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[Senate Hearing 111-2]
[From the U.S. Government Publishing Office]

                                                         S. Hrg. 111-2
 
                   CURRENT ENERGY SECURITY CHALLENGES 

=======================================================================

                                HEARING

                               before the

                              COMMITTEE ON
                      ENERGY AND NATURAL RESOURCES
                          UNITED STATES SENATE

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                                   TO

        RECEIVE TESTIMONY ON CURRENT ENERGY SECURITY CHALLENGES

                               __________

                            JANUARY 8, 2009

                       Printed for the use of the
               Committee on Energy and Natural Resources

                               ----------
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47-252 PDF                       WASHINGTON : 2009 

For sale by the Superintendent of Documents, U.S. Government Printing 
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Washington, DC 20402-0001 

               COMMITTEE ON ENERGY AND NATURAL RESOURCES

                  JEFF BINGAMAN, New Mexico, Chairman

BYRON L. DORGAN, North Dakota        LISA MURKOWSKI, Alaska
RON WYDEN, Oregon                    RICHARD BURR, North Carolina
TIM JOHNSON, South Dakota            JOHN BARRASSO, Wyoming
MARY L. LANDRIEU, Louisiana          SAM BROWNBACK, Kansas
MARIA CANTWELL, Washington           JAMES E. RISCH, Idaho
ROBERT MENENDEZ, New Jersey          JOHN McCAIN, Arizona
BLANCHE L. LINCOLN, Arkansas         ROBERT F. BENNETT, Utah
BERNARD SANDERS, Vermont             JIM BUNNING, Kentucky
EVAN BAYH, Indiana                   JEFF SESSIONS, Alabama
DEBBIE STABENOW, Michigan            BOB CORKER, Tennessee
MARK UDALL, Colorado
JEANNE SHAHEEN, New Hampshire

                    Robert M. Simon, Staff Director
                      Sam E. Fowler, Chief Counsel
               McKie Campbell, Republican Staff Director
               Karen K. Billups, Republican Chief Counsel

                            C O N T E N T S

                              ----------                              

                               STATEMENTS

                                                                   Page

Batten, Kit, Ph.D., Senior Fellow, Center for American Progress 
  Action Fund....................................................     4
Bingaman, Hon. Jeff, U.S. Senator From New Mexico................     1
Harbert, Karen A., Executive Vice President and Managing 
  Director, Institute for 21st Century Energy, Chamber of 
  Commerce.......................................................    24
Murkowski, Hon. Lisa, U.S. Senator From Alaska...................     2
Nielson, Dianne R., Ph.D., Energy Advisor, Office of the 
  Governor, Salt Lake City, UT...................................    34
Schwartz, Eric, Member, Energy Security Leadership Council & 
  Former Co-CEO of Goldman Sachs Asset Management................    12

                                APPENDIX

Responses to additional questions................................    61

                   CURRENT ENERGY SECURITY CHALLENGES

                              ----------                              

                       THURSDAY, JANUARY 8, 2009

                                       U.S. Senate,
                 Committee on Energy and Natural Resources,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 9:35 a.m. in room 
SD-366, Dirksen Senate Office Building, Hon. Jeff Bingaman, 
chairman, presiding.

OPENING STATEMENT OF HON. JEFF BINGAMAN, U.S. SENATOR FROM NEW 
                             MEXICO

    The Chairman. Ok. Why don't we get started? This is the 
first of our hearings in this new Congress.
    Today we have a few members of the Senate who are expected 
to join the committee. But we have not yet, in the Senate, 
approved the next appointments resolution. So they are not 
officially members.
    On the Democratic side that's Senators Bayh, Evan Bayh, 
Senator Stabenow, Senator Mark Udall, Senator Jeanne Shaheen. 
Senator Udall and Senator Shaheen are here this morning. In 
keeping with the long standing practice here in the committee 
where we have this kind of a circumstance, we've invited these 
soon to be members to sit in on the hearing and participate. 
But they'll be called on to ask questions after current members 
who are here have had a chance to ask their questions.
    We're also expecting that a few of our long standing 
members on the Democratic side will be leaving the committee 
for other assignments.
    Senator Salazar, of course, is moving to be Secretary of 
Interior. We have that hearing scheduled next week to confirm 
his nomination.
    Senator Akaka, who's been a valued member of this committee 
since he came to the Senate in 1989, and has been the exemplary 
Chair of the Parks Subcommittee of our committee. He'll be 
greatly missed. He has chosen to go off the committee at this 
time. But I'm sure will stay very involved in parks and 
territorial issues which is a great interest of his.
    Senator Tester, who has been a great contributor to our 
committee in the time he's been here in the Senate on Energy 
and public lands and forest issues, also is shifting his 
committee assignments. We'll be sorry to lose him from the 
committee.
    But those are a few changes. I wanted to announce that so 
people were aware of it. Let me make a short opening statement 
and then call on Senator Murkowski to make any statement she 
has.
    Obviously energy policy is very imminently interconnected 
with the state of our economy. I think we all know that. We see 
it at every turn. The historic oil price increase that we 
experienced last year was one of many factors that caused some 
of the economic difficulty we currently find ourselves in.
    Even as we work to get the country's economy back on track 
we realize that we need to move forward in confronting the 
environmental challenges that we have as well. Of course that 
is global warming which is primarily a by-product of the energy 
that we use in this country and around the world. We need to 
not only move energy policy in the right direction, but we need 
to be sure that we do so in a way that's responsible with 
regard to global warming.
    We experienced ground breaking legislative successes in 
this last Congress. The Energy Independence and Security Act 
that we were able to enact here in the Congress increased fuel 
efficiency standards, set a new course for U.S. biofuels 
policy, developed a wide array of energy research and 
development programs in areas such as energy storage and 
enacted a large slate of new energy efficiency standards. The 
committee also got heavily involved in the America Competes Act 
legislation which set long term priorities to keep our country 
competitive in the world.
    Our President-elect Obama has committed to support these 
initiatives. He also, of course, has made energy a very high 
priority for his new Administration. We look forward to working 
with him on that.
    Today's hearing is intended to give us the broad overview 
of these issues. The witnesses today are representing 
organizations that have spent a great deal of time in energy 
trying to devise blueprints and plans that we could follow in 
this country to reduce our dependence on foreign oil and meet 
our future energy needs in an environmentally responsible way. 
So we wanted to get the benefit of their views at the beginning 
of the legislative session before we went into the process of 
trying to craft legislation to address these issues.
    We have had discussions. Senator Murkowski and I have had 
discussions about the importance of trying to get consensus, 
bipartisan consensus, on energy legislation early in this 
Congress. We hope that this hearing contributes to that effort.
    So let me call on Senator Murkowski.

        STATEMENT OF HON. LISA MURKOWSKI, U.S. SENATOR 
                          FROM ALASKA

    Senator Murkowski. Thank you, Mr. Chairman. I appreciate 
your, kind of, not wrap up here, but the preview of the new 
committee members. Welcome those of you that are here today to 
the committee.
    I think you'll find that this is a committee that is 
involved in exceptionally interesting and challenging issues. I 
think it's fair to say, Mr. Chairman, we've had a reputation 
here that we work together pretty well. Think you will enjoy 
the opportunity to be contributors on this issue of such 
incredible importance to this country and really, to the world. 
So much of it is about energy.
    I want to thank you, Mr. Chairman, for the hearing today 
and really starting the committee off early, hitting the ground 
running. We know that the focus right now is really on the 
economy and how the failing economy is impacting so negatively 
American families out there. We appreciate the connection 
between energy policy and our economy.
    We can't begin to fix the economy without addressing the 
need to how we're going to run our factories. How we're going 
to power our cars. How we're going to heat our homes.
    While we have seen lower gas prices that have provided some 
relief. We recognize that it's only temporary until we can find 
a long term solution to our Nation's dependence on foreign 
energy sources. That's one of the reasons we're here this 
morning to consider the proposals to address the nation's 
tremendous energy security challenges.
    We've got to find ways to power our lives that are cleaner, 
that are more efficient and of course, more environmentally 
protective. We know that this is not an easy task. If it was 
easy we would have figured it out by now.
    But we hope that what we will hear from you this morning 
will help us as we work to craft yet another comprehensive 
energy bill. We need to show real leadership in developing 
legislation that builds this bridge to our energy future while 
helping to right the economy here. I have no doubt that this 
committee can provide the leadership that is necessary.
    With the two comprehensive energy bills that have been 
introduced and enacted over the past 4 years. This committee is 
known for operating in a bipartisan fashion and getting things 
done. The 2005 Energy Policy Act, the 2007 Energy Independence 
Security Act, they did a great deal to advance our nation's 
energy policy.
    We championed clean energy resources, like wind and 
nuclear. We increased the CAFE standards. We promoted biofuels. 
We directed the Federal Government to lead on conservation 
issues. Then last year the Congress addressed production by 
lifting the moratorium on off shore leasing.
    We addressed such a magnitude of these issues in these 
bills that the Federal agencies are still implementing many 
aspects of them. We're still waiting for example, for the 
nation's first off shore wind project to receive Federal 
approval. While many of the programs authorized by EPACT and 
ESA have not received appropriations yet, the stimulus package, 
which is under development, will likely fund a number of these 
existing authorizations, everything from making our electrical 
grids smarter to increasing R&D work on alternative 
technologies, to providing energy efficiency block grants to 
schools and local communities.
    As the committee moves to build upon its recent work, we 
must continue to monitor the Federal implementation of our 
comprehensive energy bills. We know that there are certainly 
areas that we can improve on this. To reach a secure energy 
future there is no question that we will need to produce a much 
greater amount of our energy. We must do it here at home. That 
means developing all of our domestic natural resources, both 
renewable and non renewable.
    I have had an opportunity to discuss so many of my 
priorities with chairman, with other committee members. There's 
so much that we can do and we should do, whether it's working 
to expand Federal revenue sharing, pushing for coal 
gasification, carbon sequestration, other technologies that 
will allow us to make better use of our abundant domestic 
resources. We also need to pass improvements to the loan 
guarantee program that was created by EPACT to advance climate 
friendly and late energy projects like emission free, nuclear 
power.
    I appreciate those of you who have joined us this morning 
to provide your testimony. Look forward to your contributions 
and to working with you, Mr. Chairman and the other committee 
members in this 111th Congress.
    The Chairman. Thank you very much. Why don't we go ahead 
with the witnesses at this point? Ask each witness to take 6 or 
8 minutes and give us the main points or the highlights of the 
recommendations that they have come up with for the new 
Congress and the new Administration.
    Let me just introduce the entire panel right now. Then 
we'll hear from them.
    Dr. Kit Batten, who is a Senior Fellow with the Center for 
American Progress here in Washington. They've come up with 
several reports recently on this set of issues which we are 
anxious to know more about.
    Mr. Eric Schwartz, who is a member of the Energy Security 
Leadership Council and is also former Co-CEO of Asset 
Management with Goldman Sachs, we welcome him here to the 
Committee.
    Ms. Karen Harbert, who is the Executive Vice President and 
Managing Director for the Institute for 21st Century Energy at 
the United States Chamber of Commerce. We're glad to have you 
here. We know your organization has put a lot of effort into 
this effort, into this subject as well.
    Dr. Dianne Nielson is an Energy Advisor with Governor 
Huntsman's office in Utah. Is here today speaking on behalf of 
the Western Governors Association that has developed an 
aggressive agenda for what they would like to see done on 
energy issues.
    Dr. Batten, why don't you go ahead and start. We'll just go 
across the table here and hear from each of you for 6 to 8 
minutes. Then we'll have questions.

   STATEMENT OF KIT BATTEN, PH.D., SENIOR FELLOW, CENTER FOR 
                 AMERICAN PROGRESS ACTION FUND

    Mr. Batten. Thank you. Good morning. Thank you, Chairman 
Bingaman, excuse me, Senator Murkowski and members of the 
committee. I am Kit Batten, Senior Fellow with the Center for 
American Progress Action Fund.
    At CAPAF our work demonstrates that energy policy is 
economic policy. Reducing our dependence on volatile priced 
dirty sources of energy and increasing investments in low 
carbon energy and efficiency will serve three paramount 
national priorities: growing our economy, securing our nation's 
energy supplies and combating global warming. The Center for 
American Progress, the 501(c)(3) sister organization of the 
Action Fund has proposed a comprehensive clean energy and 
efficiency strategy to capture the energy opportunity 
associated by--afforded by the transition to a low carbon 
economy.
    At the core of this strategy is a greenhouse gas cap and 
trade program that would provide tens of billions of dollars to 
help build a green economy and offset the cost of rising energy 
prices for low and middle income Americans. Also imperative are 
the complementary policies to increase research, development 
and deployment of low carbon and efficient technologies in our 
homes, businesses and transportation system, for use here at 
home and for export overseas. Green priorities must be at the 
center of both America's energy policy and each step of our 
economic policy: stabilization, stimulus, growth and recovery.
    This investment can be a source of increased business 
opportunity, innovation, competitiveness, job creation, 
stronger, more prosperous communities and improved energy and 
national security. Furthermore, this comprehensive strategy can 
restore the leadership role of the United States in the 
International Climate Negotiations. This testimony focuses on 
the significant opportunities associated with transforming the 
U.S. economy to a low carbon model and the significant costs of 
not investing in this transition.
    Our country is currently in a financial recession. The 
number of jobs in the United States has declined for 11 months 
in a row. The unemployment rate has increased to 6.7 percent. 
Even before this decline job growth has been meager since 2001.
    We must reverse this trend. Investments in clean energy and 
efficiency as a part of the upcoming economic stimulus package 
will help kick start the clean energy economy and create 
millions of jobs. In collaboration with the Political Economy 
Research Institute at the University of Massachusetts CAP 
recently released a report detailing how $100 billion 
investment in clean energy and efficiency over 2 years would 
create two million jobs, nearly 4 times as many jobs as the 
similar level of investment in oil and gas. We must prioritize 
clean infrastructure investments including efficient green 
buildings, improved and scaled up low carbon energy production, 
transmission and distribution, mass transportation and rail 
systems and job programs to train Americans to run our clean 
energy future.
    American families and businesses are facing high and 
volatile energy prices which makes it difficult to plan 
budgets, especially in the face of a recession. A significant 
short term benefit from investing in energy efficiency is 
keeping energy bills low. Building retrofits, incentives to 
adopt more efficient appliances, implementation of smart grid 
technologies and increasing vehicle fuel efficiency all can 
help stabilize American's energy bills.
    Diversifying our Nation's sources of energy and investing 
in the development and broad deployment of low carbon and 
efficient technologies will afford consumers and business 
greater choice over their consumption of energy. Also help keep 
energy bills lower. For example, a 2008 Merrill Lynch and 
Company, Incorporated study found that increased bio fuel 
production was helping keep gasoline prices about 15 percent 
lower than they otherwise would have been.
    If we do not put the right policies in place today to 
enable investments in a clean energy and efficient economy, the 
United States will lose the economic opportunities associated 
with regaining technological leadership in the global 
innovation marketplace. We must ensure that America is a leader 
in the clean energy and efficiency market so that Americans 
have access to the best technologies and benefit from reduced 
energy costs via homegrown inventions. This in turn will 
improve our energy security.
    The United States is currently dependent on oil to power 
its economy. But only has about 2 percent of global proved 
reserves as of January 2008. This dependence on foreign oil 
leaves us vulnerable to energy supply disruptions like what 
we're currently seeing in Eastern Europe and to price 
volatility as we experienced with summer gas prices.
    The United States must make better use of the abundant 
energy resources we have here at home. But any action to 
increase domestic energy production must not ignore global 
warming consequences. We must invest in alternative fuels with 
lower life cycle greenhouse gas emissions than traditional 
gasoline.
    We must also make improvements to our Nation's electricity 
transmission grid to ensure our energy security. Great 
expansion compatible with significantly scaling up renewable 
energy generation, improved connectivity between different 
United States regions, increased efficiency, improved security 
to ensure reliable supply and adoption of smart grid 
technologies are all essential.
    Global warming has significant national security costs. In 
developing countries climatic shifts are expected to trigger or 
exacerbate food shortages, water scarcity, spread of disease 
and competition of our natural resources. All of which will 
fuel political turmoil, drive already weak states toward 
collapse, threaten regional stability and increase security 
risks.
    Here in the United States costs associated with adaptation 
to global warming, disaster preparedness and response, human 
health and natural resource management are projected to be as 
high as 3.6 percent of GDP by 2100. The Intergovernmental Panel 
on Climate Change has found that in order to avoid the worst 
impacts of global warming, we need to see a peak in global 
emissions in the next few years. This certainly poses a 
challenge.
    But this imperative can and must be met with smart policies 
that will not only put our nation on a path to a low carbon 
economy. But also creates a sustainable prosperity and growth 
and increase energy and national security. It is time for a new 
vision for the economic revitalization of our nation, the 
restoration of American leadership in the world and the 
movement toward a brighter, more prosperous future.
    Thank you for your leadership on these pressing issues. I 
look forward to your questions.
    [The prepared statement of Mr. Batten follows:]

   Prepared Statement of Kit Batten, Ph.D. Senior Fellow, Center for 
                     American Progress Action Fund
    Chairman Bingaman, Senator Murkowski, and members of the Committee, 
thank you for the invitation to discuss the opportunities associated 
with investing in a clean energy today and tomorrow. Investments in the 
rapid deployment of existing clean and efficient energy technologies as 
well as investments in the research and development of new technologies 
will serve three paramount national priorities: growing our economy, 
securing our nation's energy supplies, and combating global warming.
    I am Kit Batten, Senior Fellow at the Center for American Progress 
Action Fund, a nonpartisan multi-issue think tank focused on developing 
innovative policies that build a more broadly shared prosperity. At 
CAPAF, our work demonstrates that energy policy is economic policy, 
that reducing our dependence on volatile-priced dirty sources of energy 
and increasing investments in low-carbon energy and efficiency are 
imperative to our nation's economic prosperity and security.
    Our nation is currently poised to take action to fundamentally 
change the way we produce and consume energy, to significantly reduce 
our greenhouse gas emissions, and to create millions of jobs as a 
result of investing in a clean energy economy. It is my pleasure to 
participate in this discussion with you today, and I applaud your 
leadership on these public policy issues. CAPAF and I look forward to 
continuing to work with you all on these issues in the 111th Congress.
    The Center for American Progress, the 501(c)(3) sister organization 
of the Action Fund, has proposed a comprehensive clean energy and 
efficiency strategy to capture the ``energy opportunity'' afforded by 
the transition to a low-carbon economy.\1\ This comprehensive strategy 
must involve incentives and mandates to increase investment in low-
carbon and efficient technologies in our homes, businesses, and 
transportation system; investment in research and development of new 
technologies for use here at home and to export overseas; capping and 
reducing greenhouse gas emissions across all sectors of our economy; 
and re-engaging in and taking on a leadership role in the international 
climate negotiations. At the core of this strategy is a greenhouse gas 
capand-trade program that would provide tens of billions of dollars to 
build a green economy and offset the cost of rising energy prices for 
low-and middle-income Americans.
---------------------------------------------------------------------------
    \1\ John Podesta, Todd Stern, and Kit Batten, ``Capturing the 
Energy Opportunity: Creating a Low-Carbon Economy'' (Washington: Center 
for American Progress, 2007), available at http://
www.americanprogress.org/issues/2007/11/energy_chapter.html
---------------------------------------------------------------------------
    The transition to a green economy--at home in the United States, 
and globally--can be a source of increased business opportunity, 
innovation, and competitiveness; job creation; stronger, more 
prosperous communities; and improved energy and national security. This 
transition must be at the center of both America's energy policy and 
each step of our economic policy--stabilization, stimulus, recovery, 
and growth. Investing in this transition--starting immediately, and 
putting us on a long-term low-carbon and energy independence pathway, 
will help to solve many of our nation's current interrelated 
challenges: a financial recession, job loss, rising and volatile energy 
prices, secure energy supplies, and a growing climate crisis.
    This testimony focuses on the opportunities associated with 
transforming the U.S. economy to a low-carbon model and the significant 
costs of not investing in this transition or addressing global warming. 
Some make the case that we cannot afford to change the way we do 
business when in fact the exact opposite is true. We cannot afford not 
to act--in the short term, middle term, or long term.
    Businesses and banks recognize this imperative to invest in a clean 
energy transition and the economic opportunities this transformation 
will create. In October, General Electric Chairman and CEO Jeff Immelt 
stated that GE eco-friendly products and energy efficiency technologies 
are a ``green lining among the current economic storm clouds, and GE 
customers and investors are benefiting.''\2\ In October, sales of GE's 
Ecomagination products and services were projected to top $17 billion 
in 2008, a 21-percent gain over 2007. And end-of-year reports from 
Deutsche Bank and HSBC highlighted the opportunities associated with 
investments in clean energy and efficiency.3,}4,}5
---------------------------------------------------------------------------
    \2\ Green Biz Staff, ``Green Products Help GE Weather Rough 
Economic Times'' GreenBiz.com, October 22, 2008, available at http://
www.greenbiz.com/news/2008/10/22/green-products-help-ge-weather-rough-
times
    \3\ DB Advisors, Deutsche Bank Group, ``Investing in Climate Change 
2009: Necessity and Opportunity in Turbulent Times'' (Deutsche Bank 
2008) available at http://dbadvisors.com/climatechange
    \4\ DB Advisors, Deutsche Bank Group, ``Economic Stimulus: the Case 
for ``Green Infrastructure, Energy Security, and ``Green'' Jobs'' 
(Deutsche Bank 2008) available at http://dbadvisors.com/climatechange
    \5\ HSBC Global Research, ``The Green-Collar President'' (HSBC 
2008) available at http://www.hsbcnet.com/hsbc/research
---------------------------------------------------------------------------
    Our energy and economic strategy must include short-term and long-
term strategies, which we can and must embark on immediately. A green 
stimulus is an essential first step, especially for jump-starting the 
economy, creating more jobs (including more good jobs at higher wages), 
investing in the infrastructure necessary to facilitate the transition 
to a clean-energy economy, helping keep energy bills low, and acting as 
a first step in creating new markets for American business while 
reducing the overall cost of addressing our climate and energy crises.
    Longer-term policies must also be put into place, including a cap-
and-trade program designed to reduce our emissions and generate revenue 
to help fund a green transition; incentives and mandates to invest in 
and develop low carbon and efficient technologies; and taking a 
leadership role in the international climate negotiations. We need this 
type of comprehensive strategy to ensure all of these goals are met, to 
take full advantage of the opportunities afforded by this low-carbon 
transition, and to avoid the significant economic and environmental 
costs of inaction. These costs of inaction entail everything from the 
price we would pay by missing the opportunity to lead the world in the 
development of new clean technologies for use at home and for export; 
to the costs of responding to and preparing for the effects of climate 
change domestically and internationally, including national security, 
disaster preparedness and response; and impacts on agriculture, natural 
resource availability and management, human health, and infrastructure.
                              job creation
    Our country is currently in a financial recession, and a major 
indicator of our flagging economy is unemployment. The number of jobs 
in the United States has declined for 11 months in a row, and even 
before this decline, job growth has been meager since 2001.\6\ Between 
the start of the recession in December 2007 and November 2008, our 
country lost 1.9 million jobs and the unemployment rate has increased 
to 6.7 percent, up 1.7 percent from last year.\7\ In November 2008, 
533,000 jobs were lost, the largest one-month decline in 34 years, and 
not only are people are losing jobs more quickly, but the average 
duration of unemployment has also risen--it is increasingly difficult 
to find a new job once a worker becomes unemployed.\8\ December 2008 
unemployment figures will be officially released on January 9, 2009 but 
are projected to reveal additional significant job losses and a 
possible unemployment rate of 7 percent.\9\
---------------------------------------------------------------------------
    \6\ Christian Weller and Amanda Logan, ``From a Trickle to a Flood: 
The Sharply Accelerating Contraction of an Already Weak Labor Market'' 
(Washington: Center for American Progress, 2008), available at http://
www.americanprogress.org/issues/2008/12/pdf/labor_contraction.pdf
    \7\ Bureau of Labor Statistics, Latest Numbers, (Department of 
Labor, 2009), available at http://www.bls.gov/
    \8\ Christian Weller and Amanda Logan, ``From a Trickle to a Flood: 
The Sharply Accelerating Contraction of an Already Weak Labor Market'' 
(Washington: Center for American Progress, 2008), available at http://
www.americanprogress.org/issues/2008/12/pdf/labor_contraction.pdf
    \9\ Rich Miller, ``Engines of Recovery Flame Out as Economy Seeks 
Obama-Fed Rescue,'' Bloomberg, January 5 2008, available at http://
www.bloomberg.com/apps/news?pid=20601087&sid=anuuEj0tNs1Q&refer=home
---------------------------------------------------------------------------
    We must reverse this trend. Investments in clean energy and 
efficiency as part of the upcoming economic stimulus package will help 
kick-start the clean energy economy and create millions of jobs. In 
collaboration with the Political Economy Research Institute at the 
University of Massachusetts, CAP released a report in September 2008 
detailing how a $100 billion investment in clean energy and efficiency 
technologies and infrastructure would create 2 million jobs over two 
years, nearly four times as many jobs created by a similar level of 
investment in oil and gas.\10\
---------------------------------------------------------------------------
    \10\ Robert Pollin, Heidi Garrett-Peltier, James Heintz, and Helen 
Scharber, ``Green Recovery'' (Washington: Center for American Progress, 
2008), available at http://www.americanprogress.org/issues/2008/09/pdf/
green_recovery.pdf
---------------------------------------------------------------------------
    Last month, my colleague Bracken Hendricks, Senior Fellow at CAPAF, 
testified before this committee on a report issued by the Center for 
American Progress outlining a plan to invest $350 billion in a one-year 
stimulus and recovery package, including significant investments in 
clean energy and efficiency.\11\ This package includes four broad 
categories: $55 billion to spur demand and assist those most in need, 
$70 billion in aid for states and localities, $175 billion for 
infrastructure investments, and $50 billion for tax cut stimulus. Clean 
energy, efficiency, and environmentally beneficial projects comprise a 
large part of the infrastructure plan--over $100 billion. This approach 
will generate construction and manufacturing jobs, create new markets 
for technology and skilled labor, help reduce energy costs for American 
families and businesses, and implement new infrastructure and 
investments to enable our nation's clean energy transition.
---------------------------------------------------------------------------
    \11\ Bracken Hendricks, Testimony before the Senate Committee on 
Energy and Natural Resources, December 10, 2008, available at: http://
www.americanprogressaction.org/issues/2008/pdf/
green_recovery_testimony.pdf
---------------------------------------------------------------------------
           infrastructure to enable a clean-energy transition
    Prioritizing investments now in clean energy and efficient 
infrastructure is essential to transforming our economy to a low-carbon 
model and increasing prosperity and growth. Now is the time to wisely 
invest taxpayer dollars in a clean energy future, rather than 
continuing to invest primarily in infrastructure to support traditional 
sources of dirty energy which will have to be phased out as we meet the 
challenge of significantly reducing greenhouse gas emissions. This 
clean infrastructure must include efficient green buildings; improved 
and scaled-up low-carbon energy production, transmission, and 
distribution; mass transportation and rail systems; and job programs to 
train Americans to run our clean energy future.
    CAPAF has proposed investments ranging from programs to increase 
use and expand capacity of mass transportation and rail systems; 
expansion of weatherization assistance and building retrofitting; 
investments to green and improve energy efficiency in homes, 
businesses, federal buildings, and schools; programs to create and 
improve clean energy job training programs; increases in the use of 
renewable electricity in states, counties, and cities as well as in 
federal and tribal governments and electric cooperatives; investmentsto 
modernize the transmission grid including smart grid technologies; 
spurring carbon capture and sequestration technology; and manufacturing 
and consumer incentives to enable the transformation of the American 
auto industry's production of more fuel efficient vehicles. The full 
list and a more detailed description of these policy proposals are 
included in Bracken Hendricks' testimony.\12\
---------------------------------------------------------------------------
    \12\ ABracken Hendricks, Testimony before the Senate Committee on 
Energy and Natural Resources, December 10, 2008, available at: http://
www.americanprogressaction.org/issues/2008/pdf/
green_recovery_testimony.pdf.
---------------------------------------------------------------------------
 keeping energy bills low through efficiency investments and increased 
                            consumer choice
    American families and businesses are facing high and volatile 
energy prices. In July 2008, the price per gallon for regular, unleaded 
gasoline reached a record $4.11, but as of the week of December 29, 
2008, the price had dropped to $1.61 per gallon.\13\ 2008 also saw a 
rise in electricity prices due to a number of intersecting factors, 
including rising fuel costs, and the Energy Information Administration 
projects that electricity prices will rise an additional 5 percent in 
2009.14,}15 Price increases and volatility make it difficult 
for Americans to plan budgets, especially as pocketbooks are tightening 
in the face of a recession. For example, in 2007, gas price volatility 
led to families buying fewer other items or dipping into their savings 
because commutes and other driving responsibilities remained fairly 
constant.\16\
---------------------------------------------------------------------------
    \13\ Energy Information Administration, Weekly U.S. Regular All 
Formulations Retail Gasoline Prices, (Department of Energy, 2009) 
available at http://tonto.eia.doe.gov/dnav/pet/hist/mg_rt_usW.htm.
    \14\ Paul Davidson, ``Price jolt: Electricity bills going up, up, 
up,'' USA Today, June 20, 2008, available at http://www.usatoday.com/
money/industries/energy/2008-06-15-power-prices-rising_N.htm
    \15\ Energy Information Administration, Short Term Energy Outlook, 
(Department of Energy, 2008), available at http://www.eia.doe.gov/emeu/
steo/pub/contents.html
    \16\ Amanda Logan and Christian Weller, ``Pain in the Gas: Volatile 
Gas Prices Wreak Havoc on Household Financial Planning'' (Washington: 
Center for American Progress, 2007), available at http://
www.americanprogress.org/issues/2007/05/pdf/gas_prices.pdf.
---------------------------------------------------------------------------
    A significant short-term benefit from investing in energy 
efficiency is keeping energy bills low, even if energy prices increase. 
Building retrofits, incentives to adopt more efficient appliances, 
implementation of smart grid technologies, and increasing vehicle fuel 
efficiency can help stabilize American's energy bills in the face of 
rising energy prices.
    For example, The Department of Energy has found that a $2,500 
investment in home retrofitting can reduce average annual energy 
consumption in a typical American home by 30 percent. In 2006, average 
household income was approximately $60,000, and the average household 
spent about 5 percent of its income on household energy consumption,or 
$3,000 per year on energy. With a 30 percent improvement in efficiency 
and stable energy prices, the $2,500 could be recouped in saved energy 
costs in less than three years.\17\
---------------------------------------------------------------------------
    \17\ Robert Pollin, Heidi Garrett-Peltier, James Heintz, and Helen 
Scharber, ``Green Recovery'' (Washington: Center for American Progress, 
2008), available at http://www.americanprogress.org/issues/2008/09/pdf/
green_recovery.pdf.
---------------------------------------------------------------------------
    Diversifying our nation's sources of energy will help keep prices 
lower and less volatile. For example, a 2008 Merrill Lynch & Co., Inc. 
study found that increased biofuel production was helping keep gasoline 
prices about 15 percent lower than they otherwise would have been.\18\ 
It is critically important that new sources of renewable energy are 
further developed with targeted federal funds alongside already rising 
private sector investment. This includes renewable sources of 
electricity as well as sustainably produced biofuels with lower 
lifecycle greenhouse gas emissions than gasoline that do not raise food 
or feed prices.
---------------------------------------------------------------------------
    \18\ Kit Batten and Jake Caldwell, ``Energy Diversity Dividends: 
BAiofuels Lower Oil Prices'' (Washington: Center for American Progress, 
2008), available at http://www.americanprogress.org/issues/2008/03/
energy_diversity.html
---------------------------------------------------------------------------
    Additionally, investing in the development and broad deployment of 
low-carbon and efficient technologies will afford consumers and 
business greater choice over their consumption of energy and will also 
help keep energy bills lower. As consumers and businesses faced rising 
gasoline prices and a weakening economy in 2008, they made changes in 
their behavior, reducing vehicle miles travelled by nearly 90 billion 
miles (or a 3.5-percent reduction) as of October 2008 \19\ and reducing 
motor gasoline consumption by 3.4 percent (total petroleum product 
consumption decreased by 5.8 percent).\20\
---------------------------------------------------------------------------
    \19\ Federal Highway Administration, October 2008 Traffic Volume 
Trends, (Department of Transportation, 2008), available at http://
www.fhwa.dot.gov/ohim/tvtw/08octtvt/index.cfm
    \20\ Energy Information Administration, Short Term Energy Outlook, 
(Department of Energy, 2008), available at http://www.eia.doe.gov/steo
---------------------------------------------------------------------------
    Investments to increase the availability of alternative low-carbon 
sources of vehicle fuels (such as low-lifecycle carbon biofuels and 
electricity as plug-in electric hybrid vehicles make it to the 
marketplace), to provide more fuel-efficient vehicles, and to provide 
greater alternative transportation options via mass transit, all will 
help to increase consumer choice in the future and keep energy bills 
low, even in the face of volatile and rising energy prices.
 development of new technologies for domestic and international markets
    Typically, discussions of the costs of inaction--not investing in 
clean energy and efficiency and not reducing greenhouse gas emissions--
focus on the impacts of global warming, including rising sea levels, 
more intense storms, changing weather patterns, increased incidence of 
human disease, reduced agricultural productivity, reduced clean water 
availability, etc.
    These are of course very important costs of inaction, but they 
leave out an additional cost: If we do not put the right policies in 
place to enable investments in a clean and efficient economy today, the 
United States will lose the economic opportunities associated with 
regaining technological leadership in the global innovation 
marketplace. Moreover, we must ensure America is a leader in the clean 
energy and efficiency market so that Americans have access to the best 
technologies and therefore benefit from reduced energy costs via 
homegrown inventions. This, in turn, will also improve our nation's 
energy security.
    The United States has already lost global market share in solar and 
wind technologies as a result of inconsistent policy.\21\ In the last 
10 years, the U.S. market share in photovoltaic cells dropped from 44 
percent to 10 percent, while Japan and Germany have become solar 
leaders. Germany has seen significant employment growth in solar 
electricity: Firms that make photovoltaic panels and other components 
now employ 40,000 people, and 15,000 more work in the solar thermal 
business. In Germany and in some parts of Spain and Denmark, wind 
supplies more than 20 percent of electricity, while in the United 
States, wind currently stands at slightly over 1 percent of the 
electricity mix. U.S. government support for wind power has been 
erratic, marked by short-term extensions of the federal production tax 
credit, while in other countries wind power has taken off at a faster 
rate because of policies that provide renewable power producers with 
long-term purchase agreements at adequate prices.
---------------------------------------------------------------------------
    \21\ John Podesta, Todd Stern, and Kit Batten, ``Capturing the 
Energy Opportunity: Creating a Low-Carbon Economy'' (Washington: Center 
for American Progress, 2007), available at http://
www.americanprogress.org/issues/2007/11/energy_chapter.html
---------------------------------------------------------------------------
                 improved energy and national security
    Energy security, national security, the economy, and global warming 
are integrally linked issues. The United States is currently dependent 
on foreign sources of oil to power its economy, but only has about 2 
percent of global proved reserves as of January 2008.\22\ This 
dependence results in economic, national security, and energy security 
concerns. New territorial disputes over oil and natural gas rights are 
erupting. As ice melts in the Arctic, several nations--including the 
United States, Russia, Canada, Denmark, Norway, Sweden, Iceland, and 
Finland--are racing to stake claim to oil, natural gas, and new 
shipping routes in our planet's north.\23\
---------------------------------------------------------------------------
    \22\ Energy Information Administration, World Proved Reserves of 
Oil and Natural Gas, Most Recent Estimates, (Department of Energy, 
2008), available at http://www.eia.doe.gov/emeu/international/
reserves.html
    \23\ Marsha Walton, ``Countries in tug-of-war over Arctic 
resources,'' CNN, January 2, 2009, available at http://www.cnn.com/
2009/TECH/science/01/02/arctic.rights.dispute/
---------------------------------------------------------------------------
    America's dependence on oil leaves us vulnerable to energy supply 
disruptions and to price volatility. In order to better secure our 
energy and national security, the United States must invest to make 
better use of the abundant energy resources we have at home. But any 
action to increase domestic energy production must not ignore the 
global warming consequences. Thus, we need to make sure we are 
investing in fuels that have lower greenhouse gas emissions on a 
lifecycle basis than traditional gasoline. This imperative applies to 
biofuels and also to other unconventional petroleum fuels such as oil 
shale fuel. The Center for American Progress has published an article 
on the climate and environmental impacts of oil shale development. The 
considerable energy costs, significant water needs, large greenhouse 
gas emissions, and air and water pollution associated with oil shale 
fuel production all render this fuel a non-viable alternative.\24\
---------------------------------------------------------------------------
    \24\ Alice Madden, ``The Oil Shale Promise: A Trillion Tons Of 
Tater Tots'' (Washington: Center for American Progress, 2008) available 
at http://wonkroom.thinkprogress.org/2008/07/09/oil-shale-potatoes/
---------------------------------------------------------------------------
    We must also make improvements to our nation's electricity 
transmission grid to ensure our energy security.\25\ The current grid 
configuration cannot handle the growth in electricity demand expected 
over the next few decades unless we act quickly to modernize it. Grid 
modernization must be compatible with scaling up renewable energy 
generation--including the ability to incorporate intermittent renewable 
electricity generation--and carrying renewable power to city centers, 
which in many cases will require long-distance transmission. Additional 
important modernization efforts also include grid expansion, improved 
connectivity between different U.S. regions, increased efficiency of 
electricity transmission, improved security to ensure reliable supply 
of electricity, and adoption of smart grid technologies.
---------------------------------------------------------------------------
    \25\ Kit Batten and Kari Manlove, ``Identifying Hurdles to 
Renewable Electricity Transmission'' (Washington: Center for American 
Progress, 2008) available at http://www.americanprogress.org/issues/
2008/12/renewable_transmission.html
---------------------------------------------------------------------------
    Global warming has significant national security implications and 
significant costs of inaction. If we do not substantially reduce 
greenhouse gas emissions in the near and long term, we will experience 
significant costs. For example, in developing countries climatic shifts 
are expected to trigger or exacerbate food shortages, water scarcity, 
the spread of disease, and natural resource competition.\26\ Thus, 
global warming is a threat multiplier for instability and will fuel 
political turmoil, drive already weak states toward collapse, threaten 
regional stability, and increase security costs.\27\
---------------------------------------------------------------------------
    \26\ John Podesta, Todd Stern, and Kit Batten, ``Capturing the 
Energy Opportunity: Creating a Low-Carbon Economy'' (Washington: Center 
for American Progress, 2007), available at http://
www.americanprogress.org/issues/2007/11/energy_chapter.html
    \27\ John Podesta, Todd Stern, and Kit Batten, ``Capturing the 
Energy Opportunity: Creating a Low-Carbon Economy'' (Washington: Center 
for American Progress, 2007), available at http://
www.americanprogress.org/issues/2007/11/energy_chapter.html
---------------------------------------------------------------------------
    These costs will not be limited to impacts experienced by 
developing countries; the Stern Review estimates that a robust set of 
policies aimed at holding greenhouse gas concentrations at around 550 
parts per million of CO2 equivalent are likely to cost about 
1 percent of global gross domestic product per year by 2050, but that 
the economic costs of failing to significantly reduce emissions will be 
many times higher.\28\ Here in the United States, costs associated with 
adaptation, disaster preparedness and response, human health, and 
natural resource management--just to name a few--are projected to be 
significant. The total cost of global warming in the United States 
could be as high as 3.6 percent of GDP, and hurricane damage, real 
estate losses, energy costs, and water costs alone may reach 1.8 
percent of U.S. GDP by 2100.\29\
---------------------------------------------------------------------------
    \28\ John Podesta, Todd Stern, and Kit Batten, ``Capturing the 
Energy Opportunity: Creating a Low-Carbon Economy'' (Washington: Center 
for American Progress, 2007), available at http://
www.americanprogress.org/issues/2007/11/energy_chapter.html
    \29\ Frank Ackerman and Elizabeth A. Stanton, ``What We'll Pay if 
Global Warming Continues Unchecked,'' (Washington: Natural Resources 
Defense Council, 2008), available at http://www.nrdc.org/globalwarming/
cost/cost.pdf
---------------------------------------------------------------------------
    The International Governmental Panel on Climate Change has found 
that in order to avoid the worst impacts of global warming, we need to 
see a peak in global emissions over the next few years. This certainly 
poses a challenge, but this imperative can and must be met with smart 
policies that will not only put our nation on a path to a lowcarbon 
economy, but also create jobs; foster innovation, competitiveness, and 
sustainable prosperity and growth; increase energy and national 
security; and protect the economic and environmental health of our 
nation and globe.
    It is time for a new vision for the economic revitalization of the 
nation, the restoration of American leadership in the world, and the 
movement toward a brighter, more prosperous future. Remaking the vast 
energy systems that power the nation and the world are central to this 
opportunity. We must fundamentally change the way we produce and 
consume energy and end our dependence on oil. This transformation will 
provide enormous economic opportunities and security benefits and will 
enable us to comprehensively address global warming.
    The time for action is now.
    Thank you for your leadership on these pressing energy and economic 
policy issues. I look forward to your questions.

    The Chairman. Thank you very much.
    Mr. Schwartz, go right ahead.

STATEMENT OF ERIC SCHWARTZ, MEMBER, ENERGY SECURITY LEADERSHIP 
   COUNCIL & FORMER CO-CEO OF GOLDMAN SACHS ASSET MANAGEMENT

    Mr. Schwartz. Good morning, Chairman Bingaman, Ranking 
Member Murkowski and members of the committee. I would like to 
thank you for giving me this opportunity to speak to you 
regarding one of the great challenges facing our country today, 
providing secure, sustainable and affordable energy to power 
the American economy.
    As you know I come before you today as a member of the 
Energy Security Leadership Council, a non-partisan group of 
business executives and retired senior military officers who 
are concerned about the perilous state of the American energy 
system and our nation's obsessive reliance on petroleum. The 
Council is led by Fredrick W. Smith, Chairman, CEO and 
President of Federal Express and General P.X. Kelley, the 28th 
Commandant of the United States Marine Corps. The Council's 
members bring together decades of collective economic and 
national security experience and a firsthand knowledge of the 
importance of oil, energy and the challenges facing our 
country.
    It is because of their experience and their knowledge of 
the dangers posed by our energy security vulnerabilities that 
the members of the Council have dedicated themselves to this 
issue. In December 2006, the Council released the report 
entitled, ``Recommendations to the Nation on Reducing Oil 
Dependence.'' The report laid out a comprehensive blue print 
for energy security including demand reduction through reformed 
and increased fuel economy standards, expanded production of 
alternatives and increased domestic production of oil and 
natural gas.
    The Council collaborated with Senators Byron Dorgan and 
Larry Craig to design legislation incorporating the principle 
elements of the recommendations. This resulted in the Security 
and Fuel Efficiency Energy Act of 2007, or the SAFE Energy Act. 
In December 2007, Congress passed and President Bush signed 
into law an energy bill that honored the recommendations by 
one, dramatically reforming and strengthening fuel economy 
standards.
    Two, mandating a renewable fuel standard that will displace 
significant quantities of gasoline using advanced biofuels such 
as cellulosic ethanol. That was a significant accomplishment, 
but was only a first step. There is much more to do.
    The reality is this. Our Nation's dependence on oil, much 
of it imported and the majority used in our transportation 
sector, still represents a grave threat to our economic and 
national security. Now that we are, as a nation, pointed in the 
correct direction. It is time to help facilitate the 
transformation to the next generation of transportation 
technology that is as inevitable as it is necessary.
    In September the Council released a comprehensive new plan 
that presents a long term vision for the dramatic 
transformation that our energy system requires. A national 
strategy for energy security offers a pathway toward a 
transportation system that is no longer dependent on oil. An 
electric grid that is flexible, clean and robust. That American 
research and development apparatus that sets the standard for 
the rest of the world.
    The Council's plan has set a goal of reducing the oil 
intensity of the United States economy by 50 percent by 2030 
and 80 percent by 2050. It will provide American manufacturing 
jobs, reduce the United States trade deficit, enhance the 
resiliency of the overall economy and reinforce our foreign 
policy priorities. The centerpiece of the Council's plan is the 
electrification of short haul ground transportation.
    Deteriorating United States energy securities is largely 
due to transport's nearly complete reliance on oil whose price 
is set in a world market and is highly volatile. In contrast, 
electricity is produced in the United States from a range of 
largely domestic fuel sources whose price is less volatile and 
less effected by the geo-political factors that affect the 
price of oil. We believe that existing and emerging 
technologies are poised to allow the U.S. transportation sector 
to access this range of fuels providing Americans with a 
diverse, affordable, reliable source of energy to power their 
cars and trucks. In doing so electrification will substantially 
reduce U.S. oil consumption and our economy's vulnerability to 
volatile oil prices, thereby improving our national and 
economic security.
    The Council's plan, however, is not just the recommendation 
for electric ground transport. It represents a strategic blue 
print for developing a 21st century energy infrastructure. In 
order to execute the long term shift to electrified ground 
transport, our plan outlines in great detail the necessary 
steps that must be taken to strengthen the nation's electrical 
transmission and distribution system and enhance our power 
generation capacity. Our approach reflects the reality that the 
build out of interstate transmission lines is among the most 
critical areas in which Federal Government leadership is 
required.
    Our policies acknowledge the role of traditional base load 
power technologies like nuclear, advanced coal and natural gas 
while rapidly accelerating Federal research development and 
deployment efforts on carbon mitigation technologies like 
carbon capture and storage. In addition to policies to promote 
the development of the transmission distribution system, the 
Council also recognizes the need for more generating capacity 
to operate in a carbon constrained, regulatory environment. 
Accordingly, the national strategy also proposes specific 
measures to increase support for wind and solar power.
    The electrification of short haul transport will require a 
decade's long initiative characterized by concentrated, 
sustained effort to improve national infrastructure. Deploy 
advanced technologies in a market friendly way. If properly 
executed, this process can produce a new U.S. transportation 
system that is fundamentally disconnected from oil dependence.
    In the meantime, however, the Council has outlined a set of 
more immediate, temporary steps that can protect our economy 
and improve our national security. These policies including 
increased domestic production of oil and natural gas, a 
rationalized biofuels program and the implementation of fuel 
economy standards will allow our nation to reach its long term 
energy goals while keeping us strong and secure in the interim 
years. Underpinning all of America's efforts in energy policy 
must be a sustained, concentrated effort in energy research and 
development by the Federal Government. Technological 
advancement from energy storage to carbon sequestration will 
break down many of the most imposing barriers to a secure 
energy future.
    Mr. Chairman, members of the committee, I can speak for 
every business and military leader on the Council when I say 
that we are unanimously, unambiguously committed to this cause. 
The proposal we have put forward represents much more than a 
laundry list of energy policies. The national strategy is an 
integrated plan that relies on a variety of measures, short, 
medium and long term, in order to transform the American energy 
system and secure this nation's future prosperity.
    If we as a nation fail to address the vulnerabilities that 
exist due to our excessive reliance on oil, the American 
economy will remain vulnerable to debilitating shocks driven by 
geopolitical events outside of our control. Our national 
security will be imperiled by a weakened foreign policy that is 
forced to tread lightly when dealing with those who wish us 
harm. Our challenges are great. But so are our opportunities.
    It is time for America to act. Thank you. I look forward to 
your questions.
    [The prepared statement of Mr. Schwartz follows:]

Prepared Statement of Eric Schwartz, Member, Energy Security Leadership 
       Council & Former Co-CEO of Goldman Sachs Asset Management
     Good morning, Chairman Bingaman and members of the Committee. I 
would like to thank you for giving me this opportunity to speak to you 
regarding one of the great challenges facing our country today: 
providing secure, sustainable and affordable energy to power the 
American economy.
    As you know, I come before you today as a member of the Energy 
Security Leadership Council (Council), a non-partisan group of business 
executives and retired senior military officers who are concerned about 
the perilous state of the American energy system and our nation's 
excessive reliance on petroleum. The Council is led by Frederick W. 
Smith, Chairman, President and CEO of FedEx, and General P.X. Kelley 
(Ret.), the 28th Commandant of the United States Marine Corps.
    The Council's members bring together decades of collective economic 
and national security experience, with a profound first-hand 
understanding of the importance of oil and energy and the challenges 
facing our country.
    Our military members have commanded U.S. armed forces as they 
patrol the waterways and shipping lanes so crucial to the global oil 
trade. They have been on the front lines of the battle against violent 
extremists, who are often funded by dangerous regimes awash in oil and 
natural gas revenue. And they have spent countless hours strategizing 
with American allies on the best approaches to safeguarding the 
thousands of miles of global energy infrastructure that is dangerously 
vulnerable to sabotage and political manipulation.
    The Council's business members manage multinational companies that 
have shaped the modern global marketplace. If the world is in fact 
increasingly interconnected, it is because innovation, technology and 
accessible transportation have made it so. The Council's companies ship 
goods and services around the world, linking together consumers and 
small businesses on every continent. They manage networks of data, 
financial and investing platforms, and they make it possible for 
Americans to travel easily across the country on a moment's notice.
    It is because of their experience and their knowledge of the 
dangers posed by our energy security vulnerabilities that the members 
of the Energy Security Leadership Council have dedicated themselves to 
this issue.
    In December 2006, the Council released a report entitled 
Recommendations to the Nation on Reducing U.S. Oil Dependence. The 
report laid out a comprehensive blueprint for energy security, 
including: demand reduction through reformed and increased fuel-economy 
standards; expanded production of alternatives; and increased domestic 
production of oil and natural gas. The Council collaborated with 
Senators Byron Dorgan (D-ND) and Larry Craig (R-ID) to design 
legislation incorporating the principal elements of the 
Recommendations. This resulted in the ``Security and Fuel Efficiency 
Energy Act of 2007 (SAFE Energy Act).''
    In December 2007, Congress passed and President Bush signed into 
law an energy bill that honored the Recommendations by (1) dramatically 
reforming and strengthening fuel-economy standards and (2) mandating a 
Renewable Fuel Standard that will displace significant quantities of 
gasoline using advanced biofuels such as cellulosic ethanol.
    That was a significant accomplishment, but was only a first step. 
There is much more to do. The reality is this: our nation's dependence 
on oil--much of it imported and the majority used in our transportation 
sector--still represents a grave threat to our economic and national 
security. Now that we are, as a nation, pointed in the correct 
direction, it is time to help facilitate the transformation to the next 
generation of transportation technology that is as inevitable as it is 
necessary.
    All of the Council's members are acutely aware of the magnitude of 
the American energy challenge. We have seen first-hand how American oil 
dependence undermines U.S. foreign policy when our diplomats deal with 
oil exporters like Russia, Iran and Venezuela. We understand that 
America can never succeed in the war on terror as long as we fund both 
sides of the conflict.
    Speaking to you today as one of the Council's business leaders, 
however, I must tell you that the threats posed to the U.S. economy by 
our dangerous dependence on oil are equally as dire as those posed to 
our national security. If we continue down the current path, economic 
weakness and decay at home will continue to threaten American power and 
influence abroad.
    Recent events provide a useful benchmark for gauging both the 
vulnerability of our transportation system and the consequences of an 
actual energy crisis. Between January 2003 and July 2008, benchmark 
crude oil prices increased nearly five-fold, from about $30 per barrel 
to almost $150 per barrel. The run-up in prices was made worse by 
significant short-term price volatility. Between May 2 and July 3, 
2008, oil prices spiked by $30 per barrel--an increase of 25 percent.
    Indeed, while we are all aware of the sharp financial burden on 
U.S. households that face resets in their adjustable rate mortgages--a 
legitimate and significant concern--the increases in energy costs have 
been on the same, or even a greater, order of magnitude.
    A typical subprime borrower with a poor credit history who bought a 
$200,000 house in 2006 with a 2 year/28 year ARM with a 4 percent 
teaser interest rate for the first two years would have seen monthly 
mortgage payments increase from about $950 a month before the reset to 
about $1,330 after the reset--an increase of about $4,500 a year. 
Meanwhile, the median household in America saw its household energy 
costs increase by roughly $1,600 a year during the same two-year 
period. But this type of increase in energy costs affected all U.S. 
households--not just the one household in 20 that held a subprime 
mortgage.
    All of these developments stemming from higher oil prices caused a 
noticeable slowing of economic growth. The U.S. economy lost more than 
700,000 jobs between December 2007 and the beginning of September 2008, 
and the unemployment rate increased from 4.5 percent to 6.1 percent--
all before the financial crisis truly hit later in September. In fact, 
as early as last August, many economists believed the U.S. economy was 
already on the verge of recession, largely driven by sharply rising and 
volatile oil prices. This put banks and Wall Street firms in a weakened 
financial state, with sharply eroded profit positions, even before the 
credit situation reached its crisis point.
    What is so striking about this series of events is its near 
inevitability--it was an entirely predictable disaster. Just as they 
warned of the impending collapse of mortgage institutions like Fannie 
Mae and Freddie Mac, experts also warned that global oil demand was 
rising unchecked while easy access to cost-effective oil supply was 
plateauing or falling. This basic dynamic eroded the practical buffer 
between world oil production capacity and daily oil consumption, 
leaving the oil market prone to damaging volatility.
    Despite these well-known dangers, the American economy continued to 
operate at risk, with almost no substitutes for petroleum products and 
very few alternatives to driving. Today, 97 percent of our 
transportation energy needs are met by petroleum, and the 
transportation sector accounts for 70 percent of U.S. oil consumption.
    Our mistakes have been costly. Sharply higher oil prices had a 
devastating effect on household, business, and public sector budgets, 
and effectively functioned as a tax on the economy. One recent estimate 
by researchers at the Oak Ridge National Laboratory placed the combined 
cost of foregone economic growth and economic dislocation at nearly 
$300 billion in 2008. Rising fuel prices also significantly weakened 
U.S. automakers, whose relatively inefficient but high-margin large 
vehicles were virtually unsellable for a period of several months.
    Finally, the U.S. exported hundreds of billions of dollars to pay 
for imported oil. Based on initial estimates, the U.S. trade deficit in 
petroleum products probably reached an all-time high of $350 billion in 
2008--exceeding the combined cost of the wars in Iraq and Afghanistan 
for that year. This massive financial burden accelerated the 
deterioration of the American balance of payments and contributed to a 
weaker U.S. dollar.
    Today, oil prices are near the bottom of a record slide. One 
hundred and fifty dollar oil and U.S. gasoline prices over $4.00 per 
gallon led to demand destruction, which was reinforced by the financial 
and economic crises and the resulting recession in which we today find 
ourselves. What is absolutely crucial to remember, however, and what 
history has taught us time and again, is that these economic conditions 
are temporary. As the economy recovers, and drivers return to the 
roads, our dependence will once again put us at the mercy of rising oil 
and gas prices--particularly if the existing vehicle fleet is 
fundamentally the same as it is today.
    Despite some initial signs that consumer behavior had changed over 
the summer, the Council is convinced that with prices back at a more 
palatable level, this country will return to its profligate use of oil. 
Indeed, early evidence supports my assertion: new vehicle sales once 
again shifted in favor of SUVs in December of 2008--for the first time 
since February of 2008. On New Year's Day, the Financial Times reported 
that U.S. sales of hybrid vehicles were down 53 percent in November 
compared to one year ago, and the decline is expected to steepen over 
the coming months.
    To be blunt, we can no longer be slaves to the boom and bust cycle 
of oil prices. Mr. Chairman, members of the Committee: what is required 
here is a dramatic transformation, and what that transformation 
requires is leadership from Washington. The dynamism, ingenuity, and 
entrepreneurial spirit of the American economy can take us wherever we 
want to go, but government has to set the priorities.
    In September, the Council released a comprehensive new plan that 
presents a long-term vision for the dramatic transformation that our 
energy system requires. A National Strategy for Energy Security offers 
a pathway toward a transportation system that is no longer dependent on 
oil; an electrical grid that is flexible, clean and robust; and an 
American research and development apparatus that sets the standard for 
the rest of the world. The Council's plan will reduce the oil intensity 
of the U.S. economy by 50 percent by 2030 and 80 percent by 2050. It 
will provide American manufacturing jobs, reduce the U.S. trade 
deficit, enhance the resiliency of the overall economy, and reinforce 
our foreign policy priorities.
    The National Strategy establishes as a goal the electrification of 
the short-haul transportation system in the United States and provides 
a multifaceted set of proposals to help achieve that long-term goal. 
America's cars and SUVs consumed approximately 8 million barrels of oil 
per day in 2008--about 40 percent of the U.S. total. Aggressively 
transitioning this segment of the vehicle fleet to electrification has 
the potential to dramatically reduce U.S. oil consumption and 
fundamentally alter our energy profile. But it will require our 
national political leaders to embrace electrification not as a discrete 
and narrow initiative, but rather as a dominant policy theme to address 
our dependence on oil. And it will require a comprehensive, well-
integrated approach.
    Deteriorating U.S. energy security is largely due to the nearly 
complete absence of transportation fuel diversity. Not only are ever-
greater amounts of oil required to fuel the U.S. transportation system, 
which is almost entirely dependent on oil, but the world oil market 
increasingly relies on supplies from hostile and/or unstable foreign 
producers. Electrification of transportation would allow cars and light 
trucks to run on energy produced by a diverse set of sources--nuclear, 
natural gas, coal, wind, solar, geothermal and hydroelectric. The 
supply of each of these fuels is secure, and the price of each is less 
volatile than oil. In the process, electrification would shatter the 
status of oil as the sole fuel of the U.S. ground transportation fleet. 
In short, electrification is the best path to the fuel diversity that 
is indispensable to addressing the economic and national security risks 
created by oil dependence.
    Of course, the transportation sector encompasses a broad range of 
components that extends beyond short-haul travel. Air transport, long-
haul freight shipping, and heavy-duty trucks are not likely to be 
candidates for electrification. The Council, therefore, supports an 
aggressive program to develop and deploy third generation biofuels--
identical on a molecular level to oil-based fuels--that can be used in 
air transport and heavy-duty trucks. These advanced biofuels can be 
transported using existing infrastructure and will substantially 
increase the flexibility of the broader transportation sector.
    Central to the success of such an approach will be the manner in 
which we, as a nation, manage the consequences of oil dependence while 
we transition to electrification. The upgrades in infrastructure and 
technology that are required are on the order of trillion dollar 
investments. Our ability to finance this commitment will be directly 
related to our economic well-being and national security. Therefore, 
what the Council has put forward is not simply a laundry list of energy 
policy items. It is, instead, a strategy for mitigating oil dependence 
through practical measures in the short-and medium-term while we 
simultaneously invest in a post-oil transportation system for the long 
term. The more near-term steps include increasing domestic production 
of oil and gas, rationalizing the biofuels program, and aggressively 
improving fuel-economy standards for conventional vehicles.
    Achieving the Council's goal of developing an electrified ground 
transportation system will place an added burden on the electric power 
infrastructure. With time-of-use pricing, we believe some demand for 
charging vehicles can be shifted to overnight hours, when the grid has 
surplus capacity. Still, electrifying a hundred million vehicles over 
25 years will require the U.S. to make much-needed upgrades to the U.S. 
electric power systems at the generation, transmission and distribution 
levels. In fact, the Council would not recommend electrifying 
transportation if we are unwilling to make the necessary changes and 
improvements to these systems to enhance their robustness and 
reliability so that we do not make the mistake of exchanging one 
security threat for another.
    The weakest link in our nation's electric power system is the 
transmission grid. The grid is currently insufficiently robust to 
support the unconstrained movement of power from generators to 
consumers, particularly location-constrained power (including 
renewables), and insufficiently reliable for an economy with a growing 
need for highly reliable power. Over burdened transmission lines 
increase the probability of service failures and prevent efficient 
redistribution of power from surplus to deficit regions. Recent studies 
of the transmission system have concluded that congestion on the 
transmission grid is costing consumers billions of dollars each year by 
preventing them from accessing low cost power.
    Moreover, rather than constituting a national network, the 
transmission grid is in effect a patchwork that is not subject to the 
jurisdiction of any common regulator--indeed, some areas are wholly 
unregulated at the federal or state level. This balkanized structure 
makes it difficult to site and finance transmission lines.
    The Council's National Strategy suggests that national leaders must 
treat grid expansion as a national security imperative. Grid expansion 
is necessary to ensure the reliability of the grid in an environment of 
ever-growing demand for power, including that needed for short-haul 
transportation. Grid expansion also will be necessary to fully exploit 
the opportunities presented by wind and solar energy, production of 
which is most promising in sparsely populated areas distant from 
significant electrical loads, and nuclear power and coal with carbon 
sequestration, which are also location constrained, though to a lesser 
extent. A recent report from the Department of Energy on wind energy, 
for instance, included estimates that identified the need for about 
20,000 miles of transmission lines at a cost of about $60 billion to 
take full advantage of the available wind resource.
    In order to develop a truly national grid, the federal government 
needs to play a more prominent role in the development of the nation's 
transmission grid. The Council believes that Congress should grant the 
Federal Energy Regulatory Commission the same primary siting authority 
for high voltage electric transmission lines under the Federal Power 
Act that it already possesses for interstate natural gas pipelines 
under the Natural Gas Act. Congress could establish that authority for 
all transmission lines otherwise subject to FERC's jurisdiction under 
the Federal Power Act or limit it to lines that exceed a specified 
voltage. In the alternative, Congress could expand FERC's existing 
backstop siting authority to all transmission lines and not just those 
in National Interest Electric Transmission Corridors.
    Congress also must establish or designate an entity to undertake 
the responsibility of transmission grid planning on a nationwide basis, 
at least for the highest voltage lines that constitute the backbone of 
the transmission system. Current planning is done nearly exclusively on 
a regional basis and fails to adequately meet the nation's needs. 
Congress should then dictate that the cost of the new high voltage 
lines identified in the national planning process be allocated across 
the entire interconnects in which they were built. The advantages of 
those lines in terms of reduced congestion, enhanced access to lower 
cost power, enhanced reliability, and improved access to low-carbon 
power benefit all consumers of electricity, and they should all share 
in the cost.
    The Council also recognizes the need to upgrade the distribution 
system, the lower voltage lines that deliver power to customers and the 
systems with which customers interact, which is where most of the 
technology necessary to establish a ``smart grid'' will be installed. 
Congress should require that all electric meters installed after 2014 
are smart meters, capable of communications with utilities and 
consumers, and capable of metering for time of day or real time 
pricing. Congress also needs to provide support for the development of 
a network of publicly accessible recharging stations so that consumers 
using PHEVs and EVs will be able to recharge them away from home to 
extend their range and avoid using gasoline. The Council believes that 
ensuring that utilities may recover their investments in smart grid 
technology and providing slightly higher returns on equity for such 
investments will provide ample incentive for private investors to 
invest in smart grid technology while placing minimal additional burden 
on consumers.
    The deployment of smart grid technology will enable the 
implementation of time of day pricing for electric power, one of the 
most important goals for managing our electric power system in the 
coming decades. Power costs more to generate during periods of peak 
demand, but most consumers pay the same price around the clock, 
undermining demand management programs that could shift some of that 
demand to lower peak times. Time of day pricing would promote more 
efficient use of our power systems, decrease the need for new 
generating capacity, lower emissions, and enhance reliability. While 
this is an area currently within state authority, the Council suggests 
that Congress require states to implement time-of-day pricing for all 
sales of electricity to customers that consumed more than a specified 
number of kilowatt hours of electricity per month (which should be 
established to exclude residences that consume low and moderate levels 
of power). In the alternative, Congress could at least require states 
to implement time of day pricing for all sales of electricity to charge 
vehicles.
    In addition to policies to promote the development of the 
transmission and distribution systems, the Council also recognizes the 
need for more generating capacity to operate in a carbon-constrained 
regulatory environment. Accordingly, the National Strategy proposes 
increased spending and regulatory support for wind and solar power. The 
Council strongly supports the continued development of renewable 
sources of electric power generation. These fuel sources can help meet 
our growing electricity demand by producing clean and secure power with 
few if any safety concerns. Moreover, since they possess a risk profile 
that is very different from fossil-fuel or nuclear generation, 
renewables can contribute to the diversification of our power sector.
    However, even the most optimistic projections for the growth of 
renewables will not support our demand for power. With coal providing 
half of our power and nuclear providing another 20 percent, we believe 
that we can not abandon these sources of power, which are both reliable 
and abundant.
    Deployment of the next generation of nuclear power plants is 
currently underway, with over 20 license applications pending at the 
Nuclear Regulatory Commission. These plants, however, may not be built 
without the government loan guarantees created in EPACT 2005. The 
Council's National Strategy, therefore, recommends increasing the loan 
guarantee for nuclear power to account for the growing price of 
reactors since passage of the law and extending the deadline for the 
program to ensure that utilities can take advantage of it as Congress 
originally intended.
    The Council also proposes to increase the loan guarantees available 
under the same program for demonstrating a fully functional integrated 
gasification combined cycle (IGCC) coal plant with carbon capture and 
storage. The International Energy Agency (IEA) recently reported that, 
globally, at least 20 carbon capture and storage demonstration projects 
are urgently needed by 2020. The United Nations Intergovernmental Panel 
on Climate Change (IPCC) has reported that carbon capture and storage 
can eventually satisfy between 15 and 55 percent of the world's carbon 
mitigation needs while reducing total mitigation costs by 30 percent. 
The Council believes America must take the lead on accelerating 
deployment of this critical technology, which cannot happen without 
government loan guarantees.
    To achieve any of our energy goals, U.S. investment in energy 
research, development, demonstration and commercialization/deployment 
must be significantly enhanced.
    Today, the United States ranks 22nd among developed nations in the 
fraction of GDP that is devoted to non-defense research. As the 
governmental share of U.S. R&D spending has declined from two-thirds to 
one-third of the total, industry has taken up the slack--yet by 
spending development, not research, dollars. The failure to focus on 
the research side of the R&D equation has had predictable consequences. 
Only four American companies made the `top 10' list for patents issued 
in 2005. Not coincidentally, the U.S. trade balance in high technology 
manufactured goods went from positive $40 billion in 1990 to negative 
$50 billion in 2001.
    Within the energy sector, the picture is even bleaker. Shortly 
after the energy crisis of 1973, U.S. energy R&D soared from $2 billion 
annually to more than $14 billion, with public-sector investment 
peaking at just under $8 billion and private-sector investment topping 
out at nearly $6 billion. By 2004, private-sector energy R&D funding 
was below $2 billion and government funding had dropped to roughly $3 
billion. DOE's current applied research and development budget is about 
$3.1 billion, less than one half its level in the late 1970s.
    This trend must be reversed. Given the importance of energy to our 
collective quality of life, the Council recommends that the U.S. 
research, development, demonstration and commercialization/deployment 
investments be at least on par with public health-related research. For 
public funding alone that would entail a ten-fold increase, as the 2008 
enacted program level for the National Institutes of Health was $29.4 
billion.
    But we not only must spend more, we must establish new institutions 
to help guide the spending to increase the effectiveness of our 
investment. Rather than channel the increased spending through the 
existing offices at the Department of Energy, with their attendant 
shortcomings, the Council supports the establishment of a new 
institution either inside or outside of DOE. This institution should be 
funded, at least in part, by an independent budget stream that avoids 
the annual earmarks and appropriations battles in Congress and 
interference by the Office of Management and Budget. Moreover, all 
funding should be distributed entirely on the basis of merit, while 
still maintaining the appropriate level of Congressional oversight. One 
division of the institution should be established to offer significant 
R&D grants-based support for early-stage research following a peer-
review process that examines all grant requests on an ongoing basis. 
Another division of the institution should also provide financial 
assistance in a manner similar to a bank to support the deployment of 
new technologies, whether in the form of loan guarantees or other means 
that it deems appropriate. Without such institutional reforms, the 
Council remains skeptical that the United States can achieve the R&D 
progress necessary to transform our energy system.
    As Congress debates support for American automakers, it is 
worthwhile to speak briefly to the effects this plan--and the status 
quo--would have on them.
    If the long-term trends suggest the increasing possibility of more 
severe and frequent oil price spikes, then the U.S. automobile sector 
cannot survive against foreign competitors positioned to offer 
consumers highly fuel efficient vehicles. Without change in the 
composition of products offered by the Detroit Three, each period of 
higher prices will be accompanied by an industry crisis and new demands 
for government intervention. At the same time, the United States has 
every interest in a competitive domestic automobile manufacturing 
sector, which cannot be easily or quickly replaced by foreign 
transplants in the event of the collapse of any significant portion of 
the domestic industry.
    For the American companies to survive and make the transition to 
producing more fuel efficient vehicles, the public will have no choice 
but to provide meaningful assistance. Therefore, the National Strategy 
proposes an $8,000 tax credit for the first two million highly 
efficient vehicles sold in the United States. A similar measure was 
included in legislation passed by Congress in late 2008. The National 
Strategy also calls for direct assistance to the automakers to assist 
in their retooling to produce the transformative cars of the future. 
The Council recognizes that Congress provided some assistance last 
fall, but believes that additional assistance may be necessary in the 
future. This would not be limited to the Detroit Three, but to any 
automaker that produces cars in the United States.
    The electrification of short-haul transport and the deployment of 
advanced biofuels will require a decades-long initiative characterized 
by a concentrated, sustained effort to improve national infrastructure 
and deploy advanced technologies in a market-friendly way. If properly 
executed, this process can produce a new U.S. transportation system 
that is fundamentally disconnected from oil dependence.
    In the meantime, however, the United States can take more 
immediate, temporary steps to safeguard our economy and improve our 
national security. For this reason the National Strategy also includes 
crucial interim policies--including increased domestic supply of oil 
and natural gas, increasing the blend wall for conventional ethanol, 
and the implementation of fuel economy standards--to help us reach our 
long-term goal while keeping our nation strong and secure in the 
interim years.
    While it is often noted that the United States holds just three 
percent of the world's proved oil reserves, this figure is highly 
misleading. In fact, the U.S. possesses substantial reserves of oil 
that have yet to be exploited. Current undiscovered technically 
recoverable reserves are at least 100 billion barrels, according to 
numerous U.S. government reports. Just as the U.S. possesses vastly 
greater natural gas reserves than conveyed by proved reserves data, we 
have access to a large quantity of oil resources that currently sit 
undeveloped.
    In some cases, the constraints on U.S. oil and gas development are 
economic and technical. In the Deepwater Gulf of Mexico, for example, 
projects take years to develop and rely on a global infrastructure 
chain that was overburdened during the run-up in oil prices that began 
in 2003. In other cases, however, the government has constrained the 
oil and gas industry's access to reserves on Federal lands. In 
particular, the ability of the industry to access high-potential areas 
of the Federal Outer Continental Shelf (OCS) has been restricted by 
long-standing congressional moratoria and presidential withdrawals. 
Proponents of these restrictions have historically justified them on 
environmental grounds, but the most accurate and up-to-date data 
suggest that this position is no longer accurate.
    According to the Minerals Management Service (MMS), the offshore 
oil and gas industry produced 10.2 billion barrels of oil between 1985 
and 2007 with a spill rate of just .001 percent. In recent years, as 
standards and technology have improved, the rate of incidents has 
steadily declined. A recent report by the Congressional Research 
Service found that the annual number of oil spills in U.S. coastal 
waters declined by 50 percent from 1995 to 2004. In fact, nearly two-
thirds of the oil that enters the North American coastal waters each 
year comes from natural seeps, with only 5 percent coming from oil 
extraction and transportation.
    During the turbulent 2005 Atlantic hurricane season, when 
Hurricanes Katrina and Rita tore through the Gulf of Mexico, 
approximately 75 percent of the 4,000 federal OCS oil and gas 
facilities in the Gulf of Mexico were subjected to 175 mile-per-hour 
winds and other hurricane conditions. Despite serious damage to 168 
platforms, 55 rigs, and more than 560 pipeline segments, the U.S. Coast 
Guard and MMS reported no major oil spills. Total OCS petroleum 
spillage from the two storms has been estimated at 14,676 barrels--
about the size of a single Olympic swimming pool.
    Now that Congress has allowed the OCS moratoria to expire, the 
Council believes that it is time to put a rational offshore energy 
development program in place that leverages advances in technology to 
produce the most cost-effective oil supplies while safeguarding the 
environment. Techniques such as extended reach drilling (ERD) can 
access reserves within 10 miles of the shoreline while essentially 
eliminating surface disruptions offshore. In other cases, allowing a 
temporary surface presence can enable energy producers to construct 
sea-floor wellheads that tie-in to infrastructure farther afield or 
onshore, thereby protecting the sanctity of coastal vistas.
    Today, the federal government collects significant royalties from 
the extraction of oil and gas resources in federal waters. In 2008, the 
Minerals Revenue Management Service reported $8.3 billion in offshore 
royalty receipts plus an additional $9.7 billion in lease rents and 
bonuses associated with bids. While estimates vary widely depending on 
assumptions, expanding access to the OCS areas currently off-limits 
should significantly increase government revenue from royalties. One 
recent study, which assumed full access to all OCS waters by 2012, 
estimated cumulative increased royalties at $41 billion through 2025. 
Another study, carried out by ICF International, estimated lifecycle 
government revenue of over $300 billion for opening the full OCS.
    The Council clearly sees the value of royalty requirements for all 
offshore leasing activity and supports a structure that factors the 
current price of oil into the MMS process for determining royalty 
requirements. Moreover, rather than depositing the federal share of OCS 
royalty payments in the general fund of the Treasury, these revenues 
should be dedicated to energy research, development, and deployment. 
Transportation electrification should be a priority, with funds 
available for both consumer incentives and manufacturer assistance.
    To be clear, the long-term goal of any U.S. energy policy should be 
to replace oil with low and zero carbon domestic energy sources. In the 
medium-term, however, U.S. oil demand will continue at least at current 
levels for many years until plug-in electric vehicles and electric 
vehicles constitute a significant portion of the domestic light-duty 
vehicle fleet. In other words, even if one is very bullish about 
electric vehicles and the ability of the U.S. to generate low carbon 
electricity to power them, the U.S. will still need adequate oil 
supplies for many years to come. Opening up the OCS for environmentally 
responsible development can help supply that oil, while at the same 
time, providing American jobs and helping to improve our balance of 
payments. In the event that the OCS is not opened, this new oil will 
likely come from four main sources: Brazil, the Middle East, West 
Africa, and the Canadian Oil Sands, in order of increasing 
environmental and climate damage.
    The bulk of the oil that the OCS would likely be displacing would 
come from the Canadian Oil Sands. Because the oil sands rely on heat 
and energy-intensive processes, a significant amount of carbon is 
emitted during the extraction phase. Even though the carbon emitted 
when the oil is burned in a car is the same for OCS and oil sands, the 
carbon emitted in the course of producing the oil is much higher for 
the non-traditional source.
    Just as we can produce more oil in the near-term, we can also 
consume less. The time required for the U.S. vehicle fleet to ramp up 
to widespread electrification will be measured in decades. In the 
meantime, light-duty vehicles powered by conventional internal 
combustion engines must be as efficient as technologically and 
economically feasible. The Energy Independence and Security Act of 2007 
(EISA) contained much-needed provisions that increased car and truck 
fuel-economy standards for the first time in 30 years and reformed the 
CAFE system to make it more market friendly. By 2020, the new fuel-
economy standards could reduce U.S. oil consumption by nearly 700,000 
barrels per day.
    As we move forward, it will be critical for the Secretary of 
Transportation and the National Highway Traffic Safety Administration 
(NHTSA) to implement fuel-economy rules that give consideration to the 
seriousness of the national security threat facing the United States. 
By increasing standards for light-duty vehicles at a rate of 4 percent 
per year beyond 2020, U.S. oil consumption would be reduced by nearly 
3.5 million barrels per day in 2030.
    EISA also mandated the issuance of fuel-economy standards for 
medium- and heavy-duty trucks for the first time in U.S. history. This 
structural reform is of great importance for reducing fuel demand in 
the transportation sector. However, the legislation did not set 
specific standards for these vehicles, as it did for cars and light 
trucks. Instead, the bill left NHTSA with statutory authority for 
setting the medium- and heavy-duty fuel-economy standard as part of its 
rule-making process. The Council continues to recommend that NHTSA 
pursue an aggressive and expeditious rule-making process with regard to 
medium- and heavy-duty trucks as part of implementing EISA and, where 
possible, consolidate and streamline statutorily-required processes to 
result in maximum oil savings at the earliest possible date.
    I can speak for every business and military leader on the Energy 
Security Leadership Council when I say that the Council is unanimously, 
unambiguously committed to this cause. The proposal we have put forward 
represents a commitment to transforming our transportation systems. It 
will be controversial. We have no illusions about that. But we would 
not be members of this Council if we had shied away from big ideas in 
the past. We can do this. We can end our transportation system's 
reliance on petroleum. We can ensure the robustness of the nation's 
electric power sector by promoting a diverse range of technologies. We 
can expand the research, development, and deployment of critical new 
technologies.
    If we as a nation fail to meet this challenge, the American economy 
will remain vulnerable to debilitating shocks driven by geopolitical 
events outside of our control. Our national security will be imperiled 
by a weakened foreign policy that is forced to tread lightly when 
dealing with those who wish us harm.
    We cannot continue to react to events as they happen, risking our 
economy every time an insurgent attacks a pipeline or a hurricane 
threatens the Gulf. Continued delay carries unacceptable risks. We 
believe that we are at a unique moment, where the recent run-up and 
collapse of the price of oil, and its consequences for consumers, the 
automakers and the economy, has left Americans thirsty for bold and 
transformative policies to address our addiction to oil. We must take 
advantage of this moment in time and act together while this priority 
remains prominent in our collective consciousness.
    Our challenges are great, but so are our opportunities. It is time 
for America to act.
   Appendix A: Outline of the Energy Security Leadership Council's A 
National Strategy for Energy Security: Recommendations to the Nation on 
                      Reducing U.S. Oil Dependence
        I. Diversify energy supplies for the transportation sector

          A. Electrification of the transportation sector

                    1. Establish development of advanced battery 
                technology as a top research priority and spend at 
                least $500 million per year toward their development.
                    2. Replace existing vehicle tax credits with new 
                tax credits of up to $8,000 per vehicle for the first 
                two million domestically produced highly efficient 
                vehicles.
                    3. Federal government should help create a market 
                and exercise leadership by purchasing highly efficient 
                vehicles.
                    4. Establish production tax incentives to aid in 
                the retooling of U.S. vehicles manufacturing facilities 
                and to create and maintain a domestic capacity to 
                manufacture advanced batteries.
                    5. To encourage business participation, extend and 
                modify federal subsidies for hybrid medium-duty 
                vehicles (Classes 3-6) and heavy-duty vehicles (Classes 
                7-8) to 2012 and remove the cap on the number of 
                eligible vehicles.
                    6. Grants to municipalities and tax credits to 
                commercial real estate developers to encourage the 
                installation of public recharging stations.

          B. Enhancing the nation's electrical system

                  a. Increasing Nuclear Power Generation and Addressing 
                Waste Storage

                    1. Continue licensing process for Yucca Mountain 
                while initiating a program of interim storage as an 
                alternative to Yucca Mountain.
                    2. Extend the deadline and increase the funding 
                levels for loan guarantees for new nuclear generation.

                  b. Deploying Advanced Coal Technology

                    1. Significantly increase investment in advanced 
                coal R&D including development of carbon capture and 
                storage technology and policy framework.
                    2. Increase funding for loan guarantees for 
                advanced coal generation.

                  c. Promoting Renewable Energy

                    1. Reform and extend the Production Tax Credit 
                (PTC) and the Investment Tax Credit (ITC) through 
                December 31, 2013, while providing certain guidance for 
                the transition to a fundamentally improved, next-
                generation incentives program.

                  d. Development of a Robust Transmission Grid to Move 
                Power to Where It is Needed

                    1. Extend backup federal eminent domain for 
                transmission lines to help expand the use of renewable 
                power and to enhance reliability by moving power from 
                surplus to deficit regions.
                    2. Require the Federal Energy Regulatory Commission 
                (FERC) to approve enhanced rates of return on 
                investments to modernize electrical grid system.

                  e. Transforming Consumer Demand for Electricity

                    1. Direct states to implement time of day pricing 
                for electricity, and grant FERC backstop authority to 
                implement time-of-day pricing if states will not.
                    2. Require utilities to install smart meters for 
                all new installations after a specified date.

          C. Reforming the biofuels program

                  a. Shift focus of biofuels deployment by 
                concentrating on R&D and commercialization efforts on 
                next-generation biofuels, fostering competition among 
                fuels derived from differing feedstocks.
                  b. Require increasing production of Flexible Fuel 
                Vehicles (FFVs).
                  c. Accelerate Department of Energy and Environmental 
                Protection Agency testing and performance validation of 
                unmodified gasoline engines running on intermediate-
                levels, first- and second generation biofuels blends.
                  d. Replace the 45-cents-per-gallon ethanol tax credit 
                with a `smart subsidy'.
                  e. Eliminate tariffs on imported ethanol over a 
                period of three years.

        II. Increasing energy access: expanding domestic supply

          A. Target federal policy and resources to encourage the 
        expanded use of carbon dioxide for enhanced oil recovery.
          B. Support federal investment in technologies that can limit 
        the adverse environmental impacts of oil shale and coal-to-
        liquids (CTL) production to ensure long-term viability before 
        undertaking public investment in production.
          C. Increase access to U.S. oil and natural gas reserves on 
        the Outer Continental Shelf (OCS) with sharply increased and 
        expanded environmental protections.
          D. Increase access to U.S. resources in the Arctic and 
        Alaska.
          E. Federal support for construction of a natural gas pipeline 
        from Alaska to the continental United States.
          F. Expand federal R&D initiatives studying the opportunities 
        to exploit methane hydrates, including the initiation of small-
        scale production tests.

        III. Accelerating the development and deployment of new energy-
        related technology

          A. Annual public investment in energy R&D should be increased 
        by roughly an order of magnitude to approximately $30 billion.
          B. Reform the existing institutions and processes governing 
        federal R&D spending.
          C. Develop a more effective federal R&D investment strategy.
          D. Establish new institutions to provide funding for early-
        stage R&D and for later-stage deployment and commercialization.
          E. Invest in the next-generation workforce for the energy 
        industry.

        IV. Reducing demand for oil: improving efficiency

          A. Aggressively implement fuel-economy standards established 
        in the Energy Independence and Security Act of 2007 (EISA).
          B. Increase allowable weight to 97,000 lbs. gross vehicle 
        weight for tractor-trailer trucks that have a supplementary 
        sixth axle installed but which replicate current stopping 
        distances and do not fundamentally alter current truck 
        architecture. In addition, government should study further the 
        safety impacts of significantly longer and heavier tractor-
        trailers used in conjunction with slower speed limits.
          C. Require the Federal Aviation Administration (FAA) to 
        implement and fund improvements to commercial air-traffic 
        routing in order to increase safety and decrease fuel 
        consumption.

        V. Managing risks and global issues

          A. Direct the Department of Energy to develop workable 
        guidelines for the use of the Strategic Petroleum Reserve and 
        evaluate its proper size based on those criteria.
          B. Work with foreign governments to eliminate fuel subsidies.
          C. Promote a robust China-U.S. partnership on carbon capture 
        and storage that focuses on private-sector collaboration and 
        sharing of best practices.
          D. Establish a National Energy Council at the White House to 
        coordinate the development of the nation's energy policy and to 
        advise the president with regard to energy policy.
          E. The National Intelligence Council should complete a 
        comprehensive National Intelligence Estimate on energy security 
        that assesses the most vulnerable aspects of the infrastructure 
        critical to delivering global energy supplies and the future 
        stability of major energy suppliers.
          F. Working with the Department of State, the Department of 
        Justice should bolster programs designed to train national 
        police and security forces to defend and secure energy 
        infrastructure in key countries.
          G. As called for in its recent Maritime Strategy, the U.S. 
        Navy should leverage the maritime forces of other countries to 
        provide protection against terrorists and pirates for oil 
        tankers in vulnerable regions.
          H. The Department of Defense should engage NATO and other 
        allies in focused negotiations with the intention of creating 
        an architecture that improves the security of key strategic 
        terrain.
          I. The intelligence community should bolster collection and 
        analysis capabilities on potential strategic conflicts that 
        could disrupt key energy supplies. The State Department should 
        improve its capacity to intervene diplomatically in conflicts 
        that impact U.S. energy security.
          J. The intelligence community should expand the collection of 
        intelligence on national oil companies and their energy 
        reserves in order to allow policymakers to make better 
        decisions about future alliances and the nation's strategic 
        posture on energy suppliers.

    The Chairman. Thank you very much.
    Ms. Harbert, go right ahead.

  STATEMENT OF KAREN A. HARBERT, EXECUTIVE VICE PRESIDENT AND 
 MANAGING DIRECTOR, INSTITUTE FOR 21ST CENTURY ENERGY, CHAMBER 
                          OF COMMERCE

    Ms. Harbert. Thank you, Chairman Bingaman and Ranking 
Member Murkowski and members of the committee for holding this 
very important hearing. Thank you for the opportunity to appear 
once again before this committee.
    I'm Karen Harbert. I'm the Executive Vice President of the 
Institute for 21st Century Energy at the United States Chamber 
of Commerce which is the largest business federation 
representing more than three million businesses across the 
entire United States of every size, sector and region. Forth 
rightly addressing our Nation's complex energy challenges is 
one of the most urgent economic and national security 
challenges of this century.
    In the past year a surging global economy led to record oil 
and commodity prices which ultimately contributed to our 
current economic crisis. We've witnessed the most volatile 
energy market in history. Dramatic reduction cuts from OPEC.
    New energy projects being canceled as we speak and growing 
instability in many producing countries. While oil and gasoline 
prices have temporarily decreased. These lower energy prices 
should not lull us into a sense of complacency or several years 
from now, we will pine for four dollar a gallon gasoline.
    At the Institute we believe these daunting challenges 
actually represent a historic opportunity to change course and 
drive our economic recovery. Over the past year the Institute 
has worked to develop a comprehensive, long term and pro-growth 
energy strategy that includes nearly 90 recommendations and 
time tables for the incoming Administration and Congress to 
consider. Each of your offices and the President-elect and his 
team have received copies.
    With most of Washington focused on a stimulus plan the 
Institute's transition plan is just that, an economic, national 
security and energy stimulus plan. These recommendations, if 
adopted, will produce new investment and revenue here at home. 
Reduce the $400 to $700 billion we spend on imported oil last 
year alone.
    It will create new and affordable, reliable American energy 
sources which are necessary for our economic recovery. It will 
create new industries that grow our economy and produce 
sustainable American jobs. It will demonstrate the strength of 
American innovation by creating breakthrough technologies. It 
will reduce our dependence on energy from unstable regions of 
the world. Ultimately it will put us on a path for a much more 
secure energy future.
    Our plan focuses on four principle areas.
    First, to promote energy efficiency across all sectors of 
the economy.
    Second, to increase and diversify our energy supplies.
    Third, to invest and modernize and protect our energy 
infrastructure.
    Fourth, to improve our environmental stewardship.
    In the next 180 days are very important steps this Congress 
should take. Technology will be the cornerstone of our energy 
future. However, current funding for energy R&D is about half 
of what it was 30 years ago. Federal R&D funding should be 
doubled within the next 5 years and concentrate in the areas 
that are high risk, high return and best suited for the 
government research enterprise.
    To get these cutting edge technologies out into the 
marketplace, we recommend creating a Clean Energy Bank of the 
United States, which would be a quasi government entity with 
sufficient capital to invest in and accelerate market 
penetration of advanced clean energy technologies. The Bank 
would become self sustaining by its own fees and products and 
services.
    Working with the private sector the Congress and the 
Administration could establish a fund managed by fossil based 
utilities to support R&D for carbon capture and storage. That 
research should take place at private, academic and government 
entities. Funding would be raised through a small fee on fossil 
based utilities. It should not exceed a billion dollars over 
the next 10 years per year.
    Congress should also increase funding at the Federal level 
for clean coal energy R&D at a level of a billion dollars per 
year. Nuclear power is currently the least cost and largest 
source of emissions free base load electricity and it must be 
expanded. However, Congress should increase the Department of 
Energy's Loan Guarantee Program to support the construction of 
more than just two or three nuclear power plants.
    We also need to find an appropriate home for the Loan 
Guarantee Program. We might want to think placing that at the 
Clean Energy Bank that I just outlined above. Each new nuclear 
plant will support 1,500 sustainable jobs in the communities in 
which they operate. The Congress should also ensure that the 
Nuclear Regulatory Commission has enough staff and resources to 
appropriately approve the combined construction and operating 
licenses in a timely manner for these new nuclear power plants.
    Over 80 percent of America's oil and gas reserves have been 
placed off limits for exploration for decades. We need to 
produce more oil and gas here at home. We should permanently 
end all the moratoria on exploration production for oil and gas 
in the Outer Continental Shelf and on Federal lands on shore 
and provide each state with 37 and a half percent of the 
royalty revenue from the OCS production off their shores.
    Doing so will significantly reduce the billions of dollars 
we sent abroad each year for oil imports and create new royalty 
revenue, new investment and new jobs here at home. Over the 
next year we do strongly believe that a comprehensive energy 
legislation needs to come before this Congress. The 
recommendations above and outlined below should be included.
    We should give the Federal Energy Regulatory Commission new 
authority to cite electricity transmission facilities, just 
like they have for natural gas pipelines. Our transmission 
infrastructure is inadequate to meet growing demand and 
completely incapable of incorporating a significant expansion 
of desirable, renewable electricity.
    We need to make the Blender's tax credit for biofuels 
variable by linking it to the price of gasoline or diesel fuel. 
We need to increase the credits for second generation biofuels. 
We need to extend renewable tax credits for the full 8 years. 
It should be for all renewable energy, not just solar energy. 
This would give investors the confidence they need to make long 
term capital investments.
    We need to address climate change. We need to address it as 
part of an overall energy strategy that will support a healthy 
economy, emphasize efficiency gains, promote the development of 
new low and zero emitting technologies and recognize the global 
nature of this challenge. We should not seek to utilize 
inappropriate mechanisms like the Clean Air Act and the 
Endangered Species Act that were never designed to address the 
complexities of reducing greenhouse gas emissions.
    Those are just a sampling of the recommendations, the 90 
recommendations that we have put forward for your 
recommendation. I would hope that these recommendations would 
be included in the record. We should recognize the enormity of 
these challenges. But we should also recognize the government 
alone cannot and should not provide all the solutions. It will 
take public and private sector cooperation.
    The Government must do its part to put more options on the 
table by providing fiscal and regulatory predictability, 
appropriate fiscal incentives and supporting a robust, advanced 
research agenda. The private sector has the expertise to 
mobilize technologies and the capital necessary to bring these 
solutions to the marketplace. We need to fashion a new and 
increasing complementary relationship between the public and 
private sector. We can turn today's energy challenges into 
tomorrow's economic and energy success stories.
    At the Institute we stand ready to work and be an important 
part of this discussion. The private sector needs to be an 
important part of the solution. Thank you for your time.
    [The prepared statement of Ms. Harbert follows:]

 Prepared Statement of Karen A. Harbert, Executive Vice President and 
   Managing Director, Institute for 21st Century Energy, Chamber of 
                                Commerce
    Thank you, Chairman Bingaman, Ranking Member Murkowski, and members 
of the Senate Energy and Natural Resources Committee. I am Karen 
Harbert, Executive Vice President and Managing Director of the 
Institute for 21st Century Energy (Institute), an affiliate of the U.S. 
Chamber of Commerce. The U.S. Chamber of Commerce is the world's 
largest business federation, representing more than three million 
businesses and organizations of every size, sector, and region.
    I commend the Committee for holding a hearing on this issue so 
quickly in this new year and new Congress. It speaks to the high 
priority you and the American people are placing on securing our 
nation's energy future. This couldn't be more critical. From an 
economic, national security, and environmental standpoint, few things 
are as important to our nation's and our world's future than energy. 
Smart energy policy choices made now will help to drive the economic 
recovery our nation needs.
    The members of this committee are well aware of the challenges we 
face. Between now and 2030, global demand for energy could increase by 
more than 50 percent, and by as much as 20 percent here in the United 
States. The International Energy Agency estimates that to meet global 
energy demand in 2030, more than $26 trillion in new investment will be 
needed. Of this, more than half will be required just to maintain our 
current level of supply capacity, and much of the world's energy 
infrastructure will need to be replaced within the next 20 years.
    The Institute has been working to build support for a 
comprehensive, long-term, and nonpartisan approach to addressing our 
nation's energy challenges. Since early last year, we have focused on 
developing, launching, and advancing an energy strategy with concrete 
steps we believe must be taken by the incoming Administration and 
Congress. This plan aims to put the United States on a secure and 
prosperous path for future generations and we are pleased that the 
Institute's work has attracted a broad array of support.
    Last summer, we delivered an open letter to the next President and 
Congress that included 13 pillars upon which any comprehensive energy 
reform effort should be built. These pillars include:

          1. Aggressively Promote Energy Efficiency;
          2. Reduce the Environmental Impact of Energy Consumption and 
        Production;
          3. Invest in Climate Science to Guide Energy, Economic, and 
        Environmental Policy;
          4. Significantly Increase Research, Development, and 
        Demonstration of Advanced Clean Energy Technologies;
          5. Immediately Expand Domestic Oil and Gas Exploration and 
        Production;
          6. Commit to and Expand Nuclear Energy Use;
          7. Commit to the Use of Clean Coal;
          8. Increase Renewable Sources of Electricity;
          9. Transform Our Transportation Sector;
          10. Modernize and Protect U.S. Energy Infrastructure;
          11. Address Critical Shortages of Qualified Energy 
        Professionals;
          12. Reduce Overly Burdensome Regulations and Opportunities 
        for Frivolous Litigation; and
          13. Demonstrate Global Leadership on Energy Security and 
        Climate Change.

    This letter was signed by 27 former members of the Cabinet and 
Congress from both political parties as well as by thousands of 
individuals across the United States. The signatories included former 
Senator Sam Nunn, retired General Cohn Powell, former White House Chief 
of Staff Mack McLarty, and former Secretaries of Energy James 
Schlesinger and Spencer Abraham to name a few.
    Last fall, we unveiled a Blueprint for Securing America's Energy 
Future that provides detailed analysis of our 13 pillars and puts 
specific recommendations behind each one. In November, we further 
expanded our efforts by unveiling an energy transition plan, which 
presented a detailed implementation timeline for each recommendation 
and identified who in our government has the responsibility for action.
    The Institute's work is unique in that it represents a 
comprehensive approach to energy policy that will be critical to 
achieving consensus and ensuring that needed reforms actually get done. 
America's business community is as diverse as it is large, representing 
different sectors, different sizes, and different regions of the 
country. Yet, it has come together behind this common vision for 
securing our country's energy future.
    Now, we need the United States Congress and the incoming 
Administration to follow suit and implement a united vision for a long-
term strategy for tackling our energy challenges.
    At the Institute, we believe that the United States can best plan 
to meet its energy demands both now and in the future with affordable, 
reliable, and diverse supplies by focusing on four key principles:

          1) Promoting Energy Efficiency
          2) Increasing and Diversifying our Energy Supplies
          3) Investing in Modernizing and Protecting our Energy 
        Infrastructure
          4) Improving Environmental Stewardship

    Today, I'd like to outline some of the more specific steps that we 
believe must be done within each principle.
                      promoting energy efficiency
    The easiest place to find new energy is by better harnessing the 
energy that we unintentionally waste every day.
    The United States has improved its energy intensity--that is, 
energy use per unit of gross domestic product--at a steady rate since 
1970. In 1970, it took roughly 18,000 btu to produce one dollar of GDP. 
Today, it takes a little less than half of that. At the same time, the 
United States can and should make further improvements.
    There is a tendency to think about energy efficiency only in terms 
of energy consumers. As a result, most efficiency efforts tend to focus 
on end users. But it is not enough to make our buildings, appliances, 
lighting, and automobiles more efficient; we must take steps to 
increase efficiency throughout the energy delivery chain--from 
production to delivery to consumption.
    We believe Congress and the Administration could begin this process 
by allowing more rapid depreciation of capital equipment through the 
federal tax code. This would provide an incentive for new investment 
that would accelerate reductions in energy intensity and carbon 
intensity. This could best be accomplished through three revisions to 
the tax code:

   First, reducing the cost-recovery period for investment in 
        electricity transmission lines and smart grid devices from 20 
        years to 10 years.
   Second, reducing by half the cost-recovery period for best 
        available energy efficiency devices when they are installed by 
        commercial facilities and small businesses.
   And third, providing for immediate expensing for investments 
        that meet the standard for breakthrough low carbon 
        technologies.

    Another helpful change to the federal tax code would be to expand 
the tax deduction created in the Energy Policy Act of 2005 for 
commercial buildings that reduce energy consumption by one-half to a 
value of at least $2.25 per square foot. Residential and commercial 
buildings account for roughly 40 percent of our nation's energy 
consumption. So beyond changes to our tax code, we must also explore 
other ways to encourage and improve energy efficiency in our homes and 
businesses.
    Advances in building equipment and appliances and the use of 
integrated smart energy systems could make it possible to achieve a 70 
percent reduction in a building's energy use by 2025. Yet, the use of 
such smart technologies is still the exception rather than the rule. 
Why? Because building developers and owners are more focused on ``first 
costs'' rather than ``life cycle'' costs.
    This could be overcome through the development of building codes 
that emphasize energy efficiency. While building codes are the 
responsibility of state and local governments, national model codes are 
developed by code-setting organizations and certified by the Department 
of Energy (DOE). In fact, DOE's Buildings Program is working with 
national code organizations, the construction industry, and state and 
local officials to develop and promote building codes that are 30 
percent more energy efficient than the current national model.
    To support these efforts, the Institute's Blueprint for Securing 
America's Energy Future recommends that Congress direct DOE to set 
energy-saving targets for national model building energy codes and 
encourage states to adopt such codes adapted for regional variances. 
Further, Congress should incentivize the adoption of these building 
codes by requiring that federal efficiency grants to states be 
conditioned on the adoption of such codes. Finally, we recommend 
increasing annual funding for DOE's Buildings Program from the current 
level of $110 million to $250 million.
            increasing and diversifying our energy supplies
    While saving energy through increased efficiency is an important 
step, it alone is not enough to ensure we will have the energy supplies 
we need over the next twenty years without increasing and diversifying 
our energy resources.
    To begin, we need to identify, develop, and deploy advanced clean 
energy technologies. But the development of these new technologies is 
going to require new investments.
    The United States currently spends about 50 percent less on energy 
research and development (R&D) than we did during the 1970s oil 
embargo. New technologies are not a luxury; they are a fundamental 
requirement of any energy policy. Technology breakthroughs are required 
if we are to both meet our increasing energy demands and do so in an 
environmentally responsible manner.
    The Institute strongly believes that there are important limits to 
what the United States government can do to solve our energy 
challenges. But there are also areas where government involvement and 
government resources are going to be required--energy R&D, particularly 
in high-risk, high-reward technologies, is one of them.
    We are calling on Congress to double funding for federal energy 
technology R&D programs in real terms within five years, from $4 
billion to $8 billion. We also recognize that not all new technologies 
pan out, so we encourage the federal government to support a broad 
portfolio of R&D projects including energy efficiency, new energy 
sources, and advanced fuel and power delivery options. At this critical 
juncture, Congress does not have the luxury of choosing energy winners 
and losers. All energy technologies should be given a chance to 
succeed.
    Beyond standard R&D, the United States must also encourage novel, 
high-risk research that could lead to breakthrough technologies. 
Currently, there is a strong aversion to such research, driven in part 
by fears of congressional oversight and the requirements of the 
Government Performance and Results Act.
    The America COMPETES Act of 2007 authorizes the establishment of an 
Advanced Research Projects Agency for Energy (ARPA-E) within DOE, 
similar to the Department of Defense's successful Defense Advanced 
Research Projects Agency. However, DOE has never requested funding for 
the program, instead subsuming its function within existing programs. 
Therefore, we are calling on Congress to fund a new ARPA-E program or 
its equivalent to help support high-risk, exploratory research of 
innovative concepts and technologies. I would also add that funding for 
this program should be new funding, and not come at the expense of 
traditional or existing R&D programs.
    The Institute also recognizes the critical role that the private 
sector plays in energy R&D. Indeed, nearly two-thirds of all R&D 
conducted in the United States is done by the private sector. The R&D 
tax credit has been an important financial incentive for businesses to 
invest more in important research. But the on-again, off-again nature 
of the tax credit has made R&D planning for businesses more difficult. 
Therefore, we are calling on Congress to make the R&D tax credit 
permanent so that companies have greater certainty to plan and 
implement R&D programs.
    New technologies and new investments cannot happen without capital. 
Securing our energy future is undoubtedly tied to the degree with which 
we can formulate capital at an accelerated rate. This could pose a 
challenge in a strong investment climate, and thus will certainly prove 
to be difficult in these trying economic times. But it is critical that 
we generate this capital.
    To generate capital for energy projects, the Institute is calling 
for the establishment of a new Clean Energy Bank of the United States 
(CEBUS), a domestic entity modeled after the Overseas Private 
Investment Corporation and the Export-Import Bank. CEBUS should have 
the authority to issue loans, loan guarantees, lines of credit, 
insurance, and other financial products and support the deployment of 
advanced energy technologies and products. Ultimately, CEBUS could 
become self-sustaining by charging fees for its products and services.
    Developing clean energy technology is critical, and goes hand-in-
hand with the development of renewable sources of electricity. Wind, 
solar, energy-from-waste, hydropower, geothermal, and biomass could all 
play an important role in meeting our demand for electricity, and could 
do so in a cost-competitive manner.
    Renewable electricity, for example, already is enjoying robust 
growth. Wind power is now the fastest growing source of electricity in 
the United States. At the same time, renewable energy sources still 
only account for about nine percent of our overall electricity 
generation, and only about two percent if hydropower is excluded. Here, 
again, is an area where greater R&D funding and support could help.
    The Institute is calling on Congress to increase annual funding for 
wind, solar, geothermal, and ocean energy programs at DOE from the 
current level of about $250 million to $450 million per year.
    Congress must also do more to stabilize the investment climate for 
the private sector. The renewable energy tax credit can help 
incentivize the development and deployment of renewable sources of 
electricity, but there is no stability with the current program. The 
renewable energy tax credits expired in 2000, 2002, 2004, and almost 
again in 2008. This seemingly annual ritual of uncertainty has slowed 
capital formation, investments, and projects.
    While Congress did enact an important eight year extension for the 
solar energy tax credit late last year, the Institute recommends that 
Congress take the same step and extend all the renewable energy tax 
credits and then phase them out over the succeeding four years. This 
eight year window will give the private sector the time needed to fully 
develop important renewable technologies, and the eventual phase-out 
will ensure that these technologies will sink or swim on their own 
merits, and not remain artificially propped up through government 
financing.
    Beyond renewables, there are other critical and clean sources of 
electricity that the United States must expand. Chief among these is 
nuclear power.
    Nuclear power is an emissions-free source of 20 percent of our 
nation's electricity supply, despite the fact that we have not licensed 
the construction of a new nuclear power facility in nearly 30 years.
    Nuclear power is clean. It offers a huge emissions advantage over 
other baseload power generation sources.
    Nuclear power is cost-effective. America's 104 operating nuclear 
reactors are the nation's cheapest source of baseload electricity on a 
per-kilowatt-hour basis.
    But as the members of this committee know, nuclear power is also 
capital-intensive, requiring an estimated $6 to $8 billion dollars or 
more for a new plant. Most companies lack the size, financing, and 
financial strength to fund such a project on their own.
    The loan guarantee program authorized in the Energy Policy Act of 
2005 was intended to help utilities finance the construction of new 
reactors. Unfortunately, this program has encountered significant 
implementation delays, and the Congressional authorization of $18.5 
billion dollars in loan volume is inadequate--funding only two, or at 
best three, new nuclear projects.
    To develop the stable financing needed for new nuclear plants, 
Congress should transition the function of the Loan Guarantee Program 
to a more permanent, stable financing platform like CEBUS, which I 
outlined earlier. Until such a transition occurs, Congress should 
increase the size of the funds available to make it more closely align 
with the real capital costs associated with the construction of new 
nuclear power facilities.
    One reason financing costs are so high for nuclear power plants is 
the extraordinary length of time--about 8 years--it takes to from 
submittal of a license application to the commencement of commercial 
power generation. Although new plants are currently being considered, 
the Nuclear Regulatory Commission (NRC) estimates it will take three 
and-one-half years just to review the first wave of license 
applications for new designs. This delay is unacceptable and must 
change.
    Congress must ensure that NRC has the resources it needs to review 
and approve combined construction and operating licenses for new 
nuclear power facilities in a thorough and timely manner.
    As the United States expands the use of nuclear power, we must also 
commit to a permanent solution to our nation's nuclear waste. Our 
current waste policy was designed at a time when no additional nuclear 
power plants would be built and the existing fleet would be phased out 
over time. As circumstances have changed, so must our strategy.
    To finally move forward on a sensible nuclear waste strategy, the 
Institute recommends establishing a government corporation to manage 
the entire back end of the nuclear fuel cycle. This entity could help 
efficiently meld used fuel recycling with ultimate disposal of nuclear 
waste.
    On the issue of nuclear waste, it is clear that under any scenario, 
the United States will need a high-level nuclear waste repository. 
Yucca Mountain has been designated by law, and has been ratified by 
both executive and legislative branches as that repository, yet 
Congress has consistently under funded efforts to build the site's 
infrastructure and transportation needs.
    If the President and Congress will not fully commit to Yucca 
Mountain, then we believe they owe it to the American public and 
utilities that have paid fees and interest in excess of $27 billion 
into the Nuclear Waste Fund, to develop and pursue a parallel path of 
centralized interim storage, industrial deployment of advanced 
recycling technology, and accelerated governmental research and 
development to more quickly place the United States government into 
compliance with United States law.
    Much like nuclear power, the United States cannot afford to ignore 
or sacrifice other existing sources of energy. Coal is the backbone of 
our nation's electrical generation, responsible for 50 percent of our 
nation's electricity supply. At our current production rates, the 
United States has enough coal to last for well over 200 years.
    So it is imperative that we develop technologies such as carbon 
capture and storage (CCS) that allow us to use coal while minimizing 
air pollution and CO2 emissions.
    But given our nations' ample coal resources, we must find ways to 
develop and deploy CCS technology.
    CCS development and deployment will require an extraordinary amount 
of investment, by both the government and private sector. At the 
Institute, we are recommending an increase in investments in clean coal 
technology to $20 billion over ten years, with half coming from the 
federal government and half from the private sector. We believe the 
private sector funds could be raised by administering a small fee on 
fossil-based utilities. We recognize the enormity of this investment, 
but an investment of this magnitude is needed to advance CCS 
technology.
    By necessity, a comprehensive energy policy like the Institute's 
relies on a long-term approach. But we also cannot ignore the here and 
now. While clean energy sources like renewables, nuclear, and clean 
coal must be a part of our energy future, oil and natural gas will 
remain critical components of our nation's energy strategy for years to 
come.
    The United States now imports roughly 60 percent of our oil from 
foreign nations, which is almost double the amount we imported in the 
1970s. This has put our economy and our national security at risk. It 
is also a huge drain on our economic resources. In 2008, the United 
States sent between $400 and $700 billion overseas for imported oil. 
Think what could be accomplished if even a fraction of that money 
remained here at home. Fortunately, there is a way that it can--by 
increasing our exploration and production of domestic oil and natural 
gas.
    It is estimated that America's Outer Continental Shelf (OCS) 
contains 86 billion barrels of oil and 420 trillion cubic feet of 
natural gas, and that estimate is conservative since previous surveys 
were conducted decades ago. Additionally, roughly 83 percent of federal 
lands onshore that are currently under exploration moratoria or face 
severe development restrictions could contain another 28 billion 
barrels of oil and 207 trillion cubic feet of natural gas.
    Since moratoria were placed on the OCS, the technology utilized to 
extract oil and gas has evolved, significantly reducing the 
environmental impact. And our need for these domestic resources has 
only grown. Therefore, we believe that Congress and the President 
should permanently end the moratorium on exploration and production of 
America's oil and natural gas resources in the OCS and on federal lands 
onshore.
    Beyond helping our nation meet its growing energy demands, such 
exploration would reap benefits for the government and the economy. A 
recent ICF International study found that the development of these 
resources could generate more than $1.7 trillion in government revenue 
and create 160,000 new jobs by 2030.
    We recognize that states have an important say in offshore drilling 
as well, and we believe it is important that states are well 
compensated for any exploration or production taking place off their 
shores. Under current law, the federal government shares 27 percent or 
less of revenues from oil and natural gas production within 3 nautical 
miles of the state boundary and zero beyond that. We have recommended 
bringing all coastal states in line with Gulf of Mexico states, which 
were granted a higher percentage share of 37.5 percent of the revenue 
for new leases off its coast under the Gulf of Mexico Energy Security 
Act in 2006.
    As we develop greater domestic sources of oil and natural gas, we 
must also be prepared to transport them to market. To that end, we are 
calling on Congress and the President to actively support construction 
of the Alaska natural gas pipeline. The need for such a pipeline 
underscores our nation's need for new energy infrastructure, but there 
is also a great need to modernize and protect our existing 
infrastructure. This brings us to our third principle.
   investing in modernizing and protecting our energy infrastructure
    Our nation's energy infrastructure is a ticking time bomb. Unless 
we make it an immediate priority to modernize it, blackouts, brownouts, 
service interruptions, and rationing will become more and more 
commonplace, with all that implies for lost productivity.
    Various U.S. laboratories and others have evaluated the weak points 
in our energy infrastructure and have described numerous scenarios 
where a seemingly modest, routine occurrence could escalate into a 
debilitating energy supply disruption in very short order.
    The Energy Independence and Security Act of 2007(EISA) supported 
accelerated modernization of our nation's electricity transmission and 
distribution system. By deploying smart power grid technology, our 
systems would be able to self-diagnose and repair problems, accommodate 
new demand-response strategies, and promote greater efficiency through 
advanced metering. Now, we need the incoming Administration to place a 
high priority on the implementation of the smart power grid 
requirements of EISA. This may include specific recommendations for 
state and federal policies and other actions necessary to facilitate 
the transition to a smart power grid.
    Through the EISA and other legislation, Congress has played an 
important and appreciated role in pushing for the modernization of our 
electricity grid. But Congress must take further action to address some 
of the inherent weaknesses it built into current electricity siting 
regulations.
    While Congress has granted the Federal Energy Regulatory Commission 
(FERC) the authority to site natural gas pipelines, including eminent 
domain authority, it has not given FERC sufficient authority to site 
transmission facilities. The Energy Policy Act of 2005 (EPAct 2005) 
provided FERC with some authority, but only under certain conditions. 
What has been done for natural gas needs to be done for electricity, 
and the Institute is calling on Congress to give FERC the same 
authority to site electric transmission facilities as it has to site 
natural gas pipelines.
    We must also recognize that terrorist threats, resource 
nationalization, and natural disasters could cause a severe disruption 
in the U.S. oil supply at any time. In EPAct2005, Congress authorized 
the expansion of the Strategic Petroleum Reserve to 1 billion barrels 
of oil. Congress needs to fully fund that expansion to ensure that the 
SPR will be an adequate insurance policy against possible disruptions.
    The term `energy infrastructure' may conjure up images of pipes, 
wires, transformers, and power plants, but our nation's most important 
energy infrastructure are the energy industry professionals--the 
engineers, scientists, computer programmers, skilled tradesmen, etc.--
who ensure that we have the energy we need today and in the future. Our 
energy industry employs millions of people today, but nearly half of 
this workforce is eligible to retire within the next ten years.
    At the same time, our universities and trade schools are graduating 
fewer students in science, engineering, and trade crafts, leaving many 
to wonder from where tomorrow's energy professionals will come.
    In the coming years, we need government at all levels to build 
incentives that will motivate U.S. students and adults to train for and 
enter science, technology, engineering, and trade careers. In the 
interim, we need to reform our nation's visa and immigration policies 
so that the United States can retain U.S.-trained, foreign-born 
scientists who are now being lured to other countries with less 
restrictive immigration and work policies.
                  improving environmental stewardship
    Our fourth principle that should guide our nation's comprehensive 
energy strategy is improving environmental stewardship. As the 
Committee has undoubtedly noticed, environmental concerns are 
underscored throughout the Institute's recommendations. Those 
recommendations--which include the expansion of clean energy such as 
renewables, nuclear energy, and clean coal, the further development of 
cutting-edge technologies such as CCS, and new efficiency efforts--all 
demonstrate that the United States can meet its growing energy needs 
while slowing and stopping the growth of emissions of greenhouse gases.
    But the Institute and America's business community also recognize 
that we live in a global energy market, and the environmental decisions 
and policies of the United States will only make a small impact if they 
are not done in concert with other developed and developing countries.
    The developing economies of the world are made up of individuals 
who want economic growth and abundant, affordable energy. Providing 
these individuals with energy is a priority for governments who wish to 
increase the standard of living for their citizens. U.S. policies must 
recognize and embrace these aspirations.
    It is a simple fact that for the next several decades much of the 
energy needed to power economic growth will likely be supplied by 
fossil fuels. Many developing countries have large resources of coal, 
natural gas, and oil, and it would be naive to believe that they will 
not use it. However, the increased use of existing and advanced new 
technologies can limit the environmental impact of using these fuels, 
reduce demand for them through efficiency, and provide alternate 
sources of energy. That is a goal all countries can share.
    We have seen with the Kyoto Protocol that top-down approaches do 
not work. The United States should work to promote a more bottom-up 
international approach to energy security and climate change that 
considers growing energy needs; sets realistic goals; ensures global 
participation, including major developing countries; promotes the 
development and commercialization of, and trade in, clean energy 
technologies and services; protects intellectual property; and 
maintains U.S. competitiveness.
    To achieve true environmental progress, we must find ways to share 
U.S. best practices including technology, expertise, and regulatory 
approaches, with other countries. The Institute has made several 
recommendations on how that can best be done.
    First, the U.S. should continue its leadership to expand the use of 
nuclear energy for peaceful purposes worldwide. Advanced nuclear 
technologies can help foster economic growth abroad, improve the 
environment, and reduce the risk of nuclear proliferation.
    Next, the U.S. should work with other industrialized countries to 
establish an International Clean Energy Fund, housed at the World Bank, 
to reduce capital costs for clean energy projects in the developing 
world.
    Furthermore, our country should examine all of its tools through 
the Export-Import Bank, U.S. Trade and Development Agency, and the 
Overseas Private Investment Corporation, and work closely with 
multilateral development banks to ensure that attractive instruments 
are made available for clean energy projects.
    Finally, the U.S. government should elevate energy as a critical 
component of our trade agenda and lead an effort to eliminate tariff 
and nontariff barriers to clean energy goods and services. As part of 
that effort, we should utilize the World Trade Organization to ensure a 
level playing field for energy projects, access, and trade.
    We must also acknowledge that the world has changed considerably 
since the establishment of many of the institutions that have a global 
focus on energy and environmental issues. We need to take a new look at 
these organizations and take steps to ensure they are best positioned 
to meet our current and future challenges.
    The Institute recommends that the U.S. strengthen its support of 
the International Energy Agency and support expanding its membership to 
include key consuming countries such as China and India. We further 
recommend that the U.S. government engage NATO on energy security 
challenges and encourage member countries to support the expansion of 
its mandate to address energy security.
    As this 111th Congress begins to consider energy legislation, we 
believe it will be well served by keeping in mind these four principles 
and the nearly 90 recommendations the Institute has made behind each 
one.
                               timelines
    As the Committee can see, the Institute has designed a robust 
energy plan. But we are keenly aware that America's energy challenges 
did not develop overnight, and they will not be solved overnight. Not 
all of these recommendations can be pursued within the next two years, 
nor should they be.
    To help organize our recommendations, the Institute's Transition 
Plan for Securing America's Energy Future includes timelines for when 
and by whom we believe these different steps should be taken.
    Some should be done immediately. For example, within the next 100 
days, we believe Congress should permanently end the remaining 
moratoria on oil and gas exploration on the OCS and on federal lands 
onshore. We also believe Congress should begin to work on expanding 
DOE's Loan Guarantee Program for new nuclear facilities.
    But there are other steps that should be pursued over the mid-to 
long-term. For example, we believe that the changes to the tax code 
allowing for more rapid depreciation of capital equipment should be 
enacted within the next year. And our recommendation that NRC be given 
more resources in order to safely review construction and operating 
licenses in a timely manner is something that should begin as the FY09 
budget is finalized, but will require a sustained commitment over many 
years.
    Implementing a comprehensive energy strategy will require Congress 
to set priorities, and with the Institute's timelines, we have 
suggested where these priorities should be. A copy of those timelines 
is attached to this testimony.
                               conclusion
    When it comes to energy, we recognize that Congress and the 
Administration face some extraordinary challenges. But we also 
recognize just as fervently that these challenges can be turned into 
extraordinary opportunities to better our nation and our planet.
    So as you move forward in that process, please let me share three 
final thoughts on behalf of America's business community.
    First, the government will be most successful in its energy efforts 
if it gets out of the business of picking winners and losers and 
instead focuses on a comprehensive approach. There is no magic bullet 
or one miracle technology that is going to solve our energy crisis. We 
need to support all existing and potential sources of energy, as we are 
going to need them all.
    Second, when it comes to energy, our nation is in desperate need of 
a common vision and a united approach. There can be no question that 
existing, piecemeal approaches to energy reform have not worked. 
Comprehensive energy reform cannot be done with an eye toward 2-year 
political cycles; it must be done with an eye toward the next twenty or 
thirty years. This means working together in a bipartisan fashion and 
across the 13 federal agencies and regulatory commissions that have 
some responsibility for energy policy and the dozens of Congressional 
committees and subcommittees. It means putting the needs of the nation 
ahead of the desires of one particular interest group, business sector, 
or region of the country.
    Finally, our energy challenges are vast and cannot be solved by the 
government alone. It will take the government and the private sector 
working together. This teamwork cannot be achieved if the government 
issues dictates, implements burdensome regulations, or imposes 
excessive new taxes. We must work in concert together: the government 
doing its part to provide regulatory predictability, put more energy 
options on the table, and support advanced research; and the private 
sector doing its part to develop new technologies, invest in key 
projects, and get more sources of clean energy into the marketplace.
    The decisions we make in the next few years will impact our 
nation's and our world's future for the next few generations. The 
Institute for 21st Century Energy looks forward to being a constructive 
and integral part of this important process.

    The Chairman. Thank you very much.
    Dr. Nielson, please go ahead.

STATEMENT OF DIANNE R. NIELSON, PH.D, ENERGY ADVISOR, OFFICE OF 
                THE GOVERNOR, SALT LAKE CITY, UT

    Mr. Nielson. Chairman Bingaman, Senator Murkowski and 
members of the committee, thank you very much for the 
invitation to be here today on behalf of the Western Governors 
Association. On behalf of the chairman of that group, Governor 
Huntsman, I am pleased to be here to address you today on 
energy security and energy policy.
    Western Governors are concerned that the United States 
lacks an effective, long term energy policy. Energy security is 
a critical component of that. Both energy efficiency to reduce 
demand and a diversity of energy resources and technologies 
must be part of the solution. Western Governors are working 
individually in their states and regionally together to meet 
those challenges.
    With the publication of the Clean and Diversified Energy 
Initiative Report in June 2006, WGA announced its commitment to 
developing energy policy and programs that will provide 
affordable and clean energy to sustain our economy, stimulate 
greater energy efficiency, strengthen our energy security and 
independence and reduce greenhouse gas emissions. In the last 2 
years WGA has been involved with a wide range of stakeholders 
in developing a number of reports including achieving greater 
energy efficiency in buildings, deploying near zero 
technologies for power plants fueled by coal resources, 
developing transportation fuels of the future and all of these 
reports are now forming the basis of work that we are doing 
moving forward to develop energy policy. For the past 8 months 
the Western Governors Association has been managing the Western 
Renewable Energy Zone Project in conjunction with the 
Department of Energy which is funding the effort.
    By identifying the most developable renewable resource 
zones within the West and the Western Interconnect, load 
serving entities, transmission providers and state regulators 
will be able to make more informed decisions about the cost of 
renewable power, the optimum transition needed to bring that 
power to consumers. What entities might have the potential to 
form partnerships for developing the transmission to be able to 
accomplish those goals. By promoting a regional perspective in 
this effort we're blending the potential of balkanization of 
renewable markets while respecting each state's primary 
jurisdiction over citing generation and transmission 
facilities. We can pave the way for interstate collaboration on 
permitting of multi-state transmission lines and more equitable 
allocation and recovery of costs of new transmission.
    On November 20th of last year WGA sent President-elect 
Obama a letter outlining goals, principles and immediate 
actions which they felt could form a national energy policy. As 
the Governors noted in that letter, transforming our energy 
infrastructure and economy will require new policies, new 
incentives, market mechanisms and public/private partnerships. 
Most importantly it will require bipartisan partnership that 
can achieve a broad consensus among political leaders and with 
the American public.
    Western Governors recognizes that while full transformation 
will take time. But there are a number of steps that we can 
implement immediately promoting energy efficiency in all forms. 
Including manufacturing of more fuel efficient vehicles, 
enhancing public transportation systems, adopting regulatory 
structures that reward utilities that achieve reduced energy 
use among their customers and manufacturing more efficient 
consumer goods.
    With respect to greenhouse gas emissions we must quickly 
establish an aggressive and achievable national greenhouse gas 
reduction goal that will place the United States on a path to 
contribute to global climate stabilization. At the same time we 
propose a mandatory market based system that will induce 
reduction of greenhouse gases. To strengthen energy security 
and independence, we must establish an oil import reduction 
goad and to offset those reductions we should bring forward 
more fuel efficient and near zero emission vehicles to the 
market, increase the supply of domestic, low carbon fuels and 
reduce vehicle miles traveled and increase mass transit 
capabilities.
    Finally we must create a substantial, long term public 
investment on the scale of tens of billions of dollars annually 
and encourage at least that same contribution from the private 
sector. In order to help prefect new near zero emission 
technologies for coal fired electricity to dramatically 
increase energy supply from wind, solar, geothermal, hydro, 
biomass and other energy sources and to expand and upgrade the 
electricity transmission grid. Finally we must advance vehicle 
and battery technologies in those alternative transportation 
fuels that will move us toward achieving the goals of a 
national energy policy.
    But it's important to remember that we must do this while 
we're assuring affordability in terms of energy resources. 
Especially for lower income energy consumers and perhaps 
through proven weatherization and cost assistance programs 
which are already in place and working effectively. We 
recognize the potential for all these actions to create good, 
domestic jobs and to stimulate the economy.
    As Western Governors noted in their letter, we must not 
repeat the mistakes of the past. We must have the collective 
political will and resolve to create and implement a long term, 
comprehensive energy policy despite short term political and 
market fluctuations. The future of our nation depends on it.
    WGA stands ready to work with this committee, the Senate 
and the House and the new Administration to accomplish these 
goals. In fact we look forward to the challenge. I'd be happy 
to answer any questions. Thank you.
    [The prepared statement of Mr. Nielson follows:]

Prepared Statement of Dianne R. Nielson, Ph.D., Energy Advisor, Office 
                  of the Governor, Salt Lake City, UT
    Chairman Bingaman, Senator Murkowski, and Members of the Committee:
    My name is Dianne Nielson. I am the Energy Advisor to Utah Governor 
Jon M. Huntsman, Jr., who serves as the Chairman of the Western 
Governors' Association. Thank you for the invitation to testify today 
on behalf of Western Governors' Association concerning current energy 
security challenges.
    Western Governors are concerned that the United States lacks an 
effective long-term energy policy. Energy security is a critical 
component of that policy and essential to our Nation. Both energy 
efficiency, to reduce demand, and a diversity of energy sources and 
technologies must be part of the solution. Western Governors have 
worked in their individual states and together regionally to meet these 
challenges.
    With the publication of the Clean and Diversified Energy Initiative 
Report in June 2006, http://www.westgov.org/wga/publicat/CDEAC06.pdf, 
the Western Governors' Association announced its commitment to 
developing energy policies and programs that will provide affordable 
and clean energy to sustain our economy, stimulate greater energy 
efficiency, strengthen our energy security and independence, and reduce 
greenhouse gas emissions.
    In the last two years, the WGA has published important reports on 
achieving greater energy efficiency in buildings, http://
www.westgov.org/wga/publicat/EnergyEfficiency07.pdf, deploying near-
zero technologies for power plants fueled by coal resources, http://
www.westgov.org/wga/publicat/zero-coal08.pdf, and developing 
transportation fuels for the future, http://www.westgov.org/wga/
publicat/TransFuels08.pdf. All of these reports are being used as 
resource documents by western states as we work to develop a new energy 
economy.
    For the past eight months, the WGA has been managing the Western 
Renewable Energy Zones Project, http://www.westgov.org/wga/initiatives/
wrez/index.htm. WGA and the U.S. Department of Energy (DOE) launched 
this joint initiative, which is funded by DOE. By identifying the most 
developable renewable resource zones throughout the Western 
Interconnection, load-serving entities, transmission providers, and 
state regulators will be able to make more informed decisions about the 
costs of renewable power, the optimum transmission needed to move 
renewable power to consumers, and which entities might have the 
potential to form partnerships for developing transmission to access 
renewable energy. By promoting a regional perspective, we can blunt the 
potential balkanization of renewables markets, while respecting each 
state's primary jurisdiction in siting generation and transmission 
facilities. We can pave the way for interstate collaboration on the 
permitting of multi-state transmission lines and more equitably 
allocate and recover the costs of new transmission.
    On November 20, 2008, the WGA sent President-elect Obama a letter* 
outlining recommended goals, principles, and immediate actions 
necessary to form the foundation for a National Energy Policy, http://
www.westgov.org/wga/testim/obama-energy11-20-08.pdf. As the Governors 
noted in the letter, transforming our energy infrastructure and economy 
will require new policies, incentives, market mechanisms, and public-
private partnerships. Most important, it will require a bipartisan 
partnership that achieves a broad consensus among political leaders and 
with the American people.
---------------------------------------------------------------------------
    * Letter has been retained in committee files.
---------------------------------------------------------------------------
    Western Governors' recognizes that while full transformation will 
take time, there are a number of steps we can take now. We must promote 
energy efficiency in all forms, including manufacturing more fuel-
efficient vehicles, enhancing public transportation systems, adopting 
regulatory structures that reward utilities that achieve reduced energy 
usage among their customers, and manufacturing more energy efficient 
consumer goods.
    With respect to greenhouse gas (GHG) emissions, we must quickly 
establish an aggressive and achievable national GHG reduction goal that 
will place the United States on a path to contribute to global climate 
stabilization. We must concurrently propose a mandatory market-based 
system that will induce reductions of greenhouse gas emissions.
    To strengthen energy security and independence, we must establish 
an oil import reduction goal. To offset these reductions, we should 
bring more fuel efficient and near-zero emission vehicles into the 
market, increase the supply of domestically produced low carbon fuels, 
reduce vehicle miles travelled, and increase mass transit capabilities.
    And finally, we must create a substantial, long-term national 
public investment on the scale of tens of billions of dollars annually, 
and encourage at least the same investment from the private sector. We 
must quickly perfect near-zero emissions technology from new coal-fired 
electricity and dramatically increase energy supply from wind, solar, 
geothermal, hydro, and biomass resources. It is of utmost importance 
that we expand and upgrade the electricity transmission grid. Finally, 
we must advance vehicle and battery technologies and those alternative 
transportation fuels that will move us toward achieving national energy 
goals.
    We need to do all these things while ensuring affordability for 
lower income energy consumers, especially through proven weatherization 
and cost assistance programs. And we recognize the potential for all 
these actions to create good, domestic clean energy jobs and stimulate 
the economy.
    As Western Governors noted in their letter, ``we must not repeat 
the mistakes of the past. We must have the collective political will 
and resolve to create and implement a long-term comprehensive energy 
policy despite short-term political and market fluctuations. The future 
of our nation depends upon it.''
    WGA stands ready to work on developing a strong national energy 
policy. In fact, we look forward to it. Thank you for the opportunity 
to talk with you about energy policy and energy security.

    The Chairman. Thank you very much. Let me start, Dr. 
Nielson with a question to you. One of the issues that's been 
discussed by, I think all of you at least in your written 
testimony, relates to the need to build out the interstate 
transmission grid and make that a much more robust grid than is 
currently the case.
    One of the suggestions we've received from the chairman of 
the Federal Energy Regulatory Commission as well as a lot of 
other people is that in order to get this done in a timely and 
rational way we really do need to give the Federal Energy 
Regulatory Commission more authority over the citing of 
transmission lines just as they have authority over the citing 
of interstate gas pipelines today. What's the position of the 
Western Governors on that issue?
    Mr. Nielson. Senator, thank you very much. I think the 
issue isn't so much more authority at the Federal level as much 
as it is more commitment to work together an opportunity to 
find solutions between the states and the Federal agency. I 
think there's sufficient authority at this point.
    It becomes a matter of identifying the best locations, 
being able to ensure that those corridors are going to be 
acceptable, not only for impacts to wildlife and other 
environmental resources, but also to the individuals living in 
those communities and counties. So we wouldn't so much favor 
additional authority at the Federal level as we would 
additional commitment to sit down and work through these issues 
with states in partnership.
    The Chairman. Ok. Let me shift to a different subject. 
We've got hundreds of subjects that have been put on the table 
for discussion here obviously.
    We've got this perverse circumstance with regard to 
biofuels. I don't pretend to understand it all. But my 
impression is that as the price of oil has dropped, the price 
of gasoline has dropped.
    Consumption of gasoline has declined. We are seeing less 
demand for biofuels to be blended with gasoline under the 
renewable fuel standard that we earlier adopted. That is 
reducing demand for biofuels in a way that's causing some 
ethanol plants and projects of that type to actually shut down 
and not proceed.
    Part of the problem here, it seems to me, is this so called 
blend wall for ethanol which prevents the amount of ethanol or 
bio fuel that can be blended into gasoline from exceeded 10 
percent. It can't go to E15. Can't go to E20.
    Do any of you think this is an issue that demands fairly 
quick attention or ought to be addressed by the Congress or 
regulatory agencies or what are your thoughts about this? Is 
this a problem? If so, what should we do about it? Any of you 
have thoughts?
    Ms. Harbert. I might offer two thoughts on that regard, 
Senator Bingaman.
    The Chairman. Ok.
    Ms. Harbert. At the moment the Blender's tax credit is a 
static amount of money, a static subsidy that is provided for 
blending ethanol into gasoline. It was at 51 cents a gallon. 
It's now going down to 48 cents. That is whether oil is at $147 
or whether it's at $47.
    Our proposal is to vary that subsidy with the price of oil 
so that it actually makes the price of ethanol competitive with 
the price of gasoline. At the moment ethanol is going to be 
more expensive than gasoline. So the people selling it are 
asking for gasoline rather than blending in ethanol. So we 
should make it so that it is competitive with gasoline.
    Secondly on the blend wall if you increase the blend wall 
clearly there has to be a lot of discussions with the 
automobile manufacturers to make sure that the engines are 
capable of doing it. But more importantly is the delivery 
infrastructure. With the huge increase of biofuels do we have 
the infrastructure there capable to deliver that?
    Do we have the distribution capability? That currently will 
be lacking with the huge increase. We need to focus. Congress 
should look at that.
    The Chairman. Ok.
    Yes, Dr. Batten.
    Mr. Batten. Thank you, chairman. The Center for American 
Progress has also proposed a variable tax credit for ethanol 
for similar reasons. I just wanted to say that another way in 
which to address the amount of biofuels that we have committed 
to producing under the Energy and Independence Security Act of 
2007, we also should start scaling up a renewable fuel standard 
to make sure that our fuel supply for transportation in this 
country starts to move toward a greater renewable proportion.
    Whether it's liquid biofuels. Whether it eventually becomes 
low carbon electricity to power our Nation's vehicles. We need 
to commit to a renewable fuel standard as well. The Center for 
American Progress has proposed a 10-percent renewable fuel 
standard by 2020.
    The Chairman. Ok. I've used all my time.
    Senator Murkowski.
    Senator Murkowski. Thank you, Mr. Chairman. Thank you all 
for your very specific proposals and the work that the groups 
that you're affiliated with have put into this issue. It's 
greatly appreciated.
    I want to ask you for your input on production tax credits. 
Obviously one of the things that we can do around here is to 
provide for those policies that encourage the investment, 
certainly in the wind and the solar and a great deal of debate. 
Eventually we extended the production tax credits.
    But now with all that is happening within the economy and 
really just the crash in the financial markets, what I'm 
hearing is that these production tax credits really aren't 
going to be the help that we had hoped or intended that they 
would be. That perhaps we might need to be tweaking them or 
doing something different. What would your reaction be to a tax 
provision to make both the production tax credit and the 
investment tax credit refundable for those facilities that may 
have been put in place in 2008/2009? To allow generators, as 
perhaps an alternative to carry back the production tax credits 
earned in those years to offset income taxes?
    I guess what I'm looking for from the panel here is--will 
the production tax credits that we put in place work as they 
are now given what has happened in the markets. If not, how do 
you think that we might be able to revamp them?
    Mr. Schwartz, you look like you're leaning forward.
    Mr. Schwartz. I'll just make one comment. I'm sure the 
other members of the panel here will be happy to offer more. I 
just want to make one observation.
    I think business people when we make investments are 
thinking about the long term. To the extent that these tax 
credits of any kind are variable over time because of changes 
in policy it makes it very hard to make long term investment 
decisions. So each time we have reasonably short horizons on 
these tax credit programs you're not getting the bang for the 
buck from the proposal.
    Senator Murkowski. But you know here, you know, in an 
effort to keep the score low, we want to keep it at a short 
window which doesn't help in the investment community.
    Mr. Schwartz. Exactly.
    Senator Murkowski. So we've got our mission here which is 
to keep the dollar amount down. You're trying to build things. 
Are we making any head way with this?
    Mr. Schwartz. I think that this is an example where your 
courage will be greatly appreciated. At the end of the day if 
you don't have longer term horizons on these tax credits we're 
not going to get the impact that you're looking to get.
    Senator Murkowski. Other comments?
    Ms. Harbert. You're not going to get the capital formation 
or the penetration of renewable sources of energy without 
extending the production tax credit for a longer period of 
time. These boom and bust cycles, every 2 years they expire, 
are not giving investors the confidence. We've proposed 
extending them for 8 years and then phasing them out over four. 
That way the investment community would actually have a great 
deal of surety in what they would be able to expect from the 
marketplace.
    But it should be considered a package. The production tax 
credits will be even more successful if they are then partnered 
with expedited transmission citing. It's not enough for the 
wind to blow if we can't get it where it needs to be.
    Senator Murkowski. Right.
    Ms. Harbert. So we really do need to give the FERC some new 
authority to cite transmission lines. We have an example right 
here right near Washington where a transmission line from West 
Virginia to Virginia has taken 12 years to get cited. We don't 
have 12 years to wait.
    So we really need to think long and hard about giving the 
FERC some authority to step in. They were given some additional 
authority, the DOE was, in the Energy Independence Act to cite 
and provide for national interest corridors. Every state for 
which they cited those are now in litigation with the 
Department of Energy. So we're going to need to take some 
extraordinary measures.
    Last we need to think about capital. A clean energy bank 
would provide that low cost, concessionary financing for these 
renewable technologies. So if you think about it as a suite 
together, the production tax credit, transmission and lower 
cost concessionary financing, you really have something that is 
workable and will accelerate renewable technology and the use 
thereof in the marketplace.
    Senator Murkowski. So what I'm hearing is that we don't 
necessarily need to revamp the production tax credits. What we 
need to do is provide for greater certainty through longer 
terms or longer extensions.
    Mr. Batten.
    Mr. Batten. May I also add that enacting a national 
renewable portfolio standard would also provide a degree of 
certainty in terms of the amount of renewable electricity that 
is required to get our nation onto a low carbon energy future, 
such as the one that was considered by the Senate last year, 
but did not in 2007, but did not make it into the Energy Bill.
    Senator Murkowski. Let me ask you that, Dr. Nielson. From 
the Western Governors Association is a renewable portfolio 
standard something that you all support? Would it work 
recognizing that in different areas you're simply able to do 
and meet certain standards where in others you are not? What's 
the response there?
    Mr. Nielson. Many of the States in the West already have 
State renewable energy portfolio standards. We recognize the 
benefit of the national standard.
    But to go to your initial question on production tax 
credits. That extension of time the ability to match the credit 
to the exploration and development time period is critical 
coupled with being able to cite transmission and identify zones 
for renewable energy. That coupled with a renewable energy 
target at a national level will help to stimulate the 
additional resource and develop the transmission and the 
opportunity to bring those resources to market.
    Senator Murkowski. Thank you, Mr. Chairman.
    The Chairman. Thank you very much.
    Senator Barrasso.
    Senator Barrasso. Thank you very much, Mr. Chairman. I'd 
like to thank you personally as well as Senator Murkowski for 
taking the time before this Congress came together to visit 
with me about energy issues and energy concerns. What we can do 
in the best interest of the American public. I want to thank 
you for that consideration and your kindness.
    I'd also like to welcome Senator Bayh to the committee and 
the other two new members, but not just to the committee, but 
to the Senate. So, welcome. I'm glad you're here.
    Mr. Nielson, if I could. I'm from Wyoming. You're from 
Utah, Senator Udall here from Colorado.
    Three States where there's quite a bit of oil shale. I 
don't think that really came out much in the discussion this 
morning. I know Governor Huntsman has been working in that area 
along with some members of the Senate from Utah. Can you talk a 
little bit about the role of oil shale in this is there's 
enough oil shale to help power our country for the next hundred 
years?
    Mr. Nielson. As you point out there's a significant 
resource in our three states. One that I think is important in 
terms of meeting our energy security needs. But we also 
recognize and the Governor has been firm in his statement that 
we need to develop that resource consistent with environmental 
requirements and in protection of the environment as well as 
maximizing the development of the resource.
    That was the reason that the State of Utah encouraged and 
gratefully saw a removal of moratorium on establishing 
regulations. We need to be able to move forward with that 
process to provide some certainty to investors that there would 
be a path forward. But at the same time make sure that that's a 
path that's protective of the environment.
    We're not there at this point either in terms of full 
evaluation of the resource or in terms of the full regulatory 
framework including leasing and evaluations at the lease stage 
of environmental management of that development. But we are on 
the right track. We encourage that moving forward.
    Senator Barrasso. Thank you. Anyone else want to comment on 
oil shale?
    Ms. Harbert. We think it's an incredibly important 
resource. We need to continue to move forward on the regulatory 
process that will allow the investment community to have that 
certainty so they can invest in the technologies that will 
allow us to use this valuable resource over time. If we don't 
provide the opportunity or at least the vision forward that 
there will be an opportunity to lease and to utilize this 
resource, no company is going to put money into research and 
development into those technologies to advance the technologies 
to use that resource.
    So it's a very, very important. If we have the laudable 
goal of reducing our dependence on imported oil, we certainly 
should be using those resources here at home.
    Mr. Batten. May I also comment?
    Senator Barrasso. Yes.
    Mr. Batten. Thank you very much, Senator. As I stated in my 
testimony, as we are developing sources of energy here at home, 
we need to make sure that we're developing sources of energy 
that are compatible with our global warming emission reduction 
goals. At best, even with carbon capture and storage if we were 
to capture the carbon generated by oil shale liquid fuel 
development, we still would have to deal with the carbon 
emissions that come from burning that oil in our tailpipes.
    The environmental pollution that results as a result of 
developing oil shale, whether it's air pollution, water 
pollution, greater salinity deposits and the extreme 
electricity costs that go into oil shale production, the 
extreme water costs that go into oil shale production, all make 
it in terms of our focus, a non-viable alternative.
    Senator Barrasso. You know, just kind of following up on 
this because Wyoming is a big coal state. Right now coal is the 
most affordable, available, reliable and secure source of 
energy. It's why electricity--it's a source of 50 percent of 
the electricity in the nation. It's what helps keep down the 
cost of electricity.
    You talked about hundred billion dollars in clean energy 
projects possibly 2 million jobs from that, about $50,000 per 
job. What do we tell the coal miners in Wyoming, the people 
that work for the trains and to transport the coal? It's a 
major part of our economy as those people want to continue to 
develop coal and work with investments and innovative 
approaches to make sure that coal is as clean as possible 
because all of us want to properly balance energy, the economy 
and the environment.
    Mr. Batten. Absolutely. I admire those concerns and 
balancing all of those concerns at once. That's a very 
important priority for the Center for American Progress as 
well.
    We've come out in support of an emission performance 
standard for all new coal fired facilities to ensure that the 
best available control technology is implementable at new coal 
facilities to capture carbon dioxide. In an effort to foster 
that type of development we've proposed using revenue from cap 
and trade auction to offset additional costs associated with 
the construction of coal plants that employ CCS or equivalent 
control technologies and in the additional costs associated 
with their maintenance and operation. So we are supportive of 
seeing these types of carbon capture technologies used in the 
future.
    Senator Barrasso. Mr. Schwartz.
    Mr. Schwartz. Yes, if I may, Senator. Thank you. I'd just 
like to offer the observation that SAFE, our organization, is 
focused solely on energy security. That's our job from our 
perspective.
    So the central thrust of our commitment this year is on 
electrification of our short haul transportation. Because we 
think that's the most important aspect that will change our 
dependence on imported oil. That of course leaves us the 
diversity of fuel sources including of course, coal. So from 
our perspective having the opportunity to use domestic coal to 
power our transportation system is clearly a positive and good 
for the coal miners in Wyoming.
    That said. We also recognize the need for a long term, 
durable, bipartisan approach to all this. That includes 
focusing not just on energy security, but also on economic 
security and environmental security.
    So from our perspective, while we move toward the 
electrification of transportation we also need to try to make 
the sources of power that are used for the transportation 
sector to be as clean as possible. We think that the R&D budget 
should be dramatically increased at the DOE and that the 
process that that R&D budget gets outlaid should be 
dramatically changed. So that we have cleaner coal and your 
coal miners can keep working.
    Senator Barrasso. Thank you. Thank you, Mr. Chairman. My 
time has expired.
    The Chairman. Thank you.
    Senator Corker.
    Senator Corker. Thank you, sir. Thank all of you for coming 
before us. I'm going to focus most of my questions to you, Dr. 
Batten because my sense is that Administration listens a great 
deal to what you have to say. I appreciate so much to have the 
opportunity to ask you questions myself.
    We here in Congress constantly pick winners and losers. I 
really appreciate the question the Senator from Alaska asked 
regarding production tax credits because we put them in place 
for 2 or 3 years. As many of you have said, there's no way to 
make investments and know that those investments are going to 
yield with such short term production tax credits and other 
kinds of things in place.
    So my question is wouldn't it make sense if we just put a 
price on carbon, period. Did away with all other subsidies, all 
subsidies in energy? Wouldn't that be a more logical, simple 
way of making investments in the future? I'd just love to have 
your response to that.
    Mr. Batten. Thank you, Senator. One of the reasons we're 
supportive of a cap and trade or a cap and auction approach to 
reducing carbon emissions is just that, to actually link the 
policy to the reductions of emissions according to what the 
science tells us is the level we need to be at in order to 
avoid the worst consequences of global warming. So by 
specifically linking the policy to those emission reductions we 
can ensure that we're moving forward on a low carbon energy 
path in a way that gets us to where we need to be 
scientifically.
    Also at the same time of course, allows us to invest in the 
technologies that will help us regain technological leadership 
in the global marketplace, export these technologies overseas 
as part of the technology transfer provision in what will 
hopefully be the next International Global Warming Agreement.
    Senator Corker. So we can basically do away with all other 
subsidies in the energy world by just having a carbon standard. 
Is that correct?
    Mr. Batten. Our proposal is that we need a cap and trade 
system. But then a whole suite of complementary policies 
including market based policies, including mandates and 
including other types of incentives. The idea is to make sure 
that we start to invest as quickly as possible in deploying the 
technologies that we already have available to us.
    McKinsey and Company, the McKinsey Institute, as I'm sure 
you know, has shown that using existing technologies we can 
reduce global energy growth by 50 percent in the next 15 years 
by using existing technology. So we need to deploy those 
technologies as quickly as possible. We need to start investing 
in research and development of new low carbon and efficient 
technologies. We need to start addressing rising energy prices 
for low and middle income Americans using auction revenue from 
a cap and trade system.
    Senator Corker. Wouldn't we be much better off? I mean 
we've all spent a lot of time here on cap and trade. I'm 
actually open to it as long as every penny generated from that 
is returned to the citizens, a cap and dividend kind of 
program.
    But wouldn't we be much better off just with a carbon tax 
and just be clean with the American people. Let them know we're 
taxing carbon. If you're going to burn carbon it's going to 
cost you money.
    We saying we watch Europe and basically they really haven't 
produced emissions much. There's so much gaming. There's free 
allocations, offsets which make no sense whatsoever. Wouldn't 
we be much better off just having a carbon tax here in our 
country?
    Mr. Batten. I want to comment first on your comments about 
the European trading system. The first phase of the EUTS was 
designed to be a learning phase.
    Senator Corker. Yes, I don't really----
    Mr. Batten. As you know.
    Senator Corker. Let's just, since the time is limited. Why 
not just have a carbon tax and just be clean with the American 
people as to what we're doing. Return every penny back in a 
dividend form. But tax them when they use carbon.
    Mr. Batten. Certain economists agree with you that a carbon 
tax is a clean, easy way to go about this. The problem with a 
straight carbon tax is it's not necessarily linked to the 
amount of emission reductions that need to occur in order to 
avoid the worst consequences of global warming. We need to make 
sure that this--any price for carbon is tied to scientifically 
based emission reduction targets. So that's why we're 
supportive of a cap and trade approach rather than a carbon tax 
approach.
    In terms of returning the auction revenue to Americans, we 
agree with you. We need to return at least a portion of that 
auction revenue to Americans to help with rising energy costs. 
But we also very much believe that we need to invest another 
portion of that revenue in this series of incentives to start 
adopting technologies now, widespread adoption and in the 
development of new technologies to push us down this path to a 
low carbon future and if this public investment can actually 
help encourage and increase private investment.
    Senator Corker. Of course if you do that, in essence we're 
raising taxes on Americans directly. We certainly should state 
that.
    Let me just--would you be in favor then of a cap and trade 
system that was really a cap and trade system and didn't have 
free allowances, everything was 100 percent auctioned and one 
that had no domestic or international offsets which in essence 
pollute a real cap and trade system and take it away from being 
market based.
    Mr. Batten. The Center for American Progress has come out 
in support of 100 percent auction under a cap and trade system. 
We agree with you that offsets, excuse me, absolutely must be 
verifiable, additional and measureable in order to make sense 
as part of an emission reduction program. There have been 
examples, of course, of offsets that haven't met those 
requirements. So therefore have no place in a true emission 
reduction program, true cap and trade program.
    Senator Corker. Thank you, Mr. Chairman.
    The Chairman. Thank you very much.
    Senator Udall.
    Senator Udall. Thank you, Mr. Chairman. Just a moment of 
personal privilege I want to tell you how honored I am to serve 
on the committee. Ranking Member Murkowski this is an area in 
which I've focused a lot of my attention in the House. It's an 
important area for all of us as Americans and particularly in 
the great State of Colorado.
    So I did have a longer statement I would like to ask 
unanimous consent to include it in the record.
    [The prepared statement of Senator Udall follows:]

   Prepared Statement of Hon. Mark Udall, U.S. Senator From Colorado
    Thank you, Chairman Bingaman. I am honored to join the hearing 
today and am looking forward to working with you and the other Members 
of the Committee this Congress.
    You have been a leader on these issues for so many years, including 
on one issue near and dear to me--a national Renewable Energy 
Standard--and I am eager to work with all of you to get that and many 
other important things done. I know you and everyone here can teach me 
a lot.
    Energy and natural resource issues have been a passion of mine for 
years. I grew in the West and spent more time under the stars than 
under the roof of my house.
    I've climbed all of Colorado's 54 14,000 foot mountains and I'm 
intimately familiar with our Western lands.
    In the House, I used this knowledge to work to build bridges 
between various stakeholders and find solutions that respect the many 
values of our lands.
    I've tried to do the same with energy issues.
    I worked with then Speaker of the Colorado State House, Lola 
Spradley, a Republican, to travel our state and urge passage of 
Amendment 37, which created a Renewable Electricity Standard in 
Colorado.
    During my tenure in the House, I served as a co-chair of the 
Renewable Energy & Energy Efficiency Caucus with Congressman Zach Wamp. 
And I'm looking forward to working with Senator Dorgan and the other 
leaders of the Senate Caucus here on these issues.
    My passion for energy and natural resource issues are one of the 
main reasons that I sought election to the Senate and sought to be on 
this Committee. I am very pleased to be a member of this Committee and 
have the opportunity to work with all of you.
    The topic that brings us here today is certainly one of the most 
pressing challenges facing our nation. Energy is literally what powers 
our economy and our lives--yet our dependence on foreign oil threatens 
our national security and our environment.
    The current crisis between Russia and Ukraine is a perfect example 
of how access to oil can become a national security issue.
    And American dependence on oil from the Middle East has certainly 
contributed to the terrorism threat that America faces from Al Qaeda 
and other extremist groups.
    So what do we do about this problem? Our witnesses here today have 
many good ideas on how to address our energy security challenge.
    From promoting energy efficiency to responsibly increasing nuclear 
energy production, the only certain thing is that we must and we can 
work together to come up with a comprehensive solution.
    Colorado is an excellent example of the diversity of energy sources 
we have across the U.S. Not only is Colorado a significant producer of 
oil, gas, and coal, but my state is also home a renewable energy 
industry that is growing by leaps and bounds.
    We have traditional farms growing biofuels interspersed with wind 
turbines, along with cutting edge research at the National Renewable 
Energy Laboratory. Of course, research isn't limited to just NREL--
companies are also working towards new potential energy sources ranging 
from oil shale to algae.
    So I'm looking forward to hearing what our witnesses will say 
today. Thank you all for being here.

    The Chairman. We'll include it in the record.
    Senator Udall. Thank you, Mr. Chairman.
    If I might, just make a short comment on oil shale. I 
appreciate the comments that were made about the potential of 
oil shale. I did also want to associate myself with the remarks 
of Dr. Batten.
    I think there are a lot of questions still about oil shale, 
the amount of energy that's needed to produce oil shale. Do you 
produce more energy at the end point than you actually put in? 
There are also grave concerns about the amount of water that's 
necessary to produce oil shale. There are at least five 
different experimental technologies being used when it comes to 
oil shale production.
    So let's proceed, but let's proceed cautiously. I do think 
that the moratoria that was mentioned did make some sense until 
we know the technologies that may well be utilized. How can you 
write regulations for that very production?
    But thanks again to the panel. This has been very 
informative and important testimony. If I might I'd like to 
turn Mr. Schwartz and Ms. Harbert initially and ask you your 
thoughts on how we create a cost model for efficiency and 
conservation that equals the one that's in place today which is 
based much more on supply side model.
    In other words the more electricity you produce, the 
greater your profit. We're trying to now reconfigure in the 
world of IOUs, independent or investor owned utilities in the 
RA world and the municipal power providers, a new cost model so 
that if you save energy you're rewarded just as much as you are 
producing energy. Mr. Schwartz, would you care to comment and 
then Ms. Harbert in turn?
    Mr. Schwartz. Thank you, Senator. To be perfectly frank 
with you it's not something that our organization has addressed 
explicitly. We'd be happy to follow up and work with you on it.
    Senator Udall. Ms. Harbert, do you have thoughts? We might 
ask the other panel members when you're done if they have 
thoughts as well.
    Ms. Harbert. Alright. You're absolutely right. We need to 
find business models that reward efficiency both at the supply 
side out on the consumer side. On the utility side those that 
get their revenue from producing more electricity we need to 
de-couple those profits from selling more electricity and 
rewarding them from making efficiency investments.
    There are ways in fiscal policy to actually reward those 
investments. So that there is a tax benefit to making those 
investments that will then allow them to still recoup profits 
but to make them actually profitable for selling less 
electricity. We also need to look at the building environment.
    The built environment here in the United States consumes a 
tremendous amount of electricity. There are no incentives for 
builders whether at the residential or commercial level to 
build more efficient buildings. After all it's the tenant that 
pays the utility bills, not the builder.
    So currently we have a very low threshold of efficiency 
requirements in commercial buildings. We should raise that. We 
should reward them for efficiency improvements in those 
buildings.
    Likewise, consumers, if they have the monitors in their 
homes where they can make smart choices. They are able to make 
the choice of when they're going to spend their money or not 
and same with the utilities at the different levels along the 
line. If they can more efficiently distribute electricity at 
different times and our energy becomes more affordable and we 
use less of it.
    So there are multiple points along the supply chain and 
demand chain where we can reward efficiency, but not of the 
backbone solely of the taxpayer. It can be in the profit model 
of the utility itself. So we are in complete agreement. We have 
about ten recommendations in our transition plan specifically 
to that which we'd be happy to share with you.
    Senator Udall. Excellent. Dr. Batten, would you care to 
comment in the last 30 seconds I have?
    Mr. Batten. I think that that's absolutely right. Improving 
efficiency, we've seen many examples of how de- coupling 
electricity sales from profits has been successful. For example 
in California we've seen static per capita energy consumption 
since the 1970s while the rest of the country has increased by 
50 percent. At the same time a reduction in per capita 
CO2 emissions in California of 30 percent.
    Of course the cost associated with implementing these 
efficiency measures are 50 percent of that of putting in new 
generation. So, in complete agreement.
    Senator Udall. Thank you.
    The Chairman. Before I call on the next questioner here, 
let me just say to Senator Bayh and Senator Tester, I spoke 
glowingly about our great enthusiasm about Senator Bayh coming 
back on the committee at the beginning of our hearing today. I 
also spoke about our great regret that Senator Tester is going 
off the committee. So I just repeat that for your edification.
    The one other thing I said was that our general rule today 
would be that current members would be given the right to ask 
their questions before the soon to be members. So Senator 
Tester, you would be entitled to go ahead of Senators Shaheen 
and Bayh on that basis if you want to go ahead and do that.
    Senator Tester. I've just got to say first of all, Mr. 
Chairman, I want to thank you for all the good work that you've 
done over the last 2 years. I think you've done a skillful job. 
It's good to know that the 50 I slipped you did do some good. 
So, thanks for that.
    Even though I'm very, very tempted to cut ahead of my good 
friend Senator Udall, I will not. I will wait until they're 
done. Then I'll go.
    The Chairman. Alright. Senator Shaheen, we'll hear from you 
and then Senator Bayh. Ok.
    Senator Shaheen. Thank you, Mr. Chairman and Ranking Member 
Murkowski.
    I am also very excited to be part of this committee. As our 
panelists have so eloquently outlined how we address energy 
policy in the future is going to be a critical part of getting 
this economy moving again. So, I'm excited to be able to join 
in the good work that has been done by those of you who have 
been serving on this committee.
    You know in New Hampshire and New England we have some 
particular challenges relative to energy policy. We are at the 
end of the tailpipe for the nation. So we get the emissions 
from the Midwest. Senator Bayh and I were just sharing that 
discussion.
    We also are very dependent on foreign oil and foreign 
sources of fossil fuels. About 90 percent of our source of 
energy in New Hampshire and New England comes from foreign 
sources of fossil fuels. We also have a higher than normal 
percentage of individual buildings so that our efficiency costs 
for our buildings is more than in most States and more than 50 
percent of people heat their homes with number 2 heating oil. 
So we have some significant challenges.
    On the other hand, we are also seeing some initiatives in 
the state that show what can be done with an energy policy that 
promotes new energy sources. We've got a number of biodiesel 
plants that are operating. We have a very interesting new 
initiative around carbon capture technology. We have some of 
the cutting edge work in the world on cellulosic ethanol using 
forest by products. So we can see people working and the new 
jobs that are going to be created in these new energy 
technologies already.
    But one of the concerns that we have in New Hampshire as we 
look at what we need to do in the future is one that has been 
mentioned by every panelist and by a number of members of the 
committee. That is the need to upgrade our transmission system. 
To create a new grid system that's going to accommodate the new 
energy technologies.
    A number of you have talked about the importance of citing. 
Giving FERC, or some other organization the ability to cite 
transmission. But do any of you have recommendations relative 
to how we pay for those costs or a sharing of costs for those 
new transmission lines?
    In New Hampshire there's going to be a huge cost, one that 
our in state utilities are going to find it very difficult to 
pick up. We think that asking the rate payers of New Hampshire 
to pick up all of those costs for power that's going to be 
shared by other parts of New England and the Northeastern 
states may not be fair to New Hampshire rate payers. So do any 
of you, would any of you suggest how we should do that?
    Mr. Schwartz. SAFE would just--thank you, Senator. I just 
want to respond to your question that SAFE would suggest that 
given the priority of the issue and the beneficiaries of the 
issue that actually the cost ultimately should be borne by a 
different group of constituents than those who have currently 
be paying for expense when utilities make investments as it 
states today. Because generally speaking to date, things have 
been done on a local basis.
    Unfortunately there are States and perhaps New Hampshire is 
one of them and I can't say for sure. Where you would argue 
that there's a lot of transitory electric power. If you develop 
incremental grid capacity where producers are on one side of 
the State then consumers are on a different side of the State, 
then the State is the place for some wires.
    We can completely understand why citizens in that state 
should not feel like they should be paying all the burden when 
actually everybody in the country is benefiting. In some 
respects you can argue that people from outside the State of 
New Hampshire were benefiting even more. So from our 
perspective, we are sympathetic to the issue and would 
recommend that the cost of this kind of grid capacity increase 
will be shared in a different way than it's been to date than 
on a more broad basis.
    If I may just offer one other commentary on this. From our 
perspective the Federal Citing Authority is important. Perhaps 
it's not necessary. If it's not necessary at the end of the day 
and all the right decisions get made without the Federal 
regulators getting involved, that's a good thing.
    But if ultimately they have the power to make a final 
decision that would be better because in all likelihood you 
ultimately get to the right answer faster. One hundered years 
ago somebody laid out the railroad tracks around this country. 
Fifty years ago somebody laid out the highways around this 
country. Now it's time to have a national electric grid. From 
our perspective the Federal authorities need to be involved.
    Senator Shaheen. Anyone else?
    Ms. Harbert. I'll just add one comment on the key word that 
he mentioned which is reliability. I'll note that in New 
England there's been set up the New England Reliability Council 
which works with the FERC and also their counterpart 
authorities in Canada. I think it's very important as we move 
forward in the expansion of the electrical grid in New England 
that we make sure that it is done in an integrated fashion.
    We are fully integrated with our ally to the north in 
Canada. As we seek to expand our electricity grid, rightly so, 
to accommodate expansions and all sorts of energy that we need 
to take that into account. Your comment on the lack of, you 
know, this is not the same in New England as it is in the 
Midwest. I think we really need to consider that as we and the 
Congress, as you in the Congress consider renewable portfolio 
standard because things are different across the country.
    Senator Shaheen. Right.
    Ms. Harbert. That we need to think very carefully about the 
economic implications of putting forward a Federal mandate that 
all states must comply with. Currently the States have the 
power to do this. It hasn't been working so poorly. So we need 
to consider the regional implications of a Federal mandate that 
some regions of the country might not be able to comply with 
without severe economic dislocation.
    Senator Shaheen. Thank you. Any further comments? Thank 
you.
    The Chairman. Senator Bayh.
    Senator Bayh. Thank you, Mr. Chairman. Thank you for your 
kind comments in my absence here. Your words will promote 
punctuality on my part in the future.
    I look forward to reading them in the record. Thank you for 
that. It is good to be back in the committee. Senator 
Murkowski, I have memories. My first several years in this 
committee there was another Senator Murkowski who was the 
chairman. So I for one have no objection to children following 
their parents in the U.S. Senate. I don't know why.
    [Laughter.]
    Senator Bayh. It's just a particular thing of mine. But 
it's good to be serving with you and all of my other colleagues 
in the committee.
    Mr. Chairman, I want to thank you for beginning with this 
hearing. There's no more important issue. I think this is going 
to be one of the defining challenges of our time. It touches 
upon every aspect of our economy, our national and global 
fiscal standing, the environment obviously and our national 
security which is the subject that we are focusing on here 
today.
    Our time is limited so I'm going to be fairly direct in my 
questions. Mr. Schwartz, I'd like to begin with you. I love 
your outline. Very ambitious. As I understood it a reduction of 
50 percent by 2030 in terms of oil consumption. Is that 
correct?
    Mr. Schwartz. Excuse me, Senator, oil intensity. So the 
amount of oil that used per unit of GDP.
    Senator Bayh. Still very aggressive. It's a good target. My 
question, and again I'm focusing on sort of the practicalities 
of this.
    Just roughly, what do you--that's 22 years. How much do you 
think we can increase our utilization of let's start with 
nuclear, wind, clean coal, biofuels. Could you touch upon each 
of those four areas? What's realistic in each of those four?
    Mr. Schwartz. I wish I could give you the direct answers to 
the direct question. I can't, Senator Bayh. I think that the 
key thrust of our argument is that if we can move the 
transportation sector off of oil and on to electricity we will 
be making a dramatic change in the oil intensity.
    Senator Bayh. I agree with that. I'm just trying to figure 
out how we're going to get there and what is reasonable to 
expect in the different areas. Just any of you on nuclear. Any 
of you have any opinions about what we can expect over the next 
20 years to----
    Mr. Schwartz. Excuse me. I just want to get to one aspect 
of the point and this may be partly the answer. I'm sure that 
my colleagues who are experts in the field more than I am can 
add into it.
    But the generating capacity, of course, is substantially 
greater than what is currently used. It's just a question of 
time of day pricing in the electric utility generation 
business. So if we have electric transport undoubtedly we can 
use the current capacity as it stands and charge up at night.
    So there's an overwhelming part----
    Senator Bayh. Right, but we just got to get the electricity 
from someplace. So I'm trying to think how where realistically 
this additional capacity is going to come from and over what 
kind of timeframe. But in 2 minutes and 24 seconds we're 
unlikely to get into too great a detail there. So in any event 
that's how my mind and perhaps we can follow up with the staff 
level and get your thinking about these different areas.
    Dr. Batten, I'd like to ask you a question. I think Ms. 
Harbert you, in the Chamber, had included this in terms of 
global leadership and the issue of climate change in your 
testimony about cap and trade. I followed with interest your 
colloquy with Senator Corker about some aspects of this.
    My question to you is what are the prospects for the 
Chinese and the Indians in particular participating in some 
global regime of climate, CO2 regulation. Because as 
you know China I think now in the aggregate emits more than the 
United States although not in a per capita basis. They are 
growing more rapidly.
    My thought is these changes are necessary. We have to 
exhibit leadership. But all of it will go for naught if we 
don't find a way to include these will actually have, you know, 
economic sacrifices we're making without achieving the climate 
objectives we seek if we don't find a way to include these 
other nations in the process. What do you think the prospects 
for that are?
    Mr. Batten. That's an excellent question and of course a 
great concern. We want to make sure that as we are working here 
in the United States to reduce our emissions that we're seeing 
similar levels of action and well, maybe not in all cases, 
similar levels of action since there is the differentiation 
between developed and developing nations currently as part of 
the negotiation process. But this is a very big concern.
    I have a few points I'd like to make. First of all----
    Senator Bayh. Very few, I'm down to 55 seconds.
    Mr. Batten. Ok. The United States----
    Senator Bayh. As a matter of fact I would just recommend 
that this should be an area that we focus on. Because if we're 
going to, you know, get to the environmental objective that we 
seek and do it in a way that rewards the sacrifice Americans 
are willing to make to get there.
    We've got to include these other countries. There's a lot 
of work to be done there. So that's a job for the diplomats and 
some others.
    Can I follow up with one other question to you? I thought 
your conversation with Senator Corker was very interesting. 
What did you mean by--I was fascinated by your thought that the 
cap and trade would actually generate more reductions than just 
a straight out price, you know, tax mechanism on carbon.
    I will say I, along with Senator Corker, have an open mind 
on these things. Some of the proposals that have come before 
Congress have been sort of Rube Goldberg. Ask and you raise 
money here and then the Congress is allocating it there. You 
have offsets here. You pointed out they have to work.
    But it's in some ways we had the political mechanism 
reallocating these resources instead of the market mechanisms. 
So I'm just--would like to revisit his question which I thought 
was excellent. Why is the cap and trade the most efficient way 
to achieve these reductions?
    Mr. Batten. I just want to say first. I didn't say that 
carbon tax would achieve fewer greenhouse gas emission 
reductions than cap and trade. But cap and trade is linked 
directly to emission levels whereas a carbon tax wouldn't 
necessarily be.
    So it's just a different mechanism.
    Senator Bayh. It's not linked directly. But I think Ms. 
Harbert would probably agree that higher prices tend to lead to 
lower consumption therefore lower emissions. Don't you get to 
the same result just through a different way?
    Mr. Batten. Sure, sure. In both options there's a price 
signal that helps drive behavior. Absolutely.
    Senator Bayh. My time has expired, but I just get back to 
this question. Why is the cap and trade the most efficient way 
to get to where we want to go? Having seen some of the 
proposals that come up here that seem awfully complicated, very 
indirect and susceptible to leakage here and there, I'm just 
curious about your answer.
    Mr. Batten. Sure. Let me just restate that our top priority 
in terms of implementing a price on carbon and implementing a 
cap and trade system is twofold.
    First to reduce emissions to the level that the science 
says we need to.
    Second to make sure that the revenue is available to invest 
in, not only alleviating rising energy costs for low and middle 
income Americans. But also to invest in the technological 
development that we need to really get us on this path to a low 
carbon economy and really start to be able to export 
technologies overseas and the like.
    So this is the platform that we've found, due to our 
analysis, is the most efficient.
    Senator Bayh. Thank you all very much. My time has expired.
    The Chairman. Senator Tester.
    Senator Tester. Thank you, Mr. Chairman. I want to follow 
up on a question that Senator Shaheen had asked. It's to you, 
Mr. Schwartz.
    It talked about transmission. You said there needs to be a 
different way of paying for it, a more broad based way. What 
are you saying?
    I mean, what are you really saying? Are you saying the 
Northeast pays for the Northeast transmission or the country 
pays for the Northeast transmission?
    Mr. Schwartz. I can't really answer that question, Senator 
because I don't think we've worked that out. All we're trying 
to make the point on is we don't think the people in New 
Hampshire should pay for that which benefits people outside of 
New Hampshire completely.
    Senator Tester. If you were to----
    Mr. Schwartz. Excuse me.
    Senator Tester. Yes, go ahead.
    Mr. Schwartz. Let me finish. At the end of the day, from 
our perspective the effective development of a national grid--
--
    Senator Tester. Yes.
    Mr. Schwartz. Is for the benefit of everybody in the 
country.
    Senator Tester. I would agree.
    Mr. Schwartz. It benefits everybody because of its 
mitigating impact on energy security overall most importantly 
and if that's the case, from my perspective speaking as an 
individual because the organization has not taken a specific, 
formal position on a question that you specifically asked me.
    Senator Tester. Ok.
    Mr. Schwartz. I'd be in favor of making it a national.
    Senator Tester. Ok. Thank you. Dr. Nielson and Dr. Batten, 
I just was curious as to what your perspective is on the best 
way to scale up transmission for a renewable energy, 
particularly wind that is intermittent in nature over large 
areas of land, like a place like Montana. There's other too.
    Mr. Nielson. That's certainly an issue for wind, as well as 
for some of the other renewable resources. While they may be 
intermittent within an area, overall and as you bring on a 
larger volume of the resource from different areas that 
intermittency many times disappears or blends in the larger 
base.
    The important thing, going back to your question of 
transmission, also is that as we bring those resources on we 
need to be able to build a transmission system particularly for 
renewables that is scaled to be able to accomplish new 
renewables coming online. So the idea of establishing renewable 
energy zones and perhaps building capacity in that line that 
rate payers won't pay for immediately. But will be able to pick 
up as additional capacity is needed for renewables. That also 
will help in terms of encouraging renewables and in terms of 
balancing the issue of cost and sizing of transmission.
    Senator Tester. Dr. Batten, did you have anything you'd 
like to add to that?
    Mr. Batten. Absolutely. This is an extremely important 
issue. As you know, about 140,000 megawatts of wind are 
currently waiting to go online, but don't have the transmission 
to connect them to the grid.
    Senator Tester. Correct.
    Mr. Batten. So it's a critical question. I would just like 
to add to Dr. Nielson's comments that it's not only the 
intermittency. But also the distributed nature of some of these 
renewable sources of energy that need to be put into 
consideration and managed by smart grid technologies in terms 
of looking at the overall generation, use and real time pricing 
of these different sources of renewable energy.
    Senator Tester. So what you're saying is it would help a 
lot if the energy, wind energy wasn't built all in one spot. If 
it wasn't huge amounts of megawatts in one spot, what if they 
were distributed more evenly throughout a region?
    Mr. Batten. I think it's important to take advantage of 
where the natural resources are and if that leads to greater 
concentration of certain renewable generation in certain areas 
than we need to pay attention to that. But at the same time 
having more distributed generation certainly also contributes 
to the security of our energy supply.
    Senator Tester. Right. Ok. The line, just help me out. You 
may or may not know this. If you building line for wind energy, 
if you're building transmission lines, I would assume you would 
build that line for maximum output of those generators. Is that 
correct?
    Mr. Nielson. You would if you could afford to do so, sir. 
But in many cases the way the system is set now the first 
developer bears the brunt of the cost for development of that 
line even though they may not be utilizing the full capacity of 
development in the future. So it becomes a challenge of 
building the maximum size line to be able to accommodate full 
development of the resource and the amount of money that you 
can bring to it at this point and still be cost effective with 
your consumers.
    Senator Tester. Ok. I've almost ran out of time. I'd like 
to get into the transportation sector about electric cars and 
how they would apply to a State like Montana.
    I think that it absolutely has merit. I think they could 
be. But I'd like to hear your vision for that. Mr. Schwartz 
will hopefully do that at another time.
    I just want to thank the chairman. I want to thank the 
ability to be a part of this committee for the last 2 years. 
It's been a great experience. Thank you.
    The Chairman. As I said in my earlier comments you've made 
a great contribution around here. We will miss you, but we're 
sure that we will have the opportunity to work with you on 
these issues in the larger context here in the Senate.
    Senator Corker, you have additional questions?
    Senator Corker. I do sir, thank you. Senator Tester and I 
serve on a number of committees together and I've noticed he's 
getting off every one of those.
    [Laughter.]
    Senator Corker. So I don't know what the signal is.
    The Chairman. Think there's something personal then?
    Senator Corker. I don't think so. He's a good guy.
    Mr. Batten, I want to follow up. Obviously I enjoyed 
Senator Bahy's line of questioning. I just want to point out 
that the notion of having cap and trade and then making 
investments if you will is really code for that Rube Goldberg 
type of situation we talked about where basically you're 
extracting money from the American public. Then really you're 
doing that without their knowledge in some ways through a cap 
and trade system.
    Then again without their knowledge you're actually taking 
that money and appropriating money to investments that we, in 
our wisdom, choose to do. I want to say that I think that's 
what led to such a disastrous debate last summer as it relates 
to cap and trade. I would just say that in essence, the simple 
way of doing it would be to make sure that we either through 
cap and trade with 100 percent auctions, no offsets, return 100 
percent of that money to the American public.
    So basically we're saying that carbon is bad, but that the 
less--it's really net, not going to cost the American public 
anything or do so more transparently through a carbon tax. But 
I agree with Senator Bayh. I look forward to working with him. 
The simpler the better.
    What role do you see for nuclear into the future? I know 
you were silent on that in your testimony.
    Mr. Batten. If I may just very quickly to say as I said 
before, we do support returning some of the revenue back to the 
American consumer.
    Senator Corker. Which is code for money coming out of the 
American public's pockets and being appropriated in areas. It 
really is sort of non-transparent when you say some of the 
money coming back to the American public.
    Mr. Batten. We actually have been quite transparent in our 
policy recommendation. It's 45 percent----
    Senator Corker. True. It's just when it's implemented that 
the American people really don't see that happening. But and 
I'm not criticizing. I'm just saying that that's code for money 
coming out of American's pockets and going into----
    Mr. Batten. Certainly.
    Senator Corker. Ok.
    Mr. Batten. Our concern with returning 100 percent of the 
revenue is that we don't want to provide incentives. We want to 
make sure that the incentive is still there to actually start 
moderating behavior in terms of starting to reduce the amount 
of carbon produced by the energy consumption of American 
businesses.
    Senator Corker. The incentive would be there because if you 
use carbon it would cost you.
    Mr. Batten. Sure. I just wanted to clarify.
    Senator Corker. Ok.
    Mr. Batten. That's our distinction. That's why we made that 
recommendation.
    In terms of nuclear power we certainly see nuclear power as 
being part of our electricity mix moving forward. There still 
are the, as of yet, unresolved issues having to do with nuclear 
waste and proliferation concerns that need to be addressed. But 
certainly as a baseload------
    Senator Corker. Are you saying they should be addressed 
first or so we could go ahead with nuclear production now and 
be working on those as we go because that's also code for no 
more nuclear unless those are worked out first.
    Mr. Batten. That's not what I'm saying. I'm not saying no 
more nuclear. I'm saying that we absolutely need to be working 
on those concerns at the same time as we're moving our entire 
electricity system toward a more low carbon future and that 
includes also additional and significantly ramped up 
investments in renewable energy production.
    Senator Corker. Thank you for your testimony. I think it's 
been very helpful. I'd like to ask Mr. Schwartz and Ms. 
Harbert, what about the notion of doing away with all this 
myriad of subsidies that we have in place for every type of 
energy production?
    I know the grid itself needs to be dealt with. I look at 
that much like many other do. It's just like the interstate 
system. It's just like the rail system. That is something that 
benefits all.
    But aside from that what about having a price for carbon 
and letting the market from that point forward make investments 
based on carbon itself and doing away with every other kind of 
energy subsidy. Wouldn't that be a saner way for business 
people into the future to make investments and know that those 
investments would yield returns?
    Ms. Harbert. Let's see if this works now.
    First on the question of subsidies, it is our view that in 
some of the nascent or embryonic technologies as they come into 
the market warrant some market shaping support. But it should 
not go on forever. That all technologies over time should be 
able to stand up on their own two feet and compete against one 
another, eek out efficiencies and therefore deliver the lowest 
cost energy to the consumer.
    With endless subsidies you get un-commercial sources of 
energy continue to exist in the market. So they should be able 
to stand on their own. They should be able to compete as long 
as you recognize that in the era in which we live we are going 
to have to provide some temporary support to some of these 
newer technologies.
    Also to your point about nuclear power. You know, nuclear 
power provides 50 percent of our energy. Coal provides 20 
percent. Renewable energy provides--wind provides 1 percent. So 
we can't imagine over a very short period of time transitioning 
to wind power getting up to supplant 70 percent of our 
electricity supply.
    So we have to be rational in our approach to this. We can't 
mandate in a cap and trade program or any other program what 
technology or what reality won't deliver. So we have to be very 
thoughtful about this.
    The investment community and the business community does 
want transparency. They want to know what's expected of them. 
They want to know where the money is going so they can make 
long term capital investments. Energy is a very capital 
intensive, long term business. Without that predictability, 
they can't deliver what's expected to them of their 
shareholders and the consumers.
    Mr. Schwartz. Senator Corker, SAFE, the organization SAFE, 
has in our proposal booklet if you will, has included a variety 
of suggested changes to the current subsidy program, but not 
broad based elimination of them which is what you're asking 
about. Of course if I'm not mistaken you're asking about it in 
a context of putting a price on carbon.
    Senator Corker. Right. That's correct.
    Mr. Schwartz. We would, I think, ultimately conclude that 
it's just basic economics. I'm a capitalist. You're a 
capitalist. If there's a price for carbon it's going to make a 
difference in people's behavior.
    We would--so I need to speak personally as opposed to on 
behalf of the organization because the organization has not 
taken a public stance on carbon tax or gasoline tax. A couple 
of things. First of all, I personally would agree with you on 
the notion that a tax is a lot cleaner and simpler and more 
honest to the American people than a cap and trade system.
    Second of all, a gasoline tax is different from a carbon 
tax. From our perspective while they ultimately are clearly 
related, they ultimately solve different issues. You can't use 
the same exact tool to solve two different issues and think 
that you're doing it efficiently and effectively.
    So from my perspective at least as an individual, if you're 
going to go down that route I hope you go down that route in 
two different places.
    Senator Corker. Mr. Chairman, I want to join Senator Bayh 
and others in thanking you for your leadership. My sense is 
you're going to play a much bigger role this year in any debate 
as it relates to cap and trade.
    I watched the regional polls that we have here in Congress 
and look at some of the silly, silly subsidies that we keep in 
place for technologies that are never going to bear fruit. I 
just hope that as we debate cap and trade or debate carbon tax 
or debate whatever we're going to debate that we also 
simultaneously look at the subsidies that are in place. So that 
what we do is something that really ties all of this together 
in a coherent way because without that we're going to continue 
to have these production tax credits that are on and off.
    Sometimes I feel it's the Finance Committees way of keeping 
us all at bay so that they can deal with this every couple of 
years. I just don't think that's productive. I thank you very 
much for having these wonderful witnesses. I thank them. Thank 
you for your leadership.
    The Chairman. Thank you for your insights and participation 
in this important set of issues.
    Senator Udall did you have additional questions?
    Senator Udall. I do, Mr. Chairman. I wanted to acknowledge 
the important points the Senator from Tennessee has made. Look 
forward to having additional conversations with you, not only 
about a carbon tax, but about subsidies and seeing if we can 
limit the number of subsidies that work across purposes.
    I know that SAFE and I think, Mr. Schwartz I can use this 
term appropriately, Green Hawks, that are a part of the SAFE 
effort. The retired admirals and generals in part are motivated 
by the understanding that they have that we have enormous 
subsidies in effect in protecting oil supplies lines. A 
significant portion of the defense budget goes to protecting 
those oil supply lines.
    So I look forward to working with you and Senator Bayh and 
everybody to get this right. Appreciate the tenacity that you 
talk about the carbon tax efficiency and market mechanisms 
verses political mechanisms as Senator Bayh suggested. So thank 
you.
    If I might I'd love to, given the old saying there's no 
limit to virtue. There's so much we could do here if I could 
work down the line starting with Dr. Batten. Given the tough 
economic situation that the country faces, but also the fiscal 
concerns that we have in the Congress, what would be the single 
initiative you would first support?
    What would be your number one priority to move us to this 
energy security goal that we all want to reach? I'll start with 
Dr. Batten.
    Mr. Batten. Thank you for the question. I think that my 
first priority would be to invest, make sure that the economic 
stimulus package that the Congress enacts includes significant 
investments in low carbon and energy efficiency infrastructure, 
not only to create jobs now and to start reducing American 
energy bills now. But also to put us on a path to a low carbon 
future that will be sustainable and more prosperous.
    Senator Udall. Do you see real utility opportunity in the 
stimulus package?
    Mr. Batten. Absolutely, as a first step in a much broader 
comprehensive strategy.
    Senator Udall. Mr. Schwartz.
    Mr. Schwartz. We would agree. We would also of course focus 
on the grid investments that we've all been talking about all 
morning. I would just like to make one other observation that 
hasn't been raised yet.
    The credit crunch has truly impacted in a very negative way 
a lot of companies that are already in business. So these 
aren't R&D projects. These are real companies.
    Now with real employees and who are supplied by other real 
companies with real employees. In other words people who are 
currently at work where the lack of access to capital which 
afflicts all of corporate America will be particularly 
troublesome because these are fragile companies given the fact 
that they just started in business. I would hope that as part 
of the stimulus package, again speaking personally, there is a 
focus on getting credit access for those companies in the form 
of loan guarantees and the like.
    Senator Udall. Do you think there's a way in which the 
discussion about the TARP second tranche ought to be applied as 
well, Mr. Schwartz?
    Mr. Schwartz. TARP, of course has had a storied existence 
at this point from my perspective at the end of the day the 
money is fungible. It's for you to decide where it goes. All I 
mean to be suggesting is that while it's important to be 
supporting the banking system and it's important to be 
supporting the economy at large, there is a segment of the 
economy with which we are all, your committee and on this 
panel, very concerned about.
    I think that there's a way the stimulus package can be used 
to nourish those companies at a time of great pain. If we don't 
do it and we lose supply lines, these companies, etcetera. I 
think that you may have sort of a brown out, if you will, to 
use an unfortunate mixed metaphor.
    Senator Udall. Ms. Harbert.
    Ms. Harbert. I think in this time of economic crisis and 
energy challenges we don't have the luxury of picking just one. 
We can do more than one thing at the same time. I'm convinced 
of that.
    We don't have the luxury of picking one source of energy. 
We have never been successful in picking winners and losers. I 
would say there's four things that we should do simultaneously.
    We should permanently end the moratorium on gas and signal 
to the energy community that they are able to invest here at 
home to produce energy and jobs here at home. We should raise 
the ceiling on the loan guarantee program so we can get more 
nuclear power plants built. We have $122 billion of requests 
out there for loan guarantees and only $18.5 billion. They're 
ready to go projects.
    We should also extend the renewable tax credit for now. We 
have solar with 8 years and wind with one. That's incongruous. 
So we should make them harmonize.
    Last, we really should get busy about increasing our R&D 
budget for that next set of technologies. So I think we can do 
more than one thing at once. I don't think we should mislead 
the American people by saying if we just do this one thing, we 
solve it.
    They're hoping for that. It's just simply not true.
    Senator Udall. That's well said.
    Dr. Nielson.
    Mr. Nielson. Senator, I also would suggest that we need to 
do multiple things at this point. The Western Governors 
Association responded to this question in early December. The 
response was first of all that we fund State energy efficiency 
programs and clean energy projects.
    That we extend the production tax credit to 2018, that we 
expedite Federal reviews on clean energy and transmission 
projects, an issue that we haven't talked about much today. 
That we invest in alternative fuels for transportation. Thank 
you.
    Senator Udall. Thank you. Even though the last two 
witnesses didn't answer my question with one response, you 
still would get a very high grade because it is important to do 
everything.
    But Dr. Batten, thank you also for making the point that we 
have to focus on this near term opportunity both in the 
stimulus package and in the TARP. Governor Shaheen and I both 
come from states where you use tarps to keep the rain off your 
head and to survive long nights in the winter and in the 
summer. So the tarp has to cover the right opportunities here 
and safeguard the economy.
    So I think there's additional utility there. So thank you 
again, Mr. Chairman. This has been a very, very important 
hearing and worthwhile. Thank you.
    The Chairman. Thank you.
    Senator Shaheen.
    Senator Shaheen. Yes, I don't have another question but 
only a comment given the discussion about cap and trade. That 
is that we just had an auction with the Regional Greenhouse Gas 
Initiative which I think is one of the first efforts in the 
country. It might be instructive to hear from some of those 
folks how that went and what kinds of challenges they're seeing 
as the result of that.
    The Chairman. I agree. I think that's a very good 
suggestion.
    Senator Bayh.
    Senator Bayh. Thank you, Mr. Chairman. Just one comment and 
then one very brief question. I sometimes enjoy playing the 
role of skeptic or devil's advocate. Dr. Batten I think I was 
playing that role with you here today. I'm sorry our colleague 
Senator Corker left.
    But the reason for my question was I do believe that global 
warming is a significant challenge that we have to address. We 
have to exert global leadership. But because I believe strongly 
about that I think we have a particular responsibility to make 
sure that our proposed solution actually works.
    We have a responsibility to the American taxpayers to make 
sure it's the most efficient mechanism possible, so hence my 
interest in China and India. We focused a lot more on our 
domestic challenge than we have in terms of how to include 
them. I think we need to step up our efforts there if it's 
actually going to be effective in the long run.
    If Senator Corker were still here I would kind of answer my 
own question to you by saying I think the direct tax mechanism. 
If I'm not mistaken, Mr. Chairman was maybe tried back in 1993 
in the first years of the Clinton Administration. I think then 
Vice President Gore sort of floated a carbon tax proposal or an 
idea.
    So my answer to my own question was sometimes things that 
the economists would say are optimal are not politically 
realistic. Therein lies the real debate we have here. So how do 
you take a solution that gets you to the same result, it may 
not be ideal from a theoretical standpoint.
    But how do you make it substantively efficient enough to be 
supportable? I think therein lies the challenge we face. That 
was the reasoning for my questions to you. I think we need to 
follow up on both of those.
    How do we include the developing countries? How do we, if 
we have to go with the cap and trade--and I support where I 
think you were coming from. We have to find a way particularly 
for more resources for more R&D technological development.
    That involves, you know, the government. Although I 
personally would be a little more inclined toward the tax 
credit mechanism as opposed to getting the appropriators 
involved. When you get our good friends on that committee 
involved sometimes things can go off in a variety of directions 
or maybe some combination of the 2.
    In any event I understand where you're coming from. I think 
you understand where I'm going from. It is just some highly 
complicated thing that relies on government appropriations very 
heavily--impale the efficiency of the solution. That's the 
reason for my comment.
    My question, Mr. Chairman. One last thing for you, Mr. 
Schwartz. I really followed with some interest T. Boone Pickens 
campaign this year to elevate the public's awareness in this 
area. As I understood it he wanted to increase the use of wind 
power for electricity backing out the use of natural gas to 
produce electricity and instead using natural gas to power 
motor vehicles. Is that correct?
    Mr. Schwartz. Broadly speaking----
    Senator Bayh. Right. So my question to you is you've chosen 
the electrification mode. He was sort of advocating the 
gasification mode. Why did you choose differently than he did?
    Mr. Schwartz. First of all just to make sure the point is 
clear. We're completely constructive on the concept of 
increasing the use of wind power in the United States. So that 
part there's no debate on.
    I think the issue with natural gas is with the structure 
required to begin to use natural gas as the key source of fuel 
for transportation. We don't have it now. It would cost 
trillions of dollars to have it that way.
    We already have broad distribution of electric power. It's 
from that perspective that from our perspective it's a 
reasonably simple question.
    Senator Bayh. So it's the timeliness and efficiency of the 
distribution.
    Mr. Schwartz. There's plenty of places to spend trillions 
of dollars. You don't need more.
    Senator Bayh. Why do you suppose he chose to go the other 
way?
    Mr. Schwartz. Couldn't tell you.
    Senator Bayh. A subject for another day. Thank you, Mr. 
Chairman. Thank you very much ladies and gentlemen.
    The Chairman. Are there any other questions? If not, we 
appreciate the good testimony we've received. Thank you very 
much. This gives us a lot to think about as we proceed to try 
to craft energy legislation.
    So that will conclude our hearing. Thank you.
    [Whereupon, at 11:23 a.m. the hearing was adjourned.]
                                APPENDIX

                   Responses to Additional Questions

                              ----------                              

     Responses of Eric Schwartz to Questions From Senator Bingaman
    Question 1. Could you comment on whether it is possible to develop 
robust renewable fuels industries without high prices for traditional 
fossil fuels? Can we realistically expect to move toward a low carbon 
energy future without considerable energy price increases? Now that 
energy prices have fallen from their recent peaks, how do we keep from 
reversing the consumption reductions and consumer demand for greater 
energy efficiency?
    Answer. It will be extremely difficult to develop a robust 
renewable fuels industry unless alternative sources of energy become 
cost competitive with traditional fuels. To the extent that research 
and development (R&D) can accelerate technological growth, it can bring 
down the cost of renewable fuels by increasing their generation 
efficiency, thereby making these sources of energy more cost 
competitive with fossil fuels over time. For that reason, the Council 
has proposed significant increases in public spending on government 
R&D.
    With regard to energy consumption, the nation will undoubtedly 
struggle to maintain recent increases in efficiency as long as energy 
prices remain low. Simply stated, low energy prices make investments in 
energy efficiency less cost effective by increasing their payback 
times. Given the current status of the U.S. economy, consumers are much 
less likely to make investments in energy-efficient goods and 
technologies that require significant capital upfront in exchange for 
savings over an extended time.
    The most important role for government in this environment is to be 
diligent in pursing cost-effective public policies that establish 
efficiency as a market requirement. Market-friendly standards and 
mandates, including fuel-economy standards, can help insulate consumer 
choices from the vagaries of the global oil market. To be sure, the 
Council believes that government intervention through standards and 
mandates should be a last resort. But given the nature of the global 
oil market-combined with the climate and environmental goals of the 
nation-we believe that external costs are not fully reflected in end-
user energy prices today. Therefore, government must set the priorities 
and parameters.
    Question 2. There is broad agreement that the short-term extensions 
of the production tax credit have not provided sufficient regulatory 
certainty for the robust growth of that industry. In the current 
investment climate, tax credits do not seem to be enough to propel 
projects forward. What policy tools would you recommend for supporting 
renewable energy projects in the current economy?
    Answer. The current problem with the production tax credit (PTC) is 
that financial markets are unable to provide a path for developers of 
renewables to monetize the tax credit. Proposals to shift the tax 
credits to a grant-based program that could be funded by appropriations 
for a period of two or three years until the economy recovers are 
probably the most important means to support the development of 
renewables previously reliant on the PTC in the short term.
    Over the medium term, it makes sense to extend the PTC for a longer 
period of time so that the renewable fuels industry can plan more 
confidently for its future. At some point, however, the Council 
believes that the PTC should phase out, as it is not sound policy to 
essentially subsidize the production of energy from certain sources on 
an open-ended basis. The Council also believes that as a general matter 
the PTC and the investment tax credit (ITC) should be revisited, and 
probably eliminated, in the event that either a renewable portfolio 
standard or a plan to regulate carbon emissions is enacted, as either 
policy would create significant demand for renewable power, largely 
obviating the need for ongoing government subsidies.
    Question 3. In your written testimony, you made a very compelling 
point that the financial burden of 2008's energy price increases 
arguably exceeds the financial burden associated with subprime mortgage 
lending. However, you suggested that this oil price spike demonstrated 
``both the vulnerability of our transportation system and the 
consequences of an actual energy crisis.'' Could you explain how you 
interpret the oil price spike as the result of an ``actual energy 
crisis''? To what ``actual energy crisis'' are you referring? Would you 
agree that a market that has become divorced from its underlying 
fundamentals constitutes an ``actual energy crisis''?
    Answer. The oil price spike was, indeed, the result of an actual 
energy crisis. However, perhaps a more instructive term would be ``oil 
shock.'' Indeed, in its recently released World Energy Outlook 2008, 
the International Energy Agency (IEA) noted that ``the surge in oil 
prices since 2003, and especially since 2007, can legitimately be 
described as an oil shock, albeit a slow motion one.'' Unlike previous 
oil shocks, most experts have come to believe that the events of the 
past several years were characterized by a demand shock. Beginning with 
highly unexpected rates of oil demand growth in China and the U.S. in 
2004, global oil demand rose at an aggressive pace through 2007, 
placing a heavy strain on the global oil market, which in recent 
history has been characterized by at least three endemic, fundamental 
weaknesses.
    The first weakness has been inadequate investment in production 
capacity growth by members of the Organization of the Petroleum 
Exporting Countries (OPEC). OPEC nations are home to the largest, 
lowest-cost reserves of oil in the world. As demand grew rapidly from 
2004 to 2007, OPEC production capacity growth failed to keep pace, 
resulting in very low levels of spare capacity (lower than 1 million 
barrels per day at times). Second, many of the most prolific oil 
producers are plagued by political instability, violence, and 
terrorism, all of which can generate unexpected oil supply disruptions. 
In a low-spare-capacity environment, this leads to a considerable risk 
premium in oil prices. Finally, oil production growth outside of OPEC 
in the world's most developed nations (OECD countries) has dramatically 
slowed while marginal costs have risen.
    These basic factors left the global oil market essentially 
unprepared for the surge in demand-the demand shock-from emerging 
markets, which became evident in 2004. Equipment costs skyrocketed, 
extremely expensive non-OPEC oil projects began to enter development 
(Canadian oil sands have a marginal cost estimated at $80-$90/bbl), and 
institutional investors flocked to commodities, which arguably 
exacerbated price movements. The result was an oil price that briefly 
overshot the price of demand destruction, touching $147/bbl. Record 
high oil prices substantially increased the nation's energy-related 
expenses, affecting household and business budgets and undermining 
several industries, including airlines, shipping, and the automotive 
manufacturing sector.
    The crisis nature of this phenomenon was exacerbated in the United 
States because of the structure of our transportation system. Nearly 70 
percent of U.S. oil consumption occurs in the transportation sector, 
which is 96 percent reliant on oil-based fuel for energy. At the same 
time, demand for oil is inelastic in the short term because consumers 
cannot quickly moderate their use of oil in response to higher prices. 
Moreover, as noted above, there is often virtually no spare capacity in 
the system to compensate for any production shortfall, whether due to 
natural disasters, political instability, or any other reason. 
Ultimately, one might consider the structure of our transportation 
system to be part of the crisis. At a minimum, it facilitates the onset 
of our recurring ``energy crises.''
    Finally, whatever the role of institutional investments in 
commodities, the market fundamentals did, in fact, drive the underlying 
price movements. Moreover, it is absolutely critical to realize that 
oil market fundamentals have not appreciably altered during the past 
six months. In fact, investment in oil production capacity worldwide 
has been further constrained, which will likely lead to a sharp 
correction in oil prices when demand recovers.
    Question 4. There seems to be a near-consensus that, over the long 
term, we need to move beyond even ``second generation'' biofuels, such 
as cellulosic ethanol, to a ``third generation'' of biofuels, 
developing technologies such as biocrude from algae. Can you comment on 
the preferred policy options for ensuring that we develop this third 
generation of biofuels? How does the existing RFS fit with this goal of 
establishing a third generation biofuels industry? And, should the RFS 
extend beyond passenger vehicles, and, for instance, include jet fuel?
    Answer. At this point, the Council believes that the best means to 
accelerate the development of a third generation of biofuels is to 
increase R&D funding for its development. The existing renewable fuels 
standard (RFS) does call for the development of ``advanced biofuels,'' 
but it differentiates these fuels based on their carbon profile alone 
and essentially defines them largely as cellulosic ethanol, the 
production of which is mandated by the RFS. As it stands, the RFS is 
biased substantially in favor of ethanol, regardless of feedstock.
    The Council has raised concerns about several aspects of the 
current biofuels program broadly and the RFS specifically. As is now 
well known, the current production mandate will exceed the 10 percent 
blend wall in a few short years. In the absence of a sudden wellspring 
of E85 refueling stations and flex-fuel vehicles, the nation will be 
producing more ethanol than it needs. The Council, however, does not 
support the construction of a national infrastructure for transporting 
alcohol-based fuels. At best, this would be a costly endeavor that 
would still leave the nation dependent on liquid fuels, the price of 
which will be set by the marginal gallon, which will be oil-based fuel 
for the foreseeable future. Instead, the Council has advocated for 
expeditiously determining the extent to which the blending cap for 
ethanol in conventional gasoline can be increased, perhaps to E15 or 
E20.
    We agree that the government should focus on the development of 
biofuels that can be transported in existing pipelines and dispersed 
via conventional pumps. Bio-crude from algae and other biofuels that 
mimic the molecular structure of conventional fossil fuels can help 
meet climate-mitigation goals and will minimize government expenditures 
on redundant infrastructure. In fact, by withholding public funds for 
alcohol-based infrastructure, government can send a powerful signal 
about the future of the U.S. biofuels market while more aggressively 
investing in necessary research.
    Again, however, it should be noted that these fuels will 
essentially be direct substitutes for petroleum, and will therefore be 
priced on the same curve. The diversity of the electric power sector 
offers transportation a far more long term, permanent shift toward 
energy security.
    Question 5. In your written testimony, you identified regulatory 
uncertainty as a reason for the cancellation of many advanced coal 
projects. Could you please elaborate on exactly what those regulatory 
uncertainties are?
    Answer. The primary regulatory uncertainty is the uncertainty 
regarding the timing and means of regulating carbon emissions, which 
makes it difficult to forecast the long term financial viability of 
coal-based projects. Until rules governing carbon emissions are 
established, it will be virtually impossible to forecast the costs of 
operating a coal plant and compare it to the cost of other types of 
generating plants with any meaningful degree of confidence.
    Question 6. In written testimony, SAFE recommended expanding 
federal R&D initiatives that study the opportunities to exploit methane 
hydrates. The DOE currently has a highly functional methane hydrate 
program that is being run collaboratively with other Agencies and 
private industries. They are poised for reauthorization in 2010. Beyond 
the work that has already been completed, do you have any further 
suggestions as to how to maximize the investment in this area of 
research?
    Answer. SAFE agrees that DOE's interagency program is staffed by 
highly competent civil servants and has made some progress in 
conducting portions of two field projects. However, as noted in the 
2007 Methane Hydrate Advisory Committee Report to Congress, ``the 
program is grossly underfunded.'' SAFE is aware that, per the Energy 
Policy Act of 2005, Section 968, the National Academies of Sciences is 
conducting a study of the progress made under DOE's methane hydrate R&D 
program and will make recommendations for future methane hydrate R&D 
needs.
    In addition to careful consideration of those recommendations, SAFE 
urges that the R&D budget for methane hydrates research should be 
dramatically increased. FY 2007 funding for the program was $12 million 
dollars. By contrast, funding for DOE's fusion research program in FY 
2007 was more than $311 million. As the Advisory Committee notes: 
``Either the United States should downgrade the expectations outlined 
in the Methane Hydrate R&D Act, or the program should be funded at the 
levels authorized in the Act to enable achievement of the stated 
goals.'' Even at those authorized levels, the methane hydrate R&D would 
be funded at levels between one-sixth and one-eighth of the fusion 
program.
     Responses of Eric Schwartz to Questions From Senator Murkowski
    Question 1. Our reliance upon foreign nations for a great deal of 
our energy needs is a problem we must solve. Our energy policy and our 
economy are inextricably linked. While lower gas prices are providing 
some relief, it will only be temporary unless we can find a long-term 
solution. Moreover, those low oil prices brought about by recession, 
along with continued difficulty in the credit markets, now threaten to 
delay or halt a wide range of renewable energy projects. I believe this 
is a clear indication of the need to increase domestic oil and gas 
production. Do you agree that side-by-side with our efforts to increase 
conservation and develop new energy sources, we also have to produce 
more secure sources of domestic oil and gas? If so, where should we be 
producing?
    Answer. Over the long term, it is the Council's position that the 
most effective means for achieving true energy security is the 
electrification of short-haul transportation. America's cars and light-
duty trucks consumed approximately 8 million barrels of oil per day in 
2008, about 40 percent of the U.S. total. Aggressively transitioning 
this component of the vehicle fleet to high rates of electrification 
will dramatically reduce oil consumption and thereby reduce the oil 
intensity of the U.S. economy. To support this effort, the Council has 
outlined a number of policy steps the federal government must 
implement, including vehicle tax credits, increased R&D spending for 
batteries, and a substantial investment in electricity generation, 
transmission, and grid management.
    The Council recognizes that widespread electrified ground transport 
will require a dramatic shift in consumer choice, technology and 
infrastructure. This transformation will only be achieved if we commit 
to a decades-long, sustained national effort that leverages smart, 
aggressive public spending with private ingenuity and flexibility.
    If we as a nation take the necessary steps, reductions in oil 
consumption from electrification of short-haul travel will reach 
meaningful levels within the next two decades. However, we must take 
steps to protect our economy and national security in the short term 
while we work to fulfill the promise of electrification. Therefore, the 
Council has outlined a series of intermediate measures to provide 
domestic energy to drive our economy. Among these measures, the Council 
supports expanded access to oil and gas resources on the Federal Outer 
Continental Shelf (OCS) and in the 1002 area of the Alaska North Slope. 
The principal benefit of increased domestic oil production will be 
reduced pressure on the U.S. current account due to imported petroleum. 
Based on initial statistics, net U.S. petroleum imports increased the 
2008 trade deficit by more than $350 billion. Additional benefits 
include increased revenues for the Federal government and additional 
volumes of stable oil supply in the global market.
    It is important to note, however, that increased domestic oil 
production will not shield American households and businesses from the 
volatility of petroleum prices. There is a fungible global market for 
oil, and incremental U.S. production from expanded access will not 
fundamentally alter this dynamic.
    Ultimately, the largest benefits to the U.S. economy will accrue 
from reduced oil consumption, which can partially be achieved through 
improved vehicle efficiency today. Therefore, the Council has also made 
recommendations on expeditiously completing the fuel economy rule-
making for medium- and heavy-duty trucks. Over the long term, the fuel 
diversity offered by electrification of transportation will reduce oil 
consumption much more substantially.
    Question 2. There are very significant energy reserves on lands 
owned by Alaska Natives and American Indian tribes, who want to develop 
the potential of these reserves. Do you agree that our country's energy 
security would be enhanced if these resources were to be developed?
    Answer. While it has not taken an explicit position on this issue, 
the Council would agree that increased production of domestic oil and 
gas resources offers a number of economic benefits. In its report, the 
Council also clearly states that the development of oil and natural 
resources within the United States must be balanced by a range of 
considerations, including environmental sustainability and economic 
viability. As a general rule, the Council supports the development of 
the highest potential, lowest environmental-impact resources first. 
Assuming resources on lands owned by Alaska Natives and American Indian 
tribes meet these considerations, increased production would benefit 
the entire nation, and increased royalty revenues would benefit the 
holders of the resource-rights.
    Question 3. Last year, the price of oil rose dramatically before 
declining to its lowest level since 2004. In light of this volatility, 
would you change or alter any of the recommendations included in your 
reports? Would you make any adjustments if today's relatively low oil 
prices persist?
    Answer. Oil prices are determined in open markets based on supply 
and demand. However, the supply of oil itself is completely removed 
from free market principles. The largest reserves are held by members 
of the OPEC cartel, who meet to determine output in a process that is 
often influenced by inherently political considerations. As a result, 
contrary to market principles, the highest-cost resources (U.S. 
deepwater, Canadian oil sands, North Caspian, etc.) are actively 
developed while lower-cost resources in OPEC sit idle. Moreover, as 
evidenced in a recent analysis from PFC Energy, as much as 90 percent 
of global oil and gas reserves are held by national oil companies 
(NOCs), whose investment decisions are based on a range of social and 
political considerations.
    As a result, the global oil market is extremely susceptible to boom 
and bust cycles. Investment and operational decisions in key nations 
are uneven and inefficient, often based on short-term considerations. 
Therefore, the Council has long recognized the need for market-friendly 
standards and mandates in the United States, regardless of oil price. 
As long as oil prices fluctuate unpredictably, the nation faces a near-
impossible investment climate for alternatives to oil and for 
technologies that use oil more efficiently. Our recent report reflects 
this measured approach to energy policy, and was not motivated simply 
by high oil prices.
    Question 4. Washington Post columnist Charles Krauthammer wrote an 
article last week in support of what he calls a ``net zero gas tax.'' 
He calls for a $1 per gallon increase in the federal gas tax, which 
would be accompanied by a $14 per week reduction in the payroll tax. 
According to Krauthammer, such a shift would reduce global oil prices 
and domestic greenhouse gas emissions by restraining gasoline 
consumption. It is also described as revenue neutral. What are your 
thoughts on this proposal, particularly as an alternative to a tax on 
carbon, a cap-and-trade system, and/or higher CAFE standards?
    Answer. I would like to offer my personal views on this matter. I 
will refrain from speaking for the entire Energy Security Leadership 
Council as a whole, though I would note that the Council has not 
explicitly opposed a gas tax as a matter of policy. In the past, the 
viability of a gas tax has been hampered by political considerations. 
Perhaps, however, the political viability of a gas tax will have 
improved in the environment of bipartisanship and great change in 
Washington today.
    Ultimately, a gas tax represents a tool for supporting other policy 
measures, like improved fleetwide fuel-economy standards and promoting 
alternatives. It must not supplant or replace them. This is true if for 
no other reason than the fact that demand for gasoline is highly 
inelastic, meaning a stand-alone gas tax would have to be extremely 
aggressive to be effective. But it is also true that individuals are 
notoriously bad at evaluating long-term efficiency savings in the face 
of increased upfront expenditures, and this impacts the amount of fuel-
economy for which they are willing to pay.
    Nevertheless, I believe that the key to a successful gas tax is 
implementing it in a way that does not simply enlarge government 
coffers at the expense of consumers while providing them with no 
meaningful alternatives. Two options exist for addressing this issue. 
Mr. Krauthammer has identified the first, which is to refund the gas 
tax via an alternative fiscal tool-in this case the payroll tax. I 
believe this type of gas tax can help end-user fuel prices reflect the 
true costs of oil and compel some consumers to use gasoline more 
efficiently either through conservation or the purchase of more fuel-
efficient vehicles. It will also send a signal to automotive 
manufacturers that demand for efficient cars will be driven by more 
sustained price signals. In this case, if properly executed and 
managed, a gas tax could achieve behavioral modifications with no net 
cost to the consumer.
    A second option for implementing a gas tax, I believe, is to 
deposit a portion of the revenues in dedicated government accounts to 
be used solely for the purpose of research and development on critical 
energy technologies. This will have the same benefits of the first 
approach in terms of sending appropriate price signals, but will have 
one additional factor. Investments in energy R&D could yield break-
through technologies that will greatly benefit all consumers and the 
broader economy. However, there is always the risk that R&D would yield 
too few benefits or only provide them over a long timeframe, and 
therefore this system has a higher risk/reward ratio than a simple 
refund.
    As a final point, it should be noted that a gasoline tax does not 
deal with electricity, so it is not a substitute for a carbon tax or a 
carbon cap and trade system. The electric power sector is currently the 
most cost-effective sector for dealing with carbon emissions, because 
the sources are generally large and stationary. A carbon tax would 
raise prices in this sector substantially, while a gas tax would have 
no impact. Alternatively, a carbon tax would trickle down to end-users 
of petroleum, but only at modest levels not likely to induce behavioral 
changes. (A CO2 price of $200 per ton would raise gasoline 
prices by 25-50 cents at most, and $200 per ton would generally be 
considered to be at the upper range of estimates for permit prices.) 
Ultimately, some combination of increased prices and other government 
policies will be needed.
    Question 5. Alternative energy companies have an incredibly 
difficult time securing the financing necessary to become viable and 
productive. DOE's Loan Guarantee program, established by the 2005 
Energy Policy Act, has proven woefully inadequate for addressing this 
problem thus far. Do you believe that there have been short-comings in 
the way that program has been administered? If so, what would you have 
done differently? Do you believe that loan guarantees are the most 
effective financial instrument for advancing private-sector, clean 
energy technology ventures?
    Answer. There have been shortcomings in the way the program has 
been developed, administered and funded. From the beginning, 
appropriations for the program-to develop guidance and regulations, to 
set up the administrative oversight, and to authorize loan guarantee 
volume amounts-have been both delayed and inadequate. The Department's 
guidance and regulations for the program currently require greater 
levels of project sponsor funding than the statute requires, contain 
unrealistic requirements for fees and credit subsidy payments-both as 
to amounts and the timing of the payments-and require credit ratings 
that are unrealistic for projects deploying innovative, noncommercial 
technologies.
    All of these requirements are at a minimum inconsistent with 
congressional intent and in some cases appear to clearly contravene 
congressional intent. The program should have been structured more like 
a commercial transaction with respect to the level and timing of fees, 
adhered more directly to congressional intent with respect to project 
sponsor funding levels, and emphasized funding guarantees for projects 
that cannot secure normal commercial funding due to technology risk. In 
short, the DOE needs to recognize that some projects will default due 
to technology risk; they are not merely intended to administer an 
alternative financing pathway for robust projects with little or no 
risk of technology failure.
    In the current liquidity crisis, loan guarantees may not be the 
most effective instrument for advancing the deployment of innovative 
energy technologies, although they should be among the items in the 
toolbox of financial incentives. During these credit-constrained times, 
it may be that a system of direct loans, or grants that convert to 
loans, or a loan guarantee program that requires little if any equity 
involvement from project sponsors, would be the ``most effective'' 
financial instrument for achieving rapid deployment of innovative 
energy technologies.
    Question 6. Several pieces of legislation were introduced last 
Congress to create a self-funding federal bank to assist start-up, 
clean energy companies. As envisioned by those bills, such an entity 
would be able to issue not only loan guarantees, but direct loans and 
insurance products as well. Additionally, this federal bank would, in 
some instances, be allowed to assume a financial stake in clean energy 
technology firms and issue publicly-traded stock. In the context of 
what has taken place at Fannie Mae and Freddie Mac, do you believe it 
is appropriate for the federal government to back start-up, clean 
energy technology firms in this manner?
    Answer. What occurred at Fannie Mae and Freddie Mac was a failure 
of oversight and management, rather than a failure of proof of concept. 
As long as taxpayers will be made whole through repayment, and until a 
clear carbon pricing system exists to send desired signals to the 
marketplace, government assistance will be necessary to facilitate the 
rapid deployment of more costly clean and secure energy technologies.
    Question 7. We all know that coal supplies 50 percent of our 
nation's electricity supply. The Chamber of Commerce's Institute for 
21st Century Energy testified that the U.S. has enough coal to last for 
well over 200 years. What role do you see for coal in the nation's 
energy mix going forward? Compared to commercial-scale carbon capture 
and sequestration, how important do you believe incremental efficiency 
improvements within the existing coal fleet are?
    Answer. The United States has the largest reserves of coal in the 
world and is the second largest consumer and producer of coal globally. 
Half of the electric power generated in the United States is generated 
from coal. It is virtually impossible to imagine any scenario in which 
coal is not a critical part of our energy future through at least 2050. 
Moreover, while coal has many fierce opponents, few have offered viable 
plans to replace the power generated by coal.
    To be sure, the Council is mindful of the challenge that our nation 
faces in reducing carbon emissions and the role that coal plays in 
contributing to those emissions. For that very reason we have proposed 
significant increases in R&D, including significant spending on 
technologies to capture and sequester carbon from coal-fired power 
plants, in addition to promoting other baseload power solutions like 
nuclear. While we certainly value the incremental reduction in 
emissions that we can achieve by increasing the efficiency of existing 
coal-fired power plants, we believe that efficiency gains on existing 
sites alone will not allow us to address our carbon problems, and that 
commercial-scale carbon capture and sequestration (CCS) is a critical 
part of our energy future.
    However, as the government and private industry work to demonstrate 
commercially viable CCS, it is worth noting that integrated 
gasification combined cycle (IGCC) is a coal generation platform/
technology that exists today. Although capital costs are substantially 
higher, these highly-efficient coal facilities do offer a means of 
power production from an abundant domestic source of fuel. To the 
extent that these facilities are deployed in the coming years, the 
Council recommends they be made CCS-ready with access to storage space.
    Question 8. It would seem that more output from the same amount of 
fuel input is a win-win for the environment, the consumer, and the 
success of companies that operate electric power generation facilities 
across the country. And yet, these efficiency improvements are 
consistently not undertaken. What, specifically, gets in the way of 
incremental efficiency improvements at power generation plants in the 
existing fleet? What can this Congress do to remedy such a shortcoming?
    Answer. The Council was unaware that efficiency improvements are 
``consistently not undertaken'' at power plants. While the Council is 
not expert on that issue, and has a sense that most efficiency upgrades 
that were cost-effective were occurring, it has heard complaints that 
the New Source Review (NSR) program has been an obstacle. Specifically, 
we have heard complaints that certain efficiency upgrades that would 
have been cost-effective in their own right were rendered too costly by 
the additional cost of environmental upgrades required by NSR. (I will 
direct SAFE staff to do additional research and provide follow-up.)
    Question 9. Are you concerned about any unintended geopolitical 
consequences associated with a transition away from oil, given the 
producing nations that rely so heavily on revenue from the sale of 
their oil and other energy commodities to the United States?
    Answer. The Energy Security Leadership Council counts among its 
ranks a number of individuals who have served at the highest levels of 
leadership within the U.S. armed services. Having commanded U.S. 
operations in every corner of the world, the Council's military members 
are acutely cognizant of the broad security risks associated with 
resource dependency in many oil producing nations. In nations like Iran 
and Venezuela, oil revenues provide the vast majority of government 
revenue, which is in turn used to finance massive social spending 
programs. More broadly, a striking characteristic of the largest 
petroleum exporters in the world is the one-dimensional nature of their 
economies. In 2006, oil export revenues accounted for 40 percent of GDP 
in Saudi Arabia and 46 percent in Nigeria.
    While we appreciate that a decline in oil revenue represents a 
significant challenge for many exporters, we believe that both they and 
the international system will be best served by diversifying their 
economies. Countries with more diversified economies tend to be more 
open and less susceptible to the resource curse-defined as the paradox 
by which countries with an abundance of raw materials tend to have 
slower economic growth and are less developed than countries that are 
not resource dependent.
    Therefore, while we have endeavored to remain mindful of potential 
unintended consequences of our policies, the Council believes that this 
concern should not keep us from implementing policy reform. In fact, 
one could argue that American foreign policy and foreign aid programs 
could be dramatically bolstered by diverting funds currently exported 
for oil to instead be invested in a range of economic activity in these 
countries to help diversify their economies. Of course, over the long 
term, foreign policy prudence obligates American leadership to 
carefully monitor the impact of our energy policies on the 
international system and make responsible mid-course corrections if our 
policies have negative unintended consequences.
    Question 10. Electrifying the transportation sector has received 
considerable attention as a means to reduce dependence on foreign 
energy sources, as well as to eliminate an important source of domestic 
greenhouse gas emissions. The industry is already aggressively pursuing 
battery technology development and grid interface issues. In order to 
avoid increasing greenhouse gas emissions from the electric generation 
sector, do you believe it will be important to increase the 
contribution of non-emitting sources of electrical generation such as 
nuclear energy?
    Answer. To those concerned about carbon emissions, I would suggest 
that increasing the contribution of non carbon-emitting electric power 
generation will be critical to our nation's future even if we do not 
electrify the transportation sector. If we do electrify the 
transportation sector, it becomes even more vital. This is because, in 
addition to reducing U.S. oil consumption, electrification offers the 
advantage of consolidating a substantial portion of transportation 
energy demand into the electric power sector.
    Our national leadership must be mindful of the dangers of 
increasing electric power demand (from electrification) without 
providing for diverse sources of power generation. If current trends 
are allowed to persist, a great deal of incremental U.S. power 
generation could be derived from natural gas. Despite recent 
developments in onshore unconventional gas production, there remains a 
very real possibility that America will be forced to import greater 
quantities of liquefied natural gas (LNG) in the coming decades. We 
must not trade one national security risk for another.
    Accordingly, the Council strongly supports greatly expanding R&D to 
improve the efficiency of non carbon-emitting renewables. We have also 
proposed extending the existing tax credits for energy production from 
renewable fuels, and we have called for changes to the DOE loan 
guarantee program to improve its ability to help the nuclear industry 
begin construction of the next generation of nuclear power plants. We 
believe that new nuclear plants are critical to our future as they are 
the only existing technology that is non-emitting, non-intermittent and 
scalable.
    Finally, it is useful to note that consolidating transportation 
energy demand into the electric power sector will also consolidate 
carbon emissions into that sector. Most analysts believe that because 
electric power facilities are large and stationary, addressing carbon 
mitigation in this sector will be more cost-effective than regulating 
tailpipe emissions.
    Question 11. Your report emphasizes how important domestic oil and 
natural gas production is to energy security. Can you elaborate on some 
of the ways Congress can help increase domestic production here at 
home, and what effects you would expect those actions to have?
    Answer. It is important to note that the regulatory landscape has 
shifted since the Council finalized its report in early September 2008. 
At that time, up to 80 percent of the lower-48 OCS was off-limits to 
leasing or preleasing activity due to long-standing congressional 
moratoria. Later that month, the Continuing Resolution funding 
government operations through March 2009 omitted these provisions, 
leaving open the possibility of new offshore development. Based on 
these and other events, the Minerals Management Service (MMS) initiated 
a draft proposed program for 2010-2015, which was made public in 
January 2009. Initial reactions to the MMS draft proposed program by 
the Obama administration and some members of Congress suggest that it 
may be revised significantly.
    The Council believes that, working together, congress and the 
administration must proactively set clear legal and regulatory 
parameters governing future offshore development. A wide range of 
options exist for responsible production of oil and gas on the OCS, 
nearly all of which require a new set of guidelines. Some critical 
issues that must be addressed in any system are:

          a. Treatment of the Eastern Gulf Planning Area: Section 104 
        of the Gulf of Mexico Energy Security Act (GOMESA) currently 
        restricts access to most of the Eastern Gulf through 2022. The 
        Council recommends that this section be repealed.
          b. Revenue sharing for states adjacent to newly accessible 
        planning areas: Congress must decide whether to extend revenue-
        sharing benefits to states in the Atlantic and Pacific planning 
        areas. If so, a system for allocating revenues must be 
        codified. The Council recommends that all States be given the 
        same revenue sharing provisions provided to the Gulf States in 
        GOMESA, which would begin in 2017. A formula for determining 
        individual State shares will likely be needed on the Atlantic 
        and Pacific coasts, and Florida will need to be incorporated 
        into the Gulf allocation system.
          c. Mileage limits and buffer zones: As the debate about 
        offshore oil and gas production has evolved over the past 
        several months, a number of legislative proposals have 
        incorporated mileage limits on offshore development, some as 
        restrictive as 100 miles. Such limits could substantially 
        reduce the available resources in many planning areas.
          In order to protect coastal vistas, the Council is supportive 
        of permanent surface restrictions within 15 miles of each 
        state's seaward boundary. Resources that can be accessed via 
        extended reach drilling (ERD) from structures onshore would 
        not, however, be off-limits. Between 15 miles of each state's 
        seaward boundary and 25 miles of its coast, the Council has 
        recommended that a temporary surface presence be allowed so 
        that subsea production networks can be installed. Beyond 25 
        miles of each state's coastline, the Council does not support 
        surface restrictions.

    The Council is also supportive of efforts by MMS to encourage 
expeditious development of leases. Measures such as escalating rents 
have proven to be effective in some cases, though a recent report by 
the Government Accountability Office (GAO) found that MMS could do more 
to encourage development.
    Outside of the OCS, Congress could grant access to resources within 
the 1002 Area of the Alaska North Slope. A recent analysis from the 
Department of Energy found that incremental Alaskan production from 
opening this area would peak at roughly 780,000 barrels per day in 2027 
(in the mean USGS resource case). The project would substantially 
extend the lifetime of the Trans-Alaska Pipeline System, which will 
soon reach its minimum flow rate.
    Finally, the Council supports measures to encourage miscible CO2 
enhanced oil recovery (EOR). Ultimately, putting a price on carbon may 
be the most effective means for accelerating these projects. In the 
meantime, the Council supports giving EOR equal treatment to deep 
saline formations as a tool for sequestering carbon in publicly funded 
programs such as FutureGen. One recent analysis from the Society of 
Petroleum Engineers found that CO2 EOR could produce an 
incremental 1.2 million barrels per day of domestic crude oil and 
sequester 5 billion cubic feet per day of CO2 by 2030. The 
study was based on an average real crude oil price between $45 and $60/
bbl.
    Question 12. To create a low carbon economy, the Center for 
American Progress has proposed the elimination of tax breaks and 
subsidies currently available to domestic oil and gas producers. With 
oil at approximately $50 per barrel, can you describe the impact this 
action might have on domestic production?
    Answer. As a general rule, greater stability and regulatory 
certainty are vital for businesses to thrive. According to the Baker 
Hughes rig count, roughly 40 percent of the active rigs in the world 
are exploring and producing in the United States, despite the fact that 
U.S. resources are among the most costly to develop in the world. In 
part, this is because the U.S. is the world's single largest market for 
petroleum products. However, it is also reflective of the fact that the 
United States currently maintains one of the most stable, favorable 
regulatory and tax environments in the world for oil and gas producers.
    At the same time, there is probably no more important factor than 
oil prices in determining the output of existing domestic oil wells. 
Roughly 20 percent of U.S. oil production currently derives from 
stripper wells-defined as those wells which produce less than 15 
barrels of oil per day. A recent analysis from Sanford Bernstein 
suggested that the majority of this production is likely to shut down 
in 2009 as a result of today's low-price environment. Beyond the 
onshore stripper wells, deepwater production in the Gulf of Mexico is 
among the most expensive oil to produce in the world, with marginal 
cost estimated at $75 per barrel. In other words, oil prices at $40 per 
barrel put intense pressure on producers who are highly leveraged to 
such costly production. At a minimum, low oil prices are likely to 
force many operators to postpone investing in new, more costly 
production.
    It is also worth noting that the most promising growth in domestic 
natural gas production is derived from relatively costly shale, tight, 
and deep gas. As natural gas prices have collapsed in tandem with oil 
prices, domestic producers of unconventional gas have been forced to 
slash capital spending and re-evaluate future production plans.
    Given these considerations, the Council believes that Congress must 
carefully consider the implications of reforming the tax code as it 
relates to oil and gas producers. While it is true that many of the 
provisions extending tax credits and subsidies to domestic oil 
producers appear unnecessary in a $140/bbl oil price environment, our 
leaders must be mindful of the fact that oil prices are extremely 
volatile. Over the long-term, the secular price trend for oil and 
natural gas is clearly headed upward, but there will many bumps along 
the road.
    It is the Council's position that alternative measures for 
increasing government revenue from oil and gas production should be 
considered. Chief among these measures would be a progressive royalty 
structure that extracted greater resource rents in a high price 
environment. The Council has recommended the implementation of a pilot 
program by MMS in order to gauge the efficacy of progressive royalties.
       Response of Eric Schwartz to Question From Senator Lincoln
    Question 1. In your testimony, you discuss how the drastic decline 
in oil prices is only temporary. While we all want the price of gas at 
the pump to stay down, how do Members of Congress keep the attention of 
the American people in pursuit of a national energy policy as prices 
fall?
    Answer. First, I would suggest that the most important thing our 
leaders can do is to move quickly to put policies in place that will 
promote energy security and safeguard the economy. We know from polling 
that Americans are not ideological on the energy issue. If presented 
with an honest assessment of the challenges we face, they support a 
realistic plan that balances efficiency and increased energy supply 
with a long-term transition away from oil and other fossil fuels to the 
extent feasible. What we must not do is continue to put off the hard 
choices while clinging to the tired rhetoric of ``energy independence'' 
and the inert sloganeering of ``drill baby drill.''
    A truly reformed national energy system will require a sustained 
and concerted effort on the part of America's political leaders. In 
turn, this will require the ongoing support of American voters as the 
nation implements an energy policy that reduces dependence on oil and 
makes greater use of cleaner and/or renewable fuels. No doubt, this 
represents a daunting challenge. It is one we have largely failed to 
meet to date, because after each price spike or ``energy crisis'' 
subsides, national attention shifts to other issues and willingness to 
spend money to address a problem that appears to have passed becomes a 
lower priority. In this sense, lower prices at the pump are a 
substantial part of the problem.
    Because of the size and the scope of the existing oil related 
infrastructure, solutions to our energy problems will take years to 
address. To the extent that the public loses interest in energy 
security as a result of low fuel prices, it is difficult to sustain 
support for sound energy policies. Then, by the time we face a 
``crisis,'' it is too late to act. The Obama administration appears to 
have decided to respond to this challenge, at least in part, by 
creating an ``energy czar'' whose responsibilities will presumably 
include helping to maintain a commitment to addressing our challenges 
no matter the price of oil.
     Responses of Eric Schwartz to Questions From Senator Sessions
    Question 1. It appears that there will be a sizable economic 
stimulus package enacted by Congress shortly. That package will likely 
include funding for numerous environmental projects. Considering that 
most thoughtful observers believe that in addition to a short term 
stimulus, projects should also have long term value for the country, 
would you please list 5 or more projects that you believe would be 
particularly cost effective in the long term for our nation? I would 
also request that you please state the amount that is necessary to be 
spent on the projects that you have listed above.

    Answer.
          a. Build new transmission lines.--There is broad consensus 
        that we need to upgrade the capacity of the nation's electrical 
        grid and modernize its operation. Many of the obstacles to 
        doing so, however, are not related to a lack of federal funds. 
        One critical issue is that the existing regulatory process was 
        not designed to plan and build a national electrical grid. The 
        best use of federal funds to assist in upgrading the grid would 
        be to provide funds to the federal power marketing agencies 
        (BPA, SWPA, and WAPA) to construct new transmission lines. 
        While most high voltage transmission lines are built and owned 
        by private or municipal utilities or cooperatives, these power 
        marketing agencies do, in fact, build and own transmission 
        lines-primarily in the West. At Congress' first opportunity, it 
        should establish an interconnect-wide grid planning process 
        that would develop a transmission plan, grant federal siting 
        authority for the plan, and allocate the cost of the 
        transmission lines built pursuant to the plan across all 
        customers in the relevant interconnect.
          b. Smart grid.--In addition to upgrading the grid's capacity, 
        we need to modernize its operation. Advanced digital technology 
        can operate the grid more efficiently and reliably, enable new 
        demand response technologies and programs, and expand access to 
        the grid to distributed generation and renewables. Most of the 
        technology required to develop the smart grid can be paid for 
        by utilities' customers under existing cost allocation 
        practices. However, the government should fund pilot programs 
        that deploy new technology so that the market can more quickly 
        determine which technologies and practices work best in the 
        marketplace and deploy that technology in the shortest time 
        frame possible. The government should provide at least $5 
        billion for such programs, which will create jobs and 
        accelerate the deployment of critical technologies.
          c. Early infrastructure for electrification of 
        transportation.--In order to take full advantage of the oil 
        savings possible through the use of plug-in hybrid electric or 
        fully electric vehicles, drivers will need access to recharging 
        stations not just at their homes, but also at other places 
        where they park their cars-particularly at work. Yet, until 
        there is a critical mass of plug-in electric or fully electric 
        vehicles, installation of public recharging stations may not be 
        a high priority for local governments or commercial real estate 
        developers.
          Public recharging stations are estimated to cost $700 to 
        $1,000 per outlet. Congress should establish grants to 
        municipalities for installing outlets, provided that a minimum 
        number of units are installed. The minimum number of units 
        required to become eligible for the credit should be a function 
        of city size. Congress should also provide tax credits to 
        commercial real estate developers that install recharging 
        facilities accessible to at least 5 percent of theirparking 
        spaces and make those spaces available to PHEVs and EVs. 
        Promoting the establishment of at least one million recharging 
        stations will facilitate the deployment of PHEVs and EVs and 
        enhance our energy security.
          To be sure, an aggressive program to deploy EV charging 
        stations may outpace widespread availability of the electric 
        vehicles themselves. However, the Council supports this 
        approach on the grounds that it serves stimulus job-creation 
        goals while laying the groundwork for consumer acceptance of 
        EVs down the road. The design of stations should be coordinated 
        with relevant automakers.
          d. Invest in battery R&D.--The absence of batteries with 
        sufficient capacity that can be recharged quickly and 
        manufactured at a reasonable price is the primary stumbling 
        block for the electrification of our short-haul transportation. 
        The Council believes this is the most critical step the nation 
        can take toward reducing our dependence on oil. Congress should 
        allocate $2 to $3 billion over three years to fund advanced 
        battery research.
          e. Federal purchases of highly efficient vehicles.--As the 
        largest consumer in the nation, with a presence that extends 
        throughout the economy, the federal government is well situated 
        to help establish the market for electric vehicles. Either 
        Congress, by statute, or the President, by Executive Order, 
        should direct government agencies with a minimum size fleet to 
        purchase either PHEVs or EVs if they are available and meet 
        agency requirements. By doing so, the government can provide an 
        early guaranteed market for PHEV and EV producers. This will 
        accelerate scaling of EV production and may facilitate access 
        to capital for automakers seeking collateralize debt.
          If suitable PHEVs and EVs are not available, agencies should 
        be required to choose among the three most efficient vehicles 
        for each class of car as defined by the Environmental 
        Protection Agency for the purpose of calculating fuel-economy 
        standards. Doing so will promote the development of markets for 
        vehicles that will enhance our energy security.
          f. Restructure tax credits for renewable energy.--Because 
        they are relatively new and are involved in a very capital-
        intensive industry, most renewable energy companies do not have 
        enough taxable income to utilize existing tax credits intended 
        to incent investments in renewable energy facilities. Moreover, 
        the institutional investors with whom the renewable companies 
        entered into partnerships to allow them to monetize the credits 
        have disappeared in the recent financial crisis. Congress 
        should establish a grant program as an alternative to the 
        existing tax credits to allow the renewable companies to 
        monetize the value of the tax credits. Otherwise, there is 
        likely to be a severe collapse of the renewable industry until 
        the economy recovers and tax equity partners are once again 
        able and willing to partner with companies to build renewable 
        generating capacity.
          g. Launch a weatherization program.--Increasing energy 
        efficiency in homes through weatherization is among the most 
        cost-effective means to reduce energy consumption. Moreover, it 
        utilizes existing technology, can begin immediately, and is 
        labor intensive. Congress should increase funding for 
        weatherization by $5 billion and expand eligibility for lower 
        income households to participate in the program.
                                 ______
                                 
       Responses of Kit Batten to Questions From Senator Bingaman
    Question 1. In your testimony, you recommended that even as we 
consider further development of domestic fossil fuels, we should 
consider the greenhouse gas footprint of those new fuels. Clearly, this 
makes a lot of sense in a world that is moving toward constraining 
carbon emissions. However, the science of assessing the full lifecycle 
greenhouse gas emissions of a particular fuel remains a work in 
progress. How we can gain a fuller understand of lifecycle greenhouse 
gas assessments?
    Answer. America's dependence on oil leaves us vulnerable to energy 
supply disruptions and to price volatility. What's more, climatic 
shifts in developing countries are expected to trigger or exacerbate 
food shortages, water scarcity, the spread of disease, and natural 
resource competition. Thus, global warming is a threat multiplier for 
instability and will fuel political turmoil, drive already weak states 
toward collapse, threaten regional stability, and increase security 
costs. Committing to investments in fuels that have lower greenhouse 
gas emissions on a lifecycle basis in comparison to traditional 
gasoline is imperative to reduce our global warming emissions and 
ultimately avoid or lessen these risks and associated costs.
    The Center for American Progress has proposed a low-carbon fuel 
standard to reduce lifecycle emissions from transportation fuels by 10 
percent by 2020 and an alternative fuel standard to require that low-
carbon alternative fuels (including electricity) supply 25 percent of 
our transportation fuels by 2025.
    We have reliable, scientific data measuring the lifecycle 
greenhouse gas emissions for a range of fossil fuel sources. In the 
Center for American Progress' report Capturing the Energy Opportunity 
we note that on a lifecycle basis, alternatives such as tar sand, 
liquid coal, and oil shale emit more greenhouse gases in the production 
phase than does crude oil.
    For example, in the absence of carbon capture and sequestration, 
liquid coal fuel results in about 50 pounds of CO2 emissions 
per gallon-nearly double that from crude oil on a lifecycle basis. Even 
if the carbon associated with liquid coal production is captured and 
stored, liquid coal produces 4 to 8 percent greater global warming 
emissions than gasoline. When our economy is dependent on fossil fuels, 
whether on oil or alternative fossil sources, we increase our 
greenhouse gas emissions, which ultimately threaten our economic, 
environmental, and national security.
    In the past few years, the body of scientific research and evidence 
surrounding the lifecycle greenhouse gas emission of a range of 
alternative biofuels has also grown. For example, in 2008 two studies 
published in Science criticized the use of biofuels, particularly corn-
based ethanol, as causing more greenhouse gas emissions than 
conventional fuels. The studies also note that clearing natural 
habitats to grow crops for biofuels generally leads to more carbon 
emissions, and that clearing large areas of land in general can lead to 
food and water shortages and reduced biodiversity. This type of 
scientific analysis of lifecycle greenhouse gas emissions can help us 
design the most effective standards to promote only those fuels with 
the lowest emissions and the greatest sustainability.
    These findings point to the urgent need for national and 
international certification standards for biofuels. Such standards must 
be part of effective policy for producing biofuels as a means to 
diversify our transportation fuels and ensure that these fuels generate 
fewer greenhouse gas emissions over their lifecycle of production to 
consumption and are sustainably produced. Biofuels that are part of the 
solution include cellulosic ethanol--which is less energy-intensive and 
made from agricultural plant waste--or dedicated crops such as 
switchgrass or algae. Another key source for biofuels with low 
lifecycle greenhouse gas emissions is municipal waste, which is largely 
untapped today. With the right standards, biofuels can play a direct 
role in diversifying our energy sources and contributing to economic 
growth and development, particularly in rural communities in the United 
States and the rest of the developed and developing world.
    Question 2. The cap and trade program proposed by the Center for 
American Progress supports the use of international carbon offsets for 
avoided deforestation. Currently, the EU does not recognize this type 
of carbon offset. Why should the U.S. differ from the EU on this point? 
How could we be certain that this type of offset is both additional and 
verifiable?
    Answer. Carbon offsets must be measurable, additional, verifiable, 
and permanent if they are to be part of any rigorous emissions 
reduction program, nationally or internationally. In some cases, 
existing offsets have not met these criteria, so we must ensure that 
any offsets allowed under a U.S. cap-and-trade program and 
international agreements truly reduce emissions. Efforts that typically 
take place within unregulated or voluntary markets and that fall short 
of full compliance threaten to undermine the integrity and actuality of 
the reductions.
    In addition to providing flexibility in terms of the costs of 
emissions reductions, a central advantage of carbon offsets is that 
they permit and encourage reductions to take place outside of the 
sources covered by a mandatory cap-and-trade program. A well-designed 
carbon offset program must ensure that entities selling offsets can 
meet rigorous, uniform standards and verify their emission reductions.
    Ensuring the compliance of offset projects in the forestry and 
agricultural sector, including avoiding deforestation, can prove 
difficult. However, addressing emissions from deforestation is 
essential because the Intergovernmental Panel on Climate Change (IPCC) 
estimates that deforestation contributes close to 20 percent of global 
greenhouse gas emissions. As such, reducing emissions from 
deforestation remains a major thrust of the international climate 
negotiations and of the United Nations Collaborative Programme on 
Reducing Emissions from Deforestation and Forest Degradation in 
Developing Countries (UN-REDD Programme). Thus designing an offset 
program that can help gain emission reductions from avoided 
deforestation is an imperative part of the global effort to fight 
global warming.
    In Getting Credit for Going Green, by David J. Hayes, the Center 
for American Progress discusses the creation of a two-tiered Climate 
Change Incentive Program to ensure real and verifiable emission 
reductions. The program proposes creating two tiers of incentives to 
reduce emissions. Tier 1 offsets--otherwise known as Compliance 
Credits--would be certified by the Environmental Protection Agency and 
would meet stringent measurement, verification, and permanence 
requirements via the application of rigorous EPA methodologies and 
protocols. These credits would count as reductions contributing to 
meeting the overall cap on U.S. emissions.
    Tier 2 offsets would comprise the Targeted Carbon Reduction 
Program. This Tier 2 program would include program-or project-based 
activities that may not satisfy the stringent tests required to earn 
Tier 1 compliance credits but still reduce emissions. These activities 
would earn other financial rewards, including tax credits, rebates, 
grants, or other financial incentives. Emission reductions resulting 
from the Tier 2 program would count as additional emission reductions 
beyond those required by the cap. Once Tier 2 programs develop a track 
record and more data has been collected on their resulting emission 
reductions, some of them may qualify to move up into Tier 1, where they 
can generate marketable compliance credits. In this way, Tier 2 may 
serve as an ``incubator'' of projects and programs that ultimately may 
qualify for compliance credit status under Tier 1. Programs that 
encourage carbon-enhancing forestry or agriculture practices, for 
example, could be included in Tier 2, with some practices in those 
sectors also likely qualifying for compliance credits under Tier 1. The 
Tier 2 Targeted Carbon Reduction Program should be actively explored in 
international settings, where program financial support may be 
effective, at least at the outset, in reducing overall emissions from 
some types of emission sources, such as tropical deforestation.
    One of the benefits of such an offset program is that it can 
encourage emissions reductions in sectors that are not currently 
covered under a cap-and-trade program. This type of comprehensive 
offset program would provide more information about the nature and 
scope of unregulated emissions and set the stage for their potential 
official inclusion in a cap-and trade program at a future date.
    Question 3. In your testimony, you referenced Merrill Lynch's 2008 
estimate that gasoline prices were 15% lower than they would otherwise 
have been, because comparatively less-expensive ethanol was helping to 
offset the price increase in crude oil. This is a great example of how 
high prices for conventional fuels benefit renewable alternatives. 
Could you comment on whether it is possible to develop robust renewable 
fuels industries without high prices for traditional fossil fuels? Can 
we realistically expect to move toward a low carbon energy future 
without considerable energy price increases? And, now that energy 
prices have fallen from their recent peaks, how do we keep from 
reversing the consumption reductions and consumer demand for greater 
energy efficiency?
    Answer. We need a mix of market-based mechanisms, mandates, and 
incentives to rapidly and effectively transition to a low-carbon 
economy. A smart mix of policies will ensure diversification of energy 
supplies and investments in energy efficiency-all of which will reduce 
energy bills and serve to create and increase consumer demand for 
renewable alternatives and more efficient technologies.
    Once businesses have to factor the cost of emitting CO2 
(and other greenhouse gases) into their bottom lines, the power of the 
marketplace will start to push toward efficiency, lowcarbon fuels, 
renewable energy, and carbon capture and storage technologies for coal-
fired power. For that reason, the Center for American Progress 
recommends adopting an economy-wide cap-and-trade program to put a cap 
on emissions and a price on carbon. We recommend auctioning all the 
carbon permits available under the cap-and-trade system. Allocation of 
auction revenue involves a transfer of substantial wealth and must be 
handled wisely to ensure equitable and efficient distribution to help 
low-and moderate income Americans offset energy price increases and to 
increase investment in research, development, demonstration, and 
deployment of new low-carbon and efficient technologies.
    Even though oil and gas prices have fallen since their record highs 
this past summer, they will surely rise again. In order to keep energy 
prices low, it is necessary to invest in energy efficiency and 
increased consumer choice. Price increases and fluctuations in both the 
electricity and transportation sectors have made it difficult for 
Americans to plan budgets, especially as pocketbooks are tightening in 
the face of a recession. A significant short-term benefit from 
investing in energy efficiency is keeping energy bills low, even if 
energy prices increase. Diversifying our nation's sources of energy 
will increase consumer choice and also help keep prices lower and less 
volatile.
    Question 4. There seems to be a near-consensus among the witnesses 
that, over the long term, we need to move beyond even ``second 
generation'' biofuels, such as cellulosic ethanol, to a ``third 
generation'' of biofuels, developing technologies such as biocrude from 
algae. Can you comment on the preferred policy options for ensuring 
that we develop this third generation of biofuels? How does the 
existing RFS fit with this goal of establishing a third generation 
biofuels industry? And, should the RFS extend beyond passenger 
vehicles, and, for instance, include jetfuel?
    Answer. The next generation and a ``third generation'' of biofuels 
have roles to play in diversifying our energy needs. But, we must move 
forward on biofuels in a more innovative and efficient manner. 
Preferred policy options must begin to reward performance 
characteristics of advanced biofuels and not simply the sheer volume of 
production levels.
    We must build on the goals and performance incentives of the 
current renewable fuel standard (RFS) and strive to produce only 
advanced biofuels that deliver measurable lifecycle greenhouse gas 
reductions, minimize the use of food-based feedstocks, and adhere to 
certifiable environmental and land use safeguards. Wherever possible, 
future feedstocks should be drawn from waste streams or produced on 
semi-arable land that does not compete with food or feed.
    The current RFS establishes ambitious targets and makes an 
unprecedented contribution to incorporating the criteria noted above 
into the production of domestic or imported biofuels. Lifecycle 
greenhouse gas reductions, emissions from land use changes, and land 
use safeguards are all key components of the current RFS. In its target 
of 21 billion gallons of advanced biofuels by 2022 and its emphasis on 
these and other performance-based criteria, the RFS provides 
appropriate flexibility to allow producers to meet the RFS mandate with 
significant contributions from third generation biofuels without 
dictating a specific type of biofuel product or technology.
    An RFS based increasingly on performance rather than volume, will 
contribute to a technologically-neutral standard. For example, biocrude 
from algae and other third generation biofuels have shown recent 
promise in small-scale testing and production. Algae has tremendous 
potential due to its capacity to capture significant quantities of 
carbon, be grown on non-arable land using salt water rather than fresh 
water, deliver high bioenergy yields compared with other plants, and 
provide secondary products such as animal feed. On the other hand, 
numerous questions remain regarding algae's scalability, reproductive 
growth, and cost.
    Similarly, any proposal at this time to extend the RFS to jetfuel 
requires further analysis. The use of an advanced low-carbon biofuel 
that is a more economical and high quality `drop in' (ready to use in 
all existing infrastructure and fuel systems) replacement for petroleum 
and that meets all safety standards may yield significant benefits. 
Indeed, the Federal Aviation Administration (FAA), the International 
Air Transport Association (IATA) and several airlines have shown 
interest in developing and demonstrating the use of advanced fuels. 
(IATA has set a goal of ten percent alternative fuels in the jetfuel 
mix by 2017 and several airlines have been testing alternative fuels in 
their fleets). Further consultation with appropriate stakeholders, 
including national and international trade associations, airlines, 
aircraft manufacturers, fuel producers, jet engine manufacturers, 
members of the public, and others is required. In addition, several 
challenges remain to applying advanced biofuels to jetfuel, including 
the capacity to meet large-scale needs, overall cost savings and 
predictability, and the risk of relying on carbon intensive fossil 
fuels such as coal to produce alternative jetfuels.
    In order to accurately assess the true cost and viability of these 
advanced biofuels, we need to bring them to commercial scale on as 
rapid a timetable as possible. The current RFS calls for 100 million 
gallons of advanced biofuels in 2010, 1 billion gallons in 2013, and 21 
billion gallons by 2022. These targets will simply not be met without 
redoubling efforts to coordinate the research, development, and 
deployment of sustainable advanced biofuels production among DOE, USDA, 
EPA, CEQ, and others. Existing energy and farm legislation contains 
numerous programs that can further this effort, including the Biomass 
Crop Assistance Program and numerous grant programs.
    Question 5. The Center for American Progress has identified 
regulatory issues surrounding Carbon Capture and Storage (CCS) that 
need to be addressed for it to take its place as a vital piece of our 
energy infrastructure. One of these key regulatory issues concerns 
liability for the stored CO2 after the well has been closed. 
How does the Center recommend that issues of liability be dealt with, 
after the closure of the wells?
    Answer. The issue of long-term liability for maintaining and 
operating sequestration sites is critical to the success and deployment 
of CCS. It is necessary to identify who will bear responsibility for 
permanent storage at sequestration sites.
    There has been some discussion of a government-funded insurance 
program (akin to the Price Anderson Act for nuclear plants) to protect 
private owners and operators against serious financial exposure in the 
event of CO2 leaks. But there is no consensus as yet that 
such insurance protection is needed to encourage power generators to 
commit to long-term CO2 capture and storage programs.
    The EPA has long regulated underground injection at oil and gas 
wells under the Safe Drinking Water Act and recently proposed new 
regulations for CO2 injection at sequestration sites. Yet it 
is unclear whether EPA's existing authority is broad enough to 
encompass all the issues raised by CO2 injection under a 
carbon control regime. Thus, a new national legislative framework may 
well be needed to create long-term public confidence in CCS systems.
      Responses of Kit Batten to Questions From Senator Murkowski
    Question 1. Our reliance upon foreign nations for a great deal of 
our energy needs is a problem we must solve. Our energy policy and our 
economy are inextricably linked. While lower gas prices are providing 
some relief, it will only be temporary unless we can find a long-term 
solution. Moreover, those low oil prices brought about by recession, 
along with continued difficulty in the credit markets, now threaten to 
delay or halt a wide range of renewable energy projects. I believe this 
is a clear indication of the need to increase domestic oil and gas 
production. Do you agree that side-by-side with our efforts to increase 
conservation and develop new energy sources, we also have to produce 
more secure sources of domestic oil and gas? If so, where should we be 
producing?
    Answer. The fastest, cheapest way to reduce our oil dependence is 
to reduce demand. In our recent report, A Framework for Achieving 
Energy Security and Arresting Global Warming, Ken Berlin outlines how 
to reduce oil dependence via development of new low-carbon alternative 
sources of fuels and increased efficiency.
    Increased oil production from conventional fuels, even including 
the areas previously under moratorium, has the potential to increase 
oil supplies by about 1.8 million barrels per day in 2030. By contrast, 
reducing demand for oil has the potential to reduce consumption by 9 to 
10 million barrels per day while greatly reducing greenhouse gas 
emissions. It is clear that we have more to gain by investing in 
efficiency and low-carbon alternatives than expanding domestic oil and 
gas production.
    The United States possesses only 2-3 percent of the estimated world 
oil reserves, but it consumes 25 percent of the world's oil, and U.S. 
oil production has dropped relentlessly for the past 20 years. In 
September 2008, Congress let a long-standing moratorium on leasing and 
drilling for oil in certain offshore areas expire, yet this will have 
little effect on oil production between now and 2030. According to the 
Energy Information Agency, opening the areas of the lower 48 states' 
outer continental shelf that were formerly closed to leasing would 
increase oil production by only about 200,000 barrels per day between 
now and 2030.
    The Energy Independence and Security Act includes two key 
provisions designed to reduce demand for oil, but these measures will 
not be sufficient in themselves to significantly lower oil consumption. 
The first, increasing fuel efficiency for passenger and non-passenger 
automobiles from 25 mpg to 35 mpg by 2020, will decrease oil use by 2.5 
million barrels per day by 2030. The second, increasing biofuel 
production from 6 billion gallons per year at the time of the Act's 
passage to 36 billion gallons per year in 2022, would reduce oil use by 
about 1.3 million barrels per day. These two measures will together 
decrease oil consumption in the United States by about 3.8 million 
barrels per day in 2030.
    Congress and the administration should set a goal of reducing 
demand for oil by another 5 million to 6 million barrels per day by 
2030 beyond the projected 3.8 million barrel per day reductions that 
will result from the passage of the EISA. This more aggressive goal is 
achievable given the potential of new technologies such as hybrid 
vehicles, plug-in hybrids, and advanced low lifecycle carbon biofuels.
    Even though oil and gas prices have fallen since their record highs 
this past summer, they will surely rise again. In order to keep energy 
prices low, it is necessary to invest in energy efficiency and 
increased consumer choice. Oil and gas price increases and fluctuations 
have made it difficult for Americans to plan budgets, especially as 
pocketbooks are tightening in the face of a recession. Significant 
short-term benefits from investing in efficiency and in diversifying 
our nation's sources of energy include increasing consumer choice and 
helping keep energy prices lower and less volatile.
    Question 2. There are very significant energy reserves on lands 
owned by Alaska Natives and American Indian tribes, who want to develop 
the potential of these reserves. Do you agree that our country's energy 
security would be enhanced if these resources were to be developed?
    Answer. Energy development is certainly central to economic growth. 
Alaskans are already experiencing dramatic effects of global warming, 
including thinning sea ice and melting permafrost. As such, Alaskans 
face decisions about how best to scale up sustainable energy 
production, mitigate greenhouse gas emissions, and adapt to the effects 
of climate change while at the same time generating jobs and creating 
economic prosperity.
    As discussed in the answer above, we must reduce our dependence on 
oil--for many different reasons, including energy security, national 
security, economic growth, and reducing greenhouse gas emissions. 
Taking steps to develop renewable and low-carbon energy resources as 
well as investing in low-carbon energy are key to enhancing energy 
security and transitioning to a low-carbon economy.
    The transition to a green economy--at home in the United States, 
and globally--can be a source of increased business opportunity, 
innovation, and competitiveness; job creation; stronger, more 
prosperous communities; and improved energy and national security. This 
transition must be at the center of both America's energy policy and 
each step of our economic policy--stabilization, stimulus, recovery, 
and growth. Investing in this transition and starting immediately to 
put us on a long-term, low-carbon and energy independence pathway, will 
help to solve many of our nation's current interrelated challenges: a 
financial recession, job loss, rising and volatile energy prices, 
secure energy supplies, and a growing climate crisis. We cannot afford 
not to act--in the short-term, middle-term, or long--term.
    Investments in clean energy and efficiency will help kick-start the 
clean energy economy and create millions of jobs. In collaboration with 
the Political Economy Research Institute at the University of 
Massachusetts, CAP released Green Recovery in September 2008 detailing 
how a $100 billion investment in clean energy and efficiency 
technologies and infrastructure would create 2 million jobs over two 
years, nearly four times as many jobs created by a similar level of 
investment in oil and gas.
    Question 3. Last year, the price of oil rose dramatically before 
declining to its lowest level since 2004. In light of this volatility, 
would you change or alter any of the recommendations included in your 
reports? Would you make any adjustments if today's relatively low oil 
prices persist?
    Answer. Energy policy is economic policy, and we must lessen our 
dependence on the volatility of fossil fuel prices. The current low oil 
prices are unlikely to persist; today's oil and gas prices contrasted 
with the summer's highs serve as very real and tangible examples of 
such volatility. The fastest, cheapest way to reduce our oil dependence 
is to reduce demand, which, in addition to increasing investments in 
low-carbon energy and efficiency will serve three paramount national 
priorities: growing our economy, securing our nation's energy supplies, 
and combating global warming.
    CAP's recommendations for the transition to a low-carbon economy 
include both shortand long-term strategies that work toward these 
goals. This comprehensive strategy must involve incentives and mandates 
to increase investment in low-carbon and efficient technologies in our 
homes, businesses, and transportation system; investment in research 
and development of new technologies for use here at home and to export 
overseas; capping and reducing greenhouse gas emissions across all 
sectors of our economy; and re-engaging in and taking on a leadership 
role in the international climate negotiations. At the core of this 
strategy is a greenhouse gas cap-and-trade program that would provide 
tens of billions of dollars to build a green economy and offset the 
cost of rising energy prices for low-and middle-income Americans.
    Question 4. Washington Post columnist Charles Krauthammer wrote an 
article last week in support of what he calls a ``net zero gas tax.'' 
He calls for a $1 per gallon increase in the federal gas tax, which 
would be accompanied by a $14 per week reduction in the payroll tax. 
According to Krauthammer, such a shift would reduce global oil prices 
and domestic greenhouse gas emissions by restraining gasoline 
consumption. It is also described as revenue neutral. What are your 
thoughts on this proposal, particularly as an alternative to a tax on 
carbon, a cap-and-trade system, and/or higher CAFE standards?
    Answer. The Center for American Progress advocates an economy-wide 
cap-and-trade system with a 100 percent auction of carbon credits as a 
central component of a national strategy to grow our economy with low-
carbon energy and efficiency and to combat global warming. But market-
based policies to put a price on carbon will not be enough to fully 
solve global warming or to quickly transition to a low-carbon economy. 
We will also need to put in a set of complementary policies to require 
and promote emission reductions in all sectors of the economy, 
including measures such as performance standards, tax incentives, and 
targeted research, development, and demonstration projects.
    Question 5. Alternative energy companies have an incredibly 
difficult time securing the financing necessary to become viable and 
productive. DOE's Loan Guarantee program, established by the 2005 
Energy Policy Act, has proven woefully inadequate for addressing this 
problem thus far.
    Do you believe that there have been short-comings in the way that 
program has been administered? If so, what would you have done 
differently? Do you believe that loan guarantees are the most effective 
financial instrument for advancing private-sector, clean energy 
technology ventures?
    Answer. The Center for American Progress strongly supports 
increasing the flow of new, public capital investment into renewable 
energy and energy efficiency projects as a catalyst for large-scale 
private investment in our nation's transformation to a clean energy 
future. Loan guarantees are among the handful of financing options that 
work toward this end, but no option should be pursued in isolation. In 
a 2008 report, A New Strategy to Spur Energy Innovation, CAP 
recommended a suite of research, development, and deployment pathways 
to pursue in order to mobilize innovation, invention, and 
demonstration.
    In order to transform our economy to one powered by low-carbon and 
secure sources of energy, the United States must undergo an innovation 
revolution. The rate at which the United States is able to develop and 
deploy new energy technologies will, to a great extent, determine the 
ultimate speed and cost of the economic transformation. Large-scale 
carbon capture and sequestration, advanced batteries, plug-in hybrid 
vehicle technologies, next generation biofuels for the transportation 
sector, and a number of other innovations will be vital to achieving a 
low-carbon economy, and the United States must not only develop but 
deploy these technologies. The benefits of such innovation will accrue 
to other countries as well, for U.S. technical assistance programs and 
trade will carry these advances abroad.
    Over the years, the U.S. government has spent more than $300 
billion in direct expenditures on energy research, development, and 
demonstration (RD&D) that have been combined with a variety of indirect 
financial incentives such as tax credits, loan guarantees, guaranteed 
purchase, and even equity investments. In addition, the government has 
adopted a patchwork quilt of regulations designed to speed the adoption 
of various energy technologies.
    Unfortunately, the resulting pace of innovation generated by this 
public investment has not been sufficient given the urgency and scale 
of today's energy challenge. The various measures that it has employed 
(including direct federal support for RD&D, indirect financial 
incentives, and mandatory regulations) have been developed and 
implemented individually with too little regard for technological and 
economic reality and too much regard for regional and industry special 
interests. There has not been an integrated approach to energy 
technology innovation that encompasses priority areas of focus, the 
responsibilities of various funding agencies, and the mix of financial 
assistance measures that are available. If the United States simply 
continues to pursue energy innovation as it has in the past, then the 
path to a low-carbon economy will be much longer and costlier than 
necessary. The Center for American Progress proposes a new approach for 
energy RD&D in the United States that will set in motion an innovation 
revolution by:

          1. Creating an interagency Energy Innovation Council to 
        develop a multiyear National Energy RD&D strategy for the 
        United States.
          2. Increasing the energy RD&D program budget to more than 
        twice its current level.
          3. Launching a sustained and integrated energy R&D program in 
        key areas.
          4. Establishing an Energy Technology Corporation to manage 
        demonstration projects.
          5. Creating an energy technology career path within the civil 
        service.

    Question 6. Several pieces of legislation were introduced last 
Congress to create a self funding federal bank to assist start-up, 
clean energy companies. As envisioned by those bills, such an entity 
would be able to issue not only loan guarantees, but direct loans and 
insurance products as well. Additionally, this federal bank would, in 
some instances, be allowed to assume a financial stake in clean energy 
technology firms and issue publicly-traded stock. In the context of 
what has taken place at Fannie Mae and Freddie Mac, do you believe it 
is appropriate for the federal government to back start-up, clean 
energy technology firms in this manner?
    Answer. The Center for American Progress strongly supports 
increasing the flow of new capital investment into clean energy 
projects, for example retrofitting our built environment to deploy 
clean renewable energy and advanced energy efficient technology and 
weatherization. Proposals to establish a green bank can be supportive 
of this work, creating a new pool of dedicated capital that will make 
sure that real projects break ground, and ensuring that new investment 
flows into communities. By aggregating funds, and by reducing the risk 
of these investments, federal underwriting and expanded lending 
authority can reduce the cost of capital for this work, increasing the 
speed with which we transform our energy use, and expanding the job 
creating benefits clean energy investments.
    In Capturing the Energy Opportunity, the Center for American 
Progress recommends the creation of four innovative entities that can 
help enable the research, development, and deployment of new clean 
energy and efficient technologies:

1) Energy Innovation Council
    The United States needs a fresh approach to energy RD&D that 
successfully integrates the efforts of the numerous departments and 
agencies that are engaged in energy-related work, including the 
Department of Energy, the Department of Agriculture, the Department of 
Commerce, the Department of Defense, the National Science Foundation, 
and the Environmental Protection Agency. This new approach will need to 
address the shortcomings that have frequently plagued energy RD&D 
efforts, such as the practice of spending significant resources on 
demonstration projects that provide little useful information to the 
private sector.
    The Apollo and Manhattan Projects are sometimes held up as models 
of innovation to be emulated, but the energy innovation challenge is 
fundamentally different because it requires the private sector to adopt 
new technologies that can succeed in the competitive marketplace. These 
were not considerations in our country's efforts to put a man on the 
moon or to build a nuclear weapon. Consequently, we recommend at least 
doubling the size of the federal energy RD&D budget and creating a new 
interagency group, the Energy Innovation Council, or EIC, that will be 
responsible for developing a multi-year National Energy RD&D Strategy 
for the United States.
    The mandate of the EIC would be to construct a plan that integrates 
the RD&D programs of the involved federal agencies over a multi-year 
period. The National Energy RD&D Strategy would provide direct 
expenditures to support technology development and demonstration and 
indirect financial incentives or regulations to promote new technology.
2) Energy Technology Corporation
    The government should also establish a quasi-public Energy 
Technology Corporation to manage large-scale energy demonstration 
projects in alternative, low-carbon technologies. The ETC would finance 
and execute select large-scale, commercially-credible demonstration 
projects. This new organization would be governed by an independent 
board nominated by the President and confirmed by the Senate, composed 
of individuals with expertise in market forecasting and industry 
requirements.
    Due to its quasi-public status, ETC projects would be free from the 
federal procurement regulations and mandated production targets that 
currently make it difficult to demonstrate the commercial viability of 
new technologies under real market conditions. In order to limit the 
influence that Congress and special interest groups would have on its 
decisionmaking, the ETC should be funded in a single appropriation.
3) Clean Energy Investment Administration
    CAP also supports the Apollo Alliance recommendation to create a 
Clean Energy Investment Administration modeled on the Small Business 
Administration to reduce investment risk in clean energy projects with 
loan guarantees. The CEIA would provide up to $25 billion in federal 
loan guarantees over 10 years, directed toward both commercial 
prototypes and mass-market deployment of proven technologies. In 
addition, CEIA would authorize up to $2 billion to cover the high risks 
associated with commercialization projects. This entity would help 
create jobs, reduce emissions, and diversify production by fostering 
successful private commercial ventures that promote energy efficiency 
and renewable energy technologies.
4) Clean Energy Jobs Corps
    CAP has called for the creation of a Clean Energy Corps that would 
link public underwriting of energy efficiency finance with programs for 
workforce investment in green jobs and increased commitments to clean 
energy as an outlet for national service. Launching a green bank could 
anchor these broader efforts to create a Clean Energy Corps to put 
America back to work, doing the work that most needs to be done to 
advance clean, efficient, and renewable energy in our nation's 
communities. The Clean Energy Jobs Corps can provide new pathways out 
of poverty, service learning, and support for training and 
apprenticeship programs to help workers move into ``green collar'' jobs 
and clean energy industries that provide family-supporting wages and 
benefits. To do this, the federal government should marshal the 
resources of agencies like the Corporation for National and Community 
Service that has run the highly successful AmeriCorps program, along 
with job training resources administered by the Department of Labor 
under the Workforce Investment Act. This new agency will ready a 
workforce with new skills and assist in the transition of any workers 
displaced from high-carbon industries.
    Question 7. We all know that coal supplies 50% of our nation's 
electricity supply. The Chamber of Commerce's Institute for 21st 
Century Energy testified that the U.S. has enough coal to last for well 
over 200 years. What role do you see for coal in the nation's energy 
mix going forward? Compared to commercial scale carbon capture and 
sequestration, how important do you believe incremental efficiency 
improvements within the existing coal fleet are?
    Answer. Capturing the Energy Opportunity highlights the importance 
of investment both in carbon capture and storage and efficiency 
technologies.
    Coal represents a critical part of the challenge in building a low-
carbon economy. Because it is cheap, plentiful, and widely distributed 
around the world, it plays a large role in the production of energy and 
is projected to continue doing so for decades. And the quantities of 
recoverable coal are enormous. The United States, with the world's 
largest reserves (27 percent of the world's total) has enough to last 
over 200 years at current production rates. Sizable reserves can also 
be found in Russia, China, India, and Australia, among other places.
    However, coal-fired power plants today account for 80 percent of 
all greenhouse gas emissions from power plants. A dramatic increase in 
coal-fired power generation without capture and storage of 
CO2 threatens to overwhelm global efforts to stabilize and 
reduce atmospheric carbon concentrations and avoid the worst 
consequences of global warming. In China and other developing countries 
experiencing strong economic growth, demand for power is surging 
dramatically, with low-cost coal the fuel of choice for new power 
plants. Emissions in these countries are now rising faster than in 
developed economies in North America and Europe.
    The Center for American Progress recommends several policies to 
spur rapid development and deployment of new carbon capture and storage 
technologies that allow power plants to burn coal for energy while 
sequestering carbon emissions in underground geologic reserves across 
the country. We recommend the establishment of an emission performance 
standard for all new coal-fired facilities equivalent to the best 
available capture and store technology, and the provision of federal 
funds to help offset additional costs of implementing carbon capture 
and storage technology in the near-term.
    Energy efficiency is the cheapest, fastest way to reduce the carbon 
intensity of our economy and must be a large part of the solution. The 
United States currently uses nearly twice as much energy per dollar of 
gross national product than other industrialized countries, so there is 
much we can do to reduce the inefficiencies of our energy generation, 
transmission, and consumption. To this end, we propose a National 
Energy Efficient Resource Standard to require electricity and natural 
gas distributors to meet a 10 percent energy savings threshold through 
efficiency upgrades by 2020, and a major upgrade of the U.S. 
electricity grid to increase energy and national security, encourage 
distributed generation, and increase the efficiency of transmission. 
Additional significant gains in efficiency can be made by requiring 
efficiency upgrades for our appliances and private, commercial, and 
federal buildings.
    Question 8. It would seem that more output from the same amount of 
fuel input is a winwin for the environment, the consumer, and the 
success of companies that operate electric power generation facilities 
across the country. And yet, these efficiency improvements are 
consistently not undertaken. What, specifically, gets in the way of 
incremental efficiency improvements at power generation plants in the 
existing fleet? What can this Congress do to remedy such a shortcoming?
    Answer. Increasing the efficiency of electricity production, 
transmission, and consumption are winwin steps for consumer energy 
bills, global warming and other environmental concerns, and for the 
success of companies that operate electric power generation facilities 
across the country.
    In Capturing the Energy Opportunity, the Center for American 
Progress highlights ways in which California has demonstrated that 
efficiency investments are a win-win proposition. Since 1975, 
California's energy efficiency programs have kept the state's per 
capita energy consumption flat at around 7 megawatt hours per person, 
while the rest of the nation's energy consumption has increased by 
almost 50 percent. During this same time period, California per capita 
CO2 emissions have decreased by 30 percent, while national 
per capita CO2 emissions have remained level. Moreover, 
implementing these energy efficiency programs has cost less than half 
what it would cost to increase electricity generation in the absence of 
such programs and has added over $4 billion to California's economy.
    To enable these same sorts of efficiency improvements nationally, 
the Center for American Progress recommends the following policy steps:

          1. Create a National Energy Efficient Resource Standard to 
        require electricity and natural gas distributors meet a 10% 
        energy savings through efficiency upgrades by 2020.
          2. Decouple utility sales from profits to make it easier for 
        utilities to make efficiency upgrades.
          3. Upgrade the U.S. electricity grid to increase energy 
        security, encourage distributed generation, invest in smart 
        grid technologies, and increase the efficiency of transmission.
          4. Require appliance energy efficiency improvements.
          5. Increase building efficiency through improving building 
        codes, creating incentives for home and public building 
        retrofits, encouraging deployment of distributed energy 
        technology, and providing energy efficient housing energy 
        grants and mortgages.

    Question 9. Are you concerned about any unintended geopolitical 
consequences associated with a transition away from oil, given the 
producing nations that rely so heavily on revenue from the sale of 
their oil and other energy commodities to the United States?
    Answer. There are severe geopolitical consequences from continuing 
dependence on oil and from the global warming effects resulting from 
continued dependence on oil. Capturing the Energy Opportunity details 
the national security concerns that will only increase with continued 
dependence on oil and increasing greenhouse gas emissions.
    Oil dependence and climate change present the United States with 
multiple foreign policy challenges.
    Beyond the macroeconomic risk of price shocks, oil represents a 
large chunk of our balance of payments deficit. Additionally, our 
dependence on oil-producing countries inevitably affects the conduct of 
our foreign policy-both our perceived need to use military force to 
protect our access to overseas oil supplies and the freedom of action 
with which we pursue our foreign policy objectives.
    Other challenges include, for example, increased border stress 
resulting from the impact of climate change-induced storms and droughts 
in Mexico and the Caribbean. Or consider the complications posed by 
ever-scarcer water supplies to political progress in the Middle East.
    Perhaps the greatest climate change-induced geopolitical challenge 
in the short-term, though, will arise in the developing countries in 
the earth's low latitudes. In these countries, even a relatively small 
climatic shift can trigger or exacerbate food shortages, water 
scarcity, the spread of disease, and natural resource competition. Such 
conditions fuel political turmoil, drive already weak states toward 
collapse, and threaten regional stability.
    Nigeria, Africa's most populous country, will confront intense 
drought, desertification, and sea-level rise in the coming years. 
Lagos, the largest Nigerian city, is one of the West African coastal 
megacities that the IPCC identifies as at risk from sea-level rise by 
2015. These conditions, coupled with rapid population growth 
projections, are likely to force significant human migration and 
contribute to regional political and economic turmoil.
    The threat of regional turmoil is higher yet in East Africa because 
of the concentration of weak or failing states, numerous unresolved 
political conflicts, and the severe effects of climate change. Climate 
change will likely create large fluctuations in the amount of rainfall 
in East Africa during the next 30 years. In Darfur and elsewhere in 
Sudan, Ethiopia, and Kenya, water shortages have already led to the 
desertification of large tracts of farmland and grassland. Fierce 
competition between farmers and herdsmen over the remaining arable 
land, combined with simmering ethnic and religious tensions, helped 
ignite the first genocide of the 21st century. This conflict has now 
spilled into Chad and the Central African Republic. Meanwhile, the 
entire Horn of Africa remains threatened by a failed Somalia and other 
weak states.
    The IPCC warns that ``coastal areas, especially heavily populated 
mega-delta regions in South, East and Southeast Asia, will be at 
greatest risk due to increased flooding from the sea and, in some mega-
deltas, flooding from the rivers.'' In South Asia, this will generate 
political tension as displaced people traverse the region's many 
contested borders and territories, such as those between Bangladesh, 
India, Pakistan, and China.
    Climate change will also pose a growing political and economic 
challenge to China, which could have significant national security 
implications for the United States. Unless China's pattern of energy 
consumption is altered, its carbon emissions will reinforce or 
accelerate several existing domestic environmental challenges-ranging 
from desertification to water shortages to unhealthy air in urban 
areas.
    Question 10. Earlier this week the Center for American Progress 
published a study titled ``The Staggering Cost of New Nuclear Power'' 
in its Climate Progress blog. This study claims that electrical 
generation costs from new nuclear power will be as much as 30 cents per 
kilowatt-hour in spite of the fact that current nuclear generation 
provides the cheapest electric generation rates at less than 1.8 cents 
per kilowatt-hour. How sensitive do you think such calculations are to 
modeling assumptions such as the capital recovery period and capacity 
factors for new construction? Can you explain why you think the 
assumptions made in your study are more valid than comparable industry 
studies?
    Answer. Dr. Joseph Romm, the author of The Staggering Cost of New 
Nuclear Power and editor of the blog Climate Progress, provides the 
following response to your question:

          One cannot compare the cost of new nuclear power plants, 
        which have seen a tripling of capital costs since 2000, with 
        the cost of power from existing power plants, many of which 
        were sold off at fire sale prices in recent years. The average 
        historical cost for nuclear power has been considerably higher 
        than 1.8 cents/kWh.
          The author, power plant costing expert and CPA, Craig 
        Severance explains, ``I also used the 85% number for my ``Low 
        Cost'' scenario, and the midpoint (80%) as ``Most Likely.'' I 
        noted that I know recent average capacity factors with old 
        generation reactors are just recently reaching the 90's, 
        however this took decades of ``tinkering & training'' to reach 
        this result. You can see a history of capacity factors for U.S. 
        nuclear power plants at: http://www.eia.doe.gov/aer/txt/
        ptb0902.html.''
          So the results are not terribly sensitive to the choice of 
        capacity factor since the author used a relatively high number 
        to start with.
          The author also explains, ``[Someone] raised the question 
        about plant lifetimes of 40 years vs. an additional 60 years. 
        My analysis is first and foremost a concern for the financial 
        well-being of the utilities and their ratepayers. If the first 
        40 years (or even 20 -25 years, at an even higher initial cost 
        per Kwh as suggested by David Bradish) are at a cost far in 
        excess of what the utility can collect in revenues to support 
        the plant, will the utility still be solvent? That is the 
        financial perspective, which I address. I care about the 
        electric utility industry and its financial health. If you 
        wanted to open a movie house, and it cost so much to build the 
        new theater that you would have to charge $50 a ticket, it 
        makes little difference that your mortgage might be paid off 
        after 25 years and then you can lower your prices--you won't 
        get past your opening night. The economists' perspective (as 
        expressed in levelized life cycle cost studies) is that once 
        you get that far in the future and bring it back into present 
        dollars, those far-distant years make little difference in 
        decisionmaking. For instance, in the MIT study the difference 
        between assuming a 40 year life and a 25 year life cycle 
        resulted in only a 4.3% difference in overall levelized costs/
        kWh using the MIT levelized cost methodology.''
          So the results are not terribly sensitive to the choice of 
        plant lifetime since the author assumed a 40-year lifetime.
          Recent reports show very high costs for new nuclear power. 
        Moody's detailed cost analysis from May 2008 put it at over 
        $.15 per kWh. A recent Time magazine report put it at 15 to 20 
        cents. This study is one of the most comprehensive and public 
        analyses of the cost of the nuclear power plants now being 
        considered for deployment in the U.S.
          The industry has not to our knowledge put out a detailed 
        study based on the recent explosion in nuclear power plant 
        capital costs. We welcome such a study. More important, we 
        welcome any major utility or nuclear provider publishing a 
        detailed cost analysis with transparent assumptions that it 
        will stand behind in a Public Utility Commission rate case. 
        Until that happens, it is difficult to put much faith in their 
        hand-waving statements about various assumptions used in the 
        CAP study.

    Question 11. The Department of Energy estimates that with adequate 
investment and grid infrastructure development it may be possible to 
expand the contribution of wind power from its current level of 
approximately 1% of domestic electric generation to 20%. But to do so 
will require twenty years. Nuclear energy already provides 20% of 
emission-free domestic electricity generation. Given the urgency 
associated with global climate change wouldn't investment in both of 
these technologies be the wisest course of action?
    Answer. The Center for American Progress supports investment in a 
wide variety of low-carbon energy technologies-we need to make use of 
all of the tools in our toolkit to solve global warming. Existing 
nuclear power provides a valuable low-carbon energy source; however, 
nuclear waste storage and the dangers of proliferation remain serious 
unsolved concerns. Nuclear power will continue to be part of our low-
carbon energy mix, but we will also need to vastly and rapidly scale up 
the production of renewable sources of electricity that do not share 
the same waste and proliferation concerns.
    Question 12. You project that adding $100 billion to the stimulus 
package for clean energy projects will create 2 million jobs in the 
United States. Is 2 million a ``net'' number? Does it number reflect 
the displacement of existing jobs in traditional industries, such as 
oil and gas, that could be lost over the same time period? Are these 
permanent jobs? Did you account for the possibility that some of the 
new jobs, or existing jobs that are displaced by new jobs, may be 
exported to other nations?
    Answer. The 2 million job figure that comes from our analysis is 
the result of a $100 billion investment over two years. The analysis is 
of short-term and additional spending. Because of this, it is does not 
include a plan to substitute out fossil fuels for clean energy, and 
therefore the employment expansion figures do not reflect displacement.
    This study finds that $1 million spending on green investments will 
create around 17 jobs, while the same amount of spending in the oil 
industry will only create 4.5 jobs. If over the long term, the $1 
million comes from reduced spending in the oil industry, there would 
still be a net gain of 12.5 jobs on the part of that amount of 
spending.
    One of the reasons why the net job creation is so high in 
comparison to oil industry jobs is that the domestic content of green 
jobs is in fact higher. In other words, virtually all the spending on 
green investment stays in the U.S. economy, while only 80 cents of 
every dollar of oil spending stays in the U.S. The question of domestic 
content versus imports is included in the calculations of employment 
effects.
    Question 13. President-elect Obama has stated that his stimulus 
bill will ``create or preserve'' up to 3 million jobs, and the cost of 
that entire bill is expected to be between $800 billion and $1.3 
trillion. On the other hand, your report claims that it is possible to 
create 2 million jobs by spending $100 billion on clean energy 
projects--a considerable amount at just a fraction of the cost. Can you 
help reconcile the significant difference between these projections?
    Answer. The House version of the American Recovery and Reinvestment 
Act (H.R. 1), passed by a vote of 244--188 on January 28, 2009, 
contains spending proposals spanning a diversity of sectors, including 
health care, education, and energy, and for a wide variety of programs. 
Similarly, two bills passed out of the Senate Appropriations and 
Finance Committees contain a diverse set of spending programs. As such, 
the spending and job creation potential in the still-in-process 
stimulus package are not comparable on a dollar-per-dollar basis with 
the proposals CAP outlines in Green Recovery.
    However, the H.R. 1 invests $71 billion on clean energy programs 
and another $20 billion on clean energy tax incentives. To date, the 
Senate Appropriations Committee passed the American Investment and 
Recovery Plan, S. 336, which includes $78 billion in clean energy 
spending as part of its $365 billion recovery package, and the Senate 
Finance Committee passed a $522 billion tax package that includes $31 
billion in tax incentives for renewables and energy efficiency. Insofar 
as these programs align with the six energy efficiency and renewable 
energy strategies we model in Green Recovery, they will leverage a 
proportional amount of job creation, and will constitute a good 
percentage of the millions of jobs created or preserved by the stimulus 
package.
    Question 14. To supplement your ``Green Economic Recovery Program'' 
report, CAP released state-by-state allocation projections for clean 
energy funding from the stimulus. I understand that developing an 
allocation formula must have been difficult--but I'm concerned that the 
formula you did use excludes several major factors from consideration. 
You based your projections on state population and GDP, but appear to 
have left out competition and potential. Alaska, of course, has 
tremendous potential, but would receive just 0.3 percent of the $100 
billion. If we are serious about accelerating the use of renewable and 
alternative resources, why wouldn't we allocate a much greater 
proportion of funds to states that can serve as pioneers in their 
development and deployment?
    Answer. Appendix 3 of Green Recovery explains how we allocated 
funds on a state-by-state basis:

    Our green investment program is designed to benefit all communities 
throughout the country-to create good jobs and help businesses grow. To 
get a sense of how these national numbers translate into the lived 
experience of Americans, and how they offer concrete opportunities for 
economic development, it is important to examine the effects of our 
program at the state level as well as the national level.
    For this reason, we have estimated how the benefits of our program 
could be distributed across the states, not just at a national economy-
wide level. We present here our calculations for a representative 
sample of 34 of those states.
    Calculating the consequences of our green infrastructure investment 
program on a state-bystate basis requires us to make some assumptions 
as to what share of the $100 billion in federal support should be 
allocated to each state. There is no obvious formula as to how this 
should best be modeled, but to approximate the distribution of jobs and 
investment we have made some simplifying assumptions here, and present 
the results in a table in Appendix 3.
    One way to allocate the flow of investment funds would be to make a 
determination as to which states have advantages in various investment 
areas, such as solar or wind power, urban density for mass transit 
investments, or with agriculture to produce targeted advances in next-
generation biofuels. But whatever funding allocations we establish on 
that basis would inevitably be highly sensitive to our assumptions. 
More to the point, we don't have an empirically rigorous way to balance 
the importance of these geographic or climate advantages for any given 
state or region relative to the needs of the different states for the 
spending from the $100 billion green economic recovery program.
    With this in mind, we considered two approaches to assigning 
investment levels for each state based on easily observable and 
measurable traits for each state to distribute the overall investment 
budget of $100 billion. We then settle on a solution that combines the 
two approaches to estimate an allocation for each of the states we 
looked at.
    First, we examine the effects of distributing green investments on 
the basis of each state's share of national gross domestic product. 
This allows us to model the distribution of the green energy 
investments based on existing patterns of financial investments and 
current economic development trends. This provides an accurate measure 
of how our green infrastructure investment would flow if it followed 
current patterns of state-level economic development.
    Then we examine an allocation based solely on each state's 
population, to achieve a highly equitable per capita distribution of 
resources. Calculating the distribution of $100 billion in new green 
recovery funds on the basis of population is, of course, the most 
egalitarian approach, with each person in the country having an equal 
dollar claim on the overall pool of investment funds. We then try to 
balance these two approaches, recognizing that retrofits, for example, 
will in part follow a pattern based on population density, but that 
capital investment will also naturally flow toward areas of pre-
existing capital investment in industry, infrastructure, and building 
stock.
    We recognize that each approach, both a GDP-share and a population-
based allocation of funds, represents a reasonable argument for 
determining state investment allocations and hence job creation 
numbers. Accordingly, we calculate what the allocation of investment 
should be under both the GDP-and population-based approaches, and use 
the midpoint of these two calculations as our figure for each state's 
allocation of the $100 billion for the overall green stimulus program. 
In this way we offer an estimate of how job growth and investment 
levels would be experienced on the ground in the states as a result of 
a green investment package.
    In addition to calculating the levels of investment and job 
creation by state, we also looked at the broader impact of job growth 
on the state economies through the reduction in the rate of 
unemployment that these job gains would provide. State unemployment 
levels are presented in a table in Appendix 3, alongside the potential 
unemployment level if job gains from a green investment package were 
realized.
    Every state in the country is facing deteriorating economic 
conditions, even though some states, such as Michigan and Ohio, are 
worse off than, say, Virginia or Iowa. At the same time, we have shown 
how each state is now poised to gain substantial benefits through our 
economic recovery program to promote green investments in both the 
private and public sectors. Regardless of a state's topography or 
climate, major opportunities for green investments exist now and will 
grow with time. These investments, in turn, will become a powerful 
engine of job creation as the United States advances toward building a 
lowcarbon economy.
    Question 15. In November 2007 your organization outlined a number 
of actions the United States could take to transition to a low carbon 
economy. Do you have an estimate for how much it would cost to pursue, 
implement, and realize all of the steps you recommended in that report?
    Answer. In our 2007 report, Capturing the Energy Opportunity, the 
Center for American Progress proposed a comprehensive clean energy and 
efficiency strategy to capture the ``energy opportunity'' afforded by 
the transition to a low-carbon economy. This comprehensive strategy 
must involve incentives and mandates to increase investment in low-
carbon and efficient technologies in our homes, businesses, and 
transportation system; investment in research and development of new 
technologies for use here at home and to export overseas; capping and 
reducing greenhouse gas emissions across all sectors of our economy; 
and re-engaging in and taking on a leadership role in the international 
climate negotiations. At the core of this strategy is a greenhouse gas 
cap-and-trade program with a 100 percent auction of carbon credits that 
would provide tens of billions of dollars to build a green economy and 
offset the cost of rising energy prices for low-and middle-income 
Americans.
    This entire effort would be self-financed, supported by the 
revenues generated by the capand-trade auction process and the 
elimination of federal tax breaks, subsidies, and other handouts to the 
oil and gas industry.
    Our 2007 study calculated projected auction revenue under different 
cap-and-trade legislative proposals, and estimated that an economy-wide 
cap-and-trade program would generate at least $75 billion per year. The 
federal government currently invests billions of dollars annually in 
tax breaks and other subsidies for oil and gas, including royalty 
relief and research and development subsidies. It is time to shift this 
federal investment away from high-carbon, dirty sources of energy and 
towards the clean energy necessary to power a low-carbon economy.
        Response of Kit Batten to Question From Senator Lincoln
    Question 1. I represent the state of Arkansas, which has a large 
number of hard-working, low to-middle-income families. It is important 
to me that in transforming our energy economy to a green energy 
economy, we pay attention to the economic impact it could have on these 
families. In what ways can we make sure that low-to-middle income 
families are able to participate in a green economy without detrimental 
costs?
    Answer. Solving the mounting energy and global warming crises is an 
extraordinary opportunity to reinvigorate the economy through 
investment in clean, sustainable, low-carbon energy sources. Indeed, 
the transformation of our antiquated energy infrastructure around the 
platforms of efficiency and reduced carbon emissions represents perhaps 
the great potential driver of American innovation, economic growth, and 
job creation of coming decades.
    Moreover, this transition to a clean energy economy can be 
structured to ensure that green economic growth be a tide that lifts 
all boats-and reinvests in strong urban and rural communities. This 
investment can offer pathways into the middle class, skills training, 
and help to rebuild career ladders by creating jobs with family-
supporting wages in the construction trades and in manufacturing within 
the industries of the future.
    In Capturing the Energy Opportunity, CAP lays out a comprehensive 
strategy to transform our economy to a low-carbon model. This strategy 
involves incentives and mandates to increase investment in low-carbon 
and efficient technologies in our homes, businesses, and transportation 
system; investment in research and development of new technologies for 
use here at home and to export overseas; capping and reducing 
greenhouse gas emissions across all sectors of our economy; and re-
engaging in and taking on a leadership role in the international 
climate negotiations. At the core of this strategy is an economy-wide 
greenhouse gas cap-and-trade program. Allocation of cap-and-trade 
auction revenue involves a transfer of substantial wealth and must be 
handled wisely to ensure equitable and efficient distribution to help 
low-and moderate-income Americans offset energy price increases and to 
increase investment in research, development, demonstration, and 
deployment of new low-carbon and efficient technologies
    A significant short-term benefit from investing in energy 
efficiency is keeping energy bills low, even if energy prices increase. 
Building retrofits, incentives to adopt more efficient appliances, 
implementation of smart grid technologies, and increasing vehicle fuel 
efficiency can help stabilize American's energy bills in the face of 
rising energy prices. Diversifying our nation's sources of energy will 
help keep prices lower and less volatile.
    Additionally, investing in the development and broad deployment of 
low-carbon and efficient technologies will afford consumers and 
business greater choice over their consumption of energy and will also 
help keep energy bills lower.
    The primary objectives of the proposals outlined in CAP's Green 
Recovery report-and embodied in the green infrastructure spending in 
the American Recovery and Reinvestment Plan-are creating good jobs and 
lowering energy costs for American families by increasing affordable 
transportation options, diversifying our energy supplies, and 
increasing the efficiency of our buildings. Moreover, increasing public 
investment and production of advanced clean energy technologies will 
lower their costs by achieving economies of scale, ultimately making 
them more accessible to the general public. And, because the stimulus 
money will be channeled towards programs that put working-class 
citizens to work, this clean energy transition will result in higher 
employment and economic growth.
    Additionally, the costs of not transforming the way we produce and 
consume energy and not addressing global warming are high. These costs 
of inaction entail everything from the price we would pay by missing 
the opportunity to lead the world in the development of new clean 
technologies for use at home and for export; to the costs of responding 
to and preparing for the effects of climate change domestically and 
internationally, including national security, disaster preparedness and 
response; and impacts on agriculture, natural resource availability and 
management, human health, and infrastructure.
       Responses of Kit Batten to Questions From Senator Sessions
    Question 1. It appears that there will be a sizable economic 
stimulus package enacted by Congress shortly. That package will likely 
include funding for numerous environmental projects. Considering that 
most thoughtful observers believe that in addition to a short term 
stimulus, projects should also have long term value for the country. 
Would you please list 5 or more projects that you believe would be 
particularly cost effective in the long term for our nation? I would 
also request that you please state the amount that is necessary to be 
spent on the projects that you have listed above.
    Answer. The House version of the American Recovery and Reinvestment 
Act (H.R. 1), passed by a vote of 244--188 on January 28, 2009, and two 
bills passed out of the Senate Appropriations and Finance Committees 
contain spending proposals spanning a diversity of sectors, including 
health care, education, and energy. The proposed spending on lowcarbon 
energy and efficiency programs in these plans is a good start to 
putting the U.S. on a low-carbon path to grow our economy, create jobs, 
increase prosperity, and improve security.
    However, we cannot stop with the stimulus package. Green priorities 
must be at the center of both America's energy policy and each step of 
our economic policy-stabilization, stimulus, recovery, and growth.
    In our 2007 report, Capturing the Energy Opportunity, the Center 
for American Progress proposed a comprehensive clean energy and 
efficiency strategy to capture the ``energy opportunity'' afforded by 
the transition to a low-carbon economy. This comprehensive strategy 
must involve incentives and mandates to increase investment in low-
carbon and efficient technologies in our homes, businesses, and 
transportation system; investment in research and development of new 
technologies for use here at home and to export overseas; capping and 
reducing greenhouse gas emissions across all sectors of our economy; 
and re-engaging in and taking on a leadership role in the international 
climate negotiations. At the core of this strategy is a greenhouse gas 
cap-and-trade program with a 100 percent auction of carbon credits that 
would provide tens of billions of dollars to build a green economy and 
offset the cost of rising energy prices for low-and middle-income 
Americans.
    This entire effort would be self-financed, supported by the 
revenues generated by the cap and-trade auction process and the 
elimination of federal tax breaks, subsidies, and other handouts to the 
oil and gas industry.
    Five examples of projects in which significant investment should 
begin in the stimulus and extend into the future include the following. 
The funding proposed for green and efficient infrastructure and 
programs in the stimulus package is a good start, but we must encourage 
further public and private investment in clean and efficient 
technologies through additional smart recovery and growth policies, as 
outlined in Capturing the Energy Opportunity.

          1. Energy efficiency measures to retrofit federal buildings, 
        which not only set a national example of efficiency but would 
        also result in long-term savings for taxpayers. Additional 
        measures to encourage weatherization and efficiency retrofits 
        across our nation's homes and businesses are also an important 
        component of this plan to maintain low energy bills--in the 
        near-and long-term--and invest in a clean energy future.
          2. A smart grid to lay the foundation for an energy efficient 
        economy while also empowering consumers to make real-time, 
        market-based decisions regarding their energy consumption In 
        the near-and long-term, our investments in the grid also must 
        also enable greater access to distributed and intermittent 
        sources of renewable electricity generation, improved energy 
        security, and improved efficiency of electricity generation, 
        transmission, and distribution.
          3. Transit capital assistance funds for new transit 
        construction to reduce our dependence on oil, improve traffic 
        congestion and air pollution, as well as expand affordable mass 
        transit options for commuters. Investments to improve mass 
        transportation options, encourage smart growth, and reduce 
        vehicle miles traveled are essential components of a short-and 
        long-term low-carbon energy strategy.
          4. Advanced battery research loans and grants to help 
        establish a vibrant battery manufacturing sector in the United 
        States, make strides to electrify our vehicle fleet, reduce 
        greenhouse gas emissions from the transportation sector, and 
        dramatically reduce the cost of electric and plug-in hybrid 
        vehicles.
          5. Green jobs training to prepare the American workforce for 
        employment opportunities and development in energy efficient 
        construction and in manufacturing within the clean tech 
        industries of today and the future.
                                 ______
                                 
   Responses of Dianne R. Nielson to Questions From Senator Bingaman
    Question 1. Does the Western Governors' Alliance have any concerns 
with the Renewable Fuel Standard as passed in the Energy Independence 
and Security Act of 2007?
    Answer. While WGA does not have specific policy on the Renewable 
Fuel Standard, on April 17, 2008, we sent a letter to the Senate 
Committee on Energy and Natural Resources conveying our request to 
revisit the definition of renewable biomass in the Energy Independence 
and Security Act of 2007. The letter noted the ``tremendous wildfire 
and forest health problems that the West faces'' and requested that the 
definition of renewable biomass be modified to include biomass from 
hazardous fuels reductions on federal lands. WGA believes that this 
modification will help us to reduce the threat of wildfire while 
diversifying our energy sources.
    Question 2. Do you anticipate that the Western Governors 
Association will recommend that the western states work with CCS early 
mover project stakeholders to expedite the permitting process for long-
term CO2 storage and/or offer indemnification of the 
CO2 storage sites (by the states where the storage is 
occurring)?
    Answer. As the Western governors indicated in their letter to 
President Barack Obama, quickly moving to establish a national 
greenhouse gas emissions reduction goal that contributes to global 
climate stabilization is critically important. The governors also noted 
the need to invest in research and technology that will result in near-
zero greenhouse gas emissions from new coal-fired electricity 
generation in 10 years and from existing generation no later than 2030. 
We firmly recognize that we will not be able to achieve either of these 
objectives without an effective regulatory program for safely and 
permanently sequestering carbon. The Western Governors support the work 
of the Regional Carbon Sequestration Partnerships, but believe they 
have not moved quickly enough to complete the kind of testing that will 
make carbon sequestration a viable regulatory option. We strongly 
support increased funding for CCS demonstration projects so that we can 
craft effective national legislation on the long term storage of carbon 
dioxide. We believe that in the absence of national legislation, it 
will be left to the individual states to determine rules to govern CCS, 
expedite permits or deal with liability concerns.
    Question 3. In the stimulus package passed earlier in 2008 by the 
Congress, there were tax incentives developed to entice CCS early mover 
projects. Were these tax incentives useful for projects occurring in 
your state(s) or would you have any other suggestions for funding 
assistance to early movers?
    Answer. WGA is unaware of specific projects that had increased 
viability as a result of tax incentives in the stimulus package. We 
would emphasize that it is critical to craft national legislation for 
the regulation of CCS. In general we support incentives that induce 
more rapid application of CCS; however, it must be done within the 
context of a regulatory structure that ensures permanent, safe storage 
of carbon dioxide.
   Responses of Dianne R. Nielson to Questions From Senator Murkowski
    Question 1. Our reliance upon foreign nations for a great deal of 
our energy needs is a problem we must solve. Our energy policy and our 
economy are inextricably linked. While lower gas prices are providing 
some relief, it will only be temporary unless we can find a long-term 
solution. Moreover, those low oil prices brought about by recession, 
along with continued difficulty in the credit markets, now threaten to 
delay or halt a wide range of renewable energy projects. I believe this 
is a clear indication of the need to increase domestic oil and gas 
production. Do you agree that side-by-side with our efforts to increase 
conservation and develop new energy sources, we also have to produce 
more secure sources of domestic oil and gas? If so, where should we be 
producing?
    Answer. The Western Governors encourage adopting policy strategies, 
such as the proposed Alaska natural gas pipeline, that will stabilize 
oil and natural gas prices to the benefit of the consumer. This 
includes considering responsible way to increase domestic production. 
Concerns for security of supply, adequacy of the resource and 
protection of the environment require that we adopt policies that 
encourage energy efficiency and alternative energy sources with an 
emphasis on increasing incentives for domestic, renewable resources and 
conservation. We should focus on domestic production sites that provide 
development with a minimum of environmental impact.
    Question 2. here are very significant energy reserves on lands 
owned by Alaska Natives and American Indian tribes, who want to develop 
the potential of these reserves. Do you agree that our country's energy 
security would be enhanced if these resources were to be developed?
    Answer. WGA recognizes the sovereign status of Native American 
tribes and has consistently worked with the tribes to explore regional 
considerations on energy and environmental issues. We will continue to 
offer our assistance as the tribes consider development of their energy 
resources. As we noted in the answer to 1. above, we support 
development of domestic resources in an environmentally responsible 
way.
    Question 3. Last year, the price of oil rose dramatically before 
declining to its lowest level since 2004. In light of this volatility, 
would you change or alter any of the recommendations included in your 
reports? Would you make any adjustments if today's relatively low oil 
prices persist?
    Answer. Many economists believe the current low prices are not a 
result of long-term supply gluts, but a reflection of the serious 
downturn in the global economy. As such it would be dangerous to assume 
they will persist beyond economic recovery. We have been consistent in 
our call for a comprehensive national energy policy, noting that it is 
essential to our domestic economic and environmental security. WGA's 
Transportation Fuels for the Future notes that the boom-bust cycle in 
oil prices and investment in alternative fuels has led to complacency 
in forming a national policy for increasing our supply of domestically 
produced fuels. We would not change our report recommendations at this 
time, and we would continue to advocate for the programs cited in our 
letter to the new President.
    Question 4. Washington Post columnist Charles Krauthammer wrote an 
article last week in support of what he calls a ``net zero gas tax.'' 
He calls for a $1 per gallon increase in the federal gas tax, which 
would be accompanied by a $14 per week reduction in the payroll tax. 
According to Krauthammer, such a shift would reduce global oil prices 
and domestic greenhouse gas emissions by restraining gasoline 
consumption. It is also described as revenue neutral. What are your 
thoughts on this proposal, particularly as an alternative to a tax on 
carbon, a cap-and-trade system, and/or higher CAFE standards?
    Answer. The WGA has not sufficiently analyzed this proposal to 
offer a consensus opinion.
    Question 5. Alternative energy companies have an incredibly 
difficult time securing the financing necessary to become viable and 
productive. DOE's Loan Guarantee program, established by the 2005 
Energy Policy Act, has proven woefully inadequate for addressing this 
problem thus far.
    Do you believe that there have been short-comings in the way that 
program has been administered? If so, what would you have done 
differently? Do you believe that loan guarantees are the most effective 
financial instrument for advancing private-sector, clean energy 
technology ventures?
    Answer. Loan guarantees have been successfully applied in many 
programs, and WGA believes that they could effectively be a part of a 
national energy strategy if constructed and managed correctly. We would 
be willing to work with DOE to help fix any short-comings in the 
current program, and to develop better applications for the future.
    Question 6. Several pieces of legislation were introduced last 
Congress to create a self-funding federal bank to assist start-up, 
clean energy companies. As envisioned by those bills, such an entity 
would be able to issue not only loan guarantees, but direct loans and 
insurance products as well. Additionally, this federal bank would, in 
some instances, be allowed to assume a financial stake in clean energy 
technology firms and issue publicly-traded stock. In the context of 
what has taken place at Fannie Mae and Freddie Mac, do you believe it 
is appropriate for the federal government to back start-up, clean 
energy technology firms in this manner?
    Answer. The WGA believes that such a program, if managed properly, 
could provide significant stimulus to clean energy. According to 
renewable energy developers, getting financial incentives will allow 
development to proliferate along a much faster track than would be 
possible otherwise. Because the WGA believes we need to move more 
quickly to achieve energy security and reduce carbon emissions, 
programs that will enable that must be a part of our strategy.
    Question 7. We all know that coal supplies 50% of our nation's 
electricity supply. The Chamber of Commerce's Institute for 21st 
Century Energy testified that the U.S. has enough coal to last for well 
over 200 years. What role do you see for coal in the nation's energy 
mix going forward? Compared to commercial-scale carbon capture and 
sequestration, how important do you believe incremental efficiency 
improvements within the existing coal fleet are?
    Answer. The Western Governors agree that coal-fired facilities that 
more efficiently use energy make sense. We believe every clean energy 
source should be considered as a means of meeting future energy demand. 
However, the primary policy of the WGA with respect to coal is to 
achieve near-zero emissions. In their letter to the new President, the 
governors stated the need to invest in research and technology that 
will result in near-zero greenhouse gas emissions from new coal-fired 
electricity generation in 10 years and from existing generation no 
later than 2030. While short-term improvements in the operating 
efficiency of existing plants will have an impact on emissions, the 
governors believe that the solution is to have 100% of the coal burning 
electrical generation facilities have near-zero emissions within the 
next 20 years.
    Question 8. It would seem that more output from the same amount of 
fuel input is a win-win for the environment, the consumer, and the 
success of companies that operate electric power generation facilities 
across the country. And yet, these efficiency improvements are 
consistently not undertaken. What, specifically, gets in the way of 
incremental efficiency improvements at power generation plants in the 
existing fleet? What can this Congress do to remedy such a shortcoming?
    Answer. The WGA agrees that any plant improvements that result in 
lower emissions of air pollutants or greenhouse gases are desirable. It 
is often that case that these ``efficiency improvements'' actually 
represent significant changes to operating permits under current EPA 
rules, thus requiring facilities to undergo permit modification 
procedures. While WGA believes the states and EPA should continue to be 
responsible for determining facility permitting rules, we would 
conceptually support streamlined processes recognizing the value of 
plant modifications that result in lower emissions. We would further 
support asking EPA to determine the best way to streamline processes 
without compromising the critical function of the permitting programs.
    Question 9. Are you concerned about any unintended geopolitical 
consequences associated with a transition away from oil, given the 
producing nations that rely so heavily on revenue from the sale of 
their oil and other energy commodities to the United States?
    Answer. WGA has not specifically analyzed this issue. In their 
letter to President Obama, WGA asked that the United States ``Establish 
an oil import reduction goal that strengthens energy security and 
independence.'' We believe that by creating that goal, oil producing 
nations will have sufficient notice of our intent, and time to adjust 
accordingly. Regardless, considering all major consequences, whether 
they are environmental, economic, or geopolitical must be part of the 
development of a national energy policy.
    Question 10. Utah is blessed with significant energy potential, 
some of which is located on Indian reservations. I understand that the 
Northwestern Band of Shoshone Nation is currently constructing a 100-
megawatt geothermal power plant to deliver renewable energy to 
Riverside, California, and that the Northern Ute Tribe is currently in 
the planning stages of a large-scale crude-oil refinery on its 
reservation lands. Has there been any dialogue between the Governor's 
office and these tribes relative to these projects to develop their 
energy potential? Is there support in the State of Utah for these 
projects?
    Answer. With respect to the Utah-specific question, there have been 
discussions between tribal representatives and the Governor's office 
regarding both of the energy projects. In general, governors regularly 
have government to government discussions with the tribes on 
environmental, energy, and other issues. The Western Governors support 
efforts by the tribes to responsibly develop their natural resources. 
We have also partnered with the tribes on issues of overall importance 
to the West, most significantly the Grand Canyon Visibility Transport 
Commission and the Western Regional Air Partnership.
    Question 11. The Center for American Progress has listed a national 
Renewable Electricity Standard of 25 percent by 2025 as one of its top 
ten energy and environmental priorities for the 111th Congress. Do you 
believe the members of the WGA would be able to comply with that 
standard if it was enacted into law? Can you describe the costs you 
would expect states to face, and the potential impact such a standard 
could have on the reliability of the electrical grid?
    Answer. The West is blessed with enormous renewable resource 
potential. If we can upgrade and expand the existing transmission grid, 
improve procedures for integrating variable sources like wind and 
solar, and continue to develop technologies that will reduce the price 
of energy from renewable sources, it is certainly technologically and 
economically feasible to achieve 25% renewables by 2025. We believe the 
costs of upgrading and expanding the transmission grid will be 
substantial, but that in partnership with the federal government 
achievable. This upgrade of the transmission grid can also be done to 
accommodate higher levels of renewables and maintain high reliability. 
However, even given current technologies, most grid experts believe it 
is possible to maintain a reliable grid at 25% renewables. One issue of 
concern to the Western Governors is federal preemption. WGA would 
recommend that FERC use agency discretion to provide that prior to 
preempting a state siting law in a designated NIETC, the Federal Energy 
Regulatory Commission must find that the proposed transmission project 
is needed to transport location-constrained, low-carbon generation and 
the line is properly sized to capture economies of scale and minimize 
environmental impacts.
   Responses of Dianne R. Nielson to Questions From Senator Sessions
    Question 1. It appears that there will be a sizable economic 
stimulus package enacted by Congress shortly. That package will likely 
include funding for numerous environmental projects. Considering that 
most thoughtful observers believe that in addition to a short term 
stimulus, projects should also have long term value for the country. 
Would you please list 5 or more projects that you believe would be 
particularly cost effective in the long term for our nation?
    I would also request that you please state the amount that is 
necessary to be spent on the projects that you have listed above.
    Answer. Based on the Western Governors letter to President Obama 
and adopted WGA policy, the following would be high priority projects 
for stimulus funding:

   Upgrade of the existing transmission grid and construction 
        of new transmission from high quality renewable resource areas 
        to population centers
   Advanced vehicle and battery technologies, and clean 
        transportation fuels research
   Investments in our forests will create jobs in struggling 
        rural areas and reduce the average $1 billion the federal 
        government spends every year fighting wildfires. The nation's 
        forests have been devastated by disease, overcrowding and are 
        even beginning to show stress due to drought and climate 
        change. Investments in forests create jobs for hazardous fuels 
        reduction projects (the removed small diameter materials during 
        thinning can be used as biomass for energy production), 
        planting trees to restore fire and insect damaged forests, thin 
        overstocked forests to protect communities and watersheds, 
        upgrade or decommission roads, and improve trails are needed. 
        These funds could be channeled through Community Wildfire 
        Protection Plans and federal agencies.
   Research, development and deployment of next generation 
        energy efficiency technologies
   Research for improving predictive capabilities for climate 
        change and related impacts, and for analysis of all 
        alternatives regarding the reduction and mitigation of 
        greenhouse gases, adaptation policies and other global climate 
        change measures.
   Research, development and deployment of advanced coal plants 
        with near-zero emissions

    The WGA has suggested that at least $15 billion per year for the 
next ten years needs to be available for research and construction, and 
that this should be matched by an equivalent amount of private money.
         Additional Response to Question From Senator Bingaman
    At the January 8, 2009 hearing, Chairman Bingaman asked whether the 
Federal Energy Regulatory Commission should be granted the same 
authority to permit electric transmission lines as it has to permit 
natural gas pipelines. As I noted in my response, what is needed to 
enable the construction of needed transmission is a partnership between 
states and the federal government. There are eight steps the federal 
government should take to build that partnership

          1. Enact legislation authorizing the Secretary of Energy to 
        pay for the incremental costs of optimizing the size of new 
        electric transmission lines to reach areas with large amounts 
        of location-constrained, low-carbon generation.

    --In exchange for financing the incremental cost of a new line, the 
            federal government would receive the increased transfer 
            capacity. The government could then sell the incremental 
            capacity as demand increases.
    --This will capture economies of scale in transmission construction 
            and reduce environmental impacts by eliminating the need 
            for future lines to the same area.

          2. Redirect the implementation of Section 368 of the Energy 
        Policy Act of 2005, which requires the federal government to 
        establish energy corridors over lands managed by the Department 
        of Energy, Bureau of Land Management, Forest Service, and 
        Department of Defense. The focus should be on the designation 
        of energy corridors across federal land to facilitate 
        transmission reaching location-constrained, low-carbon resource 
        areas. The results of the WGA Western Renewable Energy Zones 
        project should be used as a basis for designating corridors in 
        the Western Interconnection.
          3. Revise agency implementation of Section 1221 of the Energy 
        Policy Act of 2005 to:

    --Limit the designation of National Interest Electric Transmission 
            Corridors by DOE to those corridors that are necessary for 
            moving large amounts of location-constrained, low-carbon 
            generation.
    --Require DOE to conduct a more rigorous analysis of transmission 
            congestion and whether corridor designations are needed 
            more than was done in the 2006 DOE congestion study. The 
            analysis should consider future congestion that would 
            result from the deployment of location-constrained, low 
            carbon generation.
    --Consistent with the need to coordinated with state permitting 
            processes, require federal permitting agencies to process 
            within one year permits for proposed transmission lines 
            carrying large amounts of location-constrained, low-carbon 
            generation.
    --Require agencies to consider the results of the WGA Western 
            Renewable Energy Zones project when designating National 
            Interest Electric Transmission Corridors in the Western 
            Interconnection.

          4. Use agency discretion to provide that prior to preempting 
        a state siting law in a designated NIETC, the Federal Energy 
        Regulatory Commission must find that the proposed transmission 
        project is needed to transport location-constrained, low-carbon 
        generation and the line is properly sized to capture economies 
        of scale and minimize environmental impacts.
          5. Use agency discretion to refocus incentives for 
        transmission investment granted by the FERC to proposed 
        projects that carry large amounts of location-constrained, low-
        carbon generation and are optimally sized over the long-term.
          6. Use agency discretion under FERC Order 890, to require 
        transmission owners, in cooperation with states, to develop 
        interconnection-wide transmission expansion plans to move large 
        amounts of low-carbon electricity generation. In granting 
        incentive rates of return on transmission investments, FERC 
        should give priority to projects that comport with such plans 
        and carry large amounts of low-carbon generation.
          7. Continue the DOE's support for the WGA Western Renewable 
        Energy Zones project and determine if this approach should be 
        applied in the Eastern Interconnection.
          8. Enact legislation to provide that income from bonds issued 
        by state transmission infrastructure authorities is exempt from 
        federal taxation.

    [These 8 points are from the WGA Issue Brief for the Obama 
Administration title ``Expand Renewable Electricity Generation and 
Modernize the Grid.'']
                                 ______
                                 
    Responses of Karen A. Harbert to Questions From Senator Bingaman
    Question 1. There is broad agreement that the short-term extensions 
of the production tax credit have not provided sufficient regulatory 
certainty for the robust growth of that industry. However, in the 
current investment climate, tax credits do not seem to be enough to 
propel projects forward. What policy tools would you recommend for 
supporting renewable energy projects in the current economy, when 
income is too low for the tax credit to be useful?
    Answer. I understand that in certain economic conditions, as we are 
in now, potential recipients of targeted tax incentives will not have 
requisite federal income tax liability to make the credits a useful 
tool for their business. In the current environment we know many 
businesses in the renewable energy industries find themselves in this 
conundrum. In such circumstances we do believe that novel policy 
approaches merit consideration and employment to catalyze private 
sector investment into projects that in more favorable economic 
circumstances would be commercially viable. Such approaches include 
making tax credits refundable for the recipient and allowing their 
conversion to other more useful forms like direct grants.
    I would recommend Congress move cautiously when employing such a 
direct funding mechanism as you lose one of the threshold determinants 
for whether the project, technology, or firm is commercially viable at 
all. Specifically, if a business is not generating enough profit so as 
to incur federal income tax liability, Congress should consider whether 
that business will ever be commercially viable without the infusion of 
direct governmental subsidies.
    I would also note that Congress can help catalyze greater 
deployment of renewable energy projects by addressing the regulatory 
impediments that delay and prevent private investment into these 
projects. Specifically, renewable electricity projects are continually 
hampered by the difficulty of siting and licensing new transmission 
lines. Without the ability to readily transmit power from renewable 
generation facilities to the market, private investors will be much 
less likely to finance their construction. If Congress were to provide 
the Federal Energy Regulatory Commission with federal siting authority 
similar to that provided for natural gas pipelines, the entire country 
would benefit by additional capital investment into the transmission 
grid. Such a change would particularly benefit renewable power projects 
like wind and solar which are typically built in higher concentrations 
in areas that are not near population centers where the electricity is 
needed.
    Question 2. There seems to be a near-consensus that, over the long 
term, we need to move beyond even ``second generation'' biofuels, such 
as cellulosic ethanol, to a ``third generation'' of biofuels, 
developing technologies such as biocrude from algae. Can you comment on 
the preferred policy options for ensuring that we develop this third 
generation of biofuels? How does the existing RFS fit with this goal of 
establishing a third generation biofuels industry? And, should the RFS 
extend beyond passenger vehicles, and, for instance, include jetfuel?
    Answer. In our pursuit of third and fourth generation biofuels it 
is critical that we do not get ahead of what is technologically and 
commercially viable to do. The Department of Energy (DOE) is working 
hard in promoting the development of viable non food alternatives, such 
as ethanol from cellulosic feedstocks. While we have made progress 
toward broad commercialization a breakthrough has yet to materialize.
    Programs sponsored by DOE range from research to develop better 
cellulose hydrolysis enzymes and ethanol-fermenting organisms, to 
engineering studies of potential process, to co-funding initial ethanol 
from cellulosic biomass demonstration and production facilities. This 
research is being done by various national laboratories, including the 
National Renewable Energy Laboratory (NREL), Oak Ridge National 
Laboratory (ORNL) and Idaho National Laboratory. Universities and the 
private sector are also conducting this research. DOE is engaging in 
full court press to make cellulosic ethanol a valuable addition to the 
nation's energy portfolio as soon as practicable.
    Jet biofuels are in various stages of developing economically 
viable plant-based fuels. The solution would be blending of algae fuels 
with existing jet fuel.
    Just this past November, Green Flight International and Lake Erie 
Biofuels conducted the first flight to successfully cross the U.S in a 
jet powered predominately on biofuel. Of the 2,386 total miles flown 
1,776 miles were powered on 100 percent biofuel. Only 710 miles of the 
flight were powered by a mixture of 50 percent biofuel and 50 percent 
standard jet fuel thus, showing the potential viability of the use of 
renewable fuels in aviation.
    A year earlier, Green Flight International and Biodiesel Solutions 
teamed up and made history with the first jet flight powered solely by 
100 percent biodiesel fuel. Other examples of expanding the options of 
fuels for aviation include: Boeing and Air New Zealand are 
collaborating with a leading Brazilian biofuels maker Tecbio and 
Aquaflow Bionomic of New Zealand and other jet biofuel developers 
around the world.
    Virgin Atlantic successfully tested a biofuel blend made from 20 
percent babassu nuts and coconut and 80 percent conventional jet fuel 
fed to a single engine on a 747 flight from London to Amsterdam.
    Continental Airlines completed the first test flight of a Boeing 
737-800 partly powered by biofuel derived from jatropha plant oil 
(47.5%) and algae(2.5%) in January 2009.
    Again, we must be careful to avoid mandates for which technologies 
are not yet commercially viable. Extending the RFS to jet fuel would be 
premature at this time. We need to first invest in developing the 
technologies necessary to give us more fuel options.
    Question 3. The Institute for 21St Century Energy supports 
developing ARPA-E as proposed. What relationship do you believe that it 
should have with the Department of Energy? Also, the Institute supports 
doubling energy R&D over the next four to five years. In what areas 
should this increased funding be targeted so it has the greatest public 
impact?
    Answer. The Institute believes there is a need for an organization 
within the Department of Energy (DOE) where high risk research with a 
potentially high pay-off is not discouraged, but rewarded. Many 
research and development programs are adverse to risk, driven in part 
by fears of Congressional oversight and the requirements of the 
Government Performance and Results Act. A cultural change is needed 
both within DOE and the Congress to make such an organization work.
    The Institute supports the establishment within DOE of an Advanced 
Research Projects Agency for Energy (ARPA-E), or its equivalent. We are 
less concerned with what it is called, and more concerned that it have 
a considerable degree of independence from the rest of the Department 
and provide a home for novel, highrisk ideas and cross-cutting 
technology development. Congress should provide full funding, as 
authorized in the America Competes Act, for ARPA-E or a similar 
organization. This funding should not, however, come at the expense of 
other more traditional R&D--both are needed. Further, project funding 
decisions should be based on a competitive process, not legislated.
    The Institute believes a broad portfolio of technologies is needed 
as a hedge against failure because R&D programs are by their very 
nature subject to a degree of risk. Technology programs should focus in 
three broad areas: (1) Short-term development and deployment activities 
focused on energy efficiency and renewable energy, such as wind and 
biofuels; (2) longer-term R&D on clean coal/carbon capture & storage, 
nuclear, and advanced transportation technologies; and enabling 
technologies, such as advanced grid and storage technologies, that will 
be needed if many of these other technologies, particularly 
intermittent renewable power and plug-in hybrid vehicles, are to make 
significant headway in the market.
    Complementary policies--such as tax credits, loan guarantees, 
etc.--also need to be part of the mix. Accelerating the market 
penetration of new technologies will be tied in large part to the 
degree we are able to accelerate the commercial adoption of new 
technologies, and that will take an accelerated rate of capital 
formation. The Institute proposes establishing a new Clean Energy Bank 
of the U.S. (CEBUS), a quasigovernmental entity combining the functions 
and modeled after the Export-Import Bank and Overseas Private 
Investment Corporation. As we view it, CEBUS would operate to lower 
capital costs, mitigate market risks impeding investment, and address 
market inefficiencies rather than compete with existing market players. 
The bank would offer risk management, debt, equity and securitization 
products (e.g., concessionary financing, direct loans, loan guarantees, 
lines-of-credit, and insurance products), and it could take equity 
positions, similar to a venture capitalist, in clean energy projects 
judged commercially viable. More about the CEBUS proposal can be found 
in the Institute's Blueprint.
   Responses of Karen A. Harbert to Questions From Senator Murkowski
    Question 1. Our reliance upon foreign nations for a great deal of 
our energy needs is a problem we must solve. Our energy policy and our 
economy are inextricably linked. While lower gas prices are providing 
some relief, it will only be temporary unless we can find a long-term 
solution. Moreover, those low oil prices brought about by recession, 
along with continued difficulty in the credit markets, now threaten to 
delay or halt a wide range of renewable energy projects. I believe this 
is a clear indication of the need to increase domestic oil and gas 
production. Do you agree that side-by-side with our efforts to increase 
conservation and develop new energy sources, we also have to produce 
more secure sources of domestic oil and gas? If so, where should we be 
producing?
    Answer. The Institute for 21st Century Energy (Institute) and the 
U.S. Chamber of Commerce fervently believe that the country must employ 
an energy policy centered around the goal of increasing our energy 
security for generations to come. By this, I mean ensuring more 
efficient production and use of our energy; greater production of 
energy from a more diverse portfolio of sources; increased development 
and deployment of advanced energy technologies; and continued reduction 
of the impact our production and use of energy has on the environment. 
The Institute lays out a plan to achieve these goals in our Blueprint 
to Secure America's Energy Future through the adoption of 
recommendations organized by 13 pillars we believe a sound energy 
policy must address. Implementing policies to achieve anything less 
than all 13 is nearsighted and will risk condemning future generations 
to the same problems and debates we have witnessed for the past 3 
generations.
    A necessary part of the balanced approach is to ensure greater use 
of the energy resources we are blessed with domestically. The self-
imposed policies that have limited production of our oil, natural gas, 
and other energy sources have seriously diminished our energy security. 
Every year, Americans send hundreds of billions of dollars overseas to 
foreign energy companies, predominantly owned by foreign governments. 
Those funds would certainly be more beneficial to the country's 
economic prosperity if kept at home and invested in the production of 
tax-payer owned energy resources.
    Moreover, the argument supporting policies that, until last year, 
prevented production on some 85% of federal lands was to prevent 
environmental impact of producing these resources. Not only does this 
argument fail to recognize the current technologies and processes used 
by America's energy industry which significantly reduce environmental 
impact, but it also fails to consider the relatively weak environmental 
protection afforded by most of the countries from whom we must purchase 
oil and natural gas, in lieu of producing it ourselves.
    Oil and natural gas will continue to be dominant sources of energy 
in the U.S., and around the world, for the foreseeable future. Every 
year that goes by where we continue to limit the production of such 
vast quantities of these domestic natural resources, is another year of 
lessening energy security.
    We believe that all federal lands not currently precluded from oil 
and natural gas exploration and production should be made available for 
lease. Additionally, some areas in Alaska and the Rocky Mountains 
should also be made available lease. A recent study produced by ICF 
International estimates that opening these areas for leasing could 
result in an additional 2 million barrels per day being produced 
domestically by 2030, offsetting 20% of projected imports. An 
additional 5.34 billion cubic feet of natural gas per day could be 
produced, offsetting more than 60% of projected imports. The study also 
finds that this could create 160,000 jobs by 2030 and provide almost 
$1.7 billion in additional revenues to the federal government from 
royalties and fees.
    By utilizing our own energy resources after decades of neglect, we 
not only produce jobs and revenue, but we will also keep trillions of 
dollars in our domestic economy instead of unnecessarily supporting 
other economies around the world.
    Question 2. There are very significant energy reserves on lands 
owned by Alaska Natives and American Indian tribes, who want to develop 
the potential of these reserves. Do you agree that our country's energy 
security would be enhanced if these resources were to be developed?
    Answer. Yes, additional production of oil and natural gas from 
tribal lands will increase our energy security by eliminating the need 
to import the amount produced from other countries. Utilizing oil and 
natural gas from stable trading partners like Native American tribes, 
as well as North American partners like Canada and Mexico, is far more 
beneficial to our energy security than imports from less reliable 
countries around the world.
    Question 3. Last year, the price of oil rose dramatically before 
declining to its lowest level since 2004. In light of this volatility, 
would you change or alter any of the recommendations included in your 
reports? Would you make any adjustments if today's relatively low oil 
prices persist?
    Answer. The volatility of oil prices last year, as well as other 
energy commodities, is precisely the type of situation the adoption of 
our recommendations will avoid. The U.S. relies on petroleum for 96% of 
the energy used in the transportation sector. American drivers have 
virtually no choice in the fuel they use to power their vehicles. To 
mitigate the volatility of oil, or any one single energy source, we 
must diversify the fuels that power our cars and trucks. The Transition 
Plan to Secure America's Energy Future we delivered to the incoming 
Congress and Obama Administration last year offers nine specific 
recommendations to transform our transportation sector. These 
recommendations will catalyze commercial penetration of vehicles 
powered by sources other than petroleum, ranging from advanced 
biofuels, electricity, frontier hydrocarbons, and natural gas.
    Many of these technologies are on the verge of commercial 
viability, and we believe it is the federal government's role to 
catalyze their deployment for commercial use. By diversifying the 
vehicles and fuels used in our transportation sector, we will dampen 
the effects, as well as the causes of additional volatility of the 
price of oil.
    Question 4. Washington Post columnist Charles Krauthammer wrote an 
article last week in support of what he calls a ``net zero gas tax.'' 
He calls for a $1 per gallon increase in the federal gas tax, which 
would be accompanied by a $14 per week reduction in the payroll tax. 
According to Krauthammer, such a shift would reduce global oil prices 
and domestic greenhouse gas emissions by restraining gasoline 
consumption. It is also described as revenue neutral. What are your 
thoughts on this proposal, particularly as an alternative to a tax on 
carbon, a cap-and-trade system, and/or higher CAFE standards?
    Answer. Reducing carbon dioxide emissions from the transportation 
sector is very challenging and expensive. A $1 per gallon increase in 
the gasoline tax, such as that proposed by Mr. Krauthammer, translates 
into a carbon price of roughly $110 per ton of CO2.
    While I do not wish to comment on this specific proposal-which 
leaves to the imagination the types of polices that would cover other 
sectors-the Institute's position is that climate policies cannot 
provide a revenue windfall to the government. Revenues generated from 
climate policies should be returned to the taxpayers, for example 
through offsets of other sources of federal revenue that inhibit 
capital formation, with perhaps only a small portion being used to 
supplement federal R&D efforts on advanced energy technologies.
    The proposal has the virtue of transparency, a quality lacking in 
many climate change proposals where the costs largely would be hidden. 
However, like most proposals to address climate change, the impacts 
would fall unevenly. For example, consumers who do not pay payroll 
taxes and businesses would not receive the payroll reduction. Moreover, 
the payroll reduction would apply only to 14 gallons per week, which 
means that those in rural areas who must travel long distances to and 
from work, shopping, and other activities would be subject to what 
amounts to a highly regressive tax, while many urban dwellers who 
travel much shorter distances would receive a payroll tax benefit.
    Question 5. Alternative energy companies have an incredibly 
difficult time securing the financing necessary to become viable and 
productive. DOE's Loan Guarantee program, established by the 2005 
Energy Policy Act, has proven woefully inadequate for addressing this 
problem thus far.
    Do you believe that there have been short-comings in the way that 
program has been administered? If so, what would you have done 
differently? Do you believe that loan guarantees are the most effective 
financial instrument for advancing private-sector, clean energy 
technology ventures?
    Answer. Congress demonstrated forward-thinking commitment to the 
deployment of clean energy technologies by creating the Title 17 loan 
guarantee program in the Energy Policy Act of 2005. This program 
represents the single greatest tool the federal government has to offer 
developers of clean energy projects. The program is inherently designed 
around mitigating the risk of the ``first movers'' who find it 
difficult to secure adequate financing at competitive rates. By 
providing the full faith and credit of the U.S. Government as 
collateral on a loan, many more institutions are able to provide 
financing to projects that are otherwise too risky for a responsible 
lender to support. Moreover, for the very capital intensive projects 
like nuclear reactors, the federal loan guarantee enables a lender to 
provide a higher ratio of debt to equity, significantly reducing the 
debt service cost for the project sponsor since debt is measurably 
cheaper than equity.
    The loan guarantee program has been hampered by several issues 
which have created the delay in issuing even a single guarantee in the 
three and one half years since the legislation was enacted. Many of 
these delays were due to Congress not appropriating the initial funds 
to stand up the office and not authorizing DOE to issue a guarantee as 
required under the Federal Credit Reform Act of 1990.
    One method I would suggest Congress consider to cultivate greater 
private investment in the deployment of clean energy projects is to 
establish a Clean Energy Bank similar to the Overseas Private 
Investment Corporation (OPIC) and the Export Import Bank (Ex-Im Bank) 
to support the financing and deployment of clean energy projects 
domestically. Both OPIC and Ex-Im Bank have long track records of 
responsibly providing financing in support of qualifying projects 
(including clean energy facilities) in other countries. However, they 
do not have the authority to provide similar support for domestic 
projects. A Clean Energy Bank could do exactly that. It could be given 
authority to utilize the same tools OPIC and Ex-Im Bank utilize 
including loan guarantees, credit insurance, and direct loans to name a 
few. Moreover, such a bank could harness private capital markets to 
expand the pool of funds available for projects.
    Question 6. Several pieces of legislation were introduced last 
Congress to create a selffunding federal bank to assist start-up, clean 
energy companies. As envisioned by those bills, such an entity would be 
able to issue not only loan guarantees, but direct loans and insurance 
products as well. Additionally, this federal bank would, in some 
instances, be allowed to assume a financial stake in clean energy 
technology firms and issue publicly-traded stock. In the context of 
what has taken place at Fannie Mae and Freddie Mac, do you believe it 
is appropriate for the federal government to back start-up, clean 
energy technology firms in this manner?
    Answer. The Institute for 2lst Century Energy fully supports the 
creation of an independent federal bank with tools similar to the 
Overseas Private Investment Corporation (OPIC) and the Export Import 
Bank (Ex-Im Bank) to support the financing and deployment of clean 
energy projects domestically. Both OPIC and Ex-Im Bank have long track 
records of responsibly providing financing in support of qualifying 
projects (including clean energy facilities) in other countries. 
However, they do not have the authority to provide similar support for 
domestic projects. A Clean Energy Bank could do exactly that. It could 
be given authority to utilize the same tools OPIC and Ex-Im Bank 
utilize including loan guarantees, credit insurance, and direct loans 
to name a few. Moreover, such a bank could harness private capital 
markets to expand the pool of funds available for projects.
    While the immediate history of Fannie Mae and Freddie Mac should 
provide a cautionary note against governmental entities encouraging an 
ostensibly private financial institution from incurring risk above and 
beyond its corporate mandate, it should not preclude the creation of a 
Clean Energy Bank. A more appropriate comparison to the Clean Energy 
Bank concept is OPIC and Ex-Im Bank. Both institutions have long track-
records of responsible investment into projects that find it difficult 
to secure competitive financing from the private sector.
    It is important to note, that a Clean Energy Bank would not be in 
the business of competing with the private sector. Its existence would 
be to bridge the gap in supporting projects and technologies the 
private sector deems too risky from a financial, political, 
technological, or regulatory perspective to provide competitive and 
useful financing. This is especially true for the ``first movers'' of a 
specific technology or application.
    While the technology a ``first mover'' seeks to deploy may be 
worthwhile, and longterm commercial viability may be favorable, many 
find it difficult to secure financing terms suitable for their project 
solely because they cannot demonstrate a record of commercial success. 
It is understandable why responsible lending institutions would be 
hesitant to risk their investors' deposits on a technology or project 
in this risk category. However, it is vital to the nation's energy 
security that advanced technologies be deployed to deliver different 
forms of energy more efficiently, more cheaply, and more cleanly. That 
is why we support the federal government providing such a unique 
service while utilizing risk management practices like OPIC and Ex-Im 
Bank to mitigate financial risk to tax payers.
    Question 7. We all know that coal supplies 50% of our nation's 
electricity supply. You testified that the U.S. has enough coal to last 
for well over 200 years. What role do you see for coal in the nation's 
energy mix going forward? Compared to commercial-scale carbon capture 
and sequestration, how important do you believe incremental efficiency 
improvements within the existing coal fleet are?
    Answer. Coal will remain a vital part of our energy mix well into 
the future to meet large baseload power needs. Many other fuels and 
technologies are being developed as alternatives to coal, but coal-
fired plants will be a mainstay of power generation for many years to 
come. Carbon capture and storage technologies on a commercial scale are 
still many years off. In the meantime, improved energy efficiency at 
existing coalfired power plants can have a significant impact on 
emissions.
    Improved technology can raise the generating efficiencies of 
existing plants. The efficiency of coal-based electricity generation 
plants has increased from about 5 percent in 1900 to around 35 percent 
today, which means that we are extracting about 700% more useful energy 
from coal. DOE has estimated that every 1% gain in efficiency 
translates into about 2% less CO2 per kilowatt hour. If the 
existing coal fleet in 2007 produced the same amount of power 5% more 
efficiently, CO2 emissions from coal plants would have been 
nearly 200 million metric tons lower, equivalent to a reduction in 
CO2 emissions of over 3% for that year. The National Coal 
Council estimates that raising the efficiency of existing plants can 
deliver the equivalent of more than 40,000 megawatts of new, cleaner, 
low-cost power.
    Question 8. It would seem that more output from the same amount of 
fuel input is a win win for the environment, the consumer, and the 
success of companies that operate electric power generation facilities 
across the country. And yet, these efficiency improvements are 
consistently not undertaken. What, specifically, gets in the way of 
incremental efficiency improvements at power generation plants in the 
existing fleet? What can this Congress do to remedy such a shortcoming?
    Answer. The Clean Air Act prohibits the construction or 
modification of a major source of air pollution unless; among other 
things a permit has been issued for the proposed facility. Efficiency 
improvements at existing power generation plants would likely trigger 
the Clean Air Act's New Source Review (NSR) program. This would result 
in significant delays in construction of any efficiency improvement 
modifications as utilities would be required to obtain pre-construction 
permits.
    The generator would also be subject to BACT (best available control 
technology) requirements. This is an expensive and lime-consuming 
process that requires an assessment of all possible control options 
even before the technological option is implemented. NSR serves as a 
disincentive for utilities to invest in efficiency improvements.
    NSR is a costly, convoluted, and burdensome regulation. Instead of 
erecting barriers to efficiency improvements, we need to explore and 
encourage innovative new models that reward utilities--and ultimately 
their customers--for saving electricity through energy efficiency 
programs and new approaches to the deliver of energy services.
    Electric companies are working with state regulators to treat 
investments in energy efficiency in essentially the same manner as 
investments for generation, transmission, and distribution. Many state 
legislatures and public utility commissions (PUCs) are implementing 
policies to remove disincentives and reward efficiency.
    Policies which have had measurable success include (1) cost 
recovery from the rate base for implementing efficiency programs or to 
compensate lost marginal revenue that results, (2) separating fixed-
cost revenue recovery from the volume of energy provided, and (3) 
creating financial incentives for efficiency investment by utilities. 
We need to make demand reduction as profitable for utilities as 
increasing supply.
    Likewise, we need to remove technological and economical 
impediments to maximizing energy efficiency.
    Question 9. Are you concerned about any unintended geopolitical 
consequences associated with a transition away from oil, given the 
producing nations that rely so heavily on revenue from the sale of 
their oil and other energy commodities to the United States?
    Question 10. Your transition guide recommends that the United 
States ``should promote a global approach to energy security and 
climate change'' that ``sets achievable and realistic goals.'' If 
Congress re-considers a cap-and-trade system, what do you consider an 
achievable target for emissions by 2025? What do you think the cost 
associated with such a system would be?
    Answer. This is a very complex question. In the international 
discussions, a goal of a reduction in global emissions (from base years 
ranging from 1990 to 2005) by 2050 has gained traction. However, 
modeling work done by a number of groups suggest this goal is not 
practicable. It would require huge emissions reductions and emissions 
avoidances over a relatively short period, especially in developing 
countries where the lion's share of future emissions are expected to 
come.
    While the ``50-by-50'' goal is being thought of as an aspirational 
one, it would be used nonetheless to drive the mid-term goal, which 
would be binding. Many governments, for example, are pushing for 
developed countries to adopt a mid-term goal of a 25% to 40% reduction 
in emissions from the 1990 level by 2020, a goal not contemplated in 
any U.S. legislation.
    Meeting a 50-by-50 global goal would require transformation of the 
global energy system on a scale that has never been attempted before 
and at significant economic cost. To give you an indication of the 
challenge, modeling work done under the auspices of the U.S. Climate 
Change Science Program and the International Energy Agency, among 
others, suggests that if developed countries achieved an 80% reduction 
in CO2 emissions by 2050 (compared to a 2000 baseline), 
emissions from developing countries in 2050 would have to be about 
where they are today. And with significantly higher populations, 
CO2 emissions per capita in developing countries would have 
to be lower than they are today. These types of global changes, over so 
short a period and during a time when energy demand is expected to 
perhaps double, are hard to imagine.
    Looking at the U.S., a reasonable target in 2025 would depend 
largely on the availability of low-emitting technologies, their costs, 
and the policy environment. Policies and goals should not get ahead of 
the technologies needed to meet them-we must not set targets for which 
cost-effective technology options do not exist In the power sector, for 
example, energy efficiency and renewables can help slow the growth in 
emissions in the short term and at little or no cost, but to achieve 
significant reductions will require carbon capture and storage (CCS) 
technologies and nuclear power. But CCS is still many years away from 
commercial-scale deployment (probably 2020 at the earliest), and 
significant expansion of nuclear power still faces a number of hurdles, 
not least of which is the waste issue. If CCS technology does not pan 
out and nuclear power plants do not go forward as planned, even a 
seemingly modest goal would be very difficult to achieve at a cost that 
would be politically and economically acceptable.
    The scale of the changes required for significant emissions 
reductions are not well understood. In the U.S., an emissions cut on 
the order of 80% below the 2005 level by 2050 would require reductions 
and avoidances of about 6 to 7 gigatons of CO2 equivalent. 
To put this in perspective, reduction of a single gigaton of 
CO2 would require construction of (in lieu of a typical 
coal-fired power plant) either 130 1-gigawatt nuclear power plants, 
170,000 1 .5-megawatt wind turbines operating at a capacity factor of 
45%, or coal plants equal to nearly half U.S. coal-fired nameplate 
generating capacity equipped with carbon capture & storage.
    Further, we should learn from the experience of other countries 
about what works and what does not. The European Trading System-which 
unlike many U.S. legislative proposals in not an economy wide system-
has been largely unsuccessful. I would note that many parties to the 
Kyoto Protocol do not have a cap & trade system and are generally doing 
as well as those countries that do. There are, therefore, many avenues 
to emissions reductions.
    Indeed, the pursuit of emission reductions should not occur in 
isolation from efforts to address energy security and economic growth. 
Meeting our energy security challenge-through greater energy efficiency 
and conservation, supply diversification, and advanced technologies-can 
complement efforts to reduce GHG emissions. Encouraging greater energy 
conservation and efficient use of all forms of energy (including fossil 
fuels) and diversifying energy supplies (through greater use of 
nuclear, wind, and solar power; biofuels; flex-fuel and plug-in hybrid 
vehicles; clean coal; smart grid; and other technologies) make sense 
from both an energy security and an environmental perspective. Our 
focus, therefore, should be less on targets and timetables and more on 
policies that produce these types of win-wins by: accelerating the 
development of advanced, clean, and cost-competitive energy 
technologies; promoting greater energy efficiency; and creating the 
market and regulatory conditions whereby clean energy technologies can 
pay an increasingly bigger role in the energy mix, such as through the 
creation of a Clean Energy Bank of the U.S. and streamlining siting and 
permitting processes.
    Question 11. I was pleased to see the Chamber's support for the 
Alaska Natural Gas Pipeline. Can you recommend additional actions that 
can be taken at the federal level to support the construction of the 
pipeline?
    Answer. It is imperative that the proposed Alaska National Gas 
Pipeline be completed to connect stranded U.S. reserves to Alaskan and 
Lower 48 consumers. Certainly, the Energy Institute supports the 
pipeline's completion in a timely and environmentally responsible 
manner.
    Congress could make a valuable contribution to this infrastructure 
project--and, others--by streamlining the National Environmental Policy 
Act (NEPA) and setting strict timelines for final action. Currently, 
under NEPA, opponents to an infrastructure project can employ dilatory 
tactics and court injunctions, to endlessly delay or even stop a needed 
structure dead in its tracks.
    Streamlining NEPA is not a devious strategy to circumvent 
environmental rules and regulations that protect the environment. 
Environmental responsibility and meeting our nation's growing energy 
demands are not mutually exclusive, can and do co-exist. It does mean, 
however, that neither opponents nor proponents of a project should be 
able to manipulate the permitting process.
    Likewise, Congress could streamline the processes under the 
Endangered Species Act (ESA) without compromising environmental 
protections.
    Additionally, frequent meetings with stakeholders along the right-
of-way and regular status reports to the general public on the project 
would provide transparency and accountability.
    And, business communities can continue to support the project 
publically to help move the ball forward.
    Question 12. It is becoming increasingly clear that many other 
countries are planning to expand their current civilian nuclear energy 
programs while some countries without nuclear energy programs are 
considering starting new programs. Do you believe that it is important 
for the U.S. to remain engaged in this global expansion of nuclear 
energy from the standpoint of national and energy security?
    Answer. It is absolutely critical that the United States not only 
engage in the discussion on the global expansion of nuclear energy, but 
it must regain its leadership role that was seeded to countries like 
Japan and France decades ago. This goal led to the creation of the 
Global Nuclear Energy Partnership (GNEP) in 2007.
    In proposing the GNEP concept to the international community, the 
U.S. Government acknowledged that most countries that currently utilize 
civilian nuclear power, as well as a number of countries with no 
existing civilian nuclear power industries, were coming to the same 
practical realization many in the U.S. have: nuclear power is the only 
baseload source of electricity that can expand to meet projected growth 
in demand without any air or greenhouse gas emissions. This realism has 
led dozens of countries to move towards the construction of new nuclear 
power facilities in every region of the world.
    With expansion of nuclear power, especially to new countries, come 
potential problems. It is in the national security interest of the 
U.S., as well as the global community, to ensure those pursuing 
civilian nuclear power establish and maintain the necessary regulatory 
structures to provide the highest levels of safety and security and to 
minimize any potential threat of proliferation of nuclear technologies 
for weapons purposes.
    The partnership currently has 25 member countries that all support 
the need to expand nuclear power globally in a secure and safe manner. 
By actively participating in GNEP the United States can lead the 
discussion on how to minimize the possibility of sensitive nuclear 
materials falling into the hands of bad actors that seek to harm the 
U.S. or its partners. Specifically the GNEP partnership advocates the 
creation of a reliable fuel serves mechanism, whereby countries without 
existing enrichment or reprocessing technologies would agree to forgo 
those processes in return for be assured reliable sources for enriched 
fuel on the front end and a party to retrieve the used fuel for 
recycling and disposal on the back end. By minimizing the number of 
countries with access to these processes and technologies, the 
possibility of the technologies or their byproducts being compromised 
is greatly diminished.
    As nuclear power expands, the need for international cooperation on 
waste disposal issues only becomes more acute. GNEP provides an avenue 
to foster cooperative research, development, and deployment of advanced 
recycling technologies between partner countries. As the nuclear 
industry ceased building new reactors in the 1970s, the research and 
development infrastructure began to evaporate. The U.S. Government, and 
industry alike, can learn much from partner countries that continued to 
develop advanced nuclear technologies while we were on the sidelines, 
in addition to using their facilities that often have capabilities not 
resident in the U.S.
    Additionally, as nuclear power begins to expand across the globe, 
new trading opportunities also become available for U.S businesses to 
design and build nuclear facilities, as well as export materials 
ranging from fuel to reactor components. This advent may spur the 
rebirth of the domestic nuclear industry that largely atrophied over 
the past several decades. China's announcement that it had contracted 
with U.S.-based Westinghouse Electric Company to design and build four 
advanced nuclear reactor is a great example of the new trade avenues 
the global expansion of nuclear power provides to the U.S market.
    Responses of Karen A. Harbert to Questions From Senator Lincoln
    Question 1. Especially given the sharply increased consumption of 
oil by the economic development in China and India, what tools are 
available at our disposal to help us address the stress of energy 
demand at an international level?
    Question 2. I strongly believe that as a country, we must lessen 
our dependence on foreign oil. Part of this process includes the 
development of new and innovative biofuels, such as cellulosic biomass 
and algae-based fuels, and even waste-based fuels. Could you describe 
for us the role that biofuels will play in increasing our energy supply 
and becoming energy independent?
    Answer. Biofuels are already playing a significant role in the 
nation's quest to lessen our dependence on foreign oil and will play an 
even bigger role as third and fourth generation biofuels are developed 
and commercialized.
    The Department of Energy is working hard in promoting the 
development of viable non food alternatives such as ethanol from 
cellulosic feedstocks. While DOE has made progress toward broad 
commercialization a breakthrough has yet to materialize.
    That is one reason that the Institute has recommended that the 
President and Congress accelerate and increase funding from the current 
level of roughly $400 million to $600 million for transportation 
technologies and bio-based fuel technology R&D programs at DOE to 
support the transition to unconventional vehicles and alternative 
fuels.
    We also encourage that Congress to make the blenders' tax credit 
for bio fuels variable by linking it to the price of gasoline or diesel 
fuel, as appropriate, so that as the e price for these conventional 
fuels rises, the value of the tax credit falls proportionately. A 
reasonable and rational floor price should be set.
    Second generation biofuels, like cellulosic ethanol, should be 
included in the blenders/tax credit; however, because these 
technologies are not as mature or economically competitive as other 
eligible fuels, believe that Congress should increase the allowable 
credits for these fuels with a definite phase-out after 10 years.
    Moreover, we recommend that the President direct the Secretary of 
Transportation, in consultation with the secretaries of Agriculture and 
Energy, and the administrator of the EPA, to commence a comprehensive 
review of the impacts of biofuels production on U.S. competitiveness, 
the environment, and global food supplies. The departments should enter 
into an agreement with the National Academies to produce an analysis of 
scientific findings relating to current and future biofuels production 
and the domestic effects of a dramatic increase in such production 
activity.
    We also recognize the importance of the potential to increase 
international market opportunities and recommend that the departments 
of State and Energy, the Office of the U.S. Trade Representative, and 
the private sector develop harmonized standards for biofuels to enhance 
these opportunities.
    Finally, given the essential role that oil plays in our national 
security, we encourage DOE and the Department of Defense to continue to 
work in partnership to develop and deploy technologies to ensure a 
domestic supply of alternative fuels for military use.
    Responses of Karen A. Harbert to Questions From Senator Sessions
    Question 1. It appears that there will be a sizable economic 
stimulus package enacted by Congress shortly. That package will likely 
include funding for numerous environmental projects. Considering that 
most thoughtful observers believe that in addition to a short term 
stimulus, projects should also have long term value for the country. 
Would you please list 5 or more projects that you believe would be 
particularly cost effective in the long term for our nation?
    I would also request that you please state the amount that is 
necessary to be spent on the projects that you have listed above.
    Answer. The Institute believes that there are a number of energy 
projects that would provide long-term value to the U.S. economy. Our 
energy infrastructure is increasingly inadequate for our growing demand 
and economy. Blackouts, brownouts, service interruptions, and rationing 
could become commonplace without new and upgraded capacity. The Energy 
Independence and Security Act of 2007 (EISA2007) supports the 
accelerated modernization of the nation's electricity distribution and 
transmission system. With the rapid deployment of smart power grid 
technology, our systems could self-diagnose and repair problems, 
accommodate new demand-response strategies, and promote greater 
efficiency through advanced metering and appliances that can interact 
with the grid using communications protocols that can be layered with 
electricity delivery.
    Our energy sector also suffers from a lengthy, unpredictable, and 
needlessly complex regulatory maze that delays, if it does not halt 
completely, construction of urgently needed new energy infrastructure. 
Even if we had access to unlimited supplies of renewable biofuels for 
transportation or wind for electricity, without the ability to deliver 
these products to customers, we would not be any better off. Siting and 
permitting roadblocks and ``build absolutely nothing anywhere near 
anything'' sentiment have sidelined the construction and expansion of 
everything from transmission lines to power plants--and the economic 
activity and high-paying jobs that go with them. Indeed, there are many 
instances across the country where green energy projects are being held 
up by, ironically, environmental regulation. We believe Congress should 
simplify siting for electric transmission facilities and other energy 
facilities in interstate commerce (such as pipelines for carbon capture 
and storage) by giving the Federal Energy Regulatory Commission (FERC) 
the same authority as it has to site natural gas pipelines under 
Section 7 of the Natural Gas Act.

                                    

      
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