[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]




 
     ENERGY: MAXIMIZING RESOURCES, MEETING NEEDS AND RETAINING JOBS

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

                                HEARING

                               before the

                 SUBCOMMITTEE ON ENERGY POLICY, NATURAL
                    RESOURCES AND REGULATORY AFFAIRS

                                 of the

                              COMMITTEE ON
                           GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED SEVENTH CONGRESS

                             SECOND SESSION

                               __________

                             JUNE 17, 2002

                               __________

                           Serial No. 107-202

                               __________

       Printed for the use of the Committee on Government Reform


  Available via the World Wide Web: http://www.gpo.gov/congress/house
                      http://www.house.gov/reform


                                 ______

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                            WASHINGTON : 2003
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                     COMMITTEE ON GOVERNMENT REFORM

                     DAN BURTON, Indiana, Chairman
BENJAMIN A. GILMAN, New York         HENRY A. WAXMAN, California
CONSTANCE A. MORELLA, Maryland       TOM LANTOS, California
CHRISTOPHER SHAYS, Connecticut       MAJOR R. OWENS, New York
ILEANA ROS-LEHTINEN, Florida         EDOLPHUS TOWNS, New York
JOHN M. McHUGH, New York             PAUL E. KANJORSKI, Pennsylvania
STEPHEN HORN, California             PATSY T. MINK, Hawaii
JOHN L. MICA, Florida                CAROLYN B. MALONEY, New York
THOMAS M. DAVIS, Virginia            ELEANOR HOLMES NORTON, Washington, 
MARK E. SOUDER, Indiana                  DC
STEVEN C. LaTOURETTE, Ohio           ELIJAH E. CUMMINGS, Maryland
BOB BARR, Georgia                    DENNIS J. KUCINICH, Ohio
DAN MILLER, Florida                  ROD R. BLAGOJEVICH, Illinois
DOUG OSE, California                 DANNY K. DAVIS, Illinois
RON LEWIS, Kentucky                  JOHN F. TIERNEY, Massachusetts
JO ANN DAVIS, Virginia               JIM TURNER, Texas
TODD RUSSELL PLATTS, Pennsylvania    THOMAS H. ALLEN, Maine
DAVE WELDON, Florida                 JANICE D. SCHAKOWSKY, Illinois
CHRIS CANNON, Utah                   WM. LACY CLAY, Missouri
ADAM H. PUTNAM, Florida              DIANE E. WATSON, California
C.L. ``BUTCH'' OTTER, Idaho          STEPHEN F. LYNCH, Massachusetts
EDWARD L. SCHROCK, Virginia                      ------
JOHN J. DUNCAN, Jr., Tennessee       BERNARD SANDERS, Vermont 
JOHN SULLIVAN, Oklahoma                  (Independent)


                      Kevin Binger, Staff Director
                 Daniel R. Moll, Deputy Staff Director
                     James C. Wilson, Chief Counsel
                     Robert A. Briggs, Chief Clerk
                 Phil Schiliro, Minority Staff Director

Subcommittee on Energy Policy, Natural Resources and Regulatory Affairs

                     DOUG OSE, California, Chairman
C.L. ``BUTCH'' OTTER, Idaho          JOHN F. TIERNEY, Massachusetts
CHRISTOPHER SHAYS, Connecticut       TOM LANTOS, California
JOHN M. McHUGH, New York             EDOLPHUS TOWNS, New York
STEVEN C. LaTOURETTE, Ohio           PATSY T. MINK, Hawaii
CHRIS CANNON, Utah                   DENNIS J. KUCINICH, Ohio
JOHN J. DUNCAN, Jr., Tennessee       ROD R. BLAGOJEVICH, Illinois
JOHN SULLIVAN, Oklahoma

                               Ex Officio

DAN BURTON, Indiana                  HENRY A. WAXMAN, California
                       Dan Skopec, Staff Director
                         Allison Freeman, Clerk


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on June 17, 2002....................................     1
Statement of:
    Bernow, Stephen, director, Energy Group, Tellus Institute; 
      Byron Swift, director, Energy and Innovation Center, 
      Environmental Law Institute; David Fairman, vice president, 
      International Dispute Resolution, the Consensus Building 
      Institute; George Sterzinger, executive director, Renewable 
      Energy Policy Project; and Roger Little, CEO, Spire Corp...    17
Letters, statements, etc., submitted for the record by:
    Bernow, Stephen, director, Energy Group, Tellus Institute, 
      prepared statement of......................................    21
    Fairman, David, vice president, International Dispute 
      Resolution, the Consensus Building Institute, prepared 
      statement of...............................................   114
    Little, Roger, CEO, Spire Corp., prepared statement of.......   133
    Ose, Hon. Doug, a Representative in Congress from the State 
      of California, prepared statement of.......................     4
    Sterzinger, George, executive director, Renewable Energy 
      Policy Project, prepared statement of......................   123
    Swift, Byron, director, Energy and Innovation Center, 
      Environmental Law Institute, prepared statement of.........    98
    Tierney, Hon. John F., a Representative in Congress from the 
      State of Massachusetts, prepared statement of..............    11


     ENERGY: MAXIMIZING RESOURCES, MEETING NEEDS AND RETAINING JOBS

                              ----------                              


                         MONDAY, JUNE 17, 2002

                  House of Representatives,
  Subcommittee on Energy Policy, Natural Resources 
                            and Regulatory Affairs,
                            Committee on Government Reform,
                                                       Peabody, MA.
    The subcommittee met, pursuant to notice, at 11 a.m., in 
Wiggins Auditorium, Peabody City Hall, Peabody, MA, Hon. Doug 
Ose (chairman of the subcommittee) presiding.
    Present: Representatives Ose and Tierney.
    Staff present: Dan Skopec, staff director; and Allison 
Freeman, clerk.
    Mr. Ose. Welcome to today's hearing of the Subcommittee on 
Energy Policy, Natural Resources and Regulatory Affairs here in 
Peabody, Massachusetts. I want to preface my opening statement 
by welcoming our witnesses today and thanking Congressman 
Tierney for suggesting the idea of coming up here. I have 
searched for 3\1/2\ years to find some means of getting John to 
lean to the right. I had no idea I just had to come up here on 
the stage. [Laughter.]
    The purpose of today's hearing is to consider 
recommendations to address our Nation's energy challenges. A 
sound energy policy is essential to all Americans, regardless 
of whether we are from the East, the South, the Midwest, the 
Northeast, or the West. Energy supplies are essential to 
heating and cooling our homes, running our modern technology, 
moving goods across the country, and fueling our economy. As a 
resident of California, I have the dubious first-hand knowledge 
of how important a stable and affordable energy supply is. As 
you may well realize, over the past few years California has 
undergone a severe energy crisis. Due to blackouts, increased 
rates, and high natural gas prices, Californians have suffered 
mightily as a result of our energy woes.
    However, energy is a commodity that most people take for 
granted, regardless of where you live. Every time you turn your 
computer on or cook dinner on the stove you use energy. We use 
energy in these lights; we use energy in these microphones. 
Most people do not think about where it comes from or how it is 
produced. However, the issues surrounding energy policy are 
just as complex and important as in other major public policy 
arenas. And, unfortunately, we have ignored many of these 
problems for far too long.
    Our current energy system is old and out of date. Most 
electric utilities are structured the same way they were at the 
turn of the century, and I challenge you to cite me an example 
similar in nature. We still rely too much on foreign oil to 
propel our economy. We have not worked hard enough to encourage 
renewable energy sources or promote energy efficiency--and as 
an aside, I do want to tell the people of Peabody that 
Congressman Tierney is an able and staunch advocate of 
renewable sources of this nature--and as a consequence, going 
back to my point, our energy infrastructure is woefully 
insufficient.
    For the first time in a decade, we are finally attempting 
to modernize our energy policy. In May of last year, President 
Bush unveiled his National Energy Policy, which is a set of 
recommendations and goals for Congress to follow. The 
President's plan represents the most comprehensive approach to 
energy policy in a generation. The plan balances the need for 
creating new energy supplies with the goals of improving the 
efficiency of our energy system in a way that protects the 
environment and promotes economic growth.
    In August 2001, the House passed H.R. 4. This legislation 
encompassed most of President Bush's priorities. This spring, 
the Senate passed its version of H.R. 4. The two bills have 
some significant differences, and we will be looking at those 
in a Conference Committee this summer and fall, the conferees 
of which were just appointed this past week.
    Let me now point out a few of the highlights in the House 
bill. Important here in the Northeast, the bill increases 
funding for the Low-Income Home Energy Assistance Program, 
LIHEAP, to meet the energy needs during the winter. 
Interestingly enough, in California, we use LIHEAP funds to 
help people cool their houses in the summer.
    The House bill also includes several provisions to improve 
energy efficiency in appliances, homes, and office buildings. 
It expands the Energy Star Program, which is run out of the 
Department of Energy and the Environmental Protection Agency. 
The Energy Star label is only awarded to products that 
significantly exceed the minimum energy efficiency standards. 
This bill provides tax credits for people who install such 
technologies in their homes or places of business. The bill 
also requires all Federal facilities to use energy efficient 
products and build to the highest standards.
    I am especially pleased that the House renewed the tax 
credit for renewable energy products. Renewable energy, such as 
geothermal, wind, biomass, and solar, show great promise in 
contributing to our energy needs. Now, I want to be clear here, 
I don't want to fool anybody about this, renewable energy is an 
important component, but it cannot be the only piece to the 
solution. Now we have an overhead slide in terms of the 
electricity generation. Fact of the matter is we need to 
promote biomass and wind and these others wherever we can.
    In Sacramento Valley, we produce a lot of rice. Rice straw 
is a waste product of the rice growing process. The reality is 
we have a lot of rice straw leftover after we harvest the rice. 
And one of the things in H.R. 4 that we do is we create a tax 
credit for open-loop biomass products like rice straw. So 
instead of burning the straw, we can convert it into energy and 
produce electricity.
    The House bill also increases the fuel economy of light 
duty trucks in an effort to save 5 billion gallons of gasoline 
over the current standards that are in place. The House bill 
encourages the development of alternative fuel or hybrid 
vehicles by increasing the requirement on the Federal 
Government to purchase vehicles, providing grants to State and 
local governments to purchase those vehicles, providing large 
tax credits for individuals and businesses that do purchase 
such products.
    Now, these are just a few of the things that were in H.R. 
4, and we are going to try to improve it in the Conference 
Committee. One of the purposes of this hearing is to allow 
Congressman Tierney and I to take some input back to Washington 
for the purpose of engaging in that conversation.
    Now, I do want to speak a little bit about one particular 
facet of the Senate bill, as opposed to the House bill. The 
Senate bill requires 5 billion gallons of ethanol to be used 
nationwide by the year 2012. At present, even with the support 
of significant Federal subsidies, the Nation only uses about 
1.7 billion gallons. At a recent hearing in my subcommittee, 
energy experts predicted that the Senate ethanol mandate would 
increase the price of gasoline in non-attainment areas by up to 
10 cents per gallon. The Northeast has many areas that are non-
attainment in terms of air quality, and that is a cost that the 
people who live in the Northeast and in California will have to 
bear.
    The reality is that studies have shown that using ethanol 
is a net energy loss. In other words, it requires about a third 
more in energy to create ethanol as it does to produce. The 
Senate ethanol mandate is a massive transfer of wealth from 
non-ethanol producing States to ethanol producing States, and I 
would hope that as we consider this provision in the Conference 
Committee that we would go back to good science and good policy 
rather than focus so much on politics.
    And I do want to welcome our witnesses today. We have an 
excellent panel, many of whom were suggested by Congressman 
Tierney. Today's witnesses I will introduce in a moment, but 
now I would like to yield to Congressman Tierney for the 
purposes of an opening statement.
    [The prepared statement of Hon. Doug Ose follows:]

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    Mr. Tierney. Thank you very much, Mr. Chairman. I want to 
just tell the folks from the 6th District that have showed up 
here today how pleased I am that you have consented to have 
this hearing in the District. This is a matter of obvious 
importance to all of us throughout this entire region, and I 
understand the difficulties that California has had recently, 
and people here should know the role that you play in trying to 
resolve some of the issues there and bring about some 
solutions. We have had any number of hearings now in Washington 
and in California on the issues that affect not only the State 
of California but the entire Nation, and we appreciate your 
commitment and your work in that area, and again appreciate 
your ability to join us here.
    The Senate does have a different version than the House on 
H.R. 4 in the energy bill. I have to be direct and tell people 
I wasn't pleased with either bill. I think that the House 
version certainly needed a lot of refinement, and the Senate 
bill, while it had some good aspects, like renewable portfolios 
required, failed to do anything of significance with the CAFE 
standards, and I think both bills certainly could have had a 
better distribution of research and development moneys as well 
as a greater amount of research and development moneys if we 
really are going to shift our policy in this country.
    Congressman Ose is right in saying that we are not 
instantaneously going to move from fossil fuels to other 
sources of energy, and I don't think anybody reasonably would 
try to make the case that we could. But we can in this country 
take a look forward and look to see where we want to be at a 
certain point of time and try to move there as quickly as 
possible so that we can displace as much of the fossil fuel 
reliance as possible into very reliable and cheaper and cleaner 
fuels.
    So the energy independence, the impact of fossil fuels on 
our environment and the potential of renewables, alternatives, 
and energy efficiency to meet our needs while creating jobs, 
that's of great importance to people here, and I think that's 
another significant factor, in every change that we have, 
whether it is in trade or whether it is in energy in other 
areas, there are some people that will be displaced, most 
notably in the energy field, there will be people in the coal 
and oil industries. And we have to consider that as part of our 
policy planning so that people there have a cushion for the 
impact on that and get back to employment at the rates that 
they are employed currently, or as near as possible for their 
families and for their communities.
    In this post-September 11th world, it has become more and 
more important that the United States achieve independence from 
the Middle East. For decades, domestic oil prices have risen 
and fallen on the whim of OPEC. To protect our national 
security, we cannot continue at the current level of reliance 
on foreign oil. We need to reform the way we obtain, process, 
and use energy resources. Each day, 48 percent of the oil 
consumed by Americans comes from overseas. In fact, in 2000, we 
spent $380 per person, totaling $106 billion, importing crude 
oil. We rely so heavily on imports because no new oil fields 
have been discovered in the United States for decades.
    Even drilling in the Arctic National Wildlife Refuge will 
not solve our energy needs. Experts tell us that ANWR will only 
contribute a trivial 1 percent to the U.S. share of worldwide 
oil reserves. That leaves us few options other than continued 
reliance on foreign imports of oil. If we stay the current 
course, by 2020 the percentage of oil that is important will 
grow to 62 percent. And since two-thirds of the world's oil 
lies in the Middle East, we will be beholden to regimes like 
those in Saudi Arabia, Iraq, and Iran. And we have the charts 
down there that show, I think, pretty clearly our energy 
sources, also the one, the distribution of oil reserves, 
showing us just from which countries we get our oil.
    In addition to the situation in the Middle East, and the 
large amount of oil that we import there which subjects us to 
the whims of those nations, Venezuela provides a significant 
amount of oil to this country and is certainly not a stable 
situation that is reliable at this point, in my mind. So it is 
not just the Middle East, it is elsewhere from which we take 
our oil reserves that we have to be cautious of.
    The type of energy that we have used, mostly fossil fuels, 
has served us well over the past 150 years. We have benefited 
from a tremendous economic boom and enjoy an unprecedented 
quality of life. We still, however, know that it has come at 
the price to our health and to our environment. At the same 
time, this continued reliance on oil threatens our national 
security. We are also destroying our environment through the 
use of fossil fuels. Two weeks ago, the President's 
Environmental Protection Agency released a report that 
acknowledges the role of man-made pollutants as a significant 
source of global warming. The question is no longer over 
whether warming occurs but rather over the extent, the speed 
and the magnitude of its effects.
    We have both the means and the way to address this dual 
dilemma. The means to a safe and sound energy future lie in 
advanced energy-efficient and low carbon technologies, and the 
way is through smart public policy.
    It is time to reduce oil consumption through vehicle 
efficiency in new fuels. Between 1975 and 1998, Carbon Average 
Fuel Economy, known as CAFE standards, resulted in nearly 
doubling new passenger car fuel economy. In 2000 alone, CAFE 
standards saved the country 60 billion gallons and over $90 
billion. This has had a positive effect on our environment and 
a positive effect on the wallets of drivers when they pull up 
to the gas pump.
    We can also reduce energy consumption by improving the 
efficiency standards required of commonly used appliances, like 
air conditioners, refrigerators, photocopiers, and fax 
machines. Just these standards already on the books are 
estimated to save consumers over $150 billion in energy costs 
by 2020.
    Even as we improve efficiency, we can also improve our 
energy independence and help the environment by increasing the 
use of renewable energy sources. Renewables are available to 
all Americans no matter where they live. Wind, sun, water, and 
plants, which can all be converted into energy, can be found in 
every region of the country, and it is a tremendously popular 
idea with the public. A Gallop poll that was held in November 
2001 showed support of 90 percent for investments in wind and 
solar power. Electricity generated by wind turbines is the 
fastest growing electricity source in the world and is growing 
at the rate of 25 percent per year. The energy contained in 
plants and organic matter, biomass, is used to generate 
electricity, heat homes, fuel vehicles, and provide process 
heat for industrial facilities, and its exploitation would be a 
boon to rural economies. The cost of solar power, used to 
insulate buildings and reduce heating and cooling costs, has 
fallen by 90 percent since the 1970's. Once recent study 
predicts that solar panel costs will plunge from $5.12 per watt 
now to $1.75 per watt by 2020.
    We could easily build on these successes but only with 
increased investment in research and development. The private 
and public sectors need to work together to achieve this 
mutually beneficial result. Ultimately, energy research and 
development is declining, with the U.S. Federal spending 
plummeting from $6.55 billion in 1978 to under $2 billion in 
1998--$6.55 billion in 1978 to $2 billion in 1998. In that 
year, the President's Committee of Advisors on Science and 
Technology recommended doubling research and development over 5 
years. It said that our programs were, ``not commensurate in 
scope and scale with the energy challenges and opportunities 
the 21st century will present.''
    Now, as I mentioned earlier, obviously the transition to 
significant reliance on other sources of energy and the move 
away from a fossil fuel dominated lifestyle won't be done 
instantaneously. Today's hearing will hopefully provide 
Congress with information on existing sources, their location 
and quantities, as well as potential replacements and the 
practical timeframe within which transition might occur.
    Although some fear that transforming our energy policies 
will lead to profit loss and layoffs, we know that doesn't have 
to be the case. Companies like Dupont, Johnson & Johnson, 
Suncor Energy, and others are making commitments to energy 
efficiency and cleaner use goals. More often that not, these 
goals are being met sooner than the target dates originally 
set, and the companies are saving and not losing money on those 
efforts. And with creativity and commitment, workers in the 
coal industry and others whose livelihoods depend on 
traditional energy sources can be assisted and retrained to be 
a vital part of the provision of new energy sources.
    So part of the debate, as I mentioned earlier, has to be 
about putting in place fair and reasonable ways to sustain 
impacted workers' families and getting people prepared for 
comparable employment opportunities. By shifting investment to 
solar, wind, geothermal, biomass, and other renewable energy 
sources, we will create new job markets for skilled labor, and 
our witnesses today will flush that idea out significantly.
    Transforming our energy policies to best deal with 
environmental and security concerns won't be easy; they won't 
happen right away. Still, if we encourage the best technologies 
and couple their use with implementation of sound standards 
fairly applied, we can realize a clean, secure energy future. 
Today's hearing should give us some valuable insight so that 
our energy policy for the future should look the way it should.
    I join the chairman in welcoming all of our witnesses and 
thanking them for taking time out of their busy schedules to 
share with us information that, as Mr. Ose said, we will be 
happy to utilize as we go back with our committees and on the 
floor of the House to try and shape the energy bill into a 
product that we can all be proud of. Thank you.
    [The prepared statement of John F. Tierney follows:]

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    Mr. Ose. Thank you, Congressman Tierney. Just for 
everybody's benefit, this is a subcommittee of the Committee on 
Government Reform. When we have a hearing that is an 
investigative hearing we always swear our witnesses, so we will 
do that in a moment. We also have in the back of the room, 
Kara, is that correct? During the course of the hearing, we 
will have some three by five cards passed out. If you have 
questions, if you would write them on the cards, we will 
collect those. And, then, as time permits, we will bring them 
up here and we will be able to get to them accordingly. That 
was a request that Congressman Tierney made that I find 
reasonable, and I concur with that suggestion. Perhaps we 
should do that in more of our committee hearings, as opposed to 
us.
    So, gentlemen, if you would all rise, we will swear you in. 
Raise your right hand.
    [Witnesses sworn.]
    Mr. Ose. Let the record show that the witnesses all 
answered in the affirmative.
    Now, we have five witnesses today. Our first--we are going 
to introduce them in order. Gentlemen, you are going to be 
recognized for 5 minutes to summarize your written testimony, 
which we have read and reviewed. While we don't have a trap 
door under your chairs, we are jealous of the time, given the 
press of business today. So if you could constrain yourselves 
to 5 minutes. You have in front of you a little yellow light 
and a little red light. The yellow light will come on when you 
have 1 minute left, and the red light will come on when there 
are 5 minutes--the yellow light will be on the whole time, the 
red light will come on when you have no more time.
    So our first witness is Stephen Bernow. He is the director 
of the Energy Group with the Tellus Institute. Mr. Bernow, 
thank you for joining us. You are recognized. You will have to 
push the little green button on your microphone. Would the 
clerk come up here and get the material from Mr. Bernow for the 
purpose of putting it on the overhead?

 STATEMENTS OF STEPHEN BERNOW, DIRECTOR, ENERGY GROUP, TELLUS 
INSTITUTE; BYRON SWIFT, DIRECTOR, ENERGY AND INNOVATION CENTER, 
  ENVIRONMENTAL LAW INSTITUTE; DAVID FAIRMAN, VICE PRESIDENT, 
   INTERNATIONAL DISPUTE RESOLUTION, THE CONSENSUS BUILDING 
  INSTITUTE; GEORGE STERZINGER, EXECUTIVE DIRECTOR, RENEWABLE 
   ENERGY POLICY PROJECT; AND ROGER LITTLE, CEO, SPIRE CORP.

    Mr. Bernow. Thank you, Chairman Ose and Congressman 
Tierney, for the opportunity to testify before the subcommittee 
on the important issue of national energy policy. Recently, I 
and colleagues at Tellus Institute identified and analyzed a 
set of targeted national energy policies that over the next 20 
years would reduce our Nation's energy demands for fossil fuels 
in particular and shift to cleaner fuels while maintaining the 
energy services needed for our national economy and citizens' 
well-being; reducing greenhouse gas emissions; increasing 
emissions of local and regional air pollutants that are harmful 
to human health, the economy, and the environment; reaping net 
economic benefits; stimulating the introduction of advanced 
energy technologies; and maintaining our economic vitality.
    These policies would also establish institutional and 
technological momentum for the far greater reductions in fossil 
fuel use and greenhouse gas emissions in subsequent decades 
that are needed to ensure climate stability, the reliability of 
our energy resources, and the protection of our environment and 
human health.
    The work was embodied in the report, ``The American Way to 
the Kyoto Protocol,'' commissioned by the Worldwide Fund for 
Nature and available on the WWF Web site. I understand that my 
presentation today, ``The American Way to the Kyoto Protocol,'' 
in the form of overhead transparencies and the text of a paper, 
``Carbon Abatement with Economic Growth: A National Strategy,'' 
based on that report will be incorporated as part of the record 
of this hearing. Today I will speak briefly, using the overhead 
transparencies submitted, about the motivation, design, 
results, and implications of this national energy policy study 
that we conducted.
    The first overhead just gives the title of the study and my 
colleagues at Tellus Institute. The second informs us, this is 
the latest in a series of studies that Tellus and collaborators 
have been doing over the past decade or more. Here, just 
briefly, is the history of the temperature record in the 
Northern Hemisphere, showing that we are already at an increase 
in temperature unprecedented in 1,000 years. And, if you see at 
the right end, we are going up far greater than that over the 
next several decades if we don't reverse this business-as-usual 
policy. By the way, this condition and the condition in which 
we are entering is unprecedented for about 160,000 years.
    On the left, you can see the business-as-usual trajectory 
of carbon emissions over the next 100 years and the turnaround 
in that trajectory that will be needed in order to stabilize 
climate. That is a very daunting challenge. And we can begin to 
do it now, and sustain it over the next several decades.
    The objective of this particular policy study was to see 
what policy measures can meet the U.S. target set by the Kyoto 
Protocol for 2010, and to produce steady reductions in 
greenhouse gas emissions thereafter. The focus is almost 
exclusively on domestic energy-related policies, but it also 
assumes some reductions from domestic land-based CO2 and non-
CO2 emissions and limited use of international allowances.
    These policies, as I said earlier, result in net economic 
benefits, reduction of air pollutants, and technological 
innovation. They include in buildings in industrial sectors 
building codes, equipment standards, and intensity targets, all 
of which are policies with which we are familiar; a public 
benefits fund that is a very small tie on electricity sales 
that would be flowed back into the economy and to households 
and businesses for energy efficient technologies; improved tax 
and regulatory treatment for combined heat and power, which is 
a very dramatic energy-reducing and carbon-reducing policy. In 
the electric sector, the establishment of a progressive, 
renewable portfolio standard, reaching 10 percent for non-
hydroelectric renewables by 2010 and 20 percent by 2020; and 
cap and trade systems for criteria air pollutants, those that 
affect human health and local and regional environments.
    In the transportation sector for light duty vehicles, 
doubling fuel efficiency of new fleets by the year 2020. That 
is already on the horizon with the new hybrid vehicles. That is 
increasing the Corporate Average Fuel Efficiency standard to 50 
miles per gallon by the fleet that enters service in 2020 and 
similarly, but not quite as dramatic, improvements in heavy 
duty truck efficiency and airplane efficiency. It includes a 
GHG content standard for motor fuels using cellulosic as 
opposed to starch ethanol. There were comments earlier about 
the poor energy performance of starch ethanol; it includes 
using cellulosic ethanol as a blend in gasoline, which does 
have very promising net carbon emissions, net energy use. 
Reductions in automobile use associated with increased high-
speed rail, based on a DOT study that we elaborated upon, and 
transit and other modes for urban movement.
    This, as you can see, is--the business-as-usual trajectory 
is the upper bound of that graphic, and with that series of 
policies, which I have just enumerated, you can see that we can 
turn energy use around from a relentlessly upward trajectory 
toward a very dramatic downward trajectory with these policies 
and with well-known, not exotic, but well-known technologies. 
Next, please.
    It is even more dramatic for carbon because in addition to 
energy efficiency where these policies will cause a shift 
toward low or zero carbon fuels, and again no single policy 
dominates, no single sector dominates, but this suite of 
policies, some of which are already under discussion in various 
forms of legislation, can produce this dramatic change. This 
slide shows the change within the electricity sector itself; 
again, a very dramatic reduction from a sharp upward trend to a 
downward trend, actually reducing electricity consumption 
through energy efficiency and co-generation or combined heat 
and power very dramatically by 2020, to about half of what it 
otherwise would have been. Next slide.
    This shows the growth, as was discussed earlier, in 
renewables, under the renewable portfolio standard. The left 
hand showing business as usual, and the right hand side showing 
the mix, very strong contribution from wind and biomass, as was 
discussed earlier. This is what the renewable energy portfolio 
standard would produce.
    These are the net annual costs and savings from these 
policies. As you can see, the blue line show the annual 
savings. Within about 2 years of the beginning of their 
implementation, the annual savings will exceed the annual cost, 
and that difference will be growing over time over the next 20 
years. Next, please.
    This shows the annual savings by 2010 and 2020, represented 
on a per household basis, and you can see by 2020 the net 
annual savings, that is savings in energy bills over and above 
the incremental cost of these cutting-edge technologies, will 
reach close to $1,200 per household in the United States by 
2020. Next.
    This, finally, through macroeconomic analysis, we flowed 
all of these changes and energy consumption, energy bill 
savings for businesses and households through an input/output 
model, and the result shows that there will be small but 
important increases in net jobs by the year 2020, about 1.3 
million incremental jobs, and associated with that, incremental 
GNP and incomes. Next, please.
    This I won't go into excruciating detail. This shows the 
job impact sector by sector for those of you who care to read 
it following this presentation. Please, next slide. And this 
shows the job impact State by State. Every single State will 
experience a net job increase, and I urge you to take a look at 
that in more detail as you come away.
    As I said earlier, the modeling shows that not only will 
energy and carbon be reduced dramatically over the next 20 
years but so will each of the major so-called criteria air 
pollutants which are damaging to human health, the local 
environment, to crops, forests, and the like. And these show 
the net result of those policies decreasing each of those 
emissions. Next, please.
    Finally, this is an interesting--I said earlier that we had 
done a series of studies over the last 10 years. This overhead 
shows the difference in the results between a study we did 3 
years ago of essentially the same set of policy measures and 
the updated study that we just completed. And it shows the 
impact of delay, because with the original study we were 
assuming policies could be implemented in the late 1990's. With 
the new study that we recently released, the policies couldn't 
be implemented until, well, maybe next year at the earliest. 
And the consequence of that is, both with respect to carbon 
reductions and the net economic savings, there's a substantial 
reduction. A loss of opportunity by delaying these or similar 
policies and measures, a loss of opportunity in the needed 
carbon reductions to help stabilize climate, and a loss of 
opportunity to begin that technological transition to cutting-
edge, modern, efficient, and clean technologies and associated 
net economic benefits by delaying such policies more than we 
need to. Thank you.
    [The prepared statement of Mr. Bernow follows:]

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    Mr. Ose. Thank you, Dr. Bernow. Our next witness, and I 
apologize, Dr. Bernow, I did not do an adequate job of 
introducing you prior to your remarks. I do want to add, as 
evidenced by his comprehensive presentation, Dr. Bernow has a 
B.S. degree from Columbia University School of Engineering and 
Applied Science and a Ph.D. in Physics from Columbia 
University. Again, we thank you.
    Our next witness is Mr. Byron Swift. Mr. Swift is the 
Environmental Law Institute's senior attorney. He is the 
director of ELI's Center for Energy and Innovation. He 
currently is spending much of his time investigating how 
environmental regulations affect the utility sector, 
particularly as it relates to the 1990 Clean Air Act. Mr. 
Swift, you are recognized for 5 minutes. Thank you for joining 
us.
    Mr. Swift. Thank you, Congressman, and I appreciate the 
invitation to be here in Peabody.
    I would like to preface my remarks by suggesting that the 
topic I would like to talk about is what Congressman Tierney 
has just mentioned, what is smart public policy and also a 
public policy that avoids some of the economic problems 
mentioned by Congressman Ose.
    I would like to talk about how environmental regulation, 
while it creates the framework for the environmental reductions 
and environmental quality, can discourage innovation and new 
technology. Innovation is the motor that we want to drive lower 
costs and increase environmental benefits. And also how this 
problem can be solved by more effective and flexible 
regulation.
    I would basically like to make two points. One is that 
unfortunately the way environmental laws are written has 
created a strong tendency to discourage innovation, especially 
in the process technologies and pollution prevention 
technologies. The way environmental laws are written tends to 
embody a ``control and dispose'' mentality that is opposed to a 
``recycle and renew'' policy.
    The second point is simply that we can design better laws 
that both increase innovation and environmental quality. If you 
can visualize a square with four quadrants and on the top are 
mandatory laws or policies and on the bottom are voluntary, and 
on the left are flexible policies, and on the right inflexible, 
what you tend to have are environmentalists and State 
environmental regulators who believe in mandatory but 
inflexible regulation, and a business community that wants 
voluntary and flexible standards. This difference stops some of 
the political progress toward solving this problem. What we 
want as a good government alternative are mandatory laws that 
protect public health and welfare, but flexible standards that 
allow businesses to comply and innovate.
    I have done a considerable amount of research in various 
environmental sectors that illustrate some of these problems, 
and I would like to mention a few of them. They are contained 
in some of the publications that are on our Web site, 
Environmental Law Institute, and also those of the Progressive 
Policy Institute. But just to mention some of the problems, in 
the iron and steel sector, regulations under RCRA, which is our 
solid waste disposal act, regarding recycling, frustrate the 
ability of firms to economically recycle spent acids, which 
leads to the disposal or underground injection of literally 
hundreds of millions of gallons of acids annually. The culprit 
is one sentence in RCRA. It is an exemption to the exception 
for recycling of hazardous wastes.
    In the baking sector, another inflexible rate-based 
standard has forced industrial bakers to install very expensive 
end-of-pipe controls instead of pollution prevention 
technologies. And, in the energy sector, which is one of the 
key sectors we are looking at today, New Source Review 
requirements, which impose a distinction between old sources 
and new sources, place disproportionate burdens on the cleanest 
technologies, which hinder the transition to clean energy 
sources.
    Another thing I would like to mention that I find very 
disturbing, and it is not given a lot of press, is the state of 
venture capital finance for innovation. If you care about 
innovation, you care about private finance for innovation. The 
government can take up some of the burden in research and 
development costs, but it is the private sector that has got to 
be the motor. And as we are all aware, the nineties were the 
technology decade. We saw funds for venture capital for 
technology rise from a few billion dollars in 1990 to over $40 
billion this past year. In contrast, venture capital for 
environmental technologies started out modestly at $200 million 
in 1990 and has sunk every year since to virtually nothing 
today, $50 million. Data from Environmental Business 
International show that environmental mutual funds have also 
gone from $240 million in 1993 to zero this year.
    This is a huge problem. Why isn't this funding available 
for environmental technologies? My discussions with the 
financiers, most of whom no longer exist, have suggested the 
lack comes about because of environmental regulation. You have 
a very long permitting process that very few of these 
innovators can survive, and you have got a balkanization of the 
permitting of your market into hundreds of permitting 
districts. Again, this doesn't have to be the case. We can 
design laws that don't create this permitting system or 
balkanize the market, but it is a very unfortunate side light 
to the current environmental regulatory landscape.
    Finally, I would just like to say that I don't want to say 
that environmental regulations are always a problem. In many 
industries, economic factors may be a principal barrier to 
innovation and cleaner production, but it is inexcusable for 
environmental regulation to frustrate the very innovate process 
that we hoped it would foster, because of their inflexible 
design. Alternatives are available, and I and many of my 
colleagues hope to help by pointing out the specific problems 
and potential for remedies that will achieve greater innovation 
and a cleaner environment.
    [The prepared statement of Mr. Swift follows:]

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    Mr. Ose. Thank you, Mr. Swift. We appreciate your being 
here today.
    Our next witness is Dr. David Fairman. Dr. Fairman received 
his Ph.D. in political science from MIT in 1998. He has also 
held research appointments at MIT in various positions, 
including the Center for International Studies. He has been at 
the Harvard Law School Program on Negotiation and at the 
Harvard Center for International Affairs, and he has also 
taught a graduate course at MIT's Department of Urban Studies 
and Planning. Dr. Fairman graduated summa cum laude with a B.A. 
in history and literature from the UC Berkeley of the East, 
that being Harvard College, in 1987. Dr. Fairman, welcome. 
Thank you for joining us.
    Mr. Fairman. Thank you, Chairman Ose, and let me just say 
grade inflation had hit the Berkeley of the East at that time. 
[Laughter.]
    Chairman Ose and Congressman Tierney, thank you very much 
for the opportunity to testify here in regard to the important 
issue of national energy policy. My organization, the Consensus 
Building Institute, does not specialize in energy policy, we 
specialize in helping build consensus to resolve conflicts on 
public policy issues. Recently, we had the opportunity, in 
collaboration with Rocky Mountain Institute, to facilitate a 
process of expert consensus building on questions related to 
national energy policy. Most of the experts who participated in 
our exercise, called the National Energy Policy Initiative, are 
senior people who have served in both Republican and Democratic 
administrations, in the private sector and academe. Several are 
currently in the private sector, having recently left public 
office. You have in the report itself a list of the 22 
participating experts and 12 who joined subsequently and their 
consensus. And, I want to speak briefly to what they reached 
consensus on.
    Remarkably, given the diversity of the group and the 
complexity of the issues, the participating experts were able 
to reach consensus on a diagnosis of major shortcomings in our 
current energy policies, a long-term vision for energy policy, 
a set of top policy priorities and policy strategies for each 
of those priority areas. The text of those recommendations is 
in the National Energy Policy Initiative Expert Group Report, 
which I understand is going to become part of the record of 
this hearing. The text is theirs; that is, it is a consensus 
document, the words themselves were co-drafted by the group. 
And I want to just take a couple of minutes to summarize 
briefly the major findings of that report.
    First, just very briefly, by way of background, why did we 
and Rocky Mountain Institute jointly undertake this initiative? 
Primarily because we thought that in national energy 
policymaking there are many opportunities for joint gains in 
the area of economic, environmental, and national security 
goals and that too often the political process, because it 
tends to focus on the short-term costs of change, leads to 
suboptimal outcomes for society. We thought that by bringing 
together a group of experts who are not currently quite in the 
thick of the political process but who have collectively a 
great deal of experience with it, as well as with the technical 
side of energy issues, we might help identify some points of 
common ground that could support policymaking in the Congress 
and the administration.
    With that, I just want to highlight the main points from 
the report, and I want to start by reading the vision statement 
that the experts agreed on, because I think it is a powerful 
statement of a shared sense of urgency for change. The 
statement reads that ``The United States and the world must 
begin a decades-long transition to an energy system that will 
not run out, cannot be cutoff, supports a vibrant economy, and 
safeguards our health and environment. Today's patterns of 
energy production and consumption will not deliver these 
benefits to our children and grandchildren. The way we produce 
and use energy wastes money, threatens our environment, raises 
our vulnerability to accident, terrorism and economic shocks, 
and contributes to instability around the globe.
    We must create a new energy system that makes our country 
and the world more secure. It must be less susceptible to major 
disruptions and must meet the needs of people today and of 
generations to come, providing adequate, affordable, and 
healthful energy services for all forever. The opportunity to 
create this new energy future is here and now. New technologies 
that only a few years ago seemed visionary now provide energy 
services to millions and demonstrate that this energy future is 
not only possible, but also commercially viable. The sooner we 
begin to act on key energy policy issues, the more control we 
will have over our energy future. The longer we wait, the 
higher the cost of action and the less certain its success.
    The opportunity and the need for energy policy change are 
greatest in four areas: transportation and mobility, 
electricity services, energy security, and climate change. 
Redirection of government energy research, development and 
demonstration programs, and procurement practices is also 
needed to support policy change in these four critical areas.''
    Let me just say parenthetically that much of the 
presentation that you just saw from Dr. Bernow illustrates some 
of the core concepts that this Expert Group reached consensus 
on, the notion that transition is feasible if it begins early 
and is thoughtfully balanced among a range of strategies, but 
that the longer we wait the more costly it will be.
    Let me speak very briefly to some of the specific 
recommendations in each area, starting with a short statement 
of the problem and then focusing on areas to work on for policy 
solutions. For transportation and mobility, the high oil 
dependence of that sector has been referenced before and the 
fact that fossil fuel emissions contribute to local and global 
environmental problems, more broadly that the transportation 
systems and infrastructure that we have now contribute to urban 
sprawl and general reduction in quality of life.
    The primary focus of recommendations in this sector was on 
reducing oil dependence in three ways: increasing fuel 
efficiency through a combination of CAFE standards, gas taxes, 
tradeable fuel efficiency credits and/or an efficiency feebate 
system, promoting non-petroleum fueled automobiles, and 
incentivizing and supporting urban planning and transport 
systems to minimize sprawl.
    Turning to electricity services, Chairman Ose has already 
mentioned some of the very serious problems that the old 
infrastructure and set of policies have created. The Expert 
Group focused on restructuring the current regulated monopoly 
system to encourage competition--I have more to say about that 
if you would like to explore that further in questions--to 
encourage new technologies and innovations while retaining and 
maintaining environmental protection. What Mr. Swift spoke to 
in terms of flexible environmental regulations is very much in 
the spirit of what this group recommended. And, finally, a 
little more specifically, a focus on allowing combined heat and 
power and distributed generation and efficiency investments; 
that is, allowing investments in efficiency distributed 
generation and CHP to receive the same rate of return as 
investments in new power plant generation structures.
    Very briefly, with regard to energy security, the Expert 
Group came back to the issue of oil dependence and the 
transportation sector and spoke to the need for improvements in 
the infrastructure of our energy systems, especially energy 
plants, transmission and distribution lines that are vulnerable 
to both accidental and planned disruption.
    Finally, on climate change, the experts agreed with the 
statements that have been made through the Intergovernmental 
Panel on Climate Change and also recently echoed in the report 
to the United States that indeed greenhouse gas emissions are a 
problem that increase the risk of climate change and could have 
significant negative impacts on the United States. And the 
primary emphasis that the Expert Group had in the area of 
solutions was to come up with a single economy-wide instrument, 
either a carbon tax or a tradeable permit system, that would 
send appropriate signals for efficient investment early, and 
they emphasized the need for early action, as Dr. Bernow did, 
in order to maximize the cost savings available. I can say a 
little bit more about what the Expert Group recommended on 
procurement and RD&D as well, if you would like. Thank you.
    [The prepared statement of Mr. Fairman follows:]

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    Mr. Ose. Thank you, Dr. Fairman. Our next witness to join 
us is George Sterzinger. He is the executive director of the 
Renewable Energy Policy Project. I believe you are based on 
Washington, are you not? Mr. Sterzinger is responsible for 
REPP's day-to-day operations. He has many years service in the 
area of energy policy and regulation. He has worked in Nevada 
and various other States. He has worked with a number of energy 
merchants to try and develop projects for photovoltaic 
production, am I right?
    I do want to welcome you, and we look forward to your 
testimony. You are recognized for 5 minutes. You need to turn 
that on. Push the little green button. There you go.
    Mr. Sterzinger. Thank you very much, Chairman Ose and 
Congressman Tierney. Since it often takes me more than 5 
minutes to get my audio visual equipment up and running, I 
thought I would just summarize the written comments and 
testimony that you have.
    I would like to do four things today. One is to describe, 
in general terms, part of the work that the Renewable Energy 
Policy Project has been undertaking, specifically to try to 
capture the job benefits and the economic development potential 
that flow from renewable development. The second is to describe 
what I see as the sort of long view of the energy, and 
particularly the electric sector, in the United States, what it 
looks like 20 years out and what the function of renewable 
energy can be in that picture. Third, to talk about some of the 
roadblocks to renewables that could and will prevent their 
being developed unless they are addressed. And then the fourth 
and final thing is to return a little bit to the work of the 
Renewable Energy Policy Project that we have been doing in the 
State of Nevada.
    So let me go back to the first. The Renewable Energy Policy 
Project works on a number of different issues related to 
renewable energy. We have just finished a study for the six 
Southeastern States on how they could fashion a clean and 
affordable energy future. But another thing that we have a 
strong commitment to is to systematically develop a very 
transparent and understandable tool that people can use to 
understand precisely what the job benefits will be from 
renewable energy development.
    Renewable energy is composed of a number of different 
technologies. Geothermal, biomass, photovoltaic, solar thermal 
and wind are the major ones. Each one of those different 
technologies have different job requirements, job 
opportunities, and skill requirements. What we have set out to 
do is start with a survey of the industries that are currently 
working in those areas to find out exactly what kind of jobs 
are involved in putting up a megawatt of wind, or in putting up 
a megawatt of photovoltaics, or in putting up a megawatt of 
biomass or whatever.
    We think that is a very useful tool because, to be quite 
honest, I think one of the great benefits of renewable energy 
is that it is modular and somewhat local so that ideally 
provided with the right tools a renewable energy development 
effort in a State or a locality could be seen in much the same 
way that any other economic development initiative was seen. It 
is going to provide a certain number of jobs; what can we do to 
capture those jobs; how can we bring as many of those benefits 
as possible to our State?
    So we first did--we started this work under a couple of 
foundation-supported grants, and we went out and basically did 
an initial survey of some of the technologies, solar and wind 
in particular, and looked at everything from the manufacturing 
levels of jobs through the installation to the operations and 
maintenance in order to get a very simple but hopefully non-
controversial number about what people could expect. We then 
put that into a very straightforward and hopefully also equally 
transparent economic model so that someone could see--and we 
used this in the State of Nevada, which I will get to at the 
end--someone could see if 100 megawatts were going to come in 
or 260 megawatts of wind were to come in, just to pick a 
number. You could see what to expect all the way from the 
beginning manufacturing process through the installation and 
through operations and maintenance. That model is available. We 
have made it available on our Web site. We have made it 
available to a number of other groups that are using it in 
specific communities that are considering doing solar in 
particular in order to show them in a very straightforward way 
what they could expect.
    We intend to continue to pursue that work. We would like to 
do it for all renewable technologies. We would like to update 
it on a regular basis, and we would like to make it available 
on a very sort of as frictionless or as easily accessible 
manner as possible. I think, again, it is very important that 
become part of the transition in seeing renewables go from 
something somewhat esoteric and very hard to comprehend to 
something that can be understood, much like locating automobile 
manufacturing or any other substantial economic activity would 
be in a State or locality.
    Let me switch now to a view of what the future looks like 
as a whole. I think one of the most fascinating pictures of the 
future is actually provided by the Energy Information 
Administration, which recently did an analysis of, among other 
things, the 10 percent renewable portfolio standard in a series 
of Senate bills. And what this study found I think is 
illuminating for a number of reasons. In part, it is the 
Administration--it is sort of a neutral voice or at least a 
somewhat neutral voice in analyzing these legislative 
proposals. And what it found when it looked at the business as 
usual unfolding of the energy system in the United States 
versus the 10 percent renewable portfolio standard was that 
moving to a 10 percent portfolio standard would lower the 
Nation's energy bills by 2020 by $15 billion a year.
    And it found this, I think, for a very interesting reason. 
Right now the United States uses about 24.5 trillion cubic feet 
of natural gas a year. That is for all uses--for industrial 
processes, for electric generation, for residential and 
commercial burner tip uses. When you look at the business-as-
usual scenario, the increase in the natural gas goes from about 
24.5 to 30 trillion cubic feet a year. That figure cannot be 
met by domestic production. It has to be met by additional 
imports. Those imports, in part, will come from Canada, but a 
substantial portion of them will come from liquified natural 
gas coming into the United States on tankers from Algeria and a 
variety of other places.
    When you go to the 10 percent renewable portfolio standard 
in this analysis--and I should add the Energy Information 
Administration's analyses are famously conservative with 
respect to the renewable technologies. I mean they themselves 
will admit--I mean I talk with them all the time, they admit 
that they are dealing with old characterizations of the 
technology with old resource maps and so on and so forth. 
Putting that aside, when you look at what a 10-percent 
portfolio standard would do, it reduces the use of natural gas, 
it reduces the reliance on these imports of LNG, it lowers the 
price of natural gas for all users of natural gas in the United 
States, industrial, commercial, and electrical as well, and 
reduces the energy bills by $15 billion.
    There are a number of ways of looking at the future of 
renewable energy, but that to me is very telling. I mean that 
shows, I think, that the technologies have reached a point 
where they are very serious contenders over the long run with 
fossil imports, especially of natural gas, in providing the 
electrical needs of the country.
    If that is the case, why are we here talking about it? Why 
won't it simply happen? I mean if that is what is going to 
unfold, if that is really the least expensive option? I think 
there are a number of reasons for that, and I want to just flag 
them. I have three major categories of reasons that operate 
against what would otherwise, I think, be recognized as cost-
effective renewable resources. They have to do with the 
financing, they have to do with sporadic nature of support, and 
they have to do with what I call regulatory details. As a 
Nation, as a whole, we have moved to a deregulated wholesale 
market, which basically relies on merchant plant financing for 
new generation.
    You have graphs from the Energy Information Administration 
in front of you. One of the most fascinating Energy Information 
Administration graphs that I have ever seen is a graph of the 
price of natural gas from 1930 to 2002. From 1930 to 1979, it 
was virtually flat. From 1979 to 2002, it can only be described 
as undertaking some of the most fantastic jumps and unplottable 
movements that anyone would ever hope to see. Nevertheless, 
merchant plants for natural gas can receive financing. The 
technology is relatively known, natural gas combined cycle 
plants.
    There are often in place regulatory mechanisms to allow the 
recovery of price fluctuations in natural gas that you don't 
see with respect to renewables. So there have been--all of the 
wholesale plants that have been developed in the last 3 or 4 
years, the natural gas plants, have received merchant plant 
financing. Renewables have not been able to break through that 
merchant plant barrier. They are perceived as having too much 
risk, they are perceived as not having the kind of cost 
recovery protection that natural gas has. That in itself is a 
significant barrier.
    Sporadic support for renewables. The investment tax credit 
has been on again/off again. If you look at the wind industry, 
the sort of installations, non-installations, the development 
of projects, the non-development of projects, has really hurt 
the development. If you look at where most of the wind turbine 
machines are coming from now, they are coming from offshore--
Denmark, Japan, and other places. If you look at the industry 
itself, you find that people are hired; there is a fantastic 
run-up to put projects in place, the construction project is 
inefficient as a result, the next year the tax credits may end, 
the industry drops, the number of installations drop, people 
leave the industry. So there is no systematic support, no long-
term known support for the industry. It prevents an orderly 
regulated development.
    Let me quickly go through some regulatory details. I think 
when you look at something as seemingly remote as the reserve 
requirements of a power pool or a power exchange, what you find 
is that as a result of developments over the last 20 or 25 
years, the reserve requirements will systematically favor large 
plants. In New England--and I was a commissioner in the Kunin 
administration for the latter part of the eighties and early 
nineties and had firsthand taste of this--the reserve 
requirements are based, in part, on the largest plant on the 
system. If that plant goes out, the reserve requirements have 
to cover it.
    Those reserve requirements are a social cost. Even if you 
don't own a piece of that plant, even if you never get an 
electron from that plant, if you are in that power pool, you 
pay that cost. When you go to renewable resources, a lot of 
them are perceived as intermittent, which means they are 
probablistic. They come on at times, they go off at times. But 
the probabilities of those resources are relatively well-known. 
And yet, the reserve requirements for those projects are often 
extreme. I mean oftentimes, in many parts of the country, a 
wind project will receive no capacity credit. If you are a 
purchaser of that power and you want to have that credited as 
firm, you have to go out and buy megawatt for megawatt, 
kilowatt for kilowatt capacity reserves to cover that. It is a 
very expensive cost penalty.
    I would submit that there is as much reason now, in the 
interest of the environmental profile with the electric 
generating sector and the security interests alone, reason to 
consider reforming the reserve requirements to take something, 
let us say, the spinning reserves, which are machines that are 
kept running on an ongoing basis so that they are ready to come 
online, using spinning reserves to cover the intermittency of 
renewable resources as a way to give them full capacity credit. 
Those are some of the examples of the kinds of minutia that I 
think prevent us. I mean, we know right now that if we move 
forward with this 10 percent portfolio standard, that the 
likelihood--the estimates are that the Nation's bill will be 
lower, our reliance on imported LNG, in part, coming from 
places like Algeria, will be reduced. And yet a lot of these 
barriers will prevent that from happening.
    Let me briefly, briefly talk about Nevada, because it is 
something that we are very pleased with. When we developed this 
job creation model, the State of Nevada had just passed a law 
requiring that it provide 15 percent of its energy resources by 
renewables by the year 2013. But there were still 
controversies. I mean, once you pass a law it has to be 
implemented, and there are still controversies. How much is it 
going to cost? Who is going to benefit from it? What kinds of 
economic development impetus is there? We made that model 
available in a cooperative agreement with the State AFL-CIO in 
Nevada, and I should stress that there was in no way any 
funding from the AFL-CIO. This is a completely cooperative 
agreement that we entered into with them.
    We wanted to do it, in part, because I think it is 
important that working people understand that these kinds of 
initiatives can really be an important stimulus for the local 
economy. I first met with the president of the Nevada AFL-CIO 
about 3 weeks after September 11th. Each week something like 
10,000 or 20,000 service workers had been laid off in Las Vegas 
alone, so they were very interested in economic diversification 
benefits. They were very interested in precisely what a 15 
percent portfolio standard could do for the State in terms of 
specific job creations. We were able to provide them with at 
least a transparent and understandable estimate of what those 
jobs are.
    Give you an example. If none of the manufacturing is 
located in Nevada related to the portfolio standard, there 
would be about 8,000 what are called full-time equivalent jobs 
created. If all of the manufacturing were to be relocated, it 
would be about 27,000 jobs. So one of our recommendations was 
that as the implementation of the portfolio standards go 
forward, incentives be provided to locate as much as 
manufacturing as possible within the State because of the job 
benefits.
    If a portfolio standard is really a complicated social--not 
complicated, but a multi-dimensional initiative to capture the 
energy benefits, the environmental benefits, the security 
benefits, and the economic diversification benefits, then it is 
appropriate in the implementation of those standards to 
recognize those benefits and to provide things like extra 
credits depending upon the content of the local manufacturing 
for projects that come online. If a project comes online and 
has more local manufacturing, then that project can and should, 
in my opinion, receive extra benefits for doing that.
    In conclusion, let me just say that I really appreciate the 
opportunity to come back and testify before you. I do think, 
Chairman Ose, what you said is exactly right: We need a modern 
energy infrastructure, and I think a substantial development of 
the renewable portfolios and technologies can provide that. 
Thank you very much.
    [The prepared statement of Mr. Sterzinger follows:]

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    Mr. Ose. Thank you, Mr. Sterzinger. The Chair recognizes 
the gentleman from Massachusetts.
    Mr. Tierney. Thank you, Mr. Chairman, for this opportunity 
to introduce a gentleman who runs a corporation here in the 6th 
District. Spire Corp. develops, manufactures, and markets 
highly engineered photovoltaic module manufacturing equipment--
and if we can get everybody to say that three times fast, we 
will be in good business--and provides advanced surface 
treatments for the biomedical industry. Millions of solar cells 
have been processed into modules Spire equipment. Spire's 
photovoltaic production equipment has been used to manufacture 
more than 90 percent of the photovoltaic modules on the market 
today. Spire equipment can be found in 141 customer facilities 
and 38 countries. The company was recently awarded a $2.7 
million contract to provide a photovoltaic module production 
line to a company in Cyprus. Spire employs 100 people in the 
Bedford, Massachusetts area who manufacture equipment used to 
make parts for PV equipment, and Spire also has a plant in 
Chicago where it works for the city of Chicago, the 
Commonwealth Edison, the Illinois Department of Commerce and 
Community Affairs, and BP Solar. The company builds solar 
panels, integrates them into PV systems, and maintains the 
systems. To date, the company has installed 500 kilowatts of PV 
systems in Chicago, and it is my understanding, Mr. Little, 
that you employ about 100 people, am I right?
    Mr. Little. Not in Chicago, but in Bedford we do.
    Mr. Tierney. In Bedford, Massachusetts.
    Mr. Little. Yes.
    Mr. Tierney. Which is of much more interest to me than 
Chicago, believe me. [Laughter.]
    Mr. Little. Yes.
    Mr. Tierney. I am happy to introduce Mr. Roger Little, the 
CEO of Spire Corp.
    Mr. Little. Thank you very much. This shows you solar 
electric systems in the field. Solar electricity is made from 
semiconductor materials. My assistant Dennis there has some 
solar cells that he will pass around, and you can keep them. 
They are fragile, they may break, but don't worry about it, 
they are cheap. So, solar electricity--the sunlight produces 
about a kilowatt per square meter, so if you have a module 
about the size of one of these boards, it will produce 150 
watts of electricity. And, you put them all together and you 
have big systems, and they produce lots of electricity.
    The market has been growing. I often say it is like a 
freight train. You can't stop it; it has great momentum. It has 
been growing at 25 percent per year for a decade. It will 
continue to grow. One of the reasons is that the world's 
population, about one-third of it, does not have electricity. 
So the bars show the growth of the market. This year it is 
about $3 billion. It is being helped a lot by favorable 
government programs in Japan and Germany, not so in the United 
States. The solid line shows a declining U.S. market share. It 
started at 80 percent back when, and currently it is down to 
about 30 percent. So one of the things we need to do is make 
this a more favorable climate for the manufacture and 
deployment of these solar electric systems.
    By the year 2020, we envision that we will have as much as 
10 billion watts of solar electricity covering various parts of 
buildings and various parts of the Earth. Small regions of 
Arizona, a 100 square-mile area, could provide all the solar 
electricity that you need in the United States.
    Solar electricity is clean, so it has a significant effect 
upon the reduction of CO2, but more importantly, it makes jobs. 
So we could envision in the year 2020 to have almost a half a 
million jobs, quality jobs, producing solar electric modules 
and panels and systems to put in the field in the United 
States.
    But you can see what has happened to market share and where 
the stuff is being made. You can see that the Japanese most 
recently have really made inroads. Sharp just announced that 
they are coming strongly into the United States, so even though 
the markets in the United States are growing, the competition 
worldwide is becoming more and more severe, especially coming 
out of Germany and Japan, where they are developing these 
markets and this business for international export.
    Spire down in Bedford makes the equipment that makes the 
modules and also uses its own equipment to produce the modules. 
We have factories all over the world. It turns out, as I 
mentioned, that a great number of people in the world don't 
have electricity so that the factories generally go in 
developing nations. So we have factories in Kathmandu and 
Cerreto and places like that. Only recently have we come to the 
United States. We have established a factory in Chicago because 
the city of Chicago has provided us with favorable terms for 
the purchase of systems that we produce in that factory.
    We recently, my assistant and I, went to Chicago and met 
with Mayor Daley and cut the ribbon on our new factory, and it 
is scheduled to employ about 50 people. We produce systems that 
the city purchases from us, puts on museums and schools. We 
have a number of schools with PV systems on the roofs, and it 
is a growing area. And we hope that we can export or we can 
duplicate that model throughout the United States. We believe 
every major city should have a PV production facility, 
certainly in the States themselves. We hope Massachusetts is 
going to be one in the not too far distant future, because of 
their own deregulation legislation, which sets aside certain 
money for these purposes.
    That pretty much covers the points I wanted to cover. I 
would just like to say that one of the things that could help 
would be to continue or to expand the Department of Energy R&D 
budget as the current administration has not considered that a 
good place to put money to improve this technology and reduce 
its costs. Thank you very much.
    [The prepared statement of Mr. Little follows:]

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    Mr. Ose. Thank the gentleman. Thank you, Mr. Little, for 
your remarks. The typical manner in which we proceed is we will 
ask questions now and we alternate. Out of deference to being 
in Peabody, we are going to let Congressman Tierney go first, 
so the gentleman is recognized.
    Mr. Tierney. I thank you, and thank, Mr. Chairman, for that 
deference. We could be here the better part of the week, I 
suspect, if we wanted to talk about all the issues that you 
brought up, but let me start with a general question, if I 
could, for the panel, and maybe we could just clip some short 
answers if that is possible. If I asked each of you to just 
give me the rundown of what are the three most important public 
policy things that could be done to move us in the direction 
about which we talked, would you just list those for us, for 
the record, starting with Mr. Bernow.
    Mr. Bernow. I would say progressive Corporate Average Fuel 
Efficiency standards for vehicles that would push the 
technologies for transport, a progressive renewable portfolio 
standard reaching probably as much as 20 percent by the year 
2020 and some for of direct control on CO2, either through an 
electric sector cap-and-trade system or an economy-wide 
auction-and-trade system for carbon dioxide.
    Mr. Swift. Do I get to vote for his and also give you some 
new ones?
    Mr. Tierney. Absolutely. That is what I am looking for.
    Mr. Swift. That sounds great. No, I totally agree with the 
need to cap carbon, implement a carbon policy as a major, major 
priority. I would also like to add, I would like to see the 
substitution of cap-and-trade systems for these inflexible New 
Source Review type requirements, understanding we can't let go 
of those until we have a better system, but there are much 
better systems that should substitute for those. Second, 
reiterating a point made, I would like to see a wires charge on 
all electricity that would go to support research and 
development. This is a critical, critical lack of funding for 
research and development in this country. And, third, I think 
the car issues, we have got to implement the hybrid electric 
vehicle comprehensively through whatever regulatory strategy we 
can, such as increased CAFE standards.
    Mr. Tierney. Thank you. Mr. Fairman.
    Mr. Fairman. Thank you. Again, speaking on behalf of the 
Expert Group and highlighting their priorities, I think No. 1 
would be in transportation, yes, to increasing fuel efficiency, 
perhaps not only through CAFE but through some blend of 
incentive measures. This group is particularly interested in 
the notion of feebates and also in a tradeable CAFE standards 
credit, which I can say a little bit more about if you are 
interested. Second, in the electric sector, although there is 
strong interest in renewables, there is even stronger interest 
in leveling the playing field for distributed generation and 
for efficiency to be equally cost competitive in a still 
somewhat regulated environment where utilities have a regulated 
rate of return. And, third, with regard to climate, echoing the 
point made earlier, a single economy-wide instrument, 
preferably a tax or a tradeable permit system.
    Mr. Tierney. Thank you.
    Mr. Sterbinger. Let me concentrate mainly on the electric. 
I certainly agree on the transportation. I think that we 
desperately need reorientation of the research and development 
and demonstration effort in the United States. Everybody has 
said it, but I think that one simple way to think of it is the 
statisticians talk about Type I and Type II errors, and 
Catholics talk about sins of omission and sins of commission, 
and it is very important distinction. I mean, sometimes I think 
we worry about not doing something that may be wrong rather 
than making sure that we--and neglect the fact that we are not 
doing something that is right. I mean you can really overly 
protect yourself and sort of erect barriers to doing anything 
because it might be wrong, and you lose the opportunity to move 
ahead.
    I think research, and development, and demonstration. The 
demonstration part is an important part of that piece because 
the renewables industry in particular is characterized by 
staggering amounts of innovation on all the different fuels and 
conversion technologies, in laboratories, and in think tanks, 
and in universities around the country. And, I forget who but 
someone mentioned the performance of the venture capitalists 
and going through the Death Valley, from the prototype to the 
market acceptance, and that is extremely important. I think 
that Government assistance, appropriate Government assistance 
blended in in the right way to make sure that there is a way to 
take viable technologies with potential market adaptation 
through not only the research and development but also the 
demonstration.
    Demonstration generally means performing under market-like 
conditions on commercially acceptable terms. That last step is 
very, very important. And, if you look at industry from 
industry to industry to industry, you will see that the wind 
technology has moved offshore, the photovoltaic technology is 
moving offshore, and there are equally important stories along 
those. So I think it is very, very important to pursue that.
    I think it is also important to recognize that there are 
both Federal and State initiatives, and one of the Federal 
initiatives could be to encourage aggressive State actions. 
Right now, not to belabor the point, but the State of Nevada 
has this 15 percent portfolio standard. A firm 5-year 
production tax credit available for all renewable technologies 
will actually provide a benefit to that State because tax 
credits will tend to flow to it. There may be other ways in 
addition to sort of encourage States to move beyond what may be 
the comfortable Federal level on a renewable portfolio 
standard. I think it is a time when movement forward really 
should be encouraged on both levels. The State actions can feed 
the Federal actions.
    There was a joke during the Enron time about how they would 
have a big policy matrix that they would go down and look at 
the cost of every policy in order to figure out what it was 
going to cost them, and I think there is--I am sure they did 
that. A lot of other people do it as well. I think as you move 
forward, toward climate change, toward carbon caps, and so on 
and so forth, I think it is very important to recognize that 
there is that kind of policy matrix, people do look at the cost 
of it. And I think by pushing this State innovation you can 
feed Federal actions. By pushing those Federal actions, you can 
bring along the technology that will actually reduce the costs 
of meeting all those long-terms goals. So I think that is also 
an extremely important change.
    Mr. Tierney. Thank you.
    Mr. Little. I certainly support what has been said. I would 
just emphasize that the DOE, Department of Energy, solar energy 
budget has taken hits over the years, and it really is the 
foundation for reducing costs of solar electric energy. And 
that, of course, leads to the growth of the business in the 
United States.
    Mr. Tierney. Just a minute ago, Mr. Sterzinger was talking 
about the Federal Government taking some action to encourage 
aggressive State action. What types of flexible policies do you 
think might the Federal Government consider to bring about that 
kind of reaction or do you think that is not the proper way to 
proceed?
    Mr. Swift. I think States are great sources of innovation 
and progress, and I think Massachusetts has had a history of 
that. Bringing about that through Federal policy is a complex 
matter that would depend on the sector and set of regulations 
involved, but things that--I mean let me give you one example, 
the cap-and-trade systems we are talking about for carbon or 
for the----
    Mr. Tierney. Would you explain a little bit for folks that 
are here? We are always referring to it as the cap-and-trade 
system, but it might bear some explanation.
    Mr. Swift. Sure. There are basically two or three paradigms 
by which you can regulate environmental contaminants and 
pollution. The traditional way is to set rate-based standards 
for every pipe, and that was embodied in the 1970's Clean Air 
Act and Clean Water Act in which Congress, reflecting public 
understanding, visualized technologies such as the internal 
combustion engine or coal-fired power plants to be permanent. 
And the only thing you could do with them to achieve 
environmental quality was you put a gizmo at the end of the 
pipe to reduce that pollution. And that is embodied in 
standards like the famous BACT, RACT, MACT standards of the 
Clean Air Act. And I want to explain that as other than to 
say----
    Mr. Tierney. I was going to say that was very helpful. 
Thank you. [Laughter.]
    Mr. Swift. Under these standards, the Federal Government 
requires State governments to impose rate standards on their 
plants, and the ``ACT'' part of it is ``Available Control 
Technologies.'' If you are a new plant, it is ``Best Available 
Control Technologies.'' If you are an existing plant, it is 
reasonably available control technologies.
    But what I want to point out is that the standard is based 
on ``available''-- which means existing--``control'' 
technologies, which means end-of-pipe. What you really want are 
innovative process technologies. I have seen many of these 
innovators with these brilliant technologies just crash against 
the rocks of the bureaucracies saying, ``You are not available. 
Show me where you have been demonstrated and practiced 
before.'' And they say, ``Well, of course I am not available, I 
am innovative.'' ``Are you a control technology? EPA has given 
me this ACT document--Available Control Technologies document--
I don't see you in there.'' ``Well, of course I am not. I am 
not a control technology, I am prevention.'' And they go into 
this dialog for years and years, and by that time the money is 
over and they are finished as a business, even if they have the 
best, most imaginative, greatest product.
    So how do you get States to be forward-looking? I think one 
way is to create these more automatic systems, like a cap-and-
trade system that creates a cap over the entire industry, 
limiting pollution, so that it will never rise again. In 
contrast, rate-based standards allow pollution to increase with 
growth, the allowance trading program allows the reductions to 
be made in an effective place.
    What I might mention to the Congressman is that you have 
got to think a little bit about how these systems mesh with the 
States. In my opinion, something we don't do in these laws, 
such as the acid rain law, is that States, in a sense, are not 
allowed to take these allowances off the table. If a State 
wants to do more stringent regulation, I think it should be 
allowed to take allowances off the table. A State should not be 
allowed to tinker with the system the way New York did in 
saying you can't sell upwind, you can only sell downwind, 
because that is too great an interference with the working of 
the system. But States should be able to take allowances off 
the table.
    Mr. Tierney. What do you mean by taking allowances off the 
table?
    Mr. Swift. Well, Massachusetts just passed a four-pollutant 
bill, and it was purely through rate-based approaches. One of 
the points is that once you have a cap-and-trade system, which 
is what we are under in Massachusetts for NOx and SOx, rate-
based regulation no longer provides any environmental benefit, 
because the--I forget the names of the plants here--Salem 
Harbor, for instance, it reduces its pollution, but that will 
migrate to a different place. And, even though the cap-and-
trade systems are far better overall, I would think you do want 
to allow a State to say, ``Well, if you are going to reduce 
your pollutant, we are going to capture that and take your 
Federal allowances off the table.'' But you are going to need a 
Federal act authorizing you to do that, because otherwise it is 
interference.
    The simple point is that you have got to think a little bit 
about how cap-and-trade meshes with State-based regulatory 
systems. And it gives you some more opportunities to allow 
States greater powers, but they have not been taken advantage 
of so far.
    Mr. Tierney. Thank you. Mr. Sterzinger or Mr. Fairman, 
either one of you on that, you both mentioned the progressive 
renewable portfolio standard, and I assume you are both 
familiar with that part of the Senate energy bill that deals 
with that. Would you tell us your impression of the Senate 
bill's content in that regard as opposed to where you would 
like to be or like to see the policy drive, whichever order you 
like.
    Mr. Sterzinger. I think the Senate bill, at least the last 
time I looked at it, was disappointing. It does set a portfolio 
standard, but it has about three or four significant exemptions 
which really weaken it. It exempted all municipal and co-op 
systems, it defined the percent in a confusing manner--the last 
time I had seen anything like it was when I was reading the 
instructions on how to file my Internal Revenue Service taxes. 
I mean it was 10 percent, but it is 10 percent of the sales 
minus the 10 percent that is renewable, so it lowered it a bit.
    Nevertheless, I think it is positive primarily in that it 
will provide a floor. I think the great benefit of the 
renewable portfolio standard is that it requires the affected 
States or the affected retail sellers of electricity and the 
State regulators that oversee them to break through this 
roadblock of contracting that has basically stopped renewable 
development or--well, it has certainly slowed it down. So I 
think any renewable portfolio standard is a step in the right 
direction.
    I worry if the impact gets too small that the 
implementation costs, the processes of starting it, the 
potential controversies that might arise if one State has to 
basically send money to another State as a result of it, can 
overwhelm the benefit. So I would like to see it made 
applicable across all of the different providers. Not to pick 
on Nebraska, but basically the entire Nebraska is exempted 
because it is a municipal electric system, so any renewables 
that they develop they could sell to Illinois, which would then 
prevent the development of renewables in Illinois and result in 
people sending money out of Illinois into Nebraska. In my 
experience, in State regulation and a lot of others, people 
don't like to send money across State lines. There is a real 
strong local component to this that I think you need to be 
careful of.
    If I could just say one more thing. On the sort of what the 
Federal Government can do to increase or encourage initiatives 
in the State, I think it is important to sort of step back from 
this. There are plenty of examples in the transportation sector 
and others of where every sort of--or a number of Federal 
supports are sort of bundled together and then aimed at 
inducing the State to do something or making sure they don't do 
something else, like break the 55-mile an hour speed limit or 
live within their NOx budgets, or something like that.
    I think on the renewable side, you know, you can think of a 
number of things. Everything from allowing a production tax 
credit maybe only for States that are above the national 
standard, all the way to trying to find ways to coordinate 
something that is seemingly remote as the community development 
support under the U.S. Treasury Department for the support and 
development of local businesses that would be part of the 
cluster of activities that would result from these aggressive 
standards could all be brought to bear for a State that chose 
to do something more aggressive than a national standard, so 
that you are really creating a number of supports and 
incentives to get the States--so that people just don't say, 
``Well, there is a national standard, there is nothing more we 
need to do.'' I think that would be really wrong. Even if there 
is a national standard, there are a lot of reasons to try and 
get the States out there proving that they can do more, proving 
that it is good for them, proving that they can capture these 
benefits, proving that it is supported by the electors of their 
States.
    Mr. Ose. Would the gentleman yield for a moment?
    Mr. Tierney. Certainly.
    Mr. Ose. Mr. Sterzinger, you talked about four exemptions 
in the Senate bill under the renewable portfolio title.
    Mr. Sterzinger. Yes.
    Mr. Ose. Munis and co-ops, is that two or one? Munis is 
one, co-ops is two?
    Mr. Sterzinger. No, that was one. I am not sure I can 
remember every one. Go ahead, though.
    Mr. Ose. Well, I am curious of the other three, and I guess 
this question kind of jumps over to Mr. Little in that if there 
is a whole slew of exemptions on the renewable portfolio title, 
does that not mean that the 50 jobs, for instance, that Mr. 
Little's creating in Chicago or the 100 here in Bedford are put 
at risk?
    Mr. Sterzinger. I don't think it is----
    Mr. Ose. If these things are tradeable across State lines.
    Mr. Sterzinger. Well, I don't think it puts at risk Roger's 
current level. I think it may affect his plans for expansion in 
Illinois or in Massachusetts or in other places, but I will let 
him speak to that.
    I am trying to remember the exemptions or the modifications 
in the Senate bill, and I am not coming up with them right now; 
I apologize. Generally, it led to something that was I think a 
very moderate--if you looked at the real net introduction of 
renewable capacity between now and 2020, it was very moderate, 
and it did raise some concerns.
    Mr. Little. Well, of course, the jobs are local, so even 
though you might trade credits across various regions, people 
want manufacturing in their city, so that always goes in our 
favor. As a member of the Solar Energy Industries Association, 
we support the Senate bill, especially net metering, so this is 
something you can have a major effect on, net metering. But 
also the Senate bill only requires States to consider net 
metering, not to really do it. But if there were some 
legislation which says net metering should be done throughout 
the country, that would help a lot.
    Mr. Ose. I thank the gentleman.
    Mr. Tierney. Mr. Little, while I have your attention, tell 
us what they are doing in Germany and Japan that perhaps we 
ought to consider doing here to facilitate the growth of the 
solar industry.
    Mr. Little. Well, solar electric technology is expensive, 
and so they have various means of offsetting the cost to the 
customer. In Japan, the homeowners are provided with 30 percent 
subsidy for the systems they put on their roofs. So they have 
been oversubscribed in Japan for electrifying homes. In 
Germany, one incentive they have is to buy back the electricity 
from the person who might have it on his roof at very favorable 
rates, at rates which are higher than that person pays for his 
electricity from the utility. And, that has caused homeowners 
to almost become small micro utilities themselves, and that has 
stimulated the market.
    Mr. Tierney. Thank you. Mr. Bernow, the efficiency 
standards that I mentioned in my opening remarks for 
appliances, I believe, are saving a huge amount of money and 
projected to save much more by 2020. Can you extrapolate out on 
that and tell us whether you think that the adoption of 
additional standards for other appliances is possible, and what 
might some of those be and where would it take us?
    Mr. Bernow. The efficiency standards that are embodied in 
our study--by the way, a study that used the Department of 
Energy's models, the same model that was used by the Department 
of Energy and Environmental Protection Agency's clean energy 
future study--those standards are more aggressive than the ones 
that are now embodied in law. They are in our study and in 
related studies that we cite. They cut across all end uses, 
from the use of heat pumps, cutting-edge technologies to do 
both heating and cooling, to fuel cells, to cutting-edge air 
conditioning, dishwashers, all appliances, new building codes, 
all of which are well-established technologies and techniques. 
And they cut well beyond what is currently embodied in the 
standards.
    Mr. Tierney. Mr. Swift, can we do that in a way that is 
mandatory and flexible?
    Mr. Swift. Of course. I was actually going to comment on 
your question that every study you can read out there will tell 
you that we can save 25 percent of our national energy through 
profitable energy conservation measures. And, it is remarkable 
that none of us, however, mentioned that in our top three 
priorities because the problem has been so intractable. How do 
you get lots of consumers to take small actions? And, need I 
tell you what would work like a charm is raising energy prices?
    Mr. Ose. Have at it, Mr. Swift?
    Mr. Swift. Exactly. It is the T word, and that is why the 
issue of taxes also doesn't even enter our discussions. It is 
not viable, and how to create the drive for efficiency through 
a sensible, flexible regulatory mechanism has frustrated 
people, and I don't have a good answer. We were getting there 
with the power industry before deregulation, and I know there 
are some good thinkers that would have some suggestions for 
your office, but there are no easy answers, and I would have to 
consult them for a more sophisticated answer.
    Mr. Tierney. We may get back to you for that.
    Mr. Swift. Thanks.
    Mr. Tierney. I think two areas. One is individual 
consumers, obviously, and we have got to find some way to 
motivate them to do it. I think leadership has a lot to do with 
that. I think people are still afraid they are going to have to 
put on Jimmy Carter's warm sweater, and that is no longer the 
case. The technology has come so far since the 1970's that is 
not the issue, and we somehow have to project that up and put 
it on our screens and get some leaders out there talking about 
this on a regular basis so that people are encouraged to do it.
    The other note I make is the impact on small business. The 
amount of moneys that small businesses can save in my district 
and Congressman Ose's district and others somehow has to be 
brought home to them. We have people in this district that in 
fact have won green awards for putting together buildings that 
saved them almost 85 percent of their electricity costs and 
their energy costs in their buildings. And, if people would 
understand that--I was a small business person for 22 years. 
You would love to be able to save that kind of money on your 
energy moving forward. So we have to find a way to get that 
information out there and do it in a way that is somehow going 
to be digested. Because I suggest, as you saw Mr. Ose's 
reaction on that, if you want to raise the taxes on it or you 
want to do something of that nature, have fun. We will see 
where that gets us all.
    Mr. Fairman, you made a point that I think can be helpful, 
though, and having read the NEPI report, which, Mr. Ose, we ask 
that report, by unanimous consent, be placed on the record----
    Mr. Ose. Without objection.
    Mr. Tierney [continuing]. Together with the other 
witnesses' reports and materials.
    Mr. Ose. Without objection.
    Mr. Tierney. Thank you.
    [Note.--The NEPI report referred to may be found in 
subcommittee files.]
    Mr. Tierney. You mentioned purchasing. Will you expand on 
that a little bit about just what the Federal Government and 
the State governments could make as an impact if they change 
their purchasing policies with respect to efficiency and 
conservation as well as renewables and things of that nature?
    Mr. Fairman. Thank you. I can elaborate a little on that. 
If I may take a moment, I had just wanted to make two brief 
comments with regard to the renewable portfolio standard and 
efficiency, very briefly.
    Mr. Tierney. Go ahead.
    Mr. Fairman. The Expert Group did not reach consensus in 
support of renewable portfolio standard and that was primarily 
because of a combination of philosophical and practical 
differences between those who see the main focus needing to be 
the removal of barriers to competition on the performance-based 
standard for different kinds of energy supplies as well as 
demand side initiatives on one hand and those who feel strongly 
that transformational efforts like the development of the 
renewables industry require a more proactive Government action.
    So just to be clear about this, some in the room felt that 
the best way to support the development of renewables as an 
industry is to have clear, across-the-board requirements for 
utilities in the purchase of power that significantly penalize 
dirty sources. And, that if you did that along with removing 
other regulatory barriers, as was alluded to before, to the use 
of renewables, that you would, in fact, get the same effect 
without some of the, from the point of view of an economic 
purist, distortions involved in creating a standard that 
immediately gets you tied up in knots around an interstate 
transmission and regulation.
    On energy efficiency, I just want to emphasize that the 
Expert Group felt very strongly about the availability of many 
options and programs that could substantially improve 
efficiency across a range of sectors, as Dr. Bernow's 
presentation alluded to. And, I just want to mention, as a 
footnote, one program that is separate from this initiative my 
organization was involved with called the Northeast Energy 
Efficiency Partnership that is very much actively engaged in 
market transformation efforts, especially targeting medium and 
small businesses, and a lot of the leverage comes through 
changing the incentives for utilities to do more aggressive 
outreach, to have financial incentives to do so, to promote 
efficiency investments among their customers.
    With regard to purchasing and procurement then, I think the 
main thing that the group wanted to focus on was the reality 
that Federal procurement practices have already had a 
significant impact in industries, such as automobile 
manufacturing, to some extent in appliances, and that could be 
further leveraged through more aggressive requirements and 
standards for purchasing. The group did not discuss any 
individual program ideas in depth, but felt strongly that there 
is a wide range of options available, especially in regard to 
buildings and facilities.
    Mr. Tierney. Thank you. If people were to look at the 
energy consumption by sector, a chart down there, they would 
see the transportation dollars up almost 27 percent of the 
energy, and all of you, you were universal in your comments 
about the corporate--the CAFE standards--and the reason I got 
hung up on the word ``corporate'' was Doug reminded me I used 
the word ``carbon'' earlier and I shouldn't have--but the 
Corporate Average Fuel Efficiency standard. Any 
conservationalist or environmentalist would have to be 
disappointed with the reluctance of Congress in both bodies, in 
both parties to move on this issue. And, I think, it is an 
absolute disgrace that the Congress cannot find a way to change 
the standards, particularly when you look at the amount of 
gallons that have been saved with just the standards that we 
have so far and the huge amount of money that has been saved by 
the consumers over the period of time. Do any of you care to 
make any comments about the CAFE standards and what we can do 
to break what seems to be an intransigent group of Democrats 
and Republicans, many of whom are from automobile manufacturing 
States, or whatever, who seem to not realize the potential or 
the danger of losing that business, much as we had the problem 
with other countries building smaller cars in earlier years? 
Mr. Bernow, you want to comment?
    Mr. Bernow. Well, I would say, just rolling this discussion 
back a bit, this is true for both appliance and building 
efficiency standards as well as fuel efficiency standards for 
automobiles. This is a tried and true policy and it has worked 
for appliance equipment and in households and in offices, and 
it has worked for automobiles. Massive savings on both 
accounts. This is a well-known regulatory procedure, which 
economists would admit sometimes the standard is the most 
efficient way to reach a goal and not necessarily the market.
    I would say with regard to the Corporate Fuel Efficiency 
Standards for automobiles that there are real benefits to be 
gained. Our study shows that when we break down the job impacts 
by policy and we looked at this to some degree specifically for 
the fuel efficiency standards, we were able to see that there 
were job increases associated with the savings that households 
would reap from those greater efficiencies. Those savings are 
re-spent throughout the economy, small businesses especially, 
and so there are job impacts, job savings, that could be part 
of the way in which we can convince ourselves and the citizens 
and lawmakers to take this quite seriously.
    Mr. Tierney. Anybody else care to comment?
    Mr. Swift. Well, I think it is--I am far less in statute to 
yourselves and others on the political issues, but how to 
convince the AFL-CIO that they could make as much money 
building a high-technology car as a fuel-inefficient car seems 
to be one of the greatest single needs to move this issue 
forward.
    Mr. Tierney. Interesting enough, as you bring that up, one 
of my colleagues from Michigan has told me that in running a 
poll of people out there and asking about the CAFE standards 
and other standards like that, 65 or 68 percent of the people, 
even in union households out there, favored moving to a cleaner 
technology and a cleaner car. So I think there may be some 
disconnect between the Washington hierarchy there and the local 
situation, and a lot of it probably has to do with education 
and reaction on that. But you are right, that is as much a 
serious barrier, as is the attitude of organized labor toward 
jobs and job loss. But I think there has been a significant 
amount of work done and Mr. Sterzinger's work out there has 
gone a long way toward sort of breaking through the 
stereotypical attitudes on that.
    We didn't speak to this particular aspect of it, but I had 
a long conversation a couple of weeks ago with Kent Conrad, a 
Senator from North Dakota, and we talked about the farm bill, 
and without getting into that avenue--I think it was an 
abomination, but others may have different views on that--but 
one of the reasons we are giving huge subsidies to farmers is 
their at least asserted inability to get back a profit on their 
acreage out there. Tell me whether or not this is your view, 
but one of the experts at this conference with Kent and I was 
saying that you could probably lease or get almost $4,000 per 
acre in lease funds for wind farms. In a State like North 
Dakota, which would make a significant difference with making 
those areas profitable, because they are now only making 
somewhere between $350 and $750 per acre in profit for what 
they are growing, it would go a long way toward removing the 
need for subsidies and in a large way toward keeping farmers 
farming while they are also profitable. The problems seem to be 
that not enough money being spent on the dual issues of 
storage, some way to capture that energy and preserve it, and 
then transmission, some way of connectivity, of getting it out 
there. Would anybody care to comment on that? Mr. Sterzinger.
    Mr. Sterzinger. I spent 3 days in Bismarck, North Dakota a 
couple of winters ago, so I actually--it was before I started 
to work at the Renewable Energy Policy Project and I had a 
client, the Turtle Mountain Indian Tribe, that is up near the 
Canadian border that was trying to develop wind. There were 400 
farmers that came to that meeting in the middle of the winter 
in Bismarck, and that is exactly the reason that they came. The 
current royalties are between $1,000 and $2,000 per megawatt 
per year, and with the current size of wind turbines, depending 
on the topography of the land, it is a very, very realistic 
goal.
    Interestingly, people also were talking about the 
agricultural co-ops joining together so that the best land 
would be used for the wind development without having 
necessarily a windfall--no pun intended--go to a few landowners 
and that the money be shared by the co-op as a whole so that 
the development could be more orderly.
    There is absolutely no question--in that conference, I 
mean, they asked someone from the Western Area Power 
Administration to come and talk about what could be done. And 
they said, ``Well, from our perspective, the best you could do 
is 50 megawatts exported from the State before you destabilize 
the system.'' And, I have always believed that asking a 
transmission engineer what can you do is exactly the wrong 
point to start any of these discussions, because transmission 
is one of the fundamental mysteries of the universe, and it is 
very difficult to tell exactly what is going on in a 
transmission grid. It is very hard to prove that you can do 
something, and a lot of the law firms in Washington I think 
really make their living, their bread and butter is on 
transmission disputes before FERC and on other sort of related 
issues.
    My feeling, I would differ slightly on the idea of storage. 
I think if you had a very economic storage technique, that 
would be doable, but to my mind, the great problem is the 
transmission interconnections out of North Dakota to the 
markets that can use them. And, I guess, the sort of really 
remarkable, I don't know if it is an irony, but the 
juxtaposition was that the Western Area Power Administration 
had been formed precisely as a transmission grid to bring power 
from remote hydroelectric dams to markets.
    And, there they were saying that remote wind projects--and 
the potential in North Dakota is gigantic. I mean the wind 
resource, the class four to six wind resources are absolutely 
phenomenal and the amount of energy that you could generate is 
substantial. I think that the capacity issue can be addressed 
in other ways. I mean I do think that the reserve and capacity 
requirements of power pools need to be rethought. We subsidized 
large individual units and we penalize unmercifully 
intermittent, probablistic resources.
    I think I would go first for a transmission effort. 
Somebody should think about at least a transmission effort to 
parallel the Western Area Power Administration, what they did 
for hydro in terms of what they could do for the wind resource 
that is out there right now. I would look at the reserve 
requirements of the different markets and try to find ways to 
sort of address those. But there is no question. I mean 400 
farmers, and people vote with their feet, 400 farmers in the 
middle of winter coming to a conference on wind development was 
an absolute blueprint stamp of approval on what they thought 
the economic potential was.
    Mr. Fairman. Just briefly, the question of what farmers 
have to do with the energy sector came up in several ways in 
our discussions. Three main things were cited. One, of course, 
is the wind power option; the second is the growing of 
cellulose as thick grasses that can be a double benefit, both 
as a fuel source and as conservation tillage, and the third was 
perhaps even more interesting, some experiments that have gone 
on in the West involving farmers agreeing to use land for 
carbon sequestration in order to give power plants who had 
supplied them carbon credits. These, of course, have no current 
regulatory value in the United States because we don't have 
carbon regulated, but there have been some interesting 
discussions in a couple of pilots to see whether that kind of 
package can be put together. So I think that there are many 
areas of relevance. This Expert Group mainly focused on the 
idea broadly of trying to integrate the farm sector effectively 
in the strategy.
    Mr. Little. I just might comment that certainly the real 
estate is important in renewable energy because it is such a 
diffuse source of energy. We take it a step further in 
photovoltaics. We try to put big arrays on brownfields and get 
the offset that you get from not having to clean up the 
brownfield as much as you would normally do. So we get a 
benefit by covering a brownfield with a photovoltaic array.
    Mr. Tierney. Let me ask you, Mr. Little, we have a sizable 
area over in Lynn that used to be the General Electric Plant. 
It is still there but a lot of the property has been out of 
use; in fact, some of the buildings have been taken down and it 
has been leveled off and fenced in. And we are talking many 
acres of land. Is that the type of area that a company like 
yours could go in, utilize as a manufacturing facility and do 
something with?
    Mr. Little. That is a perfect situation. In fact, we are 
studying a situation just like that now in Brockton where they 
have a brownfield, and we are studying the feasibility of 
putting a factory on the brownfield, producing modules and 
covering the brownfield to cut back on the cost of cleanup.
    Mr. Ose. Gentleman, I have a number of questions. Mr. 
Little, I first want to apologize. Neither John nor I are an 
engineer, but we have managed to damage both of these, and they 
are on the exact same diagonal cut, so there is something in 
your manufacturing process about putting these things together 
right at this point. So we apologize for damaging private 
property.
    A couple questions if I might. Congressman Tierney asked 
you each about the three most important aspects, and you all 
talked about the cap-and-trade programs or some variation 
thereof. But Dr. Fairman, you talked about distributed 
generation versus transmission, and we have had untold agony in 
California about this issue. We could talk about the relative 
efficiencies of this kind of transmission facility in hot 
weather versus this kind in cold and the difficulty of building 
lines and what have you. The Expert Group talked about this and 
they had a recommendation. Could you expand on what you talked 
about within the distributed power discussion that you had?
    Mr. Fairman. I will do my best. The main focus of the 
discussion was that in principle distributed generation can 
have several different kinds of benefits. One, it can help 
diversify sources of energy and potentially in some areas make 
less polluting sources more competitive. For example, the 
combined heat and power option, which is a form of efficiency-
increasing distributed generation. Another example is having a 
small wind farm that could supply a local area more cheaply 
than it could if it was required to supply a broader area. It 
goes also back to some of the regulatory disincentives for 
small producers to try and join the grid.
    Second was the notion that distributed power as a national 
security strategy makes a lot of sense. If large facilities are 
more vulnerable to disruption, you get greater resilience from 
a security standpoint from greater distribution of those 
assets.
    And, the third was that if the interconnection of many 
different forms of distributed generation could be made simple 
and easy, you could, in a longer-term scenario, have a fairly 
radical potential transformation of the power system. For 
example, if we actually move toward a significant share of the 
automobile fleet being hydrogen-fueled vehicles, and those 
vehicles while parked and stationary could serve to power homes 
or even neighborhoods, you could have a significant benefit on 
many levels, but it won't happen unless the ease of 
interconnection, in both a technical sense and a regulatory 
sense, is much greater than it is today.
    We did not get into the specifics of California's 
situation. I am sure that in any regulatory jurisdiction there 
are many complexities involved. All that was acknowledged, but 
the thrust of the recommendation was we can and should make 
this a lot simpler to do.
    Mr. Ose. Mr. Little, your business enterprise is 
effectively distributed generation. Dr. Fairman talks about the 
interconnection issues. In California, we have an ongoing 
battle between the investor-owned utilities who collect natural 
gas and the independent producers who produce natural gas and 
releases, and how you get that gas into the main pipeline. Do 
you have similar issues in terms of--as I understand it, you 
make the equipment that makes the photovoltaic stuff. Do your 
clients have these same kind of problems?
    Mr. Little. Interconnection is a big issue with 
photovoltaics. We make the equipment and then we use our own 
equipment to produce systems in Chicago, so we are dealing with 
interconnection all the time. And, on a Federal level, there 
are things that can be done to make interconnection issues for 
renewable energy sources better.
    Mr. Ose. Such as?
    Mr. Little. Well, I would have to refer to my notes here. 
Standardization is really what it all boils down to and making 
sure that from State to State you can use the same technology, 
the same power conditioning, the same criteria for your 
renewable energy system without having to tweak it for every 
utility and every interconnect.
    Mr. Ose. You have a preemption at the Federal level for 
that power created under this renewable portfolio title, for 
instance.
    Mr. Little. Yes.
    Mr. Ose. How would that--Mr. Sterzinger, that seems to me--
we would have a lot of feedback, it would seem, from the States 
on something like that. What could we expect?
    Mr. Sterzinger. Well, you expect a lot of feedback.
    Mr. Ose. I do expect a lot of feedback.
    Mr. Sterzinger. I think it is--there are real concerns and 
then there are concerns that are raised I think simply out of a 
conservatism, out of a desire to sort of preserve the status 
quo. And, I think, what Roger said is exactly right. You look 
at a photovoltaic installation or any kind of installation and 
there are engineering issues and then there are what I would 
call sort of the softer regulatory issues, things like you have 
a distributed generator steam--multiple generators in steam, 
the kind of what is called sort of standby capacity that you 
are charged for that can be a killer. I mean, it can absolutely 
wipe out the economics of it.
    I think a thing that Roger said earlier that is very 
important, especially for his business, on the net metering 
provisions, both the engineering interconnection and the net 
metering provisions I think need at least to have that sort of 
national airing and hopefully a national override. I mean the 
standardization of the equipment is something that would 
greatly benefit, because it answers the questions. I mean it 
lowers the transaction cost of doing this. These are sometimes, 
especially in the early stages, relatively small projects, and 
people are simply not going to be willing--they don't have the 
money, the sort development money to go into Rhode Island or 
Massachusetts or Vermont to fight out the local interests on 
those standards, so it can stop it.
    Mr. Ose. That was Mr. Swift's point earlier about having 
the capital available to actually create these processes from 
start to finish. Now, one of the challenges there when you talk 
about--you are talking about not so much a standardization of 
the equipment but a standardization of the interconnection. So 
one of Mr. Swift's points was that if you moved a single 
technology, you basically close the doors to a lot of 
innovation that might otherwise occur. I don't think you are 
suggesting that, are you?
    Mr. Sterzinger. I think in this case, it is that balance of 
the sort of sins of omission and sins of commission. I think in 
this case, you want to move these forward. I mean there is a 
clear, I think, demonstrated advantage that we haven't even 
really begun to talk about in detail, and these are relatively 
minor issues that simply can exhaust a business' resource or an 
industry's resources in approaching them. And, I think, that in 
that case the nationalization would really provide a platform 
that then would allow a lot of other innovation. But if you had 
a sort of standardization of interconnect and net metering 
standards, I think you could expect a sort of flowering of 
photovoltaic technologies rather than something that would be a 
roadblock to them.
    Mr. Ose. One of the Federal agencies that is under the 
jurisdiction of my subcommittee is FERC.
    Mr. Tierney. We have time for maybe one or two more 
questions, then a short break, and then maybe come back and 
address some of the questions that were submitted.
    One question I just had generally and that is can give you 
us a brief synopsis, those of you that know, how we stack up 
against other countries in regard to the percentage of energy 
that we are now getting from renewable sources versus what they 
are doing elsewhere, and how do we stack up against other 
countries in terms of our investment on research and 
development, and demonstration versus support for other 
governments to their industries? Anybody that wants to jump in.
    Mr. Sterzinger. Let me start. I am not that familiar with 
the R&D numbers. Steve may know them better. When you fly into 
Copenhagen Airport right now, you fly across the harbor and you 
pass nine or 10 offshore windmills, each about a megawatt, 
megawatt and a half. The European Union is moving through the 
sort of regulatory progressions to put in place roughly an 11 
percent, 11.2 percent I think it is, renewable portfolio 
standard, which varies by country. I mean, they have done an 
assessment of what each country can contribute around that 
target, and then they have allocated that. And, they are trying 
to answer the ancillary questions related to that.
    Those are major competitors. I don't know what the 
statistics are, but I would be willing to bet that upwards of 
three-quarters of the wind turbines sold in the United States 
were manufactured offshore, either in Europe or in Japan. So I 
wish I knew the R&D numbers; I don't at this time. But it is 
clear that in terms of the recognition of the importance of 
this to their energy markets, one of our substantial 
competitors and partners has moved well beyond us.
    Mr. Tierney. Mr. Bernow, do you have more specifics on 
that? No? Mr. Little, you have some comments, I think, on the 
solar end of that, right?
    Mr. Little. I know the Japanese budget for photovoltaics is 
about twice ours, and I think the German budget has now 
significantly exceeded it, just for the R&D.
    Mr. Tierney. With the chairman's acceptance, I am going to 
steal out one of the questions ahead of time here that I saw 
going through, because it is exactly the same question I was 
going to ask. It happens to be asked by our State 
representative from Danvers who was here a moment ago, Ted 
Speliotis, on that.
    One of the reasons I wanted to come to this district and 
have the hearing, amongst all the other reasons, is that I 
don't hear a single word being talked about the policy of 
energy amongst all the many people that are running for 
statewide office, and I would hope that we have some leaders 
and some leadership amongst that group who start talking about 
this and the importance it can be to the Commonwealth of 
Massachusetts, my district and the other districts that are 
here in terms of jobs, in terms of investment, attraction of 
capital, and all of that.
    What can States do--while they are waiting for the Federal 
Government to improve on its performance, what can States do 
that would mean something favorable in terms of jobs in this 
regard but would also make a serious impact on what people can 
save in energy costs, how the State could move away from 
reliance elsewhere and how we can produce more manufacturing, 
right on down the line? Mr. Bernow.
    Mr. Bernow. Almost every one of the kinds of policies that 
we have discussed here that would be affected at the national 
level, almost all but not all, could be implemented at the 
State level and some have been, as we have heard, from the 
renewable portfolio standard to State-level feebates, which are 
now under discussion, or procurement strategies. There is now a 
New England energy efficiency initiative, and the aim is to go 
beyond the Federal level for efficiency standards. Almost every 
one of those policies and measures that can be enacted at the 
Federal level can be enacted effectively at the State level.
    We are now in a process, a stakeholder process, in the 
State of Rhode Island, which is supported by the Department of 
Environmental Management. It has stakeholders from every sector 
of society--oil people, the utilities, environmental 
organizations, small business, and so on--in that stakeholder 
process. We have enumerated measure by measure, across each 
sector of actions that could be taken by that State and of 
course by any State that is willing to take a lead that would 
save money, reduce carbon, transform their energy system into a 
more cutting-edge energy system, and create jobs, and reduce 
local air pollution. Again, we have shown that for States just 
as we have shown it for the Federal policies.
    Mr. Little. There are a lot of State programs, including 
Massachusetts. Massachusetts now has $150 million in a pot for 
renewable energy. It is being managed by the Massachusetts 
Technology Collaborative, and they're supposed to really get 
this moving. It has been some time because it has been tied up 
in litigation in Massachusetts. But there is a big pot there; 
there is a big pot in California. I think the question that was 
brought up before of how to better coordinate State funds from 
a national perspective is a good question, and I think more of 
that needs to be done.
    Mr. Tierney. Thank you.
    Mr. Ose. I want to go back to the cap-and-trade, if I 
might. Cap-and-trade works on acid rain precursor. Are there 
other pieces of our air quality dilemma or otherwise, water, 
soil, what have you, that cap-and-trade might work in? Have you 
expanded your thinking beyond just the air quality stuff? Mr. 
Swift.
    Mr. Swift. Yes. I have done quite a lot of research on 
this, and not to say that there are not differences of 
perception and political issues, but the cap-and-trade is 
currently considered the leading approach for three of the four 
major power pollutants--nitrogen oxide, sulfur, dioxide, and 
carbon. I think it is well-suited for those. It is a 
contentious issue whether you also want to apply it to mercury.
    I have in my mind an article titled, ``Why 
Environmentalists Have Nine Reasons to Support Cap-and-Trade 
and None Against It.'' There are a number of very fundamental 
issues this approach resolves, including the problems created 
by these rate-based standards. The one thing you hear about as 
a negative is the so-called ``hot spots.'' I have done a 
considerable amount of research on the issue and as far as I 
can see, although there is the potential there that requires 
some regulatory action to prevent, the actual performance of 
cap-and-trade systems has been to cool hot spots and not 
increase them. In fact, it is the rate-based traditional 
systems that create more hot spots than a cap-and-trade system.
    Mr. Ose. Could you just expand on what you mean or refer to 
as a hot spot, please?
    Mr. Swift. Well, a hot spot is the idea of an emissions 
concentration. You have to realize that every single regulatory 
system you can imagine or economic system will create emissions 
concentrations of--let us take SO2, and it is something you 
don't want. No neighborhood wants to have an unduly high SO2 
concentration.
    There are two points to make. The first is that by siting 
power plants you create emissions concentrations. There is one 
large power plant in Massachusetts and it is very obvious that 
is where the emissions are going to be. You then impose 
regulatory systems, and a trading system in some people's mind 
creates the specter of you will trade emissions from other 
sources and put them in one place where they will concentrate. 
It is a complicated area, but the simplest thing to say is that 
trading systems tend to provide economic incentives for the 
larger sources to reduce the most, because they put in capital 
equipment and that is where the biggest bang for the buck with 
the capital equipment comes in.
    So every system I have looked at, the SO2 program and some 
of the NOx-based credit programs, you see this phenomenon 
happening, that the larger sources that are creating the most 
reductions and the trading disperses emissions instead of 
concentrating them. But it is a strong perception among the 
advocacy community that cap-and-trade programs may create worse 
hot spots.
    Mr. Ose. Dr. Bernow.
    Mr. Bernow. I wanted to add on that, maybe take some issue. 
I support cap-and-trade, especially if the credits are 
auctioned, but there is nothing intrinsic in the trading system 
that prevents hot spots, and I think you mentioned a moment ago 
that to the degree that there might be hot spots, the 
regulatory process needs to take account of that and make 
adjustments. I think the emperics so far are, as you say, that 
there haven't been hot spots, but that is probably, to some 
degree, the result of the fact that there hasn't been a massive 
amount of trading. And so, I think it behooves us when we 
engage in making regulations like this to ensure that we meet 
the various social goals that we set out to meet. And, since 
there is nothing intrinsic in trading that prevents hot spots, 
you should take account of that.
    Similar with encouraging distributed generation. You may 
want to encourage distributed generation for various reasons 
that were alluded, but certain forms of distributed generation 
may create their own local hot spot, such as willing diesel or 
other dirtier forms of DGN. So I generally concur that cap-and-
trade with auctioning is a very effective policy, but it may 
need to be complemented by hot spot or sudden pulse prevention 
as well as, as you said earlier, the ability of States to 
withhold and not sell their credits across State boundaries.
    Mr. Tierney. With the chairman's agreement here, I am going 
to jump in for a second, because that is a very important area, 
one of the questions we had on the card in fact deals exactly 
with this issue. And so if the general feeling is, Mr. Swift, 
at least from your perspective, that it is not as big a problem 
as some of the efficacy groups see it, Mr. Bernow you are still 
in favor of the cap-and-trade thing, then how would you deal 
regulatorily with those hot spots? What types of things would 
happen to make sure that it didn't occur?
    Mr. Swift. I think there are two general sets of tools to 
deal with hot spots, and I am very much against one of them, 
which is to impose rate-based standards on each stack. That is 
what creates your inflexibility, that is what causes your 
problem. You have got a different set of tools that deal with 
State power in non-attainment areas. And, from the first days 
of the Clean Air Act, States are allowed to create what is 
called a State Implementation Plan, a SIP, that guarantees, or 
attempts to guarantee, that within your non-attainment area you 
will not be exceeding your Federal standards. That is a 
perfectly good idea, it should be encouraged, and States should 
in fact get more tools to do things. And, there are ways to 
develop non-intrusive ways of dealing with protecting that non-
attainment area. You can also develop very intrusive ways, like 
mandatory percent reduction rate standards imposed on ends of 
pipes. So that is the basic protection that you want.
    There are other protections that have nothing to do with 
whether it is cap-and-trade systems or regulatory systems that 
are rate-based. One is that NOx is produced on hot days--I mean 
the ozone is produced on hot days, so it is precisely on hot 
days when people run their air conditioners more. And so, in 
any regulatory system you will have spikes of more pollution on 
exactly the worst days. I think in Connecticut, and maybe 
Massachusetts you have to get extra provisions to do something 
on those hot days to prevent precisely that happening.
    Mr. Ose. Such as?
    Mr. Swift. I think Connecticut has a three-for-one 
allowance reduction system that is triggered on those days. So 
it costs firms a lot more to emit NOx on those days, so they 
will differentially produce power from their low-NOx sources. 
Each firm has a whole bunch of plants they can produce power 
from at any moment. And so, they will probably go with their 
modern gas turbine plants which are very, very low NOx and cut 
out their coal on those days. So it is not a problem, it is not 
even a big economic problem, but you have got to have the 
economic signals in there for companies to understand what they 
have got to do and when to do it. But, again, the design issues 
are critical. You can do this in an intrusive, costly way, or 
you can do it in a flexible way.
    Mr. Ose. Mr. Sterzinger.
    Mr. Sterzinger. I just want to inject, I guess, a little 
different note on the issue of whether there are hot spots. The 
United States allows 10.8 million tons of sulfur dioxide to be 
emitted each year, and that emission is associated with fine 
particulates. And Apt Associates, a Boston-based consulting 
firm, has been very active in assessing the health risks 
associated with those fine particulates, the risk of death from 
those particulates in particular.
    If you look at a map of the United States, you see a sort 
of concentric set of circles darkening, and it gets darkest on 
the Southeast, the six Southeastern States, American Electric 
Power System, Southern, Duke Energy, in particular. That is a 
hot spot in my mind. The risk of death from that particular 
condition in those areas is, I believe, 10 times the national 
average. I support cap-and-trade for its ability to lower the 
cost of meeting targets, but I think there needs to be a 
recognition that the journey isn't finished. I mean, we have 
not answered all of the questions related to not only 
protecting national standards but also regional, State, and 
local health issues as well.
    Mr. Tierney. I guess, help us along that journey then. 
These things are happening now. People are making decisions 
about power plants, they are making decisions about levels of 
pollutants or whatever, so if we are recognizing hot spots, 
what ought we do now to get us on that journey so that if we go 
into cap-and-trade system, those areas that consider themselves 
to be likely to become hot spots don't get penalized?
    Mr. Sterzinger. Well, I think there are two--I mean I do 
not have the complete answer to this, by any stretch of the 
imagination. I think that you need to develop a system. Mr. 
Swift referred to having something like a State limit that now 
relates to NOx, perhaps relate to the other pollutants as well, 
so that a particular State wouldn't be disadvantaged in terms 
of their health by virtue of overcompliance in one region. 
Again, sometimes you need to look at the details. The American 
Electric Power System overcomplied on a huge coal plant they 
had in West Virginia, Harrison 4. They put in all the 
scrubbers, they overcomplied on that plant, they actually 
overcomplied for their system, in part because the regulatory 
allowances allowed very quick recovery of the pollution 
equipment and provided a potential source of revenue for them 
on the sale of credits. And so I think they were well set in 
terms of their system to comply.
    If you happen to live in a State with some of those other 
plants, the system as a whole is in balance, but the pollution 
that you were subjected to hadn't changed at all. I mean there 
had been no effect on it. The famous New York case where New 
York State sued was precisely because of downwind pollution 
drifting onto the State with Long Island and other utilities 
buying credits from the very utilities who were sending the 
pollution onto the State.
    So I think there needs to be that kind of State action. We 
have been really heavily involved with sort of the use of 
renewables and conservation in the NOx compliance plans. Each 
State--Georgia is allowed 30,000 tons of NOx. They are 
approximately 1\1/2\ or 2 times over that. They have to come 
into compliance. The experience from 1990 has been that 
conservation and renewables have been vastly underrepresented 
as a solution. Part of that is a problem related to how you 
qualify conservation, particularly renewables to some extent, 
as a legitimate reduction in NOx. The other problem is that 
there is a problem in terms of whether if you do something in a 
particular State, that State can capture that benefit or 
whether the plants are simply run and exported out of the 
State.
    There is an awful lot of concern. I think that the health 
concerns related to the fossil generation is something that is, 
at least in my experience, in people's mind, almost as great an 
issue as the security and global environmental concerns. And I 
think it is legitimate. I think it needs to be addressed very, 
very carefully.
    Mr. Swift. And, some of these have been alluded to, but 
there are several ways to address the limits, hot-spot related 
or pulse or spike-related issues associated with a cap-and-
trade system. One that is mentioned, strong State 
implementation plans. A second would be a system of augmenting 
the trading credits at certain times of the year, in certain 
spots. A third would be States being allowed to retire their 
credits once they have generated them and not trade them away. 
A fourth would be some limitations on banking. A fifth would be 
to establish perhaps State and/or regional programs. As George 
was saying with respect to RPS, you could do that at the State 
level, perhaps at the regional level, State and regional areas 
in which cap-and-trade could take place. And, finally, of 
course, is to limit overall emissions--to reduce the overall 
cap nationally to acceptably low levels, which in itself would 
reduce the hot spots as well as the overall emissions. And 
there are various proposals that have been put forward for very 
dramatically reducing SOx, NOx, mercury and CO2 nationally.
    Mr. Ose. In California, we had our problems and we had--
under the SIP we have different air basins, and we were not 
able to trade credits from one air basin to another, which 
tells me that we all may not be able to trade air credits from 
one State to another in many instances. I don't want to be a 
doomsayer, but speaking to the future I can see a situation 
where we have re-created in certain sectors, for certain 
geographic areas of the country, a replay of what happened in 
California. Now, if that occurs, how do we keep these credits 
from going through the roof value-wise and forcing the shutdown 
of this or that generating plant, whether it be coal or natural 
gas or nuclear, what have you? I mean nuclear has no emissions 
so they are pretty clean in that respect. But the issue becomes 
whether or not you have to end up waiving your air quality 
requirements or not. I would be interested in the panel's 
considered opinion as to whether or not these credits should be 
tradeable, either one for one or at some discount or premium 
across air basins or State boundaries. Dr. Bernow.
    Mr. Bernow. Yes. Well, I think I have suggested, and maybe 
others have, that there could and should be some limitations on 
that to the degree that is necessary to protect local citizens. 
I think every State has a responsibility to protect its 
citizens. And, the tradeoff, ultimately, is between a 
completely flexible market, which has great advantages in some 
respects and protecting of citizens in a local community. And, 
if the citizens in a local community are willing to pay the 
price of departing from what is seen as, from a market 
standpoint, the economically efficient solution in order to 
protect their local health and their local environment, then 
that is a political decision that they can and should take, of 
course, with all due deliberation.
    Mr. Swift. From what I understand of the--I think you are 
referring to the RECLAIM market in California where prices went 
through the roof. One of the key elements is that market does 
not allow any banking and so after a miscalculation by firms in 
how much it would cost to meet the 2001 standard, there was no 
escape hatch. Every other system, even the New England NOx 
system, does allow limited banking, and it just again points to 
the importance of details in this area. I think you can solve 
that problem.
    Mr. Ose. Dr. Bernow, do you support the banking concept of 
these credits?
    Mr. Bernow. I support some of them.
    Mr. Ose. OK. Mr. Swift, do you support the banking concept?
    Mr. Swift. Yes. I basically think--well, I mean secretly, I 
think this whole issue is grossly overblown. I think if you had 
no local rules whatsoever, everything would be fine, because 
the whole east coast is one big transport area for NOx. You 
have basically got the east coast, Houston, and L.A. as 
outliers. Seventy-five percent of Massachusetts NOx comes from 
out of State. You can quibble about the 25 percent but I don't 
want rules to interfere with the functioning of the system, but 
I will also say that carefully crafted, modest rules that 
reassure the public for things that may never happen are 
perfectly OK as long as they don't interfere with the system. 
So I will go along with limited banking as long as it is not 
too limited.
    Mr. Ose. Dr. Fairman, does the Energy Group have any 
opinion?
    Mr. Fairman. Just, conceptually, nobody in the Expert Group 
advocated cap-and-trade or other primarily market-based systems 
to the extent that they would violate public safety or public 
health standards. These standards are thresholds, they are 
politically and public health-wise non-negotiable. The whole 
point of these performance, market-based incentives is to 
maximize cost effectiveness of pollution control above that 
threshold. So no one in the group would support any banking or 
use of permits in a way that violated those thresholds 
themselves. It is all above the threshold.
    Mr. Ose. Mr. Sterzinger.
    Mr. Sterzinger. Let me just tell you, I agree pretty much 
with what has been said so far. I think that the kind of 
problems you are talking about, the price spikes that can 
occur, are not to anybody's advantage. They disrupt the market, 
they don't lead to any sort of long-term solution, and they can 
undermine support for the environmental standards.
    I think it really underscores the need to look for a 
variety of options. I think we may have been lulled into a 
false state of complacency with respect to the performance of 
the cost of sulfur dioxide credits from 1990 on, since they 
dropped so precipitously. And, I think with the NOx and other 
pollutants we need to do more work going in to make sure that 
there is as wide a portfolio of options, including renewable 
technologies and conservation efficiencies, as possible to make 
sure that the problem you are talking about of really just 
coming catastrophically out of compliance with people bidding 
against each other for an inadequate source of credits doesn't 
arise.
    Mr. Ose. Mr. Little.
    Mr. Little. Well, related to this is why does Chicago want 
a photovoltaic factory? And, the answer is because when they 
are hot, which is in the summer, when the sun is beating on 
Chicago, that is when the renewable energy is the most 
efficient, so it is a perfect match. And, that is one of the 
reasons the mayor wanted to increase renewable energy within 
the city itself.
    Mr. Ose. I have but one other question, and then I would be 
happy to yield the time to Mr. Tierney. I just want to get it 
straight in my own mind--different parts of the country have 
different embedded advantages for this or that alternative 
energy source. Are there advantages that exist in this 
particular area that I, as a Member from California, wouldn't 
ordinarily be knowledgeable about but need to be knowledgeable 
about relative to alternative energy sources, specifically here 
in Peabody, here in Massachusetts? Right, geothermal, 
photovoltaic?
    Mr. Sterzinger. I think offshore wind is something you 
might not know about that is a potential resource for this 
State, and it may be underestimated at this time. I mean the 
ability both of the turbines to increase in size, 2, 2\1/2\ 
megawatts, and the location of possible sites, perhaps not 
directly on Nantucket roads but perhaps someplace else; I think 
is a resource that you may not have appreciated.
    Mr. Ose. Anybody else?
    Mr. Fairman. This may be slightly off point, but just from 
the experience of the Expert Group talking about the resources 
conceptually, the idea that the intellectual capital here in 
the energy efficiency and renewable energy markets supported by 
Federal RD&D and the university/Government nexus is a huge 
resource, not just for Massachusetts but for the country. So, 
just thought I would throw that in.
    Mr. Ose. Dr. Bernow? So you have the 128 corridor, you have 
colleges and universities, something offshore with the wind? 
OK. Mr. Little.
    Mr. Little. Well, solar energy works here as well as it 
does in Chicago. I wanted to add from the Department of 
Energy's point of view, I at one point received a contract and 
gave a subcontract to an individual formed Eden Semiconductor 
which is a big corporation in this area, and it grew out of 
that research and this intellectual environment we have.
    Mr. Ose. Thank you. Mr. Tierney.
    Mr. Tierney. Thank you. I might add that solar has already 
been shown to work here in this part of Massachusetts, over at 
the solar facility we have had in the Beverly High School for 
so many years. Unfortunately, the lack of governmental support 
for that has jeopardized that program. But it was successful. 
It fed energy into the city's municipal supply, and it was a 
great example for the number years it was there. Obviously, 
biomass, we have a lot of farmland in certain parts of this 
Commonwealth that could generate that, as they could in a 
number of other States in the country. The wind offshore is now 
just beginning to get some recognition around here so that we 
have a number of reasons why hopefully our State policy as well 
as our Federal policy will move us in that direction.
    I think we have dealt with several of the questions that 
were asked from people that are in the audience just by virtue 
of our own line of questioning overlapping some of those. I 
will say that there are a number of questions on nuclear energy 
production. I am not a fan of nuclear energy production, and 
certainly I note that there haven't been any new nuclear 
facilities proposed for some time, and I think it is unlikely 
that there will be. The question is how do we move beyond that, 
or whatever? If anybody wants to make a comment about our 
nuclear energy and its role in moving forward our energy 
supplies or the likelihood that it won't be part of a mix in 
the future after the original plants fade out.
    Mr. Bernow. I would say that the prospects for the next 
several decades are moving very, very dramatically toward 
energy efficiency, cogeneration, or combined heat and power, 
and renewable energy, complemented by some natural gas but 
keeping natural gas under control would obviate the need for 
nuclear power in all of the attendant economic and security and 
human risks.
    Mr. Fairman. I just want to highlight in the text of the 
Expert Group report on page 10, you will see a small box on 
nuclear power, which represents the summary of a 3-hour 
conversation, quite intense, among 20 experts on this topic. 
And, basically, without taking nuclear power off the table, 
they wanted to be very explicit in saying that nuclear power 
has been given many, many exemptions from the kind of 
regulatory requirements and financial requirements that other 
energy sources are generally required to meet. And, they were 
quite firm in saying that if nuclear is going to stay in, it 
should stay in on the basis of being cost competitive with 
other sources and not with exceptional subsidies and 
exceptional allowances. They also emphasized that without a 
stable long-term solution to the waste disposal problem, there 
is just nothing that is going to happen politically or 
technically in that sector.
    Mr. Tierney. Thank you. There are a number of questions 
about why there is so little funding for renewable energy 
development and education, and I suspect that is more a 
political question than for any of the gentleman on the panel. 
And, the answer is that is just an argument that Congressman 
Ose and I have to take to our colleagues as well as others and 
try and be more successful there. I know that in my opening 
remarks that the amount that we spend on research and 
development and education, also pilot programs, things of that 
nature, has dropped precipitously since the 1978 period down to 
now. Hopefully we will reverse that. I don't think it has been 
reversed in the plans that are currently being considered by 
Congress. I think they are woefully low compared to the money 
that we still spend on fossil fuel research and things of that 
nature. But those are also political questions that you 
probably won't want to participate in.
    But I think that the last two parts of it that would 
address much of what people are asking on the last couple of 
questions, one would be a little more emphasis on the jobs. If 
somebody might just want to tell us some practical ways that 
jobs would be increased? Maybe give us an example or two on 
that aspect of why people should not be overly concerned with 
the loss of jobs, that if we have a smart transition program 
that gives people that are losing their job in the coal 
industry, for instance, some support, and then where they would 
go for their next job. Do you want to start left to right or 
right to left?
    Mr. Bernow. I will start. I think the work that George 
Sterzinger has done to show the direct economic job benefits of 
specific renewable technologies is very, very important. The 
work that I have done and colleagues have done complements 
that, that shows that if you have a smart set of policies and 
measures, and again I would echo George, there is no magic 
bullet here, you have to have a very, very robust set of 
policies and measures. If energy efficiency and combined heat 
and power are at the heart of those policies and measures, then 
that would be a job stimulation program of a fairly deep 
nature, because you would have all of this money saved by 
households and businesses that gets re-spent.
    That said, and my study shows this, there will be some 
sectors that in the near term could--the fossil sectors that 
could, all else equal, suffer some setbacks, and those sectors 
have both the necessity and the opportunity to be assisted, 
especially the workers in their transition program in the 
communities, assistant to transitioning themselves into the 
modern and cutting-edge clean energy world. And, I think that 
is true of the oil sector; it is true of the transportation 
sector; it is true of the electric utility sector. They can be 
providers of energy efficiency and alternative forms of liquid 
fuels and not simply stay stuck in coal for electricity 
generation and oil for transportation. The Government needs to 
play a role to ensure that the transition is effective and 
smooth.
    Mr. Swift. I had a question for you, which was the last 
time I looked there are only 70,000 coal miners in the United 
States. It has gone down steadily from 200,000 or 300,000 a few 
decades ago. I am just perplexed as to why, on the other hand, 
you can visualize many more jobs doing the clean technologies 
that we are talking about, but why does the political 
perception persist that those 70,000 jobs count so much more 
than the other jobs?
    Mr. Tierney. I will start first, if you don't mind. We are 
both going to take a shot at that, because I think we are 
troubled by it all the time too, why disproportionately--I 
think all politics is local, obviously, and for the people that 
may be in very powerful positions in the Senate or the House, 
there is a great deal of pressure to not have several thousands 
of people out of work in your district. And, what we have been 
incredibly lax and seemingly unable to do that we have to do is 
find a way to make sure that those people don't suffer. This 
isn't the only issue. That happens in trade. Why don't we move 
better on trade and free trade? It is not because people don't 
believe in free trade, it is that nobody has the confidence 
that we are going to do anything to help the people that are 
going to be displaced or otherwise inconvenienced severely by 
this.
    So the political issue is there for us to move forward in 
those directions but to put in place some safety net system of 
people, not a welfare system, whatever, but a transitional 
system that helps their families and their communities, because 
it is always more than just a family. Base closure is another 
area that we always deal with this on, help them survive that 
segue into the next area and get them trained and retooled and 
up and placed into another job where they make as much or near 
as much as they were making before. I think that is just the 
abject failure of policymakers so far to make sure that we do 
these things in tandem, that we don't just talk about energy 
policy or base closures, recommended by the President or 
whomever, or free trade, without also talking about what we are 
going to do with the people that are going to be impacted, 
because our political situation is such that people do have the 
power sometimes to slow down the wider public policy based on 
those narrow issues. Doug.
    Mr. Ose. That is a far more comprehensive answer than I was 
going to give. One thing I have learned on Capitol Hill is to 
be attuned to the interests of the senior Senator from West 
Virginia. And, one of the great things about being a Member of 
Congress is you get to ask questions, not answer them. 
[Laughter.]
    Mr. Tierney. But you got it done pretty well, so I got to 
hand it to you. You got a two-for there. Anybody else want to 
add on to that? Sure, George.
    Mr. Sterzinger. Yes. Let me try to put a slightly different 
spin on it, because I have heard that, the number, 70,000, 
50,000, many, many times. Turn it around, 70,000 workers 
provide the fuel to provide 22 percent of the U.S. energy 
sources and even more of the electric sector, which is an 
enormous productive resource. I mean I think a lot of the 
reason that goes beyond--I mean I have heard people say, 
``Well, you know, pay everybody $50,000 a year and you are done 
with it,'' I mean just get away with it. But I think it 
neglects the ongoing importance. There is a real need to reduce 
the pollutants from coal, to make the use of coal as efficient 
as possible, but I think everybody would agree that as we go 
forward that hopefully won't be the major source or perhaps 
even a growing source, but it will be a foundation of the 
energy economy.
    And I think a lot of times--well, let me just switch. I 
agree precisely that as you make a transition from one 
technology to another, first of all, I think it is important if 
you look at the story of the Energy Information Administration, 
it isn't coal that is in the cross-hairs of renewable, it is 
imported LNG, of which there are very few jobs, of which there 
are substantial security benefits. But I do think it is 
important to come up with a transition program that is very 
convincing to the people in those communities that any move 
away they will be taken care of and provided with an 
alternative and productive future.
    One thought, one of the great, I think, unintended 
consequences of the last 5 years of deregulation of the 
wholesale market is that it has produced a number of unexpected 
winners. The nuclear plants that were sold for 10 cents on the 
dollar is one example of plants that are--if you bothered to 
look at what they were making selling into the deregulated 
wholesale markets, it is a substantial amount of money. The old 
coal plants are the same. One way you might be able to--and 
this is one of the things we get to say without having to deal 
with the political issues--would be to try to put a windfall 
profits tax on those sales into the underegulated wholesale 
markets and use that as the basis for funding some sort of a 
transition, some sort of productive development or transition 
program.
    Mr. Tierney. Just like a rock star, you carry your fans 
with you. Mr. Bernow.
    Mr. Bernow. Yes. I would like to pull a few things together 
here. There was some comment that the national dialog didn't 
want to take a position on the renewable portfolio standard 
because it was kind of driving toward a specific solution. On 
the other hand, George pointed out that, at least prima facie, 
renewables compete with natural gas. But if you put everything 
together, I think you realize that this is part of a harmonious 
package. If you want to solve the climate problem but for 
sequestration that is scrubbing the carbon and burying it 
somewhere in the ocean and the land, coal is going to have to 
go in a strong and steady decline over time. There is no 
solution to that other than sequestration. If coal goes, that 
is going to pull natural gas in. Renewables then allow you to 
get rid of coal without pulling too much natural gas in and 
also stabilizing the natural gas prices. So renewables prima 
facie may be competing with natural gas, but it is part of the 
coal/natural gas solution. Renewables, efficiency, CHP, 
complement a carbon policy and keep natural gas from swamping 
the system and creating high prices. So they are all part of 
the package.
    And just to finish that package, insofar as--there are some 
policies that would allow coal units to purchase credits 
against their carbon emissions. The long-term solution to the 
climate problem is going to require both the long-term 
retirement coal units and sequestration of carbon from the 
atmosphere. It is a very daunting problem, so I don't think one 
can readily substitute for the other.
    Mr. Tierney. Three more questions, and then I think we will 
probably try to bring this to a close. One just concerns the 
Clean Skies Initiative of the President, and we have covered 
all this ground.
    Do you believe that the caps reduction schedule in the 
Clean Skies Initiative will substantially drive technological 
innovation? Mr. Swift.
    Mr. Swift. My personal opinion is that the levels are in 
the ballpark that we need to talk about, but the timing is way 
too long. I think without disruption to the power pool, we need 
to bring the timing of our reductions closer, and that will 
drive far greater innovation.
    Mr. Tierney. Last two questions actually come from the 
audience but they are things that Congressman Ose and I would 
have wanted to ask. One is a good question on the impact of the 
world human population. How can the United States and the world 
hope to cope with energy issues in a successful and responsible 
way in light of the rapidly increasing world human population? 
That is a show stopper.
    Mr. Little. Well, I can say that----
    Mr. Ose. Before you--we want the short answer, by the way.
    Mr. Little. I am always short. I am in business. What we 
are trying to do with photovoltaics is to keep people back on 
the farm. And what is the problem with much of the world like 
Mexico City is that there is no electricity out there so they 
come into the city, and it becomes a more severe problem. So 
that is what is, in part, driving the international markets.
    Mr. Tierney. Mr. Swift.
    Mr. Swift. I had a quick response, which is that I spend 
quite a lot of my time in developing countries, and the role of 
ourselves, the United States and other developed countries, is 
that we have got to come up with the answers. They do not have 
the technology or the capital to invest in these high-
technology answers we are talking about. And that is where 
these problems with the lack of research funding and the lack 
of incentives are magnified many times over. The world is 
looking to us for the technology answers to these questions.
    Mr. Tierney. I would suspect that many of these developing 
countries could leapfrog right over a whole slew of dirty 
technologies that benefited us, obviously. Not to say that in a 
denigrating way but that we benefited from greatly, but now, 
obviously, we find a need to move on. We can avoid that whole 
problem moving over. Dave.
    Mr. Fairman. Just wanted to say that the Expert Group felt 
very strongly that it is not just their problem, it is our 
problem, particularly with regard to climate change but with 
many other issues as well. That is, yes, it is true that--I 
would agree in part that we have to help find the answers, but 
there is also the need for doing things in partnership because 
one of the things that we are learning about, for example, 
changing the structure of the coal sector in India and China, 
is that unless we really understand their local political and 
financial incentives, the technology itself is only about a 
third of the answer. The second third is the financing, and the 
third third is the institutions and regulations. But the Expert 
Group strongly felt that the United States must take a 
leadership role in this regard.
    Mr. Bernow. I would concur with that precisely. That is our 
experience throughout the world. One thing I would add that in 
addition to building the human institutional capacity is that 
we have got to take the lead in bringing the costs of these 
cutting-edge technologies down. We can't shift the costs of 
these cutting-edge technologies for leapfrogging onto 
developing countries, they just can't take them. So the 
innovation, the R&D has to be led from this country but then in 
situ spinoff R&D working with capacity building is the next 
phase.
    Mr. Sterzinger. Just a real quick comment. I just got back 
from Belize. We are sort of doing an early feasibility study on 
providing off-grid communities perhaps with solar, perhaps with 
small wind and then wireless Internet connection so that the 
bundle of those services is actually both more productive to 
the community, perhaps producing more income or perhaps in an 
interesting paradox making something that actually offers more 
services and is more expensive more easily to afford precisely 
for the reason that Roger said, which is if you can start to 
locate economic activity out at the ends, out in the villages 
instead of having everything concentrated in the cities, you 
have solved several problems at once.
    Mr. Tierney. Thank you. And I think we did talk some more 
about conservation probably after this question was written. Is 
there anything anybody would want to add about the unique 
benefits that conservation can add to decreasing the needs that 
we have or have we covered that ground? All right.
    Having covered it, I just want to wrap my comments by 
thanking every one of you on the panel. Your testimony was 
excellent, your written testimony was even more involved and 
developed, and we appreciate the benefit of that. It will go on 
the record, as will all the other charts and reports that you 
have submitted. I want to thank the chairman for having the 
hearing up here in the 6th District. I hope we benefit from 
that. I noticed some folks from the news media were here and 
hopefully it will help in the educational process of 
understanding how important this is, not just nationally but 
locally here. It can be a great thing for us to both attend to 
our environmental needs as well as our energy use needs, and 
creation of jobs for our economy as well as for our health and 
for the environment.
    I want to thank the staff. I know it dislocates them a bit, 
both the majority and minority side, to come out into the field 
for these hearings, but it is useful to get out, and I hope the 
folks from the community were served somewhat by having their 
questions addressed directly. So thank you, Chairman Ose.
    Mr. Ose. You are welcome. I want to add my compliments to 
those of Congressman Tierney to the people of Peabody for 
hosting us. I would like to especially make note of the great 
effort that Congressman Tierney's district and Washington, DC 
staff did in putting this together. I would like to thank Dan 
Skopec and Elizabeth Mundinger for joining us here today.
    My compliments to the panel of witnesses today. This has 
been very informative. I want to remind everybody in the back 
of the room we have copies of all the testimony from each of 
the witnesses. We are going to leave the record open for 10 
days in the event Congressman Tierney or I have additional 
questions. So we would appreciate timely response to any such 
interrogatories. Barring any other questions, this hearing is 
adjourned.
    [Whereupon, at 2 p.m., the subcommittee was adjourned.]
    [Note.--The Environmental Law Institute Research report 
entitled, ``Barriers to Environmental Technology Innovation and 
Use,'' may be found in subcommittee files.]
    [Additional information submitted for the hearing record 
follows:]

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