[Senate Hearing 109-666]
[From the U.S. Government Publishing Office]
S. Hrg. 109-666
ENHANCED ENERGY SECURITY ACT OF 2006
=======================================================================
HEARING
before the
COMMITTEE ON
ENERGY AND NATURAL RESOURCES
UNITED STATES SENATE
ONE HUNDRED NINTH CONGRESS
SECOND SESSION
ON
S. 2747
TO ENHANCE ENERGY EFFICIENCY AND CONSERVE OIL AND NATURAL GAS, AND FOR
OTHER PURPOSES
__________
JUNE 22, 2006
Printed for the use of the
Committee on Energy and Natural Resources
_____
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30-716 PDF WASHINGTON : 2006
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COMMITTEE ON ENERGY AND NATURAL RESOURCES
PETE V. DOMENICI, New Mexico, Chairman
LARRY E. CRAIG, Idaho JEFF BINGAMAN, New Mexico
CRAIG THOMAS, Wyoming DANIEL K. AKAKA, Hawaii
LAMAR ALEXANDER, Tennessee BYRON L. DORGAN, North Dakota
LISA MURKOWSKI, Alaska RON WYDEN, Oregon
RICHARD M. BURR, North Carolina, TIM JOHNSON, South Dakota
MEL MARTINEZ, Florida MARY L. LANDRIEU, Louisiana
JAMES M. TALENT, Missouri DIANNE FEINSTEIN, California
CONRAD BURNS, Montana MARIA CANTWELL, Washington
GEORGE ALLEN, Virginia KEN SALAZAR, Colorado
GORDON SMITH, Oregon ROBERT MENENDEZ, New Jersey
JIM BUNNING, Kentucky
Bruce M. Evans, Staff Director
Judith K. Pensabene, Chief Counsel
Bob Simon, Democratic Staff Director
Sam Fowler, Democratic Chief Counsel
John Peschke, Professional Staff Member
Deborah Estes, Democratic Counsel
C O N T E N T S
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STATEMENTS
Page
American Institute of Architects................................. 60
Bayh, Hon. Evan, U.S. Senator from Indiana....................... 2
Bingaman, Hon. Jeff, U.S. Senator from New Mexico................ 7
Callahn, Kateri, President, Alliance to Save Energy.............. 39
Coleman, Hon. Norm, U.S. Senator from Minnesota.................. 4
Domenici, Hon. Pete V., U.S. Senator from New Mexico............. 1
Dorgan, Hon. Byron L., U.S. Senator from North Dakota............ 9
Karsner, Alexander, Assistant Secretary, Office of Energy
Efficiency and Renewable Energy, Department of Energy.......... 10
Lashof, Daniel A., Science Director, Climate Center, Natural
Resources Defense Council...................................... 29
Lieberman, Hon. Joseph I., U.S. Senator from Connecticut......... 1
Nadel, Steven, Executive Director, American Council for an
Energy-Efficient Economy....................................... 46
Salazar, Hon. Ken, U.S. Senator from Colorado.................... 24
Thomas, Hon. Craig, U.S. Senator from Wyoming.................... 9
APPENDIX
Responses to additional questions................................ 63
ENHANCED ENERGY SECURITY ACT OF 2006
----------
THURSDAY, JUNE 22, 2006
U.S. Senate,
Committee on Energy and Natural Resources,
Washington, DC.
The committee met, pursuant to notice, at 10:05 a.m., in
room SD-366, Dirksen Senate Office Building, Hon. Pete V.
Domenici, chairman, presiding.
OPENING STATEMENT OF HON. PETE V. DOMENICI,
U.S. SENATOR FROM NEW MEXICO
The Chairman. I have an opening statement and I'm sure you
do, but in deference to other Senators' time, why don't we
proceed to have our two Senators comment first, Senator Bayh
and then Senator Coleman. We are glad that you are here and we
understand that you are co-sponsors of this legislation and
would like to be heard this morning. So we welcome you. Your
statements will be made a part of the record as if read. We
would welcome whatever you would care to say. Please proceed,
Senator Bayh first and Senator Coleman second.
[The prepared statement of Senator Lieberman follows:]
Prepared Statement of Hon. Joseph I. Lieberman,
U.S. Senator From Connecticut
Thank you, Mr. Chairman. I am grateful to the members of the Energy
and Natural Resources Committee for allowing me to testify in support
of the Enhanced Energy Security Act. I was proud to cosponsor this bill
with Senator Bingaman last month.
As you know, the Enhanced Energy Security Act is based on the
Vehicle and Fuel Choices for American Security Act, a bill that
Senators Bayh, Brownback, Coleman, and I introduced with six other
colleagues last November. Twenty-six Senators, including Senator
Bingaman, have now cosponsored that bill, which I like to call the Set
America Free Act. Seventy-nine Congressmen and Congresswomen have
cosponsored its companion bill in the House of Representatives.
The Set America Free Act's core provisions fall within the
jurisdiction of this committee. Senator Bingaman has taken that core,
has slightly amended and supplemented it, and has reintroduced it as
the Enhanced Energy Security Act. He also has taken those of the Set
America Free Act's provisions that fall within the Finance Committee's
jurisdiction and has introduced them as the Enhanced Energy Security
Tax Incentives Act, of which I am also an original cosponsor.
As the Ranking Minority Member of this Committee, and as someone
who has earned the respect of Senator Domenici, the committee's
esteemed Chairman, Senator Bingaman has had the wherewithal to bring
about today's hearing. I commend him and Chairman Domenici for doing
so. It is an unmistakable sign of the momentum that continues to gather
behind the Set America Free Act.
Like that bill, the Enhanced Energy Security Act requires the
Executive Branch to use means readily at its disposal to save, by 2016,
2.5 million barrels per day from projected oil consumption in that
year. It goes on to require 7 million barrels per day in savings by
2026 and 10 million barrels per day in savings by 2031. Currently, we
import just over 10 million barrels per day of crude oil and consume
just over twice that amount.
Americans are alarmed both by the steady rise in gas prices and by
the increasing volatility in those prices. The main reason fuel prices
are high and volatile is that the price of oil is high and volatile.
The fundamental reason for that, in turn, is the narrowness of the
margin between global oil demand and global oil production. We might
never again see a comfortable margin, because while we have not yet
drained all the oil deposits in the world, the demand of countries such
as the U.S., China, and India is growing just as quickly as production.
Many Americans are also concerned that the U.S. is being thrust
into increasing competition over oil with nations such as China, and
they do not like seeing our economy held hostage to the caprice of
those unstable and even hostile countries that supply much of the
world's oil.
The U.S. can not drill its way out of this bind. Oil is a commodity
that trades in a global market. Any modest amount of oil produced by
new wells in the U.S. would be merely a trickle in the stream of global
production, and thus would not have any appreciable effect on the price
we pay for oil.
The only permanent solution to high fuel prices is to end our oil
addiction. The Set America Free Act would do just that. What is more,
in the process of making our cars, trucks, and busses more efficient
and increasing the use of fuels derived from crops, the act would
reduce greatly the amount of global warming pollution that our vehicles
add to the atmosphere.
Energy independence, economic security, and curbing global
warming--the Set America Free Act advances us toward each of those
vital goals. So I am honored to testify today in favor of Senator
Bingaman's Enhanced Energy Security Act. I respectfully ask this
committee to schedule a vote on the bill and to report it favorably to
the Senate floor.
Thank you, Mr. Chairman.
STATEMENT OF HON. EVAN BAYH, U.S. SENATOR
FROM INDIANA
Senator Bayh. Thank you very much, Mr. Chairman, for
convening these hearings and for your leadership on this
important issue. It is good to be with you again this morning.
And to Senator Bingaman, thank you for your leadership. We
wouldn't be here if it hadn't been for your very good work on
this issue. I also should thank members of the committee who
could not be present today, who have endorsed this legislation,
as well as our colleague, Senator Lieberman, who has done great
work in this area and has helped to bring us to this point
today, as well as to our friend and colleague, Norm Coleman,
who I've had the pleasure of collaborating with on several
other issues.
Mr. Chairman, I hope this can be an example of bipartisan
cooperation that can characterize more of our work here in the
U.S. Capitol.
In fact, Mr. Chairman, this is an all too infrequent
occurrence, working across the aisle to advance our Nation's
interests, making common cause on our common challenges. The
energy challenge that faces our country, as you know well, Mr.
Chairman, is not a democratic issue or a republican issue, it
is an American issue and it is appropriate that we work on it
together and I'm hopeful that perhaps this can serve as a
template for solving the other challenges that face us, finding
the common ground that we need to build upon to create
America's future.
This is the right issue on which to start, Mr. Chairman,
because our energy dependency and our future independence will
be one of the defining challenges of our generation. It affects
so much that is important to this country. It affects our
economy, our national security, our finances, our environment
and we need to make progress on this issue, Mr. Chairman, if we
are going to set our children free. We need to bring the same
level of urgency and focus to this issue that we did to the
question of putting a man on the moon. It will take that kind
of effort to make the progress that America deserves. I hope we
can begin to make that progress starting today.
The approach that Senator Coleman and I and Senator
Bingaman and others adopt makes real progress, Mr. Chairman. We
empower American workers to produce the next generation of
high-mileage vehicles for use by American consumers. We rely
increasingly on America's farmers and their crops to produce
America's energy sources. If the Nation of Brazil can derive
almost 37 percent of its fuel from bio-based fuels, certainly
we can do better here in this country. Mr. Chairman, I would
simply note that in next year's Indianapolis 500, those motor
vehicles, some of the most powerful on earth, they go 230 miles
an hour, they will be powered 100 percent by ethanol in next
year's 500. If we can do that with those race cars, we can do a
better job with America's family vehicles.
Our approach involves having American scientists and
engineers make the discoveries that will truly make us
independent in terms of our energy needs in the long run. And
the progress, Mr. Chairman, will be substantial. The experts
estimate that over the next 10 years, we will reduce America's
petroleum consumption from what it would otherwise be by about
2.5 million barrels per day, 100 percent of what we are
currently importing from the Middle East. That doesn't solve
all of our problem but it is a material step in the right
direction. And over the next 20 years, we would reduce our
anticipated consumption by 7 million barrels per day--again, a
major step in the right direction.
The time has come to act, Mr. Chairman. We need a greater
sense of urgency, more than ever. We import more petroleum
today than we did on 9/11. Almost 5 years after that attack, we
have made virtually no progress. We must do better than that.
We find ourselves in the unacceptable position of too often
funding both sides of the War on Terror. That must stop and it
can stop by increasing our energy independence and reducing our
need for imported petroleum.
Finally, Mr. Chairman, we are exporting way too many
American jobs today and importing way too much oil. The time
has come to reverse that process. Our proposal would accomplish
that.
So, let me just conclude by recalling the spirit that
prevailed across our country, certainly in my State and I know
in yours as well, following the 9/11 attacks. I literally had
people stopping me on the street, asking, what can I do? What
can I do to help my country? There was a palpable desire on the
part of the American people to help us meet the challenges that
we face.
Mr. Chairman, we gathered here today to give them that
answer, to support this set of initiatives. And if we do, I
think the chances are good that some day we might look back at
this as the beginning of solving this problem. Much as Winston
Churchill said at the end of the Battle of Britain, an
important turning point in another great struggle for mankind,
when he said that this was certainly not the end. Perhaps it
was not the beginning of the end, but it was definitely the end
of the beginning. So let us bring that same focus, that same
sense of urgency and commitment to the beginning of meeting
America's energy challenges. That is why we are here today. Mr.
Chairman, I thank you for your courtesy and for your
leadership.
The Chairman. Thank you very much, Senator. Now, Senator
Coleman, we welcome your remarks.
STATEMENT OF HON. NORM COLEMAN, U.S. SENATOR
FROM MINNESOTA
Senator Coleman. Thank you very much, Mr. Chairman. I want
to thank you first personally. I was listening to Senator
Bayh's remarks and the Americans say, what can we do? Mr.
Chairman, I've had a number of conversations with you where
you've asked the question, what can we do? What do we do? What
should we be doing that we're not doing? And I think through
the leadership--bipartisan leadership of Senator Bingaman, the
ranking members, Senator Bayh and others, I think we've laid on
the table, through the Vehicle Fuel Choices for American
Security Act, from which this legislative effort stems, 26 co-
sponsors, a bipartisan approach and some very specific things
that we can do.
First, let me second the comments of my colleague from
Indiana. I think there are few topics Congress can address
right now that are more important to the future of this Nation
than energy security. We talk about whether it is freeing our
Nation from dependence on foreign oil or limiting. There is a
lot of discussion about it, but clearly, this is a matter of
national defense. This is a matter of economic security. This
is a matter of defense of our way of life. I think what some
folks see as a challenge, I see, and I think my colleagues see,
as an opportunity for economic stimulus and growth.
We set an ambitious plan in this Enhanced Energy Security
Act, saving 2.5 million barrels of oil per day in 10 years,
roughly the amount of oil that we import today from the Middle
East. I think many would dismiss this as too ambitious a goal,
but as Senator Bayh talked about, and I believe, at one point
in time we told Americans that we were going to walk on the
moon. At the time, we didn't have the capacity to get to the
moon, not to mention get back. I think because we had a
singular focus and a commitment and we stayed the course of
that commitment, it happened. The innovative spirit of America,
the relentless drive to get something done, that's the key. Lay
out the objective, and this bill lays out a very clear
objective and then challenges--let us kind of marshal our
energies to make it happen. I think that the failure to act--
clearly, the threat is real. It doesn't take much imagination
to consider the foreign policy implications of having to worry
about what Hugo Chavez is thinking this morning about selling
oil to America. Right now, I don't think he has a choice, but
at some point he will, with the political stability in Nigeria.
Mr. Chairman, countries that aren't free produce two-thirds
of the world's oil and have nearly 80 percent of the world's
proven oil reserves. Looking to our economy, Chairman Greenspan
was recently before the Foreign Relations Committee and we held
a hearing on this subject. He pointed out that world oil
markets are now subject to a degree of strain not experienced
in a generation and that the lack of excess capacity means
there isn't enough of a buffer between supply and demand to
absorb shut-downs of even a small part of the world's
production. If terrorists attack just one major oil supply that
exceeds our economy, we will pay a heavy price.
So the imperative is clear. America must unleash itself
from its foreign oil dependency. I think the solution is clear:
Technology, renewable energy, and energy conservation. This
bill provides some important initiatives, that will promote, by
the way, E-85 fueling infrastructures, speed the development of
cellulosic ethanol, while investing in the development of
efficient vehicle technologies and assisting auto manufacturers
to transition to fuel-efficient vehicle production.
I believe that much of the ability to reduce petroleum
demand will rest with our ability to accelerate technology for
electric hybrids and infrastructure for renewable fuels. This
year, Brazil will have the liberty of not having to import. The
liberty--not to say that it won't, but it will have the liberty
of not importing foreign oil. I've been to Brazil. I've talked
to their leaders. I've witnessed what they have done first-
hand. And what they did was simply had a focused, concentrated
effort over 30 years. It took a long time but they started in
the 1970's and they are there today. In the 1970's, their
leadership realized 85 percent dependence on foreign oil was
unacceptable. They did something about it. They made a
commitment to investing in ethanol production, mandated an
aggressive percentage of gasoline be blended with ethanol, and
ultimately ensured that flex fuel vehicles were widely
available. A similar commitment by the United States could also
reap significant rewards.
In fact, in a recent study--and I'm going to have it
submitted, if I can, into the record--by AllianceBernstein of
Wall Street, they've laid out kind of an interesting view of
research on strategic change. They noted--they talked about how
cellulosic ethanol could be a game changer, a game changer
resulting in, perhaps, a reduction of 40 percent of the demand
for petroleum.
Mr. Chairman, renewables are a real option. One of the
problems we have is half the E-85 pumps--it's one thing to have
renewables, but half the pumps in the Nation are in one State,
my State. I think 246 out of 600 E-85 pumps. But we can change
that. Notably, the alternative fueling infrastructure
incentives in this bill would make an estimated $20 million
available per year for these pumps. I think it is obvious that
our current foreign oil dependence is untenable, that our
economy and national security is in peril if we don't do
something about it. But hopefully, that's not the end of the
story.
I truly believe we can gain a great deal of energy
independence through existing and emerging energy saving and
renewable energy technology that will protect and grow American
jobs. Mr. Chairman, hybrids are a few years away. Again, I cite
the AllianceBernstein study: Hybridization--Toyota is coming
out with a lithium battery, I'm told, in a couple years. It
could get 70 miles, stay charged and that will drive down, that
will drive down. But what we've got to do is we've got to
support those technologies. We have to be there to move the
ball forward. Cellulosic isn't here today but we have a stake
in it being here in the near-term future.
The Enhanced Energy Security Act moves us toward
independence and continued prosperity and I commend the
committee for considering this proposal. Thank you, Mr.
Chairman.
[The prepared statement of Senator Coleman follows:]
Prepared Statement of Hon. Norm Coleman, U.S. Senator From Minnesota
First of all, I want to thank you, Chairman Domenici, for holding
this hearing, and I want to recognize Senator Bingaman's efforts on
this bipartisan legislation. The Vehicle and Fuel Choices for American
Security from which this legislative effort stems has 26 cosponsors and
speaks to bipartisan interest in taking an aggressive approach to
energy independence.
There are few topics Congress could address right now more
important to the future well-being of the nation than our energy
security. Freeing our nation from dependence on foreign energy is truly
a matter of national defense--defense of our national security, defense
of our economy, defense of our way of life. But, what some folks forget
is that this challenge presents a powerful opportunity for economic
stimulus and growth.
The Enhanced Energy Security Act sets an ambitious plan for saving
2.5 million barrels of oil per day in 10 years, roughly the amount of
oil we currently import from the Middle East. Many would dismiss such
an ambitious goal, but the moon was also once out of reach--we all know
the power of America's innovative, relentless spirit when called to an
objective, no matter how formative.
Quickly, the threat to national and economic security is real and
growing. It does not take much imagination to consider the foreign
policy implications of having oil imports rest on the whims of Hugo
Chavez in Venezuela or the political stability of Nigeria. Countries
that aren't free produce more than two-thirds of the world's oil and
have nearly 80 percent of the proven reserves.
Looking to our economy, just consider the recent comments of Alan
Greenspan who has pointed out that world oil markets are now subject to
a degree of strain not experienced in a generation and that the lack of
excess capacity means there isn't enough of a buffer between supply and
demand to absorb shutdowns of even a small part of the world's
production. If a terrorist attack on one of our major oil suppliers
succeeds, our economy will pay a heavy price.
The imperative is clear: America must free itself from its oil
dependence, and I believe the solution is also clear: renewable energy
and energy conservation. The Enhanced Energy Security Act and its
parent bill, the Vehicle Fuel Choices for American Security Act,
include important initiatives that will promote E85 fueling
infrastructure and speed the development of cellulosic ethanol, while
investing in the development of efficient vehicle technologies and
assisting auto manufacturers' transition to fuel-efficient vehicle
production. These initiatives will help make America a leader in
renewable fuel and energy conservation technology that U.S. businesses
can then export to countries like China and India where there is a
projected 125% increase in the demand for oil from 2003 to 2025.
I believe much of the reduction in petroleum demand will rest with
our ability to produce renewable fuels. This year, Brazil will have the
liberty of not having to import a drop of foreign oil. I been to
Brazil, witnessed their success firsthand, I've sat down with their
leaders and talked renewables, and what I've learned is that Brazil's
success was the result of a determined, concerted effort over 30 years
to reach oil independence.
In the 70s, the Brazilian leadership realized its 85 percent
dependence on foreign oil was unacceptable and they did something about
it. Investing billions of dollars, Brazil directed provided heavy
government support for ethanol production, mandated an aggressive
percentage of gasoline be blended with ethanol, and ultimately ensured
flex fuel vehicles were widely available. A similar commitment by the
United States could also reap significant rewards. In fact, a recent
AllianceBernstein study found that ethanol could eventually replace a
large fraction, around 40 percent, of gasoline demand.
Of course, mandating that every gallon of gasoline contain ethanol
in this country would be difficult, which is why it's so important to
have heavy federal in E85 pumps so that ethanol can be made widely
available. Notably, the alternative fueling infrastructure incentives
in this bill would make an estimated $20 million a year available for
these pumps.
I think it's obvious our current foreign oil dependence is
untenable, that our economy and very national security is in peril if
we don't do something about it, but thankfully, that's not the end of
the story. I truly believe we can gain a great deal of energy
independence through existing and emerging energy saving and renewable
energy technologies that will protect and grow American jobs. The
Enhanced Energy Security Act moves us towards independence and
continued prosperity, and I commend the Committee for considering this
proposal.
The Chairman. Thank you very much, Senator. Before you
leave, and we're going to proceed, we have a lot of witnesses,
but I just want to lay before the two of you and the two of us,
a simple proposition that it becomes more and more obvious to
this Senator with the passage of each day that while we are all
complaining about the high price of crude oil, one thing that
it is bringing to the American economy is an opportunity for
innovative technology because the price is justifying
investment. And I lay before you now, and it is being addressed
by some very intelligent people, it is a very simple
proposition, and that is, why is that high price not bringing
more investment? And it seems that question is being answered
in the following manner.
One of the reasons is, there is no assurance that the price
is going to stay that high. Now, that is bringing some very
imaginative thinking to the proposition of how one might
resolve that issue. Such things as a floor and where would a
floor be? Is $38 or $40 a sufficient floor to assure that there
will be investments of all types, in terms of things like coal
gasification. Now, you must have heard these propositions from
Jet Blue and others, where they are talking about that kind of
thing. Very, very interesting propositions. They find their
ways through your different proposals, at least the basic
notion that it is time to invest because the price is awful.
What you are competing with is very, very high, finally. So you
don't want to let that get away from you. You want to get the
alternatives on while that is true.
I want to thank you for your testimony and for your
proposals. I don't know where this is going for the remainder
of this a short year, but there are many good ideas there and I
thank you for them.
Senator Bingaman, would you like to make your opening
remarks? I'll follow with mine and then we'll proceed with the
witnesses.
Senator Bingaman. I'm glad, too. Let me also just thank
both Senator Bayh and Senator Coleman for their leadership on
this. The legislation that we are considering this morning in
the committee, of course, is built on--is essentially the parts
of the legislation that they introduced, which this committee
has jurisdiction of and which, I think, have a great deal of
merit and we appreciate your leadership.
The Chairman. Thank you.
Senator Bingaman. Did you want me to give an opening
statement?
The Chairman. Yes, please.
STATEMENT OF HON. JEFF BINGAMAN, U.S. SENATOR
FROM NEW MEXICO
Senator Bingaman. Let me go ahead and begin, Mr. Chairman,
on a subject that is a little different than the subject of
this hearing, and acknowledge that today is the 1-year
anniversary of a sense of the Senate resolution that we passed
related to greenhouse gas emissions and global warming. I
wanted to thank you for the continued effort that we are making
to move ahead on that issue and the workshop that we had
earlier and the white paper we've issued. I think all of that
has been positive.
The topic of today's hearing is S. 2747, and as I
indicated, it is a piece of legislation that essentially takes
provisions that were earlier introduced, that should be in the
jurisdiction of this committee. The earlier legislation
contained tax provisions as well and went to the Finance
Committee.
So what we've done is to get the provisions that relate to
this committee and put them together in legislation, S. 2747,
dealing primarily with the issue of energy efficiency. I think
energy efficiency, along with the use of alternative fuels and
alternative energy sources, provide us with the best near-term
options to begin balancing energy demand and supply and
reducing the cost of energy. Clearly, this needs to be part of
what we do, in a very conscious way, by changing our policies
and beginning to move toward reducing our addition to foreign
oil, which the President spoke about in his State of the Union
speech. I hope we get some good testimony on the provisions in
this legislation. I believe we may also get some additional
ideas for legislation from some of the testimony from the
second panel, which I think would be good.
Let me thank Secretary Karsner for his appearance today. I
believe this is his first appearance since his confirmation and
I look forward to hearing his comments. I am somewhat
disappointed that the written testimony the Department has
submitted is not more detailed in response to the specific
provisions in this legislation. I thought, frankly, we would
get more direct interaction with the administration on what
steps they propose will help us to end this addiction to oil,
which the President spoke of. Clearly, the proposals in this
legislation, I think, move in that direction. I hope we can get
into those questions in the question and answer period. Thank
you very much.
The Chairman. Thank you. Again, good morning. And this
morning we have a hearing on my colleague, Mr. Bingaman's bill,
S. 2747, which essentially is enhanced energy efficiency as a
means of reducing our consumption of gas and oil. I'm pleased
that we are having the hearing and look forward to the
testimony. There is no doubt much can be done to improve the
ways in which we use energy. We can do many things as private
citizens that make economic sense. We can reduce the amount of
gasoline we consume by driving less. We can reduce the amount
of natural gas and electricity we consume by producing more
efficient appliances and exercising more care in how cool or
warm we keep our homes, depending upon the season. We can build
more efficient residences and commercial buildings. We can use
more energy produced from renewable energy, solar, wind and
biomass and we can reduce our use of water, which requires
enormous amounts of energy to store and then move to consumers.
These are just a few of the steps that most consumers are
faced with, that the higher prices of last year look them in
the eye and cause them to make some changes. The question we as
legislators now face is, what can we do to help consumers
understand how to reduce their energy consumption and the cost
that they must endure?
We did a great deal in the energy bill of 2005 that
addresses energy conservation and improved energy efficiency.
But that was before increased global demand for oil and natural
gas and Hurricanes Katrina and Rita drastically changed our
lives, and how dependent we are on imported petroleum and how
even the slightest interruption of domestic supplies can affect
our daily lives.
Our hearing today marks, I think, the beginning of a search
for additional ideas that we might undertake to address our
energy needs and I welcome my friend's contribution to the
start of this effort to find new ideas and, I hope, some new
solutions.
Before we hear our witnesses, I want to take a moment to
recall that on this date, a year ago, we passed, as you
indicated, a sense of the Senate resolution regarding the need
to establish a system of reducing greenhouse gas emissions in
the U.S. economy. We have not made great progress, but that is
looked upon by many as a significant achievement, the mere fact
that we made the finding and then the Senate adopted it. Since
then, our committee has had several hearings and a very
successful conference, as you've indicated, and I look forward
to seeing where this all ends up.
Now, having made your statement, I look now to Senator
Thomas to see if he has any opening remarks and then to the
distinguished Senator Dorgan, if he has any.
STATEMENT OF HON. CRAIG THOMAS, U.S. SENATOR
FROM WYOMING
Senator Thomas. Thank you, Mr. Chairman. I am pleased that
you are having this hearing. I think one of the great things to
look forward to is some alternatives that we can have for
energy and the demands of energy that we have and to look at
the ways we can do that and to the incentives we can put in
place to cause it to happen.
I just want to make one point that I think we also need to
remember, that we have two challenges, at least, before us. One
is the long-term challenge of finding some alternatives and
some new ways to produce. We also have the challenge of our
needs in the short-term. So, we can't get so consumed with our
long-term energy that we don't take a look at doing what we can
with the things that we do know how to do and to exploit those
things we already have. So, I hope we can find this balance and
I think this hearing will be part of doing that. Thank you,
sir.
The Chairman. Thank you very much.
STATEMENT OF HON. BYRON L. DORGAN, U.S. SENATOR
FROM NORTH DAKOTA
Senator Dorgan. Mr. Chairman, thank you very much. I am the
ranking member of a committee that is meeting two floors above
us, the Commerce subcommittee, so I will have to be in and out.
But I want to thank you. You know, as the old saying goes, talk
is cheap and energy prices are high, but I've been very proud
to be a part of this committee working on the previous energy
bill and now working on things that really will matter. I think
the proposals by you and the proposals by Senator Bingaman
recognize that the least expensive and most readily available
forms of energy are achieved through efficiency and
conservation in the short-term, because we use a prodigious
amount of energy and waste a great deal of it as well. As
Senator Thomas said, we've got to do a lot of things and a lot
of things right, in the short, intermediate and long terms to
address these issues. I think that the hearing you are holding
today is exactly the right thing at the right time and I
appreciate your leadership and the leadership of Senator
Bingaman.
The Chairman. Thank you, Senator. Now, this is your first
opportunity to appear before us. I remember the day we had you
before us, how excited you were to take this job on. And now I
understand you have been over there for a while. You still have
a smile on your face and you look just as rosy as you did when
you were willing to accept the job. I know this bill has
presented a very difficult challenge, an analytical challenge
for you and a policy analysis challenge, but we look forward to
your testimony. Your remarks will be made part of the record.
We urge that you make them brief for oral presentation,
considering that they are already in the record as presented.
With that, would you please proceed and then we'll ask
questions, if we have any.
STATEMENT OF ALEXANDER KARSNER, ASSISTANT SECRETARY, OFFICE OF
ENERGY EFFICIENCY AND RENEWABLE ENERGY, DEPARTMENT OF ENERGY
Mr. Karsner. Thank you, sir. Chairman Domenici, ranking
member Bingaman and members of the committee, I am pleased to
offer preliminary comments on some of the provisions of S.
2747, the Enhanced Energy Security Act of 2006, and I will also
report on the status of the Office of Energy Efficiency and
Renewable Energy's work to implement the energy efficiency
provisions of the Energy Policy Act of 2005.
I will begin with the comments on S. 2747. When EPAct 2005
was signed last August, it addressed many energy issues that
had sought attention for many years. It was only a month later
when Hurricane Katrina hit and slammed--
The Chairman. We can't hear you very well, sir.
Mr. Karsner. Oh, forgive me, sir. It was only a month later
when Hurricane Katrina hit, forcing home new energy realities
and forcing our country to take an even closer look at our
energy vulnerabilities. We, as a Nation, needed to take more
comprehensive action. And I would like to express my gratitude
to this committee for your diligence in pursuing new
legislative paths and initiatives to advance our national
energy efficiency goals at this very critical time.
Unfortunately, the administration has not had sufficient
time to review or coordinate its interagency review of S. 2747
and, therefore, does not, at this time, have a formal position
on the legislation. I would note, however, that some portions
of S. 2747 overlap with current EPAct provisions and that it
would be productive to resolve any issues of redundancy or
duplication that are inherent in the legislation. Many sections
of S. 2747 contribute effective energy-efficiency ideas to the
mix of proposals our Nation needs to reduce oil consumption.
For example, I am generally supportive of the School Bus
Idling Program to save fuel and reduce pollution and believe
the proposals for near-term vehicle technology to promote
electric propulsion appear to be sufficiently flexible and
aligned with the President's Advanced Energy Initiative.
The ``Golden Carrot'' style incentive program, in section
402, for high-efficiency consumer products, could definitely
prove effective, especially if it were to be enhanced to ensure
that winning companies make a sufficient commitment to bring
those products to market.
The section on energy-saving performance contracts could
potentially provide increased flexibility for the Federal
Government to use energy service companies. Inside the
Department of Energy, we are inclined to support the energy
efficiency resource programs proposed in section 404, a measure
that was not included in the final version of the EPAct but
supported by the administration at that time.
Other measures, such as the Efficient and Safe Equipment
and Replacement Program, would at this time require further
review. Looking at title I, the national oil savings plan to
reduce oil use on a fixed schedule, we believe that the targets
might not be able to be met, even with the most aggressive
technology push. While the advanced energy initiative is
expected to help achieve these long-term goals, there remain
national uncertainties in technology development and commercial
uptake that make it imprudent to legislate an arbitrary end
result.
In addition, the President has asked Congress for the
authority to reform and increase passenger car CAFE standards
but has indicated that highway safety, technology, and
economics need to be considered in the balance when determining
the maximum feasible fuel economy standard.
In title II, we have additional concerns. For example,
while the President and Secretary Bodman are both committed to
Federal leadership in using the Federal fleet of vehicles to
advance fuel efficiency and flexible fuels, we believe there
are aspects of the technical language in S. 2747 regarding
Federal fleet requirements that need further review and
discussion. We look forward to working collaboratively with you
and the members of the committee to resolve these issues.
Similarly, we are not yet convinced of the effectiveness of
vehicle retirement programs with respect to the cost and life
cycle energy savings under the present economic analysis. With
regard to section 206, EPAct already authorizes grants to
support activities for auto companies producing fuel-efficient
vehicles. We believe a series of new loan guarantees
legislation would largely be unnecessary.
EPAct also provides tax credits to reduce the cost of
alternative fuel distribution addressed in section 207 of S.
2747. In title IV, the national media campaign language is
virtually identical to that enacted in EPAct.
I would also like to comment on the proposed renewable
portfolio standards. The administration continues to believe
that RPS standards are best left to the States. Under Secretary
Garman provided congressional testimony before this committee
on March 8, 2005, explaining this position.
I would now like to briefly address EERE's implementation
of EPAct 2005, with more complete comments in my written
testimony that have been submitted for the record.
Targeting our national imperative to reduce energy
consumption, EPAct introduced a broad range of energy
efficiency initiatives, programs, standards and studies, many
of which built upon the work that was already in progress at
the Department of Energy. For example, section 105 provides
long-term authority to extend Federal energy savings
performance contracting--ESPCs--until September 30, 2016. This
extension has renewed interest in Federal energy savings
projects after the 1-month hiatus in Federal ESPC authority.
EERE has reinvigorated its super ESPC program to increase the
potential for cost-effective energy savings through private
investment in Federal energy efficiency projects.
Appliance and equipment standards are cost-effective energy
saving tools, based on published benefit/cost analysis of past
rules. The Department is committed to addressing the backlog of
mandated rulemakings and meeting all of its statutory
requirements. By this August, we will be sending you another
status report on our progress on appliance standards. We expect
to report that we will be on schedule for all items and, to the
extent possible, I am hopeful that we will find ourselves
slightly ahead of schedule.
Section 110 directed DOE to explore the impact of extending
daylight savings time. That study is presently underway and in
concurrence. Another study on the energy conservation
implications of the widespread adoption of telecommuting by
Federal employees is also in the concurrence process.
Section 134 authorized the Energy Efficiency Public
Information Initiative, a comprehensive national plan to inform
consumers that builds upon the outreach efforts ongoing within
DOE. Consistent with this authorization, a number of consumer
awareness programs are underway. For example, last October,
Secretary Bodman launched the ``Easy Ways to Save Energy''
campaign, which includes an education and awareness effort with
the Alliance to Save Energy and private industry to disseminate
energy savings information through radio and television public
service announcements, websites, newspaper advertising, and
media campaigns.
In conclusion, I hope this gives you some understanding of
the administration's perspective on S. 2747 and a fair overview
of the energy efficiency responsibilities that our office
assumed with the enactment of the EPAct. In many important
ways, EPAct has served to buttress our efforts and help
emphasize the necessity of energy efficiency onto the national
stage. We look forward to working with you as we dedicate
ourselves to developing energy efficient and renewable energy
technologies and promoting significant improvements in the
energy efficiency of our country.
Thank you very much.
[The prepared statement of Mr. Karsner follows:]
Prepared Statement of Alexander Karsner, Assistant Secretary, Office of
Energy Efficiency and Renewable Energy, Department of Energy
Chairman Domenici, Ranking Member Bingaman, and Members of the
Committee, I am pleased today to offer preliminary comments on some of
the provisions in S. 2747, the ``Enhanced Energy Security Act of
2006''. I will also report on the status of the Office of Energy
Efficiency and Renewable Energy's (EERE) work to implement the energy
efficiency provisions of the Energy Policy Act (EPACT) of 2005.
comments on s. 2747
When EPACT 2005 was signed last August, it addressed many energy
issues that had sought attention for years. However, only a month
later, Hurricane Katrina hit, slamming home new energy realities and
forcing our country to take an even closer look at our energy
vulnerabilities. We, as a Nation, needed to take more comprehensive
action, and I would like to thank this Committee for your diligence in
pursuing new legislative paths and initiatives to advance our national
energy efficiency goals at this critical time.
The Administration has not had sufficient time to review or
coordinate its interagency review of S. 2747 and therefore does not
have a formal position on this legislation. I would note, however, that
some portions of S. 2747 overlap with current EPACT provisions and that
it would be productive to resolve any issues of duplication that are
inherent in the legislation.
Looking at the Title I national oil savings plan to reduce oil use
on a fixed schedule, we believe that the targets might not be able to
be met, even with aggressive, technology-forcing increases in CAFE
standards that may not fully account for highway safety. While the
Advanced Energy Initiative is expected to help achieve these long-term
goals, there remain natural uncertainties in technology development and
commercial uptake that make it imprudent to legislate an arbitrary end-
result. In addition, the President has asked Congress for authority to
reform and increase passenger car CAFE standards but has indicated that
highway safety, technology, and economics need to be considered when
determining the maximum feasible fuel economy standard.
In Title II, we have additional concerns. For example, while the
President and Secretary Bodman are both committed to Federal leadership
in using the Federal fleet of vehicles to advance fuel efficiency and
flexible fuels, we believe there are aspects of the technical language
in S. 2747 regarding Federal fleet requirements that need further
review and discussion. We look forward to working with the committee to
resolve these issues.
Similarly, we are not convinced of the effectiveness of vehicle
retirement programs with respect to cost and life-cycle energy savings
under economic analysis. With regard to Section 206, EPACT already
authorizes grants to support activities for auto companies producing
fuel efficient vehicles, and we believe new loan guarantees would be
largely unnecessary. EPACT also provides tax credits to reduce the cost
of alternative fuel distribution addressed in Section 207 of S. 2747.
In Title IV, the ``National Media Campaign'' is virtually identical to
that enacted in EPACT.
I would also like to comment on the proposed Renewable Portfolio
Standard (RPS). The Administration continues to believe that RPS
standards are best left to the States. Under Secretary Garman provided
Congressional testimony before this Committee on March 8, 2005,
explaining this position.
epact 2005 implementation
I would now like to address EERE's implementation of EPACT 2005.
Targeting our national imperative to reduce energy consumption, EPACT
introduced a broad range of energy efficiency initiatives, programs,
standards, and studies, many of which built upon work that was already
in progress at the Department of Energy (DOE).
EERE's Federal Energy Management Program Provisions
While EPACT's first section in Title I appropriately addresses
energy savings in facilities administered by Congress, the next set of
sections broadens Federal programs for energy efficiency that are
conducted by EERE's Federal Energy Management Program, or FEMP.
Section 102, Energy Management Goals, re-establishes the statutory
energy reduction goals for Federal buildings. Updating the 1985 energy
consumption figures, the new goal uses a base year of Fiscal Year (FY)
2003 and requires reductions of two percent per year in energy use per
square foot, leading to a 20 percent reduction by FY 2015.
The law allows agencies to exclude certain buildings from this goal
under stringent criteria and gave the Department of Energy 180 days to
provide guidelines for these exclusions. The guidelines have been
finalized and issued to the Federal agencies. Formally titled the
Guidelines Establishing Criteria for Excluding Buildings from the
Energy Performance Requirements of Section 543 of the National Energy
Conservation Policy Act as Amended by the Energy Policy Act of 2005,
they are available on FEMP's web site at: http://wwwl.eere.energy.gov/
femp/pdfs/exclusion_criteria.pdf.
To further assist agencies in adjusting to the new goals, EERE is
drafting a memorandum to Federal agencies to clarify how the differing
reporting requirements of EPACT and Executive Order 13123 (still in
effect) will be addressed and to provide guidance to agencies in
establishing their 2003 baseline. EERE plans to provide each agency
with its FY 2003 energy consumption, costs, and square footage data
formatted in ways that allow agencies to easily assess their baseline
data according to default and new building inventory categories. We are
also convening working group meetings with agencies to revise the
Annual Reporting Guidance to reflect the EPACT 2005 requirements.
To promote operations and maintenance (O&M) best practices in the
Federal sector, EERE is developing an O&M Best Practices Guide and
training materials including a comprehensive on-line training program
for Federal energy managers and building operators. EERE will continue
conducting its Energy Savings Expert Team (ESET) facility assessments,
launched last fall in response to the President's call for agency
action to conserve energy. The teams initially conducted site
assessments at 28 large Federal installations and identified potential
natural gas savings of 970 billion Btu. DOE is following up with all
sites to assess whether the ESET recommendations are implemented, to
provide technical assistance to agencies should they choose to use
energy savings performance contracts instead of direct appropriations
to implement projects, and to help with project planning for more
capital-intensive projects.
Additional efforts include promoting the Resource Efficiency
Manager (REM) concept in the Federal sector. REM salaries are paid for
by the savings they help generate. EERE will also demonstrate advanced
energy efficient technologies in Federal buildings, with a goal to test
or demonstrate one new advanced energy efficient technology each year.
One of the steps toward this goal is working with industry to develop
deployment opportunities for advanced energy efficient technologies.
Section 103, Energy Use Measurement and Accounting, requires all
Federal agencies to install metering and advanced metering where cost-
effective, according to guidelines developed by the Department of
Energy in consultation with a number of interest groups. After meeting
with representatives from industry, energy efficiency advocacy
organizations, national laboratories, universities, and Federal
facility managers, EERE has issued the Guidance for Electric Metering
in Federal Buildings, located on the web at: http://
www1.eere.energy.gov/femp/pdfs/adv_metering.pdf. Agencies must submit
their implementation plans by August 3, 2006, and progress reporting
under the advanced metering requirement will begin in FY 2007.
Section 104, Procurement of Energy Efficient Products, seeks to
harness the energy savings that can be achieved economically through
the purchase of energy-efficient products and equipment. DOE has
drafted the regulations necessary to carry out Section 104; the
regulations are being reviewed internally. We have also drafted the
premium efficiency standard for electric motors of 1 to 500 horsepower
as required under Section 104(d).
The Department will continue to develop and revise its widely-used
energy efficient product procurement recommendations and will seek to
expand its bulk purchasing program to encompass additional
technologies, agencies, and building types each year. Over, the longer
term, we will work with EPA, State, and local government organizations
and non-government organizations (NGOs) to establish and participate in
a broad-based network of public agencies, institutions, and leading
corporations committed to using ENERGY STAR and FEMP criteria in their
purchasing, with affiliated suppliers who agree to provide compliant
energy-efficient products.
Section 105 provides long-term authority to extend Federal Energy
Savings Performance Contracting (ESPC) until September 30, 2016. This
extension has renewed interest in Federal energy savings projects,
after the 13-month hiatus in Federal ESPC authority.
EERE has reinvigorated its Super ESPC program to increase the
potential for cost effective energy savings though private investment
in Federal energy efficiency projects.
EERE continues to increase outreach and education of ESPC to the
Federal agencies that actually implement the energy efficiency
projects. Our ESPC education campaign includes new informational and
promotional materials in the most current media formats and direct
communications with Senior Energy Officials of every major Federal
agency. We plan to increase by 50 percent the number of ESPC training
workshops conducted during the next two fiscal years.
EERE will continue to conduct detailed data analysis of ESPC
metrics including cost effectiveness, financing costs, and project
cycle times to help improve ESPC results. Specific improvements include
reducing project cycle time from the current 12 to 18 months to 9 to 12
months and modifying contracts to obtain the best possible financing
rates.
Under Section 109, DOE is required to issue a new Federal building
energy efficiency standard, through the rulemaking process, within one
year of the passage of EPACT 2005. The provisions of this section
require that buildings be designed to 30 percent below the American
Society of Heating, Refrigerating, and Air-Conditioning Engineers
(ASHRAE) standard or the International Energy Conservation Code
(depending on building type) if life-cycle cost effective. We are
working on a rulemaking to implement Section 109.
EERE's Building Technologies Program Provisions
Turning now to the building sector, EPACT 2005 could not have
arrived at a more propitious time. Drivers in the marketplace, such as
high electricity and natural gas prices, along with excellent progress
in R&D on building technologies are bringing energy efficiency and
renewable energy into mainstream markets, and significantly improving
the business case for energy efficiency and renewable energy.
But when it comes to energy efficiency, the case for the Nation is
even more compelling than the business case. That is something that
President Bush recognized when he outlined the Advanced Energy
Initiative during his State of the Union address, with a proposal to
increase clean-energy research and break America's dependence on
foreign sources of energy and to promote clean energy by changing the
way we power our homes, businesses, and automobiles.
DOE has an aggressive goal for the future of buildings. By 2020,
DOE aims to have cost-competitive net-zero-energy homes in this
country. Such buildings would be 60 to 70 percent more efficient than
conventional practice in their energy use, and would use renewable
energy such as solar photovoltaics to meet their remaining energy
requirements. A related goal is to have zero-energy commercial
buildings as well by 2025. We have set interim targets to develop
residential and commercial building design packages that incrementally
improve energy efficiency and incorporate renewables in a cost
effective manner.
I'd like to review our progress across the 12 EPACT sections for
which the Building Technologies Program is responsible, ranging from
expanded authorizations for appliance standards to assisting the
Department of Treasury develop the technical requirements for tax
incentives. This extensive focus on energy efficiency in the building
sector reflects the significant opportunities for energy efficiency
improvements in residential and commercial buildings, appliances and
equipment. In particular, I'd like to highlight our appliance standards
work, progress on solid state lighting R&D, and our Energy Star
activities.
Appliance and equipment standards are cost effective energy-saving
tools, based on published benefit-cost analyses of past rules. The
Department is committed to addressing the backlog of mandated
rulemakings and meeting all of its statutory requirements. In our
report to Congress, submitted on January 31, 2006, pursuant to Section
141, we presented a multi-year schedule that is ambitious and
achievable and will enable the Department to produce at least one new
or amended standard for all products in the backlog no later than June
2011, five years from the issuance of this plan. By June 2011, the
Department will issue standards for the following 18 products in the
backlog:
Residential furnaces and boilers
Mobile home furnaces
Small furnaces
Residential water heaters
Direct heating equipment
Pool heaters
Distribution transformers, MV dry-type and liquid-immersed
Electric motors (1-200 hp)
Incandescent reflector lamps
Fluorescent lamps
Incandescent general service lamps
Fluorescent lamp ballasts
Residential dishwashers
Ranges and ovens (gas and electric) and microwave ovens
Residential clothes dryers
Room air conditioners
Packaged terminal air conditioners and heat pumps
Residential central air conditioners and heat pumps
Since the passage of EPACT, and consistent with the schedule
delivered to Congress, we are making great progress. I would like to
summarize what we have done in the past year.
By this August, we will be sending you another status report on our
progress on appliance standards. We expect to report that we will be on
schedule for all items, and perhaps slightly ahead of schedule on
selected items. For example, EPACT 2005 included 15 prescribed
standards, which DOE promptly codified en masse in its October 18, 2005
technical amendment.
In regard to test procedures, EPACT 2005 prescribed 11 test
procedures. Adopting these is a more technical exercise, so it takes a
little longer. The proposed rule to codify the prescribed test
procedures will be issued this June, with a final rule expected by
November 2006.
On the standards side, I am happy to report that DOE is on schedule
in getting the EPACT 2005-required rulemakings up and running. For
residential dehumidifiers and commercial clothes washers, DOE held a
``framework workshop'' in April 2006 to kick off the rulemaking.
Comments have been received and the analysis is underway. I note that
Congress has required a second rulemaking for commercial clothes
washers--this will begin after the first rule is issued.
The commercial refrigeration standards rulemaking is in a similar
state--the ``framework workshop'' was held in May 2006. In July, we'll
be having a ``framework workshop'' to kick off the standards rulemaking
for beverage vending machines.
There are three other activities related to EPACT 2005 and
Appliance Standards that I'd like to close with:
First, there are two future revisions for the commercial
refrigeration products' standards and two revisions to the statutorily
prescribed standard for automatic commercial ice makers--we have
planned for these future activities required by EPACT 2005.
Second, EPACT 2005 requires a rulemaking for a niche part of the
ceiling fan light kit market. This final rule is due January 1, 2007.
EPACT 2005 did not allow DOE enough time to complete a full rulemaking
for this niche set of products, but it did offer ``default'' standards
in case DOE misses its deadline--DOE plans to codify the ``default''
standards on January 2, 2007 through a technical amendment in the
Federal Register.
Third, we are working on the determination analysis for battery
chargers and external power supplies. DOE plans to make the
determination by August 2008. As indicated in the April 24th Unified
Agenda, if this determination is positive, the DOE will issue a final
rule for these products by August 2011.
While the appliance standards authorizations in Title I are the
most significant for our work in the building sector, there are several
additional sections that offer new authority that we are taking
advantage of immediately.
Section 131 of EPACT 2005 provided additional authorization for the
ENERGY STAR program. Our analysis suggests that this joint effort
between the Department of Energy and the Environmental Protection
Agency has been successful in promoting the adoption of energy
efficient technologies by consumers and businesses. EPACT 2005
recognized that success, and provided for acceleration of new ENERGY
STAR criteria for clothes washers and dishwashers.
I'm pleased to report that we published the new specifications for
these appliances on December 20, 2005, and March 8, 2006, respectively.
These criteria go into effect on January 1, 2007. Taken together, we
estimate purchase of these ENERGY STAR appliances will save $89 million
in energy bills and 10.4 billion gallons of water per year. We are also
on track to update the specifications again over the next three years,
effective January 1, 2010.
Section 912, the Next Generation Lighting Initiative, directs the
Secretary to carry out a program of research, development,
demonstration, and commercial application activities to advance solid-
state lighting (SSL) technologies for application in general
illumination. Relative to today's options, the SSL technologies will be
longer lasting, more energy efficient, cost competitive, and have less
environmental impact.
Prior to the passage of EPACT, the Department's SSL program had
competitively selected an industry partner, the Next Generation
Lighting Industry Alliance (administered by the National Electrical
Manufacturers Association), and signed a Memorandum of Agreement (MOA)
in February 2005. A Determination of Exceptional Circumstances which
provides special guidance on the intellectual property for inventions
developed under the SSL program was signed in June 2005.
EERE's existing lighting R&D program produced numerous advancements
in SSL. For example, 15 solid-state lighting patents were submitted in
FY 2005 as a result of DOE-funded research projects. These patents
demonstrate the value of DOE's SSL projects to private companies and
notable progress toward commercialization.
One company, Cree Lighting, demonstrated a white light emitting
diode (LED) device with a record-setting efficacy of 65 lumens per
watt. The improvement in brightness was enabled by balancing multiple
interrelated design parameters, including novel chip design. The
results are particularly significant because they were achieved in a
pre-production prototype using Cree's standard XLampTM
package, rather than a laboratory device.
With the additional impetus provided by the passage of EPACT, the
program continues to produce technical achievements. For example,
researchers from the University of Southern California, University of
Michigan, and Universal Display Corporation have achieved a record
efficiency of 24 lumens per watt in a white organic light-emitting
diode (OLED) device. The new OLED device is 50 percent more efficient
than a standard incandescent light bulb and 20 percent more efficient
than the team's previous record OLED.
Relative to the commercialization of future products, EERE hosted
an LED Industry Standards Workshop in March 2006 to provide a forum for
greater cooperation and coordination among standards organizations. DOE
presented details of the proposed DOE ENERGY STAR criteria for LED
products, which will be made public later this year. With DOE
leadership, the group will continue to coordinate, provide updates, and
accelerate process in solid-state lighting.
I would also like to say a word about the Tax Credit section in
Title XIII, Energy Policy Tax Incentives Subtitle C-Conservation and
Energy Efficiency Provisions. The Department has been working with
representatives from State energy offices, industry and other
organizations to develop an understanding of the technical requirements
for implementation of the tax credits. The Department is also working
closely with the U.S. Department of the Treasury to ensure that the
regulations address all the technical issues related to the tax
credits. The Department of the Treasury has the primary responsibility
for developing the specific regulations, establishing definitions and
procedures, to implement these measures.
Other Energy Efficiency Provisions
EERE is also responsible for a variety of additional studies,
outreach initiatives, and programs. Many are underway.
For example, Section 110 directed DOE to explore the impact of
extending daylight savings time. That study is underway. Another study
on the energy-conservation implications of the widespread adoption of
telecommuting by Federal employees is in the concurrence process.
Section 134 authorized the ``Energy Efficiency Public Information
Initiative,'' a comprehensive national plan to inform consumers that
builds upon the outreach efforts ongoing at DOE. Consistent with this
authorization, a number of consumer awareness programs have already
begun. For example, last October Secretary Bodman launched the ``Easy
Ways to Save Energy Campaign'' which includes an education and
awareness effort with the Alliance to Save Energy and private industry
to disseminate energy saving information through radio and television
public service-announcements, websites, newspaper advertising, and
media campaigns. Other collaborative efforts such as ``Powerful
Savings,'' ``EnergyHog,'' and ``The Power is in Your Hands'' combined
the best skills of government, the private sector, and non-governmental
institutions to provide the public with tools to conserve energy and
save money.
Several EPACT sections engage our Weatherization and
Intergovernmental Activities Program (OWIP). EPACT Section 123 provided
aggressive new goals and planning requirements for the State Energy
Program (SEP). We have invited States to review, and, if necessary,
revise State Energy Conservation Plans and are encouraging regional
collaboration, where appropriate. EERE notified the States of these
requirements in January through the SEP annual program guidance and
will send formal invitation letters to governors by June 30.
conclusion
I hope this gives you some understanding of the Administration's
perspective on S. 2747, and a fair overview of the energy efficiency
responsibilities that our office assumed with the enactment of EPACT.
In many important ways, EPACT has served to buttress our efforts and
help launch the necessity of energy efficiency onto the national stage.
We look forward to working with you as we dedicate our efforts to
developing energy efficient and renewable energy technologies and
promoting improvements in the energy efficiency of our country.
The Chairman. Thank you very much.
Senator Bingaman.
Senator Bingaman. Thank you very much. Mr. Karsner, one of
the key provisions in this legislation tries to set a target
for the amount of oil that could be saved and, I think, for 10
years from now I think it begins. Your testimony, as I
understand it, and I think this is an exact quote, would be,
``imprudent to legislate an arbitrary end result.'' The
confusion I've got on this is that the President, in his State
of the Union speech, and this is another quote, he said that he
was committing the country to ``replace more than 75 percent of
our oil imports from the Middle East by 2025.'' Now, that's a
pretty specific target, as I understood it.
We wrote a letter--when I say ``we,'' I mean about 20 of us
here in the Senate. We wrote a letter to Secretary Bodman,
after the President's State of the Union speech, asking him to
please tell us how you're going to do this, how you are going
to reduce imports from the Middle East by 75 percent by the
year 2025. We wrote that letter on the 21st of February. We
haven't received an answer yet.
We're trying, in this legislation, to establish a much more
modest goal than what the President called for but what we
thought was a somewhat realistic goal and do it in a
responsible way by saying 10 years from now, we should have
some goal that we're working at, it should be some quantitative
goal that seemed to be consistent with the view the President
was taking in setting his quantitative goal. I'm just wondering
how you reconcile the position that you are taking here in
opposition to any arbitrary end result with the position the
President took in his speech.
Mr. Karsner. Yes, sir. I think it is not a question of the
goal or the aspiration of the goal or the objective. Indeed, as
you point out, we are at least as--or more--aggressive in our
objectives and in our targets than the legislation indicates.
The question is actually opposition to legislating a mandate,
fixing a law, as to what the end result might be. In industry,
we would call these objectives `stretch targets,' putting
something very ambitious before us and then designating a plan
to reach those stretch targets. So at the Department of Energy,
beginning with the release of the Advanced Energy Initiative,
we began putting together coherent plans that would meet the
stretch targets.
By way of example, the President's objective that
cellulosic ethanol become commercial by 2012, cellulosic
ethanol being a very, very important part of the formula to
displace petroleum, then going further and saying that we could
displace up to 30 percent of gasoline consumption, at the
present measures, by 2030. Those are stretch targets. Other
people in the private sector have come out with similar stretch
targets--25 percent by 2025, by way of example. They are far
enough out that our own stretch targets shouldn't be viewed as
exclusive, even though they are ambitious. We are looking to
collaborate both with the committee and really, all people of
goodwill who were interested in resolving this problem, to make
those targets more acute and more poignant.
Senator Bingaman. Well, perhaps you could give us what
those stretch targets are that you have embraced and the extent
to which they are consistent with what the President talked
about in his State of the Union speech and then what the plans
are to reach those stretch targets. Because I think that is
what we were asking for in our letter to Secretary Bodman is to
tell us what the plan is to reach this stretch target, which I
think is a very major stretch. Quite frankly, to say that we
are going reduce imports from the Middle East by 75 percent by
the year 2025, that's a real stretch. But I have yet to see any
plan that would get us there, and if you have such a plan that
you've developed, I'd be anxious to have it. If you could maybe
respond to us or see if Secretary Bodman could put that
together and respond to the letter we sent, that would be
helpful.
Mr. Karsner. Yes, sir. We will.
[The information follows:]
With respect to the President's goal of reducing oil imports,
programs under the Advanced Energy Initiative, if successful in
achieving major breakthroughs in all vehicles and fuels initiatives,
such as expanding the use of ethanol, specifically cellulosic ethanol,
could displace the need for up to 5 million barrels of oil per day by
2025. Through investments in transportation technology, the AEI will
allow the greater use of ``homegrown'' ethanol made from cellulosic
biomass, which is now discarded as waste. The funding will make ethanol
feedstocks such as wood chips, corn stover (stalks) or switch grass
cost-competitive. Also the AEI will accelerate research in the next
generation of battery technology for hybrid vehicles and ``plug-in
hybrids.''
Senator Bingaman. On page 2 of your testimony, you note
that EPAct authorizes grants to support activities for auto
companies producing fuel-efficient vehicles. Could you tell us
what progress has been made to date to implement those
provisions, when you think that program will be up and running,
when you expect the first loan guarantee to be entered into,
whatever you could tell us about that.
Mr. Karsner. What I can tell you is that we have had a
significant dialog with the auto companies, particularly those
that are partnered with the program, and asked them to cull
their own portfolios in technology to propose ways that the
loan guarantees might enhance their ambitions to get to
manufacturing and production of more fuel efficient vehicles.
Thus far, there has been limited interest by only one or two of
the automobile companies in pursuing those loan guarantees.
With regard to standing up the loan guarantee program, as Under
Secretary Garman has testified, there is a process at DOE
presently for creating an Office of Loan Guarantees and they
anticipate taking applications before the end of the year.
Senator Bingaman. OK. My time is up. Go right ahead, Mr.
Chairman.
Thank you.
Mr. Karsner. Thank you, sir.
The Chairman. The note I just passed out here indicated we
have three stacked votes at 11:10 a.m. Now, I don't think,
Senator, that we could possibly be finished by then. I merely
indicate we'll leave and----
Senator Bingaman. Come back for it.
The Chairman [continuing.] Come back, just so that
everybody understands.
Mr. Karsner, let me indicate that in reading your
testimony, I want to tell you that I was very impressed and
appreciative of your stating with specificity all of the
efficiency measures that are being implemented pursuant to the
law that we passed. Senator Bingaman had been pushing goals for
years and there are still many of them that you acknowledge
have not been implemented; right?
Mr. Karsner. Correct.
The Chairman. But you are pushing hard, are you not, in
terms of, across the board, the appliance standards and all the
others? Are we making some headway? Could you just articulate
for a minute or two for the public what is going on in that
area?
Mr. Karsner. Yes, sir. As you know, I've been on the job
for a very short time, but in that short time, the two things
you just mentioned have been amongst my highest priorities, as
I committed during my confirmation hearings. That is to say,
the appliance standards and implementation of the EPAct
provisions are things that I insist on a weekly briefing on, in
terms of both issues and, as I had committed to you, Senator
Bingaman, at that time, we would analyze the critical path and
see where we might be able to accelerate or, if you want,
lubricate the machinery of decisionmaking so that we could look
at ways to get to the fastest pace of implementation possible.
I am comfortable that the team is very, very committed, that
they are on schedule, that they are working hard to see where
gains could be made and that we are also reaching out to all of
the stakeholders, very assertively, to work collaboratively
where we can to see where consensus might be drawn in future
discussions.
The Energy Policy Act itself provides a very prescriptive
path for my job for the duration. There are very many helpful
provisions that, if implemented and executed, will lead to
these savings that are desired at a very fast pace. I think it
goes without saying that it remains the highest priority in
terms of the tools we have at the Department of Energy to
throttle the current energy balance and to affect the situation
now. So therefore, it remains my highest priority.
The Chairman. You mentioned in your remarks, when you were
addressing the mandated target for savings on crude oil, you
alluded to the President seeking additional authority with
reference to auto emissions standards. And not having received
that, could you discuss that whole proposition with us a bit
and the relationship of that target to the fuel efficiency
standards for automobiles and what you talked about in giving
the President more authority and economic considerations?
Mr. Karsner. Well, the President has already used his
authority on CAFE for light-duty vehicles and trucks and he
would like the comparable authority for the other classes of
vehicles so that the administration might have the capacity to
review and raise, as may be necessary, combined with the other
considerations that are economic and highway safety. I believe
that the administration has put that forward to Congress
already and I believe the administration has demonstrated that
it is willing and able and assertive about reviewing CAFE
standards and making gains where it can.
The Chairman. Do you have any way of telling us what the
CAFE standards would have to be to achieve the target that this
legislation mandates for the saving of crude oil, of imported
crude oil?
Mr. Karsner. I do not have that information. I would be
pleased to bring back our technical experts to talk about it in
more detail. Obviously, there is a sensitivity there with
respect to how much technology can be deployed over the same
timeframe versus how much increased efficiency is necessary out
of the vehicle. So there are really several moving pieces and
it is a moving target and that is part of the difficulty in
legislating an absolute end result. If one assumes that the
technology doesn't get to the market fast enough, then of
course, that number would shoot very, very high, which may not
even be possible under current manufacturing standards.
The Chairman. One of the problems with the Bingaman
legislation you have alluded to, is the mandated target of
savings with no policy leeway, just telling you, here is a
target, do it. And I understand the frustration of the Senator.
He has expressed it in his questions. He'd like to know how you
are going to get there.
On the other hand, you have also expressed the
administration's position that that target seems a bit too
difficult. You have been caught in a box because maybe the
President has alluded to a higher target in general terms, but
I think there is a difference. One is legislated and mandated
by law and one is not, which I think is going to be difficult
for this legislation. But I merely comment on that.
Let's see if these Senators on this side have any questions
of this witness before we proceed.
I will submit some questions in writing, Mr. Secretary.
Mr. Karsner. Thank you.
Senator Thomas. Thank you, Mr. Chairman. I have one. We
have a number of things out there playing now about some
conversion from coal, for instance, to fuel and this and that.
It seems like the implementation of the current regulations is
very slow. Some of these things are designed to provide
incentives and we have companies waiting to go but the
Department hasn't yet set forth the regulations that allow them
to apply for the incentives to go ahead with their plants. Do
you have any comment on that?
Mr. Karsner. My only comment is that the pace of government
is also new to me and I'm trying to, at least within the domain
that I work in, accelerate things where possible. I know that
my colleague, Jeff Jarett, is working very aggressively and
ambitiously in terms of the coal-to-liquids projects.
Senator Thomas. It just seems as if this is a pretty
regulatory thing that has already been authorized, and yet the
years have gone by and people are standing around waiting to
make investments to do the things that we're talking about here
and they seem to be slow. You talked about efficiency
requirements by the States, urging the States to do that; was
that correct?
Mr. Karsner. I'm sorry, sir. Specifically what?
Senator Thomas. I think you said in your statement that you
wanted the States to do the efficiency standards.
Mr. Karsner. That was with regard to the renewable
portfolio standards and a national mandate versus a State-by-
State mandate policy.
Senator Thomas. But when we have the movement of vehicles
and so on, is that a reasonable thing to do?
Mr. Karsner. I think that the vehicle efficiency standards,
the CAFE standards, are not part and parcel of the renewable
portfolio standards that I mentioned in my statement.
Senator Thomas. OK. The bill that we're talking about
directs the Secretary to conduct R&D for electric-driven
transportation technology and research and those kinds of
things and provide--isn't it more appropriate to allow the
companies to do this with private dollars?
Mr. Karsner. There are some things that the private sector
would not otherwise take on because it is too far off of their
planning horizons, so the type of research and development that
is needed at this early stage for moving on to lithium ion
batteries, for example, is something that we are doing
collaboratively with the private sector.
Senator Thomas. Well, I hope so, because if we don't do it
with our own private sector then foreign companies will do it
and we'll be looking for somewhere else to do those things. So
I think sometimes I get the feeling that the bureaucracy is a
little academic oriented, looking way off into the future and
not paying much attention to what we are, where we are
currently, in terms of these kinds of things, like the coal-to-
liquid structure and designated streams and those kind of
things. I know there are other questions and we're pressed on
time, but we will continue to work with you because we need to
move forward, both on the shorter term and on the very long
term and make those things--get them into place.
Mr. Karsner. I agree, sir.
The Chairman. Let's see. Senator Alexander.
Senator Alexander. Thanks, Mr. Chairman. Mr. Secretary,
thank you for coming. I'd like to pursue your comments about
the renewable portfolio standard. Now, the renewable portfolio
standard would be a requirement that we use renewable materials
to produce electricity; correct?
Mr. Karsner. That's correct, sir.
Senator Alexander. And what percent of our electricity in
the United States today is produced by renewable materials or
processes?
Mr. Karsner. I believe it is under 2 percent, excluding
hydropower.
Senator Alexander. How much?
Mr. Karsner. Under 2 percent.
Senator Alexander. Under 2 percent. And your testimony is
that--well, how many States have renewable portfolio standards
today?
Mr. Karsner. I believe it is approximately 25, but I could
report on that for the record.
[The information follows:]
Lawrence Berkeley National Laboratory staff report that twenty
states plus the District of Columbia have renewable energy portfolio
standards in place, as of May 2006. Three more states, Minnesota,
Illinois and Vermont, have established renewable energy goals.
Senator Alexander. So a couple of dozen have it. And how
high are--what are their goals? They are well above 2 percent,
are they not?
Mr. Karsner. Many different States have many different
goals, based on what their renewable resource is in that State,
generally speaking. So there is really a patchwork of different
renewable portfolios.
Senator Alexander. But the range might be what?
Mr. Karsner. On the top end of it, you might find 20
percent. Others do it in terms of quantitatively assessing the
amount of megawatts that ought to be delivered by renewable
energy.
Senator Alexander. And these include some major States--for
example, California and Pennsylvania. So even though,
nationally, it is only 2 percent in terms of renewables
producing electricity, some two dozen States, including many
large States, have their own standards. And they define
renewables differently in those States; is that correct?
Mr. Karsner. I believe that's right.
Senator Alexander. Well, for example, in Pennsylvania, I
believe, a renewable might be coal waste to turn into
electricity. And in Tennessee, we might want to use incremental
hydro. And in Connecticut, I believe, they even define
renewables as fuel cells. Do you think that is appropriate for
different States to have different definitions of what they
mean by renewable?
Mr. Karsner. I do. I think it should be substantially
driven by the available renewable resources in that State, in
terms of how much penetration they might expect for that
State's development.
Senator Alexander. If there were a national renewable
portfolio standard, would the primary beneficiary of that be
wind power?
Mr. Karsner. I think wind power is a substantial
beneficiary on the State-by-State RPS, so I'm not sure that
there would be any great gain for wind power with a national
RPS.
Senator Alexander. Well, for example, if there were a
requirement that a State like Tennessee have a 10 percent or 20
percent renewable standard and wind were one of the only ways
it could get there and it couldn't get there, then it would end
up, in effect, paying a tax on its electric bills to cause some
other State to do that; is that not right?
Mr. Karsner. That is one of the reservations I have about a
national renewable portfolio standard. It could be seen as
punitive to those States that lack the renewable energy
resource so that people in Tennessee or Florida might pay
substantially more.
Senator Alexander. It might transfer well from one part
of--from the southeast to another part of the State. Maybe it's
an unintended consequence because of the different sorts of
renewable resources.
Mr. Karsner. That is the general position.
Senator Alexander. And that would be on top of whatever--if
wind were the example, then that subsidy would then be on top
of whatever the renewable production credit is for wind power
in the Federal tax code today?
Mr. Karsner. Right. I don't think that a renewable
portfolio standard concept, in general, always implies that
there need be a subsidy. For example, the State renewable
portfolio standard in Texas has driven down wind prices to make
them much, much lower than they were.
Senator Alexander. But that's a State renewable. See, I'm
talking about a Federal renewable standard.
Mr. Karsner. Right.
Senator Alexander. If you required a State, in effect, to
use a renewable resource that it could not use, then that would
transfer wealth from that State to another part of the country.
Mr. Karsner. It would certainly impose higher costs.
Senator Alexander. Would you anticipate that over the next
5 years, that more States would have renewable portfolio
standards?
Mr. Karsner. I would anticipate that, and in fact, I would
encourage that. We're hopeful that all States would develop for
themselves, as appropriate, a renewable portfolio standard that
takes into account the available resource they have in that
State.
Senator Alexander. Thank you, Mr. Chairman.
The Chairman. Thank you.
Senator Salazar.
Senator Salazar. Mr. Chairman and Senator Bingaman, thank
you for holding this hearing. It is a very important hearing
and I have a statement for the record that I will submit for
the record.
[The prepared statement of Senator Salazar follows:]
Prepared Statement of Hon. Ken Salazar, U.S. Senator From Colorado
Good morning Mr. Chairman; Ranking Member Bingaman, and members of
the committee. I would like to thank you, Mr. Chairman, for agreeing to
hold this hearing. And I welcome our colleagues, Senator Bayh and
Senator Coleman, who are here today because of our shared commitment to
securing America's energy independence by promoting the manufacture and
use of advanced technology vehicles, including flex-fuel vehicles able
to run on either petroleum or renewable fuels.
My own state of Colorado contributes substantially to the energy
resources of our country. We are blessed with an abundance of natural
energy resources, and the coal, oil and gas industries play a
significant part in our state's economy. In that regard, I very much
appreciate your willingness, Mr. Chairman, to travel to Colorado to
consider the possible development of Colorado's vast oil shale
resources. And I look forward to the hearing you have scheduled next
week on oil & gas development in the Rocky Mountains. But as long as
the United States is dependent on foreign oil for a significant part of
our energy needs, particularly our transportation fuels, our economy
and our national security are at risk. We need to move rapidly toward
energy independence and energy security.
I am therefore proud to be an original co-sponsor of S. 2747,
Senator Bingaman's bill under consideration today, and of S. 2025--the
Vehicle and Fuel Choices for American Security Act of 2005--which is
the basis for the oil savings and vehicle titles of Senator Bingaman's
bill. These broadly supported, bipartisan provisions will change how we
power our vehicles.
Mr. Chairman, right now, the United States consumes around 20
million barrels of oil every day. Fully two-thirds of the oil we
consume in this country is for transportation. The massive amount of
oil that we are importing is barely enough to cover the needs of the
transportation sector alone. S. 2747 tackles this problem head on. It
would bring more gallons of biofuels, such as cellulosic ethanol and
biodiesel, to market. It would give consumers more choices and greater
access to alternative fuels and advanced technology vehicles. It would
lower and stabilize the cost of transportation fuels, and it would
retool America's vehicle fleet to run more efficiently and on
alternative fuels.
At the same time, S. 2747 would significantly reduce our dependence
on the Middle East for supplies of oil and natural gas. We can achieve
these results through policies that encourage more efficient use of
energy in vehicles, electric appliances, lighting and industry, as well
as a greater emphasis on the use of renewable sources of energy.
In that regard, I am anxious to hear from Mr. Karsner what energy
efficiency standards and goals the Department of Energy will adopt in
2007 and 2008 to implement the energy efficiency programs authorized in
EPAct 2005 as well as the funding priorities reflected in the
President's Advanced Energy Initiative.
Mr. Chairman, the bipartisan energy bill we passed last year was an
important first step along a path toward greater energy security. But
it was only a first step. I believe there is an urgent national
security imperative to embrace advanced flex-fuel vehicles and the
renewable fuels and infrastructure to support them, as well as a
renewable energy initiative like the one contained in this bill, to put
us firmly on the pathway toward energy independence. A bold but
achievable renewable energy initiative will strengthen our national
security by reducing our dependence on foreign oil.
I look forward to hearing today's testimony and to further
Committee action on S. 2747, the Enhanced Energy Security Act of 2006.
Mr. Chairman. It will be made part of the record.
Senator Salazar. Let me, Mr. Karsner, just ask a question.
I know that in your comments, you were critical of the oil
savings targets that we have in S. 2747 and I think your term
was that you thought it was imprudent to legislate, in your
words, in this regard, that it was imprudent to legislate an
arbitrary end result. In the President's State of the Union, he
obviously called for a goal of getting us to reduce our
consumption of oil imports by 75 percent. That's a relatively
objective number with a goal that's out there. Tell me how it
is that what the President is trying to get to here, in terms
of an oil savings goal where we will reduce our imports from
the Middle East, differs from what we are proposing here in S.
2747?
The Chairman. Senator Salazar, I might indicate to you that
while I'm not going to object to your question, it is redundant
in that Senator Bingaman asked the exact same question. But we
can have it answered again. Maybe we can say you asked it more
eloquently.
[Laughter.]
Senator Salazar. Well, maybe what you can do is to just as
succinctly respond to that question.
Mr. Karsner. Right. I appreciate that. It is not so much at
all that we are critical of the target. We are critical of
putting a target into law when the target itself is dependent
upon the pace and the pricing and the market realities and
realization of the progress of the technology.
Senator Salazar. OK. I appreciate that. Let me ask you, in
terms of some of the other aspects of S. 2747, one of the
things that we have included in S. 2747 is to improve
efficiency of our vehicle fleet, for getting more advanced
vehicles on the road. It sets these goals and helps
manufacturers retool their vehicle fleets to meet them.
Mr. Karsner. Oh, absolutely.
Senator Salazar. What steps has the Department taken, under
your leadership, to try to achieve these goals since we passed
EPAct last year?
Mr. Karsner. If I understand the question, you're asking
about the Vehicle Technologies Program and the implementation
of using the tools of EPAct to enhance the vehicle technologies
available for efficiency?
Senator Salazar. Yes.
Mr. Karsner. Well, I can report more intelligently with our
technical experts for the record and work for a briefing in
your office about that. We have a very robust and well-funded
vehicle technologies program and through the Fuel and Freedom
Car Partnership, we are working on several aspects of that,
including enhanced work on plug-in hybrid vehicles and battery
technologies, light-weighting of the vehicle materials for use
in the manufacturing assembly, and of course, the other
technologies related to the uptake of flexible fuel and
hydrogen fuel cells. But I think it would be useful to give you
a more exhaustive answer and briefing on that from our
technical experts in the vehicles program.
Senator Salazar. Let me ask a question on cellulosic
ethanol. I know that in last year's legislation, we created
loan guarantees for projects such as cellulosic ethanol
demonstration plants, and I know that Senator Craig, for
example, has been working with the White House and the
Department of Energy to try and get a company to establish a
commercial facility in Idaho. And there have been, as I
understand it, some problems in terms of getting to the point
where we have a functioning set of rules that are pushing
forward with those loan guarantees that would make that kind of
a project feasible. Can you comment on whether or not, within
the legislation that we have here, there are additional
incentives that would help us move forward, and make those kind
of incentives for cellulosic ethanol a greater possibility?
Mr. Karsner. Yes, sir. I think that the title XVII, and to
a lesser extent, the title XV program, are both sufficient to
stand up a loan guarantee program. Under Secretary Garman has
testified on this and he has really led this effort within the
Department of Energy to stand up a program. And I believe that
they announced that they are hopeful that they will begin
taking applications on that prior to the year end. For our own
part, within the Energy Efficiency and Renewable Energy Office,
we are seeking to exhaustively vet those technologies that
might be available and applicable to a loan guarantee program
at the point that it stood up. In other words, we are seeking
to parallel process so that applicants are ready and able at
the point that the Government is ready and able to take those
applications.
Senator Salazar. OK. I will only make one closing comment
here and that is that during Monday's hearing of the Energy
Committee on the implementation of the 2005 legislation, which
this committee authored, the Director of NREL and one of his
subordinates said that they were confident that we would be at
a point within 6 years where we could commercially move forward
with cellulosic ethanol. He also said very clearly that he
thought that we had the technology to be able to get to the
point where 70 percent of our oil was being replaced by biomass
fuels by the year 2030. And I continue to believe that that is
a huge opportunity for us, along with all the other items that
we have on our menu, including oil shale in my State and a
whole host of other things that the chairman is very interested
in. Our hope in drafting the provisions of this bill is that we
would help move the realization of that vision and that agenda
forward, which the President started out with in referring to
it in his State of the Union message. So, I thank you for your
testimony, Mr. Karsner.
Mr. Karsner. Thank you, sir.
The Chairman. All right. Thank you very much, Senator.
While we are moving toward the next set of witnesses, I
would like to state for the record to clarify some of the
questions that have been put forward with reference to a status
of loan guarantees, which were prescribed in the statute that
we adopted as part of our 1985 overall law. And let me state
for the record that I guess it would be fair to say that I am
embarrassed to state for the record and it's not to ask this
witness, it's merely to make a statement, that the Department
is not ready to issue any loan guarantees, as prescribed in the
law, as the major method of funding innovative technology
because there has been a major battle between the OMB and the
Department that has not been resolved to this point.
Now, it is on the way to resolution. I can say that to my
fellow Senators. It is close. I will tell you that it will be
resolved soon or something will be resolved, I will assure you
of that.
I haven't figured out what that resolution will be yet, but
there are a lot of ways to skin a cat around here and this cat
will be skinned. There will be loan guarantees and a loan
guarantee office in the Department of Energy under the law or
something will happen, because it was prescribed to be one of
the major ways to take advantage of the high price of crude
oil. I mean, anybody understands the high price of crude oil is
an invitation to investment, but the investment is negated by
the fear that the price will fall again and you need the
incentive to help precipitate and pursue that investment more
vigorously.
One way being discussed is some kind of a modulation of it
by floor. That's going to hit us pretty soon. There is a very
big discussion of establishing a floor on crude oil for certain
industries to go with coal, the coal to liquid to diesel.
The other way is a large use of loan guarantees, and they
aren't ready. So it is embarrassing that that was how we
intended to avail ourselves of this opportunity. And anybody
sitting out there saying, ``Oh, it will happen, of course it
will happen,'' it will happen because the price is so high, but
it will happen much more vigorously if we put the incentives in
place contemplated by Congress. And I am very, very embarrassed
that the administration is in this hiatus. And it just cannot
stay there very much longer. It's got to be resolved. Now,
that's not your fault, sir. And we could have certainly given
you hell about the fact that you have no loan guarantees
available. I already knew that, but there is no use beating up
on you. You know it better than I. You said Secretary Bodman
wants to have it a stand-up agency by the end of the year;
right? You made that statement?
Mr. Karsner. Right.
The Chairman. That may never happen if the OMB does not
shape up. I think they may be on the way now. They have a
deputy around here that's got to be confirmed. That fellow has
no chance. He won't even appear before us here. He won't even
see this table, the way things are going right now. He already
knows that. Having said that, I think we're going to move on.
Senator Craig. Mr. Chairman?
The Chairman. Yes, sir?
Senator Craig. I'm coming late to the theatre, and I
apologize, but I do want to tell you and the committee--I was
visiting with Senator Salazar earlier in the morning--I met
with Director Portman and OMB staff this week. It was a closed
meeting for the very purpose of allowing me to express my full
emotion as it relates to the conflict--I'm using that word--of
differences going on between DOE and OMB as to how to do loan
guarantees.
The Chairman. Good.
Senator Craig. And I've suggested that if they can't do it,
we'll hire an outside firm to come in and do it for you,
because there is a substantial amount of finger-pointing at
this moment. It's coming from both sides. Here is what the
Director told me. He was going to put a stop to that. He is
working directly with DOE as we speak. He is fully engaged in
this and he is going to complete it as rapidly as he can. It is
on the top of his priority list. So I would suggest that
between you and probably the ranking member and--I know that
all of us have been involved in it. We got involved in this
discussion this morning before the Foreign Affairs Committee,
with Senator Lugar. He has dug into it. Why? For all the
reasons you just gave. When we promise new energy policy, of
the value and the kind that we're talking about, to get out on
the edge of these new technologies, and our Government wants a
promise, but can't deliver, then we have to figure out why it
can't.
Thank you for being as persistent as you are. We will work
with you on it, and maybe collectively we can get it done, and
at the same time, in talking with Secretary Bodman, if he gets
it right in the sense that he says, ``I don't want a program
out there that just starts putting money at every technology.''
Some work, some won't work. Money spent, money wasted, projects
gained, new technologies brought online--all of those are
factors in a good vetting process that allows us to make sure
the money that we put out there or assist in putting out there
gets to the right project.
The Chairman. Right. That's right. We're glad you arrived.
You surely added the right conclusion to these remarks. I can
tell you that everything you just said does not lead to the
conclusion that the only institution that knows how to decide
how to let this happen properly is the OMB.
Senator Craig. Oh, I agree.
The Chairman. That's impossible. I mean, if there is no
other way to do it, then we are in deep you-know-what, because
they don't want them. There are many of them over there that
don't even want to do them, so when you write them up and say,
``Do it,'' and then they don't want to do it, it's pretty
messy.
Senator Craig. Yes.
The Chairman. I sure thank you and I'm sorry we had to do
this in front of you. I hope you have a very good day.
Mr. Karsner. Oh, no. It has helped with my assignment, sir.
Senator Bingaman. Mr. Chairman, maybe I should speak up for
the administration here.
[Laughter.]
Senator Bingaman. But I'll withhold, since I don't really
have any defense to give.
The Chairman. I bet. You better not. You certainly have
had--by having this hearing, I've looked with great favor upon
you. And that you dare to defend them today, that would be the
end.
[Laughter.]
The Chairman. On this issue----
Senator Bingaman. I certainly wouldn't want to defend them
on this or any other issue.
The Chairman. Thank you, sir.
Mr. Karsner. Thank you, sir.
The Chairman. All right, let's get the next witnesses. I
didn't know you were on it, too.
Mr. Callahan. Oh! The vote has started. Do you want to
start that panel or do you want to----
The Chairman. Yes, let's get--we're sorry. Right now, with
you in your places, we have the clock saying that we have to
vote. So we're going to acknowledge your presence and make sure
everybody knows who you are.
Dan Lashof, senior scientist with the Natural Resource
Defense Council here in DC, thank you for coming. We look
forward to hearing from you.
Kateri Callahan; is that correct? Boy, I'm better today
than usual. President of the Alliance to Save Energy,
Washington, DC, thank you.
And we have Steve Nadel, executive director of the American
Council for Energy-Efficient Economy.
Senator Bingaman, what do you think we ought to do at this
point?
Senator Bingaman. Mr. Chairman, I think we ought to get as
much testimony as we can before that second bell rings.
The Chairman. Right. Let's start, we're going to start now
with you, Mr. Lashof. We have your written testimony. You
proceed as you would like.
STATEMENT OF DANIEL A. LASHOF, SCIENCE DIRECTOR, CLIMATE
CENTER, NATURAL RESOURCES DEFENSE COUNCIL
Mr. Lashof. Thank you, Mr. Chairman and Senator Bingaman,
for holding this hearing. Normally, I would, of course, begin
by thanking you for having this important hearing at this time,
but I would note that had you perhaps scheduled it this
afternoon, we could be cheering the U.S. World Cup team now
with some of our renewable energy. And I would just note
quickly, Senator Bayh and Senator Coleman noted that we could
learn some things from Brazil about their ethanol program. I've
been told that their stock market closes when Brazil is playing
in the World Cup, so maybe we want to follow that practice as
well. But I am delighted to be here to discuss the Enhanced
Energy Security Act, which NRDC strongly supports.
Let me try to make five points this morning, quickly, with
the help of three charts.
First, President Bush was right when he said that we're
addicted to oil and that is a serious problem. We are currently
spending about $1.5 billion per day on oil, as has been noted
earlier. Some of that money ends up in the hands of extremist
groups that wish to do us harm. And as our colleagues in the
Set America Free Coalition have said, America is, in effect,
funding both sides of the war on terror and we need to stop
doing that.
Second, the United States can't drill its way to energy
security and that is what this first chart shows. It shows
world oil reserves. The United States is there on the right
with just 2 percent of the world's oil reserves, compared with
about 70 percent in OPEC countries.
In contrast, we are responsible for about 25 percent of
world oil demand and so that shows that our leverage in
affecting the world oil market and becoming more secure is
primarily through the demand side.
Third, the Enhanced Energy Security Act, I believe, offers
a critical opportunity to break the gridlock that is currently
blocking meaningful reductions in oil dependence. Title I, in
particular, would establish a firm oil savings target and hold
government agencies responsible for achieving that target. But
it provides unlimited flexibility about how that target is to
be achieved. I think that is an innovation in the approach that
is very commendable and I think that is the reason we've seen
broad bipartisan support, 26 co-sponsors. That is S. 2025,
which shares that same approach.
Now, we've had testimony earlier from Mr. Karsner about
whether or not it is sensible for the Government to legislate a
target of that kind. I believe that it is critical. This is a
national priority to reduce our oil dependence. I believe we
have to have firm targets to require a detailed plan about how
they will be achieved and then review that plan to see whether
we are on track. Without that--I remember even back to the 1992
Energy Policy Act. We passed some lovely aspirational targets.
I believe the numbers were something like 30 percent of our
petroleum was supposed to be replaced with alternative. I don't
remember the number because they were not, in fact, taken
seriously, because they were just aspirational. So we have
not--without a rigorous plan to hold agencies accountable for
actually hitting these targets, we simply will not make the
progress we need to make.
Now, in this second chart, I show that--and this is my
fourth point--the oil saving targets in the bill are
achievable. Again, Mr. Karsner raised some questions about
that. This shows just one way we could achieve the targets,
from a variety of technologies and vehicle fuel-efficiency
levels, but also looking at replacement tires, heavy-duty
trucks and medium-duty trucks, as well as certainly ethanol and
other alternative fuels. Those add up to, by 2015, 3.2 million
barrels a day. The target in the bill is 2.5 million barrels a
day, so the potential exceeds that. And I would again emphasize
this is just one way to get there that we looked at. Many
people believe we could do much more with ethanol by 2015 or
2017 than is shown here. That would be great. Then we could
reduce the pressure to make as large of gains in other areas.
I also note that there is technology coming along every day
and when we make a national commitment, we'll see more. Just
yesterday, UPS--with EPA--announced a new hydraulic hybrid
delivery truck that gets a 70 percent improvement in fuel
economy. That kind of technology, which I heard about for the
first time--
The Chairman. Who did that?
Mr. Lashof [continuing]. Last night, is a dramatic
innovation that could make a big difference.
So let me just finish with my fifth point and that is, it
is essential to reduce oil dependence and global warming
emissions simultaneously. Mr. Chairman and Senator Bingaman,
you both noted that today is the 1-year anniversary of the
Senate resolution that you led us to adopting, calling for a
program to reduce our global warming pollution that would be
effective, and I think that is essential. Happily, S. 2747
emphasizes approaches that do just that: simultaneously reduce
both oil dependence and global warming and, certainly in this
regard, the energy efficiency and renewable energy provisions
of the bill are extremely important and we strongly support
those. It would also reduce demand for natural gas and make a
big difference there. But we do need to choose wisely.
And my last point, which is shown in this chart. There are
options that some people have advocated that could as much as
double the global warming emissions per gallon of gasoline
equivalent. I think we need to avoid those. We could do that by
including in government incentive programs, whatever their
nature, a performance standard that says that at least in
looking at alternative fuels, it has to at least do better than
the conventional gasoline that it would be intended to replace.
Thank you very much.
[The prepared statement of Mr. Lashof follows:]
Prepared Statement of Daniel A. Lashof, Science Director, Climate
Center, Natural Resources Defense Council
introduction
Thank you for the opportunity to testify today on the subject of
enhanced energy security. My name is Daniel A. Lashof. I am the Science
Director of the Climate Center at the Natural Resources Defense Council
(NRDC). NRDC is a national, nonprofit organization of scientists,
lawyers and environmental specialists dedicated to protecting public
health and the environment. Founded in 1970, NRDC has more than 1.2
million members and online activists nationwide, served from offices in
New York, Washington, Los Angeles and San Francisco.
summary
Today's energy use patterns are responsible for two growing
problems that require urgent action to keep them from spiraling out of
control--oil dependence and global warming. Both are serious; both
warrant a much more proactive policy action than has occurred to date.
Fortunately, we have in our tool box energy resource options that can
dramatically reduce both oil dependence and global warming emissions,
and policy options, such as the Enhanced Energy Security Act (S. 2747)
and the Enhanced Energy Security Tax Incentives Act (S. 2748), to
mobilize these solutions into action.
The unsettling events of the past year--devastating hurricanes,
accelerated melting of glaciers and ice sheets, steep price spikes at
the gas pump, and rising tensions with oil-rich regimes--serve as a
painful reminder that we are vulnerable and that security is now
defined by factors much broader than simply our military defenses. Oil
dependence poses a direct threat to our national security, our economy
and our environment, and makes a substantial contribution to the urgent
problem of global warming. As Secretary of State Condoleezza Rice noted
in the recent Senate Foreign Relations hearing:
``We do have to do something about the energy problem. I can
tell you that nothing has really taken me aback more as
secretary of State than the way that the politics of energy
is--I will use the word warping--diplomacy around the world . .
. It is, of course, an energy supply that is still heavily
dependent on hydrocarbons, which makes more difficult our
desire to have growth, environmental protection and reliable
energy supply all in a package''.\1\
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\1\ U.S. Senate Committee on Foreign Relations Hearing, April 4,
2006.
The twin crises of oil dependence and global warming require an
immediate and thoughtful response that will enable us to tackle both
challenges together.
There is strong bipartisan consensus around many of the solutions,
most notably the Vehicle and Fuel Choices for American Security Act (S.
2025). Diverse coalitions that cross the political spectrum have come
together in asking for aggressive action to break our oil addiction.\2\
A majority of the Senate has also endorsed the need to address global
warming with a comprehensive and effective national program of
mandatory market-based standards and incentives on emissions of
greenhouse gases. In red and blue states alike we hear deep concern
about oil and a call to action for Washington to seriously address the
energy challenge ahead. Most importantly, Americans overwhelmingly
support strong action to address the core of the problem--our demand
for oil--and federal standards to enable consumers to use less oil.
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\2\ Set America Free Coalition, www.setamericafree.org.
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The Enhanced Energy Security Act stands out by focusing on the
efficient use of energy and clean, renewable alternatives, rather than
measures that would prolong our addiction. While measures outside this
committee's jurisdiction, such as improving vehicle fuel economy
performance and transit, are essential to successfully addressing our
dependence on oil, this bill provides the right foundation for energy
security legislation to move America toward a less risky and more
reliable energy future. NRDC also strongly supports the renewable
portfolio standard provision in the bill, which passed the Senate last
year, and the energy efficiency provisions.
America's Addiction to Oil Threatens our Security
The central challenge to America's energy security is our
dependence on oil and the web of geopolitical and economic forces that
now govern access to and control of this increasingly costly and
strategic global commodity. As we describe in our 2005 report
``Securing America: Solving Oil Dependence through Innovation''
(attached for the record),\3\ our intense rate of oil consumption
already poses a clear and direct threat to America's national and
economic security, as well as our environment. With only 3 percent of
global oil reserves, America's greatest leverage is reducing our demand
for oil through innovation, efficiency gains and clean, renewable
alternatives. To enhance our energy security we must stop enabling the
addiction and begin to move America beyond oil.
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\3\ Natural Resources Defense Council, ``Securing America'' report,
2005.
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``America is addicted to oil'' the President said in his State of
the Union. He was right. We consume nearly 21 million barrels of oil
per day--a quarter of the world's oil production and more than China,
India, Japan and all of South and Central America use combined--and
rely on foreign suppliers for 60 percent of our daily oil needs. The
U.S. also has by far the highest per capita oil consumption of all
major countries.\4\ If we continue with business as usual, by 2025 we
will import over 70 percent of the oil we need to power our economy.\5\
With limited domestic supply, the country that leaves itself most
vulnerable is the one that is most dependent on the volatile global
market for its basic energy needs--and that country is the U.S.
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\4\ B.P. Statistical Review of World Energy, June 2006, page 13.
\5\ Energy Information Administration, Annual Energy Outlook 2006.
PROVEN OIL RESERVES THROUGH 2025
------------------------------------------------------------------------
Billions of
Barrels
------------------------------------------------------------------------
U.S..................................................... 23
Non-OPEC................................................ 396
Middle East............................................. 727
OPEC.................................................... 870
---------------
Total............................................... 1,266
------------------------------------------------------------------------
Source: Energy Information Administration, Annual Energy Outlook 2004
First, our appetite for oil is unsustainable and it is shifting the
balance of power toward oil rich suppliers (see figure above). The U.S.
has just 3 percent of the global oil reserves, while the Middle East is
home to two thirds of the world's oil.\6\ Today we have the luxury of
importing large amounts of oil from friendlier nations such as Mexico
and Canada but this luxury is fleeting. At current consumption rates,
non-Organization of the Petroleum-Exporting Countries (non-OPEC)
production is expected to peak and begin declining as early as 2015,\7\
which means that oil rich nations, especially those in the Middle East,
will take even tighter control of the reins of the global oil market.
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\6\ B.P. Statistical Review of World Energy, June 2006, page 6.
\7\ PFC Energy, Global Crude Oil and Natural Gas Liquids Supply
Forecast, September 2004.
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Second, there is growing evidence that higher oil prices are here
to stay. Most analysts agree that market fundamentals of high demand
and limited supply, and not speculation or market hysteria, are the
primary reason for today's high oil prices. These prices can be
explained, in part, by continued growth in oil demand in the United
States and explosive growth in Asia, especially China. Oil demand has
grown a robust 5 percent since 2003, despite a doubling of oil prices
during that period. It appears likely that global oil demand and tight
global oil supplies will keep fuel prices high for the foreseeable
future.
There is also little spare oil production capacity to cushion a
sudden loss in supply and the mix of easily extractable crude oil is
moving away from ``light, sweet'' toward more ``sour'' grades that
fewer refineries can handle. Considering these factors, oil prices may
abruptly jump even higher, as happened during the first two oil crises
of 1973-75 and 1979-81. Oil prices could also decline for short
periods, but unlike during the last two oil crises, important oil
market fundamentals now favor higher prices lasting for much longer-and
perhaps becoming a permanent feature of the market.
Moreover, oil suppliers are also less able to adequately cushion
the market in the face of rising demand. Historically, producers were
accused of holding back supplies when prices rose. But most industry
experts agree that OPEC and other suppliers are now pumping at or near
the upper limits of their capability. Indeed, there are concerns that
rapid exploitation degrades the long term viability of some oil
fields.\8\ Spare capacity, often used to cushion oil price spikes, is
essentially gone.
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\8\ Simmons, Matt. Twilight in the Desert: The Coming Saudi Oil
Shock and the World Economy, John Wiley & Sons (2005).
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Another reason to worry is that America's economy is already
feeling the pinch of persistently higher oil prices. The run-up in oil
prices, including the cost of the new ``fear premium'', exerts an
inflationary impact on everyday goods and services, consumers are left
with less disposable income after their trips to the pump, and
businesses of all sizes (except the oil companies) are seeing shrinking
profits in the face of pricier fuel. Oil imports now account for a
quarter of the ballooning trade deficit.\9\ At an average cost of $70
per barrel, we spend nearly $1.5 billion every day on oil and over $300
billion annually just for oil imports. Former Federal Reserve Chairman
Alan Greenspan has called the cost of oil a ``hidden tax'' on consumers
and despite the economy's resilience to rising energy costs, the
economy remains extremely vulnerable to supply disruptions and oil
prices shocks in the global market, as we experienced in the aftermath
of Hurricane Katrina.\10\
---------------------------------------------------------------------------
\9\ Bureau of Economic Analysis, U.S. International Transactions,
2006.
\10\ U.S. Senate Committee on Foreign Relations Hearing, April 4,
2006.
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Finally, above and beyond the direct cost of oil dependence, we
invest billions of dollars annually to acquire and protect access to
oil resources. According to recent estimates by the National Defense
Council Foundation, the hidden military and economic cost of oil
dependence is in the range of $800 billion annually and oil supply
disruptions like those we experienced in the 1970's could cost the
economy as much as $8 trillion.\11\ Moreover, our oil dependence has
enormous environmental costs, including emissions of the greenhouse
gases that cause global warming, air and water pollution, and the
despoiling of pristine public lands.
---------------------------------------------------------------------------
\11\ National Defense Council Foundation, Senate Foreign Relations
Committee Testimony, March 30, 2006.
---------------------------------------------------------------------------
On a global stage of energy winners and losers, America's over-
dependence on oil is now a liability that comes with costly
consequences. One that is particularly dangerous is the connection
between oil and terror. As we describe in the joint report with the
Institute for the Analysis of Global Security (see attached), terror
networks have clearly identified oil as the Achilles' heel of our
economy and continue to carry out numerous attacks on oil
infrastructure around the globe.\12\ The billions of dollars we export
every year facilitates a massive transfer of wealth to oil suppliers
that help finance terrorism and support the spread of hostile
ideology.\13\ According to defense and national security experts,
because of our oil dollars, America helps ``fund both sides of the war
on terror''. Oil has become a strategic commodity that can easily be
used against us.
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\12\ Institute for the Analysis of Global Security, www.iags.org.
\13\ The Paradox of Plenty: Oil Booms and Petro-States, Studies in
International Political Economy, No. 26, University of California,
1997; Zakaria, Fareed, The Future of Freedom: Illiberal Democracy at
Home and Abroad, Norton, 2004.
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To answer this multifaceted challenge of energy security we must
pursue solutions that will tackle the core of the problem--our demand
for oil--and make new policy commitments, such as the Enhanced Energy
Security Act (S. 2747), that will offer lasting relief to consumers and
clean, renewable energy alternatives. Scaling back our appetite for oil
is essential to safeguarding our national security, economy and
environment.
transportation drives our oil addiction
We are singularly dependent on oil to fuel our economy and the
transportation sector drives our addiction. Today transportation is
responsible for more than two-thirds of total U.S. oil demand; our
passenger vehicles account for forty percent of total demand.\14\
---------------------------------------------------------------------------
\14\ Energy Information Administration, Annual Energy Outlook 2006.
---------------------------------------------------------------------------
Moreover, our transportation system is 97 percent reliant on oil
and will account for 80 percent of our projected oil demand growth over
the next two decades. There are several reasons:
First, we are taking more trips. More Americans rode trains
and buses 80 years ago, and transit use spiked during World War
II. Then it plummeted, leveling off at less than half of its
peak level. Meanwhile vehicle miles traveled (VMT) climbed
steadily and is now three trillion miles per year.\15\
Increasing travel by private vehicles is exacerbated by sprawl
and poorly designed communities that makes commutes longer and
traffic worse.
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\15\ Based on Federal Highway Administration and American Public
Transportation Association figures.
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Second, the fuel economy of our light duty vehicle fleet is
stagnant. Thanks largely to the proliferation of inefficient
SUVs, improvements in fuel economy stalled in 1988 (see figure
below\15\a). The largest recent jump in performance
happened in the late 1970's, driven by policy and consumer
choices in reaction to embargoes and price run ups.\16\ Despite
significant technology innovation over the last two decades, in
the absence of higher standards fuel economy performance has
not advanced.
---------------------------------------------------------------------------
\15\a1AAll graphs have been retained in committee files.
\16\ U.S. EPA, ``Light-Duty Automobile Technology and Fuel Economy
Trends: 1975 Through 2003''.
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Third, petroleum continues to dominate the transportation
fuel market. The popularity of biofuels is an extremely recent
phenomenon and despite booming growth in the industry, biofuels
account for just a few percent of the nation's total fuel use.
Of the 170,000 gas stations around the country, only 700
dispense E85 fuel, and consumer awareness about alternative
fuels is still low, even among owners of flexible fuel vehicles
(FFVs).\17\ Today there are 5.7 million FFVs on the road, less
than 2.6 percent of total vehicles, but even this small number
run on alternative fuels just 1 percent of the time. In fact,
FFVs currently increase our oil use, since automakers receive
excessive credits against their fuel economy standards for
producing these vehicles, regardless of how much alternative
fuel they actually use.\18\
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\17\ Energy Information Administration, National Petroleum News,
May 2005.
\18\ Report to Congress: Effects of the Alternative Motor Fuels Act
CAFE Incentives Policy, Department of Transportation, Environmental
Protection Agency, and Department of Energy, March 2002.
The non-passenger vehicle fleet also contributes to the problem.
Heavier vehicles ranging from 8,500 pounds to more than 33,000 pounds
consume more than 2.8 million barrels of oil each day--more than we
import from the Persian Gulf.\19\ The heaviest trucks, such as tractor-
trailers weighing more than 33,000 pounds, consume two-thirds of this
energy, while lighter, shorter-range trucks use the remaining third.
These vehicles could be 70 percent more efficient.\20\
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\19\ Calculation based on projections in EIA's Annual Energy
Outlook 2003 for energy consumption by commercial light, medium and
heavy trucks.
\20\ Natural Resources Defense Council, ``Securing America''
report, 2005.
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oil demand and global warming pollution must be reduced simultaneously
Oil dependence is a critical link between national security and
global warming. The oil we burn in our cars and trucks is responsible
for a third of U.S. global warming pollution. Passenger vehicles alone
contribute 1.6 billion tons of carbon dioxide and 13 million tons of
smog-forming emissions from tailpipes every year. The recent alarming
trends of arctic melting, extended drought, and severe storms suggest
that the effects of global warming are being felt more rapidly than
expected.\21\ Global warming itself threatens the security of the
United States not only by supercharging hurricanes, but also because it
has the potential to destabilize regimes by creating millions of
environmental refugees and intensifying conflicts over water resources
in semi-arid regions.
---------------------------------------------------------------------------
\21\ Natural Resources Defense Council, ``Global Warming Science
Update YTD'', 2005.
---------------------------------------------------------------------------
To avoid catastrophic global climate change the U.S. and other
nations will need to deploy energy resources that result in much lower
releases of CO2 than today's use of oil, gas and coal. To
keep global temperatures from rising to levels not seen since before
the dawn of human civilization, the best expert opinion is that we need
to get on a pathway now to allow us to cut global warming emissions by
60-80% from today's levels over the decades ahead. The technologies we
choose to meet our future energy needs must have the potential to
perform at these improved emissions levels.
Most serious climate scientists now warn that there is a very short
window of time for beginning serious emission reductions if we are to
avoid truly dangerous global warming without severe economic impact.
Delay makes the job harder. The National Academy of Sciences recently
stated: ``Failure to implement significant reductions in net greenhouse
gases will make the job much harder in the future--both in terms of
stabilizing their atmospheric abundances and in terms of experiencing
more significant impacts.'' \22\ In short, a slow start means a crash
finish--the longer emissions growth continues, the steeper and more
disruptive the cuts required later.
---------------------------------------------------------------------------
\22\ National Academy of Sciences, Understanding and Responding to
Climate Change: Highlights of National Academies Reports, p.16 (October
2005), http://dels.nas.edu/dels/rpt_briefs/climate-change-final.pdf.
---------------------------------------------------------------------------
The Enhanced Energy Security Act focuses appropriately on measures
that would simultaneously reduce oil dependence and global warming
pollution. The National Coal Council and others, by contrast, have
proposed launching a massive program to replace oil with a synthetic
liquid fuel produced from coal using a process known as Fischer-
Tropsch. Such a step would have devastating environmental consequences:
potentially doubling carbon dioxide emissions per gallon of gasoline
replaced, and increasing the devastating effects of coal mining felt by
communities and ecosystems stretching from Appalachia to the Rocky
Mountains.\23\ Fortunately, we have better, less controversial options
that can reduce our oil dependence more quickly, more cheaply, and more
cleanly than coal-to-liquids.
---------------------------------------------------------------------------
\23\ NRDC Senate Energy Committee testimony on coal liquefaction,
April 14, 2006.
---------------------------------------------------------------------------
To assess the global warming implications of alternative fuels we
need to examine the total life-cycle or ``well-to-wheel'' emissions.
Coal is a carbon-intensive fuel, containing almost double the amount of
carbon per unit of energy compared to natural gas and about 20 percent
more than petroleum. When coal is converted to liquid fuels, two
streams of CO2 are produced: one at the coal-to-liquids
production plant and the second from the exhausts of the vehicles that
bum the fuel. With the technology in hand today and on the horizon it
is difficult to see how a large coal-to-liquids program can be
compatible with the low-CO2-emitting transportation system
we need to design to prevent global warming.
Today, our system of refining crude oil to produce gasoline,
diesel, jet fuel and other transportation fuels, results in a total
well-to-wheels emissions rate of about 27.5 pounds of CO2
per gallon of fuel. Based on available information about coal-to-
liquids plants being proposed, the total well-to-wheels CO2
emissions from such plants would be about 49.5 pounds of CO2
per gallon--twice as high as conventional petroleum based fuels.\24\
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\24\ Calculated well to wheel CO2 emissions for coal-
based ``Fischer-Tropsch'' are about 1.8 greater than producing and
consuming gasoline or diesel fuel from crude oil. If the coal-to-
liquids plant makes electricity as well, the relative emissions from
the liquid fuels depends on the amount of electricity produced and what
is assumed about the emissions of from an alternative source of
electricity.
---------------------------------------------------------------------------
Even if the CO2 from coal-to-liquids plants is captured,
well-to-wheels CO2 emissions would still be higher than
emissions from today's crude oil system. Capturing 90 percent of the
emissions from coal-to-liquid plants would lower plant emissions to
levels close to petroleum production and refining, while vehicle
emissions would be equivalent to those from gasoline. However, even
with CO2 capture, the well-to-wheels emissions would be 8
percent higher than from petroleum.
This comparison indicates that using coal to produce a significant
amount of liquids for transportation fuel would not be compatible with
the need to develop a low-CO2 emitting transportation
sector. Liquid fuel from coal contains the same amount of carbon as
gasoline or diesel made from crude, so the potential for achieving
significant CO2 emission reductions compared to crude is
inherently limited. Biofuels, especially cellulosic ethanol, offer much
greater potential to reduce oil dependence and cut CO2
emissions. We already use ethanol in our fuel supply and significant
investments are pouring into the biofuels industry to help it grow.
Renewable biofuels are a cheaper, cleaner and more readily available
alternative that could displace imported oil, help revitalize the rural
economy, and lower CO2 emissions.
Transforming our transportation sector by mobilizing the use of
efficient technologies, diversifying fuel choices at the pump to
include clean, renewable fuels, and offering mass transit options for
commuters, such as light rail, is essential to ensuring that our
pursuit of energy security also enables us to tackle the urgent
challenge of global warming.
Fortunately, technology is available today that can give us a
robust and effective program to reduce oil dependence. To cut our
dependence on oil we should follow a simple rule: start with the
measures that will produce the quickest, cleanest and least expensive
reductions in oil use; measures that will put us on track to achieve
the reductions in global warming emissions we need to protect the
climate. As we describe in the attached report, a combination of more
efficient transportation, biofuels, ``smart growth'' policies and oil
savings measures in other sectors, could reduce our oil demand by as
much as 40 percent by 2025 (see ``oil savings toolbox'' below).
TECHNOLOGICALLY ACHIEVABLE OIL SAVINGS
[million barrels per day]
------------------------------------------------------------------------
Oil Savings Measures 2015 2025
------------------------------------------------------------------------
Raise fuel efficiency in new passenger vehicles through 1.6 4.9
tax credits and standards................................
Accelerate oil savings in motor vehicles through
fuel efficient replacement tires and motor oil........ 0.5 0.6
efficiency improvements in heavy-duty trucks.......... 0.5 1.1
Accelerate oil savings in industrial, aviation, and 0.3 0.7
residential sectors......................................
Encourage growth of biofuels industry through 0.3 3.9
demonstration and standards..............................
-------------
Total Oil Saved................................... 3.2 11.2
------------------------------------------------------------------------
See Appendix for complete analyses.
The Enhanced Energy Security Act (S. 2747) creates a solid
foundation for tackling the core challenge of growing oil demand, and
the companion tax bill provides needed incentives to help consumers and
industry play an active role in bringing innovative, efficient
technologies and renewable energies to market sooner. Given the breadth
of the legislation, the following discussion focuses largely on
provisions of the bill related to oil dependence. NRDC looks forward to
working with the committee to perfect and help enact the legislation.
congress should set clear targets and demand accountability
Breaking our oil addiction requires mobilizing American ingenuity,
factories and farms around a clear goal. The first step Congress must
take is to make a binding national commitment to oil savings. If the
past is any indicator of success for such a commitment, this savings
goal is achievable. During world war II, American factories converted
in just months from building cars to building tankers and bombers that
became the arsenal of democracy. And after the first oil crisis in the
early 1970s, America slashed its oil imports and saved billion of
dollars in fuel costs to keep our economy strong. From biofuels to
hybrid vehicles, we have the technology today to make significant
reductions in our oil demand.
S. 2747 would establish the critical foundation of oil savings,
starting with a commitment to reduce oil consumption by 2.5 million
barrels of oil per day in ten years, and provide a set of tools and
incentives to help achieve these goals. Crucially, the bill also
ensures that the oil savings target is not merely aspiration by
establishing a rigorous process for ensuring that the nation gets on
track--and stays on track--to meeting the requirement.
We recommend the following policy measures to achieve the oil
savings commitments that would be established by S. 2747. Although we
recognize that not all of these measures are within the jurisdiction of
the Energy Committee, we recommend that final oil savings legislation
incorporate this complete toolbox in order to provide the greatest
possible flexibility in the means for achieving the targets.
Accelerate Oil Savings in Transportation
Raise fuel economy performance standards for passenger cars
and light trucks;
Provide domestic automakers and suppliers with incentives to
retool factories and produce more efficient, advanced
technology vehicles, such as hybrids and advanced clean diesel,
to regain competitiveness with foreign rivals and keep jobs and
profits in the U.S.;
Establish minimum efficiency standards for heavy trucks and
replacement tires;
Reduce vehicle miles traveled (VMT) through increased
funding for transit and transit-oriented development; and
Enable private fleet owners and consumers to use less fuel
by offering incentives for fleet turnover and extending EPACT
consumer tax incentives for hybrid vehicles.
Expand Fuel Choices though Clean, Renewable Biofuels
Increase EPACT production goals for cellulosic biofuels to 1
billion gallons by 2016;
Require that areas with access to biofuels and registered
flexible fuel vehicles (FFVs) require fuel stations to install
E85 pumps and provide incentives to offset capital costs of new
pumps;
Make every new vehicle flexible fuel capable and phase out
the federal fuel economy loophole for dual-fuel cars and
trucks;
Implement and fully fund cellulosic biofuels production
incentives authorized by EPACT; and
Ensure that alternative transportation fuels perform better
than gasoline in reducing ``well-to-wheels'' emissions of
carbon dioxide.
Increase Energy Savings in Industry, Aviation and the Residential
Building Sector
Expand industrial efficiency programs to focus on oil use
reduction and adopt standards for petroleum heating;
Replace chemical feedstocks with bioproducts through
research and development and government procurement of
bioproducts;
Upgrade air traffic management systems so aircraft follow
the most-efficient routes; and
Promote residential energy savings with a focus on oil-heat.
Many of the necessary reforms are already included in the broadly
supported Vehicle and Fuel Choices for American Security Act (S. 2025),
as well as the bill before this committee.
Most importantly, the Enhanced Energy Security Act includes a
meaningful framework for oil savings. The bill provides helpful new
programs to develop new vehicle technology, such as plug-in hybrids and
lightweight materials, and accelerate the turnover of inefficient cars
and trucks. The bill provides needed incentives for oil saving
technologies, as well, such as cellulosic biofuels and advanced
technology vehicles, and increased funding authorization for cellulosic
biofuels. The companion tax legislation would help domestic automakers
retool and produce more fuel efficient vehicles, assist private fleet
owners in purchasing these cars and trucks, and help truckers install
idling reduction equipment to reduce fuel use.
However, the Enhanced Energy Security Act and the companion tax
legislation contain several omissions that should be addressed.
Specifically, the retooling incentives for auto manufactures and
suppliers should be consistent between the authorizing and tax
legislation (Section 208 of S. 2747 and Section 202 of S. 2748) in
requiring sustained improvements in fleetwide fuel economy for
automakers that take advantage of the production incentives, and Tier
II, Bin 5 emissions compliance for all qualifying vehicles. This would
help ensure adequate air quality protection and actual fuel savings in
return for public dollars.
The bill could also better address the problem of oil dependence by
incorporating additional measures for transportation efficiency and
biofuels infrastructure, which are essential to reducing oil
dependence. Unlike S. 2025, the oil savings toolbox in this bill is not
complete, and although some of these provisions fall outside this
committee's jurisdiction, the following measures should be included to
provide the tools necessary to achieve oil savings. We look forward to
working with the committees to adopt these and other improvements to
the bill.
Increased Fuel Economy Performance for Light Duty Vehicles
A key solution to oil dependence is raising the efficiency of cars
and trucks. When Congress first enacted fuel economy standards in 1975
in response to rising gas prices and the OPEC oil embargo, Corporate
Average Fuel Economy standards (CAFE) succeeded in doubling the fuel
economy of American vehicles in just ten years. This helped drive the
oil intensity of our economy down by about one-third, providing better
insulation from today's high prices.
The program also resulted in a substantial reduction in the
nation's oil dependence. According to the National Research Council,
had we continued to use oil at the same rate, today we would be
consuming 40 percent more gasoline and 3.8 million barrels or nearly 20
percent more oil.\25\
---------------------------------------------------------------------------
\25\ National Research Council, Effectiveness and Impact of
Corporate Average Fuel Economy (CAFE) standards, Washington, D.C. 2002.
---------------------------------------------------------------------------
In the context of higher prices, fuel savings technologies are
vital to the future of domestic automakers and suppliers. As we noted
in our ``In the Tank'' report in 2005, automakers stand to lose
substantial market share, profit and jobs if they do not make fuel
economy a top priority.\26\
---------------------------------------------------------------------------
\26\ University of Michigan and Natural Resources Defense Council,
``In the Tank'' report, 2005.
---------------------------------------------------------------------------
NRDC strongly supports the recently introduced ``Ten-in-Ten Fuel
Economy Act'' as a critical part of our nation's strategy for
addressing the urgent challenges of oil dependence and global warming.
The bill would guarantee that we save 2.5 million barrels of oil per
day by 2025 and reduce tailpipe emission of carbon dioxide by 420
million metric tons.
Efficiency Standards for Tires and Heavy Trucks
Tires may look similar, but some models are more fuel-efficient
than others, while having comparable or superior braking, tread life
(longevity), and other important performance attributes. The small
incremental cost of fuel-efficient replacement tires compared with
average tires sold in the replacement market quickly pay for
themselves, and could easily save consumers at least $36 a year by
boosting the fuel economy performance of their vehicle by 2 to 4%--a
potential annual savings of $6 billion nationally. Despite the clear
benefits, only new cars are routinely equipped with these tires and
they are not widely available in the replacement market. Congress
should grant authority to set minimum tire efficiency standards.
Replacement tires should not only be labeled, but also optimized for
fuel efficiency so consumers can take advantage of an easy way to save
fuel.
Improving the fuel economy of heavy-duty trucks offers a major
opportunity for oil savings. All truck classes can benefit from fuel-
efficiency gains from current and emerging technology. Technology
assessments by the American Council for an Energy-Efficient Economy
(ACEEE) found that truck fuel-efficiency advances up to 70 percent are
cost-effective. In addition to tax incentives for purchases of idling
reduction equipment, Congress should grant authority to set minimum
efficiency standards for medium and heavy duty trucks.\27\
---------------------------------------------------------------------------
\27\ Langer, Therese, Report to the National Commission on Energy
Policy ``Energy Savings Through Increased Fuel Economy for Heavy-Duty
Trucks,'' 2004.
---------------------------------------------------------------------------
Transit
Oil dependence is one more reason to pursue smart-growth as an
alternative to suburban sprawl and to expand Americans' transportation
options. The potential for smart growth oil savings is immense. If all
new construction were built in a similar fashion to existing smart
growth developments, the nation would save over half a million barrels
of oil per day after 10 years of construction. The attached report
identifies ways for Congress to support local smart growth policies to
reduce VMT and achieve oil savings.
Renewable Energy and Energy Efficiency is Essential to
Overall Energy Security
NRDC strongly supports the renewable portfolio standard provision
of the Enhanced Energy Security Act. This provision, which passed in
the Senate's version of the Energy Policy Act of 2005, would be a major
step forward in promoting clean renewable energy in the United States.
NRDC also supports the energy efficiency provisions. The financial
incentives program for high-efficiency products is an excellent idea,
which is similar to the Golden Carrot program NRDC developed in
collaboration with utilities, state energy offices and EPA to promote
the design and manufacture of a high-efficiency refrigerator. We
recommend that the high-efficiency products provision be strengthened
by 1) giving EPA the authority to make the awards, since EPA has more
experience than DOE in this area, 2) authorizing a specific dollar
amount for the program, 3) requiring that the products actually be in
production before giving the money to the manufacturers, and 4)
requiring that the award be for products that achieve a certain minimum
percentage of energy savings. This last requirement is necessary to
exclude bids for very modest, but cheap, energy savings, which can be
acquired more easily through other programs. This program should be
limited to technologies that advance the state of the art.
NRDC also supports a federal energy efficiency resource program,
which would require that electric utilities save a certain percentage
of their consumption through energy efficiency programs. The energy
efficiency resource program provisions in the Enhanced Energy Security
Act should be strengthened by placing the requirement on the utilities
instead of leaving the decision of whether to establish such a
requirement to state public utility commissions.
Energy Efficiency Provisions of the Enhanced Energy Security Tax
Incentives Act
Some 1.5 million barrels of oil per day are consumed in buildings
where savings of 30%-50% and more are cost-effective and can be
facilitated by tax incentives. NRDC strongly supports extending energy
efficiency tax incentives extensions, as is done in the Enhanced Energy
Security Tax Incentives Act. However, there are now better alternatives
for some of these incentives that are more meaningful and more cost
effective. The original EPAct incentives for retrofitting homes and for
solar energy are based on the cost of the measures rather than their
performance. This structure was tried in the 1970's for both efficiency
and solar, and it was an expensive failure. NRDC has concerns about
adding the tax credit for 30% energy savings in new homes. Almost all
of the 200,000 homes constructed in California annually already save
about 28% on average, so this provision could be costly. NRDC supports
the existing homes and solar energy incentives language that will soon
be introduced by Senators Snowe and Feinstein. The Snowe-Feinstein bill
would create new performance-based incentives for retrofit of both
owner-occupied homes and rentals, while also extending the EPACT
incentives for 2 years.
conclusion
NRDC is pleased to endorse S. 2747 and S. 2748, which provide an
excellent foundation for breaking America's addiction to oil, reducing
natural gas demand, and curbing global warming. By establishing an
enforceable national commitment to oil savings and providing flexible
tools for achieving it, these proposals point the way to breaking the
energy policy gridlock that we are stuck in today. Congress should
seize this opportunity to increase our security, strengthen our
economy, and protect our environment.
The Chairman. Thank you very much. We've got just minutes
left on this vote. We are going to vote now and return and it
will be your turn then. We stand in recess.
[Recess.]
Senator Bingaman [presiding]. Why don't we go ahead again.
We apologize for the interruption. Senator Domenici still has
to stay on the Senate floor to speak on one of the amendments
that is pending on this defense bill, so he asked me to come
back and proceed with the rest of the testimony here.
Kateri, why don't you go right ahead. Your full statement
will be included in the record and we are glad to hear your
summary or whatever you would like to say.
STATEMENT OF KATERI CALLAHAN, PRESIDENT,
ALLIANCE TO SAVE ENERGY
Ms. Callahan. Great. Thank you, Senator Bingaman. I am
Kateri Callahan and I serve as the president of the Alliance to
Save Energy, which, as you know, is a bipartisan, non-profit
coalition of more than 100 businesses, governments,
environmental and consumer groups who promote energy efficiency
around the world.
I would like to start, Senator, by thanking you for the
leadership that you provide and Senator Dorgan, who is on our
Board of Directors, also to express our appreciation for the
leadership of this committee in beginning to make energy
efficiency a true cornerstone of energy policy. In the Energy
Policy Act of last year, just one of the provisions, the
appliance standards, will result in energy savings and dollar
savings for consumers of $63 billion by 2020. So it has been
very good working with you in advancing energy efficiency.
Notwithstanding, however, all of this good progress that
has been made, we believe there is a need for additional
government policies to advance energy efficiency, particularly
in the transportation sector. So we are very delighted about
the innovative measure that you have introduced as S. 2747 and
we are pleased to support and endorse that legislation.
The question facing our country is twofold--and Senator
Domenici alluded to this earlier in the day. First, and
urgently, we need to address today's high energy prices, which
are causing plant closings and the loss of jobs, and
contributing to a general malaise in consumers, coast-to-coast.
But the second, and I would argue equally important, question
is what Federal policies can be put in place today to insulate
us against all of the future threats we have to our economy,
our environment and our energy security because of our enormous
and growing thirst for energy.
We think the first and central answer to both of those
questions is energy efficiency as our Nation's greatest energy
resource. It has a proven track record. We now save more energy
every year than is provided to us by any other single resource.
And if the Congress and the States hadn't taken the actions
that they had since 1973, we would need 43 percent more energy
today to fuel our economy. The good news, though, is that we
haven't wrung out of energy efficiency everything that we can.
Our national labs did a study a couple of years ago and they
believe that we could essentially halt the growth in our energy
consumption in 20 years just by putting in place energy
efficiency programs. So it is doable and it is doable with
technologies and practices available to us today.
The first place to start, as I mentioned, is transportation
because, in our view, that was the largest gap in EPAct 2005.
We've done a study of it, Senator, and we believe that, on
balance, that bill will save no oil whatsoever. S. 2747 puts in
place aggressive targets for national oil savings. We very much
support those. However, I know the numbers that Dan doesn't,
because I was around for EPAct 1992. There were goals in that
bill, very important goals, of saving 10 percent of the use of
transportation fuel by the year 2000 and 30 percent by 2010.
Well, we are still today, in 2006, at 97 percent dependency in
the transportation sector. So we think the surest way to oil
savings would be through increases, reforms and CAFE standards,
but we understand that is problematic in the Congress, even
though the majority of Americans support it. It is also outside
of the jurisdiction of this committee. So the novel approach
that we would like the committee to look at is a vehicle
feebate program.
The idea is simple. You would provide a rebate for fuel-
efficient vehicles that is paid for by a fee on gas guzzling
vehicles. A feebate would encourage manufacturers to put more
fuel-efficient technologies in their vehicles and it would
encourage consumers to buy those vehicles. There are three
important benefits that I want to mention to the approach. It
is revenue neutral; the fees would pay the rebates, so no cost
to the government; and it is market-based, you can align
consumer preferences with manufacturers' technology capability
and with national policies. The nice thing about it, too, I
think, is it would provide continual improvement. One act by
Congress would result in putting in place a program that would
continually increase the fuel economy of vehicles as the mid-
point rose higher and higher into the future.
I'm going to run out of time here in a minute, so let me
just say that we also appreciate and support that S. 2747 is
focused on saving natural gas. I think Steve Nadel is going to
talk here about the renewable portfolio standard and things we
would like to see done to expand so that energy efficiency
resources can be used effectively to help take us off of
conventional fuels in the electricity sector. And while it is
out of the jurisdiction of this committee, I wanted to mention
that, because I can't let this opportunity pass, we think it is
critically important to extend the energy tax incentives that
you made available in EPAct 2005. We applaud your support and
introduction of legislation, Senator Bingaman, to do just that
and we will work with you on it.
Consumers and businesses in this country have been hit by
the worst energy price shocks in years and, according to the
polls, we see half the people in the country are spending less
on other household needs and goods because they are having to
spend more on energy. So the polls are telling us something
needs to be done now, but fortunately, the polls are also
saying that people want the Congress to focus more on long-term
solutions than just dealing with today's energy crisis. So we
think we have an opportunity now to enact significant energy
efficiency provisions that do both. They tackle today's energy
prices but they put us on a path for a sustainable energy
future. Thank you.
[The prepared statement of Ms. Callahan follows:]
Prepared Statement of Kateri Callahan, President, Alliance to Save
Energy
My name is Kateri Callahan and I serve as President of the Alliance
to Save Energy, a bipartisan, nonprofit coalition of more than 100
business, government, environmental and consumer leaders who promote
energy efficiency worldwide to achieve a healthier economy, a cleaner
environment, and greater energy security.
The Alliance appreciates the leadership Senators Bingaman and
Dorgan are providing as two of our Congressional Vice-Chairs, and we
are grateful for the important work that this Committee has done,
through design and enactment of last year's energy bill which included
critical energy saving provisions, to begin to make efficiency a
cornerstone of this nation's energy policy. The energy efficiency
appliance standards alone in EPACT will result in more than $63 billion
dollars in consumer savings on energy bills by 2020.
Notwithstanding, however, these positive steps, the need for
additional government policies to advance energy efficiency--
particularly in the transportation sector--have never been greater so
we are pleased that the Committee is considering new, important
measures like Senator Bingaman's Enhanced Energy Security Act of 2006,
S. 2747, which the Alliance supports.
The question facing our country is two-fold. First, and urgently,
how can we best and most expeditiously tackle today's high energy
prices which are causing plant closings and loss of manufacturing jobs,
and contributing to the general malaise of consumers coast-to-coast.
But the second, and more important question, I believe, is what federal
policies can be put in place today to insulate our country against the
looming economic, environmental and energy security threats arising
from our enormous national thirst for energy.
A first and central answer to both questions is to more fully use
our nation's greatest energy resource--energy efficiency. Efficiency
has a proven track record; we now save more energy each year through
energy efficiency than we get from any single energy source, including
oil. If we tried to run today's economy without the energy-efficiency
improvements that have taken place since 1973, we would need 43 percent
more energy than we use now. The very good news is that efficiency is
the gift that keeps on giving. The National Laboratories have found
that we could essentially halt the growth in energy consumption in this
country within 20 years through aggressive policy support of energy
efficiency.
In our view the largest gap in the Energy Policy Act of 2005 was on
oil savings and efficiency in the transportation sector. We estimate
that last year's final energy bill--on balance--will save no oil at
all.
S. 2747 includes aggressive targets for national oil savings. While
the Alliance supports these targets, we do not believe that enacting
goals is enough. The Energy Policy Act of 1992, for example, included
goals to displace 10 percent of light duty vehicle fuel by 2000, and 30
percent by 2010 with alternative fuel; yet today, petroleum still
accounts for 97 percent of transportation fuel. The Alliance believes
administration action is needed, but Congress should not wait.
Perhaps the surest route to oil savings would be through increases
or reforms in CAFE standards, as in the bill introduced earlier this
week by Senator Feinstein and others. Although there is near-universal
support for boosting the standards among the public, the Alliance
recognizes that CAFE standards are much more controversial in the halls
of Congress, and are outside the jurisdiction of this committee.
One novel approach to oil savings that could be within this
committee's purview is a vehicle ``feebate.'' The idea is simple:
provide a rebate for fuel-efficient vehicles that is paid for by a fee
on gas guzzlers.
A feebate would encourage manufacturers to use more fuel-efficient
technologies in their vehicles, and encourage consumers to purchase
more efficient vehicles. It would save consumers money in the long run,
as the savings in gasoline should be greater than any added vehicle
cost.
There are three important benefits of this approach. It is revenue-
neutral, with the fees collected paying for the rebates provided. It is
market-based, aligning consumer preferences with manufacturer abilities
and national policy. And, it can yield continual improvement without
further action by Congress or the Administration because as fuel
economies increase, the dividing line between fees and rebates is
automatically adjusted higher.
S. 2747 also properly focuses on saving natural gas. Because
supplies of natural gas are so tight in the United States, reducing
demand for natural gas by just a few percent could yield significant
price reductions over the next several years. S. 2747 includes a
renewable portfolio standard, but many utilities have found that
helping their customers to save a kilowatt hour of electricity is
cheaper than producing that kilowatt hour from renewable sources or
even from traditional sources. S. 2747 recognizes the potential of
these programs with a provision from last year's Senate energy bill
requiring state public utility commissions to consider policies to
promote utility energy-efficiency programs. The Alliance strongly
supports this provision, but would urge the committee to consider
further federal action.
And, while outside the jurisdiction of this committee, I cannot let
an opportunity go by to emphasize the importance of extending and
building on the tax incentives for energy-efficient buildings,
equipment, and vehicles that were in EPAct 2005. These incentives have
great potential to transform markets for energy-efficient technologies,
but they are in effect for too short a time.
Consumers and businesses in this country have been hit by the worst
energy price shocks in many years. According to polls, about half of
American households have cut back on other household spending because
of energy costs. But polls also show that a large majority of Americans
are rightly more concerned that Congress find long-term energy
solutions than that Congress quickly address current prices. There is
an opportunity now to enact significant energy-efficiency measures that
can provide quick relief, but more importantly, will benefit the
economy, the environment, and energy security for years and years to
come.
______
introduction
The Alliance to Save Energy is a bipartisan, nonprofit coalition of
more than 100 business, government, environmental and consumer leaders.
The Alliance's mission is to promote energy efficiency worldwide to
achieve a healthier economy, a cleaner environment, and greater energy
security. The Alliance, founded in 1977 by Senators Charles Percy and
Hubert Humphrey, currently enjoys the leadership of Senator Mark Pryor
as Chairman; Washington Gas Chairman and CEO James DeGraffenreidt, Jr.
as Co-Chairman; and Senators Jeff Bingaman, Byron Dorgan, Susan Collins
and Jim Jeffords along with Representatives' Ralph Hall, Zach Wamp and
Ed Markey, as its Vice-Chairs. Attached to this testimony are lists of
the Alliance's Board of Directors and its Associate members.
The Alliance is pleased to testify at a hearing on legislation to
promote energy efficiency. Despite some positive steps in the Energy
Policy Act of 2005, the need for energy efficiency and the potential
contribution of new energy-efficiency policies have never been greater.
the need for energy-efficiency policies
Gasoline and natural gas prices have doubled in the last few years,
and electricity prices also reached all-time highs. All told, recent
energy price increases cost American families and businesses over $300
billion last year. These high prices have caused plant closings and
loss of manufacturing jobs, and have made many low-income homeowners
unable to pay their heating bills. President Bush recognized that our
long-term energy security and environmental issues due to our wasteful
use of fossil fuels are equally serious when he called for ending our
``addiction'' to oil.
The problems are likely to get worse. The Energy Information
Administration projects that oil use in the United States will grow by
another 7.5 million barrels a day by 2030, about one-third of current
consumption. While there has been a great deal of attention recently to
growing oil demand in China and India, it is worth noting that
projected growth in oil demand in the United States is nearly as great
as in China, and three times that of India. Natural gas use in the
United States is projected to grow by a fifth by 2030, and electricity
use by half. Such growth will lead to higher prices, greater
volatility, and increasing dependence on foreign natural gas as well as
foreign oil.
Energy efficiency has the potential to slow the growth in demand
significantly, and thus moderate the associated price volatility,
energy security concerns, and environmental impacts. Energy efficiency
is the nation's greatest energy resource--we now save more energy each
year from energy efficiency than we get from any single energy source,
including oil, natural gas, coal, and nuclear power. The Alliance to
Save Energy estimates that if we tried to run today's economy without
the energy-efficiency improvements that have taken place since 1973, we
would need 43 percent more energy supplies than we use now. Much of
these savings result from federal energy policies and programs like
appliance and motor vehicle standards, research and development, and
the Energy Star program. The existing car and light truck CAFE
standards alone saved an estimated 2.8 million barrels of oil a day in
2000.
And tremendous, cost-effective, potential energy savings remain.
Vehicle efficiency has continued to improve even after CAFE standards
were largely fixed in the mid-1980's, but, paradoxically, vehicle fuel
economy has actually gone down--the efficiency gains have been eaten up
by increased weight and power. The EPA estimates that if automakers had
applied the technology gains since 1987 to improving fuel economy,
average fuel economy would be 20 percent higher. The National Research
Council found that much greater vehicle efficiency gains are possible
with existing, cost-effective technologies that have not been widely
applied yet, not even including hybrid-electric engines. A 2000 study
by several of the national labs found that overall the United States
could save 19 percent of anticipated energy use by 2020, essentially
halting growth in consumption. This includes 12 percent savings for
natural gas, 21 percent savings for petroleum, and 24 percent savings
for electricity.
oil savings measures
Perhaps the largest gap in the Energy Policy Act of 2005 was on oil
savings and efficiency in the transportation sector. The Alliance
estimates that last year's energy bill, as it emerged from the
conference committee, likely will save no oil at all, as the small
savings from the hybrid-electric vehicle tax incentive and other
provisions will be canceled out by increased gasoline use due to
extension of the CAFE loophole for dual-fueled vehicles. Our dependence
on foreign oil has steadily increased under the policies and programs
in place today. If we truly wish to end our ``addiction'' to oil,
Congress and the President must take further action.
S. 2747, the Enhanced. Energy Security Act of 2006, includes
aggressive targets for national oil savings, enough to make a real
difference in oil markets and on our oil dependence. The Alliance
supports these targets, but does not believe that passing fine goals is
enough. Although the Energy Policy Act of 1992 included goals that
alternative fuels would replace 10 percent of light duty vehicle fuel
by 2000, and 30 percent by 2010, petroleum still accounts for 97
percent of transportation fuel. While S. 2747 details procedures by
which the administration is to achieve the goal, the Alliance believes
greater support and likely additional legislation will be needed from
Congress. Administration action is needed, but Congress should not
wait.
Perhaps the surest route to oil savings would be through increases
or reforms in CAFE standards. Standards increases could be relatively
quick, cost-effective, and could have a major impact on energy use.
Although there is near-universal support for boosting the standards
among the public, the Alliance recognizes that CAFE standards are much
more controversial in the halls of Congress, and are outside the
jurisdiction of this committee. Other smaller, but positive, measures
in S. 2025 and tax provisions in S. 2748 also are outside this
Committee's jurisdiction.
Vehicle ``Feebate''
One new approach to oil savings that could be within the
committee's purview is a vehicle ``feebate.'' The idea is simple:
provide an incentive (rebate) to make and buy fuel-efficient vehicles;
a premium (fee) on gas guzzlers will discourage that choice and pay for
the incentives.
In one approach the Department of Energy would apply a fee or
rebate to the manufacturer of each new car and light truck. For each
vehicle the amount would be based on the gallons of gasoline estimated
to be used over the lifetime of the vehicle; the less gasoline a
vehicle uses, the larger the rebate (or smaller the fee).
The fee or rebate would then be determined relative to a dividing
line, the midpoint mpg. The dividing line between fees and rebates
would be set each year such that the total fees would just pay for all
the rebates, so there would be no net revenue or cost to the
government. Consequently, about half the vehicles would receive a
rebate, and about half the vehicles would be assessed a fee. If you do
not wish to influence the kind of vehicles customers buy, cars and
trucks could be divided into several categories based on size, with a
separate midpoint mpg for each category.
A feebate would improve fuel efficiency because it would encourage
manufacturers to use more fuel-efficient technologies in their
vehicles, and encourage consumers to purchase more efficient vehicles.
One study finds that a feebate slightly different from that described
above would save 1.2 million barrels a day of oil by 2020; a larger
feebate could save considerably more. Although improved technologies
may increase the average price of cars and light trucks, the savings in
gasoline should be greater than the added cost.
There are several benefits to the feebate approach:
EXAMPLES OF POSSIBLE FEES AND REBATES
------------------------------------------------------------------------
Fuel
Vehicle Economy Feebate
(mpg)
------------------------------------------------------------------------
Toyota Prius......................... 55 $1177 rebate
Ford Escape Hybrid................... 33 $693 rebate
Honda Accord......................... 27 $423 rebate
----------------------------------
Midpoint mpg......................... 21 _
----------------------------------
Lincoln Town Car..................... 20 $95 fee
Chevrolet Trailblazer................ 18 $317 fee
Ford F-150........................... 16 $595 fee
------------------------------------------------------------------------
For example, this rebate for a Prius is calculated: 25 cents per gallon
* 160,000 miles * (1/21 mpg ^ 1/55 mpg) = $1177
Revenue neutral: The program can be designed to cost the
government NO money, and it would not be a tax increase.
Market-driven policy: The financial incentives will help
push the market to more efficient vehicles, to align consumer
demand, manufacturer requirements, and national policy.
Continual improvement: As fuel economies increase, the
midpoint mpg is ratcheted up, encouraging continual
improvement, but never out of line with the existing market.
Not tied to CAFE standards: If the feebate is large enough,
market forces will drive up fuel economies beyond the current
fuel economy standard.
Reduces oil consumption and greenhouse gas emissions.
natural gas savings measures
S. 2747 also properly focuses on saving natural gas. Because
supplies of natural gas are so tight in the United States, reducing
demand for natural gas by just a few percent points could yield
significant price reductions over the next several years. S. 2747
includes several provisions for natural gas efficiency and electricity
efficiency (which can yield significant savings of natural gas as an
energy source), notably a renewable portfolio standard.
But many utilities have found that helping their customers to save
a kilowatt-hour of electricity is cheaper than producing that kilowatt-
hour from renewable sources or even from traditional sources. While
estimates vary widely, utility end-use energy-efficiency programs often
cost around 3-4 cents per kilowatt-hour. S. 2747 recognizes the
potential of these programs by requiring state public utility
commissions to consider policies to promote utility energy-efficiency
programs, taken from last year's Senate energy bill. The Alliance
strongly supports this provision, but would urge the committee to
consider further federal action as noted below.
Energy Efficiency Resource Standard
Several states are already developing innovative policies to set
performance standards for utility energy-efficiency programs alongside
standards for generation from renewable sources. Renewable and
efficiency requirements can reinforce each other in several ways.
Texas has separate renewable and efficiency requirements,
Connecticut and Pennsylvania have alternative energy
portfolio standards with separate tiers for renewables and
efficiency and other sources,
Hawaii and Nevada have combined standards for renewable and
efficiency resources (Nevada caps the amount efficiency
contributes),
California has a ``loading order'' that sets efficiency as
the preferred resource; once cost-effective efficiency measures
have been exhausted, utilities are to use renewable sources,
and only `then traditional sources.
Like a renewable portfolio standard, an energy efficiency resource
standard is a performance-based approach that gives utilities broad
flexibility about how and where to achieve the energy savings.
Utilities are required to implement energy-efficiency programs
sufficient to save a specified amount of energy, such as one percent of
the previous year's sales. They can implement their own programs, hire
energy service companies or other contractors, or sometimes pay other
utilities to achieve the savings by buying credits. Usually, the costs
of the energy-efficiency programs must be recovered from energy
customers through utility rates, but the savings from avoided energy
supply are greater than the efficiency cost. Note that an energy
efficiency resource standard is not a requirement that the utility's
sales decrease in absolute terms or a limit on their sales at all; it
is a requirement that utilities implement programs that are estimated
to save a specified amount of energy.
As a focus for federal policy, the energy efficiency resource
standard has several advantages:
It is readily available in all parts of the nation,
It is available for direct natural gas use as well as for
electricity,
It is cost-effective today, and
The potential savings are enormous--if 0.75 percent savings
were achieved annually nationwide, by 2020 electricity and
natural gas use would be reduced by 8 percent, with an
estimated net cumulative savings to consumers of $64 billion.
Appliance Standards
Perhaps the only other federal policy to achieve that level of
electricity and natural gas savings is appliance standards. While EPAct
2005 included a set of important new standards, additional action by
Congress is needed. First, the greatest potential natural gas savings
are from a standard requiring efficient residential furnaces in the
Northern states, but these furnaces may not be cost-effective in all of
the warmer states. Legislation would be useful to clarify that the
Department of Energy, if warranted, could set separate levels for
heating and cooling equipment in two climate regions. Second, the
Alliance is working with manufacturers and other stakeholders to reach
agreement on proposed federal standards for additional categories of
equipment, and hopes these standards will be legislated as agreement is
reached. Finally, the Alliance urges you to maintain vigilant oversight
as DOE attempts to meet the requirements for rulemakings in EPAct 2005
while issuing long-delayed standards required in earlier bills.
Energy-Efficiency Tax Incentives
Other important measures to save electricity and natural gas are
outside the jurisdiction of this committee. But the Alliance will not
let an opportunity go by to emphasize the importance of extending and
building on the tax incentives for energy-efficient buildings,
equipment, and vehicles that were in EPAct 2005. These incentives have
great potential to transform markets for energy-efficient technologies,
but they are in effect for too short a time. ``A large commercial
building initiated when the bill'' was signed last August will not be
finished before the commercial buildings deduction expires in December,
2007. For Toyota hybrid vehicles, the tax credit will expire even
earlier, phasing out between October 2006 and March 2007. The Alliance
strongly supports the extensions that are in S. 2748, with some
modifications that have been worked out with other stakeholders--
notably a performance-based incentive for whole-home energy-efficiency
retrofits that picks up where the current home improvements credit
leaves off. The Alliance also supports updates to federal standards for
certain buildings, particularly manufactured housing and homes with
federally subsidized mortgages.
conclusion
Consumers and businesses in this country have been hit by the worst
energy price shocks in many years for gasoline, natural gas, and (in
some areas) electricity. These price increases hit the rest of the
economy, as chemical plants move overseas and, according to polls,
about half of American households cut back on other household spending.
There are measures we could take, such as consumer education, which
would have an immediate impact. But polls also show that a large
majority of Americans are rightly more concerned that Congress find
long-term energy solutions than that Congress quickly address current
prices. There is an opportunity now, due to the high prices, to enact
significant energy-efficiency measures that will benefit the economy,
the environment, and energy security for years to come. If Congress
does not act, the price volatility and supply shortages will continue
to plague us. The Alliance urges you to seize the opportunity to take
really significant measures to reduce energy waste in this nation.
Senator Bingaman. Thank you very much.
Mr. Nadel--is that the right pronunciation? Why don't you
go right ahead. Thank you.
STATEMENT OF STEVE NADEL, EXECUTIVE DIRECTOR, AMERICAN COUNCIL
FOR AN ENERGY-EFFICIENT ECONOMY
Mr. Nadel. Thank you, Senator. I appreciate the opportunity
to be here. I am the executive director of the American Council
for an Energy-Efficient Economy, a non-profit research
organization here in Washington. As Kateri Callahan said,
energy efficiency is our Nation's No. 1 energy resource, but
there is much more opportunity. Since the Energy Policy Act was
passed last year, our energy problems have only gotten worse
and we are very heartened to see that this committee is again
considering energy legislation, including major energy
efficiency provisions. I particularly wanted to thank you,
Senator Bingaman, for taking a lead on this.
As we look at the Energy Policy Act of 2005, and the Energy
Policy Act of 1992, what we see is there are many, many
provisions of which a few have had some significant impacts and
many of them, unfortunately, have not had the impacts we all
would have hoped for. They have not been followed with
Appropriations, States haven't followed through, et cetera. We
therefore recommend that the committee focus on just a few
major energy-saving provisions that will have a really big
impact. Fortunately, S. 2747, I think, has three of the four
things that we think are very important, and I am going to
suggest a few tweaks and one significant addition.
First, we need to do something about saving oil. That's the
biggest problem with the 2005 law and, actually, the 1992 law
as well. We really need to take some leadership. We need some
creative approaches and I think the approach in S. 2747 is a
good, creative approach to make some significant progress. So I
strongly urge this committee to include that in any bill that
reports out.
In addition, we are going to need some supporting policies
so that the future administrations have many choices to choose
from to meet those targets. Title II has some good provisions.
In our written comments, we provide a couple of additional
suggestions of things that--arrows that can be in the quiver,
that future administrations can use to meet those targets. We
think the targets are very achievable. We have done some
analyses as well, looking just at the opportunities for energy
efficiency savings. We can save more than 5 million barrels per
day just from efficiency by 2020. And I point out that about 2
million of that comes from the industrial sector, the
residential sector, airplanes, and heavy vehicles. It is not
just CAFE, it is not just passenger vehicles, there are lots of
opportunities throughout the economy to save oil. So we urge
this committee to take that path.
Second, there is a provision in S. 2747 calling on States
to consider setting energy efficiency performance standards.
These are targets that utilities would need to meet that would
gradually escalate over time to help lock in some electricity
and, potentially, natural gas savings.
We would recommend strengthening that provision and making
it a national energy efficiency performance standard. We think
there are many benefits to going national: You get much more
savings, savings that all states take advantage of; it will
help reduce energy prices nationwide; and because there are
more savings, it will help reduce pollution nationwide. We urge
that there be an energy efficiency performance standard
actually included in the legislation, somewhat modeled after
the renewable portfolio standard that is already in there.
Third, we recommend that a provision be added on appliance
and equipment efficiency standards. The Energy Policy Act last
year included quite a few standards. We are in the process of
negotiating with manufacturers on additional standards and we
hope the committee will include whatever consensus standards we
can reach agreement on by the time the bill moves. We have one
agreement now. We are working on several others.
Also, we recommend that the bill clarify current law and
authorize the Department of Energy, when it sets efficiency
standards on heating and cooling equipment, to set two
standards for the United States instead of one. Alaska and
Florida have very different climates and a one-size-fits-all
approach is creating some problems. Either you set a very weak
standard and don't save any energy or set a stronger standard
but it disadvantages those folks, say, in a warm climate. By
dividing the country into two standards, we can save a lot of
energy while reducing the burdens in those climates that won't
benefit.
Finally, we recommend that the energy efficiency tax
incentives get included.
We thank you, Senator Bingaman and your co-sponsors, for
including many of this as S. 2748.
Overall, we estimate that the Energy Policy Act of 2005,
the energy efficiency provisions, would reduce U.S. energies by
about 1\1/2\ percent in 2020. This is a significant savings.
But those four measures I just recommended, those could save an
additional 12 percent. We are talking seven times the energy
savings from the Energy Policy Act of 2005 from just four
provisions. So we urge you to consider these four provisions as
you move forward with legislation. Thank you.
[The prepared statement of Mr. Nadel follows:]
Prepared Statement of Steven Nadel, Executive Director, American
Council for an Energy-Efficient Economy (ACEEE)
summary
Introduction
Energy efficiency is an important cornerstone for America's energy
policy. Energy efficiency has saved consumers and businesses trillions
of dollars in the past three decades, including about a trillion
dollars in 2005 alone. These efforts should now be accelerated in order
to:
Save American consumers and businesses even more money;
Change the energy supply and demand balance to put downward
pressure on energy prices;
Decrease America's addiction to oil, particularly oil
imports;
Strengthen our economy (since energy savings generate
American jobs and capital investment);
Buy us time to implement a comprehensive long-term energy
strategy, and
Reduce the risks of global warming by moderating carbon
dioxide emissions growth.
Key Drivers
Prices of heating oil, gasoline, natural gas, and coal have risen
60-100% in the past three years (varying by fuel), driven by rising
demand, tight supplies, and limited transportation and processing
infrastructure. While prices are unlikely to return to the levels of
three years ago, prices can be reduced through a combination of reduced
demand and increased supplies. However, new supplies take time to
develop, so energy efficiency is the only near-term option. A 2005
ACEEE analysis found that reducing natural gas use by about 4% over
five years could reduce natural gas prices by over 20%. Reducing demand
for oil and for refined petroleum products is also likely to reduce
prices.
U.S. reliance on oil imports continues to rise and is projected to
be near 70% of total U.S. oil demand by 2020. A substantial portion of
this oil comes from unstable regions of the world. While moderate
amounts of new oil are available in hard-to-reach areas of the U.S.,
they are not enough to offset continuing rapid depletion of North
American fields. Moreover, much greater amounts of oil are available by
increasing the efficiency with which we use oil. A January 2006 ACEEE
study finds that we can reduce U.S. oil use by more than 5 million
barrels per day by 2020. That's equivalent to almost doubling current
U.S. oil production--which no serious petroleum expert views as
possible. Improvements to passenger vehicles account for more than 3
million barrels per day of savings, but more than 2 million barrels per
day of savings are available in the residential, commercial, and
industrial sectors, and in heavy vehicles and airplanes. This suggests
that oil-savings efforts should focus on all sectors, not just
passenger vehicles.
Greenhouse gas emissions, especially carbon dioxide, continue to
increase. Early signs of the impact of global warming are becoming
apparent in Alaska and other parts of the Arctic, and several recent
papers have identified a link between warmer ocean temperatures and
increased hurricane intensity. Energy efficiency is the most cost-
effective way to reduce these emissions, as efficiency investments
generally pay for themselves with energy savings alone, providing no-
cost emissions reductions. For example, a May 2006 ACEEE study found
that the planned cap and trade system for power-sector carbon dioxide
emissions in the northeastern U.S. can have a positive impact on the
regional economy provided increased energy efficiency programs are a
key part of implementation efforts.
Energy Policy Acts of 2005 and 1992
The Energy Policy Act of 2005 contained some useful energy
efficiency provisions, particularly the new equipment efficiency
standards and energy efficiency tax incentives. Other EPAct 2005
provisions may also help as well, but virtually all of these lack
funding or other critical follow-up actions. Overall, ACEEE now
estimates that the efficiency provisions in this law will reduce energy
use in 2020 by 1.8 quadrillion Btu, which is 1.5% of projected national
energy use. More than 75% of the savings are from equipment efficiency
standards and efficiency tax incentives. Experience with the Energy
Policy Act of 1992 showed a similar pattern--most of the savings came
from a few provisions, and the majority of provisions proved to be more
show than substance.
Key Priorities for New Legislation
Based on this past experience, we recommend that future legislative
efforts focus on a few provisions that will result in substantial
energy savings. We recommend four such provisions as follows:
1. Oil savings targets--S. 2747 sets oil savings targets that
OMB and other agencies are tasked with meeting. This is a
promising provision but needs to be backed by complementary
actions that will make the targets enforceable, as well as
authorize a variety of policies that OMB can choose among in
order to meet the targets.
2. A national energy efficiency resource standard--An energy
efficiency resource standard (HERS) consists of electric and/or
gas energy savings targets for utilities, with flexibility to
achieve the target through a market-based trading system. An
EERS is similar to a renewable portfolio standard, but for
energy efficiency savings instead of renewable energy
generation. Policies along these lines have been adopted by
eight states and several European countries. S. 2747 encourages
states to consider EERSs but we recommend that this section be
strengthened to establish a national EERS, with a national
market-based trading system.
3. Equipment and appliance efficiency standards--Consensus
efficiency standards were key successes in the last two Energy
Policy Acts, and ACEEE is now working with industry and other
stakeholders to negotiate additional consensus standards. We
recommend that any consensus agreements that emerge be
incorporated into legislation. In addition, new legislation
should authorize DOE to consider separate standards for the
North and South for heating and cooling equipment. The current
one standard for all approach means that there will be clear
winners and losers that can be avoided by customizing standards
for each climate zone.
4. Efficiency tax incentives--Provisions in EPAct 2005
generally expire at the end of 2007, largely because the 2005
conferees were under pressure to reduce the amounts spent on
tax incentives. These should be extended, to at least the
original expiration dates, and a few refinements should also be
considered.
Energy Savings
ACEEE estimates that together these four items can reduce U.S.
energy use by more than 14 quads in 2020, reducing energy use by about
12%. These savings would be more than seven times the efficiency
savings of EPAct 2005.
Conclusion
We urge the Committee to concentrate on the largest opportunities
for improving energy efficiency and take concrete action on legislation
in these four key priority areas. Failure to take these steps now will
make it much more likely that our nation's energy problems will
continue or even worsen, and that Congress and the nation will have to
continue facing energy ``crises'' for many years to come.
______
introduction
ACEEE is a nonprofit organization dedicated to increasing energy
efficiency as a means of promoting both economic prosperity and
environmental protection. We were founded in 1980 and have contributed
in key ways to energy legislation adopted during the past 25 years,
including the Energy Policy Acts of 2005 and 1992 and the National
Appliance Energy Conservation Act of 1987. I have testified before the
Committee several times and appreciate the opportunity to do so again.
Energy efficiency improvements have contributed a great deal to our
nation's economic growth and increased standard of living over the past
30 years. Energy efficiency improvements since 1973 accounted for
approximately 55 quadrillion Btus in 2005, which is more than half of
U.S. energy use and nearly as much energy as we now get annually from
domestic coal, natural gas, and oil resources combined.\1\ Thus, energy
efficiency can rightfully be called our country's largest energy
source. If the United States had not dramatically reduced its energy
intensity over the past 30 years, consumers and businesses would have
spent roughly $1 trillion more on energy purchases in 2005.
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\1\ Specifically, national energy intensity (energy use per unit of
GDP) fell 46 percent between 1973 and 2003. About 60% of this decline
is attributable to real energy efficiency improvements and about 40% is
due to structural changes in the economy and fuel switching. Energy and
GDP figures from Energy Information Administration, 2006, Monthly
Energy Review May 2006. Washington, DC: U.S. Dept. of Energy.
Proportion of gains due to efficiency from Murtishaw and Schipper,
2001, Untangling Recent Trends in U.S. Energy Use. Washington, D.C.:
U.S. Environmental Protection Agency.
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Even though the United States is much more energy efficient today
than it was 30 years ago, there is still enormous potential for
additional cost-effective energy savings. Some newer energy efficiency
technologies have barely begun to be adopted. Other efficiency measures
could be developed and commercialized rapidly in coming years, with
policy and program support. For example, in a study from 2000, the
Department of Energy's national laboratories estimated that increasing
energy efficiency throughout the economy could cut national energy use
by 10 percent or more in 2010 and about 20 percent in 2020, with net
economic benefits for consumers and businesses.\2\ Studies for many
regions of the country have found similar if not even greater
opportunities for cost-effective energy savings.\3\
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\2\ Interlaboratory Working Group, 2000, Scenarios for a Clean
Energy Future. Washington, D.C.: Interlaboratory Working Group on
Energy-Efficient and Clean-Energy Technologies, U.S. Department of
Energy, Office of Energy Efficiency and Renewable Energy.
\3\ For a summary of many of these studies, see Nadel, Shipley and
Elliott, 2004, The Technical, Economic and Achievable Potential for
Energy Efficiency in the U.S.: A Meta-Analysis of Recent Studies.
Washington, D.C.: American Council for an Energy-Efficient Economy.
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Unfortunately, a variety of market barriers keep these savings from
being implemented. These barriers are many-fold and include such
factors as ``split incentives'' (landlords and builders often do not
make efficiency investments because the benefits of lower energy bills
are received by tenants and homebuyers); panic purchases (when a
product such as a refrigerator needs replacement, there often isn't
time to research energy-saving options); and bundling of energy-saving
features with high-cost extra ``bells and whistles.''
Recent developments in energy markets indicate that the U.S. needs
to accelerate efforts to implement energy efficiency improvements:
Oil, gasoline, natural gas, and coal prices have risen
substantially in recent years. For example, residential natural
gas prices in 2005 averaged $13.83 per thousand cubic feet, up
61% from the average price three years earlier (prices averaged
$8.57 per thousand cubic feet in 2002).\4\ Likewise, retail
gasoline prices are up 87% relative to three years ago ($2.917
per gallon 6/19/06 versus $1.558 per gallon 6/16/03).\5\ Even
more dramatically, Powder River Basin coal has more than
doubled in price since three years ago (spot prices of $13.80
per short ton in May 2006, up from about $6 per short ton in
May 2003).\6\ Energy efficiency can reduce demand for these
fuels, reducing upward price pressure and also reducing fuel-
price volatility, making it easier for businesses to plan their
investments. Prices are determined by the interaction-of supply
and demand--if we seek to address supply and not demand, it's
like entering a boxing match with one hand tied behind our
back.
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\4\ Energy Information Administration, 2006, Natural Gas Navigator:
U.S. Natural Gas Residential Price. http://tonto.eia.doe.gov/dnav/ng/
ng_pri_sum_dcu_nus_m.htm. Visited June 20. Washington, D.C.: U.S. Dept.
of Energy.
\5\ Energy Information Administration, 2006, Petroleum Navigator:
U.S. All Grades All Formulations Retail Gasoline Prices. http://
tonto.eia.doe.gov/dnav/pet/hist/mg_tt_usw.htm. Visited June 20.
Washington, D.C.: U.S. Dept. of Energy.
\6\ Energy Information Administration, 2006, Coal News and Markets,
Week of May 5, 2006. http://www.eia.doe.gov/cneaf/coal/page/coalnews/
coalmar.html#spot. Washington, D.C.: U.S. Dept. of Energy.
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A recent ACEEE analysis found that gas markets are so tight
that if we could reduce gas; demand by as little as 4% over the
next five years, we could reduce wholesale natural gas prices
by y more than 20%.\7\ This analysis was conducted by Energy
and Environmental Analysis, Inc. using its North American Gas
Market Model, the same analysis firm and computer model that
was employed by DOE and the National Petroleum Council for
their 2003 study on U.S. natural gas markets.\8\ These savings
would put over $100 billion back into the U.S. economy.
Moreover, this investment would help bring back U.S.
manufacturing jobs that have been lost to high gas prices while
also helping to relieve the crushing burden of natural gas
costs experienced by many households, including low-income
households. Importantly, much of the gas savings in this
analysis comes from electricity efficiency measures, because
much of the marginal electric load is met by natural-gas fired
power plants.
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\7\ Elliott and Shipley, 2005, Impacts of Energy Efficiency and
Renewable Energy on Natural Gas Markets: Updated and Expanded Analysis.
http://www.aceee.org/pubs/e052full.pdf. Washington, D.C.: American
Council for an Energy-Efficient Economy.
\8\ National Petroleum Commission. 2003, Balancing Natural Gas
Policy--Fueling the Demands of a Growing Economy: Volume I, Summary of
Findings and Recommendations. Washington, D.C.: U.S. Department of
Energy.
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The U.S. is growing increasingly dependent on imported oil,
with imports accounting for more than 60% of U.S. oil
consumption in 2005, of which more than 40% came from OPEC
countries.\9\ The U.S. Energy Information Administration
estimates that imports will account for 68% of U.S. oil use in
2020.\10\ While moderate amounts of new oil resources are
available in hard-to-reach areas of the U.S., much greater
energy resources are available by increasing the efficiency
with which we use oil. A January 2006 report by ACEEE found
that the U.S. can reduce oil use by as much as 5.3 million
barrels per day in 2020 through improved efficiency, including
more than 2 million barrels per day in industry, buildings,
heavy duty vehicles, and airplanes.\11\ In other words, there
are substantial energy savings outside of the highly
contentious area of light-duty vehicle fuel economy. These 5.3
million barrels per day of oil savings are nearly as much as we
presently import from OPEC (OPEC imports were 5.5 million
barrels per day in 2005).\12\ Energy efficiency can slow the
growth in oil use, allowing a larger portion of our needs to be
met from sources in the U.S. and friendly countries, as well as
domestically produced alternative fuel sources.
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\9\ Energy Information Administration, 2006, Monthly Energy Review
May 2006. Washington, DC: U.S. Department of Energy.
\10\ Energy Information Administration, 2006, Annual Energy
Outlook. Washington, D.C.: U.S. Department of Energy.
\11\ Elliott, Langer and Nadel, 2006, Reducing Oil Use Through
Energy Efficiency: Opportunities Beyond Cars and Light Trucks.
Washington, DC:. American Council for an Energy-Efficient Economy.
\12\ See note #9.
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Economists have increasingly raised concerns that the U.S.
economy is slowing and that robust growth rates we have had in
recent years will not be sustained. Energy efficiency
investments can spur economic growth; they often have financial
returns of 30% or more, helping to reduce operating costs and
improve productivity and profitability. In addition, by
reducing operating costs, efficiency investments free up funds
to spend on other goods and services, creating what economists
call the ``multiplier effect,'' and helping the economy
broadly. This stimulates new economic activity and job growth
in the U.S., whereas most of every dollar we spend on oil flows
overseas. A 1997 study found that due to this effect, an
aggressive set of efficiency policies could add about 770,000
jobs to the U.S. economy by 2010.\13\
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\13\ Alliance to Save Energy et al., 1997, Energy Innovations: A
Prosperous Path to a Clean Environment. Washington, DC: American
Council for an Energy-Efficient Economy.
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While the U.S. overall has ample supplies of electricity at
present, demand is rapidly growing and several regions (such as
southwest Connecticut, Texas, New York, and California) are
projecting a need for substantial new capacity in the next few
years in order to keep reserve margins
adequate.14,15 Energy efficiency resource policies
can slow growth rates, postponing the date that additional
capacity will be needed.
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\14\ North American Electric Reliability Council, 2005, 2005 Long-
Term Reliability Assessment: The Reliability of Bulk Electric Systems
in North America. Princeton, N.J.: North American Electric Reliability
Council.
\15\ New York Independent System Operator, 2005, ``The NYISO Issues
Reliability Needs Assessment.'' Press release of December 21.
Schenectady, N.Y.: New York Independent System Operator.
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Greenhouse gas emissions continue to increase. Early signs
of the impact of these changes are becoming apparent in Alaska
and other Arctic regions.\16\ And several recent papers have
identified a link between warmer ocean temperatures and
increased hurricane intensity.17,18 Energy
efficiency is the most cost-effective way to reduce these
emissions, as efficiency investments generally pay for
themselves with energy savings alone, providing no or negative-
cost emissions reductions. The term ``negative-cost'' means
that, because such efficiency investments produce net economic
benefits, they achieve emission reductions at a net savings for
the economy. This important point has been missed in much of
the climate policy analysis modeling performed to date. Too
many economic models are incapable of characterizing the real
economic effects of efficiency investments, and so forecast
inaccurate economic costs from climate policies. Fortunately,
this kind of flawed policy analysis is beginning to be
corrected. For example, a May 2006 study just released by ACEEE
found that the Regional Greenhouse Gas Initiative (RGGI--the
planned cap and trade system for greenhouse gases in the
northeastern U.S.) can have a small but positive impact on the
regional economy provided increased energy efficiency programs
are a key part of implementation efforts.\19\
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\16\ Hassol, 2004, Impacts of a Warming Arctic: Arctic Climate
Impact Assessment. http://www.acia.uaf.edu. Cambridge University Press.
\17\ Webster, Holland, Curry and Chang, 2005, ``Changes in Tropical
Cyclone Number, Duration, and Intensity in a Warming Environment.''
Science, 309, 16 September, 1844-1846.
\18\ Emanuel, 2005, ``Increasing Destructiveness of Tropical
Cyclones over the Past 30 Years.'' Nature, 436, 4 August, 686-688.
\19\ Prindle, Shipley and Elliott, 2006, Energy Efficiency's Role
in a Carbon Cap-and-Trade System: Modeling Results from the Regional
Greenhouse Gas Initiative. Washington, DC: American Council for an
Energy-Efficient Economy.
Energy efficiency also draws broad popular support. For example, in
a March 2005 Gallup Poll, 61% of respondents said the U.S. should
emphasize ``more conservation,'' versus only 28% who said we should
emphasize ``production'' (an additional 6.5% volunteered ``both'').\20\
In an earlier May 2001 Gallup poll, when read a list of 11 actions to
deal with the energy situation, the top four actions (supported by 85-
91% of respondents) were ``invest in new sources of energy,'' ``mandate
more energy-efficient appliances,'' ``mandate more energy-efficient new
buildings,'' and ``mandate more energy-efficient cars.'' Options for
increasing conventional energy supply and delivery generally received
significantly less support.\21\
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\20\ Gallop, 2005, ``Gallop Poll Social Series--The Environment.''
Princeton, N.J.: The Gallop Organization.
\21\ Moore, David, 2001, ``Energy Crisis: Americans Lean toward
Conservation over Production.'' Princeton, N.J.: The Gallup
Organization.
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However, energy efficiency alone will not solve our energy
problems. Even with aggressive actions to promote energy efficiency,
U.S. energy consumption is likely= to continue to rise for more than a
decade, and this growth, combined with retirements of some aging
resources and production facilities, will mean that some new energy
supplies and energy infrastructure will be needed. But aggressive steps
to promote energy efficiency will substantially cut our energy supply
and energy infrastructure problems, reducing the economic cost,
political controversy, and environmental impact of energy supply
enhancements, while buying us time to implement a comprehensive, long-
term energy strategy.
the energy policy acts of 2005 and 1992
The Energy Policy Act of 2005 (EPAct 2005) made some useful
progress on energy efficiency. Particularly notable were sections that
established new consensus, federal efficiency standards on 16 products
and that created energy efficiency tax incentives. Other useful
provisions included the extension of authority for Energy Saving
Performance Contracts (ESPC) in federal facilities, and a variety of
mandated reports that hopefully will help spur future policy action.
For example, the EPAct 2005 provision requiring DOE to submit a plan to
Congress on steps it will take to catch up on overdue efficiency
standard rulemakings was timed just right, and DOE has now prepared and
begun to implement this plan. In addition, a variety of promising
initiatives were authorized in EPAct 2005, but to have an impact, need
to be followed by appropriations.
Unfortunately, most of the new provisions requiring funding were
not included in either the President's budget request or in the House
appropriations bills (the Senate has yet to act). Given recent
developments, such as the lack of funding for many of the EPAct 2005
provisions, ACEEE now estimates that the energy efficiency sections of
EPAct 2005 will reduce U.S. energy use by about 1.8 quadrillion Btu
(``quads'') in 2020, reducing projected U.S. energy use in 2020 by
1.5%. Of these savings, more than 75% will come from two key
provisions--equipment efficiency standards and energy efficiency tax
incentives.\22\
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\22\ Nadel, Prindle and Brooks, 2006, ``The Energy Policy Act of
2005: Energy Efficiency Provisions and Implications for Future Policy
Efforts'' in Proceedings of the 2006 ACEEE Summer Study on Energy
Efficiency in Buildings. Washington, D.C.: American Council for an
Energy-Efficient Economy.
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A similar pattern applies to the Energy Policy Act of 1992 (EPAct
1992). This law also attempted to comprehensively address U.S. energy
needs, including an energy efficiency title. ACEEE and the Alliance to
Save Energy conducted a review of this law five years after passage and
found that many of the provisions were not fully implemented due to
limited funding, the fact that many provisions were voluntary and were
largely ignored, and limited follow-through. For example, provisions
calling for state action were ignored by many states, and only resulted
in policy changes in a few states. Ultimately, most of the energy
efficiency savings that actually occurred came from just a few
provisions including a series of new equipment efficiency standards
(which accounted for more than half the savings), equipment efficiency
ratings, improvements to building codes, and some R&D efforts.\23\
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\23\ ACEEE and ASE, 1997, Missing the Mark: Five-Year Report Card
on the Energy Efficiency Provisions of the Energy Policy Act.
Washington, D.C.: American Council for an Energy-Efficient Economy and
Alliance to Save Energy.
---------------------------------------------------------------------------
key priorities for new legislation
Based on the experience with EPAct 1992 and initial actions on
EPAct 2005 implementation, we recommend that as the Energy Committee
considers new energy efficiency. legislation, it concentrate on a few
provisions with significant energy savings, and that the Committee not
spend a lot of time on provisions that may sound good on paper, but are
unlikely to actually save much energy in practice. Based on our review
of a variety of bills introduced in Congress and our read of the
political situation, we recommend that a new energy efficiency bill
emphasize four areas as follows:
1. Oil savings targets and associated policies;
2. Energy efficiency resource standards (energy-saving
targets for utilities);
3. Equipment efficiency standards; and
4. Extensions and refinements of efficiency tax incentives in
EPAct 2005.
Fortunately, S. 2747 (the subject of this hearing) and its
companion S. 2748 address most of these items in some fashion, although
in each case some further strengthening would be very helpful. In the
remainder of my testimony I discuss these four priority areas,
summarize the energy savings available from addressing these four key
priorities, make some further comments on S. 2747, and then draw a few
final conclusions.
Oil Savings Targets
The biggest shortfall in EPAct 2005 (and in EPAct 1992 as well) was
the' failure to address opportunities to use oil more efficiently. As I
noted previously, U.S. dependence on oil imports is increasing and
energy efficiency represents a key strategy for reducing this
dependency. There are many strategies that can be employed to reduce
oil use, of which improving passenger vehicle fuel economy is just one.
Other strategies include:
Improving the efficiency of buildings with oil and propane
space heating and water heating. These systems are particularly
common in the Northeast, and Midwest; and in rural areas, that
lack natural gas distribution systems.
Reducing oil use in industry through such measures as
improved boilers and process heating; increased recycling of
waste materials; improved paving materials that reduce
petroleum feedstock requirements; and energy efficiency
improvements in off-highway equipment and operating practices.
Improving the fuel economy of heavy vehicles, such as
delivery trucks and tractor trailers.
Promoting ``smart growth'' strategies so public transit is
more assessable and driving distances are reduced.
Improving the fuel efficiency of airplanes.
S. 2747 includes a provision directing the Office of Management and
budget and other agencies to develop and implement a plan to reach
specified oil savings targets, including 2.5 million barrels per day in
2016 and 10 million barrels per day in 2031. These targets represent
approximately 10% of projected 2016 U.S. petroleum product use and
approximately 35% of projected 2031 use. We strongly support this
section and urge the Committee to incorporate it into the next major
piece of energy legislation it reports out.
However, this provision is only useful if future administrations
faithfully implement it. To increase the chances that this provision is
fully implemented, we recommend that the following steps be taken:
1. The Committee should have legal counsel carefully review
the language to make sure it is enforceable in a court of law.
While we hope that legal action will never be needed, if legal
action is clearly provided for, this will provide a significant
incentive to future administrations to keep on track in
implementing this provision.
2. The Committee should work closely with the Commerce
Committee to make sure that a variety of strategies for meeting
the targets are authorized, including heavy vehicle testing and
fuel economy policies and replacement tire efficiency
standards. The Committee should also encourage the Commerce
Committee to develop initial near-term fuel economy targets
(such as ones based on the 2002 National Academy study),\24\ so
that some savings will start to accrue even while the OMB-led
process is put in place.
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\24\ See National Research Council, 2002, Effectiveness and Impact
of Corporate Average Fuel Economy (CAFE) Standards. Washington, D.C.:
National Academy Press.
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3. The Committee should work to authorize or put in place
additional policies for achieving fuel savings such as: (a)
revenue-neutral fees and rebates (``feebates'') to encourage
purchase of vehicles with above-average fuel economy and
discourage purchase of below-average vehicles; and (b) a small
fee on heating oil and propane purchases to fund programs to
help homeowners and businesses reduce use of these fuels.\25\
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\25\ Specifically, we recommend a fee of 1-2 cents per gallon, with
funds to be administered by the states. State allocations should be
based on use of heating oil and propane by state, and a competitive
RFP, in which states with the best program proposals receive extra
funds. While many gas and electric utilities operate energy-saving
programs, homeowners and businesses using heating oil and propane are
generally left out. This proposed program would address this gap.
---------------------------------------------------------------------------
Energy Efficiency Resource Standard
An energy efficiency resource standard (EERS) is a simple, market-
based mechanism to encourage more efficient use of electricity and
natural gas. An EERS consists of electric and/or gas energy savings
targets for utilities, often with flexibility to achieve the target
through a market-based trading system. An EERS is similar to a
renewable portfolio standard, but for energy efficiency savings instead
of renewable energy generation. Programs along these lines have been
adopted by eight states and several European countries. All EERSs
currently in place include end-user energy saving improvements that are
aided and documented by utilities or other program operators.\26\
Sometimes distribution system efficiency improvements, along with
combined heat and power (CHP) systems and other high-efficiency
distributed generation systems, are included as well. With trading, a
utility that saves more than its target can sell savings credits to
utilities that fall short of their savings targets. Trading would also
permit the market to find the lowest-cost savings. However, unlike
other resources such as renewable energy and coal, energy-saving
opportunities are distributed throughout the 50 states.
---------------------------------------------------------------------------
\26\ Savings are documented in program evaluations, following
evaluation guidelines specified by state utility commissions. State
commissions have many resources to draw on to develop these guidelines,
including guidelines from other states.
---------------------------------------------------------------------------
Among the EERS-like laws now in operation, Texas's electricity
restructuring law created a requirement for electric utilities to
offset 10% of their demand growth through end-use energy efficiency.
Utilities in Texas have had no difficultly meeting their targets and
there is discussion about increasing the targets. Hawaii and Nevada
recently expanded their renewable portfolio standards to include energy
efficiency. Connecticut and California have both established energy
savings targets for utility energy efficiency programs (Connecticut by
law and California by regulation) while Vermont has specific savings
goals in the performance contract with the nonprofit organization that
runs statewide programs under a contract with the Public Service Board.
Pennsylvania's new Advanced Energy Portfolio Standard includes end-use
efficiency among other clean energy resources. Colorado's largest
utility has energy savings goals as part of a settlement agreement
approved by the Public Service Commission. And Illinois and New Jersey
are planning to begin programs soon. EERS-like programs have been
working well in the United Kingdom and the Flemish region of Belgium.
Italy has recently started a program, and another is about to start in
France. Details on each of these pro ams are provided in a March 2006
ACEEE report.\27\
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\27\ Nadel, 2006, Energy Efficiency Resource Standards: Experience
and Recommendations. Washington, D.C.: American Council for an Energy-
Efficient Economy.
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S. 2747 includes a provision directing states to consider adoption
of EERSs. However, experience under EPAct 1992 and 2005 is that few
states follow up on these directives. Instead, we recommend that S.
2747 be amended to establish a national EERS, but allowing for state-
based administration provided states meet certain basic criteria.
We recommend that EERS targets generally start at modest levels
(e.g., savings of 0.25% of sales annually) and ramp-up over several
years to savings levels currently achieved by states with substantial
experience (e.g., 0.50% of gas sales, 0.75% of electric sales, and 1.0%
of peak electric demand annually). To ensure that costs will be
moderate, we recommend that a market for trading of savings. credits be
established and that a ``safety valve'' be created under which electric
and gas utilities could buy credits from the implementing agency for
about half of the current retail costs of each energy source (monies so
collected should be used to fund public-benefit, government-operated
energy efficiency programs).
While many EERSs are separate from a renewable portfolio standard,
an option would be to combine renewable energy and energy efficiency in
a single, combined portfolio standard. However, if this is done, the
portfolio target should be significantly higher than if only renewable
energy or if only energy efficiency were included. For example, a
combined efficiency/renewables target might be 20% of 2020 sales, and
not the 10% of 2020 sales that the Senate has previously passed as a
renewable portfolio standard. Another option will be to add additional
``advanced energy resources'' to a portfolio standard such as
``advanced coal'' that includes carbon sequestration or new advanced
nuclear reactors. Each of these resources has supporters and
detractors, so a careful political calculus is needed to see which
resources add versus subtract votes. To the extent additional resources
are added to a portfolio standard, the targets should be increased
commensurately. In no case should utilities be allowed to reduce their
renewables purchases below levels previously voted by the Senate.
Equipment Efficiency Standards
ACEEE, affected industries, and other stakeholders have a long
history of negotiating consensus agreements on new efficiency
standards. Many of these agreements were incorporated into the Energy
Policy Acts of 1992 and 2005. ACEEE is now talking with industry about
standards on additional products, and we expect to have agreements on
several new standards by the end of the year. If we are successful, we
urge the Committee to include these new consensus standards in
legislation it works on next year. Products that may lend themselves to
consensus standards include the following:
Reflector lamps
Pool heaters
Metal halide luminaries
Bottle-type drinking water dispensers
Portable electric spas (hot tubs)
Single-voltage external AC to DC and AC to AC power supplies
Commercial hot-food holding cabinets
Walk-in refrigerators and freezers
In addition, we recommend that current standards law be amended to
permit DOE to divide the country into two climate zones when setting
new standards for heating and cooling equipment. DOE's Office of
General Counsel says they lack authority to set separate standards for
different regions, and therefore must use a one size fits all approach.
However, climate in the U.S. varies enormously from Alaska to Florida,
and a one size fits all approach for the entire country does not make
sense for some climate-sensitive products. For example, DOE is
currently conducting a rulemaking on new standards for residential
furnaces, a major consumer of natural gas. Condensing furnaces (e.g.,
those meeting the ENERGY STAR specification) are very cost-effective in
Northern states, but may not be cost-effective in many Southern states.
But a single climate zone approach would either mean setting a weak
standard based on Southern needs and achieving little energy savings,
or setting a stronger standard based on national average heating loads
and imposing significant costs on warm states. Dividing the country
into two climate regions would save substantial energy without imposing
extra costs on warm states. An ACEEE analysis estimated that a
condensing furnace standard in cold states would reduce national
natural gas use by more than 150 billion cubic feet and will save
consumers $3.2 billion (discounted net present value) for equipment
sold by 2030.
Manufacturers claim that imposing separate standards for the North
and South would create difficulties for them. However, manufacturers
often have separate models for Northern and Southern climates (e.g.,
furnaces in the South often have larger fans in order to handle larger
cooling loads) and thus we think manufacturers are overstating the
difficulties. To address this problem and the large energy and economic
savings that are possible with regional standards, we recommend that
current law be amended to grant DOE authority to consider separate
standards for the North and South for residential heating and cooling
systems. This amendment should require DOE to consider the advantages
and disadvantages' of regional differentiation based on criteria in the
underlying law and decide whether regionally differentiated standards
make sense for a particular product. To limit the impact on
manufacturers, we recommend that the amendment permit only two zones
and require zones to follow state boundaries and be fully contiguous
(except Alaska and Hawaii).
Efficiency Tax Incentives
EPAct 2005 included a variety of very useful energy efficiency tax
incentives including incentives for efficient commercial buildings,
homes, appliances, heating and cooling equipment, and vehicles.
However, pressure on conferees caused most of these incentives to be
cut to only two years, which is too short a period to transform
markets. S. 2748 extends most of these incentives for an additional
three years and adds several new incentives that previously passed the
Senate but were not included in the final EPAct 2005 conference
agreement. In general we support the provisions of S. 2748, but
recommend a few refinements as follows:
Commercial buildings: EPAct 2005 included an ``interim'' provision
for lighting energy retrofits. We recommend that this provision be
specifically included in any extension as this is the only provision
that truly applies to existing commercial buildings. If cost becomes an
issue, this lighting retrofit provision could expire earlier than the
2010 date for the other commercial building incentives.
New homes: EPAct 2005 includes incentives for new homes reducing
energy use by 50% relative to a model energy code, and includes
additional incentives for manufactured homes that either save 30% or
that meet ENERGY STAR criteria. S. 2748 provides a 30% savings
threshold for all new homes and continues the special ENERGY STAR
provision for manufactured homes. We think the 30% credit for all homes
will prove very expensive and recommend that it be dropped if cost
becomes an issue. Also, for manufactured homes, the current ENERGY STAR
specification is fairly weak and saves less than 30% in nearly all
cases. We recommend that the manufactured home credit clearly call for
30% savings and not include an ENERGY STAR path unless the Secretary of
the Treasury determines that meeting the ENERGY STAR specification will
on average save 30% (this latter option will permit an updated ENERGY
STAR spec to be included).
Heating and cooling equipment: We recommend that eligibility levels
for a few products be modified in cases where very few products are on
the market that qualify for the tax credits. Specifically, we recommend
a 90% AFUE requirement for boilers and oil-fired furnaces, and that the
heat pump credit specifically reference the highest Consortium for
Energy Efficiency tier in place on Dec. 31, 2006. The credit for
boilers and oil furnaces should also be increased to $300 to provide
more incentive to manufacturers and consumers to develop and buy these
products.
Existing homes: From reports we have heard from program operators,
the current incentives are not encouraging much new investment. We
recommend that future extensions include a performance-based component
that provides incentives of $800-2,000 for reducing home energy use by
20-50%. Such a provision will offer a larger and more enticing
incentive to consumers and will save a substantial amount of energy as
contractors seek to reach and exceed the 20% savings threshold. A bill
along these lines with broad support is now being crafted by Senators
Snowe and Feinstein. Once ready, we recommend it be incorporated into
future legislation.
Appliances: S. 2748 does not extend the tax credit for efficient
appliances. We recommend that this credit also be extended, but that
eligibility levels be increased so that only the most efficient
products on the market are eligible for incentives.
Vehicles: Toyota has already hit the 60,000 vehicle cap set by
EPAct 2005 for advanced vehicles. We support the provision in S. 2748
to lift this cap. However, if the costs of this provision prove too
high, a compromise would be to set a vehicle cap per manufacturer per
vehicle class (e.g., compact, intermediate, full size car, etc.) in
order to encourage all manufacturers to sell full product lines of
advanced vehicles.
Combined heat and power plants: This provision was passed by the
Senate but dropped by conferees. Due to volatility of energy prices and
onerous interconnection requirements and rates imposed by some
utilities, the pace of CHP installations has slowed. These proposed tax
incentives should help reverse this trend.
Microturbines and advanced meters: If funds are tight, we recommend
that these provisions be dropped. Energy savings from both of these
provisions are pretty small and not as cost-effective as the other
efficiency incentive provisions.
energy savings
ACEEE has conducted a variety of analyses on savings from various
energy efficiency provisions. Based on this work, we can approximate
the savings from each of the four key priority areas discussed above.
These estimates are preliminary and will be refined as the legislative
process proceeds.
------------------------------------------------------------------------
Savings in
Measure 2020
(quads)
------------------------------------------------------------------------
Oil savings target.......................................... 7.4
Energy efficiency resource standard......................... 5.6
Equipment efficiency standards.............................. 0.4
Tax incentive extensions and refinements.................... 0.7
-----------
Total................................................... 14.1
------------------------------------------------------------------------
These savings total more than 14 quads and represent about 12% of
projected 2020 U.S. energy use. These savings are more than seven times
greater than the efficiency savings in EPAct 2005.
additional comments on s. 2747
S. 2747 contains additional provisions not discussed above as key
priorities. In general we believe these provisions are worthwhile,
although many of them are likely to have modest impacts. Below we
provide brief comments on a few of these provisions.
Deployment of advanced vehicle technologies (Section 208): This
provision requires that manufacturers not decrease fuel economy below
2002 levels in order to be eligible for incentives. We support the
intent of providing grants only to manufacturers who do not reduce fuel
economy, but recommend that this provision be refined to not take
effect for two years and then to require that to be eligible,
manufacturers must exceed their 2002 fuel economy by 6%, with this
eligibility floor increasing 3-4% each year thereafter. Grants should
go to companies that achieve at least minimal fuel economy
improvements, but the two-year delay gives manufacturers time to hit
initial targets. Some of these improvements are already required under
recent actions raising fuel economy standards for light trucks.
Renewable portfolio standard (Section 301): We support this
provision. We have not dwelled upon it as ACEEE concentrates on energy
efficiency and not renewable energy. However, as I noted earlier, a
renewable portfolio standard and energy efficiency resource standard
nicely complement each other.
National media campaign (Section 403): A national media campaign is
one of the few things that can be done to reduce energy use in 2006 and
2007. Such a campaign was authorized by Section 135 of EPAct 2005 but
has not been funded. Section 403 of S. 2747 is a useful complement to
the EPAct provision and hopefully has a better chance of receiving
funding.
conclusion
Energy efficiency is an important cornerstone for America's energy
policy. Energy efficiency has saved consumers and businesses' billions
of dollars in the past two decades, but these efforts should be
accelerated in order to:
Save American consumers and businesses even more money;
Change the energy supply and demand balance to put downward
pressure on energy prices;
Decrease America's addiction to oil, particularly oil
imports;
Strengthen our economy (since energy savings generate
American jobs and capital investment); and
Reduce the risks of global warming by moderating carbon
dioxide emissions growth.
The Energy Policy Act of 2005 took modest steps in this direction,
particularly the sections establishing new appliance and equipment
efficiency standards and tax incentives for advanced energy-saving
equipment, vehicles, and buildings. Overall, we estimate that EPAct
2005 will reduce U.S. energy use by about 1.5% by 2020.
But much more can and should be done. We recommend that Congress
include the following provisions in new legislation:
1. Oil savings targets and associated policies;
2. Energy efficiency resource standards (energy-saving
targets for utilities);
3. New consensus equipment efficiency standards and
enhancements to DOE's rulemaking authority;
4. Buy us time to implement a comprehensive long-term energy
strategy, and
5. Extensions and refinements of efficiency tax incentives in
EPAct 2005.
These provisions will increase energy savings relative to EPAct
2005 by more than a factor of seven, reducing U.S. energy use by about
12% in 2020. Failure to take these steps now will make it more likely
that Congress and the nation will continue to face energy ``crises''
for many years to come.
This concludes my testimony. Thank you for the opportunity to
present these views.
Senator Bingaman. Thank you much. Let me just ask a
question of each of you. Mr. Lashof, your testimony and your
written statement also talk about the value of this renewable
portfolio standard nationally. I think you heard some of the
criticism that was stated by, I think, both Senator Alexander
and Mr. Karsner about the whole idea of having a national
standard rather than a State-by-State standard. I thought I
would give you a chance to respond to that, if you would like
to.
Mr. Lashof. I'm very happy to. Thank you, Senator. I
certainly believe that a national standard would be desirable.
I believe that we have national interests in increasing our use
of renewable energy, both to reduce the price of national gas
and to reduce global warming pollution. And that requirement--a
national standard makes sense for those grounds. I think, in
the absence of a national standard, in fact, the States that do
move forward to the extent that they impose higher costs on
their customers, in part to relieve pressure, for example, of
natural gas prices, are providing benefits to the entire
Nation, and States that don't have standards are free riders
because they benefit from the reduced natural gas prices that
result from increased use of renewables but might not be
contributing to paying any early incremental costs for
achieving that. So I think that is one reason for a national
standard.
I would also note two other things. One is, Congress seems
to believe that national standards make sense in related areas.
For example, the renewable fuel standard that was included in
EPAct on the transportation fuel side is a national approach,
again recognizing that there are national benefits. That, like
the renewable portfolio standard, provides a trading program
that gives you a great deal of flexibility for each State to
make whatever contribution makes the most economic sense,
whether it is by building those resources within their State or
by getting them through the trading mechanism.
The last point I would make is that unlike some of the
discussion we heard which seemed to suggest that wind was
really the only option and that maybe the Southeast doesn't
have renewable potential, there is enormous renewable energy
potential in all parts of the country, using different
resources. So while wind resources may be largest in the
Midwest and the Great Plains and in the Dakotas, there are
enormous biomass resources in the Southeast. And in the
Department of Energy study of how a renewable portfolio
standard would be achieved, it showed, in fact, that there were
net benefits nationally. They actually found that biomass
resources would be the largest contributor. So I believe that
there are big opportunities in Tennessee and Florida and other
States to contribute in that way to meeting a national
standard. Thank you.
Senator Bingaman. Thank you very much.
Ms. Callahan, let me ask you about this feebate proposal.
Most of the proposals that relate to vehicle fuel efficiency
have been opposed by the automobile manufacturers. What is your
understanding of their reaction to this proposal?
Ms. Callahan. Well, Senator, we have been talking to some
of the manufacturers and are continuing a dialog with them. As
you might suspect, their attraction to the program or not
depends on their vehicle stock and what they are producing. The
ones that have the more fuel-efficient vehicles tend to be more
in favor of this kind of proposal than those who produce less
fuel-efficient vehicles, just as an early read on it.
One thing that I think makes this more attractive to the
autos, and we are talking to them about, is that you could set
this program up so that you had mid-points for every class of
vehicle, all eleven different classes of vehicles. So you could
offer consumers full choice and you would be comparing big,
heavy SUVs to other big, heavy SUVs and setting your mid-point
there. So I think there are ways that can have greater appeal
to the auto manufacturers with this program than they perhaps
realize at this point. And we are talking to them and would
enjoy having support from you and your staff and you having
some dialog with them as well.
To answer specifically, I think Honda is leaning toward
this kind of a program as a solution. I think that they may be
the most out-front in terms of being open, with being attracted
to this, in lieu of, at some point, a CAFE program. Because if
you put this in place and made it work right, it would, in
effect, make CAFE moot over the course of time.
Senator Bingaman. OK. Thank you very much.
Mr. Nadel, let me ask you about some of these tax
incentives that you have here. You list a whole series of them
that need to be enacted or extended. I certainly favor that
and, of course, we have the legislation that does that. Have
you looked at costing these out and trying to determine what
kind of revenue we are talking about, this costing the Federal
treasury, and each specific tax provision?
Mr. Nadel. We had done a detailed analysis of many of these
provisions when they were originally 5-year proposals. I don't
have the exact numbers with me, but based on that, with some
updates, it should be relatively easy to come up with some cost
estimates and I would be happy to provide those for the record.
Senator Bingaman. That would be useful. If you have those,
I think that would be helpful. Let me ask, on your energy
efficiency resource standard, could you elaborate a little bit
as to how you see that working as a national standard? I mean,
what would it apply to and how would you administer it?
Mr. Nadel. OK. It would apply to electricity and natural
gas sales that effectively cost from the utility into the
transmission and distribution system, same as the RPS now
applies. We would recommend that the Department of Energy
develop some implementing regulations, such as exactly what
would the criteria be to evaluate the energy savings so that we
knew we had reasonable evaluations of how much had actually
been saved. But we would recommend that, in general, States be
allowed, and we would expect most of them to actually then work
with their local utilities, within the framework of these
general regulations, to help make sure that each of their
utilities has met the standard, with DOE only filling in if a
State didn't want to take that lead. But that is how we would
see it working in broad outline.
Senator Bingaman. OK. Do you know of any reaction from the
utility industry to this kind of proposal? I know we've had
various people in the utility industry on both sides of the
question of whether a renewable portfolio standard made sense.
How about with regard to the energy efficiency standard?
Mr. Nadel. Right. We've been talking to a number of
utilities about this. I think the Edison Electric Institute,
who represents all the utilities, is a little skeptical of any
mandate since they have been skeptical about the renewable
portfolio standard, but a number of utilities have indicated
interest. There is--we are working with one major utility now,
and a Senator on this committee, to actually get a bill
introduced shortly.
Senator Bingaman. OK.
Mr. Nadel. So we think there would be some utilities'
support. Certainly not the whole industry, but some.
Senator Bingaman. OK. Well, thank you all very much for
testifying. I think it has been a useful hearing and we've
gotten a lot of issues out for discussion. We will try to
follow up and move something forward legislatively. Thank you
all for coming.
Ms. Callahan. Thank you, Senator.
Mr. Nadel. Thank you.
[Whereupon, at 12:39 p.m., the hearing was adjourned.]
[The following statement was received for the record:]
Statement of The American Institute of Architects
The American Institute of Architects (AIA) welcomes the opportunity
to provide written testimony to the Senate Committee on Energy and
Natural Resources for its hearing on energy efficiency and S. 2747.
The AIA represents the professional interests of than 75,000
licensed architects and allied design professionals who every day
express their commitment to excellence in design and livability in our
nation's buildings and cities. The AIA strongly supports S. 2747, which
we believe will enhance energy efficiency and lead to a substantial
conservation of oil and natural gas. We commend Senator Bingaman for
his leadership on this issue.
We believe that governmental policies, programs, and incentives
should encourage energy conservation, especially as it relates to the
built environment. We also support the aggressive development of
renewable energy sources. As architects, our members have strongly
enunciated their commitment to promoting energy efficiency and waste
reduction in the built environment, encouraging energy-conscious design
and technology, and supporting national programs for more efficient use
of nonrenewable resources and the development of renewable energy
sources.
The AIA recognizes that a growing body of evidence demonstrates
that current building planning, design, construction, and real estate
practices contribute to patterns of resource consumption that seriously
jeopardize the Nation's environment. Architects accept responsibility
for their role in creating the built environment. Consequently, they
believe that they must alter their profession's actions to encourage
clients and the entire design and construction industry to work
collaboratively to change the course of this country's energy future.
We believe that Congress should give a high priority to creating
federal incentives that reduce the energy consumption footprint of the
built environment. We believe that Senator Bingaman's bill is a great
first step. But much more needs to be done.
First, the AIA believes that the General Services Administration
(GSA) should be tasked with developing a baseline for the average
energy consumption of each representative type of building (office
building, hospital, barracks, post office, ranger station, etc.)
operated by the federal government.
Within one year of developing a baseline, the GSA and all federal
agencies that construct and renovate buildings should be directed to
develop requirements that all federal buildings constructed or
renovated after January 1, 2010, shall consume no more than one-half
the energy consumption specified by GSA's energy consumption baseline.
The regulations also should set a declining cap on energy consumption
for newly constructed buildings and major renovations such that they
meet the following minimum delivered energy performance compared to the
baseline:
------------------------------------------------------------------------
------------------------------------------------------------------------
2015....................................................... 60%
2020....................................................... 70%
------------------------------------------------------------------------
(This is modeled after New Mexico Executive Order 2006-0001 signed by
New Mexico Governor Bill Richardson on January 16, 2006.)
Second, the AIA proposes that the National Institute for Standards
and Technology (NIST) develop a standard for measuring sustainability
in buildings using transparent, consensus-based procedures consistent
with the Technology Transfer Act of 1995 and 0MB Advisory Circular 119.
We recommend that the standard:
a. Is developed and renewed on a regular basis through a
consensus based process, in which all interested parties can
participate;
b. Requires clearly defined design documentation to
demonstrate compliance;
c. Requires compliance to be validated by an independent
third party;
d. Requires the development of sustainable sites avoiding the
conversion of prime agricultural lands or wetlands,
regenerating brownfield sites or those that result in
regenerative benefits to the natural environment;
e. Requires specific goals in the efficient use of water
resources that promote application of new wastewater
technologies;
f. Requires specific goals for significant reductions in
energy use, especially non-renewable energy sources, with
enhanced performance assured through commissioning of building
systems;
g. Promotes the use of renewable energy sources;
h. Requires reduced use of non-renewable natural resources
through the reuse of existing structures and materials,
reductions in construction waste, promotion of recycled content
materials, and use of materials independently certified as from
sustainable sources;
i. Requires specific goals for improved indoor environmental
quality through enhanced indoor air quality, thermal comfort,
acoustics, daylighting, pollutant source control and use low
emission materials and building system controls;
j. Promotes the development and application of innovative
designs and collaborative processes intended to improve
environmental performance;
k. Recognizes the life cycle value of a community or project
in addition to construction first costs, including assessment
of impact on climate change, acid rain, water pollution,
resource depletion, and toxicity factors;
l. Utilizes life cycle assessment data as the basis for
design and construction decision making;
m. Acknowledges national, regional and bio-climatic
differences;
n. Reduces (and eventually eliminates) on site and off site
toxic elements in the built environment;
o. Requires specific measurable reductions in CO2
production in the built environment; and
p. Requires documentation of actual building energy and
operational performance.
Third, the AIA believes that the commercial building tax deduction
authorized by Section 1331 of the Energy Policy Act of 2005 (that
provides for a deduction of up to $1.80 per square foot for commercial
and public buildings placed in service in 2006 and 2007 that meet an
energy reduction target equivalent to 50% of ASHRAE Standard 90-1-
2001), though well-intentioned, is not sufficient to offset the costs
of meeting as rigorous an energy reduction target as 50% of ASRAE 90.1-
2001. We believe that the deduction amount should be increased to $2.70
per square foot.
In addition, we believe that the deduction expires far too quickly
to spur the design and construction of any new energy efficient
buildings; buildings to be ``placed in service'' during 2006 and 2007
are already designed, and construction may have already started.
Therefore, we believe that the deduction should be made permanent.
Finally, the AIA strongly believes that a new generation of
sustainable buildings will require a workforce of architects and
engineers sufficiently educated in the principles of sustainability. We
believe that the National Science Foundation (NSF) should be authorized
to establish a Sustainability Grants Program that will make federal
monies available for:
The development of a model curriculum in sustainable design
for buildings that would be adopted and enlarged upon by
schools of architecture and engineering;
Scholarships to architectural and engineering students who
commit to completing a course of study that includes all of the
elements of sustainability in the built environment; and
Competitive grants to faculty members at schools of
architecture and engineering for research projects that fill
critical knowledge gaps in the study of sustainability in
architecture (e.g., life cycle analysis).
The American Institute of Architects commends Senator Bingaman and
the members of the Senate Energy and Natural Resources Committee for
recognizing the need for energy efficiency. The AIA fully supports the
use of incentive-based programs that encourage energy efficiency
throughout all sectors of the American economy. We look forward to
working with the Committee and the Senate on initiatives that will lead
to greater conservation and energy efficiency.
APPENDIX
Responses to Additional Questions
----------
Responses of Alexander Karsner to Questions From Senator Bingaman
federal fleet
Question 1. On page two of your testimony in regard to the language
in Title II of S. 2747 regarding petroleum savings requirements for the
Federal fleet you note that ``we believe there are aspects of the
technical language . . . that need further review and discussion.''
Please provide the committee with the specific language you are
referring to and the necessary technical corrections. The provision
begins on page 8 and continues through page 11.
Answer. The Administration is currently reviewing this legislation.
DOE might suggest establishing Fiscal Year 2005 as a baseline and
extending the 20 percent petroleum consumption goal to Fiscal Year 2016
with a 2 percent reduction each year.
vehicle retirement programs
Question 2. On page two of your testimony you note that you are not
convinced of the effectiveness of vehicle retirement programs. I wonder
if you might explain to us why that is? Do you have any internal policy
analysis that you could share with us on this? I would ask that you
provide an additional explanation for the record as to specifically why
you find them not to be effective.
Answer. We have not conducted an internal policy analysis but there
have been a number of studies analyzing the cost and life-cycle energy
savings of vehicle retirement programs. Section 202(c) would benefit
from the inclusion of a requirement that payments are only made with
proof that a new efficient vehicle is being purchased. Otherwise
payments could be made to owners of little used ``extra'' vehicles,
which will not materially affect the consumption of petroleum.
oil savings
Question 3. The Secretary has noted that ``. . . the programs under
the President's Advanced Energy Initiative, if successful in achieving
major breakthroughs in all vehicles and fuels initiatives, would alone
displace the need to up to 5 million barrels per day of 2025.'' Please
provide a detailed explanation for the record of how the 5 million
barrels is calculated and how it breaks down along the various programs
and new technologies
Answer. The statement is based on the commercial uptake for these
technologies and based on analysis of potential R&D breakthroughs which
was similar to a National Academy of Science's scenario looking at
petroleum displacement potential from hybrids and fuel cell vehicles
developed for an Academy report on hydrogen.
The FY 2007 budget request seeks a 65 percent increase in funding
for biomass research with the goal of making cellulosic ethanol cost
competitive by 2012. This aggressive target will be accomplished
through the ability to convert a wider variety of regionally available
biomass feedstocks and agricultural wastes and the validation of those
technologies and their related economics. Through partnerships with the
private sector, the Hydrogen Fuel Initiative and related FreedomCAR
activities seek to make it practical and cost effective for large
numbers of Americans to use clean, hydrogen fuel-cell vehicles by 2020.
The Vehicle Technologies program places an emphasis on the development
of lithium ion batteries and other technologies for plug-in hybrid
technologies that offer the potential to make significant reductions in
petroleum use.
In short, biofuels, greater efficiency through market penetration
of hybrids and plug-in hybrids, and hydrogen fuel cell vehicles all
would contribute to the oil displacement goal.
alternative fueling infrastructure
Question 4. Your testimony (page 2) states that Sec. 207 is not
necessary because EPAct 2005 provides tax credits for E85 and other
alternative fueling infrastructure. In the past, policies to encourage
the use of alternative fuels have foundered due to the lack of
refueling infrastructure or the lack of vehicles designed to use the
alternative fuels, or both. We now have over 6 million flexible fuel
vehicles that can run on alternative fuels and only about 600 fueling
stations. Not all of the entities interested in developing alternative
fueling infrastructure can take advantage of a tax credit. Why
shouldn't the federal government support a revenue neutral grant
program that would help expand the fueling infrastructure?
Answer. The scope of the tax credits provided for in EPACT 2005 is
substantial incentive for businesses to spur new development of
alternative fueling infrastructure. We believe the participation of
private enterprise is essential for a sustainable infrastructure over
the long term. Moreover, Section 207(4)(f) includes alternative fuels
price controls that we feel would actually discourage investment in
alternative fuels.
efficiency programs
Question 5. In your oral statement, you indicated that the
Department would support several of the provisions in S. 2747. These
included: Section 203--Assistance to States to reduce school bus
idling; Section 204--Near term vehicle technology program; Section
401--Energy Savings Performance Contracts; Section 402--Deployment of
new technologies for high efficiency consumer products; section 404--
Energy efficiency resource programs. Please provide the Committee with
any technical comments the Department may that would improve these
sections. In addition, please indicate any other provisions in S. 2747
that the Department could support if technical changes were made to the
language.
Answer. We do not have technical comments to offer at this time.
The Department could support Section 201 with language stipulating a
2016 goal for each Federal agency reduce its covered petroleum
consumption by 2 percent each year, to achieve at least a 20 percent
reduction in petroleum consumption, as calculated from the baseline
established by the Secretary for Fiscal Year 2005.
Responses of Alexander Karsner to Questions From Senator Smith
oil savings
Question 1a. In his State of the Union address, the President
announced a goal of reducing by our oil imports from the Middle East by
75% by 2025. The bill under discussion, S. 2747 calls for formulation
of an action plan to achieve specific oil savings in the future. In
your testimony, you stated that these targets might not have been
achievable. Given the broadly recognized importance of reducing our
dependence on oil, it is critical that we have a clear understanding of
what is achievable. Specific question are:
What oil savings targets does DOE recommend as being both
achievable and consistent with meeting the President's goal?
Answer. The Advanced Energy Initiative, proposed by President Bush
in his recent State of the Union Address, proposes a 22 percent
increase in clean-energy research at the Department of Energy (DOE)
that will accelerate breakthroughs in developing and using alternative
sources of energy--which will ultimately help diversify our energy mix.
Funding will help develop clean, affordable sources of energy that will
reduce the use of fossil fuels and lead to changes in the way we power
our homes, businesses and cars. With respect to the President's goal of
reducing oil imports, programs under the AEI, if successful in
achieving major breakthroughs in all vehicles and fuels initiatives,
would alone displace the need for up to 5 million barrels of oil per
day by 2025.
Question 1b. What are the several key measures that DOE recommends
as most important to achieving those targets?
Answer. Specific goals include developing advanced battery
technologies that allow a plug-in hybrid-electric vehicle to have a 40-
mile range operating solely on battery charge, reducing the cost of
cellulosic ethanol to $1.07/gallon by 2012, and making progress towards
the President's goal of enabling large numbers of Americans to choose
hydrogen fuel cell vehicles by 2020. The aggressive oil reduction
target will be accomplished through the ability to convert a wider
variety of regionally available biomass feedstocks and agricultural
wastes and the validation of those technologies and their related
economics and the development of lithium ion batteries and other
technologies for plug-in hybrids technologies that offer the potential
to make significant reductions in petroleum use. If research is
successful, hydrogen fuel cell vehicles could also contribute to
reducing oil demand, though not till about 2020.
Question 1c. In particular, given the importance of vehicle
efficiency, what oil savings contributions does DOE recommend from
increases in efficiency, and how should those efficiency gains be
implemented?
Answer. The FY 2007 Presidential budget request reallocated vehicle
funding program resources to increase focus on plug-in hybrid electric
vehicle (HEV) research. Our technological goals are ambitious, and
progress to date is good. We have seen pre-competitive advances in the
reduction in the cost of the next generation of batteries, as well as
improvements in the cost and performance of other essential components
of HEVs. Other indicators of progress include advances in the nickel
metal hydride battery developed through DOE-sponsored R&D. Work is
underway to develop the high energy batteries for plug-in HEVs.
Question 1d. A second key factor to oil usage in transportation is
total vehicle miles traveled. What contribution toward oil savings does
DOE recommend from this factor, and how should that be achieved?
Answer. The focus of the Advanced Energy Initiative is to change
the way we power our, homes, businesses, and vehicles by employing new
technologies to improve the efficiency of our oil use and develop
alternative fuels to displace oil rather than the promotion of policies
to reduce the number of miles traveled.
federal fleets
Question 2. In your testimony, you indicate that the Administration
is committed to federal leadership in advancing vehicle efficiency and
alternative fuels in federal fleets, yet you have reservations about
the specific federal fleet measures contained in S. 2747.
Please outline the key features of a federal fleet program that
both would achieve the significant oil savings as envisioned in S. 2747
and would have high likelihood of success.
Answer. DOE believes that establishing Fiscal Year 2005 as a
baseline and extending the 20 percent petroleum consumption goal to
Fiscal Year 2016 with a 2 percent reduction each year would be a more
effective target.
renewable portfolio standards
In your verbal testimony, you indicated that leaving RPS policies
in the hands of the states allows states to adopt policies that are
best suited to their renewable resource availabilities. However, this
approach doesn't seem to recognize that wholesale electricity markets
are regional in nature.
Question 3a. Under a federal RPS, wouldn't power suppliers in each
state be likely to use the most cost-effective resources anyway?
Answer. The Administration opposes a national RPS because power
generation options and renewable resources vary widely from state to
state, because states hold different views of the types of resources
that they would like to support, and because retail electricity sales
are regulated largely at the state level. A national RPS could create
``winners'' and ``losers'' among regions of the country the winners
being the regions with ample renewable resources, and the losers being
the regions without. A national RPS could lead to higher energy bills
and opposition to renewable energy moving into the mainstream of the
Nation's energy supply mix.
Question 3b. Has there been any analysis of the economic
differences between implementation of state-by-state versus national
RPS policies?
Answer. The Department bases its opposition to a national RPS on
past Federal interventions in the marketplace such as the Fuel Use Act
of 1978 which effectively curtailed the use of natural gas for
electricity generation. The EIA has analyzed RPS provisions in various
studies including Impacts of a 10-Percent Renewable Portfolio Standards
in 2002, and Analysis of a 10-Percent Renewable Portfolio Standard in
2003, outlining, in part, the costs to industry of implementing a
national RPS.
Question 3c. What approach would renewable power systems developers
prefer?
Answer. A third of the states representing 35 percent of the total
electricity load for the U.S., have adopted RPS standards. These
policies are beginning to drive the development of the renewable energy
marketplace at a healthy rate. For example, the RPS policies in Texas,
New York, Minnesota, California, Colorado, Pennsylvania, and New Mexico
are expected to deliver significant new wind capacity additions in the
coming years.
Question 3d. What about utilities and power suppliers?
Answer. We believe that regional stakeholders, including utilities
and power suppliers, working with governors, state legislatures, and
energy companies are in the best position to develop a portfolio
standard that will suit their states' energy, environmental, and
economic needs. If RPS standards are too aggressive, supply constraints
and high costs may result, causing adverse effects in the promotion of
market adoption of renewable technologies.
Responses of Alexander Karsner to Questions From Senator Wyden
Question 1. Near-term Vehicle Technology Program: could the goals
of this section be accomplished by expanding DOE authorities under the
Cooperative Research and. Development Act? Government research alone in
these areas won't bring cleaner, safer, more fuel-efficient cars and
trucks to market.
Answer. No, the goals of Section 204 could not be accomplished by
expanding DOE authorities under the Cooperative Research and
Development Act (CRADA).
The CRADA is one of several research tools that DOE uses
extensively to engage industry in our programs for specific purposes.
Although it is an effective tool, expanding the CRADA authority is not
a substitute and would not be sufficient for carrying out the total
core research, development, and technology validation that the
Department performs.
Question 2. Light-weight materials research and development: DOE,
DOD and NASA are already funding R&D in super light-weight carbon
materials and nanotechnologies. Is another government-wide research
plan going to make a difference in the time it will take to bring new
materials to market? What can be done to accelerate the production of
lightweight materials? Would DOE support a production tax credit for
light-weight materials manufacturing?
Answer. The DOE Automotive Light-weight Materials development
effort differs from the DOD and NASA efforts in that they have very
different cost, performance, and operational characteristics. The DOE
program has already helped bring new aluminum, magnesium, and polymer
composites processing technologies to market sooner. (There is very
little nanomaterials research in the DOE Materials program.) The
production of light-weight materials for cars and trucks might be
accelerated by tax incentives for more fuel efficient vehicles (non
technology-specific). Production tax credits specifically for light-
weight materials manufacturing might be too technology specific and
could distort rational engineering and design choices.
Question 3. Federal Renewable Portfolio Standards . . . your
testimony notes that the Bush Administration opposes a Federal
renewable portfolio standard (RPS) and instead prefers to rely on state
RPS programs to encourage investment in renewable energy. Approximately
20 states have adopted RPS programs. These programs differ in how they
treat various renewable energy technologies. In addition, some states
only reward renewable energy generated in a particular state. The
states that have acted also differ in means of enforcement. This
hodgepodge of state RPS programs could very well stunt the development
of renewable energy projects which rely on well-functioning regional
markets that allow developers to trade renewable energy and credits
across state lines pursuant to consistent rules. How can the Bush
Administration rely solely a state-by-state approach to RPS programs
when it supports the development of regional electricity markets?
Answer. We believe that regional stakeholders, including utilities
and power suppliers, working with governors, state legislatures, and
energy companies are in the best position to develop a portfolio
standard that will suit their states' energy, environmental, and
economic needs. If RPS standards are too aggressive, supply constraints
and high costs may result, causing adverse effects in the promotion of
market adoption of renewable technologies. A third of the states,
representing 35 percent of the total electricity load for the U.S.,
have adopted RPS standards. These policies are beginning to drive the
development of the renewable energy marketplace at a healthy rate. For
example, the RPS policies in Texas, New York, Minnesota, California,
Colorado, Pennsylvania, and New Mexico are expected to deliver
significant new wind capacity additions in the coming years.
Question 4. In reply to a question on RPS from Senator Alexander
you stated that a national RPS would drive up energy prices in the
states without a RPS or renewable energy resources of their own. Yet
according to Cliff Chen, who authored a recent study of state RPS with
DOE Lawrence Berkeley National Lab energy researchers Ryan Wiser and
Mark Bolinger, mandatory renewable energy programs now used in more
than half the United States have little effect on the rates consumers
pay for electricity or the national economy. Why then does DOE continue
to oppose adoption of a national RPS?
Answer. The Administration opposes a national RPS because power
generation options and renewable resources vary widely from state to
state, because states hold different views of the types of resources
that they would like to support, and because retail electricity sales
are regulated largely at the state level. A national RPS could create
``winners'' and ``losers'' among regions of the country, the winners
being the regions with ample renewable resources, and the losers being
the regions without. A national RPS could lead to higher energy bills
and opposition to renewable energy moving into the mainstream of the
Nation's energy supply mix.
Question 5. Does DOE support the inclusion of wave/ocean power and
incremental hydro in the definitions of renewable energy sources
provided in S. 2747?
Answer. Yes, DOE supports wave/ocean power and incremental hydro
technologies as renewable energy sources.
Question 6. Sec. 207 . . . Funding for Alt Fuels Infrastructure:
have any of the panelists examined which is the quickest and most cost-
effective way to build out the infrastructure needed to deliver ethanol
to U.S. consumers?
Answer. No, a study of the quickest and most cost effective way to
build out the ethanol infrastructure has not been undertaken. However,
the Vehicle Technologies Program is currently developing a
comprehensive ethanol strategy covering R&D and deployment.
Responses of Alexander Karsner to Questions From Senator Salazar
Question 1. The Enhanced Energy Security Act (S. 2747) and S. 2025,
the Vehicle and Fuel Choices for American Security Act of 2005, on
which it is based, is strong bipartisan legislation that will help us
accomplish the President's goal of reducing our dependence on foreign
oil.
Please provide me and the members of this Committee with the
Department of Energy's formal position on the oil savings targets set
out in Title I of the bill.
Answer. The goals established in Title I of the Enhanced Energy
Security Act might not be able to be met even with aggressive
technology-forcing increases in CAFE standards that disregard highway
safety. While the Advanced Energy Initiative is expected to help
achieve these long-term goals, there remain uncertainties in technology
development and commercial uptake that make it imprudent to legislate
an arbitrary end-result. In addition, the President has asked Congress
for authority to reform and increase passenger car CAFE standards but
has indicated that highway safety, technology and economics need to be
considered when determining the maximum feasible fuel economy standard.
As before, an arbitrary savings goal should not be used to set the
standard.
Question 2. During his State of the Union speech, the President of
the United States announced a national goal to reduce 75% of our oil
imports from the Middle East by 2025. Out of the 12 million barrels
(mbd) the U.S. imports daily, only 2 mbd actually come from the Middle
East. According to the Energy Information Administration, by 2025 the
United States is projected to import close to 20mbd, of which 5mbd will
come from the Persian Gulf. The President's oil savings target is
therefore 3.75mbd by 2025.
Is that goal achievable? Is it achievable using the tools contained
in S. 2747 (or S. 2025) and without any increases in CAFE standards?
Answer. The Advanced Energy Initiative, proposed by President Bush
in his recent State of the Union address, proposes a 22 percent
increase in clean-energy research at the Department of Energy (DOE)
that will accelerate breakthroughs in developing and using alternative
sources of energy--which will ultimately help diversify our energy mix.
With respect to the President's goal of reducing oil imports, programs
under the AEI, if successful in achieving major breakthroughs in all
vehicles and fuels initiatives, would alone displace the need for up to
5 million barrels of oil per day by 2025.
Question 3. S. 2747 (and S. 2025 on which it is based) is
aggressive in encouraging increased production of biofuels and
investment in renewable fuels systems and infrastructure. In that
respect, it would advance one of the goals of the President's Advanced
Energy Initiative. Do you agree?
Answer. The Department of Energy and the Administration have not
had sufficient time to review or coordinate its interagency review of
S. 2747 and therefore does not have a formal position on this
legislation.
Question 4. S. 2747 sets goals for improving the efficiency of our
vehicle fleet and for getting more advanced vehicles on the road. It
sets these goals and then helps manufacturers retool their vehicle
fleets to meet them.
What steps has the Department taken under your leadership to
encourage American Automobile manufacturers to embrace these goals and
to increase market penetration of advanced vehicle technologies?
Answer. The FreedomCAR partnership was established in 2002 to
provide a mechanism for U.S. automobile manufacturers to work
cooperatively with the Federal Government in pre-competitive research
areas that show the promise of significantly reducing the use of
petroleum. To this end the Department of Energy provides financial
assistance and technical expertise to support research activities that
cover a broad spectrum of technologies that will have significant
impact in near term, mid term, and long term. Near term activities are
focused on increasing the efficiency of internal combustion engines to
reduce consumption and utilizing alternative fuels, such as ethanol, to
directly displace petroleum use. Mid term activities are focused on
developing advanced hybrid vehicle technologies, such as cost effective
long range batteries for plug-in hybrids that can significantly reduce
petroleum consumption. In the long term the partnership is pursuing a
new paradigm in transportation: the complete replacement of petroleum
use in automobiles through the use of hydrogen.
Question 5. Your prepared testimony expresses ``concerns'' with the
federal fleet requirements in S. 2747 and questions ``the
effectiveness'' of the vehicle retirement program ``with respect to
cost and life-cycle energy savings under economic analysis.'' You also
state with reference to Section 206 of the bill that new loan
guarantees for the manufacture of fuel efficient vehicles ``would be
largely unnecessary.''
Please explain the Department's ``concerns'' and share with me and
the members of this Committee the economic analysis on which the
Department bases its criticism of the bill. Please also explain why
additional incentives for automobile manufactures to develop new fuel
efficient vehicles are unnecessary.
Answer. Section 202(c) would benefit from the inclusion of a
requirement that payments are only made with proof that a new efficient
vehicle is being purchased.
Otherwise payments could be made to owners of little used ``extra''
vehicles, which will not materially affect the consumption of
petroleum.
EPAct 2005 already authorizes grants to support the production of
fuel efficient vehicles. There is little reason to provide loan
guarantees to automobile manufacturers that typically have access to
capital. These loan guarantees would be difficult to administer
compared to loan guarantees for discreet facilities such as renewable
energy plants, nuclear power plants, or gasification plants.
renewable energy standard
Question 6. Wild swings in the price of natural gas are
dramatically increasing costs of production for sectors of the economy
ranging from farmers to the petrochemical industry. Studies by the
Energy Information Administration indicate that increasing the use of
renewable energy sources would result in reduced demand and lower
prices for consumers and large industrial users.
Does the Administration support measures that would ensure an
increase in the deployment of renewable energy sources, which would in
turn reduce the price of natural gas?
Answer. Our main priorities are reducing America's growing
dependence on foreign oil and generating clean electricity. We have
directed our resources to those programs with the greatest potential to
contribute to those priorities. One of the goals is to reduce the cost
of solar photovoltaic technologies so that they become cost-competitive
by 2015, and expand access to wind energy through technology. The
Administration is also supportive of EPAct 2005 provisions which
contained $3.4 billion over ten years in tax incentives to encourage
the production of electricity using renewable wind, solar, biomass, and
geothermal energy sources, including the first-ever tax credit for
residential solar energy systems. Diversification of our electric power
sector will ensure the availability of affordable electricity and ample
natural gas supplies.
Question 7. Several studies indicate that two of the principle
barriers to increasing the use of renewables are a lack of long term
markets and a lack of effective financing mechanisms.
I know you have a particular interest in private-public
partnerships for new alternative energy technologies. Please describe
for me and the members of this Committee the steps that the Department
will take under your leadership to address these dual barriers.
Answer. The Office of Energy Efficiency and Renewable Energy
continues to support the development of long-term energy markets that
provides a diverse supply of reliable, affordable, and environmentally
sound energy through investment, development, and public-private
partnerships. EERE provides cost shared funding so these collaborative
partnerships can research and develop transformational technologies
which can then be commercialized by the private sector. Examples of
formal partnerships include the FreedomCAR Partnership and the 21st
Century Truck Partnership.
Question 8. As you point out in your prepared testimony, the
Administration has opposed a federal renewable energy standard, arguing
that ``RPS standards are best left to the States.'' At least 22 states
and the District of Columbia now have in place some sort of requirement
to increase the use of renewable energy. These programs differ in how
they treat various renewable energy technologies. In addition, some
states only reward renewable energy generated in a particular state.
The states that have acted also differ in means of enforcement. This
hodgepodge of state RPS programs could very well stunt the development
of renewable energy projects which rely on well-functioning regional
markets that allow developers to trade renewable energy and credits
across state lines pursuant to consistent rules.
What is the rationale for the Administration's stated preference
for a state-by-state approach to renewable energy programs when it
supports the development of regional electricity markets?
Answer. The Administration opposes a national RPS because power
generation options and renewable resources vary widely from state to
state, because states hold different views of the types of resources
that they would like to support, and because retail electricity sales
are regulated largely at the state level. A national RPS could create
``winners'' and ``losers'' among regions of the country, the winners
being the regions with ample renewable resources, and the losers being
the regions without. A national RPS could lead to higher energy bills
and opposition to renewable energy moving into the mainstream of the
Nation's energy supply mix.
Question 9. Several trade organizations have charged that the lack
of a single federal standard for connecting to the electric grid allows
individual utilities to devise Byzantine procedures that hamper the
ability of renewable energy companies to connect to the electrical
grid.
Would the Administration support a national ``net-metering''
standard that would reduce these regulatory barriers?
Answer. The Administration supports the provisions in EPAct
Sections 1252-1254, which require states and non-regulated utilities to
analyze demand response/advance metering, net metering, and
interconnection issues but allows states to make their own
determination on standards based on that assessment.
renewable energy (production tax credits)
Question 10. Many in the renewable trade associations have charged
that an ``on-again-off-again'' production tax credit is crippling our
deployment of renewables, because reliable financial predictions are
difficult to make with such short term tax credits. Businesses order
renewable energy technologies, such as wind turbines, in time to
qualify for tax credits, leading to significant backlogs and increased
prices, but orders drop off again when it appears that the production
tax credits may expire. As a result of these peaks and valleys in
demand, the manufacturers of the equipment cannot expand their
production capacity.
Will the Administration support a long term extension of the
production tax credits and clean energy bonds for renewables, so that
consumers and producers can make plans to buy or to produce renewable
energy technology more than one year at a time?
Answer. The Administration has not developed a formal position on
long-term extension of production tax credits.
national renewable energy laboratory (nrel)
Question 11. In 2005, drastic personnel reductions were threatened
at the National Renewable Energy Laboratory in Colorado. Shortly before
the President visited NREL, the Department of Energy announced that it
was allocating an additional $5 million to NREL to re-hire the
researchers and staff. These budget shortfalls also required NREL to
reduce or postpone research contracts with key technical partners
outside of NREL and DOE. Unfortunately, sufficient funding was not
available to restore the research contracts. Such budget uncertainties
make it very difficult for NREL to attract and retain high quality
staff members and research partners in today's competitive environment.
What steps has the Department taken or will the Department take to
ensure that NREL will have sufficient and reliable funding in FY07, so
that the laboratory can continue to lead the nation's efforts to
develop renewable energy sources and to offer new advances in energy
efficiency?
Answer. In his State of the Union address, the President announced
new solar and biofuels initiatives designed to accelerate the
contribution of these transformational technologies to the Nation's
energy portfolio. The President has requested commensurate funding
increases for the Department's Solar Technology and Biomass programs,
through which these initiatives will be managed, as well as funding
increases in its Wind and Hydrogen, Fuel Cells & Infrastructure
Technologies research and development programs. Together, the Solar,
Biomass, Wind, and Hydrogen programs form the core of NREL's research
and development capabilities, collectively accounting for 60 percent of
all NREL funding. Depending on appropriations, NREL will likely receive
increased funding in FY 2007 to support these initiatives. (The
Department's Preliminary Lab Tables released with the FY 2007 Budget
are estimates and may need revision.)
It is important to note each DOE program allocates funding to
various national labs or to competitive solicitations for industry or
university researchers in ways to best accomplish program goals.
Increased funding for a program does not necessarily translate to
increased funding for each national lab currently receiving funding
from that program.
federal renewable energy and energy efficiency programs
Question 12. What is the total amount of money that the federal
government will spend on renewable energy and energy efficiency
research and development for FY06? What percentage is that of the U.S.
GDP?
What are the corresponding amounts of money and the relative share
of GDP for our major international economic competitors, including
Brazil, Canada, China, Germany, Great Britain, India and Japan?
Answer. According to the 2006 edition of Energy Policies of IEA
Countries (forthcoming), in 2005, the U.S. spent 366.09 million dollars
on energy efficiency RD&D and 242.81 million dollars on renewable
energy sources RD&D. This represented approximately 0.005% of U.S. GDP
in 2005. These figures represent funding reported by the Energy
Information Agency to the IEA, and likely exclude significant amounts
of RD&D conducted at agencies other than DOE.
----------------------------------------------------------------------------------------------------------------
Renewable
Energy energy % of GDP in
efficiency sources RD&D national
RD&D ($ in ($ in currency
millions) millions)
----------------------------------------------------------------------------------------------------------------
U.S................................................................ 366.09 242.71 0.005
Canada............................................................. 46.67 33.79 0.007
Germany............................................................ 24.33 123.51 0.005
UK................................................................. 0.00 66.49 0.003
Japan.............................................................. 464.73 285.41 0.016
----------------------------------------------------------------------------------------------------------------
No RD&D information on Brazil, China and India is available as they
are not TEA countries and do not report their data to that
organization.
Question 13. Your prepared testimony highlights certain federal
energy-efficiency programs, such as Energy Star and Building Codes
Assistance, the Federal Energy Management Program, and the
Weatherization Program. But the President's budget request for fiscal
year 2007 proposes significant cuts to each of these vital programs
designed to cut pollution and save energy.
Do you agree with me that, at a time of record high natural gas and
oil prices, we must invest more, not less, in technologies and
practices that promise the quickest, cleanest and cheapest means of
addressing tight energy supplies and extraordinarily high prices?
Answer. In this year's Department of Energy FY 2007 budget request
we realigned some priorities. The Advanced Energy Initiative, proposed
by President Bush in his recent State of the Union Address, proposes a
22 percent increase in clean-energy research at the Department of
Energy (DOE) that will accelerate breakthroughs in developing and using
alternative sources of energy--which, will ultimately, help diversify
our energy mix. With respect to the President's goal of reducing oil
imports, programs under the AEI, if successful in achieving major
breakthroughs in all vehicles and fuels initiatives, could alone
displace the need for up to 5 million barrels of oil per day by 2025.
As part of the Advanced Energy Initiative, $150 million has been
requested for biomass; $30 million to develop better battery technology
for hybrid cars; and $148 million for the Solar America Initiative; and
$44 million for wind energy research.
Within the Building Technologies program, there are funding
increases for building integration, technology validation, and market
introduction as well as support for equipment standards and analysis.
The request continues strong support for the development of solid state
lighting technologies that can significantly reduce lighting
electricity consumption in commercial buildings. Funding for energy
efficient vehicle technologies, exclusive of Congressionally directed
activities (i.e. earmarks) and transfers, is level with the FY 2006
appropriation. The FY 2007 request places an emphasis on the
development of lithium ion batteries and other technologies for plug-in
hybrids technologies that offer the potential to make significant
reductions in petroleum use.
The Administration also is requesting over $3 million for public
energy education and outreach to continue our energy efficiency
campaigns of the last few months. DOE will continue to build strategic
partnerships with public and private groups to promote energy
efficiency practices and technologies.
Question 14. Before you came on board, Energy Department officials
said the energy bill was passed too late to have significant impact on
the 2007 budget. In fact, none of the new programs authorized in the
bill were funded.
As you prepare the FY08 budget, do you plan to fund the new program
to assist states with building codes compliance, the pilot program for
state policies to promote utility energy efficiency programs, the
consumer education campaign, or other new energy efficiency programs in
the bill? Will you continue to increase the funding for appliance
standards to implement the new required rulemakings while working
through the backlog of long-delayed standards?
Answer. It would be premature to discuss the Fiscal Year 2008
budget formulation process. However, the plan that the Department has
submitted to Congress considers both the backlog and the new
requirements detailed in EPACT 2005. The backlog in rulemakings was not
a funding issue, but a management issue that the Department is
committed to addressing. New management processes, including review and
reporting requirements, have been instituted. Productivity improvements
in the rulemaking program are taking effect and will significantly
increase the rate at which new standards are issued.
In Fiscal Year 2007 the program will complete action on rulemakings
started in Fiscal Year 2005 and prior years, and will continue work on
the 13 product standards and test procedures initiated in Fiscal Year
2006.
______
Response of Daniel Lashof to Question From Senator Bingaman
new hydraulic hybrid trucks
Question 1. In this morning's Washington Post there is an article
about new hydraulic hybrid trucks. It notes that these new UPS trucks
that will be tested in Detroit have the potential to yield a 60-70
percent saving on fuel use. The trucks were built for EPA. Have you
performed any analysis on the potential for such hybrid hydraulic
systems? What barriers (if any) exist to the wider deployment of this
technology?
Answer. Our analysis of oil savings from heavy duty trucks includes
the hybridization of local trucks greater than 10,000 pounds gross
vehicle weight. Fuel economy gains of 70 percent are technically
feasible with hybridization through hydraulic or electric systems. Our
analysis was not specific to hydraulic hybrids.
NRDC worked with the American Council for an Energy Efficient
Economy (ACEEE) to evaluate the fuel savings from heavy duty vehicles.
ACEEE compiled a list of barriers to improving heavy truck efficiency,
including the greater adoption of hydraulic and other hybrid systems,
in their January 2006 report ``Reducing Oil Use through Efficiency:
Opportunities beyond Cars and Light Trucks''. The barriers to and
policies for improved heavy truck efficiency from the report (pages 18-
20) are excerpted below:
barriers
Lack of fuel economy information: The absence of a fuel
economy testing and labeling requirement for heavy trucks
creates a failure in the current market, in that truck buyers
lack the information to choose the most efficient truck. In
addition, the variety in tractor-trailer duty-cycles makes
trucking companies reluctant to accept claims of efficiency
improvements without extended testing of products on their own
fleets.
High initial cost: Efficiency technologies typically
increase the purchase price of a truck. Many truck purchasers
are unable to pay this price increment, even if the
technologies have short payback times. For example, APUs can
cost up to $7,000, or about three years' worth of fuel savings.
Three years is said to be the payback time required by truckers
for efficiency technologies (Stodolsky et al. 2000), so some
APUs would be marginal in this regard.\1\
---------------------------------------------------------------------------
\1\ Less expensive idle reduction technologies with much shorter
payback periods may be available in the near future (Neff 2005).
---------------------------------------------------------------------------
Driver preferences: Trucking companies have for some years
experienced a severe shortage of qualified drivers and are
therefore eager to retain the drivers they have. In some cases,
fuel efficiency improvements may conflict with driver
preferences with regard to driving practices, aerodynamic
treatments, and engine settings.
Industry structure: Truck manufacturing is not a vertically
integrated industry for the most part. This makes marketing of
efficient components directly to the users more difficult,
especially because component manufacturers do not have an
avenue for demonstrating their efficiency benefits within
complete trucks.
Resale market: Limited value is assigned to efficiency in
the used truck market.
Manufacturer risk: The manufacturers' risks in investing in
new technology, and the fact that competing manufacturers can
often take advantage of the leader's technology, serve as a
barrier, particularly in light of fuel price volatility.
policies
Fuel economy standards for tractor-trailers: There are at
present no fuel economy standards for vehicles over 8,500 lbs.
in the United States (or elsewhere, for that matter). Tractor-
trailers are relatively homogeneous, making this a good class
of vehicles for fuel economy standards from the standpoint of
feasibility. In particular, because the vast majority of
tractor-trailer miles are driven on the highway, the problem of
choosing an appropriate test cycle is much simplified.
Funding for idle reduction technologies: Partial government
subsidies for idle reduction technologies for a limited period
of time would result in a decline in cost. The Energy Policy
Act of 2005 authorizes $95 million in spending on anti-idling;
if appropriated, this would be sufficient to have a major
impact. The funds should be applied to develop a range of
technologies, however, and not limited to a single approach
such as truck stop electrification that applies to a limited
truck population.
Extended tax incentives for hybrids: The Energy Policy Act
of 2005 includes tax credits for heavy-duty (as well as light-
duty) hybrids. The amount of credit depends on size, fuel
economy benefit, and incremental cost (see Table A-2). The
credits will offset some of the high purchase costs of these
vehicles and bring down the incremental costs by raising
production levels. At a fuel price of $2.05 per gallon, the
credits together with three years' fuel savings would more than
offset incremental costs for Class 6-8 hybrids and would be
almost sufficient for Classes 3-5 as well. The credits are only
available through 2009, however, which is not sufficient time
to allow for new product development. A five-year extension of
the credits could greatly enhance the success of the program.
Hybrid R&D funding: Funding for hybrid research and
development is also a determinant of the rate at which hybrids
enter the market. DOE should renew its commitment to the
ambitious fuel economy targets laid out in its ``Technology
Roadmap for the 21st Century Truck Program'' (DOE 2000) and
maintain funding levels for development of hybrids and other
technologies needed to achieve those targets.
Fuel economy standards for Class 2b trucks: Fuel economy
standards, feebates, and incentives to promote hybridization
all warrant consideration for Class 2b. This class includes a
wide range of vehicle types, but 80% are pickups (Davis and
Truett 2002), which together with vans, panel trucks, and sport
utility vehicles make up over 96% of the total. These vehicles
have under-8500-lb. counterparts and bringing them under CAFE
or a feebate scheme would pose no serious technical obstacles.
Responses of Daniel Lashof to Questions From Senator Smith
oil savings
Question 1. In your testimony, you include an ``oil savings
toolbox'' that lists oil savings that can be achieved by several
individual actions.
Do the listed savings represent the results of an integrated
analysis? In other words, can these savings be added, or are the
savings from some factors likely to overlap with savings from others?
Answer. The savings are the result of an integrated analysis. For
example, the oil savings from fuel efficient motor oil used in on-road
vehicles are calculated assuming that the savings from fuel-efficient
tires are already achieved. This methodology eliminates the `double-
counting' of fuel savings and allows the measures presented in the
toolbox to be added as shown.
Question 2. Does the analysis include the effects of ``take back,''
which represents an inclination of drivers to increase vehicle miles
traveled if vehicle efficiency is increased?
Answer. The oil savings analysis does consider the effects of
``take back'', also known as the ``rebound effect.'' When considering
improvements in light-duty vehicle efficiency, it is assumed that there
is rebound effect of 10%, meaning a 10% increase in fuel economy
results in a 1% increase in vehicle miles traveled. This is a
conservative assumption considering recent analysis by economists
Kenneth Small and Kurt Van Dender demonstrating that the rebound effect
ranges between 2.6 percent and 12.1 percent\2\ and the average long-
range value is 6.8 percent.\3\
---------------------------------------------------------------------------
\2\ Small, Kenneth and Kurt Van Dender, ``The Effect of Improved
Fuel Economy on Vehicle Miles Traveled: Estimating the Rebound Effect
Using U.S. State Data, 1966-2001,'' University of California Energy
Institute, Berkeley, California, September 2005
\3\ Van Dender, Kurt, ``Recent Estimates of the Rebound Effect and
Their Relevance to Proposed CAFE Reforms for Light Trucks'', a
presentation provided to at a workshop sponsored by Resources for the
Future, October 20, 2005.
---------------------------------------------------------------------------
Responses of Daniel Lashof to Questions From Senator Wyden
Question 1. Sec. 207 . . . Funding for Alt Fuels Infrastructure:
have any of the panelists examined which is the quickest and most cost-
effective way to build out the infrastructure needed to deliver ethanol
to U.S. consumers?
Answer. A sustained and balanced set of policies that includes
infrastructure requirements, tax incentives and federal funding are
necessary to scale up the biofuels market and the availability of
ethanol at the pump. Enacting these measures would also assure
investors that there will be a growing long term market for sustainably
made biofuels and attract the venture capital needed to quickly
commercialize new cellulosic biofuels technologies.
The quickest and most effective way to deliver biofuels to
consumers over the next ten years would be to establish standards and
incentives to increase the availability of E85 (85 percent ethanol and
15 percent gasoline) and flexible fuel vehicles. NRDC recommends the
following measures:
(1) Require a growing percentage of all new light-duty
vehicles to be flexible-fuel capable. At least fifty percent of
all new vehicles should be flexible-fuel by model year 2012.
Getting flexible fuel vehicles into the hands of consumers will
help grow the market for biofuels and expedite consumer
acceptance and demand for E85 fuel.
(2) Eliminate CAFE (Corporate Average Fuel Economy) credits
for flexible fuel vehicles to ensure that use of flexible fuel
vehicles actually results in fuel savings.
(3) Require a growing percentage of retail gas stations to
install E85 pumps, starting with areas that have a significant
percentage of registered flexible fuel vehicles and local
ethanol production.
To ensure that biofuels are produced from diverse sources and
perform better than gasoline, the following policies should be adopted
along with the above infrastructure requirements.
(1) Ramp up the cellulosic ethanol production required by the
Renewable Fuel Standard (RFS) from 250 million gallons in 2013 to 1
billion gallons by 2016, and set interim production requirements for
2009 through 2012.
(2) Require a growing percentage of ethanol be sold as E85 fuel
over the next decade, reaching at least 40 percent of ethanol
production by 2015.
(3) Establish lifecycle greenhouse gas performance standards for
renewable fuels that ensure growing emission reductions compared with
conventional gasoline.
______
Responses of Kateri Callahan to Questions From Senator Bingaman
feebates
Question 1. Please provide for the record a more detailed
explanation of how the concept of feebates work and how a potential
program could be implemented here in the United States.
Answer. The basic concept of a feebate program is to provide an
incentive for efficient vehicles that is paid for by a fee on
inefficient vehicles. It will work best if the incentives and fees are
large enough to affect manufacturer and consumer choices, and if they
are applied broadly enough to shift the full automotive market. But
there are many ways a feebate could be implemented, with options on who
administers it, on what vehicles are included, and on the amount of the
fees and rebates applied.
Who administers to whom: The fees and rebates could be applied to
the manufacturers, retailers, or purchasers of new vehicles.
Administration of the program would be easiest if it is applied to
manufacturers since there are so few. Additionally, feebate analysts
conclude that the greatest efficiency gains will come from
manufacturers as they improve the technology in their vehicles, rather
than from consumer purchasing decisions. The amount of the fee or
rebate could be reported on the vehicle fuel economy label to increase
consumer awareness and help drive appropriate purchasing decisions.
The feebate system could be administered by the Department of
Energy or another agency. (The National Highway Traffic Safety
Administration at the Department of Transportation already administers
CAFE fines to vehicle manufacturers.) Finally, the fees and rebates
could be applied as a refundable excise tax by the Internal Revenue
Service, similar to the current gas guzzler tax.
What vehicles are covered, in what categories: In order to maximize
the impact and prevent gaming, the fees and rebates should be applied
to all light duty vehicles (cars, SUVs, minivans, and pickup trucks).
And, it should include vehicles currently heavier than CAFE limits, up
to at least 10,000 pounds.
The simplest approach would be to put all vehicles in one category.
However, as smaller vehicles would generally receive rebates, and
larger vehicles be assessed fees, manufacturers of larger vehicles
would inherently be at a disadvantage under such a system.
If Congress wishes to encourage fuel-efficient technologies,
without influencing the kind of vehicles people buy, the vehicles could
be divided into several categories, with fees balanced against rebates
for vehicles in each category. For example, vehicles could be divided
based on vehicle footprint (length multiplied by width) as in the new
light truck CAFE standards. The categories should be broad enough to
ensure competition in each category and to discourage manipulating
vehicles to shift between categories. Because most of the impact of
feebates is likely to be on manufacturer technology, not customer
choice, well-designed categories should only slightly reduce the
savings from a feebate. Multiple categories will, however, lead to some
vehicles receiving a rebate even though they have worse fuel economy
than other vehicles that must pay a fee (i.e., an ``efficient'' SUV
could receive a rebate in that category while an ``inefficient''
compact car would be assessed a fee). With multiple categories,
manufacturers and consumers are not penalized or rewarded because of
the kind of vehicles they make or buy. The Alliance to Save Energy
recommends this approach to application of fees and rebates on
vehicles.
How much is the rebate or fee: If the purpose is to maximize oil
savings, the fees and rebates should be proportional to the gallons of
gasoline that the vehicle can be expected to use over its lifetime, or
to gallons per mile (``gpm''--the inverse of mpg) assuming the number
of miles is fixed. This is the same metric that is averaged in
calculating fleet fuel economies for CAFE.
A range of amounts have been proposed, from 25 cents per gallon to
$3.00 per gallon, or less than $500 per .01 gpm to more than $2000 per
.01 gpm. The amount can be set to incorporate fuel usage externality
costs in vehicle choices, or to incorporate the actual cost of gasoline
that consumers may not think about when buying a vehicle. Costs will be
minimized if the feebate is phased in over a period of years in order
to allow manufacturers time to respond with new technologies. Greene
and coauthors estimated a $1000 per .01 gpm feebate would increase
average fuel economy to 32 mpg (compared to about 24 mpg today--using
the inaccurate mpg values employed in the CAFE program).
The fee or rebate for each vehicle is set based on the gpm compared
to a midpoint gpm. The midpoint gpm (or mpg) that divides between fees
and rebates in a vehicle category can be set so that the total value of
the fees is roughly the same as the total value of the rebates, so the
program is revenue-neutral. The midpoint mpg should be reset
periodically to maintain revenue neutrality. Assuming that average fuel
economy improves due to the incentives from this program, the dividing
line will be ``ratcheted up'' (e.g., the mpg value for the midpoint
will increase) in response to changing markets. Unlike a static
standard, a feebate creates an incentive for continual improvement.
Question 2. If a feebate system were implemented what would its
relationship with the CAFE system potentially be?
Answer. A well-designed feebate system should increase overall fuel
economy significantly. If CAFE standards remained nearly static, as
they have for the past couple decades, they would effectively become
irrelevant, as the average fuel economy for each manufacturer fleet
exceeded the standards because of the feebate impacts (certain luxury
car manufacturers might be an exception, but as they routinely violate
CAFE standards today, it is not clear that CAFE is having much impact
on them anyway other than requiring them to pay fines for their
violations).
Congress might choose to retain the CAFE system as a backstop, in
case the feebate is poorly designed or fuel economy decreases despite
the pressure of the feebate. If Congress or the administration does
choose to raise CAFE standards significantly, a feebate could serve as
an incentive to exceed those standards, and could help move the market
to make it easier to meet the increased standards.
If both CAFE standards and a feebate system are in place,
automakers may find it easier to respond if the policy details, such as
the categories of vehicles, are coordinated.
Question 3. Section 208, ``Deployment of new technologies to reduce
oil use in transportation ``direct the Secretary of Energy to provide
deployment incentives for a variety of projects to reduce oil used in
transportation. One measure allowed is a ``reverse auction.'' Are you
familiar with this concept and its benefits?
Answer. A reverse auction is an auction with one buyer and many
sellers, rather than a ``conventional'' auction with many buyers and
one seller. In a reverse auction, one seller seeks the highest price
from bids by multiple buyers. Sec. 108 proposes a reverse auction for
incentives for cellulosic ethanol; this issue is outside the scope and
mission of the Alliance to Save Energy.
Response of Kateri Callahan to Question From Senator Smith
Question 1. Your testimony supports the adoption of feebates as a
means of increasing vehicle efficiencies. However, at least initially
such a program would tend to favor foreign auto companies over domestic
companies because of the types of vehicles comprising their current
product lines. Please comment on the possibility of establishing a
feebate program that works on a company-by-company basis, without
moving funds from one manufacturer to another. Could this increase
overall fleet efficiency just as effectively, without penalizing the
U.S. auto industry?
Answer. A feebate rewards automakers, or their customers, whose
vehicles use less gasoline. These companies are not necessarily
headquartered in other countries. In fact General Motors frequently
points out that it makes more models that get at least 30 mpg than any
other manufacturer.
David Greene at Oak Ridge National Laboratories and others modeled
the impact of a feebate on manufacturers based on their product mixes
of a few years ago. They found that a feebate with all cars and light
trucks mixed in a single category will likely yield net savings for
some ``foreign'' manufacturers and a net cost to ``domestic''
manufacturers. However, if vehicles are divided into categories, with
fees and rebates balanced within each category, then the distributional
impacts are different. Some ``domestic'' manufacturers--those with
relatively fuel-efficient options in a given category--are likely to
benefit from such a feebate.
A feebate, as usually envisioned, does not directly transfer money
between manufacturers; the transfer is between the government and
individual manufacturers or customers. A system that had no net
financial impact on any manufacturer or customer would be meaningless,
with no impact at all. However, a feebate could in principle be based
on each manufacturer's current fleet, with incentives for improvement
and penalties for backsliding. Such a system should have a similar
impact in improving overall fuel economy, though some might consider it
manifestly unfair.
Response of Kateri Callahan to Question From Senator Wyden
Question 1. Sec. 207 . . . Funding for Alt Fuels Infrastructure:
have any of the panelists examined which is the quickest and most cost-
effective way to build out the infrastructure needed to deliver ethanol
to U.S. consumers?
Answer. The mission of the Alliance to Save Energy is limited to
reducing energy use. As we do not address such supply-side questions, I
would only comment that production of ethanol, as of all fuels, is
limited, and expansion of ethanol will only partially compensate for
growing fuel use unless paired with greater efficiency.
[Responses to the following questions were not received at
the time the hearing went to press:]
U.S. Senate,
Committee on Energy and Natural Resources,
Washington, DC, June 26, 2006.
Mr. Steven Nadel,
Executive Director, American Council for an Energy-Efficient Economy,
Washington, DC.
Dear Mr. Nadel: I would like to take this opportunity to thank you
for appearing before the Senate Committee on Energy and Natural
Resources on Thursday, June 22, 2006 to give testimony regarding S.
2747, to enhance energy efficiency and conserve oil and natural gas,
and for other purposes.
Enclosed herewith please find a list of questions which have been
submitted for the record. If possible, I would like to have your
response to these questions by Monday, July 10, 2006.
Thank you in advance for your prompt consideration.
Sincerely,
Pete V. Domenici,
Chairman.
[Enclosure.]
Question From Senator Bingaman
new hydraulic hybrid trucks
Question 1. In this morning's Washington Post there is an article
about new hydraulic hybrid trucks. It notes that these new UPS trucks
that will be tested in Detroit have the potential to yield a 60-70
percent saving on fuel use. The trucks were built for EPA. Have you
performed any analysis on the potential for such hybrid hydraulic
systems? What barriers (if any) exist to the wider deployment of this
technology?
Question From Senator Wyden
Question 1. Sec. 207 . . . Funding for Alt Fuels Infrastructure:
have any of the panelists examined which is the quickest and most cost-
effective way to build out the infrastructure needed to deliver ethanol
to U.S. consumers?