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79–931PDF 2013

FEDERAL FINANCIAL SUPPORT 

FOR ENERGY TECHNOLOGIES: 

ASSESSING COSTS AND BENEFITS 

HEARING 

BEFORE THE

SUBCOMMITTEE ON ENERGY 

COMMITTEE ON SCIENCE, SPACE, AND 

TECHNOLOGY 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED THIRTEENTH CONGRESS 

FIRST SESSION 

WEDNESDAY, MARCH 13, 2013 

Serial No. 113–12 

Printed for the use of the Committee on Science, Space, and Technology 

( 

Available via the World Wide Web: http://science.house.gov 
(II) 

COMMITTEE ON SCIENCE, SPACE, AND TECHNOLOGY 

HON. LAMAR S. SMITH, Texas, Chair 

DANA ROHRABACHER, California 

RALPH M. HALL, Texas 

F. JAMES SENSENBRENNER, JR., 

Wisconsin 

FRANK D. LUCAS, Oklahoma 

RANDY NEUGEBAUER, Texas 

MICHAEL T. MCCAUL, Texas 

PAUL C. BROUN, Georgia 

STEVEN M. PALAZZO, Mississippi 

MO BROOKS, Alabama 

RANDY HULTGREN, Illinois 

LARRY BUCSHON, Indiana 

STEVE STOCKMAN, Texas 

BILL POSEY, Florida 

CYNTHIA LUMMIS, Wyoming 

DAVID SCHWEIKERT, Arizona 

THOMAS MASSIE, Kentucky 

KEVIN CRAMER, North Dakota 

JIM BRIDENSTINE, Oklahoma 

RANDY WEBER, Texas 

CHRIS STEWART, Utah 

VACANCY 

EDDIE BERNICE JOHNSON, Texas 

ZOE LOFGREN, California 

DANIEL LIPINSKI, Illinois 

DONNA F. EDWARDS, Maryland 

FREDERICA S. WILSON, Florida 

SUZANNE BONAMICI, Oregon 

ERIC SWALWELL, California 

DAN MAFFEI, New York 

ALAN GRAYSON, Florida 

JOSEPH KENNEDY III, Massachusetts 

SCOTT PETERS, California 

DEREK KILMER, Washington 

AMI BERA, California 

ELIZABETH ESTY, Connecticut 

MARC VEASEY, Texas 

JULIA BROWNLEY, California 

MARK TAKANO, California 

VACANCY 

SUBCOMMITTEE ON ENERGY

HON. CYNTHIA LUMMIS, Wyoming, Chair 

RALPH M. HALL, Texas 

FRANK D. LUCAS, Oklahoma 

RANDY NEUGEBAUER, Texas 

MICHAEL T. MCCAUL, Texas 

RANDY HULTGREN, Illinois 

THOMAS MASSIE, Kentucky 

KEVIN CRAMER, North Dakota 

RANDY WEBER, Texas 

LAMAR S. SMITH, Texas 

ERIC SWALWELL, California 

ALAN GRAYSON, Florida 

JOSEPH KENNEDY III, Massachusetts 

MARC VEASEY, Texas 

MARK TAKANO, California 

ZOE LOFGREN, California 

DANIEL LIPINSKI, Illinois 

EDDIE BERNICE JOHNSON, Texas 
(III) 

C O N T E N T S 

Wednesday, March 13, 2013 

Page 

Witness List ............................................................................................................. 2 

Hearing Charter ...................................................................................................... 3 

Opening Statements 

Statement by Representative Cynthia Lummis, Chairwoman, Subcommittee 

on Energy, Committee on Science, Space, and Technology, U.S. House of 

Representatives .................................................................................................... 13 

Written Statement ............................................................................................ 14 

Statement by Representative Eric Swalwell, Ranking Minority Member, Subcommittee on Energy, Committee on Science, Space, and Technology, U.S. 

House of Representatives .................................................................................... 14 

Written Statement ............................................................................................ 16 

Witnesses: 

Dr. Terry Dinan, Senior Analyst, Congressional Budget Office 

Oral Statement ................................................................................................. 17 

Written Statement ............................................................................................ 20 

Ms. Mary Hutzler, Distinguished Senior Fellow, Institute for Energy Research 

Oral Statement ................................................................................................. 38 

Written Statement ............................................................................................ 40 

Mr. Malcolm Woolf, Senior Vice President, Policy and Government Affairs, 

Advanced Energy Economy 

Oral Statement ................................................................................................. 59 

Written Statement ............................................................................................ 61 

Discussion ................................................................................................................. 69 

Appendix I: Answers to Post-Hearing Questions 

Dr. Terry Dinan, Senior Analyst, Congressional Budget Office .......................... 84 

Ms. Mary Hutzler, Distinguished Senior Fellow, Institute for Energy Research .................................................................................................................... 90 

Mr. Malcolm Woolf, Senior Vice President, Policy and Government Affairs, 

Advanced Energy Economy ................................................................................. 111 

Appendix II: Additional Material for the Record 

‘‘Chinese Solar Approach Faces Test’’ from The Wall Street Journal Online 

Edition, March 6, 2013 ........................................................................................ 120 

‘‘Bjorn Lomborg: Green Cars Have a Dirty Little Secret’’ from The Wall 

Street Journal Online Edition, March 11, 2013 ................................................. 123 

‘‘Inflated Numbers; Erroneous Conclusions: The Navigant Wind Jobs Report’’ 

by Charles J. Cicchetti, Ph.D., March 2013 ....................................................... 125 

(1) 

FEDERAL FINANCIAL SUPPORT 

FOR ENERGY TECHNOLOGIES: 

ASSESSING COSTS AND BENEFITS 

WEDNESDAY, MARCH 13, 2013 

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON ENERGY

COMMITTEE ON SCIENCE, SPACE, AND TECHNOLOGY, Washington, DC. 

The Subcommittee met, pursuant to call, at 3:50 p.m., in Room 

2318 of the Rayburn House Office Building, Hon. Cynthia Lummis 

[Chairwoman of the Subcommittee] presiding. 
2 

LAMAR S. SMITH, Texas 

CHAIRMAN 

ltongrcss of the tlnitro ~tatcs 

lfioUlle of 1R£presmtatiues COMMITIEE ON SCIENCE, SPACE, AND TECHNOLOGY 

2321 RAYBURN HOUSE OFFICE BUILDING 

WASHINGTON, DC 20515-6301 

(202) 225-6371 www.scie1.lC9.house.gov 

Subcommittee on Energy 

EDDIE aeRNICEJOHNSON, Tel(as 

RANKING MEMBER 

Federal Financial Support/or Energy Technologies: 

Assessing Costs and Benefits 

Wednesday, March 13,2013 

2:00 p.m. -4:00 p.m. 

2318 Rayburn House Office Building 

Dr. Terry Dinan, Senior Analyst, Congressional Budget Office 

Ms. Mary Hiitzler, Distinguished Seuior Fellow, Institute for Energy Research 

Mr. Malcolm Woolf, Senior Vice President Policy & Government Affairs, Advanced Energy Economy 
3 

U.S. HOUSE OF REPRESENT A TIVES 

COMMITTEE ON SCIENCE, SPACE, AND TECHNOLOGY 

SUBCOMMITTEE ON ENERGY 

HEARING CHARTER 

Federal Financial Support/or Energy Technologies: Assessing Costs and Benefits 

PURPOSE 

Wednesday, March 13,2013 

3:00 p.m. 5:00 p.m. 

2318 Rayburn House Office Building 

On Wednesday, March 13, at 3:00 p.m. in Room 2318 of the Rayburn House Office 

Building, the Subcommittee on Energy will hold a hearing titled, Federal Financial Supportfor 

£I1ergy Technologies: Assessing Costs and Benefits. The Subcommittee will receive testimony 

regarding various forms of Federal financial support for the development and production offuels 

and energy technologies, including tax incentives, loan guarantees, and direct spending on 

research, development, demonstration and commercialization activities. 

WITNESS LIST 

• Dr. Terry Dinan, Senior Analyst, Congressional Budget Office 

• Ms. Mary Hutzler, Distinguished Senior Fellow, Institute for Energy Research 

• Mr. Malcolm Woolf, Senior Vice President Policy & Government Affairs, Advanced 

Energy Economy 

BACKGROUND 

The Federal government supports the production and use of fossil, nuclear and renewable 

energy, while also seeking to improve energy efficiency use through various mandates, 

incentives and financial mechanisms. These support mechanisms include direct financial support 

to certain energy producers and consumers, as well as tax incentives that reduce the tax burden 

for producers and consumers of certain fuels and technologies. 

Energy Tax Incentives and Related Trends 

Tax incentives include special deductions or tax rates, tax credits, and cash grants in lieu 

of tax credits. Energy-related tax incentives were historically aimed at increasing fossil fuel 

production. Beginning in the late 1970s, this focus gradually shifted as tax incentives were added 

for energy efficiency and renewable energy technologies. 

1 
4 

According to the Congressional Budget Office (CBO), energy-related tax incentives more 

than doubled in cost between 1977 and 1982 and then drastically fell in 1983 and again in 1988. 

See Figure 1. From 1988 to 2005, tax incentives gradually grew and averaged approximately $4 

billion per year from 2000 to 2005. Since then, those costs rose dramatically to an average of $20 

billion a year from 2009 through 2011.1 The Joint Committee on Taxation and the Department 

of Treasury estimate the combined cost of reduced revenues and increased outlays amounted to 

approximately $21.8 billion in 2011 2 

Flgu .... 1. Projected Annual Cost: of Energy-Related Tax Incend_,. 

(FYI9n-FY20IS) 

Sou~e:. eFtS using data from tho joInt Committe. on Taxation lind QffU::;4I\ of Maniilgltment and 8udget. 

Notes: Aonullt con estimates are the sum of IndMdual tax expendlt.ure pf'CVI'Slon$ and do not reflect possible 

interaction .fleets. Th. Qstitnate:$ ame do flat ntfkK:t tho ~nue that could be raisod "houk! $pecJfic Pf'9VisiQf\$ 

be _Imlnltted. For aU yeaf"$. tax expenditure esttro .. tCf$ll", pt"QJe!CtlOft$. not aetual revenue IO$$-e$. The figure d~$ 

Overall, 68 percent ($13.9 billion) of the energy-related tax incentives in 2011 were 

directed toward renewable energy technologies, and 10 percent ($2.1 billion) were dedicated to 

energy efficiency] See Figure 2. The total cost of these expenditures was expected to decline in 

2012 from $20.5 billion to $16.6 billion. This reduction of $4 billion is attributable to the 

expiration of the ethanol tax credit and Section 1603 grants in lieu of tax credits program. 

1 Congressional Budget Office, Federal Financial Support for the Development and Production of Fuels and Energv 

Technologies, March 2012. Acccssible at: hltp:!/www.cbo.gov/sites/dcfallll/filcs/cbofilcs/atlacluncnts/03-06-

FuclsandEncrgy Briefpdf 

2 Congressional Research Service. Energy Tax incentives: ,m'as,mn'!' l:vpes of ti1er&.'v 

Resources, September 2012. Accessible at: jillJM.ill'ClLill£Qill'rlliiJlg~'JJ::illlli:ill'24Jll11. NOTE: the CRS table 

presented in Figure 1 does not reflect the were included in the 

American Ta"'Payer Relief Act of 2012. 

3 CBO. Federal Financial Support. 

2 
5 

FIGURE 2 

FY 2011 Energy-Related Tax Incentives 

($Billion (B» 

Electricity Sector Tax Incentives 

FY 2011 DOE Energy Technologies 

Financial Support ($Billion (B»4 

Several energy-related tax incentives are targeted to encourage the production of electricity 

from specific energy technologies. According the Energy Information Administration, tax 

incentives for electricity production, excluding the Section 1603 grant program, totaled over $3.3 

billion in 2010. Of this amount, the largest share ($1.2 billion) was accounted for by electricity 

generated by renewable energy technologies. The primary tax credits applicable to the electric 

sector are the Production Tax Credit (PTC), the Investment Tax Credit (ITC), and the Section 

1603 grants in lieu of tax credits (Section 1603 program). 

• The PTC is a per kilowatt-hour (kWh) tax credit, claimed for up to ten years, for utilities 

that generate electricity from qualified renewable energy resources. The PTC is a tiered 

credit that permits utilities to claim either 2.2 cents per kWh or 1.1 cents per kWh, 

.; DOE' s FY 20 II energy technologies financial support figures include budget authority (BA) for energy efficiency 

and renewable energy R&D and weatherization fossil energy R&D. nuclear energy R&D and facilities 

management. electricity and energy reliability. and ARP A-E programs. 

3 
6 

depending on the technology.5 This tax credit has expired and then been subsequently 

renewed or expanded by Congress on several occasions. Last January, the American 

Taxpayer Relief Act of2012 extended the PTC for one additional year through the end of 

2013. This one-year extension is estimated to cost $12.1 billion6 

• The ITC allows eligible entities to claim a tax credit equal to either 30 percent or ten 

percent of expenditures, depending on the electric generation technology7 

• The American Recovery and Reinvestment Act (ARRA) created the Section 1603 

program, which offers renewable energy project developers cash payments in lieu of the 

PTC or lTC. The award value equals 30 percent of the project's cost. 8 The 1603 Program 

expired in 2012 (though the Department of Treasury continues to make payments to 

recipients five years after the initial award). 

In 2012, the estimated costs of the PTC and lTC were $ 1.6 billion and $500 million, 

respectively. As of July 2012, the Treasury Department provided more than $13 billion to 

45,000 projects cumulatively under the Section 1603 program. The majority of those awarded 

projects were for solar technology, but the majority of the funding was awarded to large, capitalintensive wind technology projects9 

Fuel Tax Incentives 

The majority of tax incentives available for non-electricity fuels are provided to biofuels. 

In 2010, biofuels accounted for 73 percent of non-electric tax incentives, with a total cost of $6.3 

billion growing to $7.5 billion in 20 II. Tax incentives available to biofuels include credits for 

alcohol fuels, as well as excise tax credits for alcohol fuels and biodiesel. Natural gas and 

petroleum liquids accounted for the second-largest share of fuel tax incentives, at 20.7 percent, 

or $2.1 billion. 10 A table detailing spending associated with these incentives is included in 

Appendix n. 

5 Qualifying technologies for 2.2 cents per kWh include wind. closed-loop biomass. geothermal, and solar (pre-2006 

facilitics only). Qualifying technologies for 1.1 cents per kWh include open-loop biomass. small irrigation power, 

mnnicipal solid waste. qlk1lified hydropower, and marine and hydrokinetic. 

6 The Joint Committee on Taxation, Estimated Revenue Fflects of the Revenue Provisions Contained in an 

Amendment In the Nature ofa Substitute to HI? 8, The '~4merlcan Taxpayer Relief Act orl01l. ,. As Passed by the 

Senare on Januarv 1, 2013. Janlk1rv 3. 2013 . 

. Qualifying tec~ologies for 30%'credit rate include solar electric or solar hot water property. fuel cell property. 

and small wind electrical generation property. Qualifying teelmologies for ten percent credit rate inclnde equipment 

to produce energy from a geothermal deposit, equipment to use ground or grouud water for heating or cooling. 

mierotmuine property «2Mw electrical generation power plants of >26% efficiency). and combined heat and power 

property (simultaneous production of electrical/mechanical powcr and useful heat> 60% efficicncy). 

8 Department of Treasury. Overview and Status [pdate olthe Sec. 1603 Program. July 20, 2012. Accessible at: 

http://www.treasun.gov/illiliath 'cs/rccovcn'/Documcllts/ST A TU S%200 VER VlEW .pdf 

9 Ibid. 

10 CRS, l!7nergv Tax incentives 

4 
7 

48C Manufacturing Tax Credits 

ARRA also created the Advanced Energy Manufacturing Tax Credit. This provision, 

commonly referred to as "48C", allows for a credit amounting to 30 percent of investment in 

manufacturing facilities for clean energy technologies. The 48C program is administered by the 

Internal Revenue Service (IRS), though DOE reviews project applications and recommends 

specific projects. 

The credit was originally awarded to 183 domestic clean energy manufacturing facilities 

for a total of $2.3 billion. Last month, the IRS announced the availability of $150 million for 

additional 48C allocations. This funding was not fully utilized by previous awardees, and is to be 

reallocated on a competitive basis. The DOE will provide its recommendations on applications to 

the Internal Revenue Service by October. 

[;;nergy Tax Provisions in the American Taxpayer Relief Act of2012 

The American Taxpayer Relief Act of 2012 extended a number of energy tax provisions 

that expired at the end of2011 or were scheduled to expire at the end of2012. These tax 

provisions included incentives for alcohol fuels and biodiesel and renewable diesel, credits for 

alternative fuel vehicle refueling property, and credit for non-business energy property. 11 

As previously noted, the bill included a one year extension of the PTC and modified the 

definition of projects that qualify for the PTc. 12 Prior to this change, qualified projects had to be 

in service by the PTC expiration date, but the legislation modified the definition for qualifying 

projects to "the construction of which begins before January 1,2014." IRS has yet to issue 

guidance to clarify this revised definition. 

CBO estimated the cost of the energy tax provisions contained in the American Taxpayer 

Relief Act of2012 to be over $18 billion. 

Loan Guarantees 

Section 1703 of the Energy Policy Act of 2005 (EPAct) created a loan guarantee program 

to support investment in a breadth of energy technology areas and innovative clean-energy 

facilities. The 2009 ARRA legislation added what is known as the Section 1705 loan program to 

support loans for renewable energy technologies, electric power transmission, and biofuel 

projects. The authority for the Section 1705 loan program expired on September 30, 2011. Over 

the life of this program, DOE guaranteed loans to 26 projects amounting to $16 billion in 

financial capital. 13 

11 Congressional Research Service, An Overview 

Febmarv 4, 2013. Accessible at: lillJlJi'>lli}uJ:&:gQ}l1'IQill~!J3LJ.:QWl±£~lWI 

12 P.L. i 12-240, Sect 407(b) 

13 Department of Energy, Loal1 Programs (JUice Projects. Accessible at: https:lflpo.encrgl·.go\f'lpagc id~45 

5 
8 

The primary difference between the 1703 and 1705 versions of the loan guarantee 

program was that projects under Section 1705 were not required to pay the "credit subsidy cost" 

of a loan guarantee. The credit subsidy cost is an up-front payment that addresses the risk to the 

Federal government in case of default on a loan. Credit subsidy costs for the 1705 program were 

paid for by funds appropriated in ARRA. 

In April 2011, the Department of Defense and Full-Year Continuing Appropriations Act 

provided $170 million in appropriations for new loan commitments under the Section 1703 

program. DOE has yet to award this funding. However, in April 2012, Acting Loan Program 

Office Director David Frantz sent a letter to Congress indicating DOE's intention to award this 

funding soon, stating: 

"The exact number of projects and the total dollar value of the loan guarantees in this 

§ 1703 pipeline will depend on the government's assessment of the risk level of the 

projects selected. The Department expects to begin issuing conditional commitments 

over the next several months after completing a rigorous internal and external review of 

each application. This evaluation will build on the extensive work that had already begun 

last year prior to the applications being put on hold.,,14 

Direct Spending 

DOE's direct spending activities primarily consist of research, development, 

demonstration and commercial application of energy technology programs in four general 

technology areas: energy efficiency and renewable energy; electricity delivery and energy 

reliability; nuclear energy; and fossil energy. Additionally, the Advanced Research Projects 

Agency Energy (ARPA-E) funds research and development projects across all energy 

technology areas. In Fiscal Year (FY) 2012, DOE spent approximately $3.3 billion on applied 

energy research programs (Fil:,'Ure 2)15 

ADDITIONAL READING 

For additional infonnation and background on Federal financial support for energy 

production and technologies see: 

• Congressional Budget Office, Federal Financial Slipport fiJI' the f)eve/opmenl alld 

Production o(hlel.l' alld Energy [echl/ufogv, March 2012. 

• Congressional Research Service, Energ)! Tax incenlives: Measuring Vallie Across 

Different {vves otEne!',?)! Resources, September 18,2012. 

on the f 703 roan Program, AprilS, 2012. Accessible at: 

6 
9 

• Energy Information Administration, Direct Federal Financia! Interventions and 

Subsidies in Energl' in Fiscal Year 2010, July 2011. 

• Congressional Research Service, An Overview o(!he Tax Pl'Ol'isions in the American 

Taxpayer Relief Act of20 12, February 4, 2013. 

7 
10 

Appendix 1 - CRS Graph on Technology Specific Subsidies 

114 

Federal Subsidies and Support for 

Electricity Production" FY 2010 

(minion 2010 dollars) 

200 2lLS 654 

4,986 

CRS: The value of federal tax support for the energy sector was estimated to be $19.1 billion in 

2010. Of this, roughly one-third ($6.3 billion) was for tax incentives that support renewable 

fuels. Another $6.7 billion can be attributed to tax-related incentives supporting various 

renewable energy technologies (e.g., wind and solar). Targeted tax incentives supporting fossil 

energy resources totaled $2.4 billion. 

8 
11 

Appendix 2 - CRS Summary Table of Energy Tax Provisions 

Table 2. Estimated Revenue Cost of Energy Tax Provisions: 

Provision 

Fossil Fuels 

FiscalYears 2010 through 2012 

($ billions) 

Expensing of Exploration and Development Costs for Oil and Gas 

Percentage Depletion for Oil and Gas 

Amortization of Geologica! and Geophysical Costs for Oil and Gas Exploration 

15~year Depreciation for Natural Gas Distribution lines 

Election to Expense 50% of Qualified Refinery Costs 

Amortization of Air Pollution Control Facilities 

Credits for Investments in Clean Coal Facilities 

Provision 

Excise Tax Credits for Alternative Fuel Mixtures 

Subtotal, Fossil Fuels 

Renewables 

Production Tax Credit (PTe) 

Investment Tax Credit (ITC) 

Accelerated Depreciation for Renewable Energy Property 

Section 1603 Grants in Lieu of Tax Cr-edits3 

Credit for Clean Rene'Nable Energy Bonds (CRESs) 

Residential Energy Efficient Property Credit 

Credit for Investment in Advanced Energy Property 

Subtotal, Renewables 

Renewable Fuels 

Credits for Alcohol Fuels 

Excise Tax Credits for- Alcohol Fuels3 

Excise Tax Credits for Biodiesel~ 

Subtotal, R~newabJc Fuels 

Efficiency & Conservation 

Energy Effk:iency Improvements to Existing Homes 

Cr-edit for Production of Energy Efficient Appliances 

Energy Efficient Commercial Building Deduction 

IO-year Depreciation for Smart Electric Distribution Property 

Subtotal, EffICiency & Conservation 

Alternative Technology Vehicles 

Credits fOI" Alternative Technology Vehicles 

Credit for Plug-In Electric Vehicles 

Subtotal, Alternative Technology Veflides 

Other 

Per-centage Depteticn for Other- Fuels 

IS-year Depreciation for- Electric Transmission Property 

Exceptions for Publicly TI-aded Partner-ships with Qualified Income fr-om EnergyRelated Activities 

Special Rule to Implement Electric Tr-ansmission Restructur-ing 

Subtotal, Other 

Total 

Sources: joint Committee on Taxation and the Department of the Treasury. 

2010 

0] 

0.5 

0.1 

0.1 

0.7 

0.1 

0.2 

2010 

2.4 

104 

eil 

0.3 

4.2 

0.1 

0.2 

0.5 

6.7 

0.1 

5.7 

0.5 

6.3 

1.7 

0.2 

0.2 

(il 

2.1 

0.8 

0.8 

0.2 

0.1 

0.5 

(il 

0.8 

19.1 

2011 

0.8 

0.9 

0.1 

0.1 

0.8 

0.2 

0.2 

2011 

0.2 

3.3 

1.4 

0.5 

0.3 

3.5 

(il 

0.2 

0.7 

6.6 

0.2 

6.5 

O.S 

7.5 

1.5 

0.2 

0.2 

0.1 

2.0 

(il 

0.1 

0.1 

0.2 

0.1 

0.2 

1.8 

2.3 

21.8 

2012 

0.8 

0.9 

0.1 

0.1 

0.7 

0.2 

0.2 

2012 

0.2 

3.2 

1.6 

0.5 

0.3 

4.1 

(il 

0.2 

0.4 

7.1 

0.1 

3.6 

0.2 

3.9 

1.3 

0.1 

0.2 

0.1 

1.7 

ei) 

0.3 

0.3 

0.2 

0.2 

0.2 

~O_2 

0.4 

16.6 

9 
12 

Appendix 3 - CRS Table of Energy Tax Incentives and Production 

Table 3. Comparing Energy Production and EnergyTax Incentives: 

Fossil Fuels 

Renewablesa 

Rencwablcs (l".xduding hydroelectric) 

Renewables (exduding biofuels 

and retated tax incentives; 

Renewables (exduding hydro--

electric and biofuels and 

related tax incentives) 

Fossil Fuels and Renewables 

(2010) 

Production 

Quadrillion 

Btu 

58.5 

8.1 

% of Total 

78.0% 

10.7% 

Production 

Quadrillion 

Btu 

5.6 

6.2 

3.7 

%ofTotal 

7.4% 

8.3% 

4.9% 

Source: Calculated using data presented in Table J and Table 2 above. 

Tax Incentives 

Billions of 

Dollars 

$2.4 

$13.0 

% of Total 

12.6% 

68.1% 

Tax Incentives 

Billions of 

Dollars 

$13.0' 

$6.7 

$6.7' 

% of Total 

68.1%' 

35.1% 

35.1%' 

Renewables tax incentives include targeted tax incentives designed to support renewable electricity and 

renewable fuels. 

b. The value of total tax incentives for renewables excluding hydro~electrlc power is less than the total value 

of tax incentives when those available for hydro~power are included. However, the difference is small. JeT estimates that in 2010, the tax expenditures for qualified hydropower under the PTe are less than $50 

million. During 2010. two awards totaling $88,000 were paid to hydropower facilities under the Section 

1603 grant program. Hydropower has also received less in CREB financing than was awarded to solar and 

wind technologies. During 2010. the tax expenditure for CRESs was an estimated $0.1 billion across all 

technologies. 

10 
13 

Chairwoman LUMMIS. My name is Cynthia Lummis, and I am 

the Chairman of the Committee. And I would like to welcome our 

Ranking Member and fellow Members of this Committee. This is 

the Energy Subcommittee hearing on ‘‘Federal Financial Support 

for Energy Technologies.’’ And the meeting will come to order. 

In front of you are packets containing the written testimony, biographies, and truth-in-testimony disclosures for today’s panel. And 

now, I recognize myself for a five-minute opening statement. 

We are delighted to have you here, and thank you very much to 

our witnesses for joining us. 

Building on our broad examination of America’s energy outlook 

a few weeks ago, this is the second of our hearings today. We are 

focusing on the amount and effectiveness of various forms of financial support for energy technologies. I hope these overview hearings 

will prove informative and valuable, because we will be pivoting 

next to specific legislation activities. So it will happen within our 

research and development jurisdiction, including some oversight activities as well. 

The topic of today’s hearing is timely, as federal spending and 

budget prioritization are receiving a lot of attention today over in 

the Budget Committee—they are marking up the budget—and because of the implementation of the recent sequester. 

A central component of the House Republican budget is to open 

more federal lands to energy development. Now, I advocate for this, 

because it will accelerate our path to energy independence. It will 

create jobs. It will contribute greatly to deficit reduction and open 

spaces for future generations. 

Now, we are going to hear today from the Congressional Budget 

Office. Federal energy tax subsidies will total more than 16 billion 

in 2013, up from just five billion in 2005. This increase reflects 

President Obama’s interest in rapid deployment of green energy 

technologies. 

January’s fiscal cliff deal is a prime example. The White House 

was purportedly absolutely insistent that the package extend and 

expand the Production Tax Credit for renewable energy. This extension will cost taxpayers at least $12 billion this year. And then 

in the meantime, we hear some of our constituents, and certainly 

the Administration, are very concerned about cuts to areas such as 

national parks, science, oil and gas permitting, and even White 

House tours. I believe that it is worth looking at the Production 

Tax Credit as an example of where we might find some efficiencies. 

Another example is the Alternative Vehicle Tax Credit, which 

provides $7,500 towards the purchase of alternative vehicles such 

as the $40,000 Chevy Volt and the $100,000 Fisker Karma. GM reports the average Volt owner earns $170,000 a year. And the 

Karma is even more exclusive. Really, only the rich and famous 

can afford a Karma. And as was recently pointed out, electrical vehicles do not reduce carbon emissions significantly, so it really does 

call into question the entire justification for spending this money 

in the first place. 

Whereas, right now, all over the country where there are natural 

gas vehicles, they are running on $.99 per gallon of oil equivalent 

fuel. Now, can you imagine what that would do for the cost of living for single moms and hard-working taxpayers? So I really think 
14 

that we need to look at some of the other technologies going on out 

there. 

Government should be working to ensure that Americans have 

access to abundant, affordable, reliable energy and target taxpayer 

resources to fundamental research that could one day enable these 

technologies to compete without expensive subsidies or mandates. 

Doing so would not only help bring energy independence and grow 

our economy, but it would bring revenue to the Treasury. 

Again, I want to thank our witnesses for joining us today. And 

I now recognize Ranking Member Swalwell for an opening statement. 

[The prepared statement of Mrs. Lummis follows:] 

PREPARED STATEMENT OF SUBCOMMITTEE CHAIRMAN CYNTHIA M. LUMMIS

Good afternoon and welcome to today’s Energy Subcommittee hearing on ‘‘Federal 

Financial Support for Energy Technologies: Assessing the Costs and Benefits.’’ 

Building on our broad examination of ‘‘America’s Energy Outlook’’ a few weeks 

ago, this is the second stage-setting hearing. We will focus today on the amount and 

effectiveness of various forms of financial support for energy technologies. I hope 

these overview hearing will prove informative and valuable as we pivot to specific 

legislative activities within our research- and-development-focused jurisdiction. 

The topic of today’s hearing is particularly timely, as federal spending and budget 

prioritization receive extra attention following the recent implementation of the 

budget sequester and release of House Republicans’ FY 14 budget. 

A central component of the House Republican budget is to open more federal 

lands to energy development. I advocate for this priority because it will accelerate 

our path to energy independence, create jobs, contribute greatly to deficit reduction, 

and can be done while conserving our public lands and open space for future generations. 

As we will hear today from the Congressional Budget Office, federal energy tax 

subsidies will total more than $16 billion in 2013, up from just $5 billion in 2005. 

This increase reflects President Obama’s interest in rapid deployment of green energy technologies. 

January’s ‘‘fiscal cliff’’ deal is a prime example. The White House was reportedly 

‘‘absolutely insistent’’ that the package extend and expand the Production Tax Credit (PTC) for renewable energy. This one-year extension will cost taxpayers at least 

$12 billion. 

Meanwhile, the Administration is complaining loudly about cuts to areas such as 

national parks, science, oil and gas permitting, and even White House tours. 

Another example is the alternative vehicle tax credit, which provides $7,500 toward the purchase of alternative vehicles such as the $40,000 Chevy Volt and 

$100,000 Fisker Karma. GM reports the average Volt owner earns $170,000 per 

year. The Karma is even more exclusive; only the rich or famous can afford them. 

As was pointed out by the Journal of Industrial Ecology, electric vehicles do not reduce carbon emissions significantly, calling into question the entire justification for 

spending this money in the first place. 

Right now, natural gas vehicles can run on a $.99 per gallon of oil-equivalent fuel. 

Now that price will transform the cost of living for single moms and hard-working 

taxpayers. 

Government should work to ensure that Americans have access to abundant, affordable, reliable energy, and target taxpayer resources to fundamental research 

that could one day enable these technologies to compete without expensive subsidies 

or mandates. Doing so would not only help bring energy independence and grow our 

economy, but it would bring revenue to the Treasury. 

I thank our witnesses for joining us today and look forward to a productive discussion. 

I now recognize Ranking Member Swalwell for an opening statement. 

Mr. SWALWELL. Thank you, Chairman Lummis, for holding this 

hearing today. I appreciate the opportunity to discuss the range of 

instruments that government can utilize to affect change or maintain the status quo in the energy marketplace. 
15 

My interest in the subject lies firmly in the category of effecting 

change, of working with my colleagues in Congress to lead the innovation agenda, and to promote clean energy policies that can create made-in-America jobs. For reasons that range from establishing 

U.S. leadership in the booming global clean energy market to protecting consumers and domestic industries from energy price 

shocks to protecting our children from the shock of a rapidly changing climate, the status quo in energy is simply unsustainable. 

I understand that energy legislation is in the works here, as the 

Chairman referenced. I hope that we on the Science Committee can 

work together throughout Congress to craft policies that are both 

forward-leaning and pragmatic and that we can take lessons 

learned from past experiences to right-size the role of government 

in spurring innovation in our energy systems. 

To do that, we must first acknowledge that the energy marketplace is not a free market. For one, as many of my Republican colleagues, I am sure, would likely agree, it is heavily regulated at 

both the state and national level. It is also heavily biased towards 

favoring incumbent technologies over investments in new or advanced systems that can deliver cleaner, smarter, more sustainable 

energy to consumers. Furthermore, the pathway from idea to scaleup is fraught with technical and financial risks that can derail 

even the most resourceful developers. 

The taxpayers want lower-cost, reliable energy with as few of the 

harmful environmental effects and impacts as possible. And they 

increasingly demand more control and more choices in the fuels 

and technologies they use. Until our policies start to address the 

numerous market failures that new concepts face and reevaluate 

them on a regular basis, we will not lay the groundwork for a fully 

competitive energy marketplace in the United States. 

These difficulties are only exacerbated when we in Washington 

politicize energy in a manner that does not reflect either market 

realities or society’s good. As we see the tired arguments over industrial policy reemerge, we would benefit from looking at the 

lengths our global competitors are willing to go to capture market 

share, as well as the past efforts we have made in picking the energy winners we have today. But bickering over who gets to pick 

winners and losers simply misses the point. And to quote the Ranking Member of this Committee, Ranking Member Johnson, from a 

recent op-ed, ‘‘It is a waste of time to argue over the rules of the 

game that our competitors are not even playing.’’ 

Meanwhile, draconian cuts to the Nation’s innovation enterprise 

stand to cripple us even further. Aside from the obvious impact 

that sequestration will have on personnel and activities at agencies 

such as the Department of Energy, subjecting stakeholders to such 

dramatic fluctuations, depriving the market of certainty is just a 

bad way to do business. We have a long history in this country of 

leveraging the power of public-private partnerships to achieve ends 

that neither governments nor industry can do on its own. When 

you take one side of that away, you pull the rug out from other big 

initiatives that would benefit us all. 

The people that drive innovation in our economy from the national laboratories—and we have two of them in my Congressional 

District—to university students and professors and researchers 
16 

who push the frontiers of knowledge to the venture capitalists who 

put their money on new concepts to the industrial firms that scaleup manufacturing and infrastructure all know that government has 

always played a critical role in making the U.S. the most dominant 

economy in the world. In fact, our oil, gas, coal, and nuclear sectors 

are direct results of that. 

It is time that we get serious about picking more winners and 

doing whatever it takes from basic and applied research all the 

way to innovative financing and tax instruments to ensure that the 

United States has cleaner, more sustainable, and more energy that 

is affordable for future generations to come. 

With that, I yield back the balance of my time. 

[The prepared statement of Mr. Swalwell follows:] 

PREPARED STATEMENT OF RANKING MEMBER ERIC SWALWELL

Thank you, Chairman Lummis, for holding this hearing today. I appreciate the 

opportunity to discuss the range of instruments that government can utilize to affect 

change or maintain the status quo in the energy marketplace. 

My interest in the subject lies firmly in the category of effecting change. For reasons that range from establishing U.S. leadership in the booming global clean energy market to protecting consumers and domestic industries from energy price 

shocks to protecting our children from the shock of a rapidly changing climate, the 

status quo in energy is simply unsustainable. 

I understand that energy legislation is in the works here. I hope that we on the 

Science Committee can work together throughout this Congress to craft policies that 

are both forward-leaning and pragmatic, and that we can take lessons learned from 

past experience to right-size the role of government in spurring innovation in our 

energy systems. 

To do that, we must first acknowledge that the energy marketplace is not a ‘‘free’’ 

market. For one, as my Republican friends will likely agree, it is heavily regulated 

at both the state and national levels. It is also heavily biased towards favoring incumbent technologies over investments in new, more advanced systems that can deliver cleaner, smarter, more sustainable energy to consumers. Furthermore, the 

pathway from idea to scale-up is fraught with technical and financial risks that can 

derail even the most resourceful developers. 

The taxpayers want lower-cost, reliable energy with few, if any, harmful environmental impacts, and they increasingly demand more control and more choices in the 

fuels and technologies they use. Until our policies start to address the numerous 

market failures that new concepts face, and reevaluate them on a regular basis, we 

will not lay the groundwork for a truly competitive energy marketplace in the U.S. 

These difficulties are only exacerbated when we in Washington politicize energy 

in a manner that does not reflect either market realities or societal good. As we see 

the tired arguments over industrial policy reemerge, we would benefit from looking 

at the lengths our global competitors are willing to go to to capture market share, 

as well as the past efforts we have made in picking the energy ‘‘winners’’ we have 

today. But bickering over who gets to pick winners and losers simply misses the 

point. To quote Ranking Member Johnson from a recent op-ed, ‘‘It is a waste of time 

to argue over the rules of a game that our competitors aren’t even playing.’’ 

Meanwhile, draconian cuts to the Nation’s innovation enterprise stand to cripple 

us even more. Aside from the obvious impact that sequestration will have on personnel and activities at agencies such as the Department of Energy, subjecting 

stakeholders to such dramatic fluctuations is just a bad way to do business. We 

have a long history in this country of leveraging the power of public-private partnerships to achieve ends that neither government nor industry can do on its own. When 

you take one side of that away, you pull the rug out from under big initiatives that 

benefit all of us. 

The people that drive innovation in our economy—from the National Lab and university scientists who push the frontiers of knowledge to the venture capitalists who 

put their money on new concepts to the industrial firms that scale up manufacturing and infrastructure—all know that government has always played a critical 

role in making the U.S. the most dominant economy in the world. In fact, our oil, 

gas, coal and nuclear sectors are a direct result of that. It is time that we get serious about picking more winners and doing whatever it takes, from basic and applied 
17 

research all the way to innovative financing and tax instruments, to ensure that the 

U.S. has cleaner, more sustainable, and more affordable energy for generations to 

come. With that, I yield back the balance of my time. 

Chairwoman LUMMIS. Thank you, Mr. Swalwell. Now, if there 

are any Members who wish to submit additional opening statements, your statements will be added to the record at this point. 

Anyone? Okay. Thank you very much. 

I would like to recognize the presence of the Full Committee 

Chairman, Lamar Smith, at our hearing. And at this time, I would 

like to introduce our witnesses. 

Our first witness is Dr. Terry Dinan, Senior Analyst at CBO. She 

has a Ph.D. in economics from Ohio State University. Welcome. 

Our second witness today is Ms. Mary Hutzler, Distinguished 

Senior Fellow at the Institute for Energy Research. She received 

her M.A. in applied mathematics from the University of Maryland. 

Welcome, Ms. Hutzler. 

And our final witness today is Mr. Malcolm Woolf, Senior Vice 

President and Government Affairs at the Advanced Energy Economy. And Mr. Woolf has a law degree and an MPA from University 

of Virginia. Welcome all. 

The witnesses’ spoken testimony is limited to five minutes each, 

after which Members of the Committee will have five minutes each 

to ask questions. 

I now recognize Dr. Dinan for five minutes to present her testimony. 

STATEMENT OF DR. TERRY DINAN, 

SENIOR ANALYST, 

CONGRESSIONAL BUDGET OFFICE 

Dr. DINAN. Chairman Lummis, Congressman Swalwell, and 

Members of the Subcommittee, thank you for the invitation to testify on the financial support that the Federal Government provides 

for the development—— 

Chairwoman LUMMIS. Dr. Dinan, could you pull the mike just a 

little closer to your face—— 

Dr. DINAN. Oh, sure. 

Chairwoman LUMMIS [continuing]. And make sure that red light 

is on as well. 

Dr. DINAN. The light is on. 

Chairwoman LUMMIS. Okay. 

Dr. DINAN. Does that work now? 

Chairwoman LUMMIS. Thank you. 

Dr. DINAN. Okay. Thank you for the invitation to testify on the 

financial support that the Federal Government provides for the development and production of fuels and energy technologies. That 

support totals almost 20 billion in the current fiscal year. Tax preferences account for about 5/6 of that amount. Spending programs 

administered by the Department of Energy account for the remaining share. 

I would like to begin by discussing tax preferences, which primarily consist of special tax credits or rules that reduce the 

amount of taxes that people or businesses pay. As shown in Figure 

1, which is now on display, for most years until 2005, the largest 
18 

share of that support went to domestic producers of oil and gas. Beginning in 2006, the cost of energy-related tax preferences grew 

substantially. Moreover, an increasing share of the cost was aimed 

at encouraging energy efficiency and the use of energy produced 

from renewable sources, which generally cause less environmental 

damage than producing energy from fossil fuels. 

In 2013, as shown in Figure 2, provisions aimed at energy efficiency and renewable energy account for about 3/4 of the estimated 

budgetary cost of the Federal energy-related tax preferences. That 

mix reflects changes to the tax system made by the American Taxpayer Relief Act of 2012 which extended until the end of this calendar year for major preferences aimed at increasing energy efficiency and promoting the use of renewable sources of energy. 

Under current law, the mix of energy tax preferences will look 

quite different in the future. That is because most of the support 

for energy efficiency and renewable energy comes from provisions 

that have already expired or are scheduled to expire at the end of 

this year. In contrast, most of the support for fossil fuels and nuclear power comes from provisions that are permanent. 

Next, I would like to turn to the Department of Energy. DOE 

supports energy technologies by making investments in them and 

by subsidizing or guaranteeing loans. As depicted in Figure 3, the 

amount of support has varied over time but has generally declined 

in recent years. Measured in 2013 dollars, DOE’s support for energy technologies totaled $10.5 billion in 1980 and is $3.4 billion 

in 2013. The notable exception to the trend in DOE’s support is the 

spike in 2009, which reflects the increase in funding provided by 

the economic stimulus legislation. 

In 2013, which is depicted in Figure 4, more than half of DOE’s 

support for energy technologies is directed towards energy efficiency and renewable energy. Twenty-two percent is for nuclear energy, and 15 percent is for fossil fuels. Most of the spending in each 

of those categories goes towards applied research and development. 

The Congress has not appropriated funds for subsidy costs of 

DOE’s loan programs since 2011. Since appropriations were provided in 2009, DOE’s net obligations for subsidy costs have totaled 

about $4 billion. That amount supported direct loans of about $9 

billion for advanced automotive technology projects and loan guarantees of about $16 billion for renewable energy projects. 

There are two main economic rationales for the government’s involvement in energy markets. First, without government intervention, households and businesses do not have a financial incentive 

to take into account the environmental damage or other costs to 

the Nation associated with their choices about energy production 

and consumption. The most direct and cost-effective method for addressing that problem would be to levy a tax on energy sources 

that reflects the environmental costs caused by their production 

and use. Subsidies such as tax preferences for favored technologies 

can accomplish some of the same goals but in a less cost-effective 

way. 

Second, unless the government intervenes, the amount of certain 

types of research and development is likely to be inefficiently low 

from society’s perspective. Such underinvestment is particularly 

likely in the early stages of developing a technology. Research at 
19 

that stage can create fundamental knowledge that can lead to significant benefits for society as a whole, but not necessarily for the 

firms that funded the research. Thus, government funding can be 

beneficial. 

By contrast, DOE’s funding of energy technology demonstration 

projects at later stages in the development process has been far 

less cost effective, and DOE has been criticized for its management 

of such projects. 

Thank you for the opportunity to testify. I am happy to answer 

any of your questions. 

[The prepared statement of Dr. Dinan follows:] 
20 

Testimony 

Federal Financial Support for 

Fuels and Energy Technologies 

Terry M. Dinan 

Senior Advisor 

Before the 

Subcommittee on Energy 

Committee on Science, Space, and Technology 

U.S. House of Representatives 

March 13, 2013 
21 

Notes 

Numhers in rhe text, tlgurc:., and tabks may not add up to totals because of rounding. 

All dollar amounrs are in current dollars unless otherwise specified. 
22 

Contents 

Summary 

Ta..x Preferences Provide Much of the Federal Support fi)f Fuels dnd 

Energy Techno!ogies 

Federal Is Also Provided in the Form of Direct Investments, Loans, and 

Loan 

The Government's Involvement in Energy Markets Can Sometimes Lead to a More 

Efficient Usc of Resources 

Tax Preferences 

Historical Trends 

Financia! Support in 2013 

Expiration Dates for Provisions 

OCI)artmcnt of Energy Progl".uns 

H isto rical Trends 

Financial Support for Energy Technologies in 2013 

Cost-Effectiveness of GOVCl'llment Actions 

Reducing External Costs Through the Tax System 

Increasing Spillover Benefit.s Through Support for R&D 

About This Document 

Tables 

1. Energy-Related Tax Preferences in Fisca! Year 2013 

2. DOE's Financial 

Fiscal Year 

Figures 

for Energy Technologies and Energy Efficiency in 

1. Cost of Energy-Related Tax Prderenccs, by Type of Fuel or Technology 

2. in Fiscal Year 2013, by 

3. DOE's Financial Support for Energy Technologies and Energy Efficiency 

4. Allocation of DOE's Direct Investments in Energy Technologies ,111d 

Energy Eftlcienc}" Fiscal Year 2013 

11 

11 

12 

14 

4 

10 
23 

Summary 

The federal government has 

fInancial Sllpport for of 

fuels and technologies in recent 

sUf'por[t--wlJ,lCll has taken the form of tax preferences 

provisions of tax law that reduce tax liahilities fl.)t 

2013. 

this testimony arc 

in current terms.) That amount includes $16.4 

tax preferences and $3.4 billion in funding 11)f DOE. 

Tax Preferences Provide Much of fhe Federal 

Support for Fuels and Energy Technologies 

Tax preferences for fuds and cnerg}' technologies "vere 

first established in 1916. For most years until 2005, the 

provisions aimed at increasing 

usc of renewable sources of energy. four provisions 

account for $6.8 billion of the cost in 2013. 

Under current law, the 

provisions that have or are scheduled 

to expire at the end In contrast, most of the 

for fossil fuels and nuclear power comes from 

that are permanent. 

Federal Support Is Also Provided in fhe Fonn of 

Direct Investments, Loans, and Loan Guarantees 

The 

1977, 

is 

directed toward energy ctliciency and energy 

in 2013. 

DOE received roughly $10 billion in funding for its 

subsidized credit in 2009 but has receivcd only 

limited for 

billion in subsidies 

for about $25 billion in loans and loan guarantees, 

of solar po\ver, manuE,""ltetS 

and producers of advanced vehicles. 

TIle Govermnent's Involvement in Energy Markets Can 

Sometimes Lead to a More Efficient Use of Resources 

intervcntion, households and 

account the environmental damage or other costs to tbe 

nation associated with theit choices ahout energy 

tion ,md consumption. The most direct and cost-etlectlVc 

method for addressing that problem would he to levy 

that reflects tbe environmental 

and usc. Subsidies 
24 

2 FEDERAL FDiA.'\CIAL Sl'PPORT FORllrELS A\:D EI"ERGY 11lCll\'OLOGIES 

funding can By contrast, 

technology demonstration 

the development process has far less costIv1oreovcr, the Governmem Accountability 

Office, among others, has criticized DOE's management 

of sHch projects. 

Tax Preferences 

Joint Committee on Taxation. 1 on page 4. 

that afe estimated to cost at 

least 

Historical Trends 

~L\RC!l2.013 

for new sources of fossil fuel, alternatives to 

fud, and energy efficiency. Disruptions in the supply of oil in the 1970$ heightened imercst in 

the of alternative fuds, 

dioxide (CO) emissions from hurning those fuds-Ied 

to tax preferences in energy efficiency 

and for the production from renewable 

Nevertheless, fax t()f fossil fuds continued 

to make up the oL111 energy-related tax incentives 

through the mid-lOOOs, accounting for more than twothirds of the total cost in most years. The 

Act of 2005 changed the focus tax 

number of provisions aimed at increasthe use of alternative motor 

sllch as fuel-cell and hybrid vchides-and 

sufficient tax liability. 
25 

MARCU1013 FEDERAL Fl:-;,\\UAL Sl'PPORT FOR Fl'ELSA:-·m E:-;ERGY TECIl:"OLOGlES 

Figure 1. 

C~~t~fE;;;g;;:R;~dTax Preferenc~s, by Type of Fuel or T~;~I;gy~~~~ 

(Billions of 2013 dollars) 

25 

Fossil Fuels Renewabl~ ,Energy, .. Energy Efficiency l':Judear En'l.'lrgy 

20 

15 

10 

1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2Gll 2013 

Source: Congressional Budget Office based on data from Molly F. Sherlock, Energy Tax Polfcy: Historical Perspectives on and Current Status 

of Energy Tax Expenditures, Report for Congress R41227 (Congressional Research Service, May 2, 2011), p. 26; Joint Committee on 

Taxation, Estimates of Federal Tax Expendilures for Fiscal Years 2012-2017, JCS-1-13 (February 1, 2013), pp. 33-35, www.jct.gov/ 

publications.html?func=startdown&id=4503; and the Office of Management and Budget. 

Note: The estimates of costs resulting from individual tax preferences do not account for any potential interactions between preferences and 

do not include tax provisions estimated to cost less than $50 million. Nor do they reflect the budgetary effects of eliminating those 

time. Those changes stem from a comhination of factors, 

including changes in the numher of energy-related tax 

preferences; changes in the prices of oil and natural gas, 

which affect investment in those industries; and increases 

or decreases in overall tax rates, which make some existing ta..x preferences more or less valuable. Tn some cases, 

an existing tax credit was applied for a new purpose. For 

example, an income tax credit for alternative fuel mixtures was initially intended as an incentive for firms to 

produce liquid motor fuels from hioma"s (organic materials used to ptoduce enefb'Y). In 2009, however, pulp and 

paper producers claimed the credit for blending "black 

liquor"·-a by-product of the pulping process that is llsed 

to make paper-with liquid petroleum-based fuels to 

power their paper-making operations. That usc greatly 

expanded the cost of the credit, which was allowed to 

expire at the end of2009, The Internal Revenue Service 

subsequently ruled that hlack liquor would qual if}' for a 

different credit-the cellulosic hiofud producer tax 

credit; however, lawmakers later amended the law to 

prevent that unintended usc. 

Measured in 2013 dollars, the cost of energy-related tax 

preferences more than doubJed between 1977 and 1982 

and then fell between 1982 and 1988, in 

Financial Support in 2013 

The tax and 

3 
26 

4 FEDER'.!. Fl:-<A;.iCIAL SLI)PORT FORH'ELS A;-';O E~ERGY 11~CH:-i"OWGlE,<; 

Table 1. 

Energy-Related Tax Preferences in Fiscal Year 2013 

Primary Target of 

Support Tax Preference 

Total Cost in 2013 

{Billions of dollars} 

!\.lARCH 2013 

Expiration Date 

Energy~Related Tax Preferences Affecting Income Taxes 

Energy Efficiency Credit for energy-efficiency improvements to 3.0 12/3112013 

eXisting homes 

Residential efficiency property credit 0.9 12/3112016 

Credit for plug-In electric vehicles 0.4 Expires for each manufacturer 

when the number of vehIcles it 

sells reaches the limit set by 

the government 

Credit for the production of energy-efficient appliances 0.2 12/31/2013 

Deduction for expenditures on energy-efficient commercial 0.2 12/3112013 

but!dingproperty 

Ten-year depreciation for smart meters or other devices 0.1 None 

for monitoring and managing electrical distribution 

Renewable Energy Credits for the production of electricity from renewable 1.7 1213112013 

resources" 

Credit for investment in advanced-energy property, 0.3 Fixed dollar amount of credits; 

including property used In producing energy from wind, the available until used 

sun, or geothermal sources 

Credit for investments in solar and geothermal equipment, 0.5 12/3112016 

fuel cells, and rlllcroturbines 

Five-year depreciation for certain renewable energy 0.3 None 

equipment 

Fossil Fuels Option to expense depletion costs on the basis of gross l.l None 

Income rather than actual costs 

Expensing of exploration and development costs for oil and 0.9 None 

natural gas 

Amortization of air pollution control facilities 0.4 None 

Option to expense 50 percent of qualified property used to 0.4 12/31/2013 

refme liquid fuels 

Credit for Investment in clean-coal facilities 0.2 Fixed dollar amount of credits; 

available until used 

Fifteen-year depreciation for natural gas pipelines 0.1 1213112010' 

Amortization of certain expenditures associated with oil 0.1 None 

and gas exploratIOn 

Continued 
27 

MARCIIlO!:) 

Primary Target of 

Support Tax Preference 

FEDERAL FI'i-\NC1AL SI 'PPORT FOR Fl ELS t\:\D E:,\ERGY 1};CIl~OLOGIES 

Total Cost in 2013 

(Billions of dollars) Expiration Date 

Energy~Related Tax Preferences Affecting Income Taxes (Continued) 

Nuclear Energy Special tax rate for nuclear decomrmssionmg 1.1 None 

reserve funds 

Subtotal, Tax Preferences Affecting Income Taxes 11.9 n.a, 

Energy~Related Tax Preferences Affecting Excise Taxes' 

Renewable Energy Excise tax credit for biodiesel 1.9 12/3112013 

Renewable Energy Section 1603 grants 

Grants in lieu of Tax Credits d 

2.6" 12/31/2011 

Total 

All Energy~Related Tax Preferences 

16.4 n.a. 

Sources: 

Notes: The estimates of costs resulting from individual tax preferences do not account for any potential interactions between preferences and 

n.a. = not applicable. 

b. Effects of depreciation extend beyond the expiration date. 

c. The Joint Committee on Taxation and the Administration generally do not estimate tax expenditures in the excise tax system. They do, 

however, provide information on revenue reductions from excise tax credits for alcohol and biodieseL 

d. December 31, 2011, are eligible; because grants are paid 

e. The Office of Management and Budget has determined that the Section 1603 grants are subject to sequestration. CSO applied the 

sequestration percentages published by OMS for nondefense mandatory programs (5,1 percent) to the estimated 2013 spending on thOSe 

• $11.9 billion for energy-related preferences in the 

income tax system. 'i 

The two most costly preferences arc the credit for 

energy-cttlCiency inuno\'emen" to existing homes 

($3.0 credits for electricity production from renewahle resources ($1.7 bil!ion~ 

$].4 billion for wind and $0.3 billion for biomass). 

for the largest share 

through the income tax 

billion), followed by fossil fuds 

hillion). 

• $1.9 billion for an excise tax credit for biodicsd.6 

5 
28 

6 FEDERAL Fl~A\CIAL 51 PPORT FOR FeELS A\]) E'-';ERGY l1lCIt:'i"OLOG!ES 

Figure 2. ;~""'=""w'"~=""~~";>"'=·~'''~ __ '''''''=='''='=_=="'~''''''-"~.'''';'''''-'''' 

Allocation of Energy-Related Tax 

Preferences in Fiscal Year 2013, by 

Type of Fuel or Technology 

Sources: Congressional Budget Office based on data from the Joint 

Committee on Taxation, Estimates of Federal Tax Expenditures for Fiscal Years 2012-2017, JCS+13 (February 1, 

and Budget 

Note: This figure encompasses all of the tax preferences listed In 

TableL 

• $2.6 billion for grants under the Section 1603 

Those by 

[n 2013, an estimated total of$7.3 billion, or45 percent 

of the energy-related tax is directed toward 

and 

Expiration Dates for Provisions 

~1ARCI! l.OU 

Most 

n::ncwahle energy 

in 2013 comes from provisions arc temporary. In 

contrast, most of rhe for h)ssil fuels and nuclear 

energy comes from that an: permanent. 

expirarion date. 

Provisions That Have Been Extended. The American 

Speciflcally, the act extended the following major 

preferences: 

• The credit for energy-efflciency improvements to 

existing home,'" 

• The credit for (he production of energy-efficient 

appliances, 

• The credits for the production of electricity from 

renewahlc resources, and 

• The excise tax credit for biodieseL 

The act also changed the criteria used to determine eligibility for the tax credit for producers of electricity from 

renewabk resources. Under the rules, 

would be eligible only 

=stdrtdown&id",4j60 
29 

MARCflZOI3 

electricity before the expiration date. The act redefined 

those crireria, making producers eligible for the credit as 

long as they began constructing the electricity-producing 

facility before the expiration d,l.te~that is, before January 

1, 2014. The total estimated cost of the four tax preferences in 2013 is $6.R billion. 

Department of Energy Programs In fiscal year 2013, DOE's funding (or budget authority) 

for fossil-fuel R&D, electrical energy, nuclear energy, 

energy eft-lciency, and renewable energy (a!! of which arc 

referred to in this analysis ,1S fuds and energy technologies) torals $3.4 billion,9 Federal agencies arc currently 

operating under a continuing resolution that generally 

provides funding at or ncar the same levels as in fiscal 

yeM 2012. (The continuing resolution expires on March 

2013.) The funding estimates for tlscal year 2m 3 presented in this testimony represent annualized versions of 

the budget authority provided by the continuing resolution, reduced to reflect the results of sequestration (that 

is, the across-the-board cuts m,1l1dated by the Budget 

Control Act of 2011) and specitled in the sequestration 

report issued on March 1,2013, by the Office of 

Management and Budget (OMB). 

Virtually all of the relevant DOE funding is for direct 

investments by DOE rather than for making loans or 

loan guarantees. The $3.4 billion accounts for less than 

20 petcent of DOE's 2013 appropriations; much of that 

agency's funding is for mainuining the U,S. nuclear 

weapons stockpile and the environmental cleanup of old 

nuclear facilities. Other agencies also spend money in 

ways that affect the demand fot and supply of enetgy, 

This testimony focuses only on DOE's 

that promote the development of specitlc 

technologies. ]() 

9. 

10. 

FEDERAL FI:-iA~CJAL S( PPORT FOR FrELS AND E:\ER(,Y l1iCIl;\OLOGJES 

Historical Trends 

The established in the late 

1970s response to a dramatic increase in oil prices, 

Throughout most of its DOE has 

energy technologies primarily 

DOE's initial funding ~)r energy 

new domestic sources 

In 2009, DOE received $39 billion (in current dollars) 

for cost for manufactutadyanced-technology vehides. The credit subsidies 

are to be leveraged into loans with much larger 

face values. 

7 
30 

8 FEDER-\L FL'ii\:\CIAI. SlVPORT FORllCELS A\f) E~ERGY 11lCll:-lOLOGIES MARCil 2.013 

Figure 3. __ "_'"",WM",,,,=~~""',>_"_~"'~''''''''_'''''''~'''''''''''_''~'''''''''''_-='''''''''~_'''' "'''''_''~"-'_''''''''''''''''''*,''''''''''''''''''''--=''''_''''''''_=''''~"'"=_''~''''''''''''''_'''''''''~'''''_''''_'W""_"'-,.. 

DOE's Financial Support for Energy Technologies and Energy Efficiency 

(Budget authority, In billIOns of 2013 dollars) 

50 

40 

30 

2D 

]0 

Budget Authotit$ 

~rovided by ARRA"iI 

O~~~~~~aL&L.uBUBUauRU~~~~~~LaLR~LaUBUMURUBU.~~~~~ 

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 

Source: 

Notes: As of the date of this testimony (March 13, 2013), no full-year regular appropriation bills have been enacted for fiscal year 2013, 

Instead, all agencies are operating under a continuing resolution that expires on March 27, 2013. The estimate of budget authority 

reflects the assumption that accounts are funded at the annualized level provided by the continuing resolution, as reduced by the 

across-the-board cuts mandated by the Budget Control Act of 2011. 

DOE =. Department of Energy. 

a. Funding provided by the American Recovery and Reinvestment Act of 2009 (ARRAJ reflects transfers and rescissions of budget authority 

for Section 1705 

to the fimds that had been allocated for those projects is 

unclear. 

Financial Support for Energy Technologies in 2013 

Th~ $3.4 billion available to the Department of Energy 

in fiscal year 2013 for the production 

of fuels and energy technologies two components: 

direct investments, which received $3.4 billion, and 

credit received $42 million (sec Table 2 

for the investments; the credit amounts arc not 

listed in that table because they arc less than $50 million). 

The funding indicated in Table 2 reflects the results of 

the sequestration mandated by th~ Budget Control Act. 

As detailed by OMB, the sequestration reduced DOE's 

for fuels and by 

in 2013. 

5 percent reduction in 

programs listed in 

llirect Investment". Most of DOE's direcr investments in 

support of specific energy technologies are currently 

follows (see Figure 4): 

sources); 

" 

S500,(){)O. 
31 

MARCIIZO!5 

Direct Investments 

Energy efficiency and renewable energy 

Nuclear energy 

Fossil-energy research aneJ development 

Advanced Research Projects Agency--Energy 

Electncity delivery and energy reliabIlity 

FEDERAL FI\A\C1A1. SCPPORT FOR RELS A'i;D n;-;ERGY 1ECI!~OLOG!ES 

Budget Authority 

(Billions of dollars) 

1.7 

0.7 

0.5 

0.3 

0.1 

Ultra-Deepwater and Unconventional Natural Gas and Other Petroleum Research Fund 

Subtotal 3.4 

Credit Programs 

Advanced Technology Vehicles Manufacturing Loan Program Account 

Title 17 Innovative Technology Loan Guarantee Program 

Total 3.4 

Sources: Congressional Budget Office based on data from Office of Management and Budget, OMS Report to the Congress on the Joint 

Committee Sequestration for Fiscal Year 2013(March 1, 2013), www.whitehouse.gov/sites/defaultlf1les/omb/assets/ 

legisJativ€_reports/fy13ombjcsequestrationreport.pdf (1 MB). 

Notes: As of the date of this testimony (March 13, 2013), no full-year regular appropriation bills have been enacted for fiscal year 2013. 

Instead, all agencies are operating under a continuing resolution that expires on March 27, 2013. The estimates of budget authority 

reflect the assumption that accounts are funded at the annualized level provided by the continuing resolution, as reduced by the 

across~the-board cuts mandated by the Budget Control Act of 2011. 

• 8 for the Advanced Research Projects 

Agency-~Ener"e; and 

reliability 

improvements tht: 

energyeftlciency). 

Credit Progmms. DOE directs resources to promote the 

deployment 

loans dnd loan guarantees to privdte 

them to market. Tn recent years, DOE has 

credit through three major programs: 

• The Advanced Technolot,'}' Vehicle IVbnuracturing 

(ATVM) program-a permanent loan program that 

dims to improve the energy efficiency of dutumohiles; 

• Th", Section 1705 program~a temporary loan 

guarantee program that supports loans for some 

renewable-energy systems, electric powt'r 

rfdnsmission, dnd innOYdtivc biofuel projects; and 

• The Section 1703 program-a permanent loan 

guarantee program that aims to increase investment 

in nuclear facilities Ot other innovativt: dean-energy 

flCiiiries. 12 

DOE's credit programs operate under the rules estahlished hy the Federal Credit Reform Act of 1990 for 

calculating the budgetary cost of direct loans and loan 

J2. T(lgether, the Section !7()5 and Section 1703 programs arc 

commonly referred to as the Title 17 proglam 

9 
32 

10 FEDERAL FI~A:-;CL\L SCl)PORT FOR KELS A~D E~ERGY 11~C![S-OLOGIES 

Figure 4. w""""'~"''''''''''_''"~''''''''~'''_''''''''''''''_''''''''''i-''''--=-' __ '''_='''''~'=,",'''''k_'''""~ 

Allocation of DOE's Direct Investments 

in Energy Technologies and Energy 

Efficiency, Fiscal Year 2013 

Sources: Congressional Budget Office based on data from the 

Office of Management and Budget, OM8 Report to the 

Notes: As of the date of this testimony (March 13, 2013), no 

full-year regular appropriation bills have been enacted for 

fiscal year 2013. Instead, all agencies are operating under a 

continuing resolution that expires on March 27, 2013. The 

estimates of budget authority reflect the assumption that 

accounts are funded at the annualized level provided by the 

continuing resolution, as reduced by the across-the-board 

cuts mandated by the Budget Control Act of 2011. 

DOE:::: Department of Energy. 

a. Includes electricity delivery and energy reliability and the 

Advanced Research Projects Agency-Energy. 

~lARCJl2()L) 

may he derived 

Treasury, and those 

costs can hy horrowers. Lawmakers control the amount credit assistance 

amount needed for the subsiguarantees. 

for DOE's loans and loan guarantees 

are lifetime costs of the credit assistance, 

which include losses from ddaulrs-such as the loss that 
33 

.\lARCHZOU 

and loan guarantees. DOE made loans totaling 

$9.1 billion to six maBULKn,,,,, 

Guarantee 

on 

made commitments for $15.6 billion loan guaranfCc.~, with an estimated subsidy cosr of $2.4 billion. 

Cost-Effectiveness of 

Government Actions The federal intervention in energy markets 

can be if if leads to a more efl-lcient usc of 

resources than would occur in a purdy privare market. It 

is most likely to be beneficial in cases in which private 

choices abollt the 

on 

and consumption. 15 

Reducing External Costs Through the Tax System 

Environmental costs arc examples of external costs. The 

production and environmental damage that is not 

and tlrms in proportion to their production or usc of 

For example, coal combustion emits carbon 

as sulfur dioxide, which causes damage to 

downwind lakes and contains that increase 

'4 

15. 

FEDERAL FI~N\ClAL Sl 'PPORT FOR F('ELS A~D E~ERGY TECIl.\OLOGIES 11 

releases CO} and smog-causing emissions that increase 

the incidence of respiratory-rdated illnesses and dearh. 

Without government imervention, environmental costs 

arc not rdlected in the for variolls fuels 

and energy services, so lack an 

incentive to take them into account when deciding what 

types and quantity ()f energy to produce and consume. 

poiicy.nal".s and analysts view rhe United States' 

oil as another source of external costs. 

Because many sectors of the U.S. economr--cspecially 

transportation-usc oil, the United States is economicaHy 

vulnerabk to a disruption in the supply of oil. Reducing 

exposure to (hat disruption would require a large decrease 

in the total amount of oil consumed in the United States. 

To the extent that sllch vulnerability exists and docs not 

atTecr consumers in direct proportion to their oil consumption, households and husinesses will tend to usc 

mme oil than would he best from a societal perspective. 

The most cost-dTecrive way to reduce the external costs 

associated with energy would be to enact policies, such as 

taxes, that would increase the prices of various types of 

incentive consider those 

external costs when deciding on the types and amounts of 

energy to usc. 

In the absence of such price increases, the government 

could directly subsidize tbe investment in (or use of) 

technologies that lead to lower external costs, such as 

improvements in energy efficiency or the llse of renewable energy. Subsidies, such as tax or direcr 

payments, are typically less than incurpotdting external costs into energy prices, for at least three 

reasons: 

• They may cause the government to pay firms or 

households to make choices about investment, 

production, or consumption that they would have 

made anyway in the absence of the subsidies; 

• They particular technologies, ,"",hieh 

least expensive method of reducing 

external costs; and 
34 

12 FEDERAL FI);.~"CIAL Sl WORT FORF! El.S A\O E:'>JERGY lECIL\OLOGIES 

work.)lG 

tax preferences arc directed toward technoloto reduce the external costs of 

,Ind usc. Of the cost of those preferor renewable 

costs by reducing renewable energy 

can reduce external costs becausl" most cases, it produces lower emissions than do fossiUllel alternatives.!' 

als,couragl11g, the use 

permanellt. 

Increasing Spillover Benefits 

l1trough Support for R&D 

the usc oflabor and capital. 

most of the tax 

17, For a more detailed diKussion of whcth(;[ renewable fuds, such as 

public:nion/41173 

,\lARCillOU 

One review ofrhe literatute on DOE's drllrts to develop 

renewable energy sources concluded that 

govcrnmcnr.';ponsorcdR&D focused on 

thermal energy, for cxamplehas been technically successtld. 11 However, such sources 

small share of mday's market, in part 

of conventional sources 

1R. 

19. 

20, 

21. 

=17068. 
35 

MARClIlOU 

The 

that one of the major 

factors contributing to the lack of commercia! success of 

the was the decline in the 

markets 

PEDImAl H:\k'liC1AJ. SCPPORT l10R Pl ELS A'D E:\ERGY TECIl~OLOGmS 13 

of railroads that decreased the delivered price 

In sum, the price of renewable energy 

fdl, so did Because consumers 

d~ ~ 

advantage. 
36 

14 FEDERAl. FlNA.'liClAt SrllPORT FO!~ Ft'ELSA\!) E:\ERGY 11ICH.'\OLOGIES 

About This Document 

reviewer 

and Jeanine Recs and Maureen Costantino prepared it for 

CBO's website (www.cho.gov). 

~t\RCH lOU 
37 

Terry Dinan is a Senior Advisor at the Congressional Budget Office. While at CBO she 

has written about a variety of environmental and energy issues, including numerous 

studies on the design of climate policies and their implications for households and 

businesses in the U.S., the costs and consequences of higher CAFE standards, and the 

costs and effects of policies aimed at subsidizing energy sources and technologies, Her 

position entails communicating (in both written and oral formats) technical research to 

both technical and non-technical audiences, including lawmakers, Congressional staff, 

industry groups, environmental groups, academics, and foreign policy officials. She has 

published in a variety of professional journals and served as an associate editor for the 

Journal of Environmental Economics and Management. She has a Ph.D. in economics 

from Iowa State University. Prior to coming to CBO she worked at the Environmental 

Protection Agency. 
38 

Chairwoman LUMMIS. Thank you, Dr. Dinan. 

I would now like to recognize Ms. Hutzler to present her testimony. 

STATEMENT OF MS. MARY HUTZLER, 

DISTINGUISHED SENIOR FELLOW, 

INSTITUTE FOR ENERGY RESEARCH 

Ms. HUTZLER. Chairman Lummis, Ranking Member Swalwell, 

and Members of the Subcommittee, thank you for the invitation to 

testify. 

The Institute for Energy Research is a nonprofit free-market 

think tank that researches global energy trends. Today’s hearing 

touches upon one of the Nation’s more important policy questions: 

What is the Federal Government’s authority to ensure a stable, affordable, and reliable energy future; power our economy; create 

jobs; and strengthen our global position? 

Tied to this question are concerns about our Nation’s fiscal 

strain, the need for new revenues, and Congress’ responsibility to 

eliminate wasteful spending and bringing federal budget outlays 

under control. Similarly, Congress and federal regulators must be 

careful to encourage, rather than discourage, the responsible development of America’s vast energy resources, the majority of which 

are currently being produced on nonfederal lands. 

Recent years have seen a dramatic increase in federal energy 

subsidies, with the largest increases going to renewable and enduse subsidies. Between 2007 and 2010, federal energy subsidies increased from almost $18 billion to over $37 billion. Renewable energy subsidies increased by 186 percent, with wind receiving a tenfold increase and solar increasing by a factor of 6. Biofuel subsidies 

increased by 66 percent and conservation subsidies increased from 

$369 million in 2007 to more than $6.5 billion in 2010. Fossil fuels 

also received increased federal support with coal subsidies increasing to $1.3 billion and oil and natural gas subsidies increasing to 

$2.8 billion. Nuclear subsidies increased 46 percent from $1.7 billion to $2.5 billion. Clearly, Washington has been on a spending 

spree. 

The largest single contributor to this spending was the American 

Recovery and Reinvestment Act of 2009, also known as the stimulus bill. By itself, this legislation accounted for 40 percent of the 

total subsidy value in 2010 and 77 percent of the increase in subsidies from fiscal 2007. 

To put these increases in the proper perspective, it is critical to 

consider the return on investment that the American people have 

received. In other words, how have the subsidies for different fuels 

and technologies compared with production levels? Fossil fuels received 19 percent of the subsidies in 2010 that provided 77 percent 

of the production. Conversely, renewable fuels received 69 percent 

of the subsidies but produced only 11 percent of the country’s energy. 

These numbers prove more disconcerting when we look at federal 

spending on subsidies for electricity generation. In this sector, renewable energy received 55 percent of the subsidies that generated 

about 10 percent of the electricity, mostly from hydroelectric power. 
39 

Wind was the largest subsidies recipient, with 42 percent, yet wind 

provided only 2.3 percent of our electricity needs in 2010. 

Clearly, the fuels and technologies that receive the overwhelming 

share of federal subsidies are not producing the largest portion of 

our energy needs. It is unlikely that this trend will change in the 

foreseeable future, yet the political support for renewables continue. IER calculated the federal subsidies and support per unit of 

electricity production from government data. According to our calculations, solar received over 1,100 times the subsidies coal, oil, 

and natural gas received, while wind was subsidized over 80 times 

more than these conventional fuels. Proponents of increased federal 

subsidies continue to claim that solar and wind are infant technologies, yet these technologies are not new. Wind, for example, 

has been used to generate electricity for more than 125 years. 

Proponents have also used job numbers to demand a continuation of subsidies for renewables with the wind industry winning 

another year and more than $12 billion through expansion of the 

Production Tax Credit. Simply put, the lion’s share of taxpayer dollars is spent on less-reliable energy sources that provide negligible 

benefit to consumers, present increased challenges for our electricity grid, and do little to diminish our reliance on base-load fuels 

and fail to support the American jobs they purport to create. 

To date, over 50 firms receiving taxpayer dollars are either bankrupt or failing financially. Many of these companies had or currently have political connections in Washington. Even more appalling is the fact that subsidies used to support green energy ventures 

serve only to make high-income consumers pay marginally less for 

expensive luxury items, such as electric vehicles, and do nothing to 

help millions of Americans struggling to pay higher energy costs on 

lower take-home pay. 

The history of subsidies is clear. Washington has a terrible track 

record of picking winners and losers. Subsidies take money from 

taxpayers, do not create the jobs that are claimed, and force our 

energy dependence on government by removing the market incentive for companies to make their technologies cost-competitive. Subsidies offset private-sector financing, waste taxpayer money on 

projects that would never make it off the ground if not for the political connections and the funding that these green energy projects 

receive. If a technology is truly competitive, it would make it in the 

marketplace on its own without massive government support. 

Thank you for the opportunity to testify. 

[The prepared statement of Ms. Hutzler follows:] 
40 

INSTITUTE FOR 

ENERGY RESEARCH 

BEFORE THE ENERGY SUBCOMMITTEE 

COMMITTEE ON SPACE, SCIENCE, AND TECHNOLOGY 

HEARING ON FEDERAL FINANCIAL SUPPORT FOR ENERGY TECHNOLOGIES: 

ASSESSING THE COSTS AND BENEFITS 

MARCH 13,2013 

TESTIMONY OF MARY J. HUTZLER 

THE INSTITUTE FOR ENERGY RESEARCH 

The Institute for Energy Research (IER) is a non-profit organization that conducts research and analysis 

on the functions, operations, and government regulation of global energy markets. IER articulates free 

market positions that respect private property rights and promote efficient outcomes for energy 

consumers and producers. IER staff and scholars educate policymakers and the general public on the 

economic and environmental benefits of free market energy. The organization was founded in 1989 as a 

public foundation under Section 501(c)(3) of the Internal Revenue Code. Funding for the institute comes 

from tax-deductible contributions of individuals, foundations, and corporations. 

The federal government has provided various forms offinancial support for the development and 

production of fuels and energy technologies over the past several decades and that support is growing. 

The Energy Information Administration (EIA), an independent agency of the U.S. Department of Energy 

(DOE), evaluated the amount of subsidies that the federal government provides energy producers with 

its most recent information for fiscal year 2010.' Over a 3-year period, from fiscal year 2007 through 

fiscal year 2010, total federal energy subsidies increased from $17.9 billion to $37.2 billion, an increase 

of 108 percent overthe 3-year period. The largest increases in federal energy subsidies were in 

renewable and end-use subsidies. Over the 3-year period: 

Renewable energy subsidies increased by 186 percent from $5.1 billion to $14.7 billion. 

Wind led the various renewables with a more than 10-fold increase in subsidy from $476 million 

to $4,986 million. 

Solar subsidies increased by more than a factor of 6 from $179 million to $1134 million. 

Subsidies for biofuels increased by 66 percent, from $4 billion to $6.6 billion. 

1 
41 

Conservation and end-use subsidies more than tripled from $4 billion to $14.8 billion. 

Conservation subsidies increased from $369 million to $6,597 million, a factor of almost 18. Enduse subsidies increased from $3,618 million to $8,241 million, more than a doubling. 

In contrast, 

Federal subsidies for coal increased 44 percent from $943 million to $1,358 million. 

Federal subsidies for oil and natural gas increased 40 percent from $2,010 million to $2,820 

million. 

Federal subsidies for nuclear energy increased 46 percent from $1,714 million to $2,499 million. 

New legislation, particularly the American Recovery and Reinvestment Act (ARRA) of 2009, was a major 

factor in the increase in subsidies over the 3-year period. ARRA, by itself, represented 40 percent of the 

total subsidy value in FY 2010, and 77 percent of the increase in subsidies from FY 2007. Other 

legislation impacting the increased subsidy levels were the Energy Improvement and Extension Act, the 

Food, Conservation, and Energy Act of 2008 that provided new subsidies to biofuel producers, and the 

Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 that extended the 

sunset dates for several tax expenditure programs and the grant program for qualifying renewables. 

The growth in renewable fuel subsidies in FY 2010 is driven mainly by the $4.2 billion in expenditures for 

grants under Section 1603 of ARRA, which went mainly to wind facilities, and also in growth in support 

of biofuels. The 1603 program allowed qualifying renewable projects to receive an up-front grant in lieu 

of a production tax credit taken over 10 years for wind facilities. Tax expenditures relating to the ethanol 

tax credit increased over the three-year period due to the growth in ethanol blending under the 

Renewable Fuel Standard. Because the DOE Loan program was in its early stages in FY 2010, only $1.6 

billion of the subsidies EIA calculated were attributed to it, but EIA acknowledged that expenditures 

from that program would be much higher in later years. 

The subsidies covered in EIA's report include: 

Direct Expenditures to Producers and Consumers, which involve direct cash outlays that provide 

a financial benefit to producers or consumers of energy. 

Tax Expenditures, which are provisions in the tax code that reduce the tax liability of firms or 

individuals that take specified actions affecting energy production, consumption, or 

conservation. 

Research and Development expenditures that either increase energy supplies or improve the 

efficiency of energy technologies in the future. 

Loans and Loan Guarantees that, according to DOE, provide financial support for "innovative 

clean energy technologies that are typically unable to obtain conventional private financing due 

to their 'high technology risks.'" 

2 
42 

Electricity programs serving targeted categories of electricity consumers including the federallyowned Tennessee Valley Authority and the Power Marketing Administrations whose electricity 

is sold preferentially to public bodies and cooperatives. 

Subsidy Value by Fuel/Technology 

While all subsidy levels increased over the 3-year period, the subsidy levels for the different 

fuels/technologies were not in concert with their production levels. The following graph compares the 

share of subsidy received in fiscal year 2010 compared to the share of energy produced by each 

fuel/technology in 2010. Fossil fuels provided the largest share of production (77 percent), but received 

only 19 percent of the subsidies, while renewable fuels received 69 percent of the subsidies, but 

produced only 11 percent of the country's energy. The remainder of the subsidies was provided to 

nuclear energy which produced about an equivalent share of energy to its share of subsidies. 

Comparsion of Subsidy and Production Shares by 

Fuel Type, FY 2010 

ill FY 20lD Subsidy 'IS 20lD Production 

48% 

Coal Gas and Petroleum Nuclear Blofuels 

Source: £n('rgy InfQrrnation t.\dminlstration 

Other 

Renewables 

In the non-electric generating sector, biofuels/biomass received the largest share of non-electric 

subsidies (73 percent) but provided just 11 percent of the non-electric production. Petroleum and 

natural gas provided the largest share of non-electric production (80 percent), but received only 21 

percent of the non-electric subsidies. Clearly, the fuels/technologies receiving the greatest shares of 

subsidies are not producing the largest amount of production. 

3 
43 

Comparison of Non-Electricity Related Subsidy 

and Production Shares by Fuel Type, FY 2010 

8.30% 

1.60% 

Coal 

80.30% ill fY 2010 Subsidy 

0.70%0.20% 

Gas &. Petroleum Biomass/Blofueis Geothermal 

"., 2010 Production 

1.1;0'1<0.30% 

Solar 

2.20% 0% 

Other 

Renewables 

The main focus of the EIA report, however, was on subsidies for electricity generation. Federal subsidies 

for electricity production increased from $6,582 million to $10,902 million, an increase of 66 percent, 

with the largest dollar amounts received by wind ($4,986 million) and nuclear ($2,499 million) 

technologies. See the chart below. 

Federal Subsidies and Support for Electricity 

Production, FY 2010 

Coal 

(million 20:1.0 dollars) 

2.499 

200 215 

Natunai Gas Nudear Geot.hermal Hydropower - &Petroie-um 

Uquids 

4,986 

968 

Solar Wind 

Source: Energy !nformation Administration, Direct Federal Financial Interventions and Subsidies in Energy in Fiscal Year 2010, 

July 2011, trt~2.JL~~{Y!!.:.~.l!!.,£g:.:bD.@Jy§j§/rgq~.§§.~sJ§ul?_~.Ld.yL£qfL.?I,!.~.~L~.'{,J2_~,;!f 

4 
44 

In the electric generation sector, renewable energy received 55 percent of the subsidies, but generated 

about 10 percent of the electricity. Wind was the largest renewable subsidy recipient with 42 percent of 

the subsidy, but provided only 2.3 percent of the electricity generated. Fossil fuels received 16 percent 

of the subsidies but generated the largest share of electricity--70 percent. Nuclear energy generated 20 

percent ofthe electricity and received 21 percent ofthe subsidies-about an equal share of both. 

(Transmission and distrbution received 8 percent of the subsidies but is not displayed on the chart 

below because those subsidies were not apportioned to fuel/technology.) 

n:U"'CI'1,n of Electridty·Related Subsidy and 

Generation Shares by fuel Type, fY2010 

iii FY2l}1(}Subskly '1,\ 211111Generation 

Source; Energv Information Administration 

Federal Subsidies per Unit of Electricity Production 

As mentioned above, renewable energy received 55 percent of federal subsidies and support in FY2010, 

but accounted for only 10 percent of total generation. While this statement is true, the difference is 

skewed much more than presented by these statistics because hydroelectric power provides the largest 

share of renewable generation (about 60 percent), but received only 0.6 percent of all subsidies and 1.5 

percent of all renewable subsidies. A better measure is the value of the subsidy per unit of electricity 

production, which is an indicator of how federal dollars are being used and the value the nation is 

getting from them. 

The Institute for Energy Research calculated the federal subsidies and support per unit of electricity 

production from the information provided in EIA's report. The ratio of dollars to production is given in 

the following figure. As can be seen by the figure, solar is being subsidized by over 1100 times more than 

coal and oil and natural gas electricity production, and wind is being subsidized over 80 times more than 

5 
45 

the more conventional fossil fuels on a per unit of production basis. EIA's report shows that on a total 

dollar basis, wind energy has the highest federal subsidy, but, on a unit of production basis, solar energy 

is by far the costliest form of electricity production. 

Coal 

Federal Electricity Subsidies per Unit of 

Production 

Natural Gas & 

Petroleum 

liquids 

(2010 dollars per megawatthour) 

Nuclear Geothermal Solar Wind 

Source: Energy Information Administration, Dkect Federal Financial Interventions and Subsidies in Energy in Fiscal Year 2010, 

July 2011, b.ttJ2:jj'!:LVJ.':Y_·.:?l~?Y!"'§D .. ?.!y§j.?lr:.~gQ§~~~L~u.~.~iQyLRq.fb_I,-L~.~iQ:L.Q9.f 

Proponents of subsidies claim that wind and solar are "infant technologies" and need subsidies to be 

competitive in the market place. But these technologies are not new. Wind was first used to generate 

electricity over 125 years ago when James Blyth, a Scottish electrical engineer, pioneered the field 

of electricity generation through wind power --his wind turbine was the world's first-known structure by 

which electricity was generated from wind power. Although Blyth received recognition for his 

contributions to science, electricity generation by wind power was considered uneconomical. Similarly, 

the first photoelectric solar cell was built in the 1880s and the first practical photovoltaic solar cell was 

built in 1954--almost 60 years ago. Yet, these technologies are still uneconomic without subsidies and/or 

mandates. 

The CBO Study 

The Congressional Budget Office (CBO) evaluated federal subsidies received by the various energy 

industries for fiscal year 2011, classifying subsidies by two categories: tax preferences, which totaled 

6 
46 

$20.5 billion in fiscal year 2011, and DOE's spending programs, which totaled $3.5 billion." (Tax 

preferences are defined as special tax rates and deductions, tax credits, and grants in lieu of tax credits.) 

The agency found that energy-related subsidies totaled $24 billion in FY 2011, of which $16 billion (67 

percent) were spent on renewable energy and energy efficiency and $2.5 billion (10 percent) on fossil 

fuels. In other words, renewable energy technologies and energy efficiency programs received 6.4 times 

more subsidies than fossil fuels received. 

Because the EIA used a broader definition for what constitutes a subsidy, its study showed a higher level 

of federal subsidies ($37 billion) in fiscal year 2010 than the CBO found a year later ($24 billion), even 

though the American Reinvestment and Recovery Act had been in effect for a year longer in the CBO 

study. Using the broader definition, the EIA study found that federal energy-related subsidies and 

financial interventions totaled $37.2 billion, of which $21.3 billion was for renewable energy and energy 

efficiency (57 percent) and $4.2 billion was for fossil fuels (11 percent). Both studies were in agreement 

that biofuels and wind were the largest renewable recipients of subsidies. But, EIA also found that the 

largest recipients of subsidies also produced the smallest amounts of energy for the nation. 

Tax Preferences 

Energy-related tax preferences were initiated in 1916, but had dwindled to a very small amount by the 

late 1980s and did not grow substantially again until the Energy Policy Act of 2005 and the Energy 

Independence and Security Act of 2007 were enacted. These acts were followed by the Emergency 

Economic Stabilization Act of 2008 and the American Recovery and Reinvestment Act of 2009, which 

expanded and extended the provisions related to energy efficiency and renewable energy. 

By fiscal year 2011, energy efficiency and renewable energy accounted for 78 percent of the estimated 

budgetary cost of federal energy-related tax preferences. According to the CBO, the breakdown of tax 

preferences for fiscal year 2011 was: renewable energy (68 percent), fossil fuels (15 percent), energy 

efficiency (10 percent), nuclear energy (4 percent), and other (2 percent). 

About half of the total subsidies were from four tax provisions that expired at the end of December 

2011. They totaled just over $12 billion, accounting for about 60 percent of the budgetary impact in 

2011 of the energy-related tax preferences. One of the expired provisions was a renewable energy tax 

credit for the use of alcohol fuels that totaled over $6 billion. The other 3 provisions were credits for 

energy-efficiency improvements to existing homes ($1.5 billion), excise tax credit for biodiesel ($0.8 

billion), and section 1603 grants for renewable energy ($3.9 billion), some of which have been extended 

by the American Taxpayer Relief Act of 2012. 

DOE loan and loan Guarantees 

The stimulus funding in 2009 from the American Recovery and Reinvestment Act (ARRA) totaled $787 

billion"', and most of those funds have been paid out according to the government's website". Over $90 

billion was earmarked for 'green programs.' However, the total that went to green energy projects is not 

7 
47 

clear. Brookings estimated it at $51 billion, with a total government spending (both stimulus and nonstimulus) on green initiatives at $150 billion through 2014.' About $100 billion (two-thirds) of that is 

expected to fund renewable energy, including subsidies for wind, solar and biofuel projects and research 

and development for new technologies. Conservation is expected to garner another $15 billion, funding 

for electric cars and high speed rail about $10 billion each, and smart grid and nuclear power about $6 

billion each. 

Fi 7 

OR 

$50 II Non·ARRA Spending 

ARRA Spending 

$40 

$30 

$20 

$10 

$0 

2009 2010 2011 2012 2013 2014 

Source: Brookings. Beyond Boom & Bust. April 

2012,http://www brookings. edu!~!mediaIResearch!Fi!es!PaJ!§Ls!201214!18%20ciean%2Oinvestmenls%20murol0418 

clean inve§1IJl~.ts finaj'!l.2]2p_Ed12"r PDE.F'..O£ 

Unfortunately, about 50 firms receiving government funds are either bankrupt (23) or are having 

difficulties (27), and many of the latter are in financial trouble." Over $15 billion oftaxpayer money is 

either gone or at risk. Further, 29 of the 50 companies had or have political connections, putting the 

percentage of political cronyism at almost 60 percent. 

8 
48 

Let's recap some of the loan commitments and their status. The most famous is Solyndra, a solar 

manufacturer that received almost ali ofthe $535 million loan awarded it before filing for bankruptcy in 

2011. The cause of Solyndra's demise was its complicated technology that required a custom 

manufacturing facility and an expensive price tag. Political desires resulted in DOE pushing the loan 

guarantee out the door quickly despite concerns over the economic and technological viability of the 

company to the detriment of the American taxpayers. 

Abound Solar, another solar manufacturer that received a DOE loan guarantee for $400 million, filed for 

bankruptcy in June 2011 after it had laid off 70 percent of its workforce that February.,ii According to 

the Daily Calier, Abound Solar sold defective or underperforming products, and company personnel 

claimed DOE officials knew their panels were faulty before they received taxpayer dollars.'ii' Virtually all 

of the panels Abound manufactured underperformed, putting out between 80 and 85 percent of the 

promised wattage and leading to tens of thousands of panels having to be replaced, particularly towards 

the end of the company's life. 

First Solar, one of the biggest recipients from DOE's loan guarantee program, garnered over $3 billion" 

before the program expired at the end of September 2011.' At the time, DOE was under pressure not to 

repeat its prior mistakes, but again the agency provided a loan guarantee to a losing company. For 

example, early in 2012, First Solar laid off half of its employees at its Antelope Valley Solar Ranch One 

project in the Southern California desert, which was the recipient of a $646 million loan guarantee that 

was to create 350 construction and 20 permanent jobs. Further exploiting taxpayers dollars, in 2011, 

First Solar paid its top eight executives almost $16 million. Rob Gillette, who was terminated as CEO of 

First Solar in October 2011, received more than $32 million since his employment began in October 

2009. First Solar sold much of its $3 billion in federal loan guarantees to third parties before it laid off 30 

percent of its workforce. Its stock price plummeted by more than 90 percent from its high in 2011, but 

not before its head officer received more than$329 million in stock sales since 2009. 

Solar technology firms were not the only companies that received DOE awards, but failed to materialize 

any benefits. Fisker Automotive, a Finnish electric car maker, originally received $529 million in DOE loan 

guarantees, but was cut off at $193 million because it failed to reach milestones for its luxury vehicle 

Karma. The company suffered recalls of its extended-range electric sedan that cost over $100,000, 

because of technology flaws and failed batteries, which resulted in fires. The federal subsidies attracted 

some of the rich and famous, as it has been a favorite status purchase for Hollywood movie stars and 

celebrities, rappers and Hip Hop musicians, and soap opera stars. Consumer Reports gave the Karma a 

terrible review, calling it the worst luxury sedan on the market. 

Fisker's battery supplier, A123 Systems, supplied the defective batteries. A123 Systems declared 

bankruptcy in October 2012, but not before receiving $132 million from its $279 million DOE loan 

guarantee to refurbish two Michigan plants plus other projects. Here again the loan guarantee was 

moved quickly by DOE. Similar to First Solar, Al23's officers and directors made more than $11 million in 

stock sales before the bankruptcy filing. 

9 
49 

It is not just the Fisker electric vehicles that are costly. So is Chevy's Volt that is being purchased by 

buyers with salaries at the $170,000 level, according to General Motors.';; The DOE and others indicate 

that battery costs need to come down to $350 per kilowatt-hour to make electric vehicles competitive in 

the market place.';;; John Gartner, an analyst with Pike Research, estimates battery costs to be around 

$900 per kilowatt hour, and expects them to decline by 10 to 15 percent per year, reaching about $470 

per kilowatt hour by 2015. Others are more pessimistic on the cost reductions seeing a battery 

breakthrough taking at least 10 years.';v 

But what is even more striking is the difference in automobile characteristics. A gasoline vehicle has a 

range of 400 miles, while the range of an electric vehicle is 100-300 miles with recharging taking 4 to 12 

hours, depending on the vehicle and the charger. That compares to a 5 minute fill-up for an internal 

combustion engine at a gasoline station. Plus, storage is more limited in electric vehicles due to the 

space needed for the battery. Further, while there are numerous stations to get a fill-up, the 

infrastructure for recharging stations doesn't exist in this country. That means these vehicles will have 

limited use, restricting their purpose to running errands in the local area or for a round-trip work 

commute. However, even then, one needs to be cautious regarding traffic patterns for heavy traffic can 

reduce the vehicle's range. 

U.S. automobile manufacturers know that even if they manufactured the electric vehicles, they would 

be purchased only by a very small niche market." A recent report by the Center for Automotive 

Research estimates at best less than a half million electric vehicles would be on the road by 2015 based 

on deployment rates of hybrid vehicles."; According to Stanford University's Precourt Energy Efficiency 

Center, it took hybrids, which do not have the range and infrastructure issues of electric vehicles, over a 

decade to garner 3 percent of the sales market.";; 

Deloitte Consulting interviewed industry experts and 2,000 potential buyers and found that only "young, 

very high income individuals," making more than $200,000 a year, would consider purchasing an electric 

car sometime during the next 10 years. While there are people who may want to own such a car, the 

cost of around $40,000, even with the $7,500 rebate, is still double the cost of some internal 

combustion engines. For example, a 2011 Chevy Volt sells for $40,280; a Mercedes-Benz C350 sells for 

$39,990.";;; Tesla Motors will start its Model S sedan, which has a 160 mile driving range in ideal 

conditions, at $57,400.';' With larger battery packs, Tesla can expand the driving range. For an extra 

$10,000, Tesla will provide an electric vehicle that can go 230 miles on a charge, and for an extra 

$20,000, it will provide a vehicle that can go 300 miles. 

The Heritage Foundation put together a list of 34 companies that received federal support from 

taxpayers that have faltered or are now faltering." These companies have either gone bankrupt, laid off 

workers, or are heading for bankruptcy. The list below provides the 34 companies along with the 

amount of money they were offered by the U.S. DOE and other federal government agencies. The 

amount of money listed does not include other state, local, and federal tax credits and subsidies and it 

also does not include government mandates, which guarantee a market for the product. The at-risk total 

10 
50 

is approximately $7.5 billion, of which $1.6 billion is in receivership. And the total will likely get larger as 

more is known about each company. 

1. Evergreen Solar ($25 million)* 

2. SpectraW-,,!! ($500,000)* 

3. Solyndra ($535 million)* 

4. Beacon Power ($43 million)* 

5. I\Il'S~sL't§.~Q!h~cl]}il! ($98.5 million) 

6. Sun Power ($1.2 billion) 

7. First Solar ($1.46 billion) 

8. §.abcCl£Is.A!!<:ij3.r:f,,""!1. ($178 million) 

9. EnerDel's subsidiary Enerl ($118.5 million)* 

10. Amonix ($5.9 million) 

11. Fisker Automotive ($529 million) 

12. Abound Solar ($400 million)* 

13. ~.123 SYili'ms ($279 million)' 

14. )i\[ilLa.r:>!and K<±;~Solar GroulJ. ($700,981)* 

15. Johnson Controls ($299 million) 

16. Schneid~.ectrif ($86 million) 

17. J~.!lgbl~()'!!:"~ ($1.6 billion) 

18. ECOtality ($126.2 million) 

19. Ra~r Technol()gi~ ($33 million)' 

20. J;rl~~nversion Devices ($13.3 million)* 

21. Mountain Plaza, Inc. ($2 million)' 

22 . .Qlsen's Crop Servi.c<o"<lj1d Olsen's Mills AC9lJisitign Compilf1.Y ($10 million)* 

23. Range Fuels ($80 million)' 

24. Thompson River Power ($6.5 million)' 

25. Stirling Energy Systems ($7 million)' 

26. ~';!T§..Q'{IJ!ll]lics ($5.4 million)' 

27. GreenVolts ($500,000) 

28. Vesta~ ($50 million) 

29. l-iL<;h"'i!]'.s_~uhsid i a ryJ:;Q[l1P'l<:.1l'.<:>we r ($151 million) 

30. Nordic Wind power ($16 million)' 

31. I\I'lY.i2!.~r ($39 million) 

32. Sateon ($3 million)' 

33. Konarka Technologies Irlf... ($20 million)' 

34. Mascoma CQr:j:l, ($100 million) 

'Denotes companies that have filed for bankruptcy. 

Loan guarantees continued even though the administration knew of its problems. A memorandum on 

the green energy loan guarantee program by high ranking officials inside the administration highlighted 

its numerous flaws."; According to the memorandum's authors (Larry Summers, Ron Klain, Carol 

11 
51 

Browner)', one wind project in particular would receive $1.2 billion in government subsidies for a $1.9 

billion project, making it about 65 percent subsidized while guaranteeing a 3D-percent return on equity 

to private companies. And, the authors omit that the project would only create 400 construction jobs 

and 35 permanent jobs. In other words, each one of the 35 permanent jobs would cost the government 

over $30 million each. 

The memorandum explains that the Office of Management and Budget (OMB) and the Department of 

Treasury were concerned about three problems with the loan guarantee program: "double dipping" 

(massive government subsidies from multiple sources), lack of "skin in the game" from private investors 

and "non-incremental investment," the funding of projects which would occur even without the loan 

guarantee. 

For example, the Shepherds Flat wind project received over $1.2 billion in government subsidies, 

dwarfing the $100 million investment in the project touted by Google. Shepherds Flat is an 845-

megawatt wind farm in Oregon. The $1.9 billion project would consist of 338 GE wind turbines 

manufactured in South Carolina and Florida and, upon completion, would represent the largest wind 

farm in the country. The sponsor's (Caithness Energy and GE Energy Financial Services) equity is about 

11 percent of the project costs, but the project would generate an estimated return on equity of 30 

percent. 

Subsidy Type 

Federal 1603 grant (equal to 30% investment tax credit) 

S tate tax credits 

Accelerated depreciation on Federal and State taxes 

Value of loan guarantee 

Premium paid for power from state renewable electricity standard 

Total 

Approximate 

Amount 

(millions) 

$500 

$18 

$200 

$300 

$200 

$1,218 

Double dipping: The total government subsidies are about $1.2 billion from 5 different incentives. 

Skin in the game: The government would provide a significant subsidy (about 65 percent), while the 

sponsor would provide little skin in the game (equity about 11%). 

1 At the time, Summers was the Chairman of the National Economic Council. Klain was Vice President Biden's Chief 

of Staff, and Browner was the White House Energy and Climate Change Advisor. 

12 
52 

Non-incremental investment: This project would likely move without the loan guarantee. The 

economics are favorable for wind investment given tax credits and state renewable energy standards. 

GE signaled through Hill staff that it considered going to the private market for financing out of 

frustration with the review process. The return on equity is high (30 percent) because of tax credits, 

grants, and selling power at above-market rates, which suggests that the alternative of private financing 

would not make the project financially non-viable. 

Carbon reduction benefits: If this wind power displaced power generated from sources with the 

average California carbon intensity, it would result in about 18 million fewer tons of carbon dioxide 

emissions through 2033. Carbon reductions would have to be valued at nearly $130 per ton carbon 

dioxide for the climate benefits to equal the subsidies (more than 6 times the primary estimate used by 

the government in evaluating rules). 

In regard to the Shepherds Flat project, taxpayers were expected to fund by far the largest share of the 

bills and the risk and in return they were getting only miniscule benefits in terms of reduced greenhouse 

gases. In contrast, the corporations behind the project, who were not taking much of the risk, stood to 

profit handsomely. Despite understanding that a loan guarantee for the Shepherds Flat project was 

unnecessary, the administration approved the loan guarantee anyway. 

The American Taxpayer Relief Act of 2012 

The American Taxpayer Relief Act of 2012 extended a number of energy tax incentives through 

December 31,2013, costing the taxpayer over $18 billion."" The most publicized and costly is the 

production tax credit (PTe) for wind garnering a 'one-year' extension that will cost taxpayers over $12 

billion over a ten year period. This tax credit for wind has been in effect off and on for 20 years without 

accomplishing its job, which is to make this industry competitive on its own."iH The credit provides 2.2 

cents per kilowatt hour for electricity generated for the first 10 years of operation of the wind unit. 

While the original PTe stipulated that the wind unit must begin operation in the year of the credit, the 

extension that was passed only indicates that the project must begin construction in the initial year and 

that the unit has 2 more years to become operational. 

Unfortunately for taxpayers, the expense of the PTe was not needed since another policy (the 

Renewable Portfolio Standard) implemented by over half our states is driving most of the wind capacity 

additions.";v As the graph below shows, the PTe was first passed in 1992, but it did little to generate 

interest in the wind industry in the 19905. Once Texas introduced its RPS in 1999 under then-Governor 

George W. Bush, mandating a specific percentage of its electricity be produced by qualified renewable 

technologies, and most other states followed with their RPS programs between 2004 and 2007, wind 

construction began to take off. 

13 
53 

Further the PTC is designed inappropriately, providing the wrong incentives for wind to truly be 

competitive in the long run. The PTC, as its name states, awards a subsidy for each kilowatt hour of 

electricity produced. The problem is that the production of electricity is much more valuable when 

demand is high during the day, rather than when demand is low during the night and early morning 

hours. The PTC, however, awards the same subsidy for production anytime. Unfortunately, wind 

generally blows the strongest when electricity is worth the least. Thus, the PTC not only provides the 

wrong incentives, but it disrupts the electricity grid. Wind operators are willing to bid negative prices in 

order to receive the PTC, forcing other technologies that are built to run continuously to stop production 

or pay penalties. 

Because wind does not blow all the time, it must have back-up power, typically coal-fired or natural gasfired power plants that can provide power when demanded. That means that we are essentially paying 

twice for new generating capacity, i.e. the wind turbines that generate the wind power and the natural 

gas- or coal-fired power that provides the back-up electricity when the wind isn't blowing. The Electric 

Reliability Council of Texas, for example, in its planning assumes that only 8.7 percent of its wind 

capacity can be relied on to supply electric capacity when needed. The distinction is that wind supplies 

generation, but not dependable generating capacity. This is akin to a government policy that forces 

Americans to buy an additional car that runs only some of the time with all its expenses, when all the 

family needs is one car that operates all the time. 

14 
54 

Other energy tax incentives extended through December 31,2013, by the American Taxpayer Relief Act 

and their cost to the taxpayer through FY 2022 are''': 

Credit for energy-efficient existing homes ($2,446 million). 

Credit for alternative fuel vehicle refueling property ($44 million). 

Credit for 2- or 3-whecled plug-in electric vehicles ($7 million). 

Cellulosic biofuel producer credit ($50 million). 

Incentives for biodiesel and renewable diesel ($2,181 million). 

Production credit for Indian coal facilities placed in service before 2009 ($1 million). 

Credit for energy-efficient new homes ($154 million). 

Credit for cnergy-efTicient appliances ($650 million). 

Special allowance for cellulosic biofuel plant property ($2 million through FY 2014). 

Special rule for sales or dispositions to implement FERC or State electric restructuring policy for 

qnalified electric utilities ($315 million through FY 2(17). 

Alternative fuels excise tax credits ($360 million). 

Issues with Government Subsidies 

Subsidies have ramifications in the economy. One of which is that the money to provide the subsidies is 

money that is taken from taxpayers. This means that taxpayers have less money to spend and this 

destroys jobs elsewhere. Subsidies don't create jobs-they shift jobs from one sector of the economy to 

another. A study analyzing Spain's experience with renewable energy and job shifting found that for 

every renewable job, 2.2 jobs were lost elsewhere in the economy."0 Spain is now experiencing the 

exodus of its renewable energy industries because its financially strapped government and 20+ percent 

unemployment means neither the government nor consumers can afford to pay for the more expensive 

energy renewable sources provide."';; The electricity system deficit due to the higher cost of electricity 

in Spain is over 24 billion Euros (over $30 billion) and that amount is growing."'''' Further, the Spanish 

government is now being faced with international legal action from its foreign investors in renewable 

energy projects who allege that the new rules that remove subsidies and levy taxes on all energy forms 

break their contracts."" And Spain is not alone, as other countries including Germany, Greece, France 

and the United Kingdom are dropping or reducing subsidies for "green energy.''''''' 

Subsidies also create industry dependence on the government because they remove the incentive for 

companies to make their technologies cost-competitive from the onset. Without the subsidy, companies 

can determine at what price the technology would enter the market place and work towards the 

economics to achieve it. According to the Energy Information Administration, without subsidies, the cost 

of new onshore wind generation on a kilowatt-hour basis is estimated to be 32 percent higher than new 

natural gas combined cycle generation and solar photovoltaic generation is 120 percent more expensive 

than generation from that same gas-fired technology."" And, these costs exclude hidden costs of 

15 
55 

these renewable technologies such as the cost of the back-up power required to keep consumers' 

energy demand met continuously since electricity cannot be stored as fossil fuels can."";; For 

decades, representatives and advocates of wind and solar have claimed that their technology was 

near a competitive tipping point-but just needed a bit more subsidies, set-asides, and 

government aid to succeed. But even after decades of massive subsidies, wind and solar continue 

to be more expensive and contribute only a small amount of electricity. 

Subsidies also tend to offset financing from the private sector-a sector that has a much better track 

record for picking winners and losers than does the government. Often, subsidies provide financing to 

companies that would have undertaken the investment without the subsidy support. 

Further, if the project is a winner, subsidies waste taxpayers' money by funding projects that the private 

sector should fund and would fund if the project were economic, thereby offsetting part of the projects' 

cost with government funds. And, if the project is a loser, the government is directly wasting taxpayers' 

money by subsidizing it, such as the case with Solyndra. Because investors have more expertise, 

knowledge, and "skin in the game" than government bureaucrats in making these decisions, they, rather 

than the government, should be making them. 

For example, the massive amount of subsidies in ARRA failed to anticipate, predict, or even help the 

most important technological advancements and biggest change in energy production in the last couple 

decades -- hydraulic fracturing coupled with directional drilling. Hydraulic fracturing is a completely 

market driven technology that has not been subsidized by the government. The hydraulic fracturing 

revolution shows why the market is superior to government subsidies in selecting winning technologies. 

Funded entirely by the private sector, it has dramatically lowered natural gas prices, increased oil 

production on non-federal lands at the fastest rate since 1859, created jobs, and led to real benefits for 

Americans, which is not the case for most government subsidies. 

Subsidies also promote crony capitalism by encouraging industries that benefit to spend more money 

lobbying for government handouts from politicians and bureaucrats. If a company's business model 

requires a guaranteed subsidy from the government, the company will dedicate whatever resources are 

necessary to ensure that such subsidies continue. For example, industries that benefit from subsidies 

will spend more money lobbying for continued government handouts.",m Clearly, the American Wind 

Energy Association and the Renewable Fuels Association have continued to lobby for renewable subsidy 

extensions and mandates when they have already received them for decades without making their 

technologies cost-competitive. 

Conclusion 

From the EIA study, we see that those energy fuels/technologies receiving the largest subsidies are 

producing the least amount of energy for the nation. And those technologies, some of which have been 

subsidized for decades, are still a long way from being cost-competitive given the lobbying that their 

industry associations are doing to continue their subsidization. 

16 
56 

Clearly, there are issues with subsidies. The shifting of jobs from one economic sector to another 

because of subsidization can actually result in more job losses than gains as can be seen from Spain's 

experience. Furthermore, governments historically do not have a good track record for determining 

winners and losers, which is exemplified through DOE's loan guarantees to companies like Solyndra. 

Numerous companies went bankrupt despite free or easy money either because their technologies were 

too complicated, too expensive, or markets were insufficient to support their products. 

Wise investments would most likely have been undertaken anyway even without the expenditure of 

government funds. After ali, energy is the largest business in the world and whoever provides an 

economically-winning source of energy stands to benefit handsomely. 

Thank you for the opportunity to supply this testimony for the Committee's use. 

iEnergy Information Administration, Direct Federal Financial Interventions and Subsidies in Energy in Fiscal Year 

2010, July 2011, http://www,eia.gov/analysis/requests/subsidy/pdf/subsidy,pdf 

H Congressional Budget Office, Federal Financial Support for the Development and Production of Fuels and Energy 

Technologies, March 2012, http://www.cbo.gov/sites/default/files/cbofiles/attachment5/03-06-

CNN Money, What we got for $50 billion in 'green' stimulus, October 3, 

2012,http://money.cnn.com!2012!10/03/news/economy/green-stimulus/index.html 

" Recovery.gov, Track the Money, fl.t!p.J!.YI'."!\!\!OL~EQv-"".l',gp'!il'eg~L<l.efault.c<>.~" 

v Brookings, Beyond Boom & Bust, April 2012, 

IillP.L{wwJ!l.obro2~.edu!~{media!Resears.biFiles{PJ1J!.f!!..sj.lQmtJL.l8%20cieo,.nY9lQi.fJ'!!'l!.tments%2Qrr1J!I'!'L0418 cl 

Green Corruption, Tracking Obama's Green Energy Failures, October 20, 2012, 

National and Legal Policy Center, Surprise! Another DOE Solar 'Bet' Produces Green Job Losses, March 1, 2012, 

Dally Caller, Sources, documents suggest government-subsidized Abound Solar was selling faulty product, 

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2012, http://nlpc,org(stories/2012/04!18/taxpayers-reward-executives-failure-green-jobs-are-slashed 

, 11th hour DOE deals: 4 solar loan guarantees, September 30, 2011, b!t.l2li9iQ'l.()rrLgg.l1l1gl"imt~9Jl!1Jlh,QQ'!I,.9.Cl"-: 

Maker of Batteries Files for Bankruptcy, October 16, 2012, 

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17 
57 

w CNN, Obama's electric car goal hits roadblock, February 2, 2011, i1Jl~jL~li.cJ.EO"~cc!l~,"<:gxnl;?.Q"!"±::.Ql_: 

02/us/obama,electric,cars 1 electric-cars-early-adopters-electric-vehicie? s=PM:US 

wi Center for Automotive Research, Deployment Rollout Estimate of Electric Vehicles, 2011-2015, 

http:/(jmages.thetruthaboutcars.com!2011(02!deployment.pdf 

wii Scientific American, Raising the Volt-Age: Is Obama's Goal of 1 Million Electric Vehicles on U.S. Highways by 

2015 Rea listic?, February 18, 2011, hl!!dL""",,"I>Ii,'Cci~n_tlllc"-f1l?ri<:!![I_'£()_'1JL".'!lflec"g!!!l.ltj=gI'"~'_'!'-iJlig'l:eJ,,_c!,L<:: 

vehicies-by-2015&WT.mc id=SA syn huffpo 

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htt~ycaller.com!2011!02!24/iumpstarting-the-electric-car-market!#ixzzlEvakDmEc 

,i, CNN Money, Tesla's $58,000 sedan coming next year, March 7, 2011, 

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"" The Heritage Foundation, President Obama's Taxpayer-Backed Green Energy Failures, October 18, 2012, 

Marginal Revolution, Why they call it Green Energy: The Summers/Klain/Browner Memo, September 28, 2011, 

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""ii Congressional Budget Office, Estimate of the Budgetary Effects of H.R. 8, the American Taxpayer Relief Act of 

2012, as passed by the Senate on January 1, 2013, 

http://www.cbo.gov/sites!default/files/cbofiles(atlachments!American%20Taxpayer%20Relief''1020Act.pdf 

xxiii Freedom Works, Crony Capitalism Blowout, January 2/ 2013, 

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xxiv American Energy Alliance, Removing Big Wind's Training Wheels, November 1, 2012, 

http://www.americanenergyalliance.org!wp-content/uploads!2012!lO!Dismukes-Removing-Big-Winds-TrainingH.R. 8, American Tax Payer Relief Act of 2012, h!~www.govtrack.us!cong~sLIillI§L112!hr8!teJ<l: and The 

Joint Committee on Taxation, https:!lwww.jct.gov!publications.html?func=startdown&id=4497 and American 

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Universidad Rev Juan Carlos, Study of the effects on employment of public aid to renewable energy sources, 

March 2009, http://www.juandemariana.org!pdf!090327-employment-public-aid-renewable.pelf. 

,,,ii Yahoo, Spain Ejects Clean-Power Industry With Europe Precedent: Energy, May 29,2012, 

http://fin,,n_<:e.yahoo,,£I'1Lnews!spain-eiects:El~I',power-intl'!~L\I::2301Q142Q,.html 

"",iii Renewable Energy World, Spain Imposes "Temporary" Halt to New Renewable Energy and Co-generation 

Projects, April 3, 2012, h!tp~",w.renewableenergy\i\>()l'ld"con1fl:".~LD£IAI~ti<:I£I1Q11f.Q1t;pain-imposes: 

temporary~ha!t-to-new-renewab!e-energy-co-generation-pro iects?page=2 

xxix Reuters, Foreign investors set to sue Spain over energy reform, February 14, 2013, 

http://www.reuters.com!article!2013!02!14!us-spain-renewables-

!(jU 58 REnD :[t\Ql01301!£J"."'fITyJle=RS2<hl""clJ'L"-f1l?",,,~}Ii!.QIl!:!'_".'1!}\L"I>Ii,;~!d!!1l2.ource=tei'_<i~llJ:~& utm med iU!lJ 

.=feed&utm campaign.:=Feed%3A+reu_~_~illenvironm~nt+%2~News+%2F+US+%2I+Environment%29 

"''' Time World, Will Austerity Derail Europe's Clean Energy Movement?, February 10, 2012, 

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xxxii American Tradition Institute, The Hidden Costs of Wind Electricity, December 

2012, !mQ~LL"'V>!"""'"".!ln".t.itule.. grill>li1'=£9_Q!,,"mlyplgatj,;,G_Q.12JJ.zLH .ld.9.~rl:"C:<)~_t Ptlf xxxiH Heritage, Four Big Problems with Obama's Energy Subsidy Push, May 24/2012, 

http:!{blog.heritage.org{2012!05{24!four-big-problems-with-obamas-energy-subsidy-push{ 

b!!W_",,,,-,,,,,"Sl~!lJL:LrYl~LeL6.ccou,,-!;!~!.L<!gc;.§LI\1~Jax%20Bri~,,L.QL03-1 Li\I:lP·as_Q!< 

18 
58 

Mary J. Hutzler 

Distinguished Senior Fellow 

Mary J. Hutzler is a Senior Fellow at IER. Until she left Government in 2006, she was a top energy 

analyst for the U.S. Government, having spent more than 25 years at the Energy Tnfonnation 

Administration (ETA), where she specialized in data collection, analysis, and forecasting. 

Beginning in 2004, Hutzler worked as the Associate Director of Statistical Programs at the Bureau of 

Transportation Statistics (BTS), serving 14 months as the Associate Director and 6 months as the Acting 

Director ofBTS. In the latter job, Hutzler ran the hureau's daily operations, briefed Administration 

officials and Congressional staff, and managed BTS's data and analysis programs. As Associate Director, 

Hutzler managed large-scale freight and travel surveys and all analytical research, including new 

statistical methods and estimation of transportation data. 

In 200 I, Hutzler was named by President Bush to lead the ETA as Acting Administrator. In this role, she 

testified before Congressional committees, briefed policymakers on energy issues, held press conferences 

on ETA products, and interacted with energy organizations on controversial issues dealing with ETA data 

collections. In recognition of her achievements, Hutzler received a 2004 Presidential Rank Award, an 

honor by which the president "recognizes and celebrates a small group of career senior executives." 

Before and after her stint as the acting administrator and deputy administrator of ETA, which lasted from 

June 2001 to March 2003, Hutzler was director of the EIA's Office ofIntegrated Analysis and 

Forecasting. As such, she plaIJIll!d, directed, and managed all mid- and long-term analysis and forecasting 

at EtA, as well as the prodnction ofElA's annual forecasting publications. Hutzler oversaw development 

of the National Energy Modeling System, for which she received a Presidential Rank Award in 1999. She 

also produced numerous studies for both Congress and the Administration on various key topics, such as 

the Kyoto Protocol, low-sulfur diesel rules, the depletion of oil and gas reserves, and Renewable Portfolio 

Standards. 

Hutzler received her B.A. in mathematics from Adelphi University, her M.A. in applied mathematics 

from the University of Maryland, and completed her course work and exams for a D.Se. in operations 

research at George Washington University. 
59 

Chairwoman LUMMIS. Thank you, Ms. Hutzler. 

I now recognize Mr. Woolf to present his testimony. Welcome. 

STATEMENT OF MR. MALCOLM WOOLF, 

SENIOR VICE PRESIDENT, 

POLICY & GOVERNMENT AFFAIRS, 

ADVANCED ENERGY ECONOMY 

Mr. WOOLF. Thank you, Chairman Lummis, Ranking Member 

Swalwell, and Subcommittee Members. I appreciate the opportunity to testify today. 

My name is Malcolm Woolf. I am the Senior Vice President of the 

Advanced Energy Economy. AEE is a national network of business 

leaders whose companies are making the global energy system 

more secure, clean, and affordable. My testimony today will focus 

on two things: first, that new energy technologies face a series of 

structural market barriers to entry that have often required federal 

support to overcome; and secondly, that Congress should consider 

a core set of principles reorienting federal financial support to more 

effectively encourage private sector innovation. 

Let me begin by explaining what I mean by advanced energy. 

AEE defines advanced energy broadly to include the best available 

commercial technologies, such as energy efficiency, appliances, advanced gas turbines, nuclear power renewable technology, alternative vehicles. The business opportunity for advanced energy, 

broadly defined, is huge and growing. A recent report commissioned by our sister organization, the Advanced Energy Economy 

Institute, documented that the global advanced energy industry 

was a $1.1 trillion dollar industry today. In the United States 

alone, the advanced energy market was $132 billion dollars in 

2011. So this is a big industry today. It is larger than the trucking 

history. 

Since this hearing is focused on federal financial support for energy technologies, it is appropriate to ask the question, why is federal support even needed? My answer is simple. Energy technologies face a series of structural barriers to entry that hinder innovation in the energy markets. Let me highlight three examples 

of these structural barriers. 

First, the market fails to appropriately reward innovations that 

don’t directly affect price. Externalities like grid reliability, resiliency, energy security, public health—all of those externalities are 

hard to put into the price of electricity, so the market systematically undervalues them. 

Secondly, the legal framework for electric and natural gas utilities, as well as their long-lived assets, discourages innovation in 

their sector. Why should a utility take a risk on investing in 

unproven innovative technology that regulators may not deem worthy of reimbursement when they get the exact same rate of return 

if they invest in well-established existing technologies? 

Finally, the Federal Government needs to compensate for the 

chronically low level of private sector energy R&D. The energy sector historically invests less than one percent of revenues in R&D. 

In contrast, innovative-intensive industries like telecommunications routinely invest over 10 or 20 percent. The Federal Govern-
60 

ment needs to continue to support the development of energy technology, but the Advanced Energy Economy recognizes the Nation’s 

fiscal realities. To more effectively use taxpayer dollars, AEE suggests a fresh approach whereby we refocus federal financial outlays 

on a core public purpose: promoting innovation to give the United 

States energy that is secure, clean, and affordable. 

Let me offer for your consideration the following four principles: 

First, be targeted. Rather than providing permanent support to 

mature technologies that already have significant market penetration, the Federal Government should focus its resources on driving 

innovation to develop, demonstrate, and deploy the next generation 

of technologies. 

Secondly, we should sunset or automatically revise provisions 

when the market-based objectives have been reached. No company 

or technology should be entitled to a permanent subsidy. Incentives 

should remain in place only long enough to achieve a measurable 

market-based goal. 

Third, provide stability and certainty for investors and businesses. Clear roles tying federal support to market-based metrics 

rather than a calendar of political deadlines would allow the market to drive success. 

Fourth and finally, we need to be technology neutral to support 

all forms of advanced energy. Many of today’s energy policies were 

written by Congress with one sector or technology in mind. Federal 

support needs to be applied broadly as reasonable to stimulate innovation across all sectors. 

In closing, the four principles I articulated represent a common 

sense approach that would reorient federal financial support to 

more effectively spur innovation. At the same time, they represent 

a significant break from the status quo. I look forward to working 

with the Committee to reform federal energy tax policy around 

these core principles to drive a more secure, clean, and affordable 

energy future. 

Thank you. 

[The prepared statement of Mr. Woolf follows:] 
61 

A E ::~::~EO 

ECONOMY 

The business voice of advanced energy 

Malcolm D. Woolf 

Senior Vice President, Policy and Government Affairs 

Advanced Energy Economy 

"Federal Financial Support for Energy Technologies: 

Assessing Costs and Benefits" 

Testimony before the U.S. House of Representatives 

Subcommittee on Energy 

Science, Space, and Technology Committee 

March 15, 2013 

Chairwoman Lummis, Ranking Member Swalwell, and Subcommittee Members, 

thank you for affording me the opportunity to testify today. 

My name is Malcolm Woolf, and I am the senior vice president for policy and 

government affairs of the Advanced Energy Economy (AEE). AEE is a national 

association of business leaders who are making the global energy system more 

secure, clean, and affordable. Just as the Internet economy transformed society 

in ways we did not expect, the advanced energy economy is creating dramatic new 

opportunities for economic growth in the United States and around the world. 

AEE's mission is to influence public policy, foster advanced energy innovation and 

business growth, and provide a unified voice for a strong U.S. advanced energy 

industry. Founded in 2011, AEE has a national network of business members 

across states and across industries to help the advanced energy industry succeed. 

In addition, AEE has partner organizations in Arkansas, Colorado, Illinois, 

Michigan, North Carolina, New Mexico, Nevada, Ohio, South Carolina and New 

England, with more to come, as well as active engagements in California, New 

York and Maryland. 

I commend the Subcommittee for convening this hearing on "Federal Financial 

Support for Energy Technologies: Assessing Costs and Benefits." With global 

energy consumption projected to rise nearly 40 percent by 2030, future prosperity 

depends on meeting growing demand with energy that is secure, clean and 

affordable. 

Washington, OC 

San Francisco 

Boston 

www.aee.net 
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After briefly addressing the significant opportunities for U.S. businesses in 

advanced energy, my testimony today will focus on two important themes: 

1) New energy technologies face a series of structural market barriers to entry 

that often have required federal financial support to overcome; and 

2) Congress should utilize a core set of principles that we have developed to 

reorient federal financial support to more effectively encourage private 

sector innovation in technologies that promote a secure, clean and 

affordable energy future. 

What Are the Advanced Energy Opportunities for U.S. Businesses? 

Advanced energy encompasses a broad range of products and services that 

constitute the best available technologies for meeting energy needs today and 

tomorrow. It includes such diverse technologies as energy efficient appliances, 

renewable energy systems, nuclear power, advanced gas turbines, hybrid vehicles, 

and information technology as applied to the energy industry. Advanced energy is 

dynamic, as innovation and competition produce better energy technologies, 

products and services over time. 

The business opportunity in advanced energy for U.s. companies is large and 

growing, both at home and globally. A recent report, commissioned by our 

partner educational organization, the Advanced Energy Economy Institute, 

documented that the global advanced energy industry is larger, by revenue, than 

pharmaceutical manufacturing, and roughly two-thirds the size of 

telecommunications. In the United States, advanced energy is larger than the 

trucking industry and more than twice the size of the commercial casino industry. 

The key findings of this first-of-its-kind study include: 

• In 2011, global revenue from the seven advanced energy segments reached 

nearly $1.12 trillion. 

• The U.S. advanced energy market reached $132 billion in 2011, representing 

nearly 12% of the global market. 

• Based on information available in late 2012, the U.S. advanced energy 

market was expected to grow to an estimated $157 billion in 2012, with the 

U.s. share of the global market expected to rise to 15%. 

• The U.s. advanced energy market contributed $13.9 billion in federal tax 

revenue in 2011, plus another $6.7 billion in state and local tax revenue, for 

a total tax contribution of $20.6 billion. 
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Are There Structural Barriers That Necessitate the Government Playi~ 

Role in the Development of New f;nergy Technologies, Products and. 

Services? 

As AEE's member companies can attest, new energy technologies face a series of 

structural market barriers to entry. As such, the federal government needs to 

continue to playa vital role in supporting new energy technologies, products and 

services. AEE notes, however, that the federal government's engagement in 

technology development should be limited to those situations where there are 

public benefits that the private sector does not capture. 

Let me highlight a few of the most significant structural barriers that hinder 

innovation in the energy markets. 

First, the market fails to appropriately reward innovations that do not 

directly affect price. There are a wide range of important externalities in 

energy, such as grid reliability and resiliency, energy security, safety, fuel 

diversity, and public health impacts. Since these externalities are difficult to 

monetize and reflect in the price of energy, the market systematically undervalues 

them. For example, the free market may not appropriately value a new 

technology that is more expensive but makes the system less vulnerable to a 

cyber attack. 

Second, the legal framework of electric and natural gas utilities, along 

with their long-lived assets, discourages investments in innovation. Since 

the early days of electrification, electric and natural gas utilities have received a 

guaranteed rate of return as long as their investments were prudent. While this is 

a sound public policy for keeping the lights on, it creates a powerful disincentive 

for utilities to innovate. After all, why should they take a risk on unproven, 

innovative technology that regulators may not deem worthy of reimbursement· 

when they would receive the same rate of return by using established, existing 

technologies? When coupled with the institutional inertia that comes from having 

billions invested in long-lived assets, new technologies and services have an 

extremely high barrier to entry. 

Finally, the federal government needs to compensate for the chronically 

low level of private sector energy research, demonstration and 

deployment. According to a 2010 report, "U.S. energy firms reinvest well below 

one percent of their revenues in R&D, with much of that amount chiefly spent on 

improving current technologies instead of developing new ones."2 The chronically 

2 "Post-Partisan Power: How a Limited and Direct Approach to Energy Innovation can deliver Clean, Cheap 

Energy, Economic Productivity and National Prosperity," S. Hayward, American Enterprise Institute, M. Mura, 

Brookings Institute, and T. Nordhaus and M. Shellenberger, Breakthough Institute, October 2010, at p. 13. 

3 
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low level of private sector investment isn't surprising in light of the high barriers to 

entry already discussed. In contrast, innovation-intensive industries like 

telecommunications, semiconductors and pharmaceuticals invest 10-20% of their 

revenues in research and new product development. 

Other significant market barriers beyond the initial higher price of new energy 

technologies include the capital-intensive nature of energy technologies, the 

inherent technology and policy risks in energy markets, the long time horizon of 

many advanced energy projects, and a lack of wide-spread enabling infrastructure 

to support advanced energy technology deployment, such as electric transmission 

capacity or alternative energy fueling stations. 

When Has Federal Support Been Successful in Encouraging Innovation 

and Helping Businesses Overcome These Market Barriers? 

Different forms of government support and tools are needed to help overcome 

different market hurdles. Let me offer a few examples of how federal financial 

support has been critical in accelerating innovation in the energy sector: 

Renewable electricity generation benefits from a fuel source that is free 

(e.g., wind, solar, geothermal), yet needs to overcome high upfront capital 

costs. This barrier is reduced if the industry can build sufficient economies 

of scale, which is why federal tax credits have generally proven to be 

effective. Federal tax credits stimulate a national market of sufficient size 

and stability to spur innovation and support domestic manufacturing 

capacity, which has helped to dramatically reduce the levelized energy 

production cost over the last decade. 

In 2012, wind energy for the first time became the number one source of 

new u.s. electric generating capacity, providing 42 percent of all new 

generating capacity. Similarly, the price of PV cells has fallen from over $76 

dollars a watt in 1977 to about 75 cents a watt in 2013, with many 

technological developments yet to move from the laboratory to the factory.4 

Both land-based wind and solar PV are becoming increasingly cost 

competitive and have actually reached "grid price parity" in certain local 

markets. 

The private sector typically does not invest heavily in energy research and 

development because they cannot easily capture the "spillover" benefits that 

result. For this reason, DOE supported research on shale gas going back to 

4 "Alternative Energy Will No Longer Be Alternative, "The Economist, Nov. 21, 2012, available at 

http://www.economist.com/blogs/ graph icdetai 1/20 12/12/ daily-chart-19 

4 
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1976, including assessments of the resource base, experiments in directional 

drilling and hydraulic fracturing techniques. As a result of this research and 

a series of public-private collaborations, America is now reaping the benefits 

of the current natural gas production boom. 

To help drive innovation in energy efficient lighting, DOE created the L-prize 

in 2008, a government-sponsored technology competition designed to spur 

lighting manufacturers to develop high-quality, high-efficiency products to 

replace the common light bulb. The winner was the Philips AmbientLED. If 

these bulbs were widely used across the country, the nation would save 

about 35 terawatt-hours of electricity or $3.9 billion in one year. That's 

enough electricity to power the lights of nearly 18 million U.s. households, 

or nearly triple the annual electricity consumption in Washington, D.C. 

Most major energy technologies over the last half-century have benefited from a 

federal role in its research, demonstration and/or deployment, including most 

fossil fuels, renewables and energy efficiency technologies. In the landmark 

National Academy evaluation of DOE R&D from 1978-2000, Congress asked the 

Academy: "Was it worth it?" The resulting study found that the $15 billion spent 

on energy efficiency and fossil fuel R&D over a 22-year period yielded a "realized 

benefit" of about $41 billion, in addition to the "options benefits" and "knowledge 

benefits".5 The technologies evaluated included building and industrial efficiency 

technologies, such as low-e glass, electronic ballasts for fluorescent lighting, 

compact fluorescents, oxygen-fueled glass furnaces, and the development of more 

efficient gas turbines through the Advanced Turbine Systems program. The $41 

billion in benefits did not include the environmental benefits conservatively 

estimated as ranging from $60-90 billion over the 22 year period. 

What are the Core Principles that Should Guide Federal Support f~L 

InnQVi'lt1oILi!:Lt;neXgy-Te~!J!1ologlestPrQducts and Services? 

AEE believes there are significant opportunities to better utilize taxpayer dollars 

and, at the same time, more effectively promote secure, clean and affordable 

energy. 

The ongoing conversations about fiscal reform provide an immediate opportunity 

to help build a better paradigm for the advancement of energy technology by 

applying business-focused principles to R&D investments. Rather than engage in a 

political food fight, where only those provisions supported by the strongest special 

5 "Energy Research at DOE: Was It Worth It?," Energy Efficiency and Fossil Energy Research 1978 to 2000, 

Committee on Benefits of DOE R&D on Energy Efficiency and Fossil Energy, Commission on Engineering and 

Technical Systems, National Research CounCil, (Free Executive Summary at 

http://www.nap.edu/catalog/10165.html) 
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interest can survive, AEE suggests a fresh approach whereby we refocus the 

federal energy outlays on a core public purpose - promoting innovation to give the 

United States energy that is secure, clean and affordable. 

Over the decades, federal expenditures on energy, from the tax code to loan 

programs, have become a complicated patchwork of technology-specific benefits, 

with the size and scope of dollar flows differing greatly even between technologies 

that compete in the same markets. A lack of consistent, core principles underlying 

the use of federal funds in energy technology limits the effectiveness of those 

investments. 

Through a series of conversations and interactions with numerous stakeholders, 

AEE has created a set of core principles that can act as a guide to federal 

expenditures in the development of energy technologies, products and services: 

1 - Be targeted: limit federal funds to where innovation is needed to build 

a more secure, clean and affordable energy future. Federal energy programs 

should only be provided where there is an essential public purpose. Rather than 

providing permanent support to mature technologies that already have significant 

market penetration, the federal government's role should be limited to driving 

innovation and commercializing the next generation of technologies, products and 

services that promise public benefits. These public benefits include enhancing 

energy security through fuel diversity and grid modernization, providing cleaner 

energy that better protects public health, reducing energy costs for consumers and 

businesses, and developing products that can be competitive in world markets. 

2 - Sunset or automatically update provisions when market-based 

objectives are achieved. No company or technology should be entitled to 

permanent subsidies or investments. For example, when left in place too long, tax 

incentives distort price and market signals and ultimately create barriers to entry 

for new technologies. Therefore, such incentives should remain in place only long 

enough to achieve a measurable, market-based objective (for example, gigawatts 

installed or share of market) that represents a point at which emerging 

technologies have reached sufficient maturity that they should stand on their own. 

Each provision should have an automatic phase-out or periodic update built in 

from the beginning to send clear signals to businesses and investors. 

3 - Provide stability and certainty for businesses and investors. Businesses 

and investors need certainty to make the investments and set the plans necessary 

to grow. Rules that change frequently or unpredictably are disruptive to markets 

and harmful to the businesses, investors, and consumers participating in them. 

Using meaningful, performance metrics tied to maturity in the marketplace, rather 

than calendar deadlines, to sunset a program or automatically update federal 
67 

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standards would provide certainty to investors, focus businesses on bringing their 

technologies to scale and moving down the cost curve, and allow market dynamics 

to drive business success. 

4 - Be technology neutral to support all forms of advanced technology. 

Many of today's energy policies were written by Congress with one sector in mind, 

even favoring a single technology. Such an approach distorts market signals and 

puts the weight of Congress behind investment decisions. This is inefficient and 

imposes unnecessary risk to taxpayers. In addition, this approach can 

inadvertently freeze out next-generation technologies since the best available 

technology today will not necessarily be the best in the future. Energy R&D 

programs play an especially critical role in driving the development of next 

generation technologies. Such programs should be applied as broadly as 

reasonable to stimulate innovation across technologies, including those that have 

not yet emerged. 

A New Approac!l.tp Energy Policy 

In closing, AEE believes that the federal government needs to continue playing a 

vital role in helping energy technologies overcome multiple structural barriers. I 

believe that the four principles I articulated represent a common sense approach 

that would reorient federal energy financial support to more effectively spur 

innovation. At the same time, these principles represent a dramatic break from 

the status quo. I look forward to working with the Committee to reform federal 

energy policy to drive a more secure, clean and affordable energy future. 

Thank you. I am happy to answer any questions. 
68 

Malcolm D. Woolf 

Senior Vice-President, Policy & Government Affairs 

Advanced Energy Economy 

Malcolm Woolf joined the Advanced Energy Economy (AEE) in September 2012. As senior vice 

president of policy and government affairs, Malcolm works to influence public policy, foster 

advanced energy innovation and business growth, and provide a unified voice for all segments 

of the advanced energy industry. 

Before joined AEE, Malcolm served as a Cabinet-level official with Govemor Martin O'Malley. 

As head of the Maryland Energy Administration from 2007-2012, he helped enact and 

implement one of the most ambitious sets of energy goals in the nation, including the 

EmPOWER Maryland Act seeking a 15% reduction in peak demand and overall electricity 

consumption, a 20% renewable standard, and a 25% reduction in greenhouse gas emissions. 

To achieve these goals, MEA launched numerous innovative new programs to promote greater 

use of advanced energy technologies. Several of these programs have received national 

recognition, including the Generating Clean Horizons program that was named one of the "top 

25 innovations in American government" by Harvard University's John F Kennedy School. 

An energy expert with experience at the national level and in the private sector, Woolf was the 

chair of the National Association of State Energy Officials (NASEO), has testified before 

Congress on several occasions, and is frequently featured in national media. He was recently 

appointed by Secretary Chu to serve on the U.S. Department of Energy's State Energy Advisory 

Board. 

Woolf has extensive energy experience both within federal and state government, as well as 

private legal practice. Woolf previously served as the director of the National Governors 

Association's Natural Resources Committee and counsel to the U.S. Senate Environment and 

Public Works Committee. He also was a senior attorney with the U.S. Environmental Protection 

Agency, and an associate with the law firms of Winston & Strawn and Piper & Marbury L.L.P. 

Woolf received his BA magna cum laude from Tufts University, with a year abroad at 

Pembroke College, Oxford University. He earned his law degree, as well as a Masters of Public 

Administration and Public Policy, from the University of Virginia. 
69 

Chairwoman LUMMIS. I would like to thank all of our witnesses 

for being available today and again for your patience with the delayed start of this hearing. The Committee rules limit questioning 

to five-minute rounds. 

And we have two Members of this Committee who have conflicting committee assignments, so we will be going first to Mr. 

Hultgren of Illinois, and he will be followed by Mr. Kennedy of 

Massachusetts. So the Chairman of our Full Committee and the 

Ranking Member of this Committee have graciously offered to defer 

their questions until later. 

So at this time, I will recognize the gentleman from Illinois, Mr. 

Hultgren, for five minutes. 

Mr. HULTGREN. Thank you, Chairwoman Lummis. 

Thank you so much for being here today. This is obviously a very 

important subject during these difficult budget times. 

I want to talk today about priorities. When resources are limited, 

priorities are more important than ever. We have heard over and 

over again from this Administration that there isn’t enough money 

to invest in basic research as they cut high-energy physics, they cut 

nuclear physics, they cut manned space exploration. President 

Obama shut down the Tevatron in Illinois, he canceled the Constellation Program that would restore American preeminence in 

space, and he shifted the focus of agency missions away from the 

pure scientific route to instead follow the path of what is politically 

expedient for him and his base. These are truly painful cuts to 

long-term American competitiveness and innovation. 

I have here in my hand a letter to our Governor in Illinois from 

the Deputy Secretary of Energy warning about pending cuts and 

furloughs as a result of the sequester. In the letter, President 

Obama’s Administration threatens about 1,750 furloughs at 

Fermilab in my district over the sequester, which is ironic considering that the sequester would actually be a higher level of funding 

than President Obama’s own budget proposal for Fermilab. The 

President wants to see a cut to the lab of almost double what the 

sequester is going to cut. Meanwhile, the President has shown no 

hesitation to squander tens of billions of dollars on tax incentives, 

loan guarantees, and directing spending on development and commercialization activities. This, to me, is a staggering level of hypocrisy. 

Ms. Hutzler, I wonder; you are a trained scientist, you have got 

an advanced degree in applied mathematics. Would you characterize President Obama’s shifting of funding from basic research to 

subsidies for the alternative energy industry as pro-science? 

Ms. HUTZLER. No, I wouldn’t because there—I mean picking winners and losers by dealing with these subsidies has not been a good 

thing of the government in the past. We have—throughout history, 

we have seen that the government isn’t good at picking winners 

and losers. So there are better ways of spending the money. And 

their—you could always put up Washington monuments if you 

want, but you can also figure out other ways to cut your budget. 

Mr. HULTGREN. Ms. Hutzler, your testimony highlights the enormous growth in spending on energy technologies from 2007 until 

2012. Please describe the corresponding growth in energy production during this time. Just as a follow-up, DOE figures show that 
70 

solar and wind generation contributed a minimal share of current 

electricity generation. Do you consider the significant increase in 

subsidies to have been effective in their oft-stated goal of transforming the Nation’s electricity portfolio? 

Ms. HUTZLER. No, I don’t. Renewables did increase their share, 

but as I mentioned in my testimony, that hydropower actually contributes the most in terms of the renewable share. So while renewables did increase their share, most of the change that has occurred 

has been between coal and natural gas, where they have sort of 

flip-flopped in terms of their share in the generating sector. 

I did look at how much increase we got from renewables in that 

five-year period in terms of BTUs. We increased non-hydro-renewables by about two quadrillion BTUs, but in fact, we increased oil 

and gas by 5.3 quadrillion BTUs. So that is more than double when 

they have gotten a much smaller share of the subsidies. 

Mr. HULTGREN. Yes, and the DOE figures I saw were that wind 

is about three percent, solar is less than one percent of current 

electricity generation. Well, this is an important topic. I know we 

are running late so I am going to yield back the rest of my time 

and thank the Chairwoman and also think the Chairman and the 

Ranking Member for allowing me to go ahead of schedule. So thank 

you so much. 

I yield back. 

Chairwoman LUMMIS. I thank the gentleman from Illinois and 

would recognize the gentleman from Massachusetts, Mr. Kennedy, 

for five minutes. 

Mr. KENNEDY. Thank you, Madam Chair. Thank you to the 

Ranking Member, to the Chairman as well, and to the witnesses 

here for coming to testify today. Thank you for your time and your 

knowledge. 

I have got a question, just to begin, to Mr. Woolf. You cite in the 

written testimony that you had provided that wind energy, for the 

first time, became the number one source of new U.S. electric generating capacity providing 42 percent of all new generating capacity. I come from a State and represent a district that has a long 

history of investments in innovation and has made a decision to try 

to be on the forefront of emerging clean energy technology, most 

notably wind energy in particular. 

One of the questions that comes up with that is whether—is the 

development of offshore wind farms, both near-shore and for some 

further distances offshore. And I was wondering if, in your opinion, 

if our country actually has the expertise, the resources, and the 

workforce, the infrastructure to compete in that industry? And the 

reason why I ask is there is a local project in Massachusetts, a 

wind project, Cape Wind, which I am sure you are familiar with 

and a project that I actually support. The developer just this week 

indicated that he was going to be shifting some of those manufacturing jobs to an overseas manufacturer because we didn’t have the 

capacity here in the United States to actually build the steel foundations necessary for the construction of those turbines. And I just 

wanted to get your opinion as to the state of the industry surrounding some of these production issues and what it would take 

in order to get competitive if we aren’t already. 
71 

Mr. WOOLF. Thank you for your question. And I think it gets to 

the heart of what this Committee is looking at is what kind of energy future do we want? Where do we want to be in 30, 40 years? 

Because the investment decisions we are making today are going 

to be the plants that are operating in 30, 40 years. 

As I listened to Ms. Hutzler’s data, it strikes me as not at all surprising that we be investing in innovation in technologies where we 

don’t yet have significant production, rather than the mature technologies that are already producing. I would not expect a correlation between where our investment dollars for innovation go and 

where the existing production goes. I think had—if this Nation begins to invest in offshore wind technologies, we would be building 

the supply chain for offshore wind so that we can manufacture it 

in the United States. I know that for land-based wind technology, 

10, 20 years ago, much of it was based offshore. Now, more than 

75 percent of it has become onshore, U.S. manufacturing, just like 

car manufacturing. 

As we have built the capacity here, for the first wind project offshore, I am not at all surprised, since we are so far behind the rest 

of the globe, that U.S. companies are not competitive. As Cape 

Wind goes forward, as Governor O’Malley goes forward in Maryland, I think we will be building that U.S. capacity. 

Ms. HUTZLER. I would just like to comment on the offshore wind 

subject. It turns out if you take a look at EIA’s numbers that on 

a kilowatt-hour basis that offshore wind is more than 20 times the 

cost of onshore wind. The—in the State of Massachusetts for Cape 

Wind, they said that they would have to start at $.18 per kilowatt 

hour for Cape Wind and then increase that cost three percent a 

year. The average cost of electricity in this Nation is only $.10 per 

kilowatt hour. 

You take a lot of the European countries that have offshore 

projects; a number of them are in fuel poverty. I think about 18 

percent of the United Kingdom is in fuel poverty. And that definition is that more than 10 percent of their income is being spent on 

residential energy. So I think we need to take—we need to look 

carefully at these projects. 

Mr. KENNEDY. And ma’am, your characterization of the cost of 

Cape Wind is obviously well known and well debated in Massachusetts. One of the issues with wind farms, as I have come to understand, anyway, is part of the upkeep and maintenance of particularly the Cape Wind project that is actually built in shallow waters 

is that over time, that cost comes down because you are just paying 

the upkeep. And in fact, the wind is free. 

So I appreciate it and I yield back the balance of my time. 

Ms. HUTZLER. But I think there is an issue here, too, that we are 

not that familiar with the maintenance cost to really know that. I 

mean those are pretty much guesses, and once we—once the technology has been around even in European countries, we will find 

out more about it. 

Mr. KENNEDY. And Mr. Woolf, would you like to comment on 

that? 

Mr. WOOLF. Sure. Offshore wind has been used in Europe for 

many decades now, so I think we have got a pretty good sense of 

what it takes. 
72 

Mr. KENNEDY. Yeah, my five seconds. Thank you, Madam Chair. 

Chairwoman LUMMIS. Thank you, Mr. Kennedy. 

And now the Chairman will yield five minutes to herself. 

My first question is for Dr. Dinan, and it is about eligibility to 

qualify for the Wind Production Tax Credit. Now, in the fiscal cliff 

deal, there was an extension and modification of the Production 

Tax Credit for one year, even though it was supposed to expire at 

the end of 2012. So it provides that any project is eligible that begins construction. That is the operative language I am curious 

about. The modification makes eligible any project that begins construction by December 31, 2013. The IRS has not yet issued guidance as to the definition of ‘‘begin construction.’’ But based on 

precedent, projects have expended only five percent of the project 

costs and yet may qualify. So my question is this: how does the 

broad definition of ‘‘beginning construction’’ impact the estimated 

costs of the Production Tax Credit? 

Dr. DINAN. Your description of the extension of the Production 

Tax Credit is correct. They now qualify based on beginning construction. However, CBO does not estimate the cost of that extension, and that would be the Joint Committee on Taxation. So it is 

nothing I can comment on. 

Chairwoman LUMMIS. If the IRS determines how it is going to 

define ‘‘begins construction,’’ will CBO then be able to update the 

estimates? 

Dr. DINAN. No, because CBO estimates the budgetary cost of legislation that involves spending, but revenue—the effects of changes 

in revenue are made by—those cost estimates are made by the 

Joint Committee on Taxation, not by the Congressional Budget Office. 

Chairwoman LUMMIS. And will the Joint Committee on Taxation 

update it? 

Dr. DINAN. Yes, they each year estimate the cost of each individual provision. And so—— 

Chairwoman LUMMIS. Thank you. Second question, and I also 

want to ask this of Dr. Dinan and Ms. Hutzler. It is regarding Section 1603 grants and their ongoing funding. Now, those grants, in 

lieu of credits, allowed wind developers to take a cash grant instead of a tax credit. And that program expired in December 2011. 

But projects that had begun construction qualified, again, only five 

percent of capital expenditures qualified as having begun construction. And then those payments extend even after expiration. So according to CBO, even under sequestration, we plan to spend $2.6 

billion on 1603 grants in FY 2013. 

So, question: I was surprised to learn, Dr. Dinan, from your testimony that the Federal Government plans to give $2.6 billion of 

cash to wind developers this year alone through the expired Section 

1603 grants. Can you explain to me why we are giving $2.6 billion 

for a program that expired in 2011? 

Dr. DINAN. The reason for that is that the—to qualify for the 

1603 grants, it is based on beginning construction prior to the expiration date. So renewable generators that were under construction 

prior to the December 31, 2011, qualified, but they received the actual grant at the time they begin production. 
73 

Chairwoman LUMMIS. So do you have an estimate of how much 

more cash we will hand out under the expired 1603 program over 

the next few years? 

Dr. DINAN. I do not. 

Chairwoman LUMMIS. Well, let me ask then, Ms. Hutzler, this: 

Do you think the 1603 program was good policy? How would you 

rank it among other maybe best-to-worst policies when it comes to 

subsidies or tax benefits? 

Ms. HUTZLER. Well, as I indicated in my oral testimony, we believe at IER in free-market principles. So I am not sure that I 

would prefer any of these different types of subsidies that we are 

talking about. But anything where you have a policy where you can 

start construction but not complete it causes problems and distortions in the marketplace. So the change in the PTC is a problem 

because you don’t know how many more years in the future you are 

going to have to be paying for it. 

And furthermore, it is going to be hard for even the JTC to figure 

it out because they usually use EIA estimates on penetration. But 

you don’t know when—somebody can start construction, but you 

don’t know when they are going to actually start operating. They 

may wait until the economy is much better. So it could go many 

years into the future. 

Chairwoman LUMMIS. I thank the witnesses and yield to the 

Ranking Member, Mr. Swalwell of California. 

Mr. SWALWELL. Thank you, Chairman Lummis. And I am actually going to yield and ask to come back after Mr. Veasey and your 

next Member goes. 

Chairwoman LUMMIS. I yield than five minutes to Mr. Veasey. 

Mr. VEASEY. Madam Chair, thank you very much. And I wanted 

to ask Ms. Hutzler and Mr. Woolf just some questions about intangible drilling costs and depletion write-offs and things like that 

versus the subsidies because, you know, you hear a lot about we 

are picking winners and losers, but where do those things in the 

traditional fossil fuels sector—how do they pair up with what is 

going on as far as wind is concerned? 

Ms. HUTZLER. The—well, the issues that you are talking about 

here are the percentage allowance depletion and the intangible 

drilling costs. Both of these are tax deductions. And they mostly affect the small, independent producers. These are producers that are 

producing from marginal wells. And these deductions are helping 

them in terms of depreciation, in terms of depletion allowance, and 

in terms of essentially R&D to be able to get to the oil or gas out 

in the marginal wells. 

A good portion of our oil and gas production comes from the independents, so we are trying to support this particular entity in 

terms of tax deductions. But these are similar deductions that 

other businesses and manufacturing companies are getting in 

terms of depreciation and in terms of research and development. 

They are not individual things such as the Production Tax Credit 

that one gets. 

Mr. WOOLF. Excuse me. From the Advanced Energy Economy’s 

perspective, we wouldn’t look at it as a credit for one subsidy or 

one technology versus another technology. What we are urging 

Congress to consider is a principled approach whereby we look at— 
74 

the first question is, is innovation needed, or is this a mature technology that no longer needs innovation? But if it is a technology 

where we want the country to go, where innovation is needed, then 

the second question is, what is the market-based goal? Once you 

establish that market-based goal, you know what you are shooting 

for. You have a vision for the future and then it can automatically 

sunset when you reach that goal. 

I would apply that standard to all technologies, whether it is the 

existing permit and credits that the oil and gas industry enjoyed 

or the one-year extensions that the wind guys have to fight for 

every year. I think we should have a neutral approach for all technologies, think about what is our goal, and is this an innovation 

area that we should be investing in? 

Mr. VEASEY. Right. Exactly. And, you know, I guess my 

thought—and I would certainly like to hear from you on this—is 

that, you know, we talk a lot about being independent from, you 

know, and being able to produce our own energy and trying to lessen our dependency on foreign oil. It would just seem like, you 

know, that an investment in wind and in other things, I guess the 

technology that is driving a lot of the development, particularly in 

Texas where I am from, I know that many of the independents— 

when the big companies left those fields and the independents 

came back again, it was because of the technology that they used 

to bring us to the level where we are at now to where, you know, 

now, we are much higher up on the scale as far as, you know, producing oil. So does that make sense—I guess, really to you, Ms. 

Hutzler, to invest in both of those so we can be more independent 

as a country? 

Ms. HUTZLER. I think it deals with how competitive these technologies are. If you take onshore wind, it is 30 percent more expensive than the next—than the cheapest-generating technology, 

which is natural gas. And that is probably going to continue in the 

future, because our natural gas prices are forecasted to stay fairly 

low in the future. So it really depends on the competitiveness of the 

technology. 

Mr. WOOLF. If I can respond, I would agree that in most markets, onshore wind is not cost competitive with natural gas. The 

conclusion, then, I draw from that is it is a sector that is ripe for 

innovation. Already, over the last 20 years, onshore wind turbines’ 

cost has come down 74 percent, according to Bloomberg New Energy Finance. It is an area where technological advances are going 

very, very quickly, and that is the only way you are going to get 

progress. I am looking up at the quote over the Science Committee’s dais here, ‘‘Where there is no vision, the people perish.’’ If we 

only invest in the technologies that are currently competitive, we 

have no vision. We won’t make progress. 

Mr. VEASEY. Thank you. 

Chairwoman LUMMIS. I thank the gentleman and now recognize 

our Vice Chairman, the gentleman from Texas, Mr. Weber. 

Mr. WEBER. Thank you, Madam Chairman. 

I want to take issue with something you all said earlier about investing versus subsidies. My good colleague down on the right, 

Mark Veasey, knows well—did I say that you are on the right, 

Mark? I am sorry. Down at that end of the dais. We will do that. 
75 

I don’t need to out you here. He knows well that Texas is the leading wind producer in the country, and we are also poised to be the 

leading natural gas producer if not in the country, probably the 

world, hopefully. 

But there is a difference, is there not—and I will address this 

question to Ms. Hutzler and then Mr. Woolf—in invest—when a 

company goes out there—and you mentioned the percentage depletion allowance specifically—and is it not true, Ms. Hutzler, that 

that is—and I will let you answer the question in just a minute— 

but that is for small companies. And was it ’75 we did away with 

that depletion allowance for the major oil companies? These are the 

independent producers you mentioned. In essence, they put their 

money in up front. They invest capital and they take the risk. They 

get manpower and they get assets on the ground, and not every 

hole they drill is going to be productive. So they are investing their 

time and their energy and their resources. It makes perfect sense 

for me to give them a tax credit. On the other hand, to come in 

and give a subsidy to assist them so that they might be able to 

produce a product doesn’t seem to make sense. 

I would like to go back to something you said, Ms. Hutzler. You 

quoted some figures on coal subsidies, oil subsidies, and natural 

gas subsidies, and billions of dollars, but what I didn’t hear you 

quote was the amount of electricity each one contributed to the Nation’s grid as a result of the tax dollars spent. Do you have those 

figures? 

Ms. HUTZLER. I think I mentioned those in my oral, and that—— 

Mr. WEBER. I missed those. 

Ms. HUTZLER continuing]. On a per-unit-of-production basis that 

the subsidy for solar I mentioned was over 1,100 times more than 

that for oil, gas, and coal. And also for wind it was over 80 times 

that. 

Mr. WEBER. And then it was astounding, if I recall correctly, you 

said the vast majority of the increase came from hydroelectric 

power. 

Ms. HUTZLER. Of renewables, yes. 

Mr. WEBER. Of renewables, right. 

Ms. HUTZLER. Yes. Renewables today supply about 12 percent of 

our electricity, but seven percent of that is hydro. 

Mr. WEBER. Right. And, to your knowledge, were we able to increase the amount of water coming downstream? 

Ms. HUTZLER. The snowfall, the water changes—— 

Mr. WEBER. So—— 

Ms. HUTZLER [continuing]. 2011 was a very good year. 

Mr. WEBER [continuing]. God was good to us. The best increase 

we got was just from the rainfall and the snow. But doesn’t it seem 

fair to you for us to give tax subsidies to a hopefully growing technology that has been around a long time that does use windmills 

many, many years ago as opposed to tax credits were American entrepreneurs invest their money? Does that seem equitable to you? 

Ms. HUTZLER. Well, hydro gets very little in terms of subsidies. 

Mr. WEBER. Right, no, I get that. 

Ms. HUTZLER. You know, right. 

Mr. WEBER. The wind and solar—— 

Ms. HUTZLER. Right. 
76 

Mr. WEBER. Right. If we had taken the—was it $500 million that we gave to Solyndra and paid $1,000 per person on their own utility bill for a year, we could have powered the homes of half a million Americans. But anyway, does that seem fair to you, Ms. 

Hutzler? 

Ms. HUTZLER. No, it doesn’t seem fair to me. 

Mr. WEBER. How about you, Mr. Woolf? 

Mr. WOOLF. If I could respond to your question. 

Mr. WEBER. Sure. 

Mr. WOOLF. AEE supports both renewables and natural gas and, 

you know, all forms of advanced technologies. I think natural gas 

is an amazing, wonderful American success story. Because the Department of Energy invested in assessing the technology in the ’70s 

and coming up with directional drilling techniques, you know, 

fracking is now bringing huge sea change to the American economy. That is a wonderful thing. That was not the case with shale 

gas in the 1970s. That is why we needed the federal role in investing in the innovative technologies. Now that we are there, now that 

we have got those technologies, it no longer needs the support. 

For renewable technologies, there is a different market barrier. 

Their market barrier is one of economies of scale. When—and so 

you need—the Production Tax Credit is essential for getting them 

the economies of scale so they can drive down their costs and be 

cost effective. If you are only putting on solar or an individual 

windmill and you are not doing thousands and thousands of them, 

you don’t drive down the cost; you will never be competitive. 

Mr. WEBER. I want to go back to something my colleague, Mr. 

Kennedy, said, and that was something about the wind farm in 

Massachusetts, I think. And really, what we need is infrastructure, 

is it not? We know the technology. We need a grid. We need to be 

able to get—for example, in Texas, we are coming up with the wind 

energy to get to—our grid is the challenge. That is the bigger challenge, is it not, more so than the technology? 

Mr. WOOLF. I think it is all of the above. In certain areas, certainly West Texas, the transmission congestion is a huge challenge. 

In other parts of the country, the Northeast, they don’t have land, 

they don’t have the resources Texas has; offshore wind is their resource. 

Mr. WEBER. And I yield back. Thank you. 

Chairwoman LUMMIS. I thank the gentleman and now recognize 

the Ranking Member of our Subcommittee, Mr. Swalwell of California. 

Mr. SWALWELL. Thank you, Chair. 

And Ms. Hutzler, I have to say I was disappointed in your remarks. I thought they were very politically charged. And to say 

that only politically connected folks are the ones that are receiving 

preference in our subsidies, it ignores the facts. And it also ignores 

the role that the States play. And individual States in our country 

themselves give a number of tax credits to different industries. For 

example, there is an oil company in Pennsylvania that, in 2012, received $1.65 billion dollars in tax credits. So it seems that because 

we don’t have an energy policy in our country—or at least a national energy policy—that the States and the Federal Government 

seem to every Congress or every State Legislature will pick which 
77 

industries will support their regional economies or national agenda 

at the time. But there is nothing that seems to be uniform. 

And also to say that the President is not pro-science because he 

supported subsidies, also, I think, doesn’t help the debate. It just 

divides us further. 

And, you know, I think, Mr. Woolf, I want you to expand on talking about all of the above, because it sounds like we can find as 

many winners as possible when we have an all-of-the-above approach. And we can also root out the industries that aren’t going 

to work, and doesn’t that seem like a better way to allow us to explore what is going to drive and power our energy economy? 

Mr. WOOLF. I think that is exactly right. The Nation has a tremendous amount of strengths in all our different regions, in all our 

different States. They can all contribute something different to our 

overall energy mix. And that is part of what the Advanced Energy 

Economy brings to the table is we have got in our group all different technologies. And what binds them together is they all recognize that the energy system of the last 100 years is fading away. 

The model of centralized generation distributed on a one-way wire 

is pre-Internet. You know, in this connected world, we have got 

smart grids, distributed generation, demand-side technologies. We 

no longer have the old energy grid. And in order to be competitive 

in the 21st century, we need a 21st-century energy system. That 

is going to be driven by innovation and that is what we are suggesting that Congress consider with our principles today. 

Mr. SWALWELL. And do you see a role for tax credits not just for 

renewables but also for other sources of energy? 

Mr. WOOLF. Absolutely. I think we should be applying the same 

standard to all technology where every innovation is needed, and 

then it should sunset and expire once that technology is mature 

and it is no longer needed. 

Ms. HUTZLER. I would like to address some of the things that you 

mentioned that I said. First of all, in the terms of political cronyism, I didn’t come up with the number, but a study came up with 

the number that it was 60 percent. Now, I didn’t mean that it is 

100 percent and my written testimony indicates that. 

Furthermore, I wanted to mention about the States. There is an 

example that I have my testimony about a wind farm, Shepherds 

Flat, in Oregon. That wind farm was a $1.9 billion project. The 

amount of subsidies that are allocated to it are $1.2 billion. That 

is 65 percent. The sponsors only put 11 percent of equity in and 

their return is 30 percent. Pretty amazing. But a good portion of 

those subsidies are state-related. And in fact, the authors of the 

memo, which include Summers, Kaine, and Browner, all members 

of the Administration at that time in 2010, indicated that this 

project would have gone on anyway just because of the state subsidies and that the federal subsidies weren’t needed, that private 

funding would have been provided for the project. 

Mr. SWALWELL. But Ms. Hutzler, wouldn’t you agree that subsidies are being provided industrywide? It is not only limited to renewables, that oil and gas also receive subsidies and tax credits, 

and oftentimes, those subsidies and tax credits don’t have a great 

return on investment either? 
78 

Ms. HUTZLER. As I mentioned before, most of the—what oil and 

gas are getting are tax deductions that are going mainly to the 

independent producers. Other than that, they are also manufacturing credits that are got. And the oil and gas industry pays less 

than other manufacturers do in terms of—I mean there—the deductions they get is less than what other manufacturing companies 

get. So these aren’t apples—these are apples and oranges, essentially. We are not comparing the same types of subsidies. 

Mr. SWALWELL. If it was up to you, would the government have 

any role in subsidies, tax credits, or incentives to solve our energy 

solutions? 

Ms. HUTZLER. Well, certainly, right now, we—I think we have a 

bigger problems than trying to figure out how to subsidize things 

that just aren’t competitive in the marketplace. 

Mr. SWALWELL. All right, thank you. 

Thank you, Madam Chair. 

Chairwoman LUMMIS. I thank the gentleman and now recognize 

for five minutes the Committee Chairman, the gentleman from 

Texas, Mr. Smith. 

Chairman SMITH. Thank you, Madam Chair. 

Dr. Dinan, let me ask you a question, and it goes beyond your 

testimony, so if you could just give us an estimate. And my question is this: on the Production Tax Credit for wind energy that 

began 21 years ago, 1992, what is the total cost to the taxpayer so 

far of all that Production Tax Credit in those 21 years, if you know 

it? If you can only go back five years, that would be helpful, too, 

but I just want to get an estimate as to how much it has cost. 

Dr. DINAN. I am sorry, but I only have the estimate for the Production Tax Credit for 2013 so—— 

Chairman SMITH. Okay. As I understand it, just looking at it, 

and what was the estimate for 2013? 

Dr. DINAN. That was $1.7 billion. 

Chairman SMITH. Okay. It looks like it has probably been more 

in the last four years. And I wouldn’t want to give too much of an 

estimate, but it might well be $10 billion in the last several years. 

Is that possible? 

Dr. DINAN. I just don’t have those numbers available. 

Chairman SMITH. We will get them, or if you can help us get 

them, that would be great. 

Ms. Hutzler, let me ask a question to you. And this is in reference to a chart you mentioned a few minutes ago that I just saw 

about the time you mentioned. The chart is estimated leveled cost 

of new electric-generating technologies in 2017. And we put it up 

on the screen there. 

[Chart] 

Chairman SMITH. Looking at this chart, if you look at the column 

four from the right, we see that the cost of—and by the way, there 

are 16 different sources of electricity, 16 different bars there. Wind 

offshore is by far the most expensive, and in fact, it looks to me 

like it is three times as expensive as wind onshore, which is right 

to the left of that longest bar. That is amazing to me. That is the 

first time I have seen a cost comparison where it is three times as 

expensive offshore as onshore. For the sake of the consumers, it 

seems to me that if we are going to advocate for wind turbines, we 
79 

ought to put them on land onshore rather than offshore. Is there 

something I am missing there, or would you agree? 

Ms. HUTZLER. I definitely agree with you, but I just also want 

to mention that these numbers are out of date. EIA came up with 

a new set of numbers and solar thermal is actually the most expensive now than offshore wind, and it is not a factor of three anymore. It is 2.6 times. 

Chairman SMITH. Oh, well, I was about to ask you if it was in 

the same order of magnitude, and it sounds like it is. So it is 

2.6—— 

Ms. HUTZLER. Yes. 

Chairman SMITH [continuing]. Times more expensive offshore 

than onshore? 

Ms. HUTZLER. Correct. 

Chairman SMITH. Okay. So it makes the same point. I thank you 

for that. 

Mr. WOOLF. Mr. Chairman, could I offer a slightly different perspective on this chart? 

Chairman SMITH. Because of my limited time, if you want to be 

very brief, you can, but I have a question for you and—up next as 

well. 

Mr. WOOLF. My only comment is that I would urge the Congress 

to be investigating innovation in the technologies where they need 

it. 

Chairman SMITH. That is my next question. Wait a minute. Stop 

right there. 

Mr. WOOLF. Beautiful. 

Chairman SMITH. Let me address the next question to Ms. 

Hutzler and to you, and it is this: if we want to help these two 

technologies become more competitive, shouldn’t we be, in fact, I 

will use the word diverting, perhaps, the money from the subsidies 

into technology into coming up with these innovations that will, in 

fact, make these new technologies more cost effective? 

Mr. WOOLF. Thank you, Chairman. That is—I think that is the 

right—I think Congress should be looking at a principled approach 

to be looking for all of this. What is our goal? What do we want 

to achieve? And how do we get there? 

Chairman SMITH. Right. 

Mr. WOOLF. And we should be looking at all the technologies, 

using the same standard. So I think it is perfectly appropriate to 

be looking at the mature technologies, getting rid of their subsidies, 

and therefore, spending scarce dollars on the technologies that 

could really benefit from innovation. 

Chairman SMITH. That is where we invest not only in the future 

but sometimes in the distant future, but it pays off both for the 

consumer and for the advancement of—— 

Mr. WOOLF. And that is what fracking has showed us. 

Chairman SMITH. Right. Ms. Hutzler. 

Ms. HUTZLER. Personally, I don’t think we can afford the money 

to do that either. And if you take a look at natural gas prices, as 

I said, EIA only expects them to go up four percent in real terms 

in like the next six years, by 2020. 

Chairman SMITH. Okay. 
80 

Ms. HUTZLER. These technologies still aren’t going to be competitive. 

Chairman SMITH. By the way, I don’t disagree with that either. 

Natural gas is abundant, relatively inexpensive, and pretty clean, 

so we ought to be using more natural gas than we are right now 

as well. 

Thank you all for your testimonies. Thank you, Madam Chair. 

Chairwoman LUMMIS. I thank the gentleman and now recognize 

the Chairman Emeritus of this Committee, the gentleman from 

Texas, Mr. Hall. 

Mr. HALL. I might yield Mr. Woolf a little more time to answer 

the Chairman here if you need it. 

Mr. WOOLF. Thank you. I got a chance to make my comment. 

Mr. HALL. I probably ought to ask Dr. Dinan, but the hearing 

seemed like it is focused primarily on financial support for various 

sources of energy and a lot of other types of support that exist. Let 

me go to Ms. Hutzler. Biofuels, I am reading here that biofuels enjoyed various tax credits and financial support in 2011. Tax incentives for biofuels cost $7.6 billion. Now, how has this support impacted the competitiveness and the viability of the biofuels industry if it has? 

Ms. HUTZLER. Well, it certainly has influenced it, but the major 

subsidy or financial intervention is the renewable fuels standard 

that is mandating a certain amount of production. So, for instance, 

that biofuel subsidy expired at the end of 2011, but these mandates 

are still increasing the amount of biofuels that are being produced. 

And now, we actually even have a problem because the amount of 

gasoline consumption isn’t in concert with these increases. So in 

fact, rather than having 10 percent ethanol added to gasoline, we 

are actually talking about 15 percent now. Of course, ethanol has 

a lower efficiency, and so you get less mileages—mileage in your 

vehicle than you used to. 

Another big issue in terms of the renewable fuel standard deal 

is with the fact that we are making most of it from corn—actually, 

all of it right now from corn. That has increased our fuel prices. 

Corn used to sell for $2.50 a bushel. Now, it is selling for over $7 

a bushel. So all of these mandates, subsidies, are causing the 

American consumer to have higher fuel costs. 

Mr. HALL. Well, I would go further, Mrs. Hutzler. You are on the 

role of Renewable Portfolio Standards. I think it was announced 

that wind was the largest source of newly installed electricity capacity during 2012, and the wind industry regularly touts this 

growth is a sign of technology’s growing competitiveness. I don’t 

know about that, but in the recent fiscal cliff deal, the Production 

Tax Credit was extended for another year at the cost of $12 billion. 

Now, my question is, is wind cost competitive with the PTC? If not, 

when if ever is it expected to be? 

Ms. HUTZLER. I am sorry. I have a hard time seeing it being cost 

competitive in the near future, as I have mentioned before in my 

remarks. The Renewable Portfolio Standard is really driving most 

of the renewables that we are seeing today, particularly wind. If 

you take a look at a graph that I had in my written testimony from 

the Energy Information Administration, you will see that the Production Tax Credit started in 1992, but we didn’t see a lot of wind 
81 

additions until 1999, when taxes put forth their Renewable Portfolio Standard. And then, as the other States that have Renewable 

Portfolio Standards added theirs in 2004 to 2007, you start seeing 

the increase in wind. 

Mr. HALL. As you talk about, if individual States are mandating 

the purchase of renewable-generated electricity, then I guess my 

question is, why does the Federal Government still have to subsidize it? 

Ms. HUTZLER. Frankly, I don’t think it does. I think that is 

where we get into these duplicative subsidies that I mentioned before with the Shepherds Flat example, where we are seeing 65 percent of the project being subsidized. 

Mr. HALL. I may have further questions. If I do and the Chair 

allows them to answer them later, we will send them to you. I 

think we have a vote or something. I yield back my time if I have 

any time left. 

Chairwoman LUMMIS. Well, I thank the gentleman. 

And I want to compliment the witness for keeping her concentration during that series of bells and whistles. That can be tremendously distracting. 

Because we have votes that have just been called and we have 

about 12 minutes left to go vote, I do want to wrap up the hearing 

and have just a couple bits of housekeeping to do prior to doing so. 

First of all, I ask unanimous consent to enter into the record the 

following three items: an op-ed that appeared in the Wall Street 

Journal earlier this week written by Bjorn Lomborg and entitled 

‘‘Green Cars Have a Dirty Little Secret,’’ an article that appeared 

in the Wall Street Journal last week entitled ‘‘Chinese Solar Approach Faces Test,’’ and a report by the American Energy Alliance 

and the National Center for Public Policy Research entitled ‘‘Erroneous Numbers, Erroneous Conclusions: The Navigant Wind Jobs 

Report.’’ 

Without objection, so ordered. 

[The information may be found in Appendix 2.] 

Chairwoman LUMMIS. I am glad that that was called ‘‘Erroneous 

Numbers, Erroneous Conclusions: The Navigant Wind Jobs Report.’’ I was afraid it was going to say ‘‘Erroneous Numbers, Erroneous Conclusions: Republican Pollsters Blow November Election.’’ 

Well, I would like to thank the witnesses for their valuable testimony and the Members for their questions. The Members of the 

Committee may have additional questions for you, and we will ask 

you to respond to those in writing. The record will remain open for 

two weeks for additional comments and written questions from 

Members. 

Again, thank you, witnesses for your patience, and Members of 

the Committee. The witnesses are excused, and this hearing is adjourned. 

[Whereupon, at 4:57 p.m., the Subcommittee was adjourned.] 

(83) 

Appendix 1 

ANSWERS TO POST-HEARING QUESTIONS
84 

ANSWERS TO POST-HEARING QUESTIONS

v.s. HOUSE OF REPRESENTATIVES 

COMMITTEE ON SCIENCE, SPACE, MiD TECIL"IOLOGY 

Subcommittee on Energy 

Hearing Questions for the Record 

The Honorable Cynthia Lummis 

Federal Financial Supportjor Energy Technologies: Assessing Co.vts and Benefits 

Dr. Terry Dinan 

1. Your testimony slates "The production and consumption of energy causes environmental 

damage that is not borne directly by household~ and firms in proportion to their production or use 

of energy. For example, coal combustion emit~ carbon dioxide as weI[ as sulfur dioxide, which 

causes damage to downwind lakes and contains particulates that increase the incidence of asthma. 

Similarly, gasoline combustion releases COzand smog-causing emissions that increase the 

incidence of respiratory-related illnesses and death." 

Both of these statements directly suggest ----and are at best ambiguous-tbat carbon dioxide 

emissions cause asthma and respiratory-related illnesses and death. \\-'hat scientific evidence 

~upports this assertion? If your intent wa..;; not to link C02 with health and environmental 

problems, will you remove this ambiguity through Cl revision to this section ofth .. T<::Port'l 

Response: Emissions of C07 have not been linked to asthma or other respiratory-related illnesses. 

However, combustion of coal and gasoline results in emissions of other poHutants that are linked to such 

illnesses. For example, coal combustion results in emissions of sulfur dioxide that cause damage to 

downwind lakes and increase the incidence of asthma. Similarly, gasoline combustion releases smogcausing emissions that increase the incidence of respiratory-related illnesses and death. Those are the 

effects that are identified in our testimony, and we are sorry if some people have misread those 

statements. 

2. A recent CBO report concluded that the lifetime costs of an electric vehicle are generally 

higher than those of a conventional vehicle or traditional hybrid vehicle, even "Vith the 

tax credits. \Vil1 you please you explain how CBO arrived at these conclusions, and the 

degree of difference in lifetime costs bet\veen alternatjve vehicles and those with 

traditional combustion engines? 

Response: CBO evaluated the difference between the costs to purchase and operate an electric vehicle 

and those of a conventional or hybrid electric vehicle of comparable size and performance over the life 

of the vehicle. Electric vehicfes cost more to purchase but less to operate than the other types of 

vehicles. Estimates of the cost of purchasing electric vehicles were derived from a number of recent 

studies of current and projected prices for such vehicles. ProJections of the cost of driving those vehicles 
85 

over their operating life were based on estimates about how extensively electric vehicles will be driven 

on electric or gasoline power, prices for those fuels, and how much of those fuels are required for a mile 

of traveL Like the additional cost necessary to buy electric vehicles, eBO based estimates of driving 

behaviors, fuel prices, and fuel economies on a number of recent studies and publicly available data. 

Because the cost of purchasing and operating an electric vehicle depends on the size of the battery in 

those vehicles (measured in kilowatt-hours of capacity), CBO calculated a range of relative costs. For 

example, CBO's analysis concluded that a plug-in hybrid vehicle with a 4 kilowatt-hour battery (the 

smallest size battery eligible for a federal tax credit) costs-in the absence of the electric vehicle tax 

crf'!dits~about $2AOO more in present-value terms than does a conventional vehide of Similar size and 

performance, whereas a 16 kilowatt-hour plug-in hybrid (which receives the largest federal tax credit) 

costs about $12,000 more. Thus, the 52,500 tax credit available on 4 kilowatt-hour vehicles is sufficient 

to offset their higher cost, but the $7,500 tax credit for 16 kilowatt-hour vehicles is not. For more 

information, see Congressional Budget Office, Effects of Federal Tax Credits for the Purchase of Electric 

vehicles (Sept. 2012), http:Uwww.cbo.gov/pubHcation/43576. Details about the technical assumptions 

underlying CBO's analysis are discussed in the Appendix to that report, which is found on pages 29 

through 33. 

a. Given the size of the tax break and the fact that these vehjcles still do not achieve 

cost parity,. do you consider the tax break to be cost-effective? 

Response: One measure ofthe cost-effectiveness of the tax credits is the average amount paid by the 

government to increase by one the number of electric vehicles sold. That average cost per additional 

vehicle is higher than the credit received by each individual buyer because some of the credits are 

provided on sales that would have taken place even without the credits. CBO estimates that the tax 

credits are currently responsible for about one-third of the vehicles sold, so the cost to the government 

of increasing the number of electric vehicles sold is about triple the cost of the credit. The credit ranges 

from $2,500 to $7,500, depending on the size ofthe vehicle's battery. Because not all buyers of electric 

vehicles receive the same size credits, the average cost to the government is likely to be between about 

$10,000 and $20,000 per additional electric vehicle sold. CSO expects that the average cost will decline 

in coming years: As electric vehjcle prices decline and the tax credits come doser to achieving cost parity 

between electric and non-electric vehicles, the credits are likely to be responsible for an increasing 

fraction of electric vehicle sales. 

Another gauge of cost-effectiveness is the cost the government incurs from the tax credits for each unit 

of reductions in gasoline use or in greenhouse gas emissions that results from driving electric vehicles in 

place of other similar vehicles. That assessment can be limited to the direct effec't of the credits on the 

purchases and use of electric vehicles, or CC'ln encompass other) broader factors that offset some or all of 

that direct effect. In itself, the direct effect leads to lower gasoline consumption and fewer emissions 

than would otherwise be the case. The cost to the government of those reductions in gasoline 

consumption and emissions stemming from the electric vehicle tax credits can vary widely. For example, 

by CBO's estimates, the cost of reducing gasoline consumption ranges from about $3 to $7 per gallon 
86 

saved when, because of the tax credit, people buy an electric vehicle that is similar in size and 

performance to a conventional vehicle with average fuel economYI depending on the electric vehicle's 

type and battery size. The cost per metric ton of carbon dioxide equivalent (COle) emissions reduced 

can vary even more widely-from $230 to $4,400 in eBO's estimates for electric vehicles that are 

comparable to average-fuel economy conventional vehicles. 

However, because of their other,. indirect effects, the tax credits will have little or no impact on the total 

gasoline use and greenhouse gas emissions of the nation's vehicle fleet over the next several years. In 

particular, increased sales of electric vehicles allow automakers to sell more !ow-fuel-economyvehides 

and still comply with the federal standards that govern the average fuel economy of the vehicles they 

sell (known as CAF~ standards), leaving overa!lfuel consumption and greenhouse gas emissions largely 

unaffected by the added sales of electric vehicles. As a result, the cost per gallon or per metriC ton of 

any such reductions will be much greater during the time the CAFE standards are in effect than is 

implied by estimates of the direct effects alone. 

b. Does this tax break present any indirect costs to the federal government, such as 

loss of revenue from gasoline tax~8? 

Response: The tax preferences for electric vehicles probably result in indirect effects-potentially both 

benefits and costs-that eBO did not estimate. For instance, to the extent that the tax credit results in 

reduced gasoline consumption, it reduces revenue from the federal tax on gasoline. The electric vehicle 

tax credits will probably not reduce those receipts during the period over which CAFE standards are 

currently established. Consequently, increased sales of electric vehicles will have little impact on overall 

gasoline use, and, therefore, on federal gasoline tax revenues. Electric vehicle tax credits could have a 

longer-term impact on gasoline tax receipts if increased sales of electric vehicles led policymakers to set 

future CAFE standards at higher levels than they would otherwise. For more information, see 

Congressional Budget OfficeJ Effects of Federal Tax Credits for the Purchase of £/ectric Vehicles (Sept. 

2012), http://www.cbo.gov/publication/43576and Congressional Budget Office, How Would Proposed 

Fuel Economy Standards Affect the Highway Trust Fund? (May 2012), 

http://www.cbo.gov/publication/43198. 

Another factor that could affect the government's costs is the possibility that owning an electric vehicle 

might cause people to change how they drive, possibly driving more (because the cost per mile would 

be lower) or driving Jess (out of concern about exhausting the charge in the battery). Such changes could 

affect the need for roads and the costs for road repairs. 

c. In addition to the tax credit for the purcha..")e of these vehicles, what forms of 

linancial support are available for the development and manufacturing of these 

vehicles? Is there financial support for infrastTucture that supports these vehicles, 

such as chllrging stations? 

Response: In addition to the tax credit for purchasing electric vehicles, the federal government has 

provided roughly $2 billion In grants to battery manufacturers and suppliers of intermediate and 

component parts for electric vehicles under the ElectriC Drive Vehicle Battery and Component 
87 

Manufacturing Initiative. The Department of Energy's Transportation Electrification Initiative has also 

made about $400 million in commitments for grants for demonstration, deployment, and education 

projects involving electric vehicles. That initiative is intended to enhance the appeal of electric vehicles 

to consumers by promoting vehicle awareness and expanding the infrastructure for charging them. 

FinaJly, the Advanced Technology Vehicles Manufacturing program provides loans to U.S. automakers 

and parts manufacturers to help offset the cost of reequipping, expanding, or establishing plants to 

produce high-fuel-economy vehicles and their component parts. Some ofthe loans thus far provided 

have supported t.he production of electric vehicles as opposed to other vehicle technologies. In addition 

to those federal policies, many states offer incentives for electric vehicles, such as tax credits, 

exemptions from state and local taxes, and preferential access to high occupancy-vehicle lanes. 
88 

U.S. HOUSE OF REPRESENTATIVES 

COMM1TTEE ON SCIENCE, SPACE, A:"ID TECHl'\OLOGY 

Subcommittee on Energy 

Hearing Questions for the Record 

The Honorable Randy ~cugebauer 

Federal Financial Support/or Energy Technologies: Assessing Costs and Benefits 

Dr. Terry Dinan 

1. Please discuss some of the costs associated ,'vith integrating rene\vable energy into the 

electric grid, associated reliability issues and resulting transmission c.osts. What steps 

must baseload providers (coal, gas, and nuclear) take to ensure continued reliability when 

newly installed wind or solar is added to the grid? Are increased costs incurred by baseload providers off..'set through subsidies or other support? Are such costs passed along to 

cons1.ilUeTs? 

Response: Policies that require additional use of renewable electricity (beyond the amount that 

generators would have used in the absence of the policy) generally increase generation costs and lead to 

higher electricity prices. Those higher costs stem, in part, from the need to overcome challenges posed 

by two unique characteristics of renewable energy sources: They are typically available only in specific 

locations, and some forms of renewable energy are only available on an intermittent basis. 

Most forms of renewable generation are better suited to some locations than others, and many of those 

places are far from large population centers that have high demand for electricity. Modest increases in 

the use of renewable sources could be made without significantly changing the infrastructure for 

distributing electricity: Those increases could take place in windy or sunny areas and be used to meet 

local demand far electricity. However, substantially boosting reliance on renewable generation would 

require transporting the power to areas that consume large amounts of electricity-a process that 

would entail costly and time~consumlng expansions of transmission capacity. 

Finding sites for new transmission lines can require obtaining permiSSion from numerous government 

entities, because many lines cross multiple counties and states. On average, siting a new transmission 

line takes 14 years. In additionl building transmission lines entails resolving difficult questions about how 

the cost of that capacity should be allocated among ratepayers in various states. Once constructed, 

transmission lines could be used by generators or customers who were not envisioned in the initial plan; 

thus, the initial allocation of cost might need to be renegotiated. 

In addition to the location constraints associated with renewable sources of power, some renewablE'! 

sources, such as wind and solar, can generate power only part of the time because the wind does not 

a/ways blow and the sun is not always visible. On average, wind plants produce just 34 percent of the 
89 

electricity that they could if they operated continuously; solar plants produce 22 percent to 31 percent 

of their theoretical full capadty, depending on the type of plant. As a result of those low "capacity 

factors," the capital costs of building wind and solar plants are spread over a fairly small amount of 

generation, and hence the plants tend to have relatively high average costs. That intermittency, 

together with a lack of a low-cost way to store electricity, also means that wind and solar power cannot 

serve as a source of continuous electric power, as base-load generation through coal combustion does. 

Finally, periods of high wind or bright sunshine may not correspond with the periods when the va!ue of 

electricity, and thus the price that generators could charge for it, is highest. That fact tends to limit the 

potential for renewable generation to be dispatched (or increased quickly) when the demand for 

electricity is greatest. 

An additional megawatt Of solar orWind capacity cannot substitute for an additional megawatt of 

nonrenewable capacity because those renewable sources are available only intermittently. For exqmple, 

given the current generation mix in the United States, the Energy Information Administration estimates 

that 50 megawatts of wind capacity would be required to replace 20 megawatts of natural-gas-flred 

capacity. In the absence of a low-cost means of storing electricity, the intermittent nature of wind and 

solar energy would significantly limit their ability to provide the majority of the nation's electricity, even 

if all regions were equally well suited for such generation. 

The additional costs associated with the location constraints and intermittency generally lead to higher 

electricity prices. For ex~mple, (BO found that either a renewable or clean electricity standard, either of 

which would require a greater share of electricity generation in the United States to come from 

renewable sources, would raise the average cost of generating electricity. For more information, see 

Congressional Budget Office, The Effects of Renewable and Clean Electricity Standards (July 2011), 

www.cbo.gov/publication!41451. 
90 

Hearing Questions for the Record 

The Honorable Cynthia Lummis 

Feder~l Financial Support for Energy Technologies: Assessing Costs and Benefits 

Ms. Mary Hutzler 

1. Please provide any additional comments on the Congressional Bu~get Office testimony 

on energy subsidies. 

The following are comments regarding the testimony prepared by the Congressional Budget Office 

(CBO).; The statements and page numbers refer to the CBO testimony. 

Statement on page 1: Tax preferences for fuels and energy technologies were first established in 1916. 

For most years until 2005, the largest share of the support they provided went to domestic producers of 

oil and natural gas. 

Comment: According to the Energy Information Administration (EIA), in fiscal year 1999, 58 percent of 

tax expenditures went to oil and natural gas and 31 percent went to renewable energy. However, if you 

consider all subsidies directed to these industries, including federal government direct expenditures, tax 

expenditures, and research and development funds, 28 percent were directed to oil and gas while 22 

percent were directed to renewable energy and conservation.;; Further, in 1999, oil and gas produced 12 

percent of our domestic energy, while renewables produced only 9 percent, with hydroelectric power 

producing half ofthe renewable amount, but getting a very small share of the renewable subsidy. (1999 

was the only year that the EIA website had subsidy information prior to 2005.) 

Statement on page 1: Most of the support for energy efficiency and renewable energy comes from 

provisions that have already expired or are scheduled to expire at the end of 2013. In contrast, most of 

the support for fossil fuels and nuclear power comes from provisions that are permanent. 

Comment: The Production Tax Credit for wind was first instituted in 1992 by the Energy Policy Act of 

that year and has been extended 8 times. Its current extension is through the end of this year and was 

legislated by the American Taxpayer Relief Act of 2012. However, while expiring at the end of 2013, any 

wind farm that begins construction in 2013 will have 10 years of tax credits coming once it begins 

operation. The original law and the previous extensions mandated that the wind farm begin operation 

before the tax credit was to sunset. The Investment Tax Credit for solar energy originated with the 

Energy Tax Act of 1978 and was made permanent by the Energy Policy Act of 1992. 

The major tax deductions provided to the oil industry primarily affect small independent producers, to 

encourage them to produce oil in the United States. These tax deductions are the percentage depletion 

allowance and expensing of intangible drilling costs. As the oil and gas in a well is depleted, independent 
91 

producers are allowed a percentage depletion allowance to be deducted from their taxes. While the 

percentage depletion allowance sounds complicated, it is similar to the treatment given businesses for 

depreciation of an asset. The tax code essentially treats the value of a well as it does the value of a 

newly constructed factory, allowing a percentage of the value to be depreciated each year. This 

allowance was first instituted in 1926 to compensate for the decreasing value of the resource, and was 

eliminated for the major oil companies ("Big Oil") in 1975. It saves the independent oil and gas 

producers about $1 billion in taxes per year. 

Oil and gas producers are also allowed to count certain costs associated with the drilling and 

development of wells as business expenses. The law allows the small producers to expense the full value 

of these costs, known as intangible drilling costs, every year to encourage them to explore for new oil. 

The major companies get a portion of this deduction-they can expense a third of intangible drilling 

costs, but they' must spread the deductions across a five-year period. This tax treatment is also similar to 

that of other businesses for such investments as research and development (e.g. Apple or the 

pharmaceutical companies). Ifthe products developed from research and development are successful, 

people benefit and profits are generated which are then taxable. 

Oil companies, like other manufacturing businesses, receive the Domestic Manufacturing tax deduction, 

the purpose of which is to encourage companies to continue to produce products in America. The 

United States now has the highest effective corporate tax rate in the world among developed countries, 

and due to those high tax rates, companies have been making investments overseas. The Domestic 

Manufacturing tax deduction allows all industries and businesses (not just oil companies) to deduct a 

certain percentage of their profits-for the oil and gas industry, it is 6 percent, for all other industries 

(software developers, video game developers, the motion picture industry, among others), it is a 9 

percent deduction. It saves the oil and gas industry (mostly independent producers) about $1.7 billion in 

taxes per year. 

Oil and gas companies pay, on average, a tax rate greater than 41 percent. In comparison, other S&P 

companies pay an average of 26.5 percent.''' ExxonMobil, for example, paid $3 in taxes for every $1 in 

profit. USA Today recently reported on the top 10 companies paying the most in taxes in fiscal year 

2012. Of those 10 companies, 3 were the large, major oil companies (ExxonMobil, Chevron, and 

ConocoPhillips). ExxonMobii paid the most taxes: $31 billion in fiscal year 2012, followed by Chevron 

with $20 billion. These 3 oil companies paid over 50 percent of the taxes that the top 10 highest tax 

paying companies paid, and the taxes that Exxon Mobil and Chevron paid on earnings were substantially 

higher than all of the other businesses." 

Statement on page 1: Without government intervention, households and businesses do not have a 

financial incentive to take into account the environmental damage or their costs to the nation 

associated with their choices about energy production and consumption. The most direct and costeffective method for addressing that problem would be to levy a tax on energy sources that reflects the 

environmental costs associated with their production and use. 
92 

Comment: European countries signed the Kyoto treaty and instituted a cap and trade program that has 

not measurably altered their greenhouse gas emissions compared to non-signatories such as the United 

States. In fact, Europe countries (e.g. Germany) are building coal fired power plants in lieu of natural 

gas-fired plants and to back-up their intermittent renewable technologies, wind and solar power, 

because natural gas is more expensive than coal in many European countries, and solar and wind power 

cannot be relied upon to generate electricity when needed since they only produce power when the sun 

shines and the wind blows. So, even with a cap and trade program, Europe burned more coal in 2011 

(the most recent year of data available from EIA) than it did in 2009 and 2010. 

China, India, Russia, and Germany, to name a few, are building coal-fired power plants. Worldwide coal 

plant construction grew 5.4 percent over the past year and now represents about 30 percent of installed 

capacity. According to the World Resources Institute, almost 1,200 coal-fired power plants are in the 

planning stages (a capacity of 1.4 million megawatts) and over three-quarters of them are to be built in 

China and India, where over 500,000 megawatts each are currently planned for construction. 

Since greenhouse gas emissions are a global issue, the United States acting unilaterally would do little to 

reduce global greenhouse emissions and only make U.S. residents fuel poor by driving up energy prices. 

China, for example, consumes almost 4 times the amount of coal that we consume and emits the largest 

amount of greenhouse gases in the world. The climate change literature refers to the problem of 

"leakage" whereby attempts to penalize carbon emissions in one jurisdiction are partially offset when 

the emitters simply change jurisdictions. 

Further, if we take into account the "tax interaction effect" -where a new carbon tax, though justified in 

a vacuum, actually exacerbates the pre-existing inefficiencies of other taxes-the empirical case for a 

carbon tax becomes weaker. The federal government already has numerous policies in place that 

discourage carbon emissions and encourage substitutes. Even if one endorses the idea that government 

action needs to correct for an underlying "market failure," it may be the case that this is already being 

accomplished with existing policies and regulations. 

Statement on page 1: Also, unless the government intervenes, the amount of research and 

development that the private sector undertakes is likely to be inefficiently low from society's 

perspective because firms cannot easily capture the "spill-over benefits" that result from it, particularly 

in the early stages of developing a technology. 

Comment: It is the private sector and the market that has determined and built most of the 

technologies that have been successful in the United States. For example, the most important 

technological advancements and biggest change in energy production in the last couple decades--

hydraulic fracturing coupled with directional drilling-- was initiated by the private sector. Hydraulic 

fracturing was first used in the mid-to-Iate 1940s by the private sector. It was not until the 1970s that 

the Department of Energy spent a small amount of R&D funds on the technology. The hydraulic 

fracturing revolution shows why the market is superior to government subsidies in selecting winning 

technologies. It has dramatically lowered natural gas prices, increased oil production on non-federal 

lands at the fastest rate since 1859, created jobs, and led to real benefits for Americans. According to 
93 

Daniel Yergin, production of unconventional oil and gas has generated 1.7 million jobs and could 

generate 3 million jobs by 2020. In 2012, this revolution added $62 billion to federal and state 

government revenues that could rise to about $113 billion by 2020, according to Yergin.v 

Although it is theoretically possible to identify reasons that the market would provide an inefficiently 

low amount of investment in certain areas of research and development, at the same time there are 

reasons to be wary of "government failure." It is na'ive to think that policymakers have the requisite 

knowledge and incentive structure to identify areas of "market failure" and to offset them, without 

falling into the trap of spending too much taxpayer money or spending it on the wrong outlets. 

Statement on page 2: From 1916 to the 19705, federal energy-related tax policy focused almost 

exclusively on increasing the production of domestic oil and natural gas; there were no tax incentives for 

promoting renewable energy or increasing energy efficiency. In the 1970s, lawmakers began adding tax 

preferences for new sources of fossil fuel, alternatives to fossil fuel, and energy efficiency. 

Comment: As explained above, in 1978, lawmakers provided a 10 percent investment tax credit to solar 

energy through the Energy Tax Act of that year. Moreover, energy efficiency did not begin with tax 

policies in the 1970's, but rather, as a normal human goal. Back in 1741, for example, Ben Franklin 

invented the Franklin Stove as a more efficient means of heating homes. As the chart below 

demonstrates, energy use per dollar of GDP was already well established on a downward trend well 

before the tax policies mentioned by CBO. 

Energy Consumption and Carbon Dioxide Emissions per Dollar of GOP 

Source: http://bJogs.the~american-intere5t.com/wrm/2013/03/01Ius-getting-more~economic -bang-for-its~energy·buck/ 
94 

Statement on page 6: Most of the support for energy efficiency and renewable energy in 2013 comes 

from provisions that are temporary. In contrast most of the support for fossil fuels and nuclear energy 

comes from provisions that are permanent. 

Comment: As explained above, there is a permanent 10 percent investment tax credit for solar energy, 

made permanent by the Energy Policy Act of 1992. Also, the entire panoply of tax deductions and 

treatments that exist for other businesses akin to those for the oil and gas industry, including business 

deductions, research and development, amortization of investment properties and the like, also apply 

permanently for all renewable energy sources. While they may be called something different in the tax 

code, they serve the same purpose. The renewable energy industries, like other industries, use whatever 

tax treatments are available to minimize taxes and reinvest in their technologies. 

Statement on page 7: In 2009, DOE received $39 billion (in current dollars) for support of energy 

technologies (after accounting for rescissions and transfers)-roughly 17 times the average annual 

appropriation for the preceding decade ..... Although ARRA funds have generally been spent more 

rapidly than funds that DOE has received through the normal appropriation process, roughly $5 billion of 

ARRA funding for the fuels and energy technology programs remain unspent. 

Comment: The stimulus funding in 2009 from the American Recovery and Reinvestment Act (ARRA) 

totaled $787 billionv', and most of those funds have been paid out according to the 

government's websitev

". Over $90 billion was earmarked for 'green programs.' However, the total that 

went to green energy projects is not clear. Brookings estimated it at $51 billion, with a total government 

spending (both stimulus and non-stimulus) on green initiatives at $150 billion through 2014."" 

Unfortunately, about 50 firms receiving government funds are either bankrupt (23) or are having 

difficulties (27), and many of the latter are in financial trouble." Over $15 billion of taxpayer money is 

either gone or at risk. Further, 29 of the 50 companies had or have political connections, putting the 

percentage of political cronyism at almost 60 percent. 

Many of the loans/loan guarantees were pushed quickly through the system by DOE because of political 

pressure to the detriment of the American taxpayers, the most famous of which is Solyndra, a solar 

manufacturer that received almost all of the $535 million loan awarded it before filing for bankruptcy in 

2011. The cause of Solyndra's demise was its complicated technology that required a custom 

manufacturing facility and an expensive price tag. 

Abound Solar, another solar manufacturer that received a DOE loan guarantee for $400 million, filed for 

bankruptcy in June 2011 after it had laid off 70 percent of its workforce that February.' According to 

the Daily Caller, Abound Solar sold defective or underperforming products, and company personnel 

claimed DOE officials knew their panels were faulty before they received taxpayer dollars." Virtually all 

of the panels Abound manufactured underperformed, putting out between 80 and 85 percent of the 

promised wattage and leading to tens of thousands of panels having to be replaced, particularly towards 

the end ofthe company's life. 
95 

First Solar, one of the biggest recipients from DOE's loan guarantee program, garnered over $3 billion'" 

before the program expired at the end of September 2011.'iH At the time, DOE was under pressure not 

to repeat its prior mistakes, but again the agency provided a loan guarantee to a losing company. For 

example, early in 2012, First Solar laid off half of its employees at its Antelope Valley Solar Ranch One 

project in the Southern California desert, which was the recipient of a $646 million loan guarantee that 

was to create 350 construction and 20 permanent jobs. Further exploiting taxpayers dollars, in 2011, 

First Solar paid its top eight executives almost $16 million. Rob Gillette, who was terminated as CEO of 

First Solar in October 2011, received more than $32 million since his employment began in October 

2009. First Solar sold much of its $3 billion in federal loan guarantees to third parties before it laid off 30 

percent of its workforce. Its stock price plummeted by more than 90 percent from its high in 2011, but 

not before its head officer received more than$329 million in stock sales since 2009. 

Solar technology firms were not the only companies that received DOE awards, but are having financial 

problems. Fisker Automotive, a Finnish electric car maker, originally received $529 million in DOE loan 

guarantees, but was cut off at $193 million because it failed to reach milestonesJor its luxury vehicle 

Karma. The company suffered recalls of its extended-range electric sedan that cost over $100,000, 

because of technology flaws and failed batteries, which resulted in fires. The federal subsidies attracted 

some of the rich and famous, as it has been a favorite status purchase for Hollywood movie stars and 

celebrities, rappers and Hip Hop musicians, and soap opera stars. Consumer Reports gave the Karma a 

terrible review, calling it the worst lUXUry sedan on the market. On April 5, 2013, Fisker laid off 160 of its 

210 employees at its Anaheim, California office. Some believe bankruptcy filing may happen soon. 

Fisker's battery supplier, A123 Systems, supplied the defective batteries. A123 Systems declared 

bankruptcy in October 2012, but not before receiving $132 million from its $279 million DOE loan 

guarantee to refurbish two Michigan plants plus other projects.';' Here again the loan guarantee was 

moved quickly by DOE. Similar to First Solar, A123's officers and directors made more than $11 million in 

stock sales before the bankruptcy filing. 

The Heritage Foundation put together a list of 34 companies that received federal support from 

taxpayers that have faltered or are now faltering." These companies have either gone bankrupt, laid off 

workers, or are heading for bankruptcy. The list below provides the 34 companies along with the 

amount of money they were offered by the u.s. Department of Energy and other federal government 

agencies. The amount of money listed does not include other state, local, and federal tax credits and 

subsidies. The at-risk total is approximately $7.5 billion, of which $1.6 billion is in receivership. And the 

total will likely get larger as more is known about each company. 

1. Evergreen Solar ($2S million)' 

2. Spectra Watt ($500,000)* 

3. Solyndra ($535 million)* 

4. Beacon Power ($43 million)' 

5. Nevada Geothermal ($98.5 million) 

6. SunPower ($1.2 billion) 
96 

7. First Solar ($1.46 billion) 

8. Babcock and Brown ($178 million) 

9. EnerDel's subsidiary Ener1 ($118.5 million)* 

10. Amonix ($5.9 million) 

11. Fisker Automotive ($529 million) 

12. Abound Solar ($400 million)* 

13. A123 Systems ($279 million)' 

14. Willard and Kelsey Solar Group ($700,981)' 

15. Johnson Controls ($299 million) 

16. Schneider Electric ($86 million) 

17. Brightsource ($1.6 billion) 

18. ECOtality ($126.2 million) 

19. Raser Technologies ($33 million)' 

20. Energy Conversion Devices ($13.3 million)' 

21. Mountain Plaza, Inc. ($2 million)' 

22. Olsen's Crop Service and Olsen's Mills Acquisition Company ($10 million)' 

23. Range Fuels ($80 million)' 

24. Thompson River Power ($6.5 million)' 

25. Stirling Energy Systems ($7 million)' 

26. Azure Dynamics ($5.4 million)' 

27. GreenVolts ($500,000) 

28. Vestas ($50 million) 

29. lG Chem's subsidiary Compact Power ($151 million) 

30. Nordic Windpower ($16 million)' 

31. Navistar ($39 million) 

32. Satcon ($3 million)' 

33. Konarka Technologies Inc. ($20 million)' 

34. Mascoma Corp. ($100 million) 

'Denotes companies that have filed for bankruptcy. 

Statement on page 11: Because many sectors of the U.S. economy-especially transportation-use oil, 

the United States is economically vulnerable to a disruption in the supply of oil. Reducing exposure to 

that disruption would require a large decrease in the total amount of oil consumed in the United States. 

Comment: There are other ways to ensure security of supply in oil. Forecasts have shown that the 

United States can become independent of overseas oil by using its own vast domestic oil resources and 

that of its neighbors that are trusted allies. North America has 1.79 trillion barrels of technically 

recoverable oil, enough to last over 250 years at current usage rates in the United States.'" Of that 

amount, over 210 billion barrels are proven reserves, equal to over 80 percent of Saudi Arabia's proven 

reserves. 

We need to be able to move Canada's vast proven reserves to the United States by the cleanest and 

most economical way-one example being the Keystone pipeline that is awaiting a Presidential permit 

since it would cross the U.s.-Canadian border. The delay in its approval by the Obama administration has 

been 4 long years while Canadian oil is being transported to the United States by existing pipelines and 

more expensive rail that does not need a Presidential permit. Both rail and pipeline deliver more than 
97 

99 percent of products without incident. However, pipelines have a better safety record than rail. 

According to the American Association of Railroads, railways occur spills 2.7 times more often than 

pipelines; a Manhattan Institute study notes that trains spill 33 times more than pipelines."'''' 

Further, the Obama Administration could allow oil and gas companies access to the 1.442 trillion barrels 

of technically recoverable oil in the United States. Production of shale oil in the United States, for 

example, has increased oil production on non-federal lands at the fastest rate since 1859, created jobs, 

and led to real benefits for Americans improving state economies where that production is taking place. 

The United States has almost 1 trillion barrels of technically recoverable oil shale that lie on mostly 

federal lands that the Obama Administration has restricted from leasing and commercial development, 

thereby making it harder for industry to develop the technology to drill and produce it. Areas that the 

federal government could open to oil gas development include: 

The 10.4 billion barrels of oil in the Arctic National Wildlife Refuge 

The 86 billion barrels of oil in the outer continental shelf of the lower 48 states 

The 896 million barrels of oil in the Naval Petroleum Reserve-Alaska 

The 25 billion barrels of oil in the outer continental shelf of Alaska 

The 90 billion barrels of oil in the geologic provinces north of the Arctic circle 

The 982 billion barrels of oil shale in the Green River Formation in Colorado, Utah, and 

Wyoming. 

Statement on page 11: The most cost effective way to reduce the external costs associated with 

energy would be to enact policies, such as taxes, that would increase the prices of various types of 

energy to reflect the external costs that their production and use entail. That approach would provide 

a financial incentive for businesses and households to consider those external costs when deciding on 

the types and amounts of energy to use. 

Comment: As mentioned above, European countries signed the Kyoto treaty and instituted a cap and 

trade program that has not measurably altered their greenhouse gas emissions compared to nonsignatories such as the United States. In fact, European countries (such as Germany) are building coal 

fired power plants in lieu of natural gas-fired plants and to back-up their intermittent renewable 

technologies. So, even with a cap and trade program that taxes fossil fuels, primarily coal, Europe 

burned more coal in 2011 (the most recent year of data available from EIA) than it did in the previous 2 

years. 

Australia implemented a carbon tax and the country has found that businesses are going under as a 

result. Business insolvencies are at a record high in Australia and show that the carbon tax is doing 

damage since their products are having trouble competing against imports. The Australian Securities and 

Investments Commission recorded more than 10,500 company collapses for the first 2 months of this 

year. It is estimated that about 900 firms are being placed in administration every month - more than 

during the global financial crisis."v,;; 

Since greenhouse gas emissions are a global issue, the United States acting unilaterally would do little to 

reduce global greenhouse emissions and only make U.s. residents fuel poor by driving up energy prices. 

China, for example, consumes about 4 times the amount of coal that we consume and emits the largest 
98 

amount of greenhouse gases in the world. While they make investments in clean energy, about 30 

percent of their wind units are unusable since they are not integrated with the country's electricity grid. 

Further, China continues to build coal-fired power plants at breakneck speeds to provide power to 

residents without electricity, producing more than 70 percent of its electricity from coal. 
99 

2. President Obama declared in his State of the Union speech that China has gone "all-in" 

on clean energy. However, a recent article in the Wall Street Journal reported China is 

moving to eliminate subsidies for solar manufacturers and will "allow the market to 

determine winners and losers." 

a. What do the apparent divergent approaches of the Obama Administration and the 

Chinese government tell us about the direction of energy policy in the world? 

b. I understand that China plans to add 315,000 megawat;ts of coal-fired electricity in 

the next three years. This is good news for poor Chinese seeking to rise out of 

poverty, but how does it square with the President's statement that China has gone 

"all-in" on clean energy? 

According to the Organization for Energy Cooperation and Development (OECDj, China will become the 

world's largest economy by 2016, surpassing the United States. The OECD sees China's economy 

growing at an average rate of 8 percent over this decade assuming its current rate of investment and 

reform.';' For economic growth, a robust energy sector is needed to provide affordable, abundant, and 

reliable sources of energy supplies. That is why China is investing in building clean coal generating 

technology and providing loans to oil rich countries in return for future supplies of oil. And while China is 

investing in green technology, that technology is supplying a very small percentage of its energy needs. 

China is already the largest consumer of energy and emitter of carbon dioxide emissions in the world. 

China's Renewable Ventures 

China is constructing renewable technologies, which is in line with the government's plan to have clean 

energy account for 11.4 percent of electricity consumption by 2015. In 2011 (the most recent year that 

generation data is available for China), China generated just 2.5 percent of its generation from nonhydroelectric renewables; in contrast, the United States generated 4.8 percent of its generation from 

non-hydroelectric renewables in that year. China is building wind and solar energy, but not all of it is 

operable. For example, about 30 percent of its wind energy is not connected to its electricity grid. 

China first ventured into the renewable arena via the Clean Development Mechanism of the Kyoto 

Protocol, where developed countries that signed the Kyoto Protocol received credit for funding 

development of low carbon emitting projects in the developing countries. Learning quickly, the Chinese 

soon became major producers of renewable technologies, particularly in manufacturing solar panels --

cutting their price dramatically. Currently, there is a global oversupply of solar panels and many 

countries, particularly in Europe, are cutting renewable subsidies. This past December, China's State 

Council indicated that it would stop funding domestic solar-panel makers, instead encouraging 

mergers among its major companies and allowing the market to determine winners and losers." 

To fund a rapid expansion of manufacturing capacity, the Chinese solar industry's debt grew rapidly 

between 2009 and 2011. But, because solar demand has not kept up with the growth in manufacturing, 

solar-panel manufacturers had to cut costs and write down investments. Suntech Power Holdings 
100 

Company, one of the world's largest solar-panel suppliers, has to repay more than a half billion dollars 

of debt held by international investors. The company reported a net cash position of $244 million as of 

August 31, 2012 and debt of about $2 billion. At the end of the first quarter of last year, China's 10 

largest solar companies, including Suntech, had a combined debt of $17.5 billion.'" Beijing is offering 

indirect support to solar companies in the form of new policies and incentives for solar-power 

development and to help boost demand for solar panels. 

China, after building scores of factories that lowered solar panel prices 20 percent in the past year, is 

expected to become the biggest consumer of the solar panels after doubling its 2013 target for new 

projects in January. As such, it is forecast to unseat Germany as the largest solar market this year. 

The Chinese government expects 10 gigawatts of new solar projects in 2013, more than double its 

previous target and three times last year's expansion. The country plans to install 35 gigawatts by 2015, 

compared with a previous goal of 21 gigawatts."" But, 35 gigawatts of solar capacity over several years is 

minor compared to the coal-fired capacity that the country is building. 

China's Coal Sector and Pollution 

China gets over 70 percent of its electricity generation from coal. According to the National Energy 

Technology Laboratory, China is building at least one coal-fired unit a week. China currently produces 

and consumes more coal than any other country in the world. Although China's coal reserves are much 

smaller than ours, it consumes almost 4 times the amount of coal that the United States consumes and 

must import coal because its current coal production cannot satisfy its own demand."'" In 2011, China 

consumed more than 3.8 billion short tons of coal while the United States consumed 1 billion short 

tons."" As a result, China's five north-western provinces are expected to increase coal production by 

620 million metric tons by 2015, generating an additional 1.4 billion metric tons of greenhouse gases a 

year.xxv 

Coal-Fired Build Rate 

China and United States 

wOperational i 1 Under ConstrtJeHon w Plarmed ;!\1i ::::~;~,::,:::: 

V,S., ~ Oucfalion.1t Ul1'Cter Construction _....-1 ~~I 

h ...... ' .. _ ~ ....... ~~~~~_.'.n ..... 'r IllAT1ONAL • ....-OV-'.c:::MNOLOO ... L .... O.ATO.Y 

Source: NatiOnal Energy Technology Laboratory, Tracking New Coal-fired Power Plants, January 13, 2012.hnp:/Iwww.netl.doe.qov/coaflrefshelfincp.odf 
101 

China has a pollution problem and it has nothing to do with carbon dioxide. Carbon dioxide is invisible, 

odorless, and non-toxic. China's pollution emissions come from old coal-fired plants and its vehicles."" 

Since 1970, the United States has dramatically reduced its criteria pollutants that are toxic. But, China 

has been unable to clean up its toxic emissions because it needs to provide energy to its population, 

many of whom do not have access to electricity, and because efforts to reduce these emissions have 

met resistance from Chinese energy companies that would need to comply with the mounting demand 

for more electricity. Further, penalties are low for non-compliance: fines are generally capped around 

$lG,(lOQ, which is not much of a deterrent. 

Decline in Criteria Pollutants vs. Economic Growth in the United States 

70 so 90 95 iN 97 98 99 00 01 02: 03 04 05 06 07 08 09 10 11 

According to Beijing officials, vehicle emissions account for 22 percent of the main deadly particulate 

matter in the air, known as PM 2.5, and another 40 percent is from coal-fired factories in Beijing and 

nearby provinces.xxvii 

But, China's pollution problems are severe. More than 16,000 dead pigs have been found floating in 

rivers that provide drinking water to Shanghai and smog akin to volcanic fumes surround Beijing. 

While China cannot afford to replace its old coal-fired technology, it is building state-of the-art coal-fired 

plants that have reduced criteria pollutants dramatically. In fact, as the New York Times has reported, 

China is actually constructing some coal plants that are cleaner than those allowed to be built in the 

United States.""" An irony of our current regulatory policy may be that China will ultimately become the 

world's supplier of the most advanced clean coal plants, despite the large size of the U.S. coal resource 

base. 

China's Oil for loans Deals 
102 

China has been making deals with oil rich countries such as Venezuela, providing loans in return for 

future supplies of oil. One of its newest deals may be with Russia. Russia's oil company, Rosneft, is 

seeking to borrow up to $30 billion from China in exchange for possibly doubling oil supplies that would 

make China the largest consumer of Russian oil. Rosneft wants to borrow the money in order to 

complete a $55 billion acquisition ofTNK-BP to become the world's largest listed oil producer.~;' Russia 

has been steadily increasing its crude exports to Asia with flows expected to total around 15 percent of 

Russian oil exports this year via pipeline to China and to the Pacific coast. The increased shipments to 

Asia mean reduced shipments to Europe. 

Also, China has been courting Africa for decades to satisfy its growing demand for raw materials and 

energy. last year, China offered $20 billion in loans to African countries over the next three years as a 

no-strings-attached aid policy. However, others see China's aid and loans as a means to improve their 

prospects of gaining access to resources like oil, copper and timber."'" Their immense foreign exchange 

reserves earned during the rapid growth of their economy makes the likelihood of further investments 

likely. 

Clearly, China needs oil to fuel its growth in vehicles and transportation. The number of passenger cars 

in China is expected to reach 400 million by 2030, up from 90 million today. China has already surpassed 

the United States as the largest vehicle sales market in the world. 

China's Carbon Dioxide Emissions 

In spite of China's spending on renewable energy, its carbon dioxide emissions have far outpaced those 

of the United States. In 2012, the U.S. had decreased its carbon dioxide emissions to 5.3 billion metric 

tons from 6.0 billion metric tons in 2007, a 12 percent decline. Meanwhile, China emitted 8.7 billion 

metric tons of carbon dioxide in 2011, up from 6.3 billion metric tons in 2007, an increase of 38 percent. 

Forecasters have China emitting over 11 billion metric tons of carbon dioxide by 2025, over twice the 

amount that the United States currently emits. China is, by far, the world's largest emitter of carbon 

dioxide, and is rapidly increasing its lead in these emissions over the rest of the world's nations. 

China knows that it needs affordable, reliable, and abundant energy to keep fueling its economy. To 

supply the energy, China is building coal-fired power plants, obtaining future agreements for oil supplies 

through aid and loans to foreign companies, importing coal and other fuels, as well as building 

renewable technology. But, the country is deep in haze caused by pollution from old coal-fired power 

plants and vehicles. Companies in China are avoiding regulations to decrease these emissions. 

Meanwhile, these pollution emissions are growing and so are the country's carbon dioxide emissions. 

Politicians who think China's energy policy is a model for the United States need to look at pictures of 

Beijing and statistics regarding China's emissions. 
103 

Hearing Questions for the Record 

The Honorable Randy Neugebauer 

"Federal Financial Support for Energy Technologies: Assessing Costs and Benefits 

Ms. Mary Hutzler 

1. President Obama frequently urges that the U.s. should follow the "clean energy examples" 

set in other countries, such as Germany. However, in Gennany, the cost of electricity has 

risen nearly 40% in the past five years and electricity prices for industry are 15% higher than 

the EU average. Whatcan the United States learn from Germany's energy policy and that of 

others in Europe? And why would we expect the U.S. clean energy subsidy model to work 

better than what has been tried and failed in Europe? 

For Germans, electricity prices are soaring as a result of phasing out nuclear power and mandating 

renewable energy. Consumers in Germany are facing the biggest electricity price increase in a decade 

and those price increases will continue. It is estimated that by 2030, Germany will have spent more than 

300 billion Euros on green electricity. And consumer groups are complaining that about 800,000 German 

households can no longer pay for their energy bills. 

If this rise in energy prices continues, household energy bills could exceed the rent Germans pay for 

housing in parts of the country. Because renewable technologies are not economic compared to 

traditional fossil fuel technologies, Germans have had and will continue to pay an additional increasing 

premium for their use. Because of this premium, electricity prices are expected to increase by over 10 

percent this year-the largest increase in a decade. 

The German Electricity Sector 

The German government wants 80 percent of its energy to be produced by renewable sources by 2050; 

biomass, wind, and solar currently make up about 25 percent of the country's electricity supply."" The 

country has begun to take fossil fuel power stations offline and is planning to phase out nuclear energy 

by 2022. However, the cost of these changes has resulted in up to 800.000 households not being able to 

pay their bills and placed a strain on existing capacity in the electrical grid. Although Germany has made 

significant investment in wind and solar power, it faces an energy shortfall, partly because it has 

insufficient transmission lines to bring wind power from the North Sea to the industrial centers in the 

south and partly because the sun doesn't always shine and the wind doesn't always blow when it is 

most needed. 

In 2009, Germans spent about 100 billion Euros ($130.5 billion) for energy, an average of 2,500 Euros 

($3,263) per household. On average 34 percent of net household income in Germany is spent on rent 

and energy. According to the Association of House and Apartment Owners, energy prices have increased 
104 

far more than rents in the past 15 years. And, according to the Association of Energy Consumers, heating 

and hot water costs comprise 41 percent of bills on average and those costs are increasing. 

This year, electricity prices in Germany are expected to increase by more than 10 percent. Much of this 

increase is driven by a surcharge to cover the costs of using more renewable energy. The renewable 

surcharge is the difference between guaranteed prices mandated to be paid for renewable energy and 

market prices for conventional energy. The renewable surcharge will increase by 47 percent-from 3.6 

Euro cents (4.7 U.S. cents) per kilowatt hour in 2012 to 5.3 Euro cents (6.9 U.S. cents) per kilowatt hour 

in 2013. To put this in perspective, in the United States, the average residential retail price of electricity 

is 11.88 cents per kilowatt hour, so Germany's renewable surcharge in 2013 will be 58 percent of the 

total cost of residential electricity in the United States. This helps explain why residential electricity rates 

in Germany are almost triple those in the United States, at 34 U.s. cents per kilowatt hour. 

These electricity price increases are far from over. A three-person German household paid on average 

40.60 Euros ($S2.98) a month for electricity in 2000; it is now 75.08 Euros ($97.98), an increase of about 

85 percent. Depending on the expansion of offshore wind power and photovoltaics, electricity prices are 

expected to increase another 30 to 50 percent in the next ten years. 

The high power costs are not only affecting households but German industry as well where its 

competitiveness is deteriorating. According to a recent survey by the Association of Industrial Power 

Industry, Germany ranks fourth in terms of having the highest industrial electricity prices in the world. 

Electricity is more than 30 percent cheaper for industrial companies in many Asian and European 

countries and it is more than SO percent less in the United States and Russia. Businesses look for 

cheaper energy (i.e. electricity) when deciding where to produce products. 

After Germany's four leading electrical grid operators announced that they would be increasing the 

charge to consumers that goes into financing subsidies for producers of renewable energy, the German 

government decided to extend its caps on subsidies for solar energy to more technologies including 

wind and biomass. The plan is designed to contain the rising costs of phasing out nuclear power. Due to 

the surcharge, consumers in Germany face an extra 59 Euros ($77) on their power bills this year based 

on an average 3-person household consuming 3,500 kilowatt hours per year. (An average U.S. home, 

larger and with more labor saving devices, uses about 11.500 kilowatt hours per year.) 

The proposals announced to reform the clean-energy subsidy system mark the most sweeping changes 

to Germany's support mechanisms for renewable energy since the country adopted feed-in tariffs in 

2004. Those rules granted renewable generators above-market prices for the power they produce and 

made Germany the world's biggest market for solar panels. 

Germany spent about 16 billion Euros ($20.88 billion) on clean energy technologies in 2011; it is 

expected to spend 20 billion Euros ($26.1 billion) in 2013. According to a study by the Technical 

University of Berlin, by 2030, it is estimated that Germany will have spent more than 300 billion Euros 

($391.5 billion) on green electricity. 
105 

Germany is not the only country curbing incentives for renewable power; Spain, France, Italy and the 

U.K. either have or are curbing their incentives for renewable energy. For example, the U.K. cut its feedin tariff for solar panels by almost 25 percent last year after having cut it by around 50 percent the 

previous year,"''; and its onshore wind subsidy by 10 percent.",<Hi In 2009, 4 million U.K. households (18 

percent of households) were in fuel poverty, having to spend more than 10 percent of their household 

income to keep their home in 'satisfactory' condition. 

Ironically, to back-up the wind and solar energy, German utilities are using coal because it is cheaper 

than natural gas in Europe. For the most part, natural gas is moved through pipelines in Europe, and 

tends to be used close to where it originates. It is priced regionally and often linked to the price of oil. 

Many European gas contracts were negotiated years ago with the Russian gas company, Gazprom, and 

remain high. For example, in the summer of 2012, natural gas prices in Europe were more than three 

times the gas price in the United States and definitely more expensive than coal. According to 

Bloomberg New Energy Finance, at the beginning of November 2012, utilities in Germany were set, on 

average, to lose €11.70 when they burned gas to make a megawatt of electricity, but to earn €14.22 per 

megawatt when they burned coal. Analysts say a price of €20 per ton ($26 per ton) is needed for power 

plants in Europe to switch to low-carbon energy. 

The U.K. has also seen a growth in its coal consumption. In Britain, coal consumption for electric 

generation increased by 31 percent between 2011 and 2012, while natural gas consumption for electric 

power generation dropped by the same amount, resulting in a 4.5 percent increase in carbon emissions, 

according to the U.K. Department of Climate and Energy.",iv 

Germany's transition to intermittent green energy technologies is causing havoc with its electric grid 

and that of its neighbors-countries that are now building switches to turn off their connection with 

Germany at their borders. The intermittent power is causing destabilization of the electric grids causing 

potential blackouts, weakening voltage and creating damage to industrial equipment. 

The Destabilization Problem 

More than one third of Germany's wind turbines are located in the eastern part of the nation where this 

large concentration of generating capacity regularly overloads the region's electricity grid, threatening 

blackouts. The situation tends to be particularly critical on public holidays when residents and 

companies consume significantly less electricity than usual with the wind blowing regardless of the 

demand and supplying electricity that isn't needed. In some extreme cases, the region produces three to 

four times the total amount af electricity actually being consumed, placing a strain on the eastern 

German electric grid. System engineers have to intervene every other day to maintain network stability. 

To illustrate the problem that renewable energy instability can cause, here is an example. When the 

voltage from German's electriC grid weakened for just a millisecond at 3 am, the machines at Hydro 

Aluminum in Hamburg ground to a halt, production stopped, and the aluminum belts snagged, hitting 

machines and destroying a piece of the mill with damages amounting to $12,300 to the equipment. The 
106 

voltage weakened two more times in the next three weeks, causing the company to purchase its own 

emergency system using batteries, costing $185,000. 

These short interruptions to the German electric grid increased by 29 percent and the number of service 

failures increased 31 percent over a 3-year period, with about half of those failures leading to 

production stoppages causing damages ranging from ten thousand to hundreds of thousands of Euros. 

These power grid fluctuations in Germany are causing major damage to a number of industrial 

companies, who have responded by getting their own power generators and regulators to help minimize 

the risks. However, companies warn that they might be forced to leave if the government does not deal 

with the issues quickly. 

Fluctuating Output 

Wind and solar energy fed into the power 

grid, for example, on May 25 and 26, 2012 

In comparison: Net output of the Brokdorf 

nuclear power plant: 1,410 megawatts 

Source: http://www.spiegel.de/international/qermany/biJd~850419-389683.html 

Megawatts 

25000 

20000 

15000 

To deal with the excess electriCity, eastern Germany exports it to western Germany, Poland and the 

Czech Republic. In 2009, exports of electricity to these areas totaled 6.5 gigawatts on days with strong 

winds, an amount that will increase as wind capacity increases. While the eastern German region would 

like to channel its excess electricity to southern Germany and the industrial Rhineland area, it lacks 

infrastructure to do so. Because German energy laws stipulate that "green" power must always have 

priority on the grid, control centers cannot take wind farms off the grid when too much electricity is 

being generated. System operators also try to avoid shutting down their coal, gas and nuclear facilities 

because they rely on these power plants to produce a consistent level of baseload power at all times. 

Thus, they need to export the wind capacity that exceeds their demand. 

Germany's neighbors, Poland and the Czech Republic. are taking action on Germany's use of their power 

grid that Germany undertook without asking permission and without paying for its use. These countries 
107 

are building a huge switch-off at their borders to block the import of green energy that is destabilizing 

their grids and causing potential blackouts in their countries. 

Eastern German wind energy exports 

Source: http://www.dw.delwind-energy-suro!us-threatens-eastern-german-power-gridla-14933985 

Conclusion 

The high use of renewable energy in eastern Germany driven by government green energy policies is 

causing instability to its own electric grid as well as to neighboring countries, resulting in industrial 

companies having to purchase generators and emergency back-up systems rather than face replacing 

equipment damaged during disruptions of service. Electricity bills are also going up by 10 percent this 

year. With residential electricity prices in Germany already about 3 times higher than prices in the 

United States and increasing further, it is no wonder that 800,000 German households can't afford their 

electricity bills. 

The German government recently cut its 2013 growth expectations to 0.4 percent from an earlier 

estimate of 1 percent. Germany was prospering in 2011 with growth at 3 percent, but it dropped to 0.7 

percent in 2012. While the European economy as a whole and the switch to the Euro has affected 

Germany, one wonders how much the country's energy program is contributing. 

While renewable energy is increasing its role in electricity generation and energy supply in the United 

States, its share is still small. In 2012, non-hydroelectric renewable power supplied 5.4 percent of our 
108 

electricity in the United States, with wind and solar power combined supplying almost 3.6 percent. In 

terms of total energy supply, wind and solar power provided a 1.7 percent share in 2012. But Americans 

are paying for renewable technology development through subsidies, mandates, and failed loan 

guarantees. 

More than half the states have renewable energy standards that mandate a specified share of electricity 

come from qualified renewable technologies. Both the federal government and state governments 

provide subsidies and tax breaks to these technologies. And many renewable producers have received 

grants and loan guarantees from the federal government to spur innovation and production to only 

have companies go bankrupt, losing billions of taxpayer dollars. So far, increases to utility bills have not 

been so large that Americans are struggling like those in Germany or other European countries. 

However, implementation of their policies would likely cause similar results. Americans should beware 

of policies seeking to duplicate German and other foreign country green energy policies since these 

countries are quickly reversing their policies as the true costs become evident. 

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109 

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http://www.guardian.co.uk/environment/2013/jan/22/china-australia-carbon-bomb 
110 

><><vi Heritage Foundation, U.S. Beating China in Race for Clear Skies, February 8, 2013, 

http://blog.heritage.org!2013!02!08!u-s-beating-china-in-race-for-clean-skies! 

,,," New York Times, As Pollution Worsens in China, Solutions Succumb to Infighting, March 21, 2013, 

http://www.nytimes.com!2013!03!22!world!asia!as-chinas-environmental-woes-worsen-infighting-emerges-asbiggest-obstacle.html?pagewanted=l& r=4 

,,,>;I New York Times, China Outpaces U.S. in Cleaner Coal-Fired Plants, May 10, 2009, 

http://www.nytimes.com/2009!OS!11!world!asia!11coal.html? r=2& 

"i, Reuters, Russia plans $25-$30 billion oil-for-Ioans deal with China, February 13, 2013, 

http://www.reuters.com!article!2013!02!13!us-rosneft-china-idUSBRE91COTB20130213 

xxx Reuters, China's Xi to visit Africa as U.S. frets over Beijing influence, 

http://www.reuters.com!articie/2013!03!09!china-parliament-africa-idUSL4NOC109M20130309 

,,,I Spiegel International, Rising Energy prices: Germans Grow Wary of Switch to Renewables, October 15, 2012, 

http://www.spiegel.de!internationallgermany/consumers-bear-brunt-of-german-switch-to-renewable-energies-a861415.html 

""i, Guardian, U.K. cuts feed-in tariff for solar panels, August 1,2012, 

http://www.guardian.co.uk!environment!2012!aug!01!solar-panel-feed-in-tariff-cut 

"'''' BBC News, Renewable Energy: Onshore wind subsidy to be cut by 30%, July 25, 2012, 

http://www.bbc.co.uk!news!business-18979330 

"'" Midwest Energy News, Coal makes a comeback in Europe as conventional gas dries up, April 3, 2013, 

http://www.midwestenergynews.com!2013!04!03!coal-makes-a-comeback-in-europe-as-conventional-gas-dries-

!M 
111 

A E :~~::~ED 

ECONOMY 

The business voice of advanced energy 

Malcolm D. Woolf 

Senior Vice President, Policy and Government Affairs 

Advanced Energy Economy 

"Federal Financial Support for Energy Technologies: 

Assessing Costs and Benefits" 

Responses to Follow Up Questions from 

the U.S. House of Representatives 

Subcommittee on Energy 

Science, Space, and Technology Committee 

April 11, 2013 

1. "Advanced" Energy 

Your organization, the Advanced Energy Economy, represents companies engaged in a wide range of 

activities, including natural gas, energy efficiency, fUel cells, hydro-electric power, energy 

information technology, etc. 

What are the common denominators that make these technologies "advanced"? 

AEE defines advanced energy as the best available technologies that are helping to make energy 

secure, clean and affordable. Advanced energy includes all the technologies listed in the question 

above, as well as others such as non-hydro renewable energy systems, nuclear power, and hybrid 

vehicles. Furthermore, advanced energy is not static but dynamic, as innovation and competition 

produce better energy technologies, products and services over time. Advanced energy includes 

well-developed technologies and services as well as those at various stages of research, 

development, demonstration, and commercialization. 

AEE's definition of advanced energy is broad by design, and reflects the profound realization that 

the traditional silos that have separated many energy technologies and markets are fading away. 

For example, electricity, natural gas, and transportation markets are becoming more intertwined 

every day, a trend that is likely to continue, driven in large part by advanced energy technologies. 

One common denominator linking AEE's member companies is innovation. The century old 

energy system is facing a fundamental transformation as it meets the internet age, and AEE 

companies are leading the transformation with new technologies and systems such as smart grid, 

renewable resources, distributed generation, efficiency and demand response systems and 

alternative fuel vehicles. 

Washington, DC 

San Francisco 

Boston 

www.aee.net 
112 

2. Market Barriers and Failures 

ADVANCED 

ENERGY 

ECONOMY 

www.aee.net 

In your testimony you discuss barriers that new energy concepts face in trying to break into the 

marketplace. But there is a difference between market barriers and market failures. Barriers can be 

beneficial in that they can ensure that only the most efficient technologies scale-up. But, market 

failures are imperfections that result in irrational technology choices. 

Can you elaborate on what companies, such as those that you represent, face - market 

barriers, failures, or both and what some of those might be? 

Does government money crowd out private investment? 

Innovation is essential to achieving our nation's energy goals, yet it is systematically stymied in 

the United States by both market failures and market barriers. To achieve secure, clean and 

affordable energy, the federal government must continue to playa critical, albeit limited role, to 

help innovative new technologies and services overcome the fundamental failures in the energy 

market. Let me offer two examples. 

First, the legal framework of electric and natural gas utilities creates a powerful disincentive for 

utilities to innovate. Since the early days of electrification, electric and natural gas utilities have 

received a guaranteed rate of return as long as their investments were prudent. While this is a 

sound public policy for keeping the lights on, it is counter-productive if we want to encourage 

innovation. After all, why should utilities take a risk on unproven, innovative technology when 

they would receive the same rate of return by using established, existing technologies? When 

coupled with the institutional inertia that comes from having billions invested in long-lived assets, 

the legal structure for energy utilities creates a fundamental market failure. 

The energy market also suffers from another classic market failure - the inability of the market to 

capture critical externalities. Environmental externalities, such as the impact of pollution, are well 

known. The energy sector is plagued, however, with a series of additional externalities, including 

grid reliability and resiliency, energy security, safety and fuel diversity. Since these externalities 

are difficult to monetize and reflect in the price of energy, the market systematically undervalues 

them. For example, the free market may not appropriately value a new technology that is more 

expensive but makes the system less vulnerable to a cyber attack. 

As a result of these market failures, private companies do not spend adequate resources on earlystage research and development (R&D) because the market is unlikely to reward those companies 

with the returns necessary to justify those investments. My previous testimony cited reports 

documenting that US energy firms have a chronically low rate of private sector reinvestment. 

In addition to these market failures, advanced energy technologies and services also face 

numerous market barriers such as the lack of access to capital, either for projects or to 

establish/scale up manufacturing; high capital costs and/or installation costs; consumers that are 

unfamiliar with the new products or services; and government poliCies or regulations that can 

impede or even block market entry. 
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An example of a market barrier that has been partially addressed by Federal resources is the high 

first cost of solar photovoltaic (PY) technology. Although PV prices are now declining rapidly, PV's 

high capital cost has historically put solar power out of reach for most American households. The 

federal investment tax credit (lTC) for solar has played an important role in making solar leasing a 

viable business model. With a solar lease, a private company raises capital to install, own, operate 

and maintain large numbers of residential PV systems. The electricity from each PV system is then 

sold to the homeowner under a long-term lease or power purchase agreement, typically 20 years. 

This business model innovation has allowed the private sector to efficiently raise significant 

capital. and in 2012, leased systems accounted for over 50% of all new residential PV installations 

in most major residential markets, and is forecasted to become a $5.7 billion market by 2016. 1 

This, in turn, is helping the domestic PV industry to grow and capture supply chain efficiencies 

that is driving down cost and making solar power more affordable overall. 

Notwithstanding the remarkable growth of the solar industry, the investments have largely not 

been made by the incumbant electric utilities (due to the first market failure discussed) nor do 

investors in these solar projects reap the full benefits of their investment, since externalities such 

as greater grid reliability, resiliency, energy security, public health, pollution and coincident peak 

demand production cannot be fully monetized. 

Regarding your question about whether or not Federal resources crowd out private sector 

investment, the data shows that the answer is "no." Considering direct Federal government 

spending, in Ms. Dinan's testimony (see Figure 3 of her testimony) and in an earlier CBO Issue 

Brief co-authored by Ms. Dinan,2 the CBO reported that annual Department of Energy financial 

support for energy technologies and energy efficiency, with the exception of 2009 (due to ARRA), 

has been in the range of $2-3 billion per year since the year 1998. In contrast, in 2011, total U.S. 

revenues associated with the advanced energy market was estimated to be $132 billion.3 Since 

the US Energy Department's investments represent only a few percentage points of overall 

investment dollars, the concern about "crowding out" private investment is clearly misplaced. 

In the case of earlier stage investment in R&D, as discussed above, AEE believes that the Federal 

government actually fills an important gap in the market. Even so, AEE does not believe that this 

results in Federal investment crowding out private sector investment. Consider the relative size 

of venture capital investment in "clean-tech" compared to the size of the ARPA-e program budget 

(Figure 1). Although arguably, ARPA-e invests in companies and technologies that may be too early 

for even venture capital investment, the scale of the investment shows that Federal government 

investment is relatively small. 

1 U.S. Solar Market Insight Repor~ 2012 Year in Review, Executive Summary, GTM Research, 2013. 

2 Federal Financial Support for the Development and, Production of Fuels and Energy Technologies, Congressional 

2 Federal Financia! Support for the Development and, Production of Fue!s and Energy Techno!ogies, Congressional 

Budget Office Issue Brief, March 2012. 

3 Economic Impacts of Advanced Energy: U.s. and Global Market Size, Economic Impact, Tax Revenue Generation, Key 

Trends, and Representative Companies. Report prepared by Pike Research, a part of Navigant, for the Advanced Energy 

Economy Institute, Published lQ 2013. 
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Figure 1: Venture capital clean-tech investment in US-based companies compared to ARPAE appropriations 

$8,000 

$7,000 -ARPA-E fiscal year appropriations 

$6,000 -Clean-tech venture investments in 

U.S. based companies 

C $5,000 

.2 

~ $4,000 

-en. $3,000 

$2,000 

$1,000 

$0 

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 

Sources: CleanEdge, Clean Energy Trends 2013, p6; ARPA-E website (http://arpae.energy.gov /?q=arpa-e-site-page/arpa-e-budget). 

In some cases, such as the ITC for solar discussed above, federal investment can actually help drive 

significant private sector investment that might otherwise not happen or that might occur at a 

slower pace. This can be generalized to other Federal tax-related preferences that are designed to 

encourage private sector investment in energy technologies. 

3. Risk 

Ms. Hutzler's testimony discusses a range of federal support instruments used in energy, but focuses 

primarily on recent activities in the clean energy space, and of those, she highlights the problematic 

ones. While there have been problems with some projects, there have also been tremendous 

successes. It seems that we, in Congress, give mixed signals to agencies such as DOE in regards to the 

level and type of risk they are supposed to take on. We want government to invest in areas that 

industry cannot or will not do on its own because of technological and financial risk. Yet, we are 

intolerant of failure when it happens. 

From your perspective, what is the apprapriate role of the federal government in supporting 

energy technology development? 

• People who invest their money, for example, when saving for retirement, are told to invest in a 

portfolio of options -stocks, bonds, cash - and within each of those, to be diversified. Are there 

lessons to be learned here with regard to the U.S. government's role in supporting energy 

technologies? 
115 

The role of the Federal Government 

ADVANCED 

ENERGY 

ECONOMY 

www.aee.net 

As stated in my testimony, AEE believes that there is a role for government in situations where 

there are public benefits that the private sector does not or cannot capture. Within that basic 

framework, different types of government support are needed to help overcome different 

technological or market hurdles. For example, direct funding of basic R&D is appropriate for early 

stage technologies, whereas tax credits or accelerated depreciation are better suited to 

technologies that are commercially available but must overcome high first costs until the 

technology and market mature to the point where the technology is competitive on its own. 

Whatever, the form of support, AEE believes that the focus should be on promoting innovation to 

give the United States energy that is secure, clean and affordable. This can include innovation in 

technologies, products and services, and can address innovation at various stages of the 

development cycle, from basic R&D to deployment. In support of this, AEE has developed a set of 

core principles it believes should guide Federal support of advanced energy: 

1. Be targeted: limit federal funds to where innovation is needed to build a more secure, 

clean and affordable energy future. Federal energy programs should only be provided where 

there is an essential public purpose. Rather than providing permanent support to mature 

technologies that already have significant market penetration, the federal government's role 

should be limited to driving innovation and commercializing the next generation of technologies, 

products and services that promise public benefits. These public benefits include enhancing 

energy security through fuel diversity and grid modernization, providing cleaner energy that 

better protects public health, reducing energy costs for consumers and businesses, and developing 

products that can be competitive in world markets. 

2. Sunset or automatically update provisions when market-based objectives are achieved. 

No company or technology should be entitled to permanent subsidies or investments. For 

example, when left in place too long, tax incentives distort price and market signals and ultimately 

create barriers to entry for new technologies. Therefore, such incentives should remain in place 

only long enough to achieve a measurable, market-based objective (for example, gigawatts 

installed or share of market) that represents a point at which emerging technologies have reached 

sufficient maturity that they should stand on their own. Each provision should have an automatic 

phase-out or periodic update built in from the beginning to send clear signals to businesses and 

investors. 

3. Provide stability and certainty for businesses and investors. Businesses and investors need 

certainty to make the investments and set the plans necessary to grow. Rules that change 

frequently or unpredictably are disruptive to markets and harmful to the bUSinesses, investors, 

and consumers participating in them. Using meaningful, performance metrics tied to maturity in 

the marketplace, rather than calendar deadlines, to sunset a program or automatically update 

federal standards would provide certainty to investors, focus businesses on bringing their 

technologies to scale and moving down the cost curve, and allow market dynamics to drive 

business success. 
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4. Be technology neutral to support all forms of advanced technology. Many of today's energy 

policies were written by Congress with one sector in mind, even favoring a single technology. 

Such an approach distorts market signals and puts the weight of Congress behind investment 

decisions. This is inefficient and imposes unnecessary risk to taxpayers. In addition, this 

approach can inadvertently freeze out next-generation technologies since the best available 

technology today will not necessarily be the best in the future. Energy R&D programs play an 

especially critical role in driving the development of next generation technologies. Such programs 

should be applied as broadly as reasonable to stimulate innovation across technologies, including 

those that have not yet emerged. 

A portfolio approach to Federal support of energy innovation 

Regardless of the mix of policy instruments used, AEE also believes it is important that the Federal 

government maintain a portfolio approach to its support of advanced energy innovation, and that 

success be measured primarily at the portfolio level. Even the best due diligence on any given 

investment does not eliminate the risk that the investment may not pan out. ARPA-e is a good 

example of this, where the investments are focused on high-risk, high-reward technologies, and it 

is unrealistic for the Federal government to expect that every technology within the ARPA-e 

portfolio will be a commercial success. In fact, for this type of program it may be appropriate to 

expect that only a minority of funded projects will ultimately lead to commercial success. 

Even where Federal support is focused more on pre-commercial or early-commercial 

demonstrations, or deployment of commercially-ready technologies, one can and should expect 

failures. But as long as these failures are within expectations for the type of investment being 

made, and the overall portfolio performs as expected, one should not "throw the baby out with the 

bathwater". Where failures do occur, it is appropriate for the Federal government to review them 

and understand the root causes, so as to better inform future decision-making. 

4. Commercial Maturity 

Ms. Hutzler's testimony seems to suggest that the current correlation between a technology's 

commercial maturity and the subsidies it receives is off, and that renewables and efficiency receive an 

unfair proportion of federal support given their relatively small market share compared to the 

incumbent technologies. She supports this by saying that solar and wind aren't infant technologies 

because the first solar cell and electric wind turbines were invented in the late 1800s. But the first oil 

well was drilled in 1859 and the Natural Gas industry got its start in 1821. 

Can you talk briefly about the stages that a technology must go through to become mature 

and commercially viable? 

Is the point of federal interventions to pile on more taxpayer funds to those technologies and 

companies that have already proven to be commercially viable, or is the purpose to create a 

more diverse energy marketplace by spurring innovations ond scale-up in technology areas 

that have not already benefitted from decades of research and subsidies to help them 

overcome market barriers and failures? 
117 

The technology development process 

ADVANCED 

ENERGY 

ECONOMY 

www.aee.net 

The process of taking a technological concept and turning it into a successful business involves 

many steps, and includes technical, marketing and business aspects.4 In terms of the technology 

development process, a new technology must go through the following basic steps in sequence: 

Research and development (component and system levels) 

Initial system prototypes (proof of concept) 

Refined (pre-production) system prototypes 

Commercial demonstrations (validating performance in real-world applications) 

Commercial market introduction (initial commercial sales) 

Market penetration/market maturity (scale-up of the business) 

While there are no hard and fast rules, each stage may last from a period of months to years, and 

possibly even decades for R&D. In general, each stage requires increasing levels of investment as 

technologies move from laboratory to full-scale manufacturing and deployment. 

Regarding the second part of the question, consistent with the core prinCiples set out above, AEE 

believes that no company or technology should be entitled to permanent subsidies or investments 

from the Federal government. Such incentives should remain in place only long enough to achieve 

a measurable, market-based objective that represents a point at which technologies have reached 

sufficient maturity that they should stand on their own. This suggests that it is appropriate for 

Federal support to be higher in relative terms (Le., relative to their market share) for technologies 

that are less mature, such as wind and solar power (using the examples in the question above), 

than incumbent technologies, even if the technologies are commercially available today. 

5. Government role in developing incumbent techs 

While this hearing appears to be scoped to single out federal investments in renewables and 

efficiency as somehow wasteful by nature, it ignores the role that government has played in research 

and development of innovation of oil and gas and nuclear technologies. The federal government has 

spent billions of dollars-- over the span of a century in the case of oil and half a century in the case of 

nuclear--- investing in researching and developing those technologies that led to industries that now 

comprise a large portion of the U.S. energy portfolio. 

Can you explain for this Committee the federal government's role in successfully advancing 

these technologies? Should we just stop there, and not commit ourselves in a similar fashion 

to developing other technologies that will pay olfin the long·term and help to solve some of 

our biggest environmental problems? 

4 For example see the Goldsmith Commercialization Model 

(http:((asbtdc.ualr.edu(technology(commercialization/index.asp) 
118 

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ECONOMY 

www.aee.net 

As noted in my testimony, the Federal government played in important role, over a period of 

decades, in the development of virtually every major energy sector of our economy. My testimony 

highlighted the federal government's research to support shale gas going back to 1976, including 

assessments of the resource base, experiments in directional drilling and hydraulic fracturing 

techniques. The percentage depletion allowance was created by Congress in 1926 to encourage 

oil and gas exploration in the western US - and it is still a permanent feature in our tax code. 

Other examples are provided in the National Research Council report, "Energy Research at DOE: 

Was It Worth It?"s 

Similarly, the Federal government played an important role in the development of commercial 

nuclear power, of which the United States was a pioneer. The boiling water reactor design was 

developed at Argonne National Laboratory, and the pressurized water reactor was developed 

initially for naval propulsion.6 ln 1953, President Eisenhower proposed his "Atoms for Peace" 

program, which reoriented significant research effort towards electricity generation and set the 

course for civil nuclear energy development in the United States. 

These now mature technologies have provided our society tremendous benefits and represented 

superior solutions over what were the incumbent technologies of the time. We are now faced with 

new challenges in a new century, including various environmental concerns, maintaining our 

global competitiveness, and energy security in all its forms. If there are new energy technologies 

that can help us meet and overcome these challenges, then it seems appropriate that the Federal 

government has a role in facilitating and accelerating those efforts, where the private sector 

struggles to do it on its own. This applies to all forms of advanced energy technologies and 

services, including renewable energy, energy efficiency for our homes, businesses and vehicles, 

our energy infrastructure, and other technologies that help make our energy system more secure, 

clean and affordable. 

5 "Energy Research at DOE: Was It Worth It?," Energy Efficiency and Fossil Energy Research 1978 to 2000, Committee on 

Benefits of DOE R&D on Energy Efficiency and Fossil Energy, Commission on Engineering and Technical Systems, 

National Research Council. 

6 http:/ jwww.world-nuc!ear.org/infojCurrent-and-Future-GenerationjOutline-History-of-Nuc!earEnergyj#.UV2TVpPCZ8E 
(119) 

Appendix 2 

ADDITIONAL MATERIAL FOR THE RECORD
120 

‘‘CHINESE SOLAR APPROACH FACES TEST’’ FROM The Wall Street Journal Online 

Edition, March 6, 2013 
121 

China', Sol" Approach Faces ThstWilh Sunlech Bond Payment - WS... http://online.wsj.comiarticle!SB1COOI424127887324539404578342L. 

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this week that its founder, Zbengrong sm, stepped down as chmrman, less than seven months 

after he I"elligned as cmef executive. However, Mr. 8m said in a later statement he was improperly 

. ..< removed as ch~lrman and that he'was comrnii:ted-t6'staYIDi('" . - . 

Amid record-setting pollntion in Beijing and other' Cities 

and predictions that solar power will be the wOrM's . 

largest primary source of energy in Sq )rearsl China"has 

continued to support its solar indu~~, even as u.s. and European solax-equipment manufact:ur€rs O,ave . 

been.forced into restructuring or b<ihlii:llptCy: Beijing 

has been sharply critical of antisubsidy and dumping 

duties slapped on Chinese solar imp6rtsbyW ... bington 

last year. In SOme cases, Chinese compa,nies h~w ", received life support by loans from friendiybBnks thltt 

have helped them restructure debt and hy fresh 'capital 

from state-backed investors and local governments. . 

Ch:41a's 10 largest listed BOla: companies-including Suntech, Yingli Green Energy HoJding Co. 

and LDK Solar Co. -had combined debt of $17.5 billion at the end of the first quarte,r ofl"!'t year, 

according to U.S_-based investment baILkMaxim Group. . 

In January, InK said it received a $31 million cash infusion from Cbinese investor Fulai 

Investments'Ltd., for about 12% of LDK stock. The solar-wafer company also said it received a 

loan of 440 inillion yuan ($70.5 million) fromCbina Development Bank in January to upgrade a' 

polysilicon plant. . 

still, domestic sapport for Chinese companies may not last. Cben Yrum, chaimian of ~bina 

Development Bank, said Tu,esday on the sideJiues of China's annual session of parliament that the 

banl{wouId limftfresh lending to solar-panel companles. CDB's credit exposure to Chln.'s solar 

sector was more than $7 billion in 2011, by fur the largest among Chlnese state-ownedbanks, 

according to Chin.Scope Financial, a data provider. 

Meanwhile, with its we.It balanCe sheet, Wuxi, China-based SUntech, whose American depositary. 

receipts trade in New YorIt, faces the prospect of having. to make the $541 million bond payment 

due March 15 .on ib; OWl:. 

The industry's debt grew rapidly between 2009 and 2011 tb fund a rapid expansion of 

manufacturing capacity. Although global solar-power demand has grown each year, it hasn't kept 

pace vr.ith the manufacturing boom; causing solar-panel mal{€!-T'S to' cut costs arid vnite do¥ill 

in, ... tments while they hlllli: for new markets. European demand in partk-uIar has been bit by the 

EU's economic' crisis and the rolling back of clean :..energy subsidies. 

Althongh the Chlnese govermnent vdlllikely provide financial help to Iteep Suntech's factories . 

operating and i~ wo~kers employed, it is unclear w:het:p.er ·China wuuld '1Jail out American . 

investors who simply got into the wrong .co~panY~'1 said Pavel Molchano'V, an analyst at Raym,ond 

James Associates in New York. 

Mr. Molchanov predicted that Suntech will have to restructure its debt and that sha:reholders w:tll 

enc! up with little or nothing. 

In the event uf a debt restructure, bondbolders likely would be offered a bond with a longer 

3/12'2013 4:01 PM 
122 

Ch:ina\:; Solar Approach Faces Test With Suntech Bond Payment ~ WS... http://online.wsj.comiarticleJSB10001424127887324539..:!.045783421 ... · 

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maturity and an equity stake in the company, Mr. Molchanov said. Such a deal could lead to a 

doubling of Suntech's share count, which would cut existing investors' equity ownership by half. 

And if Suntech stOcld'elJ oel6;I,$i again,' as it 'did for much oflastyear, existing shareholders coUld 

lose most of their investment, he said. 

'The Sunteeh bo~.h corning due March 15 traded wedue.~ at $40 per $100' "f the bo':'ds' .. 

original value, according to ""trading platform MarketAxess. When corporate bonds trade at such 

low, or disb:'essed, levels, it implies a.default is likely_ But bondholders have:a 'Senior unse,cured 

claim on the company's assets and some specialty-funds could pTITchase ilie bonds in'thehopes of 

receiving a hlgher recovery rate than the current market value, which is 40 cents on'me dollar~ or' 

roughly $216 million of the $541 million owecL', 

Most of Sun~ch'~ foreign bondhold~;" are spe~~Jjyshop~"r diSlre.ssed funds, a""ordingto Ipreo, 

a data firm. Mount Kcllett Capital Managemerrtwas the top foreign bondholder, with about $26 

million worth of Suntech convertible )1otes, according to Ipreo, Mount Kellett declined to 

comment on the banda. Other top holders included Driehaus Capital Management, Pioneer 

Investment Management and SilverbackAsset Management. Those firms also declined to 

comment , . . . . . 

The bonds ~e. a -,type of debt knOWll as COllverlJ.bie notes~ which enable investors to convert the 

bonds into stock at a predetermined price. For these bonds, that price is $41'a share. Sunteub 

shares closed Wedoesday in New York at $1.18, down about 20% year-to-date, making the 

conversion component of the bonds worthless to investors. 

L';"tyear, Sunt£ch and several chinese sol.rr comp;,mes wh~se American depositaryreceipis are 

traded in New'York were told they could be delisted due to the collapse in their sbare prices to 

below $1. Since then,most have climbed out of the danger zone, and Suntech last month reported 

that its stock price had also clhnbed above the NYSE's minimum $1 requirement ,over a go-dey 

average, 

Sun tech's March 15 debtpaymerrt marks the first thne a Chinese solar firm has been under 

pressure to payforcign creditors, saidNitin Kumar, an analyst atNQrnura HQldings Inc. Although 

Chinese creditors have tended to be more forgiving about repayment schedules and terms, foreign 

bondholders may be lesswilJing; Mr, Kumar said. "It might simply be too big of a bullet to bite.' 

Mr. Kumar said be expects Suntech "ill reach an agreement with U.S. creditors, with the Chinese 

govemmentpossiblya,'ling as a backstop against failure. 

Beijing is offering indirect help to solar companies in the form of new policies and incentives for 

solar-power development and to boost demand for panels, That is in line with the government's 

plan to have clean energy account for 11.4% of power consumption hy 2015 while trimming, 

pollution from coaljired pmver stations, which now generate about 70% of the country's 

electricity, ' 

-Patrick McGee cor'ltribU'led to t,hls artY.de. 

Write to Wayne iI1a at~il@dm'\JQnes com arid Cassandra Sweet at 

cassandra.sweet@dowjQnes.com . 

A versirm oithis artiCle appeared March 7, 2013. on page Bl0 in the U.S. edition oiThe Wall 

Street .Journal.. with the headline: Chine..')e Solar Approach Faces Test. 
123 

‘‘BJORN LOMBORG: GREEN CARS HAVE A DIRTY LITTLE SECRET’’ FROM The Wall Street 

Journal Online Edition, March 11, 2013 
124 

BjomLomborg: Gre~n CantHave a Dirty Little Secret- VtSJ.com ht:p:llonline.wsj.com!fu-ticlelSBlOOOI4241278873241285045783469._ 

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So unless the electric car is driven a lot, it will never get ahead environmentally. And that turns 

out to be a challenge. Consider the Nissan Leaf. It bas only a 73-mile range per charge. Drive~ 

. . attempting long rood trips, as in one BBe test drive, haVe reported that recharging takes so long 

that the average speed is close to· six miles per hoilr-a bit faster than your average jogger. 

To make matters worse', the batteries in electric cars 

fade with ti.'Ile, just as they do in a ceuPhone: Nissan ' 

e&timates that after five years, the le~ ~ecti-"e batteries 

in a typiCal Leafbring the range dowrito 5~ miles: As .. 

the MIT Technology Review cautloned'!ast:year:' "Don't· 

Drive Your Nissan Leaf Too Much.If . " 

Ifa typiqa! electric car is driven 50,000 mii"i", over its . . 

methnc, the hnge initial emissions from' its manufactUre." 

means the car will actnally have put more carbondioxide in the atmosphere than a similar-size gasolinepowered car driven the same number ofm:ileS. . , . 

. ' Similarly, if ·the energy used to recharge the electric car 

comes mostly from coal·fired power plants, it will be 

responsible fot the einiSsion of almost 15' ounces of carbt;ln~dimdde for every one of the sn,ocio 

miles it is driven-thr.ee ounces more than a similar g~~po'wered car. 

Even if the electric car is driven for 90,000 miles and the owner stays away from coal-powered 

electricity, the car"i]l Cause just ~4% lesscarbon'dioxide emission than its gas-powered cousin. 

This is a far c:y from !lzero emissions." Over its entire lifetime, the electric car will be responsible 

for 8.7 tons of carbon dioxide less than the average conventional car. 

Those S:7tons may sound like a considerable amount, but it's not. 'l'h:e current best estknate of the 

global warming damage of an extra ton of carbon·dioxide is about $5. This meanS an. optimistic 

assessment of the avoided carbon-dioxide associated with an electric car will allow the owner to 

spare the world about $44 in rJjmate damage. On the European emissions market,. credit for 8.7 

tons of carbon·dioxide costs $48 . 

. Yetthe U.S. federal govertmient essentially subsidizes electric-ear buyers with up to $7,500. In 

addition, more than $5.5 billion in federal grants and loans go directly to battery and electric-car 

manufaclurers like California-based Fisker Automotive and TesJa MOtors. This is a very poor deal 

for taxpayers. 

The elcctric car might be great in a couplc of decades but as a way to tackle global warming now it 

doe, virtually nothing. The real challenge is to getgreen energy that is cheaper than fossil fuels. 

That requires heavy investment in green research and development Spending iusteadon 

subsidizing electric cars is putting the cart beforet1e horse, and an inconvenient and expensive 

cart at that 

Mr. Lomhorg, director oj the Copenhagen Consensus Center in Washington, D. C., is the author oj 

"The Skeptical Environmentalist" (Cambridge Press, 2001) and "Cool It" (Knopf, 2007 J. 

A version of this article appeared March 11, 201& D\IT page Al5. in the U.S. edition o/The Wall 

Street Journal; with the hEarIline: Green Cars Have! a Dirty Little SeGret. 

3/12/2013 3:58 PM 
125 

‘‘INFLATED NUMBERS; ERRONEOUS CONCLUSIONS: THE NAVIGANT WIND JOBS

REPORT’’ BY CHARLES J. CICCHETTI, PH.D., MARCH 2013 
126 

ABOUT 

Author: Or. Charles J. Cicchetti 

Dr. Charies J. Cicchetti held the- Jeffrey and Paula M!l1er Chair in Government, Buslness, and the Economy at Ihe University of 

Southern California until 200f>. He continues to lecture at USC on electricity matterB. Cicchetti was the Deputy Director of the: 

Energy and Environmental Policy Center at Harvard University's .,iohn F. Kenn&dy School of Government He was Professor Of 

Economics and Environmental Studies at the University of Wisconsin, Madison from 1972 to 1985. He was the firsi economist at 

the Environmental Defense Flind and did post~doctoral research at Resources for the Future 

Dr. Cicchetti aiso chaired the WisconsIn Public Se-rvke Commission from 1977 to 1980 and previous,y direc:ted the Wisconsin 

Energy Office. He wa;; a member oj t:he California ISO Market Advisory Group. He ls an economic consultant Bnd a Senior 

Advisor io Pacific Economics Group and other5. He has been associated and he!d n",at!age:nent pOSitions in the past with Arthur 

Andersen Economic Consulting, Putnam Hayes and Bartlett NERA. and Madison Consulting Group. 

His publications in:lucle Going Green and Getting RegulatIOn Right. The California Electricity Crisis, Hestructunng Electricity 

Markets, Perspectives on Power, The Marginal COst and PI icing of Electricity, and Alaskan Oil. 

The American Energy Alliance 

Fou:lded in May 2008, the American Energy Alliance (AEA) is a not-far-profit organization that engages in grassroots public 

policy advocacy and debate concerning enwgy and environmental policies, AEA believes that freely-functioning energy markets 

provide the most efficient arid effective :solutiotls to toqay's global enOlrgy and environmental challenges and, as such, are 

critical to the well-being of individuals and socicty. AEA believes that government policies should be predictable, simple and 

technology neutral. 

The National Center for Public PolICY Research 

The National Center for Public Policy Research (NCPPR) is a not-'['or-profit communications and researcll foundation supportive 

of a strong nation?.! defense and dedicated to providing free market solutions to today's many public policy problems. Founded 

in 1982, NCPPR has provided top-flight research and communications operations for more than three decades, earning a solid 

repu1Eiion for its defense of privaie la:1d ownership. sound energy and economic policies, and conservative approaches to 

regulatory reform. The National Center has never requested nor received funding from the federal government nor any state 

nor foreign government. 
127 

EXECUTIVE SUMMARY 

In December 2011, Navigant Consulting, Inc., pro-dUC$d a R~port substan!ially based en American \.Vlrid Energy Association 

(AWEA} assumptions.' This Report purports to evaluate and compare two wind Production Tax Credit (PTe) expiration scenarios 

(Scenario 1, without extending the PTC; Scenario 2 with the PTC). For each, Navigant estima"led insta!led wind capacity and 

jobs. AWEA and its supporters hav., repeatedly used the Report's claim of 37,000 potential lost jobs in 2013 as a key reason 

to extend th-e wind PTC.2 Using energy policy 10 formulate a nationa! jobs polk:i is not effICient, cost effeciive, or s<H'lslbie. 

especrally when picking generation ~winners" by providing extraorrlinarily expensive subsidies like the PTC.3 

But most significantly, the Report's data, calculations, and resulting wind capacity and job loss estimates are not credible and 

shOuid not be relied upon tn support furtheJ extf>'nsion of the PTC. 

In particular, the Report val::ltiy QVGrstntcs potential jobs loss6s without the PTC becaus-e it (1) relies on biased, inflated wind 

~apaclty forecasts; (2) incorrectly applies Elconomic modols; al1d (3) fails to consider job creation opportunities from buiiding 

other generation sources instead of wind. In fact, foHowing Navigant's rnethodoJogj" building convfofoiional generating capacity 

results in even greater job creation than building more wInd, Nevertheless, basing energy poHcy on the number of jobs created 

by building generation facilities is economically wasteful. The choice of generation alternatives should focus 011 establishing 

policies that create cost-effective, affordable, and r~liab!e electricity. 

The Report's Wind Capacity And Jobs Numbers Are Grossly Inflated 

Navigan! erronoously calculated PTC-related job losses ignoring contrary federal government data. and instead used the 

wind if1dustry"s self-serving, inflated forecasts for wind capacity. Navigant tomcasts 2-0,200 MI/I}s of additional wind oapacity 

with a 4-yaar extension ot the PTC, relative even to its also inflated base case. The Navigant forecasts with and wiihout the 

pre oxtension exceed the government's reference 2016 forecasts by 20% and 55%, respectfvely. 

Navigant incorrectly applied tl1e Jobs and Economic Deyelopment Impact (JED!) eCOnomIC model. Replicating Navigant's 

work for five important wind states (California., Texas, Iowa, Illinois, and Pennsylvania) demonstra,eS that through this E)rror 

alone, Navigant overstates potential job losses by at least 100%. 

Navigant also incorrectly applied the Impact Anatysis For Planning (IMPLAN) economic model, using questionable 

mUltipliers to add indirect and induced jobs, which further overstates potential job losses by at least another 72%. 
128 

Overall Jobs Will Increase. Not Decrease. By Using Alternatives To Wind Generation 

Navigant's Inflated numbers are further distorted because Navigar.t estimated the incremental wind capacity that would be built 

because of the PTe <'ind then fed those capacity numbers into the economic models. Navigent's flawed methodology presents 

only a Traction Of the true economic story. Wind is not a particularly reliabls or dependab!0 source of energy. Adding 20,200 MWs 

of wind doss not translate into tM same amount of reliable electricity capacity, capable of replacing on a tv1W~for~MW baSis an 

equal amount of conventional existing nuclear or fossJl-fired generation. Accordingly, no one should think that a MW of new wmd 

generation could replace an eXisting MW of nuc!ear or coal generation. The irnportanc8 of distinguishing between the availability 

and utilization of different types of generating capacity should not be [9 nared 

Navigant's job creation methodology never asks: "Compared to what?" Wind [s not the only choice. Navigant never compares 

wind's job impact to the jobs created using oiher types of electricity generating capacity. This unreasonably ignores two 

important considerations, Second, if 20,200 MWs~ of generating capaclty were actually needed, based on Navigant's own 

methodology, alternatjve generation and plant life-extensions WOUld add more jobs than wind. 

The Report poses the wrong question. The appropriate question is the impact of the wind PTe's extension on the overall 

economy. a question answered by focusing on cost-affective and reliable resources that could be built instead of wind. 6 The 

reallt}' Is that wind generation is rrouch less available thall other electricity generation resources. Alternative electricity generaiiof1 

types also typically employ more direct jobs per MW or installed capacity. Therefore, for the same MI.Vs of added capacity, other 

tor11s of generation wouid actually increase direct jobs. 

Assuming Wind could replace other electricity generation resources on a MW-fQr-MW basis is incorrect. Howev,,;, if the 

choice is viewed as how many jobs will be added when e!ectrlcltl capacity additions are being evaluated, there would be 

many more jobs added using other generation resources. 

Using Navigant's previous work, published in Public Utilities Fortnfgtlify (PUF). 10 determine local dircci permanent jobs 

show~ that operating other formf; of generation would result in more jobs than ope~ating similar amounts of wind generation. 

A one-year PTe extension could cObi up to $4.8 million for each direct wind manufacturing and construction job added. 

Worse, costly unAconomic subsidies that increase retail electricity prices reduce U.S. competivensss a"d reduce job 

croation in the ovsraH eCOf'omy. 

As highlighted above, Navigant's fatally flawed Report on the impact of the wind PTe expiration is based on self-serving industry 

interviews and unsupported wind capacity forecasts that have no credibility. Therefore the Report's resulting job loss numbers 

are m;);,ningless and should not be us.ed to justify spending billions of dollars In taxpayer money to extend an unneeded subsidy 

for the wind industry. On Ille contrary. jf the rationale for PTe extension is based on creating jobs in the overali economy, the 

reaHty is that other gei'.erating ~echno!ogjes would create more direct jobs ror t~e same amount 01 added capacity than wind 

power would create, 

iii 
129 

1 Nfwigar;t Gonsuiting, Tax CreD'!t on the u,S. 1//'11J Market December 11, 21)11. rlf:reaiter. 't!'>e 

http:J.!'''W'N.a,vea_G:'gfiearnabout/pu i:; licaliO:l~ Irep~~~.sjup 'oad/AW::A-PTS ,stud y-1 2121 ' -2 pm. pdf 

2 See, AWE.i>, P'ess "iB!eaS8 http://awea.orginev/:';H:;crn/pr.,,:ssreleases/offlcialyea'endnUIT-oers:eleased.cfm 

rHp:/iwww.aWB2.0rg .. nel../sroomfpress;eleases/Layoffs_wind_pOWAr.c:m; 

http://c Ical~ter. :mica _ cOrr' 12012/12t- 3/'1'1: ne! ~ax-cred It -_~ WAS-!S-up-ior -a -f)-year ·ph asp.-o(:t/" 

ilifp :i/v{\~ w westgov_ or~il~ dex pr:o?oDti on", cnm_contem&v :e'N,,-ar;islc&i d =-'1?3 :ptc-Ietter -io-congress&ciiti d= 261 : 

!ntp://nows,ya1oc.comiwifld·er~eryy-:ax-crod;t-survlvB1';-fj:;;ca!-cli'I-Z.30400967_htrnl 

:3 Tile Conglessio,la! JOlllt Cornrr;ltteB m: l;:1XatIon estlfJi2:tao a one"year FlxfR(!S,']rt ot ,he PTe wou!d C::Jst $1;,> 1 

See, Jo);nt CDrnrnir,e" '1fl i8r.at,,)l1, 2-stim;::,:e Of Sel"'ate flm::.n:.e L'c'm:"Tlihe6'S t8x-6xtender bills, JCX~!O·12, Alj;:>l:s, 2, 20:2. 

A'/a;120,e !'it: httpsJi'flWW jet gov!pl.Jblicatk:ins.N:Y1~?:ur:(;,.do\·mi:)a(j&id=4<:82&chk=4482 &no_html=1, Moreover. \,};nd 

generation IS inter:'Jiitt0n~ and 0:1reliable. i)2CaLl~ t~~e \IJlnd ott6r.la:IS to biow W~ltl;! deF;8fld Is gre8:8st. ma"ing wino 8.1€s$ 

des'rabi", g~(jor8~ion SCuTe when compared to ::.oth conver,tiona' i'md o,t-,er tanett.;able goreratJon SQJ/ces. 

5 DO:"1ald Har",,,,t and P8ter lians ;"lI:sc:hboecl<, ·G~een Job Realities - OU<1nt:fying the, r::conomic Benefits of Gene!'atlon 

A:terr.a:ives,' /::',Jb!ic Urifiles F::}rlpightly, May 201 [) ':<,vfHable at: r.ttp:/,IIN'"vw.fortr:.gfHly.com!fo,tniglltYi2010/C5/greer;~1obrealitios 

iv 
130 

INTRODUCTION 

In December 2011, Navigant isswed a report entitled Impact of t,'i8 Production Tax Credit on the U.S. Wind Market, which 

concluded iil pertimmt part that if the wind PTe were not extended for four more years there would be: (1) nearly 75~/" fewer 

annlJal additions o'f wind capacity in 2013;° and (2) about half as many, or 37,000 fewer, wind-related jobs in 2013. 7 

The Rapor!, however, is fatally flawed, because unsupported anu erroneous assumptions, not facts, drive its predicted 

dire outcomes. Without detailing its metr',odology, the Repolt claims to apply the JED] and IMPLAN models to calculate the 

capacity and jobs impacts of a wind PTe expiration, but it relies all incorrectly utilized JE:DI/lMPLAN models, proprietary 

data, and Hkely biased, unreliable interviews to drive the models' results. Simply put, biased and erroneous inputs make any 

modeiing resu!~s meaning:ess. 

F"irst, the Report based its job loss pumbers on self-serving industry wind capacity forecasts that far exceed impartial 

government forecasts. Second, the Report incorrectly applied the JED! model, an error that alone overstated claimed job losses 

by at least 100% in the key states that were reviewed. 

Third, the Report applied the lMPlAN model by uSing questionable multipliers to add indirect and induced jobs, which overstated 

job losses by at least another 72%. lastly, the Report told only half the story. choosing to ignore the reality that wind by its 

nature is not a reliable source of electricity generatiQn capacity. Furthermore, other forms of elec.tricity·gsneration would create 

many more direct open~~ing, construction, and manufactJril"1g jobs "for each additlonai MW of installed capacity.2 

This is not to say that the nation's electricity generation decisions should be based on which ~ource of electricity generation 

creates the most jobs par MW of instal!ed capacity. Goals such as economic efficiency, productivity, and grid reliability are all 

arguably much more importa.nt considerations. The Report, however, has been used to justify the PTe based on exaggerated 

and misleading claims of more jobs when, ether things equal, wind capacity expands. The inconvenient truth for the wind 

industry is that other geMrat;ng technologies produce more American direct operating. constructlon and manufacturing jobs than 

wirld power per unit of installed capacity. 

G Reperi, p 

7 Rtep:.;:to.2.!: 

s Tho? Committee 0'1 Energy and Comrr.e:::::e Issued a June 18, 2(}c2. r.]flf"orandvin ihat tccussd on :ob c;eation f6sC!lting frow 

Section 1fi03 Of the ArlRricall R8i~Nestrnenr B:":d Recovc,y Act {ti1s P8COvMy Act (;' ·stimulus·}---a grant pn)QrClm aatninistere4 

by ni8 Oep"r:men ct ·'h!fl.RU'Y (TreaSiJry) and ihe Depar:m2m of fi,e~g)' (CO.::) that dferec casn payme:1iS 10 rellewFlble ~r:ergy 

beSides overstatilg t~e m.lfi"",b·3f of joes 
131 

THE REPORT'S WIND CAPACITY AND JOBS 

NUMBERS ARE GROSSLY INFLATED 

The Report Vastly Overstates Wind Capacity "Lost" Without the PTC 

Navigant vastly overstates wind capacity ~Iost" without a PTC oxtension, claiming :':0,200 MWs of wind capacity would not be 

insta!l&d through 2016.9 Na.vigant, however, derived this inHaled number from two unsupported forecasts that were rife wiih 

made-up numbers. Most notably, hoth of Navigant's capacity forecasts are substantlatly higher than the U.S. government's 

Energy Information A.dminlstratlon's (E!A) impartJal, objective wind capacity forecasts, which, inexplicably, Navigant ignores. 

Navigant's Scenario 1 forecast asserts that without the PTe about 70,QOO MWs of wind would be installed through 2016,10 

Its Scenario 2 forecast claims Ihat, with a fourvyear extension of the PTC, abOl1t 90,000 MWs would bp. installed thr-ough 

2016. Both forecasts rely upon unscientific and likely biased inteniiews with 24 wind anufactl.Jrers and deve!opers.11 Wind 

developers and manutacturers clearly have a vested interest ill extending the PTC, and thus in conclUSIOns that rely on their 

self~serving projections. The Report's methoQology is analogous to asking the haad of advanced ticket sales how well the 

home team will perform next season. The 20,2QO MW difference between the two inflated forecasts constitutes the claimed 

MWs "Jost" witl,out a PTC extension. 

Both scenar)os star: with about 5-5,000 MWS12 of instaHed \'lilnd capacity in 2012 and show annuai fo:-ecasts and growth over 

the next four years (through 2016).13 But the Report falls to explain the year-over-year capacity variations for 1he two scenarios. 

Most significantly, these unexplarned annual capacity variations differ markedly from the federal government's comprehensive 

EJA energy forecasts covering multiple l.'nder!ying aSSllrnptjo~s and economic conditions. 

In both of the Repo:i's scenarios, projected annual wind capacity growth rates never match any of ErA's year-aver-year 

projections, Rather, EIA's 2013 forecast tor Wind capaCity, as reported in its impartial Annual Energy Outlook (AEO), and as 

shown in Chart 1, differs greatly from the Report's vastly inflated forecaats.14 Chart 1 shows EIA's 2013 AEO Early Release 

Reference Case and whefe Navigant's Scenarios 1 and 2 for 2016 actual1y intersect with EIA's forecasts. In stark contrast to 

the Report's forecasts that wHllout the PTe about 70,000 MWs of wjnd capacity would be installed through 2016, end with th'EO 

PTe about 90,000 MWs, EIA's AEO Early Release (2013) Reterence Case1~ forecast of wind capacity for 2016 is only 58,OeC 

MWs, and that remains relatively constant through 2030. In fact, the Report's Scenario 1 forecast fQT 2016 does not intersect 

with EIA'$ forecast until about 2035, or almost 20 years later, The Report's Scenario 2 forecast for 2016 does not even come 

close to EIA'$ forecast L1ntll 2040 and never intersects it. 

The Report for~cast$ that without tM PTe extension about 70,000 MWs of wind capacity would be installed about 20 years 

earlierthan EIA's forecast (i.e., by 2016), and wtth the PTe about 90,000 MWs would be installed by 2016. Navlgan!'s forecast 

that 70,000 MWs of wind capacity would be installed through 2016 without the four-year PTe extension is 20 percent higher 

than EIA's reference case forBcast of 58,080 MWs, and its forecast that 90,000 MWs of wind capacily would be installed 

through 2016 with the PTC extension is 55% higher than EtA's reference forecast. 
132 

CHART 1 

EIA AEO 2013 EARLY RELEASE NET SUMMARY CAPACITY 

WIND REFERENCE CASE VERSUS NAVIGANT SCENARIOS 1 AND 2 

, , :)"",.Uwi.'i:i'i,iii·. 90-~--: f Y"-! ) "-

_: il/.j"i1it!;m,-H"!;:!.iii?4"~;;IfiHih,,~ ; i T 

i:~0 " 30 -~_~_~_ .~~~~~~~_~~~~~~_~_~~~~~~~ :~~1~~~ 

;.2010 !2012 12014 1:<016 JZO'lS 12020 !2022 j:;lOl:4 !202E' 12:028 12030 12032 12034 !;a036 i20;SS I 

The Report Vastly OVerstates PTe-Related Job Losses 

The Report applies its grossly inflated PTC~ related wind capacity numbers to calculate its claimed jobs numbers. The Report 

also incorrectly appiies the economic models it uses, compounding the job number errors. 

For example, the JEDI model is too narrow for Navigant's attempted broad national economic analysis as it is arl individualpower-plant model, which, at best, addresses small generation unit additions within the electricity industry. Erroneously 

applying JED!. the Report taUs 10 consider the employment effects of expanded or reduced wind capacity throughout the 

economy. In other words, the Report fails to consider the job impat.-{s of other generating technologies when determining the 

job losses due 10 not constructing 20,200 MWs of wind capacity, assuming that amount of capacity would actually be required. 16 

Pather, the Report asserted that over five years, a PTC extension would create an additional 169,000 wlnd-related lobs from 

the claimed incrementa~ 20,200 MWs, or 8.4 jobs per MW of lI';ind (169.000 jobs -;. 20,200 MWs).'7However. correctly applying 

th.e JEDl model, as shown ill Appendlx A, would produce only 2,110 jobs (2.033 direct, indirect, and induced manufacturing and 

constructiori jobs, plus 77 operal.ions jobs} for a 500 MW v,IIIld plant, or just 4.2 jobs per MW of wind (2.110 jobs..,. 500 MWs). 

Thus, through ttlis error alone, the Report erroneously overstated PTC~related jobs, and concomitantly job lesses, by at least 

100% {8.4 jobs pet MW versus the correct 4.2 jobs pel MW) 
133 

To reach the purported 169,000 "lotal" wind-related jobs over five years, the Report applies multipliers to estimate indirect 

jobs (i.e .. downstream suppliers) and induced jobs (i.e., from the sptJnding of direct and indirect workers). For each direct 

manufacturing job, the Repen adds about 1.7 indirect jobs and almost one induced job (0.9); for each direct ccnstruction or 

operation and maintenance job, it adds more than 5 indirect and induced jobs,1a Applying these quostionable multipliers and 

adding the indirect and induced jobs to tr,e direct jobs further inflates purported wind-related johs, and concomJtant!y any 

potential job losses, by at least 72% 11-(47 direct jobs ,- 169 total jobs)j. 

9 flcport. p. 7 

10 Report. p 

:c. 12 

12 i(1 a r€c8:"11 press m)Olase, ,"'WEA cla.ims :hal as of December 13, 2012. in" wit\d industry had D.chic,,,,}d-GJ,[UJ MW::; of 

For the pl,;1Joses cf 1his paper, We ut:IILe 55,']1 'j MNs. Df in5taHed capaci'Y to aCCI.!I'at8~:i 

'etlee! the :r.staiiea c.<:pacity projeclioGs al ,r-;e limE-' Nav:gant Gocducle;:i h:lp 'f/awea orgJPl8wsrcom/p'essreieesesJ 

otilclalyearenor wr:;be 'sre,eased, c fm 

13 Report, p. 13 

14 See !::iA, 1£0 2013 Early Release, hIlp.l/ww\N.eia.goviaiafj&cc(!abiebro'.vser/#reiease:AE02013~R &subject.,10· 

AE020 13[R& tab le=, 6-A ~02013EA® iOfl=0-0&cas8e:;=early20 13"d 1 023 t 2a 

-Thl; 4E02Q13 SBfemnc9 Case g~nDra!ly aSSlJmes thaI c.urrMt :awE: and regu:ations alfec~i"g tr.e energy S9ctor 

remain unchangBd If'lroughoul th8 prolP.(;r,on (iJ1ciudmg the I~rik:a:ioJ1 thaI laws t~a' iw;:;ude sunset da,Gs do 

:he <'me Of tLm'8 sunse~ dates) " See paGe 2 of the El.Il,·s AE:) 20; 3 S,,-TI,' RaiE:;;sc Overview. Avaiiabie ill: t·t!pJi·,1JWW eia'0C"'/ 

16 rhe Congr8SS:0na: Researcr Service ICRS) ;;;w.i the Wall St.'est .)OUf"iE<i rigl,!ig"',!ed the trBrflenDOUl'-: v3,iab:'ity in estjmatcs c-; 

temporary and pwrr:anen: jobs spewr.£ld by '1)0 SCC!;0f1 "603 want program. See, Phi!!ip Brown en:: 

16:)3 Grar;is;n Lieu or l/c;x Credits for t=?5nBwp.l)le Ener:;;y: Overvrew, AnalYSIS, and POlicy Options 

n~5, AV!';i!able at ht:p:.'/8S~,,;lo; ·')per'cis,corr/rplsft'l'11635_2011:j20B pdf, SCG als0. iar,thtl';car':J)8 Duran and ,Justin Sch,,-:k, 

·CO~j cl $10 8;:llon Stinulu~ Eil,,;8' to Ta~il Tha;'l Ne'N Jobs," V:a~! Stie8t ,JO,JIUi.i, FSDfuary 24, 2012. I\vailablc at. http://oilll:re 

w.sj,corr/articiei SRI:J001424C'529702G37107C4577C5041<::.194713178.:ltml. Those (c,p:Jlls -sugges:ed d paltry fW . .":<XC Dr !ong-;er'n 

i'Jh creation. CRS noted that "t~e pokntio.: br job ,-'re<\t,o:' has becornA a ~<'ly T<'!.oor in ""O/aiuating renewa:Jie; 5nerQy investment 

inCEntives ilr.d prc::lrarns" tut l"a~ "!jflsp-Ie beinG ".11 !SS1J~ ill ,f[',porta(1ce, quan!ify;ng -ar·o meas<lnrg ~lre8n jot creation and 

growtt; liaS been aitticult' 211':1 adi,j&cl t~at ',! '8 f'2COmme:loed tlia: an; joo c:eatit)1) estima!B be Viewed '-Nil(; s~ep:ic!8rn " In 

<,upcon o! Ih8S8 ~:u~':'lllcnt, Brovm and Sherloc,; iii'ed Rirhard J r,;;.mpt.d! and Lirloa Levi')B, ReneWAble Energy-·A Pa.hway ro 

Grti8'i Jobs/CRS RKHYI R4Ll2-33, September 24. 2'}09 

17 Tbh Repor1 clairill', SGi ,OS:] W;O!! wipe ~o::>s w!ih the O'TC 8xle:)sbn a~c 3.1.1,000 tcta; \vjnd jots I'/;tn::.,c! the PTC €xtCif\S:UP 

The dilfcr£nc0 (~,'J' ,000 - 333,,,00.1 aquals th€- 'lOSt" fobs :'12 Report c!2ims Yiith0ut H,B i-' r-C axter.s;o'1. n~;s eSTii':lale 

use tr.8 JEDi!IMPl,A:-.J metJooc: it aiso inc,l:ces qweslionahle assumpt!or.8 aboul :nc!I'ect ano mduliCC jobs. 

Soe-. !1cport, p, 2~ 

1$ An impo[]an1 aS0eCl of ~he mam;iacLrrhg jol:;s to'Jt~.j in the Repor! is t:~B.1 many cf these jobs He liJ<ery to be !oGaled outSide 

of I:Je United States. For eXdr:1p1e, tM;') U.S. House of RsproGcn':ativas Comm:';8-A Of] cnersy and Commerce reported. "A: tfJe 

Vol. 2, Issue 1, M3.j':dly Staf; Repo'L, Janu2cy 17. 2:11:}, American T8y'{'cw",r Irl'n;~st{(1efJt. 

Forei.Q'? CC:'Pcrc!iiO,l 3F!,"'efff' rore,'gr! Ccr{}ordions Hs.ve ReG9'-.;ed Approximatd; One-Q'.Jart9! of $16 Biliion Spe,~r on "5e,~ti{On 

f603- Renew2b~e Ene'(;y Sfimufu,~ F'rogra.'I'. }l;vCl.il8bie at: flttp:llenergycomrilbrce.I'olJse,gov/s·tesfreput]licans.energycomillerce. 

ho,;$e.l]()vl i liH;;ianaIY~13/20~ 301' 7t~}r8,gninvp.slrnent P(j' 
134 

INCREASING WIND CAPACITY COSTS 

AMERICAN JOBS 

Additional major flaws further dIstort and intlate the Report's job loss numbers. The analysis narrowly focuses on wind industry 

jobs withOut considering jobs from other eiectricity generation t~CMologies.19Vl}ind generation is only 0119 technology used to 

supply electricity to the nation. The Report ignores the <;ornplex and hlghly interdependent aspects of the electricity industry.20 

The electric power industry primarily adds new capacity to meot growing demand or to replace older, less efficient, and mora 

costly generation. Therefore, it is not reasonable or legitfmate to attempt to estimate the PTC's impact on jObs without analyzing 

the jobs related tu alternative generation options. 

Furthermore, using Anergy policy to create jobs is inefficient and often embraCBS major conflicting economic objectives. 

Rnther, increased productivity and reliability and the effect of generation cp..pacity costs 011 consumers are much more 

important considerations. 

Nonetheless, in purporting to assess the jobs impact, the Report's fOGUS should have been the U,S. economy and jobs, not 

just wind jobs, The Report's one-sldsd, lncomp!ete analysis unreasonably fails to consider how a PTC extension would reduce 

other inlerd9"pendent electricity genNation sedors. Credible numbers require unbiased and complete analysis that considers 

and measures every interdependent segmer:t of the eiectric power Industry and nets any partlallosses in one segment agalnst 

any gains in others. 

Notably, In an articie pubnshed in Public Utilfties Fortnightly in May 2010, Nav;gant reported that wino produces fewer operating 

jobs than other types of generating capacity.21 As restated below in Table 1, this analySts compared the cirect, local, essentially 

permanent. op-erating jobs for differen~ types of instailed eieclriciiy f;eneraHon on a capacity basis. 

TABLE 1 

LOCAL DIRECT OPERATING JOBS 

TECHNOLOGY 

COAL 

HYDRO >500 MW 

HYDRO PUMPED STORAGE 

HYDRO >20 MW 

CSP 

COMBINED CYCLE 

PV 

AVERAGE SIZE 

(MIN) 

_ .. l,0<ll!.._ ___ 1J?~ _. 890 

450 

100 

630 

10 

MICRO HYDRO <20MW 10 

WIND 7S 

DlRECf DIRECf LOCAl 

JOBS NORMALIZED LOCAlJOIlS FOR1,OOOMW 

504 504 

187 _ ____ 187 .m ___ • 

156 113 

85 96 -------- - 86 191 - - -- 47 470 --~~---- .. -, 

34 54 ----------- 11 1100 

SOURce, HAMER, DONALD AND PETER HANS HIRSCHBOECK. 

"GREEN Joe REALITIES, OOANTIFYING THE ECONOMIC BENEFITS OF GENERATION AL T£RNATIVESFIGURE 2. PAGE n. pueuc LImIT'( FORTNIGHTlY. MAY 2010 
135 

Navigant's vetted PUF paper demonstrates that an other generaHng aitemarlves consfdered would nave more d:rec~ local 

jobs than wind generation per MW of Installed capacity. 

Table 2 shows the estimated direct-as wei! as the combil1ed direct. indirect, and induced-manufacturing and construction jobs 

for three ditfarent gener.9.ling sources {coal, natural gas, and wind) base{! on the models that Navigant l1sed_ These estimates 

are shown in Appendix A and were based on coal, natural gas, and wind generation JEDI/IM?LAN analyses in major wind states 

(California, Illinois, Iowa, Pennsylvania, and Texas). 

Table 2 shows tnat a 500 MW wind generation plant would add 250 direct up-front construction and manutactilring jobs, or 

10, 100 LIp~front direct construction and manufacturing jobs for 20,200 MWs, The corresponding uptront jobs for natural gas and 

coal are 1,821 jObS per 500 MW of additional capacity, or 73,589 jobs assuming 20,200 MWs of needed capacity_ De-spite HH'J 

previous criticisms of Navigant's methods and assumptions, it is important to understand that correcdy using Navigant's ,JED!! 

IMPLAN method to estimate tht'J jobs related to additional installed generating capacity demonstrates that other generation types 

wOLiid produce about 63,500 mOfS direct operating, manufacturing, and construction jobs for 20,200 MWs of capacity than an 

"assumed" 20,200 MWs of wind '!.'outd. (Note: This calculation is based Oil treating wind capacity and 10ssil fuel capacity as 

producing ins sams amount or eiecl,"idty per unit of capacity. Of ccurse, this is not the case, given that wind power gEOnerates a 

lot less electricity than fossil fuel generating technologies tor the same amount of capacity, due to its intermittency.) 

Under any clrcumstances, however, using energy polley to create jobs is inefl1cient, and is even worse when poHcy altempts 

to pick the "winners" as it does with the PTe. Rather than continuing to subsidize wind with the expsmsive PTe, If additional 

generation resources are needed the more economic approach would be for providers to invest to extend the tlfe ot nuclaar and 

hydroelectric facilities, reduc~ pollution at coal-fired units, and buHd conventional generation. 

The Congressional Joint Committee on Taxation. for example, has estimated that the cost of a one~year PTe extension is 

$12.1 biUion.22 Thus, even accepting the Report's grossly inflated number of 37,000 wind jobs, the cost to the American 

taxpayers would be $-12.1 billion dlvided by 37,000, or about $327,000 per job. 23 But the Report's job numbers ere vastly 

ov.,rstated. Tnerefore, the act'Jal wind-related job cost would be far greatel. For example, using Navigant'S claim of 20,200 

TABLE 2 

JEDI TOTAL JOBS IN MANUFACTURING AND CONSTRUCTION FOR DIRECT. 

INDIRECT. AND INDUCED CATEGORIES BASED ON 500 MW. OF INSTALLED CAPACITY 

COAL NAllJRALGAS WIND 
136 

MWs less wind gen-eration without the PTe would mean an average of about 5,050 MWs per year difference over tne 2013-2016 

periOd. The JED!!IMI:lLAN method shows 250 direct up~front manufacturing and construction wind~related jobs per 500 MWs, 

which would mean 2,525 up-front direct jobs for 5,050 MWs per year. Therefore, the cost tor a one-year PTe extension could be 

as mLlch as a staggerir;g $4,792,079 per direct up-front job added ($12.1 billion + 2,525 jobS).24 

19 !';.polher important paipl ;;:bout job GfA8tion is thai til;: P"'C is r:ot "fr;;e" Na"igu~lt impi,cit!y <'lss(:m,;s tha, the PTe doss not ha'hl a 

h2S 'F) eject Gn jOb Cleat.on ThO ,)o;r:1 T"X COnlflll;sian estimates ri,e fiSC2.: :mpuct ot ;hB PTe iH $1'; 1 billion 

tor a one-year OX:bflSiO:-:. ~he ':lone~' "sed to subsidize NiGd ',vii! eve;ltus,Uy be witndr9,'fr b:;[1, the cconom/ anc Gost ,lobs. While 

a comp'e!v~ns:,,€! anaiysis (oj lh~ jDb eFectJi D-j t'le PTe's impact on t'Je Treasury ;s ocflsije the :::-cope of this paper, thay should .'lOt 

b·", ignor:;'J. 

20 :., Natlen?!i Ror;;?"Nable EG!'!rgy Labor3tory (rJ?:=L) n~port th21 u,·lizer:i JED! to rlodel jobs croat,~d by v{:nd Garac:ity lr.st<'!ilat;Of' 

reponed tilal. bei'Neen 2009 a"d 2G11, wwd "l.llrl selar pro~cts crea,80 bel'~Jeer\ 52,OOD an::i 15,OOfl [!iract and :nd:rBct iobs 

during ,r,e CQf1strudioll prlf!l;e arie created oetWf'R,~l 5.100 and 5.500 d:reGl and if"i:rect jobs p~r jf)",r "0 an o~going bas:s 

Ho.vever, NRE:L also aJmil1eC t:lat. wrrer. eXiSI!OP ie-bel \'1818 exe'TIP:eCl li?m tne :aily, only 77D di"ect ;0:J$ were 1>1triou1<;:ble:o 

1;;'l"g6 "";"',Q prcjects 

1m n:solacenent of ~~)b3 ur f:Gonor'lic activity r9:ated iD Gh<:FiQBS 1'1 e;,istinQ pow~r p;a0ts. See, Dal,ie: Steiflberg, Giall POliO, 

af'd Ma:shall Goicnerg, Prej;min;:;ry Analysis of the Jobs i'l'ld E.(;:;nomic Impacts of Re,;ewf'.bfe energy Projec:s S!Jp0~l(i6(j by rhcR 

Treasury Gran: Prograrr.. Anr;! 2012. Available at: ilrtp:!/w'flw.nrel.gov!cICCs!iy"20S:I/52739.pdi 

21 Sal':!, Harke" :;Ild H:rsc'1bC8ck, Cree" Job Roaii't;os - Quartifyi,'10 the Econor.l'c Bon"Jils of Generarfo'1 Aiternarlves, h~tp:!/wVlw 

fo,'mlghtl)', C C'r Herin ig i]tly/20 1 C!05/grAeO-;:"lb-!R<I!!j,es 

l:l f3es Dav:Q ::, DIs"nt;!<es, f1emovir::; eig ';".'inel's "Traini'1g Wlj"q;s~.' T,'--;e Cas!? For Ending the FcdGrai Pr0tiuGtil)n T~x C.'eo'i! 

;,20:2) 'wail(ib!B at: http://w',YW.nmoricallellergyalliance.org/wp-content/ 

jp·:)adS!2012/10!GI~·nl:ke8-Remo\"ing-8ig-\I'/nGs-Trainlng-Wheels.pdf 

1.0-;)0 M\;V8 of Nind 'Nodd m~a"l sco:.!t 268 inhs, whic .. would redJce :~D cos! per jon adde,j 

bl'iesstkln 11%. 
137 

Æ 

CONCLUSIONS 

Using energy policy to create jobs is never cost effectIve and is especially bad policy when used 10 pick ,\'Vil~ners~ by providing 

extrt;ordinari!y expensive subsidies like thE! PTe. Moreover, under any circumstanCA$, the Report's wind capacity and job loss 

numbers have no credibility and should not be reUed on to support any further extensions of the PTe. The Report's numerous 

calculation errors included: 

U::;ing biased, self·sorving industry forecasts and estimates, Wllich creeted "Jost" wind MWs estimates thR.t are between 20% 

and 55% higher than imparli".! government wind capacity forecasts. 

Incorrectly using the JEDI model, which alone inflated job losses by at least 100% in the key states that were r.avlewad. 

Incorrectly applying the rMPLAN model using questionable multipliers, which infla!ed job losses by at least another 72%. 

Failing to consider other generating technologies that have greater jeb gains than wind per unit of capacity. 

Given these numerous flaws the Report's job loss numbers are meaningless and provide no support for extending the PTe. 

Raiher, extending the PTe wiH unnecessarily cost taxpayers billions of dollars and will not create any net American Jobs, To the 

contrary, extending the PTe win reducs, not increase, American jobs.