendation:


★ The NEPD Group recommends thatthe President direct the Secretaries ofState, Energy and Commerce work toimprove dialogue among energy pro
­

ducing and consuming nations.­

Promoting International Trade and 

Investment 

Longstanding U.S. policy supports a 

liberalized global energy sector that is open 

to international trade and investment. The 

United States benefits from international in


vestments at home that have increased our 
energy sector’s capacity and its infrastruc


ture. Both producers and consumers will 

benefit from ensuring that the global energy 

infrastructure is sufficient and flexible to 

meet growing global demand. 

American energy firms remain world 

leaders, and their investments in energy 

producing countries enhance efficiencies 

and market linkages while increasing envi


ronmental protections. Expanded trade and 

investment between oil importing and ex


porting nations can increase shared inter


ests while enhancing global energy and eco


nomic security. Promoting such investment 

will be a core element of our engagement 

with major foreign oil producers. 

Recommendations: 

★ The NEPD Group recommends that 

the President direct the Secretaries of 

State, Commerce and Energy to con


tinue supporting American energy 

firms competing in markets abroad 

and use our membership in multilat


eral organizations, such as the AsiaPacific Economic Cooperation 

(APEC) forum, the Organization for 

Economic Cooperation and Develop


ment (OECD), the World Trade Orga


nization (WTO) Energy Services Ne


gotiations, the Free Trade Area of the 

Americas (FTAA), and our bilateral 

relationships to implement a system 

of clear, open, and transparent rules 

and procedures governing foreign in


vestment; to level the playing field for 

U.S. companies overseas; and to re


duce barriers to trade and investment. 

★ The NEPD Group recommends that 

the President direct the Secretaries of 

Commerce and Energy, and the U.S. 

Trade Representative, to support a 

sectoral trade initiative to expand in


vestment and trade in energy-related 

goods and services that will enhance 

exploration, production, and refining, 

as well as the development of new 

technologies. 

Reviewing and Reforming Sanctions 

Economic sanctions include U.S. uni


lateral sanctions as well as multilateral 

sanctions, such as United Nations (UN) Se


curity Council Resolutions. Sanctions can 

advance important national and global se


curity objectives and can be an important 

foreign policy tool, especially against na


tions that support terrorism or seek to ac


quire weapons of mass destruction. Never


theless, sanctions should be periodically re


viewed to ensure their continued effective


ness and to minimize their costs on U.S. 

citizens and interests. 

Recommendation:


★ The NEPD Group recommends thatthe President direct the Secretaries ofState, Treasury, and Commerce to ini
­

tiate a comprehensive review of sanc
­

tions. Energy security should be oneof the factors considered in such a re
­

view.­

Diversity of Supply 

Concentration of world oil production 

in any one region of the world is a potential 

contributor to market instability, benefiting 

neither oil producers nor consumers. Peri


odic efforts by OPEC to maintain oil prices 

above levels dictated by market forces have 

increased price volatility and prices paid by 

consumers, and have worked against the 

shared interests of both producers and con


sumers in greater oil market stability. This 

remains a policy challenge, which we will 

meet over the longer term through a com


prehensive energy policy that addresses 

both supply and demand, as well as through 

increased engagement with all our major 

suppliers. Greater diversity of world oil pro


duction remains important. 

Encouraging greater diversity of oil 

production and, as appropriate, transporta


tion, within and among geographic regions 

has obvious benefits to all market partici


pants. Technological advances will enable 

the United States to accelerate the diversifi


cation of oil supplies, notably through deepThe United States is helping 

developing countries use 

energy efficient technologies. 

Photovoltaic-powered pumps 

are being used in many wells 

throughout rural India for 

collecting potable water. 

U.S. DEPARTMENT OF ENERGY, NATIONAL 

RENEWABLE ENERGY LABORATORY 

Chapter 8 • Strengthening Global Alliances: Enhancing National Energy Security and International Relationships 8-6 
water offshore exploration and production 

in the Atlantic Basin, stretching from off


shore Canada to the Caribbean, Brazil, and 

West Africa. The Caspian Sea can also be a 

rapidly growing new area of supply. 

The ongoing development of so-called 

“heavy oil” reserves in the Western Hemi


sphere is an important factor that promises 

to significantly enhance global oil reserves 

and production diversity. Recent Canadian 

and Venezuelan success in making heavy oil 

deposits commercially viable suggests that 

they will contribute substantially to the di


versity of global energy supply, and to our 

own energy supply mix over the medium to 

long term. Leading non-OPEC oil exporters, 

such as Mexico and Norway, remain critical 

to the diversity of global energy supply. 

Growing levels of conventional and 

heavy oil production and exports from the 

Western Hemisphere, the Caspian, and Af


rica are important factors that can lessen 

the impact of a supply disruption on the 

U.S. and world economies. Overall U.S. 

policies in each of these high-priority re


gions will focus on improving the invest


ment climate and facilitating the flow of 

needed investment and technology. 

Bilateral energy working groups, such 

as the U.S.-Kazakhstan Oil, Gas and Com


mercial Energy Working Group and the 

U.S.-Russian Oil and Gas Working Group, 

can improve the trade climate in high-prior


ity countries. In addition to seeking new 

sources of oil, the United States is helping 

developing countries use energy efficient 

technologies to mitigate the environmental 

impacts of energy use, and to improve ac


cess to energy resources. 

WTO members are beginning to exam


ine global trade in energy services. The 

United States has called on WTO members 

to open markets eligible for private partici


pation in the entire range of energy ser


vices, from exploration to the final cus


tomer. The energy service proposal would 

attempt to ensure nondiscriminatory access 

to foreign providers of energy services. 

Equally important, the U.S. proposal sug


gests that WTO members consider how to 

best create a pro-competitive regulatory enFigure 8-7 

Canada–U.S. Natural Gas Pipelines: 2001 

UNITED STATES 

CANADA 

Canada–U.S. Oil Pipelines: 2001 

CANADA 

UNITED STATES 

An integrated network of oil and gas pipelines demonstrates 

the seamless nature of North American energy trade. 

_______ 

Sources: Lakehead Pipe Line Company, Inc., and Canadian 

Association of Petroleum Producers. 

Figure 8-8 

Maritimes and Northeast Pipeline: 2000 

Maritimes & 

Northeast Pipeline 

New 

Brunswick 

Nova 

Scotia 

Sable Island 

Boston 

Concord 

Portland 

Bangor 

Fredericton 

Saint John Sable 

Island 

Energy

Project 

Halifax 

New England’s geography made it the “last stop” for natural 

gas pipelines stretching thousands of miles across the continent from the South and the West. Consequently, the region 

became the most oil-dependent area in the country, particularly for home heating and electricity. With the January 1, 

2000, inauguration of Atlantic Canada’s Maritimes and Northeast Pipeline, New England is now at the beginning of the line 

for natural gas flowing across the border from Canada at 

Calais, Maine. Overall, the region’s fuel mix is becoming 

increasingly diversified, with natural gas demand slated to 

increase by 2.4 percent a year through 2020. 

______ 

Source: Maritimes and NorthEast Pipeline. 

8-7 NATIONAL ENERGY POLICY 
vironment for energy services, so that 

opaque or discriminatory regulatory prac


tices do not undermine commitments to 

open their domestic markets to foreign ser


vice providers. Such objectives can also be 

pursued in the FTAA and APEC. 

Toward a North American Energy Framework 

Increased U.S., Canadian, and Mexi


can energy production and cooperation 

would enhance energy security and, 

through our economic links in the North 

America Free Trade Agreement (NAFTA) 

economy, fundamentally advance each 

country’s economic security. As state and 

federal governments consider energy re


forms, there will be a need to ensure com


patible regulatory frameworks with our 

neighbors while recognizing differences in 

jurisdictions. 

Canada 

Canada’s deregulated energy sector 

has become America’s largest overall en


ergy trading partner, and our leading for


eign supplier of natural gas, oil, and elec


tricity. Canada’s sustainable development


based energy strategies contribute to the 

health of the NAFTA economy and of our 

shared environment. 

Canada provided 14 percent of U.S. 

natural gas supply last year. An integrated 

network of pipelines demonstrates the 

seamless nature of North American energy 

trade (Figure 8-7). Estimated natural gas 

deposits in Alaska and Northwest Canada 

exceed 70 trillion cubic feet, representing 

over three years of total U.S. consumption 

at present levels. 

To advance shared economic and en


vironmental objectives, the private sector is 

poised to develop the continent’s northern 

gas reserves, with pipeline linkages be


tween both countries. To the east, recent 

development of Canada’s Atlantic offshore 

energy reserves has made significant 

strides, with major offshore natural gas and 

oil production now available. Canada’s At


lantic energy development is now providing 

previously untapped sources of clean-burn


ing natural gas not only to Nova Scotia and 

New Brunswick but also to heating oil-de


pendent New England (Figure 8-8). 

Our large cross-border electricity 

trade flows in each direction. Our electric


ity imports from Canada are derived largely 

from hydropower produced in eastern 

Canada, Canadian and American hydro


power projects in the Pacific Northwest op


erating pursuant to the Columbia River 

Treaty, and a nuclear power plant in New 

Brunswick. All of these sources provide im


portant trade and clean air benefits, while 

allowing both countries to benefit from load 

sharing and integration. The reliability of 

the North American electricity grid can be 

enhanced yet further through closer coordi


nation and compatible regulatory and juris


dictional approaches. 

Canada’s oil trade, responding to mar


ket signals, increased 4 percent worldwide 

and 10 percent with the United States last 

year. Estimates of Canada’s recoverable 

heavy oil sands reserves are substantial, and 

new technologies are being deployed to de


velop their potential. Production from these 

promising areas now approaches 600,000 

barrels a day. Their continued development 

can be a pillar of sustained North American 

energy and economic security. 

Mexico 

Our energy relationship with Mexico 

reflects the increasingly interrelated charac


ter of NAFTA economies and our contigu


ous border. U.S. natural gas reserves, pipeOffshore oil platform 

near Campeche, 

Mexico. Mexico’s large 

crude oil reserves— 

approximately 25 

percent larger than 

our own proven 

reserves—makes it a 

likely source of 

increased oil production over the next 

decade. 

U.S. EMBASSY, MEXICO CITY 

Chapter 8 • Strengthening Global Alliances: Enhancing National Energy Security and International Relationships 8-8 
Figure 8-9 

Mexican Oil and Gas Resources: 2001 

CENTRAL 

AMERICA 

UNITED ST A TES 

MEXICO 

North Pacific Ocean 

Gulf of Mexico 

Pedregosa Basin 

Sabinas 

Burgos 

TampicoMistanta 

Gas Producing 

Oil Producing 

Prospective Region 

Veracruz 

Bahia de 

Campeche 

Macuspana 

Gulf of California 

Mexico City • 

Mazatlan Basin 

Mexico’s large oil reserves—approximately 25 percent larger than U.S. proven reserves—make it a likely 

source of increased oil production over the next decade. 

next decade (Figure 8- 9). 

Mexico began exporting 50 megawatts 

of electricity from Baja to California in Janu


ary 2001. However, the transmission infra


structure on both sides of the border is in


sufficient for greater flows of energy in ei


ther direction without expansion. In the 

United States, our process for “Presidential 

Permitting” of cross-border infrastructure 

linkages needs to be updated and stream


lined. 

Mexico will make its own sovereign 

decisions on the breadth, pace, and extent to 

which it will expand and reform its electric


ity and oil and gas capacities. Where the 

country has opened its energy sector to pri


vate investment, such as in natural gas trans


mission, distribution, and storage, invest


ments have been made to our mutual ben


efit. To the extent Mexico seeks to attract 

additional foreign investment consistent 

with its Constitution, which reserves explo


ration and production rights to the Mexican 

government, the United States should ac


tively encourage the U.S. private sector to 

consider market-based investments. 

Recommendations: 

★ The NEPD Group recommends that 

the President direct the Secretaries of 

State, Commerce, and Energy to en


gage in a dialogue through the North 

American Energy Working Group to 

develop closer energy integration 

among Canada, Mexico, and the 

United States and identify areas of co


operation, fully consistent with the 

countries’ respective sovereignties. 

★ The NEPD Group recommends that 

the President direct the Secretaries of 

Energy and State, in consultation with 

the Federal Energy Regulatory Com


mission, to review their respective oil, 

natural gas, and electricity cross


boundary “Presidential Permitting” 

authorities, and to propose reforms as 

necessary in order to make their own 

regulatory regimes more compatible 

for cross-border trade. 

_________


Source: U.S. Central Intelligence Agency.


A carrier transports liquefied 

natural gas (LNG) from 

Trinidad and Tobago—our 

largest LNG supplier—to 

Boston harbor. LNG currently 

represents 16 percent of New 

England’s natural gas supply. 

CABOT LNG 

lines, and industries are closer to the grow


ing border area than some of Mexico’s re


serves. The United States is a net exporter 

of refined petroleum products and natural 

gas to Mexico, primarily through pipeline 

connections to northern Mexico. Mexico is 

a leading and reliable source of imported 

oil, and its large reserve base, approxi


mately 25 percent larger than our own 

proven reserves, makes Mexico a likely 

source of increased oil production over the 

8-9 NATIONAL ENERGY POLICY 
★ The NEPD Group recommends that 

the President direct the Secretaries of 

Energy and State, coordinating with 

the Secretary of the Interior and the 

Federal Energy Regulatory Commis


sion, to work closely with Canada, the 

State of Alaska, and all other inter


ested parties to expedite the construc


tion of a pipeline to deliver natural 

gas to the lower 48 states. This should 

include proposing to Congress any 

changes or waivers of law pursuant to 

the Alaska Natural Gas Transporta


tion Act of 1976 that may be required. 

South America:	

Latin America and the Caribbean	

Latin America and the Caribbean are 

growing not only as major producing re


gions, but also as major consumers of oil 

and natural gas. Trinidad and Tobago’s pro


gressive investment code has made it the 

hemisphere’s largest exporter of LNG and 

the largest supplier of LNG to the United 

States in 2000. Unprecedented development 

of Central and South America’s vast natural 

gas reserves—222.7 trillion cubic feet as of 

January 2000, illustrated by transcontinen


tal pipelines linking Bolivia, Brazil, Argen


tina, Chile, Paraguay, and Uruguay—in


crease regional self-reliance, affirm eco


nomic integration, aid the environment, and 

stem the growth in oil demand. Colombia 

has also become an important supplier of 

oil to the United States. 

The United States, with Venezuela, is 

a co-coordinator of the Hemispheric En


ergy Initiative process. In March 2001, a 

Summit of the Americas Hemispheric En


ergy Ministerial meeting was hosted by the 

Government of Mexico. At the meeting, the 

region’s energy ministers pledged to sup


port integration and sustainable develop


ment in the hemisphere, recognizing the 

need to foster stable and transparent regu


latory frameworks. In April 2001, the thirty


four democratically elected leaders of the 

Western Hemisphere met in Quebec City 

for the Third Summit of the Americas. They 

called for a renewed effort to strengthen 

the hemisphere’s energy cooperation and 

integration. 

Venezuela is the world’s fifth largest 

oil exporter, and the third largest oil sup


plier to the United States. Its energy indus


try is increasingly integrated into the U.S. 

marketplace. Venezuela’s downstream in


vestments in the United States make it a 

leading refiner and gasoline marketer here. 

Growing U.S. and international investments 

in Venezuela’s energy sector, particularly in 

its resource-rich heavy oil sector, are en


hancing the country’s ability to meet its de


velopment goals and to keep pace with a 

growing world energy marketplace. Venezu


ela is also moving to liberalize its natural 

gas sector, which will increase opportuni


ties for foreign investment to expand Ven


ezuelan natural gas production. These posi


tive steps along with conclusion of a Bilat


eral Investment Treaty, which is now being 

negotiated, would provide investors from 

both the United States and Venezuela incen


tives for increased investment. 

Brazil has long been a pioneer in the 

development of deep-water offshore oil and 

gas resources. Its world-class oil industry is 

now moving to become a partner with U.S. 

and international investors to more fully de


velop its prolific offshore oil reserves. This 

welcome development will enhance hemi


spheric energy production from well-estab


lished sedimentary basins. 

U.S. Secretary of 

Energy Spencer 

Abraham listens to 

his colleagues at the 

Summit of the Americas Hemispheric 

Energy Ministerial 

meeting in Mexico City 

on March 9, 2001. 

U.S. EMBASSY, MEXICO CITY 

Chapter 8 • Strengthening Global Alliances: Enhancing National Energy Security and International Relationships 8-10 
Recommendations: 

★ The NEPD Group recommends that 

the President direct the Secretaries of 

State and Commerce to conclude ne


gotiations with Venezuela on a Bilat


eral Investment Treaty, and propose 

formal energy consultations with Bra


zil, to improve the energy investment 

climate for the growing level of energy 

investment flows between the United 

States and each of these countries. 

★ The NEPD Group recommends that 

the President direct the Secretaries of 

Energy, Commerce, and State to work 

through the Summit of the Americas 

Hemispheric Energy Initiative to de


velop effective and stable regulatory 

frameworks and foster reliable supply 

sources of all fuels within the region. 

Africa 

Sub-Saharan Africa holds 7 percent of 

world oil reserves and comprises 11 percent 

of world oil production. Along with Latin 

America, West Africa is expected to be one 

of fastest-growing sources of oil and gas for 

the American market. African oil tends to 

be of high quality and low in sulfur, making 

it suitable for stringent refined product re


quirements, and giving it a growing market 

share for refining centers on the East Coast 

of the United States. 

In 2000, OPEC member Nigeria ex


ported an average of 900,000 barrels of oil 

per day to the United States, out of its total 

production of 2.1 million barrels of oil per 

day. Nigeria, in partnership with the private 

sector, has set ambitious production goals 

as high as 5 million barrels of oil per day 

over the coming decade. 

Angola’s growing offshore oil indus


try, with participation by U.S. and interna


tional oil firms, is also a major source of 

growth. In 2000, Angola exported 300,000 

barrels of oil per day out of its 750,000 bar


rels of oil per day of total production to the 

United States, and is thought to have the 

potential to double its exports over the next 

ten years. Other significant exporters to the 

United States included Gabon and the 

Congo-Brazzaville. 

The World Bank has supported Chad’s 

efforts to begin ambitious oil development. 

This year an international consortium that 

includes U.S. firms began investing $3.5 bil


lion in this pipeline from Chad to Cameroon, 

the largest infrastructure project in Africa to


day. When complete, the pipeline will allow 

Chad to export up to 250,000 barrels of oil 

per day. 

The U.S. Agency for International De


velopment (USAID) has provided technical 

assistance in support of a West Africa 

Power Pool and associated pipeline project 

involving a number of U.S. oil companies, 

and is providing assistance for the creation 

of a regional regulatory framework that will 

enable Ghana and Nigeria to become major 

exporters of natural gas and electricity. 

The West Africa Gas Pipeline is a 161


mile (1,000-kilometer), $400 million on


shore/offshore natural gas pipeline connect


ing Nigeria with Benin, Togo, and Ghana. 

The pipeline is being built by a consortium 

of companies, and includes financing by the 

U.S. Export-Import Bank. 

Recommendations: 

★ The NEPD Group recommends that 

the President direct the Secretaries of 

State, Energy, and Commerce to rein


vigorate the U.S.-Africa Trade and 

Economic Cooperation Forum and the 

U.S.-African Energy Ministerial pro


cess; deepen bilateral and multilateral 

engagement to promote a more recep


tive environment for U.S. oil and gas 

trade, investment, and operations; and 

promote geographic diversification of 

energy supplies, addressing such is


sues as transparency, sanctity of con


tracts, and security. 

★ The NEPD Group recommends that 

the President direct the Secretaries of 

State, Energy, and Commerce to re


cast the Joint Economic Partnership 

Committee with Nigeria to improve 

the climate for U.S. oil and gas trade, 

investment, and operations and to ad


vance our shared energy interests. 

★ The NEPD Group recommends that 

the President direct the Secretaries of 

8-11 NATIONAL ENERGY POLICY 
State, Energy, and Commerce to sup


port more transparent, accountable, 

and responsible use of oil resources 

in African producer countries to en


hance the stability and security of 

trade and investment environments. 

The Caspian 

Proven oil reserves in Azerbaijan and 

Kazakhstan are about 20 billion barrels, a 

little more than the North Sea and slightly 

less than the United States. Exploration, 

however, is continuing, and proven reserves 

are expected to increase significantly. 

For example, initial results of the ex


ploration well at Kazakhstan’s Kashagan 

field indicate the find is one of the most im


portant in thirty years, and is comparable 

to Prudhoe Bay in size. Current exports 

from the region are only about 800,000 bar


rels of oil per day, in part due to limited ex


port route options. However, potential ex


ports could increase by 1.8 million barrels 

of oil per day by 2005, as the United States 

works closely with private companies and 

countries in the region to develop commer


cially viable export routes, such as the 

Baku-Tbilisi-Ceyhan (BTC) and Caspian 

Pipeline Consortium oil pipelines (Figure 8


10). Moreover, there is considerable opti


mism that exports could grow even more 

substantially in subsequent years because 

of positive prospects for new oil and gas 

finds as additional geologic structures un


dergo exploration, and the development of 

new export routes. 

Foreign investors and technology are 

critical to rapid development of new com


mercially viable export routes. Such devel


opment will ensure that rising Caspian oil 

production is effectively integrated into 

world oil trade. U.S.-supported East–West 

pipeline routes will add substantial new oil 

transportation capacity to allow continued 

expansion of production and exports. Over


land routes via pipeline, such as the 

planned BTC oil pipeline, will also help 

mitigate maritime risks in the crowded 

Bosporus Straits. To help countries prepare 

for increased oil production within the reFigure 8-10 

Caspian Energy Export Pipelines: 2001 

caspian fig 10 

Several oil and natural gas pipeline projects are proposed for the Caspian area. 

_________ 

Source: U.S. Central Intelligence Agency. 

gion, the United States is working with 

Black Sea and Caspian Sea border states to 

ensure that they develop adequate oil spill 

response capabilities. 

Chapter 8 • Strengthening Global Alliances: Enhancing National Energy Security and International Relationships 8-12 
Recommendations:


★ The NEPD Group recommends thatthe President direct the Secretaries ofState, Commerce, and Energy to sup
­

port the BTC oil pipeline as it demon
­

strates its commercial viability.­

★ The NEPD Group recommends thatthe President direct the Secretaries ofCommerce, State, and Energy to con
­

tinue working with relevant compa
­

nies and countries to establish thecommercial conditions that will allowoil companies operating in Kazakhstanthe option of exporting their oil via theBTC pipeline.­

★ The NEPD Group recommends thatthe President direct the Secretaries ofState, Commerce, and Energy to sup
­

port the efforts of private investorsand regional governments to developthe Shah Deniz gas pipeline as a wayto help Turkey and Georgia diversifytheir natural gas supplies and helpAzerbaijan export its gas via a pipelinethat will continue diversification of se
­

cure energy supply routes.­

★ The NEPD Group recommends thatthe President direct appropriate fed
­

eral agencies to complete the currentcycle of oil spill response readinessworkshops and to consider further ap
­

propriate steps to ensure the imple
­

mentation of the workshops’ recom
­

mendations.­

★ The NEPD Group recommends thatthe President direct the Secretary ofState to encourage Greece and Turkeyto link their gas pipeline systems to al
­

low European consumers to diversifytheir gas supplies by purchasingCaspian gas.­

★ The NEPD Group recommends thatthe President direct the Secretaries ofCommerce, Energy, and State todeepen their commercial dialoguewith Kazakhstan, Azerbaijan, andother Caspian states to provide astrong, transparent, and stable busi
­

ness climate for energy and related in
­

frastructure projects.­

Russia 

Russia has about 5 percent of the 

world’s proven oil reserves. In 2000, Russia 

produced an average of 6.7 million barrels 

of oil and natural gas liquids per day, mak


ing it both the world’s third largest pro


ducer and second largest exporter at 4.2 

million barrels of oil per day. Russia’s oil 

production in 2000 represented an increase 

of 7 percent over 1999, the first increase 

since the dissolution of the Soviet Union. 

A similar rate of increase is projected for 

2001. New fields are being developed, in


cluding those with U.S. and other foreign in


vestors. 

Nevertheless, substantial infrastruc


ture investment is still needed, as well as 

legislation and a stable and reliable regime 

of contracting to finalize the Production 

Sharing Agreement (PSA) mechanism for 

private-sector participation and actions to 

improve the general investment climate. 

Russian oil firms are increasingly active on 

a global scale, with upstream and down


stream investments in the Caspian, the 

United States, Africa, South Asia, and Eu


rope, enhancing Russia’s ability to develop 

its own and international oil reserves. 

Russia holds 33 percent of the world’s 

natural gas reserves, exporting a full 35 per


cent of its production to Europe and Cen


tral Asia in 1999. Russian natural gas ex


ports can increase regional fuel diversifica


tion and advance environmental goals. With 

production declines now evident in existing 

fields, development of new reserves that re


quire substantial new investments will be 

necessary. 

Recommendations:


★ The NEPD Group recommends thatthe President direct the Secretaries ofState, Commerce, and Energy todeepen the focus of the discussionswith Russia on energy and the invest
­

ment climate.­

★ The NEPD Group recommends thatthe President direct the Secretaries ofCommerce, State, and Energy to assistU.S. companies in their dialogue onthe investment and trade climate with8-13 NATIONAL ENERGY POLICY 
Russian officials, to encourage reform 

of the PSA law and other regulations 

and related tax provisions, as well as 

general improvements in the overall 

investment climate. This will help ex


pand private investment opportunities 

in Russia and will increase the inter


national role of Russian firms. 

Asia 

Asia holds less than 5 percent of 

world proven oil reserves, but accounts for 

more than 10 percent of oil production and 

about 30 percent of world oil consumption. 

The developing countries of the Pacific Rim 

are expected to increase their total petro


leum imports by almost 43 percent between 

1997 and 2020. The developing countries of 

Asia are expected to remain heavily depen


dent on Middle East imports. 

China is a critical player in global en


ergy security issues, since its net oil im


ports are expected to rise from approxi


mately 1 million barrels of oil per day at 

present to possibly 5 to 8 million barrels of 

oil per day by 2020, with a predominant 

(over 70 percent) dependence on Middle 

East imports. China moved in the mid-1990s 

from being a net oil exporter to a net oil im


porter. 

About 7 percent of the world’s proven 

natural gas reserves are located in Asia. 

Asian gas production represents about 11 

percent of the world total, and consumption 

is less than 3 percent of world natural gas 

demand. Other natural gas producers, such 

as Malaysia, Myanmar, and Australia, are 

net gas exporters. Currently Japan, South 

Korea, and Taiwan are the major gas im


porters in Asia. China, in addition to accel


erating domestic exploration and develop


ment of natural gas resources, is planning 

to import gas via pipeline from Central Asia. 

India, likewise, is considering several po


tential LNG import projects (Figure 8-11). 

Figure 8-11 

Energy Consumption in China and 

India: 1970–2020 

(Quadrillion Btus) 

1970 75 80 85 90 95 2000 05 10 15 20 

China and India account for the bulk of projected growth in oil 

demand in non-OECD countries.


______


Source: U.S. Department of Energy, Energy Information Administration.


Recommendations:


★ The NEPD Group recommends thatthe President direct the Secretaries ofState, Commerce, and Energy to con
­

tinue to work in the APEC EnergyWorking Group to examine oil marketdata transparency issues and the vari
­

ety of ways petroleum stocks can beused as an option to address oil mar
­

ket disruptions.­

★ The NEPD Group recommends thatthe President direct the Secretaries ofState and Energy to work with India’sMinistry of Petroleum and Natural Gasto help India maximize its domestic oiland gas production.­

Diversification of Fuel Mix 

The growing demand for more fuel 

efficient technologies offers U.S. businesses 

significant trade and investment opportuni


ties overseas, while addressing rising world 

oil demand. The United States supports a 

practical, market-based approach that en


120 

100 

History Projections 

China 

80 

60 

40 

India 

20 

0 

Chapter 8 • Strengthening Global Alliances: Enhancing National Energy Security and International Relationships 8-14 
courages the adoption of efficient technolo


gies, including those relating to natural gas, 

nuclear energy, and renewable energy. This 

approach takes into account existing na


tional and international programs and has 

the potential to energize both public action 

and private involvement. Introduction of 

these technologies abroad also supports 

U.S. national interests by reducing competi


tion for the oil resources on which the glo


bal economy continues to rely. Overall, the 

U.S. government’s goal is to adopt policies 

that support innovative finance and market 

mechanisms that will provide U.S. busi


nesses and consumers greater incentives to 

make more cost effective, energy efficient 

investment and consumption decisions. 

Increased use of renewable energy 

technologies would improve U.S. energy se


curity, yield global environmental benefits, 

improve social and economic stability in the 

developing world, and provide significant 

trade and investment opportunities to U.S. 

businesses. Promotion of clean energy tech


nology exports can mitigate international 

dependence on oil supplies from volatile re


gions, help lower energy costs for U.S. con


sumers, bring U.S. firms greater access to 

large foreign markets, and enhance U.S. in


tegration with global sources of innovation. 

In consultation with U.S. industry, the U.S. 

government is participating in efforts of the 

IEA, the G-8, the OECD, the United Nations, 

and multilateral development banks to for


mulate effective strategies for accelerated 

market penetration of renewable energy 

technologies. Significant market penetra


tion will depend on further reducing the 

costs of deploying these technologies. 

The Clean Energy Technology Exports 

Working Group, a Federal interagency task 

force comprised of USAID and the Depart


ments of Commerce and Energy, is creating 

a strategic plan that will provide a roadmap 

for future exports of U.S. clean energy tech


nologies. Through its international trade 

programs, the Department of Commerce 

will showcase market-ready U.S. technolo


gies that generate a cleaner environment 

and increase energy efficiency. 

Recommendation: 

★ The NEPD Group recommends that 

the President direct the Secretaries of 

Commerce, State, and Energy to pro


mote market-based solutions to envi


ronmental concerns; support exports 

of U.S. clean energy technologies and 

encourage their overseas develop


ment; engage bilaterally and multilat


erally to promote best practices; ex


plore collaborative international basic 

research and development in energy 

alternatives and energy efficient tech


nologies; and explore innovative pro


grams to support the global adoption 

of these technologies. 

Climate Change 

The President is committed to ad


dressing the issue of global climate change 

in a manner that protects our environment 

and economy. Toward this end, the Admin


istration is undertaking a Cabinet-level re


view of domestic and international policies 

for addressing this issue. 

The United States invited other nations 

to re-examine global climate change issues, 

including technologies and market-based 

systems. Increasing our understanding of the 

most recent science and further research 

into the science of climate change will be es


sential to developing the optimal strategy. 

There is increasing awareness of glo


bal competition for fossil fuels and their po


tential threats to the global environment. 

The United States can diminish both risks 

by becoming more energy efficient at home, 

by working with other nations, and by en


couraging developing countries to use the 

cleanest and most energy-efficient technolo


gies. Through educational programs, the 

United States can encourage developing 

countries to use advanced U.S. energy tech


nologies, energy management practices, and 

market-based policies. The United States is 

uniquely positioned to help emerging na


tions build energy and institutional capacity 

and to finance energy-related activities and 

services. Doing so could prove to be a cost


effective investment, for both the United 

States and emerging economies. 

8-15 NATIONAL ENERGY POLICY 
Recommendation: 

★ The NEPD Group recommends 

that the President direct federal agen


cies to support continued research 

into global climate change; continue 

efforts to identify environmentally 

and cost-effective ways to use market 

mechanisms and incentives; continue 

development of new technologies; 

and cooperate with allies, including 

through international processes, to 

develop technologies, market-based 

incentives, and other innovative ap


proaches to address the issue of glo


bal climate change. 

Oil Consumption 

Although U.S. energy security can be 

reinforced by domestic efforts to enhance 

supply and use energy more efficiently, 

growth in international oil demand will ex


ert increasing pressure on global oil avail


ability. Worldwide oil consumption is pro


jected to grow by 2.1 percent a year over 

the next two decades. However, oil de


mand is projected to grow three times as 

fast in non-OECD countries as in OECD 

countries, which will increase worldwide 

competition for global oil supplies and put 

increased pressure on our shared environ


ment. Accordingly, non-OECD countries’ 

share of oil demand is expected to rise 

from 41 percent to 52 percent (Figure 8


12). China and India will be major contribu


tors to this growth in demand and will rely 

heavily on imports to meet their needs. 

This growth will increase the stake that 

many developing countries have in ensur


ing access to significant energy resources, 

as well as their incentive to pursue energy 

efficiency. 

Transportation has been responsible 

for nearly all the growth in OECD oil con


sumption over the last twenty years, and is 

projected to be the leading source of future 

growth in oil consumption through 2020. 

Transportation-related fuel consumption in 

the developing world is expected to more 

than double by 2020, growing at an annual 

average rate of 4 percent. Therefore, both 

OECD and developing countries will need 

to increase their focus on efficiencies in the 

transportation sector. The momentum to 

create market mechanisms supporting alter


native-fuel vehicles will increase. Best prac


tices that seek to reduce the cost of these 

technologies and to promote market pen


etration should be pursued. Without addi


tional efforts to reduce this growth in con


sumption, the transportation sector’s fuel 

needs will force an increasing dependence 

on oil in the developed and developing 

worlds. 

Recommendations:


★ The NEPD Group recommends thatthe President seek to increase interna
­

tional cooperation on finding alterna
­

tives to oil, especially for the transpor
­

tation sector.­

★ The NEPD Group recommends thatthe President direct the Secretary ofState to reinvigorate its dialogue withthe European Union on energy issues,­

and resume the consultative processthis year in Washington.­

★ The NEPD Group recommends thatthe President promote a coordinatedapproach to energy security by callingfor an annual meeting of G-8 EnergyMinisters or their equivalents.­

Emergency Preparedness for Oil Supply 

Disruption 

U.S. and world exposure to oil supply 

disruptions increases as the size of strategic 

and commercial stocks relative to demand 

declines. This vulnerability is a result of ris


ing global demand, tight supplies, and inad


equate efforts to establish or expand oil 

stockpiles. Such a situation magnifies the 

importance of U.S. coordination with other 

members of the IEA, comprised of most 

OECD member governments. Each IEA 

member that is a net oil importer is required 

to hold stocks equal to 90 days or more of 

its net imports. The IEA maintains agreed 

mechanisms for coordinating the use of 

these stocks in responding to a physical sup


ply disruption. Collectively, the net oil-im


porting members of the IEA currently hold 

Figure 8-12 

Projected Oil Consump


tion Rates in Three 

Economic Regions: 

1999–2020 

(Percent) 

OECD 

Countries 

Developing 

Countries 

Eurasia 

(Former Soviet 

Union, Eastern 

Europe, and 

China) 

3 

2 

1 

0 

2.9% 

2.6% 

0.2% 

Over the next two decades, oil 

consumption in developing 

countries and Eurasia will grow 

three times faster than in the 

rest of the world. 

______ 

Source: U.S. Department of Energy, 

Energy Information Administration.

Chapter 8 • Strengthening Global Alliances: Enhancing National Energy Security and International Relationships 8-16 
Figure 8-13 

Stocks of IEA Net Importers: 

1975–2000 

(Days 0f Net Imports) 

Industry 

Government 

1975 

fig 13 

180 

150 

120 

90 

60 

30 

0 

IEP minimum stockholding 

requirement for all IEA members 

that are net oil importers. 

00 

The International Energy Agency, of 

which the United States is a member, 

closely tracks the amount of strategic 

and commercial petroleum stocks 

maintained by its member states. The 

International Energy Program (IEP) 

Agreement “binds Participating Countries to make specific measures to 

meet any oil supply emergency and, 

over the long term, to reduce dependence on oil.” 

_______


Source: International Energy Agency.


approximately 113 days worth of strategic 

and commercial stocks. U.S. stocks, which 

include both government and commercial 

stocks, are slightly above the IEA average. 

While this is more than required, it is far be


low the peak coverage of 157 days reached 

in 1986. Moreover, several member states 

have fallen below the 90-day threshold (Fig


ure 8-13). 

The United States meets part of its 

IEA obligation through government-owned 

stocks held in the U.S. Strategic Petroleum 

Reserve (SPR). The SPR currently holds 541 

million barrels of oil, which is enough to 

cover the loss of all U.S. imports for 54 days 

or a partial disruption for much longer. 

Close to 33 million barrels of oil will be de


posited in the SPR by the fourth quarter of 

2002, returning oil that had been “ex


changed” out of the reserve last year. SPR 

oil can be withdrawn at a maximum rate of 

over 4 million barrels of oil per day initially 

and could reach the market within fifteen 

days of a Presidential directive. Because of 

increased net oil imports, the days of oil im


port coverage provided by the SPR have de


clined considerably over the past decade. In 

1990, the SPR contained enough oil to com


pensate for the loss of 82 days worth of U.S. 

imports—substantially more than today’s 

54-day supply. As domestic production and 

import patterns evolve, the Administration 

will work to inform Congress about chang


ing coverage levels provided by the SPR. It 

should be noted that the United States also 

counts on the SPR as a national defense 

fuel reserve. 

The oil market’s day-to-day operation 

and its ability to respond to supply prob


lems depend heavily on the availability of 

information on supply, demand, and price. 

The oil market volatility of the past two 

years has emphasized the need for more 

comprehensive and timely oil market infor


mation. 

Recommendations: 

★ The NEPD Group recommends that 

the President reaffirm that the SPR is 

designed for addressing an imminent 

or actual disruption in oil supplies, 

and not for managing prices. 

★ The NEPD Group recommend that 

the President direct the Secretary of 

Energy to work within the Interna


tional Energy Agency (IEA) to ensure 

that member states fulfill their stock


holding. 

★ The NEPD Group recommends that 

the President direct the Secretary of 

Energy to encourage major oil-con


suming countries that are not IEA 

members to consider strategic stocks 

as an option for addressing potential 

supply disruptions. In this regard, we 

should work closely with Asian econo


mies, especially through APEC. 

★ The NEPD Group recommends that 

the President direct the Secretary of 

Energy offer to lease excess SPR stor


age facilities to countries (both IEA 

and non-IEA members) that might not 

otherwise build storage facilities or 

hold sufficient strategic stocks, consis


tent with statutory authorities. 

★ The NEPD Group recommends that 

the President, at such time that ex


changed SPR barrels are returned to 

the SPR, should determine whether 

offshore Gulf of Mexico royalty oil de


posits to the SPR should be resumed, 

thereby increasing the size of our re


serve. 

★ The NEPD Group recommends that 

the President direct the Secretary of 

Energy to work closely with Congress 

to ensure that our SPR protection is 

maintained. 

★ The NEPD Group recommends that 

the President direct the Secretary of 

Energy to work with producer and 

consumer country allies and the IEA 

to craft a more comprehensive and 

timely world oil data reporting system. 

8-17 NATIONAL ENERGY POLICY 
Summary of Recommendations 

Strengthening Global Alliances: Enhancing National Energy Security and

International Relationships

★ The NEPD Group recommends that the President make energy security a priority of 

our trade and foreign policy. 

★ The NEPD Group recommends the President support initiatives by Saudi Arabia, Ku


wait, Algeria, Qatar, the UAE, and other suppliers to open up areas of their energy sec


tors to foreign investment. 

★ The NEPD Group recommends that the President direct the Secretaries of State, En


ergy and Commerce work to improve dialogue among energy producing and consuming 

nations. 

★ The NEPD Group recommends that the President direct the Secretaries of State, 

Commerce, and Energy to continue supporting American energy firms competing in 

markets abroad and use our membership in multilateral organizations, such as the AsiaPacific Economic Cooperation (APEC) forum, the Organization for Economic Coopera


tion and Development (OECD), the World Trade Organization (WTO) Energy Services 

Negotiations, the Free Trade Area of the Americas (FTAA), and our bilateral relation


ships to implement a system of clear, open, and transparent rules and procedures gov


erning foreign investment; to level the playing field for U.S. companies overseas; and to 

reduce barriers to trade and investment. 

★ The NEPD Group recommends that the President direct the Secretaries of Commerce 

and Energy, and the U.S. Trade Representative, to support a sectoral trade initiative to 

expand investment and trade in energy-related goods and services that will enhance ex


ploration, production, and refining, as well as the development of new technologies. 

★ The NEPD Group recommends that the President direct the Secretaries of State, 

Treasury, and Commerce to initiate a comprehensive review of sanctions. Energy secu


rity should be one of the factors considered in such a review. 

★ The NEPD Group recommends that the President direct the Secretaries of State, 

Commerce, and Energy to engage in a dialogue through the North American Energy 

Working Group to develop closer energy integration among Canada, Mexico, and the 

United States and identify areas of cooperation, fully consistent with the countries’ re


spective sovereignties. 

★ The NEPD Group recommends that the President direct the Secretaries of Energy 

and State, in consultation with the Federal Energy Regulatory Commission, to review 

their respective oil, natural gas, and electricity cross-boundary “Presidential Permitting” 

authorities, and to propose reforms as necessary in order to make their own regulatory 

regimes more compatible for cross-border trade. 

★ The NEPD Group recommends that the President direct the Secretaries of Energy 

and State, coordinating with the Secretary of the Interior and the Federal Energy 

Regulatory Commission, to work closely with Canada, the State of Alaska, and all 

other interested parties to expedite the construction of a pipeline to deliver natural 

gas to the lower 48 states. This should include proposing to Congress any changes or 

waivers of law pursuant to the Alaska Natural Gas Transportation Act of 1976 that may 

be required. 

Chapter 8 • Strengthening Global Alliances: Enhancing National Energy Security and International Relationships 8-18 
★ The NEPD Group recommends that the President direct the Secretaries of State and 

Commerce to conclude negotiations with Venezuela on a Bilateral Investment Treaty, 

and propose formal energy consultations with Brazil, to improve the energy invest


ment climate for the growing level of energy investment flows between the United 

States and each of these countries. 

★ The NEPD Group recommends that the President direct the Secretaries of Energy, 

Commerce, and State to work through the Summit of the Americas Hemispheric En


ergy Initiative to develop effective and stable regulatory frameworks and foster reli


able supply sources of all fuels within the region. 

★ The NEPD Group recommends that the President direct the Secretaries of State, 

Energy, and Commerce to reinvigorate the U.S.-Africa Trade and Economic Coopera


tion Forum and the U.S.-African Energy Ministerial process; deepen bilateral and mul


tilateral engagement to promote a more receptive environment for U.S. oil and gas 

trade, investment, and operations; and promote geographic diversification of energy 

supplies, addressing such issues as transparency, sanctity of contracts, and security. 

★ The NEPD Group recommends that the President direct the Secretaries of State, 

Commerce, and Energy to support more transparent, accountable, and responsible use 

of oil resources in African producer countries to enhance the stability and security of 

trade and investment environments. 

★ The NEPD Group recommends that the President direct the Secretaries of State, 

Commerce, and Energy to support the BTC oil pipeline as it demonstrates its commer


cial viability. 

★ The NEPD Group recommends that the President direct the Secretaries of Com


merce, State, and Energy to continue working with relevant companies and countries 

to establish the commercial conditions that will allow oil companies operating in 

Kazakhstan the option of exporting their oil via the BTC pipeline. 

★ The NEPD Group recommends that the President direct the Secretaries of State, 

Commerce, and Energy to support the efforts of private investors and regional govern


ments to develop the Shah Deniz gas pipeline as a way to help Turkey and Georgia di


versify their natural gas supplies and help Azerbaijan export its gas via a pipeline that 

will continue diversification of secure energy supply routes. 

★ The NEPD Group recommends that the President direct appropriate federal agen


cies to complete the current cycle of oil spill response readiness workshops and to 

consider further appropriate steps to ensure the implementation of the workshops’ 

recommendations. 

★ The NEPD Group recommends that the President direct the Secretary of State to 

encourage Greece and Turkey to link their gas pipeline systems to allow European 

consumers to diversify their gas supplies by purchasing Caspian gas. 

8-19 NATIONAL ENERGY POLICY 
★ The NEPD Group recommends that the President direct the Secretaries of Com


merce, Energy, and State to deepen their commercial dialogue with Kazakhstan, 

Azerbaijan, and other Caspian states to provide a strong, transparent, and stable 

business climate for energy and related infrastructure projects. 

★ The NEPD Group recommends that the President direct the Secretaries of State, 

Commerce, and Energy to deepen the focus of the discussions with Russia on energy 

and the investment climate. 

★ The NEPD Group recommends that the President direct the Secretaries of Com


merce, State, and Energy to assist U.S. companies in their dialogue on the investment 

and trade climate with Russian officials, to encourage reform of the PSA law and other 

regulations and related tax provisions, as well as general improvements in the overall 

investment climate. This will help expand private investment opportunities in Russia 

and will increase the international role of Russian firms. 

★ The NEPD Group recommends that the President direct the Secretaries of State, 

Commerce, and Energy to continue to work in the APEC Energy Working Group to ex


amine oil market data transparency issues and the variety of ways petroleum stocks 

can be used as an option to address oil market disruptions. 

★ The NEPD Group recommends that the President direct the Secretaries of State and 

Energy to work with India’s Ministry of Petroleum and Natural Gas to help India maxi


mize its domestic oil and gas production. 

★ The NEPD Group recommends that the President direct the Secretaries of Com


merce, State, and Energy to promote market-based solutions to environmental con


cerns; support exports of U.S. clean energy technologies and encourage their overseas 

development; engage bilaterally and multilaterally to promote best practices; explore 

collaborative international basic research and development in energy alternatives and 

energy-efficient technologies; and explore innovative programs to support the global 

adoption of these technologies. 

★ The NEPD Group recommends that the President direct federal agencies to support 

continued research into global climate change; continue efforts to identify environ


mentally and cost-effective ways to use market mechanisms and incentives; continue 

development of new technologies; and cooperate with allies, including through inter


national processes, to develop technologies, market-based incentives, and other inno


vative approaches to address the issue of global climate change. 

★ The NEPD Group recommends that the President seek to increase international co


operation on finding alternatives to oil, especially for the transportation sector. 

★ The NEPD Group recommends that the President direct the Secretary of State to re


invigorate its dialogue with the European Union on energy issues, and resume the con


sultative process this year in Washington. 

Chapter 8 • Strengthening Global Alliances: Enhancing National Energy Security and International Relationships 8-20 
★ The NEPD Group recommends that the President promote a coordinated approach 

to energy security by calling for an annual meeting of G-8 Energy Ministers or their 

equivalents. 

★ The NEPD Group recommends that the President reaffirm that the SPR is designed 

for addressing an imminent or actual disruption in oil supplies, and not for managing 

prices. 

★ The NEPD Group recommend that the President direct the Secretary of Energy to 

work within the International Energy Agency (IEA) to ensure that member states ful


fill their stockholding. 

★ The NEPD Group recommends that the President direct the Secretary of Energy to 

encourage major oil-consuming countries that are not IEA members to consider strate


gic stocks as an option for addressing potential supply disruptions. In this regard, we 

should work closely with Asian economies, especially through APEC. 

★ The NEPD Group recommends that the President direct the Secretary of Energy of


fer to lease excess SPR storage facilities to countries (both IEA and non-IEA mem


bers) that might not otherwise build storage facilities or hold sufficient strategic 

stocks, consistent with statutory authorities. 

★ The NEPD Group recommends that the President, at such time that exchanged SPR 

barrels are returned to the SPR, should determine whether offshore Gulf of Mexico 

royalty oil deposits to the SPR should be resumed, thereby increasing the size of our 

reserve. 

★ The NEPD Group recommends that the President direct the Secretary of Energy to 

work closely with Congress to ensure that our SPR protection is maintained. 

★ The NEPD Group recommends that the President direct the Secretary of Energy to 

work with producer and consumer country allies and the IEA to craft a more compre


hensive and timely world oil data reporting system. 

8-21 NATIONAL ENERGY POLICY 
SUMMARY OF RECOMMENDATIONS 

CHAPTER ONE 

Taking Stock:


Energy 

Challenges 

Facing the 

United States


★ The NEPD Group recommends that the President issue an Executive Order to di


rect all federal agencies to include in any regulatory action that could significantly and 

adversely affect energy supplies, distribution, or use, a detailed statement on: (1) the 

energy impact of the proposed action, (2) any adverse energy effects that cannot be 

avoided should the proposal be implemented, and (3) alternatives to the proposed ac


tion. The agencies would be directed to include this statement in all submissions to 

the Office of Management and Budget of proposed regulations covered by Executive 

Order 12866, as well as in all notices of proposed regulations published in the Federal 

Register. 

★ The NEPD Group recommends that the President direct the executive agencies to 

work closely with Congress to implement the legislative components of a national en


ergy policy. 

★ The NEPD Group recommends to the President that the NEPD Group continue to 

work and meet on the implementation of the National Energy Policy and explore oth


er ways to advance dependable, affordable, and environmentally responsible produc


tion and distribution of energy. 

Note: All recommendations in this report are subject to execution in accordance with applicable law. Legislation would be sought where needed. Also, any recommendations that involve foreign countries would be executed in accordance with the customs of international 

relations, including appropriate diplomatic consultation. 

NATIONAL ENERGY POLICY 
SUMMARY OF RECOMMENDATIONS 

CHAPTER TWO 

Striking Home


The Impacts of


High Energy 

Prices on 

Families, 

Communities,


and Businesses


★ The NEPD Group recommends that the President direct the Secretary of Energy to ex


plore potential opportunities to develop educational programs related to energy develop


ment and use. This should include possible legislation to create public education aware


ness programs about energy. Such programs should be long-term in nature, should be 

funded and managed by the respective energy industries, and should include information 

on energy’s compatibility with a clean environment. 

★ The NEPD Group recommends that the President take steps to mitigate impacts of 

high energy costs on low-income consumers. These steps would include: 

• 	Strengthening the Low Income Home Energy Assistance Program by making $1.7 bil


lion available annually. This is an increase of $300 million over the regular FY 2001 ap


propriation. 

• 	 Directing the Secretaries of Interior and Health and Human Services to propose legis


lation to bolster LIHEAP funding by using a portion of oil and gas royalty payments. 

• 	 Redirecting royalties above a set trigger price to LIHEAP, whenever crude oil and 

natural gas prices exceed that trigger price, as determined by the responsible agencies. 

★ The NEPD Group recommends that the President increase funding for the Weatheriza


tion Assistance Program by $1.2 billion over ten years. This will roughly double the spend


ing during that period on weatherization. Consistent with that commitment, the FY 2002 

Budget includes a $120 million increase over 2001. The Department of Energy will have 

the option of using a portion of those funds to test improved implementation approaches 

for the weatherization program. 

★ The NEPD Group recommends that the President support legislation to allow funds 

dedicated for the Weatherization and State Energy Programs to be transferred to LIHEAP 

if the Department of Energy deems it appropriate. 

★ The NEPD Group recommends the President recognize unique regional energy con


cerns by working with the National Governors Association and regional governor associa


tions to determine how to better serve the needs of diverse areas of the country. 

★ The NEPD Group recommends the President direct FEMA to prepare for potential en


ergy emergencies. 

• 	 FEMA should work with states’ Offices of Emergency Management as they expand 

existing emergency operations plans to identify potential problems and address conse


quences of the power shortages. FEMA should use its current Regional Incident Re


porting System to identify any situations that might demand immediate attention. 

• 	 Using the structure of the already existing Federal Response Plan, FEMA should con


duct Regional Interagency Steering Committee (RISC) meetings for states affected by 

the energy shortfalls. The RISC is a FEMA-led interagency committee comprised of 

agencies and departments that support the Federal Response Plan. Either an upcom


ing, scheduled RISC meeting or a special-focus RISC meeting can be held to identify 

the short-term energy outlook, as well as any expected consequences, in each of the 

states during the peak summer season. 

Appendix One 
SUMMARY OF RECOMMENDATIONS 

CHAPTERTHREE 

Protecting 

America’s 

Environment: 

Sustaining the 

Nation’s 

Health and 

Environment 

★ The NEPD Group recommends that the President direct the Administrator of the 

Environmental Protection Agency (EPA) to propose multi-pollutant legislation. The 

NEPD Group recommends that the President direct the EPA Administrator to work 

with Congress to propose legislation that would establish a flexible, market-based 

program to significantly reduce and cap emissions of sulfur dioxide, nitrogen oxides, 

and mercury from electric power generators. Such a program (with appropriate 

measures to address local concerns) would provide significant public health benefits 

even as we increase electricity supplies. 

• Establish mandatory reduction targets for emissions of three main pollutants: sulfur 

dioxide, nitrogen oxides, and mercury. 

• Phase in reductions over a reasonable period of time, similar to the successful acid 

rain reduction program established by the 1990 amendments to the Clean Air Act. 

• Provide regulatory certainty to allow utilities to make modifications to their plants 

without fear of new litigation. 

• Provide market-based incentives, such as emissions trading credits to help achieve 

the required reductions. 

★ The NEPD Group recommends the President direct the Secretary of the Interior to 

work with Congress to create the “Royalties Conservation Fund.” 

• This fund will earmark potentially billions of dollars in royalties from new oil and 

gas production in ANWR to fund land conservation efforts. 

• This fund will also be used to eliminate the maintenance and improvements backlog 

on federal lands. 

★ The NEPD Group recommends the President issue an Executive Order to rational


ize permitting for energy production in an environmentally sound manner by directing 

federal agencies to expedite permits and other federal actions necessary for energy


related project approvals on a national basis. This order would establish an inter

agency task force chaired by the Council on Environmental Quality to ensure that 

federal agencies responsible for permitting energy-related facilities are coordinating 

their efforts. The task force will ensure that federal agencies set up appropriate 

mechanisms to coordinate federal, state, tribal, and local permitting activity in particu


lar regions where increased activity is expected. 

NATIONAL ENERGY POLICY 
SUMMARY OF RECOMMENDATIONS 

CHAPTER FOUR 

Using Energy 

Wisely: 

Increasing 

Energy 

Conservation 

and Efficiency 

★ The NEPD Group recommends that the President direct the Office of Science and 

Technology Policy and the President’s Council of Advisors on Science and Technology 

to review and make recommendations on using the nation’s energy resources more effi


ciently. 

★ The NEPD Group recommends that the President direct the Secretary of Energy to 

conduct a review of current funding and historic performance of energy efficiency re


search and development programs in light of the recommendations of this report. Based 

on this review, the Secretary of Energy is then directed to propose appropriate funding of 

those research and development programs that are performance-based and are modeled 

as public-private partnerships. 

★ The NEPD Group recommends that the President direct the Secretary of Energy to 

promote greater energy efficiency. 

•	 Expand the Energy Star program beyond office buildings to include schools, re


tail buildings, health care facilities, and homes. 

•	 Extend the Energy Star labeling program to additional products, appliances, and 

services. 

•	 Strengthen Department of Energy public education programs relating to energy 

efficiency. 

★ The NEPD Group recommends that the President direct the Secretary of Energy to 

improve the energy efficiency of appliances. 

•	 Support the appliance standards program for covered products, setting higher 

standards where technologically feasible and economically justified. 

•	 Expand the scope of the appliance standards program, setting standards for ad


ditional appliances where technologically feasible and economically justified. 

★ The NEPD Group recommends that the President direct heads of executive depart


ments and agencies to take appropriate actions to conserve energy use at their facilities 

to the maximum extent consistent with the effective discharge of public responsibili


ties. Agencies located in regions where electricity shortages are possible should con


serve especially during periods of peak demand. Agencies should report to the Presi


dent, through the Secretary of Energy, within 30 days on the conservation actions taken. 

★ The NEPD Group recommends that the President direct the Secretary of the Trea


sury to work with Congress to encourage increased energy efficiency through combined 

heat and power (CHP) projects by shortening the depreciation life for CHP projects or 

providing investment tax credits. 

★ The NEPD Group recommends that the President direct the Administrator of the En


vironmental Protection Agency (EPA) to work with local and state governments to pro


mote the use of well-designed CHP and other clean power generation at brownfields 

sites, consistent with the local communities’ interests. EPA will also work to clarify li


ability issues if they are raised at a particular site. 

Appendix One 
SUMMARY OF RECOMMENDATIONS 

CHAPTER FOUR ★ The NEPD Group recommends that the President direct the EPA Administrator to 

promote CHP through flexibility in environmental permitting. 

★ The NEPD Group recommends that the President direct the Secretary of Transporta


tion to: 

•	 Review and provide recommendations on establishing Corporate Average Fuel 

Economy (CAFE) standards with due consideration of the National Academy of 

Sciences study to be released in July 2001. Responsibly crafted CAFE standards 

should increase efficiency without negatively impacting the U.S. automotive indus


try. The determination of future fuel economy standards must therefore be ad


dressed analytically and based on sound science. 

•	 Consider passenger safety, economic concerns, and disparate impact on the U.S. 

versus foreign fleet of automobiles. 

•	 Look at other market-based approaches to increasing the national average fuel 

economy of new motor vehicles. 

★ The new NEPD Group recommends that the President direct the Secretary of Trans


portation to review and promote congestion mitigation technologies and strategies and 

work with Congress on legislation to implement these strategies. 

★ The NEPD Group recommends that the President direct the Secretary of the Trea


sury to work with Congress on legislation to increase energy efficiency with a tax credit 

for fuel-efficient vehicles. The NEPD Group recommends that a temporary, efficiency


based income tax credit be available for purchase of new hybrid fuel cell vehicles be


tween 2002 and 2007. 

★ The NEPD Group recommends that the President direct all agencies to use techno


logical advances to better protect our environment. 

•	 The Administration remains committed to investing in Intelligent Transportation 

Systems (ITS) and encourages the private sector to invest in ITS applications. 

This Department of Transportation (DOT) program funds the development of 

improved transportation infrastructure that will reduce congestion, such as trav


eler information/navigation systems, freeway management, and electronic toll 

collection. ITS applications reduce fuel associated with travel. 

•	 The Administration remains committed to the DOT’s fuel-cell-powered transit 

bus program, authored by the Transportation Equity Act for the 21st Century 

(TEA-21). This program demonstrates the viability of fuel-cell power plants for 

transit bus applications. 

•	 The Administration remains committed to the Clean Buses program. TEA-21 es


tablishes a new clean fuel formula grant program, which provides an opportu


nity to accelerate the introduction of advanced bus propulsion technologies into 

the mainstream of the nation’s transit fleet. 

NATIONAL ENERGY POLICY 
SUMMARY OF RECOMMENDATIONS 

★ The NEPD Group recommends that the President direct the EPA and DOT to develop 

ways to reduce demand for petroleum transportation fuels by working with the trucking 

industry to establish a program to reduce emissions and fuel consumption from long-haul 

trucks at truck stops by implementing alternatives to idling, such as electrification and 

auxiliary power units at truck stops along interstate highways. EPA and DOT will develop 

partnership agreements with trucking fleets, truck stops, and manufacturers of idle-re


ducing technologies (e.g., portable auxiliary packs, electrification) to install and use low


emission-idling technologies. 

★ The NEPD Group recommends that the President direct the Secretary of Energy to 

establish a national priority for improving energy efficiency. The priority would be to im


prove the energy intensity of the U.S. economy as measured by the amount of energy re


quired for each dollar of economic productivity. This increased efficiency should be pur

sued through the combined efforts of industry, consumers, and federal, state, and local 

governments. 

★ The NEPD Group recommends that the President direct the EPA Administrator to de


velop and implement a strategy to increase public awareness of the sizable savings that 

energy efficiency offers to homeowners across the country. Typical homeowners can 

save about 30 percent (about $400) a year on their home energy bill by using Energy Star

labeled products. 

Appendix One 
SUMMARY OF RECOMMENDATIONS 

Chapter Five


Energy for a


New Century:


Increasing 

Domestic 

Energy 

Supplies 

★ The NEPD Group recommends that the President direct the Secretaries of Energy and 

the Interior to promote enhanced oil and gas recovery from existing wells through new 

technology. 

★ The NEPD Group recommends that the President direct the Secretary of Energy to 

improve oil and gas exploration technology through continued partnership with public and 

private entities. 

★ The NEPD Group recommends that the President direct the Secretary of the Interior to 

examine land status and lease stipulation impediments to federal oil and gas leasing, and 

review and modify those where opportunities exist (consistent with the law, good environ


mental practice, and balanced use of other resources). 

• 	 Expedite the ongoing Energy Policy and Conservation Act study of impedi- ments 

to federal oil and gas exploration and development. 

• 	 Review public lands withdrawals and lease stipulations, with full public consultation, 

especially with the people in the region, to consider modifications where appropriate. 

★ The NEPD Group recommends that the President direct the Secretary of the Interior to 

consider economic incentives for environmentally sound offshore oil and gas development 

where warranted by specific circumstances: explore opportunities for royalty reductions, 

consistent with ensuring a fair return to the public where warranted for enhanced oil and 

gas recovery; for reduction of risk associated with production in frontier areas or deep gas 

formations; and for development of small fields that would otherwise be uneconomic. 

★ The NEPD Group recommends that the President direct the Secretaries of Commerce 

and Interior to re-examine the current federal legal and policy regime (statutes, regulations, 

and Executive Orders) to determine if changes are needed regarding energy-related activi


ties and the siting of energy facilities in the coastal zone and on the Outer Continental Shelf 

(OCS). 

★ The NEPD Group recommends that the President direct the Secretary of the Interior 

continue OCS oil and gas leasing and approval of exploration and development plans on 

predictable schedules. 

★ The NEPD Group recommends that the President direct the Secretary of the Interior to 

consider additional environmentally responsible oil and gas development, based on sound 

science and the best available technology, through further lease sales in the National Petro


leum Reserve-Alaska. Such consideration should include areas not currently leased within 

the Northeast corner of the Reserve. 

★ The NEPD Group recommends that the President direct the Secretary of the Interior 

work with Congress to authorize exploration and, if resources are discovered, development 

of the 1002 Area of ANWR. Congress should require the use of the best available technology 

and should require that activities will result in no significant adverse impact to the sur

rounding environment. 

★ The NEPD Group recommends that the President direct the Secretary of the Interior to 

work with Congress and the State of Alaska to put in place the most expeditious process for 

renewal of the Trans-Alaska Pipeline System rights-of-way to ensure that Alaskan oil contin


ues to flow uninterrupted to the West Coast of the United States. 

NATIONAL ENERGY POLICY 
SUMMARY OF RECOMMENDATIONS 

★ The NEPD Group recommends that the President direct the Secretary of Energy to pro


pose comprehensive electricity legislation that promotes competition, protects consumers, 

enhances reliability, promotes renewable energy, improves efficiency repeals the Public Utility 

Holding Company Act, and reforms the Public Utility Regulatory Policies Act. 

★ The NEPD Group recommends that the President encourage FERC to use its existing 

statutory authority to promote competition and encourage investment in transmission facili


ties. 

★ The NEPD Group recognizes the importance of looking to technology to help us meet the 

goals of increasing electricity generation while protecting our environment. To that end, the 

NEPD Group recommends that the President direct the Department of Energy to continue 

to develop advanced clean coal technology by: 

• Investing $2 billion over 10 years to fund research in clean coal technologies. 

• Supporting a permanent extension of the existing research and development tax credit. 

•	 Directing federal agencies to explore regulatory approaches that will encourage ad


vancements in environmental technology. 

★ The NEPD Group recommends that the President direct federal agencies to provide 

greater regulatory certainty relating to coal electricity generation through clear policies that 

are easily applied to business decisions. 

★ The NEPD Group recommends that the President support the expansion of nuclear en


ergy in the United States as a major component of our national energy policy. Following are 

specific components of the recommendation: 

• 	 Encourage the Nuclear Regulatory Commission (NRC) to ensure that safety and envi


ronmental protection are high priorities as they prepare to evaluate and expedite appli


cations for licensing new advanced-technology nuclear reactors. 

• Encourage the NRC to facilitate efforts by utilities to expand nuclear energy generation 

in the United States by uprating existing nuclear plants safely. 

• 	Encourage the NRC to relicense existing nuclear plants that meet or exceed safety 

standards. 

•	 Direct the Secretary of Energy and the Administrator of the Environmental Protection Agency 

to assess the potential of nuclear energy to improve air quality. 

• Increase resources as necessary for nuclear safety enforcement in light of the potential 

increase in generation. 

• Use the best science to provide a deep geologic repository for nuclear waste. 

• Support legislation clarifying that qualified funds set aside by plant owners for eventual 

decommissioning will not be taxed as part of the transaction. 

• Support legislation to extend the Price–Anderson Act. 

★ The NEPD Group recommends that, in the context of developing advanced nuclear fuel 

cycles and next generation technologies for nuclear energy, the United States should reex


amine its policies to allow for research, development and deployment of fuel conditioning 

methods (such as pyroprocessing) that reduce waste streams and enhance proliferation re


sistance. In doing so, the United States will continue to discourage the accumulation of sepa


rated plutonium, worldwide. 

★ The United States should also consider technologies (in collaboration with interna


tional partners with highly developed fuel cycles and a record of close cooperation) to de


velop reprocessing and fuel treatment technologies that are cleaner, more efficient, less waste


intensive, and more proliferation-resistant. 

Appendix One 
SUMMARY OF RECOMMENDATIONS 

CHAPTER FIVE	 ★ The NEPD Group recognizes there is a need to reduce the time and cost of the hydro


power licensing process. The NEPD Group recommends that the President encourage the 

Federal Energy Regulatory Commission (FERC) and direct federal resource agencies to make 

the licensing process more clear and efficient, while preserving environmental goals. In addi


tion, the NEPD Group recognizes the importance of optimizing the efficiency and reliability 

of existing hydropower facilities and will encourage the Administration to adopt efforts to


ward that end. 

• Support administrative and legislative reform of the hydropower licensing process. 

• 	 Direct federal resource agencies to reach interagency agreement on conflicting manda


tory license conditions before they submit their conditions to FERC for inclusion in a 

license. 

• Encourage FERC to adopt appropriate deadlines for its own actions during the licensing 

process. 

NATIONAL ENERGY POLICY 
SUMMARY OF RECOMMENDATIONS 

CHAPTER SIX 

Nature’s 

Power: 

Increasing 

America’s Use 

of Renewable 

and 

Alternative 

Energy 

★ The NEPD Group recommends that the President direct the Secretaries of the 

Interior and Energy to re-evaluate access limitations to federal lands in order to 

increase renewable energy production, such as biomass, wind, geothermal, and solar. 

★ The NEPD Group supports the increase of $39.2 million in the FY 2002 budget 

amendment for the Department of Energy’s Energy Supply account that would 

provide increased support for research and development of renewable energy re


sources. 

★ The NEPD Group recommends that the President direct the Secretary of Energy to 

conduct a review of current funding and historic performance of renewable energy 

and alternative energy research and development programs in light of the recommen


dations of this report. Based on this review, the Secretary of Energy is then directed to 

propose appropriate funding of those research and development programs that are 

performance-based and are modeled as public-private partnerships. 

★ The NEPD Group recommends that the President direct the Secretary of the 

Treasury to work with Congress on legislation to expand the section 29 tax credit to 

make it available for new landfill methane projects. The credit could be tiered, de


pending on whether a landfill is already required by federal law to collect and flare its 

methane emissions due to local air pollution concerns. 

★ The NEPD Group recommends that the President direct the Secretary of the 

Interior to determine ways to reduce the delays in geothermal lease processing as part 

of the permitting review process. 

★ The NEPD Group recommends that the President direct the Administrator of the 

Environmental Protection Agency to develop a new renewable energy partnership 

program to help companies more easily buy renewable energy, as well as receive 

recognition for the environmental benefits of their purchase, and help consumers by 

promoting consumer choice programs that increase their knowledge about the 

environmental benefits of purchasing renewable energy. 

★ The NEPD Group recommends that the President direct the Secretary of the 

Treasury to work with Congress on legislation to extend and expand tax credits for 

electricity produced using wind and biomass. The President’s budget request extends 

the present 1.7 cents per kilowatt hour tax credit for electricity produced from wind 

and biomass; expands eligible biomass sources to include forest-related sources, 

agricultural sources, and certain urban sources; and allows a credit for electricity 

produced from biomass co-fired with coal. 

★ The NEPD Group recommends that the President direct the Secretary of the 

Treasury to work with Congress on legislation to provide a new 15 percent tax credit 

for residential solar energy property, up to a maximum credit of $2,000. 

★ The NEPD Group recommends that the President direct the Secretaries of the 

Interior and Energy to work with Congress on legislation to use an estimated $1.2 

billion of bid bonuses from the environmentally responsible leasing of ANWR for 

funding research into alternative and renewable energy resources, including wind, 

solar, geothermal, and biomass. 

★ The NEPD Group recommends that the President direct the Secretary of the 

Treasury to work with Congress to continue the ethanol excise tax exemption. 

Appendix One 
SUMMARY OF RECOMMENDATIONS 

CHAPTER SIX	 ★ The NEPD Group recommends that the President direct the Secretary of Energy to 

develop next-generation technology—including hydrogen and fusion. 

• Develop an education campaign that communicates the benefits of alternative 

forms of energy, including hydrogen and fusion. 

• Focus research and development efforts on integrating current programs regarding 

hydrogen, fuel cells, and distributed energy. 

• Support legislation reauthorizing the Hydrogen Energy Act. 

★ The NEPD Group recommends that the President direct the Secretary of the 

Treasury to work with Congress to develop legislation to provide for a temporary 

income tax credit available for the purchase of new hybrid or fuel-cell vehicles 

between 2002 and 2007. 

★ The NEPD Group recommends that the President direct the Administrator of the 

Environmental Protection Agency to issue guidance to encourage the development of 

well-designed combined heat and power (CHP) units that are both highly efficient 

and have low emissions. The goal of this guidance would be to shorten the time 

needed to obtain each permit, provide certainty to industry by ensuring consistent 

implementation across the country, and encourage the use of these cleaner, more 

efficient technologies. 

NATIONAL ENERGY POLICY 
SUMMARY OF RECOMMENDATIONS 

CHAPTER SEVEN 

America’s 

Energy 

Infrastructure: 

A 

Comprehensive 

Delivery 

System 

★ The NEPD Group recommends that the President direct the Secretary of Energy to 

work with the Federal Energy Regulatory Commission (FERC) to improve the reliabil


ity of the interstate transmission system and to develop legislation providing for en


forcement by a self-regulatory organization subject to FERC oversight. 

★ The NEPD Group recommends that the President direct the Secretary of Energy to 

expand the Department’s research and development on transmission reliability and 

superconductivity. 

★ The NEPD Group recommends that the President direct the Secretary of Energy to au


thorize the Western Area Power Administration to explore relieving the “Path 15” bottle


neck through transmission expansion financed by nonfederal contributions. 

★ The NEPD Group recommends that the President direct the appropriate federal 

agencies to take actions to remove constraints on the interstate transmission grid and 

allow our nation’s electricity supply to meet the growing needs of our economy. 

•	 Direct the Secretary of Energy, by December 31, 2001, to examine the benefits of 

establishing a national grid, identify transmission bottlenecks, and identify mea


sures to remove transmission bottlenecks. 

•	 Direct the Secretary of Energy to work with FERC to relieve transmission con


straints by encouraging the use of incentive rate-making proposals. 

•	 Direct the federal utilities to determine whether transmission expansions are nec


essary to remove constraints. The Administration should review the Bonneville 

Power Administration’s (BPA’s) capital and financing requirements in the context of 

its membership in a regional RTO, and if additional Treasury financing appears war

ranted or necessary in the future, the Administration should seek an increase in 

BPA’s borrowing authority at that time. 

•	 Direct the Secretary of Energy, in consultation with appropriate federal agencies 

and state and local government officials, to develop legislation to grant authority to 

obtain rights-of-way for electricity transmission lines, with the goal of creating a re


liable national transmission grid. Similar authority already exists for natural gas 

pipelines in recognition of their role in interstate commerce. 

★ The NEPD Group recommends that the President direct the Secretary of the Inte


rior to work with Congress and the State of Alaska to put in place the most expedi


tious process for renewal of the Trans-Alaskan Pipeline System lease to ensure that 

Alaskan oil continues to flow uninterrupted to the West Coast of the United States. 

★ The NEPD Group recommends that the President direct the Secretaries of Energy 

and State, coordinating with the Secretary of the Interior and the Federal Energy 

Regulatory Commission, to work closely with Canada, the State of Alaska, and all 

other interested parties to expedite the construction of a pipeline to deliver natural 

gas to the lower 48 states. This should include proposing to Congress any changes or 

waivers of law pursuant to the Alaska Natural Gas Transportation Act of 1976 that 

may be required. 

★ The NEPD Group recommends that the President support legislation to improve 

the safety of natural gas pipelines, protect the environment, strengthen emergency 

preparedness and inspections and bolster enforcement. 

Appendix One 
SUMMARY OF RECOMMENDATIONS 

CHAPTER SEVEN ★ The NEPD Group recommends that the President direct agencies to continue their 

interagency efforts to improve pipeline safety and expedite pipeline permitting in an 

environmentally sound manner and encourage FERC to consider improvements in 

the regulatory process governing approval of interstate natural gas pipeline projects. 

★ The NEPD Group recommends that the President direct the Administrator of the 

EPA to study opportunities to maintain or improve the environmental benefits of 

state and local “boutique” clean fuel programs while exploring ways to increase the 

flexibility of the fuels distribution infrastructure, improve fungibility, and provide 

added gasoline market liquidity. In concluding this study, the Administrator shall con


sult with the Departments of Energy and Agriculture, and other agencies as needed. 

★ The NEPD Group recommends that the President direct the Administrator of the 

Environmental Protection Agency and the Secretary of Energy to take steps to ensure 

America has adequate refining capacity to meet the needs of consumers. 

• Provide more regulatory certainty to refinery owners and streamline the permitting 

process where possible to ensure that regulatory overlap is limited. 

• Adopt comprehensive regulations (covering more than one pollutant and require


ment) and consider the rules’ cumulative impacts and benefits. 

★ The NEPD Group recommends that the President direct the Administrator of the 

Environmental Protection Agency, in consultation with the Secretary of Energy and 

other relevant agencies, to review New Source Review regulations, including adminis


trative interpretation and implementation, and report to the President within 90 days 

on the impact of the regulations on investment in new utility and refinery generation 

capacity, energy efficiency, and environmental protection. 

★ The NEPD Group recommends that the President direct the Attorney General to 

review existing enforcement actions regarding New Source Review to ensure that the 

enforcement actions are consistent with the Clean Air Act and its regulations. 

★ The NEPD Group supports the President’s budget proposal to provide $8 million to 

maintain the two-million-barrel Northeast Heating Oil Reserve. Operated by the pri


vate sector, the Reserve helps ensure adequate supplies of heating oil in the event 

that colder than normal winters occur in the Northeast United States. 

NATIONAL ENERGY POLICY 
SUMMARY OF RECOMMENDATIONS 

CHAPTER 8 

Strengthening 

Global 

Alliances: 

Enhancing 

National 

Energy 

Security and 

International 

Relationships


★ The NEPD Group recommends that the President make energy security a priority of 

our trade and foreign policy. 

★ The NEPD Group recommends the President support initiatives by Saudi Arabia, Ku


wait, Algeria, Qatar, the UAE, and other suppliers to open up areas of their energy sec


tors to foreign investment. 

★ The NEPD Group recommends that the President direct the Secretaries of State, En


ergy and Commerce work to improve dialogue among energy producing and consuming 

nations. 

★ The NEPD Group recommends that the President direct the Secretaries of State, 

Commerce, and Energy to continue supporting American energy firms competing in 

markets abroad and use our membership in multilateral organizations, such as the AsiaPacific Economic Cooperation (APEC) forum, the Organization for Economic Coopera


tion and Development (OECD), the World Trade Organization (WTO) Energy Services 

Negotiations, the Free Trade Area of the Americas (FTAA), and our bilateral relation


ships to implement a system of clear, open, and transparent rules and procedures gov


erning foreign investment; to level the playing field for U.S. companies overseas; and to 

reduce barriers to trade and investment. 

★ The NEPD Group recommends that the President direct the Secretaries of Commerce 

and Energy, and the U.S. Trade Representative, to support a sectoral trade initiative to 

expand investment and trade in energy-related goods and services that will enhance ex


ploration, production, and refining, as well as the development of new technologies. 

★ The NEPD Group recommends that the President direct the Secretaries of State, 

Treasury, and Commerce to initiate a comprehensive review of sanctions. Energy securi


ty should be one of the factors considered in such a review. 

★ The NEPD Group recommends that the President direct the Secretaries of State, 

Commerce, and Energy to engage in a dialogue through the North American Energy 

Working Group to develop closer energy integration among Canada, Mexico, and the 

United States and identify areas of cooperation, fully consistent with the countries’ re


spective sovereignties. 

★ The NEPD Group recommends that the President direct the Secretaries of Energy 

and State, in consultation with the Federal Energy Regulatory Commission, to review 

their respective oil, natural gas, and electricity cross-boundary “Presidential Permitting” 

authorities, and to propose reforms as necessary in order to make their own regulatory 

regimes more compatible for cross-border trade. 

★ The NEPD Group recommends that the President direct the Secretaries of Energy 

and State, coordinating with the Secretary of the Interior and the Federal Energy 

Regulatory Commission, to work closely with Canada, the State of Alaska, and all 

other interested parties to expedite the construction of a pipeline to deliver natural 

gas to the lower 48 states. This should include proposing to Congress any changes or 

waivers of law pursuant to the Alaska Natural Gas Transportation Act of 1976 that 

Appendix One 
SUMMARY OF RECOMMENDATIONS 

CHAPTER EIGHT may be required. 

★ The NEPD Group recommends that the President direct the Secretaries of State and 

Commerce to conclude negotiations with Venezuela on a Bilateral Investment Treaty, 

and propose formal energy consultations with Brazil, to improve the energy investment 

climate for the growing level of energy investment flows between the United States and 

each of these countries. 

★ The NEPD Group recommends that the President direct the Secretaries of Energy, 

Commerce, and State to work through the Summit of the Americas Hemispheric Ener

gy Initiative to develop effective and stable regulatory frameworks and foster reliable 

supply sources of all fuels within the region. 

★ The NEPD Group recommends that the President direct the Secretaries of State, En


ergy, and Commerce to reinvigorate the U.S.-Africa Trade and Economic Cooperation 

Forum and the U.S.-African Energy Ministerial process; deepen bilateral and multilater

al engagement to promote a more receptive environment for U.S. oil and gas trade, in


vestment, and operations; and promote geographic diversification of energy supplies, 

addressing such issues as transparency, sanctity of contracts, and security. 

★ The NEPD Group recommends that the President direct the Secretaries of State, 

Commerce, and Energy to support more transparent, accountable, and responsible use 

of oil resources in African producer countries to enhance the stability and security of 

trade and investment environments. 

★ The NEPD Group recommends that the President direct the Secretaries of State, 

Commerce, and Energy to support the BTC oil pipeline as it demonstrates its commer

cial viability. 

★ The NEPD Group recommends that the President direct the Secretaries of Com


merce, State, and Energy to continue working with relevant companies and countries 

to establish the commercial conditions that will allow oil companies operating in Kaza


khstan the option of exporting their oil via the BTC pipeline. 

★ The NEPD Group recommends that the President direct the Secretaries of State, 

Commerce, and Energy to support the efforts of private investors and regional govern


ments to develop the Shah Deniz gas pipeline as a way to help Turkey and Georgia di


versify their natural gas supplies and help Azerbaijan export its gas via a pipeline that 

will continue diversification of secure energy supply routes. 

★ The NEPD Group recommends that the President direct appropriate federal agen


cies to complete the current cycle of oil spill response readiness workshops and to 

consider further appropriate steps to ensure the implementation of the workshops’ rec


ommendations. 

★ The NEPD Group recommends that the President direct the Secretary of State to en


courage Greece and Turkey to link their gas pipeline systems to allow European con


sumers to diversify their gas supplies by purchasing Caspian gas. 

NATIONAL ENERGY POLICY 
SUMMARY OF RECOMMENDATIONS 

★ The NEPD Group recommends that the President direct the Secretaries of Com
­

merce, Energy, and State to deepen their commercial dialogue with Kazakhstan, Azer
­

baijan, and other Caspian states to provide a strong, transparent, and stablebusiness climate for energy and related infrastructure projects.­

★ The NEPD Group recommends that the President direct the Secretaries of State,­

Commerce, and Energy to deepen the focus of the discussions with Russia on energyand the investment climate.­

★ The NEPD Group recommends that the President direct the Secretaries of Com
­

merce, State, and Energy to assist U.S. companies in their dialogue on the investmentand trade climate with Russian officials, to encourage reform of the PSA law and otherregulations and related tax provisions, as well as general improvements in the overallinvestment climate. This will help expand private investment opportunities in Russiaand will increase the international role of Russian firms.­

★ The NEPD Group recommends that the President direct the Secretaries of State,­

Commerce, and Energy to continue to work in the APEC Energy Working Group to ex
­

amine oil market data transparency issues and the variety of ways petroleum stockscan be used as an option to address oil market disruptions.­

★ The NEPD Group recommends that the President direct the Secretaries of State andEnergy to work with India’s Ministry of Petroleum and Natural Gas to help India maxi
­

mize its domestic oil and gas production.­

★ The NEPD Group recommends that the President direct the Secretaries of Com
­

merce, State, and Energy to promote market-based solutions to environmental con
­

cerns; support exports of U.S. clean energy technologies and encourage their overseasdevelopment; engage bilaterally and multilaterally to promote best practices; explorecollaborative international basic research and development in energy alternatives andenergy-efficient technologies; and explore innovative programs to support the globaladoption of these technologies.­

★ The NEPD Group recommends that the President direct federal agencies to supportcontinued research into global climate change; continue efforts to identify environ
­

mentally and cost-effective ways to use market mechanisms and incentives; continuedevelopment of new technologies; and cooperate with allies, including through inter
­

national processes, to develop technologies, market-based incentives, and other inno
­

vative approaches to address the issue of global climate change.­

★ The NEPD Group recommends that the President seek to increase international co
­

operation on finding alternatives to oil, especially for the transportation sector.­

★ The NEPD Group recommends that the President direct the Secretary of State to re
­

invigorate its dialogue with the European Union on energy issues, and resume the con
­

sultative process this year in Washington.­

★ The NEPD Group recommends that the President promote a coordinated approachto energy security by calling for an annual meeting of G-8 Energy Ministers or theirequivalents.­

Appendix One 
SUMMARY OF RECOMMENDATIONS 

CHAPTER EIGHT 

★ The NEPD Group recommends that the President reaffirm that the SPR is designed 

for addressing an imminent or actual disruption in oil supplies, and not for managing 

prices. 

★ The NEPD Group recommend that the President direct the Secretary of Energy to 

work within the International Energy Agency (IEA) to ensure that member states ful


fill their stockholding. 

★ The NEPD Group recommends that the President direct the Secretary of Energy to 

encourage major oil-consuming countries that are not IEA members to consider stra


tegic stocks as an option for addressing potential supply disruptions. In this regard, 

we should work closely with Asian economies, especially through APEC. 

★ The NEPD Group recommends that the President direct the Secretary of Energy of


fer to lease excess SPR storage facilities to countries (both IEA and non-IEA mem


bers) that might not otherwise build storage facilities or hold sufficient strategic 

stocks, consistent with statutory authorities. 

★ The NEPD Group recommends that the President, at such time that exchanged 

SPR barrels are returned to the SPR, should determine whether offshore Gulf of Mexi


co royalty oil deposits to the SPR should be resumed, thereby increasing the size of 

our reserve. 

★ The NEPD Group recommends that the President direct the Secretary of Energy to 

work closely with Congress to ensure that our SPR protection is maintained. 

★ The NEPD Group recommends that the President direct the Secretary of Energy to 

work with producer and consumer country allies and the IEA to craft a more compre


hensive and timely world oil data reporting system. 

NATIONAL ENERGY POLICY 
Glossary 

Barrel (Oil): A unit of volume equal to 42 U.S. gallons. 

Barrels per Day (Operable Refinery Capacity): The maximum number of barrels of in


put that can be processed during a 24-hour period after making allowances for the following 

limitations: the capability of downstream facilities to absorb the output of crude oil process


ing facilities of a given refinery (no reduction is made when a planned distribution of inter


mediate streams through other than downstream facilities is part of a refinery’s normal op


eration); the types and grades of inputs to be processed; the types and grades of products to 

be manufactured; the environmental constraints associated with refinery operations; the re


duction of capacity for scheduled downtime, such as routine inspection, mechanical prob


lems, maintenance, repairs, and turnaround; and the reduction of capacity for unscheduled 

downtime, such as mechanical problems, repairs, and slowdowns. 

Biomass: Organic nonfossil material of biological origin constituting a renewable energy 

source. 

British Thermal Unit (Btu): The quantity of heat needed to raise the temperature of 1 

pound of water by 1°F at or near 39.2°F. 

Coal: A readily combustible black or brownish-black rock whose composition, including in


herent moisture, consists of more than 50 percent by weight and more than 70 percent by 

volume of carbonaceous material. It is formed from plant remains that have been com


pacted, hardened, chemically altered, and metamorphosed by heat and pressure over geo


logic time. 

Cogeneration: The production of electricity and another form of useful energy (such as 

heat or steam) used for industrial, commercial, heating, or cooling purposes. 

Commercial Building: A building with more than 50 percent of its floor space used for 

commercial activities. Commercial buildings include stores, offices, schools, churches, gym


nasiums, libraries, museums, hospitals, clinics, warehouses, and jails. Government buildings 

are also included, except buildings on military bases or reservations. 

Commercial Sector: Business establishments that are not engaged in transportation or in 

manufacturing or other types of industrial activity (agriculture, mining, or construction). 

Commercial establishments include hotels, motels, restaurants, wholesale businesses, retail 

stores, laundries, and other service enterprises; religious and nonprofit organizations; 

health, social, and educational institutions; and federal, state, and local governments. 

Streetlights, pumps, bridges, and public services are also included if the establishment oper


ating them is considered commercial. 

Conversion Factor: A number that translates units of one system into corresponding val


ues of another system. Conversion factors can be used to translate physical units of mea


sure for various fuels into Btu equivalents. 

Glossary • Appendix Two 
Crude Oil: A mixture of hydrocarbons that exists in liquid phase in natural underground 

reservoirs and remains liquid at atmospheric pressure after passing through surface separat


ing facilities. Crude oil may also include: 

•	 Small amounts of hydrocarbons that exist in the gaseous phase in natural under


ground reservoirs but are liquid at atmospheric pressure after being recovered from 

oil well (casing head) gas in lease separators and that subsequently are commingled 

with the crude stream without being separately measured. 

•	 Small amounts of nonhydrocarbons produced with the oil, such as sulfur and other 

compounds 

Crude Oil Stocks: Stocks of crude oil and lease condensate held at refineries, in pipelines, 

at pipeline terminals, and on leases. 

District Heat: Steam or hot water from an outside source used as an energy source in a 

building. The steam or hot water is produced in a central plant and is piped into the build


ing. District heat may be purchased from a utility or provided by a physical plant in a sepa


rate building that is part of the same facility (for example, a hospital complex or university). 

Electric Power Plant: A station containing prime movers, electric generators, and auxil


iary equipment for converting mechanical, chemical, and/or fission energy into electric en


ergy. 

Electricity Generation: The process of producing electric energy or transforming other 

forms of energy into electric energy. Also, the amount of electric energy produced or ex


pressed in watt-hours (Wh). 

End-Use Sectors: The residential, commercial, industrial, and transportation sectors of the 

economy. 

Energy: The capacity for doing work as measured by the capability of doing work (poten


tial energy), or the conversion of this capability to motion (kinetic energy). Energy has sev


eral forms, some of which are easily convertible and can be changed to another form useful 

for work. Most of the world’s convertible energy comes from fossil fuels that are burned to 

produce heat that is then used as a transfer medium to mechanical or other means in order 

to accomplish tasks. Electrical energy is usually measured in kilowatt-hours, while heat en


ergy is usually measured in British thermal units. 

Energy Consumption: The use of energy as a source of heat or power or as an input in the 

manufacturing process. 

Energy Source: A substance, such as oil, natural gas, or coal, that supplies heat or power. 

Electricity and renewable forms of energy, such as wood, waste, geothermal, wind, and so


lar, are considered to be energy sources. 

Exports: Shipments of goods from the 50 states and the District of Columbia to foreign 

countries and to Puerto Rico, the Virgin Islands, and other U.S. possessions and territories. 

Federal Energy Regulatory Commission (FERC): The federal agency with jurisdiction 

over interstate electricity sales, wholesale electric rates, hydroelectric licensing, natural gas 

pricing, oil pipeline rates, and gas pipeline certification. FERC is an independent regulatory 

agency within the Department of Energy and is the successor to the Federal Power Com


mission. 

NATIONAL ENERGY POLICY 
Fossil Fuel: Any naturally occurring organic fuel formed in the Earth’s crust, such as oil, 

coal, and natural gas. 

Fuel Ethanol: An anhydrous, denatured aliphatic alcohol intended for motor gasoline 

blending. 

Gas-Turbine Electric Power Plant: A plant in which the prime mover is a gas turbine. A 

gas turbine typically consists of an axial-flow air compressor and one or more combustion 

chambers where liquid or gaseous fuel is burned. The hot gases expand to drive the genera


tor and then are used to run the compressor. 

Geothermal Energy: Energy from the internal heat of the Earth, which may be residual 

heat, friction heat, or a result of radioactive decay. The heat is found in rocks and fluids at 

various depths and can be extracted by drilling or pumping. 

Gross Domestic Product (GDP): The total value of goods and services produced by la


bor and property located in the United States. 

Hydrocarbon: An organic chemical compound of hydrogen and carbon in the gaseous, liq


uid, or solid phase. The molecular structure of hydrocarbon compounds varies from the 

simplest (methane, a constituent of natural gas) to the very heavy and very complex. 

Hydropower: The production of electricity from the kinetic energy of falling water. 

Hydropower Plant: A plant in which the turbine generators are driven by falling water. 

Independent Power Producer: Wholesale electricity producers (other than qualifying fa


cilities under the Public Utilities Regulatory Policies Act of 1978) that are unaffiliated with 

franchised utilities in the area in which the independent power producers are selling power 

and that lack significant marketing power. Unlike traditional electric utilities, independent 

power producers do not possess transmission facilities that are essential to their customers 

and do not sell power in any retail service territory where they have a franchise. 

Industrial Sector: Manufacturing industries, which make up the largest part of the sector, 

along with mining, construction, agriculture, fisheries, and forestry. Establishments in this 

sector range from steel mills, to small farms, to companies assembling electronic compo


nents. 

Jet Fuel: A refined petroleum product used in jet aircraft engines. It includes kerosene


type jet fuel and naphtha-type jet fuel. 

Methane: Hydrocarbon gas, which is the major component of natural gas. 

Methanol: A light, volatile alcohol eligible for motor gasoline blending. 

Methyl Tertiary Butyl Ether (MTBE): An ether, intended for motor gasoline blending. 

Glossary • Appendix Two 
Natural Gas: A gaseous mixture of hydrocarbon compounds, primarily methane, delivered 

via pipeline for consumption. It is used as a fuel for electricity generation, a variety of uses 

in buildings, and as raw material input and fuel for industrial processes. Note: This product, 

also referred to as dry natural gas or consumer-grade natural gas, is the product that re


mains after wet natural gas has been processed at lease facilities and/or natural gas pro


cessing plants. This processing removes nonhydrocarbon gases (e.g., water vapor, carbon 

dioxide, helium, hydrogen sulfide, and nitrogen) that would otherwise make the gas unmar


ketable and natural gas liquids. 

Natural Gas, Dry: The marketable portion of natural gas production, which is obtained by 

subtracting extraction losses, including natural gas liquids removed at natural gas process


ing plants, from total production. 

Natural Gas, Wet: A mixture of hydrocarbon compounds and small quantities of various 

nonhydrocarbons existing in the gaseous phase or in solution with crude oil in porous rock 

formations at reservoir conditions. The principal hydrocarbons normally contained in the 

mixture are methane, ethane, propane, butane, and pentanes. Typical nonhydrocarbon 

gases that may be present in reservoir natural gas are water vapor, carbon dioxide, helium, 

hydrogen sulfide, and nitrogen. Under reservoir conditions, natural gas and the liquefiable 

portions occur either in a single gaseous phase in the reservoir or in solution with oil and 

are not distinguishable at the time as separate substances. 

Nitrogen Oxides (NOx): Compounds of nitrogen and oxygen produced by the burning of 

fossil fuels. 

North American Electric Reliability Council (NERC): A council formed in 1968 by the 

electric utility industry to promote the reliability and adequacy of bulk power supply in the 

electric utility systems of North America. The NERC consists of ten regional reliability 

councils and encompasses essentially all the power systems of the contiguous United 

States and Canada. 

Nuclear Electric Power: Electricity generated by an electric power plant whose turbines 

are driven by steam generated in a reactor by heat from the fissioning of nuclear fuel. 

Organization for Economic Cooperation and Development (OECD): Current mem


bers are Australia, Austria, Belgium, Canada, Czech Republic, Denmark and its territories 

(Faroe Islands and Greenland), Finland, France, Germany, Greece, Greenland, Hungary, 

Iceland, Ireland, Italy, Japan, Luxembourg, Mexico, the Netherlands, New Zealand, Norway, 

Poland, Portugal, South Korea, Spain, Sweden, Switzerland, Turkey, United Kingdom, and 

United States and its territories (Guam, Puerto Rico, and Virgin Islands). 

Organization of Petroleum Exporting Countries (OPEC): Countries that have orga


nized for the purpose of negotiating with oil companies on matters of oil production, prices, 

and future concession rights. Current members are Algeria, Indonesia, Iran, Iraq, Kuwait, 

Libya, Nigeria, Qatar, Saudi Arabia, United Arab Emirates, and Venezuela. 

Photovoltaic Energy: Direct-current electricity generated from sunlight through solid


state semiconductor devices that have no moving parts. 

NATIONAL ENERGY POLICY 
Pipeline, Natural Gas: A continuous pipe conduit, complete with such equipment as 

valves, compressor stations, communications systems, and meters, for transporting natural 

gas and/or supplemental gaseous fuels from one point to another, usually from a point in or 

beyond the producing field or processing plant to another pipeline or to points of use. Also 

refers to a company operating such facilities. 

Pipeline, Oil: Oil and product pipelines (including interstate, intrastate, and intracompany 

pipelines) used to transport oil and petroleum products, respectively, within the 50 states 

and the District of Columbia. 

Proved Reserves, Oil: The estimated quantities of all liquids defined as crude oil that geo


logical and engineering data demonstrate with reasonable certainty to be recoverable in fu


ture years from known reservoirs under existing economic and operating conditions. 

Proved Reserves, Natural Gas: The estimated quantities of natural gas that analysis of 

geological and engineering data demonstrates with reasonable certainty to be recoverable 

in future years from known reservoirs under existing economic and operating conditions. 

Refinery (Oil): An installation that manufactures finished fuels from oil, unfinished oils, 

natural gas liquids, other hydrocarbons, and alcohol. 

Renewable Energy: Energy obtained from sources that are essentially inexhaustible (un


like, for example, fossil fuels, of which there is a finite supply). Renewable sources of en


ergy include conventional hydroelectric power, wood, waste, geothermal, wind, photovol


taic, and solar thermal energy. 

Spot Price: The price for a one-time open market transaction for immediate delivery of the 

specific quantity of product at a specific location where the commodity is purchased “on 

the spot” at current market rates. 

Strategic Petroleum Reserve (SPR): Petroleum stocks maintained by the federal gov


ernment for use during periods of major supply interruption. 

Stocks: Supplies of fuel or other energy source(s) stored for future use. Stocks are re


ported as of the end of the reporting period. 

Sulfur Dioxide (SO2): A toxic, colorless gas soluble in water, alcohol, and ether. Used as 

a chemical intermediate in paper pulping and ore refining, and as a solvent. 

Transportation Sector: Private and public vehicles that move people and commodities. 

Included are automobiles, trucks, buses, motorcycles, railroads, and railways (including 

streetcars), aircraft, ships, barges, and natural gas pipelines. 

Wellhead Price: The price of oil or natural gas at the mouth of the well. 

Wind Energy: The kinetic energy of wind converted into mechanical energy by wind tur


bines (i.e., blades rotating from a hub) that drive generators to produce electricity. 

Wood Energy: Wood and wood products used as fuel, including round wood (cord wood), 

limb wood, wood chips, bark, sawdust, forest residues, charcoal, pulp waste, and spent 

pulping liquor. 

Glossary • Appendix Two