Meeting Energy Demand in the 21st Century: Many Challenges and Key Questions
Published: 2005-03-16T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Plentiful, relatively inexpensive energy has been the backbone of much of modern America's economic prosperity and the activities that essentially define our way of life. The energy systems that have made this possible, however, are showing increasing signs of strain and instability, and the consequences of our energy choices on the natural environment are becoming more apparent. The reliable energy mainstay of the 20th century seems less guaranteed in the 21st century. As a nation, we have witnessed profound growth in the use of energy over the past 50 years--nearly tripling our energy use in that time. Although the United States accounts for only 5 percent of the world's population, we now consume about 25 percent of the energy used each year worldwide. Looking into the future, the Energy Information Administration (EIA) estimates that U.S. energy demand could increase by about another 30 percent over the next 20 years. To aid the subcommittee as it evaluates U.S. energy policies, GAO agreed to provide its views on energy supplies and energy demand as well as observations that have emerged from its energy work. This testimony is based on GAO's published work in this area, conducted in accordance with generally accepted government auditing standards, and on EIA's Annual Energy Review, 2003 and its Annual Energy Outlook, 2005.
section_title: What GAO Found
paragraphs: America's demand for energy has, in recent decades, outpaced its ability to supply energy. As a result, the country has witnessed rapid price increases and volatility in some markets, such as gasoline, and reliability problems in others, such as electricity, where the blackout in 2003 left millions in the dark. Given these recent and sometimes persistent problems, as well as concerns about the impacts of energy consumption on air, water, and other natural resources, there is a growing sense that action is needed. Today, fossil fuels (coal, oil, and natural gas) provide about 86 percent of our total energy consumption, with the rest coming from nonfossil sources such as nuclear (8 percent) and renewables, such as hydroelectric energy and wind power (6 percent). Overall, the majority of the nation's energy consumption is met by domestic production. However, imports of some fuels have risen. For example, over the past 20 years, imports--primarily oil and natural gas--have doubled, and in 2003 these imports comprised about one-third of total domestic energy consumption. Imports are expected to increase still further in order to meet future domestic consumption. In light of the current and expected levels of imports, the United States is, and will increasingly be, subject to global market conditions, with the transportation sector especially affected. Global markets may face future difficulties in meeting the growing energy demands of developed nations while also meeting the demands of the developing world, particularly considering the explosive growth in some economies, such as China's and India's. If world supplies for some fuels do not keep pace with world demand, energy prices could rise sharply. GAO believes that a fundamental reexamination of the nation's energy base and related policies is needed and that federal leadership will be important in this effort. To help frame such a reexamination, we offer three broad crosscutting observations. First, regarding demand, the amount of energy that needs to be supplied is not fate, but our choice. Consumers, whether businesses or individuals, choose to use energy because they want the services that energy provides, such as automated manufacturing and advanced computer technologies. Accordingly, consumers can play an important role in using energy wisely, if encouraged to adjust their usage in response to changes in prices or other factors. Second, all of the major fuel sources--traditional and renewable--face environmental, economic, or other constraints or trade-offs in meeting projected demand. Consequently, all energy sources will be important in meeting expected consumer demand in the next 20 years and beyond. Third, whatever federal policies are chosen, providing clear and consistent signals to energy markets, including consumers, suppliers, and the investment community, will help them succeed. Such signals help consumers to make reasoned choices about energy purchases and give energy suppliers and the investment community confidence that policies will be sustained, reducing investment risk.

section_title: Letter
paragraphs: I am pleased to participate in the Subcommittee’s hearing on the future  direction of our nation’s energy policies. Plentiful, reliable, inexpensive  energy—in its various forms, including gasoline, natural gas, and  electricity—has been the backbone of much of modern American  economic prosperity and the activities that essentially define the American  lifestyle. The United States accounts for only 5 percent of the world’s  population but consumes about 25 percent of the energy used each year  worldwide. U.S. energy demand has increased over 25 percent since 1980,  and in 2003 amounted to the equivalent of about 790 billion gallons of  gasoline, or roughly 2,800 gallons for every man, woman, and child in the  country.
As shown in figure 1, energy consumption in the United States has grown.  While energy demand across residential, commercial, and the industrial  sectors includes demand for all types of energy sources, such as oil, coal,  and natural gas, demand in the transportation sector is almost completely  oil dependent.
Increasing demand across our economy has, at times, strained our energy  system. For example, in recent years, natural gas prices have nearly tripled  and crude oil prices have more than doubled, and gasoline prices now  exceed $2.00 per gallon in Washington, D.C., San Francisco, and other  major cities. In addition, our energy supplies have also witnessed  problems, most notably in 2003 when the largest blackout in U.S. history  left as many as 50 million people in the dark. Further, there have been  indications that our energy infrastructure has not kept up with changes in  our demand for energy as illustrated by (1) the nation’s refinery capacity  not keeping pace with the increasing demand for gasoline, leading to  increased imports of gasoline, and (2) the electricity sector’s transmission  constraints periodically limiting the flow of electricity in parts of the  country. Lastly, our energy dependence on other countries has increased,  raising greater concern about international turmoil in the Middle East,  Russia, Venezuela, and elsewhere.
As shown in figure 2, the United States has increased production  (generally through the extraction and use of oil, coal, and other fuels from  the land) of a wide range of fuels over the past 50 years to help meet  consumer demand. Today, fossil fuels account for about 80 percent of our  total domestic energy production, with the rest coming from nonfossil  sources such as nuclear electric energy, hydroelectric energy, and  nonhydroelectric renewable energy sources, such as wind power. Despite  the fact that the United States produces most of its energy, imports of  some fuels are rising to meet growing U.S. consumption.
As shown in figure 3, over the past 50 years net imports of energy have  increased. This increase has been most dramatic over the past 20 years,  during which time energy net imports more than doubled, reaching 32  percent of our total consumption in 2003. The vast bulk of these imports  are oil and natural gas.
Nearly all energy is supplied by private companies that also own the  energy supply infrastructure. Some of these companies are multinational  corporations with worldwide shareholders, while others operate only  locally. Further, most of the fuels used in the energy sector—including oil,  coal, natural gas, and nuclear fuel—are sold at prices determined by  competitive markets and, in some cases (such as crude oil), international  markets.
Over the years, the federal government has intervened in energy markets,  providing tax credits and other benefits to suppliers and consumers of  traditional and renewable energy. For example, the federal government  has granted tax incentives, direct subsidies, and other support to the  petroleum industry, as well as tax and other benefits to the ethanol  industry, in an effort to increase U.S. energy supplies. Similarly, the federal  government has also provided tax credits for the production of energy  using renewable energy resources, such as wind turbines. While these tax  incentives generally work to increase the production of energy, they also  generally decrease revenues accruing to the U.S. Treasury.
Looking into the future, daunting challenges lie ahead. As shown in figure  4, the Energy Information Administration (EIA), within the Department of  Energy (DOE), estimates that U.S. energy demand could increase by about  another 30 percent over the next 20 years, if current trends hold. Meeting  these projected increases could be more challenging in the natural gas and  petroleum industries, because consumption of these fuels is forecast to  increase by 37 percent and 33 percent, respectively, during that period. In  addition, forecast imports for these two fuels are expected to rise by over  140 percent and 60 percent, respectively.
Unless changes are made, meeting the forecast increase in energy demand  could further stress an already strained system. From a domestic  perspective, the nation already faces energy supply constraints and higher  prices for some important fuels, as well as environmental problems such  as persistent air pollution in some cities. In addition, from an international  perspective, the United States is increasingly subject to global markets for  key energy sources, such as crude oil and, increasingly, for natural gas.  Global markets may face difficulties in continuing to meet the growing  energy demands of developed nations such as the United States, while also  meeting the demands of the developing world, particularly in light of the  explosive growth in some economies, such as China’s and India’s. If world  supplies do not keep pace with world demand, energy prices could rise  sharply.
Just last month, as part of our 21st Century Challenges report, we  identified two broad questions focused on reexamining the nation’s energy  base and related policies:    To what extent are federal energy policies and incentive structures  adequately preparing the nation to satisfy its energy needs over the long  term?
What is the appropriate balance between efforts to promote enhanced  production of fossil fuels, alternative renewable energy sources, and the  promotion of energy conservation?
Given the importance of energy to our nation’s economy and current  lifestyle choices, it is generally recognized that a secure, affordable,  reliable, and environmentally sound energy supply is needed. However,  the reliable energy mainstay of the 20th century seems less guaranteed in  the 21st century. In the context of developing our nation’s energy policies,  we are providing our views on energy supply and demand based on our  published work in this area, conducted in accordance with generally  accepted government auditing standards. In addition, we are providing  information on forthcoming work, as GAO continues to report on a range  of energy activities and policies of the federal government.  In summary, based on past work and considering recent EIA forecasts,  three broad crosscutting observations emerge that could help frame  congressional efforts to develop the nation’s energy policies:    First, regarding demand, the amount of energy that needs to be supplied is  not fate, but our choice. Consumers, whether businesses or individuals,  choose to use energy because they want the services that energy provides,  such as automated manufacturing, advanced computer technologies, and  many high-technology household amenities. However, consumers can play  an important role in using energy wisely by, among other things, choosing  technologies that deliver the same services but that use less energy or  reducing their energy usage when it is valuable to them to do so. For  example, in electricity markets some utilities and system operators have  created a variety of electricity pricing and other programs that encourage  customers to adjust their usage in response to changes in prices or other  factors. These “demand response” programs offer substantial benefits to  participants and improve the functioning of these markets because they  provide more accurate price signals to consumers and encourage more  careful energy use while providing better incentives for conservation  and/or energy efficiency.
Second, all of the major fuel sources—traditional and renewable—face  environmental, economic, or other constraints or trade-offs in meeting  projected increases in demand. Consequently, all energy sources will be  important in meeting expected consumer demand in the next 20 years and  beyond. Meeting future demand will be particularly challenging for the  transportation sector, where the United States is almost completely  dependent on oil—more than half of which is imported. With just 5  percent of world population, the United States consumes roughly 45  percent of world gasoline. Further, the same international markets that  supply U.S. needs will also need to supply countries in the developing  world, such as China and India, which are experiencing increases in  demand that far exceed even our own increasing thirst for oil.
Third, whatever federal policies are chosen, providing clear and consistent  signals to energy markets, including consumers, suppliers, and the  investment community, will help them succeed. Energy consumers need  clear and consistent signals so that they can make reasoned choices with  regard to purchases of energy-consuming equipment that help to  determine their long-term energy demand. Energy suppliers require clear  signals regarding national policies and confidence that those policies will  be sustained over time in order to undertake the substantial investment  needed to support expected increases in consumption. The investment  community also needs these clearly articulated policies to determine how  much to invest in current and future infrastructure, new products, and  new technologies.
Specifically, our testimony presents an overall energy picture, discussing  each of the major energy sources used in the United States, along with  consumer demand. We end each fuel discussion with examples of key  questions facing the Congress, the executive branch, states, industry, and  consumers.
subsections: section_title: Oil: Our Largest Energy Source, but Mostly Imported
paragraphs: Oil is the largest single energy source used in the United States and  remains perhaps the most visible energy source to most consumers. Oil,  and the gasoline refined from it, provided the critical energy for the  automobile that mobilized America. Oil remains at the center of the  transportation sector and at the center of our national energy policy  debate.
In 2003, oil accounted for about 40 percent of the total U.S. energy  consumption and the United States consumed about 7.3 billion barrels of  crude oil—about 20 million barrels per day. Most oil is used in the  transportation sector as gasoline, diesel, and jet fuel, with oil-based  products accounting for over 98 percent of the U.S. transportation sector’s  fuel consumption. In addition, oil is also used as a raw material in the  manufacturing and industrial sectors; for heating in the residential and  commercial sectors; and, in small amounts, for generating electric power.  Although the United States accounts for about 5 percent of the world  population, we consume about 25 percent of total world oil demand.  Although today the United States and its industrialized counterparts  currently account for the bulk of the world oil demand, demand is growing  rapidly in the developing nations, especially those in Asia, such as China  and India.
The United States relies on imported oil for more than half of its supply  and appears likely to increase its reliance in the future. Historically, the  United States produced most of the oil it consumed. However, U.S. oil  production began to decline in 1970 and has dropped by about 40 percent  since then. Since 1970, imports of crude oil and other products have  increased 255 percent, and imports now comprise nearly 56 percent of the  U.S. oil supply. Part of the reason for the rising imports is cost; it has been  less costly to purchase oil produced in other countries than it has been to  produce it in the United States.
Rising U.S. imports have increasingly been supplied by countries  belonging to the Organization of Petroleum Exporting Countries (OPEC),  which collectively provided about 42 percent of our total imports during  2003. Since about 20 percent of our imports came from the Persian Gulf  region and 14 percent came from Saudi Arabia, our reliance on these  imports has made the United States subject to the political instability of  the Middle East witnessed in recent years. We also import a large amount  of oil from our neighbors in North America; about 30 percent of our  imported oil came from Canada and Mexico. Going forward, the United  States will increasingly rely on imported oil because although the United  States is currently the world’s third largest oil producer, U.S. proven oil  reserves account for only about 2 percent of total world reserves. In  contrast, OPEC holds about 68 percent of total world oil reserves.
The prices of crude oil and refined petroleum products, such as gasoline  and home heating oil, have been volatile over the years. Since the 1970s,  the crude oil market has, at times, been heavily influenced by the OPEC  cartel. Because the member countries control a large share of world  production and total reserves, these countries have been able to influence  crude oil prices by limiting supply through the use of country-by-country  production quotas. These quotas have, at times, served to maintain a tight  balance between world supply and world demand. However, because of  the relative political instability in the Middle East and some of the other  OPEC countries (such as Nigeria and Venezuela), occasional oil supply  disruptions and price shocks have been a fact of life for about the past 30  years and may remain an issue for the foreseeable future. Although crude  oil prices play a large role in determining the prices for gasoline and other  refined petroleum products, other factors also influence the volatility of  gasoline prices, including limited refinery capacity, low inventory levels  relative to demand, supply disruptions, and regulatory factors—such as  various gasoline formulations that are used to meet federal and state  environmental laws. Federal and state taxes on gasoline and other  products serve to raise the level of prices, but these taxes do not fluctuate  often and so do not contribute to price volatility.
Demand has pressed the limits of the production and delivery  infrastructure in the oil industry in recent years. While U.S. crude oil  production has fallen, rapidly rising imports have required more ocean  tankers of crude oil to be off-loaded each year—forcing expansions of  ocean crude oil terminals and coastal refineries. Because some refineries  have closed, and no new ones have been built since 1976, there are fewer  refineries available to convert crude oil into gasoline and other products.  Although increases in overall output have been achieved through  expanding capacity at the remaining refineries and operating those  refineries at very high production levels, the nation’s domestic refining  capacity has lagged overall demand growth for petroleum products.  Further, the network of pipelines that delivers refined petroleum products  also operates at high levels of capacity, sometimes limiting the amount of  fuel that can be shipped. Finally, the capacity of gasoline terminals that  distribute fuel to local gas stations is also limited in some parts of the  country.
Over the past 30 years, the federal government has undertaken many  efforts designed to influence petroleum markets and demand for  petroleum based fuels. For example, in the mid-1970s, the federal  government developed the Strategic Petroleum Reserve, part of an  international reserve effort designed to mitigate the economic impacts on  world economies of any large, sustained disruption to the oil supply. In  addition, the federal government has supported a number of research and  development and regulatory efforts designed to reduce demand for  petroleum fuels in transportation. For example, the federal government  supported the Partnership for a New Generation of Vehicles in order to aid  U.S. automobile manufacturers in developing gas-electric hybrid vehicles.  In addition, the federal government has encouraged the development and  deployment of technologies focused on identifying alternatives to  petroleum-based fuels, such as the recent FreedomCAR initiative—a  program to help develop fuel-cell technologies for vehicles.
GAO has issued numerous reports on aspects of the petroleum sector,  including gasoline markets and government efforts to reduce consumption  of gasoline in vehicles among other areas. We also have reported on  government efforts to improve gasoline vehicle efficiency through the use  of gasoline-electric hybrid technologies and to shift vehicle fuel use to  alternatives such as compressed natural gas or hydrogen-powered fuel  cells. GAO has also noted that low gasoline prices do not reflect external  costs associated with gasoline use, such as health and environmental  impacts of air pollution or the economic cost that may result from the  nation’s vulnerability to oil price shocks. Consequently, low gasoline  prices work to discourage energy efficiency and the use of alternative  fuels. Most recently we reported on the effects of mergers and market  concentration in the U.S. petroleum industry, noting that mergers and  increased market concentration that occurred in the mid-to-late 1990s  contributed to higher wholesale gasoline prices—averaging about 1 to 2  cents per gallon. Other factors such as changes in gasoline formulations  and supply disruptions may have also contributed to higher gasoline prices  during this period. Later this year, GAO will release a primer on how  gasoline is made and distributed, what factors influence the price of  gasoline, and why gasoline prices change, among other things. In  forthcoming work requested by the Congress, GAO will report on the  presence of multiple fuel formulation requirements in some parts of the  country and how the expansion of these fuels have affected prices.
What are the potential implications for the United States of increased  world reliance on oil supplies from politically unstable sources, such as  OPEC countries?
To what extent can the United States increase refining capacity and other  delivery infrastructure to meet growing demand for petroleum products?
What are the implications if there are further consolidations in the U.S.  petroleum industry?
Are there ways to better reflect the full societal cost of using gasoline in  gasoline prices, and what are the trade-offs of doing so?
section_title: Coal: Balancing the Use of an Abundant Domestic Resource with Its Environmental Consequences
paragraphs: Coal has been a key energy resource in the United States for over 100  years. Over this time, the use of coal has provided low-cost electricity but  has brought with it environmental consequences, such as air pollution.  Choices regarding the use of coal revolve around balancing these  consequences, in the light of new technologies to reduce them, with the  energy benefits of using this plentiful domestic resource.
In 2003, coal accounted for about 23 percent of total U.S. energy  consumption. Nearly all of the coal consumed in the United States, 92  percent, was used in the production of electricity, with almost all the  remaining 8 percent used directly by industries such as steel  manufacturing. Coal-fired power plants provided about half of total  electricity generation in the United States in 2003, with larger shares in  some parts of the country such as the mountainous West and the Midwest.  Coal is expected to remain a vital element in the country’s energy supply;  EIA’s most recent forecast indicates that coal would continue to provide  about 20 percent of the country’s energy needs in 2025.
The United States has substantial domestic coal resources, leading some  to refer to the United States as “the Saudi Arabia of coal.” Nearly all of the  coal used in the country is produced domestically. In 2003, using EIA data,  estimates of recoverable U.S. coal reserves could last over 250 years,  based on current usage. Coal is generally extracted from either surface, or  underground mines, however underground coal also contains combustible  gas, called coal bed methane, that can be removed using wells and burned  to produce usable energy similar to conventional natural gas. Coal  reserves are located across the country, with large reserves in the West,  the Midwest, and the Appalachian Mountains, but consumption of coal  from the West has increased sharply in recent years. A large portion of the  coal reserves are located on federal lands and are subject to direct federal  controls, such as payment of royalties, limits on the amount of federal land  an individual company may mine, and requirements that surface land be  restored to conditions similar to natural conditions when mining ends.  Partly owing to the abundance of coal and technological improvements in  the mining industry, coal prices have been declining in real terms since the  mid-1970s.
The production and use of coal have a variety of environmental  consequences, including those related to mining and those related to the  pollution that is emitted when coal is burned. Surface mining has the most  significant impacts on land resources, in some cases substantially altering  the terrain. Both surface and underground mines can significantly affect  water resources by introducing pollution or silt into groundwater or  waterways. Regarding air quality, combustion of coal in power plants  emits pollutants and contributors to pollutants such as nitrogen oxides  (NOx), sulfur oxides (SOx), particulate matter (PM), and toxic chemicals,  such as mercury. Although some older power plants emit high levels of  these substances, significant advancements have been made in the  development of new power plants, utilizing new technologies that  substantially reduce emissions. In addition to these pollutants, coal plants  release a substantial amount of carbon dioxide, a gas that is common in  nature but has been linked with the “greenhouse effect,” a greater-than- normal rise in the planet’s temperature. Although some countries have  agreed to attempt to reduce emissions of carbon dioxide and other  “greenhouse” gases, the United States does not currently regulate the  emissions of such gases. However, DOE has supported research focused  on developing a zero-emission coal-fired power plant that would not emit  any pollutants or carbon dioxide into the air. In 2005, according to an  industry policy group, 100 or more power plants featuring advanced  technologies that substantially reduce emissions of pollutants are being  considered for development in the United States.
We have issued reports and testified on two primary coal related issues:  technologies supported under DOE’s Clean Coal Technology program and  the environmental consequences of using coal in power plants. Over the  past several years, we have reported on the Clean Coal Technology  program, noting that while DOE has reported successes in deploying new  technologies, there have been management problems with the program  and that there may be important lessons that should be considered in  future similar efforts, such as the value of cost-sharing agreements and  federal cost-sharing limits. We have also reported (1) that coal-fired power  plants that have not been required to install modern pollution reducing  equipment emit higher levels of pollutants such as NOx and SOx than  plants where this equipment is present, and (2) that increased electricity  generation in order to meet expected growth in demand may increase  emissions of certain pollutants. In forthcoming work requested by the  Congress, GAO will report on the effectiveness and cost of technologies to  reduce mercury emissions, a toxic element present in coal that is emitted  when coal is burned.
How can the federal government balance the use of this abundant  domestic energy source with its regulated and unregulated environmental  consequences?
Where will additional coal be mined, where will new power plants be  located, and are additional infrastructure improvements needed?
What is the potential role for coal bed methane, what are the trade-offs of  extracting it, and what, if anything, should the federal government do to  influence its development and production?
What changes in controls, if any, should the federal government make to  how coal can be mined on federal land and elsewhere?
What role, if any, should the federal government play in providing  incentives for using coal in ways that are safer for the environment?
section_title: Natural Gas: A Widely Used and Versatile Fossil Fuel
paragraphs: Natural gas, the fuel of choice recently, is one of the most versatile and  widely used fuels—significant amounts are used as a raw material in the  fertilizer, chemical, and other industries; for space heating in the  industrial, commercial, and residential sectors; and for electricity  generation. Until recently, prices have been low and use of natural gas for  space heating and for electricity generation has expanded rapidly. Meeting  the projected future growth of natural gas demand through delivering  additional supply poses challenges.
Natural gas plays a vital role in meeting the country’s national energy  demand, accounting for about 23 percent of the total energy consumed in  the United States. Use of natural gas has been growing rapidly since the  mid-1980s, with consumption increasing by about 35 percent from 1986  through 2003. Natural gas demand has been the greatest in the industrial  sector, accounting for about 37 percent of total demand in 2003; followed  by the residential sector and electric power, each accounting for about 22  percent; then the commercial sector, at about 14 percent. The rest, about 3  percent, is used in the transportation sector, mostly as fuel for pipelines. A  significant share of the increased demand in recent years has resulted  from increased use of natural gas to generate electricity. This use has  increased by 79 percent since the repeal of the Powerplant and Industrial  Fuel Use Act in 1987, which had restricted construction of power plants  using oil or natural gas as a primary fuel; natural gas is now the primary  fuel in new power plants. EIA estimates that total natural gas demand  could increase 50 percent in the next 25 years.
Although natural gas prices remained low for many years, in recent years  they have increased dramatically. From 1995 to 2004, average wellhead  prices for natural gas increased nearly three-fold; rising from $1.55 per  thousand cubic feet to $5.49 per thousand cubic feet. These higher prices  for natural gas may have contributed to industrial companies reducing or  ceasing U.S. operations. EIA data indicate that demand has fallen rapidly  in the industrial sector, where consumption decreased by 16 percent from  1997 through 2003.
Historically, almost all the natural gas used in the United States has been  produced here, but a small and growing share is imported. Most natural  gas production involves extracting gas from wells drilled into underground  gas reservoirs, although some natural gas is generated as a by-product of  oil production. In 2003, domestic sources provided about 85 percent of  total consumption. Historically, most of the country’s natural gas came  from Texas, Oklahoma, and Louisiana. However, the Rocky Mountain  region, Alaska, and areas beneath the deeper waters of the Gulf of Mexico  are becoming increasingly important in supplying natural gas. Overall,  from 1994 through 2003, domestic annual production held steady at about  19 trillion cubic feet. In 2003, the United States imported about 15 percent  of the total natural gas consumed, with nearly all of it coming from Canada  via pipeline. However, a small share is shipped on special ocean tankers as  liquefied natural gas (LNG) from countries such as Trinidad and Tobago,  Nigeria, and others. Looking ahead, the Energy Information  Administration estimates that U.S. consumption could increase to about 31  trillion cubic feet (TCF) by 2025, expanding the gap relative to U.S.  production and requiring increasing imports to meet U.S. needs.
The United States still has substantial undeveloped natural gas resources,  but some of these resources are located under federal lands, and access to  some of these resources is restricted. For example, about 40 percent of the  natural gas resources on federal land in the Rocky Mountain region are not  available for development. Additional natural gas reserves are located in  federally controlled offshore areas or other areas and are not available for  development at this time. Extensive drilling for natural gas can  substantially modify the surrounding landscape, and in some cases can  adversely affect wildlife and its habitat, degrade air and water quality, and  decrease the availability of groundwater to ranches and houses that may  depend upon it. The federal government is required to consider these  environmental consequences when determining if, and how, natural gas  will be extracted from federal lands. In response, the natural gas industry  has and continues to use more advanced drilling methods and processes to  mitigate future adverse impacts.
Meeting the sharp increases forecast for natural gas demand could also  require substantial increases in infrastructure, such as new pipelines and  LNG terminals. In particular, increasing natural gas supplies may require  greater pipeline capacity and new pipelines. For example, over the past 20  years the federal government has considered a variety of issues with  financing and building a new pipeline across federal and state lands to  deliver natural gas from Alaska. The federal government is involved in the  regulation and permitting of natural gas pipelines, particularly those that  must traverse federal lands. To meet the need for sharply higher imports  of natural gas, some experts believe that the United States may need to  build more LNG terminals. To date, however, such facilities have not been  built due to economic, safety, and security concerns. Consequently, it is  not clear whether the United States can effectively compete with other  countries for these supplies.
Over the last several years, we have issued a number of reports on natural  gas, including reports on the natural gas markets and their oversight,  various approaches for compensating the federal government when  natural gas is removed from federal land, and the impacts of higher natural  gas prices on certain industries. In 2002 and 2003, for example, we issued  reports analyzing natural gas markets and their oversight. We noted that  (1) prices generally increase because limited supplies have not been able  to react quickly enough to changes in demand; (2) the federal government  (e.g., the Federal Energy Regulatory Commission and EIA) faces  significant challenges in overseeing natural gas markets and ensuring that  prices are determined in a competitive and informed marketplace,  minimizing unnecessary price volatility; and (3) buyers of natural gas have  options to reduce their exposure to volatile prices through the use of long- term contracts and financial hedging instruments. In forthcoming work  requested by the Congress, GAO will report on federal efforts to  understand and manage risks associated with potential terrorist attacks on  LNG shipments and other tankers.
Should the federal government encourage further development of  domestic natural gas on federal lands, and can it ensure that  environmental impacts are adequately mitigated?
What are the infrastructure needs of the natural gas industry, including  natural gas pipelines generally and in Alaska in particular, and what role, if  any, should the government play in facilitating the development of this  infrastructure?
What are the implications for consumers (residential, commercial,  industrial, and electric power) of the increasing reliance on natural gas to  generate electricity?
What are the economic and other barriers and/or trade-offs to developing  an infrastructure to support increases in LNG shipments, and what role, if  any, should the federal government play?
To what extent is the federal government positioned to ensure that natural  gas prices are determined competitively?
section_title: Nuclear Energy: Emission-Free Energy Source, but with Waste Storage Problems and Safety/Security Concerns
paragraphs: Nuclear energy was once heralded as the single answer to all of the  country’s energy woes, with predictions that electricity would soon be  “too cheap to meter.” While these enormous expectations have not been  met, nuclear energy has become an important part of the country’s current  energy picture and may remain that way for years to come. Whether we  can continue to rely on, or expand our use of, nuclear energy in the future  at existing plants or at new plants based on new designs, hinges on solving  the long-term waste storage problem as well as resolving concerns over  safety and security.
Nuclear energy currently accounts for about 8 percent of U.S. national  energy consumption. Nearly all nuclear energy is used to generate  electricity, and nuclear plants are important contributors to total U.S.  electricity production, providing about 20 percent in 2003. The first  commercial nuclear power plant came on line in 1957, and the country  witnessed a flurry of construction from the late 1960s through the 1980s.  Many nuclear plants operating today were initially licensed for 40 years,  and many are now approaching the end of their licenses. Since an accident  at the Three Mile Island nuclear plant in 1979 raised concerns regarding  the safety of nuclear plants, no new plants have been ordered in the  United States, and none has been brought on line since 1996. In addition,  many of the plants that were completed witnessed multibillion dollar cost  overruns.
Over the past several years, a number of nuclear generating units have  been retired, but because the remaining 104 units have increased their  productivity, the output actually increased by about 13 percent from 1998  through 2003. This increase in productivity has been impressive; the  average annual capacity factor has increased from 71 percent in 1997 to  90 percent in 2004. These increases in productivity and other  improvements have led some plant operators to seek to operate some  plants at somewhat higher capacity.
There appears to be renewed interest in extending the licenses of some  existing plants and even building new plants. Interest in nuclear power  plants has increased, in part, because they do not emit regulated air  pollutants such as nitrogen oxides, sulfur dioxides, and particulate matter  that can be costly to control, or carbon dioxide, a greenhouse gas, that  many in the electricity industry believe might be regulated in the future.  Given the improved performance, limited air emissions, and production  cost advantages of nuclear power plants, some companies operating  existing nuclear plants have already had them relicensed through the  Nuclear Regulatory Commission (NRC) to operate for up to another 20  years, and others have started similar efforts. In addition, there have been  trade industry reports that a number of utilities and other energy  companies are actively considering submitting applications to build new  plants. Over the past 20 years, plants have continued to be built overseas.  New designs have emerged and foreign manufacturers have gained  significant experience building them. Nuclear energy plays a large role in  supplying energy in France, Germany, Canada, Japan, and other developed  nations. Although nuclear plants remain very costly to build compared to  some other plant types, they have lower fuel and other operating costs and  can produce electricity at a lower cost than new plants that use fuels such  as coal or natural gas—the primary energy source used in new U.S. power  plants. In this country, NRC has approved new reactor designs and NRC  and the Department of Energy are working to reduce the approval and  construction lead times for potential new plants.
Although the United States has a large domestic supply of uranium, the  nation increasingly relies on international markets to obtain the nuclear  fuel used here. Historically, the fuel used at U.S. reactors has been  produced here. However, several factors have combined to reduce the  competitiveness and capacity to domestically supply reactor fuel,  including falling prices for reactor fuel on international markets and  factors surrounding the 1998 privatization of the United States Enrichment  Corporation (USEC). In response to the changes in the market, USEC  closed the Portsmouth, Ohio, fuel plant leaving only the facility at  Paducah, Kentucky, as the domestic source. Both France and Japan have  advanced facilities that produce nuclear plant fuel, and these provide a  large and growing share of international supplies, including those used in  the United States.
Although nuclear plants do not emit pollutants, they produce radioactive  waste, including the highly radioactive waste that must be stored in  isolation for thousands of years. The federal government committed to  develop a permanent storage facility that would receive this waste by 1998,  but delays have pushed the potential opening of the facility to the 2012 to  2015 time frame. Efforts to develop the facility have focused on storing the  waste deep under Yucca Mountain in the desert north of Las Vegas,  Nevada. In 2002, NRC reported that about 45,000 tons of spent fuel from  nuclear plants was stored in the United States. Because the permanent  repository has not been completed, the highly radioactive waste remains  stored at power plants and other facilities and has been the subject of  several lawsuits.
Nuclear power plants have been operated safely, largely without incident.  Nuclear power plants contain radioactive materials that if released could  pose catastrophic risks to human health over an expansive area, but are  designed and operated to avoid such an event and incorporate measures to  protect the plant from attack. The Nuclear Regulatory Commission, among  other things, oversees these plants, conducting periodic inspections of the  plant equipment and evaluating security. However, since the terrorist  attacks of September 11, 2001, nuclear plants have emerged as a key  security concern and attention on these plants has increased. Industry  expects that new plant designs will further reduce safety and security  risks, incorporating features that, among other things, automatically cool  the nuclear reaction.
We have issued a number of reports dealing with aspects of nuclear energy  covering three key areas: NRC’s oversight of safety issues at the existing  nuclear plants; the development of a permanent storage facility for the  highly radioactive waste produced by nuclear plants; and the potential  vulnerability of these plants in light of the terrorist attacks of September  11. In May 2004, we issued a report on the discovery that corrosion had  eaten a pineapple-sized hole in the nuclear reactor vessel head at the  Davis-Besse power plant in Ohio that did not result in a radioactive release  but highlighted problems with NRC’s inspections and oversight. We have  issued a series of reports, spanning more than 20 years, that focus on  various aspects of developing of a permanent nuclear waste storage  facility. In 2002, we reported (1) that it would be premature for DOE to  recommend the facility at Yucca Mountain to the President as a suitable  repository for nuclear waste; (2) that DOE was unlikely to achieve its goal  of opening a permanent storage repository at Yucca Mountain by 2010; and  (3) that DOE did not have a reliable estimate of when, and at what cost,  such a repository could be opened. We have also issued reports  concerning the vulnerability of nuclear power plants to terrorist attacks. In  September 2004, we testified that NRC was generally approving plants’  new security plans on the basis of limited details in the plans and without  visiting the plants. In forthcoming work requested by the Congress, GAO  will undertake a comprehensive review of NRC’s reactor oversight process  and how NRC ensures that plants operate safely. GAO will continue to  examine homeland security issues related to protecting commercial  nuclear power plants from terrorist attacks.
What role should nuclear energy continue to play in providing the nation’s  energy needs in view of the aging of existing plants?
Should new nuclear power plants be built in the United States, and can  their design and construction make sense from a business standpoint  while providing the safety and security assurances important to  surrounding communities?
How can existing and future nuclear waste generated by power plants be  managed in an appropriate and timely manner?
Are changes needed in how the industry and NRC ensure that plants are  operated safely and securely, and is enough being done to protect nuclear  plants from terrorist attacks?
section_title: Electricity: In the Midst of Change
paragraphs: Electricity has emerged as one of the essential elements in modern life.  Today, electricity lights our homes, enables our businesses to be more  productive through the use of computers, and creates the basis for our  modern quality of life, providing power for everything from our morning  coffee to our nightly television news. Unlike the other types of energy that  we have discussed—so-called primary sources of energy—electricity is  generated through the use of the other energy sources (such as when  natural gas is burned in power plants to generate electricity). Encouraged  by the federal government, the electricity industry is in the midst of  historic changes. Assessing that transition and determining whether the  federal government can improve how electricity markets function remains  a focus for federal policy.
Electricity use has grown steadily in recent years. From 1980 through  2003, the quantity of electricity sold increased by 75 percent, with the  largest increases coming in the residential and commercial sectors.  Electricity is used in these sectors for space heating and for cooling,  lighting, and operating small appliances, such as computers and  refrigerators. Industrial consumption declined slightly over this period,  reflecting the contraction of manufacturing, including some large  industrial users of electricity such as the aluminum and steel industries.
In 2003, over 70 percent of electricity was generated using fossil fuels, with  over 50 percent coming from coal-fired power plants, about 16 percent  from natural gas, and small amounts from petroleum and other fossil fuels.  In recent years, new power plants have predominantly relied on natural  gas. Nuclear energy provides about 20 percent of electricity generation,  hydroelectric energy provides about 7 percent, and a variety of renewable  resources, such as wind turbines, provide the remainder.
The federal government has a direct role in supplying electricity, through  the federally controlled Power Marketing Administrations, which market  electricity produced by federally owned dams and other power plants and  which own an extensive transmission network to deliver that electricity.  These entities initially aided in the federal mission to bring electricity to  rural areas; however, most now serve major metropolitan areas, in  addition to some rural customers.
Historically, electricity has been produced and delivered by local  monopoly utilities within a specific area, but this has been changing. The  electricity sector is restructuring to foster more competition and provide  an increased role for open markets. Competition is already under way for  the wholesale markets that the federal government regulates. To facilitate  fair wholesale competition, the federal government has also pressed for  change in what entities control transmission lines—by approving the  creation of independent transmission operators to take the place of  utilities in performing this function. Some states, such as California and  Pennsylvania, had also moved to introduce competition to state-regulated  retail markets, where most consumers obtain their electricity. Although  the electricity industry is restructuring to include a greater role for  competition, the federal government still oversees wholesale electricity  markets through the Federal Energy Regulatory Commission (FERC).  Because federal actions have restructured wholesale markets nationwide  and states have variously chosen to restructure the markets that they  oversee, the national electricity market is currently a hybrid, somewhere  between competitive and regulated.
Unlike the other forms of energy, the amount of electricity supplied by  power plants must be balanced, on a second-to-second basis, with the  amount of electricity consumed in homes and businesses. To do this,  utilities or independent entities direct the production of electricity and its  movement over transmission lines to avoid blackouts. In some cases, such  as in California in 2000 and 2001 and more recently in the Northeast in  2003, the balance between supply and demand was disrupted and  blackouts occur.
Electricity demand is projected to increase by at least 36 percent by 2025,  and the industry may require significant investment in power plants and  transmission lines to reach those levels. The National Energy Policy  Development report estimated that the United States may need to add as  many as 1,900 power plants to meet forecasted demand growth. In  addition, because the existing network of power lines frequently  experiences congestion, the capacity of many key transmission lines may  need to be increased to move electricity from these new plants and  improve the reliability of the existing system.
We have reported on the development of competition in the electricity  industry and evaluated the oversight of electricity markets. For example,  in one report we found that the way the market was structured in  California enabled some electricity sellers to manipulate prices. We also  reported on the ability to add new power plants in three states, concluding  that the success of restructured markets hinged on private investment in  power plants and that this investment was reduced by higher levels of  perceived risk in some markets, such as in California. Further, we recently  reported on the potential value of empowering consumers to manage their  own electricity energy demand in order to save money and improve the  functioning of these markets. Allowing consumers to see electricity prices  enables them to reduce their usage when prices are high—reducing their  energy bills and improving the functioning of the markets. Following the  2003 blackout, we issued a report that highlighted challenges and  opportunities in the electricity industry, including whether reliability  standards should be made mandatory and whether control systems critical  to the electricity industry have adequate security. Regarding oversight of  electricity markets, we reported that while the Federal Energy Regulatory  Commission has made progress in revising its oversight strategy, it still  faced challenges in better regulating these markets. In forthcoming work  requested by the Congress, GAO will assess progress in reporting  electricity market transactions for use in developing market indexes and  the adequacy of controls over this reporting.
To what extent does the division of regulatory authority between the  federal government and the states limit the electricity industry’s ability to  achieve the benefits expected from the introduction of competition in  electricity markets?
What changes are necessary to federal and state monitoring and oversight  of electricity markets to ensure that they are adequately overseen?
Will FERC’s actions to promote reliability be sufficient, or will additional  actions be needed to improve compliance with reliability rules?
How does continued uncertainty about how the future of electricity  restructuring and electricity markets affect electricity companies,  investment in new plants and transmission lines, and consumer prices?
What role should the federal Power Marketing Administrations play in  restructured electricity markets?
To what extent are homeland security principles being integrated into new  electricity infrastructure and business processes?
Renewable energy sources, such as hydroelectric dams, ethanol, wind  turbines, and geothermal and solar applications, currently comprise a  small percentage of the total energy resources consumed in the United  States. Several alternative sources, such as hydrogen and fusion power,  may offer potential long-term promise, but research remains at an early  stage. While these renewable and alternative energy sources have a nearly  unlimited domestic supply, are perceived as relatively clean, and help  diversify the U.S. energy supply, technical problems and high costs relative  to other options have limited their use.
According to EIA, in 2003 renewable and alternative energy sources  accounted for slightly more than 6 percent of the total U.S. energy  consumption. Hydropower is the largest single source in this category and  makes up over 45 percent of all renewable and alternative energy  consumed. Hydropower generation, which varies due to weather  conditions, has fluctuated at about the same level since the 1970s. Wood  accounts for about 34 percent of total renewable energy, although its use  has declined since 1989. Waste and other byproducts, such as municipal  solid waste, landfill gas, and biomass, account for about 9 percent and  their use has been relatively flat since the mid-1990s. Geothermal energy  use has decreased slightly since it peaked in 1993 and now accounts for  about 5 percent of the total. Alcohol fuels, such as ethanol, make up about  4 percent of the total, but their use has increased rapidly in recent years,  almost doubling from 1999 through 2003. Wind energy accounted for about  2 percent of the total renewable energy consumed in 2003 but has  witnessed substantial and persistent growth in recent years, more than  tripling from 1998 through 2003. Solar energy accounts for about 1 percent  of all renewable and alternative energy consumed, and its use has declined  slightly but steadily since 1997, although use of some specific solar  technologies such as photovoltaic solar cells that convert sunlight directly  into electricity has grown in recent years.
Renewable energy technologies are increasingly becoming part of global  markets and are, in some cases, owned by large multinational energy  companies such as oil companies. Solar and wind energy have grown  substantially in these markets, but remain at relatively low levels in the  United States. Growth in wind power has benefited from improvements in  wind turbine technology and the availability of government tax credits  here and overseas, both of which have improved the competitiveness of  wind power technologies with more traditional forms of energy. EIA  estimates, however, that if the federal government removes the tax credit,  the U.S. growth in the generation of wind power will almost stop.  However, EIA estimates that if the government maintains the tax credit,  wind power generation in the United States is expected to grow nearly  seven-fold over the next 20 years. Solar technologies, especially solar cell  technologies that produce electricity, have supplanted traditional  technologies, such as generators for some remote applications, and sales  of solar cells have expanded rapidly worldwide, albeit from a small base.
Several alternative sources may offer long-term promise, although they are  not ready for widespread application. Technologies such as hydrogen  power and fusion are currently being developed as new sources of energy.  While these technologies have the potential to deliver large amounts of  energy with fewer environmental impacts than traditional energy sources,  they cannot be counted upon to deliver significant amounts of energy in  the near future due to significantly higher costs and technical challenges.
To date, use of hydrogen fuel cells still requires the extraction of hydrogen  from another fuel source, such as natural gas, and currently this extraction  is too costly to compete with other sources of energy. In addition, the  infrastructure to support hydrogen power has not been built. While fusion  also may have the ability to provide an abundant and clean energy source,  research on this technology remains at a very early stage.
We have issued several reports describing the viability and technical  progress of several renewable and alternative energy sources supported by  the federal government. A continuing theme of these reports has been that  when the government invests money into research and development  initiatives, it is important to keep one eye on the technical goals and one  eye on the marketplace. We have noted that the success of the investment  should be measured by its contribution to increasing the use and  feasibility of an energy source, rather than reaching specific technical  research and development goals. In forthcoming work requested by the  Congress, GAO will report on the impact of wind turbines on birds and  other aspects of the environment, as well as geothermal energy  development in the United States.
Should the federal government establish clear and measurable goals for  the development and use of renewable and alternative energy sources,  and, if so, how should progress toward these goals be measured?
What should the federal government’s role be in researching and  developing existing and future sources of renewable and alternative  energy sources?
What are the costs and benefits of increasing our use of renewable and  alternative energy sources?
What are the implications of renewable energy mandates for deploying  renewable energy technologies and for electricity markets?
section_title: Reducing Energy Demand through Efficiency and Consumer Choice: the Often-Overlooked Energy Option
paragraphs: Experts have long contended that energy strategies that reduce demand  can cost less, be brought on line faster, and provide greater environmental  benefits compared to strategies that increase the amount of energy  supplied—particularly if demand reductions decrease fossil fuel  consumption and related pollution. Such strategies include improving the  efficiency of energy we already use and allowing consumers to choose  when it makes the most sense to conserve energy. Despite their  advantages, however, opportunities to improve efficiency and consumer  choice are often overlooked.
Overall, energy demand in the United States has trended steadily upward  for the last 50 years. While demand has increased, the amount of energy  the country uses relative to its economic output has fallen. The amount of  energy used for each dollar of gross domestic product has dropped by  about half from 1970 through 2003. The reduction has been even more  striking when examining the industrial sector, where energy used per  dollar of GDP has fallen by over 60 percent since 1970. It is not clear  whether this reduction reflects a decrease in energy intensive industries,  such as aluminum and steel manufacturing, improvements in energy  efficiency, or some combination of the two.
The federal government has, periodically, made efforts to reduce demand,  encourage energy efficiency, or both. To reduce demand, the federal  government has, among other things, encouraged consumers to voluntarily  limit excessive heating and cooling of homes and to reduce the number of  miles that they drive. To encourage energy efficiency, the federal  government has established energy efficiency standards for such things as  home appliances, air conditioners, and furnaces, as well as provided  incentives for purchasing energy-efficient equipment. In the transportation  sector, the federal government has required automakers to meet overall  efficiency standards—known as Corporate Average Fuel Economy  (CAFÉ) standards—for the vehicles they sell. The federal government has  also made investments to improve energy efficiency and save money on  energy at its own buildings through the Federal Energy Management  Program and utilizing energy savings performance contracts.
Federal efforts have met with some success. According to the American  Council for an Energy Efficient Economy and the Alliance to Save Energy,  energy efficiency investments made from 1973 through 2003 saved the  equivalent of 40 to 50 quadrillion BTUs of energy in 2003, equal to about 40  to 50 percent of total energy consumption and more than any single fuel  provided. Several organizations, including a panel of several national  laboratories, estimate that many opportunities for additional  improvements in energy efficiency remain untapped.
At times, however, federal efforts to reduce energy demand and improve  energy efficiency have had to compete with efforts to keep energy prices  low. For example, residential and commercial sectors of the economy  have until recently been somewhat protected from price volatility by  regulated prices for electricity and natural gas and thus have been less  likely to reduce their consumption of these sources. Moreover, inflation- adjusted energy prices have generally declined, until recently. Reducing  demand when prices are falling has been difficult for several reasons. For  example, because energy-consuming equipment, such as air conditioners,  furnaces, and lighting systems, is generally costly to purchase and lasts  many years, consumers do not want to replace it unnecessarily. In  addition, consumers are often not aware of the energy inefficiency of their  homes and businesses. Falling energy prices have also made it more  difficult to demonstrate the cost-effectiveness of spending money to  replace aging and inefficient equipment, particularly for residential and  commercial customers. In contrast, when consumers face prolonged  period of higher energy prices, they are more likely to identify and adopt  cost-effective strategies for reducing their energy demand. For example,  following prolonged supply disruptions and price increases for gasoline in  the 1970s, consumers in the 1980s chose to purchase more fuel-efficient  vehicles, pushing up overall fuel efficiency averages nationwide. In the late  1990s the opposite has been true; relatively low prices for gasoline have  encouraged consumers to choose to purchase larger and less fuel-efficient  vehicles.
GAO has examined policies designed to reduce demand in electricity  markets, as well as efforts to develop more fuel-efficient automobiles. In  August 2004, we issued a report finding that electricity demand programs  that better link the electricity prices consumers pay with the actual cost of  generating electricity offer significant financial benefits to consumers,  improve the functioning of electricity markets, and benefit the federal  government by lowering its utility bills. In March 2000, we reported on the  Partnership for a New Generation of Vehicles (which sought to develop a  family sedan that could drive about 80 miles on a gallon of fuel) and found  that the vehicle being developed did not match consumer vehicle  preferences and that automakers would not be manufacturing such a  vehicle for U.S. markets. In forthcoming work requested by the Congress,  GAO will evaluate the Department of Energy’s program for setting energy  efficiency standards for appliances.
What are the benefits and costs of potential federal efforts to reduce  energy demand?
Are there economic, regulatory, or other barriers preventing the adoption  of cost-effective, energy-efficient technologies that could meet consumer  needs?
Are there promising energy-saving technologies that are nearly cost- effective that the federal government should consider encouraging  through the use of consumer incentives?
Are there emerging energy-efficiency technologies that are past basic  research but that could benefit from federal and industry collaboration?
Which technologies offer the greatest long-term potential for reducing  demand, and should they be considered for intensive federal research?
To what extent are retail price structures impeding the deployment of  cost-effective and energy-efficiency technologies?
section_title: Conclusions
paragraphs: Given the increasing signs of strain on our energy systems and our  growing awareness of how our energy choices impact our environment,  there is a growing sense that federal leadership could provide the first step  in a fundamental reexamination of our nation’s energy policies. As the  Congress, executive agencies, states and regions, industry, and consumers  weigh such a reexamination, we believe that it makes sense to consider all  energy sources together, along with options to encourage more efficient  energy use and consumer choices to save energy. While a balanced energy  portfolio is needed, striking that balance is difficult because of sometimes  competing energy, environmental, economic, and national security needs.
Clearly none of the nation’s energy options are without problems or trade- offs. Current U.S. energy supplies remain highly dependent on fossil  energy sources that are either costly, imported, potentially harmful to the  environment, or some combination of these three, while many renewable  energy options still remain more costly than traditional options. On the  other hand, past efforts to reduce energy demand appear to have lost some  of their effectiveness in recent years. Striking a balance between efforts to  boost supplies from these various energy sources and those focused on  reducing demand presents challenges as well as opportunities.
In the end, the nation’s energy policies come down to choices. Just as they  did some 30 years ago in the aftermath of the major energy crises of the  1970s, congressional choices will strongly influence the direction that this  country takes regarding energy issues—affecting consumer, supplier, and  investor choices for years to come. Consumer choices made from today  forward will determine to a great extent how much energy will be needed  in the future. In the same way, energy suppliers have choices about how  much of each type of energy to provide, based increasingly on their  interaction with competitive domestic and sometimes global markets for  energy. Choices made by consumers and suppliers will be influenced by  state and local entities, along with regional stakeholders in some areas of  the country, which have authority over key decisions that affect such  things as the siting of generation and transmission facilities as well as  access to their lands. Similarly, investors have choices regarding where to  invest their money, whether in new power plants, refineries, research and  development for new technologies, or outside the energy sector all  together. Yet, many of these choices may be significantly influenced, or  even overshadowed, by broader forces that are beyond our control, such  as expected energy demand growth in the developing world.
In closing, providing the American consumer with secure, affordable,  reliable, and environmentally sound energy choices will be a challenge. I  would like to note that more than 30 years ago, during the first energy  crisis, our nation faced many of the same choices that we are confronting  today. How far have we come? Have we charted a course that can be  sustained in the 21st century? In 30 years, will we again come full circle  and ask ourselves these same questions about our energy future? The  answer to this final question lies in our collective ability to develop and  sustain a strategic plan, with supporting incentives, along with a means to  measure our progress and periodically adjust our path to meet future  energy challenges.
I would be pleased to respond to any questions that you, or other Members  of the Subcommittee, may have at this time.
section_title: Contact and Acknowledgments
paragraphs: For further information about this testimony, please contact me, Jim  Wells, at (202) 512-3841. Contributors to this testimony included Godwin  Agbara, Dennis Carroll, Mark Gaffigan, Dan Haas, Mike Kaufman, Bill  Lanouette, Jon Ludwigson, Cynthia Norris, Paul Pansini, Ilene Pollack,  Melissa Roye, Frank Rusco, and Ray Smith.
section_title: Related GAO Products
subsections: section_title: Oil
paragraphs: Energy Markets: Effects of Mergers and Market Concentration in the U.S.  Petroleum Industry. GAO-04-96. Washington, D.C. May 17, 2004.
Research and Development: Lessons Learned from Previous Research  Could Benefit FreedomCAR Initiative. GAO-02-810T. Washington, D.C.:  June 6, 2002.
U.S. Ethanol Market: MTBE Ban in California. GAO-02-440R.  Washington, D.C.: February 27, 2002.
Motor Fuels: Gasoline Prices in the West Coast Market. GAO-01-608T.  Washington, D.C.: April 25, 2001.
Motor Fuels: Gasoline Prices in Oregon. GAO-01-433R. Washington, D.C.:  February 23, 2001.
Petroleum and Ethanol Fuels: Tax Incentives and Related GAO  Work. RCED-00-301R. Washington, D.C.: September 25, 2000.
Cooperative Research: Results of U.S.-Industry Partnership to Develop a  New Generation of Vehicles. RCED-00-81. Washington, D.C.: March 30,  2000.
Alaskan North Slope Oil: Limited Effects of Lifting Export Ban on Oil  and Shipping Industries and Consumers. RCED-99-191. Washington,  D.C.: July 1, 1999.
International Energy Agency: How the Agency Prepares Its World Oil  Market Statistics. RCED-99-142. Washington, D.C.: May 7, 1999.
Energy Security and Policy: Analysis of the Pricing of Crude Oil and  Petroleum Products. RCED-93-17. Washington, D.C.: March 19, 1993.
Energy Policy: Options to Reduce Environmental and Other Costs of  Gasoline Consumption. T-RCED-92-94. Washington, D.C.: September 17,  1992.
Energy Policy: Options to Reduce Environmental and Other Costs of  Gasoline Consumption. RCED-92-260. Washington, D.C.: September 17,  1992.
Alaskan Crude Oil Exports. T-RCED-90-59. Washington, D.C.: April 5,  1990.
Energy Security: An Overview of Changes in the World Oil Market. RCED- 88-170. Washington, D.C.: August 31, 1988.
section_title: Coal
paragraphs: Clean Air Act: Observations on EPA’s Cost-Benefit Analysis of Its  Mercury Control Options. GAO-05-252. Washington, D.C.: February 28,  2005.
Fossil Fuel R&D: Lessons Learned in the Clean Coal Technology  Program. GAO-01-854T. Washington, D.C.: June 12, 2001.
Clean Coal Technology: Status of Projects and Sales of Demonstrated  Technology. RCED-00-86R. Washington, D.C.: March 9, 2000.
section_title: Natural Gas
paragraphs: Natural Gas: Domestic Nitrogen Fertilizer Production Depends on  Natural Gas Availability and Prices. GAO-03-1148. Washington, D.C.:  September 30, 2003.
Natural Gas Flaring and Venting: Opportunities to Improve Data and  Reduce Emissions. GAO-04-809. Washington, D.C.: July 14, 2004.
Natural Gas: Analysis of Changes in Market Price. GAO-03- 46. Washington, D.C.: December 18, 2002.
Energy Deregulation: Status of Natural Gas Customer Choice  Programs. RCED-99-30. Washington, D.C.: December 15, 1998.
section_title: Nuclear
paragraphs: Nuclear Regulation: NRC’s Assurances of Decommissioning Funding  During Utility Restructuring Could Be Improved. GAO-02- 48. Washington, D.C.: December 3, 2001.
Nuclear Waste: Technical, Schedule, and Cost Uncertainties of the Yucca  Mountain Repository Project. GAO-02-191. Washington, D.C.: December  21, 2001.
Nuclear Nonproliferation: Implications of the U.S. Purchase of Russian  Highly Enriched Uranium. GAO-01-148. Washington, D.C.: December 15,  2000.
Nuclear Regulation: Better Oversight Needed to Ensure Accumulation of  Funds to Decommission Nuclear Power Plants. RCED-99-75. Washington,  D.C.: May 3, 1999.
Nuclear Waste: Impediments to Completing the Yucca Mountain  Repository Project. RCED-97-30. Washington, D.C.: January 17, 1997.
section_title: Renewable/ Alternative
paragraphs: Renewable Energy: Wind Power’s Contribution to Electric Power  Generation and Impact on Farms and Rural Communities. GAO-04- 756. Washington, D.C.: September 3, 2004.
Geothermal Energy: Information on the Navy’s Geothermal  Program. GAO-04-513. Washington, D.C.: June 4, 2004.
Department of Energy: Solar and Renewable Resources Technologies  Program. RCED-97-188. Washington, D.C.: July 11, 1997.
Energy Policy: DOE’s Policy, Programs, and Issues Related to Electricity  Conservation. RCED-97-107R. Washington, D.C.: April 9, 1997.
section_title: Multiple Fuel
paragraphs: Energy Markets: Additional Actions Would Help Ensure That FERC’s  Oversight and Enforcement Capability Is Comprehensive and  Systematic. GAO-03-845. Washington, D.C.: August 15, 2003.
Energy Markets: Concerted Actions Needed by FERC to Confront  Challenges That Impede Effective Oversight. GAO-02-656. Washington,  D.C.: June 14, 2002.
Petroleum and Ethanol Fuels: Tax Incentives and Related GAO  Work. RCED-00-301R. Washington, D.C.: September 25, 2000.
section_title: Electricity
paragraphs: Electricity Markets: Consumers Could Benefit from Demand Programs,  but Challenges Remain. GAO-04-844. Washington, D.C.: August 13, 2004.
Electricity Restructuring: 2003 Blackout Identifies Crisis and  Opportunity for the Electricity Sector. GAO-04-204. Washington, D.C.:  November 18, 2003.
Air Pollution: Meeting Future Electricity Demand Will Increase  Emission of Some Harmful Substances. GAO-03-49. Washington, D.C.:  October 30, 2002.
Electricity Markets: FERC’s Role in Protecting Consumers. GAO-03- 726R. Washington, D.C.: June 6, 2003.
Electricity Restructuring: Action Needed to Address Emerging Gaps in  Federal Information Collection. GAO-03-586. Washington, D.C.: June 30,  2003.
Lessons Learned From Electricity Restructuring: Transition to  Competitive Markets Underway, but Full Benefits Will Take Time and  Effort to Achieve. GAO-03-271. Washington, D.C.: December 17, 2002.
Restructured Electricity Markets: California Market Design Enabled  Exercise of Market Power. GAO-02-828. Washington, D.C.: June 21, 2002.
Air Pollution: Emissions from Older Electricity Generating Units. GAO- 02-709. Washington, D.C.: June 12, 2002.
Energy Markets: Concerted Actions Needed by FERC to Confront  Challenges That Impede Effective Oversight. GAO-02-656. Washington,  D.C.: June 14, 2002  Restructured Electricity Markets: Three States’ Experiences in Adding  Generating Capacity. GAO-02-427. Washington, D.C.: May 24, 2002.
California Electricity Market: Outlook for Summer 2001. GAO-01-870R.  Washington, D.C.: June 29, 2001.
California Electricity Market Options for 2001: Military Generation and  Private Backup Possibilities. GAO-01-865R. Washington, D.C.: June 29,  2001  Energy Markets: Results of Studies Assessing High Electricity Prices in  California. GAO-01-857. Washington, D.C.: June 29, 2001.
Electric Utility Restructuring: Implications for Electricity R&D. T- RCED-98-144. Washington, D.C.: March 31, 1998.
section_title: Energy Production on Federal Lands
paragraphs: Mineral Revenues: A More Systematic Evaluation of the Royalty-in-Kind  Pilots Is Needed. GAO-03-296. Washington, D.C.: January 9, 2003.
Alaska’s North Slope: Requirements for Restoring Lands After Oil  Production Ceases. GAO-02-357. Washington, D.C.: June 5, 2002.
Royalty Payments for Natural Gas From Federal Leases in the Outer- Continental Shelf. GAO-01-101R. Washington, D.C.: October 24, 2000.
This is a work of the U.S. government and is not subject to copyright protection in the  United States. It may be reproduced and distributed in its entirety without further  permission from GAO. However, because this work may contain copyrighted images or  other material, permission from the copyright holder may be necessary if you wish to  reproduce this material separately.