    [Senate Hearing 107-144]
    [From the U.S. Government Publishing Office]

                                                    S. Hrg. 107-144 (Pt. 2)

                             NATIONAL ENERGY ISSUES

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

                                    HEARING

                                   before the

                                  COMMITTEE ON
                          ENERGY AND NATURAL RESOURCES
                              UNITED STATES SENATE

                          ONE HUNDRED SEVENTH CONGRESS

                                 FIRST SESSION

        TO RECEIVE TESTIMONY ON LEGISLATIVE PROPOSALS RELATED TO ENERGY
      EFFICIENCY, INCLUDING S. 352, THE ENERGY EMERGENCY RESPONSE ACT OF
       2001; TITLE XIII OF S. 597, THE COMPREHENSIVE AND BALANCED ENERGY
      POLICY ACT OF 2001; SECTION 602-606 OF S. 388, THE NATIONAL ENERGY
    SECURITY ACT OF 2001; S. 95, THE FEDERAL ENERGY BANK ACT, AND S.J. RES.
     15, PROVIDING FOR CONGRESSIONAL DISAPPROVAL OF THE RULE SUBMITTED BY
    THE DEPARTMENT OF ENERGY RELATING TO THE POSTPONEMENT OF THE EFFECTIVE
       DATE OF ENERGY CONSERVATION STANDARDS FOR CENTRAL AIR CONDITIONERS

     TO RECEIVE TESTIMONY ON LEGISLATIVE PROPOSALS RELATED TO REDUCING THE
         DEMAND FOR PETROLEUM PRODUCTS IN THE LIGHT DUTY VEHICLE SECTOR

                                   __________

                                 JULY 13, 2001

                                 JULY 17, 2001

                                 JULY 18, 2001

                                   __________

                                     PART 2

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

                                   __________

                      U.S. GOVERNMENT PRINTING OFFICE
    71-521                     WASHINGTON : 2001

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                   COMMITTEE ON ENERGY AND NATURAL RESOURCES

                      JEFF BINGAMAN, New Mexico, Chairman
    DANIEL K. AKAKA, Hawaii              FRANK H. MURKOWSKI, Alaska
    BYRON L. DORGAN, North Dakota        PETE V. DOMENICI, New Mexico
    BOB GRAHAM, Florida                  DON NICKLES, Oklahoma
    RON WYDEN, Oregon                    LARRY E. CRAIG, Idaho
    TIM JOHNSON, South Dakota            BEN NIGHTHORSE CAMPBELL, Colorado
    MARY L. LANDRIEU, Louisiana          CRAIG THOMAS, Wyoming
    EVAN BAYH, Indiana                   RICHARD C. SHELBY, Alabama
    DIANNE FEINSTEIN, California         CONRAD BURNS, Montana
    CHARLES E. SCHUMER, New York         JON KYL, Arizona
    MARIA CANTWELL, Washington           CHUCK HAGEL, Nebraska
    THOMAS R. CARPER, Delaware           GORDON SMITH, Oregon

                        Robert M. Simon, Staff Director
                          Sam E. Fowler, Chief Counsel
                   Brian P. Malnak, Republican Staff Director
                   James P. Beirne, Republican Chief Counsel
                             Deborah Estes, Counsel
                         Shirley Neff, Staff Economist
                        Bryan Hannegan, Staff Scientist

                                C O N T E N T S

                                  ----------
                                                                       Page
    Hearings:
        July 13, 2001................................................     1
        July 17, 2001................................................    75
        July 18, 2001................................................   141

                                   STATEMENTS
                                 July 13, 2001

    Bingaman, Hon. Jeff, U.S. Senator from New Mexico................     1
    Burns, Hon. Conrad, U.S. Senator from Montana....................    16
    Emblem, Erik, Administrator, National Energy Management
      Institute, Alexandria, VA......................................    29
    Garman, David K., Assistant Secretary, Energy Efficiency and
      Renewable Energy, Department of Energy.........................     4
    Manoogian, Mary Ann, Director, Governor's Office of Energy and
      Community Services, Concord, NH................................    20
    Murkowski, Hon. Frank H., U.S. Senator from Alaska...............     2
    Nadel, Steven, Executive Director, American Council for an
      Energy-Efficient Economy.......................................    41
    O'Hagan, Dr. Malcolm, President, National Electrical
      Manufacturers Association, Rosslyn, VA.........................    63
    Parks, David, President, Goodman Manufacturing Company, Houston,
      TX.............................................................    58
    Rees, Clifford, Jr., President, Air Conditioning and
      Refrigeration Institute, Arlington, VA.........................    51
    Wagner, Mark F., Director, Federal Government Relations, Johnson
      Controls, Inc., on behalf of the Federal Performance
      Contracting Coalition..........................................    33

                                 July 17, 2001

    Akaka, Hon. Daniel K., U.S. Senator from Hawaii..................   130
    Bingaman, Hon. Jeff, U.S. Senator from New Mexico................    75
    Carper, Hon. Thomas R., U.S. Senator from Delaware...............   133
    Dana, Gregory, Vice President, Environmental Affairs, Alliance of
      Automobile Manufacturers.......................................   104
    Feinstein, Hon. Dianne, U.S. Senator from California.............    92
    Gibbens, Charles, Automotive Fleet Manager, on behalf of National
      Association of Fleet Administrators............................    94
    Hagel, Hon. Chuck, U.S. Senator from Nebraska....................    90
    Johnson, Hon. Tim, U.S. Senator from South Dakota................    87
    Kolodziej, Richard R., President, Natural Gas Vehicle Coalition..   109
    Marshall, Gary, Vice Chairman, National Ethanol Vehicle Coalition   117
    McCormick, Dr. J. Byron, Ph.D., Director, Global Alternative
      Propulsion Center, General Motors Corporation..................    99
    McNutt, Barry D., Senior Policy Analyst, Office of Domestic
      Policy and International Affairs, Department of Energy.........    78
    Murkowski, Hon. Frank H., U.S. Senator from Alaska...............    76
    Shelton, L. Robert, Executive Director, National Highway Traffic
      Safety Administrator, Department of Transportation.............    81
    Zeltmann, Eugene, Co-Chairman, Electric Vehicle Association of
      the Americas...................................................   121

                                 July 18, 2001

    Bingaman, Hon. Jeff, U.S. Senator from New Mexico................   141
    Blake, Francis, Deputy Secretary, Department of Energy...........   146
    Bouchard, Jacques, Director, French Atomic Energy Commission,
      Nuclear Energy Division, Paris, France.........................   212
    Burns, Hon. Conrad, U.S. Senator from Montana....................   145
    Carper, Hon. Thomas R., U.S. Senator from Delaware...............   146
    Choppin, Dr. Gregory R., Florida State University, Department of
      Chemistry, Tallahassee, FL.....................................   214
    Cochran, Thomas B., Ph.D., Director, Nuclear Program Natural
      Resources Defense Council......................................   203
    Corradini, Dr. Michael L., University of Wisconsin, Madison, WI..   193
    Domenici, Hon. Pete V., U.S. Senator from New Mexico.............   142
    Fri, Bob, Chairman, Committee on Benefits of DOE R&D on Energy
      Efficiency and Fossil Energy...................................   182
    Holdren, Dr. John P., Professor, Harvard University, Cambridge,
      MA.............................................................   157
    Hubbard, Dr. H.M., The Pacific Center for High Technology
      Research (Retired), Lee's Summit, MO...........................   187
    Moniz, Ernest J., Professor of Physics, Massachusetts Institute
      of Technology..................................................   172
    Murkowski, Hon. Frank H., U.S. Senator from Alaska...............   144
    Richardson, Dr. Robert C., Physics Professor and Vice Provost for
      Research, Cornell University...................................   170

                                   APPENDIXES
                                   Appendix I

    Responses to additional questions................................   229

                                  Appendix II

    Additional material submitted for the record.....................   245

                             NATIONAL ENERGY ISSUES

                                  ----------

                             FRIDAY, JULY 13, 2001

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

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

        The Chairman. The hearing will come to order. Today's
    hearing will focus on proposals to expand existing programs to
    assist low income consumers to meet their energy needs and to
    weatherize their homes, also programs to encourage State energy
    plans and activities and proposals to improve the energy
    efficiency of buildings, particularly Federal buildings,
    appliances, and industry.
        Yesterday we took testimony on a number of oil and gas
    supply issues. We will continue the efficiency theme next
    Tuesday with a hearing on vehicle issues, discussing energy
    research and development on Wednesday and renewables,
    distributed power technologies, and hydroelectric relicensing
    on Thursday, so as we move forward toward a markup of a
    balanced and comprehensive energy bill, I believe we are trying
    to have hearings that reflect that same balance of the array of
    energy options we have before us.
        Increasing the efficient use of energy is the single most
    effective and least-cost policy for both the short term and the
    long term. Energy efficiency can reduce the demand for tight
    energy supplies and can reduce the upward pressure on energy
    prices. Energy efficiency allows us to maintain the same
    economic productivity and quality of life with less energy
    input, and efficiency helps us reduce pollution and
    environmental impacts associated with energy production and
    use.
        There are some interesting statistics that the Alliance to
    Save Energy, a group that I have been associated with for many
    years, has come up with. Their analysis shows that energy
    efficiency provided the Nation with 27 quadrillion Btu's, or
    quads, or about 22 percent of U.S. energy consumption in 1999.
    This made energy efficiency the second leading source of energy
    in 1999, trailing oil consumption, which was 38 quads, but
    contributing more than natural gas (22 quads), coal (22 quads),
    nuclear (8 quads), and hydro (4 quads).
        We have some excellent witnesses today, including the
    Assistant Secretary Garman, who is, of course, well-known and
    respected by all of us on this committee, so I will stop my
    remarks and defer to Senator Murkowski, Secretary Garman's
    former boss.

          STATEMENT OF HON. FRANK H. MURKOWSKI, U.S. SENATOR
                              FROM ALASKA

        Senator Murkowski. Thank you, Senator Bingaman. Although I
    think you and I both know that we usually work for our people,
    they seem to lay out our schedule and dictate the terms and
    conditions under which we come in, and I understand that it was
    your staff that set the hearing on Friday, as opposed to the
    usual procedure, but you have got a good crowd here, and
    obviously the Senate Energy Committee is working on Friday. The
    halls are a little hollow out there, but that is all right.
        I am pleased to join you here this morning. It seems like
    only yesterday that we were here, and we were here yesterday.
        [Laughter.]
        Senator Murkowski. In any event, we are going to hear from
    a number of witnesses, as you have already outlined. I want you
    to know I support the measures to improve the energy efficiency
    and assist those low income families that are facing high
    energy bills in this country, but in addition to addressing the
    symptoms of our energy crisis, high energy bills, I am firmly
    committed to the belief that we must commit ourselves to
    solving the underlying crisis.
        I stand certainly ready to work with you to move an energy
    bill to the full Senate for consideration, hopefully prior to
    the August recess, and I hope that we can collectively impress
    upon the Majority Leader the need to schedule time for the
    Senate floor. I would hope that we could have consideration for
    a comprehensive measure no later than the beginning of the week
    of July 30.
        I recognize there are other priorities as well. In any
    event, we will seek to make sure that any energy bill that
    leaves this committee will have a balanced approach to our
    energy security needs. Obviously, that includes increased
    supply of conventional fuels, energy efficiency, using more
    technology, and expanded use of alternative fuels and
    renewables.
        One of the things that I am rather interested in--evidently
    the second panel is going to focus on the debate for standards
    for central air conditioners and heat pumps. What has been lost
    in the debate is that, as I understand, the new Department of
    Energy standard will still increase energy efficiency by about
    20 percent, which certainly is encouraging. The administration
    has proposed a 12-SEER standard, standing for the seasonal
    energy efficiency ratio. Secretary Abraham recently noted that
    the new air conditioning standard will save enough electricity
    by 2030 to light all U.S. homes for more than 2 years. I do not
    know how much Alaska is going to contribute to that, but
    nevertheless, we will survive. We will make up for it some
    other way, perhaps chopping wood, but at the same time the 12-
    SEER standard will be affordable for consumers, provide a wide
    array of manufacturers' models to meet consumer needs.
        The same is not true of the 30-percent increase proposed by
    the former administration's 13 SEER standard. The 13-SEER
    standard would have eliminated 84 percent of new air
    conditioner models and 66 percent of new heat pump models,
    which is a rather interesting comparison. In many instances,
    the installation of larger indoor coils required to meet the
    13-SEER standard would increase cost to consumers by many
    hundreds of thousands of dollars.
        I gather that the Justice Department found that the 13-SEER
    standard would impose disproportionate impacts on low income
    families, the same low income families that we are trying to
    help with the increased LIHEAP and weatherization funding. It
    would also drive many small manufacturers out of business,
    reduce consumer choice and competition. Perhaps this is just a
    plan to create additional demand for even more increases in
    LIHEAP and weatherization funding, but I do not want to make
    that inference. I will just refer to it.
        Clearly, the administration made the right decision to opt
    for a 12-SEER standard, reasonable cost-effectiveness with real
    benefits. I hope we can move beyond the inconsistencies on the
    issue designed perhaps for finger-pointing--and perhaps get on
    with the business of making the right choices for the American
    people: choices of balanced economic and environmental
    concerns, and our need for energy to grow in the next decade.
        I hope that we can act quickly on a comprehensive package,
    and I would certainly like, again, to reiterate since 1973 the
    economy has grown 126 percent but our energy has only grown 30
    percent. Clearly, advanced technology, American can-do spirit
    and ingenuity, have helped us to make great advances in
    efficiency, but even with these improvements we can expect that
    over the next 20 years, oil consumption will increase by one-
    third. There is no other way to move America. Electricity
    demand will increase by 45 percent, and natural gas consumption
    will increase by 50 percent.
        Incidentally, I would like to thank my colleague, who was a
    floor manager late last night when Mr. Griles was voted by a
    voice vote, and there happened to be three Republicans there
    and two Democrats, and so it was a close vote, but he is out,
    and he is confirmed, so we are very pleased. I think it has
    been 53 days, but nevertheless perseverance does pay off, if
    you have got enough perseverance.
        In any event, I was propounding here on some realizations
    that oil consumption is going to increase by a third,
    electricity demand will increase by 45 percent, natural gas
    consumption will increase by 50 percent.
        Now, these are real figures from real people who I think
    call it as it is. Efficiency and conservation are crucial parts
    of a balanced, comprehensive energy plan. They are cornerstones
    of a bipartisan plan that we have worked on as well as the
    President's plan, but many believe efficiency is the only
    answer to future energy demand. As these numbers indicate, it
    is clearly not enough to rely on efficiency alone to power our
    economic progress. Efforts to increase domestic energy
    production must go hand-in-hand with efficiency and
    conservation in order to turn this crisis around.
        I would conclude with two thoughts. The standard of living
    in this country is based on the assumption that we are going to
    have an affordable and plentiful supply of energy. If we do
    not, that standard of living is going to change, and the
    economy is going to change, and our national security interests
    are going to change.
        I am very pleased to see Hon. David Garman here. I have a
    list of questions for him that were submitted by Alan
    Steinbeck, and so when we get through with your presentation
    this morning, then you can expect to have Alan--I guess it is
    called getting even, but in any event, welcome.
        [Laughter.]
        The Chairman. Secretary Garman, why don't you go right
    ahead, please.

       STATEMENT OF DAVID K. GARMAN, ASSISTANT SECRETARY, ENERGY
         EFFICIENCY AND RENEWABLE ENERGY, DEPARTMENT OF ENERGY

        Mr. Garman. Thank you, Mr. Chairman. Mr. Chairman and
    members of the committee, thank you for the opportunity to
    testify on a variety of legislative measures related to the
    improvement of energy efficiency. Energy efficiency is a very
    important part of the administration's overall energy policy.
        The national energy policy document released May 16
    dedicates an entire chapter to the subject of energy
    efficiency, and another entire chapter to the importance of
    renewable energy. Moreover, 54 of the national energy policy's
    105 recommendations relate directly or indirectly to the
    importance of increasing our energy efficiency or increasing
    our use of clean, renewable energy.
        I have a chart or two that I would like to use to
    illustrate the manner in which we intend to approach our goal
    of increasing system efficiency. The first chart looks at
    electricity flow, which represents about a third of our total
    energy use. As the energy inputs on the left flow toward end
    uses on the right, you can see graphically how efficiency loss
    is resulting from conversion, transmission, and distribution of
    energy.
        If we were to increase end-use efficiency--the next chart,
    please--by 20 percent, therefore saving the equivalent of 2.1
    quads of end-use energy, we would actually save 6.7 quads of
    energy input at the powerplant due to conversion losses in
    distribution and generation. This illustrates why increasing
    end-use efficiency is very important, but it is also why a
    focus on end use should not constitute the sum total of our
    efforts.
        If we can employ technologies that increase end use
    efficiency and supply efficiency by 20 percent, then we could
    save 14.7 quads of energy inputs resulting in lower cost and
    fewer emissions. That is something, Mr. Chairman, your
    committee clearly recognizes, as evidenced by your hearings
    today and those scheduled for next week. Although today's focus
    is on end-use efficiency, next week's hearing will look beyond
    that to distributed generation and other technologies that can
    make our overall efficiency much better.
        I commend you for this approach, which is in agreement with
    the approach embodied in the President's national energy
    policy. We are launching a new analytical effort at the
    Department of Energy to better understand and track trends in
    energy intensity. Surprisingly, while DOE has done this in the
    past on a one-time basis, it has never done this in a sustained
    and systematic manner.
        We envision that this effort can contribute to national
    goals for energy efficiency improvements, and the sorts of
    improvements that could be made possible through technology and
    cooperative efforts with industry, State, consumers, local
    governments, utilities, and others. We are doing this, again,
    in direct response to the recommendation in the national energy
    policy that we make energy efficiency a national priority.
        With respect to the specific provisions in legislation
    before the committee today, I would note that they are all
    well-intentioned, and with some modifications the
    administration is likely to be in a position to support many of
    them if they are part of a balanced, comprehensive approach
    that also addresses supply and infrastructure issues contained
    in the national energy policy document. My written testimony
    goes into specific detail on the measures before the committee,
    but in the small time I have got I would like to highlight just
    a few.
        First of all, weatherization. The President has proposed
    $1.4 billion in additional funding for weatherization over the
    next 10 years. We urge that Congress adopt this increase, and
    appreciate the efforts of several on this committee who are
    working to ensure that the President's budget request in this
    area are fully met.
        With respect to the State energy program, the President's
    budget request for the current fiscal year was $38 million,
    equal to the 2001 level. We are pleased that both the House and
    Senate committees fully funded this request in their Interior
    appropriations bills, and share the view embodied in
    legislation proposed by both the chairman and the ranking
    member that we can do more in this area.
        On the subject of energy-efficient schools, we believe
    there are substantial opportunities in increasing energy
    efficiency in schools, and we are working through our existing
    programs such as the rebuild America energy-smart schools
    campaign and a host of other works performed by States under
    the State energy program. We would like to work with you as you
    consider additional steps.
        With respect to the Federal energy management program, or
    FEMP, we recognize that the Federal Government is the country's
    largest energy user, spending almost $8 billion annually on
    energy costs. We operate 500,000 facilities and almost 600,000
    vehicles worldwide. President Bush in a May 3 directive to
    Federal agencies asked that immediate steps be taken to reduce
    energy use, particularly peak demand in supply-constrained
    areas such as California.
        Our efforts to promote energy efficiency in the Federal
    realm, however, will not be a short-term effort driven only by
    current concerns about energy supply. Instead, we would like to
    work with you to build a new culture of energy savings that
    pervades the way the Federal Government procures buildings,
    appliances, vehicles, and all of the other items we purchase.
        I will stop with that overview and submit to any questions
    you might have. Thank you, Mr. Chairman.
        [The prepared statement of Mr. Garman follows:]

      Prepared Statement of David K. Garman, Assistant Secretary, Energy
             Efficiency and Renewable Energy, Department of Energy

        Mr. Chairman and members of the Committee, thank you for this
    opportunity to testify on S. 352; Title XIII of S. 597; Sections 602-
    606 of S. 388; S. 95; and S.J. Res. 15. These measures, of course, all
    relate to the improvement of energy efficiency.
        Energy efficiency is an important part of the Administration's
    overall energy policy. The National Energy Policy (NEP) document
    released May 16 dedicates an entire chapter to energy efficiency, and
    another chapter to the subject of renewable energy. Moreover, 54 of the
    NEP's 105 recommendations relate directly or indirectly to the
    importance of increasing our energy efficiency or increasing our use of
    clean, renewable energy.
        When thinking about efficiency, it is useful to consider the nature
    of our energy systems. The charts on display (see attached) * look at
    electricity flow, which represents about a third of our total energy
    use. If we were to increase end-use efficiency by 20%, thereby saving
    the equivalent of 2.1 quadrillion BTUs (quads) of end-use energy, we
    would actually save 6.7 quads of energy inputs at the power plant due
    to conversion losses in generation and the losses associated with
    transmission and distribution. This illustrates why increasing end-use
    efficiency is very important . . . but why it should not constitute the
    sum total of our efforts. If we can employ technologies that increase
    end-use efficiency and supply efficiency by 20%, then we could save
    14.7 quads of energy inputs, resulting in lower costs and fewer
    emissions.
    ---------------------------------------------------------------------------
        * The charts have been retained in committee files.
    ---------------------------------------------------------------------------
        This is something that your Committee recognizes, Mr. Chairman, as
    evidenced by your hearings today and those scheduled for next week.
    Although today's focus is on achieving end-use efficiency, next week
    the hearings will look beyond end-use savings to the removal of
    barriers to distributed generation and other technologies that can help
    us make our overall energy generation, transmission and distribution
    systems more efficient. I commend you for this approach, which is in
    close agreement with the approach embodied in the President's National
    Energy Policy.
        Today, I want to take this opportunity to announce that we are
    launching a new analytical effort at the Department of Energy to better
    understand and track trends in national energy intensity. Surprisingly,
    while DOE has done this on a one-time basis, it has never done this in
    a sustained and systematic manner. We envision that this effort can
    eventually contribute to national goals for energy efficiency
    improvements made possible through technological advances and
    cooperative efforts with industry, state and local governments,
    consumers, utilities, and others. We are doing this in direct response
    to the recommendation in the National Energy Policy that energy
    efficiency be pursued as a national priority.
        With respect to the specific provisions in legislation before the
    Committee today, I would note that they are all well intentioned, and
    with some modifications, the Administration is likely to be in a
    position to support many of them if they are part of a balanced,
    comprehensive approach that also addresses supply and infrastructure
    issues contained in the National Energy Policy document.
        However, I must add an important note of caution. It is, of course,
    relatively easy to authorize new funding, but relatively difficult to
    appropriate it. The most generous of the bills before us would
    authorize $500 million annually for weatherization, $230 million
    annually for energy efficient schools, $125 million annually for State
    Energy Programs, and would require an expenditure of roughly $180
    million in appropriated funds to create an Energy Bank to finance
    energy savings measures in federal agencies. That adds up to well above
    a billion dollars. The comparable level of appropriated funding in my
    office's 2001 budget was $153 million for weatherization and $38
    million for State Energy Programs, or about $191 million. (I am not
    including the $3.4 billion that would be authorized under one of the
    bills for Low Income Home Energy Assistance Program, as that is not one
    of DOE's programs.) As we work together in the weeks and months ahead
    to determine the appropriate authorization levels for these programs, I
    urge that there be some linkage between the authorized levels and a
    realistic expectation of the eventual appropriations that will follow.
    We also urge Congress to adopt the President's proposal to use $1.2b of
    ANWR bonus bids to fund R&D projects on solar power, wind energy,
    biomass power and fuels, geothermal energy and other alternative energy
    technologies.

                           WEATHERIZATION ASSISTANCE

        The Weatherization Assistance Program provides services to eligible
    low-income persons, with emphasis on elderly persons, persons with
    disabilities and children. States (including the District of Columbia)
    voluntarily participate. Up to an average of $2500 per dwelling unit
    may be spent for purchase and installation of eligible weatherization
    materials, and energy audits are used to ensure that the measures
    employed in a given home are cost-effective.
        The Weatherization Assistance Program has reduced the heating and
    cooling costs of low-income households by weatherizing more than 5
    million homes since the program's inception in 1976. The President has
    proposed $1.4 billion in additional funding for weatherization over the
    next ten years. The President's budget for FY 2002 proposed a $120
    million increase from $153 million to $273 million, which will
    weatherize 123,000 homes--an increase of at least 48,000 homes over the
    number weatherized in the prior fiscal year. In its markup of the
    Interior and Related Agencies appropriations bill, the Senate
    Appropriations Committee, has provided only half the President's
    requested increase $60 million to bring the program to a level of $213
    million. We hope that this shortfall will be addressed on the Floor.
        We support an authorization level that accommodates the President's
    requests for increases in this program. Our recommended ramp-up of the
    program anticipates spending levels for the program as outlined in the
    table below.

                                                     ($ in millions)
    ----------------------------------------------------------------------------------------------------------------
                                Fiscal year                               WAP base      Initiative       WAP total
    ----------------------------------------------------------------------------------------------------------------
    2002..............................................................      $153          $120.0          $273.0
    2003..............................................................      $153          $124.1          $277.1
    2004..............................................................      $153          $128.2          $281.2
    2005..............................................................      $153          $132.2          $285.6
    2006..............................................................      $153          $137.1          $290.1
    2007..............................................................      $153          $141.7          $294.7
    2008..............................................................      $153          $146.5          $299.5
    2009..............................................................      $153          $151.4          $304.4
    2010..............................................................      $153          $156.6          $309.6
    2011..............................................................      $153          $161.8          $314.8
    ----------------------------------------------------------------------------------------------------------------
        10 Year Total.................................................    $1,530          $1,400          $2,930
    ----------------------------------------------------------------------------------------------------------------

        Section 422 of the Energy Policy and Conservation Act statute
    authorizes ``sums as may be necessary'' for the Weatherization
    Assistance Program. Section 3 of S. 352 (Bingaman) would increase the
    weatherization program authorization to $310 million for each of the
    fiscal years through 2005.
        Section 603 of S. 389 (Murkowski) would also increase the program
    authorization levels to $250 million in FY 2002; ramping up to $500
    million in FY 2005. We note that the authorization levels in S. 389 for
    FY 2002 would fall $23 million short of the President's request. Unless
    modified, we would be unable to support this provision. Section 603 of
    S. 389 would also expand the eligibility of low-income households from
    125% of the poverty level to 150% of the poverty level. We are not
    certain that this change is needed since states may, under current law,
    elect to use LIHEAP eligibility criteria in administering the DOE
    weatherization program. The LIHEAP eligibility criteria gives states
    the option of using the 150% poverty level figure or a figure of 60% of
    a state's median income as a basis of eligibility.

                              STATE ENERGY PROGRAM

        States voluntarily participate in the State Energy Program (SEP) by
    submitting grant applications with energy plans to DOE. States are
    required to contribute 20% matching contributions, and SEP funds are
    used to finance a variety of projects, including building codes
    updates, installing eligible energy conservation measures, encouraging
    the use of clean fuel vehicles, and developing energy emergency plans.
        The President's budget request for FY 2002 for State Energy Program
    funding was $38 million, equal to the FY 2001 level. We are pleased
    that the Senate Committee fully funded his request in the Interior
    appropriations bill.
        Section 3 of S. 352 (Bingaman) would change the authorization
    levels for State Energy Conservation Grants from ``such sums as may be
    necessary'' to $75 million annually for fiscal years 2001-2005.
        Section 604 of S. 389 (Murkowski) would also increase authorization
    levels for State Energy Conservation Grants compared to past practice
    in Congressional appropriations. S. 389 also appears to change the
    State Plan approval cycle from once a year to once every three years, a
    change that would streamline program administration at both the Federal
    and State levels. Finally, the Murkowski provision would appear to
    establish a goal of 25% improvement in a state's energy efficiency by
    2010 (against a 1990 baseline).
        This is probably an appropriate place to comment on the use of
    numerical goals in statutory language. Goals that are clearly defined
    and measurable can be quite useful. In the case of energy savings goals
    expressed under the Federal Energy Management Program (FEMP), the goals
    are expressed in terms of energy use per square foot of building space.
    This is a goal we can measure, understand, and pursue.
        Unfortunately, the existing goal in section 364 of the Energy
    Policy and Conservation Act that S. 389 would amend has never been
    clearly defined. Is it per capita energy intensity? Is it energy use
    per unit of economic production? Should the goal be attributable to the
    actions of a State Energy Program, or should it also measure energy
    efficiency gains that occur as a consequence of market forces or
    structural changes in the economy? If the intent is to establish a goal
    that State Energy Programs can attribute to their activities, we can
    safely predict that you will hear the view from Governors and State
    Energy Officials that a 25% goal is unrealistic without substantial
    increases in appropriated funding.
        I cannot tell you today what we believe the funding levels should
    be in subsequent fiscal years, as this is a component of both our
    ongoing 2003 budget formulation and a top-to-bottom strategic funding
    and performance review that is now underway for each of the 31 programs
    in my office.

                            ENERGY EFFICIENT SCHOOLS

        Section 602 of the S. 389 (Murkowski) establishes an Energy
    Efficient Schools Program in the Department of Energy. Section 1302 of
    S. 597 (Bingaman) establishes a program within the Department of
    Education to promote energy efficient schools.
        My office has several existing programs that speak to this issue.
    Through the ``Rebuild America'' Energy Smart Schools campaign, my
    office provides technical assistance for design and financing as well
    as conservation technology. We also do work in areas of alternative
    fuel school transportation and a number of supply side management
    strategies such as micro-cogeneration, combined heat and power,
    renewable energy and alternative fuel sources. A great deal of what we
    do is applicable to schools, about $2-3 million worth of our work is
    directed specifically to schools, not including school-related
    expenditures under the State Energy Program.
        State Energy Programs can already use existing resources to promote
    energy efficient schools, and of course those efforts must be cost-
    shared. We view cost sharing with our state partners as a good way to
    leverage federal resources and ensure that they are directed where they
    will do the most good. Therefore, it is our preference to use the
    existing State Energy Programs to promote energy-efficient schools
    rather than authorizing a new program whose chances of receiving
    significant funding from the appropriators are unclear. As funds are
    available, they should be directed to existing programs that can
    achieve the desired goals we share.
        If legislation is deemed necessary to provide greater federal
    emphasis on promoting energy-efficient schools, we recommend that the
    Department of Energy lead the effort in concert with the State Energy
    Offices. We do not believe that a Department of Education administered
    grant program as proposed in S. 597 would fully leverage the advantages
    that could be achieved through coordination with our existing energy
    efficiency programs and the ongoing efforts of the State Energy
    Offices.

              FEDERAL ENERGY MANAGEMENT PROGRAM (FEMP) PROVISIONS

        The Federal Government is the country's largest energy user,
    spending almost $8 billion annually on energy costs. We operate over
    500,000 facilities and almost 600,000 vehicles worldwide. The
    President's National Energy Plan calls on Federal agencies to conserve
    energy and to reduce energy use during peak hours in areas where
    outages are likely. Since 1985, the federal government as a whole
    reduced energy use in its buildings by more than 20 percent in 1999
    thereby achieving its year 2000 goal one year early. Our most recent
    figures for FY 2000 places our reduction at 22% over the 1985 baseline.
    This represents a $2.2 billion energy savings, expressed in year 2000
    dollars.
        President Bush, in a May 3rd directive to Federal Agencies, asked
    that immediate steps be taken to reduce energy use, particularly peak
    demand in supply-constrained areas such as California. Agencies
    achieved some important results, including participation in a load
    reduction exercise on May 24th. During that exercise, 114 Federal
    facilities, representing 20 different agencies and roughly 80% of the
    federal load in California, demonstrated reductions in peak demand
    approaching 10%. To reduce overall demand in California, we have
    dispatched teams to 25 of the larger sites in California to identify
    the immediate no-cost/low cost opportunities for reducing demand. These
    teams are at work now, and we have asked them to report by July 31.
        These efforts are important for practical reasons. But they are
    also important for symbolic ones. We can tell America it must use
    energy more efficiently . . . but if we fail to lead by example, we
    undermine our message.
        It is our hope that energy efficiency in the federal realm will not
    be a short-term effort driven by current concerns about energy supply.
    Instead, we would like to work with you to build a new culture of
    energy savings that pervades the way that the Federal Government
    procures buildings, appliances, vehicles, and all of the other items we
    purchase.
        Whenever the federal government builds a new building, we should
    strive to design and build it to achieve the ``Energy Star''
    certification. When existing federal buildings are modernized, we
    should incorporate the energy and water conservation efforts that are
    cost effective over the life cycle of the facility.
        Recently in Kansas City, DOE hosted a Federal Energy Management
    conference where hundreds of federal procurement officials, building
    engineers, and program managers gathered to learn the latest approaches
    to saving energy and money for the taxpayer. We are working to develop
    that new culture of energy savings among federal government procurement
    and buildings officials because it makes sense for the taxpayer and it
    is good for the environment. As an additional benefit, we also find
    that our workers prefer to work in a building that incorporates the
    latest energy savings technologies.
        One of the keys to successful implementation of federal energy
    savings measures is through the use of Energy Savings Performance
    Contracts and Utility Energy Savings Contracts. These financed
    approaches are being employed to finance energy savings measures
    without using appropriated dollars. To date, Federal agencies have
    already leveraged more than $1.3 billion in private sector investment
    for projects that replace inefficient building systems with state-of-
    the-art equipment.
        The Federal government can also make a difference by making smart
    purchasing decisions. The Federal government spends more than $10
    billion each year on energy-using equipment. The joint DOE/EPA ENERGY
    STAR  program identifies energy efficient products so that
    all consumers, including Federal purchasers, can make informed
    decisions that save energy and money.
        So we applaud the effort to address federal energy use in section 4
    of S. 352 (Bingaman) and sections 605 and 606 of S. 389 (Murkowski),
    and would like to work with you to fashion a workable approach in this
    area. With respect to specific comments, I would offer the following:
        Section 4 of S. 352 (Bingaman) would require federal agencies to
    undertake a comprehensive review of all practicable measures to
    conserve energy, water, or employ renewable energy resources and to
    implement measures to achieve 50% of the potential savings within 180
    days. Candidly, a comprehensive review of all practicable measures that
    we could employ in 500,000 federal buildings, followed by the
    implementation of steps to achieve 50% of identified potential savings,
    could simply not be done in 180 days. Moreover, sufficient funds have
    not been provided for this purpose. Our challenge is to change the
    acquisition planning efforts, and we believe that will be a long-term
    effort.
        S. 389 (Murkowski) would require agencies to reduce energy use per
    gross square foot by 30% by 2010 and 50% by 2020 relative to a 1990
    baseline. The current goals, contained in the National Energy
    Conservation and Production Act, the Energy Policy Act, and Executive
    Order 13123 are to reduce energy use per gross square foot by 20% in
    2000, 30% by 2005, and 35% by 2010 relative to a 1985 baseline. S. 389
    represents an acceleration of these targets and a shifting of the
    baseline. Thus, it is a very ambitious goal. We believe we might be
    able to support such a goal were it contained in comprehensive
    legislation that also addresses the supply and infrastructure issues
    identified in the National Energy Policy document.
        As mentioned earlier, Energy Savings Performance Contracts (ESPCs)
    are an important tool federal managers can use to achieve their energy
    savings goals. S. 389 (Murkowski) would extend authority for ESPCs five
    years, and S. 352 (Bingaman) would repeal the sunset provision
    entirely. At this time, we can support a five year extension of
    existing authority for ESPC's to allow us to further quantify the
    benefits they provide.
        S. 389 (Murkowski) would allow utility contracts, which are
    preferred -source energy savings contracts entered into between federal
    facilities and the utilities that serve them, to increase from a
    maximum 10-year term to a maximum 25-year term. This is in line with
    the 25-year terms allowed ESPCs. However, 25-year ESPC contracts
    contain performance guarantees as well as provisions to ensure
    measurement and verification of energy savings. We would like to
    continue to work with you to ensure that any expansion of utility
    contracting includes assurances of guaranteed energy savings.
        S. 352 (Bingaman) would allow ESPCs to be used for water
    conservation measures and for replacement facilities. The
    Administration has concerns regarding the use of ESPCs for replacement
    facilities. However, provided that it is included in comprehensive
    legislation that also addresses the supply and infrastructure issues
    identified in the Administration's National Energy Policy, we could
    support the use of ESPCs to conserve water, although we have some
    technical suggestions that we would like to work out with your staff.

                             ENERGY BANK PROVISIONS

        Both S. 95 (Kohl) and section 1301 of S. 597 (Bingaman) would
    create an ``energy bank'' to help in the funding of federal energy
    management projects. This is a well-intentioned effort, but I am
    concerned about the practical applications of this particular language.
    particularly when we haven't yet fully taken full advantage of the
    opportunities afforded by ESPCs and ``super ESPCs.''
        S. 95 and section 1301 of S. 597 would capitalize the energy bank
    by collecting 5% of the utility budgets of federal agencies, or roughly
    $180 million per year. Sharply higher energy prices have already
    stressed the operations and management (O&M) budgets of many federal
    agencies in the near term. Requiring agencies to capitalize a new
    energy bank in the near term, during these times of high energy prices,
    even if they might produce savings over the long term, would create
    operational hardships and impair the ability of federal agencies to
    fulfill their missions.
        Moreover, the language of S. 95 and section 1301 of S. 597 is
    directed at projects with relatively short payback periods of three and
    seven years. Thus, the Energy Bank projects might ``cherry pick'' the
    energy-savings opportunities and actually result in fewer comprehensive
    energy savings projects.
        We need to make sure we take full advantage of the opportunities
    afforded by ESPCs and Super ESPCs before we experiment with a new tool
    that could inadvertently result in fewer energy savings projects
    overall.

                           AIR CONDITIONING STANDARD

        Finally, Mr. Chairman, I will comment on Senate Joint Resolution 15
    (Boxer), a resolution of disapproval related to energy efficiency
    standards for residential air conditioners and heat pumps.
        The purpose of S.J. Res. 15 is to force the Department of Energy to
    adopt new residential air conditioning and heat pump efficiency
    standards at the 13 SEER (Seasonal Energy Efficiency Ratio) performance
    level . . . a performance level that represents a 30% improvement over
    the current standard. We oppose this resolution.
        The current efficiency standard is 10 SEER for split air
    conditioning and heat pump systems and 9.7 SEER for single-package
    systems. Today, 78% of air conditioning and heat pump sales are at the
    10 SEER performance level. Many consumers choose to purchase higher-
    performing air conditioners and heat pumps, and in some areas of the
    country this makes very good sense.
        However, as a minimum, national standard, to be in effect for
    virtually all central air conditioners and heat pumps in all areas of
    the country, the Department of Energy intends to propose a 12 SEER
    performance level that represents a 20% improvement over the current
    standard.
        It should be noted that the current Administration reviewed and
    adopted, without change, efficiency standards covering washing
    machines, water heaters, and commercial heating and cooling systems.
    Only in the case of residential air conditioners and heat pumps are we
    proposing any variation from the prior Administration.
        We do not take this action lightly. In the current political
    atmosphere, the convenient and popular approach would have been to
    simply accept the 13 SEER standard. Our forthcoming supplemental notice
    of proposal will explain our reasons for withdrawing the 13 SEER
    standard and for proposing a 12 SEER standard as the maximum
    technologically feasible level that is economically justified.
        With that, Mr. Chairman, let me say that I look forward to working
    with you and your staff on legislation to promote energy efficiency in
    the weeks and months ahead. I am pleased to answer any questions the
    Committee may have.

        The Chairman. Well, thank you, and thanks for your
    relatively brief summary of things. We encourage that from all
    witnesses.
        Let me just ask first, one of the statements contained in
    your testimony that you repeated here gives me a little
    concern. It says that the administration is prepared to support
    more ambitious goals for the Federal Government related to
    energy use, and then you add this qualifier of saying, if it is
    contained in comprehensive legislation that also addresses
    supply and infrastructure issues.
        Now, we intend to do all that, but it sounds as though you
    think it is sort of, you will agree to go along with
    improvements in energy efficiency if we agree to do these other
    things that you want done, otherwise you will not. Am I reading
    something in there that is not intended to be there, I hope?
        Mr. Garman. No, sir, not precisely. What we are trying to
    stress is the importance of a balanced approach. It is because
    of the nature of the energy debate.
        I think it would be easy for us to go down the road, work
    together in this effort--candidly, some of the supply issues
    are not as politically popular as some of the demand issues,
    and if we were to get down to the end of the road where we were
    at a Rose Garden signing ceremony on an energy bill, and that
    bill was not a balanced bill, then we would have, I think,
    failed in our effort to really try to deliver a balanced
    package, and it might be, frankly, misleading to members of the
    public if they thought we had passed a bill that would
    accomplish goals and deliver us from our supply constraints
    when, in fact, it would not.
        The Chairman. Well, I certainly agree with your objective
    of getting a balanced, comprehensive effort, and including
    efforts to increase supply, as well as improve efficiency.
        I just do not want us to be into a quid pro quo kind of a
    situation where we are not willing to agree to something on the
    efficiency side unless someone else will agree to something we
    want in a way of opening ANWR, or something to that effect. I
    think that would be very destructive of an effort toward
    getting a comprehensive bill, and I just wanted to flag that.
        The Federal Energy Management Program you refer to in the
    budget that we got, recommended fairly severe cuts in that.
    What is the position of the administration at this point?
    Frankly, I am concerned. The bill we passed in the Senate
    yesterday did not have the funding it should have had for that.
        I cosponsored a bill with Senator Cantwell, an amendment
    with her that was intended to address that, and we were not
    able to get the support we needed to go ahead, but what is your
    view on the proper level of funding to support the Federal
    Energy Management Program?
        Mr. Garman. Let me address that also, in the context of
    making an overarching observation about the budget and the
    process we have gone through in both energy efficiency and
    renewable energy. Of course, the new administration had to
    submit a budget covering these items on or about February 27 or
    so without the benefit of the guidance that was contained in
    the national energy policy document. That document, of course,
    came out May 16.
        At the same time, the document asked us to undertake a
    strategic review of all of our programs, including FEMP,
    beginning with a pretty significant public outreach effort at
    the outset. We learned during that process, and we heard from
    stakeholders and the public about the importance of some of
    these programs. We also internally were beginning our strategic
    review.
        What you have seen in statements of administration position
    about both the Energy and Water Development and Interior
    appropriations document that contain these programs is that we
    believe that the increases that Congress has provided in these
    programs over and above what we asked for indeed may be
    consistent with the President's objectives, so we have watched
    and interacted with Congress as it has increased funding for
    some of these programs, including FEMP, over what we had asked
    for, and we believe that these are consistent with
    administration objectives.
        The Chairman. So you do not have a problem with the
    increases that Congress has adopted so far.
        Mr. Garman. As the overall number, no. We would like to
    reserve the right, if you will, to quibble with you on issues
    of priority and funding priorities within that overarching
    level, but that is a correct characterization, yes, sir.
        The Chairman. With regard to this residential air
    conditioning rule, that was one of the first items related to
    energy efficiency that the administration dealt with, or at
    least one of the first ones I became aware of, and I was
    concerned. I believe I spoke to Secretary Abraham about this
    and urged that they stick with the more stringent rule that the
    Clinton administration had adopted, rather than backing off of
    that.
        The decision was made by this administration to back off
    and require less of an improvement in residential air
    conditioning than the previous administration had intended to
    require. How do you explain that? I mean, particularly at a
    time when we are in the middle of a hot summer, and we are told
    that the biggest drain, or the biggest burden we are carrying
    in trying to keep the lights on in a place like California is
    the electricity being used in air conditioners. Why would we
    not want the highest possible level of efficiency in air
    conditioners?
        Mr. Garman. The quick answer, and I will start with that,
    is that the law prescribes us to look at a number of factors.
    Energy efficiency is one of them, but it is not the only
    factor, nor is it the absolute factor.
        I think it is important to start with the recognition that
    the incoming administration reviewed and adopted without change
    efficiency standards covering washing machines, covering water
    heaters, and covering commercial heating and cooling systems.
        Only in the case of residential air conditioners and heat
    pumps are we proposing any variation from the prior
    administration, and the reason we did that is, we showed
    through our analysis, and in fact it was the same analysis used
    in the prior administration, that the 13-SEER standard would
    represent an unreasonable burden on consumers, a majority of
    the consumers, under the 13-SEER, under our analysis would
    suffer increased life cycle cost. In other words, they would
    not get a payback for the up-front investment for the higher
    cost of the equipment.
        Based on that, and also based on concerns expressed by the
    Department of Justice, and borne up by our own analysis about
    the impacts on the industry, the 13-SEER would have the effect
    of accelerating the consolidation of the industry, already an
    industry where 97 percent of the business is controlled by
    seven large manufacturers. We do not think the consolidation of
    the industry over the long-term would be good for competition,
    good for consumers, or good for technological advancements
    leading to energy efficiency.
        So that is just, I guess an overview of some of our
    thinking that is leading us to propose that 12 is probably the
    correct number.
        The Chairman. Now, what is the status? You have not yet
    promulgated a rule at 12, is that right?
        Mr. Garman. That is correct.
        The Chairman. You are still looking at it?
        Mr. Garman. Yes, sir.
        The Chairman. I did submit some suggestions to Secretary
    Abraham and some figures that I would like also to get to you,
    which indicate to us that the decision was made by your
    administration here to back off of the more stringent standard
    that was based on the average cost of electricity in 1996, and
    that if you look instead at the cost of electricity at peak
    periods, that the standard that was adopted or agreed to by the
    previous administration is clearly a better choice.
        If you could look at those figures and maybe get back to
    us, and give us some response to that, because I do not think
    it is just a question of how good is good enough. I think that
    there are some substantial savings overall that can be realized
    if we were to stick with the more stringent standard.
        Mr. Garman. I can, in fact, in a broad-brush way address
    some of those issues now, if you care to, or we can do it
    later, whatever your preference is.
        The Chairman. All right. Well, I am told my time has
    expired. Let me ask Senator Murkowski to go ahead with his
    questions at this point. Maybe we will come back.
        Senator Murkowski. Thank you, Senator. I am curious, in
    your chart relative to energy loss, you indicate 33 quads of
    input, and generating loss of 22, is there technology available
    to reduce the tremendous loss associated with this, and why are
    we not making more progress there?
        Mr. Garman. Part of it has to do with just the nature of
    the way that our electricity system evolved. We have a
    centralized grid system, with centralized plants, and many of
    those plants, say, a coal plant, will have a conversion
    efficiency--in other words, convert the energy content of the
    coal, converting that to electricity--and lose two-thirds of
    the energy potential in that process.
        That is the large arrow, the conversion loss, as you see,
    going off at the top. You have those kinds of conversion
    efficiencies in many plants. A typical coal plant will have a
    conversion efficiency of around 35 percent. When you get into
    combined cycle natural gas, you start to approach 60 percent,
    so you are doing better there. When you start to look at
    combined heat and power, and distributed generation, you start
    to get towards 70 or more percent.
        Senator Murkowski. What is nuclear?
        Mr. Garman. Nuclear, I do not have a precise number on
    that, but it still suffers a conversion deficiency issue, but
    nuclear is a little different in that one of the things you are
    concerned about in the efficiency loss is the burning of fossil
    fuels, and we are less concerned about efficiency losses in the
    nuclear context, because it is emission-free.
        Senator Murkowski. I would like to pick up on a point
    Senator Bingaman made relative to your generalization of the
    effort to work towards a comprehensive bill, and it is
    certainly my position, and I think it reflects on the
    responsibility of this committee to not make this mistake we
    made in 1992, not that this committee made the mistake, but the
    Senate basically made the mistake, and I am going to refer to
    this chart behind me which Joe is going to hold up, and Senator
    Bingaman has seen it time and time again, but it reflects
    reality.
        And a little history relative to what we did in 1992, when
    Senator Bennett Johnson was chairman of the committee, we
    passed efforts to increase domestic production, reduce
    dependence on foreign oil, expedite infrastructure, develop
    alternatives, encourage renewables, promote conservation, and
    increase LIHEAP and weatherization, and I think we funded about
    $6 billion for renewables and alternatives.
        These all passed in this committee, but this is what we got
    on the floor: We got a little bit of funding for renewables and
    alternative fuels, energy efficiency, and LIHEAP, but we did
    not reflect the realities associated with why things are
    different now, and the next chart which Joe will run over and
    get will show you why things are different.
        The reason things are different this time is, we did not
    act in 1992 from the standpoint of the responsibility of the
    Congress, and now our foreign oil dependence is up 56 percent,
    and it was, what, 37 percent in 1973, when we had the Arab oil
    embargo. The Department of Energy says we will be in the low
    sixties by the year 2010. What does that mean to the national
    security of this country?
        Natural gas prices have soared as high as $10. We have seen
    no new nuclear plants in 10 years or more, no new gasoline
    refineries in nearly 20 years, no new coal-fired plants since
    1995, and now we are faced with the reality that our
    transmission capacity, whether it be gas or electric, is
    inadequate.
        And when we talk about how we are going to correct this,
    and you talk about a comprehensive bill, and we talk about the
    merits of ANWR, instead of just dismissing it, which was
    generalized yesterday, or suggesting that, well, we are not
    going to do it if you have this, there is as much justification
    for encouraging the merits of what ANWR can contribute as
    opposed to what ANWR offers as a distraction from the
    standpoint of the environmental community.
        So I hope as we develop a comprehensive bill we can
    recognize the objective here, and the objective is a balanced,
    comprehensive bill that provides relief for a number of the
    shortages associated with the fact that we do have a crisis,
    and we are going to have to do what is good for America, and
    good for Americans, not necessarily for one segment of the
    environmental community that has jumped on this issue as a
    major source of funding and a major source of membership.
        As you know, I feel very strongly about that, and we are
    going to be pursuing that in this committee, and we are going
    to be discussing the merits, as opposed to superficial
    discussion on it.
        I want to also reflect on another question relative to the
    anticipated proceeds of the bonus bid associated with the sale
    of Federal leases in ANWR. I think the estimate is somewhere in
    the area of $1.2 billion, and the administration's proposal is
    to use those funds for research and development for renewables,
    alternatives and so forth.
        Now, in your opinion, using these funds for renewables,
    efficiencies, alternatives, you know, we all talk about energy
    in general, but we really do not separate energy. We have two
    types of energy. We have energy that develops electric
    generation, and that is nuclear, it is coal, it is hydro, but
    America and the world moves on oil, and unfortunately we do not
    have much relief in the foreseeable future. We have fuel cells,
    and things coming on, but the reality indicates that hydrogen
    is a way off.
        We had in my office the other day a little hydrogen
    exhibit, and the uniqueness of it was that it worked, but it
    worked as a consequence of an electric fan being plugged in, so
    if you did not have the electric fan plugged in I am not sure
    what would happen. I suppose we would be looking at a
    stationary hydrogen plant.
        But can you tell us from the standpoint of any significant
    replacement for oil what we might look towards, and is there
    any estimate of a time sequence where, say, we could look to 15
    to 20, 25 percent of our transportation being dependent on
    something other than oil, or kerosene, or derivatives, that
    move our ships and our planes and our trucks?
        Mr. Garman. Well, the way we are approaching this problem
    is looking at the oil replacement issue as requiring really an
    R&D portfolio of both short-term and long-term technologies.
    Oil is a tricky problem in part because of the infrastructure.
    Clearly, there are things we can do in the short term with
    respect to hybrid gasoline-electric cars, and some other
    technologies that can serve as a bridge to fuel cells and the
    eventual hydrogen, so-called hydrogen economy.
        There are also some things we could do in the area of
    bioenergy with biologically based fuels such as ethanol, or
    derivatives of ethanol that might form a basis for a
    transportation fuel, again in the near term, as we keep our eye
    on the long-term prospective, which is really hydrogen over the
    long term.
        The difficult part, of course, is going to be cost. We
    estimate that a fuel cell in a car, to compete with the
    internal combustion engine, is to going to have to come down to
    the price of around $50 to $100 per kilowatt. Right now those
    costs are in the neighborhood of $3,000 or $4,000 per kilowatt,
    and so our R&D effort is driven at bringing down those costs to
    make that technology more affordable and bring it into the
    marketplace, but it is going to be an effort that spans, we
    think, decades.
        Senator Murkowski. Is it the process of converting to
    hydrogen that is the cost? Is there some mechanical process
    that is extremely complex?
        Mr. Garman. Creating hydrogen is not difficult. It is more
    expensive right now because of the energy you have to input
    into the process of separating the hydrogen from the natural
    gas, but it is also using that hydrogen effectively.
    Transporting it is an issue. It is corrosive, it is flammable,
    it has other issues that are tricky to deal with, so you have
    to have a portfolio approach to your research and development
    that tries to deal not only with the creation of hydrogen, but
    the transportation, distribution, and the final end use of the
    hydrogen.
        Also, hydrogen compared to oil does not have the same kind
    of energy density. You just do not have the same kind of Btus
    in any given volume of hydrogen that you have in a hydrocarbon.
    That is another thing we have to come to grips with.
        Senator Murkowski. Would you say as a rule of thumb,
    relative to how much we could relieve our dependence on oil,
    you said a couple of decades before we probably develop a
    replacement. I would assume, then, that the next 10 years or so
    we are still going to be pretty much 75 percent dependent on
    oil for the movement of America, or thereabouts?
        Mr. Garman. As a transportation fuel, unless we can find
    dramatic new ways to integrate more bio-based fuels, ethanols
    or similar derivatives into the system, then yes, we will
    continue to be dependent on oil and fossil fuels for the
    foreseeable future.
        Senator Murkowski. Thank you.
        The Chairman. Senator Burns.
        Senator Burns. Thank you, Mr. Chairman, and thank you for
    this hearing today, and I would ask that my full statement be
    made a part of the record
        [The prepared statement of Senator Burns follows:]

       Prepared Statement of Hon. Conrad Burns, U.S. Senator From Montana

        Mr. Chairman, thank you for calling this important hearing today on
    energy efficiency and energy assistance programs. LIHEAP, the
    Weatherization Assistance Program, and the Federal Energy Management
    Program are all very important initiatives. I look forward to hearing
    our witnesses testify today.
        Energy conservation and efficiency must be a part of a national
    strategy and the United States has come a long way on this already.
    Since 1973, the U.S. economy has grown nearly five times faster than
    energy use. Had we continued to use energy as intensively as in 1970,
    the U.S. would have consumed about 177 quadrillion Btus of energy last
    year, compared to about 99 quadrillion Btus actually consumed. The
    federal government has also made strong advancements in its energy
    consumption reductions. Largely by installing energy efficient
    technologies, the federal government has reduced its energy use by
    about 30 percent from 1990 levels.
        The backbone of America, our farmers and ranchers, have done their
    part to reduce energy as well. Our farmers have reduced their energy
    use by 41 percent from 1977-1998, while agricultural output grew by
    about 40 percent over the same period.
        What angers me now is that those same farmers are now forced to pay
    higher prices for irrigation, oil, gas, propane, and electric prices
    because we have had too many elected officials close off resources and
    create environmental regulations that hinder new electrical generation.
    I applaud President Bush for his proposal to double funding for the
    Weatherization Assistance Program. I applaud President Bush, Chairman
    Bingaman, and Ranking Member Murkowski's commitment to provide strong
    funding increases for the Low Income Home Energy Assistance Program
    (LIHEAP). But I stare in amazement at my colleagues in the U.S.
    Congress who can vote against allowing oil and gas drilling in areas
    where it can clearly be done in an environmentally sensitive manner,
    and still complain about high energy prices.
        The figures show how much progress this nation has seen when it
    comes to conservation. The recent energy crisis shows that conservation
    alone has not been enough. I say again that I proudly support LIHEAP
    and the increases for the Weatherization Assistance Programs. However,
    I think the issues before us today go back to pure philosophical
    differences. Allowing Americans to increase the energy supply for this
    country will lower prices for senior citizens and others on fixed
    incomes. Some members would rather fight every attempt to increase
    supply, and hold those same seniors and people on fixed incomes under
    their control and make them dependent on every check from Washington,
    DC.
        It is very clear that we have before us a mandate to conserve more
    energy, to become more energy efficient. Though we have made many
    gains, we can do much more. Aside from what we must do to increase
    energy supply, and what we can do to increase conservation; working on
    increased funding for LIHEAP and Weatherization Assistance are two
    things we must do to bring immediate assistance to senior citizens and
    folks on fixed incomes.
        I am confident that this committee will build the consensus to pass
    legislation needed to address our nations most pressing needs.

        Senator Burns. I want to pick up on a question that the
    ranking member made this morning about the efficiency of
    transmitting electricity in our transmission lines.
        I visited with a couple of companies that are doing a lot
    of work on their research on that, and particularly one company
    has made some real advances as far as making our present-day
    transmission lines more efficient, and not finding the drop-off
    that we have had in the past--it is not quite ready yet, but I
    think it will be ready very soon--about some demonstrations,
    working with the Department of Energy, I would assume, and
    working also with private transmission companies in order to
    see that happen, and also we have legislation now.
        I would ask that the Energy Department, or maybe this
    committee, look at our grid across the Nation. I have long said
    that we cannot really take advantage of electrical efficiencies
    unless we have a national grid where we can transfer power
    almost on a moment's notice, as compared with how we do it
    today.
        We have a tie in Miles City, Montana that does not allow us
    to move East or West, or West to East, on the northern tier of
    States, and that tie is at Miles City, Montana. I have
    legislation now that would address that situation to where it
    will bring us to a national grid, rather than to regional
    grids, and to seek out those areas where we have some
    inefficiencies.
        But I also want to reiterate the concerns we have in
    agriculture. Agriculture was asked to make their efficiencies
    in the use of energy on their farms and ranches across this
    country, were asked to do that some time ago, and they have
    made great strides. In fact, the number is phenomenal on what
    we have done as far as efficiency on irrigation, on how we
    power our equipment, everything that we have, and you have got
    to remember that we are energy-dependent on our farms and
    ranches, because we can produce the product.
        It takes energy to do that, but it also takes the energy to
    move that product, that food and fiber to market, so we are hit
    every way that we can be hit as far as energy is concerned, and
    I think they have done their share of tightening their belt.
        But what angers me now most, we are now forced to pay more
    for our transportation fuels and our electricity, which relates
    to our cost of irrigation, our cost of transportation, oil and
    gas, even our natural gas that, of course, increased the price
    of our fertilizers, because it is a base of fertilizer. It
    comes out from natural gas, our electrical prices, and yet we
    find that we are being closed off on certain avenues to
    increase production so that we might operate.
        Weatherization is important, I know, and the LIHEAP program
    is important, but they do not get us to the point where we can
    actually produce food and fiber for this country.
        I just stared in amazement--yesterday was a good example of
    that, that vote yesterday on Klamath Falls, and it was
    indicative of a mind set that we are going to put a sucker fish
    before farmers because right now that we are finally finding
    out that there is a flaw in the Endangered Species Act that is
    going to be very, very costly to this country, and what we have
    witnessed in the Klamath Falls area is just the tip of the
    iceberg, and we have to allow new production somewhere in this
    country, and make it available to people.
        Figures show that--I support LIHEAP, but if you look at
    it--it is still people on fixed incomes are elderly, are
    dependent on a government check so they can heat their houses,
    and fundamentally, that is wrong, is to be reliant on the
    Government to prop up, or to really subsidize the energy
    companies, because they have their cost of production, and they
    are tightened down with supplies, and of course the marketplace
    is going to drive the price.
        So mine is not a question, but I would ask Mr. Garman
    whether these companies--there are two companies primarily in
    the area of transmission that can increase the efficiency of
    our transmission--can sit down and visit with him one day and
    let us try, if we need more research dollars, some R&D dollars
    in order to take a look at that, I think it is time we looked
    at it, and I think it is also a time that we take a look at our
    grids and our transmission abilities across this country,
    because we are running into it in the Northwest, with the BPA,
    and everybody on this committee is familiar with that.
        But I think the general public--you know, I am still amazed
    that way last February, that a poll taken that said 54 percent
    of the people that live in California do not think they have a
    shortage problem. They filled out that poll in the dark. I have
    got to believe that. In other words, they just will not face
    reality that it is going to take more energy--our population is
    more. We do more with electricity now than ever before.
        I work in communications issues. The Internet servers,
    everything we touch now, we use electricity, a lot more
    electricity, maybe not in the industrial area, but I mean, our
    residential and home use of electricity has just--the demand
    for it has just gone up dramatically because of the things we
    do in our homes that we did not used to do in our homes and
    residences.
        So Mr. Chairman, thank you for this hearing, but I think
    those are the areas. When we really know how this grid works,
    and the efficiency of it, and the technologies out there in
    transmission, then I think we can start readdressing the
    problems of transmission of electricity.
        Thank you, Mr. Chairman.
        Mr. Garman. I wonder if I could just amplify on one or two
    remarks that you made, particularly with respect to the
    efficiency of transmission. We at the Department are trying to
    partner with some of the very people you are speaking about,
    and increasing the efficiency of our transmission system.
    Today, under the streets of Detroit, we have a test of a high-
    temperature superconducting transmission wire, if you will,
    cable, if you will, that is increasing the throughput and
    reducing the losses associated with transmission.
        We are also working on ways to manage the grid through
    computer algorithms, and some other types of approaches to
    doing it.
        We are also looking at new technologies in distribution
    transformers and other components of the grid to increase their
    efficiency, and, of course, as we will talk about next week, we
    are looking at distributed generation.
        You know, you can look at the grid from a top-down
    approach, but you can also look at it from the bottom up. If we
    can put smaller distributed generation from the bottom up, we
    also increase efficiency and reliability. We put the source
    closer to the user so you have less of a loss. You can address
    peak issues, you can address reliability issues.
        The bottom line, I guess, with the time I have got, is that
    there is no one silver bullet to addressing these energy
    problems. We cannot say efficiency is going to do it. We cannot
    say supply is going to do it. We have to have a pretty broad
    approach, and if Americans are waiting for the magic technology
    that is going to solve all of our energy problems, then it is
    my observation that that technology does not exist. We are
    going to have to do a lot of relatively small things extremely
    well.
        Senator Burns. Well, I agree with you, and I have heard the
    chairman of this committee, Mr. Bingaman, say that very thing.
    It has to be a hand-in-glove situation, a cooperative
    situation, and especially, just to give you a case in Montana,
    we can really produce a lot of electricity because we have got
    the coal and we have got a very, very cheap way, low-cost way
    of producing electricity.
        Now, I can get that to my farmers, but we are not the only
    State in agriculture. We have got Iowa and the bread basket of
    this great country that also are feeling the effects of this
    energy crunch at the agricultural production level, and I guess
    I worry about that as much as anybody does, because I still
    think the basic purpose of this country is the production of
    food and fiber for our people.
        We cannot put that on the back burner, because I do not
    know what the first thing you do when you get up in the
    morning, but I know the second thing you do is, you eat, and
    you have got a lot of options, the first thing, but that second
    one you do not, and I worry about that, and the efficiency, and
    the way we can get food and fiber to our people.
        And then an attitude, an attitude that we can do, so it has
    to be a mix. I agree with my chairman wholeheartedly, it has to
    be a mix. It cannot be just one single thing, production or
    efficiency.
        Thank you, Mr. Chairman.
        The Chairman. Thank you very much. We have two additional
    panels with a total of eight witnesses, and with that in mind
    let me thank Secretary Garman very much for being here, and we
    will continue to talk with you and seek your advice as we move
    ahead. Thank you very much.
        Mr. Garman. Thank you, Mr. Chairman.
        The Chairman. Will the second panel please come forward. We
    have Ms. Mary Ann Manoogian, director of the Governor's Office
    of Energy and Community Services in New Hampshire, Ms. Joanne
    Choate, the LIHEAP manager for the State Housing Authority in
    Maine, Mr. Erik Emblem, the administrator with the National
    Energy Management Institute here in Virginia, and Mr. Mark
    Wagner, director of government relations with Johnson Controls.
        Thank you all very much for being here. Why don't we go
    right across, starting on the left here and just go across, and
    each of you, we will include your full statement in the record
    as if read, but if you could summarize the main points that you
    wish to make to us, we would be anxious to hear those, and then
    we will have some questions.
        Ms. Manoogian.

    STATEMENT OF MARY ANN MANOOGIAN, DIRECTOR, GOVERNOR'S OFFICE OF
               ENERGY AND COMMUNITY SERVICES, CONCORD, NH

        Ms. Manoogian. Thank you, Mr. Chairman, members of the
    committee. My name is Mary Ann Manoogian. I am pleased to
    testify today on behalf of the National Association of State
    Energy Officials, known as NASEO. I serve as director of the
    Governor's Office of Energy and Community Services in New
    Hampshire, where my responsibilities include the oversight of
    the State Energy Program, known as SEP, the Low Income
    Weatherization Program, and the Low Income Home Energy
    Assistance Program, also referred to as LIHEAP.
        As you know, NASEO represents 49 of the State energy
    offices, as well as the territories and the District of
    Columbia. NASEO's overall objective is to support balanced
    national energy policies, and to provide State perspectives on
    energy issues. NASEO members operate energy programs involving
    all sectors of the economy and all types of energy sources.
        As you move forward in addressing our Nation's energy
    policy needs, we are pleased to provide input on a nonpartisan
    basis to both the Senate and the House, as well as the
    administration, and my written testimony elaborates further on
    NASEO's support of S. 352, the Energy Emergency Response Act of
    2001. I would like to, however, highlight the importance for
    NASEO of the programs we support with respect to the increased
    authorization for the State energy program to $75 million, the
    base LIHEAP grant to $3.4 billion a year, and the
    weatherization program to $310 million per year.
        This would be a 4-year authorization, which is a more
    efficient way for the States to be able to operate these
    federally funded programs. The State Energy Program, the
    Weatherization and LIHEAP programs are all deserving of
    bipartisan support and generally we have received such support
    in the past.
        Recently, I understand S. 352 was added to the Senate-
    passed bankruptcy reform bill. Provisions similar to S. 352 are
    included in Senator Murkowski's comprehensive bill, and I
    understand that if the committee were to begin the final
    drafting process for S. 352 by starting with provisions common
    to both Mr. Murkowski's bill and S. 352, that S. 352 would be
    included in its entirety, and that is a measure that we would
    support.
        As you may know already, SEP activities touch on every
    sector of the economy. The State energy offices work with
    residential consumers, the small business sector,
    manufacturing, industry, agricultural interests, our public
    schools and hospitals, and nonprofit entities, et cetera. SEP
    has documented the ability to leverage at least $4 in private
    sector funds for every Federal dollar that is spent, and that
    does not even include the State contribution.
        Unlike other energy programs funded by the U.S. Department
    of Energy, SEP is tailored to acknowledge State-by-State and
    regional differences, including diverse priorities and, in
    fact, in my written testimony I have been able to provide you
    with some examples of SEP activities going on in various States
    throughout the country, and I would encourage you to review
    that if possible.
        I would, however, like to highlight a program that was
    initiated by NASEO and included Louisiana, Alaska, New Mexico,
    Oklahoma, Colorado, Wyoming, and Montana, and the project was
    to increase the energy efficiency of marginal oil wells.
        I have provided a copy of NASEO's publication entitled
    Dashboard Guide to Energy Efficiency in the Oilfield to the
    committee. Ironically, many scoffed when NASEO began to work on
    this project, questioning why energy producers would want
    energy efficiency. Our efforts revealed that the highest cost
    of energy production is in removing it from the ground, higher
    than the associated equipment costs, and labor cost. A producer
    with marginal wells needs every little bit of savings he or she
    can put their hands on.
        As a result of implementation of the recommendations
    contained in NASEO's guide, a marginal well can expect to cut
    its lifting or production cost by $1 per barrel with little or
    no investment of additional funds.
        I would also like to call to your attention the value of
    the weatherization program, which is vital to addressing the
    disproportionate energy burdens that low-income citizens face.
    In addition to the meaningful energy conservation measures that
    help reduce energy bills, the program also addresses important
    health and safety measures of many families and vulnerable
    elderly and disabled persons.
        The weatherization program has been an essential long-term
    program that complements the critical short-term assistance
    provided by the LIHEAP program. One of the reasons that the
    program has been so effective is due to the fact that the
    delivery network responsible for implementing the cost-saving
    weatherization measures are highly skilled. In addition,
    weatherization program energy auditors play a key role in
    helping low income households respond to our present energy
    crisis while addressing their long-term needs as well.
        So the issue of the weatherization program is not in
    producing meaningful results. It has already been proven
    through a report with Oak Ridge National Laboratory. The issue
    is that the program does not have sufficient funding to meet
    the demands of our most vulnerable residents.
        For instance, in my State of New Hampshire, using both DOE
    funds and available LIHEAP funds last year, out of the
    approximately 7,493 New Hampshire fuel assistance recipients
    who requested weatherization of services, New Hampshire was
    able to complete 526 weatherization jobs, only 7 percent of the
    requests. Low income households know the value of energy
    conservation. They just do not have the means to get there. The
    weatherization provides the support to help them reduce their
    energy bills.
        NASEO strongly supports the authorization provided in
    Chairman Bingaman's bill and Senator Murkowski's bill. What I
    would like to say also is that if we are serious about dealing
    with our energy problems, substantial increased funding for
    weatherization would enable our States to plan for energy
    emergencies and, when possible, take preemptive action to avoid
    an energy crisis by promoting energy efficiencies.
        NASEO urges the committee to move forward not only on the
    authorized funding levels but also to support a funding level
    at least equal to the House-passed Interior Appropriations bill
    during conference, and although I have restricted my testimony
    to the State energy and weatherization programs, I would be
    rather remiss, as someone who is responsible for the oversight
    of the LIHEAP program in our State as well, to not underscore
    the importance and value of that program.
        This past year, our State had an 18-percent increase from
    the number of households served by LIHEAP, and at a funding
    level that is currently being discussed. What we know is that
    my office will have a harsh reality of having to deny
    assistance to more than 11,000 elderly, disabled, and working
    poor households in the upcoming winter season. What I can tell
    you is that as I am sitting here spewing these figures and
    numbers out to you, I also have the benefit, as being the
    director of a State agency, of telling you the value of these
    programs that have been implemented, and I am reminded of a
    story of the woman who is an employee at a well-known
    department chain and she never expected to be needing LIHEAP
    assistance.
        This past year she was one of the 3,848 requests that we
    received for emergency assistance, meaning she was in a
    dangerous situation of being with no heat, or low heat
    situation, and being out of heat in the middle of winter in New
    Hampshire is a serious issue. Had it not been for the LIHEAP
    program, she would not have made it through the winter months
    with her disability, and be able to support and keep her
    disabled son warm in her home. She was trying to do the best
    she could. She tried to do whatever she could do to provide for
    her son, and she was working full-time. It just was not enough
    to pay for the heating costs.
        Thank you. I appreciate your support, and we look forward
    to working with the committee.
        [The prepared statement of Ms. Manoogian follows:]

     Prepared Statement of Mary Ann Manoogian, Director, Governor's Office
                 of Energy and Community Services, Concord, NH

        Mr. Chairman, members of the Committee, my name is Mary Ann
    Manoogian, and I am pleased to testify today on behalf of the National
    Association of State Energy Officials (NASEO). I will be discussing our
    views on S. 352, introduced on February 15, 2001, and supported by a
    wide range of Senators. I serve as Director of the Governor's Office of
    Energy and Community Services in New Hampshire, where I am responsible
    for the oversight of the State Energy Program, the Low-Income
    Weatherization Program and the Low-Income Home Energy Assistance
    Program (LIHEAP).
        NASEO represents forty-nine of the state energy offices, as well as
    the territories and the District of Columbia. NASEO's overall objective
    is to support balanced national energy policies and to provide state
    perspectives on energy issues. NASEO members operate energy programs
    involving all sectors of the economy and all types of energy resources.
    The state energy officials are also generally our Governors' energy
    policy advisors, frequently called upon to advise our Governors and
    legislators on policy, programmatic, regulatory and legislative options
    to address our energy situation. As you move forward in addressing our
    Nation's energy policy needs, we are pleased to provide input on a non-
    partisan basis to both the Senate and the House, as well as the
    Administration.
        S. 352, the Energy Emergency Response Act of 2001, would increase
    authorizations for: 1) the State Energy Program (SEP) to $75 million;
    2) base LIHEAP to $3.4 billion per year; and 3) the Weatherization
    Program to $310 million. This would be a four-year authorization, which
    is a more efficient way to operate these federally funded programs. The
    bill would also encourage expanded use of energy efficiency and
    renewable energy measures in federal buildings, permit expanded use of
    energy savings performance contracts in federal buildings, eliminate
    the ``sunset'' provision for energy savings performance contracts and
    expand federal energy efficiency performance contracts to include water
    efficiency. In light of the current energy needs of the country, these
    provisions provide a common sense approach to the challenges before us.
    These programs save money, save energy, and in many instances reduce
    air pollution, combat climate change and leverage enormous amounts of
    non-federal investment for meaningful projects that actually help
    people.
        The State Energy Program, Weatherization and LIHEAP are all
    deserving of bi-partisan support, and have generally received such
    support in the past. Recently, S. 352 was added to the Senate-passed
    bankruptcy reform bill. Provisions similar to S. 352 are included in
    Senator Murkowski's comprehensive bill (Sections 601, 603-604). I
    understand that if the Committee were to begin the final drafting
    process for S. 352 by starting with provisions common to both Mr.
    Murkowski's bill and S. 352; S. 352 would be included in its entirety.
        Our experience has taught us that, the State Energy Program,
    Weatherization, and LIHEAP are critical components of a balanced
    national energy policy. These programs are both under-valued and under-
    funded. We applaud you for initiating a comprehensive look at energy
    programs and policy. We are also encouraged by the Administration's
    decision to conduct a complete review of the energy efficiency and
    renewable energy program of the U.S. Department of Energy. Assistant
    Secretary Garman is to be commended for his work in conducting these
    reviews. If the analysis is intended to focus on measures of success:
    energy saved, money saved, leverage of other resources, new
    technologies deployed, research and development stimulated, SEP would
    be a huge winner. It offers a balanced approach that recognizes the
    value of efficiency improvements and encourages development of both
    supply-side and demand-side resources is responsible and necessary.

                              STATE ENERGY PROGRAM

        SEP is the major state-federal partnership program in the energy
    area. While it makes up a small portion of overall funding for state
    energy activities, it is a critical nucleus for many of the states. For
    example, SEP funds are used to prepare for and respond to energy
    emergencies and supply disruptions. State energy offices have used
    these funds to help states effectively respond to these challenges,
    ranging from western electricity problems to Midwestern natural gas and
    gasoline price spikes, historically low inventory levels and multiple
    other problems across the country over the last few driving and heating
    seasons.
        SEP activities touch on every sector of the economy. The state
    energy offices work with low-income Americans, the small business
    sector, manufacturing industry, agricultural interests, our public
    schools and hospitals, non-profit entities, and so on. SEP has
    documented a leverage of at least $4 in private sector funds for every
    federal dollar, not even including the state contribution. Unlike other
    energy programs funded by the U.S. Department of Energy, SEP is
    tailored to acknowledge state-by-state and regional differences;
    including diverse priorities.
        Examples of innovative projects, funded in part by SEP, include the
    following:
        New Mexico--Assisted the community of Los Alamos in its rebuilding
    efforts after the Cerro Grande fire. Provided technical assistance and
    information at several forums to enhance awareness of the benefits of
    using renewable resources and applying energy efficiency measures in
    new construction. Sponsored a two-day workshop, ``Passive Solar Design
    Strategies and the Energy-10 Program,'' October 2000, at the Los Alamos
    branch of the University of New Mexico (UNM).
        Hawaii--The Hawaii energy office operates one of the most
    comprehensive energy emergency programs in the nation. The threat of
    typhoons and tsunamis pose a great risk to its citizens. Consequently,
    the energy office is constantly updating their energy emergency
    planning and conducting simulations that involve federal, state, and
    private sector representatives from the 5 big islands and even from the
    mainland. Hawaii's expertise in the area of energy emergency planning
    is recognized nationwide and, consequently, members of the state's
    energy office staff have made numerous presentations and even assisted
    in writing other state energy emergency plans.
        North Dakota--The North Dakota State Buildings Energy Conservation
    Program provides grant funding to state institutions and agencies for
    the installation and implementation of energy efficiency measures.
    Energy audits are required to identify potential energy conservation
    measures, respective costs, energy savings and payback periods.
        Awards have been made to many of the state-supported colleges and
    universities to match federal energy conservation funds. In addition,
    grants have gone to projects at the Capitol complex, the State
    Penitentiary, Department of Transportation buildings, and many others.
        Florida--Florida's Energy Office is involved in a number of
    efficiency and renewable energy activities. One of the most promising
    activities is in the area of building code development and upgrades.
    Primarily as a result of Hurricane Andrew, not to mention a number of
    relatively minor hurricanes since Andrew, the energy office has been
    working with members of the insurance and home building community to
    develop building codes that will enable new homes in Florida to
    withstand stronger winds and coastal flooding while reducing energy
    usage in the residential and commercial sector. These codes are near
    the implementation stage and a number of states are watching this
    process closely.
        Oregon--The State of Oregon has some of the most progressive
    efficiency programs in the nation. One of the most successful
    efficiency programs is in fact a tax rebate program. The state allows
    tax rebates on specified commercial business investments in efficiency.
    Once again, this is a program that is being watched closely by other
    states, particularly, those with peak electricity capacity problems,
    which are paying attention to the demand side energy savings resulting
    from the implementation of tax incentives.
        South Dakota--Electricity generated from wind turbines is proving
    to be a big winner in the Green Power arena. Cost-effective and
    environmentally sound, wind energy is expected to see tremendous growth
    over the next decade. South Dakota recently completed a wind farm
    project that is the subject of a great deal of national attention. The
    October 2000, conference on wind power in South Dakota was one of the
    most successful wind energy conferences to date.
        Louisiana, Alaska, New Mexico, Oklahoma, Colorado, Wyoming, and
    Montana were all participants in a project undertaken by NASEO designed
    to increase the energy efficiency of marginal oil wells. I have several
    copies of NASEO's publication entitled, Dashboard Guide to Energy
    Efficiency in the Oil Field, which I will leave with the Committee.
        Many scoffed when NASEO began to work on this project questioning
    why energy producers would want assistance in energy efficiency. Our
    efforts revealed that the highest cost of oil production is in removing
    it from the ground--higher than the associated equipment costs and
    labor costs. A producer with marginal wells needs every little bit of
    savings he or she can put their hands on. As a result of implementation
    of the recommendations contained in NASEO's guide, a marginal well can
    expect to cut its lifting or production costs by $1 per barrel with
    little or no investment of additional funds.
        Idaho--The State of Idaho has developed a CD that informs farmers,
    based upon soil and climate conditions, exactly when to apply
    irrigation to fields. Idaho also operates a successful low-interest
    loan program for residential, commercial, agricultural, government, and
    schools projects. To date, 1,973 loans totaling $13,338,371 have been
    issued. These loans generate $3,800,919 in annual savings.
        Indiana and Kentucky--Like our colleagues in Hawaii, the State of
    Indiana and Commonwealth of Kentucky operate exemplary energy emergency
    programs. The states are recognized throughout the Midwest for their
    work with the propane industry at mitigating the impacts of supply
    disruptions. On July 25, they will be hosting a regional meeting for
    the propane industry and major consumers to discuss current and
    anticipated propane issues.
        Illinois--Most recently, staff completed the oversight of the
    implementation of $20 million in energy-efficiency capital improvements
    through Energy Performance Contracting arrangements in seven state-
    owned facilities. This pilot initiative is demonstrating the cost
    effectiveness of utilizing energy performance contracts in state
    buildings. In the first two years after implementation the pilot
    initiative is producing energy savings averaging greater than 27
    percent of the $9.4 million utility cost of the facilities and is
    generating over $2.6 million in annual savings at the seven
    participating state agency and university facilities.
        Like Illinois, my own state of New Hampshire uses SEP funds to
    support an ambitious performance contracting program. In 1998, Governor
    Shaheen launched the Building Energy Conservation Initiative, which
    when completed will save the state $6-$8 million annually in energy
    costs. The program is surveying 500 state buildings for energy and
    resource conservation opportunities and then using guaranteed energy
    savings as the equity to secure financing for building upgrades. Over
    the next several years, the State of New Hampshire will reduce its
    energy consumption by as much as 33 million kWh annually and carbon
    dioxide greenhouse emissions by 132,300 tons each year without
    incurring any capital expenses. In this example, SEP funds support a
    program that leverages as much as $25 million in financing.
        In addition to the project identified above, New Hampshire, due to
    Governor Shaheen's leadership and the support of SEP funds, has also
    reached businesses, public housing projects, schools and municipalities
    through our Renewable Energy Technology Grants Program, which provided
    funding for renewable energy demonstration projects at 27 schools,
    science centers, museums and affordable housing developments across the
    state. SEP funds have also been instrumental in the success of our
    Rebuild New Hampshire Program enabling us to conduct public workshops
    on energy efficiency, and environmentally sound new technologies to
    more than 90 school districts, public housing agencies, cities and
    towns in the last two years.
        The value of SEP throughout the nation is that it permits
    innovation over a wide variety of energy activities. The statutory
    language, which was substantially broadened in the State Energy
    Efficiency Programs Improvement Act of 1990, encourages states to take
    any action to improve efficiency, promote technology transfer and
    assist all types of energy consumers.
        The approach the states are taking to energy is to encourage
    economic development, increase the deployment of new technology, while
    increasing affordability for homeowners and improving the work
    environment for employees. This involves helping businesses reduce
    operating costs, enhancing productivity and reducing energy demand,
    while providing significant environmental benefits. One of the many
    roles of state energy offices is to achieve these goals within the
    framework of SEP. The work of these offices includes installation of
    cost-effective energy efficient technologies in public school
    buildings, building code upgrades, implementation of tax credits for
    energy efficient retrofits, promotion of transportation efficiency
    (telecommuting, ridesharing), alternative transportation fuels,
    operation of public benefits programs through restructuring, etc. Our
    offices promote the use of energy service performance contracts that
    utilize private financing to conduct energy efficiency programs. This
    has become a $1-$1.5 billion/year business.
        Another critical activity, which has become increasingly important,
    is the effort to coordinate energy and environmental programs, policies
    and regulations. A series of state pilot efforts are underway
    throughout the country. For example, in my region state and local
    energy and environmental officials are working to develop technical
    standards for distributed generation so that our environmental programs
    and our energy programs do not conflict. We have found that approaching
    these activities together, early on, tends to reduce cost and increase
    the ability of the private sector to implement energy projects.
        Finally, a program not subject to this authorization hearing but
    one we urge continued support for is the SEP Special Projects. This
    program provides leveraged funds on a competitive basis for state
    energy office-initiated projects with business, industry and the public
    such as the highly successful Industries of the Future Program. I
    personally know that in my state of New Hampshire, Industries of the
    Future would not exist without SEP Special Project Funds. In the 18
    months since New Hampshire launched our Industries of the Future
    program, the partnership between state and federal government and
    private industry has enabled 51 New Hampshire businesses to find high-
    tech ways to cut their energy use, saving them money on their energy
    bills and protecting our environment. One example is a paper mill in
    the southwestern part of the state that is investing in cutting-edge
    energy efficient technologies. This investment will save this company,
    which employs 260 people and produces 100 tons a day of specialty paper
    products, about $500,000 a year on its electricity bills.
        We also urge the Committee to strongly endorse the schools energy
    efficiency program included in both Chairman Bingaman's (Section 1302)
    and Senator Murkowski's bill (Section 602). Representatives Mark Udall
    and Sherwood Boehlert first introduced H.R. 1129, which would initiate
    a new era in implementing energy efficiency projects for hard-pressed
    schools. This would be a good substitute for the Institutional
    Conservation Program (ICP) that is no longer is operation. It would
    encourage both public and private financing of school projects. We can
    all agree that not enough funding is going to our schools, and
    certainly wasteful, one-time energy costs do nothing to provide
    education to our children--we can and should implement this program. It
    will require authorization and we would urge that the program be
    implemented by the U.S. Department of Energy.

                       LOW-INCOME WEATHERIZATION PROGRAM

        The Weatherization Program is vital to addressing the
    disproportionate energy burdens that low-income citizens face. In
    addition to the meaningful energy conservation measures that help
    reduce energy bills, the program also addresses important health and
    safety measures of many families and vulnerable elderly and disabled
    persons.
        It has been an essential long-term program that complements the
    critical, short-term assistance provided by the LIHEAP program. In
    general, households that are poor use a dramatically higher percentage
    of annual income on heating and cooling than the average American
    family. While 4-5% of annual income is spent on all energy bills for
    the average American household, the households that are poor spend more
    than 20% on energy annually, depending upon the fuel source and
    location.
        The Weatherization Program has proven that it is effective and
    works for these low-income households. According to an Oak Ridge
    National Laboratory study conducted in the past few years, the average
    home saves over 20% on energy costs after Weatherization is completed.
    Obviously the recent increases in energy costs have created an even
    greater amount of energy savings. Keep in mind, too, that the work done
    by Weatherization specialists is permanent, providing a lasting savings
    over time, a savings that increases as energy costs increase. It is a
    gift that keeps on giving.
        One of the reasons the program has been so effective is that these
    specialists, the local delivery network responsible for implementing
    the cost-saving weatherization measures, are highly skilled. In
    addition, Weatherization Program energy auditors play a key role in
    helping low-income individuals respond to our present energy crisis
    while addressing the long-term needs as well. In addition to the energy
    savings produced, the Weatherization Program also positively impacts
    the health and safety of the numerous lives that are affected by the
    program, helping to keep families warmer, dryer, and healthier.
        So the issue is not whether the program is producing meaningful
    results. The issue is that the program does not have sufficient funding
    to meet the demands of our most vulnerable residents. For instance in
    New Hampshire, using both DOE funds and available LIHEAP funds last
    year, out of the approximate 7,493 New Hampshire Fuel Assistance
    recipients who requested weatherization services, New Hampshire was
    able to complete 526 weatherization jobs, only 7% of the requests.

                          BUDGET/APPROPRIATIONS ISSUES

        While we strongly support the authorization provided in Chairman
    Bingaman's bill (S. 352) and Senator Murkowski's bill (Section 603-
    604), we are aware that an authorization does not mean appropriators
    will listen. The House Interior and Related Agencies Appropriations
    Subcommittee provided a $24 million increase for SEP to $62 million and
    a $96 million increase for Weatherization to $249 million. These
    funding levels were included in the House-passed bill. Unfortunately,
    on June 28, the Senate Appropriations Committee provided only a $60
    million increase for Weatherization to $213 million and a $0 increase
    for SEP. These are well below the proposed authorized levels and
    inadequate for the need. If we were serious about dealing with our
    energy problems, substantially increased funding for SEP and
    Weatherization would enable states to plan for energy emergencies and,
    when possible, take preemptive action to help avoid an energy crisis by
    promoting energy efficiencies.
        The President, during the campaign proposed a doubling of
    Weatherization and SEP to $306 million and $76 million respectively:
    ``Double the funding for the Weatherization Program and State Energy
    Program.'' (See Energy Issues, at 11). By the time of the Budget
    submission, the proposed SEP doubling was wiped out and Weatherization
    was proposed to increase by $120 million. I would point out that while
    other DOE energy efficiency programs have increased since the early
    1980's, the combined SEP/ICP program peaked at $178 million in FY'81,
    while Weatherization peaked at $245 million in FY'83. These are in
    nominal dollars. These programs need to be substantially funded to
    enable states to continue to serve our communities while building upon
    meaningful public/private partnerships particularly during a time of
    fluctuating energy costs and volatile markets.
        NASEO urges the Committee to move forward not only on the
    authorized funding levels, but also to support a funding level at least
    equal to the House-passed Interior Appropriations bill during
    conference.

                                   CONCLUSION

        Today, I have restricted my testimony to the State Energy and
    Weatherization Programs. However, I would like to note that we strongly
    support LIHEAP and recognize it has a critical, life-saving role to
    play. For the LIHEAP program, approximately one-half of the states are
    either out of funds or have very low balances. I also know that New
    Hampshire is not unique and that many states experienced a significant
    increase in the number of LIHEAP households served this past program
    year. In New Hampshire, the number of households served on the program
    increased by 18% from the prior year. At level funding, my office is
    confronted with the harsh reality of having to deny assistance to more
    than 11,000 elderly, disabled and working poor households in the
    upcoming winter season. Consequently, we desperately need a base
    funding of $3.4 billion for LIHEAP.
        While we are available to discuss other programs, we urge the
    Committee to support: 1) expanded appliance energy efficiency
    standards; 2) expanded use and increased funding for the EPA/DOE Energy
    Star Program; 3) Rebuild America, a DOE program that works with the
    states to promote energy efficiency in buildings; and 4) increased
    funding for international market development. We can certainly support
    targeted tax credits in the energy area, including energy efficiency
    tax credits for new and existing homes of the type recommended by
    Chairman Bingaman, Senators Feinstein/Bob Smith and Representative
    Weller. While each approach is slightly different we should work hard
    to develop a reasonable compromise.
        We look forward to working with the Committee. Thank you for the
    opportunity to appear before you today.

        The Chairman. Thank you very much.
        Ms. Choate, why don't you go right ahead.

    STATEMENT OF JOANNE CHOATE, LIHEAP MANAGER, MAINE STATE HOUSING
    AUTHORITY, ENERGY AND HOUSING SERVICES, AUGUSTA, ME, ON BEHALF
        OF THE NATIONAL ENERGY ASSISTANCE DIRECTOR'S ASSOCIATION

        Ms. Choate. Thank you. My name is Joanne Choate. I serve as
    manager of the LIHEAP program for low-income home energy
    assistance for the Maine State Housing Authority, as well as
    the vice chair of NEADA, the National Energy Assistant
    Directors Association. I am honored, at the request of the
    committee, to testify today on behalf of NEADA, which
    represents the State Directors of LIHEAP. We support the
    development and implementation of programs to help low income
    households afford the cost of home energy.
        Maine is a small New England State with long, cold winters,
    and we are one of the poorest States in New England. During the
    last winter heating season, heating oil prices rose sharply to
    $1.56 per gallon, bringing the average cost per household to
    $1,000 or more. While the average household spends about 4 to 5
    percent of their income on home energy cost, for the low income
    the total can reach as high as 20 percent.
        Without LIHEAP assistance, many of Maine's poorest
    households would have had to choose between staying warm and
    other vital household necessities such as food or medicine.
    Fortunately, LIHEAP was there this year to help over 60,000
    households in the State of Maine during the winter months. Many
    letters come across my desk, and I have brought a few to share
    with you today that I will leave after my testimony.
        From grateful recipients, an elderly recipient of northern
    Maine, wrote, ``thank you very much for fuel assistance. It is,
    indeed, a much-needed help. I am 82 years old, in poor health,
    and nearly desperate, with so many bills pushing for payment.''
    A mother wrote, ``I want to take this opportunity to sincerely
    and humbly thank you for your assistance that you approved for
    my children and I. Things had been looking very bleak. Thank
    you for the ray of sunshine.''
        The elderly and the family with small children represent
    two of the most vulnerable groups in the rising energy costs.
    About 73 percent of LIHEAP funds in Maine are allocated to
    assist these groups. In light of the recent rise in energy
    prices, we have to ask, is LIHEAP funding adequate?
    Unfortunately, the answer is no. In spite of the fact that
    Federal funding was increased from $1.1 billion to $1.4
    billion, in addition to $855 million in emergency funds, it is
    still not enough to meet the need.
        The total number of households receiving assistance this
    year totaled 4.9 million, an increase of almost 1.1 million
    from the previous year. Still, on average the States were only
    serving about 17 percent of the eligible households. In my home
    State of Maine the total households receiving assistance
    increased by 32 percent this year, while the additional funds
    went a long way to helping address the needs this winter,
    unfortunately it was not enough.
        As a result of the rising prices, energy bills for the
    average households increased at least $400 to $500. Many
    households, not only in Maine but throughout the Nation, were
    not able to pay these bills. As a result, the States reported
    significant increases in arrears and shut-offs.
        A key indicator for the need for additional assistance is
    the number of households applying for emergency assistance.
    Since last year, the number has increased by 400 percent. These
    are households that exhausted all of their resources as well as
    their regular LIHEAP benefits and could not afford to purchase
    any additional fuel.
        The average annual income for a LIHEAP recipient in Maine
    is $10,262, and for an elderly household that applied this year
    the annual income was $7,200. The average cost of home heating
    was around $1,000 or more. About 30 percent of the average
    recipient's annual income is spent on home energy.
        We are also experiencing an increase in the number of
    households that have not applied for assistance before. 67
    percent of these households in Maine are frail, elderly
    households that applied this year. These are proud people who
    have always paid their taxes, and have never before asked for
    government assistance.
        NEADA did a survey of many utilities across the country and
    found that they are experiencing significant increases in bad
    debt. For example, the District of Columbia reported $6.6
    million in natural gas arrearages by over 14,000 households.
    Georgia reported approximately $147 million in arrearages owed
    by 479,000 households, and Louisiana reported $32.9 million in
    arrearages owed by about 76,000 households.
        We can expect that the problem of arrearages and shutoffs
    will get worse as the summer cooling season progresses,
    especially in Southern and Western States, and to a lesser
    degree in the Northeast. 28 States and the District of Columbia
    are now out of funds and no longer able to provide households
    with assistance to cover summer cooling bills and avert
    shutoffs.
        S. 352 would play a significant role in helping to address
    the needs for additional funds. By increasing the authorization
    to LIHEAP to $3.4 billion, it would send a signal to the
    Appropriations Committee that additional funding is necessary
    to address the needs that low income households face with their
    winter heating and summer cooling bills.
        With the additional money, we would increase outreach
    efforts to provide funds to underserved populations, take
    advantage of prepurchase and other payment arrangements to
    reduce the cost of home energy, and provide higher grant levels
    to offset the impact of higher prices on poor families.
        NEADA would also like to recommend that the committee
    consider an increase in the set-aside for training and
    technical assistance funds. Currently, the law limits the
    Federal Program Office from using more than $300,000 for these
    purposes. The amount is not sufficient to meet the growing
    needs to develop new and innovative methods for managing
    program funds, collecting data for program design and
    evaluation, and provide training to program managers. We would
    recommend that training and technical assistance be increased
    to $750,000.
        Mr. Chairman, we are also pleased to see the increased
    support provided in S. 352 for the State energy program and
    weatherization assistance. Across the Nation, LIHEAP works in
    close partnership with these two programs in helping to target
    assistance to those most in need. The State Energy Program
    plays an essential role in implementing energy programs at the
    State and local levels for all sectors of the economy and
    weatherization assistance delivers energy efficiency services
    to low income households to help reduce their energy bills.
        Taken together, the increased funding for LIHEAP, the
    weatherization assistance program, and the State energy program
    contained in S. 352 will go a long way in helping to meet the
    energy needs of low income households.
        Thank you for this opportunity to testify.
        The Chairman. Thank you very much.
        Erik, why don't you go right ahead. We are glad you are
    here, too.

       STATEMENT OF ERIK EMBLEM, ADMINISTRATOR, NATIONAL ENERGY
                  MANAGEMENT INSTITUTE, ALEXANDRIA, VA

        Mr. Emblem. Thank you, Mr. Chairman. My name is Erik
    Emblem. I am the executive director and administrator of the
    National Energy Management Institute, and I am enjoying
    testifying before this most distinguished committee today.
        NEMI is a not-for-profit joint labor management corporation
    created in 1981 by the Sheet Metalworkers International
    Association and the Sheet Metal and Air Conditioning
    Contractors National Association. Our mission is to identify
    emerging markets, employment, and commercial opportunities in
    the energy management, heating, ventilating, and air
    conditioning industry.
        Towards these ends, we develop and sponsor energy
    management and HVAC research information and education training
    programs. In this respect, NEMI sponsors and funds training,
    education, and provides instructional equipment for over 160
    training centers in the United States and Canada. We produce
    educational material to ensure that sheet metal workers and
    sheet metal contractors are on the cutting edge of the energy
    management and HVAC industry.
        Within the industry, NEMI is considered the leader in
    research and development in new HVAC technologies and markets.
    Within the United States, there are some 5 million commercial
    and public buildings, 90 million residential structures, and
    together these buildings account for 35 percent of the Nation's
    energy consumption.
        Most are affected by energy management building technology
    and indoor air quality issues. By 2003, we expect that $88
    billion per year will be spent on the construction and
    operation of heating, ventilation, and air conditioning systems
    alone. A consensus has developed within the professional energy
    management building technology and indoor air quality community
    that there is a need for a central organization to initiate,
    coordinate, and manage a number of important air quality and
    energy management functions that are currently not being
    fulfilled by either private industry or Government.
        In this respect, there exists an incomplete understanding
    and appreciation for the multidimensional nature and
    relationships of energy management and indoor quality, on
    public health employment and productivity and energy
    consumption within buildings. Reliable data on these
    relationships are incomplete, and major information gaps exist
    on the adverse occupational and environmental health effects of
    poor indoor air quality.
        Moreover, serious information gaps exist on questions
    concerning assessments of existing and emerging building
    technologies, employment and training and productivity,
    commercial market development for the new and improved building
    technologies, the science of constructing new buildings, and
    retrofitting older ones, public and consumer awareness of
    energy management issues, and the state of professional
    education and training in the emerging energy management and
    indoor air quality industries.
        The challenge, therefore, is to explore the feasibility and
    efficacy of a national center to gather, develop, pilot,
    evaluate, distribute data and information on the ways by which
    the Nation can improve its indoor air quality and at the same
    time achieve optimum levels of energy efficiency in its
    commercial and public buildings, industrial facilities, and
    residential housing units.
        The goal of such a center is to combine the economics of
    building performance for the fundamental functional needs of
    occupants with the need for more energy-efficient use to
    achieve a public benefit for the improved health, energy,
    security, employment, and productivity. Existing data and
    information on energy efficiency and indoor air quality are
    suggestive, with serious implications for employment, business,
    public health, and the environment, the economy and energy
    consumption.
        One of the major problems is, there is no structural
    mechanism to clearly organize and understand the various
    aspects of these issues and what effect they have on American
    society and the economy. In January 2000, NEMI was invited to
    submit a proposal jointly to the Environmental Protection
    Agency and the U.S. Department of Energy to undertake an
    initial assessment of the energy management and indoor air
    quality issues and the possible needs for a national center on
    energy management, building technology, and indoor air quality.
        Under NEMI's direction, a white paper was prepared and
    distributed on the specific conclusions and recommendations of
    the conferees. Mr. Chairman, I have a copy of that white paper
    with me, and I would like to submit it for the record.*
    ---------------------------------------------------------------------------
        * Retained in committee files.
    ---------------------------------------------------------------------------
        The Chairman. We would be glad to have it included.
        Mr. Emblem. Generally, the conference concluded that, given
    the fragmented state of energy management and indoor air
    quality issues, the logical next step would be to develop a
    comprehensive strategic plan exploring the feasibility of a
    national center for energy management and building
    technologies.
        If I may, Mr. Chairman, deviate slightly from the written
    record, I am here today to express my concern that this problem
    may be exacerbated by the renewed efforts to reduce energy use
    in buildings. NEMI and its sponsors have been involved in
    energy management and indoor air quality in buildings since the
    energy crisis years of the late seventies, and we have seen
    many mistakes made. We have taken a leadership position in the
    building construction industry towards resolving the conflicts
    and barriers of efficient and healthy buildings.
        We believe there is both a compelling need and broad
    support for a national center for energy management and
    building technologies to support, coordinate commercialization,
    public education, training in public technologies and building
    technologies that will provide buildings that are both energy
    efficient and healthy. We believe that the center should be
    supported under this legislation.
        With that, I thank you for the opportunity to testify.
        [The prepared statement of Mr. Emblem follows:]

       Prepared Statement of Erik Emblem, Administrator, National Energy
                      Management Institute, Alexandria, VA

        Mr. Chairman, Members of the Committee.
        My name is Erik Emblem, and I am the Administrator of the National
    Energy Management Institute (NEMI). Thank you for inviting us to
    testify before you on proposed national energy legislation.
        NEMI is a not-for-profit, joint labor-management corporation
    created in 1981 by the Sheet Metal Workers'' International Association
    (SMWIA) and the Sheet Metal and Air Conditioning National Association
    (SMACNA).
        Our mission is to identify emerging markets, employment and
    commercial opportunities in the energy management and heating,
    ventilation and air conditioning (HVAC) industry. Towards these ends
    NEMI develops and sponsors energy management and HVAC research,
    information, education and training programs.
        In this respect, NEMI sponsors and funds training and education
    programs and provides instructional equipment for over 160 training
    centers in the United States and Canada. We produce educational
    material to ensure SMWIA and SMACNA members are on the cutting edge of
    the energy management and HVAC industry. Within the industry NEMI is
    also considered the leader in the research and development of new HVAC
    technologies and markets.

                                 THE CHALLENGE

        Within the United States there are some 5 million commercial and
    public buildings and 90 million residential structures. Together these
    buildings account for 35% of the Nation's energy consumption, and most
    are affected by energy management, building technology and indoor air
    quality issues. By 2003, we expect that $88 billion per year will be
    spent on construction and operations of heating, ventilation and air
    conditioning (HVAC) systems alone.
        A consensus has developed within the professional energy
    management, building technology and indoor air quality community that
    there is a need for a central organization to initiate, coordinate and
    manage a number of important indoor air quality and energy management
    functions that are currently not being fulfilled by either private
    industry or government.
        In this respect, there exists an incomplete understanding and
    appreciation for the multi-dimensional nature and relationships of
    energy management and indoor air quality on public health, employment
    and productivity, and energy consumption within buildings.
        Reliable data on these relationships are incomplete and major
    information gaps exist on the adverse occupational and environmental
    health effects of poor indoor air quality. There is even less of an
    understanding of the relationships between improved indoor air quality,
    on the one hand, and energy efficiency, on the other. Indeed, one of
    the major policy questions that has yet to be addressed is ``What are
    the energy costs associated with improved indoor air quality, and are
    there potential building technology solutions to reduce energy
    consumption and, at the same time, improve air quality?''
        Moreover, serious information gaps exist on questions concerning
    assessments of existing and emerging building technologies; employment,
    training and productivity; commercial market development for new and
    improved building technologies; the science of constructing new
    buildings and retrofitting older ones; public and consumer awareness of
    energy management issues; and the state of professional education and
    training in the emerging energy management and indoor air quality
    industries.
        The challenge therefore is to explore the feasibility of a national
    center to gather, develop, pilot, evaluate, and distribute data and
    information on ways by which the nation can improve its indoor air
    quality and at the same time achieve an optimum level of energy
    efficiency in its commercial and public buildings, industrial
    facilities; and residential housing units.
        The goal of such a center is to combine the economics of building
    performance for the functional needs of occupants with the need for
    more efficient energy use to achieve a public benefit of improved
    health, energy security, employment and productivity.

                              STATEMENT OF PROBLEM

        Existing data and information on energy efficiency and indoor air
    quality are suggestive with serious implications for employment,
    business, public health and the environment, the economy and energy
    consumption. One of the major problems is that there is no structural
    mechanism to clearly organize and understand the various impacts these
    issues have on the American society and economy.
        Data available in the literature indicate the scope and nature of
    the problem, and include:

       Some 50 million American workers are adversely affected by
            poor indoor air quality in commercial buildings. (Dorgan 1997,
            Woods 1989, Fisk 2000)
       The annual health care cost associated with poor indoor air
            quality in commercial buildings has been estimated at $8
            billion. (Dorgan 2000, Woods 1989, Fisk 2000)
       The cost of productivity losses resulting from poor indoor
            air quality in commercial buildings--due to absenteeism, short
            work days, reduced worker output and lethargy--has been
            estimated at $40-$80 billion annually. (Dorgan 2000, Woods
            1989, Fisk 2000)
       About 50% to 80% of commercial buildings have been estimated
            to not consistently achieve compliance with standards for
            acceptable indoor air quality. (Dorgan 2000, Woods 1989, Fisk
            2000, NIOSH 1998)
       A study commissioned by NEMI found that only 20% of
            commercial buildings in the United States could be classified
            as ``healthy''; another 40% were found to be ``generally
            healthy; with the remaining 40% classified as ``unhealthy'';
            unhealthy being defined as a building where a significant
            number (20% or more) of the occupants reported an indoor air
            quality-related symptom. (Dorgan 1997, 2000)
       Approximately 25% of the $6 billion annual energy
            consumption by American schools are lost because of inefficient
            heating, cooling, ventilation, and lighting systems. (GAO 1996)
       Some 15 million children attend American schools with
            substandard heating, ventilation and air conditioning (HVAC)
            systems. (GAO 1996)
       About 80% of the building stock that will be available in 25
            years are in place today and will require rehabilitation and
            HVAC retrofit construction. (Woods 1998)

                               INITIAL ASSESSMENT

        In January 2000, NEMI was invited to submit a proposal jointly to
    the Environmental Protection Agency (EPA) and the Department of Energy
    (DOE) to undertake an initial assessment of energy management and
    indoor air quality issues, and the possible need for a national center
    on energy management, building technologies and indoor air quality.
        The vehicle by which the initial assessment was conducted was a
    two-day conference attended by a small group of nationally recognized
    authorities on energy management and indoor air quality, representing
    business, labor, academia, government and the professional engineering
    and public health communities. The conference was held on September 13-
    14, 2000 in Alexandria, VA.
        The focus of the conference was on six related subject areas
    including energy management and indoor air quality research, technology
    assessment and application, employment and training, commercial market
    development, public and professional education, and public policy.
        Under NEMI's direction, a ``White Paper'' was prepared and
    distributed on the specific conclusions and recommendations of the
    conferees.
        Mr. Chairman, I have a copy of that White Paper with me and ask
    that it be made a part of this hearing record.
        Generally, the conference concluded that given the fragmented state
    of energy management and indoor air quality issues, a logical next step
    would be to develop a comprehensive strategic plan exploring the
    feasibility of a national center for energy management and building
    technologies.
        NEMI is currently in the process of initiating such a strategic
    plan with its partners; the Sheet Metal and Air Conditioning
    Contractors National Association (SMACNA) and The Sheet Metal Workers
    International Association (SMWIA).
                          the consortium of interests
        For your information, Mr. Chairman, SMACNA represents some 4,000
    contractors engaged in the installation and maintenance of energy
    management and HVAC equipment and systems in the industrial,
    commercial, institutional and residential markets. By 2003, it is
    estimated that the annual HVAC market in the United States will
    approach $88 billion.
        SMWIA represents some 150,0000 members employed in the manufacture,
    installation and maintenance of energy management and HVAC equipment
    and systems. SMWIA members are highly skilled in the energy management
    and HVAC field and are products of apprenticeship training programs
    developed by the International Training Institute. Like NEMI, SMACNA
    and the SMWIA created the International Training Institute, which is a
    joint labor-management-training program dedicated to improving the
    employment skills of its members to meet new technological demands.

                                   CONCLUSION

        Mr. Chairman, NEMI and its partners have been in the energy
    management business for quite some time. As I indicated, we are the
    acknowledged leaders in our industry. After nearly two years of
    intensive study, we have come to the conclusion that in order to
    adequately meet the growing demand for energy security on the one hand,
    and safe and healthy buildings on the other, that a national center
    must be established to undertake and disseminate the kind of research
    and analysis required to achieve more energy efficient and more healthy
    buildings.
        Thank you, and I would be happy to answer any questions you may
    have.

        The Chairman. Thank you very much for your testimony.
        Mr. Wagner, why don't you go right ahead.

       STATEMENT OF MARK F. WAGNER, DIRECTOR, FEDERAL GOVERNMENT
      RELATIONS, JOHNSON CONTROLS, INC., ON BEHALF OF THE FEDERAL
                   PERFORMANCE CONTRACTING COALITION

        Mr. Wagner. Thank you, Mr. Chairman. My company is Johnson
    Controls, but I am also here testifying on behalf of the
    Federal Performance Contracting Coalition. We are a group of
    energy service companies who upgrade Federal facilities. We do
    this by installing, designing, and servicing energy-efficient
    equipment such as monitoring control systems, heating
    ventilation systems, lighting, so that Federal buildings can be
    more energy-efficient.
        Mr. Chairman, last month, when you attended the energy
    efficiency forum sponsored by Johnson Controls and the U.S.
    Energy Association, you said energy efficiency is a bipartisan
    issue, and we could not agree with you more. You also talked
    about energy-saving performance contracting at Federal
    facilities, which is where I would like to concentrate my
    remarks.
        Assistant Secretary Garman mentioned that the Federal
    Government is the largest consumer of energy in the country,
    and that is true. We are spending billions in heating those
    500,000 buildings in the Federal inventory. This year, the
    Federal Government's energy electric bill is going to be higher
    than ever, just as it is for many consumers. The Department of
    Defense alone, their overbudget, or unanticipated electric bill
    is $500 million this fiscal year. That is where energy savings
    performance contracting comes in.
        As you know, you can see from the chart, energy service
    companies privately finance the investment of energy efficient
    equipment with no up-front cost to the Government. The building
    owner, the Government, then pays for those retrofits for this
    new equipment over time.
        The Chairman. Can you just turn that thing a little bit?
    There is a big glare on it, so we cannot see it. That is
    better, thanks.
        Mr. Wagner. The energy service company guarantees those
    savings. That means the Government does not pay more for
    utility costs than they would have paid under the ESPC, and
    they get the new equipment after the investment is paid off.
    The Government gets all the subsequent savings. It is truly a
    win-win situation. Energy service companies are helping Federal
    agencies all over the country do this.
        One new project that we just installed is at the Denver
    Federal Center, where we upgraded 27 buildings. This entire
    project will save the Government $450,000 per year in energy
    and operational cost, while reducing more than 6.6 million
    pounds of harmful emissions.
        There is a number of ESPC examples at Federal facilities. I
    am proud to say one of the first ones ever was in New Mexico at
    Los Alamos, where that ESPC is still saving the Government over
    $2 million a year, and has a 40-percent reduction in emissions,
    and so this is truly a great program, but it can be even
    better, and I would like to quickly mention six quick, specific
    legislative proposals to comment on. First of all, we support
    expanding authority of ESPC's to include water in addition to
    energy.
        Currently, water projects are not really allowed under
    civilian agency ESPC programs. Consequently, many Federal
    facilities miss out on tremendous potential cost savings, and
    water resources continue to be wasted. In contrast, water
    savings have been allowed at defense facilities, because they
    are authorized under a different statute.
        You can see from the Fort Polk project that we did at an
    Army military base the benefit of combining energy and water
    savings. When you change out and you save hot water as well and
    you can take those water savings you are much better able to
    finance projects and put together much more comprehensive
    projects. At non-defense facilities like veterans' hospitals,
    water savings often cannot get approved, and many Federal
    agencies could benefit by such change.
        Second, we advocate removing the sunset provision for
    ESPC's and grant permanent authority for this great program,
    because they are a proven, reliable method to save energy for
    the Federal Government.
        Third, the FPCC also supports expanding the ESPC authority
    for replacement authorities. Having this could open up new
    opportunities for energy savings. However, it could mean
    developing some projects where we do not have a lot of
    experience. I might suggest that the committee think about
    developing some pilot projects in this area, or authorizing
    some. This could do a number of interesting things.
        First, we could get off the ground quickly with some pilot
    projects where there is opportunities already identified
    without waiting for the Department to implement regulations and
    policy, which might take months, or maybe even longer.
        Second, we would get some lessons learned from those pilot
    projects that could help develop regulations, and then third,
    during those pilot projects we could inventory them to find out
    where else we could do these types of projects. That is just a
    suggestion.
        Fourth, the FPCC supports high performance school programs,
    insofar as grant funding could be used to help defray some of
    the contracting costs for ESPC.
        Fifth, the Federal Procurement Contracting Coalition
    strongly opposes any effort to extend the utility financed
    contracts currently beyond their 10-year time frame.
        ESPC contractors are required to guarantee their savings.
    In other words, if the savings do not materialize, we do not
    get paid, and we are required to perform measurement and
    verification methods. Unfortunately, under those utility
    projects they do not have to do that, so if there is any
    extension, we would encourage extending those requirements to
    utility contracts.
        Finally, we support the concept of an energy efficiency
    bank, or source of Federal funds that could be used to
    implement energy efficiency projects at facilities. Financing
    projects with ESPCs may not be the appropriate tool in every
    instance, and over the years there has been a lack of Federal
    funds to do projects directly rather than financing. The
    committee may also wish to consider making these funds
    available to buy down the ESPC projects that have longer terms,
    or to help make renewable energy projects more feasible under
    ESPC.
        On behalf of the FPCC, I appreciate the opportunity to
    speak before you today and provide testimony. Thank you, Mr.
    Chairman.
        [The prepared statement of Mr. Wagner follows:]

      Prepared Statement of Mark. F. Wagner, Director, Federal Government
                       Relations, Johnson Controls, Inc.

        Mr. Chairman and members of the Subcommittee, thank you for
    inviting me to address the various legislative proposals related to
    energy efficiency. I am Mark Wagner, Director of Federal Government
    Relations for Johnson Controls, Inc. and am testifying today on behalf
    of the Federal Performance Contracting Coalition (FPCC), a group of
    Energy Savings Performance Contractors who upgrade federal facilities.
    I would like to concentrate my remarks on proposals that affect private
    sector financing of energy improvements in Federal government
    facilities.
        Johnson Controls is a global market leader in facility services and
    control systems. Since the 1880s when Warren Johnson invented the
    thermostat, Johnson Controls has been working with government
    facilities, schools, hospitals and commercial buildings to help create
    comfortable, productive and safe building environments that are energy
    efficient.
        Like other energy service companies that are members of the FPCC,
    we design, install and service new energy efficient equipment, such as
    monitoring and control systems, HVAC systems, chillers and lighting, so
    that buildings use less energy. Included in our service offering is
    energy savings performance contracting (ESPC) which I will discuss in
    more detail later.
        According to the U.S. Department of Energy, there are some 4.5
    million existing commercial buildings involving 55 billion square feet
    of space. These buildings consume 30-40% of all energy and use 60% of
    all electricity. It's estimated these facilities use 20-40% more energy
    than necessary.
        The largest single consumer of energy in the United States is the
    federal government, spending $4 billion a year for its 500,000
    buildings. According to the Department of Energy, the federal
    government has over three billion square feet of floor space, located
    in all climates. High-rise offices, research laboratories, aircraft
    hangars, libraries, hospitals, tourist areas, parks, and prisons must
    all be considered. In total they consume over 60 billion kilowatt-hours
    of electricity each year.
        This year, the federal government's electric bill will be even
    higher, just as it is for many consumers. For the Department of Defense
    alone, its unanticipated energy bill for this year is expected to be
    $500 million.
        Immediate conservation measures such as turning up the thermostats
    this summer and shutting down escalators are only temporary solutions,
    saving energy today but doing nothing about the problem tomorrow. True
    energy efficiency is achieved--not by fiddling with the thermostat, but
    by retrofitting existing building with energy efficient equipment.
        That is where Energy Savings Performance Contracting (ESPC) comes
    in.
        Under an ESPC, an energy services company like Johnson Controls,
    Honeywell, Duke Solution, Sempra Energy Services, NORESCO and others,
    privately finance the investment of installing energy efficient
    equipment with no up-front costs to the customer. The investment
    includes identifying building energy requirements and acquiring,
    installing, operating, and maintaining the energy-efficient equipment.
    The building owner pays for these retrofits and new equipment over time
    with dollars saved on energy and maintenance bills. The energy service
    company guarantees the savings. This means the government agency does
    not pay any more for utility costs than they would have paid without
    the ESPC and the new equipment. After the investment is paid off, the
    building owner gets all the subsequent savings. It's a win-win
    situation.
        Energy service companies are helping federal agencies all over the
    country save energy through ESPCs. For example, Johnson Controls,
    entered into an ESPC with the Denver Federal Center to upgrade 27
    buildings. New chillers, building controls and lighting are being
    installed, and we are re-commissioning an existing solar domestic hot
    water heating system. The entire project will save $450,000 per year in
    energy and operational costs for the next 11 years while reducing more
    than 6.6 million pounds of carbon dioxide emissions. As mentioned,
    other ESPC companies are making similar improvements to federal
    facilities all around the country--and at a cost to the government
    customer of only contracting and auditing.
        Other good examples of federal ESPCs are at:

       Los Alamos National Lab in New Mexico, saving $2.3 million
            annually;
       Army National Training Center at Fort Irwin, California,
            saving $169,000 per year;
       Veterans Affairs Medical Centers in San Francisco and Salt
            Lake City, each saving $500,000 per year.

        ESPC is a great tool for the federal government. But it can be even
    better. I would like to outline several provisions included in pending
    legislation under this Committee's jurisdiction that enhance the
    program and save more energy and tax dollars.
    1. Expand the Authority of ESPCs to Include Water, in Addition to
            Energy
        Currently water saving projects are not allowed under civilian
    agency ESPC programs. Consequently, many federal facilities miss out on
    tremendous potential cost savings and water resources continue to be
    wasted by the government. DOE General Counsel has ruled that water
    savings are limited under the statute governing ESPCs at civilian
    agencies (42 USC 8287).
        In contrast, water savings have been allowed for years at DOD
    facilities. A different defense statute, (Title 10, Sections 2865 &
    2866) authorizes ESPCs for DOD facilities and it allows water savings.
    When the Defense Department originally passed Section 2865, it quickly
    realized that water savings were not allowed under the legislation. One
    year later Congress, through the Armed Services Committees, approved
    DOD's request to add water cost savings to ESPC under Section 2866.
        The Army's Fort Polk in Louisiana is a great example of an ESPC
    project which combines both energy and water savings. The project
    includes:

       Replacing bathroom equipment (toilets, flush valves,
            showerheads and faucets) with water conserving models in the
            barracks.

              Water Savings: 42 million gallons of water annually
              Energy Savings: 43,500 therms of natural gas annually

       Replacing all 450 washers and dryers on base with new
            horizontal axis washers that use half the water and clean just
            as well.

              Energy Savings: 46,000 therms of natural gas and 135,000 kWh
            of electricity
              Water Savings: 14.4 million gallons of water and sewerage
            annually

       Installing hot water loop controls brining water temperature
            up only when needed.

              Energy Savings: 517,000 therms annually

        In total this project is saving Fort Polk over $500,000 per year in
    energy, water and operational costs.
        At non-defense sites like Veterans Hospitals, water savings often
    cannot get approved. Many federal agencies could benefit greatly from a
    change in the ESPC authority to allow water savings, such as the
    provision included in section 7 of S. 352.
    2. Remove the Sunset ESPC Contractual Authority as Provided by S. 352
        ESPCs are a proven, reliable method to save energy, reduce
    operations and maintenance costs, provide new equipment for federal
    agencies and reduce pollution. Why would the federal government want to
    stop?
        Unless the statute is again extended, current authority for federal
    agencies to enter into ESPCs will expire in 2003. Certainly another
    four-year extension could be granted for the program as provided by S.
    388, but we would advocate removing the sunset provision completely and
    provide permanent authority for ESPCs. Experience has shown that when
    the sunset date approaches, some agencies become concerned and
    reluctant to begin developing projects for fear the authority may not
    last. Removing the sunset provisions would solve that problem.
    3. Allow Replacement Facilities To Be Eligible for Federal ESPCs as
            Provided by
            S. 352 and S. 388
        The Federal Performance Contracting Coalition also supports
    expanding ESPC authority programs to allow them to be applied to
    replacement facilities. Having this new authority could open up new
    opportunities for energy savings. However, it would mean developing
    some projects for which there is little or no experience either in the
    government or commercial arena.
        The Committee may want to consider authorizing several pilot
    projects. This would have numerous advantages, including:

       Several projects that already have been identified could
            begin immediately, without waiting for the Department of Energy
            to spend months or longer developing regulations and policy
            governing the implementation of this new authority.
       Government and industry would quickly gain from the lessons
            learned at these sites, which could then aid in writing better
            regulations and policy for broader authority.
       While the pilot projects are being developed, the Department
            of Energy could identify other federal buildings that could be
            candidates for projects and determine the magnitude of the
            potential.

    4. High Performance Schools Program in Section 1302 of S. 597
        The FPCC supports this legislation insofar as the grant funding for
    school facility improvements can be used for the contracting costs of
    Energy Savings Performance Contracts.
    5. Oppose Extending Utility Contracts to 25 Years Without Safeguards
        The Federal Procurement Contracting Coalition strongly opposes any
    efforts to extend the term of utility financed contracts beyond their
    current 10-year time frame without requiring a guarantee of energy
    savings, a measurement and verification of those savings and a
    reporting requirement to Congress. When Congress passed the Energy
    Policy Act of 1992 providing authority for ESPC, it wisely required
    certain safeguards. Congress demanded that if agencies were allowed to
    commit future unappropriated dollars to pay for energy-financed
    contracts, the dollar savings would have to pay for the cost of the
    contract. To ensure that result, ESPC contractors are required to:

              1. Guarantee the energy savings. In other words, if the
            savings don't materialize we don't get paid.
              2. Perform annual measurement and verification, which is the
            method to prove the savings are real.

        Unfortunately, utility financed contracts currently do not have
    these same requirements and safeguards. But they should.
        Our position is also consistent with separate memorandums (June
    1999) from the DOE General Counsel and from the GSA Assistant
    Commissioner of the Office of Financial and Information Systems. Both
    memos call for guarantee of savings and measurement and verification
    for utility financed energy contracts. However, it is not clear that
    these requirements have been enforced consistently for utility
    contracts.
    6. Federal Energy Efficiency Bank
        We support the concept of an energy efficiency bank or source of
    federal funds that could be used to implement energy efficiency
    projects at federal facilities. Financing projects with an ESPC may not
    be the appropriate tool in every instance. Over the years there has
    been a lack of federal dollars to directly pay for worthwhile energy
    efficiency projects. The committee may also wish to consider making
    funds from the bank available to ``buy down'' ESPC projects that have
    long terms or help make renewable energy measures more affordable under
    ESPCs.
        On behalf of the FPCC, I also want to mention two ``congressional
    actions'' that can assist in helping the Federal government get the
    maximum out of the ESPC process.
        First, the Department of Energy's Federal Energy Management Program
    (FEMP) provides technical assistance for many of these projects. Their
    appropriated funding must continue at a robust level. This assistance
    is critical to helping federal agencies implement ESPC projects.
        Second, congressional oversight could make all the difference in
    assuring that federal agencies are indeed taking advantage of the
    energy savings provided by ESPCs. A few years ago, a hearing on ESPCs
    by the Veterans Affairs Oversight Subcommittee sparked a dramatic
    increase in projects at VA Medical Centers. The Subcommittee asked the
    Department of Veterans Affairs to provide quarterly reports on ESPCs
    being implemented at medical centers throughout the country. Similar
    oversight could be very helpful in getting agencies to use these
    innovative types of energy efficiency and infrastructure improvement
    contracts. In other words, we should stop asking agencies, ``Where can
    you do an ESPC'' and begin asking, ``Why aren't you using them
    everywhere?''
        Thank you for the opportunity to testify today and I would be happy
    to answer any questions.

        The Chairman. Well, thank you, thank all of you very much
    for your testimony here. Let me just ask a few questions.
        Ms. Manoogian and Ms. Choate, maybe you could both respond
    to this. One of the differences that exist in our pending bills
    here is that in the proposal to increase the LIHEAP funding for
    the future we have two different ways we are proposing to do
    it. I have proposed in the bill that I have introduced to
    increase the base program more, and not really increase the
    emergency contingency fund authorization.
        Senator Murkowski's proposal was to increase the emergency
    level. Is there a preference on the part of LIHEAP
    administrators as to how this authorization ought to be
    accomplished, this increased authorization? Do either of you
    have a point of view on that?
        Ms. Manoogian. It would be preferable to have the base
    funding increased, only because, for example, it provides us
    with an opportunity to be able to establish what is necessary
    to operate the program for the program year. Instead of raising
    the contingency funds, then it is on an emergency basis, so it
    does not provide a meaningful tool to be able to identify what
    should your eligibility criteria be for an upcoming season,
    what should your benefit level be set at.
        I know that in the past 2 years we have relied heavily upon
    emergency funds to help us get through the winter season and
    avert any type of catastrophes for our households. The problem
    has been, it has been a crisis management approach, and it is
    after the fact, so our preference would be that the base level
    be increased and not just emergency contingency funds.
        The Chairman. Ms. Choate, did you have a point of view?
        Ms. Choate. I agree with Mary Ann that the base funding
    would be useful for the same reasons, not only that many States
    try to make plans in advance, such as Maine. We would borrow
    the money to start our program early to lock in prices in the
    summer months, where the Federal funds are not received until
    October, and we cannot do that if we do not know what the base
    funding is going to be, or how much it will be, so it would
    make a difference.
        The Chairman. The administration has proposed to direct a
    portion of Federal oil and gas royalties to the LIHEAP program
    during times of high oil and gas prices. Do either of you have
    a point of view on that proposal?
        Ms. Manoogian. Not specifically, and I do not know the
    details of the proposal. My only concern, again, is with
    respect to--is that it makes the program much more vulnerable
    and volatile to what is going to happen, the amount of funds
    received from the royalties, in addition to, it is not clear to
    me if it is, again, going to be able to enable us to do the
    important and necessary program management that Ms. Choate and
    I have already identified.
        The Chairman. Erik, let me ask you, obviously, in trying to
    move toward a more energy-efficient economy, one of the real
    obvious requirements which you are working on is this business
    of having an adequate workforce, a workforce that is adequately
    trained in how to do that. To what extent do you see that as a
    real bottleneck for getting from here to where we need to be?
        I mean, is the problem that we have not adopted the right
    policies at the Federal level, or do we really have a shortage
    of people in the field all around this country who are trained
    to put in place the energy efficiency measures that we all
    think make sense?
        Mr. Emblem. Mr. Chairman, the answer is yes to all three.
    We have had policies in the past that have exacerbated the
    problem, and we also have the issue of getting a workforce of
    trained individuals who are trained to implement these new
    technologies, and this energy-efficient equipment that is
    needed to properly ventilate the buildings.
        We also deal with the Government and regulatory issues.
    After the energy crisis of the seventies, the ventilation rates
    for buildings were reduced by 67 percent. In 1970, they were 50
    cfm per person. They were reduced to 5 cfm per person, and now
    they are back up to 20 cfm per person, but in the lag time,
    these buildings have been designed around changes in government
    regulations and government standards where we have to have
    people now that are able to go back into these buildings and
    assure that the proper ventilation rates and air conditioning
    is obtained, and it is through training.
        The Chairman. Mr. Wagner, let me ask you about, at the
    current time, there is an executive order that requires a
    certain level of energy efficiency to be built into new Federal
    energy, or Federal construction projects, is that right?
        Mr. Wagner. Yes, sir, and there is also a requirement to
    have sustainable type designs in buildings, yes, sir.
        The Chairman. How effective is that requirement, the way it
    is presently operated?
        Mr. Wagner. It is effective, because oftentimes designers
    try. The problem is, sometimes there is a limit in terms of
    funding, in terms of the building, so you have a push and pull
    in terms of the type of things that you can implement in a
    building up front when you design it, but those requirements
    are definitely there.
        The Chairman. Do you think there is a genuine effort by
    architects and others who are proceeding to construct new
    Federal buildings to build this in?
        Mr. Wagner. I think that there is a number of new ways of
    approaching buildings. We have seen it in the commercial sector
    a lot. I think it takes a lot of innovation that you do not see
    everywhere, but I think there are tremendous examples of
    buildings where you can build this in at a first cost, and it
    does not cost as much as you think it might.
        The Chairman. And does that extend in this area of schools?
    We give a lot of speeches about how we want energy-efficient
    schools. Is there really anything in place Nation-wide that
    causes that planning and thinking to be built in as new schools
    are designed?
        Mr. Wagner. Well, there is probably nothing real
    comprehensive, because most of those designs are at the local
    level.
        The Department of Energy does have some good school
    programs providing that type of assistance and guidance in
    that. The other thing we have got to think about is, we have
    got a huge inventory of schools out there, many old, that
    probably--well, we can concentrate on the few new ones being
    built, and many of them are--there are a lot of older buildings
    out there that are wasting 20 to 40 percent of the energy out
    there, and concentrating on trying to retrofit those for not
    only the indoor environment but also the energy savings I think
    is probably really where much of the focus needs to be.
        The Chairman. What role do you see this committee or the
    Federal Government playing in causing that to happen? I am
    persuaded that we are way behind in adequate school
    construction in this country, and that there is going to have
    to be a very substantial increase in that effort over the next
    decade or so. How do we ensure that that construction be
    designed and accomplished in a way that makes sense?
        Mr. Wagner. Well, I think if there is Federal funding that
    has been discussed in the past, that might be available to
    localities for school construction, or to assist in school
    construction, we may want to think about requiring that certain
    standards of efficiency are met, as opposed to providing
    assistance and say, build whatever type of building you want, I
    think, because it will continue to cost you in operation and
    maintenance cost throughout the future, and waste money in the
    future, so if you build them right the first time, that is
    extremely important.
        The Chairman. All right. Well, I think this is all useful
    testimony. We need to digest it all and try to understand it,
    and hopefully get it reflected in the legislation that we try
    to enact here. Thank you very much.
        Let us take a 5-minute break, and then we will have the
    next panel.
        [Recess.]
        The Chairman. Why don't we go ahead here. This is our third
    and final panel, and we are very glad to have them here. First,
    we have Mr. Steven Nadel, who is the executive director of the
    American Council for an Energy Efficient Economy here in
    Washington, thank you for being here. Mr. Clifford Rees,
    president of the Air Conditioning and Refrigeration Institute
    in Arlington, Virginia. We appreciate you being here.
        Mr. David Parks, president of Goodman Manufacturing Company
    in Houston, Texas--thank you for being here--and Dr. Malcolm
    O'Hagan, who is the president of the National Electrical
    Manufacturers Association in Rosslyn. Why don't you go ahead,
    and we will just go across in that order, if that works to
    everyone's satisfaction.

    STATEMENT OF STEVEN NADEL, EXECUTIVE DIRECTOR, AMERICAN COUNCIL
                    FOR AN ENERGY-EFFICIENT ECONOMY

        Mr. Nadel. Thank you, Mr. Chairman. As you said, I am here
    representing the American Council for an Energy-Efficient
    Economy. We are a nonprofit organization dedicated to
    increasing energy efficiency as a means for both promoting
    economic prosperity and protecting the environment. I
    appreciate the opportunity to appear before this committee
    today.
        In specific, I have been asked by committee staff to talk
    about the Federal efficiency standards program. Federal
    appliance and equipment efficiency standards were first adopted
    in 1987 because many market barriers inhibit the purchase of
    efficient appliances in the unregulated market. These barriers
    include rush purchases, when the existing appliance breaks
    down, and purchases by builders and landlords, who pay for the
    initial cost but do not pay operating costs.
        Standards remove inefficient products from the market, but
    still leave consumers with a full range of products and
    services to choose among. These standards are one of the
    Federal Government's most effective energy-saving programs.
    They are already reducing peak electric demand by the
    equivalent of more than 200 powerplants, reducing consumer
    bills by about $9 billion annually.
        In order to provide additional cost-effective savings under
    this program, we recommend that Congress extends the standards
    program to several additional products. Congressional action is
    needed, because in many cases DOE lacks the authority to set
    new standards.
        Congress should take three specific actions. First, under
    current law, DOE has authority to adopt new standards on
    consumer products. The same authority should be extended to
    commercial products, since many of the best opportunities for
    new standards are in the commercial sector.
        Second, Congress should direct DOE to set standards on
    several products with large opportunities for energy savings,
    or for which additional technical work is needed before
    specific efficiency standards can be set. Products that fall
    into this category include residential ceiling fans, a
    residential furnace and heat pump circulation fans, and
    refrigerated vending machines.
        I would note that this provision is now included in
    legislation that passed the House Energy and Commerce
    subcommittee yesterday.
        Third, Congress should set standards on specific products
    in cases where standards already developed by States, as well
    as current voluntary standards such as Energy Star standards,
    FEM standards, and industry standards provide a sufficient
    foundation for Federal action.
        By adopting standards directly, instead of calling for a
    multiyear DOE rulemaking, Congress speeds up the date that
    savings begin to accrue. Also, direct congressional adoption
    frees up DOE resources for those products for which DOE data
    collection and analysis are truly needed. Products that fall
    into this category are distribution transformers, commercial
    refrigerators, exit signs, traffic lights, floor lighting
    fixtures for residences, ice-makers, commercial unit heaters,
    and consumer electronic equipment, and my written testimony
    provides written recommendations along these lines.
        Consumer electronic equipment merits a little further
    discussion. This equipment is the source of the energy-wasting
    vampires that President Bush discussed in his June 28 remarks
    at the Department of Energy. This equipment continuously uses
    electricity, even when switched off.
        President Bush has directed that Federal agencies only
    purchase equipment with standby power use of 1 watt or less. By
    adopting minimum efficiency standards at this same level, we
    can move these savings beyond the Federal Government to other
    users, and drive a stake through the heart of this energy
    waste.
        Analysis by my organization indicates that adopting
    reasonable and cost-effective standards on these products will
    reduce U.S. electric use in 2020 by about 5 percent of
    projected residential and commercial use, and will reduce peak
    electrical demand by the equivalent of about 40 to 50
    powerplants. We estimate that the benefits of these standards
    will be about five times greater than the cost, highly, highly
    cost-effective.
        In addition to new standards, I wanted to briefly mention
    two other issues. First, there has been a lot of controversy
    during the last 6 months about the new standard for residential
    air conditioners and heat pumps. We strongly support the SEER
    13 standard that was published in the Federal Register in
    January. The distance between a SEER 12 and a SEER 13 standard
    amounts to about 18,000 megawatts over the next 3 decades,
    equivalent to the production of 60 new powerplants.
        By our calculations, based on current electricity price
    structures and reasonable estimates of the cost of a SEER 13
    unit, the simple payback to the consumer to go from SEER 12 to
    SEER 13 is only about 3.8 years. It is quite cost-effective to
    consumers. As you noted in your initial remarks, part of the
    reason DOE came up with much higher numbers is, they are using
    1996 summer electricity prices.
        There has been a lot of changes in electricity markets over
    the last 5 years, and summer prices are higher. Winter prices
    may be lower, but summer prices are higher, and this needs to
    be reflected in the DOE analysis. Also, as I believe the
    representative from Goodman Manufacturing will report, that as
    this new equipment moves from a niche product to a mass-
    produced product, cost should come down significantly relative
    to current cost, and therefore DOE has overestimated the cost.
    With reasonable cost estimates, with reasonable estimates of
    the electricity price, this SEER 13 standard is clearly cost-
    effective for American consumers.
        Second, I wanted to note that DOE is many years behind the
    congressionally set schedule for revising some of the current
    efficiency standards. DOE does an annual process to set
    priorities for new rulemakings. We recommend that after DOE
    completes this process, in September or October of this year,
    that this committee schedule an oversight hearing to review
    DOE's standards plans for 2002. Such an oversight hearing
    should explore options for picking up the pace so that these
    rulemakings can be completed in a more timely manner, and
    perhaps also explore ways to have the rulemakings be a little
    bit less controversial.
        In conclusion, I want to note that according to our
    analyses, expanded appliance and equipment efficiency standards
    are one of the most effective policies Congress could adopt
    this year to reduce U.S. energy use over the next 2 decades.
    The only other policies that we have analyzed with greater
    potential energy savings are CAFE standards on passenger
    vehicles and the utility sector systems benefit fund.
        Efficiency standards can make a significant contribution
    towards bringing U.S. energy supply and demand into better
    balance, thereby improving the long-term reliability of our
    electric grid, also helping our environment, our rural economy,
    and individual consumer pocketbooks. Thank you very much.
        [The prepared statement of Mr. Nadel follows:]

       Prepared Statement of Steven Nadel, Executive Director, American
                    Council for an Energy-Efficient Economy

                                  INTRODUCTION

        ACEEE is a non-profit organization dedicated to increasing energy
    efficiency as a means for both promoting economic prosperity and
    protecting the environment. We were founded in 1980 and have
    contributed in key ways to energy legislation adopted during the past
    20 years, including the Energy Policy Act of 1992 and the National
    Appliance Energy Conservation Act of 1987. I appreciate the opportunity
    to appear before this Committee. Specifically I have been asked to
    discuss the federal appliance and equipment standards program.

                         THE FEDERAL STANDARDS PROGRAM

        Federal appliance and equipment efficiency standards were signed
    into law by President Reagan in 1987 and expanded under President
    Reagan in 1988 and President Bush in 1992. Minimum efficiency standards
    were adopted in order to address market failures, replace a patchwork
    of state standards, save consumers money, and reduce energy use and
    peak electrical demand. Among the market failures addressed by
    standards are lack of consumer awareness, rush purchases when an
    existing appliance breaks down, and purchases by builders and landlords
    who do not pay appliance operating costs and hence have no financial
    incentive to value efficiency. Standards remove inefficient products
    from the market but still leave consumers with a full range of products
    and features to choose among. Since adoption, standards have sharply
    cut the energy use of major energy using appliances and equipment while
    not interfering with manufacturers' ability to offer excellent
    performance and a wide array of features. For example, the typical
    refrigerator manufactured today uses less than half the energy of an
    average 1987 model, but is bigger and offers more features.
        Appliance and equipment standards are clearly one of the federal
    government's most effective energy-saving programs. In 2000, standards
    on refrigerators and many other products reduced U.S. electricity use
    by 2.5% and total U.S. energy use by 1.3%, including displacing the
    need for 70,300 MW of generating capacity (the equivalent of 234 power
    plants, 300 MW each). These standards reduced consumer energy bills in
    2000 by approximately $9 billion with energy bill savings far exceeding
    any increase in product cost. Consumer energy bill savings to date
    total about $50 billion with a typical benefit-cost ratio of more than
    3:1. By 2020, standards already enacted will save 4.3 quads per year
    (3.5% of projected U.S. energy use), and reduce peak electric demand by
    120,000 MW (more than a 10% reduction).\1\
    ---------------------------------------------------------------------------
        \1\ Geller, Kubo, and Nadel. 2001. Overall Savings from Federal
    Appliance and Equipment Efficiency Standards. Washington, D.C.:
    American Council for an Energy-Efficient Economy.
    ---------------------------------------------------------------------------

             APPLIANCE STANDARDS IN THE ADMINISTRATION ENERGY PLAN

        The Bush/Cheney National Energy Policy devotes half-page to the
    federal standards program and notes that these ``standards will
    stimulate energy savings that benefit the consumer, and reduce fossil
    fuel consumption, thus reducing air emissions.'' The Plan then
    recommends that the Secretary of Energy: (1) ``support [the] appliance
    standards program for covered products, setting higher standards where
    technologically feasible and economically justified;'' and (2) ``expand
    the scope of the appliance standard program, setting standards for
    additional appliances where technologically feasible and economically
    justified.''

                        SUMMARY OF ACEEE RECOMMENDATIONS

        In order to provide additional cost-effective savings under this
    program, we recommend three actions:
        1. Congress should enact new efficiency standards for products now
    or soon to be covered by state efficiency standards and by several
    voluntary standards programs.
        2. The Bush Administration should permit a SEER 13 efficiency
    standard for residential central air conditioners and heat pumps to
    proceed.
        3. DOE, with adequate funding and encouragement from the Congress,
    should complete Congressionally-mandated rulemakings in a timely
    manner.
        In the balance of this testimony I will elaborate on these three
    recommendations.
      opportunities for new products to cover under the standards program
        The most recent federal legislation on standards, the Energy Policy
    Act, was passed in 1992. Since then there have been many technical and
    programmatic developments that make it possible and desirable to extend
    the federal standards program to additional products. These
    developments include work on new standards by several states,
    development of Energy Star specifications for many efficient products,
    and additional research on the amount of energy used for different
    energy end-uses. In particular, for the past year, the California
    Energy Commission (CEC) has undertaken a rulemaking to develop new
    standards for several products not currently covered by the federal
    standards program.
        Based on the work of the CEC and others, we recommend that the
    federal standards program be extended to cover eleven additional
    products. These products fall into two general categories: (1) eight
    products for which sufficient technical information is available for
    Congress to enact specific new standards; and (2) three products for
    which the U.S. Department of Energy (DOE) needs to conduct additional
    research before specific standards can be set. In our opinion, where
    possible, Congressional action is preferable to DOE action, since a DOE
    rulemaking takes at least three years, and often far longer (DOE is
    still working on several rulemakings called for in the 1992 Energy
    Policy Act). Furthermore, for the majority of the standards in both
    categories, Congressional action is needed because under current laws,
    DOE is only authorized to extend the standards program to ``consumer
    products'' and many of the opportunities for new standards involve
    products used by businesses and not consumers. In the paragraphs below,
    I briefly describe the eleven products which should be covered under
    the standards program. I list products in approximate order of likely
    energy savings.
        Torchiere lighting fixtures. Torchieres are portable lighting
    fixtures that aim light upward and bounce it off the ceiling to provide
    indirect lighting. In recent years they have become ubiquitous in
    American homes and apartments due to their high light levels and low
    purchase price. However, these products are major energy hogs, and can
    be fire hazards as well (more than 400 fires have been traced to
    halogen torchieres). The typical product consumes 300 Watts or more of
    power. Much more efficient torchieres based on high-output compact
    fluorescent designs use less than 100 Watts and provide the same or
    equal light output without creating a potential fire hazard. The simple
    payback for these more efficient units is typically less than two years
    (simple payback is the number of years for operating cost savings to
    offset the incremental cost of the efficiency improvements). The CEC
    has developed minimum efficiency standards for these products that cap
    energy use at 190 Watts and include other important technical
    details.\2\ These same standards should be adopted nationally.
    ---------------------------------------------------------------------------
        \2\ California Energy Commission. ``Appliance Efficiency
    Regulations (draft of April 2001).'' Sacramento, CA.
    ---------------------------------------------------------------------------
        Furnace and heat pump fans. The efficiency of residential furnaces
    and heat pumps is covered by current federal standards, but these
    standards don't include the energy consumed by the blower used to
    circulate conditioned air around the home. The typical furnace fan uses
    800-1000 kWh per year, but more efficient fans now on the market use
    less than 300 kWh, a saving of more than 60%.\3\ In high volume mass
    production the more efficient fans should cost on the order of $100
    more than a conventional fan, resulting in a simple payback to the
    homeowner of less than three years.\4\ Additional technical work is
    needed to decide how best to set a fan power limit (i.e., these limits
    need to take account of the heating capacity and airflow of the
    system), so responsibility for setting the standard should be delegated
    to DOE.
    ---------------------------------------------------------------------------
        \3\ GAMA. October 2000 Consumers' Directory of Certified Efficiency
    Ratings. Arlington, VA: Gas Appliance Manufacturers Association.
        \4\ Kubo. Sachs and Nadel. 2001. Opportunities for New Appliance
    and Equipment Efficiency Standards: Energy and Economic Savings Beyond
    NAECA and EPAct (draft). Washington, DC: American Council for an
    Energy-Efficient Economy.
    ---------------------------------------------------------------------------
        Electronic equipment and power supplies. Many types of electronic
    equipment used in the home continuously use small amounts of power,
    even when they are turned off. Examples include TVs, VCRs, microwave
    ovens, and many rechargeable products. Aggregated over the many hours
    in a year and the number of products in place in a typical home, this
    ``standby'' power use amounts to about 5% of electricity use in a
    typical home according to analyses by Lawrence Berkeley National
    Laboratory and others.\5\ More efficient power supplies and other
    technical improvements can reduce this standby power use by an average
    of about 75% in the vast majority of cases, at a typical cost of no
    more than a couple of dollars per product.\6\ For some of these
    products, the Energy Star program awards special labels to identify
    power-stingy designs. We recommend that Congress adopt a standby power
    limit of one watt for all of these products, but to allow DOE to set
    looser standards where manufacturers can demonstrate that a one watt
    limit is not technically feasible or economically justified.
    ---------------------------------------------------------------------------
        \5\ Rainer, Greenberg and Meier. 1996. ``You Won't Find These Leaks
    with a Blower Door: The Latest in `Leaking Electricity' in Homes.'' In
    Proceedings 1996 ACEEE Summer Study on Energy Efficiency in Buildings.
    Pp. 1.187-1.191. Washington, DC: American Council for an Energy-
    Efficient Economy.
        \6\ Kubo et al. See note 4.
    ---------------------------------------------------------------------------
        Commercial unit heaters. Unit heaters are used in open commercial
    and industrial spaces to provide heating. The typical system has a
    seasonal efficiency of about 63%, whereas systems with power or
    induced-draft burners typically have seasonal efficiencies of about
    82%. The more efficient systems reduce energy use an average of 23%,
    and have a simple payback of about two years.\7\ Due to the impact of
    federal standards, residential heating systems now predominantly use
    power or induced-draft burners and DOE has just adopted new regulations
    for commercial furnaces that require similar improvements.\8\ We
    recommend that Congress adopt requirements for unit heaters the same as
    those just adopted by DOE for commercial furnaces.
    ---------------------------------------------------------------------------
        \7\ Calculations by ACEEE from incremental cost and energy savings
    estimates in Krauss, Hewett, and Lobenstein. 1992. Commercial Gas Space
    Heating Equipment: Opportunities to Increase Energy Efficiency.
    Minneapolis, MN: Center for Energy and the Urban Environment.
        \8\ DOE. 2001. ``Energy Efficiency Program for Commercial and
    Industrial Equipment: Efficiency Standards for Commercial Heating, Air
    Conditioning and Water Heating Equipment; Final Rule.'' Federal
    Register (66)9, Jan. 1 2, pp. 3336-3356.
    ---------------------------------------------------------------------------
        Ceiling fans. Large ``Casablanca style'' ceiling fans are used in
    many homes to circulate air around the room and help occupants feel
    more comfortable. However, most of these fans have inefficient motors
    and blade designs, not to mention inefficient lighting systems (many of
    these fans also include lights). A major manufacturer has recently
    introduced an improved design that reduces energy use by 40%. The
    incremental cost of this efficient model relative to standard models
    with similar features is about $20, resulting in a simple payback to
    the consumer of about 3\1/2\ years.\9\ The Energy Star program is
    launching a program this fall for residential ceiling fans that will
    require better blade/motor designs and more efficient lighting.\10\ DOE
    should be directed to review the new Energy Star specification and set
    minimum efficiency standards that build upon this specification.
    ---------------------------------------------------------------------------
        \9\ E Source Tech News--5/15/01.
        \10\ Ecos Consulting. 2001. ``Final Draft Energy Star
    Specification for Residential Ceiling Fans. June.
    ---------------------------------------------------------------------------
        Distribution transformers. Distribution transformers are used in
    many commercial and industrial buildings to reduce voltage from line
    voltage to voltages used to power building systems. These systems are
    typically purchased on the basis of first costs, leaving significant
    opportunities for cost-effective energy savings. The National
    Electrical Manufacturers Association (NEMA) has developed a recommended
    standard that reduces the energy losses associated with this equipment
    by an average of about one-third, with the added cost of the more
    efficient equipment paying back in about three years.\11\ Massachusetts
    and Minnesota have adopted the NEMA standard as a mandatory standard
    and California and New York are now in similar adoption processes. DOE
    was instructed in the Energy Policy Act of 1992 to develop standards
    for these products but nine years later this process is still dragging
    on. We recommend that Congress adopt the NEMA standard, thereby saving
    the time and expense of continuing the DOE rulemaking process.
    ---------------------------------------------------------------------------
        \11\ Barnes, Das, McConnell, and Van Dyke. 1997. Supplement to the
    `Determination Analysis'' and Analysis of the NEMA Efficiency Standard
    for Distribution Transformers. Oak Ridge, TN: Oak Ridge National
    Laboratory.
    ---------------------------------------------------------------------------
        Vending machines. Vending machines are primarily purchased by
    beverage distributors and placed in a variety of locations at no cost
    to the property owner. However, the property owner does pay for the
    electricity to operate these machines. Since the purchaser does not pay
    operating costs, there is little incentive to purchase efficient
    machines and most vending machines are inefficient as a result. A study
    by Arthur D. Little Company for DOE estimated that the energy use of
    vending machines can be reduced by 44-51% using measures with an
    average simple payback of 2.4-3.2 years.\12\ However, there is
    insufficient information on the energy use of the full range of
    machines sold today, so further data collection is needed before
    standards can be set. The CEC is now planning to collect this data. DOE
    should be directed to set new standards based on this data and its own
    technical and economic analyses.
    ---------------------------------------------------------------------------
        \12\ Arthur D. Little Co. 1996. Energy Savings Potential for
    Commercial Refrigeration Equipment. Washington, DC: U.S. Dept. of
    Energy.
    ---------------------------------------------------------------------------
        Commercial refrigerators and freezers. Federal standards currently
    cover residential refrigerators and freezers but do not cover the
    larger commercial units used in restaurants, hotels, hospitals and
    other commercial applications. Research by Arthur D. Little Company for
    DOE found that the energy use of typical commercial refrigerators and
    freezers can be reduced by 45-55% using improvements with an average
    simple payback to the user of just over 2 years.\13\ The California
    Energy Commission (CEC) has developed minimum efficiency standards for
    these products based on the energy use of the average product on the
    market today.\14\ These same standards should be adopted as national
    standards.
    ---------------------------------------------------------------------------
        \13\ Ibid.
        \14\ CEC 2001. See note 2.
    ---------------------------------------------------------------------------
        Traffic lights. Like exit signs, most traffic lights use
    incandescent bulbs, but new ``light emitting diode'' (LED) are now
    available that reduce energy use about 90% and have additional
    maintenance and safety benefits Unlike incandescent lamps, the LED
    lights operate for many years without bulb changes, and when LEDs age,
    they just get dimmer until they are replaced, avoiding the safety
    problems that can happen when a lamp in a traffic light burns out.\15\
    The Energy Star program has established an energy and safety
    performance specification for the more-efficient traffic signals.\16\
    California is in the process of adopting this specification as a
    mandatory minimum performance standard.\17\ A similar standard should
    be adopted at the national level. Such a standard should apply to red
    and green lights, since these account for the vast majority of traffic
    light energy use, and have the most favorable economics (typically
    simple payback periods of 1-4 years, depending on the application).\18\
    ---------------------------------------------------------------------------
        \15\ Kubo et al. 2001. See note 4.
        \16\ EPA. ``Energy Star Program Requirements for Traffic Signals.''
    Washington, DC: U.S. Environmental Protection Agency. Also, CEC 2001
    (see note 2).
        \17\ CEC 2001. See note 2.
        \18\ Kubo et al. 2001. See note 4.
    ---------------------------------------------------------------------------
        Exit signs. Many exit signs use incandescent bulbs (40 Watts is
    typical), and since they are continuously illuminated, typically cost
    around $30 per year to operate. New exit sign designs use LEDs and
    consume on the order of 3 Watts, reducing energy use by more than 90%
    relative to an incandescent sign. The simple payback for using LED
    signs instead of incandescent signs is generally less than two years.
    In addition, the LED signs do not require periodic bulb changes,
    resulting in substantial maintenance cost savings.\19\ As with traffic
    lights, there is an Energy Star specification that California is now
    adopting as a mandatory state standard.\20\ A similar national standard
    should be adopted.
    ---------------------------------------------------------------------------
        \19\ Kubo et al. 2001. See note 4.
        \20\ EPA. ``Energy Star Program Requirements for Exit Signs.''
    Washington, DC: U.S. Environmental Protection Agency.
    ---------------------------------------------------------------------------
        Ice-makers. Ice-makers are commonly used in hotels, motels,
    restaurants and hospitals to produce ice in large quantities. Ice-
    makers use a substantial amount of energy in order to freeze water, and
    then keep the ice cold. Products now on the market vary substantially
    in efficiency, with the most efficient products typically using about
    30% less energy than the least efficient. Relative to the least
    efficient machines, the most efficient ones typically have a simple
    payback of one year or less.\21\ The Federal Energy Management Program
    (FEMP) has developed a specification that identifies the top performing
    units on the market today for each product category (features and
    size).\22\ This specification should be adopted as a national standard.
    ---------------------------------------------------------------------------
        \21\ Kubo, Nadel and Suozzo. 2000. ``Commercial Packaged
    Refrigeration: An Untapped Lode for Energy Efficiency. In Proceedings
    2000 ACEEE Summer Study on Energy Efficiency in Buildings. Pp. 3.203-
    3.218. Washington, DC: American Council for an Energy-Efficient
    Economy.
        \22\ FEMP. Commercial Ice-Maker Efficiency Recommendation.
    Washington, DC: Federal Energy Management Program, U.S. Dept. of
    Energy.
    ---------------------------------------------------------------------------
        Energy and economic savings. My organization, ACEEE, is now
    completing an analysis of the energy and economic savings from adopting
    standards on these products. Our preliminary results indicate that
    these standards will save approximately 73 billion kWh of electricity
    in 2010 and 164 billion kWh in 2020. The savings in 2020 amount to
    about 5% of projected residential and commercial electricity use in
    that year, and reduce peak electrical demand by the equivalent of 40-50
    power plants (300 MW each). In addition, the unit heater standard by
    itself will reduce commercial building gas consumption by about 3% in
    2020, a remarkable achievement for a product with annual sales of only
    about 1/4 million units. These standards will also result in
    substantial economic savings to consumers and businesses. Our
    preliminary analysis indicates that for products purchased through
    2020, discounted net benefits (benefits minus costs) will total about
    $80 billion, with a benefit-cost ratio of more than 5:1. Furthermore,
    as noted in the Administration National Energy Policy, the energy
    savings will reduce air pollutant emissions. We estimate that these
    standards will reduce carbon emissions by more than 20 million metric
    tonnes (MMT) in 2020, which can be a useful component of U.S. efforts
    to reduce greenhouse gas emissions. Standards will also result in
    significant reductions in SO2, NOX, and mercury
    emissions, thereby helping power companies to meet new standards that
    might be set in near-term amendments to the Clean Air Act.

     NEW STANDARDS FOR RESIDENTIAL CENTRAL AIR CONDITIONERS AND HEAT PUMPS

        When Congress passed the National Appliance Energy Conservation Act
    of 1987, it established initial efficiency standards for residential
    central air conditioners and heat pumps and called for DOE to set
    revised standards no later than January 1, 1994. The rulemaking
    formally began in September 1993 and a final rule was published in
    January 2001 in the closing days of the Clinton Administration. This
    final rule was the result of more than seven years of effort, but was
    seven years behind schedule. In our opinion, while this rule fell short
    in several respects,\23\ it was a reasonable one. This rule established
    a new minimum efficiency standard of SEER 13, effective January 2006
    (SEER is the Seasonal Energy Efficiency Ratio, a measure of average
    unit efficiency over the full cooling season). There are now more than
    600 distinct models on the market that meet this standard, including
    models from most manufacturers. We estimate that a SEER 13 standard
    will cost the consumer an average of about $170,\24\ but that the more
    efficient models will reduce electricity bills by an average of about
    $50 per year, resulting in a simple payback to the consumer of about
    3\1/2\ years. Furthermore, this rule is an important part of efforts to
    avert future electric reliability problems. This rule will reduce peak
    electric demand by about 57,000 MW over the next three decades,
    averting the need for about 190 new 300-MW power plants.\25\
    ---------------------------------------------------------------------------
        \23\ The rule fails to address two very important issues: high
    temperature performance (which affects utility peak loads) and the
    ability to maintain high efficiency across a broad range of outdoor
    temperatures and installation conditions. There are straightforward
    solutions to both of these issues, but unfortunately these were not
    included in the final rule.
        \24\ DOE estimates the incremental cost at about $340, but we
    reduce the DOE estimate by 50% to account for DOE's long history of
    overestimating incremental costs for new appliance standards (see note
    35).
        \25\ Our peak demand estimates are different from DOE's because DOE
    used only two field studies to estimate peak--demand savings, including
    one that is inconsistent with all other available data. ACEEE used five
    studies from various regions of the country.
    ---------------------------------------------------------------------------
        Unfortunately, in April 2001, the Administration announced that it
    will soon propose rolling back the standard from SEER 13 to SEER
    12.\26\ We believe this action is misguided and may well be illegal.
    This action is misguided because it will substantially reduce the
    energy, peak demand, and economic savings achieved by the new standard.
    This decision is also misguided because it relies on several
    unreasonable analysis assumptions, assumptions which need to be
    corrected if DOE is going to proceed with a new rule. This decision is
    probably illegal because it ignores a Congressional directive in NAECA
    as well as several Court decisions.
    ---------------------------------------------------------------------------
        \26\ DOE. 2001. ``DOE to Propose New 20% Increase in Energy
    Efficiency Standards for Residential Air Conditioners and Heat Pumps.''
    Press Release, April 13. Washington, DC: U.S. Dept. of Energy.
    ---------------------------------------------------------------------------
        The difference in energy, peak demand and financial savings between
    SEER 12 and SEER 13 is very substantial. According to analyses by
    ACEEE, relative to a SEER 12 standard, a SEER 13 standard will:

       Reduce peak demand by 13,000 MW by 2020 and 18,000 MW by
            2030, the equivalent of 43 and 60 new power plants respectively
            (300 MW each);
       Increase energy savings by 45% or more;
       Reduce consumer electric bills by more than $18 billion over
            the next 30 years;
       Have a typical simple payback period to the consumer of less
            than four years.\27\
    ---------------------------------------------------------------------------
        \27\ This estimate is based on DOE's estimate of the cost
    difference between a SEER 12 and 13 unit, reduced by 50% (see note 24)
    divided by annual operating cost savings of $19 which reflects a 2.5
    cents/kWh summer electricity price differential not included in the DOE
    analysis.

        DOE estimates that a SEER 13 split air conditioner will cost the
    average consumer $122 more than a SEER 12 unit, which is 5% more than a
    SEER 12 unit. While we believe that DOE has overestimated the price
    increase, even the DOE cost estimate is small relative to the benefits
    I have just described.
        In recent statements before Congress, Administration officials have
    defended the Administration's decision to propose a SEER 12 standard,
    arguing that this decision was based on analyses by career staff that
    showed that low-income consumers would be disadvantaged by a SEER 13
    standards, that a SEER 13 standard could increase the use of electric
    resistance heat, and that a SEER 13 standard would adversely affect
    competition. However, such statements ignore the fact that only 21% of
    low-income households have central air conditioners in their homes and
    the majority of low-income households rent and do not own their
    homes.\28\ Renters will benefit from standards, for without standards
    most landlords will purchase a low-price unit for their tenants. For
    these and other reasons, many low-income advocacy organizations support
    the SEER 13 standard.\29\ If the Administration is truly concerned
    about low-income households, it should set up a program to help low-
    income households replace their present air conditioners (recall that
    the difference between SEER 12 and 13 is only $122) rather than
    weakening standards for all American households.
    ---------------------------------------------------------------------------
        \28\ EIA. A Look at Residential Energy Consumption 1997.
    Washington, DC: Energy Information Administration, U.S. Dept. of
    Energy.
        \29\ Organizations that have written letters in support of the SEER
    13 standard include the Consumer Federation of America, National
    Consumers League, and several low-income weatherization agencies.
    ---------------------------------------------------------------------------
        Similarly, the Administration alleges that the difference in price
    between a SEER 12 and SEER 13 split heat pump ($188) will cause many
    households to switch from heat pumps to electric resistance heat,
    despite the fact that electric resistance heat will approximately
    double heating bills relative to use of a heat pump (such a doubling
    will increase average annual heating bills by about $350,\30\ making
    for a very poor return on the first cost savings).
    ---------------------------------------------------------------------------
        \30\ The average annual cost for space heating for homes with heat
    pumps was $352 in 1993 (EIA. Household Energy Consumption and
    Expenditures, 1993. Washington, DC: Energy Information Administration,
    U.S. Dept. of Energy).
    ---------------------------------------------------------------------------
        And with regard to competition, concerns about impacts on
    competition are contained in a Department of Justice (DoJ) letter, but
    this letter does not provide an explanation for these concerns nor does
    it state how DoJ arrived at its concerns.\31\ We do know that DoJ staff
    interviewed many manufacturers, but DoJ did not to our knowledge
    interview efficiency advocates, state government officials, or other
    interested parties. Thus, the DoJ process is a ``black box'' and a
    potentially biased process. DoJ needs a broader and better documented
    process for its concerns to receive the same weight as other data in
    this rulemaking that have been publically-vetted and documented.
    ---------------------------------------------------------------------------
        \31\ Nannes, John. Letter to Eric Fygi, Acting General Counsel,
    DOE, dated April 5, 2001. Washington, DC: U.S. Dept. of Justice.
    ---------------------------------------------------------------------------
        From material published by DOE, concerns about impacts on
    manufacturers and competition primarily relate to the fact that many
    manufacturers make much of their profits on ``high-end'' units with
    extra features and above average efficiency. The concern is that a
    minimum standard at SEER 13 will make it hard to differentiate a higher
    efficiency unit for high-end sales. We disagree for two reasons. First,
    with new compressors, new heat exchangers, and other technical
    improvements it is possible to produce reasonably-priced SEER 14 and
    SEER 15 units. For example, just this week Amana announced a full line
    of SEER 15 units that use single-speed compressors (single-speed
    compressors are less expensive than the multi-speed compressors that
    many other manufactures use to achieve SEER 15).\32\ Second, we believe
    it is possible for manufacturers to develop and successfully market
    value-added SEER 13 and SEER 14 units that perform better in the field
    than baseline SEER 13 units. Due to common installation problems as
    well as optimization of many air conditioner designs for a single test
    temperature, many air conditioners perform at a lower efficiency in the
    field than in a laboratory. My organization is now working with
    utilities, federal, state and regional organizations, and some
    manufacturers to develop a voluntary program to promote ``robust'' air
    conditioners that warrant a price premium because they perform better
    in the field.\33\ It is products like these that will allow
    manufacturers to continue to sell high-end products and continue to
    earn the profits they depend on.
    ---------------------------------------------------------------------------
        \32\ Schultz, Matt, Product Manager, Amana Heating and Air
    Conditioning. Email dated July 9, 2001.
        \33\ Sachs. 2001. ``Draft Prospectus: Sustained High Performance
    Central Air Conditioners and Heat Pumps: Delivering Energy Efficiency
    in Use.'' Washington, DC: American Council for an Energy-Efficient
    Economy.
    ---------------------------------------------------------------------------
        Statements by DOE officials also ignore several major errors in the
    DOE analysis. First, the DOE analysis is based on summer 1996
    electricity prices, adjusted downward for assumed long-term declines in
    electricity prices. In reality, as wholesale markets and many retail
    markets have restructured, electricity pricing is increasingly based on
    season of use (and often time of use as well). A December 2000 analysis
    of U.S. wholesale electricity prices in 1998-2000 by Synapse Energy
    Economics found that electricity prices in the summer afternoons and
    evenings when air conditioners are primarily used are 2-9 cents per kWh
    higher than the 1996 prices used by DOE.\34\ Second, the DOE analysis
    is based on today's technologies for achieving improved efficiencies.
    New technology developments and continuing productivity improvements
    will bring these costs down by 2006 when the new standard goes into
    effect, just as they substantially reduced the costs of the current
    SEER 10 standard relative to prior DOE and industry projections.\35\ If
    DOE is going to reassess the central air conditioner standard, it needs
    to correct these analysis errors before proceeding.
    ---------------------------------------------------------------------------
        \34\ Woolf, Biewald, Allen, White and Johnston. 2000. Marginal
    Price Assumptions for Estimating Customer Benefits of Air Conditioner
    Efficiency Standards. Cambridge, MA: Synapse Energy Economics.
        \35\ In 1982, DOE estimated that the incremental cost to raise air
    conditioner efficiency to SEER 10 would be $349 (DOE, 1982, Consumer
    Products Efficiency Standards, Engineering Analysis Document). U.S.
    Census Bureau data shows that when the SEER 10 standard took effect,
    air conditioner prices did not go up at all (Current Industrial
    Reports, Refrigeration, Air Conditioning, and Warm Air Heating
    Equipment). Interestingly, the Air Conditioning and Refrigeration
    Institute (the industry trade association) was even farther off the
    mark; in the early 1980's they estimated that the incremental cost of a
    SEER 10 unit would be $762 (as cited in CEC. 1984. ``Staff Report on
    Proposed Revision of Appliance Efficiency Standards for Central Air
    Conditioners Under 65,000 Btu/Hour, P400-84-015. Sacramento, CA:
    California Energy Commission).
    ---------------------------------------------------------------------------
        The Administration's attempt to roll back the air conditioner
    standard also ignores clear language in NAECA that new standards cannot
    be set that are weaker than previous standards, and several court
    decisions that a new Administration faces a high burden of proof before
    it can roll back final rules of a previous Administration. When
    Congress passed NAECA it was concerned about administrative roll-backs
    of standard levels and added a specific provision that ``The Secretary
    may not prescribe any amended standard which increases the maximum
    allowable energy use, or decreases the minimum required energy
    efficiency of a covered product.'' The Bush Administration's proposal
    to roll back the air conditioner standard violates this provision. The
    Bush Administration proposal also is based on very limited technical
    arguments, and will probably have trouble getting past the Supreme
    Court decision that ``an agency changing its course by rescinding a
    rule is obligated to supply a reasoned basis for the change beyond that
    which may be required when an agency does not act in the first
    instance.'' \36\ Finally, all of the actions to date to roll back the
    standard have been made without any opportunity for public comment,
    which appears to be in violation of the Administrative Procedures Act.
    Several state attorney generals and environmental, consumer and low-
    income advocacy organizations recently brought suit challenging these
    actions.\37\ Given the energy problems facing the U.S., it would be far
    more productive to put resources into developing and implementing new
    policies to save energy, rather than using large amounts of resources
    to pursue a legally-questionable action that will increase energy use.
    ---------------------------------------------------------------------------
        \36\ Motor Vehicle Manufacturers Association v. State Farm Mutual
    Ins Co. et al., 463 U.S. 29 (1983).
        \37\ State of New York and State of Connecticut, Petitioners
    against Spencer Abraham. June 18, 2001. ``Petition for Review.'' New
    York, NY: U.S. District Count, Southern District of New York. Also, a
    similar suit was filed the same day by Natural Resources Defense
    Council, Consumer Federation of America, and Public Utility Law
    Project.
    ---------------------------------------------------------------------------
        At today's hearing the President of the Air Conditioning and
    Refrigeration Institute (ARI) will also testify. Based on past ARI
    statements, in addition to some of the some arguments DOE is making, he
    is likely to argue that DOE underestimated the installation costs of
    meeting a new air conditioner standard, that a SEER 13 standard would
    be particularly burdensome in manufactured housing, that a SEER 13
    standard would eliminate approximately 85% of current units from the
    market, and that a SEER 13 standard will raise unemployment.\38\ In our
    opinion, most of these allegations are wrong and others are half-
    truths. Specifically:
    ---------------------------------------------------------------------------
        \38\ ARI. ``ARI Asks DOE to Increase Efficiency by Fairer 20
    Percent,'' press release. April 6, 2001. Arlington, VA: Air
    Conditioning and Refrigeration Institute.

       DOE's analysis does consider installation costs. While some
            SEER 13 units are significantly larger than current units,
            others are not. For example, Goodman Manufacturing's SEER 13
            units are only about three inches larger than basic units. The
            size of the unit depends on the technologies that a
            manufacturer uses to improve efficiency, and some of these
            technologies do not increase unit size.
       DOE's final rule specifically treats ``space constrained
            products,'' such as units for manufactured housing, as a
            separate product class. Required efficiency levels for this
            special class have yet to be decided.
       Manufacturers are correct that a substantial majority of
            current products do not meet the SEER 13 standard. However, an
            even higher percentage of then-current products did not meet
            the SEER 10 standard when it was enacted and manufacturers had
            little difficultly meeting that standard.\39\
    ---------------------------------------------------------------------------
        \39\ In 1986, when NAECA was negotiated, probably less than 10% of
    then-current models met the 1992/93 NAECA standards. ARI data from 1984
    (in ``ARI Comparative Study of Energy Efficiency Ratios'') indicate
    that 6.8% of unitary air conditioner shipments had a SEER of 10 or more
    while only 4.8% of heat pumps exceeded a SEER of 10. We do not have
    1986 data, but during the mid-1980s, SEER grew only modestly, hence our
    estimate that less than 10% of models in 1986 had a SEER of 10 or more.
    ---------------------------------------------------------------------------
       A SEER 13 standard will increase employment, not reduce it.
            According to DOE's analysis, employment in the industry will
            modestly increase since SEER 13 units require more materials
            and labor than SEER 10 units.\40\ An old DOE analysis does find
            that overall national employment will modestly decline with a
            SEER 13 standard due to the impacts of higher air conditioner
            costs on consumer purchases,\41\ but that analysis was based on
            very high estimates of the extra cost to produce SEER 13 units.
            DOE has substantially decreased its cost estimates but did not
            revise the national employment analysis before publishing the
            SEER 13 final rule.
    ---------------------------------------------------------------------------
        \40\ DOE. 2000. Technical Support Document: Energy Efficiency
    Standards for Consumer Products: Residential Central Air Conditioners
    and Heat Pumps. Oct. Washington, DC: U.S. Dept. of Energy.
        \41\ Ibid.

        Senator Barbara Boxer has introduced a resolution (S.J. Res. 15)
    calling for Congressional disapproval of the rule submitted by DOE
    relating to the postponement of the effective date of central air
    conditioner standards under the terms of the Congressional Review Act
    of 1995. We thank Senator Boxer for introducing this resolution and for
    bringing attention to this important issue. We recommend that this
    Committee should do all it can to encourage the Administration to drop
    its rollback proposal.
                      revisions to other current standards
        Under existing legislation, DOE is supposed to review and revise
    existing appliance and equipment efficiency standards every five years.
    Unfortunately, DOE is very far behind in this process. For example, DOE
    is just now starting a proceeding to revise the residential furnace
    standard, a proceeding that under current legislation should have been
    completed by Jan. 1, 1994. Similarly, DOE has not yet started the
    revision process for dishwashers, even though that process should have
    been completed in 1996. And I discussed earlier, DOE is still working
    on a rulemaking for distribution transformers that was originally
    called for in the Energy Policy Act of 1992. There is a need to work
    through this backlog which will require improved management at DOE as
    well as increased annual appropriations.
        According to our analysis, if DOE can complete the major scheduled
    rules, substantial energy and financial savings will result. Our
    analysis includes development of new standards on commercial air
    conditioners, dishwashers, commercial boilers, and reflector lamps over
    the next few years, and further revisions to refrigerator, water
    heater, and residential air conditioner standards in the longer term.
    We estimate that in 2020 these standard revisions can save 53 billion
    kWh of electricity and 187 trillion Btu's of natural gas. The
    electricity and gas savings together will reduce consumer energy bills
    by more than $4 billion annually by 2020.
        Under DOE's appliance standards ``Process Improvement Rule''
    priorities are set in the summer for rulemakings for the new fiscal
    year. With the change in Administration, this annual process is
    modestly delayed but is scheduled to begin soon. We recommend that
    after this annual process is completed in September or October, that
    this Committee schedule an oversite hearing to review DOE plans for
    standards rulemakings in 2002, including any new rulemakings that may
    be called for under comprehensive energy legislation that will likely
    be pending at that time. Such an oversite hearing should explore
    options for ``picking up the pace'' so that rulemakings can be
    completed in a more timely manner, and perhaps also with less
    controversy than some of the recent rulemakings.

                                   CONCLUSION

        Appliance and equipment efficiency standards have been one of the
    federal government's most effective energy-saving policies. These
    standards have also provided substantial net economic benefits to
    consumers and businesses and contributed to reduced emissions of air
    pollutants. It has been nearly a decade since the scope of the
    appliance and equipment standards program has changed. Based on state
    and voluntary standards developed over this past decade, Congress
    should expand the scope of the standards program to include 11
    additional products. These additional standards will reduce energy use
    in the residential and commercial sectors by about 5% in 2020, reduce
    peak electrical demand by the equivalent of 40-50 new power plants, and
    result in net savings to consumers and businesses of more than $80
    billion. The standards we recommend are primarily based on state and
    voluntary standards that are either now in effect or that are expected
    to be finalized in the next month or so. These state and voluntary
    standards have not been controversial. Hopefully these same standards
    can also be adopted at the national level without controversy. To the
    extent issues arise, ACEEE stands ready to provide technical
    information and to negotiate in good faith with affected trade
    organizations, similar to the role we played prior to the adoption of
    standards legislation in 1987, 1988, and 1992.
        With the savings from standards on new products, plus savings from
    existing standards (including the SEER 13 air conditioner standard) and
    from new standards now being considered by DOE, U.S. electricity use in
    2020 will be reduced by more than 10% relative to what use would be
    without the federal standards program. While these savings will not
    solve U.S. energy problems, they will make a significant contribution
    towards bringing U.S. energy supply and demand into better balance,
    helping our environment, our economy, and our pocketbooks.
        That concludes my testimony. Thank you for the opportunity to
    present these views.

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

     STATEMENT OF CLIFFORD REES, JR., PRESIDENT, AIR CONDITIONING
               AND REFRIGERATION INSTITUTE, ARLINGTON, VA

        Mr. Rees. Mr. Chairman, thank you very much for the
    opportunity to appear before the committee today. As you
    mentioned, I represent the Air Conditioning and Refrigeration
    Institute, or ARI, a national trade association of over 240
    manufacturers who produce over 90 percent of North American-
    produced central air conditioners and commercial refrigeration
    products. I am here today to voice our support for the
    Department of Energy's proposed 20-percent increase in the SEER
    standards for central air conditioners and heat pumps.
        The industry has worked diligently over the last 20 years
    to improve the energy efficiency of residential air
    conditioners and heat pumps. We are proud that we have been
    able to provide our customers with equipment that is at least
    40 percent more efficient than 20 years ago. Concurrently, the
    industry is making a seamless transition to nonozone-depleting
    refrigerants, and has introduced new compressor technologies,
    while continuing to offer the consumer affordable choices for
    their comfort, for their health and safety.
        As you know, the current SEER standard is 10, and has been
    since it was initially set in 1992. For the past few years, DOE
    has conducted rulemaking procedures to determine new, more
    rigorous, and minimum standards for the industry to meet. I
    congratulate the U.S. Senate for encouraging the development of
    the Department of Energy's process improvement rule, which has
    created a balanced, rational, inclusive approach to rulemaking.
        I commend the Department's staff for their openness and
    diligence throughout the process, and their fairness in meeting
    the economically justified and technologically feasible
    standard set forth in the National Appliance Energy
    Conservation Act. Parenthetically, let me add that whoever the
    ultimate decisionmaker is in setting the standard, the
    decisionmaker would benefit greatly from analyzing carefully
    over $2 million of DOE analyses, including those done by
    independent contractors, which were developed during the
    residential air conditioner and heat pump rulemaking.
        During the rulemaking, the overwhelming majority of the
    air-conditioning industry, indeed, 237 of ARI's 240 members,
    came to support, I will admit, however, in some cases
    reluctantly, a 20-percent increase in the standard, and that is
    to say, a 12-SEER.
        I say reluctantly only because even a 20-percent increase
    will carry with it significant burdens in cost, and impact on
    consumers and considerable redesign and retooling cost in the
    industry. I want to assure the chairman, however, that while
    this appears to be a split within my own membership in my
    association, in fact we are unanimous in supporting the goal of
    improved conservation and energy efficiency. The split is a
    difference of opinion about how best to go about attaining that
    goal.
        I do not want to spend my time today speaking to you about
    the last-minute effort in January at DOE to impose a 30-percent
    increase in the standard, and I am not here to tell you that a
    13-SEER minimum standard cannot be implemented by the industry.
    Obviously, air conditioners with a 13-SEER are manufactured and
    sold today. So are 14's, 15's, and 16's. They cost a lot more
    to make, and we are very proud of these products, but they are,
    in fact, more expensive, yet they are made and sold to the
    fortunate few who can afford them and to those who believe they
    will recoup the added cost through energy savings.
        This latter group lives predominantly in the Southern tier
    of the United States, primarily Florida, Texas, Arizona, and
    southern California. Frankly, if the industry had only its
    immediate self-interest in mind, it would rally behind the 13-
    SEER standard and take the money and run, but the short-term
    monetary boon to the industry from 13-SEER standard would be
    outweighed by the impact on the industry's customers, on jobs,
    and ultimately on the industry.
        I want to summarize briefly what a 30-percent increase in
    the SEER standard would mean to consumers, to jobs and, in the
    long run, the industry. First, as the map of the United States
    attached * to my testimony clearly demonstrates, there will be
    no meaningful economic payback for the overwhelming majority in
    this country. 75 percent of consumers purchasing of 13-SEER
    will incur a net cost.
    ---------------------------------------------------------------------------
        * Attachments have been retained in committee files.
    ---------------------------------------------------------------------------
        In other words, at the end of the lifetime of the product
    the savings and operating costs will not be sufficient to
    offset the incremental first cost of the product. The situation
    is even worse for low-income consumers. 83 percent of them will
    not benefit from the 13-SEER standard. In effect, the 13-SEER
    only makes clear economic sense in the tip of Florida and the
    tip of Texas. This simply makes no sense as a national policy.
        Indeed, it is economically dangerous to consumers and
    industry alike, and runs counter to our mutual goal of energy
    conservation, and there could be a significant health risk to
    senior citizens and lower income families who rely upon
    affordable air conditioning today not just for their comfort
    but for their health and for their safety.
        Second, the increased cost to the consumer going from a 10-
    SEER product to a 13-SEER product will be over $700. In what I
    believe to be an incredibly, and in fact what is an incredibly
    price-sensitive market, I believe that the average consumer who
    still has a choice could very well make the choice of repairing
    and keeping the old equipment, which is quite often and could
    be even as low as a 6-SEER, but even with 9-SEER equipment
    retaining that old equipment is less energy-efficient, and it
    runs counter to our mutual goal, and God forbid that those who
    rely upon air conditioning not just for their comfort but for
    health and safety, but would make the decision that they could
    not afford to replace the equipment at all.
        The increased cost of a 13-SEER minimum standard will have
    a disproportionate impact on lower income homeowners and the
    elderly. It is simply inaccurate to suggest that those in low
    income brackets do not purchase homes and therefore would be
    unaffected by the cost of a 13-SEER standard. There are 13
    million homeowners with incomes below $21,000. There are 34.8
    million with incomes below $52,000, and $52,000 may sound like
    a lot of money, but if you are trying to house, feed, clothe,
    and education children, this additional cost without the return
    on the investment is a significant burden.
        For older Americans, there is a significant burden as well.
    Half the households headed by persons 65 and older live on less
    than $37,000 annually.
        Third, there are 9 million manufactured homes in this
    country. Most often, there is simply insufficient physical
    space to fit the indoor coil of a 13-SEER air conditioner with
    a cooling capacity of three times and up in the standard 20-
    inch wide by 22-inch deep alcove or closet used to store the
    heating and cooling equipment in manufactured homes. Many of
    these homes are now built in two or three sections with cooling
    loads of as much as 5 tons. These manufactured houses will
    require extensive retrofits in addition to the added cost of
    the 13-SEER equipment.
        Contrary to the belief of some, air conditioners made for
    manufactured houses are conventional products and are, in fact,
    covered by the rule. They are not part of the space-constrained
    products exempted from this rule by DOE. Retrofitting these
    homes would require significant costly modifications.
        Fourth, a 13-SEER would eliminate 84 percent of all new
    central air-conditioning models in the market today. For some
    manufacturers, 100 percent of all their air conditioner product
    lines will not satisfy the 13-SEER standard.
        And fifth, according to DOE, thousands of jobs will be lost
    between the years 2006 and 2030 if a 13-SEER minimum standard
    is adopted.
        Consequently, here is what the 12-SEER standard achieves: a
    20-percent increase in current efficiency standards, affordable
    air conditioning for Americans, preservation of jobs in the
    United States, and preservation of competition in the industry.
        Our belief in the fairness and value of the 12-SEER is
    shared by others. In fact, the Department of Justice expressed
    a concern that a 30-percent increase in the standard to a 13-
    SEER would have anticompetitive implications for the industry.
    Additionally, because thousands of jobs would be lost between
    2006 and 2030, the Small Business Administration opposed a 13-
    SEER standard and supported a 12-SEER.
        Of significance, the Air Conditioning Contractors of
    America, representing top air conditioning and refrigeration
    contractors in this country, who best understand the dynamics
    of the marketplace, believe that the 12-SEER represents the
    best, fairest approach to increasing energy efficiency and
    achieving the greatest energy conservation. The Manufactured
    Housing Institute has voiced its concern regarding the 13-SEER
    because of the higher cost to residents of millions of homes.
    The National Association of Homebuilders opposes the 13-SEER
    standard, cautioning that each $1,000 added to the cost of new
    homes disqualifies up to $400,000 buyers.
        And finally, and perhaps most significantly, even the DOE
    staff did not support a 13-SEER during last year's rulemaking,
    believing a 12-SEER to be in the Nation's best interest.
        Additionally, there are alternative means to achieving the
    increased energy efficiencies desired without imposing the
    hardships of a 30-percent increase on consumers. Our studies
    reveal that poor installation and servicing of air conditioning
    equipment can result in up to a 40-percent loss in energy
    efficiency.
        As a result, the entire industry, contractors, wholesalers
    and manufacturers, banded together several years ago to develop
    the North American technician excellence program to voluntarily
    improve technician training, require certification for
    technicians, and improve the installed performance of our
    equipment through better installation and servicing.
        Wholesaler and contractor associations provide much of the
    training, distribution, and administration of the testing.
    Manufacturers, except for one, have provided over $6 million to
    date for the development and management of this independent
    nonprofit association, similar to what the automobile industry
    did some 20 years ago.
        Even if only 25 percent successful, when added to the
    enhanced consumer awareness of the benefits of periodic checkup
    and maintenance contracts, and the 12-SEER, the energy savings
    would exceed that of a mandated 13-SEER without having citizens
    bear the cost burden.
        Finally, Mr. Chairman, by 2030 the 12-SEER standard would
    save 3 quads of energy at a cost to the Nation of $1 billion.
    Increasing the SEER an additional 10 percent increases the cost
    to the Nation to $4 billion.
        In summary, we support the 20-percent increase in the SEER
    standards because it is fair, balanced, and economically
    justifiable. It meets our energy conservation needs without
    punishing those in working families, senior citizens, and the
    vast majority of the country who will never recover in energy
    savings the increased cost of a 13-SEER product. A 12-SEER
    product is beneficial to both consumers and industry, and
    represents a significant additional contribution to the
    Nation's goal of conserving our energy supplies. I appreciate
    the chairman's indulgence and my time, and I would be pleased
    to answer any questions, sir.
        [The statement of Mr. Rees follows:]

     Prepared Statement of Clifford Rees, Jr., President, Air Conditioning
                   and Refrigeration Institute, Arlington, VA

        Thank you Mr. Chairman for the opportunity to appear before the
    Committee today. I represent the Air-Conditioning & Refrigeration
    Institute (ARI), a national trade association that represents the
    manufacturers of over 90% of North American-produced central air
    conditioners and commercial refrigeration equipment. I am here to voice
    our support for the Department of Energy's (DOE) proposed 20% increase
    in the Seasonal Energy Efficiency Ratio (SEER) standards for central
    air conditioners and heat pumps.
        The industry has worked diligently over the last 20 years to
    improve the energy efficiency of residential central air conditioners
    and heat pumps. We are proud that we have been able to provide our
    customers with equipment that is at least 40% more efficient than 20
    years ago. Concurrently, the industry effected a seamless transition to
    non-ozone depleting refrigerants, and introduced new compressor
    technologies, while continuing to offer the consumer affordable choices
    for their comfort, health and safety.
        As you know, the current SEER standard is set at 10 SEER, and has
    been since it was initially set in 1992. For the past few years, DOE
    has conducted rulemaking procedures to determine new, more rigorous
    minimum standards for the industry to meet. I congratulate the U.S.
    Senate for encouraging the development of the Department of Energy's
    Process Improvement Rule, which has created a balanced, rational,
    inclusive approach to rulemaking. I commend the Department of Energy
    staff for their openness and diligence throughout the process, and
    their fairness in meeting the ``economically justified and
    technologically feasible'' standard set forth in the National Appliance
    Energy Conservation Act. Parenthetically, let me add that whoever the
    ultimate decision maker in setting this standard is--whether it be
    Congress or DOE--the decision maker would benefit greatly from
    analyzing carefully over $2 million of DOE analyses--including those
    done by independent contractors which were developed during the
    residential air-conditioner and heat pump rulemaking. During the rule-
    making, the overwhelming majority of the air conditioning industry--
    indeed 237 out of ARI's 240 members--came to support (I will admit, in
    some cases, somewhat reluctantly) a 20% increase in the standard, that
    is to say a 12 SEER. I say reluctantly only because even a 20% increase
    will carry with it significant burdens in cost and impact on consumers.
        I do not want to spend my brief time today speaking to you about
    the last minute effort in January at DOE to attempt to impose a 30%
    increase in the standard to a 13 SEER. And I am not here to tell you
    that a 13 SEER minimum standard could not be implemented by the
    industry. Obviously, air conditioners with a 13 SEER are manufactured
    and sold today. So are 14's, 15's and 16's. We like those products.
    But, they are more expensive--and for good reason. They cost a lot more
    to make. Yet they are made and sold today to the fortunate few who can
    afford them and to those who believe they will recoup the added cost
    through energy savings. This latter group lives predominantly in the
    southern tier states, primarily in Florida, Texas, Arizona and Southern
    California. Frankly, if the industry had only its immediate self
    interest in mind, it would rally behind a 13 SEER standard and take the
    money and run. But the short-term monetary boon to the industry from a
    13 SEER standard would be outweighed by the impact on consumers, jobs,
    and ultimately, in the long term, the industry.
        I do want to summarize briefly what a 30% increase in the SEER
    standard would mean to consumers, to jobs and, in the long run, to the
    industry:
        First, as the map of the United States attached to my testimony
    clearly demonstrates, there will be no meaningful economic payback for
    the overwhelming majority of the country. Seventy five percent (75%) of
    consumers purchasing a 13 SEER will incur a net cost. In other words,
    at the end of the lifetime of the product, the savings in operating
    cost will not be sufficient to offset the incremental first cost of the
    product. The situation is even worse for low-income consumers--83% will
    not benefit from a 13 SEER standard.
        In effect, a 13 SEER only makes clear economic sense in the tip of
    Florida and the tip of Texas. It simply makes no sense as a national
    policy. Indeed, it is economically dangerous to consumers and industry
    alike, and runs counter to our mutual goal of energy conservation. And,
    there could be significant increased health risks to senior citizens
    and lower income families who rely on affordable air conditioning today
    not just for their comfort, but for their health and safety.
        Second, the increased cost to the consumer going from a 10 SEER
    product to a 13 SEER product will be over $700.00.

       In what is an incredibly price-sensitive marketplace, what
            do you think the average consumer will do when confronted with
            that? Probably exactly what you or I would do . . . keep the
            old one . . . which is likely to be a 6 to 9 SEER product
            manufactured in the 1980's. This is less energy efficient.
            Keeping older equipment operating longer runs counter to our
            mutual goal of energy conservation.
       The increased costs of a 13 SEER minimum standard will have
            a disproportionate impact on lower income homeowners and the
            elderly. It is simply inaccurate to suggest that those in low
            income brackets do not purchase homes and therefore would be
            unaffected by the costs of a 13 SEER minimum standard. There
            are 13.2 million homeowners with incomes below $21,920.00 per
            year; another 9.8 million--or 23 million total--with incomes
            below $35,072; and an additional 11.8 million--or 34.8 million
            total--with incomes below $52,608 according to the National Low
            Income Housing Coalition. $52,000 may sound like a lot of
            money, but if you are trying to house, feed, clothe and educate
            children, this additional cost--without a return on the
            investment--is a significant burden.
       For older Americans, there is a significant burden too. Half
            of the households headed by persons 65 and older live on less
            than $37,000 annually.

        Third, there are 9 million manufactured homes. The 13 SEER standard
    will not allow sufficient physical space to fit the indoor coil of air
    conditioners with a cooling capacity of 3 tons and up in the standard
    2" wide x 22" deep alcove or closet used to store the heating and
    cooling equipment in manufactured houses. Many of these homes are now
    built in 2 or 3 sections, with cooling loads of as much as 5 tons.
    These manufactured houses will require expensive retrofits in addition
    to the added cost of the 13 SEER equipment. Contrary to the belief of
    some, air conditioners made for manufactured houses are conventional
    products and are, in fact, covered by the rule. They are not part of
    the ``space-constrained'' products exempted from this rule by DOE.
    Retrofitting these homes would require significant, costly
    modifications to house the larger 13 SEER equipment in addition to the
    greater cost of the 13 SEER equipment. The 13 SEER standard will have a
    significant impact on manufacturers selling to this market.
        Fourth, a 13 SEER would eliminate 84% of all new central air
    conditioning models in the market today and 86% of all new heat pumps,
    at a cost of $350 million to the industry for redesign and retooling.
    For some small manufacturers, 100% of all their air conditioner product
    lines will not satisfy the 13 SEER standard.
        Fifth, according to DOE, thousands of jobs will be lost between the
    years 2006 and 2030 if a 13 SEER minimum standard is adopted.
    Accordingly, the U.S. Small Business Administration supports the 20%
    increase in the SEER standard and opposes a 13 SEER minimum standard.
        By contrast, here is what a 12 SEER standard achieves:

              (1) A 20% increase over current energy efficiency standards;
              (2) Affordable air conditioning for many more Americans;
              (3) Preservation of jobs in the United States; and
              (4) Preservation of competition in the industry.

        Our belief in the fairness and value of the 12 SEER is shared by
    others. In fact, the Department of Justice expressed concerns that a
    30% increase in a standard to a 13 SEER will have anti-competitive
    implications for the industry. Additionally, because of the thousands
    of jobs which would be lost, between 2006 and 2030, the Small Business
    Administration opposed a 13 SEER standard and supported a 12 SEER. Of
    significance, the Air Conditioning Contractors of America (ACCA),
    representing top air conditioning and refrigeration contractors in this
    country, who understand the dynamics of the marketplace best of all,
    believes the 12 SEER represents the best, fairest approach to
    increasing energy efficiency and attaining the greatest energy
    conservation. The Manufactured Housing Institute has voiced its concern
    regarding a 13 SEER because of the higher costs to residents of 9
    million homes, mostly occupied by families on limited incomes. The
    National Association of Home Builders opposes a 13 SEER standard,
    cautioning that each $1,000 added to the cost of new homes disqualifies
    400,000 buyers. And finally, and perhaps most significantly, even the
    DOE staff did not support a 13 SEER during last year's rule-making,
    believing a 12 SEER to be in the nation's best interest.
        Additionally, there are alternative means to achieve the increased
    energy efficiencies desired, without imposing the hardships of a 13
    SEER minimum on the consumers. ARI studies reveal that poor
    installation and servicing of air conditioning equipment results in up
    to a 40% loss in energy efficiency. Consequently, the entire industry--
    contractors, wholesalers and manufacturers--banded together several
    years ago to develop North American Technician Excellence (NATE) to
    voluntarily improve technician training, require certification for
    technicians and improve the installed performance of our equipment
    through better installation and servicing. Wholesaler and contractor
    associations provide much of the training, distributing and
    administering of the certification testing. Manufacturers--except for
    one--have provided over $6 million dollars to date for the development
    and management of this independent non-profit association similar to
    what the automobile industry did with Automotive Service Excellence
    (ASE) over 20 years ago. Even if only 25% successful, when added to
    enhanced consumer awareness of the benefits of periodic checkup
    maintenance contracts, and the 12 SEER, the energy savings would exceed
    that of a mandated 13 SEER without having the citizens bear the cost
    burden.
        Finally, by 2030, the 12 SEER standard would save 3 quads of energy
    at a cost to the nation of $1 billion dollars. Increasing the SEER an
    additional 10% increases the cost to the nation to $4 billion dollars.
        In summary, ARI supports a 20% increase in the SEER standards
    because it is fair, balanced, and economically justifiable. It meets
    our energy efficiency needs without punishing those in working
    families, senior citizens, and the vast majority of the country that
    will never recover in energy savings the increased costs of a 13 SEER
    product. A 12 SEER product is beneficial to both consumers and
    industry, and represents a significant additional contribution to the
    nation's goal of conserving our energy supplies.
        I would be pleased to answer any questions the Committee may have.

        The Chairman. Thank you for your testimony.
        Mr. Parks.

      STATEMENT OF DAVID PARKS, PRESIDENT, GOODMAN MANUFACTURING
                          COMPANY, HOUSTON, TX

        Mr. Parks. Mr. Chairman, thank you for your invitation to
    testify here today. As you stated, my name is David Parks. I am
    president of Goodman Manufacturing in Houston, Texas. I have
    worked both on the supply side and the demand side of this
    equation.
        Let me start by giving you a brief background of our
    company. Goodman is the second largest residential heating and
    air conditioning manufacturer in the Nation. We produce a
    complete line of residential and light commercial air
    conditioning and heating products with facilities in Houston,
    Texas, as well as Fayetteville, Tennessee, and Dayton,
    Tennessee. Name brands sold by Goodman include Amana, Goodman,
    GmC, and Janitrol.
        The three major messages I would like to bring to the
    committee today, first of all, in America we are struggling to
    meet energy demand. Secondly, there are actions we can take
    towards solving these problems. By strengthening energy
    efficiency standards to the 13-SEER, we can avoid the need for
    more powerplants and also lower the bills of consumers across
    the Nation.
        Lastly, this debate contains several misconceptions.
    Stronger 13-SEER standards do not limit the consumer's choices,
    they do not impose unreasonable costs, and they do not hurt low
    income families.
        Let me expand on these points further. At the time when our
    Nation is struggling to meet increased energy demands, it is
    clear we must embrace the most effect energy efficiency
    measures available for consumer products. In the State of
    Texas, air-conditioning represents more than 50 percent of a
    homeowner's electric costs. The use of more efficient energy
    appliances, specifically air-conditioners and heat pumps, will
    significantly reduce energy consumption, cut utility costs for
    consumers, and improve air quality by reducing the number of
    pollutants emitted from our fossil fuel electric power
    generating facilities.
        Looking to the DOE's own data, it indicates that moving
    from a 13 standard, up from the current 10 level standard, will
    avoid the need for the equivalent of 53 new 400-megawatt
    powerplants by the year 2030. As you heard earlier in
    testimony, the ACEEE has estimated this number would actually
    be up to 41,000 megawatts, which is equivalent to 100 new
    powerplants.
        Goodman strongly recommends raising the minimum efficiency
    standard for air-conditioners to 13-SEER. Given the tremendous
    benefit associated with the 13-SEER standard, Goodman believes
    that the DOE decision to roll back the original standard to the
    newly proposed standard of 12-SEER lacks merit. In our opinion,
    the DOE appears to be basing its decision on several
    misconceptions surrounding this 13-SEER.
        First is the claim that not all manufacturers have
    capabilities to produce the more efficient equipment, thus
    limiting choice. In fact, the 13-SEER technology has been
    available to both large and small manufacturers for
    approximately 15 years. Based on the Air-Conditioning and
    Refrigeration Institute data, virtually all manufacturers
    produce 13-SEER equipment today. The chart to my right lists
    those companies.
        In reality, the only difference between a 10-SEER, a 12-
    SEER, and a 13-SEER is a little more copper and a little more
    aluminum used in manufacturing coils. Given the fact that these
    units have equivalent technologies, at Goodman we run all of
    our equipment through the same facilities and same assembly
    lines.
        The second misconception is that the 13-SEER standard would
    cost consumers substantially more money than the proposed 12-
    SEER standard. This is not true. According to DOE, the average
    difference in cost between a 13-SEER and a 12-SEER is
    approximately $122. Since a 13-SEER is 8 percent more efficient
    than a 12, consumers will save more on their electric bills
    each and every month for the life of the unit. Thus, over an
    average life of a unit, the savings will easily cover the cost.
        Moreover, Goodman is confident, with the implementation of
    the 13-SEER standard the market will drive down prices and make
    more efficient equipment even more affordable for all
    consumers. How do we know this? From experience.
        In 1992, when the Government implemented efficiency
    standards at the 10-SEER, the cost of 10-SEER air-conditioning
    dropped dramatically across the Nation. The reason for this
    change is simple. Once the standard is set, more sales of that
    type of unit will occur, and more volume is manufactured,
    thereby allowing the manufacturers to run their plants more
    efficiently and pass the savings on to the consumers.
        Since most consumers tend to purchase at the minimum
    standard, it is critically important to establish the standard
    at the correct level, the 13-SEER. This would allow for the
    most efficient equipment to be available at an affordable
    price.
        Some believe that this slight increase in cost will deter
    consumers from purchasing more efficient units. We believe the
    opposite is true. When considering the purchase of a unit, the
    cost difference between a 12 and a 13 is negligible. In any
    case, the additional cost of the 13 would only take a few years
    to recoup longer than the 12, according to DOE's Nation-wide
    analysis, and payback analysis occurs much faster in higher
    cooling zones. This is true even based upon the outdated
    electric cost used in this analysis. After that time, the
    consumer will profit continuously from the more efficient 13-
    SEER.
        Critics of the 13-SEER have routinely expressed that this
    standard will negatively impact lower income families and the
    elderly. This, too, is a misconception. The Census Bureau has
    determined that most low-income families with central air-
    conditioning rent their home.
        It is an assessment that this benefit from the energy
    savings and lower electricity bills associated with a 13,
    without bearing the up-front costs, would actually enhance low-
    income families' purchasing power for other needed items. For
    these low income families who must purchase central air-
    conditioning, the incremental costs of improved efficiency will
    be made up through lower utility bills.
        Goodman has a marketing philosophy of selling in volume,
    and the incremental cost to the manufacturer to produce 13-SEER
    is only about $100. We feel the most efficient technology
    should be made available to people of all income levels at
    affordable prices. Unfortunately, not all manufacturers have
    the same marketing philosophy. Instead, some manufacturers may
    be seeking protection of higher profit margins on their more
    efficient equipment, as a 13-SEER standard would force all
    manufacturers to be truly competitive and provide all consumers
    with the most affordable energy technology for air conditioners
    today.
        We believe there are actions that Congress can and should
    take to address the unfortunate decision by the DOE to roll
    back the higher standards. In fact, the 13-SEER standard we
    believe would be more consistent with the President's effort to
    promote energy efficiency and conservation.
        To provide long-term solutions to meet our energy and
    environmental goals, we need a national energy policy that
    promotes efficiency, conservation, and new supply technologies.
    Goodman urges Congress to focus attention on improving
    efficiency standards for these products.
        In conclusion, the most important message I bring, I feel,
    is that we are struggling to meet demand, there is a solution
    to this, and we strongly suggest that we strengthen energy
    standards for 13-SEER. If we act now, we can avoid the need for
    additional powerplants and reduce energy costs for all
    consumers, including the elderly and low-income families.
        Again, thank you for the opportunity to appear before you
    today. I have submitted my comments for the record, and am
    pleased to answer any questions.
        [The statement of Mr. Parks follows:]

      Prepared Statement of David Parks, President, Goodman Manufacturing
                              Company, Houston, TX

        Goodman is the world's largest privately held air conditioning,
    heating and appliance manufacturer and the second largest manufacturer
    here in the United States. Founded in 1975 by the late Harold Goodman,
    Goodman remains entirely family-owned. We produce a complete line of
    residential and commercial air conditioning and heating equipment with
    facilities in Houston, Texas as well as Dayton and Fayetteville,
    Tennessee. Name brands sold by Goodman include Amana ,
    Goodman , GmC , Janitrol , Caloric
     and Modern Maid .
        At a time when our nation is struggling to meet increasing energy
    demand it seems clear that we must embrace the most effective energy
    efficiency measures available today for consumer products, including
    household appliances. Electricity used for heating and cooling accounts
    for the bulk of total electricity use in U.S. households. In the state
    of Texas, air conditioning represents more than 50 percent of a home's
    electricity cost.\1\ The use of more energy-efficient appliances,
    specifically air conditioners and heat pumps, will provide a
    significantly reduced energy consumption, cut utility costs for
    consumers, and decrease the amount of harmful pollutants emitted in the
    environment.
    ---------------------------------------------------------------------------
        \1\ Public Utility Commission Release, ``PUC Urges Energy
    Conservation Hotter Temperatures Create Higher Demand for
    Electricity'', 7/31/99.
    ---------------------------------------------------------------------------
        The simplest method for reaching these three goals is raising the
    minimum standard for air conditioners to a level of 13 SEER (seasonal
    energy efficiency ratio) from the current level of 10 SEER.
        Looking to the future, the Department of Energy's (DOE's) own data
    indicates that moving to a 13 SEER standard from the 10 SEER level will
    avoid the need for the equivalent of 53 new 400 megawatt power plants
    by 2030 \2\ (Attachment A). Other organizations such as the American
    Council for an Energy-Efficient Economy (ACEEE) estimate that DOE's
    analysis is extremely conservative and does not attribute the correct
    portion of peak demand to air conditioning use. In fact, ACEEE
    estimates indicate that 41,500 megawatts of energy would be saved which
    is equivalent to 103 new 400-megawatt power plants would be avoided by
    2030.\3\ Increased air conditioner efficiency would help provide both a
    short and long-term solution to energy shortages.
    ---------------------------------------------------------------------------
        \2\ DOE Press Release, 1/18/01 and 4/13/01.
        \3\ American Council for an Energy-Efficient Economy (ACEEE)
    Website.
    ---------------------------------------------------------------------------
        Accordingly Goodman recommends raising the minimum efficiency
    standard for residential air conditioners to 13 SEER. Higher efficiency
    units save consumers more money on their monthly electricity bills and
    reduce harmful pollutants in the environment.
        Goodman has conducted studies showing that more efficient air
    conditioners reduce power plant emissions because each unit requires
    less electricity to operate. Research also shows that the deployment
    and use of high efficiency air conditioners significantly reduces air
    pollutant emissions including nitrogen oxides (NOX), sulfur
    dioxide (SO2) and greenhouse gases from fossil-fueled
    electric power plants.
        Given the tremendous benefits associated with the 13 SEER standard,
    Goodman believes that the Department of Energy's (DOE's) decision to
    rollback the original standard of 13 SEER to a newly proposed standard
    of 12 SEER lacks merit. In our opinion, DOE appears to be basing its
    decision on several misconceptions surrounding the 13 SEER standard.
    Let me explain.
        The first of these misconceptions by DOE is that not all
    manufacturers have the capability to produce the more efficient
    equipment, thus limiting consumer choice. In fact, the 13 SEER
    technology has been available to both large and small manufacturers for
    approximately 15 years. As you can see from this list (Attachment B)
    generated based on Air Conditioning and Refrigeration Institute data,
    virtually all manufacturers are able to and do produce 13 SEER
    equipment today. In reality, the only difference between a 10 SEER
    unit, a 12 SEER unit and a 13 SEER unit is a little more copper and
    aluminum used in manufacturing different sized evaporator coils. A 12
    SEER unit has a slightly larger coil than a 10 SEER unit, a 13 SEER
    unit slightly more than a 12 SEER unit. Given the fact that the units
    have equivalent technologies, at Goodman we run all of our equipment
    down the same assembly line.
        You will also note that what are considered to be small
    manufacturers are included in the list. Goettl Air Conditioning, a
    small manufacturer based in Arizona, supports the stronger standard.
    With respect to small manufactures of specialty products for markets
    like manufactured housing, where space constraints limit efficiency
    with conventional technology, DOE has said that the final rule would be
    open to exemptions. Here is a case where an exemption would make sense.
        A second misconception has been that the 13 SEER standard would
    cost consumers substantially more money than the proposed 12 SEER
    standard. This is not true. According to the DOE, the average
    difference in cost between a 13 SEER unit and a 12 SEER unit is
    approximately $122.\4\ The difference in costs for Goodman units is
    comparable to this estimate (Attachment C). Since a 13 SEER unit is 8
    percent more efficient than a 12 SEER unit, consumers will save more on
    their electric bills each and every month for the life of the unit.
    Thus, over the life of a home cooling unit, the savings will easily
    cover the increase in cost, between a 12 SEER unit and a 13 SEER unit.
    ---------------------------------------------------------------------------
        \4\ Department of Energy Press Release, 4/13/2001.
    ---------------------------------------------------------------------------
        Moreover, Goodman is confident that with the implementation of a 13
    SEER standard, the market will drive prices down and make the more
    efficient equipment even more affordable for all consumers. How do we
    know this? From experience. In 1992, when the government implemented
    the efficiency standard at 10 SEER , the cost of the 10 SEER air
    conditioning unit dropped dramatically across the nation. The reason
    for the change in price is simple. Once the standard is set, more sales
    of that type of unit will occur and more volume is manufactured,
    thereby allowing the manufacturers to run their plant more efficiently
    and pass the savings on to the consumer.
        Some believe that this slight increase in cost would deter a
    consumer from purchasing a more efficient unit. However, we believe
    that when considering the purchase of a unit that is between 2000 and
    5000 dollars, the difference in cost between a 12 SEER unit and a 13
    SEER unit is negligible and, in any case, the additional cost of the 13
    SEER unit would only take 1.2 years \5\ longer to recoup according to
    DOE. After that time, the consumer will profit continuously from the
    more efficient unit. It should be noted, however, that DOE's payback
    estimates took into account significantly reduced electricity prices of
    only 7.42 cents per kilowatt hour. Whereas today the nation is facing
    increasing energy costs greater than previously estimated.
    ---------------------------------------------------------------------------
        \5\ Department of Energy Press Release, 4/13/2001.
    ---------------------------------------------------------------------------
        In fact, the Public Utility Commission (PUC) of Texas issued a news
    release on June 20, 2001 stating that customers may face higher
    electricity bills this summer than last summer because of higher
    natural gas costs. The release went on to state that utilities surveyed
    by the PUC indicate a statewide average increase of approximately 18
    percent this summer over last for a typical household. Some customers
    can expect electric bills to increase as much as one-third this summer
    compared to last summer for the same amount of electricity. Thus taking
    updated energy cost information into account would yield shorter pay
    back periods of the more efficient equipment for consumers. It should
    also be noted that on November 16, 2000, the PUC of Texas sent former
    Secretary of Energy Bill Richardson a letter supporting the 13 SEER
    standard.\6\
    ---------------------------------------------------------------------------
        \6\ PUCT letter of support, 11/16/00.
    ---------------------------------------------------------------------------
        A third misconception has been that there is an enormous difference
    in the size of the units and a tremendously higher related cost for
    installation. It is clear that an increased efficiency standard will be
    established at least at a level of 12 over the current 10 SEER
    standard. When the decision is made to adopt the 12 SEER standard, the
    unit size will be slightly bigger and will require some structural
    modifications to install the indoor portion of the system including
    ductwork during installation of the unit. Once we acknowledge that
    there will be a standard that will likely require some structural
    modification, one must compare the 12 SEER unit to the 13 SEER unit.
    The difference between our 13 SEER and 12 SEER external equipment is
    only 3-5 inches in height. The internal equipment size for the 12 and
    13 are similar, and there is almost no difference in the installation
    costs associated with a 13 SEER unit and a 12 SEER unit.
        In addition, critics of the 13 SEER standard have routinely
    expressed that the 13 SEER standard will negatively impact lower income
    families and the elderly. This too is a misconception. The Census
    Bureau has determined that most low-income families with central air
    conditioning rent their homes.\7\ It is our assessment that they would
    benefit from the energy savings and lower electricity bills associated
    with a 13 SEER unit without bearing the actual up front equipment
    costs. For those low-income families who must purchase a central air
    conditioning unit, the incremental cost of improved efficiency will be
    made up through lower utility bills.
    ---------------------------------------------------------------------------
        \7\ Bureau of the Census, Annual Demographic Survey, March
    Supplement, 2001.
    ---------------------------------------------------------------------------
        Finally, in our opinion, Goodman has a marketing philosophy of
    selling in volume. The incremental cost to the manufacturer to produce
    a 13 SEER unit is only about a $100 and we feel that the most efficient
    technology should be available to people of all income levels at an
    affordable price. Unfortunately, not all manufacturers have this same
    marketing philosophy. Instead some manufacturers may be seeking
    protection of higher profit margins on their more efficient equipment.
    A 13 SEER standard would force all manufacturers to be truly price
    competitive and provide all consumers with the most affordable energy
    efficient technology for air conditioners that is available today.

                                  CONCLUSIONS

        In conclusion, Goodman is a supporter of the 13 SEER standard
    because we believe it is a cost-effective way to reduce energy use,
    lower high energy costs for the consumer over the long-term and reduce
    emissions of harmful pollutants from power generating facilities.
        Goodman has been and will continue to support a higher energy
    efficiency standard as the ``right thing to do'' for the consumer, the
    environment, energy conservation and the industry. We believe that
    there are actions Congress can and should take to address the
    unfortunate decision by the Department of Energy to roll back the
    higher standard for central air conditioners and heat pumps to only a
    20 percent increase in efficiency. In fact the 13 SEER standard would
    be more consistent with the President's effort to promote energy
    efficiency and conservation.
        In addition to the air conditioner standard itself, it is also
    important to support both financial incentives and programs that
    promote the use of more efficient equipment. To this end, Goodman has
    been supportive of increasing efficiency requirements for the
    EnergyStar Program as well as providing incentives to consumers that
    use high efficiency appliances including air conditioners. Goodman has
    been supportive of legislation such as S. 207, ``The Building
    Incentives Act'', where the message can be reinforced that energy
    efficiency is a good investment for consumers, building owners and
    tenants, and the nation as a whole. These combined efforts provide
    incentives for higher levels of energy efficiency than would otherwise
    occur.
        To provide longer-term solutions, we desperately need a national
    energy policy that promotes energy efficiency, conservation, and new
    supply technologies. Goodman urges Congress to continue to focus
    attention on improving appliance efficiency standards for air
    conditioning and heating products.

        The Chairman. Thank you very much for your testimony.
        Dr. O'Hagan, why don't you go ahead.

         STATEMENT OF DR. MALCOLM O'HAGAN, PRESIDENT, NATIONAL
           ELECTRICAL MANUFACTURERS ASSOCIATION, ROSSLYN, VA

        Dr. O'Hagan. Good morning, Mr. Chairman. My name is Malcolm
    O'Hagan. I am president of the National Electrical
    Manufacturers Association. On behalf of the 450 members of NEMA
    who manufacture all of the products in the electricity supply
    chain from the generator to the light bulb, I thank you for
    this opportunity to share with this committee the good news on
    energy-efficient technologies.
        The President's energy report estimated that we could save
    the equivalent of 600 300-megawatt powerplants through the
    deployment of energy-efficient technologies and conservation
    measures. We agree, and that is a lot of energy.
        How is it possible to realize these savings? Let me offer a
    few examples. Lighting and HVAC upgrades in commercial
    buildings can cut energy consumption by up to 40 percent while
    saving $1 per square foot in electricity cost. This, Mr.
    Chairman, has been documented in a publication of 1,000
    upgrades, and I would like to submit this, with your
    permission, for the record.*
    ---------------------------------------------------------------------------
        * The publication has been retained in committee files.
    ---------------------------------------------------------------------------
        The Chairman. We would be glad to have it. Thank you.
        Dr. O'Hagan. Commercial buildings account for 22 percent of
    electricity consumption. Transformers that meet NEMA TP-1
    efficiency levels can greatly reduce power losses in getting
    electricity from the generating station to the outlet. NEMA
    Premium efficiency motors, combined with industrial control
    systems, can substantially reduce energy consumption in steel
    mills, water treatment plants, irrigation systems, and myriad
    other industrial applications which account for 51 percent of
    electricity consumption.
        Solutions exist to significantly cut transmission and
    distribution line losses, which currently account for 8 to 10
    percent of production.
        Mr. Chairman, the technology exists. NEMA members offer it,
    but that is not enough. The technology must be used. With
    efficient products unfortunately comes higher first costs,
    presenting an economic barrier. Consequently, there are three
    additional requirements to stimulate greater use of more
    efficient technologies.
        First, we need economic incentives to drive technology
    solutions, and let me stress that it is not enough to
    substitute high efficiency products and normal replacement
    times. We need to provide incentive for accelerated
    replacement. This is how the immediate and big savings will be
    realized.
        Second, we need the Government to lead by example, not by
    fiat. For example, all government buildings should be upgraded
    to meet Energy Star building requirements as soon as possible,
    and all government procurements should be based on industry
    consensus standards for energy efficiency.
        Third, and finally, we need the Government to spearhead a
    massive education campaign to promote the use of energy-
    efficient technologies.
        Our specific comments on the legislation under
    consideration today are as follows. With respect to Federal
    building energy efficiency, we agree with the proposals in S.
    597 and S. 388 that would impose new energy efficiency
    requirements on Federal buildings and require agencies to
    undertake a review of and implement practical energy and water
    conservation and renewable energy measures. These goals should
    be met, and reviews undertaken by emphasizing a systems
    approach, not merely component change-outs.
        In addressing these proposals, we urge the committee to
    consider NEMA's specific recommendations as detailed in our
    written testimony for upgrading the Federal building energy
    code and requiring Energy Star rating for all Federal
    buildings.
        In upgrading Federal facilities, the Government should
    procure only products that meet or exceed NEMA Premium
    efficiency levels for motors, NEMA TP-1 efficiency levels for
    transformers, and ASHRAE 90.1-1999 efficiency levels for
    lighting and HVAC systems.
        I would like to point out that the State of Wisconsin now
    requires the use of TP-1 transformers in all State buildings. I
    would also like to note that the NEMA Premium efficiency levels
    for motors exceed the efficiency levels mandated by the Federal
    Government under the Energy Policy Act, and applied to more
    categories of motors. Recently, NEMA, with the support of DOE,
    the utilities, the Edison Electric Institute, and others,
    launched a major program to promote the use of NEMA Premium
    efficiency motors in the marketplace.
        In connection with financing for Federal energy efficiency
    programs, whether through the proposed Federal Energy Bank or
    through energy-saving performance contracts, we have two
    recommendations. First, as we have stated before, the projects
    that take a systems approach should have priority for
    assistance.
        Second, we support the 7-year-or-better payback period set
    forth in your legislation S. 597. It should be noted that
    comprehensive upgrade programs with correspondingly higher
    first cost but greater savings in the longer run may be ruled
    out by shorter payback periods. Programs targeting schools for
    energy efficiency improvement should also emphasize the systems
    approach that combine advanced controls with energy-efficient
    technologies to achieve the maximum benefits.
        NEMA believes greater attention needs to be paid to
    increasing energy efficiency and the industrial sector, which
    accounts for 51 percent of electricity consumption. To this
    end, the proposal in S. 597 to encourage voluntary commitments
    to reducing industrial energy intensity is most welcome.
        NEMA supports the low income home energy assistance,
    weatherization, and State energy programs. With respect to the
    weatherization program, we would suggest the committee consider
    including electricity efficiency retrofits as an eligible
    measure to permit the upgrading of air conditioners and water
    heaters, which will have long-term energy savings benefits.
    California has adopted a similar approach, and we would
    recommend it at the Federal level as well.
        Finally, with respect to energy efficiency standards, NEMA
    believes that it is critical that the Department of Energy
    fully adhere to all aspects of the Process Improvement Rule,
    which has three basic principles--one is technology
    feasibility, economic justification, and significant energy
    savings--and that it adhere to all aspects of its process
    improvement rule in every standards-related activity.
        In our written testimony, we expand on these comments, and
    we stand ready to provide the committee with whatever
    additional information would be helpful to its deliberations.
        Mr. Chairman, we thank you very much for the opportunity to
    testify this morning.
        [The statement of Dr. O'Hagan follows:]

        Prepared Statement of Dr. Malcolm O'Hagan, President, National
               Electrical Manufacturers Association, Rosslyn, VA

                                  INTRODUCTION

        Good morning Senator Bingaman, Senator Murkowski and members of the
    Committee on Energy and Natural Resources. I am Dr. Malcolm O'Hagan and
    I am President of the National Electrical Manufacturers Association
    (NEMA). NEMA, celebrating its 75th anniversary, is the leading trade
    association in the United States representing the interests of
    electroindustry manufacturers. Founded in 1926 and headquartered near
    Washington, D.C., our 450 member companies manufacture products used in
    the generation, transmission and distribution, control, and end-use of
    electricity. Annual shipments of these products total $100 billion.
        NEMA welcomes the opportunity to offer testimony on the energy
    efficiency legislative proposals pending before the Committee. My
    testimony today will focus on the following four main areas:
        1. The role of NEMA products and services to achieve energy
    efficiency and conservation in helping to meet out national energy
    needs;
        2. The federal government's role in promoting conservation and
    efficiency and the use of new technologies and innovative practices
    that use energy more efficiently.
        3. The barriers to the widespread application of energy efficient
    practices and technologies; and
        4. Our recommendations to encourage the greater use of energy
    efficient technologies.
        The issues of energy efficiency and conservation are crucial
    aspects of the energy policy debate and your attention to these matters
    is applauded by the 450 NEMA member companies. We have also been
    encouraged by the work of the Administration and its recommendations,
    as incorporated in the National Energy Policy Plan. NEMA has reviewed
    the President's recommendations, and I have attached our findings for
    your reference.* NEMA has also reviewed many other energy legislative
    proposals, including those that are the subject of today's hearing.
    NEMA is very encouraged about the prospects for a comprehensive,
    balanced and bipartisan national energy policy, and we are committed to
    supporting the development of that policy in every way possible.
    ---------------------------------------------------------------------------
        * Attachments to this statement have been retained in committee
    files.
    ---------------------------------------------------------------------------

         NEMA ELECTRICAL ENERGY AND ENERGY EFFICIENCY POLICY PRINCIPLES

        NEMA has crafted a set of electrical energy and energy efficiency
    principles for your guidance and consideration as you and your
    colleagues proceed on a comprehensive national energy policy. I have
    included the principles for your reference, but let me take this
    opportunity to highlight the three main points from our principles:

       A comprehensive electrical energy policy should rely on
            affordable, proven technology to address energy supply and
            demand;
       Second, it is critical to understand that energy efficiency
            and conservation don't mean sacrifice and reduced access, but
            rather doing more with existing capacity by achieving reduction
            in energy usage through the use of more efficient products and
            systems; and
       Third, market-based incentives and solutions should be the
            primary vehicle to enhance energy efficiency and conservation.
            However, NEMA acknowledges that, on a case-by-case basis, there
            is value in other interventions such as targeted government
            research and development, incentives and standards.

        With regard to energy efficiency issues, NEMA specifically proposes
    the following concepts as guidelines:

       NEMA believes energy efficiency is a national concern that
            should be driven by market forces to achieve energy efficiency
            and conservation. The litmus test for efficient products and
            control systems is technological feasibility, economic
            justification, energy savings and commercial availability.
       NEMA acknowledges the key role the federal government should
            play in fostering public use of energy efficient products and
            systems. Specifically, NEMA believes that the federal
            government should promote user education on energy efficiency;
            support energy efficient upgrades through programs such as the
            Federal Energy Management Program, encourage performance-based
            incentives in the private sector; and promote the use of
            economically sound energy efficient products and systems.

      NEMA MEMBER COMPANY PRODUCTS AND SERVICES ACHIEVE ENERGY EFFICIENCY
                                AND CONSERVATION

        NEMA recognizes that a comprehensive national energy policy
    requires a mix of conservation and production, and the promotion of new
    technologies that promise greater efficiency and environmental
    protection. NEMA member products are at all stages of the electrical
    energy process, from generators, transformers, wire and cable, to
    lighting, motors, and switches at the consumer and end-user points. As
    an intriguing example of how technology can save energy, NEMA
    manufacturers have developed technology and products for Intelligent
    Transportation Systems (ITS), a project under the auspices of the
    Department of Transportation. This project is a highly cost-effective
    means of reducing transportation fuels consumption, associated air
    pollution, and also reduces the non-productive time workers spend
    commuting. As you will see in our recommendations, these and other NEMA
    products serve to make the system work better and faster without
    compromising availability. NEMA members are able to do this by taking
    the best of industry technology and standardizing those products so
    that they are available globally, delivered locally, competitively
    priced, able to perform predictably and are safe and environmentally
    sound.
        Industry experts estimate that the energy to run buildings in the
    United States costs about $70 billion a year. NEMA products can be
    found in a wide variety of projects and applications, and such
    technology has the potential to reduce energy costs 40 percent and save
    businesses $28 billion per year. A recent study in the trade journal
    Energy User News found that upgrades and retrofits of lighting, HVAC,
    motors and drives, and building automation can achieve energy savings
    of between $1.00 and $1.50 per square foot of floor space, especially
    when the project involves a combination of each eletrotechnology
    element. Moreover, the payback periods are attractive with the return
    on investment and energy savings lasting the entire span of the
    products, usually 10-20 years. As testimony to these findings, energy
    efficient products helped a government agency overhaul their lighting
    system as a result of a mandated relighting program. The agency
    installed energy saving occupancy sensors as well as new electronic
    ballasts, T-8 lamps and specular reflectors in 1.5 million square feet
    of working space. The effort has translated into an annual savings of
    $399,057.
        NEMA member companies also provide energy efficient technologies to
    help industrial energy users make the most of the electricity they
    consume. For instance, in Indiana, the Alcoa North American Extrusions
    aluminum extrusion plant reviewed eight areas for efficiency upgrades
    under the auspices of the Department of Energy's Office of Industrial
    Technology program. From motors and pumping systems to compressed air
    and variable speed drive systems, the review revealed that in a payback
    period of a little over one year, Alcoa could realize a potential
    annual savings of $1.9 million with an initial capital requirement of
    $2.3 million. NEMA member companies provided the motors, systems and
    services to help Alcoa meet its goal in Indiana and at other Alcoa
    plants around the United States. In Baton Rouge, Louisiana, ExxonMobil
    Corporation realized an annual savings of one million dollars and an
    annual energy savings of 43 million Btu with a cost payback of four
    million dollars over four years at its chemical plant. ExxonMobil
    modernized the plant control systems to recover these substantial
    savings. NEMA member company Thermadyne, a California-based
    manufacturer of inverter-type welding machines, recently found that
    welding machine power consumption can be reduced between 20% and 50%
    from the older transformer based designs. At Disney World in Florida,
    the complex used a metering company that identified ways to make
    hydraulic equipment run for shorter periods of time, time the operation
    of compressed air motors, and drop electricity consumption in a chiller
    plant by an amazing 28 percent. NEMA TP-1 quality transformers
    (manufactured by, among others, Square D) helped the Johnson & Johnson
    facility in New Jersey realize such significant energy savings that the
    corporation changed their purchasing specification to require nothing
    but Square D TP-1 Transformers (or its equivalent) in any future
    transformer purchases.
        NEMA company technologies can also make a significant contribution
    in improving the efficiency of electricity transmission and
    distribution. About 10% of the electricity generated is lost in
    inefficiencies in transmission and distribution. During peak load
    periods the losses are higher. The losses have a retail value of about
    $25 billion per year. Transmission line losses (70% of the transmission
    losses) may be reduced by, for example, upgrading conductors,
    increasing voltage, improving the power factor, or using high voltage
    DC transmission.
        Finally, NEMA-member software products, such as ABB Energy
    Interactive's Energy Profiler OnlineTM, facilitate energy
    load management for commercial and industrial customers, and are being
    used in California today to manage a variety of mandatory and voluntary
    utility load curtailment programs necessitated by California's current
    energy crisis. NEMA member companies have a track record of achieving
    energy cost savings and stand ready to help the nation continue to
    improve upon its strong record of achieving energy efficiency goals.

          THE FEDERAL GOVERNMENT'S ROLE IN PROMOTING ENERGY EFFICIENCY

        As mentioned earlier, NEMA acknowledges the key role the federal
    government should play in fostering public use of energy efficient
    products and systems. Industry appreciates those government programs
    that educate and inform business and the consumer about energy
    efficiency. Specifically, NEMA believes that the federal government
    should promote user education on energy efficiency; support energy
    efficient upgrades through programs such as the Federal Energy
    Management Program, the Department of Energy's Office of Industrial
    Technology, Building, Technology State and Community programs, and
    aspects of the Energy Star program; and promote the use of economically
    sound energy efficient products and systems.
        I have communicated with NEMA manufacturers about a variety of
    federal government programs. They recognize the value of several energy
    efficiency programs. In the motors and industrial controls area, the
    Department of Energy Office of Industrial Technology Best Practices
    program works to promote those industry practices that promote
    efficiency. The Motor Challenge program adds credibility to efficiency
    messages and broadens the communications efforts beyond industry. In
    the lighting area, industry appreciates the ``LightRight'' and the
    ``Vision 2020'' programs. These and other programs, such as the Federal
    Energy Management Program, all serve to help American consumers and
    businesses use energy more efficiently and effectively.
        NEMA believes that the federal government can set the standard--and
    a good example--for energy efficiency by starting with the public's own
    facilities. In this regard, the cooperative Department of Energy and
    Environmental Protection Agency Energy Star Buildings Program has made
    significant advances in improving the efficiency of commercial
    buildings. However, the vast majority of Federal facilities have not
    yet achieved the Energy Star rating, a classification given only to the
    top 25% of buildings in terms of watts used per square foot. Therefore,
    NEMA recommends that existing Federal buildings be upgraded to meet the
    Energy Star Building Program requirements.
        A program to require energy efficient upgrades of building systems
    in existing Federal buildings offers the potential for significant
    energy savings. As the President and Congress have recognized, the
    Federal government is a major consumer of electrical energy. NEMA
    proposes that, with respect to existing buildings, an upgrade program
    should riot require adherence to a rigid standard, but rather should
    provide flexibility to agencies to adopt the most efficient systems
    that meet their needs. For new construction or buildings that undergo
    major renovation/remodeling, it is appropriate to require adherence to
    the most current consensus energy efficiency standards, which are
    contained in ASHRAE/IESNA 90.1-1999. The Federal government should move
    promptly to update Federal building energy codes, and to facilitate
    action by the States to update their building codes consistent with the
    latest update to the ASHRAE/IESNA standards.
        The Federal government also has important regulatory
    responsibilities, particularly in the area of energy efficiency
    standards for appliances and other consumer products. In setting such
    standards, the Department of Energy must fully adhere to the provisions
    of the so-called ``Process Improvement Rule.'' By way of background, in
    July 1996, the Department of Energy published an interpretive rule
    setting forth procedures for the consideration of new or revised energy
    conservation standards for consumer products (see 61 Fed. Reg. 36973
    (July 15, 1996)). The ``process improvement'' rule was produced with
    the input of all stakeholders in the appliance and consumer products
    efficiency standards program. Designed to remedy shortcomings in the
    standards process utilized by the Department of Energy, the process
    improvement rule is intended to encourage consensus on energy
    efficiency standards. To this end, the rule language includes a series
    of rebuttable presumptions, agreed to by all sectors of industry and
    the energy efficiency community, which provide a basis for mutual
    understanding and cooperation in the development of consensus
    standards.
        The process improvement rule incorporates critical principles for
    every stage of the energy efficiency standards setting process. Careful
    observance of these requirements is essential for any standards program
    to be effectively implemented. However, as good and practical as this
    rule is, it is not a binding requirement on the Department of Energy.
    NEMA manufacturers--and all of the regulated community--require
    additional assurance that there will be careful adherence to all
    aspects of the process improvement rule in all future standards setting
    rulemakings for consumer, commercial and industrial products. Greater
    certainty will be provided if the process improvement rule is formally
    incorporated into the Department of Energy's regulations governing the
    establishment of energy efficiency standards.
        The Federal government should also take the lead in the acquisition
    of energy efficient products. For example, an opportunity is presented
    for the government to take advantage of consensus standards developed
    by industry to increase energy efficiency in equipment including
    electric motors and distribution transformers. These two standards,
    NEMA PremiumTM for electric motors and NEMA TP-1 for
    distribution transformers, offer significant energy savings. Government
    should recognize these industry-led efforts to increase energy
    efficiency and provide for the most rapid possible integration of
    technologies meeting the latest efficiency standards into Federal
    facilities. Increasing the deployment of these technologies throughout
    the Federal government offers a ready means to significantly reduce
    energy consumption.

     BARRIERS TO THE WIDESPREAD APPLICATION OF ENERGY EFFICIENT PRACTICES
                                AND TECHNOLOGIES

        While much good has been done to promote energy efficiency, there
    remains work to be finished. NEMA believes the primary barriers to
    investing in energy efficient technology include: (1) the cost of
    investment in energy efficient technologies and whom should receive the
    financial benefit of the energy efficient investment; (2) the lack of
    awareness of a systems and controls based approach for energy efficient
    cost effectiveness; (3) and issues surrounding codes and standards.
        Currently, the federal tax code does not fully encourage an
    investor to make energy efficient investments, upgrades or retrofits to
    facilities. To that end, NEMA recognizes the efforts to encourage the
    private sector use of energy efficient products and systems through a
    variety of tax incentives included in S. 596, S. 389 and other pending
    measures. While NEMA has not taken a position on the wide variety of
    incentive proposals currently being considered, we would generally
    emphasize the need to explore and promote those incentives that make
    the maximum use of energy efficient products and systems and delivers
    the incentive to the individual or entity that makes the investment.
        NEMA believes that energy efficiency should be evaluated and
    rewarded on a energy savings and systems basis. When creating
    incentives, the beneficiary of the cost incentive should be the
    investor in the equipment. Very simply put, if a building owner makes
    the capital investment, that owner should get the benefit. As a result
    the energy savings benefit can get passed on down the line in the form
    of savings to electricity consumers through lower bills.
        While the technology exists to achieve broad cost savings through
    energy efficient devices and controls, there is a lack of awareness of
    the benefits of a systems and control based approach. This is opposed
    to a piecemeal component approach, to achieve the maximum level of cost
    effective energy efficiency. To that end, NEMA proposes that the
    federal government move from strictly encouraging products or
    components, to promoting the implementation of systems and controls to
    efficiently manage energy on a wider basis. For example, California
    recently enacted legislation that would provide energy efficient
    upgrades for lighting systems. California recognized the large
    efficiency gains that would be realized by encompassing lighting
    controls, occupancy sensors, and luminaries added to any upgrade.
    Similar efficiency gains can be achieved at the commercial level with
    industrial and automated controls.
        Industry and government both strive to achieve the best
    performance. But for too long, the hopeful and anticipated approaches
    of both camps have been belied by the unintended consequences of
    mandated standards. Voluntary, consensus-driven codes and standards
    will achieve the greatest level of cooperation and distribution of
    energy efficient technology in the marketplace. Already, the
    marketplace recognizes industry-driven standards to achieve efficient
    products. In particular, the NEMA PremiumTM Motor program
    recognizes efficient motors above the standards contained in current
    law. The same can be said for distribution transformer consensus
    standards represented by NEMA TP-1. Industry believes that industry
    consensus building codes can be a valuable part of ensuring that
    cooperative goals are achieved and efficiency gained.

         RECOMMENDATIONS TO ENABLE THE GREATER USE OF ENERGY EFFICIENT
                                  TECHNOLOGIES

        NEMA believes that technological solutions combined with industry
    consensus and proven results will lead to enhanced energy efficiency.
    This formula is made even stronger if the cooperative efforts of
    industry and policymakers are joined. To that end, NEMA proposes the
    following reforms to further enhance energy efficiency and conservation
    as part of a comprehensive national energy policy.
    Motors
        The NEMA PremiumTM motor program is a collaborative
    effort with the Department of Energy, motor manufacturers and electric
    utilities. It is an excellent model of how voluntary industry standards
    can improve efficiency thereby providing a benefit to consumers and the
    environment. It has broad support, as reflected in the recent
    endorsement from the Consortium for Energy Efficiency.
        The NEMA PremiumTM motor program expands high efficiency
    motors standards beyond current requirements. The program covers a
    broader range of motors than do minimum Federal energy efficiency
    standards (up to 500 horsepower, whereas Federal standards apply only
    up to 200 hp), and it is a more exacting standard. In fact, Department
    of Energy analyses shows that the NEMA PremiumTM motor
    program, including commercial and agricultural applications, would save
    5,800 gigawatt hours of electricity and prevent the release of nearly
    80 million metric tons of carbon into the atmosphere in the next ten
    years. Electric-motor-driven equipment consumes about 60% of all the
    electricity produced in the country, according to the Department of
    Energy.
        The NEMA PremiumTM motor program has real-life impact.
    The Cummins Engine Company's Columbus Engine Plant in Columbus, Indiana
    retrofitted energy efficient motors on to existing machining and
    transfer lines and installed the most efficient motors available onto
    the new lines. Cummins saw a 2.75 percent reduction in total energy
    costs for the Columbus plant and was hailed by company executives as a
    significant savings. The Department of Energy's Office of Industrial
    Technologies indicated that if every plant in the United States
    integrated motor system upgrades to the extent that Cummins did,
    American industry would save an estimated one billion dollars annually
    in energy costs. This would be the equivalent of the amount of
    electricity supplied to the State of New York for three months.
        President Clinton issued Executive Order 13123, which seeks to
    encourage the acquisition of energy efficient products by the federal
    government. In addition, programs such as the Federal Procurement
    Challenge encourage agencies to buy energy efficient products. However,
    while the Executive Order and the Federal Procurement Challenge have
    resulted in many efficient upgrades, many agency heads have not had
    their feet held to the fire to comply with such orders. Many
    opportunities still exist in Federal agency and Congressional offices
    to achieve energy efficiency.
        NEMA, therefore, recommends that the Federal government be required
    to purchase motors based on the NEMA PremiumTM motor
    standard. Doing so would enable all new equipment acquisitions to be
    based on current energy efficiency standards with the dual result of
    energy savings to the government and widespread market penetration of
    the most highly efficient technologies in energy-intensive equipment.
    It would also serve as a valuable demonstration of energy efficient
    savings to the private sector.
    Distribution Transformers
        In 1996, the Transformers Products Section of NEMA developed
    voluntary energy efficiency standards for distribution transformers.
    Distribution transformers help move electricity on the grid and reduce
    loss. The basic efficiency standard, known as NEMA TP-1, and the
    associated test and labeling standards (TP-2. and TP-3, respectively)
    have gained widespread acceptance as the industry norm for energy
    efficient transformers.
        As another excellent example of industry led consensus standard
    making, if TP-1 were used nationwide, NEMA estimates an energy savings
    would be in the range of 2-3 quads over a 30-year period. This is an
    average energy savings of between 5 and 10 billion kilowatt-hours per
    year. By using NEMA Standard TP-1, the energy used by low-voltage
    transformers can be cut by one-third, and by twenty-five percent for
    medium voltage transformers. Better yet, the payback period for such
    transformer investments is relatively short--only three to five years.
        With these demonstrated savings in mind, NEMA recommends that the
    federal government should be required to use NEMA TP-1 transformers in
    its purchase specifications and be required to replace failed
    transformers with new units meeting TP-1 efficiencies. Acquisition of
    distribution transformers that meet the NEMA TP-1 standard will improve
    distribution transformer efficiency over the low first cost
    transformers that are typically selected for government procurement.
    Further, the Department of Energy's current rulemaking to consider
    energy efficiency standards for distribution transformers should use
    NEMA TP-1 as a benchmark for standards discussions.
    Building Efficiency
        Energy efficient buildings achieve some of the greatest cost
    savings when it comes to energy efficiency. There is, perhaps, no
    better example to demonstrate these savings than energy efficient
    lighting systems.
        NEMA believes that lighting efficiency can be summed up in the
    following way: Efficient lighting means turning the lights off when
    your done, and using lighting at levels to complete the task at hand.
    NEMA manufacturers make products to do just that from systems and
    controls to draw the greatest light using the least amount of
    electricity all the while employing technologies to shut the lights off
    when no one is around.
        The Department of Energy estimates that technologies developed
    during the past 10 years can help us cut lighting costs 30% to 60%.
    Lighting accounts for 20% to 25% of all electricity consumed in the
    United States. The cost savings distinction is even greater when
    looking at residences and business. An average household dedicates 5%
    to 10% of its energy budget to lighting, while commercial
    establishments consume 20% to 40% of their total energy just for
    lighting.
        NEMA advocates a system approach to upgrading lighting efficiency
    in commercial buildings and, where feasible, residential housing. In a
    typical residential or commercial lighting installation, 50% or more of
    the energy is wasted by obsolete equipment, inadequate maintenance, or
    inefficient use. Where it is feasible, a systems approach is best, but
    components are just as important. Improved lighting quality makes
    visual tasks easier and saves 50% or more on energy costs. A dramatic
    example of how energy use for lighting can be reduced while improving
    the quality of lighting is the Jefferson Memorial relighting project.
    The energy use will be reduced from a current 126,000 watts to 16,000
    watts, while dramatically improving the visual impact of this majestic
    monument, its inscriptions, and the magnificent statute of Thomas
    Jefferson.
        That is why NEMA proposes the Federal government update its federal
    building energy code to the latest model building code for energy
    efficiency in commercial and multifamily high rise residential
    buildings. A new Federal code for energy efficiency in new commercial
    and multifamily high rise residential buildings will become effective
    in October of this year. However, this code is based on a 1989 ASHRAE/
    IESNA Standard. The Department should move expeditiously to update the
    Federal code to reflect ASHRAE/IESNA Standard 90.1-1999. This would
    avoid a time consuming regulatory process to adopt the latest ASHRAE/
    IESNA update, which was itself developed through a consensus process
    involving a consortium representing the full range of interests in
    building sector energy efficiency, including the Department of Energy.
        For existing buildings, NEMA recommends that all Federal agencies
    should be required to implement a program to evaluate the building
    systems of existing facilities constructed prior to 1996, using the
    whole building approach and Energy Star building evaluation criteria.
    This evaluation need not be required for facilities which have
    completed building system energy efficiency upgrades within the
    preceding 5 years, or which have attained the Energy Star Building
    Rating. Upon completion of such evaluations, agencies should be
    required to make all building system upgrades necessary to enable the
    building to attain the Energy Star Building Rating within 2 years after
    such upgrades are identified.
        Similarly, the Department should move expeditiously to issue a
    formal determination that the latest revision to ASHRAE/IESNA Standard
    90.1 will improve energy efficiency in commercial buildings. The
    Department of Energy has already performed a quantitative analysis and
    a detailed textual analysis of the estimated differences between the
    1989 and 1999 editions of Standard 90-1. No further analysis should be
    necessary for the Secretary to determine that the update will improve
    energy efficiency in commercial buildings. The issuance of this
    determination would trigger actions by the states, which have primary
    building code enforcement responsibility, to update state building
    codes accordingly. Any acceleration in the upgrading of state building
    codes to meet ASHRAE/IESNA Standard 90.1-1999 will increase energy
    savings.

                       COMMENTS ON LEGISLATIVE PROPOSALS

        NEMA offers the following comments for the Committee's
    consideration with respect to the specific legislative proposals under
    consideration at this hearing.
    Federal Energy Bank (S. 95; Section 1301 of S. 597)
        As discussed above, NEMA recognizes the extent to which cost
    barriers stand in the way of the deployment of energy efficient
    technologies. The concept of a Federal Energy Bank has been offered as
    one potential mechanism for making additional resources available to
    Federal agencies to support energy efficiency projects that might not
    otherwise be undertaken. While NEMA takes no position at this time on
    the underlying proposal for a Federal Energy Bank, we are encouraged
    that S. 597 in subsection 1301(d)((2)(D) recognizes the need to
    encourage projects with a payback period longer than the three year
    payback included in S. 95 as introduced.
        In many cases, the greatest energy efficiency savings can be
    obtained through a systems approach, which features upgrades to energy
    consuming systems rather than mere change out of specific components. A
    payback period of at least 5 years is important to encourage such
    conversions, which typically have greater up-front costs, but which
    will produce increased energy savings over the lifetime of the
    building. For example, in many cases, lighting change outs are done on
    a component basis, whereas a systems approach to lighting upgrades can
    have achieve far greater efficiencies. Deploying electronic ballasts in
    combination with T8 lamps improves efficiency, but maximum efficiency
    gains will be achieved if lighting controls are also included. The
    addition of lighting controls, such as occupancy sensors, can save
    another 20% to 40% of energy usage. And when making changes designed to
    increase the energy efficiency of lighting, it often pays to redesign
    the building's entire lighting system, improving lighting quality, and
    saving even more on energy costs. But such a valuable project may not
    be feasible if a strict three year payback period is required.

    Incentives for Energy Efficient Schools (Section 1302 of S. 597;
            Section 602 of S. 388)
        As discussed above, while energy efficient devices and controls are
    available, there is sometimes inadequate recognition of the benefits of
    a systems approach that integrates advanced controls with energy
    efficient technologies to achieve the maximum benefits. High
    performance/energy efficient school buildings should be evaluated on a
    systems basis, and the enumerated criteria in the legislation for
    defining a high performance or energy efficient building should
    explicitly reference the adoption of systems approaches wherever
    feasible to maximize energy savings.
    Voluntary Commitments to Reduce Industrial Energy Intensity (Section
            1303 of
            S. 597)
        Greater attention must be focused on the reduction of energy use in
    the industrial and commercial sectors. The potential for energy savings
    is significant, but cost barriers and lack of information too often
    prevent the adoption of new energy efficiency technologies and systems
    in industrial facilities and businesses of all sizes. NEMA encourages
    the Committee to explore additional means of supporting the deployment
    of highly efficient new technologies through programs targeted
    specifically to the industrial sector. Consideration might be given,
    for example, to a program modeled on the highly successful
    Weatherization Assistance Program but targeted to small businesses.
    Low Income Home Energy Assistance Program (Section 601 of S. 388,
            Section 3(a) of S. 352)
        NEMA supports the LIHEAP program.
    Weatherization Assistance Program (Section 603 of S. 388, Section 3(b)
            of S. 352)
        The Weatherization Assistance Program has been an important element
    in the nation's effort to assure that the burdens of high energy costs
    do not fall disproportionately hard on those least able to afford them.
    Including electricity efficiency retrofits as an element of the
    Weatherization program would have long term benefits for residents and
    property owners. For example, the State of California has recently made
    upgrades to major systems, such as the installation of high efficiency
    air conditioners and high efficiency water heaters, as well as other
    efficient technologies, including set-back thermostats, eligible for
    the State's residential upgrade program. Taking a similar approach at
    the Federal level could significantly increase the long term benefits
    of the Weatherization program. With the likelihood that substantially
    increased funding will be provided for the Weatherization program in
    forthcoming fiscal years, the eligibility of more capital-intensive
    measures should be fully considered.
    State Energy Program (Section 604 of S. 388, Section 3(c) of S. 352)
        NEMA supports the concept of updating the State energy efficiency
    goals. As with the Federal government, state energy efficiency plans
    should not be limited to encouraging certain energy efficient products
    or components, but rather should focus on promoting the implementation
    of systems and controls that will enable more efficient energy
    management. States should also make special outreach to the commercial
    and industrial sector to reach the untapped energy conservation
    potential of those sectors.
    Energy Saving Performance Contracts (Section 605 of S. 388, Sections 5-
            7 of S. 352)
        As with other efficiency upgrade programs, energy savings
    performance contracts should emphasize a system approach to achieve
    maximum energy savings, in lieu of simply providing for the change out
    of components. NEMA has no specific comments at this time on proposals
    to amend the authority for Federal energy saving performance contracts.
    Federal Energy Efficiency Requirement (Section 606 of S. 388, Section 4
            of S. 352)
        NEMA agrees that it is time to impose new energy efficiency
    requirements on Federal buildings, as proposed in section 606 of S.
    388. Further, NEMA endorses the principle behind section 4 of S. 352,
    which would require agencies to undertake a review of all practicable
    energy and water conservation and renewable energy measures and to
    implement measures to achieve at least 50% of the potential savings
    identified by such a review. With respect to both of these proposals,
    NEMA again urges that the Federal government emphasize the
    implementation of systems approaches, not merely component replacement,
    to achieve energy reduction requirements, along with the adoption of
    new technology, such as NEMA PremiumTM motors and
    distribution transformers that comply with the NEMA TP-1 standard,
    wherever possible.
    S.J. Res. 15, Air Conditioner Standards Rule
        NEMA was not involved in the development of the air conditioner
    standards rule. With respect to the issuance of energy efficiency
    standards generally, as discussed above, NEMA believes that it is
    critical that the Department of Energy fully adhere to all aspects of
    the ``Process Improvement Rule'' in every standards-related activity.

                                   CONCLUSION

        In conclusion, let me reiterate the three points I began with
    today. A comprehensive electrical energy policy should rely on
    affordable, proven technology to address energy supply and demand.
    Second, it is critical to understand that energy efficiency and
    conservation don't mean sacrifice and reduced access, but rather doing
    more with existing capacity by achieving reduction in energy usage
    through the use of more efficient products and systems. Third, market-
    based solutions should be the primary vehicle to enhance energy
    efficiency and conservation. I thank the Committee and I am happy to
    answer your questions.

        The Chairman. Thank you very much, and thank all of you for
    your testimony. Let me just ask a very few questions here.
        Dr. O'Hagan, you recommend that all Federal buildings be
    upgraded to meet the Energy Star building program requirements.
    How do these requirements mesh with Executive Order 13123, the
    requirement there that agencies reduce energy consumption by 30
    percent in 2005, by 35 percent in 2010? Is there a meshing of
    those two requirements on Federal agencies and Federal
    facilities?
        Dr. O'Hagan. It is my understanding, Mr. Chairman, that the
    program is based on the old ASHRAE standard, and one of our
    recommendations is that the code and the standard for Energy
    Star buildings be upgraded to the 1999 version, which has
    higher efficiency levels, and using that, the goals would be
    accomplished.
        The Chairman. I see, so you believe if they upgrade the
    standards in this Energy Star building program, that these
    objectives set out in the executive order will be achieved?
        Dr. O'Hagan. Yes, Mr. Chairman.
        The Chairman. I guess, Mr. Parks, what occurred to me in
    hearing your testimony and reading it here, and trying to
    compare what you were saying to what Mr. Rees is saying, as Mr.
    Rees described things, the vast majority of the industry is in
    favor of the 12 standard rather than the 13 standard and your
    company--and you have come out strongly in favor of the 13. Do
    you consider yourself an outsider, or are there other companies
    with your point of view on this that just are not being heard
    from, or how do you explain your position relative to the
    industry position more generally, as Mr. Rees has described it?
        Mr. Parks. I think a couple of things. Mr. Rees did
    indicate that, as a group, we are all in favor of higher energy
    efficiency standards. There is no question about that.
    Ourselves along with two smaller other manufacturers have come
    out in favor of the 13-SEER simply because we really believe it
    is the right thing to do.
        Our company has had a history, in our opinion, of doing the
    right things. We have built the business over 20 years to
    become the second largest in our industry in the United States,
    and we have done it by providing a value, affordable product to
    consumers, giving them highly reliable, affordable products
    that meet their needs.
        We sincerely believe that what would happen if the standard
    were set at 13 SEER, that all manufacturers, as I indicated in
    my testimony, would step up much as what occurred in 1992, when
    the standard was set back in 1987, when, in fact, the standard
    was set at 10. The same arguments were propagated at that point
    that there would be $700 of price difference on the new, higher
    efficiency products. However, that simply was not the case.
        The Chairman. Setting the higher standard then causes the
    volume to increase and the price per unit come down?
        Mr. Parks. That is correct.
        The Chairman. That is your view?
        Mr. Parks. That is correct.
        The Chairman. This is a personal aside here, but we are
    doing some remodeling on a home we own out in New Mexico, and I
    told the contractor to be sure and put all compact fluorescent
    light bulbs in so we could save some energy, and he came back
    and said, well, that is $40 per light bulb as compared to $3 or
    $4 if you go with the regular kind.
        Now, why hasn't the same thing that you just predict in the
    air-conditioning area occurred in that area? Why hasn't the
    price of those come down to some kind of reasonable level?
        Mr. Parks. I think historically, where there are standards
    that must be met, people will purchase at the minimum standard
    level. There has been a pattern of that demonstrated and so,
    given a situation where there is no, essentially, regulatory
    requirement or mandate to purchase those types of high-
    efficiency light bulbs, there is not a payback in the
    consumer's mind. Also, the amount of energy used by a light
    bulb is minuscule compared to what is used for an air-
    conditioning product.
        The Chairman. Mr. Nadel, you agree that the price will come
    down substantially for this higher efficiency air conditioner
    if it is mandated, is that your view as well?
        Mr. Nadel. Yes, it is, and that is based on past
    experience. Before the SEER-10 standard was set, the ARI
    members estimated it would cost more than $700 in extra cost.
    DOE estimated it would cost--I cannot remember the exact
    figures, something like $340 extra. If you look at the U.S.
    Census Bureau data, in fact, the cost in 1992 did not go up at
    all, so when manufacturers sharpen their pencils, when the
    market share increases from the current roughly 5 percent for
    SEER-13 up to 100 percent, there will be dramatic cost
    reductions.
        The Chairman. This Energy Star labeling program that EPA
    and now DOE are both involved in, how effective is it? Is there
    something we should be doing to strengthen that program?
        Mr. Nadel, do you have a view as to whether there ought to
    be some statutory change that would strengthen or expand that
    program, or do you think it is working just the way it ought
    to?
        Mr. Nadel. I think the program is working very well.
    However, I think it will help some to actually establish a
    statutory base for the program. Now, there is no official
    statutory basis. There is general directives to DOE and EPA to
    improve energy efficiency, reduce pollution, but not a specific
    directive.
        I do know in the bill that the House Energy & Commerce
    Subcommittee reported out yesterday there are some specific
    provisions authorizing Energy Star and giving some directives
    to the programs that I think will be helpful.
        The Chairman. Dr. O'Hagan, did you have a view on that?
        Dr. O'Hagan. Yes, Mr. Chairman. We think that is a very
    good program as it applies to consumer products, and I think
    the focus ought to be kept in that area, and also Energy Star
    buildings. We do not think it is valuable, however, in the
    industrial area. It has been proposed to be extended, for
    example, to motors.
        We think that the NEMA Premium program which has been
    launched by the industry and has even higher standards than the
    Federal standards is a preferred approach, but certainly, as
    far as consumer products and commercial buildings is concerned,
    it is an excellent program. It also leads to the point, Mr.
    Chairman, and also to the question of the light bulbs that you
    mentioned, the need that we pointed out for education, and for
    people to understand the economics.
        It is very hard for a consumer to pay $15 for a compact
    fluorescent when they can get an incandescent lamp for 50
    cents, and that is a pretty hard sell without a real
    understanding of the long-term benefits of making that
    purchase, so it is for that reason that we think a lot of
    emphasis needs to be put in educating the public as to the
    benefits of energy-efficient products.
        The Chairman. Well, I think all of this testimony is very
    useful, and I appreciate you all being here, and we will try to
    learn from it as we put a bill together.
        Thank you very much. The hearing is adjourned.
        [Whereupon, at 11:50 a.m., the hearing was recessed, to be
    reconvened on July 17, 2001.]

                             NATIONAL ENERGY ISSUES

                                  ----------

                             TUESDAY, JULY 17, 2001

                                           U.S. Senate,
                     Committee on Energy and Natural Resources,
                                                        Washington, DC.
        The committee met, pursuant to notice, at 9:38 a.m. in room
    SD-106, Dirksen Senate Office Building, Hon. Jeff Bingaman,
    chairman, presiding.

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

        The Chairman. The purpose of today's hearing is to consider
    proposals to reduce the demand for petroleum products in the
    light duty vehicle sector. The committee has held several
    hearings on the subject of gasoline supply and price. Most
    recently was a field hearing in South Dakota chaired by Senator
    Johnson on renewable fuels. Today we are shifting the focus to
    the demand side of the equation.
        Although this committee does not have direct jurisdiction
    over vehicle fuel efficiency standards, it does have
    jurisdiction over research and development, over alternative
    fuels, and over overall energy policy. Several bills which have
    been referred to this committee propose strategies to reduce
    gasoline consumption, either through fuel diversification or
    increased efficiency. We have asked witnesses to review and
    comment on some of those bills. S. 597, S. 388, S. 883, S.
    1053, and S. 1006 are the ones that I currently am aware of.
        Witnesses should feel free to comment on any other measures
    referred to this or any other committee.
        The New York Times this morning reported on a draft of the
    National Academy of Sciences report on improving vehicle
    efficiency. According to that article in the Times, the report,
    which was requested by Congress last year, will find ``fuel
    economy of new vehicles, especially sport utility vehicles and
    pickup trucks, could be raised by as much as 10 to 11 miles per
    gallon over the next 6 to 10 years, with the extra cost offset
    by savings on gasoline.''
        The panel preparing this report did not include anyone from
    the environmental community. Yet the findings seem to be fairly
    consistent with a recent study by the Union of Concerned
    Scientists. We will have an opportunity this morning to explore
    the types of technologies that can be deployed in the near term
    and in the future to achieve greater efficiency.
        The Times story also follows up on the issue of sales of
    flexible fuel vehicles that can use either gasoline or ethanol
    to meet current fuel economy targets. Close to a million of
    these vehicles, mostly trucks and SUV's, are currently being
    manufactured. Yet very few actually burn ethanol.
        The committee has been a strong proponent of the use of
    alternative fuels. In fact, alternative fuel vehicles were a
    major focus of the Energy Policy Act, the last major
    legislation, energy legislation, passed by the Congress.
    Unfortunately, the goals of EPAct with respect to alternative
    fuels have not been met, in part due to the lack of available
    refueling infrastructure, but also due to the disincentive to
    use the alternative fuels inherent in flexible fuel vehicles.
        The goals of fuel diversification remain as valid today as
    they were 10 years ago. We will hear from some of the witnesses
    this morning on what we can do to increase the use of those
    fuels. There are numerous reasons we need to be serious about
    reducing our reliance on petroleum products, from energy
    security and economics to the global environment, and I hope
    the hearing will help give the committee guidance on how we can
    develop policies to both achieve greater efficiency and also
    greater fuel diversity in the vehicle sector.
        Senator Murkowski.

          STATEMENT OF HON. FRANK H. MURKOWSKI, U.S. SENATOR
                              FROM ALASKA

        Senator Murkowski. Good morning, Senator Bingaman.
        Again, I think it is important that we have these continued
    hearings. Starting off the new week, we have had I think some
    21 weeks have gone by since we submitted in general the broad
    comprehensive energy bills, your bill and my bill before the
    committee. CAFE standards are high on everybody's agenda and
    you mentioned the article in the New York Times. It is rather
    misleading in the sense that one can assume it says that the
    panel urges higher fuel efficiency for automobiles as a final
    document.
        There is a letter that has gone out from Mr. Bill
    Colgazier, Executive Officer of the National Research Council
    of the National Academy of Science, July 16, concerning this
    draft report, and his indication is that: ``We believe it is
    critical for readers to understand that this document is not a
    final Research Council report. It does not carry the weight of
    a final peer reviewed study. Further, the study of the National
    Research Council undergoes significant changes during an
    anonymous peer review process. Moreover, in the case of this
    particular study the study committee will be meeting July 17
    and 18 to address comments made about the draft. More than 300
    comments have been received to date. More are anticipated.
    Therefore, it is important to understand that the study at this
    stage is still a work in progress.
        ``Once the committee has responded to review comments and
    documented its changes, the Academy's report review committee
    will determine whether the committee has been responsive to the
    review's comments. The final work is expected to be issued on
    July 31.''
        So I think we should reflect on the reality that this is
    still a draft, that the New York Times report does not
    necessarily reflect the final comments expected from the
    National Academy of Sciences on CAFE standards.
        You know, we have seen comments of many people that suggest
    that all we need to do to address our energy crisis is to
    initiate CAFE standards. We have seen over a period of time the
    reality that our cars are getting more fuel efficient, but this
    has not shown up in the faulty measure of automobile
    performance, that is miles per gallon. We have got a couple of
    charts here that I would like to have in evidence.
        The fact is that manufacturers have maintained fuel economy
    despite consumers' demand for performance. If you look at the
    scale, this is EPA's 2000 fuel economy trend reports and it is
    a rather complicated chart: weight, miles per gallon, manual,
    and zero to 60, in a time sequence. As shown on the right, the
    point is if we had kept cars of the 1980's and made the same
    improvements in vehicle technologies, fuel economy would have
    been well over 35 miles per gallon. But instead of choosing
    fuel economy--and I use the word ``choosing'' because I think
    it is appropriate--the American people by their own free will
    seem to have chosen vehicles with improved performance.
        It should not be the prerogative of this Congress in my
    opinion, or any radical environmental groups, the deprive the
    public of their choice. The automakers simply respond to the
    needs of their consumers and make the vehicles that people seem
    to want to buy.
        Now, that is the faulty logic of CAFE standards. You cannot
    regulate consumer behavior without trampling to some extent on
    individual freedoms and passenger safety. Automakers can make
    all the fuel efficient vehicles they can, but if no one buys
    them what have we accomplished? I think the indications are
    that of the ten most fuel efficient automobiles made in the
    United States today, they only constitute one-and-one-half of
    one percent of the automobile sales.
        Now, what does that say for America? Well, I think you can
    draw your own conclusions, but that is not what motivates the
    purchaser. So the question is at what point do we dictate this?
    Now, perhaps we should work to produce more vehicles running on
    alternative fuels or new technologies like fuel cells, vehicles
    that provide all of the performance characteristics consumers
    demand in the form that they can recognize, and provide them
    with tax incentives if that is necessary to choose these new
    technologies over established vehicle technologies.
        The energy bill that we have introduced, S. 389, contains
    these incentives as put forth by Senator Hatch and a number of
    others. I think this is the right way to proceed.
        Let us not be fooled into thinking that we need only
    tighten CAFE standards to solve our energy problems. We should
    instead focus on getting advanced vehicle technologies to
    market and into the hands of consumers. As we will hear from
    our third panel, exciting opportunities await us in the area of
    replacing gasoline with natural gas, ethanol, and electric
    vehicles. But there is a critical lack of refueling facilities.
    As we know, you just cannot drive up anywhere and fill up your
    tank, and there is not a mass market for these vehicles as yet.
        Perhaps it is worth asking whether maybe we have been
    keeping score of the wrong scorecard. The focus on miles per
    gallon of gasoline puts alternative fuels certainly at a
    disadvantage and certainly overlooks and ignores their
    potential. Perhaps it is time for a new metric that directly
    addresses the goal of reducing dependence, as an example, on
    foreign oil, one that would promote finding another alternative
    to gasoline.
        So I hope that our witnesses will also reflect and comment
    on the negative impact of CAFE standards on alternative fuels
    and their development, and ask whether there is a better way to
    provide for fuel diversity in our transportation sector.
    Reducing our needs for gasoline would reduce our dangerous
    dependence on imported oil and provide energy security to a
    greater degree for Americans. Energy security means job
    security, it means economic security, it means our American
    standard of living.
        We should be careful to foster this fuel diversity in a way
    which does not stifle innovation and technological development.
    We look forward to the suggestions on how we might do this as
    part of a comprehensive energy plan.
        Thank you, Mr. Chairman, and thanks for holding the chart
    so still for so long.
        The Chairman. Thank you very much.
        Why don't we start with our first panel. We have Mr. Barry
    McNutt, who is the Senior Policy Analyst with the Office of
    Domestic Policy and International Affairs in the U.S.
    Department of Energy; and Mr. Robert Shelton, who is the
    Executive Director of the National Highway Traffic Safety
    Administration. Mr. McNutt, why don't you go right ahead.

    STATEMENT OF BARRY D. McNUTT, SENIOR POLICY ANALYST, OFFICE OF
    DOMESTIC POLICY AND INTERNATIONAL AFFAIRS, DEPARTMENT OF ENERGY

        Mr. McNutt. Mr. Chairman, members of the committee, good
    morning. Thank you for the opportunity to be here. As you said,
    my name is Barry McNutt. I am a Senior Policy Analyst with the
    Energy Department's Office of Policy and International Affairs.
    I have a brief oral statement I would like to make and I
    request that my written testimony be included as part of the
    record of this hearing.
        The topic of this hearing, reducing demand for petroleum
    products in the light duty vehicle sector, is a problem that we
    have worked on for a long time, starting with the Energy Policy
    and Conservation Act in 1975 and running most recently to the
    President's National Energy Policy and the Department's ongoing
    vehicle efficiency, alternative fuels, and renewable fuels
    efforts.
        That we have worked on this goal of reducing petroleum
    demand, almost three-quarters of which is in the transportation
    sector, for more than 25 years, we have passed numerous pieces
    of legislation, and we have a variety of ongoing programs I
    think is certainly telling as to how difficult the problem is.
        We have a limited number of options to reduce petroleum
    demand in any significant way in the light duty vehicle sector.
    Clearly, improving vehicle fuel economy has to be part of any
    serious effort to address that goal. We have the technology to
    make significant progress without sacrificing other attributes
    that are important to consumers. The challenge we face is
    getting this technology into vehicles to deliver increased
    miles per gallon for consumers at a reasonable price.
        With regard to alternative fuels as a pathway to reduce
    petroleum use in light duty vehicles, the challenge seems to be
    even greater. We have worked hard for more than a decade since
    the passage of the Alternative Motor Fuels Act in 1988,
    followed by the Energy Policy Act as was mentioned in 1992, to
    implement a variety of programs to increase the use of
    alternative fuels in highway vehicles. We have done this with
    both energy and clean air goals in mind.
        While a large number of alternative fuel capable vehicles
    are being produced, little real progress has been made in
    developing a commercially viable alternative fuels market.
    There are a lot of reasons for this, but the fundamental
    reality is that the conventional petroleum fuel system enjoys
    enormous powers of incumbency, has great and increasing
    investments in infrastructure, and is making impressive
    advances in producing cleaner petroleum-based fuels.
        If we want the next decade to end differently than the past
    vis-a-vis a competitive alternative fuels market, significant
    technology and policy changes would be required.
        The expanded use of non-petroleum components in gasoline
    and potentially diesel fuel is one area where notable progress
    has been made in the past decade. Oxygenates in gasoline like
    ethanol and MTBE now represent about 5 percent of the volume of
    the gasoline pool. While their use is not without controversy,
    and I am painfully familiar with that controversy, these
    replacement fuels, as they are characterized in the Energy
    Policy Act, bring added volume and improved air quality
    characteristics to the gasoline pool.
        Similar replacement fuels such as gas-derived liquids or
    biofuels for blending with diesel fuel may become available and
    may become economically competitive. Together all these actions
    can help reduce the growth in petroleum product demand from
    light duty vehicle. Nevertheless we are for the foreseeable
    future likely to see growing gasoline and diesel fuel demand.
    Addressing this reality requires we focus on increasing our
    capability to produce cleaner conventional petroleum-based
    fuels at the same time we work to increase fuel efficiency and
    increase the use of alternative and renewable fuels.
        That is the end of my prepared remarks and I will be glad
    to address any questions the committee may have. Thank you.
        [The prepared statement of Mr. McNutt follows:]

    Prepared Statement of Barry D. McNutt, Senior Policy Analyst, Office of
        Domestic Policy and International Affairs, Department of Energy

        Mr. Chairman and Members of the Committee, I welcome the
    opportunity to testify before you today on various legislative
    proposals currently pending before the Committee: S. 388, S. 597, S.
    883, S. 1006, and S. 1053 as they relate to reducing petroleum use in
    light duty vehicles.
        First, I would like to thank the Chairman and Members of the
    Committee for your leadership and commitment in addressing the nation's
    energy issues. The Department applauds the Committee's efforts in
    moving ahead to shape comprehensive long-term energy legislation and
    look forward to working with you to find areas of common ground between
    the Congress and President Bush's policy proposals outlined in the
    National Energy Policy (NEP). Mr. Chairman, we are confident that our
    best efforts will move us toward a consensus and commitment to action.
        Today, the U.S. transportation sector consumes over 13 million
    barrels a day of petroleum products and almost 60 percent of that is in
    our light duty vehicles--the passenger cars, light trucks and sport
    utility vehicles we all drive. Almost all of the fuel used by these
    vehicles is gasoline and we produce less, even with domestic refineries
    operating at maximum capacity, than we consume. The imbalance between
    our gasoline demand and domestic production is made up with imports,
    which this summer have averaged almost three quarters of a million
    barrels a day. Light duty vehicle fuel use estimated to increase over
    one third by the year 2020, despite an assumed 15 percent increase in
    new vehicle efficiency. Almost all of this fuel will be gasoline and
    over two million barrels a day of imported gasoline is estimated to be
    needed in 2020.
        We recognize that we need to do more to decrease petroleum product
    demand in the transportation sector and to increase U.S. refining
    capacity to make the clean gasoline and diesel fuel that our light duty
    vehicles will need. However, people who say that the President's energy
    policy does not focus sufficient attention on conservation simply
    haven't reviewed the basics of the Policy. It is important to note that
    more than 50 percent of the National Energy Policy focuses on energy
    efficiency, encouraging, in the light duty vehicle area, the
    development of fuel efficient vehicles, consumer attention to energy
    efficiency and greater use of alternative fuels. However, action on
    reducing demand alone will not be sufficient. You either have to accept
    an ever-widening gap between demand and domestic supply, with all the
    negative consequences that entails, or you also have to begin thinking
    about how we increase our own supply of clean vehicle fuels.
        To address these challenges, the President's National Energy Policy
    has adopted an approach that is comprehensive and strikes a balance
    among our priorities.
        First, our policy balances the need for increased supplies of
    energy with the need to accelerate conservation efforts by utilizing
    cutting edge technology. For example, increased utilization of advanced
    vehicle materials, hybrid drive-train technology and new, clean direct
    injection engine designs can provide significant efficiency
    improvements in light duty vehicle efficiency without sacrificing other
    attributes. The challenge we face is getting this technology into the
    vehicles for consumers at a reasonable price. The Administration looks
    forward to working with Congress to determine the best way to achieve
    this goal.
        Second, we believe energy security dictates more focus on the
    system that provides the clean petroleum products that serve our
    transportation needs. We have an enormous and complex transportation
    fuels refining, distribution and storage system in this country that,
    while significantly dependent on imported oil, does give us the broad
    mix of petroleum products needed to meet current demand and support
    energy security. Unfortunately, that system is having difficulty
    keeping up with growing demand and a product slate that is shifting
    towards greater demand for middle distillates. At the same time, new
    environmental requirements for ever cleaner products will require even
    greater investment. We need to spend more attention to improving and
    increasing that clean product capacity, and we need to redress the
    governmental policies that inhibit that.
        Third, our policy appropriately balances our essential requirements
    for traditional sources of transportation fuels with the need for
    renewable and alternative fuel sources. It also recommends tax
    incentives for the use of certain renewables and advanced technology
    vehicles and more focused research on next-generation sources like
    hydrogen, through fuel cells.
        The President's energy policy also harmonizes growth in domestic
    energy production with environmental protection. This commitment to
    conservation and environmental protection is not an afterthought; it is
    a commitment woven throughout. Transportation fuels production without
    regard to the environment is simply not an option.
        We support this balanced approach with a number of specific
    recommended actions. The Administration can carry out many of these
    recommendations on its own, either through executive orders or agency-
    directed actions. We are moving ahead to implement proposals as quickly
    as possible. One day after the release of our National Energy Policy,
    the President issued two executive orders directing Federal agencies to
    accelerate approval of energy-related projects and directing Federal
    agencies to consider the effects of proposed regulations on energy
    supply, distribution or use. Both of these executive orders will affect
    fuels regulations and refinery operation critical to an adequate supply
    of transportation fuel.
        Moreover, where appropriate, Federal agencies, including the
    Department of Energy, are directed to take a variety of actions to
    reduce and diversify vehicle fuel use. Under existing Executive Order
    13149, Federal fleets have to reduce petroleum consumption by 20
    percent by 2005, using improved efficiency, reduced vehicle use and
    alternative fuels. This reduction in fuel use is equivalent to
    increasing the fuel economy of all the vehicles in the federal fleet by
    6 mpg. This is a significantly greater savings than that which would be
    required by section 704 of S. 597. The Executive Order, however, gives
    federal fleet managers a choice of how they achieve the savings; they
    are not limited to buying only higher fuel economy new vehicles.
        Some of the recommendations contained in the National Energy Policy
    report that relate to vehicle fuel use and production require
    legislative action and we can find several areas for concurrence with
    proposed legislation. For example, reauthorization of the Spark
    Matsunaga Hydrogen Research, Development and Demonstration Act of 1990,
    similar to what is called for by S. 1053, is supported in the NEP.
    However, we are concerned that legislative proposals that mandate use
    of specific technologies or fuels on a rigid timetable are not a good
    way to get us to our goals. Success of the technology development,
    adequacy of the fuel supply, or cost-effectiveness cannot be assured by
    legislation. Our goal should be to create the technology base and
    policy context in which the market can make cost-effective choices that
    respect our environmental goals and move us towards our energy security
    goals.
        We all recognize energy as a critical challenge. We recognize that
    the efficiency and fuel diversity of our light duty vehicle fleet can
    be improved. We also recognize that parts of our petroleum product
    supply and delivery system need enhancement or modernization. And we
    all recognize that conservation and stewardship must go hand in hand
    with achieving these objectives. This Committee has a long and proud
    tradition of developing bipartisan energy legislation. The
    Administration recognizes that all major energy bills have been
    bipartisan in nature and looks forward to working closely together with
    you to develop bipartisan energy legislation.
        In closing, let me say, Mr. Chairman, that I believe the Department
    of Energy is particularly well suited to make a serious contribution to
    finding solutions to the energy challenges we will face over the next
    twenty years. The Department is the single largest supporter of basic
    research in the physical sciences and manages major programs in basic
    energy science, high energy and nuclear physics, fusion energy
    sciences, environmental research, and advanced scientific computing
    research. In different ways, each of these areas will play a role in
    providing greater energy security for the American people. As the
    policy report notes, ``The President's goal of reliable, affordable and
    environmentally sound energy supplies will not be reached overnight. It
    will call forth innovations in science, research and engineering. It
    will require time and the best efforts of leaders in both political
    parties.''
        Mr. Chairman, this concludes my testimony and I would be happy to
    answer any questions the Committee may have at this time.

        The Chairman Thank you very much.
        Mr. Shelton.

     STATEMENT OF L. ROBERT SHELTON, EXECUTIVE DIRECTOR, NATIONAL
         HIGHWAY TRAFFIC SAFETY ADMINISTRATION, DEPARTMENT OF
                             TRANSPORTATION

        Mr. Shelton. Thank you, Mr. Chairman. On behalf of the U.S.
    Department of Transportation, I welcome the opportunity to
    contribute to the committee's consideration of measures to
    reduce the demand for petroleum products in the light duty
    vehicle sector. This is a matter of importance to the economy
    and to our national energy security.
        As its principal contribution to energy conservation in the
    light duty vehicle fleet, the Department administers the
    Corporate Average Fuel Economy program. Enacted in 1975 in
    response to the energy crisis caused by the 1973 to 1974 oil
    embargo, the CAFE program requires motor vehicle manufacturers
    to ensure that their new vehicle fleets meet a specified
    average level of fuel economy in each model year.
        The CAFE standard for passenger cars is set by statute at
    27.5 miles per gallon, whereas the CAFE standard for light
    trucks is set by the Department by regulation for each model
    year. The light truck CAFE standard has been frozen at the
    model year 1996 level of 20.7 miles per gallon by provisions in
    the Department's annual appropriations acts.
        The early years of the CAFE program were marked by
    significant improvements in fuel economy as public demand for
    energy efficient vehicles during the late 1970's and the early
    1980's continued to be strong. Since the mid-1980's, however,
    gasoline prices have typically been stable or declining and
    consumer demand has tended to favor vehicle utility, safety,
    and performance over fuel economy, with the result that the
    fuel efficiency level of the passenger car fleet has leveled
    off. At the same time, the arrival of new types of passenger
    vehicles, such as minivans and sport utility vehicles, has
    attracted buyers away from passenger cars into these less fuel
    efficient models.
        The result is that the average fuel economy for the new
    light duty vehicle fleet as a whole has declined from an all-
    time high of 26.2 miles per gallon in model year 1987 to 24.5
    miles per gallon for this model year. This decline means that
    today's fleet is using more petroleum, an increasing percentage
    of which is imported, than it would have if fuel efficiency had
    continued to improve beyond the early years of the CAFE
    program.
        It is in this context that we must re-examine the CAFE
    program and other conservation measures. The Department
    welcomes lifting the restrictions on CAFE rulemaking Congress
    has imposed since fiscal 1996 to permit the Department to once
    again engage in rulemaking that will set the fuel economy
    standard for the light truck fleet.
        In a July 10 letter to the appropriations committees,
    Secretary Mineta urged them to consider legislation that would
    remove the restriction before the end of this fiscal year so
    that the Department would not need to wait until the start of
    the new fiscal year, but could begin work right away.
        Whenever the Department is free the go forward with
    rulemaking in the CAFE program, our rulemaking will be fully
    informed by the National Academy of Sciences report expected
    later this month, despite today's New York Times article, and
    our work will be consistent with the President's national
    energy policy considerations. We will have to overcome the
    effects of the 6-year freeze. The Department has not been able
    to collect data or conduct any analyses that will be needed to
    establish the statutorily required determination that a
    specified fuel economy level is a maximum feasible level.
        We believe that responsibly crafted CAFE standards under
    existing law should increase fuel economy without negatively
    impacting the automobile industry. As you know, the President's
    national energy policy report recommends the that standards
    should be based on sound science and should consider passenger
    safety, economic concerns, and the impacts on both domestic and
    non-domestic manufacturers.
        It is clear that there are many points of view about the
    best means to improve the fuel economy of the light duty
    vehicle fleet, as illustrated by the continuing debate in the
    Congress on whether to legislate higher CAFE standards or to
    require specific reductions in fuel consumption by certain
    segments of the fleet, such as light trucks. We are listening
    to these debates with interest because they offer an
    opportunity to explore alternative means of conserving
    petroleum.
        To achieve a specified CAFE level, a manufacturer must
    produce fuel efficient vehicles that the public will buy. If
    demand for fuel efficient vehicles slackens, whether because
    fuel prices decline or because consumer preferences change,
    manufacturers may need to provide incentives, such as rebates
    or lower prices, to meet required CAFE levels. If other cost
    effective measures can be devised to increase consumer demand
    for fuel efficient vehicles, those measures should be examined.
    In fact, the President's national energy policy report
    recommends that the Secretary of Transportation evaluate
    market-based approaches to increasing new motor vehicle fuel
    economy.
        We want to assure the committee that the Department will
    carry out its responsibilities under the CAFE law to the best
    of its ability, with the goal of improving fleet fuel economy,
    producing benefits to the economy, and to our national energy
    security.
        This concludes my statement. I will be pleased to answer
    your questions.
        The Chairman. Thank you very much.
        Let me start and ask a few questions about the process from
    here on as you see it. You referred to this, Mr. Shelton, in
    your comments already. But you are currently prohibited, the
    Department of Transportation is prohibited, from proceeding
    with any kind of analysis or investigation to determine what an
    appropriate fuel efficiency standard might be.
        Mr. Shelton. Yes, we are, Mr. Chairman, yes.
        The Chairman. Secretary Mineta has asked the appropriations
    committees of the two Houses to go ahead and relieve him of
    that prohibition so that he can get on with developing a new
    standard, is that right?
        Mr. Shelton. Yes, sir. He sent a letter up last week asking
    the Department to be relieved of that prohibition.
        The Chairman. So if he were relieved of that in the next
    couple of weeks, what is the time frame for getting from where
    we are today to an actual new standard being implemented by the
    Department of Transportation?
        Mr. Shelton. We have established standards for light trucks
    through model year 2003. We are required by statute to set
    standards at least 18 months in advance of a model year. So we
    have to set standards for model years 2004 and later light
    trucks and model year 2004 would start approximately October 1,
    2003, so we have to set the standard for 2004 18 months
    earlier, which would be approximately April 1, 2002.
        If the freeze were lifted, the Department would start right
    now on establishing light truck standards for at least 2004. We
    would need to get a standard in place for model year 2004 light
    trucks by April 1, so we would proceed to getting that
    rulemaking done, and that rulemaking might encompass model
    years also beyond 2004. We have that option.
        The Chairman. Did you see the article this morning in the
    New York Times that both Senator Murkowski and I referred to?
        Mr. Shelton. Yes, sir, I did, Mr. Chairman.
        The Chairman. Did you have any perspective you could give
    us on this issue of sales of flexible fuel vehicles that can be
    either gasoline or ethanol? I gather that the draft report, and
    it is still just a draft, but that it is critical of the whole
    notion for what they cite as the fact that very few of these
    vehicles actually burn ethanol. Even though they may be capable
    of using either fuel, they do not in fact wind up burning
    ethanol.
        Is that something that your Department has looked at, or do
    you have any view on that?
        Mr. Shelton. We are looking at that right now, sir. Under
    the 1988 Alternative Motor Fuels Act, manufacturers are given
    CAFE incentives to produce vehicles that will run on both
    gasoline and alcohol, and manufacturers have produced over one
    million of these vehicles to date. Very few of them actually do
    operate, though, on the alternative fuels, and a big problem is
    the infrastructure is not out there. There are very few ethanol
    refueling stations in this country.
        We are actually completing a report to the Congress in
    conjunction with the Department of Energy and the Environmental
    Protection Agency which is going to address this program and
    how it has--and the effects of this program since it has been
    established.
        The Chairman. Just to sort of finish this line of questions
    to you, as you see it, given the current authority that the
    Department of Transportation has to set these standards, if
    Congress were to back off of the prohibition on you proceeding
    in this area is there other legislative action that you also
    think would be useful?
        We have various bills pending here in the Senate and in the
    House which actually set higher vehicle fuel efficiency
    standards and do not just leave it to your rulemaking to do
    that. What is your position on those?
        Mr. Shelton. We have not taken any position on the
    legislative proposals. We have taken the position that we think
    the National Academy of Sciences report should be completed. We
    would like an opportunity to review that report before making
    recommendations as to what policy changes or legislative
    changes might be necessary to address CAFE.
        The Chairman. You cannot advise Congress as to what to
    enact or whether to enact anything in this area until you see
    that final report, is that your position?
        Mr. Shelton. We think it is very important that we all see
    that final report, Mr. Chairman. The Congress appropriated a
    million dollars for that report. The report was reported by the
    Congress and by the Department of Transportation. It is a very
    significant piece of work, piece of analysis, in looking at the
    program.
        We expect to have that report by the end of July and we
    think it should be considered very thoughtfully and thoroughly
    before we take further action.
        The Chairman. My time is up.
        Senator Murkowski.
        Senator Murkowski. Thank you, Senator Bingaman.
        We have been aware that the Department of Transportation
    was asked to put policies in place to limit fuel use in the
    light duty vehicle sector, and it is in some of the bills that
    are before us here. I am curious to know what policies and
    measures specifically you believe should be considered. I think
    among them there was the fuel use proposal to have as a goal 5
    percent below the 2000 levels by 2008 or thereabouts, and I
    think that time frame would be 5 to 7 years to accomplish that.
        Could you comment on any of these policies, and also
    comment on the effect of timeliness, how immediate would some
    of these likely be, what effect they might have on gasoline
    supplies, on prices, and so forth?
        Mr. Shelton. As to the first question, Senator, I think we
    really think it is important to get the National Academy of
    Sciences report before deciding whether we need legislative
    authority in this area. With regard to the second part of the
    question, clearly auto manufacturers face lead times in their
    product plans and if the goal is to influence those product
    plans significantly without causing undue negative effects on
    their plans they would need some lead time before they could
    start raising vehicle fuel economy.
        Senator Murkowski. When we talk about lead time, what are
    you talking about? Be a little more specific on policies. What
    policies? I know you are saying let us wait for the National
    Academy of Sciences, but for the benefit of the committee here
    can you share a few of the policies here? Are we looking at 5
    to 7 years as lead time?
        Mr. Shelton. Typically, sir, it would take 2, 3, 4,
    probably 3 or 4, model years before a manufacturer could make
    substantial changes in his product plans other than say
    restricting sales of planned products. So any legislation or
    other program which would require a substantial increase in
    fuel economy, for example, in the near term that was not
    considered in the manufacturer's product plans could be
    disruptive to those plans.
        Senator Murkowski. Well, how about policy specific
    recommendations? What policies?
        Mr. Shelton. There are a number of policies that have been
    proposed, such as the one you mentioned, which is simply to cap
    gasoline consumption at some level in the future. Typically we
    would have to work back to figure out what sort of new vehicle
    CAFE level that implied and then you would have to consider the
    manufacturer's ability to get to that CAFE level and whether it
    was achievable in that time frame.
        Senator Murkowski. Well, since we are talking about unknown
    time frames, I am often a little perturbed. We talk about the
    merits of opening ANWR and the time it would take to make a
    determination. These things all take time, whether you are
    talking about changing policies or significant changes in
    engineering or prospects of opening up an oil field. The bottom
    line is what the contribution is.
        Would the Department of Transportation also consider
    highway policies, mass transit, alternative fuels?
        Mr. Shelton. Yes, absolutely. We look at energy consumption
    in its totality that transportation uses to look at effective
    means to reduce that consumption. For example, we are looking
    at congestion mitigation as part of the President's national
    energy policy.
        Senator Murkowski. Now, with the development of engineering
    standards and weight and safety and the buying habits of the
    public, how do you explain how the ten most fuel efficient cars
    only constitute 1.5 percent of the automobile sales in this
    country? I mean, is there a problem with those cars? Is it
    buying habit? Is it safety? Is it weight? Is it performance?
        Mr. Shelton. I think clearly when CAFE standards are
    established you have to consider whether people will buy those
    vehicles. As you point out, many very fuel efficient vehicles
    are only sold in very small numbers, which implies that they do
    not meet the needs of many members of the public. When we set
    fuel economy standards, we are required by Congress to consider
    the economic practicability of achieving those levels, which
    includes the manufacturers' ability to afford to make these
    changes, but also whether consumers will buy those vehicles in
    quantities.
        Senator Murkowski. Do not leave me hanging there.
    Technically, you are talking about cost, you are talking about
    acceptability, you are talking about safety. I assume the
    higher up you go in demanding an SUV that will achieve what the
    automobiles currently are set at, what is it, 27 or
    thereabouts, you are talking about potentially a substantial
    change in the weight of that vehicle potentially. Are you
    talking about a significant breakthrough in an engine that will
    give you that kind of mileage? Then you are talking about
    potential higher costs as you achieve that squeeze.
        Is this just a process of a compromise of all the various
    considerations that go into achieving higher standards?
        Mr. Shelton. I am not sure it is a compromise, Senator. We
    have to consider all these factors certainly. In the short run,
    for example, if you were trying to raise SUV fuel economy by a
    large amount in a very few model years, the nearest, the most
    readily available approaches to do that are to sell more
    smaller SUV's and fewer large ones, which would certainly
    impact consumers that want larger SUV's, or perhaps they would
    have to sell less powerful SUV's, which would also have better
    fuel economy, which again may undermine other consumers' demand
    for such vehicles.
        So they are all certainly considerations when you set CAFE
    standards. You have to consider whether the manufacturers can
    sell those vehicles. If you set a CAFE level which demands that
    manufacturers produce vehicles that are not going to be sold,
    then there will not be fuel savings.
        Senator Murkowski. The last question. Why are not the
    public buying the most fuel efficient automobiles today? Why do
    those ten automobiles--either you, Mr. McNutt, or you, Mr.
    Shelton, tell us why they are not buying them? Clearly there is
    an incentive to buy them.
        Mr. Shelton. Clearly those vehicles have incentives to buy
    them, in that they are often inexpensive and they do not use a
    lot of gas. That is an incentive to buy them. But obviously,
    for the great majority of consumers those vehicles do not meet
    their needs. They do not have perhaps sufficient room,
    sufficient power, whatever else they need when they buy a new
    vehicle. Those vehicles are not meeting their needs.
        Senator Murkowski. That begs the question. If there is a
    need, fill it. Evidently you cannot fill that need because of
    technological challenges; is that what you are telling us?
        Mr. Shelton. In the longer term, it is easy to meet that
    need, because technologies become available to increase fuel
    economy without affecting the utility of the vehicle.
        Senator Murkowski. Mr. McNutt, do you want to try it?
        Mr. McNutt. We have had a decade of very low gasoline
    prices up until the last two summers and that has certainly
    affected consumers' interest in fuel efficiency per se and the
    tradeoffs they are willing to make. I think as Mr. Shelton
    says, you can change the fuel economy attributes of both small
    vehicles, the ones you are referring to, and the larger
    vehicles over time with technology, and so there is a time
    tradeoff in terms of how quickly you can do this.
        The manufacturers look at consumer demand, look at the
    competitive playing field that they are operating in, what the
    other manufacturers are going to do, and they have to operate
    within that competitive playing field. Today as things now
    stand, both because of policy and the market, there is not an
    incentive to make those improvements in the fuel efficiency of
    the other vehicles.
        So over time both the market can change, the policy can
    change, and the technology can change. We are now at a place
    where the vehicles that are being offered were designed and
    brought to market in the end of the 1990's when gasoline was at
    historic nominal low prices and I think the vehicles being
    offered are reflective of that. Over time that can change if
    the framework changes.
        I think really that is what we are getting at. The question
    you were asking is what is that time frame for change, and one
    has to respect both the design lead times that manufacturers
    face. I think Mr. Shelton said that 2004 would probably be the
    first model year you could seriously look at any sort of
    standard for light trucks, and I think as a practical matter
    changing the fuel efficiency of those vehicles is really a 2005
    or later proposition.
        The Chairman. Thank you.
        Senator Johnson.

              STATEMENT OF HON. TIM JOHNSON, U.S. SENATOR
                           FROM SOUTH DAKOTA

        Senator Johnson. Thank you, Mr. Chairman.
        I want to ask consent to submit a full opening statement
    for the record.
        The Chairman. We will include that in the record.
        [The prepared statement of Senator Johnson follows:]

     Prepared Statement of Hon. Tim Johnson, U.S. Senator From South Dakota

        Mr. Chairman, thank you for holding this important hearing. I am
    pleased that we are holding a hearing on renewable fuels and fuel
    efficiency in the light duty vehicle sector. This hearing is timely,
    since it follows the field hearing that I chaired in Sioux Falls, SD on
    July 6 on S. 1006, the Rewewable Fuels for Energy Security Act, which I
    have introduced with my colleague, Sen. Chuck Hagel. S. 1006 is also
    one of the bills that will be discussed at today's hearing and I am
    grateful that the Chairman has placed it on the agenda.
        As you all know, there has been a great deal of discussion this
    year about the nation's energy situation. The increasing volatility in
    gasoline and diesel prices have affected all of us and left us grasping
    to determine the reasons for the changes. Tightness in oil refining
    capacity has been a major factor, as has the re-emergence of OPEC as a
    force in world oil markets. Those factors, in combination with high
    natural gas prices this past winter and the recent electricity problems
    in California and the West, have refocused attention on the need for
    energy policies that ensure long term planning, fuel diversity and a
    focus on new technologies.
        I expect to spend the next few months working with the Chairman and
    other members of the Committee to develop an energy strategy to
    mitigate the boom-bust cycles in energy markets. I believe a number of
    factors have come together to create a rare opportunity to shift our
    economy to greater reliance on renewable, domestic energy sources and
    away from the volatility of the world oil market.
        To this end, S. 1006 would ensure future growth for ethanol and
    biodiesel through the creation of a new, renewable fuels content
    standard in all motor fuel produced and used in the U.S. Senator Hagel
    and I will push for our legislation to establish an aggressive growth
    pattern for ethanol and biodiesel production and use in the United
    States.
        Today, ethanol comprises less than one percent of all
    transportation fuel in the U.S. My bill would require all motor fuels
    sold in the U.S. to be comprised of a certain quantity of renewable
    fuel (ethanol from corn, ethanol from biomass, and biodiesel). By 2008,
    2% of all transportation fuel in the U.S. would be from renewable
    fuels, increasing to 5% by 2016. I believe those are realistic targets.
        The Bush Administration recently affirmed its support for ethanol
    when it denied California's request to evade the oxygen requirement for
    reformulated gasoline (RFG) as required under the Clean Air Act. The
    Administration clearly recognizes that ethanol has important clean air
    benefits, without the dangers of groundwater contamination posed by
    MTBE. I applaud this decision to enforce the Clean Air Act and ensure
    clean fuels have a major role in the market.
        Based on current projections, construction of new plants will
    generate $900 million in capital investment and tens of thousand of
    construction jobs to rural communities. For corn farmers, the price of
    corn is expected to rise between 20-30 cents per bushel.
        Combine this with the provisions of our bill and the potential
    economic impact for rural economies is tremendous. Today, three ethanol
    plants in South Dakota produce nearly 30 million gallons per year. The
    production in South Dakota alone could grow substantially, with at
    least 3,000 farmers owning ethanol plants and producing 200 million
    gallons of ethanol per year or more.
        An important but under emphasized fuel is biodiesel. We all know
    that soybean prices are hovering near historic lows. Biodiesel
    production is small, but has been growing steadily. With the new EPA
    rules requiring dramatically lower amounts of sulfur in diesel fuel by
    2007, the market prospects for biodiesel, an intrinsically low sulfur
    fuel, are very bright. The increased usage of biodiesel would help to
    meet the goals of S. 1006 and would be beneficial for the nation.
        It is important the Congress take a serious look at these issues
    beyond just the economic impact for my region of the country. Bio-based
    fuels offer multiple benefits--from climate change to improving our
    trade balance. By increasing biofuels production, we can also reduce
    the need for new refineries and pipelines.
        Moreover, we need to find solutions to increase fuel efficiency for
    vehicles. The energy crisis of the 1970's moved us away from larger,
    gas-guzzling vehicles, to more efficient, energy-friendly vehicles.
    Even the SUVs of today get better mileage than many of the vehicles 30
    years ago. But the recent swings in gas prices make it clear that we
    need to take a serious look at new technologies and look at ways to
    improve the gas efficiency of our vehicles.
        The Senate plans to proceed with comprehensive energy legislation
    this session of Congress. In my view, a substantive bill that improves
    the nation's energy security can only be enacted if we work in a
    bipartisan manner. The problems and difficulties that our state and the
    nation face are too important to be bogged down in partisan rhetoric. I
    will work together with my colleagues to see that we produce policies
    to remedy real problems and real energy concerns for the nation. In my
    view, a viable renewable fuels component would go a long way towards
    making this happen. With your help and input, I believe we can make
    that happen.

        Senator Johnson. And also to thank you for authorizing a
    field hearing that I chaired in Sioux Falls, South Dakota, July
    6 dealing with alternative fuels, with particular focus on S.
    1006, the Renewable Fuels for Energy Security Act, which my
    good friend Senator Hagel and I have co-sponsored. The thrust
    of our legislation is to create a new renewable fuels content
    standard in all motor fuel produced and used in the United
    States. We would move the current consumption of alternative
    fuel, chiefly ethanol and biodiesel, from less than one percent
    of all transportation fuel today to an increase to 2 percent by
    2008 and 5 percent by 2016.
        Now, I believe that one of the issues that needs to be
    clarified, at least in the mind of the public, is when we talk
    about consuming ethanol we are not necessarily talking about
    the dual use technology changes that were required in Federal
    legislation. That involves burning 85 percent ethanol, E-85.
    That does require some technology changes in the vehicles.
    Unfortunately, the problem has not been with E-85, the problem
    has been with the access to E-85 and I think the public
    awareness that these vehicles in fact are able to consume that
    kind of fuel.
        I think E-85 has great promise. But that is a separate
    issue. The fact is that vehicles manufactured today with no
    technology changes are capable of burning up to about 10
    percent ethanol. Now, Senator Hagel and I are suggesting around
    a 5 percent use by the year 2016. I believe this is an
    achievable kind of level.
        I would suggest that my friend from Alaska I think made a
    good point when he talked about CAFE standards, that perhaps we
    ought to be also focusing a bit on not only mileage, but on
    displacement of petroleum consumption, which is again a
    function of greater ethanol and alternative fuel usage. Now, I
    do not think it is an either/or situation. I think we need to
    be examining improved CAFE standards, but I think we also need
    to keep in mind the possibility of significant displacement of
    petroleum consumption through alternative fuels, particularly
    when this does not require, necessarily require the kind of
    major technology changes in the vehicle industry that the E-85
    requires.
        I think we ought to continue to pursue dual use fuel
    involving E-85, but clearly we have our work cut out for us in
    terms of the chicken and egg problem of availability of that
    fuel throughout the country. That is something that it seems to
    me that the Department of Transportation is going to have to
    work on, rather than simply giving up on dual use fuels
    technology, to keep in mind that the problem is not with the
    fuel, the problem is with the access to the fuel and the
    information needed.
        The question I would suggest for Mr. Shelton in particular,
    I would guess, is do you agree that the displacement of
    petroleum usage is a key policy goal along with better gasoline
    mileage of American motor vehicles?
        Mr. Shelton. Yes. The idea is to reduce petroleum
    consumption. You can reduce petroleum consumption by raising
    fuel economy or you can reduce petroleum consumption by
    displacing it with alternative fuels.
        Senator Johnson. Or you can do both.
        Mr. Shelton. Or you can do both.
        Senator Johnson. That is what I would suggest maybe where
    we need to end up in this debate.
        Mr. Shelton. Yes. I was not trying to suggest it was an
    either/or. Absolutely, you should do both.
        Senator Johnson. One of the benefits, it would seem to me,
    of increased ramping up--and Senator Hagel and I are certainly
    looking at a long window of time. We are trying to be realistic
    about this. But it would seem to me that one of the benefits of
    increasing displacement of petroleum with alternative fuel is
    that it is a regime that can be begun now rather than later. It
    is not something that we have to wait ten years for in order to
    accomplish.
        Would you share that view?
        Mr. Shelton. Yes, sir, it certainly can be achieved in a
    shorter duration, absolutely.
        Senator Johnson. Is it your observation that existing
    automobile technology is very capable of burning blends up to
    10 percent ethanol without significant changes?
        Mr. Shelton. I am not entirely current on that, Senator,
    but that was my understanding based on historical knowledge,
    that typically a vehicle can burn up to 10 percent ethanol
    without modification.
        Senator Johnson. And blends of biodiesel as well, which is
    a soybean-based fuel?
        Mr. Shelton. I have to defer to Mr. McNutt on that.
        Senator Johnson. Mr. McNutt.
        Mr. McNutt. We have very little experience in the biodiesel
    side. The auto industry's view about ethanol is a proper
    blended ethanol, which is the language they use, at 10 percent
    has certainly been acceptable, and it is what we have in the
    marketplace now.
        The question about biodiesel I think, clearly it can be
    used. At what levels, what kind of equipment modification, if
    any, I think is something we are learning about now. So it is
    not a technological obstacle. It is learning how to do it
    properly.
        Senator Johnson. I would share with you the testimony from
    the supervisor of the Black Hills National Forest, of all
    people, who showed up for our hearing in Sioux Falls, who
    indicated that they have gone now to biodiesel in their Forest
    Service vehicles. It is a cleaner burning, easily used fuel,
    and this again is a technology that exists now, the potential
    for consumption is here now.
        My time is up. I thank the chairman.
        The Chairman. Thank you very much.
        Senator Hagel.

              STATEMENT OF HON. CHUCK HAGEL, U.S. SENATOR
                             FROM NEBRASKA

        Senator Hagel. Mr. Chairman, thank you. I too have a
    statement that I would like to ask to be included in the
    record. Included in that statement, Mr. Chairman, is a thank
    you to you and to our chairman emeritus for your continued
    commitment to working on this issue, which I believe energy in
    itself and the wholeness of it is I believe the most pressing
    issue facing the future of this country. So thank you.
        [The prepared statement of Senator Hagel follows:]
       Prepared Statement of Hon. Chuck Hagel, U.S. Senator From Nebraska
        I want to thank Chairman Bingaman for continuing these important
    hearings on energy policy.
        Someday, technology will deliver new and diverse sources of energy.
    But in today's world and for the near future, fossil fuels power
    America. The 180 million gasoline and diesel-powered vehicles on
    America's roads are not going to be replaced overnight. With that in
    mind, the increased use of alternative fuels, including ethanol and
    biodiesel, can have an immediate and significant impact on reducing our
    dependence on foreign oil.
        The Renewable Fuels for Energy Security Act (S. 1006) that Senator
    Johnson and I introduced would ensure a one percent market share for
    fuels derived from renewable resources by 2008, a three percent market
    share by 2011, and a five percent market share by 2016--a ten-fold
    increase from today. A three percent market share for U.S. produced
    renewable fuel would replace between 500,000 to 600,000 barrels of
    crude oil a day, roughly the amount we now purchase from Iraq.
        Renewable fuels like ethanol and biodiesel afford us the
    opportunity to develop energy, environmental and economic policies that
    work together. They can help us improve air quality, strengthen our
    national security, reduce our trade deficit, and decrease U.S.
    dependence on foreign oil.
        Our nation needs a broader, deeper and more diverse energy
    portfolio--one that ensures we have clean, reliable and affordable
    domestic sources of energy. Expanding the market for renewable fuels is
    only part of the solution, but it is an important part. We must push
    harder for renewable fuels as a significant addition to any new energy
    policy that comes out of this Committee.
        Thank you, Mr. Chairman.

        Senator Hagel. Picking up on where Senator Johnson was
    going, his explanation and questions regarding our renewable
    fuels bill, which we think has some merit. Mr. McNutt, I
    understand yesterday that a senior representative from the
    White House, Mr. Melman, who you may or may not know, but just
    to inform you who he is, he is the Director of the Political
    Office at the White House, which you might want to get
    acquainted with him. He probably will have something to do with
    where all of this eventually winds up.
        He told the National Corn Growers that the President was
    focusing on renewable sources of energy, and I believe that is
    a quote from Mr. Melman. What do you think he means by that?
        Mr. McNutt. I will not be presumptuous. I do not know what
    his remarks were, but I can speak about what the Department is
    doing. Obviously, renewable energy includes what we are doing
    today with grain-based alcohols, soy-based diesel fuels, and
    longer term with cellulosic-based alcohol. All three of those
    fall into the category, in this light duty fuel context, motor
    fuel context, of renewables. Obviously, the renewable spectrum
    when you get to power production is much broader than that.
        Senator Hagel. Do you think he is talking about ethanol,
    biodiesel, some of the things that Senator Johnson talked
    about?
        Mr. McNutt. Again, I do not know----
        Senator Hagel. Hard to tell, is it not?
        Mr. McNutt [continuing]. What Mr. Melman was talking about,
    but in terms of when the Department speaks about renewables in
    the motor fuel area we certainly talk about ethanol from
    various sources and soy-based material for blending with diesel
    fuel.
        Senator Hagel. You think that is something we should
    continue to explore?
        Mr. McNutt. Yes, we are. We have active programs in those
    areas. Ethanol use in gasoline is growing. I noticed a press
    release from the Renewable Fuel Association yesterday reporting
    the tenth consecutive month of growth in output of ethanol
    production in the United States to over 100,000 barrels a day.
    So it is a growing industry, a growing utilization, and we are
    all pursuing that.
        Senator Hagel. In your testimony as well as Mr. Shelton's,
    both of you recognized the obvious, that we have talked a bit
    about this morning, that is the growing dependence on foreign
    source oil, which I do not think anyone feels particularly
    comfortable about that. It is something that we do need to
    address. The President is addressing it. This panel is
    addressing it. The Congress will continue to address it.
        We have not done a very good job with it over the last few
    years. Many of you remember, as I do, in the 1970's when we
    were about 36 percent dependent on foreign sources of oil at
    the height of the Arab oil embargo and we thought essentially
    our geopolitical, strategic, economic, energy policy had come
    apart. Now we are getting close to double that number. So we
    all have to take some responsibility for deferring the tough
    decisions in this business.
        But the question is, if that is a concern of all of us, how
    do you best believe we can deal with that? Renewable sources
    are a part of that. My numbers along with Senator Johnson's
    show rather conservatively from, as a matter of fact from your
    Department and others, that if you get to a 3 percent standard
    of renewable fuels in our transportation fuel inventory that
    you are now saving at the rate of about 600,000 barrels of
    foreign source oil a day. I believe that is somewhere in the
    range of what we import from Iraq.
        Now, you may quibble with those numbers, but they are not
    mine. They are the Department of Energy's and others. But that
    is beside the point.
        So do you believe renewable fuels play a role--can play a
    more significant role--if we do more than we are doing now to
    increase those uses and those standards versus other options?
        Mr. McNutt. The National Energy Policy is looking at a
    variety of ways of reducing the foreign oil dependence,
    including obviously greater domestic production of oil. How the
    various things play against each other depends on your
    assessment of them. You talked about 3 percent of motor fuels
    pool, which on a direct calculation is like 300,000 barrels a
    day. I understand we do not need to quibble about whether it is
    300,000 or 600,000 barrels a day.
        I think renewables' real advantage does not lie in oil
    displacement per se, but lies in the very fact that, one, it is
    renewable and has benefits in other areas. More specifically,
    as I mentioned in my opening statement, we have had success, as
    Senator Johnson was noting, in bringing what I call blend
    stocks into the gasoline stream because we do not have an
    infrastructure limitation. So that is a second advantage of
    pursuing that route, which is you do not have to build
    infrastructure, you can use more of them tomorrow, as we are
    seeing.
        So you have certain expanded environmental advantages for
    renewables as they are being used now in gasoline. You have
    blending advantages and the lack of infrastructure. You also
    add to the quality of the gasoline pool if they are blended
    correctly. So to me, I think we have to look at the full value
    of those renewables, not just their displacement value, because
    in the end game we are using, will be using in the time you are
    talking about, 20 million barrels a day of oil, and whether
    300,000 or 500,000 is the important number, the important thing
    about renewables is their ultimate benefits.
        Senator Hagel. Thank you.
        Mr. Chairman, thank you.
        The Chairman. Thank you.
        Senator Feinstein.

           STATEMENT OF HON. DIANNE FEINSTEIN, U.S. SENATOR
                            FROM CALIFORNIA

        Senator Feinstein. Thanks very much, Mr. Chairman.
        Mr. McNutt and Mr. Shelton, welcome. For the last three
    Congresses I have been trying to work on fuel efficiency
    standards. I joined Senator Dick Bryan of Nevada and Senator
    Gorton of Washington to try to move fuel efficiency standards
    for SUV's and light trucks, and I saw how very difficult it
    was. We finally got the study from the National Academy of
    Sciences, which was a kind of big deal, if you will.
        Well, to make a long story short, in this Congress Senator
    Olympia Snowe, Senator Schumer, Senator Collins and I have
    introduced legislation which over the next 6 years would bring
    the fuel efficiency standards for light trucks and SUV's in
    compliance with sedans. So it would be a third every 2 years
    for 6 years. This saves about a million barrels of oil a day.
    It prevents 240 million tons of carbon dioxide, the largest
    global warming gas, from entering the atmosphere a year, and it
    cuts down on oil imports about 10 percent.
        Additionally, it would save the consumer anywhere from $300
    to $600 a year buying gasoline. To me, it sounds like a no-
    brainer.
        Now, the one question was is it really doable. I went and
    had the opportunity to speak to the National Academy of
    Sciences when they were meeting here and then afterwards some
    representatives from the automobile companies talked to me and
    said: Oh, we cannot do this, we are very resistant to it,
    etcetera, etcetera. Then I got very worried because I heard
    that the National Academy's panel had no environmentalists, was
    apt to be very pro-automobile company.
        Well, this morning I saw the New York Times and my heart
    just jumped with delight, because what the draft report
    apparently said was that these standards are eminently doable,
    they are eminently meetable, and they probably can be done by
    different uses of existing technology. So I was just delighted.
    If that is the draft report, hopefully the Academy will back
    the draft report. I do not know whether they will or they will
    not.
        As you know, the House has taken some minimum baby steps
    forward. So as I look at this issue and as I watch the
    administration and Secretary--excuse me--Vice President
    Cheney's comments, I see the administration changing. As a
    matter of fact, I asked them whether they would support
    increased fuel efficiency standards--I do not mean to make you
    gentlemen uncomfortable--increased fuel efficiency standards
    and the response I got was: Well, we want to see the Academy's
    report first.
        Hopefully that report will be forthcoming very shortly, and
    hopefully we will be able to move this legislation. But what I
    wanted to ask you about was, as part of this legislation
    Federal fleets would have to reduce petroleum consumption and
    we would increase the fuel economy of new vehicles in the
    Federal fleet on the following schedule. Two years after the
    enactment of the bill, the average fuel economy of the new
    vehicles comprising the Federal fleet must be 3 miles higher
    than the baseline average fuel economy for that class, and 2
    years after the enactment the average fuel economy after that
    must be 6 miles per gallon higher than the baseline.
        My question to you is that, since the Federal Government
    purchases about 1 percent of all new vehicles, State vehicles
    make up another .65 percent and usually follow Federal
    standards, this can make a big difference. Would your
    Department be supportive of moving the Federal fleet in this
    direction?
        Mr. Shelton. Thank you, Senator. As you noted, the
    administration has taken the position that it wants to wait
    until the National Academy of Sciences study is completed
    before making policy recommendations on whether we need to
    change CAFE or pursue legislative changes. We, like you, are
    eagerly awaiting that report, which we expect to have by the
    end of this month.
        So at this point I honestly do not know the answer to your
    question. I do not know what the average fuel economy is of the
    Federal fleet. I have to check with the General Services
    Administration. So I am not sure how feasible they view it as
    to substantially increase the fuel economy of those vehicles.
        Senator Feinstein. I got my answer. Thank you very much.
        Thank you, Mr. Chairman.
        The Chairman. Thank you very much.
        We have two additional panels here and I would propose that
    we go ahead and proceed to the second panel. In fact, it is
    just suggested that we combine the next two panels and just ask
    all six witnesses to come forward, please.
        Thank you both very much for your testimony.
        Mr. McNutt. Thank you.
        The Chairman. Well, thank you all very much for coming
    today. Let me just introduce the witnesses just starting on the
    left-hand side here going across. I do not know if that is the
    logical way to do it, but let me just do it that way. From the
    left, Mr. Charles Gibbens, who is automotive fleet manager, on
    behalf of National Association of Fleet Administrators; next is
    Mr. McCormick, Byron McCormick, the director of Global
    Alternative Propulsion Center, the Global Alternative
    Propulsion Center, General Motors Corporation. Thank you for
    being here.
        Next, Mr. Greg Dana, who is the vice president for
    environmental affairs with the Alliance of Automobile
    Manufacturers. Mr. Rich Kolodziej--is that about right?
        Mr. Kolodziej. Fairly close.
        The Chairman. Why do you not tell me what is right.
        Mr. Kolodziej. It is ``KOE-Loe-JAY.''
        The Chairman. ``KOE-Loe-JAY.''
        Who is president of the Natural Gas Vehicle Coalition. Mr.
    Gary Marshall, who is vice president of the National Ethanol
    Vehicle Coalition; Mr. Eugene Zeltmann, who is the co-chairman
    of the Electric Vehicle Association of the Americas. Thank you
    all very much. Why do we not just start and each of you take 5
    or 6 minutes and summarize your testimony. We will include in
    the record your full testimony and then we will have some
    questions.
        Mr. Gibbens.

      STATEMENT OF CHARLES GIBBENS, AUTOMOTIVE FLEET MANAGER, ON
         BEHALF OF NATIONAL ASSOCIATION OF FLEET ADMINISTRATORS

        Mr. Gibbens. Thank you, Mr. Chairman. The National
    Association of Fleet Administrators, or NAFA, appreciates the
    opportunity to testify at this hearing and share with the
    committee the perspective of fleet managers on strategies that
    you might consider for reducing demand for petroleum products
    in the light duty vehicle sector. NAFA is the association of
    professional fleet managers. Our 2,000 members manage more than
    3 million cars, vans, and trucks for corporations and
    government agencies.
        As already noted, I am Charles Gibbens, the automotive
    fleet manager for the county of Henrico, Virginia, and I manage
    a diverse fleet of about 2,500 vehicles.
        Reducing petroleum demand in the light duty vehicle sector
    was a goal of the Energy Policy Act of 1992 and one of the
    objectives of EPAct was that fleet mandates would jump-start
    the market for alternative fuel vehicles, stimulate AFE use by
    the general public, and result in a 10 percent replacement of
    petroleum by 2000 and 30 percent by 2010. Federal, State and
    fuel provider fleets are mandated to purchase AFVs when
    replacing light duty vehicles.
        The law provides for an exemption process if either
    vehicles or refueling facilities are not available. Since 1992
    fleet managers have faced the challenge of how to comply with
    the EPAct mandate. Fleet managers have been consistent in their
    message that any plan to move vehicles to alternative fuels
    will not be successful until the costs and operational issues
    are comparable with gasoline and diesel vehicles.
        Despite the optimism of many, AFVs are still costly, are
    not available in sufficient model lines, lack the requisite
    refueling infrastructure, and do not meet the operating needs
    of most fleets. At this moment, despite the best efforts and
    limited accomplishments, the economic and the operational
    situation is not promising for the majority of fleets or for
    the general public. These very practical real world conditions
    may explain why even the Federal Government has so consistently
    failed to meet its own mandate for AFV acquisition and
    operation.
        It seems clear from the experiences of the Federal fleet,
    fuel provider fleets and State fleets that fleets by themselves
    will not make any significant reduction in the Nation's use of
    fossil fuels. This is in part because of inherent limitations
    in existing AFV models, alternative fuels, refueling
    infrastructure, technology and costs.
        Mandates, however, were only part of the EPAct strategy. It
    was anticipated that the mandated fleets would provide the
    critical mass for the vehicle manufacturers and the fuel
    providers. In turn, the vehicle manufacturers and fuel
    providers would reach economies of scale necessary for
    substantial penetration of the light duty vehicle sector. It is
    important to point out that EPAct mandated AFV purchases, but
    only if the appropriate vehicles and fuels were readily
    available. It was of course never the intent that the mandated
    fleet would either build its own vehicles or build its own
    refueling facilities. In fact, the act provided specific
    exemptions if either the vehicles or the fuel were not
    available.
        It was assumed that AFVs would generate the refueling
    infrastructure because the alternative fuel would be more cost
    effective. Unfortunately, this is not always the case. Just
    last week, the fleet manager for the city of St. Louis,
    Missouri, refueled his dedicated CNG pickup at a cost of about
    $1.38 per gallon gasoline equivalent, when the city was only
    paying 98 cents per gallon for a gallon of gasoline after
    exemption for State and Federal tax.
        As a viable public policy, EPAct has failed. The
    marketplace has not risen to the challenge to address the
    economic barriers. Some are blaming fleet managers for EPAct's
    failure. The blame the fleet manager for failing to convince a
    mayor, a governor, a CEO that sound economics would be to
    acquire vehicles that cost more, are more expensive to operate,
    travel fewer miles, have limited cargo space, and can easily be
    refueled.
        The General Accounting Office has identified the real
    reasons for the failure of EPAct. In a February 2000 report,
    GAO found that the goals of the act were not being met
    ``principally because alternative fuel vehicles have
    significant economic disadvantages compared to conventional
    gasoline vehicles.'' The report continues: ``Fundamental
    economic impediments, such as the relatively low price of
    gasoline, the lack of refueling stations for alternative fuels,
    and the additional cost to purchase these vehicles, explain
    much of why both mandated fleets and the general public are
    disinclined to acquire alternative fuel vehicles and use
    alternative fuels.''
        The Department of Energy concurs with this GAO assessment.
    According to DOE's section 506 technical policy analysis:
    ``Fleet AFV use by itself will be insufficient to achieve large
    alternative fuel market share. Alternative fuel use by EPAct-
    covered fleets, even with the contingent mandates for private
    and local government fleets, is unlikely to provide more than
    about 1.5 percent replacement fuel use.''
        The committee has an unenviable task. The simplest option
    would be to fix EPAct, declare victory, and revisit the
    failures in another 9 years. This simple option responds to
    those who would urge you to focus on the mandates without real
    concern for petroleum reduction. The alternative is to think
    outside of the box and consider a bolder strategy that includes
    efficiency, conservation, and use of both alternative fuels and
    alternative technologies.
        The Nation's energy situation seems to dictate a bold
    public policy. Accordingly, fleet managers recommend the
    following: One, amend EPAct to allow additional compliance
    options. This would include full credit for use of biodiesel,
    hybrid electric vehicles, and neighborhood electric vehicles.
    This fall 75 percent of new State vehicles and 90 percent of
    fuel provider vehicles must be AFVs, but these fleets may not
    get credit for hybrid electric vehicles or full credit for the
    use of biodiesel.
        Two, amend EPAct to provide credit for installing refueling
    infrastructure as included in S. 388.
        Three, strengthen voluntary programs such as DOE's Clean
    Cities program that focus on niche markets where fuels such as
    natural gas are most efficient.
        Four, encourage the use of and remove obstacles to the use
    of other renewable energy-based fuels and fuel blends, such as
    biodiesel and blends of biodiesel.
        Five, resist any further mandates on State fleets or fuel
    provider fleets. Again, as noted, squeezing every drop of
    petroleum from these fleets by the year 2010 would result in
    only about a 1 percent reduction in petroleum use.
        Six, because refueling infrastructure is such a problem,
    focus on those strategies that take advantage of the existing
    liquid refueling infrastructure. Specifically, grant incentives
    for the development of hybrid electric vehicles and the use of
    renewable fuels.
        Seven, provide significant economic incentives via grant
    programs and tax incentives. For example, pass and fund section
    705 of S. 388, which establishes a grant program for local
    governments for covering the incremental costs of qualified
    alternative fuel vehicles. It authorizes $100 million for each
    fiscal year 2002 through 2006 and limits individual grant
    awards to no more than $1 million.
        Also, many fleet managers support the intent of S. 760, the
    CLEAR ACT, which is a tax issue and is outside the jurisdiction
    of this committee. The CLEAR ACT would potentially help
    overcome the economic barriers facing vehicles, fuels, and
    refueling infrastructure. The CLEAR ACT, however, in its
    present form is of little benefit to government or nonprofit
    fleets. We are hopeful that this can be corrected before any
    House or Senate markup. If not corrected, NAFA questions
    whether Congress should pass the legislation.
        In closing, the challenge for the Senate Energy Committee
    is to think outside the box. Some will urge you to take the
    easy course of action, that is to force government agencies and
    companies to buy AFVs and use the fuels regardless of cost and
    regardless of the public policy benefit. Mandates have proven
    to be counterproductive. Too much time and resources have been
    spent by DOE, other Federal and State agencies, fleets, fuel
    providers, and manufacturers to make mandates work, all hoping
    that mandates will be the silver bullet. Too much has been
    spent for too little gain.
        Thank you again for this opportunity to participate and I
    would be most happy to answer any of your questions.
        [The prepared statement of Mr. Gibbens follows:]
      Prepared Statement of Charles Gibbens, Automotive Fleet Manager, on
             Behalf of National Association of Fleet Administrators
        The National Association of Fleet Administrators, Inc. (NAFA)
    appreciates the opportunity to testify at this hearing and share with
    the Committee the perspective of fleet managers on strategies that you
    might consider for reducing demand for petroleum products in the light-
    duty vehicle sector.
        NAFA is the association of professional fleet managers. Our 2,000
    members manage more than 3 million cars, vans, and trucks for
    corporations and government agencies.
        I am Charles Gibbens, the Automotive Fleet Manager for the County
    of Henrico Virginia. I manage a diverse fleet of about 2,500 vehicles.
        Reducing petroleum demand in the light-duty vehicle sector was a
    goal of the Energy Policy Act of 1992 (EPACT). One of the objectives of
    EPACT was that fleet mandates would jump-start the market for
    alternative fuel vehicles (AFVs), stimulate AFV use by the general
    public and result in a 10 percent replacement of petroleum by 2000 and
    30 percent by 2010.
        Federal, state, and fuel provider fleets are mandated to purchase
    AFVs when replacing light-duty vehicles. For model year 2002, the
    acquisition for state and fuel provider fleets is 75 percent and 90
    percent, respectively. The law applies to fleets in metropolitan areas
    with populations of more than 250,000. The law provides for an
    exemption process if either vehicles or refueling facilities are not
    available.
        Since 1992, fleet managers have faced the challenge of how to
    comply with the EPACT mandates. Fleet managers have been consistent in
    their message that any plan to move vehicles to alternative fuels will
    not be successful until the costs and operational issues are comparable
    with gasoline and diesel vehicles. Despite the optimism of many--AFVs
    are still costly, are not available in sufficient model lines, lack the
    requisite refueling infrastructure and do not meet the operating needs
    of most fleets.
        There has been some progress. There have been anecdotal successes
    attributed to fleet use of AFVs. Unfortunately, for every anecdote of
    success there are also anecdotes of dissatisfaction, frustration and
    failure. Many fleet managers, who are successfully using AFVs today in
    a specific niche segment of their fleets, have clearly stated that they
    will not be able to expand AFV use in other segments of their fleets
    because of overriding operational or expense barriers.
        On the positive side, vehicle manufacturers are beginning to make
    AFVs in a wider variety of vehicle types. On the negative side,
    however, many fuels are much less available than had been predicted and
    promised. Since 1992, methanol has disappeared from the marketplace and
    the natural gas industry has abandoned plans to build a public
    refueling infrastructure. Some of the more promising projects, such as
    CNG in Atlanta for the Olympics and CNG and propane on the Pennsylvania
    Turnpike, have failed.
        At this moment, despite the best efforts and limited
    accomplishments, the economic and the operational situation is not
    promising for the majority of fleets or for the general public. These
    very practical, real--world conditions may explain why even the Federal
    Government has so consistently failed to meet its own mandate for AFV
    acquisition and operation.
        It seems clear from the experiences of the federal fleet, fuel
    provider fleets, and state fleets that fleets by themselves will not
    make any significant reduction in the nation's use of fossil fuels.
    This is in part because of inherent limitations in existing AFV models,
    alternative fuels, refueling infrastructure, technology and costs.
        Mandates, however, were only part of the EPACT strategy. It was
    anticipated that mandated fleets would provide the critical mass for
    the vehicle manufacturers and the fuel providers. In turn, the vehicle
    manufacturers and fuel providers would reach economies of scale
    necessary for a substantial penetration of the light-duty vehicle
    sector.
        It is important to point out that AFV purchases were mandated by
    EPACT, but only if the appropriate vehicles and fuels were available.
    It was, of course, never the intent that a mandated fleet would either
    build its own vehicles or build its own fueling facilities. In fact,
    the Act provided specific exemptions if either the vehicles or the fuel
    were not available.
        It was assumed that AFVs would generate the refueling
    infrastructure because the alternative fuel would be more cost
    effective. Unfortunately, this is not always the case. Just last week,
    the fleet manager for the city of St. Louis refueled his dedicated CNG
    pickup at $1.38/GGE when the City was only paying $0.98 for a gallon of
    gasoline after exemption for Federal and State taxes.
        St. Louis is a good example. The city is not currently subject to
    any mandate, but the fleet manager has been an alternative fuel
    advocate for many years. Yet, as he says, ``We've tried almost
    everything and can't find any vehicle-fuel combination that comes close
    to break even on cost or on a lifecycle-cost basis not to mention the
    range/cargo space hits.''
        As a viable public policy, EPACT has failed. The marketplace has
    not risen to the challenge to address the economic barriers. Some are
    blaming fleet mangers for EPACT's failure. They blame the fleet manager
    for failing to convince a Mayor, a Governor, or a CEO that sound
    economics would be to acquire vehicles that cost more, are more
    expensive to operate, travel fewer miles, have limited cargo space, and
    can't be easily be refueled.
        The General Accounting Office has identified the real reasons for
    the failure of EPACT. In a February 2000 report, GAO found that the
    goals of the Act were not being met ``principally because alternative
    fuel vehicles have significant economic disadvantages compared to
    conventional gasoline vehicles.'' The report continued, ``Fundamental
    economic impediments--such as the relatively low price of gasoline, the
    lack of refueling stations for alternative fuels, and the additional
    cost to purchase these vehicles--explain much of why both mandated
    fleets and the general public are disinclined to acquire alternative
    fuel vehicles and use alternative fuels.''
        More importantly the GAO told the Senate Finance Committee just
    last week that ``alternative fuels and vehicles have not made much of a
    dent in the conventional fuel and vehicle dominance in the U.S. vehicle
    fleet.'' According to GAO's February 2000 report, ``If federal
    agencies, state governments, and alternative fuel providers fully
    complied with the act's mandates, the vehicles in their fleets would
    replace less than 1 percent of petroleum fuels in 2010.''
        The Department of Energy concurs with the GAO assessment. According
    to DOE's Section 506 Technical Policy Analysis: ``Fleet AFV use by
    itself will be insufficient to achieve large alternative fuel market
    share. Alternative fuel use by EPACT covered fleets, even with the
    contingent mandates for private and local government fleets, is
    unlikely to provide no more than about 1.5 percent replacement fuel use
    . . .''
       recommendation for reducing petroleum use in the light-duty sector
        The Committee has an unenviable task. The simplest option would be
    to ``fix'' EPACT, declare victory, and revisit the failures in another
    nine years. This simple option responds to those who would urge you to
    focus on the mandates without real concern for petroleum reduction.
        The alternative is to think outside of the box and consider a
    bolder strategy that includes efficiency, conservation and use of both
    alternative fuels and alternative technologies. The nation's energy
    situation seems to dictate a bold public policy.
        Fleet managers recommend the following:

              Amend EPACT to allow additional compliance options. This
            would include full credit for use of biodiesel, hybrid electric
            vehicles and neighborhood electric vehicles. This fall 75% of
            new state vehicles and 90% of fuel provider vehicles must be
            AFVs, but fleets may not get credit for hybrid electric
            vehicles or full credit for the use of biodiesel.
              Amend EPACT to provide credit for installing refueling
            infrastructure, as included in Senate Bill 388.
              Strengthen voluntary programs, such as DOE's Clean Cities
            Program, that focus on niche markets where fuels such as
            natural gas are most efficient.
              Encourage the use of and remove obstacles to the use of other
            renewable energy-based fuels and fuel blends such as biodiesel
            and blends of biodiesel.
              Resist any further mandates on state fleets or fuel provider
            fleets. Again, as GAO noted squeezing every drop of petroleum
            from these fleets by 2010 would result in only a 1% reduction
            in petroleum use.
              Because refueling infrastructure is such a problem, focus on
            strategies that take advantage of the existing liquid fuel
            refueling infrastructure. Specifically, grant incentives for
            the development of hybrid electric vehicles and use of
            renewable fuels.
              Provide significant economic incentives via grant programs
            and tax incentives.

                      For example, pass and fund SEC. 705 of Senate Bill
                    388, which establishes a grant program for local
                    governments for covering the incremental cost of
                    qualified alternative fuel vehicles. It authorizes $100
                    million for each of fiscal years 2002 through 2006, and
                    limits individual grant awards to no more than $1
                    million.
                      Also, many fleet managers support the intent of
                    Senate Bill 760, the CLEAR Act which is a tax issue and
                    outside the jurisdiction of this Committee. The CLEAR
                    Act could potentially help overcome the economic
                    barriers facing vehicles, fuels and refueling
                    infrastructure. The CLEAR Act, however, in its present
                    form, is of little benefit to government or nonprofit
                    fleets. We are hopeful that this can be corrected
                    before any House or Senate markup. If not corrected,
                    NAFA questions whether Congress should pass the
                    legislation.

        The challenge for the Senate Energy Committee will be to think
    outside the box. Some will urge you to take the easiest course of
    action, that is to force government agencies and companies to buy AFVs
    and use the fuels regardless of cost and regardless of the public
    policy benefit. Mandates have proven to be counterproductive. Too much
    time and resources have been spent by DOE, other federal and state
    agencies, fleets, fuel providers and manufacturers to make mandates
    work, all hoping that mandates will be the silver bullet. Too much has
    been spent for too little gain.
        Thank you again for the opportunity to participate. I will be happy
    to answer any questions.

        The Chairman. Thank you.
        Dr. McCormick, why don't you go right ahead.

     STATEMENT OF DR. J. BYRON McCORMICK, PH.D., DIRECTOR, GLOBAL
       ALTERNATIVE PROPULSION CENTER, GENERAL MOTORS CORPORATION

        Dr. McCormick. I want to thank the members of the committee
    for the opportunity today to speak about General Motors' fuel
    cell initiative. I am Byron McCormick and I am responsible for
    GM's fuel cell program.
        Based on the recent rate of progress in fuel cell
    technology, we are on the threshold of an historic opportunity.
    Instead of the historical evolution of technology by
    incremental improvements, we now see our way to bold technology
    advances that will fundamentally change personal transportation
    for the new century.
        Fuel cell vehicles running on hydrogen fuel are the
    ultimate environmentally friendly vehicles because the only
    emission is water. Fuel cell vehicles are more than twice as
    efficient as internal combustion engines, have no pollutant
    emissions, and are quiet.
        Fuel cell vehicles promise two additional benefits; First,
    fuel cell vehicles will be supported by a broadly available,
    cost effective hydrogen refueling infrastructure. Such an
    infrastructure by its very nature would provide a single
    enduring framework for the evolutionary shift for personal
    transportation from petroleum to a mix of energy sources
    including renewables.
        Secondly, the development of this technology will create
    more environmentally compatible distributed power generation
    possibilities. Power on today's electric grid could be
    supplemented by the generating capacity of cars in every
    driveway. For example, if only one out of 25 cars in California
    today was a fuel cell vehicle their generating capacity would
    exceed that of the electric grid in place today.
        Recognizing the potential of fuel cells, approximately 4
    years ago GM leadership decided to take some rather bold action
    and consolidated our programs and accelerated them greatly. We
    did this based on the notion that there are over six billion
    people in the world today, most of these people are young, they
    are globally aware, web-connected, and residing in emerging
    economies.
        Secondly, we recognized that only 12 percent of the world's
    population have access to automobiles today. Therefore, a
    breakthrough in energy efficiency and emissions would
    absolutely be required to meet the demands of the future in a
    sustainable, high quality environment.
        So our vision is as follows. We see fuel cells as the
    automotive power source for the future and we see hydrogen as
    the long-term fuel. Now, since we have talked a fair amount
    today about renewables and infrastructure, let me expand on the
    hydrogen infrastructure for a moment. The creation of a new
    robust, readily available hydrogen refueling network for these
    vehicles is clearly necessary.
        Hydrogen in the infrastructure could be derived from a mix
    of sources, including hydrocarbons as well as any source of
    electricity. In the first case, hydrogen is extracted from
    petroleum, natural gas, and renewable hydrocarbons such as
    ethanol via reformers or fuel processors which catalytically
    decompose the hydrocarbons into hydrogen and carbon dioxide.
        Hydrogen can also be extracted from water using
    electrolysis, which uses electricity to dissociate the water.
    Electricity could come from conventional powerplants, renewable
    powerplants such as hydro, solar, wind, and geothermal sources.
    In this way, hydrogen fuel allows a transition for
    transportation from a reliance on petroleum to a robust
    diversity of energy sources including renewable energy.
        The blending of these energy sources is seamless to the
    driver of the vehicle. He sees only hydrogen fuel and not
    whether it came from petroleum, natural gas, nuclear, or
    renewable.
        To give you an idea of the rate of progress towards that
    vision, in the last 4 years the size and weight of our fuel
    cell stack technology has decreased by approximately a factor
    of ten. In the past year our gasoline fuel processor
    technology, which strips hydrogen from gasoline, has decreased
    by a size factor of three.
        Like today's gasoline cars, fuel cell vehicles must be able
    to handle a tremendous environmental range of conditions. We
    are now able to start fuel cells from freezing at minus 40
    degrees C. in substantially less than a minute and our Hydrogen
    1 demonstration fuel cell vehicle covered over 800 miles in one
    day in the Arizona heat, setting 15 performance and durability
    records earlier this summer.
        This progress is rapid and encouraging, but we are not
    there yet. We have not yet developed the full automotive
    performance levels, including reliability, durability, safety,
    and full compatibility to harsh weather extremes, including the
    ability to withstand all environmental and in-use abuse that
    automobiles and trucks are subjected to every day worldwide.
        Achieving full automotive performance and affordability
    targets is key to customer acceptance and enthusiasm. These
    targets require huge investments that can only be responsibly
    made if we believe that the hydrogen infrastructure will be
    there to allow us to introduce fuel cell vehicles to the
    public. On the other hand, selective demonstration vehicles or
    captive fleet tests will not suffice to encourage major timely
    investment by energy producers in that hydrogen infrastructure.
        Potential creators of the hydrogen infrastructure will not
    invest until they see a rapid expansion of hydrogen fuel cell
    vehicles, and even then there is an economic burden of
    supporting that infrastructure during the long period of
    transition from today's gasoline-powered fleets. Stewardship of
    this transition requires a carefully thought out plan which
    allows the automotive manufacturers, their materials and
    component suppliers, and potential hydrogen fuel providers and
    government regulatory bodies to progress hand in hand. This
    careful coordination must also take into account the technical,
    financial, and environmental realities that a successful
    transition requires.
        As a closing thought, I believe that fuel cells and
    hydrogen-based transportation are the future. The pace of
    technical progress is accelerating and we cannot be left behind
    sitting on the sidelines. Now is the time for the U.S.
    Government and U.S. industry to create a partnership that can
    lead the world in the change to this vision.
        Thank you and I look forward to responding to your
    questions.
        [The prepared statement of Dr. McCormick follows:]
     Prepared Statement of Dr. J. Byron McCormick, Ph.D., Director, Global
           Alternative Propulsion Center, General Motors Corporation
        I appreciate the opportunity to be here today to testify on behalf
    of General Motors. I am Byron McCormick, the Director of GM's Global
    Alternative Propulsion Center. I head the team that is developing fuel
    cells to power vehicles that people will want to drive and buy.
        This is an exciting time in the automotive industry and for General
    Motors. Technology is clearly changing the way we live our lives for
    the better, and there's more to come. The subject today is fuel cell
    technology. This technology, when fully developed and deployed, will
    not only deliver revolutionary vehicles, but will change the way we
    think about the automobile and our environment.
        We are on the threshold of an historic opportunity. Instead of the
    historical evolution of technology by incremental improvements, we now
    see our way to bold technology advances that will fundamentally change
    personal transportation for the new century. These advances have the
    potential to lead to the creation of commercially viable zero-emission,
    fuel-efficient fuel-cell vehicles with the functionality that Americans
    expect. Not only will fuel cells essentially remove the auto from the
    environmental equation by reducing tailpipe emissions to only water
    vapor and potentially shifting vehicles to renewable fuels--they will
    also offer the performance required for every type of vehicle: heavy
    duty commercial, sport utilities, trucks, mass transit or cars.
        Fuel-cell vehicles running on hydrogen fuel are the ultimate
    environmentally friendly vehicles because the only emission is water.
    The fuel cell supplies electricity to an electric motor that powers the
    wheels. The fuel cell produces electricity by stripping electrons from
    hydrogen that travels through a membrane to combine with oxygen to form
    water. Fuel-cell vehicles are more than twice as energy efficient as
    the internal combustion engine, have no pollutant emissions, and are
    quiet.
        Beyond the advantages for vehicles, fuel cells in vehicles promise
    two additional benefits. First, once fully integrated into our daily
    lives, fuel-cell vehicles will be supported by a broadly available,
    cost-effective hydrogen-refueling infrastructure. Such an
    infrastructure by its very nature would provide an evolutionary shift
    of personal transportation from petroleum to a mix of energy sources
    including renewables.
        Secondly, the development of this technology will create new more
    environmentally compatible distributed electric power generation
    possibilities. The automobile will have the potential to provide
    electrical power to homes and worksites. Power on today's electrical
    grid could be supplemented by the generating capacity of cars in every
    driveway. For example, if only one out of every 25 cars in California
    today was a fuel-cell vehicle, their generating capacity would exceed
    that of the utility grid. A typical mid-size fuel-cell vehicle would
    produce 50 to 75 kilowatts of electrical power, where a typical
    household may use 7 to 10 kilowatts at peak load.
        Like any advancement that has the promise to completely change the
    dominant technology, fuel cell development is a major, costly,
    technical endeavor, which--if aggressively undertaken and sustained--
    should allow significant implementation in the 10 to 20 year timeframe.
    Our rate of progress today is very rapid. With an uninterrupted focus,
    our technological momentum should make this fuel cell vision possible.
        It is clear that we are in an intense global competition for
    leadership in this race to establish and commercialize fuel cell
    technologies. Toyota, Honda, Daimler, Ford, Volkswagen, Nissan, PSA,
    Hyndai, GM and others all have large programs. In Japan the Kyogikai,
    which are companies operating under government auspices, is developing
    a program for the implementation of fuel cell technology. Now is the
    time for the U.S. government and U.S. industry to create a partnership
    that can lead the world in the charge to achieve this vision.
        Before I talk specifics, I should note for the record that the
    opportunity we are discussing today would not be possible without the
    long-term support of the Senators from New Mexico and the support of
    ERDA and then the DOE. The fledgling ``fuel cells for transportation
    program'' at Los Alamos National Laboratories--which I initiated, then
    headed from the mid 1970's through the 1980's--along with PEM fuel cell
    technology provided the technical spark for the recent worldwide
    explosion of PEM fuel cell activities.
        Recognizing this potential, approximately four years ago at General
    Motors fuel cell activities were consolidated and accelerated. We were
    given one mandate by our management: Take the automobile out of the
    environmental debate. Regardless of whether the environmental debate is
    focused on air quality, climate, or overall sustainability, GM
    leadership recognizes that global conditions inspire bold, thoughtful
    action.
        1. There are over 6 billion people in the world today with over 10
    billion expected later this century. Most of these people are young,
    globally aware, web-connected, and residing in emerging economies with
    escalating demand for personal transportation.
        2. Only 12 percent of the world's population has automobiles today.
    Therefore a breakthrough in energy efficiency and emissions will be
    required to meet the demands of the future in a sustainable high-
    quality environment.
        Our vision is as follows:
        1. We see fuel cells as the long-term power source. The GM global
    fuel cell program seeks to create affordable, full-performance, fuel-
    cell-powered vehicles that meet customer preferences and demands and
    emit only water vapor from their tailpipes. Such vehicles would be 50
    to 100 percent more energy efficient than today's vehicles depending on
    design and drive cycle.
        2. We see hydrogen as the long-term fuel. The creation of a robust,
    readily available hydrogen-refueling network for those vehicles will be
    accessible through refueling stations, as gasoline is dispensed today.
    Hydrogen in the infrastructure could be derived from a mix of sources
    including: 1) hydrocarbons; and 2) from any source of electricity.
        In the first case, hydrogen is extracted from petroleum, natural
    gas and renewable hydrocarbons, such as ethanol, via ``reformers'' or
    fuel processors, which catalytically decompose the hydrocarbons into
    hydrogen and carbon dioxide.
        Hydrogen can also be extracted from water using electrolysis, which
    uses electricity to dissociate water. Electricity would come from
    conventional power plants or renewable power such as hydro, solar, wind
    and geothermal sources. In this way hydrogen fuel allows a transition
    of transportation from reliance on petroleum to a robust diversity of
    energy sources including renewable energy. The blending of these energy
    sources is seamless to the driver of a vehicle; he sees only hydrogen
    fuel, not whether it came from petroleum, natural gas, nuclear or
    renewable energy.
        There are three major challenges that we need to overcome to make
    this hydrogen economy a reality:
        First, we need continued significant development in on-board
    hydrogen storage. Using hydrogen in a vehicle requires a completely new
    type of fuel tank. The challenge is to find a lightweight, compact tank
    that stores enough hydrogen at modest pressure for a lengthy drive.
        Last month we took a major step toward clearing this hurdle. GM is
    acquiring a substantial minority ownership in QUANTUM Technologies.
    They are the industry leader in automotive hydrogen storage. QUANTUM
    Technologies has achieved performance that could allow us to introduce
    a fuel-cell vehicle in the future that will have a range equal to
    today's vehicles.
        But we should not limit ourselves to partnerships between private
    companies. We need the government to partner with us on fundamental,
    long-term research and development as well. And not just on storage of
    hydrogen, but a full portfolio of technologies.
        And that includes our second major challenge to a hydrogen economy
    developing clean and efficient methods of producing hydrogen. There are
    many substances from which hydrogen can be released, but it takes
    energy to do it. Eventually, we want to use a method that is renewable,
    and that has no adverse environmental impact. We're working closely
    with energy suppliers to investigate the best solutions.
        The third challenge we have to overcome is developing business
    models for the deployment of a hydrogen infrastructure, and piloting
    technologies to support it. To address this GM joined with General
    Hydrogen's Geoffrey Ballard to announce last month a 25-year alliance
    between our companies.
        As for the reality of this vision, we at GM have invested
    aggressively in what are called ``enabling'' technologies: fuel cells,
    reformers, electrolyzers and automotive electric propulsion. Our
    commitment is clear in the significance of our investment--over $100
    million annually for several years to date, and growing. The
    acceleration has been spurred on by rapid technical progress.
        To give you an idea of that rate of progress, in the last 4 years
    the size and weight of our fuel cell stack for a given power has
    decreased by a factor of 10. In the past year, our gasoline fuel
    processor has decreased in size by a factor of 3.
        Like today's gasoline cars, fuel-cell vehicles must be able to
    handle a tremendous range of environmental conditions. We are now able
    to start fuel cells from freezing--minus 40 deg.C--in substantially
    less than a minute, and our Hydrogen One demonstration fuel-cell
    vehicle covered over 800 miles in one day in the Arizona heat, setting
    15 performance and durability records earlier this summer.
        These milestones represent remarkable progress. Our rate of
    progress encourages us, but it is crucial to recognize that the race
    for fuel cell development is a marathon, not a sprint. No one should
    overlook that there remain major technical obstacles that must be
    conquered before these vehicles can be brought to market and can become
    commercially successful.
        Let me be clear about the progress represented by fuel cell
    demonstration vehicles. The progress is rapid and encouraging, but we
    are not there yet. No one has achieved full automotive performance
    levels including reliability, durability, safety and full capability in
    harsh weather extremes including the ability to withstand all
    environment and in-use abuse that automobiles and trucks worldwide are
    subjected to every day. We must achieve these goals and affordability
    before this technology will be considered an option by our customers.
        Achieving full automotive performance and affordability targets is
    key to customer acceptance and enthusiasm. These targets require huge
    investments that can only be responsibly made if we believe the
    infrastructure will be there to allow us to introduce fuel-cell
    vehicles to the public. Government policy today must drive the
    development of the hydrogen economy by accelerated R&D in hydrogen
    storage, pilot scale distribution networks and refueling stations and
    incentives for their proliferation.
        Selective demonstration vehicles or captive fleet tests will not
    suffice to encourage major timely investment by the energy producers
    and the full automotive supply base before a hydrogen infrastructure is
    seen to be evolving. Nor will potential creators of the hydrogen
    infrastructure invest until they see a rapid expansion of hydrogen
    fuel-cell vehicles and even then, there is the economic burden of
    supporting that infrastructure during the long period of transition
    from today's gasoline-powered fleet.
        Stewardship of this transition requires a carefully thought out
    plan which allows the automotive manufacturers, their material and
    component suppliers, the hydrogen fuel providers and governmental
    regulatory bodies to progress hand-in-hand. This careful coordination
    must also take into account the technical, financial and environmental
    realities that a successful transition requires.
        This is the basis on which a government-industry partnership must
    be based.
        In General Motors, the magnitude of our fuel cell investment
    creates an intense business dilemma--the choice between using our
    resources to meet the expanding funding needs to achieve a
    revolutionary vision at the expense of short-term focused initiatives,
    or to fund the aggressive pursuit of more incrementally focused
    initiatives.
        To a large degree, the outcome of that internal debate will depend
    on the development of a long-term, stable set of governmental policies
    and initiatives upon which we can properly balance the investment of
    our finite financial and technical resources.
        As a closing thought, I believe that fuel cells and hydrogen-based
    transportation are the future. The pace of technical progress is
    accelerating. We cannot be left behind or sitting on the sidelines. Now
    is the time for the U.S. government and U.S. industry to create a
    partnership that can lead the world in the charge to achieve this
    vision.
        Thank you.
        I look forward to responding to your questions.

        The Chairman. Thank you very much.
        Mr. Dana, why don't you go right ahead.

       STATEMENT OF GREGORY DANA, VICE PRESIDENT, ENVIRONMENTAL
             AFFAIRS, ALLIANCE OF AUTOMOBILE MANUFACTURERS

        Mr. Dana. Mr. Chairman and members of the committee: On
    behalf of the 13 members of the Alliance of Automobile
    Manufacturers, it is a pleasure to be here today to provide the
    committee with our position on the role of cars and light
    trucks in our national energy policy.
        Today I would like to make three basic points: First,
    existing energy policies are not delivering anticipated
    results. That is why we are sitting here today.
        Second, to be successful we must maintain consumer focus,
    because consumers determine fuel economy every day through
    their purchasing decisions on dealers' lots.
        Third, with your help, we can increase the fuel economy of
    the fleet and meet consumer demands by accelerating the
    introduction of advanced technology fuel efficient vehicles.
        Let me expand on these points. We are a mobile society.
    Today transportation accounts for nearly two-thirds of all oil
    consumption and it is almost 97 percent dependent on petroleum.
        Automakers are working to increase fuel efficiency. Auto
    manufacturers have consistently increased the fuel efficiency
    of their models since the 1970's. According to EPA data, fuel
    efficiency has increased steadily at nearly 2 percent a year on
    average from 1975 to 2001 for both cars and light trucks. This
    fuel efficiency is a measure of how effectively a vehicle uses
    energy from fuel.
        While car and light truck fuel efficiency continue to
    increase, their combined fuel economy has stabilized, for one
    reason: Consumers are in the driver's seat when it comes to
    determining fuel economy. This is the demand side of the
    equation.
        Today, you are in the role of policymakers, but you are
    also consumers. Like millions of consumers nationwide, you may
    also value advanced safety features, passenger room, towing
    capacity, cargo carrying capacity, utility, comfort and
    performance. In fact, most consumers want it all. In surveys,
    consumers indicate they want greater fuel economy, but in their
    purchases they do not want to sacrifice size, safety, cargo
    room, acceleration, or other vehicle attributes to get it.
        Today, manufacturers offer more than 50 models with fuel
    efficiency ratings above 30 miles per gallon. We also offer
    vehicles that achieve 40 miles per gallon or greater, but these
    highly fuel efficient vehicles account for less than 2 percent
    of sales.
        The auto industry strongly believes that technology will
    allow us to address energy conservation goals and still provide
    consumers with vehicles that meet their family and business
    needs. That is why we support the alternative fuel and advanced
    technology provisions in Vice President Cheney's national
    energy policy.
        We also support the tax credit provisions in Senator
    Hatch's bill, S. 760, the Clean, Efficient Automobiles
    Resulting from Advanced Car Technologies, or the CLEAR ACT of
    2001. The CLEAR ACT would provide tax incentives for fuel
    cells, hybrid electric vehicles, battery electric vehicles, and
    dedicated alternative fuel vehicles, along with alternative
    fuel and alternative fuel infrastructure tax incentives.
        We are working on slight modifications to the hybrid
    electric vehicle tax credits and we would like to see the tax
    credits for the introduction of advanced lean burn technology.
        The CLEAR ACT is timely legislation. New technologies have
    set the stage for transforming the auto industry. Today you can
    purchase alternative fuel vehicles from subcompacts to SUV's to
    pickups. Alliance members are developing and introducing hybrid
    electric cars, SUV's and pickups that can increase city fuel
    economy by up to 200 percent. Automakers are working on the
    next generation of lean burn technology to ensure compliance
    with new, more stringent emission standards, and major
    manufacturers are investing hundreds of millions of dollars in
    research and development to bring fuel cell vehicles to market
    within 5 to 10 years.
        Mr. Chairman, we support consumer tax credits for a limited
    time, 6 years, and we support extending the tax credit for fuel
    cells to 10 years. These credits will accelerate the market
    penetration of highly fuel efficient vehicles. As a result,
    manufacturers can increase production and lower costs for
    consumers. Consumers will have more fuel efficient vehicles
    with the attributes they desire and policymakers will see
    increases in fuel economy.
        In conclusion, as we go forward we must maintain consumer
    focus and tax credits will accelerate the market penetration of
    highly fuel efficient vehicles that consumers will buy.
        Thank you, Mr. Chairman. I would be happy to answer any
    questions.
        [The prepared statement of Mr. Dana follows:]

       Prepared Statement of Gregory Dana, Vice President, Environmental
                 Affairs, Alliance of Automobile Manufacturers

        Mr. Chairman, thank you for the opportunity to testify before your
    Committee regarding energy policy issues. My name is Gregory Dana and I
    am Vice President, Environmental Affairs of the Alliance of Automobile
    Manufacturers, a trade association of 13 car and light-truck
    manufacturers. Our member companies include BMW of North America, Inc.,
    DaimlerChrysler Corporation, Fiat, Ford Motor Company, General Motors
    Corporation, Isuzu Motors of America, Mazda, Mitsubishi, Nissan North
    America, Porsche, Toyota Motor North America, Volkswagen of America,
    and Volvo.
        Alliance member companies have more than 620,000 employees in the
    United States, with more than 250 manufacturing facilities in 35
    states. Overall, a recent University of Michigan study found that the
    entire automobile industry creates more than 6.6 million direct and
    spin-off jobs in all 50 states and produces almost $243 billion in
    payroll compensation annually.
        The Alliance supports efforts to create an effective energy policy
    based on broad, market-oriented principles. Policies that promote
    research development and deployment of advanced technologies and
    provide customer based incentives to accelerate demand of these
    advanced technologies set the foundation. This focus on bringing
    advanced technologies to market leverages the intense competition of
    the automobile manufacturers worldwide. Incentives will help consumers
    overcome the initial cost barriers of advanced technologies during
    early market introduction and increase demand, bringing more energy
    efficient vehicles into the marketplace.
        Congress needs to consider new approaches for the 21st century. The
    Alliance and its 13 member companies believe that the best approach for
    improved fuel efficiency is to aggressively promote the development of
    advanced technologies--through cooperative, public/private research
    programs and competitive development--and incentives to help pull the
    technologies into the marketplace as rapidly as possible. We know that
    advanced technologies with the potential for major fuel economy gains
    are possible. As a nation, we need to get these technologies on the
    road as soon as possible in an effort to reach the national energy
    goals as fast and as efficiently as we can.
        The Alliance is pleased that Vice President Cheney's National
    Energy Policy report recommends and supports a tax credit for advanced
    technology vehicles (ATVs). Specifically, it proposes a tax credit for
    consumers who purchase a new hybrid or fuel cell vehicle between 2002
    and 2007. In addition, the report supported the broader use of
    alternative fuel and alternative vehicles. This is consistent with the
    Alliance's position of supporting enactment of tax credits for
    consumers to help offset the initial higher costs of advanced
    technology and alternative fuel vehicles until more advancements and
    greater volumes make them less expensive to produce and purchase.
        Senate legislation that has been crafted to spur the sale of
    advanced technology fuel-efficient vehicles is included in S. 389,
    introduced by Senator Murkowski. This legislation would (1) provide tax
    credits for the purchase of alternative fuel and hybrid vehicles, (2)
    modify the existing tax credit for electric vehicles, (3) extend the
    dual fuel CAFE credit, (4) provide a business tax credit for
    alternative fuels sold at retail, (5) extend for three years the tax
    deduction for alternative fuel refueling property and add a new
    deduction for this property, (6) allow states to open HOV lanes to
    alternative fuel vehicles, (7) allow DOE to provide equivalent
    alternative fuel vehicle credits to fleets or persons that invest in
    alternative fuel refueling infrastructure, (8) establish a federal
    grant program for local governments addressing the incremental cots of
    qualified alternative fuel vehicles, and (9) require federal agencies
    to increase the fuel efficiency of newly purchased federal vehicles.
        Many of the provisions in S. 389 are included in S. 760 introduced
    by Senator Hatch and others. The Alliance is in general support of S.
    760, but would like to see some minor, technical changes made to the
    hybrid-electric vehicle section of the bill and would also support the
    inclusion of tax credits for advanced lean burn technology. The
    Alliance believes that the overall concepts and provisions found in S.
    760 are the right approach and would benefit American consumers.
        The bill would ensure that advanced technology is used to improve
    fuel economy. Performance incentives tied to improved fuel economy are
    incorporated into the legislation in order for a vehicle to be eligible
    for the tax credits. These performance incentives are added to a base
    credit that is provided for introducing the technologies into the
    marketplace.
        Specifically, S. 760 has a number of important provisions
    addressing various types of advanced technologies. These include:
    Fuel Cell Vehicles
        The most promising long-term technology offers breakthrough fuel
    economy improvements, zero emissions and a shift away from petroleum-
    based fuels. A $4,000 base credit is included along with performance
    based fuel economy incentives of up to an additional $4,000. The credit
    is available for 10 years to accelerate introduction--extremely low
    volume production is expected to begin in the 2005-2007 timeframe.
    Hybrid Vehicles
        Electronics that integrate electric drive with an internal
    combustion engine offer near term improvements in fuel economy. A
    credit of up to $1,000 for the amount of electric drive power is
    included along with up to $3,000 depending upon fuel economy
    performance. The credit is available for 6 years to accelerate consumer
    demand as these vehicles become available in the market and set the
    stage for sustainable growth. To be eligible for the credit, hybrid
    vehicles must meet or beat the average emission level for light duty
    vehicles.
    Dedicated Alternative Fuel Vehicles
        Vehicles capable of running solely on alternative fuels, such as
    natural gas, LPG, and LNG, promote energy diversity and significant
    emission reductions. A base credit of up to $2,500 is included with an
    additional $1,500 for vehicles certified to ``Super Ultra Low
    Emission'' standards (SULEV).
    Battery Electric Vehicles
        Vehicles that utilize stored energy from ``plug-in'' rechargeable
    batteries offer zero emissions. A base credit of $4,000 is included
    (similar to the fuel cell--both have full electric drive systems) and
    an incremental $2,000 is available for vehicles with extended range or
    payload capabilities.
    Alternative Fuel Incentives
        Alternative fuels such as natural gas, LNG, LPG, hydrogen, B100
    (biomass) and methanol are primarily used in alternative fueled
    vehicles and fuel cell vehicles. To encourage the installation of
    distribution points to support these vehicle applications, a credit of
    $0.50 for every gallon of gas equivalent is provided to the retail
    distributor. This credit is available for 6 years and will support the
    distribution of these fuels as vehicle volume grows and may be passed
    on to the consumer by the retail outlet. Note that ethanol is not
    included in these provisions due to the existing ethanol credit.
    Alternative Fuel Infrastructure
        Complementary to the credit for the fuel itself, the existing
    $100,000 tax deduction for infrastructure is extended for 10 years and
    a credit for actual costs up to $30,000 for the installation cost of
    alternative fuel sites available to the public is included. One of the
    key hurdles to overcome in commercializing alternative fuel vehicles is
    the lack of fueling infrastructure. For nearly a century,
    infrastructure has focused primarily on gasoline and diesel products.
    These infrastructure and fuel incentives will help the distributors
    overcome the costs to establish the alternative fuel outlets and
    support distributors during initial lower sales volumes as the number
    of alternative fuel vehicles increases.
        To reiterate, the way to improve vehicle and fleet fuel economy,
    one that is in tune with consumer preferences, is to encourage the
    development and purchase of advanced technology vehicles (ATVs).
    Consumers are in the driver's seat and most independent surveys show
    that Americans place a high priority on performance, safety, space and
    other issues with fuel economy ranking much lower even with today's gas
    prices. ATVs hold great promise for increases in fuel efficiency
    without sacrificing the other vehicle attributes consumers desire. Just
    as important, the technology is transparent to the customer.
        Member companies of the Alliance have invested billions of dollars
    in research and development of more fuel-efficient vehicles. Automobile
    companies around the globe have dedicated substantial resources to
    bringing cutting-edge technologies--electric, fuel cell, and hybrid
    electric vehicles as well as alternative fuel vehicles and powertrain
    improvements--to the marketplace. These investments will play a huge
    role in meeting our nation's energy and environmental goals.
        These advanced technology vehicles are more expensive than their
    gasoline counterparts during early market introduction. As I mentioned
    earlier, the Alliance is supportive of Congressional legislation that
    would provide for personal and business end-user tax incentives for the
    purchase of advanced technology and alternative fuel vehicles. Make no
    mistake: across the board, tax credits will not completely cover the
    incremental costs of new advanced technology. However, it will make
    consumers more comfortable with accepting the technology and begin to
    change purchasing behavior. In short, tax credits will help bridge the
    gap towards winning broad acceptance among the public leading to
    greater volume and sales figures throughout the entire vehicle fleet.
    This type of incentive will help ``jump start'' market penetration and
    support broad energy efficiency and diversity goals.
        Some of the discussion today has centered on the vehicles of the
    automobile manufacturers. But it is important not to forget about a
    vital component for any vehicle--the fuel upon which it operates. As
    automakers looking at the competing regulatory challenges for our
    products--fuel efficiency, safety and emissions--and attempting to move
    forward with advanced technologies, we must have the best possible and
    cleanest fuels. EPA has begun to address gasoline quality but it needs
    to get even cleaner. This is important because gasoline will remain the
    prevalent fuel for years to come and may eventually be used for fuel
    cell technology.
        Beyond gasoline, the auto industry is working with a variety of
    suppliers of alternative fuels. In fact, the industry already offers
    more than 25 vehicles powered by alternative fuels. More than 1 million
    of these vehicles are on the road today and more are coming. Today, we
    find vehicles that use:

       Natural gas, which reduces carbon monoxide emissions by 65
            to 90 percent;
       Ethanol, which produces fewer organic and toxic emissions
            than gasoline with the longer term potential to substantially
            reduce greenhouse gases;
       Liquefied petroleum gas (propane), the most prevalent of the
            alternative fuels, which saves about 60% VOC emissions; and
       For the future, hydrogen, which has the potential to emit
            nearly zero pollutants.

        The Alliance has submitted comments to the DOT in support of an
    extension of the dual fuel vehicle incentives through 2008. Current law
    provides CAFE credits--up to 1.2 mpg--for manufacturers that produce
    vehicles with dual fuel capability. These vehicles can operate on
    either gasoline or domestically produced alternative and renewable
    fuels, such as ethanol. However, the dual fuel credits end in model
    year 2004 unless extended via rulemaking by the National Highway
    Traffic Safety Administration. The Alliance believes an extension is
    important so that these vehicles continue to be produced in high volume
    to help encourage the expansion of the refueling infrastructure and
    giving consumers an alternative to gasoline.
        In addition to alternative fuels, companies are constantly
    evaluating fuel-efficient technologies used in other countries to see
    if they can be made to comply with regulatory requirements in the
    United States. One such technology is diesel engines, using lean-burn
    technology, which have gained wide acceptance in Europe and other
    countries. Automakers have been developing a new generation of highly
    fuel-efficient clean diesel vehicles using turbocharged direct
    injection engines as a way to significantly increase fuel economy and
    reduce greenhouse gas emissions. However, their use in the U.S. must be
    enabled by significantly cleaner diesel fuel.
        Earlier this year, EPA promulgated its heavy-duty diesel rule that
    the Alliance supports, as far as it goes. The rule reduces the amount
    of sulfur in the fuel. Low sulfur diesel fuel is necessary to enable
    the new clean diesel technology to be used in future cars and light
    trucks. Providing cleaner fuels, including lowering sulfur levels in
    gasoline and diesel fuel, will provide emission benefits in existing
    on-road vehicles. Sulfur contaminates emissions control equipment, such
    as catalytic converters. Efforts to reduce sulfur content will provide
    environmental benefits and allow vehicles to operate more efficiently.
    Unless there are assurances that fuels will be available, companies
    will not invest in new clean diesel technologies.
        As you can tell, the automobile companies--from the top executives
    to the lab engineers--are constantly competing for the next
    breakthrough innovation. If I can leave one message with the Committee
    today, it is to stress that all manufacturers have advanced technology
    programs to improve vehicle fuel efficiency, lower emissions and
    increase motor vehicle safety. These are not ``pie in the sky''
    concepts on a drawing board. In fact, many companies have advanced
    technology vehicles in the marketplace right now or have announced
    production plans for the near future. That's why now is the perfect
    time for the enactment of tax credits to help spur consumers to
    purchase these new vehicles which years of research and development
    have made possible.
        Thank you for the opportunity to testify before the Committee
    today. I would be happy to answer any questions you may have.

        The Chairman. Thank you very much.
        Mr. Kolodziej.

             STATEMENT OF RICHARD R. KOLODZIEJ, PRESIDENT,
                     NATURAL GAS VEHICLE COALITION

        Mr. Kolodziej. Excellent.
        The Natural Gas Vehicle Coalition appreciates the
    opportunity to be here this morning to discuss our views on the
    actions that Congress can and should take to reduce America's
    use of foreign oil by accelerating the purchase and use of
    alternative fuel vehicles. The Natural Gas Vehicle Coalition is
    a national organization with more than 180 member companies
    ranging from natural gas utilities to major automobile
    manufacturers to other equipment and service providers to
    environmental organizations and government organizations.
        Mr. Chairman, it is vitally important that we increase the
    use of non-petroleum alternative motor fuels, especially
    natural gas, because doing so would help address at least two
    important national public policy priorities simultaneously.
    First is the issue that we have already talked about,
    dependence on foreign oil. Natural gas vehicles contribute
    directly to reducing our dependence on foreign oil. The U.S.
    imports significantly more petroleum today than it did in 1992
    when the Energy Policy Act was passed, and that is just not
    good public policy. It is not good for the country.
        The only way to break free of that reliance on petroleum
    fuels is to increase the use of non-petroleum alternative
    fuels. Efforts to increase fuel efficiency, while laudable and
    important and we have got to do that, will not by themselves
    improve energy security. A gasoline or diesel vehicle that gets
    60 or even 80 miles per gallon is still 100 percent dependent
    on petroleum.
        The second way America benefits from increased use of NGVs
    is the environment. Compared to similar gasoline vehicles, NGVs
    produce far less carbon monoxide and volatile organic compounds
    and nitrogen oxides. They even produce 20 percent less
    greenhouse gases. Meanwhile, heavy duty vehicles are not
    necessarily the focus of this session today, but heavy duty
    vehicles produce far less NOX and up to 90 percent
    less particulates than a comparable diesel vehicle. In fact,
    heavy duty natural gas vehicles already meet the particulate
    levels called for in EPA's emissions standards that do not even
    go into effect until 2007. They also produce significantly less
    air toxics, which may in fact become the air quality issue of
    this decade.
        Today, there are over 100,000 natural gas vehicles on
    America's roads. There are over a million and a half worldwide,
    and the vehicles in America displace more than 100 million
    gallons of gasoline a year. The United States produces the best
    and the cleanest NGVs in the world and right now we have more
    alternative fuel vehicle models available than ever before. We
    have made great progress, but we have a long way to go.
        Consumers continue, as you have heard, to be hesitant to
    buy these vehicles because of the additional costs involved and
    the lack of a fueling infrastructure. Both these problems would
    be resolved if vehicle demand reached a critical mass. If we
    reach the critical mass, we get economies of scale for the
    manufacturers. If we get economies of scale for the
    manufacturers, we would come down on our costs.
        Because of the substantial public benefits that NGVs offer,
    Congress could and should take steps to make this overall
    improvement happen, and in our written testimony we have
    indicated a number of recommendations. The single most
    important step would be the passage of the CLEAR ACT, S. 760. I
    loved hearing all those positive things earlier about S. 760.
    The CLEAR ACT would be a meaningful tax program, tax incentive
    program, that would provide a market-driven, non-regulatory
    approach to the purchase and use of alternative fuel vehicles.
        Now, we recognize that the CLEAR ACT is not within the
    jurisdiction of this committee. However, we believe that it is
    crucial that the energy policymakers on this committee send a
    clear and unambiguous message that enactment into law of the
    provisions of the CLEAR ACT is a critical part of our national
    energy strategy and is in the best interest of the country.
        The NGV Coalition also believes that the Energy Policy Act
    must be restructured. While that law has had a big impact on
    getting automakers to produce alternative fuel vehicle models,
    as was mentioned earlier, it has not achieved anywhere near the
    petroleum replacement goals envisioned. In our written
    testimony we indicate a program, a number of specific
    recommendations that would build on the positive achievements
    of EPAct, increase the amount of alternative fuel used and
    therefore foreign oil displaced, and increase the amount of
    flexibility available to the covered fleets to help them more
    effectively comply with the law.
        A third area is R&D. Federally sponsored NGV R&D has been
    critical to the NGV industry's technical advancements, and the
    industry has worked closely with the Department of Energy to
    develop a comprehensive 5-year NGV R&D strategic plan.
    Unfortunately, the Department has never requested sufficient
    funds to implement the Federal Government's part of that plan,
    instead focusing, we believe disproportionately, on funding
    diesel and gasoline projects.
        We urge the committee to instruct DOE to substantially
    expand the NGV program to bring it into line with the 5-year
    plan we have jointly developed, especially with respect to
    natural gas as a fuel for hybrid vehicles and as a hydrogen
    source for fuel cells.
        Mr. Chairman, that concludes my remarks. Our written
    comments include other recommendations concerning programs that
    would help further the use of alternative motor fuels and I
    look forward to working with you and the committee on
    implementing this program.
        [The prepared statement of Mr. Kolodziej follows:]

      Prepared Statement of Richard R. Kolodziej, President, Natural Gas
                               Vehicle Coalition

                                  INTRODUCTION

        Mr. Chairman and Members of the Committee, the Natural Gas Vehicle
    Coalition (NGVC) appreciates the opportunity to discuss our views on
    the actions Congress can and should take to reduce America's use of
    foreign oil by accelerating the purchase and use of alternative fuel
    vehicles. My name is Rich Kolodziej, and I am President of the NGVC.
    The NGVC is a national organization dedicated to the development of a
    growing, sustainable and profitable natural gas vehicle market. The
    NGVC represents more than 180 natural gas companies, equipment
    manufacturers and service providers, as well as environmental groups
    and government organizations.
        Reducing the use of petroleum by increasing the use of non-
    petroleum alternative motor fuels should be among the highest policy
    priorities of the federal government for at least two fundamental
    reasons. First, the lack of stability and competition in oil markets
    and the continued growth in oil imports demonstrate beyond doubt that
    it is time to get serious about reducing our reliance on oil imports.
    The oil producing nations are in a monopoly position, and we are held
    hostage to their decisions about production levels. American consumers
    must be provided a choice.
        Second, too many Americans live in urban areas with poor air
    quality. It is estimated that more than 100 million Americans live in
    areas that are not in compliance with national ambient air quality
    standards. The result has been an alarming increase in the incidence of
    asthma and other respiratory ailments in children and the elderly.
    Increasing the use of alternative fuel vehicles--especially natural gas
    vehicles--helps address both these policy priorities simultaneously.
        Now is the time to take action. Today, there are more alternative
    fuel vehicles (AFVs) in operation and models available than at any time
    before. Domestic natural gas is readily available. State and local
    governments across the country are adopting legislative incentives that
    will help pave the way toward more AFVs. In addition to the
    introduction of these vehicles, federal, state and local incentives
    also have encouraged increased investment in alternative fuel
    infrastructure. However, no one state or group of states alone can
    significantly alter the direction of any major national industry, such
    as the motor vehicle industry.
        Therefore, while the future for alternative fuel transportation
    technologies appears bright, much more must be done at the national
    level if we are to significantly reduce this country's reliance on
    imported oil, improve our air quality and develop profitable
    alternative fuel vehicle markets. Since consumers continue to be
    hesitant to buy many AFVs because of the costs involved and the lack of
    infrastructure, Congress needs to expand incentives for all alternative
    fuels, including measures that will bring down the cost of acquiring
    AFVs and purchasing alternative fuels. Congress also should adopt
    incentives that support the expansion of the alternative fuel
    infrastructure and reduce the incremental costs involved.

      1. THE NEED TO REDUCE OUR DEPENDENCE ON FOREIGN OIL IS GREATER THAN
                                      EVER

        The U.S. imports significantly more petroleum today than it did in
    1992 when the Energy Policy Act (EPAct) was enacted. Net imports are up
    more than 2.8 million barrels a day while domestic production has
    declined by nearly 1.3 million barrels a day. The combination of lower
    domestic production and increased demand means that oil imports also
    make up a larger share of total oil consumed in the US. In 1992, crude
    oil imports made up approximately 45 percent of domestic supply. Last
    year, crude oil imports accounted for 59 percent of total supply. The
    Energy Information Administration's (EIA) 2001 Annual Energy Outlook
    forecasts that oil imports will approach 61 percent of total supply
    this year. EIA's long-term forecast has oil imports making up 69
    percent of U.S. supply by 2010, and more than 71 percent by 2020.
        Persian Gulf and OPEC member countries supply an important part of
    U.S. crude oil and petroleum imports. The EIA reports that in 1999 the
    U.S. relied on OPEC members to provide approximately 46 percent of
    imported petroleum; Persian Gulf states alone provided approximately 23
    percent of total imports. While EIA's long-term forecast shows OPEC
    continuing to provide about 46 percent of U.S. petroleum demand in
    2020, the forecast shows Persian Gulf exports becoming a much more
    significant part of OPEC exports to the US, rising from 39 percent to
    50 percent.
        OPEC and Persian Gulf exports also make up a major component of
    world oil supply. OPEC members currently provide about 40 percent of
    worldwide supply. OPEC's share of the world oil market is expected to
    reach 51 percent by 2020, according to EIA's forecast. Persian Gulf oil
    is even more key to world oil supplies. Persian Gulf exports in
    particular are of concern since this region has generally been unstable
    and continues to be the source of geopolitical conflicts.
        Of particular concern is Iraq, which continues to be the wild card
    in international oil markets. Iraqi currently has an oil production
    capacity of 3.0 million barrels of oil per day. This represents nearly
    four percent of world oil production. This is a significant volume of
    oil and its removal from international markets at a time when reserve
    stocks are low could significantly affect world oil prices. Over the
    next two decades, the EIA projects that Iraq will more than double its
    oil production, ensuring that it continues to be an important player in
    international oil markets.
        The recent curtailment of world oil production by OPEC members
    demonstrates the serious consequences of even small disruptions in the
    supply of oil to international markets, and proves that OPEC is capable
    of acting cohesively to control international oil markets. It is
    precisely because of their growing market power that they have been
    able to affect world oil prices. As recent events demonstrate, the
    economic effect of supply disruptions is not limited to any one region
    but rather reverberates across international commodity markets. The
    notion that the U.S. can increase its energy security by reducing its
    overall reliance on OPEC oil simply is not true. Disruptions of oil
    supplies from the Persian Gulf and from OPEC members will still result
    in much higher prices being paid for oil imports regardless of their
    country of origin. In addition, while the market share for petroleum in
    the America's residential, commercial, industrial and power generation
    markets has declined substantially over the past 25 years, petroleum
    still has a virtual monopoly in our transportation sector.
        An additional concern is the growing demand for oil by developing
    nations. It is estimated that by 2020 demand for oil worldwide will
    increase by over 50 percent. Much of this will occur because of
    economic expansion and growing vehicle populations in developing
    nations, especially China. This increased demand is expected to place
    significant upward pressure on world oil prices.
        U.S. reliance on foreign oil has a significant impact on our
    economy. Petroleum imports result in fewer dollars spent at home and
    more sent overseas. Payments for imported petroleum jumped from $60
    billion in 1999 to more than $100 billion in 2000, according to EIA.

         2. EPACT'S PETROLEUM DISPLACEMENT GOALS HAVE NOT BEEN ACHIEVED

        To combat our reliance on oil imports, EPAct set a national goal of
    replacing 10 and 30 percent of the petroleum used in light duty
    vehicles with non-petroleum alternative fuels by 2000 and 2010,
    respectively. EPAct was intended to create a viable alternative fuels
    market. Its goal was to reduce U.S. petroleum and crude oil imports and
    increase energy security by promoting reliance on domestic fuels.
        A report released last year by the U.S. General Accounting (GAO)
    indicates that unfortunately today, even after almost nine years of
    EPAct implementation, alternative fuel use accounts for a very small
    amount of overall motor fuel demand. According to the 1998 figures
    compiled by the GAO, total alternative fuel use--including the
    oxygenated blending stocks for gasoline--accounts for less than 4
    percent of all highway gasoline use. This is far short of the EPAct
    goal of 10 percent displacement by 2000. The amount of alternative fuel
    that is used in AFVs is even less. GAO reports that alternative fuel
    use in AFVs displaced only about 334 million gallons of gasoline or
    less than 0.3 percent of total gasoline consumption. The vast majority
    of the remaining amounts of non-petroleum fuel used in the country are
    comprised of MTBE or ethanol that is added to gasoline to meet the
    reformulated gasoline requirements of the Clean Air Act.

            3. THE TRANSPORTATION SECTOR: THE KEY TO ENERGY SECURITY

        Concerns about energy security and the transportation sector's
    reliance on petroleum motor fuels led to the passage of EPAct. While
    the effort to increase alternative fuel use and to reduce the
    transportation sector's reliance on petroleum motor fuels has been
    disappointing, EPAct has nevertheless resulted in a number of positive
    developments. Today, the type and number of alternative fuel vehicles
    being sold, as well as the number of alternative fuel stations, has
    grown. The U.S. is the world leader in the field of alternative fuel
    vehicles and fueling infrastructure. The U.S. automakers should be
    commended for their impressive array of low polluting, AFVs. Yet, still
    more must be done.
        Since the 1970s, all major energy-consuming sectors other than
    transportation have significantly reduced their dependence on
    petroleum. Today, the transportation sector remains almost totally
    dependent on petroleum motor fuels. The U.S. transportation sector is
    responsible for more than two-thirds of all petroleum consumption and
    an astonishing 15 percent of world oil demand. The only way to break
    free of the reliance on petroleum fuels is to increase the use of
    alternative fuels. Efforts to increase fuel efficiency in gasoline and
    diesel vehicles are laudable and must be a continuing part of a
    national energy strategy. However, increased fuel efficiency for
    gasoline and diesel vehicles alone will not improve our country's
    energy security. Improving fuel efficiency will simply slow-down the
    current growth in oil consumption. Fuel efficiency does not provide
    energy consumers with options for fueling their vehicles. A gasoline or
    diesel vehicle that gets 60 or even 80 miles per gallon is still 100
    percent reliant on petroleum supplies.
        Increasing the use of alternative fuels will provide consumers with
    real options when it comes to supply disruptions or price hikes. We
    cannot wait for the next supply disruption or price spike to create the
    necessary fueling infrastructure. Those efforts must begin now. Given
    the significant amount of energy consumed by the domestic
    transportation sector, a strong U.S. market for alternative fuels would
    put downward pressure on international oil prices. In addition, exports
    of U.S. alternative fuels technologies would not only bolster our own
    economy but would further reduce world-wide dependence on foreign oil,
    further lessening the market power of certain oil exporting nations.
    News of growing international interest in alternative fuels increases
    daily. Countries such as Argentina, China, Chile, Egypt, India and
    Mexico increasingly are looking at alternative fuels to combat air
    pollution and reduce oil imports.

                   4. THE CURRENT NATURAL GAS VEHICLE MARKET

        There are more than 100,000 natural gas vehicles in-use today.
    These vehicles are owned and operated by the federal government, local
    and state governments, and, increasingly, private fleets. These
    vehicles include passenger cars, light duty trucks, school buses,
    transit buses, refuse haulers, and many other types of vehicles. It is
    important to note that nearly all of the new NGVs placed in-service
    today are produced by original equipment manufacturers (OEMs). Such
    well-known companies as DaimlerChrysler, Ford Motor Company, General
    Motors, Honda, Toyota, Blue Bird, and Freightliner are manufacturing
    these vehicles. Nearly every manufacturer of transit buses now offers a
    line-up of natural gas buses. In addition, heavy-duty natural gas
    engines are now available from Caterpillar, Cummins, Detroit Diesel,
    John Deere and Mack.
        While the number of NGVs in-use is still small in terms of the
    overall vehicle population, it is growing. Since 1992, the number of
    NGVs in-use has increased four-fold. More impressive, the total amount
    of fuel consumed by these vehicles has increased more than six-fold.
    Today, NGVs displace more than 100 million gallons of gasoline a year,
    representing about 27 percent of all alternative fuel that is consumed
    in alternative fuel vehicles.

             5. THE ENVIRONMENTAL BENEFITS OF NATURAL GAS VEHICLES

        Natural gas is one of the cleanest alternative fuels. When compared
    to average petroleum vehicles, NGVs reduce exhaust emissions of carbon
    monoxide (CO) by 50%, non-methane organic gas (NMHC) by 88% and
    nitrogen oxides (NOX) by 66%, and produce 20% fewer
    greenhouse gases. NGVs have been certified to be substantially cleaner
    than traditionally fueled vehicles. Several models already meet or
    exceed California's ultra-low emissions vehicle (ULEV) and super ultra-
    low emissions vehicle (SULEV) standards.
        Heavy-duty vehicles powered by natural gas generally reduce
    emissions of particulate matter by 90 percent and NOX by
    more than 50 percent. Natural gas engines also produce significantly
    less air toxic emissions. Regulatory agencies across the country
    increasingly are looking to natural gas engines to displace diesel
    engines as an effective strategy for reducing pollution. For example,
    officials in California have decided that natural gas or other
    alternative fuels should power most new government-owned heavy-duty
    vehicles. In addition, many transit agencies around the country have
    decided to exclusively rely on natural gas buses when purchasing new
    buses for their fleets.
        The Honda Civic GX illustrates the excellent emissions attributes
    that natural gas has as a vehicle fuel. Even though they have been
    working with natural gas for only a few years, Honda has been able to
    achieve truly remarkable results with the Civic GX. In fact, the
    natural gas Honda GX, which is certified as SULEV, is the cleanest
    internal combustion engine powered vehicle ever commercially produced,
    producing far less pollution than Honda's other low-polluting vehicles,
    including their hybrid electric vehicle. Initially, regulators had
    difficulty even measuring the emissions from the Honda GX. A gasoline
    vehicle certified to just the minimum current federal standards emits
    nearly 194 times more pollution than the dedicated natural gas Honda
    Civic GX. Vehicles produced by the DaimlerChrysler, Ford and General
    Motors also have met some of the most demanding emission standards in
    existence. For example, a one-mile trip to the corner grocery store and
    back in an average pickup truck emits as much smog forming hydrocarbons
    as is emitted by the Ford F-250 NGV in a 247 mile trip.
        More immediately, natural gas vehicles can provide critical
    emission reductions today. The recently announced EPA heavy-duty
    emission standards will not be fully implemented until 2010. Natural
    gas heavy-duty vehicles already meet the particulate matter levels
    called for in the proposed rules and are years ahead of diesel engines
    in terms of reducing NOX emissions. In addition, there are
    many uncertainties concerning the timing of EPA's proposed rules.
    Industry has indicated that they intend to fight the standards,
    especially the sulfur reductions for diesel fuel. It is possible that
    the emission benefits of the proposed rule will not be available until
    some time after 2010. In the meantime, natural gas vehicles are
    available now and they can deliver superior emissions performance with
    the added advantage of petroleum displacement.

                6. THE FUTURE OF THE NATURAL GAS VEHICLE MARKET

        The prospects for increased natural gas use for centrally fueled
    and other high fuel use fleet operations, such as taxicabs, refuse
    haulers, school and transit buses, airport shuttles and over-the-road
    trucks, are very good. The NGV industry has generally chosen to focus
    on high fuel use fleets and heavy-duty vehicles because their fuel
    consumption and refueling patterns make them the best choice for early
    introduction of alternative fuels. Initially, suppliers of natural gas
    are looking for customers that will use sufficient amounts of fuel to
    justify the capital investment in retail and private fueling. Another
    advantage of focusing on high fuel use fleets and operators of heavy-
    duty vehicles is that replacing these vehicles with alternative fuels
    provides the greatest amount of emission reductions.
        While NGVs are commercially available, they generally cost more
    than their gasoline or petroleum counterparts. Light-duty NGVs for
    example, generally cost $3,500 to $5,000 more; heavy-duty NGVs cost
    from $25,000-$50,000 more. However, as more vehicles are sold,
    economies of scale will lower the incremental cost of NGVs. The
    Department of Energy estimates that light-duty NGVs will cost
    approximately $800 more than comparable gasoline models when mass-
    produced. Unfortunately, we are still far from seeing the economies of
    scale that will result from mass production. For example, Ford Motor
    Company produced over 100,000 Crown Victoria Sedans last year. Of
    these, only 1,000 were natural gas-powered.
        Some people have questioned the continued need for alternative fuel
    vehicles, particularly since the U.S. EPA announced plans to make
    gasoline and diesel fueled vehicles of all sizes much cleaner. While
    there is no question that conventionally fueled vehicles have gotten
    cleaner and will continue to do so, natural gas vehicles too can
    continue to become cleaner. Alternative fuel vehicles will continue to
    be necessary to offset the increased number of vehicles and increased
    growth in vehicle miles traveled projected by the U.S. Department of
    Transportation.
        Many experts also believe that eventually hydrogen-based fuel cell
    vehicles will replace the internal combustion engine. It is important
    to understand that natural gas provides an excellent pathway to a
    hydrogen transportation future since natural gas can be used to supply
    the needed hydrogen for fuel cell vehicles. (In fact, almost all
    stationary fuel cells currently in commercial use derive their hydrogen
    from natural gas.) As the demand for hydrogen grows, natural gas could
    be converted into hydrogen at distribution centers or at refueling
    stations and supplied to hydrogen vehicles. The natural gas
    infrastructure that is in place today (including the existing
    pipelines, fueling stations, fuel storage systems and garages and
    maintenance facilities retrofitted to safely handle a gaseous fuel like
    natural gas) can be used to support the hydrogen future. In addition,
    because of the growing NGV market, there are an increasing number of
    mechanics, inspectors and other transportation professionals that are
    becoming familiar with servicing gaseous fuel vehicles. It is difficult
    to imagine how the nation could transition from a petroleum-based
    transportation system directly to a hydrogen system. Therefore, natural
    gas is not just an excellent pathway to a hydrogen transportation
    future; it may just be the only way to transition to that future.
        It also should be kept in mind that it will be decades before fuel
    cell vehicles could become a substantial percentage of the U.S. vehicle
    population. Internal combustion engines, whether used in traditional
    vehicles or hybrid electric vehicles, will continue to power most
    vehicles for the foreseeable future. Natural gas vehicles will always
    be cleaner than comparable gasoline or diesel vehicles using the same
    technology, including hybrid electric technology.

                                RECOMMENDATIONS

        There are a number of policies and programs that the federal
    government could and should put in place to accelerate the purchase and
    use of alternative fuel vehicles. Some are refinements of existing
    programs; some are new. Many fall within the purview of the U.S.
    Department of Energy or Environmental Protection Agency. However, all
    require congressional leadership in terms of continued authorizations
    and/or appropriations. The NGVC recommends that Congress support the
    following policies and programs:
    a. Financial Incentives
        Support the CLEAR ACT. In April, Senators Hatch and Rockefeller
    introduced S. 760, a bipartisan bill titled Clean Efficient Automobiles
    Resulting from Advanced Car Technologies (CLEAR ACT). That bill
    currently has 11 cosponsors. A companion bill, H.R. 1864, was
    introduced in the House in May. S. 760 would provide meaningful tax
    incentives for the purchase of alternative fuel and advanced technology
    (fuel cell and hybrid) vehicles, the use of alternative fuels, and
    investments in alternative fuel infrastructure. These proposals are
    market-driven non-regulatory approaches to promoting AFVs and their
    use. A credit against income taxes is provided for individuals and
    businesses for the acquisition of alternative fuel vehicles. The amount
    of the credit depends on the environmental benefits the vehicle
    provides. A credit against income taxes also is provided to retail
    sellers nationwide for the sale of alternative motor fuels. We
    recognize that the CLEAR ACT is not in the jurisdiction of this
    Committee. However, we believe that it is critical that the energy
    policymakers on the Energy Committee send a clear and unambiguous
    message that enactment into law of the provisions the CLEAR ACT is a
    critical part of a national energy strategy and in the best interest of
    the country.
        Provide More Funding to State and Local Government Fleets. State
    and local government fleets are increasingly turning to alternative
    fuel vehicles as a strategy to help bring their communities into
    compliance with National Ambient Air Quality Standards. (Indeed, 75
    percent of covered state government fleets are required by EPAct to be
    capable of operating on alternative fuels.) Because of the financial
    pressure of other priorities, this transition to AFVs is proceeding
    slower than it could or should be. Congress should provide state and
    local governments matching funds for AFV acquisition for their fleets,
    with a higher level of matching for states that commit to a higher
    percentage of AFVs in the state's fleet than required by EPAct.
        Congress also should increase funding for the Department of
    Energy's Clean Cities Initiative. Over 80 cities across the country
    have established Clean Cities coalitions, which are public/private
    partnerships dedicated to in the increased use of AFVs. The Clean
    Cities program has been extraordinarily successful, and its efforts
    should be recognized and encouraged.
        Fund Local Government Model AFV Demonstration Projects. Last month,
    Rep. Sherwood Boehlert (R-NY), chairman of the House Science Committee,
    introduced the ``Alternative Fuel Vehicle Acceleration Act'' (H.R.
    2326). The bill would establish a nationwide alternative fuel vehicle
    energy demonstration and commercial application competitive grant
    program by providing $200 million in federal grants to up to 15
    communities. The grants could be used to deploy AFVs and connect them
    to existing transportation systems to help create AFV intermodal
    networks. Rep. Boehlert plans to include H.R. 2326 in the energy
    package being developed by the House Science Committee. The Energy
    Committee should consider similar legislation.
        Support the Green School Bus Program. Recent studies indicate that
    children riding on older school buses are exposed to potentially
    dangerous levels of emissions. We join with the Union of Concerned
    Scientists to urge passage of legislation to provide school districts
    with funding to replace diesel school buses with alternative fuel
    buses, especially older school buses that may not meet today's safety
    standards.

    b. Research, Development and Demonstration (RD&D)

        Expand Funding for NGV RD&D. NGVs are good, but they can be made
    better. Significant R&D is still needed to (1) improve engine
    efficiency, (2) further reduce engine emissions, (3) reduce the cost
    and improve the reliability of fueling infrastructure, and (4)
    demonstrate natural gas systems in new applications. The Energy
    Committee should direct DOE to substantially expand its NGV RD&D
    program to bring it in line with the new Five-Year NGV RD&D Plan
    developed jointly by the NGV industry and DOE.
        Include NGVs in Advanced Automotive Technology R&D. As discussed
    above, from the perspective of energy security and the environment,
    natural gas is a superior fuel to gasoline and diesel for hybrids and
    fuel cells. Therefore, natural gas could and should play a very
    important role in the deployment of advanced automotive technologies
    such as hybrid electric and fuel cell vehicles. Existing federal
    advanced vehicle programs, however, have focused on liquid (primarily,
    petroleum-based) fuels for these vehicles. The Energy Committee should
    instruct DOE to include gaseous fuels in its advanced technology
    vehicle program.

    c. Restructure EPAct

        EPAct includes specific goals for petroleum reduction through the
    use of non-petroleum alternative motor fuels. To help achieve these
    goals, the Act requires alternative fuel provider fleets, the federal
    fleet and state government-owned fleets to acquire light duty AFVs. The
    law allows these fleets to meet up to one-half of their AFV purchase
    requirements through the use of biodiesel. Each 450 gallons of
    biodiesel used (2,250 gallons of B-20) by a fleet equals one AFV. As
    discussed above, EPAct's success in encouraging OEMs to bring AFVs to
    the market stands in stark contrast, however, to its success in
    actually helping to displace petroleum with alternative fuels. Fuel
    provider fleets and the federal fleet are required to operate their
    AFVs on alternative fuel, but only if such fuel is reasonably
    available. Many fleets have met their EPAct requirements by acquiring
    flex-fuel vehicles (vehicles that can operate either on alternative
    fuel or conventional petroleum fuel), and then operating them on
    gasoline. Consequently, according to the recent General Accounting
    Office study discussed above, very little petroleum actually has been
    displaced through the use of alternative fuels in AFVs owned by these
    fleets. Congress should make the following modifications to EPAct to
    increase its effectiveness in reducing the use of petroleum:
        i. Create an Optional EPAct Compliance Alternative. Some state
    government and fuel provider fleets have expressed a desire for greater
    flexibility in meeting the AFV acquisition requirements. Congress
    should modify EPAct to provide state government and fuel provider
    fleets with an optional approach to meeting their EPAct requirements
    that offers them substantially greater flexibility. In exchange, the
    program would ask them to accept a voluntary commitment to actually
    reducing their use of petroleum fuel. Under this program, state
    government and fuel provider fleets would have the option to continue
    to meet EPAct requirements as they have in the past (i.e., by acquiring
    AFVs, meeting up to one-half their requirements through the use of
    biodiesel and, for fuel provider fleets, using alternative fuel where
    available). However, this proposal also would provide them the option
    of opting out of the vehicle acquisition and fuel use requirements by
    agreeing to reduce a percentage of the petroleum they use in their
    fleet operations. This percentage would be equal to the amount of
    petroleum that would be displaced if all AFVs they own and would be
    required to acquire under EPAct if they remained subject to the vehicle
    acquisition requirements operated on alternative fuel exclusively. The
    Department of Energy would be required to issue rules regarding the
    calculation of this amount.
        If a fleet elects this option, all actions it takes to reduce
    petroleum consumption would be counted under the rules DOE must issue.
    These actions could include:

       the use of biodiesel (every gallon of biodiesel used would
            count),
       the use of hybrid electric vehicles and neighborhood
            electric vehicles (based on the amount of petroleum displaced
            compared to a conventional vehicle in the same weight class),
       the actual use of alternative fuel in all their vehicles,
            including light-, medium- and heavy duty vehicles and
       the amount of fuel displaced as a result of substantial
            contributions they make to getting other fleets or persons to
            reduce petroleum consumption.

        This flexible approach would result in meaningful petroleum
    displacement, provide incentives for acquisition of AFVs, hybrid
    vehicles and neighborhood electric vehicles and encourage increased use
    of biodiesel. Since the option is voluntary, it would not constitute an
    unfunded mandate.
        ii. Credit for the acquisition of heavy-duty vehicles. Congress
    should permit fleets covered by EPAct to count dedicated medium and
    heavy-duty vehicles they acquire toward their EPAct requirements.
        iii. Enforcement. Congress should direct DOE to send a report to
    the Senate Energy and Natural Resources and House Energy and Commerce
    Committees within 90 days of the date of enactment regarding compliance
    with EPAct requirements by federal, state and fuel provider fleets. DOE
    should be instructed to detail the efforts it has made to enforce the
    requirements of the Act, as well as to promote the use of alternative
    fuels by these fleets. DOE also should be required to publish the
    report in the Federal Register as well as to publish enforcement
    actions under EPAct.
    d. Other
        Accelerate Mobile-to-Stationary Credit Trading. Under current
    Environmental Protection Agency (EPA) regulations (open market trading
    guidance and the Federal NOX Budget Trading program), the
    use of mobile emission credits to offset stationary source emissions is
    either prohibited or discouraged by overly bureaucratic requirements.
    Where used, the process has been extremely burdensome. Congress should
    direct EPA to develop regulations to encourage and facilitate mobile to
    stationary source emissions trading, and to update its Mobile Emissions
    Model to include natural gas vehicles and other low-polluting
    technologies. EPA should be instructed to develop methodologies for
    ensuring that mobile source emission reductions are real and
    verifiable, and move expeditiously to ensure that mobile reduction
    credits are part of its regulatory programs.

                                   CONCLUSION

        On behalf of the Natural Gas Vehicle Coalition, I appreciate the
    opportunity to provide our views on these critical issues. It is clear
    that the U.S. must take steps to lessen its dependence on foreign oil.
    Natural gas vehicles can help to significantly reduce dependence on
    foreign oil. It also is clear that America's urban areas must reduce
    their levels of air pollution. Natural gas vehicles are the cleanest
    vehicles commercially available today and will continue to be tomorrow.
    The U.S. currently has the best technology in the world for using
    alternative transportation fuels. It is critical for the U.S. to
    capitalize on this technological edge and begin to move alternative
    fuels into the marketplace. Government incentives continue to be
    necessary to make this happen. With government incentives and
    leadership, the private sector can greatly expand the market for
    alternative transportation fuels.

        The Chairman. Thank you very much.
        Mr. Marshall.

              STATEMENT OF GARY MARSHALL, VICE CHAIRMAN,
                   NATIONAL ETHANOL VEHICLE COALITION

        Mr. Marshall. Good morning, Mr. Chairman.
        The Chairman. Good morning.
        Mr. Marshall. Glad to be here today. I want to talk with
    you a little bit about the National Ethanol Vehicle Coalition,
    which is the primary advocacy group for the use of E-85, or 85
    percent ethanol, as a form of alternative transportation fuel.
    The NEVC is comprised of a number of different members,
    including the 26 members of the Governors Ethanol Coalition,
    the National Corn Growers Association, several State corn
    growers associations, which I actually work for the Missouri
    Corn Growers Association, as well as several automobile
    manufacturers, ethanol companies, and others.
        We are primarily interested in E-85 as an alternative fuel
    source, but we are obviously very supportive of the use of
    ethanol as E-10. We have other advocacy groups out there
    working on E-10 and certainly we are very supportive of efforts
    such as S. 1006, the Renewable Fuels Act. But we are going to
    focus our remarks today on E-85, and obviously the biggest
    challenge that we have had, as people have been talking about
    all morning, has been the development of infrastructure to fuel
    automobiles with E-85, 85 percent ethanol. We are hoping that
    we can help today to integrate E-85 into a broad-based national
    energy strategy.
        Today, most of the ethanol produced in the United States
    comes from corn. But as ethanol demand increases, we are going
    to see ethanol produced from a number of different feedstocks,
    including agricultural wastes, wood waste, and even municipal
    solid waste. We support and advocate all of these different
    forms of feedstocks, including biomass, agricultural waste, and
    feed grains.
        Briefly, the automakers have made significant investments
    to bring E-85 compatible vehicles to the marketplace at no
    additional cost to consumers. By the conclusion of market year
    2001 there will be approximately 1.9 million flexible fuel
    vehicles on the Nation's highways capable of consuming more
    than 1.5 billion gallons of ethanol annually if the
    infrastructure was available. The number of these vehicles
    continues to increase. We are going to see more this year, more
    introduced next year.
        Different styles of vehicles will be compatible to use
    alternative fuels, like E-85. These vehicles can run on 85
    percent ethanol, they can run on 10 percent ethanol, they can
    run on conventional gasoline. So if you do not have access to
    the 85 percent ethanol, you can use something else if you are
    traveling away.
        Again, the problem has been finding the infrastructure,
    putting the infrastructure together to produce E-85. We can use
    the existing infrastructure to deliver it. The gasoline tanks,
    we have to have a dedicated tank for the E-85, but the pumps,
    just like we see in many of the filling stations across the
    country today, we can utilize those directly for E-85. So there
    is an additional cost of putting in the different tanks and so
    forth, but the infrastructure could be made available
    relatively easily. It just has not been completed to this point
    in time.
        Now, just for a couple of brief interesting comments. If
    these 1.9 million flexible fuel vehicles were able to use E-85
    as its primary fuel source, we would displace 34 million
    barrels of imported petroleum, use an additional 530 million
    bushels of corn, generate an additional $3 billion in farm
    income, develop a marketplace for the production of ethanol
    from biomass and waste materials, significantly reduce the
    emissions of non-methane hydrocarbons, carbon monoxide, and air
    toxics, implement a reduction of more than 4.3 million tons per
    year of greenhouse gas emissions, and help establish a long-
    term sustainable alternative domestic transportation fuel.
        As more of these automobiles come on line, obviously we
    believe there is no other form of transportation fuel that
    provides the broad range of environmental and economic benefits
    to the Nation as does E-85. But as I have been saying,
    obviously there are impediments to achieving those results.
    Lack of infrastructure--today we have only about 200 public E-
    85 fueling stations in the United States.
        Ethanol contains less energy on a Btu basis than does
    gasoline and even with the existing blenders tax credit a
    gallon of gasoline equivalent E-85 often exceeds the cost of
    unleaded gasoline.
        The automakers have been criticized for producing flexible
    fuel vehicles that do not operate on alternative fuels, but we
    can change that with help. The Alternative Motor Fuel Act of
    1988 provided credits to the automakers to encourage the
    production of these alternative fuel vehicles and these
    credits, while limited, have assisted the automakers in
    achieving the corporate average fuel economy standards proposed
    and provided for by law.
        They have been criticized, again, for not taking advantage,
    or for taking advantage of the CAFE credits provided by
    Congress and that little of the alternative fuels have been
    used. The automakers have only been doing what has been
    available to them. The incentives were there for the production
    of the vehicles. The incentives have not been there for the use
    of the fuels. Congress obviously intended that these incentives
    be used to initiate and promote the production of the vehicles.
    Now we need these same types of things for the fuel.
        I would like to offer a very general set of conclusions and
    recommendations that the committee might want to consider. No.
    1, all forms of alternative fuels be products produced in North
    America and promote national energy security.
        No. 2, E-85 and biodiesel are the only alternative fuels
    that can significantly reduce emissions of greenhouse gases.
        No. 3, E-85 and biodiesel are the only forms of renewable
    transportation fuels available in a liquid form that could use
    the Nation's existing fuel delivery system.
        No. 4, renewable fuel production can be a cornerstone for
    important economic development and job creation across the
    country.
        We do support the development of a national energy
    strategy. You may want to consider a couple of other ideas. It
    might be appropriate to establish something like a national
    alternative fuel trust fund, where we could help provide
    incentives for the use of alternative fuels. The development of
    a financial mechanism that would provide gasoline gallon
    equivalency to all forms of alternative transportation fuels,
    so that the motoring public would not be faced with reductions
    in fuel mileage when utilizing alternative fuels. The
    establishment of new incentives or the extension of existing
    incentives available to the automakers to assist in offsetting
    the cost of producing the alternative fuel vehicles.
    Implementation of incentives to fuel providers across the
    Nation that would potentially change their existing paradigm
    from being a petroleum-based company to an energy-based company
    or a transportation fuel-based company.
        So with that, Mr. Chairman, I would like to thank you for
    the opportunity to provide these remarks. I would be happy to
    answer any questions that you might have.
        [The prepared statement of Mr. Marshall follows:]

     Prepared Statement of Gary Marshall, Vice Chairman, National Ethanol
                               Vehicle Coalition

        Good morning Mr. Chairman, members of the Committee, ladies and
    gentlemen. My name is Gary Marshall and I serve as the CEO of the
    Missouri Corn Growers Association, which has offices in Jefferson City,
    MO. I am here today representing the National Ethanol Vehicle Coalition
    in which I also serve as the Vice-Chairman of the organization. Thank
    you for the opportunity to appear before the Committee and discuss the
    use of 85 % ethanol or E85, as a form of alternative transportation
    fuel. My comments will be very brief to allow the Committee an
    opportunity to ask any questions that you may have.
        The National Ethanol Vehicle Coalition is composed of state and
    local organizations, state and local elected officials, third-part
    stakeholders, ethanol producers, vehicle manufacturers, and
    agricultural interests. Our members include:

              The 26 members of the Governors' Ethanol Coalition
              National Corn Growers Association and several state
            affiliates including:

                      Missouri Corn Growers Association
                      Colorado Corn Growers Association
                      Kansas Corn Growers Association
                      Maryland Corn Growers Association
                      General Motors Corporation
                      Ford Motor Company
                      DaimlerChrysler
                      Ethanol Management Corporation
                      Corn Plus
                      Nebraska Ethanol Board
                      BC International, and others

        The National Ethanol Vehicle Coalition (NEVC) is the nation's
    primary advocacy group promoting the use of 85% ethanol as a form of
    alternative transportation fuel. We do not engage in the debate and
    discussions regarding the use of ethanol as a form of oxygenate or fuel
    blend, however, it is important to note that we do support and advocate
    all uses of ethanol. Our focus is on high-level blends of ethanol and
    the opportunity that E85 has to supplement the existing use of ethanol
    and not supplant the use of E10.
        The NEVC and a broad range of project partners have been involved
    with the establishment of the E85 fueling infrastructure for the past
    several years, and are seeking to integrate E85 into a broad based
    national energy strategy. Today, most ethanol is produced from corn and
    other agricultural crops. As ethanol demand increases, future
    production will expand from grain based feedstocks to the use of
    agricultural wastes, wood wastes and even municipal solid waste. It is
    important to note that the NEVC supports and advocates the production
    of ethanol from all forms of feedstock's, including biomass,
    agricultural waste, and feed grains.
        U.S. automakers have made significant investments to bring E85-
    compatible vehicles to the marketplace at no additional cost to the
    consumer. By the conclusion of Model Year 2001, there will be
    approximately 1.9 million flexible fuel vehicles on the nation's
    highways--capable of consuming more than 1.5 billion gallons of ethanol
    annually-if the infrastructure were available. The number of these
    vehicles will continue to increase as production of new E85 flexible
    fuel vehicle models are introduced. A flexible fuel vehicle is designed
    to operate on either gasoline or E85. There are no separate fueling
    tanks, no switches to flip, and if E85 is unavailable and fuel is
    needed, gasoline is introduced into the same filling tube and mixed
    into the same tank.
        Please allow me a moment to outline the impact that the use of an
    additional 1.5 billion gallons of ethanol would have beyond today's 1.8
    billion gallons of ethanol being utilized as a fuel oxygenate and
    octane enhancer.
        If each of these 1.9 million flexible fuel vehicles would use E85
    as its primary fuel, the impact would be to:

       Displace approximately 34 million barrels of imported
            petroleum;
       Use of an additional 528 million bushels of corn to produce
            ethanol (from the 2 billion bushel surplus);
       Generation of an additional $3 billion in farm income;
       Development of a marketplace for the production of ethanol
            from biomass and waste materials;
       Significantly reduce the emissions of non-methane
            hydrocarbons, carbon monoxide, and air toxics;
       Implement a reduction of more than 4.3 million tons per year
            of greenhouse gas emissions; and,
       The establishment of a long-term sustainable, alternative
            domestic transportation fuel.

        The source materials for the preceding calculations will be
    provided to your staff.
        These benefits could be realized today as the technology is
    available, the vehicles are on the street, and more vehicle models are
    being offered annually. There is no form of transportation fuel that
    provides the broad range of environmental and economic benefits to the
    nation, as does the use of E85.
        Clearly there are impediments to achieving the aforementioned
    results, including:

       A lack of infrastructure to fuel the vehicles. Approximately
            200 public E85 fueling stations are currently in place across
            the nation.
       Ethanol contains less energy on a BTU basis than does
            gasoline, and even with the existing blenders credit, the cost
            of a ``gasoline gallon equivalent'' of E85 exceeds unleaded
            gasoline.
       The automakers are being criticized for producing flexible
            fuel vehicles that do not operate on alternative fuels and
            debate is pending to reduce or eliminate the CAFE Credits
            provided for the production of these vehicles.

        The Alternative Motor Fuel Act of 1988 provided credits to
    automakers to encourage the production of alternative fuel vehicles.
    These credits, while limited, can assist an automaker in achieving the
    Corporate Average Fuel Economy standards provided by law. The
    automakers have been criticized by both the press and the environmental
    community for taking advantage of these CAFE Credits that were provided
    by the Congress, in that little alternative fuels are being used. I
    submit that the automakers have only used an incentive that was
    provided and promoted the United States Congress, which clearly
    intended these incentives to be used to initiate and promote the
    production of alternative fuel vehicles. The weakness of the
    Alternative Motor Fuel Act of 1988 was that the Act did not address the
    infrastructure needed to fuel these vehicles. It is our position that
    the automakers are being unfairly targeted and that it is appropriate
    to remember that General Motors, DaimlerChrysler, and Ford Motor
    Company are in the business of manufacturing motor vehicles, not
    selling or marketing transportation fuels.
        In order to allow adequate opportunity for questions, I will close
    by offering only a short and very general set of conclusions and
    recommendations that the Committee may wish to consider to bring
    alternative fuels into the nation's mainstream.
        The Committee may wish to consider that:

       All forms of alternative fuels are products of North America
            and they will all promote national energy security.
       E85 and biodiesel are the only alternative fuels that can
            significantly reduce the emissions of greenhouse gases.
       E85 and biodiesel are the only forms of ``renewable
            transportation fuels'' available in a liquid form that could
            use the nation's existing fuel delivery system.
       Renewable fuel production can be a cornerstone for important
            economic development and job creation across the nation.

        Many, many legislative proposal have been and are being considered
    in this session of Congress. While time does not allow for us to
    comment on the details of these numerous bills, the NEVC does support
    the development of a national energy strategy. As you and the Congress
    deliberate, you may wish to consider the following options to implement
    a national energy strategy.

       It may be appropriate to establish a ``National Alternative
            Fuel Trust Fund'' that is used to promote the use of all forms
            of alternative transportation fuels. Such trust fund could
            potentially be financed by major emitters of greenhouse gases
            that could contribute to this fund in lieu of making costly and
            inefficient modifications to manufacturing processes that would
            otherwise reduce such emissions.
       Development of a financial mechanism that would provide
            ``gasoline gallon equivalency'' to all forms of alternative
            transportation fuels so that the motoring public would not be
            faced with reductions in fuel mileage when using alternative
            fuels.
       Establishment of new incentives or the extension of existing
            incentives available to the automakers to assist in offsetting
            the cost of producing alternative fuel vehicles.
       Implementation of incentives to fuel providers across the
            nation that would potentially change their existing paradigm
            from that of a ``petroleum company'' to that of a
            ``transportation fuel'' company.

        Thank you for allowing the National Ethanol Vehicle Coalition to
    provide these comments today. We would like to ensure the Committee
    that we are available to provide assistance at your convenience and we
    look forward to working with the Committee and Congress in development
    of programs to promote all forms of alternative transportation fuels.

        The Chairman. Thank you very much.
        Mr. Zeltmann, why don't you go ahead.

      STATEMENT OF EUGENE ZELTMANN, CO-CHAIRMAN, ELECTRIC VEHICLE
                      ASSOCIATION OF THE AMERICAS

        Mr. Zeltmann. Good morning, Mr. Chairman and members of the
    committee. I am Gene Zeltmann, President and Chief Operating
    Officer of the New York Power Authority. The Power Authority is
    America's largest State-owned public power enterprise,
    operating ten generating facilities and more than 1400 circuit
    miles of transmission lines in New York State.
        I appear today as co-chairman of the Electric Vehicles
    Association of the Americas, whose membership includes
    international vehicle and component manufacturers, energy
    providers, and technology developers. I thank you for this
    opportunity to discuss the role of the Federal Government in
    reducing the use of petroleum in the light duty vehicle sector.
        EVAA believes that reducing dependence on foreign oil
    demands that we transition the country's biggest consumer of
    this commodity, the transportation sector, to use of other
    fuels. Electricity is an attractive alternative. It is clean,
    efficient, relatively affordable, and is produced domestically
    from a variety of feedstocks. Use of electricity can greatly
    enhance our energy security since today the U.S. electric
    generation base is about 3 percent oil.
        EVAA encourages the development and use of several electric
    transportation modes, including vehicles powered solely by
    batteries, fuel cell vehicles, where the electricity of course
    is generated on board, and finally hybrid electric vehicles
    that rely upon a small internal combustion engine operating in
    conjunction with an electric motor.
        Mr. Chairman, my written statement details the benefits of
    using electric transportation and describes the challenges we
    face in commercializing these technologies. I will use my time
    this morning to highlight actions that the Government might
    take to assist in the transition of our transportation network
    to alternative fuels.
        New York State has moved boldly to promote electric and
    other means of clean fuel transportation, exemplifying the role
    that EVAA and its members believe that government should fill.
    Under the leadership of Governor George Pitaki, generous State
    incentives for purchase of vehicles have been enacted. A State
    environmental bond is providing financial support for clean
    fuel buses and fleet vehicles. The Governor has directed the
    State fleet, which already includes some 700 clean fuel
    vehicles, to operate solely on such fuels by the end of this
    decade.
        The Power Authority is assisting in this paradigm shift by
    deploying more than 200 electric vehicles for use by our
    customers and employees. We have initiated all-electric
    commuter programs and supported the acquisition of several
    hundred hybrid electric buses. Importantly, we are facilitating
    the conversion of 500 U.S. postal vans to electricity.
        With respect to the Federal Government's role, let me say
    first that EVAA supports tax incentives as the single most
    effective means of jump starting the market for ethanol and
    other clean fuel vehicles. EVAA supports the inclusion of such
    incentives as a critical component to an effective national
    energy policy.
        With respect to other matters within the jurisdiction of
    this committee, EVAA supports and urges the inclusion of
    several specific items in comprehensive energy legislation.
    First, a primary factor in the current high price of electric
    vehicles is the battery. Advanced batteries used to power
    hybrid electric vehicles are expensive, due largely to the
    materials, like nickel, cadmium, perhaps lithium, used in their
    manufacture. Increasing volume will assist somewhat in lowering
    the price, but automotive manufacturers believe the batteries
    will remain too expensive to allow for an affordable EV even at
    mass production.
        A second use subsequent to service in the vehicle is
    feasible because EV electric battery packs retain about 80
    percent of their rated capacity at the end of the useful life
    in a vehicle. Studies indicate that such batteries could be
    used effectively in stationary applications, like electricity
    storage and load leveling. We ask that the committee authorize
    a 3-year program so that electric utilities and other
    interested parties could cost-share with DOE in demonstrating
    the effectiveness and benefits of using spent EV battery packs
    in stationary applications.
        Second, the chairman of the House Sciences Committee,
    Sherwood Boehlert, has introduced legislation to create a
    program that would demonstrate a variety of electric and other
    alternative fuel technologies in cities across the country.
    This forward-thinking proposal will assist in creating seamless
    intermodal transportation systems in urban environments that
    are fueled exclusively by clean alternatives like electricity.
    Chairman Boehlert plans to include his bill as part of the
    Science Committee's energy package and we urge this committee
    to consider incorporating this proposal in comprehensive energy
    legislation as well.
        Third, we ask that you examine the Energy Policy Act of
    1992, those provisions that require governments and so-called
    fuel provider fleets, like electric and natural gas utilities
    to acquire clean fuel vehicles. The current program failed to
    meet the EPAct goal of reducing transportation sector petroleum
    use by 10 percent by the year 2000. EVAA has been working with
    other alternate fuel groups as well as representatives of
    government and commercial fleets to identify modifications to
    existing law.
        We seek flexibility in meeting the requirements of existing
    law in order to better ensure that EPAct's future petroleum
    displacement goal is indeed achieved.
        Finally, as we have heard this morning, hydrogen could
    become the fuel of choice in this century. Our interest in
    hydrogen is simple. It is the fuel required to power fuel cell
    vehicles. The committee will consider the reauthorization of
    existing hydrogen R&D legislation. As the committee considers
    questions about hydrogen, about fuel cell development, about
    the energy needed to power our mobile society, we urge you to
    find ways to establish public and private partnerships to
    jointly address these technological changes. The Federal
    Government can play a significant role in assuring that the
    vast amounts of human, technical, and financial resources now
    being spent on hydrogen and fuel cell development is optimized
    through integrated, cooperative programs and policies.
        As you examine existing law and create a new energy policy,
    we urge you to include the programs, policies, and incentives
    that I have outlined today to encourage the development and use
    of electric modes of transportation.
        That concludes my remarks, Mr. Chairman. I thank you again
    for the opportunity to appear and I will be happy to try to
    answer any questions.
        [The prepared statement of Mr. Zeltmann follows:]

     Prepared Statement of Eugene Zeltmann, Co-Chairman, Electric Vehicle
                          Association of the Americas

                     INTRODUCTION AND OVERVIEW OF STATEMENT

        This testimony is submitted on behalf of the Electric Vehicle
    Association of the Americas (EVAA), a national non-profit organization
    that advocates the use of electric transportation technologies,
    including battery, hybrid and fuel cell electric vehicles, as a means
    of addressing national energy security, energy efficiency and air
    quality goals. Members of the organization include international
    automotive and other equipment manufacturers, energy providers,
    national associations and government entities. (A complete membership
    roster is attached to, and made a part of, this testimony.)
        EVAA applauds the Energy Committee's investigation to determine
    means by which the federal government might cause, or help to cause, a
    reduction in the use of petroleum by the light duty vehicle sector. A
    critical key to reducing U.S. dependence on foreign oil is to
    transition the transportation sector--particularly the light duty
    vehicle segment--to use of alternatives to gasoline and diesel fuels,
    like electricity and/or hydrogen. U.S. petroleum demand is projected to
    grow from 19.5 million barrels per day in 1999 to 25.8 million in
    2020--led by growth in the transportation sector, which accounts for
    about 70 percent of current U.S. petroleum consumption. And the
    consumption of energy by the transportation sector is growing at an
    alarming rate. By 2020, the Energy Information Administration (EIA)
    predicts that total energy demand for transportation in the U.S. will
    be 38.5 quadrillion Btu, compared with only 26.4 quadrillion Btu in
    1999.
        Electric transportation technologies present our nation with an
    important means for reducing our dependency on foreign petroleum and
    increasing the diversity of fuels relied upon in the transportation
    sector. This testimony highlights:

       the important national benefits accruing from the widespread
            adoption of electric transportation technologies into our
            transportation network;
       discusses the current technological, market-entry and
            infrastructure challenges to such widespread deployment of
            electric transportation technologies; and
       outlines federal policies and programs that EVAA's members
            believe are critical to assuring that electric transportation
            technologies can be a significant segment of the U.S.
            transportation sector in the 21st century.
                benefits of electric transportation technologies
        There is a family of electric transportation technologies being
    developed and/or commercialized. EVAA defines an electric vehicle as
    any technology that employs an electric drive system to power the
    vehicles. Electric transportation technologies under development and/or
    commercially available today include battery electric vehicles (BEVs),
    hybrid electric vehicles (HEVs) that use both an electric motor and an
    internal combustion engine, and fuel cell electric vehicles (FCEVs).
    Each of these technology categories offer significant energy security
    and environmental benefits, and together represent the cleanest, most
    advanced alternatives to conventional vehicles on the road or under
    development.
    Battery Electric Vehicles
        Battery electric vehicles (BEVs) charged off the Nation's electric
    utility grid use ``fuel'' created from a variety of feedstocks, from
    wind to nuclear. Importantly, petroleum represents a diminimus fuel
    feedstock for electricity production in the U.S. Less than 3% of the
    current U.S. generation base relies on petroleum. Electricity is a
    domestically produced, relatively stably priced fuel that affords us
    ``fuel diversity'' for the transportation sector. Further, the primary
    charging for BEVs is expected to occur overnight, when electricity
    demand is at its lowest, allowing for widespread adoption of the
    technology without adding new capacity.
        In addition to significant energy security benefits, BEVs offer the
    opportunity for continued personal mobility without degradation to the
    environment. Nearly 100 cities across the U.S. fail to meet federal air
    quality standards, and approximately 62 million people live in counties
    where monitored data show unhealthy air for one or more of the six
    principal pollutants [carbon monoxide (CO), lead (Pb), nitrogen dioxide
    (NO2), ozone (O3), particulate matter (PM), and
    sulfur dioxide (SO2)]. For many urban areas, electric
    transportation can be a particularly important means to substantially
    reduce emissions of mobile source pollutants, including volatile
    organic compounds and oxides of nitrogen that are the precursors of
    smog. Battery electric cars and buses are truly ``zero emission''
    transportation modes. They produce no tailpipe emissions and generate
    insignificant, ancillary emissions during operations. They also have
    the added benefit of mitigating noise pollution and using energy more
    efficiently than conventional modes.
    Hybrid Electric Vehicles
        Hybrid electric vehicles, which combine the benefits of electric
    power with conventional gas-powered engines, can significantly improve
    the efficiency and environmental performance of vehicles, thereby
    reducing fuel use and contributing to improved air quality. HEVs on
    America's roadways today evidence the tremendous advantages that this
    technology provides. The Toyota Prius has a stated fuel economy of 67
    mpg, and a California environmental rating of ``SULEV'', or ``Super
    Ultra Low Emission Vehicle,'' with only about 1/2 of the carbon dioxide
    and 1/10 of the nitrogen oxide emissions associated with a comparable,
    gasoline powered vehicles; the Honda Insight is rated at 70+ mpg and
    meets California's ``ULEV'' emissions rating. All international auto
    manufacturers have announced plans to bring hybrid electric vehicles to
    the market place in the coming years.
    Fuel Cell Electric Vehicles
        Fuel cell electric vehicles (FCEVs), which harness the chemical
    energy of hydrogen and oxygen to generate electricity, have the
    potential to change the way we think about energy. Fuel cells are more
    efficient than other technologies that rely on direct combustion, and
    they produce zero, or near zero emissions. When fueled directly by
    hydrogen, the only by-product of a fuel cell electric vehicle is water.
        Like electricity, hydrogen does not occur naturally in a usable
    form on Earth; it must be generated or produced by consuming fuels or
    other forms of energy. Yet, also like electricity, multiple feed stocks
    can be used, creating fuel diversity and thereby enhancing national
    energy security. Fuel processors ``on-board'' a vehicle can produce
    hydrogen from natural gas, methanol, ethanol, gasoline, or diesel.
    ``Off-board'' processors can use all of these feedstocks and can also
    make hydrogen from the electrolysis of water.

         CHALLENGES TO WIDESPREAD ADOPTION OF ELECTRIC TRANSPORTATION
                                  TECHNOLOGIES

        Despite the significant societal benefits accruing from their use,
    years of research and development by companies and governments across
    the globe, and mandates for commercialization of such vehicles,
    electric transportation technologies have not yet become a meaningful
    part of the U.S. transportation network. Since 1996, a total of only
    4,339 battery electric vehicles have been leased and/or sold in the
    U.S. And, while sales of HEVs are growing quickly, there still have
    been only 17,773 put into service to date. In addition to these light
    duty automotive offerings, there have been about 200 electric and
    hybrid-electric buses and over 6,000 low-speed, battery electric
    vehicles placed into service.
        While the sum of all of these vehicles--which is less than 30,000
    as compared to 1999 vehicle sales in the U.S. of 16.5 million--may be
    insignificant statistically, they represent an enormous step toward
    development of a long-term and sustainable market for such vehicles in
    the U.S. The technology--with respect to battery and hybrid electric
    vehicles--is proven and maturing; customer reception to the vehicles
    has been tremendous and sales have been constrained more by product
    availability than by demand; and incentives to encourage consumer
    purchase are in place and/or being considered by government at all
    levels. However, more must be done if these vehicles are to become an
    integral part of our transportation network.
        Costs for immature and low-volume technologies will be higher than
    those of comparable, conventional vehicles. Until a supplier base can
    be built, the technology matured and volume production established, the
    incremental costs of electric transportation technologies must be
    addressed in order to assure consumer acceptance. Fortunately, battery,
    hybrid and fuel cell vehicles share a number of subsystems (e.g., power
    electronics, motors, regenerative brakes). Therefore establishing a
    supplier base for battery electric vehicles, for example, can help to
    lower the costs of early commercial fuel cell vehicles when they are
    brought forward.
        Infrastructure support systems, from re-fueling and charging to
    service and maintenance, must be put in place to support the convenient
    and safe operation of electric transportation technologies. Deploying
    the infrastructure systems--particularly those to support a hydrogen-
    based economy represents a vast and expensive undertaking.
        Building markets for electric transportation will require consumer
    awareness and experience with the technology to establish confidence in
    the products.
        Finally, with respect to fuel cell electric vehicles, there is a
    continuing need for research and development of the subsystems and
    components that will allow industry to bring forward a consumer-
    attractive FCEV.

    ROLE FOR GOVERNMENT IN OVERCOMING THE TECHNOLOGY AND MARKET CHALLENGES
                    TO ELECTRIC TRANSPORTATION TECHNOLOGIES

    Consumer Tax Incentives
        Targeted tax incentives can be an effective means by which
    government can help assure that electric drive technologies are
    successfully introduced into the marketplace. EVAA members believe that
    such incentives should be limited in their scope and duration, and
    available now and in the immediate future as these new and dramatically
    different technologies are introduced to consumers.
        EVAA supports the inclusion of tax incentives for electric and
    other alternative fuel vehicles (AFVs) as part of any national energy
    plan. Such incentives can help drive the biggest consumer of
    petroleum--the transportation sector--toward use of cleaner,
    domestically produced alternatives. We recommend that the Committee
    consider incorporating the principles of the ``Clean Efficient
    Automobiles Resulting from Advanced Car Technologies Act'' (``CLEAR
    ACT''), S. 760, in any comprehensive energy bill that it may report.
    The CLEAR ACT, introduced by Senators Jeffords, Hatch, Rockefeller and
    others, would set the stage for a consumer-based and technology driven
    transformation of the transportation sector. All major vehicle
    manufacturers are poised to bring battery, hybrid and/or fuel cell
    electric cars and buses to the market. Federal tax incentives, as
    called for in the CLEAR ACT, would allow the technology to spread
    quickly by lowering purchases prices and encouraging deployment of
    supporting infrastructure.
        We believe a very important feature of the CLEAR ACT is its
    recognition that vehicles which provide the greatest societal benefits
    in terms of environmental and efficiency performance are deserving of
    the most generous benefits. Also, the CLEAR ACT recognizes that fuel
    cell electric vehicles will be entering, the market later than other
    electric and alternative fuel vehicles, and has provided for incentives
    for this category of technology to continue for a longer period of time
    to ensure that the market has matured sufficiently before the
    incentives expire.
    Federal Program to Introduce Advanced Vehicle Technologies to U.S.
            Cities
        Cities and communities plagued with poor air quality and traffic
    congestion stand to be the greatest beneficiaries of the successful
    commercialization of electric and other alternative fuel vehicles; yet,
    to date, the technologies are largely unknown and ``untried''.
    Deploying electric transportation technologies, from battery-powered
    bikes to fuel cell electric buses, can result in the clean and
    efficient transport of people and goods in the urban environment.
        Legislation that has been introduced in the House of
    Representatives and is being considered for inclusion in that chamber's
    national energy plan creates a federal program to support the
    introduction of electric and other alternative fuel vehicles in linked
    transportation systems in up to 15 cities in the U.S. Introduced by the
    Chairman of the House Science Committee, Sherwood Boehlert (R-NY), H.R.
    2326, the ``AFV Acceleration Act of 2001,'' provides $200 million in
    federal cost-share funding to help communities deploy clean, efficient
    modes of transportation and to build the infrastructure that can assure
    the subsequent widespread adoption of these technologies. Creating
    these models of efficient and clean transportation will allow for
    transit operators, public officials and the citizens who experience the
    benefits of the technology in their daily lives to gain the experience
    and confidence necessary to transition to these radically new
    technologies.
        EVAA encourages this Committee to consider including the AFV
    Acceleration program, as envisioned in H.R. 2326, in any national
    energy package it may develop. Forming partnerships and alliances
    between governments at the local, state and federal levels, and
    leveraging federal dollars with those of industry and other levels of
    government, is an effective means of introducing and deploying
    alternative fuel vehicles to communities and citizens across the
    country.
    Federal Program to Assist in Making Advanced EV Batteries Economically
            Viable
        In addition to consumers' lack of familiarity with electric
    vehicles, other challenges to market penetration of the initial series
    of electric vehicles are high purchase prices and limited range.
    Manufacturers currently are not producing greater numbers of EVs,
    having reached conclusions that the costs are too high and the market
    too limited. The cycle of high costs and limited sales is broken only
    if costs are reduced and/or volume is increased dramatically. One of
    the primary contributors to the high costs of EVs is the advanced
    battery necessary to provide the minimum range deemed acceptable to
    consumers. While it is estimated that prices for batteries begin to
    fall when the volume reaches 10,000 packs (i.e., enough to power 10,000
    EVs) per year, auto manufacturers believe that volume alone cannot
    address the prohibitive costs of advanced technology batteries
    necessary to create consumer demand for EVs because the materials
    needed for such batteries (e.g., nickel) are expensive.
        To assure volume sales of EVs, a dramatic reduction in the cost of
    batteries is required. An innovative approach to addressing this issue
    may be to ``extend'' the life--or value--of the batteries beyond
    vehicular use. Once the batteries have been ``used'' in a vehicle,
    there is an opportunity to refurbish, then ``re-use'' the batteries in
    a stationary application. For example, electric utilities could ``re-
    use'' EV battery packs in peak shaving, transmission deferral, back-up
    power and transmission quality improvement applications. If
    successfully demonstrated for secondary, stationary-use applications,
    the effective price of battery systems are projected to make EVs more
    competitive.
        Preliminary studies have shown that if a secondary market is
    created that pays $100 to $200/kWh for EV batteries, the costs of such
    batteries for use in the first application (i.e., the vehicle) could be
    reduced to $100 to $150/kWh--the price point where auto manufacturers
    believe is necessary to assure an affordable EV. Combining the value
    for using the battery in both a vehicle and then later a stationary
    application likely would cover the cost of producing the battery pack,
    even at low volume (estimated at $400/kWh).
        EVAA encourages this Committee to consider establishing a program
    within the Department of Energy to assist industry in demonstrating
    that ``spent'' EV batteries can be cost-effective and high-performing
    in secondary, stationary applications as part of any national energy
    package it develops. The program should be designed to demonstrate up
    to 1,000 kWh of ``used'' batteries (approximately 33 vehicle battery
    packs) in a minimum of 10 stationary use applications. These ``used''
    batteries would demonstrate electric utility stand-by, peak-shaving and
    transmission quality improvements and would help to validate the value
    of ``used'' batteries as a means to store electricity for purposes
    beyond use in EVs.
    Providing Flexibility in Compliance with EPACT Fleet Requirements
        EVAA requests that this Committee examine the existing provisions
    of the Energy Policy Act of 1992 (EPACT), P.L. 102-486, that require
    state and federal governments and the providers of alternative fuels
    (e.g., electric utilities, natural gas utilities, and other producers/
    suppliers of fuels defined as alternatives to gasoline under the Act)
    to convert their vehicle fleets to alternative fuel vehicles. The
    rationale of building volume and market demand through government
    fleets and the fleets of those in the business of producing, supplying
    and/or selling alternative fuels is sound, though the execution of the
    program to date has not achieved the goals of the ACT, namely to
    replace 10% of the petroleum used in the light duty vehicle sector by
    2000, and fully 30% by the year 2010.
        While committed to building a long-term, self-sustaining market for
    electric vehicles, EVAA's electric utility members have found
    compliance with the existing EPACT alternative fuel providers' program
    difficult given the limited availability, high initial purchase price
    and limited performance of electric vehicles. These alternative fuel
    providers, as well as others struggling to meet the dictates of the
    DOE-administered program, are looking for flexibility in the program
    and recognition for actions taken that can help to develop the markets
    for electric and alternative fuel vehicles. For example, some electric
    utilities who are unable to incorporate so-called ``full function'' EVs
    due to limited availability, have begun to purchase and deploy low-
    speed electric vehicles to replace the duty cycle of a conventional
    vehicle; others have made investments in EV charging infrastructure to
    help encourage the market; and still others have begun to deploy
    hybrid-electric vehicles to help build demand in that segment and
    thereby ``drive-down'' the costs of components that are shared with
    battery and fuel cell electric vehicles. These actions, EVAA believes,
    should be recognized under the EPACT alternative fuel providers'
    program.
        EVAA is working in partnership with other alternative fuel interest
    groups, representatives of the federal government, and commercial fleet
    representatives to craft a set of modifications to the EPACT
    alternative fuel vehicle programs that will create flexibility in
    meeting the goals of the law, while assuring that the goals of the
    existing law, i.e., displacement of petroleum use in the transportation
    sector, can be achieved. It is the hope of the working group that
    agreement might be reached, and that we might provide this Committee
    with a set of suggested modifications to EPACT for consideration as
    part of any comprehensive energy legislation that may be developed.
    Integrating Federal Hydrogen and Fuel Cell Development Efforts
        The world's major automobile and heavy duty vehicle manufacturers
    who are engaged in efforts to commercialize fuel cell vehicles all face
    the same technically challenging issue: How can hydrogen be provided to
    the fuel cell that will power the vehicles? Whether hydrogen is
    produced elsewhere and then stored onboard the fuel cell vehicle or is
    produced on the vehicle by use of an onboard fuel processor, hydrogen
    is a key enabler to the success of these vehicles. And, not only can
    hydrogen fuel much of tomorrow's transportation systems, but its
    versatility could provide the clean energy needed to satisfy our
    electric as well as our mechanical and thermal energy needs--powering
    office buildings, homes, industrial complexes and shopping malls.
        The reality of the marketplace is that the role of hydrogen in the
    transportation sector, and to a large extent in the stationary
    applications sector, is coupled closely with fuel cell development.
    While hydrogen R&D is essential in its own right, the success of fuel
    cells is very dependent upon the success of hydrogen production,
    storage, transportation and use. The recently released report of the
    National Energy Policy Development Group, led by Vice President Cheney,
    specifically recommended that the President direct the Secretary of
    Energy to focus R&D efforts on integrating current programs regarding
    hydrogen, fuel cells and distributed energy.
        As this Committee considers reauthorization of the Hydrogen Future
    Act of 1996--separately or as part of a comprehensive energy package--
    EVAA asks that the reauthorizing legislation recognize the need to
    integrate on-going hydrogen, fuel cell and distributed energy research
    and development programs and to consider specific mechanisms and
    programs to insure that coordination is achieved in government and
    industry efforts to pursue both hydrogen and fuel cell development. One
    means for organizing public and private partnerships to address the
    technical challenges might be to undertake a very significant, large-
    scale demonstration that invites, under one tent, today's leading fuel
    cell and hydrogen participants to focus on maturing the technologies
    and deploying the infrastructure that will allow us to move to this
    renewable and clean energy resource as quickly as possible. An example
    of such a collaborative undertaking can be found in the California Fuel
    Cell Partnership (CaFCP), which includes participation by the federal
    government, and is organized to comprehend the infrastructure
    requirements within the state of California to support use of fuel cell
    electric vehicles.
    Conclusion
        Electric transportation technologies, whether powered by batteries,
    fuel cells or a combination of batteries and an internal combustion
    engine, collectively represent our transportation future. Transitioning
    to electric drive systems ensures continued mobility without reliance
    on insecure and often costly sources of foreign oil, and importantly,
    without degradation to the environment. Federal partnerships--whether
    in the form of consumer tax incentives, cost-share for research,
    development and demonstration, and/or assistance in deployment--to
    assist industry in bringing electric transportation technologies to the
    marketplace is a wise and cost-effective investment in our future
    energy security and in our citizens' quality of life. EVAA encourages
    this Committee to consider the industry's recommendations for programs
    and policies made within this statement as national energy legislation
    is crafted.

        The Chairman. Well, thank you very much.
        Let me ask a few questions, first about the hybrid electric
    vehicles that are now on the market and that everyone
    indicates, each of the manufacturers indicate, they are
    developing for sale in the next few years. Is there something
    inherent in the construction of a hybrid electric vehicle that
    requires it to be more, significantly more expensive than a
    regular internal combustion engine-driven vehicle, or is it
    just a question of getting the volume up to a sufficient level
    that the price comes down? What is the answer to that?
        Mr. Dana. Mr. Chairman, in a hybrid electric vehicle what
    you have is a conventional engine along with electric motors to
    drive the wheels and a small battery pack. So you are
    essentially running two propulsion systems, which is why you
    have an added cost for a hybrid electric vehicle. Some of those
    parts in volume production we think can be thrifted somewhat.
    We do not know if we can ever get completely down to a
    conventional vehicle, even at volume, with a hybrid, but
    certainly there are some cost economies that will come.
        The Chairman. When will there be U.S. manufacturer-produced
    hybrid vehicles on the market other than the Toyota and the
    Honda vehicle that are already on the market?
        Mr. Dana. I believe Ford has announced that their Escape
    SUV will have a hybrid system in the 2003 model year. I know
    that GM is working on a Silverado pickup with a hybrid system,
    and Daimler Chrysler has announced a Durango that would be a
    hybrid. I believe those are 2004 model year, if I remember
    correctly.
        The Chairman. Am I right that hydrogen-powered automobiles
    also all contain an electric motor, that the hydrogen powers
    the electric motor, so it is essentially a hybrid electric
    vehicle driven by hydrogen instead of by gasoline? Is that an
    accurate description or not, Mr. McCormick?
        Dr. McCormick. You can certainly run hydrogen through
    internal combustion engines and some companies are looking at
    that, as are we. But the solution we are talking about with
    fuel cells allows us to get rid of the engine and transmission
    and replace it with a fuel cell that produces the electricity,
    and then you have the electric motors to drive the car.
        The Chairman. But the electric motor has to be there in any
    fuel cell-driven vehicle?
        Dr. McCormick. Absolutely, yes. So it is basically an
    electric vehicle with a fuel cell instead of batteries.
        The Chairman. It seems to me that whether the source of the
    power, the fuel used, is hydrogen through a fuel cell or is
    gasoline through an internal combustion engine or natural gas
    through a natural gas-powered combustion, adding the electric
    engine or the electric motor dramatically improves the
    efficiency of the vehicle. Am I right about that? Any of you
    have thoughts about that?
        Mr. Dana. Well, in a couple of ways. As Dr. McCormick says,
    they are seeing efficiencies twice as great in a fuel cell
    vehicle as a conventional vehicle just from the type of system
    that is used to drive it. In the hybrids that are being
    developed today, you get much greater efficiencies, mainly
    because you actually turn the engine off at idle and actually
    not use the engine at some times while the batteries and motors
    run the vehicle. So that is part of the greater efficiency of
    the hybrids. Actually, at idle you most of the time shut the
    engine off and do not use it.
        The Chairman. Mr. Zeltmann, you had a comment?
        Mr. Zeltmann. I had a thought, if I may. The beauty of what
    we are talking about with the hydrogen is it is a way to
    capture perhaps alternate forms of power generation such as
    solar or wind power or hydrogen power, because as you
    electrolyze the water and then capture the hydrogen and then
    use that to power the fuel cell-operated vehicle, for example,
    you in fact are able to get yourself away from dependence upon
    petroleum products imported from overseas.
        Now, that gets to the point that we have heard earlier this
    morning about the need for infrastructure for the hydrogen
    storage and transportation and the safety that is required with
    it. But the facts are that you have the ability to use green
    power generation forms in producing the hydrogen, which is an
    attractive alternative that might be considered as you go
    forward in these deliberations.
        The Chairman. Mr. Kolodziej.
        Mr. Kolodziej. Mr. Chairman, one of the confusions out
    there is that people refer to hybrid electric vehicles, they
    frequently just assume that means a gasoline or diesel engine
    that is driving it. If the focus is on displacing foreign oil,
    then I think we need to also look at alternative fuel engines
    to drive the hybrid vehicle in which you get 100 percent
    displacement.
        There is a lot, right now a lot of work being done through
    DOE and also in the private sector on large-scale buses,
    trucks, hybrid, natural gas engines and vehicles. With respect
    to hydrogen, the key is where do you get the hydrogen from. It
    is great to have a vehicle, but if you do not have a hydrogen
    source where do you go?
        Right now all the stationary fuel cells in the world as far
    as I know of that are in commercial operation get their
    hydrogen from natural gas. In addition most of the hydrogen
    that is commercially available is produced from natural gas and
    then shipped around in containers. Our strong belief is that a
    natural gas vehicle system now is blazing the trail and setting
    the stage for a hydrogen infrastructure. You have natural gas
    going to the filling station and then converted at the filling
    station into hydrogen and put on the vehicle. What you need for
    hydrogen is gaseous fuel storage, gaseous metering, gaseous
    dispensing. We are doing all that. You need mechanics that
    understand how to deal with gaseous fuel. You need buildings
    that are instrumented with sensors and whatever to handle
    gaseous fuel since it is lighter than air and it does not sit
    in the air, as opposed to petroleum fuels. We are doing that.
    You need a public that is comfortable dealing with gaseous
    fuels in their vehicle. We are doing that.
        So the more we are successful, the easier it will be to
    transition to a hydrogen future. We strongly believe that the
    only way you get there, to a hydrogen future, is through
    another gaseous fuel, in this case natural gas.
        The Chairman. Thank you.
        My time is up. Senator Hagel.
        Senator Hagel. Mr. Chairman, thank you. I am going to have
    to leave to get to another meeting, but I wanted to say that,
    first, I very much appreciate this panel coming before us this
    morning. This panel represents the future for our energy
    transportation technologies, fuels, vehicles, and our questions
    and concerns and problems that we have regarding this universe
    are going to be found in your testimony.
        There are pieces of that that you have all in your
    organizations you represent have put a lot of time into, and we
    will continue to work through the developments of each of your
    technologies and thoughts and ideas and innovations.
        So, Mr. Chairman, I want to thank you again and this panel
    in particular for sharing your thoughts and expertise.
        The Chairman. Thank you very much.
        Senator Akaka, you came and left. Did you want to go, or
    should Senator Carper, either one of you?

            STATEMENT OF HON. DANIEL K. AKAKA, U.S. SENATOR
                              FROM HAWAII

        Senator Akaka. Thank you very much, Mr. Chairman. Thank
    you, and at this time I want to add my welcome to the panel
    before the committee.
        I would like to comment on S. 1053, a bill that
    reauthorizes the Hydrogen Future Act enacted in 1986. It
    directs the Department of Energy to continue to research and
    develop hydrogen technologies. The bill is important to the
    Nation because hydrogen has the potential to free our Nation
    from imported oil and provide a clean and abundant energy
    source.
        I have had an abiding interest in hydrogen as an energy
    source and have championed its advancement for a long time. The
    Hydrogen Future Act is a legacy of my friend and predecessor in
    the Senate, Senator Sparky Matsunaga. He was the first to focus
    attention on hydrogen by sponsoring hydrogen research
    legislation. The Matsunaga Hydrogen Act, as the legislation
    became known, was designed to accelerate development of
    hydrogen technologies.
        As a result of Senator Matsunaga's vision, the Department
    of Energy has been conducting research that will advance
    technologies for cost effective production, storage, and
    utilization of hydrogen. I am convinced that in the next few
    decades, hydrogen will join electricity as one of our Nation's
    primary energy carriers, and hydrogen will ultimately be
    produced from renewable sources.
        Technical and institutional challenges and barriers to
    wider use of hydrogen are being surmounted at an accelerating
    pace on a global scale. Iceland is making a strong bid to
    become the world's first hydrogen-based economy. In the United
    States, I am pleased that the State of Hawaii has enacted
    legislation that would facilitate a public-private partnership
    for promoting hydrogen as an energy source. In California, the
    State's zero emissions vehicle requirements favor early
    introduction of hydrogen-powered vehicle.
        Despite the progress, many challenges remain for hydrogen.
    Production costs remain high. Attractive low-cost storage
    technologies are not available and the infrastructure is
    inadequate. We need to address these barriers if we are to
    enjoy the fruits of an efficient and environmentally friendly
    energy source. An aggressive research, development, and
    demonstration program can help overcome many of these problems.
        Mr. Chairman, I hope the committee will move quickly on
    this bill and I look forward to asking questions to the panel.
    Hydrogen storage--this is my question--storage, transport, and
    distribution systems are critical to advancing widespread use
    of hydrogen for energy. Currently, the infrastructure needed
    for this purpose does not exist. Dr. McCormick smiles.
        Any of the panel members may respond to this. I have a
    three-part question for you. Is there a role for the Federal
    sector to help speed infrastructure development? What is the
    general time frame envisioned for the Nation to have a
    substantial hydrogen infrastructure? Third, what are the most
    critical barriers to the development of the hydrogen
    infrastructure for vehicular applications?
        As I mentioned his name, maybe I should ask Dr. McCormick
    first.
        Dr. McCormick. Thank you, Senator. First of all, as I noted
    in my written comments, both fuel cells and hydrogen storage
    and the reason we are here today really derive from previous
    investments and previous support by members of this committee
    for the Department of Energy programs. So I think that clearly
    as the first element of it we should continue the basic
    research on advanced hydrogen storage technologies and basic
    fuel cell technologies.
        The second role for the Federal sector, and it is one that
    will have to evolve over some time, and it really relates to
    the barriers, and that is that in order for people to place a
    hydrogen infrastructure in place there needs to be a consistent
    set of policies over an extended period of time to allow it to
    happen. I would ask you to recall that 60 percent of the
    gasoline dealers, the dispensers of gasoline to our cars, are
    small business people. They cannot afford to be flip-flopped
    around, nor can they afford to do five or six different
    options. Their economics just purely will not allow it.
        So consequently, I think there is a role in the Federal
    sector for developing consistent long-term policies that focus
    towards and direct us towards the hydrogen solution and fuel
    cells as well, because I think our payoff, as we have talked
    about earlier today, is huge. We have the payoff of displacing
    petroleum, and the really nice thing about the hydrogen
    economy--and I really like your notion of energy carriers. I
    believe there will be two, electricity and hydrogen. The
    advantage of both of them is they can be made from any source,
    and hydrogen is the logical one for cars. So I think it is a
    very logical approach.
        With respect to storage, we are making tremendous progress.
    We are working with technologies now in the compressed area
    which will put the vehicles out and have compatible range with
    the current generation of vehicles. We are working on
    electrolyzer technology, which I alluded to earlier today,
    which will decompose water from electricity to make hydrogen,
    but it will deliver that hydrogen directly at pressure. That is
    very important because if you need an efficient system you do
    not want to put an extra compressor in there cost and
    efficiency-wise.
        I think we are making tremendous progress, but I believe
    that we would like a breakthrough. We would like something
    beyond compressed, we would like something beyond liquid. We
    are investing worldwide in a number of different technologies,
    but I think it is one that could yield to some good fundamental
    science. So I would urge again very solid funding at national
    laboratories, universities, research organizations to do that.
        Relative to the time frame, that is a tough one because
    from our viewpoint we believe that we are going to break down
    the technical barriers for the fuel cell hydrogen vehicle
    within this decade. Our rate of progress is astounding, and I
    say that as somebody who has tracked the technology for a long
    time and I cannot believe how it is moving worldwide.
        But the time frame then really becomes one of dealing with
    the barriers to put in the infrastructure, and there it does
    become economic and policy-driven. So from my viewpoint, I
    think we have the opportunity to begin to see a major
    transition by the end of this decade. I think in order to do
    that we have to start getting consistent policies and
    consistent themes that focus around that issue so there is not
    confusion and then start working in an orderly fashion to do
    large demonstrations where we can understand what the flaws are
    and move it forward and demonstrate the safety, and ultimately
    put in place tax incentives, etcetera, for all of the people
    that have to be involved in doing this. That is, the small
    business people who have to put in the distributors, the people
    who would generate the hydrogen from a multiplicity of sources,
    as we heard today.
        So I think that the real barrier is going to be that
    infrastructure, and there we need policy.
        The Chairman. Thank you very much.
        Senator Carper.

           STATEMENT OF HON. THOMAS R. CARPER, U.S. SENATOR
                             FROM DELAWARE

        Senator Carper. Mr. Gibbens, I missed your testimony. I
    apologize for arriving late. Take just a minute and hit me with
    some of the most important things you said, please.
        Mr. Gibbens. Well, I think the most important thing is that
    any of the mandates, either on the current mandated fleets or
    on the proposed government or private fleet, simply will not
    give you the petroleum reduction that was envisioned in EPAct.
    Studies have indicated that all those fleets, if they fully
    complied, would only give about a 1.5 percent reduction. As
    much as we would like to comply, there are significant
    barriers, cost barriers in the acquisition of the vehicles,
    disposal of the vehicles, the kinds of vehicles, alternative
    fuel vehicles that might be available to meet our operational
    needs, and probably most significant, as everybody has
    mentioned here, is if I choose a particular alternative fuel
    type vehicle where do I get the fuel? In other words, where is
    the fuel infrastructure? Unless I choose to fund that, which is
    very expensive, the marketplace is just simply not there for us
    to pick any particular type of alternative fuel vehicle and
    then be guaranteed a place that I can go refuel that vehicle.
        So those are the major points in my presentation.
        Senator Carper. Thank you.
        Dr. McCormick, about a year and a half ago I was in
    Michigan for a wedding and I happened to spend some time
    visiting with Rick Wagner. He said: We are having an auto show
    in Detroit right about now. It was January 2000. He said: If
    you want to go, we will try to arrange it to get you in. I had
    about an hour or so and I went to the auto show.
        Among the things I saw there was a GM concept vehicle. I am
    trying to remember the name of it. I think it started with a
    ``P''.
        Dr. McCormick. Precept.
        Senator Carper. Precept, yes. Precept, which I think was
    expected to be available for purchase maybe in 2004. I seem to
    recall that it is expected to realize 70 or 80 miles a gallon.
    It was a hybrid. I was excited about it at the time, thought
    about it often since then. Whatever happened to Precept?
        Dr. McCormick. Well, let us go through the history of
    Precept. It is a derivative of our PNGV program and it did
    achieve those remarkable mileages. I might add that we did a
    mockup fuel cell version which had fuel economies of over 100
    miles per gallon as well. That was not intended to be a for-
    sale vehicle. It had a lot of very advanced technologies in it,
    many, many patents. But I think very rapidly you will see those
    begin to transition into more conventional cars. I agree with
    you it was an astounding car, and now we are trying to move the
    technologies as quickly as we can into our base vehicles.
        Senator Carper. You might be right, and a year and a half
    ago maybe there was no notion or interest at all in making that
    a vehicle widely available for distribution. That sure was not
    my understanding at the time, it really was not.
        Let me just ask--I am a guy who believes in buying domestic
    cars. We buy Ford, Chryslers, GM in our home. A little over a
    year ago a woman pulled up to my office, when I was Governor of
    Delaware, pulled up to our office and said: I bought a new car.
    I said: What did you get? She said: I bought a Toyota. After I
    chastised her, she said: Well, it is a Toyota, it gets
    exceptional gas mileage. She said: Come take a look at it.
        I did. It is their hybrid, and I was struck by the fact
    that it is actually a reasonably attractive vehicle, that the
    size of the battery pack was not all that great, it is four-
    door and reasonable trunk space. The cost was I think maybe
    $20,000, which I am told that Toyota takes about a $10,000 loss
    on each vehicle they sell. I think they are building about
    20,000 of them this year. What I am told, they are selling
    basically all that they make.
        I think Honda has a hybrid out as well. But I am concerned.
    Here we are, the United States, leader of the free world,
    leader of the world, and we have got Toyota and Honda out there
    not just building these cars, but actually taking them to
    market and selling them in numbers which I think with Honda, I
    think they are going to expand their hybrids to not only go
    into the--what is their hybrid called?
        Mr. Zeltmann. Honda Insight.
        Senator Carper. Yes, Honda Insight. I hear they may be
    taking it to the Civic, putting it as a powerplant in some of
    the Civics, within a year or so. I am just troubled by the fact
    that--this goes back to my excitement with the Precept. I said,
    well, 2004 is a lot of time to wait for the Precept, but it is
    better than not at all. Yet we have got the folks from Honda
    and the people from Toyota with vehicles on the road, not in
    huge numbers but significant numbers, but in numbers that are
    going to grow rather substantially, getting 50, 60 miles per
    gallon, and we are looking forward to a vehicle in model year
    2003, maybe 2004.
        Why are they ahead of us? I do not mean to be
    argumentative. It is just troubling to me.
        Dr. McCormick. I feel I need to respond. I do not believe
    they are ahead of us. First of all, we did the EV-1 and drove
    the electric propulsion. We were the people that really broke
    the ground for a lot of this, and from that we learned a lot,
    one of which is for these vehicles to sell you have to bring
    them in at a very reasonable price. Also, we learned from the
    electric vehicle that we needed something other than an
    electric battery or we would not be able to sell them in
    quantity.
        We are developing the technology very aggressively and are
    bringing out a variety of vehicles in the 2004 time frame. They
    are focused particularly on the heavy duty vehicles, the
    trucks, because those are the vehicles that consume the most
    fuel and that is the place where we can get the most benefit in
    terms of imported petroleum.
        You correctly noted--and I would note that we have a deep
    partnership with Toyota, so we understand propulsion with
    them--that both of those two vehicle types are subsidized. So
    it is a matter of how much do you want to lose in putting those
    vehicles out there versus what you can learn. We actually
    believe that our 2004 pickup truck is actually a sound
    financial and business plan and will actually make money, and
    that is the key to these things. If you want them to be
    sustainable, you have to have the right product that consumers
    will buy and actually make money.
        So I think you will see these vehicles out there. We also
    have our Paradigm system coming about at that time, which will
    go across mid-sized vehicles. So I think we are right report
    with them. These early vehicles are matters of how much money
    are you willing to lose.
        Mr. Dana. Senator, may I make one point also?
        Senator Carper. Yes, please.
        Mr. Dana. The Precept, which is one of, as Dr. McCormick
    said, of the PNGV program, the manufacturers of PNGV focused on
    diesel hybrids. Right now EPA has put out a final rule that
    would clean up diesel fuel by 2006. That rule is in litigation,
    and there are also emissions standards----
        Senator Carper. What are you saying, that rule is in
    litigation?
        Mr. Dana. Yes, it is. EPA has also set emissions standards
    for 2004 and later vehicles where the ability of a diesel
    engine to meet those standards is somewhat questionable. It
    really depends upon this clean fuel that is being put out
    there. So in some ways I think it is fair to say that
    manufacturers who are looking at diesel have some roadblocks in
    the future years in terms of do you really want to commit to
    large volume production until these things are cleared up and
    what is going to happen in that future.
        Senator Carper. Thank you.
        Is my understanding about Honda putting the hybrid
    propulsion system in Civics, is that correct? Are they going to
    do that?
        Mr. Dana. That has been announced in the press.
        Senator Carper. Do you think they are doing it to lose
    money?
        Dr. McCormick. Well, at the end of the day let us see what
    they price it at and how many of them they sell. Again, we did
    not do the EV-1 to lose money either, but it is a tough
    proposition. You have got to see what the consumer is willing
    to pay.
        Mr. Kolodziej. Senator.
        Senator Carper. Yes, please.
        Mr. Kolodziej. Honda is a very smart company and it makes
    sense for them to do whatever they are doing. So if they are
    putting it in the Civic it makes sense somehow economically for
    them.
        The other important point for you is to keep in mind that
    the cleanest internal combustion vehicle ever commercially
    produced is being made right now in Ohio. It is a Honda. It is
    a Honda Civic GX natural gas vehicle. But every one of them are
    made in Ohio.
        Senator Carper. Marysville?
        Mr. Kolodziej. I believe it is Marysville.
        Senator Carper. Dr. McCormick, you talked about the truck
    that they are going to introduce the hybrid in. That was model
    year 2004. Any idea what the gas mileage would be without the
    hybrid?
        Dr. McCormick. I do not remember the exact numbers. That is
    about, over the drive cycles that we look at, that is about a
    15 percent improvement in the fuel economy of that vehicle.
        Senator Carper. Roughly what would its fuel economy be
    without the hybrid?
        Dr. McCormick. I do not know that I remember that off the
    top of my head.
        Senator Carper. Well, let us just say it is 16 miles per
    gallon. Let us say it is 20, let us say it is 20. 15 percent
    would go from 20 to 23 miles per gallon, right. I know there is
    a good explanation as to why that is better, to make that 3
    miles per gallon jump in a vehicle. What would you sell, half a
    million of them, 250,000?
        Dr. McCormick. We are expecting the number to be somewhat
    smaller because of the premium.
        Senator Carper. Because of?
        Dr. McCormick. We are expecting the number of vehicles to
    be sold to be smaller than that because of the premium price
    for it. We are going to find out.
        Senator Carper. Just refresh me again on why are we better
    off as a country to realize a 3 miles per gallon increase in
    the efficiency of that pickup truck as opposed to a Precept
    that would get twice the gas mileage?
        Dr. McCormick. I do not think we are. I think we want to
    get to twice the gas mileage, which is again why I am
    advocating fuel cells.
        Senator Carper. But in the near term. We realize and I
    applaud what you are doing in fuel cells and I think it is
    exciting, I am anxious to get there, anxious for us to adopt a
    policy that is supportive. But in the meantime, we are stuck
    with what we have. In the meantime, we have the potential for
    some of the alternative vehicles and fuels that we have talked
    about, and in the meantime we have this hybrid technology.
        I am intrigued to see somebody out there, Honda, thinks
    that they are onto something, and they are going to start
    expanding, not just into that one vehicle, but into maybe
    others. What I am having a hard time understanding--and I
    certainly do not mean to be picking on you, but I am having a
    hard time understanding why we are better off increasing the
    efficiency and one vehicle go from 20 to 23--and I have had the
    same conversation with my friends from Daimler Chrysler about
    the Durango, which is built in my State.
        Why are we better off going from 20 to 23 and why do we not
    find some vehicles that we could come closer to the Precept as
    well? Is it the fear that nobody will buy them?
        Dr. McCormick. Well, two comments. First of all, I want to
    make sure that you are clear that we are also bringing out a
    mid-sized car using the Paradigm system in that time frame. So
    it is not just the truck that we are looking at.
        But when you look at where the fuel is actually used, it
    turns out when you do the mathematics, actually sit down and do
    the calculation, a similar improvement on a high fuel usage car
    net gives you less fuel imported than a similar improvement on
    a higher mileage car percentage-wise.
        Senator Carper. I asked you earlier how many pickups you
    thought you would make with the hybrid system in them and I
    think you said probably fewer than 250,000 per year.
        Dr. McCormick. We are not sure quite what that number is,
    but we are being conservative going forward to make the
    business case for it.
        Senator Carper. Let us just assume for the moment that it
    is 200,000. Let me see if I can do any math in my head still at
    this advanced age. But if you have 200,000 vehicles that you
    sell and you get an increase in mileage of 3 miles per gallon,
    that would be what, 600,000. If you could sell, gosh, 20,000
    vehicles that got an extra 30 miles per gallon, the savings
    would be the same. Am I missing something there?
        Dr. McCormick. Yes. You have to look at miles driven and
    total miles used per year. So across a 10,000 mile annual drive
    something that gets 20 miles per gallon uses a lot more fuel
    and so consequently a small improvement in that really affects
    the bottom line amount of fuel. Remember, the people drive the
    same number of miles per year and so you get a disproportionate
    gain in the total fuel used.
        Senator Carper. Let me just carry out my example earlier.
    The same situation, 200,000 pickup trucks, 3 miles, increased
    miles per gallon. If we were able to--let us see. If you were
    able to build and sell 40,000 vehicles, 40,000 vehicles like a
    Precept, but even not nearly as good as a Precept, but if you
    were able to sell 40,000 vehicles that were only driven half as
    much, only half as much, but got an extra 30 miles per gallon,
    you would be at a break-even.
        Is part of what is not being said here that the reason why
    it makes sense to put them on the SUV's and the trucks is
    because that is where we make money when we build vehicles? We
    do not make money, if you are Chrysler, they do not make money
    selling Neons. They make money selling Jeeps.
        I do not know if you folks make much money on your
    Cavalier. You make money on your Tahoe. In terms of being able
    to do this in a way that makes sense for your company, trying
    to understand the logic and rationale for going with the trucks
    and the SUV's is in order for the free enterprise system to
    work and for you to make money doing this stuff you have got to
    put it into vehicles, because there is extra cost, you vehicle
    got to put them into vehicles that you can sell at a markup and
    will cover your costs.
        Is that part of it?
        Mr. Kolodziej. Senator, this is not my area, but I just
    cannot keep my mouth shut. The issue is fuel displacement. If
    you have got a vehicle that is getting 30 miles per gallon and
    mom and pop buys them, mom and pop is driving 12,000 miles a
    year using, what, 400 gallons, 400 gallons. Now, you have got a
    duty cycle on a pickup truck, you might be putting 60,000 miles
    on that vehicle at 20 miles to the gallon. That vehicle is
    using 3,000 gallons.
        If you can increase the fuel efficiency on that vehicle 15
    percent, you have got an increase of a lot. If you doubled it
    from mom and pop--you are actually getting more fuel
    displacement by going after the heavier duty vehicles. Even
    though it looks like a smaller number, because of the duty
    cycles you can get a bigger impact. A class A truck might go
    120,000 miles a year at 6 miles or 4 miles a gallon. So if you
    can get a small percentage increase improvement there, you can
    have a big impact on the total fuel use.
        As to the financial strategy, Byron, you want to answer
    your financial strategy?
        Dr. McCormick. Let me expand on that. Actually we have
    introduced hybrid buses and it turns out that if you did
    13,000, a very small number, 13,000 hybrid bus propulsion
    systems in the United States, that would be equivalent to a
    half a million Prius's in terms of fuel displaced. So I think
    the calculation that Rich talked about is very key and what you
    want to do is calculate how many gallons of fuel does a vehicle
    use per year and then how much can I improve that, and you find
    out that the average consumer driving an SUV, a bigger truck,
    consumes so much fuel that a percentage improvement there is
    very, very, very effective.
        Senator Carper. What I want to do is sit down with pen and
    paper and my calculator and run some numbers, not at a hearing
    but afterwards. Tom Davis was by, who runs your truck
    operation, last week and I spent some time with him. He talked
    about the buses. It is very promising, very promising, and I am
    encouraged by what you are doing there and hope that maybe in a
    later round of questioning if we have that that I can pursue
    that with you. Thank you.
        The Chairman. If you had another question, why do you not
    go ahead.
        Senator Carper. Mr. Chairman, I have got enough questions
    here to keep us here for 2 days.
        The Chairman. Well, maybe you should visit with some of the
    witnesses after the hearing, then, because we are about to
    adjourn the hearing. I think everyone----
        Senator Carper. Could I ask one more, then?
        The Chairman. Sure.
        Senator Carper. Thanks very much.
        In Delaware we raise--we build more cars, trucks, vans,
    automotive vehicles than any other State per capita. We also
    raise more chickens per capita than any other State. We raise
    more soybeans in Sussex County, Delaware, than any county in
    America, and we are real interested in trying to find ways to
    take the oil from soybeans and to turn it into a product that
    can be mixed maybe with diesel fuel and come up with something
    that is fuel efficient, good for the environment, and that
    helps commodity prices for soybeans as well.
        We are finding when we tested it in our DELDOT vehicles in
    Delaware for the last year, year and a half or so, and we find
    it does pretty well with respect to fuel efficiency. We find
    that it actually smells pretty good. It smells like french
    fries. But we find that on the emissions side the only area
    that it lets us down is on NOX. The NOX
    emissions are a little bit higher.
        I do not know who was testifying earlier, maybe it was Mr.
    Marshall, talking about ethanol and trying to encourage people
    to buy ethanol. But as I listened to you I think I heard you
    say that for folks to use ethanol to power their vehicles it
    costs a little bit more, the fuel efficiency is not quite as
    good, and it is harder to find, it is less convenient for the
    consumers, which probably explains why we do not use as much of
    it. If it costs more, it is less efficient, and it is harder to
    find, that would discourage me from using it, and that is from
    a guy where we raise a lot of corn and a lot of soybeans.
        Mr. Marshall. Senator, part of the problem is we can build
    an automobile that runs on almost any fuel, but the problem is
    with the infrastructure, the availability of fuel. The
    different fuels that are out there, none of them are quite as
    easily available as gasoline, which we have used for many, many
    years. That is part of the problem we have been talking about,
    all of us, about the infrastructure development that is
    necessary.
        Senator Carper. Go ahead, Mr. Marshall. Go ahead and make a
    comment, and then I will jump in.
        Mr. Marshall. You hit on a number of points. The key point
    is providing the incentives to utilize the product. Ethanol can
    compete very well with compressed natural gas, propane, or
    anything else provided the incentives are on a gasoline
    equivalent basis and the energy is as well. The big problem has
    been availability. Where we have been able to go in and
    specifically target areas around the country--Chicago, Denver,
    and some of the other places--and look at alternative fuels
    there, we have been able to provide it through some of the
    existing infrastructure and it is working very, very well. All
    we need to do is expand the program.
        Ethanol and E-85 is kind of in its infancy as compared to
    some of the other alternative fuels, but certainly, provided
    the opportunity, we have a lot of promise and a lot of
    potential to move forward.
        Senator Carper. Mr. Chairman, I think we have got all these
    gas stations around the country and they are on our block.
    Pretty much wherever we live, it is not too far to get to a gas
    station and we can buy the gasoline that we need for our cars,
    trucks, and vans. If we want to buy ethanol or soy diesel, if
    you want to buy some kind of natural gas--I am actually a
    Governor who used to have a vehicle that was powered by natural
    gas, a combination of natural gas and gasoline, so I believe in
    that stuff. But it was hard to find. I think we had three
    stations in all of Delaware where you could get the stuff, so
    it was not all that convenient.
        But part of the--and we do not expect GM or Chrysler or
    Ford or anybody to build vehicles that nobody is going to buy.
    We do not expect them to build vehicles that they are going to
    lose money on, at least for long.
        But this infrastructure, they put their fingers on a big
    one, and that is that this infrastructure, whether it is
    hydrogen or gasoline or alternative fuels or ethanol, unless we
    can somehow get our arms around that one and deal with it we
    are not going to be successful in this area.
        The other thing, if we were on a committee where we
    actually got to write tax bills, tax legislation, and we could
    put in place all these incentives, I think we could probably do
    that pretty well. Unfortunately, that is not our job. But we
    get to work with the folks who are in that business and
    hopefully we will have some success in moving them along.
        The last thing I would say is at the port of Wilmington we
    bring in, export GM products, and we are grateful for that
    business. We do a fair amount of business with Ford, some day
    maybe with Chrysler. We also do a lot of business with
    Volkswagen, and I visit with the folks up at Auburn Hills from
    time to time at Volkswagen America.
        They say: You know, back in Europe we do great things with
    diesel. We get terrific fuel performance with diesel, 40, 50
    miles per gallon, even better than that. They said they
    question why in America we do not do more with diesel. I said,
    well, it has something to do with the emissions. Someone talked
    earlier about I think it is the 2006 time target date.
        Just take a minute, somebody who is familiar with the
    emissions problem that we have with diesel. Why are we unable
    to make as effective use of diesel today in the twenty first
    century as they are doing over in Europe?
        Mr. Dana. That is something that we hope to be able to do,
    Senator. What has happened is diesel has always been used in
    Europe at a fairly substantial rate in the passenger automobile
    fleet, so a lot of the technological development has been
    driven in Europe. We now have very, very efficient diesels.
        Most people in this country do not realize you can build a
    diesel that is quiet, clean, no black smoke, and is very
    comfortable to ride in because the diesel penetration in any
    kind of light duty vehicle in this market is very, very small.
        The problem I mentioned earlier, we see diesel as one of
    the potential tools the industry has to improve fuel efficiency
    of the vehicle fleet, but because of the conundrum of the
    existing emissions standards for 2004 and later and the clean
    fuel that is supposed to be coming in 2006, I think it is
    difficult for a manufacturer to commit resources with an unsure
    future.
        If we can see a future out there that says this will be
    viable for the long term, I think they will make the
    commitment, the dollar commitment to make that technology
    available. Clearly, there have been very big advances in diesel
    technology and with the clean fuel we think they can meet most
    of the emissions standards that are being proposed.
        Senator Carper. The interesting thing, Mr. Chairman, about
    the diesel alternative is that the infrastructure is there. In
    most places where you buy gasoline, a lot of those places you
    can buy diesel as well. If we could figure out how to hit our
    emissions targets, that would certainly appear to have a fair
    amount of promise.
        I have gone too long. Thank you for your patience. To our
    witnesses, especially Dr. Mccormick, thank you very, very much
    for being here and sharing your thoughts. I appreciate the
    chance to come back to you later on with follow-up. Thank you.
        The Chairman. Well, thank you all very much. I think it has
    been very useful testimony, and we will adjourn the hearing.
        [Whereupon, at 11:58 a.m., the hearing was recessed, to be
    reconvened on July 18, 2001.]

                             NATIONAL ENERGY ISSUES

                                  ----------

                            WEDNESDAY, JULY 18, 2001

                                           U.S. Senate,
                     Committee on Energy and Natural Resources,
                                                        Washington, DC.
        The committee met, pursuant to notice, at 9:30 a.m. in room
    SD-366, Dirksen Senate Office Building, Hon. Jeff Bingaman,
    chairman, presiding.

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

        The Chairman. We will now begin the legislative hearing we
    have scheduled this morning on research and development
    provisions of the various energy-related bills that have been
    introduced and referred to this committee. These bills include
    the Democratic and the Republican energy policy bills, numerous
    other specific bills, most of which have bipartisan co-
    sponsorship.
        Energy research and development attracts broad bipartisan
    support in Congress precisely because most members believe that
    advancing our understanding of energy, science and technology
    is crucial to being able to meet the energy challenges of today
    and tomorrow. Our domestic energy, security, and our future
    economic prosperity depend upon our ability to use research and
    development to increase the efficiency of our energy use while
    at the same time producing the energy that we need more cleanly
    and economically. Given that reality, it was most unfortunate
    that the administration earlier this year decided in the
    context of their budget proposal to make substantial cuts in
    energy research and development in areas such as renewables and
    energy efficiency. While barely holding steady the funding on
    basic energy science, Congress has since rejected these cuts by
    broad bipartisan majorities, both in the interior
    appropriations bill and in the energy and water development
    appropriations bill that is now on the Senate floor.
        The Department of Energy is one of the most important
    science research agencies in the Federal Government. Its
    overall civilian research and development budget in energy,
    which is $4.8 billion in fiscal year 2001, is greater than that
    of the National Science Foundation, which was $3.4 billion. The
    Department of Energy operates unique scientific facilities that
    scientists supported by other Federal agencies use to carry out
    their research. For some scientific disciplines, the Department
    of Energy is nearly the sole source of Federal support. As we
    move forward in drafting energy legislation, it is crucial, in
    my view, that we increase both the size and effectiveness of
    the Department of Energy's research and development budget. We
    need to focus both on increasing support as well as increasing
    the effectiveness of that program.
        Both Senator Murkowski and I have introduced bills that
    exceed the administration's budget in energy research and
    development. I hope that in the days and weeks ahead, both the
    administration and the Congress will embrace a vision of the
    importance of energy research and development that is
    consistent with its scientific promise and the need for new
    energy technologies and the views of the American people.
        Before I start with our witnesses, let me call on Senator
    Murkowski for any comments he has.
        [A prepared statement from Senator Domenici follows:]

           Prepared Statement of Hon. Pete V. Domenici, U.S. Senator
                                From New Mexico

        Mr. Chairman, thank you for holding this hearing today on energy-
    related research and development issues. I appreciate that your goal is
    to develop comprehensive legislation later this month. As we do this,
    the guidance in the President's National Energy Policy should be
    carefully followed.
        It's certainly important that the Senate act quickly on the
    National Energy Policy in order to move ahead with its important
    recommendations. There should be no question that the nation is
    experiencing an energy crisis, and we need prompt action to improve the
    current situation. The actions outlined in the Policy will dramatically
    improve our long-term energy outlook.
        There is no single ``silver bullet'' that will address our nation's
    thirst for clean, reliable, reasonably priced, energy sources. That's
    why the National Energy Policy carefully reinforced the importance of
    many energy options. Energy is far too important to our economic and
    military security to rely on any small subset of the available options.
        As your hearing is being held, we're debating the Energy and Water
    Development Appropriations bill for Fiscal Year 2002. That bill
    determines the funding levels for many of the programs being discussed
    here today. I'm very proud that this bill makes immense progress in
    funding a diverse set of energy sources and significantly advances the
    agenda of the National Energy Policy. For example, that bill funds
    renewable programs at $435 million, even more than proposed in Senator
    Bingaman's energy bill.
        Despite the breadth of the Energy and Water bill, I'm going to
    focus my comments today on nuclear energy, which now provides about 22
    percent of our electricity from 103 nuclear reactors. The operating
    costs of nuclear energy are among the lowest of any source. That's why
    I, and 18 of my colleagues, have joined together to back Senate bill S.
    472, devoted to insuring that nuclear energy remains a strong
    contributor in our national energy mix.
        Nuclear energy is essentially emission free. We avoided the
    emission of 167 million tons of carbon last year or more than 2 billion
    tons since the 1970's. In 1999, nuclear power plants provided about
    half of the total carbon reductions achieved by U.S. industry under the
    federal voluntary reporting program. The inescapable fact is that
    nuclear energy is making an immense contribution to the environmental
    health of our nation.
        We can learn much from the French performance. France generates 76%
    of its electricity from nuclear. That helps them achieve spectacular
    results for minimal emissions of carbon dioxide. Their emissions per
    dollar of GDP are almost 3 times lower than ours. I look forward to the
    testimony of Mr. Jacques Bouchard from the French CEA to learn first-
    hand about their experiences.
        Unfortunately, when it comes to nuclear energy, we're living on our
    past global leadership. Most of the technologies that drive the world's
    nuclear energy systems originated here. Much of our early leadership
    derived from our requirements for a nuclear navy; that work enabled
    many of the civilian aspects of nuclear power. Federal actions are
    required now to insure that nuclear energy continues its vital
    contributions.
        S. 472 has many features, and only some of them are included in
    today's hearing. One provision would designate an Assistant Secretary
    to lead the Department's nuclear energy and science programs. To me,
    it's not appropriate to have Assistant Secretaries leading all the
    other major energy categories except nuclear.
        Several of the provisions in S. 472 authorize important nuclear
    energy programs--programs which have been included within past Energy
    and Water Development bills. The Senate is now in final debate on the
    Fiscal Year 2002 version of this bill which would significantly
    increase funding for the Nuclear Energy Research Initiative, the
    Nuclear Energy Plant Optimization, and the Nuclear Energy Technology
    Program, and almost double funding for university programs.
        The bill includes key provisions to improve the ability of our
    uranium mining industry to compete in the future through research on
    improved technologies that will have less environmental impact.
        The hearing today also covers research toward new Generation IV
    plants. Technology to build these plants is close at hand. This bill
    not only supports research and development on these plants, it also
    helps develop the regulatory framework within the NRC that must be in
    place before they can be licensed.
        Generation IV plants would:

       be cost competitive with natural gas;
       have significantly improved safety features with the goal of
            passive safety systems that would be immune to human errors;
       have reduced generation of spent fuel and nuclear waste; and
       have improved resistance to any possible proliferation.

        Many of the Generation IV concepts would involve small modular
    plants. With such plants, we should be able to dramatically cut the
    time required for bringing a plant on line, and do it for far less
    capital investment than the current very large plants. Small Generation
    IV plants may be useful in developing countries, where they could help
    these nations increase their standard of living without compromising
    clean air.
        In addition, we're considering Titles IV and V of S. 472 today.
    These Titles are devoted to exploring improved strategies for
    management of spent fuel. They establish an Office to manage research
    on these key questions. These studies would involve work on
    reprocessing and transmutation. I'm particularly looking forward to the
    views of our distinguished witnesses on these subjects today.
        Let me emphasize, Mr. Chairman, that I used the phrase ``spent
    fuel'' rather than ``waste'' to refer to the materials coming out of
    our reactors. Right now our national policy calls for disposing of
    those materials as waste in a future repository. But we need to
    remember that these materials still contain 95 percent of their initial
    energy content.
        I've been concerned for years that it highly debatable for us to
    decide that future generations will have no need for this rich energy
    source. With improved management strategies, possibly involving
    reprocessing and transmutation, we can recycle that material for
    possible later use, recover far more of the energy, and dramatically
    reduce the toxicity and volume of the materials that are finally
    declared to be waste.
        My speech at Harvard in 1997, which helped start the rebirth of
    interest in nuclear energy, was the first time I publicly questioned
    President Carter's decision to ban reprocessing. I believe that was a
    serious step backward for our country. I'd like to repeat some of the
    words from that speech:

              In 1977, President Carter halted all U.S. efforts to
            reprocess spent nuclear fuel and develop mixed-oxide fuel
            (MOX) for our civilian reactors on the grounds that
            the plutonium could be diverted and eventually transformed into
            bombs. He argued that the United States should halt its
            reprocessing program as an example to other countries in the
            hope that they would follow suit.
              The premise of the decision was wrong. Other countries do not
            follow the example of the United States if we make a decision
            that other countries view as economically or technically
            unsound. France, Great Britain, Japan, and Russia all now have
            MOX fuel programs.
              This failure to address an incorrect premise has harmed our
            efforts to deal with spent nuclear fuel and the disposition of
            excess weapons material, as well as our ability to influence
            international reactor issues.

        In closing, Mr. Chairman, my S. 472 was designed to enable nuclear
    energy to be a viable option for our nation's electricity needs. It
    would help ensure that future generations continue to enjoy clean,
    safe, reasonably priced, reliable electricity from nuclear energy.

          STATEMENT OF HON. FRANK H. MURKOWSKI, U.S. SENATOR
                              FROM ALASKA

        Senator Murkowski. Thank you very much, Senator Bingaman. I
    want to thank you for holding the hearing today. We both have
    been long time supporters of energy research and development,
    whether it be fossil or nuclear, renewable or energy
    efficiency, and through the development of advanced energy
    technologies, I think we both agree we can avoid the false
    choices between energy and the environment. We want to make our
    decisions on sound science. I've said that time and time again,
    but I think it is most appropriate to reflect on this. So
    often, you know, we are expected to have the knowledge and
    background to make a decision. We have to make decisions. We
    vote yes or no. We can't vote maybe, so we have to depend on
    people who are willing to put their reputations as experts
    behind their recommendations. Otherwise, you're going to get
    what you would expect from pretty much a public forum. You can
    get expressions and motions but not sound science. In any
    event, what we are looking for today, through the development
    of advanced energy technologies, is to try and avoid those
    false choices. A choice that radical environmentalists from
    time to time seem very eager to force upon the American
    people--again without the science.
        Nowhere is the value of advanced energy technology more on
    display certainly in exploration than my State of Alaska, where
    one only needs to contemplate the rigors of 70, 80, 100, 120
    below zero working conditions in areas of permafrost where we
    have been able to maintain footprints that are extraordinarily
    compact. Ice roads, 3D seismic, all new technologies that
    reduce the disturbance on the tundra. Directional drilling, it
    has been indicated by the engineers that they could drill in
    this room and come out at Gate 8 at Reagan Airport. They have
    that degree of accuracy. R&D funded by the Department of Energy
    and industry has made it all possible and this will yield more
    benefits in the future. Energy R&D will give us the
    technologies of tomorrow that will provide a clean, safe and
    affordable energy supply. Cleaner fossil fuels, safe next-
    generation nuclear power, affordable renewable energy
    technology, energy efficient technologies that will allow us to
    do more with less.
        We have to keep in mind that we just can't throw money at
    it. Money alone is not the answer. We must ensure that our R&D
    programs are oriented in the right direction with concrete
    goals and objectives and checks and balances. We can all
    justify more expenditure, but we have got to have measurements
    and successes. We must fund a portfolio of priority options
    just as you would invest in a portfolio of stocks to hedge your
    bets. And, most importantly, we must be ready to take on some
    risks--some high risks, high reward for breakthrough
    technologies. That is how they come about. An R&D program
    without some failure is not pushing the envelope hard enough,
    in my opinion. I know the National Academy of Science will have
    much to say about their recent review of Department of Energy
    energy R&D programs and I look forward to their suggestions as
    to what changes they would suggest to help energy R&D along.
        One of the frustrating problems that's been before this
    committee for as long as I have been a member, and that's over
    20 years, is what to do with our high level waste-spent nuclear
    fuel. Our spent waste, I should say. Reprocessing is one
    alternative, and I gather that we're going to have a third
    panel today of witnesses that will address the issue of
    reprocessing of spent nuclear fuel. I'm going to have to go
    down to the floor a little after 10 o'clock on energy and water
    but I hope to get back to participate in the third panel.
        Clearly, one of the issues with nuclear power is the
    storage of the high level radioactive waste. According to some
    in this Senate, Yucca Mountain is dead. That is pretty hard to
    take if you are a taxpayer and consider that we've spent over
    $8 billion so far on Yucca Mountain. I don't think it's dead.
    Even with Yucca, it makes sense to make as little waste as
    possible, and that is the advantage of the advanced technology.
        Reprocessing does offer a way to use more of the energy
    stored in the fuel to reduce the waste volume. Of course, there
    are risks involved, nuclear materials and proliferation, but
    there are large benefits to be gained if we can develop new
    technologies to reduce and reuse nuclear spent fuel.
        And finally, we must recognize that R&D funding alone is
    not a sufficient substitute for a comprehensive national energy
    policy when you look at what other countries are doing, France
    particularly and Japan in this area of high level nuclear waste
    reprocessing. In any event, while R&D can help us develop the
    technologies of tomorrow, it cannot solve the problems of today
    with the current energy crisis. We still need an increase in
    supply of conventional fuels, expanded energy efficiency, more
    renewables. And we need to invest heavily in the
    infrastructures needed to move the energy from the wellhead or
    powerplants to the consumers in both pipelines and electric
    transmission lines. Energy R&D does have a central role to play
    and I look forward to hearing from our witnesses on how we can
    better invest in our energy future. Thank you, Mr. Chairman.
        The Chairman. Senator Burns.

             STATEMENT OF HON. CONRAD BURNS, U.S. SENATOR
                              FROM MONTANA

        Senator Burns. Thank you for holding this hearing. You
    know, today's attendance to this hearing is pretty indicative
    on how sexy an issue this is. If we were talking about the
    sucker fish, I'll guarantee you couldn't get another person in
    this place with a shoehorn. But R&D is important for our work
    over on the Commerce Committee when we worked with the NSF,
    being involved in EPSCOR, and the R&D that is going on in
    communications in our universities and even in our energy. No
    other committee and no other department has more to do with
    climate change in our high energy physics, our
    superconductivity, high performance computing. This is where it
    happens in this country in the high tech field. Now, we can
    talk about what's happening in the technology of
    communications, but as far as our every day life, this is where
    it's at. And yet, you know, we won't get now what is there over
    at the press table, a half a dozen over there that will write
    about this hearing today. And yet it's probably one of the most
    important hearings that we will hold in this committee, Mr.
    Chairman, and I appreciate your interest in this. I appreciate
    your holding this hearing.
        We have seen great things happening in wireless
    communications. I will tell you fuel cells is to the energy
    industry what wireless was to communications. And we have to
    look at these kind of different things to complete our work.
    Thank you, Mr. Chairman. If I can put my statement in, I would
    sure appreciate that.
        The Chairman. Senator Carper, would you like to make any
    statement?

           STATEMENT OF HON. THOMAS R. CARPER, U.S. SENATOR
                             FROM DELAWARE

        Senator Carper. I feel inspired by the comments of Senator
    Burns and Senator Murkowski. I would make a very brief comment.
    I received a memo, I think yesterday, from Robert Simon, our
    staff director on the Democratic side and Bryan Hannegan, staff
    scientist, and this goes back to a point that Senator Murkowski
    was making about not being able to throw money at problems,
    even though on the R&D side, and I was just reading this last
    night. It says studies of the areas supported by Department of
    Energy R&D funding suggest significant payoffs from the
    research funded according to Department of Energy and validated
    by a GAO study. Efficiency R&D programs have returned over $100
    billion to the U.S. economy for Federal investment of less than
    $13 billion since 1978. It goes on to mention a new report from
    the National Academy of Sciences. It reviews the Department of
    Energy's funding of DOE and fossil and energy efficiency areas
    and it looked at, I think, 17 R&D programs on energy efficiency
    that go back to 1978 and concluded that the Department of
    Energy's investment of $1.6 billion resulted in a return of
    about $30 billion. So, we're not just throwing money at these
    problems and issues but actually making some sound
    accomplishments. I would just want to put that on the record.
        The Chairman. Thank you very much. Why don't we go ahead
    then with Francis Blake who is Deputy Secretary of Energy.
    Thank you for being back here with us.

      STATEMENT OF FRANCIS BLAKE, DEPUTY SECRETARY, DEPARTMENT OF
                                 ENERGY

        Mr. Blake. Mr. Chairman and members of the committee. Thank
    you very much for inviting me this morning and also, thank you
    for moving on the nomination of Dan Brouillette. We are very
    much looking forward to getting him on board the team. As you
    know, all major energy legislation has been bipartisan in
    nature and we look forward to working with this committee under
    your leadership and moving forward on a number of the
    legislative proposals you are now considering. For today's
    topic on research and development, as you all have mentioned,
    there is an important role for the Government and for the
    Department of Energy to play on research and development.
        There are public benefits that exist that the private
    sector simply cannot capture and there is an important role for
    the Department in those areas. And in fact we are looking at
    technology to address some of the key challenges that we face.
    However, we can continue to improve our standard of living and
    also address the environmental and other concerns that we have.
        I would like to just submit my written testimony for the
    record and then briefly summarize the areas where I think we
    have agreement and then open my comments up for questions. I
    think the areas that are addressed in your legislation actually
    mirror fairly well the areas that the Department is spending
    research and development monies. You target renewables,
    hydropower, solar, wind, and we have activity in all of those
    areas. You have some legislation with recommendations on
    nuclear energy, particularly in the area of reprocessing. That
    is part of the President's national energy plan and we are
    supportive of that although we would note that even as we make
    progress there, that does not undermine the need for a deep
    geological repository for nuclear waste.
        We also support focused carbon-based fuels research and
    development. It is particularly important in the environmental
    area and in improving efficiencies for our installed base and
    then more basic research on technologies as Senator Murkowski
    was referencing in the areas of hydrogen, fusion and other
    varied significant new potential areas. We are at an
    interesting point as well because as was mentioned, the
    National Academy has come out with its study that has looked at
    some of the results from prior Department of Energy R&D
    efforts, and I think has concluded that the public has received
    a good payback from that investment. They also have made some
    suggestions. I haven't read the report but I have seen the
    executive summary. They have made some suggestions that are
    very much in line with the administration's own thinking on how
    we need to be approaching our research and development efforts.
    We need to have good performance measures and metrics so that
    the money we spend is wisely spent. And we understand what we
    are expecting and what the appropriate off-ramps are for our
    investments.
        We need to have a good understanding of the private public
    relationship, what the private sector will do better than the
    public sector, and how we can effectively join forces. And I
    think, as the NAS has emphasized, we do need a portfolio
    approach where we look at a number of different technologies
    that address different areas, a number of different stages of
    development, some basic research, some research and
    development, some demonstration, and also, different benefits
    that the research and development can address. Some
    environmental; some economic and some national security
    benefits. So, I think we are in large agreement with many of
    the recommendations that the NAS report is coming out with.
        We look forward to working with this committee and just to
    echo Senator Burns' comment, if you look at the contribution
    that research and development has made in a number of areas, we
    view this as one of the critical functions of the department
    and very much appreciate your leadership and guidance in these
    areas. Thank you.
        [The prepared statement of Mr. Blake follows:]

            Prepared Statement of Francis Blake, Deputy Secretary,
                              Department of Energy

        Mr. Chairman and Members of the Committee, I welcome the
    opportunity to testify before you today on various legislative
    proposals pending before the Committee. These proposals include Senate
    bills, S. 388, S. 597, S. 90, S. 193, S. 242, S. 259, S. 472, S. 636,
    S. 1130 and S. 1166, the provisions of which address various aspects of
    the Department's scientific research and technology development
    programs.
        First, I would like to thank the Chairman and Members of the
    Committee for your leadership and commitment in addressing the Nation's
    energy issues. I applaud the Committee's efforts to craft comprehensive
    long-term energy legislation. This Committee has a long and proud
    tradition of developing bipartisan energy legislation, and the
    Administration recognizes that all major energy bills have been
    bipartisan in nature. I look forward to working with the Committee to
    find areas of common ground and interest between the Congress and
    President Bush's policy proposals, as outlined in the National Energy
    Policy.
        Turning to the matter at hand, the general focus of today's hearing
    is research and development (R&D). The Administration welcomes the
    Committee's interest in and support of the Department's scientific and
    research programs. America's energy challenge begins with our expanding
    economy, growing population and rising standard of living. Our
    prosperity and way of life are sustained by energy use. To meet our
    energy challenges of the future--promoting energy conservation,
    repairing and modernizing our energy infrastructure, and increasing our
    energy supplies in ways that protect and improve our environment--will
    require sound science, innovative R&D, and collaborative partnerships
    among all of our research organizations, public and private.
        The Department's R&D programs are an important part of this effort
    to address and meet many of the challenges facing our Nation's future.
    They have a long and proven track record of past scientific and
    technical contributions in this regard. On one timely note in this
    vein, just yesterday, the National Academy of Sciences released its
    study of the Department's twenty-year R&D programs in the technology
    areas of energy efficiency and fossil energy. The Academy reported that
    the benefits to the Nation of these R&D efforts are large and
    increasing over time.
        The Administration strongly supports research into advanced
    technologies and their underlying foundation of basic research. As the
    Academy's study suggests, Federal leadership in partnership with others
    can have a strong and beneficial influence on the advancement of
    technical solutions to many of Nation's greatest challenges.
        As part of my responsibilities as Deputy Secretary, it is my
    intention to ensure that the Department's scientific and research
    portfolio is both well focused on our nation's needs and efficiently
    managed. One of the Administration's management priorities is for the
    Department to establish performance metrics for R&D expenditures so
    that we can look across our portfolio of activities and distinguish
    programs that are well-targeted and successful from those that are
    performing poorly or could be better undertaken by others. I look
    forward to working with this Committee on that effort.

                                  SENATE BILLS

        Mr. Chairman, the Senate bills and the particular titles and
    sections of these bills that are of interest to the Committee today
    cover a diverse mix of scientific interests, programs, enhancements to
    these programs, and related administrative actions. There are parts of
    ten bills, including eight mentioned in your letter of invitation and
    two bills added since then, of interest here today.
        I want to assure the Committee that the Administration is
    interested in each provision of these bills. I can provide today some
    general comments on the salient aspects of some of these bills, but in
    other cases the Administration has not yet developed a full or formal
    position. We look forward to working with you on this in the weeks and
    months ahead.
        With regard to S. 90 and S. 193, the Department has not yet taken
    any formal position. S. 90 would require the Secretary of Energy to
    support an R&D program in nanoscience and nanoengineering, and to
    establish similarly focused research centers, at authorizations
    totaling $1.36 billion over 5 years. S. 193 would require the Secretary
    to support a research program in advanced scientific computing, at
    authorizations totaling $1.15 billion over 4 years. Both bills are
    supportive of our ongoing programs in these areas, but the
    authorization levels are inconsistent with the Administration's budget
    requests and recent appropriations levels set by Congress.
        S. 242 and S. 472 represent the first major nuclear energy
    legislation since the passage of the Energy Policy Act of 1992. At the
    outset, I would like to express the Administration's general support
    for legislation that sets a direction to implement the nuclear
    components of the Administration's National Energy Policy. S. 242 would
    require the Secretary to support a program to maintain the Nation's
    human resource investment and infrastructure in the nuclear sciences
    and engineering, including a program supportive of student fellowships
    and university research and training reactors, and authorizes funding
    totaling $240 million over 5 years.
        S. 472, entitled the Nuclear Energy Electricity Supply Assurance
    Act of 2001, would promote expanded use of nuclear energy as a major
    component of our Nation's energy strategy. The particular sections and
    titles of S. 472 that are of interest to the Committee at this hearing
    pertain only to the related research programs (sections 111, 121, 122,
    123, 125, 127, 204 and 205), the development of a spent nuclear fuel
    strategy (title IV), and the application of advanced proton
    accelerators for the production of various isotopes and the
    transmutation of spent nuclear fuel and waste (title V). Authorizations
    for FY 2002 total $184.2 million for the research programs; $10 million
    for title IV; and $120 million for title V.
        Similarly, sections 107 and subtitle B of S. 388 require the
    development of a national spent nuclear fuel strategy (section 107),
    and authorize for FY 2002 a total of $95 million for the nuclear energy
    research initiative, nuclear energy plant optimization, and nuclear
    energy technology development programs. These nuclear energy bills are
    supportive of ongoing R&D programs at the Department, but the
    authorization levels are inconsistent with the Administration's budget
    request and recent appropriations levels set by Congress.
        In addition, S. 388 requires the Secretary to conduct a five-year
    program of research for natural gas technologies, including
    transportation and distribution infrastructure, and distributed energy
    resources and related natural gas-using equipment (section 115), and to
    establish an energy efficiency science initiative (title VI, section
    607), the latter authorized for $25 million in FY 2002--which is an
    amount inconsistent with the Administration's budget request.
        The pertinent sections of S. 597, the Comprehensive and Balanced
    Energy Policy Act of 2001, concern R&D programs in coal (title VIII);
    pipeline safety (for the Secretary of Transportation, in coordination
    with the Secretary of Energy, title XI); and a series of enhancements
    to R&D programs in energy efficiency, renewable energy, fossil energy,
    and nuclear energy, and to the fundamental research programs in energy
    sciences (Division E). These provisions, likewise, are generally
    supportive of our R&D programs in these areas. However, in light of the
    review of R&D investment criteria mentioned above, the Administration
    would prefer that the Committee not add new restrictions to funding
    allocations that might inhibit optimum allocation of research funds
    among basic materials, and development and demonstration in applied
    programs. The Department looks forward to working with the Committee on
    these matters.
        S. 1130, the Fusion Energy Science Act of 2001, requires the
    Secretary to develop a plan, to be reviewed by the National Academy of
    Sciences, for a magnetic fusion burning plasma experiment and
    authorizes a total of $655 million over two years for the fusion energy
    sciences program energy. These authorizations exceed current
    Administration budget requests and recent appropriations levels set by
    Congress. We will be assessing the appropriate funding level for the
    Fusion Energy Sciences program.
        S. 1166, the Next Generation Lighting Initiative Act of 2001,
    requires the Secretary to establish such an initiative, in conjunction
    with the establishment of a related research consortium and grant
    program, with annual reviews by the National Academy of Sciences. A
    total of $230 million is authorized over the first five years. This
    initiative is supportive of ongoing research at the Department, but
    adds funding and requires programmatic structure not currently
    envisioned by the Department.
      arkansas nuclear plant decontamination and decommissioning (s. 636)
        The Administration opposes S. 636, which directs the Secretary to
    establish a decommissioning pilot program to decontaminate and
    decommission the sodium-cooled fast breeder experimental test-site
    reactor located in northwest Arkansas. The Administration's position is
    that the Federal Government is not, and should not be, responsible for
    the decommissioning of this privately-owned reactor. The Department has
    investigated this situation in the past, in response to Congressional
    direction in 1997 and again in 1998. As we reported to Congress on
    these occasions, the legislative and contractual records are clear that
    the owner of the reactor is responsible for decommissioning. In
    addition, there are matters of precedent to weigh. There were 10 other
    similar privately-owned research reactor projects which were operated
    in coordination with the Atomic Energy Commission. All of these other
    privately-owned reactors have been or will be decommissioned by the
    owners.

           NATIONAL LABORATORIES PARTNERSHIP IMPROVEMENT ACT (S. 259)

        Finally, S. 259, the National Laboratories Partnership Improvement
    Act of 2001, would amend the Department of Energy Organization Act,
    among other provisions, in order to expand the Department's authorities
    and activities in the area of technology partnerships. Generally
    speaking, the Department already has the necessary and sufficient
    authority under current law. The bill's administrative provisions would
    unduly restrict the Secretary's discretion to organize the Department
    and conduct its activities in ways that are effective, complicate
    laboratory management of existing partnering programs, and add to
    growing concerns about unfunded mandates.
        We note that section 8 of S. 259 would provide DOE with authorities
    like those already available to the Department of Defense and other
    agencies with similar missions in science and technology, including the
    National Aeronautics and Space Administration. We support efforts to
    encourage innovative partnering arrangements and provide additional
    flexibility in dealing with entities such as R&D consortia. At the same
    time, we recognize that ``other transactions'' authority is a highly
    flexible authority outside the procurement framework that must be
    carefully and thoughtfully applied. While we will need to further
    consider the merits of applying other transactions authority to DOE, we
    think it is worthwhile to reevaluate current laws as may be necessary
    to ensure appropriate flexibility is afforded.

                                   CONCLUSION

        In closing, the Administration welcomes the Committee's efforts to
    address our Nation's energy challenges and its strong support of the
    Department's energy science, research and technology development
    programs. The legislation under consideration by the Committee is
    ambitious and many of its provisions would have consequences that must
    be weighed carefully before enactment. In this regard, I request that
    the Department be given the opportunity to continue to work with the
    Committee towards a satisfactory resolution of differences.
        This concludes my testimony. I would be pleased to answer your
    questions.

        The Chairman. Thank you very much. Let me ask a very
    general question. In the 18 or 19 years that I've been here,
    I've noticed sort of a cyclical phenomenon going on where
    interest in energy issues, energy policy concerns obviously
    increase dramatically as the price of gas goes up and the price
    of electricity goes up and the price of natural gas goes up.
    And then when the price comes back down, the interest goes
    away. And that's a human kind of a reaction which I guess all
    of us sort of have come to expect. I have noticed,
    unfortunately though, that there is something similar that
    happens in the budgeting for energy related research and
    development, that the interest in maintaining our efforts in
    those areas at the Federal level comes into vogue and is
    obvious and then goes away again as soon as the problem recedes
    in the public consciousness. And I just wonder the extent to
    which, and I know we've had a rough spot here at the beginning
    of this administration before you ever came to work, where we
    got the request for major cuts in funding for some of the
    activities, research and developments activities, that many of
    us thought were important. We are correcting that in the
    appropriations bills and I think the administration and the
    President has made some statements to the effect that he
    believes higher levels of funding are appropriate. I'm just
    hoping we can see a sustained level of commitment to the higher
    levels of funding for research throughout the balance of the
    administration. Do you have any way to give us assurance on
    that at this stage?
        Mr. Blake. First, just on some of the energy efficiency and
    renewable budgetary issues, we are, as you know, undertaking a
    thorough review of those budgetary submissions. We do think
    that the increases in the House and in the Senate look like
    they are going to be in line with what we see as the outcome of
    that review. I think more generally your point is right. We
    have to, when we look at our R&D budget, we have to articulate
    what our objectives are in a way that everybody can understand
    and that aren't so susceptible to the fluctuations year over
    year to the price of gasoline and oil. We should be able to
    say, here's why we're doing it; it's a long payoff; and stick
    with it.
        The Chairman. I've been concerned. I got a briefing 2, 3
    weeks ago during our Fourth of July break from people at Sandia
    National Laboratory and about the state of the effort that was
    going on and the state of the technology in various of the
    emerging sources of energy, in wind energy, for example, and
    solar energy, and various of these areas, and, frankly, it's a
    bit disturbing to see how we have lost the lead internationally
    in use and development and perfecting these technologies and in
    putting them into application.
        My strong sense is that 10 years ago the United States did
    have the lead in these areas. Today, we do not, at least in
    some of these areas, and I hope that we can regain that lead
    and begin to put some real emphasis on energy related research
    and development that will help us do that. I don't know if that
    is something you have a change to focus on as to what has
    happened in some of these areas. Some of the specific examples,
    when you say, how about wind turbines, they say, well you have
    to buy those in Europe. They are the ones that make the wind
    turbines.
        Mr. Blake. I will say, in terms of my prior employment
    before the Department of Energy I had the opportunity to look
    at a number of wind companies. Your observation is correct that
    there are far more substantial wind companies in Europe than in
    the United States. I would say, though, that when you look at
    what are going to be the leading edge technologies for wind
    power going forward, turbine design, efficient motors,
    efficient gear structures, I believe the United States will in
    fact have a leading position on those cutting-edge
    technologies.
        The Chairman. Let me ask you, in your testimony you refer
    to--this is a quote from your testimony--performance metrics
    for R&D expenditures is one of the administration's management
    priorities. What do you have in mind as far as performance
    metrics? I have always thought of research and development as
    something that it was a little hard to measure performance
    until you actually--I mean, it is one of these things that, if
    you do too good a job of insisting on performance, you stifle a
    lot of what might prove to be very promising.
        Mr. Blake. I think that's a fair point. You have to look at
    your metrics, understanding that a lot of what you are doing is
    at the developmental stage by definition. I think the Academy
    report had an interesting suggestion in terms of how they
    developed a matrix. They looked at a matrix. Are you improving
    knowledge? Are you getting to commercialization and lower
    economic costs? Are you getting environmental benefits? You
    should at least be able to articulate what you think are the
    potential benefits from the program and then track how you are
    moving to those benefits. I think looking both to your current
    performance and at what point do you say, well, this isn't
    getting what we thought we were going to get and it is time to
    move on to a different program or change funding priorities.
        The Chairman. And you see the Department of Energy sort of
    performing this quantification, or this application of metrics
    each year when it puts together a budget? Is that what I am
    understanding?
        Mr. Blake. Ideally, what we should have is performance
    operational reviews where we understand and have agreement on
    what the appropriate metrics are, have those reflected in our
    budgetary priorities, and be able to engage in pretty
    straightforward conversation with the Congress and interested
    third parties, on how we see our priorities.
        The Chairman. Let me stop with that and defer to Senator
    Murkowski.
        Senator Murkowski. Thank you very much, Mr. Chairman. With
    reprocessing in the sense of the state of the art as we know it
    today, with what the French are doing and have done for some
    time with the Japanese and some other nations, what is your
    opinion on whether we will still need Yucca Mountain as
    predetermined by the Congress and as you and I both know, we
    have got about $8 billion of taxpayers money in that.
        There was a contract signed by the Federal Government with
    the nuclear industry back some time ago and the due date to
    take that waste was 1989. The Federal Government did not honor
    that contract. I do not know what the sanctity of the contract
    means to the Federal Government but in this case, clearly not
    much. It is my understanding that the ratepayers have paid in
    some $18 billion to the general fund, which was to enable the
    Federal Government to dispose of the waste. It is my
    understanding that there is somewhere in the area of $60 to $80
    billion in litigation potential to the Federal Government for
    non-performance of that contract. It seems to me that the
    taxpayer is looking at a pretty good hit, somewhere in the area
    of $100 billion--something of that nature. So, what about Yucca
    Mountain?
        Mr. Blake. Senator, we will still need Yucca Mountain or a
    deep geological repository even with reprocessing. By the
    nature of any recycling effort, you still have residues. The
    repository will still be needed.
        The Chairman. Would you use the word retrievable in
    describing the future use of Yucca Mountain?
        Mr. Blake. I am not sure I understand.
        The Chairman. Well, Yucca Mountain was to be a permanent
    repository. My question to you is, as science and technology
    changes, should it be structured to be retrievable--the waste
    retrievable--as opposed to not?
        Mr. Blake. Senator, let me provide an answer for the record
    on that. I don't know what the implications of that would be.
        Senator Murkowski. While it is not a new subject, it has
    been discussed.
        Mr. Blake. It is just not one I am personally aware of.
        Senator Murkowski. Well, I think it is probably appropriate
    that we dust it off again and see if there is any change in the
    position of our scientist on it because from time to time we
    have heard the argument, well, at some time this is going to be
    of value and it will be of value from the standpoint of
    reprocessing. And then you get into the discussion on whether
    the price of uranium is relatively inexpensive and then you
    question the need for it. But nevertheless, we have made a
    determination that this is a permanent repository and would
    suggest you put it away and keep it there forever and then
    others say, no, it should be convertible or retrievable if
    indeed that need arises.
        Mr. Blake. Senator, I've just been advised that yes we do
    believe it would be retrievable.
        Senator Murkowski. Okay. Well, I think it would be
    appropriate probably to review that and if you want to make it
    a policy statement, then I think that would be appropriate that
    we recognize that. Secondly, how will decisions on reprocessing
    and long term storage facilities like Yucca Mountain affect the
    future of the nuclear industry?
        Mr. Blake. I think it is very important for the future of
    the nuclear industry. Solving the waste issue, I think, is
    going to be key to the future development of the industry and
    without that, I think the industry obviously faces some severe
    and difficult issues.
        Senator Murkowski. Well, of course the difficult issue here
    is getting Congress to move. The last count we had, we had 66
    members basically supporting the proposal to put temporary
    waste at Yucca Mountain until we could get the licensing and
    the programs. I've got a chart in front of me that was made by
    a couple of Philadelphia lawyers that clearly shows the process
    that you have to go through and we are somewhere over in the
    middle here. In the year 2001 we are funded for a science and
    engineering report and supplemental drafts and NAS reports and
    so forth. But with the cut of funding proposed in the Energy
    and Water Appropriations Committee, this program is going to be
    set back for an extended period of time. It is very difficult
    to say how long. Can you comment on this?
        Mr. Blake. I've been briefed on that timeline and we need
    the funding to proceed. I cannot tell you exactly what would
    happen on the timeline for each dollar of loss but this
    activity is a difficult scientific study that needs to be
    undertaken now, to proceed with our obligations as you laid
    out.
        Senator Murkowski. It is my understanding this reduction
    would lay off 650 Federal contract personnel. It would
    indefinitely delay license application. It renders the 2010
    spent fuel receipt date unachievable. It would provide a loss
    of 75 percent of Federal staff performing oversight, a loss of
    quality assurance, a loss of ability to conduct independent
    technical reviews, termination of the early warning drilling
    program, elimination of university involvement and loss of
    modeling, loss of licensing application. This list goes on and
    on. And when you consider the investment we have here and the
    realization that, while I certainly appreciate the position of
    our friends from Nevada, which is that they don't want it, but
    it has to go somewhere and the taxpayer has a hundred--what is
    it, 80 to 90? Well, it just goes on. A billion dollars here, a
    hundred billion dollars in this thing and we cannot move it out
    of the constriction of the Congress, which is a sad state of
    affairs and by cutting it to the extent that it's cut, we're
    simply setting it back and saying, well, it's not going to
    happen on the watch of a few Senators from the State of Nevada.
    I don't know whether I could make it any more plain, and both
    of them are my good friends, and I don't have a constituency on
    this but I think we have an obligation in this committee to
    recognize that nobody wants the waste. We've created it. Twenty
    percent of our energy is dependent on it.
        My last question, and I would just leave you with that
    degree of frustration because, Senator Bingaman, this is
    something I inherited and now you've inherited. I wish you a
    little better luck than I had but we have simply got to address
    it. Given the broad authority of DOE, under the DOE
    Organization Act, are specific authorizations necessary for
    each and every R&D program?
        Mr. Blake. I would not think so. No, I think we can adjust
    within our R&D program.
        Senator Murkowski. Thank you.
        The Chairman. Senator Carper.
        Senator Carper. Thank you, Mr. Chairman and Mr. Blake,
    welcome. We appreciate your being here and appreciate your
    testimony. I want to follow up just a little bit on a somewhat
    different direction. The questioning was being pursued by
    Senator Murkowski. And if you don't know a whole lot of detail,
    that's fine. But with respect to nuclear energy, I'm an old
    Navy guy and in the Navy, we have ships that are powered by
    nuclear powerplants. We have submarines that are powered by
    nuclear powerplants and I told my colleagues at a Senate
    Democratic retreat earlier this year that I took a bunch of boy
    scouts down to the Norfolk Naval Station and we visited the
    Teddy Roosevelt, the big aircraft carrier. It is about a
    thousand feet long and about 25 stories high. Maybe 5,000
    people aboard when they deploy about 70 aircraft and it needs
    to refuel once every 25 years. I was struck by that and the
    kind of potential that I think nuclear power continues to offer
    to us in this country. I know some of the research that you do
    relates to what to do with the waste product that comes from
    nuclear powerplants. And I would just appreciate a little
    primer on what's the latest. What is going on in that area? Is
    there some promise; is there something new that we ought to
    know about and be mindful of?
        Mr. Blake. Well, I think the technology probably that this
    committee is aware of involves using accelerators to reprocess
    and render inert the residues. I am not, although I have had
    some experience with the nuclear industry, I am not a
    technologist. So, I'm going to need a primer as much as you do,
    Senator.
        Senator Carper. I thought you were talking about the
    accelerators on a car.
        [Laughter.]
        Senator Carper. Can you provide for the record just an
    update for me on what's going on, and I'm not looking for a
    tome or anything.
        Mr. Blake. I will.
        Senator Carper. Another issue. I presume that we have a
    fair amount of research that goes on within your own
    laboratories, your own employees, and I presume that we
    contract with folks in academia to do some research projects.
    And I presume there's a partnership. They exist in the private
    sector. I think that one of our friends from General Motors may
    have alluded yesterday to fuel cell research where the
    Government played a role. Can you just tell us how it works and
    how we try not to end up duplicating one another's efforts but
    are actually working together?
        Mr. Blake. I can tell you again from the experience I had
    in the private sector. The way that works is the Government
    suggests areas where further developments and enhancements
    would be appropriate. The Department will typically get bids in
    from the private sector, saying I can build a car of X-
    efficiency or Y-efficiency. They will select the winning bidder
    and then the terms of the work is laid out. The Department and
    the private sector participant will sit down and they will map
    out a program saying this is what we are going to do. We need
    to develop these kinds of technologies, materials, and the
    like. The Government will typically retain some intellectual
    property in what's developed and there will be an agreement on
    cost sharing and a review of how costs are allocated to that
    contract.
        Senator Carper. Okay.
        Mr. Blake. And it does vary a bit contract to contract.
    Some, the Government share is relatively modest and in others
    it is the predominant share.
        Senator Carper. Maybe one other question, if I could ask.
    The appropriate role, it seems to me, of the Federal Government
    is research, R&D in these areas. I like to say the role of
    government is to steer the boat, not to row the boat, and I
    think that is probably true here. But having said that, I am
    also struck sometimes by our inability as a country to take
    some very good research and development information and to be
    able to commercialize that research and to put it in products
    or projects, in some cases products that people will buy.
        We had our auto folks here yesterday and we talked a bit
    about hybrids. We have hybrids but for the most part, we are
    not seeing hybrid cars, trucks, vans produced in this country.
    We're not going to see very many produced in this country that
    even take good advantage of that technology. However, we're
    seeing Toyota and Honda actually begin to work with it pretty
    well.
        Basically, my question is commercialization. What role does
    the Department of Energy play and I ask this as a new member of
    the committee. I've been here a week. What role does the
    Department play with respect to not just helping fund the R&D
    and direct the R&D, but actually to nurture and to encourage
    the commercialization of the most promising technologies so we
    will get a real payoff from the research that has been done?
        Mr. Blake. I think our bias, Senator, is similar to yours
    which is that the actual commercialization belongs in the
    private sector. There are some instances where the Department
    will participate in that but they are infrequent, and the
    history is that they haven't been very successful. The fuel
    cell is an interesting example in the sense that it was
    originally developed as part of a governmental program with
    NASA and that technology was not commercialized obviously for
    years and years but then when you get changes in energy prices,
    some constraints on the transmission grid, some interest in
    further fuel efficiency in vehicles, that spurs additional
    research and development that the Department participates in,
    and then hopefully commercialization. But in direct answer, I
    think we try not to involve ourselves too often in the direct
    commercialization but leave it that to the private sector.
        Senator Carper. Thank you, Mr. Chairman.
        The Chairman. Thank you.
        Senator Burns.
        Senator Burns. Thank you, Mr. Chairman. I am interested in
    the statement of energy prices getting real high and it drives
    us to do different things in R&D. The other day I was out in
    Nebraska, I filled up on Sunday in North Platte, Nebraska for
    $1.21 a gallon and I come back here and all the pressure is off
    of us to do something about the cost of energy. Emotions go up
    and down like that. Nothing spurs conservation or R&D into
    conservation like $3 gas. That's what drives conservation.
        And we can do a lot of things here. We can go through the
    motions of trying to be more efficient and all of that but we
    just cannot get any steam behind it until gasoline is $3 a
    gallon, and so that's how that works. I was disappointed in it
    when we just finished with the Interior appropriations and of
    course much of our work that is being done in our fossil fuels
    making them more efficient and the impact that fossil fuels
    have on our environment. Those funds were cut back but we
    restored most of those funds as you well know and they are on
    their way. We will conference that. We hope we can hold that
    money together for you as time goes on.
        Let me ask you, if you had the magic wand on this, what
    direction should we be going in our R&D? I am a proponent. I am
    really a big proponent of fuel cells. I just believe that they
    will play a major role in our energy, and how we deliver it,
    and how we manufacture it, and how we store it. And I would
    just ask your opinion, is that the direction we should be going
    or tell us where do you think we should be going?
        Mr. Blake. I think first the right approach, as was
    suggested, is a portfolio approach where you look at a number
    of different technologies. Some nearer term, some longer term.
    You don't put all your bets on one technology. On fuel cells
    specifically, it's a very interesting technology. It has some
    significant hurdles as well. You have to be able to reform the
    fuel as it comes in if you're using natural gas or something
    like that. On the front end or on hydrogen, you obviously have
    to be able to make the hydrogen and store it. There are other
    larger fuel cell technologies where you can do them in combined
    applications with existing natural gas fired turbines that look
    very promising.
        So, there are a lot of interesting developments in that
    area. A lot of companies are working in that area. DOE is
    supporting that with research dollars, but I think the general
    answer is a portfolio approach.
        Senator Burns. We are seeing a lot of interest in coal bed
    methane right now in our part of the world. And it is a fuel
    that can be extracted from a fossil base basically, and once we
    figure out what to do with the water and after the extraction,
    why, I think it has a great future. Also, in the area of
    nuclear, as I looked at Le Hauge in France, where they vitrify
    and reprocess high-level nuclear waste and in particular those
    rods that come out of powerplants. We look and we're kind of
    shortsighted in this country, thinking that well, most of these
    rods come from our ability to produce electricity, and I think
    Senator Carper brought it up. We've got a Navy that's nuclear.
    It moves by nuclear power. We have to do something to deal with
    that situation and so I would imagine. Are we still doing some
    R&D on vitrification and reprocessing on another way to deal
    with high level nuclear waste?
        Mr. Blake. Yes, sir. I cannot respond on vitrification but
    on reprocessing, yes.
        Senator Burns. Well, that tour we took both at Avion and in
    Marseille in South of France and also there at Le Hague was
    very interesting, and it's my understanding that most of that
    technology was developed in this country. So, I'm saying that
    even if they don't want to store this in Yucca Mountain, we're
    still going to need a repository. There's no doubt about that
    and we must just realize that and move on.
        So, I appreciate what you do in the R&D area. I plan to be
    a very strong supporter of yours as far as dollars are
    concerned. There again, dollars as mentioned here is not the
    complete answer. But nonetheless our R&D plays an important
    role in our every day lives and I want to be a supporter of
    that. I thank you for coming today. I thank you for your
    testimony.
        The Chairman. Senator Craig, did you have questions of this
    witness?
        Senator Craig. I do not. Thank you, Mr. Chairman.
        The Chairman. Well, thank you very much, Secretary Blake.
    We appreciate your coming again today. Why don't we move right
    to the second panel. If they would come forward, please.
        Okay, why don't we go ahead with the second panel. We have
    a group of very eminent scientists who are here to testify. Dr.
    John Holdren, professor at Harvard University; Dr. Robert
    Richardson, vice-provost for research at Cornell University;
    Dr. Ernie Moniz, who is a professor at MIT and formerly with
    the Department of Energy; Mr. Bob Fri who is the Director of
    the Smithsonian Museum of Natural History; Dr. H.M. Hubbard.
    Thank you very much for being here. He is with the Pacific
    Center for High Technology Research, retired, Lee's Summit,
    Missouri; and also Dr. Mike Corradini, who is with the
    University of Wisconsin in Madison.
        Why don't you go ahead. We'll just take you in that order
    and we will include your full statement in the record. But if
    you could take 5 or 6 minutes each and summarize the main
    points you think we need to be aware of.
        Dr. Holdren.

         STATEMENT OF DR. JOHN P. HOLDREN, PROFESSOR, HARVARD
                       UNIVERSITY, CAMBRIDGE, MA

        Dr. Holdren. Thank you, Mr. Chairman, members, ladies and
    gentleman. I am John Holdren. I am a professor at Harvard, both
    in the Kennedy School of Government and in the Department of
    Earth and Planetary Sciences. I was a member of President
    Clinton's Committee of Advisors on Science and Technology
    (PCAST) and in that connection, I served as chairman of three
    PCAST studies on energy R&D policy between 1995 and 1999. I am
    grateful indeed for the opportunity to testify this morning
    before this committee on what I believe and I know you believe
    is a very timely and important subject.
        The scope of the hearing this morning is very broad. It
    covers proposals related to energy and scientific research,
    development, technology deployment, education and training
    relating to eight different bills in the Senate, and I am going
    to focus my own comments more narrowly this morning, confining
    myself mainly to the energy research and development sections
    of S. 597 and the relation of those provisions to the
    recommendations of the PCAST energy R&D studies that I chaired.
        The 1997 PCAST study, in particular, was a comprehensive
    review of U.S. Federal energy research and development
    strategy. It examined the recent history of public and private
    energy R&D. It looked at the rationales for public involvement
    in this kind of activity. It looked at the existing R&D
    programs of the Department of Energy and it offered
    recommendations on the focus and targets and budgets for those
    Department of Energy R&D programs for the five fiscal years
    1999 to 2003. I want to mention that the study was carried out
    by a panel of 21 senior individuals who came from industry,
    from academia, from public interest organizations. Some had
    been previously in government service. It had members from a
    wide array of energy expertises, fossil fuels, renewables,
    nuclear energy, fusion, increased end-use efficiency and it
    included people of senior research and management experience,
    including a former chairman of the Council of Economic Advisors
    who had no particular brief for increasing Federal expenditures
    on energy R&D.
        That panel, based on its detailed review of the then-
    existing portfolio of applied energy technology R&D efforts in
    the Department of Energy, concluded that those programs in DOE
    have been well focused and effective within the limits of
    available funding but that the programs have not been and are
    not commensurate in scope and in scale with the energy
    challenges and opportunities that the 21st century will
    present. It noted that this judgment takes into account the
    likely contributions of the private sector to energy R&D in the
    decades ahead, and it argued that the inadequacy of the current
    energy R&D is especially acute in relation to the challenge of
    responding prudently and cost-effectively to the risk of global
    climate change from society's greenhouse gas emissions.
        The panel recommended ramping up DOE's applied energy
    technology R&D spending from $1.3 billion a year, which is what
    it was in the fiscal year 1997 baseline for our study, baseline
    at the time the report was written, ramping up that R&D to $2.4
    million in as-spent dollars in fiscal year 2003, which would
    represent about a 50 per cent increase over a 5-year period in
    inflation-corrected dollars. The recommendations were very
    detailed in terms of how much should be spent in each area, how
    much for efficiency, for fission, for fusion, for renewables,
    for fossil fuels. And the budget recommendations were unanimous
    notwithstanding the diversity of the panel that produced them
    and notwithstanding the long-standing controversies about the
    allocation of resources in energy R&D. That unanimity of the
    panel emerged from detailed joint review and discussion of the
    content of existing programs, the magnitudes of the unaddressed
    needs and opportunities, the current and likely future role of
    private industry in each sector, and the size of the public
    benefits associated with advances that R&D could bring about.
        Efficiency and renewables receive the bulk of the
    recommended increment and increase their share of the total
    from 50 percent in fiscal year 1997 to about 64 percent in the
    recommended budget for FY 2003 because they scored high on
    potential public benefits and on R&D needs and opportunities
    not likely to be fully addressed by the private sector.
        Those recommendations of the 1997 PCAST study have been
    partly reflected in administration requests and to a somewhat
    lesser degree in congressional appropriations in the
    intervening years. In the most recent completed appropriations,
    those for fiscal year 2001, the total applied energy technology
    R&D budget reflects about half of the increment recommended in
    the PCAST study for that year over the fiscal year 1997 or 1998
    baseline. Broken down, 100 percent of the increment recommended
    by PCAST was appropriated for fossil fuels, 55 percent of the
    increment for nuclear, 50 percent for efficiency and for
    fusion, but only 30 percent for renewables.
        The Bush administration's fiscal year 2002 budget request
    for applied energy technology R&D totaled only about $1.3
    billion compared to the $1.7 billion appropriation in fiscal
    year 2001. That is the request proposed what I would
    characterize as a large step backward, one that would return
    the country to the fiscal year 1997-1998 R&D spending levels.
    That proposal is not consistent with the administration's
    recent statements about the importance it attaches to energy
    and to the role of technological innovation in addressing
    energy issues. In fairness, though, it has to be said that the
    fiscal year 2002 budget request had to be submitted before Vice
    President Cheney's Energy Task Force had completed its work. In
    any case, I hope that Congress's appropriation for fiscal year
    2002 will not follow the numbers in the administration's
    request but rather will substantially boost energy R&D spending
    toward the trajectory recommended by PCAST in 1997.
        That brings me to the bills under consideration in today's
    hearing, specifically S. 597 and let me say just a couple of
    words about that bill. Title XIV of S. 597, the comprehensive
    and balanced national energy policy act of which Mr. Chairman,
    of course, you were the principal sponsor, contains a great
    deal of the recommendations of the PCAST study. The specific
    focuses, the targets, the budget levels for the various
    components of applied energy technology R&D although slid back
    to 2006 from 2003 because of the gap that has materialized in
    the meantime, even the PCAST recommendations on the management
    of DOE's science and technology programs in title XV of the
    bill follow quite closely the PCAST recommendations on those
    points.
        I just want to say that my colleagues and I on the PCAST
    panel are very appreciative of the weight placed on our
    recommendations by you, Mr. Chairman, and your co-sponsors in
    the development of this bill. We did our best in that study to
    develop in our report a comprehensive and balanced Federal
    energy R&D program, and we're delighted to see so much of it
    reflected in the comprehensive and balanced national energy
    policy act that you wrote. As the authors of that bill and the
    other bills under consideration in this hearing are well aware,
    of course, a comprehensive energy policy has to include a lot
    more than R&D. Many of the other elements of a comprehensive
    policy--aspects of tax policy, regulatory policy,
    infrastructure development, performance standards, consumer
    protection--are addressed in the array of bills before the
    committee today. Other elements, though, such as an appropriate
    framework of incentives and/or regulations to work in
    combination with advanced energy technologies to adequately
    reduce greenhouse gas emissions remain to be developed. Also
    remaining to be developed, in my view, is an adequate approach
    to international cooperation in energy technology innovation so
    that needed improvements occur worldwide. That was the subject
    of the 1999 PCAST study which I am not going to talk about
    today.
        R&D, in any case, should be the easiest part of energy
    policy in respect to gaining approval and finding the money
    because it is relatively non-controversial and it is relatively
    inexpensive. With respect to cost, let me just note that the
    difference between the $1.7 billion being spent on Federal
    applied energy technology R&D in fiscal year 2001 and the $2.4
    billion recommended by PCAST for fiscal year 2003 amounts to
    about two-tenths of one percent of the U.S. military budget and
    it is equivalent to an extra 0.7 cents per gallon on the price
    of gasoline. Yet recent history makes it clear that even such
    modest investments in a secure and sustainable energy future
    are astonishingly difficult to attain. The chairman, the
    members and the staff of the Senate Committee on Energy and
    Natural Resources are to be commended for the major effort that
    you're investing as manifested in S. 597 and in this series of
    hearings, of which today's is just one, to address this
    problem. I thank you for the effort, for the confidence you've
    placed in the PCAST recommendations and for allowing me to
    present these views this morning.
        [The prepared statement of Dr. Holdren follows:]

             Prepared Statement of Dr. John P. Holdren, Professor,
                       Harvard University, Cambridge, MA

        Mr. Chairman, members, ladies and gentlemen:
        I am John P. Holdren, a professor at Harvard in both the Kennedy
    School of Government and the Department of Earth and Planetary
    Sciences. Since 1996 I have directed the Kennedy School's Program on
    Science, Technology, and Public Policy, and for 23 years before that I
    co-led the interdisciplinary graduate program in Energy and Resources
    at the University of California, Berkeley. Also germane to today's
    topic, I was a member of President Clinton's Committee of Advisors on
    Science and Technology (PCAST) and served as chairman of the 1995 PCAST
    study of ``The U.S. Program of Fusion Energy Research and
    Development'', the 1997 PCAST study of ``Federal Energy Research and
    Development for the Challenges of the 21st Century'', and the 1999
    PCAST study of ``Powerful Partnerships: The Federal Role in
    International Cooperation on Energy Research, Development,
    Demonstration, and Deployment''. A more complete biographical sketch is
    appended to this statement.
        My work at Harvard on energy R&D policy over the past five years
    has been funded, at various times, by the U.S. Department of Energy,
    the Energy Foundation, the Heinz Family Foundation, the MacArthur
    Foundation, the Packard Foundation, and the Winslow Foundation. The
    opinions I will offer here are my own and not necessarily those of
    these funders or of the other organizations with which I am or have
    been associated. My statement draws in part on testimonies on energy
    policy that I presented to other Congressional hearings earlier this
    year and last year (1-3) and on a review of the PCAST energy studies
    and their impact that I wrote with a colleague for publication in
    Annual Review of Energy and the Environment this fall (4). I am
    grateful indeed for the opportunity to testify this morning before the
    Senate Committee on Energy and Natural Resources, at this timely and
    important hearing.
        The scope of this morning's hearing is very broad, covering
    proposals related to ``energy and scientific research, development,
    technology deployment, education, and training'' in portions of eight
    Senate bills (S. 388, S. 597, S. 472, S. 90, S. 193, S. 242, S. 259,
    and S. 636). I will focus my comments more narrowly, confining myself
    mainly to the energy R&D sections of S. 597 and the relation of those
    provisions to the recommendations of the energy R&D studies that I
    chaired for PCAST. The 1997 PCAST report (5), in particular, is so
    central to my observations here that I ask that its Executive Summary
    be included in the hearing record as an appendix to my statement.
        That study was a comprehensive review of U.S. federal energy
    research and development, examining the recent history of public and
    private energy R&D, the rationales for public involvement in this
    activity, and the existing energy R&D programs of the Department of
    Energy, and offering recommendations on the focus and budgets of these
    programs for the five Fiscal Years 1999-2003. The study was carried out
    by a panel of 21 senior individuals from industry, academia, and
    public-interest organizations. In addition to members with experience
    and expertise across the full range of energy options--fossil fuels,
    nuclear fission and fusion, renewable energy sources, and increased
    end-use efficiency--it included others of senior research, management,
    and policy-advising experience outside the energy field (including a
    former chair of the Council of Economic Advisors and a former CEO of
    Hewlett-Packard), who held no prior brief for increasing federal energy
    research. In what follows, I first summarize the key findings of the
    PCAST panel and then turn briefly to the related content of S. 597.

                         U.S. ENERGY R&D THROUGH FY1997

        In the FY1997 base year for the PCAST study, Federal budget
    authority for applied energy-technology R&D--that is, R&D focused
    specifically on developing or improving technologies for harnessing
    fossil fuels, nuclear fission, nuclear fusion, renewable energy
    sources, and increased efficiency of energy end use--totaled about $1.3
    billion.\1\ Correcting for inflation, this was precisely what the
    country had been spending for applied energy-technology R&D thirty
    years earlier, in FY1967, when real GNP was 2.5 times smaller and the
    reasons for concern about the adequacy of the nation's energy options
    were far less manifest (5, p 2-8). Federal applied energy-technology
    R&D ramped up sharply after the Arab-OPEC oil embargo of 1973-74,
    reaching a peak of over 6 billion 1997 dollars per year in FY1978 in
    the process of adding sizable investments in advanced fossil-fuel
    technologies, renewables, and end-use efficiency to the fission- and
    fusion-dominated portfolio of the 1960s. After Ronald Reagan assumed
    the Presidency in 1981, however, with his view that any energy R&D
    worth doing would be done by the private sector, applied energy-
    technology R&D spending fell 3-fold in the space of 6 years. A Clean
    Coal Technology Program that was a joint venture of government and
    industry brought a brief and modest resurgence from 1988 to 1994, but
    thereafter the overall decline continued. Similar declines in
    government-funded energy R&D were also being experienced in most other
    industrial nations: the relevant expenditures fell sharply between 1985
    and 1995 in all of the other G-7 countries except Japan. Japan's
    governmental energy R&D budget in 1995 was nearly $5 billion, in an
    economy only half the size of that of the United States. (Nearly $4
    billion of the Japanese total was concentrated in nuclear fission and
    fusion, however, a pattern similar to that in the United States in the
    early 1970s.)
    ---------------------------------------------------------------------------
        \1\ The ``energy R&D'' line in DOE's budget contains a number of
    other categories that bring the FY1997 total to almost $2.9 billion.
    These include Basic Energy Sciences (which includes search in materials
    science, chemistry, applied mathematics, biosciences, geosciences, and
    engineering that is not directed at developing any particular class of
    energy sources), biomedical and environmental research, radioisotope
    power sources for spacecraft, and some energy management and
    conservation programs that are not actually R&D at all. The PCAST-97
    focus was primarily on the applied energy-technology R&D component,
    although one recommendation did address, in a general way, the Basic
    Energy Sciences part of the budget.
    ---------------------------------------------------------------------------
        Private-sector energy R&D in the United States had been estimated
    by a 1995 Secretary of Energy Advisory Board study (6) at about $2.5
    billion per year at that time. Complete and consistent R&D figures for
    the private sector are difficult to assemble, but it appears that these
    expenditures had, like those of the Federal government, been shrinking
    for some time: the Department of Energy estimated that U.S. industry
    investments in energy R&D in 1993 were $3.9 billion (1997 dollars),
    down 33 percent in real terms from 1983's level; a study at Battelle
    Pacific Northwest Laboratory showed U.S. private-sector energy R&D
    falling from $4.4 billion (1997 dollars) in 1985 to $2.6 billion in
    1994, representing a drop of about 40 percent in this period . Combined
    public and private investments in applied energy-technology R&D in the
    mid-1990s, at under $5 billion per year, amounted to less than one
    percent of the nation's expenditures on fuels and electricity. This
    meant that the energy business was one of the least research-intensive
    enterprises in the country measured as the percent of sales expended on
    R&D. Average industrial R&D expenditures for the whole U.S. economy in
    1994 were about 3.5 percent of sales; for software the figure was about
    14 percent, for pharmaceuticals about 12 percent, and for
    semiconductors about 8 percent.
        Why had energy R&D investments in the United States fallen so low?
    On the private-sector side, R&D incentives had been reduced by the
    rapid fall, since 1981, of the real prices of oil and natural gas
    (together constituting over 60 percent of U.S. energy supply) and by
    energy-sector restructuring (resulting in increased pressure on the
    short-term ``bottom line'', to the detriment of R&D investments with
    long time horizons and uncertain returns). Perennial factors limiting
    energy-industry R&D include the low profit margins that often
    characterize energy markets, the great difficulty and long time scales
    associated with developing new energy options and driving down their
    costs to the point of competitiveness, and the circumstance that much
    of the incentive for developing new energy technologies lies in
    externality and public-goods issues (e.g., air pollution,
    overdependence on oil imports, climate change) not immediately
    reflected in the balance sheets of energy sellers and buyers.
        As for the government side of low propensity to invest in energy
    R&D, the ``let the market do it'' philosophy of the Reagan years was
    certainly important in the steep declines from FY1981 through FY1987.
    It was augmented by the bad taste left in taxpayers' and policy-makers'
    mouths by the ill-fated government forays of the late 1970s into very-
    large-scale energy development and commercialization ventures (notably
    the Synfuels Corporation and the Clinch River breeder reactor); by the
    overall Federal budget stringency characterizing the first Clinton
    term; by Congressional concerns about the effectiveness of DOE
    management; and by lack of voter interest, in the absence of gasoline
    lines or soaring energy bills or rolling blackouts, in energy policy.
        There was, finally, the ``eat your siblings'' character of energy-
    supply constituencies: the tendency of advocates of each class of
    energy options (e.g., nuclear fission, fossil fuels, renewables, energy
    end-use efficiency) to disparage the prospects of the other options--a
    tendency aggravated by the zero- or declining-sum-game characteristics
    of energy R&D funding in this period . In the grip of this syndrome,
    segments of the energy community itself formulated the arguments
    (``renewables are too costly'', ``fossil fuels are too dirty'',
    ``nuclear fission is too unforgiving'', ``fusion will never work'',
    ``efficiency means belt-tightening and sacrifice or is too much work
    for consumers'') that were used by various factions in the government
    to cut energy R&D programs one at a time. There was no coherent energy-
    community chorus calling for a responsible portfolio approach to energy
    R&D that seeks to address and ameliorate the shortcomings of all of the
    options.
        While investments in energy R&D had been falling, however, concerns
    about the future adequacy of the country's portfolio of energy options
    had been growing. Imports as a fraction of U.S. oil consumption, which
    had fallen from a high of 49% in 1977 to just 29% in 1985, had risen
    again to 51% by 1996 The rate of decline of energy intensity of the
    U.S. economy, which had averaged 2.8 percent per year from 1973 to
    1986, had averaged only 0.9 percent per year between 1986 and 1996. The
    1995 Second Assessment Report of the Intergovernmental Panel on Climate
    Change (IPCC) had concluded that ``the balance of evidence suggests a
    discernible human influence on global climate'' and that ``climate
    change is likely to have wide-ranging and mostly adverse impacts on
    human health'' as well as ``negative impacts on energy, industry, and
    transportation infrastructure; human settlements; the property
    insurance industry; tourism; and cultural systems and values''. The
    United States, one of 170 nations to sign and ratify the United Nations
    Framework Convention on Climate Change in the early 1990s, had pledged
    along with other industrial-nation signers to hold its year-2000
    greenhouse-gas emissions to 1990 levels; but by 1996 U.S. emissions of
    carbon dioxide, the most important anthropogenic greenhouse gas, were
    9% above 1990 levels and rising. These were among the factors that led
    to the President's request for the 1997 PCAST study.

                        RATIONALE FOR FEDERAL ENERGY R&D

        The panel's report began with an overview of the energy-linked
    economic, environmental, and national-security challenges faced by the
    United States as it moves into the 21st century, noting that (5, p ES-
    1)

              Our economic well-being depends on reliable affordable
            supplies of energy. Our environmental well-being--from
            improving urban air quality to abating the risk of global
            warming--requires a mix of energy sources that emits less
            carbon dioxide and other pollutants than today's mix does. Our
            national security requires secure supplies of oil or
            alternatives to it, as well as prevention of nuclear
            proliferation. And for reasons of economy, environment,
            security, and stature as a world power alike, the United States
            must maintain its leadership in the science and technology of
            energy supply and use.

        The report also noted at the outset that U.S. interests in energy
    are closely coupled to what is happening in the rest of the world,
    above all in developing countries. The panel wrote (5, p ES-1)

              The combination of population growth and economic development
            in Asia, Africa, and Latin America is driving a rapid expansion
            of world energy use, which is beginning to augment
            significantly the worldwide emissions of carbon dioxide from
            fossil fuel combustion, increasing pressures on world oil
            supplies, and exacerbating nuclear proliferation concerns.
            Means must be found to meet the economic aspirations and
            associated energy needs of all the world's people while
            protecting the environment and preserving peace, stability, and
            opportunity.

        In addressing the rationale for federal government involvement in
    energy-technology innovation to help address these challenges, the
    panel stressed the large ``public benefits'' dimension of energy
    issues--the point that the interests of society as a whole in
    environmental quality, reliability of energy supply (in both its
    economic and national-security dimensions), meeting the basic energy
    needs of society's poorest members, and providing a sustainable energy
    basis for economic development considerably exceed the interests of
    private firms in these outcomes, as reflected in the returns they can
    expect to gain from investments in energy R&D. The panel also noted
    that a number of trends within energy industries themselves--such as
    deregulation, energy-sector and corporate restructuring, and increasing
    competitive pressures on the short-term ``bottom line''--were evidently
    combining to reduce private-sector investment in energy R&D, above all
    those components of energy R&D entailing substantial risks or long time
    horizons.
        Notwithstanding the force of these arguments, the panel recognized
    that the private sector has the dominant role in bringing advanced
    energy technologies into widespread use, that this will be even more
    true in the future than it has been in the past, and that, therefore,
    it is essential to shape the government's efforts in energy-technology
    innovation to complement and utilize the strengths of the private
    sector, not in any sense to replace them. The panel wrote, in this
    vein, that projects in the federal energy R&D portfolio (5, pp 7\1/2\)

            should be shaped, wherever possible, to enable relatively
            modest government investments to effectively complement,
            leverage, or catalyze work in the private sector. Where
            practical, projects should be conducted by industry/national-
            laboratory/university partnerships to ensure that the R&D is
            appropriately targeted and market relevant, and that it has a
            potential commercialization path to ensure that the benefits of
            the public R&D investment are realized in commercial products.

        Although it had not been asked to address the possibility of
    government efforts extending beyond R&D in the direction of
    commercialization of advanced energy technologies, the panel offered an
    argument that the same public-benefits rationale supporting government
    involvement in energy R&D, combined with the existence of a variety of
    barriers to private-sector commercialization of some of the advanced
    energy technologies offering very large public benefits, does justify a
    degree of government engagement in promoting commercialization in
    particular circumstances. It wrote (5, p ES-28)

              After consideration of the market circumstances and public
            benefits associated with the energy-technology options for
            which we have recommended increased R&D, the panel recommends
            that the nation adopt a commercialization strategy in specific
            areas complementing its public investments in R&D. This
            strategy should be designed to reduce the prices of the
            targeted technologies to competitive levels, and it should be
            limited in cost and duration.

        The panel did not, however, propose either a magnitude or a source
    of funds for such a commercialization initiative, considering this too
    far beyond its mandate.

                PCAST BUDGETARY AND PROGRAMMATIC RECOMMENDATIONS

        From its detailed review of the then-existing portfolio of applied
    energy-technology R&D in DOE, in the context of the rationales for
    government involvement as just described, the PCAST panel concluded
    that these programs ``have been well focused and effective within the
    limits of available funding'' but that they ``are not commensurate in
    scope and scale with the energy challenges and opportunities the
    twenty-first century will present''. It noted that ``[t]his judgment
    takes into account the contributions to energy R&D that can reasonably
    be expected to be made by the private sector under market conditions
    similar to today's'', and it argued that ``the inadequacy of current
    energy R&D is especially acute in relation to the challenge of
    responding prudently and cost-effectively to the risk of global climate
    change from society greenhouse-gas emissions'' (5, p ES-1). It
    recommended ramping up DOE's applied energy-technology R&D spending
    from the $1.3 billion level of the FY1997 appropriation (and from the
    $1.4 billion level of the FY1998 request, not yet acted upon by
    Congress at the time the report was written) to $2.1 billion in FY2003
    (expressed in constant 1997 dollars). The following table shows the
    distribution of the proposed increases.

                       Table 1.--PCAST-RECOMMENDED DOE BUDGET AUTHORITY FOR ENERGY-TECHNOLOGY R&D
                                           [Millions of Constant 1997 Dollars)
    ----------------------------------------------------------------------------------------------------------------
                                                                               FY 2003
                                                          FY 1997   FY 2003   increment   Share of  FY  Share of  FY
                                                          actual   proposed    over FY      1997-2003    2003 total
                                                                                 1997       increment
    ----------------------------------------------------------------------------------------------------------------
    Efficiency.........................................    373       755         382         48.6%         36.5%
    Fission............................................     42       102          60          7.6%          4.9%
    Fossil.............................................    365       371           6          0.8%         17.9%
    Fusion.............................................    232       281          49          6.2%         13.6%
    Renewables.........................................    270       559         289         36.8%         27.0%
    ----------------------------------------------------------------------------------------------------------------
      Total............................................   1282      2068         786          100%          100%
    ----------------------------------------------------------------------------------------------------------------

        These budget recommendations were unanimous, notwithstanding the
    diversity of energy (and nonenergy) backgrounds represented on the
    panel and notwithstanding the history of disagreements among the
    different energy constituencies about funding priorities. The unanimity
    on the panel emerged from detailed joint review and discussion of the
    content of the existing programs, the magnitudes of unaddressed needs
    and opportunities, the current and likely future role of private
    industry in each sector, and the size of the public benefits associated
    with the advances that R&D could bring about. Efficiency and renewables
    received the great bulk of the increment--and increased their share of
    the total from 50% in FY1997 to almost 64% in the FY2003
    recommendation--because they scored high on potential public benefits
    and on R&D needs and opportunities unlikely to be fully addressed by
    the private sector.
        Among the key findings and recommendations about the main classes
    of energy technologies were the following.
        Energy End-Use Efficiency--The Panel found particular promise in
    enhancements to energy-efficiency R&D, which it found could bring
    relatively rapid and cost-effective reductions in local air pollution
    and greenhouse-gas emissions, oil imports, and energy costs for
    households and businesses. From 1975-1986, the panel noted, U.S. energy
    efficiency increased by almost one-third (measured as the ratio of real
    GNP to primary energy use); if the energy-intensity of the economy had
    remained constant from 1970 to 1997, by contrast, U.S. energy
    expenditures in 1997 would have been some $150-200 billion per year
    greater than they actually were. The improvements in energy efficiency
    that were achieved helped pull the U.S. economy out of the stagflation
    that followed the oil-price shocks of the 1970s, helped set the stage
    for sharply declining world oil prices, and gave the U.S. economy more
    than a decade and a half of opportunity to deal with the energy problem
    (an opportunity that, regrettably, went largely unused). The panel
    found that investments in advanced energy-efficiency technologies--
    beyond those likely to be brought forth by the marketplace--offered the
    potential for further large gains in the future and recommended that
    the DOE's budget for energy-efficiency R&D be doubled in constant
    dollars from the 1997 actual level of $373 million for R&D to $755
    million in 2003 (which would be about $880 million in as-spent dollars,
    given inflation at the projected rates).\2\
    ---------------------------------------------------------------------------
        \2\ These figures do not include weatherization, state and local
    grants, and other non-R&D activities funded by DOE under the ``energy
    efficiency'' budget lines.
    ---------------------------------------------------------------------------
        The panel proposed a number of specific goals for efficiency-
    improvement efforts in the various end-use sectors, including:

       development of the technologies for, and facilitating the
            construction by 2010 of, 1 million zero-net-energy buildings,
            and achievement in all new buildings of an average 25-percent
            increase in energy efficiency as compared to new buildings in
            1996;
       development, with industry, of a 40-percent efficient
            microturbine by 2005 and a 50-percent efficient microturbine by
            2010, initiation of new Industries of the Future programs in
            agriculture and bio-based renewable products, and reduction of
            the energy intensity of the major energy-consuming industries--
            forest products, steel, aluminum, metal casting, chemicals,
            petroleum refining, glass--by one-fourth by 2010;
       cooperation with industry to achieve the goal, previously
            established under the Partnership for a New Generation of
            Vehicles, of developing an 80-mile-per-gallon production
            prototype passenger car by 2004, as well as working with
            industry to develop a production prototype of a 100-mpg
            passenger car with zero equivalent emissions by 2010, high
            efficiency (tripled fuel economy) Class 1-2 trucks and (doubled
            fuel economy) Class 3-6 trucks by 2010, and a high efficiency
            (10 mpg) heavy truck (Class 7 and 8) by 2005.

        The panel concluded that, overall, ``DOE research, complemented by
    sound policy, can help the country increase energy efficiency by a
    third or more in the next 15 to 20 years.
        Fossil Energy Technology--Fossil fuels supply more than three-
    quarters of primary energy worldwide and 85 percent of primary energy
    in the United States,\3\ and they will remain a mainstay of energy
    supply for many decades to come. Recognizing the very large size of the
    private sector's fossil-energy activities, including R&D, the panel
    emphasized restructuring DOE's fossil-energy program towards activities
    with a higher public return. It recommended the phase-out of R&D on
    near-term coal power technologies, because there was relatively less
    public benefit to be expected from furthering this work than was the
    case for longer-term coal-technology programs underway in the
    Department--notably Vision-21 (28)--and because the market potential of
    these technologies was very limited given the significantly lower cost
    of advanced gas turbine cycles fueled by natural gas.\4\ Similarly,
    direct coal liquefaction was recommended for termination, on the
    grounds that it was not likely to be cost-effective in the foreseeable
    future, would significantly increase emissions of carbon dioxide, and
    offered no synergies with other technologies under development--in
    contrast to indirect coal liquefaction, which uses gasification
    technologies that are also relevant to advanced power generation and
    other programs. The panel recommended increased support, in the fossil-
    fuel sector, for DOE's advanced power, carbon sequestration, fuel cell,
    hydrogen, and advanced oil and gas production programs, as these could
    increase the country's leverage against the greenhouse-gas/climate-
    change and oil-import problems, among others. The initiation of
    research on methane hydrates was also recommended, both to better
    evaluate the resource and to determine if it could be tapped in the
    longer term to supplement conventional gas resources as a bridging fuel
    to low- or no-carbon energy systems. Continued support for advanced
    technologies for the low-cost recovery of oil and gas from lower margin
    resources was also recommended. Such programs have long been targets of
    government-spending critics concerned with ``corporate welfare''; but
    the panel's review found that those benefitting were small companies
    with little ability to conduct research, that advanced approaches
    helped maintain domestic production, and that to close these wells
    without such recovery would effectively foreclose further production
    from them permanently.
    ---------------------------------------------------------------------------
        \3\ These percentages account for the estimated contributions,
    often left out of official tabulations, from the ``traditional''
    biomass energy sources (fuelwood, charcoal, crop wastes, and dung).
    Without these, the fossil-fuel percentage contributions would appear
    even larger.
        \4\ The Panel did not recommend cuts in R&D on pollution control
    technologies for current or near-term coal power systems, however.
    ---------------------------------------------------------------------------
        The panel's review of fossil-energy issues also clarified and
    highlighted the importance, for U.S. fossil-energy-technology R&D
    strategy, of international markets for these technologies. In the U.S.
    electric-power sector, most new capacity in recent years has been in
    the form of natural-gas-fired gas-turbine combined cycles, and this is
    likely to remain the case until natural gas prices experience sustained
    increases to levels that seem improbable in this country for some time
    to come. That would mean that the major markets for advanced coal-power
    technology will be outside the United States in the decades immediately
    ahead, above all in coal-intensive developing countries such as China
    and India where natural gas is in very limited supply. For the United
    States to maintain leadership in these technologies, they will need to
    be developed in forms suitable for those markets and U.S. companies
    will need to learn to operate successfully there. Altogether, the
    changes recommended by the panel would have resulted in DOE's fossil-
    energy R&D budgets staying roughly level in constant dollars from
    FY1997 through FY2003.
        Nuclear Energy--Energy from nuclear fission supplies about 17
    percent of world electricity and 20 percent of that of the United
    States. But concerns about nuclear energy's cost, accident risks,
    radioactive-waste burdens, and potential links to nuclear proliferation
    have clouded its future. No new reactors have been ordered in the
    United States since 1978. Federal expenditures on R&D in fission
    energy, once as high as $2 billion per year in 1997 dollars, had fallen
    by FY1997 to just $40 million (and dropped to $7 million in FY1998).
    The panel concluded, however, that the potential role of an expanded
    contribution from nuclear energy in helping to address global carbon
    dioxide emissions justified a modest Nuclear Energy Research Initiative
    (NERI) to determine whether and how improved fission technologies might
    be able to address cost, safety, waste, and proliferation concerns.
    Whether or not such work led to a possibility of expanding nuclear
    energy's contribution in the United States, it would be useful in
    helping to maintain positive U.S. influence over the safety and
    proliferation resistance of nuclear-energy activities in other
    countries.
        The panel recommended, accordingly, that DOE funding for nuclear
    fission should increase in constant dollars from $42 million in FY1997
    to $102 million in FY2003 ($119 million in as-spent dollars in 2003).
    In addition to NERI, a small part of this funding--$10 million per
    year, to be matched by industry--would be used to investigate problems
    that otherwise might prevent the safe extension of the operating life
    of existing reactors. The NERI effort, in contrast to previous research
    efforts in DOE's Nuclear Energy Program, would be organized as a
    competitive solicitation for investigator-initiated R&D focused on the
    indicated key issues affecting fission's future.
        In the case of fusion energy, the panel endorsed the overall
    findings of the 1995 PCAST study of fusion R&D (7) and recommended that
    DOE funding for fusion be increased from $232 million in FY1997 to $281
    million in 2003 in constant dollars ($328 million in FY2003 in as-spent
    dollars). The Panel affirmed that the guiding principles for the U.S.
    fusion program should be maintaining a strong domestic base in plasma
    science and fusion technology; collaborating internationally on an
    experimental program for the next steps in ignition and moderately
    sustained burn, and participating in international efforts to develop
    practical low-activation materials for fusion energy systems.
        Renewable Energy--Few people disagree with the premise of renewable
    energy--tapping natural flows of energy from the sun, wind, and other
    sources to produce environmentally clean, non-depletable energy for
    people's use; the problem has been the high cost of successfully
    capturing these diffuse flows of energy and converting them to the
    needed end-use forms. Over the past two decades, however, remarkable
    progress has been made. The cost of energy from technologies such as
    photovoltaics and wind turbines has dropped as much as ten times. Based
    on the outstanding progress that has been made, the high potential of
    renewable-energy technologies in every sector of the energy economy
    (electricity, fuels, and heat for buildings, industry, and
    transportation), and the high public benefits of achieving such
    contributions, the Panel recommended that funding for DOE's renewable-
    energy programs should be increased from $270 million in FY1997 to $559
    million in FY2003 in constant dollars ($652 million in FY2003 in as-
    spent dollars).
        Priority areas identified by the panel for R&D increases included
    solar photovoltaics (particularly thin-film technologies and balance-
    of-system issues), advanced wind turbines (particularly light-weight,
    variable-speed designs), and bioenergy (especially integrated power-
    and-fuels systems), as well as solar thermal, geothermal, and hydrogen
    energy systems. As for much fossil and nuclear technology, the panel
    noted, international markets are critical for renewables. Roughly
    three-quarters of U.S. photovoltaics production is exported, and most
    of the wind-turbine market has likewise been outside the United States
    in recent years (domestic sales of wind-turbines, however, increased
    sharply in 1998 and 1999). And the modularity and small scale of many
    renewable-energy technologies match well the needs of developing
    countries, particularly in rural areas. A further advantage in
    developing-country applications is that the inherent cleanliness and
    safety of most renewable energy technologies minimizes the need for the
    complex regulatory controls that fossil- and nuclear-energy systems
    require.
        Other Recommendations--Besides the recommendations just summarized
    for the applied-energy-technology sectors in DOE's portfolio, the panel
    made a number of recommendations that cut across those sectors. In
    addition to the recommendation about commercialization strategy,
    mentioned above, these included:

       increased coordination between DOE's Basic Energy Sciences
            (BES) program and its applied-energy-technology programs; \5\
    ---------------------------------------------------------------------------
        \5\ The PCAST-97 study did not review the content of the BES
    program, but it did recommend, in light of the close coupling between
    advances in BES and progress in the applied-energy-technology R&D, that
    DOE consider expanding its BES effort in parallel with the recommended
    increase in applied-energy-technology work and the proposed increase in
    coordination (5, p ES-2).
    ---------------------------------------------------------------------------
       more systematic efforts within DOE at integrated assessment
            of its entire energy R&D portfolio ``in a way that facilitates
            comparisons and the development of appropriate portfolio
            balance, in light of the challenges facing energy R&D and in
            light of the nature of private sector and international efforts
            and the interaction of U.S. government R&D with them'' (5, p
            ES-6);
       other improvements in DOE's management of its energy R&D
            portfolio, including that overall responsibility for that
            portfolio be assigned to a single person reporting directly to
            the Secretary of Energy and that increased use be made of
            industry/national-laboratory/university advisory and peer-
            review committees, while reducing internal process-oriented
            reviews.

        The panel also recommended strongly that increased attention be
    devoted to the opportunities for strengthening international
    cooperation on energy-technology innovation--a recommendation that
    became the basis for a subsequent PCAST study with this focus (8).

                   FEDERAL ENERGY R&D SINCE THE PCAST REPORT

        Table 2 shows the distribution, across the energy sectors, of
    PCAST's recommended budgets for FY1999-2003, Administration requests
    for FY1999-2002, and Congressional appropriations for FY1999-2001,
    along with the appropriations from FY1998. These figures show that the
    requests and appropriations rose, through 2001, in a pattern similar to
    that recommended by PCAST, but at a slower pace and with a particularly
    conspicuous shortfall in the renewable category. Notable instances of
    progress (or the lack of it), through the FY2001 budget year, on issues
    addressed by the 1997 PCAST report include the following:
        End-Use Efficiency--The administration launched in 1998 the
    Partnership for Advancing Technology in Housing, based in part on
    discussions with industry begun in 1994, which aims--with strong
    private-sector participation--to achieve an average 50-percent increase
    in energy efficiency in new homes by 2010. In concert with industry,
    DOE launched an Industries of the Future program for agriculture,
    building on DOE's success using this model in other industries. The
    Partnership for a New Generation of Vehicles (PNGV), which predated the
    PCAST report, has continued on track--the major participating
    automobile companies all demonstrated prototype vehicles in early
    2000--but a PNGV-2 focused on longer-term options such as fuel cells
    has not been initiated. The Twenty-First Century Truck initiative was
    launched in Spring 2000, with goals of doubling to tripling the fuel
    economy of trucks on a ton-mile basis. Activities in microturbines,
    fuel cells, and Combined Heat and Power have been strengthened.
        Fossil Fuels--The direct-coal-liquefaction program has been phased
    out and near-term clean-coal power-technology R&D has been reduced. The
    Vision-21 program, which predated PCAST-97, to develop cost competitive
    coal-fired power plants with low or no carbon or polluting emissions
    has been strengthened. Geological carbon sequestration and methane
    hydrate R&D programs have been launched.
        Fusion--Administration requests at $243 million and Congressional
    appropriations at $255 million for FY2001 have started to move in the
    direction of, but still fall short of, the PCAST recommendation of $290
    million (as spent dollars) for fusion energy in FY2001.

        Table 2.--FEDERAL ENERGY TECHNOLOGY R&D: CONGRESSIONAL APPROPRIATIONS, ADMINISTRATION REQUESTS, AND PCAST
                                               RECOMMENDATIONS FY1998-2003
                                                [Millions of as-spent-$]
    ----------------------------------------------------------------------------------------------------------------
                                                                      effic.  renew.   foss.   fiss.   fusn.   total
    ----------------------------------------------------------------------------------------------------------------
    FY98 appropriation..............................................     437     272     356       7     223    1295

    FY99 appropriation..............................................     503     336     384      30     222    1475
      Administration request........................................     598     372     383      44     228    1625
      PCAST recommendation..........................................     615     475     379      66     250    1785

    FY00 appropriation..............................................     552     310     404      40     250    1559
      Administration request........................................     615     398     364      41     222    1640
      PCAST recommendation..........................................     690     585     406      86     270    2037

    FY01 appropriation..............................................     600     375     433      59     255    1722
      Administration request........................................     630     410     376      52     247    1715
      PCAST recommendation..........................................     770     620     433     101     290    2214

    FY02 Administration request.....................................     475     237     333      39     255    1339
      PCAST recommendation..........................................     820     636     437     116     320    2329

    FY03 PCAST recommendation.......................................     880     652     433     119     328    2412
    ----------------------------------------------------------------------------------------------------------------
    Notes: The values listed here may vary from other tabulations due to rescissions, uncosted obligations,
      inclusion or exclusion of other budget lines, and other factors. The efficiency line listed here does not
      include state and local grants, or the Federal Energy Management Program. The nuclear fission line includes
      only direct civilian energy-related R&D and University training support. The fossil energy line does not
      include expenditures for the clean coal program, which is a demonstration rather than a research
      anddevelopment effort.

        Nuclear Fission--The Administration launched and Congress funded
    both the Nuclear Energy Plant Optimization program (addressing issues
    related to license extension) and the Nuclear Energy Research
    Initiative (addressing the longer-term issues that will shape fission's
    future). These two initiatives form the basis of the current DOE
    Nuclear Energy program.
        Renewables--Administration budget requests and program direction
    have largely aligned with PCAST recommendations, but at lower funding
    levels, and appropriations have been well below the requests (even
    falling from FY1999 to FY2000 before recovering somewhat in FY2001).
    With strong bipartisan support, President Clinton issued Executive
    Order 13134 which launched an integrated bioproduct, biofuel, and
    biopower program with a goal of tripling U.S. bioenergy use by 2010.
    Congress passed and the President signed the Agricultural Risk
    Protection Act of 2000, Title III of which codified an integrated
    bioproduct and bioenergy research program. Principal focuses of
    increased renewables funding other than for biomass were for
    photovoltaics and advanced wind systems.
        Cross-Cutting Issues--Since the PCAST study, DOE has undertaken a
    major effort in integrated analysis of the Department's entire energy
    R&D portfolio, which reaffirmed the overall direction of the program
    while highlighting some key gaps, including energy-system reliability
    and international cooperation on energy-technology innovation. DOE has
    also made considerable effort at, and progress in, addressing its
    management challenges, which were pointed out not only in the 1997
    report but also in the 1995 SEAB study (6) and a 1999 review by the
    National Academy of Public Administrators. The critical question raised
    by PCAST about a role for government in the commercialization of high-
    public-benefit energy technologies, moreover, has not yet been
    addressed by the Department or, more importantly, by Congress.
        As indicated in Table 2, the Bush Administration's FY2002 budget
    request for applied energy-technology R&D, totaling about $1.3 billion,
    proposed a large step backward--one that would return the country to
    essentially the FY1997-1998 spending levels. This proposal is
    completely inconsistent with the Administration's recent statements
    about the importance it attaches to energy issues and to the role of
    technological innovation in addressing them (although, in fairness, it
    must be said that the FY2002 budget request had to be submitted before
    Vice President Cheney's energy task force had completed its work). In
    any case, I hope that Congress's appropriation for FY2002 will ignore
    the numbers in the Administration's request and substantially boost
    energy R&D spending toward the trajectory recommended by PCAST in 1997.
    This brings me to the bills under consideration in today's hearing--
    particularly S. 597--to which I now turn.

                        ENERGY R&D PROVISIONS OF S. 597

        The essence of the procedure used to develop the budget
    recommendations for applied energy-technology R&D in Title XIV of
    Division E of S. 597 (the Comprehensive and Balanced National Energy
    Policy Act) was, as I understand it, to shift to FY2006 the FY2003
    spending targets recommended in the 1997 PCAST study and then to
    provide annual increments above the FY2001 authorization levels so as
    to meet those targets by 2006.\6\ (This procedure reflected a concern,
    I believe, that the widening gap between the PCAST recommendations and
    the actual appropriations out to FY2001 has made it impractical to get
    back onto the PCAST-recommended trajectory by 2003.) The specific
    focuses and targets of the energy R&D efforts laid out in S. 597 also
    match quite closely the recommendations in the PCAST report, as do the
    recommendations on management of DOE science and technology programs in
    Title XV of the bill. My colleagues on the 1997 PCAST energy panel and
    I are most appreciative of the weight placed on our recommendations by
    Chairman Bingaman and his co-sponsors in the development of this bill.
    We did our best to develop and describe, in our report, a comprehensive
    and balanced Federal energy R&D program, and we are delighted to see so
    much of it reflected in the Comprehensive and Balanced National Energy
    Policy Act.
    ---------------------------------------------------------------------------
        \6\ This is apparent by direct comparison of the PCAST FY2003 and
    S. 597 FY2006 budgets in the renewables case but not in the efficiency,
    fossil, and nuclear cases, where the authors of the bill used different
    conventions than the PCAST panel did in deciding what programs to count
    as part of energy R&D. The fusion science budget is treated in the bill
    (as DOE also treats it) as part of the Fundamental Energy Science
    program rather than as applied energy-technology R&D, and I did not
    find a breakdown indicating what part of this program would be
    designated for fusion.
    ---------------------------------------------------------------------------
        The recommendations for R&D on nuclear fission in S. 597 combine
    programs related to commercial nuclear electricity generation with
    programs on nuclear medicine and nuclear power for satellite and space
    missions, among other categories, and the bill's budget totals for
    fission cannot be compared directly to the PCAST recommendations in
    which applications other than commercial electricity generation were
    not included. I believe it would be useful to disaggregate these budget
    categories in the final version of the bill.
        I have some concern, in any case, with the wording in the current
    version (Sec. 1405, part 7.b) characterizing the nuclear appropriation
    as being for ``demonstration and initial deployment assistance'' as
    well as for research and development. The PCAST recommendations on
    nuclear fission were for R&D relating to extending the operating
    lifetime of existing reactors and to exploring advanced approaches to
    improving the economics, safety, waste management, and proliferation
    resistance of nuclear energy systems in the future. In my personal
    view, the question of whether government resources should be allocated
    to demonstration and deployment (as opposed to research and
    development) of advanced fission technologies needs further
    exploration, and I am certainly not convinced that any of the advanced
    approaches warrant government expenditures for demonstration and
    deployment today.

                            CONCLUDING OBSERVATIONS

        As the authors of S. 597 and the other bills under consideration in
    this hearing are well aware, a comprehensive energy policy must include
    far more than energy R&D. Many of the other elements--including aspects
    of tax policy, regulatory policy, infrastructure development,
    performance standards, and consumer protection--are addressed in this
    array of bills. Other elements, such as an appropriate framework of
    incentives and/or regulations to work in combination with advanced
    energy technologies to adequately reduce greenhouse-gas emissions from
    energy supply, remain to be developed.
        R&D in any case should be the easiest part of the energy-policy
    equation with respect to gaining approval and finding the money,
    inasmuch as it is relatively noncontroversial and relatively
    inexpensive. With respect to cost, it may be noted that the difference
    between the $1.7 billion being spent of federal applied energy-
    technology R&D in FY2001 and the $2.4 billion recommended by PCAST for
    FY2003 is about two tenths of a percent of the military budget and is
    equivalent to an extra 0.7 cents per gallon on the price of gasoline.
    Yet recent history reveals that even such modest investments in a
    secure and sustainable future energy supply are astonishingly difficult
    to attain.
        The Chairman, the members, and the staff of the Senate Committee on
    Energy and Natural Resources are to be commended for the major effort
    they are investing--as manifested in S. 597 and in the series of
    hearings of which today's is but one--to address this problem. I thank
    you for this effort, for the confidence you have placed in the PCAST
    recommendations, and for allowing me to present my views this morning.

                                   REFERENCES

        (1) John P. Holdren. ``U.S. Vulnerability to Oil-price Shocks And
    Supply Constrictions . . . And How to Reduce It.'' Committee on
    Governmental Affairs, United States Senate, Oversight Hearings on
    Recent Oil-Price Increases. March 24, 2000. http://www.senate.gov/gov--
    affairs/032400--holdren.htm.
        (2) John P. Holdren. ``Improving U.S. Energy Security and Reducing
    Greenhouse-Gas Emissions: What Role for Nuclear Energy?'' Hearing by
    the Subcommittee on Energy and Environment, Committee on Science, U.S.
    House of Representatives. July 25, 2000. http://ksgnotes1.harvard.edu/
    BCSIA/Library.nsf/pubs/energysecurity.
        (3) John P. Holdren. ``Energy Efficiency and Renewable Energy in
    the U.S. Energy Future'', Committee on Science, U.S. House of
    Representatives, Hearing on The Nation's Energy Future--Roles of
    Renewable Energy and Energy Efficiency. February 28, 2001. http://
    ksgnotes1.harvard.edu/bcsia/library.nsf/pubs/energy-future.
        (4) John P. Holdren and Samuel F. Baldwin, ``The PCAST Energy
    Studies: Toward a National Consensus on Energy RD3 Policy'', Annual
    Review of Energy and the Environment, 2001, in press.
        (5) President's Committee of Advisors on Science and Technology,
    Energy Research and Development Panel. Federal Energy Research and
    Development for the Challenges of the 21st Century. Washington, DC:
    Government Printing Office. November 1997. http://www.ostp.gov/Energy/
    index.html.
        (6) Secretary of Energy Advisory Board, Task Force on Strategic
    Energy R&D. Energy R&D: Shaping Our Nation's Future in a Competitive
    World. Washington, DC: Government Printing Office. 1995.
        (7) President's Committee of Advisors on Science and Technology,
    Fusion Review Panel. The U. S. Program of Fusion Energy Research and
    Development. Washington, DC: Government Printing Office. July 1995.
    http://www.ostp.gov/PCAST/fusionenergypub.html.
        (8) President's Committee of Advisors on Science and Technology,
    Panel on International Cooperation in Energy Research, Development,
    Demonstration, and Deployment, Powerful Partnerships: The Federal Role
    in International Cooperation on Energy Innovation. Washington, DC:
    Government Printing Office. June 1999. http://www.ostp.gov/html/
    p2epage.html.

        The Chairman. Thank you very much for your testimony, Dr.
    Richardson. Why don't you go right ahead.

     STATEMENT OF DR. ROBERT C. RICHARDSON, PHYSICS PROFESSOR AND
             VICE PROVOST FOR RESEARCH, CORNELL UNIVERSITY

        Dr. Richardson. Mr. Chairman, Senator Craig, I am Bob
    Richardson, I am physics professor and vice provost for
    research at Cornell University. I also serve as chair of the
    physics policy committee of the American Physical Society, an
    organization of 40,000 people. I would like to thank you for
    the opportunity to testify today. My testimony principally
    concerns the administrative structure of the Department of
    Energy and the effect that the structure has had on the
    performance of the office of science and the energy research
    programs. But first I would like to comment briefly on the
    Department of Energy's research budgets for fiscal year 2002,
    particularly in the context of the public's renewed awareness
    about energy issues.
        The Vice-President's energy task force report highlights
    the important role that research must play in securing our
    energy future by creating and bringing to market new energy
    technologies, enhancing efficiency of energy production in use
    and mitigating environmental impact of existing technologies. A
    sustained commitment must be made to invest in both fundamental
    science and applied energy research. Even if energy were not on
    the policy front burner, the President's budget request would
    short change the Department of Energy's civilian research
    programs.
        As the chart over there shows, the Department of Energy,
    the lead agency for physical sciences, has seen its research
    budget decline steadily during the 1990's. Last year,
    recognizing that technology drives the economy and that today's
    science becomes tomorrow's high tech product, the Republican
    Congress and the Democratic White House reversed this trend
    with major increases in many of Department of Energy's research
    programs.
        The budget request submitted by the current administration
    turns the clock back. With energy on everybody's mind, that
    request is not only bad policy; it is bad politics. Admittedly,
    the administration submitted its request before the Vice-
    President's energy task force had released its report and its
    amended budget. The administration has sought to remedy some of
    the deficiencies, but I believe that it has not gone nearly far
    enough nor have the House and Senate Appropriations bills. I
    hope this committee sends a clear signal through its
    authorization bill that the budgetary momentums established
    last year for Department of Energy's research programs must be
    sustained for fiscal year 2002. Our economic future requires it
    and our energy future depends on it and the technology
    workforce of the future will vanish without it.
        There are many reasons why Department of Energy's research
    programs have fared poorly in the budgetary process for some
    time. The end of the cold war reduced defense exigencies. Cheap
    fuel prices created a feeling of energy security and hazardous
    waste, and lax security at some of our national laboratories
    gave the Department a bad reputation. But the administrative
    structure within the Department of Energy has exacerbated
    matters. The highest level administrator with sole authority
    for science is the Director of the Office of Science who sits
    on three levels below the Secretary. Today, one Under Secretary
    oversees the national nuclear security agency and one oversees
    all other activities. Only rarely has an Under Secretary had a
    science background, with Department of Energy's weapons
    programs and environmental management activities absorbing
    major attention. Policymakers in the executive branch and in
    the Congress have often ignored the Department's research
    programs.
        I am here today speaking as a representative of a panel of
    ten other scientists who have had extensive administrative and
    policy experience with Department of Energy's scientific
    programs. The report from which the balance of my testimony is
    drawn, ``Department of Energy's Science in the Future'' was
    stimulated by discussions that took place at a meeting of the
    American Physical Society's Physics Policy Committee last year.
        With the Chairman's permission, I would like to have this
    report included in the record.*
    ---------------------------------------------------------------------------
        * The report can be found in the appendix.
    ---------------------------------------------------------------------------
        The Chairman. We would be glad to include that.
        Dr. Richardson. The report makes several observations
    specifically regarding the Office of Science. First, the office
    oversees outstanding national laboratories whose capabilities
    for solving complex interdisciplinary problems are not easily
    matched elsewhere. It builds and operates large-scale user
    facilities of importance to all areas of science and in large
    part has been enormously successful. And it supports a large
    array of university research programs that are responsible for
    educating and training the next generation of scientists.
        Second, as I noted earlier, for about a decade the
    Department of Energy's science budgets have been declining and
    have fared very badly compared to other agencies. These
    difficulties have been exacerbated by perceptions of
    mismanagement and security problems throughout the Department.
    In many areas, the budget situation has reached crisis
    proportions jeopardizing future U.S. leadership in many
    essential areas of science.
        Last, the Director of the Department of Energy's Office of
    Science has responsibilities comparable to those of the
    Director of NSF and not very different from those of the
    Directors of NIH and NASA, but does not have comparable
    authority or visibility.
        Mr. Chairman, our report proposed two alternative
    recommendations, one of which comes under the purview of this
    committee. It is also one that appears in division E, title XV,
    section 1503 of S. 597. That recommendation is to establish a
    position of Under Secretary for science and technology. I urge
    the committee to adopt this in its final mark-up.
        Our report also recommended that the Under Secretary serve
    as a science advisor to the Secretary as called for in S. 597,
    subsection B3. Although our report did not set out additional
    details for the Under Secretary, I think the panel would feel
    comfortable in endorsing the remaining duties described in
    subsection B.
        Additionally, as the Department moves toward stricter
    accountability for research performance, the Under Secretary
    will have an important role in ensuring that the Department of
    Energy strive for quality science as well as efficient program
    administration. Our report expressed the hope that a qualified
    Under Secretary would be an influential scientist who could be
    an effective leader and spokesperson for the Department of
    Energy science and energy and comparable visibility and
    authority to the Directors of NSF, NASA and NIH. I would be
    pleased to answer questions.
        The Chairman. Well, thank you very much for that testimony.
    Dr. Moniz, welcome back to the committee. We are glad to see
    you. We are aware of your title and name, so go right ahead.

          STATEMENT OF ERNEST J. MONIZ, PROFESSOR OF PHYSICS,
                 MASSACHUSETTS INSTITUTE OF TECHNOLOGY

        Dr. Moniz. Thank you, Mr. Chairman and Senator Craig. It is
    good to see you, as well, again. In fact, it is refreshing to
    be back here but not having my testimony cleared by the OMB or
    without Sherpas to carry the Q&A books that were always
    required. Thank you for inviting me to comment on the committee
    consideration of bills that can have a significant impact on
    energy, scientific research and technology development programs
    at the Department of Energy. My perspective is, of course, as a
    former Under Secretary and I am very pleased that the record
    will show that Bob at least implicitly acknowledged that I am
    still competent as a scientist.
        I will organize my remarks very briefly along four areas:
    science, education and training, R&D management, energy, all
    areas touched upon very deeply in the collection of bills
    before us. In science, the committee is very well aware of the
    Department's key role in American science and technology. The
    Department remains the largest supporter of basic and applied
    research in the physical sciences and I would like to use that
    statement simply to reinforce the importance of administration
    and congressional support for balanced Federal investment
    across science and engineering, and most specifically,
    reinforcing what Bob said, the need to maintain a momentum in
    having the physical science investments keep pace with need and
    with investments in other areas like life sciences.
        Secondly, the Department has had, and I want to emphasize,
    a very important role especially through its laboratories in
    developing what I would call enabling technologies that cut
    across the mission areas and that prove to be of broad and deep
    national value. Large scale scientific computing, advanced
    materials, accelerators, isotope applications, genomics, many
    of these. This context, I think, emphasizes the importance of
    some of the bills that the committee has before it. For
    example, those on scientific computing and nanoscience. On
    computing, for example, the nuclear weapons program has
    traditionally been a principal driver for super computer
    development. We need a vigorous and integrated push today in
    the civilian area. The benefits will be major to ASCI. They
    will also be very, very major to science broadly, combustion,
    global systems, plasmas infusion, subsurface transport of
    contaminants, quark structures of matter, advanced materials,
    functional genomics, etc. The convergence of technology and
    scientific community commitment has been there now for several
    years to drive this kind of enabling technology. The resources
    have not kept pace. It is time to get on with the task.
        Education and training. The committee has correctly pointed
    to the diminished state of university education in nuclear
    engineering and has proposed, for example, some human resource
    programs to help rectify that. Those are certainly in the right
    direction. However, I believe to be effective two other issues
    well known to the committee simply must be addressed.
        First, to attract young faculty to the field, there must be
    a forward looking robust research program. The NERI program
    that we started a few years ago, for example, has been a great
    stimulus in the field. Congress must now resolve issues about
    the program's trajectory, in particular. In my view, the
    program cannot sustain itself and attract new people without
    evolving into more costly laboratory work based upon the most
    promising concepts developed in the earlier phase. This will
    take significant increases in funding. The administration
    request actually cut the funding, but I think that is a key
    policy issue here. If we are to be committed to exploring the
    concepts for intrinsically safe, proliferation resistant, waste
    minimizing and economic new approaches, then we simply must
    make the commitment to move these programs into the laboratory
    stage.
        The second issue is that of research infrastructure, again
    without which human resource development will be ineffective.
    University reactors are an example of this and I believe that
    we need a systemwide evaluation of those reactors and an
    evaluation integrated with that for Department of Energy site
    infrastructure. The goal, in my view, should be a well
    structured hierarchy of teaching and research facilities on
    campuses at strengthened regional academic centers and at
    Department of Energy sites.
        The third issue: R&D management. Let me start with
    portfolio management, which has been a major topic today and
    will be, I am sure, later on. Starting in 1998, the Department
    did, in fact, substantially revise its approach to R&D
    portfolio management with four linked processes: portfolio
    development, portfolio analysis, strategic roadmapping and
    improved corporate R&D oversight. To a large extent, this is a
    realization of the portfolio process recommended by the PCAST
    panel on energy that John Holdren chaired. Very importantly,
    the products of this portfolio analysis were well integrated
    into the fiscal year 2000 and fiscal year 2001 budgets. The
    importance of it can be stated in a couple of ways. First of
    all, it is very important that portfolio architecture is not
    geared to organizational units. It is geared to strategic goals
    of the Department. The core of the process is a formal
    portfolio analysis that brings out key gaps and opportunities
    aligned with strategic goals. The value of the process can be
    seen just by giving you examples. In the first year, a focus on
    energy system reliability came out well before the problems in
    California, with now robust programs in electricity and gas
    system reliability. In the second year, the group raised a very
    interesting idea of using an environmental air quality multi-
    attribute life cycle analysis as criteria for programs. My
    point simply is that this shows how a new cross-cutting
    perspective has been injected into portfolio management and has
    really evolved the portfolio to meet emerging strategic needs
    of the Nation. There is considerable buy-in. I believe we need
    support for this process. I would make, respectfully, a
    recommendation. The committee, for example, in its technology
    transfer bill, suggests getting an annual report. I would
    respectfully suggest considering asking for an annual report as
    well from the portfolio analysis activity. That will couple
    this committee very well to the process of aligning R&D with
    the strategic goals and help keep the process moving forward.
        Tech transfer. I'll be very brief given the time. This
    committee continues to show a very important interest in that
    area and, indeed, I believe leadership of this committee may be
    very important for providing stability and resources essential
    for engaging private sector partners. The partners are diverse;
    the spill-over effects are enormous. We did, in the last 2
    years, establish a formal corporate process that I believe
    helps the laboratories, helps the small businesses understand
    how to interact with the system. S. 259 could help to solidify
    these advances and, again, congressional support is essential
    if technology transfer and partnership programs are not only to
    be sustained but, frankly, are to be able to withstand success.
        A third area in R&D management is organization. Bob has
    just spoken about that, the consideration to establish the
    position of Under Secretary for Science and Technology. Given
    my last position, I must express concern with the proposal, a
    concern that can be relieved, certainly, with further
    elaboration. My concerns with the proposal would weaken or help
    advance the progress made in the last few years in achieving
    somewhat better integration and coordination across the
    science, energy and environmental quality business lines. The
    invigorated R&D council, chaired by the Under Secretary and
    particularly the R&D portfolio roadmapping process provided
    mechanisms to advance integration and coordination and to
    enhance the interception of technology policy with energy and
    environmental policy. So, the details are going to matter a lot
    here. I don't presume to offer a solution but to raise my
    concern in the spirit of a do-no-harm approach in the absence
    of greater detail on the overall partitioning of
    responsibilities among all Under Secretaries and the deputy
    secretary. Integration and coordination games are hard won and
    more easily lost.
        Finally, in energy, clearly the past year has brought great
    energy challenges and the committee has before it the
    consideration of many energy technology initiatives. I won't go
    through a number of them that have come out in the context of
    our portfolio analysis. They are in the written testimony. I
    would just conclude by reinforcing the earlier statements that
    the challenges and the opportunities being brought out through
    portfolio analysis require the kinds of increases in energy and
    technology development that John Holdren in particular has
    spoken of. Any increase must match the scale of the challenges
    and I strongly support the committee's commitment to, in fact,
    supporting these programs and to hopefully moving forward with
    the portfolio-based approach. Thank you and I will be happy to
    answer questions.
        [The prepared statement of Dr. Moniz follows:]

         Prepared Statement of Ernest J. Moniz, Professor of Physics,
                     Massachusetts Institute of Technology

        Thank you for inviting me here today to discuss proposed
    legislative actions that can have a significant impact on energy,
    scientific research, and technology development programs at the
    Department of Energy. My perspective on these is informed by my recent
    service as Under Secretary in the Department.

                                    SCIENCE

        This Committee is very well aware of the Department's key role in
    American science and energy technology development. Nevertheless, some
    aspects bear repeating. The Department remains the largest supporter of
    basic and applied research in the physical sciences, activities that
    not only underpin national security and economic growth in the
    information age, but also provide the technological basis for many
    stunning advances in the life and medical sciences. One need only look
    at some of the very recent developments to get the flavor of the DOE
    national laboratories' continuing importance to the nation's science
    and technology enterprise:

       a record 14.7 Tesla electromagnet at the Berkeley lab
       insight into particle-antiparticle asymmetry at SLAC
       creation of the second-hardest bulk substance (after
            diamond) at Ames
       two Discover Magazine awards to Pacific Northwest, for a
            landmine detector and for a combined optical and magnetic
            resonance microscope for cellular research
       an experimental microbeam radiation therapy at Brookhaven
            for brain tumors in infants and young children

        This reinforces the importance of Administration and Congressional
    support for balanced Federal research investments across science and
    engineering. The Administration FY02 budget request is very
    disappointing in this regard. Members of this Committee are to be
    commended for urging that the Congress restore a stronger investment
    approach to research in the physical sciences and engineering; this
    will serve both science and the nation well in the years ahead.
        More specifically, the Department of Energy, through its unmatched
    national laboratory system and its support of university researchers
    and educators, and because of the diversity of its missions in nuclear
    security, energy, and environmental remediation, has played a very
    strong role over many decades in developing enabling technologies that
    cut across the mission areas and have proved to be of broad and deep
    national value. Examples are well known, including large scale
    scientific computing, advanced materials, accelerators, nuclear isotope
    applications, genomics, and others. Beyond the evident metrics of
    success (such as over seventy Nobel prizes in science, or a third of
    the R&D100 Awards for technology), these sustained enabling technology
    developments associated with the Department's frontier research
    programs and national laboratories underpin a significant part of our
    economic productivity gains, year-in and year-out certification of the
    nuclear weapons stockpile, unparalleled medical diagnostics, a new
    generation of efficient energy technologies, and many more developments
    central to our nation's future.
        This context brings out the importance of the Committee's
    initiatives in advanced scientific computing and in nanoscience. The
    nuclear weapons program has traditionally been a principal driver for
    supercomputer development and the associated software and applications
    tools. This has never been more important to the weapons program than
    it is today, with the need to certify the nuclear stockpile without
    underground testing. Large scale simulation is the integrator of
    previous test data and continuing experimental tests of weapons
    subsystems. However, we are also reaching the level of computational
    power that will allow true discovery potential to be realized across
    numerous areas of basic science and technology development. Indeed, the
    DOE and NSF jointly sponsored a 1998 National Academy workshop on
    scientific simulation, and the ``friendly skeptic'' chairman, Professor
    James Langer of Santa Barbara ( former Director of the Institute for
    Theoretical Physics and President of the American Physical Society)
    concluded from the meeting that scientific simulation could in this
    decade take a place alongside traditional experimental and theoretical
    inquiry as a tool of discovery.
        The challenge to do so is considerable, but within grasp with
    strong support and leadership. The Accelerated Strategic Computing
    Initiative (ASCI) in Defense Programs is urgently stretching the
    hardware frontier, but much remains to be done in systems software,
    visualization, algorithm development, data storage and transmission,
    and other areas to most efficiently utilize the raw computational
    power. The task calls for large integrated teams of physical
    scientists, computer architects and engineers, and software designers.
    An equally vigorous and integrated push in the civilian applications
    areas (science, energy, environment) will bring a talented and much
    larger community in both labs and universities into developing the
    necessary tools for a major leap forward in scientific simulation
    during the next several years. This will be a major benefit to ASCI.
        The broader scientific rewards will be enormous. In 1998, the
    Department chartered groups drawn from the entire American research
    community to map out the potential impact of such a program in diverse
    scientific areas ( combustion, global systems and climate, plasmas and
    fusion, subsurface transport of contaminants, quark structure of
    matter, advanced materials, functional genomics, . . .). The conclusion
    was that several of the areas would immediately make major strides at
    the tens of tera-ops level if the integrated program were pursued;
    other areas (such as vadose zone science) would do so if the simulation
    program was coupled to a synergistic experimental and observational
    program.
        Permit me to elaborate slightly on one example of relevance to the
    energy theme of this hearing. Combustion is one of the areas primed for
    a major advance through simulation at the 10-100 tera-op scale.
    Quantitative analysis, led by Sandia lab, showed that scientists could
    for the first time link molecular level processes all the way to
    engineering scale devices. This is a pathway to significant advances
    within ten years in efficiency and emissions reductions for combustion
    devices. The implications are clear for meeting our expanding energy
    needs and stringent environmental demands simultaneously, while also
    advancing basic science in chemical reactive flow, turbulence,
    multiphase flow, and other areas that come together in a combustion
    device. This is why I strongly support the Committee's advancement of
    DOE's advanced computing proposals. It is part of the longstanding
    tradition of driving critical enabling technology through frontier
    research. The convergence of computer technology and scientific
    community commitment has been demonstrated over the last three years,
    without funding adequate to support that commitment. It is time to get
    on with the task.
        The nanoscience initiative at DOE and at other agencies (NSF, DOD,
    DOC, . . .) is another excellent example of such enabling science and
    technology, and the Spallation Neutron Source under construction at Oak
    Ridge will soon offer to a national community of university, lab, and
    industrial researchers a powerful frontier capability to study advanced
    materials. Nanoscience and nanotechnology, which essentially seek to
    design and engineer novel materials at the atomic level, will have
    profound implications, from communications to life sciences to robotics
    and intelligent machines (another area roadmapped by DOE, together with
    NSF, NASA, and DOD, in a multi-lab effort). These are all critical
    enabling science and technology areas where the national laboratories,
    in conjunction with universities, can put together the needed large
    interdisciplinary teams, can build upon decades of accomplishment, and
    do the work that drives future mission success.

                             EDUCATION AND TRAINING

        The Committee's evaluation of the diminished state of university
    education in nuclear engineering correctly suggests that the U.S. (and
    possibly other industrialized nations) may soon face a shortage of
    trained and creative personnel in this area. That manpower will be
    needed not only to satisfy DOE facility staffing and in the event that
    nuclear energy is expanded, but also to address the wide spectrum of
    nuclear science and technology needs throughout our society. Proposed
    programs, such as that for junior faculty research grants, can help
    attract talented young people. However, I wish to emphasize two issues,
    well known to the Committee, that must be resolved if such human
    resource development programs are to succeed.
        First, there must be a forward-looking, robust research program.
    The Nuclear Energy Research Initiative (NERI) and the associated
    Generation IV discussions are central. NERI, in its three year
    existence, has stimulated new thinking about advanced reactors, fuels,
    and fuel cycle concepts. I note that, at a small nuclear energy meeting
    held at MIT a few months ago, much of the discussion about new ideas
    had roots in NERI, despite its youth and modest funding. This modest
    funding to date has confined the sponsored work to studies, appropriate
    for the first few years. However, the Congress must soon resolve issues
    about the program's trajectory; in particular, it cannot sustain itself
    and attract new people without evolving into more costly laboratory
    work based on the most promising concepts developed in the earlier
    phase. In this regard, the Administration-proposed budget cut for NERI
    will clearly have the opposite effect to that intended by several
    members of the Committee. Significant increases in funding are needed
    in the years ahead if the nation is committed to exploring advanced
    concepts that are intrinsically safe, more proliferation-resistant,
    waste minimizing, and still economic. This is not to judge whether any
    of these new concepts will play an enhanced role in our future energy
    mix, but the time scales for a major impact are long, the constraints
    on fossil fuel emissions will become more severe, and exploration of
    advanced options belong in a balanced R&D portfolio. This is
    independent of whether or not there is an expansion of nuclear power
    based on current technology. Further, the NERI program should be
    broadened to include as much international collaboration as possible,
    consistent with policy and diplomatic constraints.
        Second, human resource development and execution of the next phase
    of NERI both require an adequate research infrastructure. The Nuclear
    Energy Research Advisory Committee (NERAC) has examined this question.
    The university reactors are, as a class, underfunded and underutilized.
    There are probably too many. An evaluation of the university reactors
    as a system is called for, and the evaluation should be integrated with
    that for nuclear infrastructure at the DOE sites. The goal should be a
    well structured hierarchy of teaching and research facilities on
    campuses, at strengthened regional academic centers, and at DOE sites.
    This is an area where strong and strategic collaboration between the
    DOE labs and facilities and the universities is essential for meeting
    long term goals.
        Another manpower issue raised by the Committee is that of mobility
    of contractor personnel, for example, between different laboratories. I
    would like to raise a slightly different point on mobility. The
    Department of Energy technical manager corps is in need of augmentation
    and rejuvenation. Such positions should be viewed as part of a possible
    career path for laboratory scientists and engineers. The Department,
    the laboratories, and the programs would benefit (the same holds true
    for production sites and cleanup sites). To accomplish this may require
    legislation that would permit the type of responsibilities in
    rotational assignments that would present the career opportunities
    attractively and on an appropriate scale.

                                 R&D MANAGEMENT

    Portfolio Management
        Starting in l998, the DOE substantially revised its approach to R&D
    portfolio management. The approach has been applied, with some
    variation, across all four business lines (science, national security,
    energy, environmental quality) under the umbrella of the R&D Council,
    chaired by the Under Secretary. The approach involves implementation of
    four linked processes: (1) portfolio development--identifying
    activities and mapping them to strategic goals; (2) portfolio
    analysis--identifying gaps and opportunities and defining ``corporate''
    priorities; (3) strategic road-mapping--defining directions and
    milestones for selected corporate priorities together with
    stakeholders; (4) improved corporate R&D oversight--managing the
    portfolio and the research enterprise. To a large extent, this is a
    realization of the portfolio process recommended by the PCAST panel on
    energy R&D, chaired by John Holdren. Very importantly, the portfolio
    process was integrated into preparation of the Department and
    Administration budget proposals for FY00 and FY01 through active
    participation of the Chief Financial Officer.
        A few points are worth elaboration in the context of the Energy R&D
    Portfolio, which we will focus on for this hearing, and on the
    Portfolio Analysis (that is, the first two steps above). The first key
    point is that the portfolio architecture is not geared to
    organizational units but rather to strategic goals of the Department.
    This immediately breaks down some of the stovepipes and provides a
    language that interfaces more easily with broader policy makers. Thus,
    the portfolio:
        1. Describes and explains DOE's current R&D activities and
    showcases recent accomplishments.
        2. Provides a basis for evaluating portfolio balance vis-a-vis
    pursuit of strategic goals.
        3. Better aligns technology investments with policy goals.
        4. Provides the basis for planning future investments through
    portfolio analysis and roadmapping.
        The core of the entire process was an annual formal portfolio
    analysis exercise, carried out by an expert panel. The Laboratory
    Energy R&D Working Group (LERDWG), composed of senior laboratory
    personnel, played a key organizational role. The expert panel also had
    senior career technical people from DOE and private sector experts
    (universities, NGO's, industry groups). A specific analytical tool
    developed by the Sandia lab, called the Vital Issues Process, was
    applied to the portfolio with the PCAST strategic, diversity, project,
    and public-private partnership criteria in mind. The principal output
    is a set of priority gaps/opportunities in the portfolio when viewed
    from the perspective of strategic goals and a set of cross-cutting
    portfolio planning opportunities.
        The value of the process can be seen with a couple of examples
    (other elements of the output will appear in the next section of the
    testimony). In the first year, a strong focus emerged on energy system
    reliability (both electric and natural gas infrastructures); I note
    that this occurred well before the recent reliability problems
    surfaced, demonstrating the value of strategic thinking coupled to
    policy. Reliability R&D is an example of a crucial area that did not
    fit neatly into programs organized by fuel type. The strong FY00
    Department budget proposal in this area is the type of R&D investment
    that can have major beneficial consequences down the road.
        In the second year, a potentially important direction emerged when
    the analysis group raised the issue of using indoor environmental air
    quality and multi-attribute life-cycle analysis as important criteria
    for evaluating classes of R&D proposals. This interesting idea would
    take some time to implement effectively, but can also have significant
    benefits. I raise this and the earlier point on reliability here just
    to exemplify the type of new cross-cutting perspective injected into
    the portfolio management and portfolio evolution process (the Committee
    may be interested in the full analysis reports). This earned the
    process considerable ``buy-in'' from career professionals, from the
    labs, and from external participants and observers. An Executive
    Secretariat was set up in the Policy Office. There is considerably more
    to be done in advancing the process, such as further integrating the
    individual laboratory institutional plans with the portfolios, but
    substantial gain has been realized.
        As the Committee has considered asking for an annual report from a
    technology transfer oversight group (to be discussed below), I
    respectfully suggest consideration of requesting an annual report from
    the portfolio analysis activity. This can be a way to use a
    demonstrably successful process to more rapidly evolve the energy R&D
    agenda to meet new challenges associated with strategic goals and to
    spur further integration of the entire DOE R&D system.
    Technology Transfer
        This Committee continues to show considerable interest in
    laboratory technology transfer and partnerships, as indicated by S. 259
    introduced by Senators Bingaman, Domenici, and Murray. Overall,
    Congressional support for partnerships has been very uneven over the
    last six or seven years, so the leadership of this Committee may be
    important for providing the stability and resources essential for
    engaging private sector technology partners. There are many scholarly
    discussions about the value of such partnerships and the mechanisms to
    be followed, but the value is perhaps made most clear by simply looking
    at a few recent examples:

       Partnership with Intel: an arrangement to provide a no-fee
            license to DOE to redesign Intel's Pentium processor into a
            radiation-hardened chip for space and defense uses
       Partnership with Celera Genomics: strategic framework for
            advancing the state-of-the-art supercomputing and hardware
            design for genome-based research in the life sciences
       Partnership with Columbia University: an innovative program
            to explore the potential of establishing a joint Integrated
            Analysis and Modeling of Earth Sciences and Engineering Center
            at the unique Biosphere 2; this might provide unprecedented
            opportunities for controlled ecological experiments on the
            meso-scale
       Partnership with California Energy Commission: a model work-
            for-others agreement that has resulted in over $20 million in
            increased joint research activities
       Partnership with ASML: first-of-a-kind cooperative agreement
            with this foreign-based firm to join a $250 million U.S. effort
            to develop next generation lithography equipment

        This is an extraordinarily diverse set of partners. In every case,
    the Department's laboratories bring unique expertise and/or facilities
    to the partnership and the project is important for DOE missions. The
    partners bring a mix of resources, unique facilities, and complementary
    expertise. The spillover effects beyond the partners can be
    substantial.
        During 1998-2000, the Department moved forward to assist the
    laboratories with more uniform corporate oversight of technology
    transfer. A variety of issues, such as inconsistent treatment of
    intellectual property issues at the field level, called for more high-
    level corporate attention and centralized policy direction (while
    leaving individual CRADA decisions to the laboratories within the
    policy framework). A key step was establishing the multi-program
    Technology Transfer Working Group (TTWG) under the R&D Council chaired
    by the Under Secretary; an Executive Secretariat was established in the
    Policy Office, together with that for portfolio management. The TTWG
    coordinates policy and implements reforms; a partial list of steps
    taken include:

       streamlining DOE technology transfer procedures and
            practices and, in particular, optimizing the process for
            concluding cooperative research and development agreements
            (CRADA's)
       promoting public awareness of opportunities and resources
            available for technology partnerships
       developing clear guidance for stewardship of intellectual
            property and assuring that international partnerships safeguard
            U.S. economic interests
       implementing management reforms to assure coordination and
            performance of DOE technology transfer activities
       drafting two new orders to promote technology transfer
            within DOE, to establish DOE policy to leverage resources
            through partnerships, and to define clear roles and
            responsibilities for programs and field elements
       establishing ombudsman capability throughout all thirty DOE
            facilities that engage in technology partnerships
       developing performance measures for inclusion in M&O
            contracts
       developing model agreements to streamline process for lab
            partnership with state research organizations

        A number of these steps particularly facilitate partnerships with
    small business.
        S. 259 can help solidify these advances and set the stage for new
    ones. The level of corporate oversight and systemization provided by
    the TTWG and R&D Council produces a reasonable degree of accountability
    and allows the Department to more easily facilitate complex CRADA's.
    Congressional support is essential if the technology transfer and
    partnership programs are to sustain (and withstand) success.
    Organization
        The Committee is considering establishment of the position of Under
    Secretary for Science and Technology. This individual would monitor the
    Department's R&D programs. A number of my colleagues in the science
    community support such an idea. However, as one who has just served as
    Under Secretary for Energy, Science, and Environment and who, I
    believe, would generally be accepted as having the qualifications
    spelled out for the new position, I must express concern with the
    proposal, a concern that might be relieved with further elaboration. I
    should add that the nature of the ``customers'' and the agencies with
    which one deals does, in my view, support the current structure of two
    Under Secretaries, one for the national security mission, another for
    civilian missions. This discussion clearly addresses only the latter.
        My concern is whether the proposal would weaken or help advance the
    progress made in the last few years in achieving somewhat better
    integration and coordination across the Science, Energy and
    Environmental Quality business lines, in particular the science and
    technology programs. The current organization provided an opportunity
    to further infuse the energy and environmental quality programs with a
    science and technology perspective, to extend the use of competitive
    merit-review-based processes in those programs, and to bring a
    technically grounded perspective to broader policy discussions in the
    Department and within the Administration. The invigorated R&D Council
    chaired by the Under Secretary and particularly the R&D portfolio/
    roadmapping process provided mechanisms to advance integration and
    coordination and to enhance the intersection of technology policy with
    energy and environmental policy. The details clearly matter. At one
    extreme, if the new Under Secretary had only one office in the line,
    the Office of Science, this stovepiping would be detrimental to the
    integration and coordination discussed above, since convening power for
    R&D monitoring would not match up well to the line organization. The
    discussion must be clarified in the context of the responsibilities of
    all the Under Secretaries and the Deputy Secretary (in particular, the
    COO responsibilities). For example, since most of the civilian R&D is
    in the Science and Energy business lines, while the Environmental
    Management program offers large scale ``COO-like'' challenges, a
    separation along those lines could be effective; this would still
    suggest the need to integrate the environmental quality business line
    into the overall R&D system, but clearly no organizational scheme can
    cleanly meet diverse management issues. I do not presume to offer an
    overall solution, but raise my concern in the spirit of a ``do no
    harm'' approach in the absence of greater detail on the overall
    partitioning of responsibilities. Integration and coordination gains
    are hard won, and more easily lost.

                                     ENERGY

        The past year is one that has brought energy challenges to the
    fore. The Administration's National Energy Policy correctly states that
    advanced energy technologies represent the ultimate answer to those
    challenges (although the Administration budget proposal for DOE energy
    technology programs appears to be inconsistent with that statement).
    This Committee's commitment to strong energy R&D will pay dividends
    well into the future, just as previous Federal investments have helped
    shape today's energy sector. The fact is that, while reliance on
    competitive markets is a bipartisan ``first principle'' of U.S. energy
    policy, Federal support for energy R&D, often in partnership with the
    private sector, is essential for moving energy technology forward at a
    competitive pace. The strong externalities in the energy business, the
    long time to technology commercialization, the significant R&D cost for
    some technologies, the aversion to a high degree of risk in a highly
    competitive environment, and the need for a diverse set of technologies
    conspire to keep the private sector from making investments
    commensurate with the public good benefits. Indeed, deregulation trends
    have reduced significantly the longer term, pre-competitive R&D
    investments made by industry-wide organizations such as the Electric
    Power Research Institute (EPRI) and the Gas Technology Institute (GTI).
    It is important that the contributions made by these organizations over
    the years be sustained.
        The Committee is considering numerous energy technology areas. I
    will highlight a few areas tied to the portfolio/roadmap process and
    organize my remarks around the preeminent challenges identified in the
    1998 Comprehensive National Energy Strategy and the September 2000
    Powering the New Economy:
    1. Enhancing America's Energy Security
        World dependence on oil for transportation and the dependence of
    OECD countries on substantial oil imports contribute to volatility in
    oil prices and attendant economic and social disruptions for both
    consuming and producing nations. Similarly, volatility has been seen in
    natural gas markets over the last year. We have three basic strategies
    to address this concern:

       improved vehicle efficiency (automobiles and trucks)
       improved exploration and production technologies ( increased
            access and lower cost)
       alternative fuels (biofuels, natural gas derived fuels,
            hydrogen for oil replacement; natural gas alternatives for
            electricity production e.g. renewables; . . .)

        All three paths have been vigorously pursued over the last years
    and should continue to be pursued aggressively. The first, improved
    automotive and truck efficiency, is the area that can have the greatest
    impact on oil import requirements in the relatively near term. PNGV has
    helped spur development of numerous technologies that can substantially
    improve auto efficiency, and hybrid autos may begin penetrating the
    market in appreciable numbers within a few years. Major gains are
    similarly realizable with trucks. Alternative fuels could have a
    similarly large impact in a somewhat longer time frame, as fuels
    infrastructure challenges are overcome for widespread use. Also, some
    alternative fuels may reduce oil import dependence but place a
    significant additional demand on domestic natural gas supply. This
    leads back to a continuing focus on cost-shared R&D for new exploration
    and production technologies. As one example, the DOE in calendar year
    2000 engaged with the private sector to develop a technology roadmap
    for ultradeep (5000 feet and substantially deeper) off-shore drilling
    technologies. This roadmap envisions fundamentally different
    architectures for environmentally sound oil and natural gas production,
    with expectations especially high for gas. This development would be
    costly, would extend over many years, but could also lead to large
    returns for the nation. This type of cost-sharing and risk-sharing with
    industry has led to substantial gains in the past. Ultradeep drilling
    technology is an example of a roadmap driven by strategic objectives.
    2. Increasing the Competitiveness and Reliability of U.S. Energy
            Systems
        As already noted, this was identified in 1998 as an important R&D
    focus area for the Department. The reliability initiative has three
    principal components:

       Electric reliability by focusing on regional grid control,
            distributed resources and microgrids, information system
            analysis, possible offsetting of peak summertime electric load
            with distributed generation and natural gas cooling
            technologies for example, and high capacity transmission
       Natural gas infrastructure reliability to include storage,
            pipeline and distribution R&D
       Critical infrastructure protection, secure energy
            infrastructures, vulnerability assessments, risk analysis, and
            the development of protection and mitigation technologies

        The Committee is considering a variety of natural gas pipeline
    integrity and safety issues. The technology development is essential
    here, since the public must be assured in the wake of recent tragedies
    of pipeline safety if the large natural gas infrastructure expansion
    needed over the next decades is to be realized.
        We also note the importance of supportive regulation and
    legislation if some of these technologies are to be put into widespread
    use and thus provide maximal benefit. For example, distributed
    generation has enormous potential for enhancing electric system
    reliability and power quality and other public goods, but substantial
    regulatory and business barriers need to be removed or at least
    substantially lowered consistent with legitimate utility concerns.
    Here, comprehensive Federal restructuring legislation may be essential
    for providing national rules of the road.
    3. Mitigating the Environmental Impacts of Energy Production and Use
        Energy production and use is the principal contributor to smog,
    acid rain, and greenhouse gas emissions that threaten our climate.
    Energy technology development is essential for addressing these
    problems at various length scales (urban, regional, global) and at
    various time scales. For the relatively short time frame, the R&D
    portfolio process led to an ultra-clean fuels initiative to address the
    need for cleaner fuels within the context of existing refining
    infrastructure. The initiative mobilizes industry and the national
    laboratories to develop and demonstrate new technologies for making
    large volumes of clean fuels from diverse fossil resources. The
    initiative is integrated with the PNGV and truck programs to ensure
    synergistic development of fuels and very efficient engines. This is
    another example of the portfolio process leading to a crosscutting
    initiative that addresses strategic goals in the context of an evolving
    regulatory environment.
        A key component of addressing all these environmental challenges is
    increased efficiency. This is applied across all sectors--buildings,
    vehicles, industry, energy production. For example, previous DOE
    sponsored work has already led to major gains in buildings compact
    fluorescent lights, optical coatings for windows, integrated building
    designs. These technologies can be advanced further, but new directions
    may also take hold, such as fuel cell driven combined heat and power
    systems for buildings. Similar successes could be recited for energy
    intensive industries (oxy-fuel glass making, . . .) or energy
    production (very high efficiency utility scale gas turbines, IGCC coal
    technologies, . . .).
        Another key ongoing focus is renewable technologies. Very
    substantial progress has been made in bringing down the costs of these
    clean technologies, for example, wind in the 3 to 7 cents/kWh range and
    photovoltaics less than 20 cents/kWh. Niche markets are readily
    available to these technologies today and market penetration will
    increase with further cost reduction. For the long term, these
    technologies can transform many aspects of energy supply in an
    environmentally sustainable fashion. Other technologies also have the
    potential to be transformative in the very long term. Carbon
    sequestration, for which an extensive roadmap was developed jointly by
    the Offices of Science and Fossil Energy, could radically change the
    prospects for coal use in a greenhouse gas constrained world. And
    fusion continues to hold out hope as a major electricity source with
    virtually no emissions and unlimited fuel. The increased focus on
    alternative concepts is very important, and a burning plasma experiment
    is an important step to carry out within the current decade or so,
    preferably in collaboration with international partners. It is by no
    means clear that these very long term options will realize their
    potential. However, it is the very nature of a portfolio approach to
    invest in technology developments that cover a range of risks and time
    scales, and efforts such as sequestration and fusion carry with them
    very substantial scientific gain as part of the integrated science and
    technology program. Indeed it is generally the case that the very long
    term programs have significant unresolved science questions (complex
    plasma behaviors for fusion, and fundamental carbon fixation questions
    for long term sequestration).
        The greatest international long term environmental challenge is
    clearly that of greenhouse gas emissions and climate change. It is
    clear that the energy infrastructure development in developing
    countries can have global consequences. The U.S. should, in my view,
    sponsor a much more extensive and coordinated program of clean energy
    development and deployment in such countries. In addition to the
    environmental and associated benefits, this would help stimulate the
    competitive position of American industry in these markets. In some
    cases, the opportunity to engage in technology ``leapfrogging'' there
    could have major unexpected benefits here.
    4. Providing Diverse Energy Technologies for the Future
        We have already indicated the breadth of technologies needed to
    address our strategic energy goals and the process introduced into the
    Department in 1998 to align the R&D investments with those goals. The
    total energy R&D budget has declined dramatically (correcting for
    inflation) over the last two decades. I believe an increase would match
    the scale of the challenges discussed above and in the Administration
    National Energy Strategy. The portfolio process will help ensure that
    those additional resources are applied towards strategic goals with an
    appropriate balance of time scales and risk for a healthy overall
    return on taxpayer dollars.
        Thank you, and I would be happy to address any questions from the
    Committee.

        The Chairman. Thank you very much. Mr. Fri, why don't you
    go right ahead.

     STATEMENT OF BOB FRI, CHAIRMAN, COMMITTEE ON BENEFITS OF DOE
                  R&D ON ENERGY EFFICIENCY AND FOSSIL
                                 ENERGY

        Mr. Fri. Thank you, Mr. Chairman. While I do have a day job
    at the Smithsonian Institution, I am appearing here today as
    chair of the committee on benefits of the Department of Energy
    R&D and energy efficiency and fossil energy, the Academy report
    to which to you and others have already referred this morning.
    I have submitted my testimony for the record and since the
    report has in fact been discussed several times, let me just
    hit the high spots.
        The question we were asked was essentially this: Over the
    past 22 years the Department of Energy has spent in 1999
    dollars $22 billion on these two programs. We were asked, was
    it worth it and how can you tell? We developed a methodology
    for trying to be able to talk sensibly about the benefits and
    the core of it is in the chart across to my left, the matrix to
    which Secretary Blake referred earlier this morning, and is
    composed of two simple but very powerful ideas which have
    already been mentioned this morning. One, Dr. Moniz just
    mentioned and that is that the Department has some strategic
    goals that energy research and development is supposed to
    serve. We have characterized those in the rows of this matrix
    as economic, environmental, and security objectives. And the
    other is the notion that you mentioned that research and
    development has lots of different kinds of products, not
    necessarily just finished technologies. We characterize those
    in the columns of the matrix as realized benefits, technologies
    that are actually in place working and producing real benefits,
    options for the future that may be needed in a different
    economic and policy environment and very important knowledge
    benefits that almost all research and development should
    produce. This turns out to be a very useful way of discussing
    the benefits of energy research and development and in
    distinguishing public benefits--which is the purpose of Federal
    funding--from private benefits. Basically, private benefits are
    in the northwest corner of this matrix. You would expect the
    private sector to realize economic benefits and take advantage
    of them. That is important for the Government as well, but the
    Government is practically the exclusive player in the other
    eight types of benefits that are characterized by this matrix
    and that is why we are here talking about energy R&D.
        Was it worth it? On the whole, yes. Let me give you a few
    figures but first a cautionary note and that is, we were asked
    and indeed did look only at actual outcomes of research thus
    far. There's a lot of research in progress with benefits that
    can reliably be expected to be produced in the future. We did
    not count those. We got results, not expectations, but it is
    kind of nice to know that results actually prove the pudding as
    well.
        In terms of realized benefits, we calculated that something
    like $40 billion of realized economic benefits had resulted
    over this past period from energy R&D. Interestingly, three-
    quarters of that benefit came from three small programs in the
    energy efficiency area, the sum total of which cost the
    Government around $15 million in the building sector. Three
    magnificent home runs. However, the results were positive in
    virtually all areas.
        In the realized environmental benefits, the shoe was on the
    other foot. The environmental benefits were of the same order
    of magnitude as the economic benefits, if you try to price them
    out, which is not easy, but it is possible. But most of those
    came from a couple of small programs in fossil energy, which
    helped produce particular savings, reductions in nitrogen oxide
    omissions in powerplants. Then, if you can do that in a few big
    powerplants, that has a big impact just like making
    improvements in glass in the building sector does.
        The story is less good in security benefits, while some
    have been produced. Basically getting at the major oil
    consuming sector of our economy, namely, the transportation
    sector, which is where the security benefits lie. It has not
    been particularly productive thus far. We would have great
    hopes for the Partnership for a New Generation of Vehicles
    program, but so far that has not been one of the big success
    stories.
        And finally, there are at least 3 important options that
    have been produced that we think are likely to produce very
    substantial benefits and very plausible futures. One is the
    PNGV program. The other two are the integrated gas fired
    combined cycle program and the advanced turbine systems
    program. We studied 39 programs, and I am clearly not going to
    go into all of that.
        Our recommendations boil down to these: One, fill in the
    whole matrix. Public funds should try to produce a balanced set
    of benefits and public benefits that are described by these
    nine boxes.
        Secondly, our observation of the actual results strongly
    endorses the portfolio approach to planning. Clearly, we had
    some fantastic home runs. We had some strike-outs in this
    package. We had a bunch of singles and doubles. You need to
    look at the whole package and decide whether you are getting
    the benefits in taking appropriate risks which will improve
    failures.
        Thirdly, we looked at a lot of different past evaluations
    of these programs, discovered that they were inconsistent,
    often overstated. We believe that is important for the
    Department and the administration and the Congress to have a
    consistent, accepted, uniform peer review method for evaluating
    benefits, both retrospectively and prospectively and while we
    know that the system that we have developed in our study for
    doing that needs a lot of improvement and refinement, we
    believe it serves the purpose and we are pleased with the
    interest that the Department has already shown and as Secretary
    Blake indicated this morning. In implementing that approach, we
    look forward to working with the Department to do that and
    certainly with the committee and the Congress if we can be
    helpful in that regard. Thank you and I would be happy to
    answer questions at the appropriate time.
        [The prepared statement of Mr. Fri follows:]

     Prepared Statement of Robert Fri, Chairman, Committee on Benefits of
                 DOE R&D on Energy Efficiency and Fossil Energy

        Good morning Mr. Chairman, Senator Murkowski, and members of the
    Committee. My name is Robert Fri. I am Director of the National Museum
    of Natural History and served as the Chair of the Committee on Benefits
    of DOE R&D on Energy Efficiency and Fossil Energy of the National
    Research Council. The Research Council is the operating arm of the
    National Academy of Sciences, National Academy of Engineering, and the
    Institute of Medicine, chartered by Congress in 1863 to advise the
    government on matters of science and technology. The committee I have
    chaired this last year was given the charge of assessing the benefits
    and costs of Department of Energy research and development in fossil
    energy and energy efficiency since 1978 by the U.S. Congress. The
    committee's report was released yesterday afternoon. I appreciate this
    opportunity to summarize it for you and to respond to your questions
    about our assignment.
        The executive summary of the report is attached * to my written
    testimony, and both the summary and the full report describe the
    analytic approach we adopted to carry out our work. This background
    provides essential context for our conclusions. Although I will not
    dwell today on these methodological details, it is important to point
    out that:
    ---------------------------------------------------------------------------
        * Retained in committee files.
    ---------------------------------------------------------------------------
        1. We studied only the fossil energy and energy efficiency programs
    of the Department of Energy (DOE) because these programs fall within
    the jurisdiction of the House Interior Appropriations Subcommittee,
    which directed that the study be undertaken. Since 1978, DOE has spent
    about $22.3 billion on these programs, or about 26 percent of its total
    energy R&D expenditures.
        2. Our assignment was to assess the benefits actually realized
    since 1978 as a result of DOE-sponsored research in these programs. We
    did not account for benefits that might occur in the future. This focus
    on outcomes distinguishes our study from most other evaluations of
    DOE's research.
        3. Time and human resources constrained us to analyze in depth
    thirty-nine of DOE's research programs. We believe that this is a
    representative sample for purposes of this study, but falls well short
    of looking at all of the research conducted by DOE over the past two
    decades. This is particularly true for the energy efficiency area.
        4. We had a dual assignment. The more obvious one was to assess the
    benefits and costs of energy R&D. The second but equally important task
    was to develop an analytic framework for conducting such assessments in
    the future.
        This said, in the next few minutes I want to concentrate on the
    major messages of the report. In particular, I would like focus on four
    questions:

       What should we count as the benefits of energy research and
            development?
       Did the benefits of the programs we analyzed exceed their
            cost?
       What actions might improve the odds of successful energy
            R&D?
       How can the evaluation of benefits be improved in the
            future?

        The most fundamental issue we addressed was how to define and
    systematically capture the diverse benefits that result from publicly
    funded research. To answer this question, we developed an analytic
    framework designed to capture two dimensions of such research: 1) that
    DOE research is expected to produce public benefits that the private
    economy cannot reap, and 2) that some benefits may be created even when
    a technology does not immediately enter the marketplace to a
    significant degree.
        We identified the public benefits to be captured as those
    associated with DOE national energy mission:

       Economic benefits, measured by the change in the market
            value of goods and services resulting from the introduction of
            a technology stemming from DOE research.
       Environmental benefits, based on changes in the quality of
            the environment that have occurred as a result of DOE research.
       Security benefits, measured by changes in the probability or
            severity of abnormal energy-related events.

        To characterize the uncertainty about whether research will in fact
    produce benefits that can be captured, we defined three categories of
    research outcomes:

       Realized benefits; which are benefits almost certain to be
            produced. An example is the cost saving resulting from the
            development of electronic ballasts for fluorescent lights.
       Option benefits, which are associated with technologies that
            are fully developed but for which economic and policy
            conditions are not yet favorable for commercialization.
            Integrated gasifier-combined cycle technology is an example of
            research that has produced an option benefit.
       Knowledge benefits include all other benefits that we
            identified, because all research produces some knowledge. We
            recognize that this is a catch-all category, and that a more
            refined analysis of knowledge benefits would improve our
            methodology.

        Using these definitions, we created an accounting framework to
    provide a consistent, comprehensive assessment of the benefits and
    costs of the fossil energy and energy efficiency programs. The
    framework is a matrix, shown on the chart before you. We also defined a
    set of rules that provide a calculus for measuring the values to be
    entered in each of the yells. These rules are thoroughly documented in
    an appendix to our report.
        We successfully applied this analytic framework to thirty-nine
    technologies funded by DOE since 1978. We found that these programs
    yielded significant realized benefits, important technological options
    for potential application in the future, and useful additions to the
    stock of engineering and scientific knowledge. Tables 2 and 3 in the
    executive summary show how each technology we studied produced benefits
    in one or more elements of the matrix.
        Based on this analysis, we were able to address whether the
    benefits we identified exceed the cost of producing them. Our findings
    on this question are:
        1. The estimated total net realized economic benefits associated
    with the energy efficiency program we reviewed were about $30 billion,
    substantially exceeding both the $1.6 billion cost of the
    representative sample of programs that we analyzed and the $7 billion
    in DOE's total research investment in energy efficiency since 1978.
    Most of these benefits are attributable to three relatively modest
    projects in the buildings sector carried on in the late 1970s and
    1980s--more efficient refrigerators, electronic ballasts, and low-e
    glass.
        2. The estimated realized economic benefits associated with the
    fossil energy program amounted to nearly $11 billion, approximately
    equal to the cost of DOE's research investment. However, the benefits
    of fossil energy programs conducted from 1978 to 1986, which included
    several alternate fuels projects, produced benefits of $3.4 billion and
    cost $6 billion. From 1986 forward, the economic benefits of $7.4
    billion exceed the costs of $4.5 billion.
        3. Although quantifying environmental benefits is difficult, we
    estimate that both programs realized benefits of this type valued at
    between $60 billion and $90 billion. Fossil energy programs that
    reduced nitrogen oxide emission account for most of this benefit. Other
    environmental benefits came from reducing emissions through energy
    efficiency.
        4. Both programs produce important technologies that are viable
    options for reasonable policy and economic conditions that are likely
    to exist in the future. Chief among these option benefits are the
    Partnership for a New Generation of Vehicles, the Integrated Gasifier
    Combined Cycle program, and the Advanced Turbine Program.
        5. National security has been enhanced by a number of programs,
    notably fossil energy programs that increased domestic oil production
    and reserves additions and efficiency programs that reduced oil
    consumption. However, DOE's research programs designed to reduce
    dependence on oil in the transportation sector have been disappointing
    so far.
        Based on our analysis of these programs, we found that the benefits
    flowing from DOE's R&D programs were influenced by the structure and
    management of the programs. Among the useful lessons learned that can
    improve the odds of conducting successful research are the following:

       The largest realized benefits accrued in areas where public
            funding would be expected to have considerable leverage. Thus,
            the buildings sector is fragmented and the prevailing incentive
            structure is not conducive to technological innovation.
            Similarly, the nitrogen oxide reduction achieved in fossil
            energy is an environmental benefit that the private markets
            cannot easily capture. We believe, therefore, that DOE's
            research should focus on achieving the department's national
            public good goals.
       Important but smaller benefits were achieved in fossil
            energy's oil and gas programs and energy efficiency's industry
            programs. We concluded that DOE participation in these areas
            took advantage of private sector activity to realize additional
            public benefits. The lesson is that a clearly defined DOE role
            is crucial to ensuring that public funding is likely to produce
            appropriate benefits.
       It is particularly important that DOE manage a balanced
            portfolio of research. Individual research projects may well
            fail to achieve their goals, but DOE and Congressional
            policymakers should not view these as symptoms of overall
            program failure. Even failures generate considerable knowledge
            and a well-designed R&D program will inevitably include such
            failures.
       Where DOE seeks to develop technologies for near term
            deployment (as in the industrial energy efficiency program, for
            example), success is more likely when technological goals are
            consistent with the economic incentives of users to adopt the
            technologies. Standards can also serve as an important
            incentive, and the committee saw cases of both success and
            failure. Our case studies include a number of instances that
            did not meet this condition and so failed to produce
            significant economic benefits.
       Our case studies highlighted the need for periodic
            reevaluation of goals against changes in the regulatory or
            policy environment, projected energy prices and availability,
            and the performance of alternative technologies. Similarly, DOE
            should develop clear performance targets and milestones for
            achieving program goals. To evaluate progress against goals, we
            recommend that DOE expand its reliance of regular, independent,
            peer reviews that enlist the participation of experts who are
            not otherwise involved in DOE's programs.

        Finally, we addressed the question of how the evaluation of
    benefits can be improved in the future. We reviewed many other
    evaluations of DOE programs and found no consistent methodology or
    framework estimating and evaluating the benefits of research. This
    inconsistency was often associated with an overstatement of economic
    benefits and/or a tendency to assign too much weight to realized
    economic benefits (only one of the nine boxes in our matrix).
        On the other hand, we believe that the benefits matrix adopted for
    this study is a robust framework for evaluating program outcomes. Its
    application imposes a rigor on the evaluation process that clarifies
    the benefits achieved and the relationship among them. Accordingly, we
    recommend that DOE adopt an analytic framework similar to that used in
    our study as a uniform methodology for assessing the costs and benefits
    of its R&D programs. DOE should use this framework for reporting to
    Congress on its programs and goals under the terms of the Government
    Performance and Results Act.
        We recognize, however, that the framework we developed for this
    study requires refinement. Among other things, DOE should improve the
    guidelines for benefits characterization and adopt consistent
    assumptions to be used across programs. As a first step, DOE should
    convene a workshop of analysts, decision-makers, and members of our
    committee to discuss the problems we encountered in the application of
    our framework. Longer term, DOE should seek to enhance the transparency
    of the process by, among other things, providing external peer review
    of the application of the framework.
        That concludes my prepared remarks, Mr. Chairman. I want to thank
    the members of our committee for the extraordinary effort they put into
    this challenging assignment, and to express our collective appreciation
    to the DOE staff that so diligently worked to respond to our extensive
    requests for data and analysis. I would now be pleased to respond to
    any questions you may have.

        The Chairman. Thank you very much for that testimony. Dr.
    Hubbard, why don't you go right ahead.

      STATEMENT OF DR. H.M. HUBBARD, THE PACIFIC CENTER FOR HIGH
            TECHNOLOGY RESEARCH (RETIRED), LEE'S SUMMIT, MO

        Dr. Hubbard. Mr. Chairman, thank you for the opportunity to
    be here. My name is H.M. Hubbard and maybe that is were the B
    came from. At the present, I call myself a semi-retired
    independent consultant. I am actually spending quite a bit of
    time with the University of Missouri system and as special
    advisor to the chancellor on engineering and computer science
    education. Before that, I had been through a lot of different
    kinds of operations. For about 50 years I worked for industry,
    the DuPont Company. I was part of their atomic energy division
    and part of one of their commercial divisions. I was executive
    vice president of a Midwest research institute in the process
    of which I ran what was then called SERI, you know, called
        The Chairman. You might just pull that microphone a little
    closer if you can.
        Dr. Hubbard. Is that better?
        The Chairman. That is a little better. Thanks.
        Dr. Hubbard. Where was I? Let's see. I was at the National
    Renewable Energy Laboratory for about 10 years. Since then, I
    spent 5 years in Hawaii with the University of Hawaii and with
    the Pacific International Center and since that time, I've
    spent some 6 years chairing the National Academy's committee
    Board for Energy and Environmental Systems and most recently,
    and I guess the reason you asked me here, is I chaired a study
    committee in the NRC which was looking at the programs for the
    Office of Power Technologies. Now, that is a pretty narrow
    slice of Department of Energy but it encompasses all renewable
    energy technologies, particularly looking at electricity
    production. And as you do that, it pretty much transcends that
    because you have to look at the connections. And in looking at
    those programs, we were looking primarily at the potential for
    electrical production and the state of those programs. In
    general, the technology itself I would rate as good to
    excellent and I am talking about solar radiation and a resource
    for biomass, wind, hydropower, geothermal and oceans. When I
    say it is excellent, I mean we pretty well understand what the
    resource is. And we have a pretty good concept of what you need
    to do to get at it. Of those programs, oceans have presently
    dropped by the way side, not because the potential is not
    there, but we understand it fairly well and in the next few
    decades it is unlikely to be economic except in a very few
    situations.
        We also looked at what I call enabling technology. Now, I
    mean storage, hydrogen, superconductivity, et cetera. Again,
    the technology is making progress. They need more attention
    than they're getting and they need better organization than
    they're getting. We began to look at what I would call systems
    issues from what Dr. Corradini was talking about. I think he
    was talking about cross-cutting issues. How do we integrate
    across the programs? What do we know about distributors'
    resources? What do we know about coordinating a cross-program
    and how about our planning and analytic capabilities? Things
    were not so good there. It was somewhat neglected and it needs
    a lot more attention.
        Let me go into my bottom line which are points that I
    really want to emphasize. The first is the importance to our
    country's future of having a renewable energy option available.
    Renewable energy alone will not solve our energy concerns but
    without it our chances and the world's chances of creating a
    sustaining energy supply system and distribution system we need
    are pretty close to zero. We need a diverse portfolio of
    energy, technologies, and energy resources. And there is that
    portfolio word again.
        The second is that in spite of its problems, and they have
    been considerable, the cooperative Federal industry program has
    been remarkably successful in developing a science and
    technology base and we understand that pretty well. And in many
    cases, one in particular, PV, in particular, biomass, to some
    degree, there has been pretty effective cooperation between
    industry and the Nation and the laboratories. When we talk
    about an R&D program, we always talk about it as an RD&D
    program, research, development and deployment, because making
    that transition from the laboratory to industry or Federal
    laboratories to implementation and deployment and
    commercialization is difficult and it requires direct contact.
    You don't just hand it over. You have got to work it over and
    that has sometimes been neglected.
        The third is that renewable energy R&D is a necessity, a
    long term effort, and we are not there yet. The core program
    requires stable funding at reasonable levels tied to program
    objectives. Stable funding, reasonable levels, defined program
    objectives. Since the early 1980's the program has generally
    been underfunded and subject to erratic fluctuation. And it is
    also true that in general the energy industry has never been
    notable for their investment in research and development. So,
    what the government does is really critical, important and
    essential.
        The fourth is that in general, energy RD&D needs stronger,
    more effective leadership than they have usually received. They
    need to do better planing, better metrics, clearer definition
    of program objectives and more effective coordination of
    program elements. Having sat in on some of the nomination
    hearings, maybe you need a few more drill sergeants in the
    Department. That might help.
        At the risk of embarrassing former Under Secretary Moniz,
    you need more Ernie Monizes in the Department. That orientation
    of one of the senior officials towards R&D and the
    understanding of it is critically important and at the time we
    looked at the OPT programs, which was in 1999, we looked at the
    programs as they were then operating and we saw these
    deficiencies more with respect to management and leadership
    than with respect to the technological capability. Parallel
    with that, the R&D council, which Dr. Moniz referred to, began
    to develop a process of strategic planning and a process of
    developing administration of the R&D programs by portfolio. We
    mentioned those deficiencies in our initial report and the
    Department of Energy said, well, we are working on those. And
    we said, well, prove it because we don't see the impact yet. In
    response to that, we were asked to do a follow-on study with a
    letter report in which we reviewed the progress that the R&D
    council were making and where they were in that process. That
    was very reassuring to us. Now, that needs to go on. It cannot
    be dropped at this point without a huge waste of effort and
    spinning of wheels. So, that needs to be picked up by the new
    Administration. And I think they can build on it, and they
    really need to do that.
        The fifth one is, as Dan Yergin once said, let's put the E
    back in DOE. Only about 20 percent of the budget in general, as
    you well know, really addresses energy and energy problems. And
    it is also true that sometimes, as has been said in the
    hearing, that as a result, the senior management at Department
    of Energy has very often been distracted from looking at energy
    research and very often, frankly, ignorant of it. So, that
    needs attention. And I think the idea of a single person not
    just for science but for research, energy research, development
    and deployment, responsibility for those programs, would be
    important. I think that can be done. And in the process, answer
    the legitimate concerns that Dr. Moniz has. And it would be
    consistent with a recommendation that was made by the Yergin
    study group in 1995; namely, that there should be a single
    person at the Under Secretary or Deputy Secretary level
    reporting directly to the Secretary of Energy, who has
    responsibility for strategy, budgeting, management and
    integration over these various energy research programmatic
    divisions. With that, I will subside and be happy to answer any
    questions. Thank you.
        [The prepared statement of Dr. Hubbard follows:]

      Prepared Statement of Dr. H.M. Hubbard, The Pacific Center for High
                Technology Research (Retired), Lee's Summit, MO

        Mr. Chairman and members of the Committee thank you for inviting me
    to testify at this important hearing on legislative proposals related
    to energy and scientific research, development, technology deployment,
    education and training. I was specifically asked to testify on the
    condition and prospects for renewable energy.
        In May of last year the National Research Council (NRC) issued a
    report, Renewable Power Pathways. The report is the result of a study
    carried out by the NRC's Study Committee for the Programmatic Review of
    the Office of Power Technologies (OPT). this was followed, in late
    August, by a letter report of a follow-up study by the Committee on
    Recent Initiatives by the Office of Energy Efficiency & Renewable
    Energy and The Office of Power Technologies.
        The study committee which I had the privilege of chairing consisted
    of a group of energy experts coming from different sectors of the
    energy research community. The final reports were reviewed by a variety
    of reviewers according to the NRC's usual procedures. A list of
    committee members and the reviewers is appended to this testimony.
        The majority of the opinions and recommendations presented in this
    testimony are drawn from those reports and the discussions of the NRC
    Study Committee. In areas in which my testimony goes beyond the scope
    of the NRC study I have drawn on other sources and my own long
    experience in the energy and environmental research and development.
    While I believe that the opinions and conclusions presented here are
    consistent with the views and conclusions of the Committee, I take
    personal responsibility for the testimony as it stands.

                     ENERGY--A CRISIS OR A CHRONIC CONCERN?

        For the last three decades of the twentieth century energy has been
    a matter of continuing concern to the American public and hence to our
    elected representatives and business leaders. Will we have it--i.e.,
    power and fuel--when we need it?
        Will it continue to be cheap? What is it doing to our air and
    water? And more recently, what is all this noise about ``global
    warming''? Is it a myth promoted by over-zealous scientists and over-
    wrought environmentalists or do we need to be concerned about it?
        Believe me, we do need to be concerned about it and the majority of
    the American public understands that. Occasionally our chronic concerns
    develop into acute anxiety for good and sufficient reasons. Witness the
    impact of electricity blackouts and high prices in California as well
    as the high gasoline prices in the Midwest. In the past as a problem
    abated public attitudes and political priorities settled down and
    energy issues took a back seat but the chronic concern lingered.
        To date, energy concerns have rarely if ever reached a state that
    could be called a ``national crisis'' but we cannot be sure that this
    will always be so. We are confronted by an increasing dependence on
    imported fuel, concerns about the environmental damage and health risks
    associated with energy production and use. Also there are concerns
    arising from questions about economic security and geopolitical
    stability. We as a nation have good reason for a continuing anxiety
    about our energy supply.
        We face a promising but unpredictable future. In the face of these
    uncertainties and questions, we know that we need a more robust and
    flexible energy infrastructure with a diversity of fuel resources and
    energy conversion technologies.
        We need a diverse energy portfolio! Where will renewable energy
    technologies (RET) fit? Almost all energy planers and analysts from
    those of international organizations like the World Bank to the forward
    looking energy companies, public and private thank tanks, and non-
    governmental (NGO) advocacy groups agree that renewable energy will
    play an increasing role over the next century in this portfolio. As the
    CEO of one of the world's largest natural gas producers and
    distributors remarked to me when we shared the platform at an Aspen
    Institute energy forum a decade ago: ``After sometime around 2025 the
    energy world will belong to you guys (renewable energy) but until then
    it belongs to us.'' That company is now busily engaged in developing
    renewable energy projects to complement its primary fossil energy
    business.

           RENEWABLE ENERGY TECHNOLOGIES--CURRENT STATUS AND PROMISE

        The federal government began a major R&D effort twenty-five years
    ago to develop the science and the advanced technologies necessary to
    provide electric power, transportation fuels and thermal energy from
    our domestic renewable resources. These resources include solar
    radiation, geothermal energy, hydropower, biomass, wind, and ocean
    energy. We have made remarkable progress and the result is a diverse
    set of renewable energy technologies several of which are already
    making a significant contribution to our energy supply and our economy.
        Over this period substantial improvements have been made in the
    performance and reductions in cost of these technologies. In fact, most
    of DOE's goals and objectives in performance and cost of production
    have been met or exceeded. The DOE technical managers and the
    laboratory researchers should take a bow. Photovoltaic and wind turbine
    technologies are outstanding examples of successful cooperation between
    industry and government research. There has been important progress in
    other areas as well, biomass conversion, hydrogen fuels, solar building
    design, and solar thermal systems, etc. In general the advantages and
    disadvantages associated with the different resources and conversion
    technologies are well understood.
        On the other hand the renewable technologies have disappointed
    their supporters. The deployment goals set by DOE and the industry have
    not been met and the use of renewable technologies in the U.S. economy
    is still limited. There are several reasons for this. Most importantly,
    the energy market has changed. Our economy has become much more energy
    efficient and the market more competitive. Conventional energy prices
    have remained lower than expected. DOE in concert with the emerging
    industry has often set deployment goals based on unreasonable
    expectations and unrealistic promises.
        Nevertheless as R&D continues to reduce costs and as conventional
    energy prices fluctuate up and down the new renewable technologies,
    i.e. those other than biomass combustion and conventional hydropower,
    are emerging in the market at a rapidly increasing rate. U.S. shipments
    of solar cell modules increased by 23 percent over the previous year.
    The approximately 2500 MW of wind energy capacity installed in the U.S.
    is expected to double by the end of this year. New wind farms are going
    up in southern California, west Texas, on the high plains of Kansas/
    Colorado, in Minnesota and in Iowa. In a related development, a third
    or more of U.S. consumers can now choose some type of ``green power'',
    i.e. power from renewable sources, from either their regulated utility
    or in competitive markets.
        What can we expect from renewable energy in the future? Energy
    projections and forecasts are notoriously uncertain. But within a broad
    uncertainty band there seems to be some consistency among the fearless
    experts. Ten years ago the five National Laboratories most involved in
    renewable energy were asked to develop a ``consensus'' on the Potential
    of Renewable Energy. The resulting ``white paper'' issued in March of
    1990 projected a renewable energy contribution in 2030 of between 15
    and 28 percent. The lower number in the case of a business as usual
    scenario and the higher number if federal policy supports and
    ``intensified'' Research, Development, and Deployment (R,D&D) scenario.
    Other attempts to estimate the RET contribution run in the range of 20
    to 50 per cent in the time period of 2025 to 2050.
        The Report to the President on Federal Energy Research and
    Development for the Challenges of the Twenty-First Century was issued
    in November of 1997 by the President's Committee of Advisors on Science
    and Technology (PCAST). In that report the Panel on Energy Research and
    Development stated that ``the Panel believes that with a strong R&D
    program coupled to appropriate demonstration and commercialization
    incentives that many of the renewable energy technologies in the (DOE)
    portfolio have good prospects of becoming fully competitive with
    conventional technologies in whole scale applications. The time to get
    there was projected at less than ten years for some (wind appears to be
    ahead of schedule), up to 20 to 25 for others, i.e. transportation
    fuels from energy crops. Shell International Petroleum Company has
    projected that by 2025 ``renewable energy sources could contribute to
    global energy one-half to two-thirds as much as fossil fuels do at
    present with new renewable sources (excluding hydropower and
    traditional biomass) accounting for one-third to one-half of the
    renewables total.'' The Intergovermental Panel on Climate Change (IPCC)
    has made similar statements concerning the energy contribution from
    rewnewables.
        There is a problem! In fact a couple of them that make it difficult
    for the program planners and the emerging RET industry to know how to
    proceed. It also makes achieving the potential of renewables difficult.
    The current director of the National Renewable Energy Laboratory,
    Admiral Truly, stated them clearly in a recent statement.

              ``Beginning in the 1970's, every administration and Congress
            has had a different set of national goals, R&D investment
            levels and policy actions for developing these technologies''
            resulting in ``1) the erratic up-and-down nature of annual
            federal R&D investments for energy efficiency and renewable
            energy, and 2) the confusing and inconsistent array of national
            energy strategies, tax incentives, and regulatory policies
            (superimposed on the program) since the programs began.''

        Hopefully this Committee can do something about these problems! We
    need more stability in the budget, and more consistency in policy
    direction. Under present conditions it is very difficult to develop and
    implement a coherent strategic plan for a long range research and
    development program. That however should not keep DOE from trying and
    recently they have begun to do so. Hopefully the process will be
    continued by the new administration.

                      RENEWABLE ENERGY PROGRAM MANAGEMENT

        The Study Committee was directed to do a ``programmatic'' review of
    DOE's office of renewable power technologies. The Office, a major unit
    of the Office of Energy Efficiency and Renewable Energy (EERE) conducts
    R&D programs for the production and distribution of electricity from
    renewable energy resources. The individual program elements dealing
    with production include: photovoltaics, wind, solar thermal,
    geothermal, biopower, and hydroelectric technologies: Others deal with
    ``crosscutting'' issues; storage, transmission (including
    superconductivity) hydrogen, and distributed power. We began with an
    examination of the individual programs but were rapidly lead into the
    broader issues of program management, planning, and coordination with
    other R&D units in the Department doing related work.
        In the report there are recommendations for each of the individual
    Programs. I will not go into them here but in general the technical
    performance was excellent. The individual program plans varied in
    quality from nonexistent to well thought out. While we did not attempt
    to give formal ratings to the programs my own opinion that they varied
    from ``not bad'' to outstanding with the majority in the ``good to
    excellent'' range. We were, however, concerned by the apparent lack of
    coherence and coordination among the program elements and with other
    governmental organizations doing related work. This is reflected in our
    recommendations for the overall program as indicated below.

       OPT should develop criteria and a systematic process for
            selecting specific research and development programs.
       OPT should focus more on integrating its programs,
            identifying common needs and opportunities for research, and
            clarifying how the individual programs can further their
            objective. Bench marking and other planning techniques used by
            industry could be adapted for measuring progress and selecting
            priorities.
       OPT should develop a robust rationale for its portfolio of
            renewable energy technology projects. OPT and its individual
            programs should de-emphasize short-term deployment goals (which
            have often been unrealistic, overly optimistic, and which are
            not within DOE control) as the metrics for defining success.
            The stated objectives should be the development of a sound
            science and engineering base. The metrics should be stated in
            terms of technical performance, decreasing costs and the
            development of technologies that meet the needs of industry and
            the marketplace.
       OPT should institute a process of regular external peer
            reviews (at least every two years) of its proposed and ongoing
            projects and programs as well as its overall goals. As part of
            the process OPT should report to the public and the Congress
            how it responds to the recommendation of the reviewers.

                        REVIEW OF RECENT DOE INITIATIVES

        First a note of explanation: The OPT programmatic review was
    proposed in discussions between EERE and the NRC in the summer of 1988.
    The scope work was approved and the study funded in the late fall. The
    committee was first convened in March of 1999. A draft report was
    produced by the Committee with the help of the study director and his
    staff in December for appropriate review resulting in the issue of the
    final report in May. As you have seen the Study found a lot of merit in
    the programs (along with some deficiencies) but was quite critical of
    the renewable energy management because of a lack of leadership in the
    areas of coordination, planning, monitoring process, setting realistic
    goals and metrics.
        While the Study Committee was conducting it's review at the program
    level (a kind of bottom-up look at how OPT does it's work) DOE senior
    management under the leadership of the under secretary and the newly
    established DOE R&D Council was continuing its ``initiative to apply
    portfolio approaches to managing Departmental R&D''. This lead to
    initiatives by OERE and OPT which in the opinion of OERE management
    addressed many of the deficiencies and responded to many of the
    recommendations of the Study Committee as well as those contained in a
    ``top-down'' Review of Management in the Office of Energy Efficiency
    and Renewable Energy by the National Academy of Public Administration
    (NAPA). As part of their response to the Study Committees report OPT
    asked the Study Committees to review those initiatives and recent
    managements steps. This review was conducted in June, July, and August
    during which time the Committee conducted a review of materials
    provided by EERE and OPT regarding those changes and initiatives and
    held a meeting to interact with DOE senior managers including the Under
    Secretary, the Assistant Secretary of EERE, the Deputy Assistant
    Secretary for OPT and the OPT Associate Deputy Assistant Secretary. An
    NRC letter report was issued in late August. The letter report should
    not be interpreted as a review of the findings, conclusions or
    recommendations of the earlier Committee report. Rather the letter
    report is strictly a consideration of recent action.
        What did the Study Committee conclude? The documents submitted,
    ``taken together, are the major elements of a comprehensive management
    and planning system designed to identify R&D needs in EERE/OPT program
    areas, to establish visions, goals, and objectives, and to develop
    roadmaps and multi-year plans for achieving them. In addition, EERE and
    OPT have made numerous management changes to facilitate and promote
    communication, cooperation, coordination and collaboration across
    organizational lines, improve capabilities, and enhance management
    efficiency and effectiveness.''. . .
        ``The Committee recognizes that the completion and implementation
    of strategic and program plans is a work in progress--as is the
    implementation of the recently developed concept of a Strategic
    Management System (SMS). The Committee encourages EERE/OPT to complete
    the process and believes that the results will address many of the
    concerns identified in the recent NAPA and NRC reports.''
        Successful long-term implementation depends on the acceptance by
    DOE senior career personnel. For the full potential on the initiatives
    and management changes to be realized, they must become embedded in the
    way DOE/EERE/OPT conduct their business. Among the challenges EERE/OPT
    now face is clearly and unambiguously presenting the system and goals
    to the Congress and to the new administration along with the benefits
    that are expected to result.
        In the year 2001, if DOE/EERE/OPT can build on the encouraging
    start they made the previous year in improving their program planning
    they will clearly be ``moving in the right direction''.

                       FINAL REMARKS AND RECOMMENDATIONS

        In the conclusion there are several points that I would like to
    emphasize to the Committee:

       The first is the importance to our country's future of
            having the renewable energy option available. Renewable energy
            alone will not solve our energy concerns but without it our
            chances and the world's chances of creating the sustainable
            energy supply and distribution system are close to zero.
       The second is that in spite of its problems the cooperative
            Federal/Industry program has been remarkably successful in
            developing the science and technology base.
       The third is that renewable energy R&D is of necessity a
            long term effort. We are not there yet. The core program
            requires stable funding at reasonable levels tied to program
            objectives. Since the early 1980's the program has been
            generally under-funded and subjected to erratic fluctuations.
       The fourth is that energy R&D in general and renewable
            energy programs in particular need stronger, more effective
            leadership than they have usually received, including better
            planning, metrics, clearer definition of program objectives and
            more effective coordination of program elements.
       The fifth is put the E back in DOE. It is often pointed out
            that only about twenty per cent of the DOE budget is devoted to
            energy R&D and that the attention of senior DOE officials is
            often directed to other responsibilities. In June of 1995 in
            the Final Report of the task Force on Strategic Energy Research
            and Development know as the Yergin report it was recommended
            that ``responsibility for energy R&D portfolio strategy,
            budgeting, management, and integration over existing
            programmatic division be given to a single person at the Under
            Secretary or Deputy Secretary level reporting directly to the
            Secretary of Energy.'' The Study Committee in its discussions
            endorsed that recommendation and urges its implementation.

        The Chairman. Thank you very much. The final witness on
    this panel is Dr. Mike Corradini. Why don't you go right ahead,
    Dr. Corradini?

    STATEMENT OF DR. MICHAEL L. CORRADINI, UNIVERSITY OF WISCONSIN,
                              MADISON, WI

        Dr. Corradini. Thank you. I want to thank the chair and the
    committee for inviting me. I have a lot of graphics.
        The Chairman. Okay. We are glad to see it.
        Dr. Corradini. Typical class. I wanted to thank you all. I
    am chair of the nuclear engineering and engineering physics
    program at the University of Wisconsin Madison and that is, I
    guess, the reason I was asked to be here. I was also chair of
    the nuclear energy research advisory committee's panel to study
    the future of nuclear engineering programs and university
    reactors. And about a year ago, we gave the NERAC our report.
    It was endorsed, passed on within the Department of Energy and
    from that, as I understand it, S. 242 has addressed a lot of
    these concerns. So that will probably be my main topic for my
    verbal comments. You have my written testimony which addresses
    some of the other Senate bills.
        A little history. Nuclear energy, or nuclear engineering, I
    should say, is really one of the first disciplines that spanned
    engineering systems from the macroscopic world to the
    microscopic world. Students learned many things at various
    levels and because of that, it really became a major
    contributor in three areas to the public good. Energy where it
    is a major source of electricity I think has been mentioned at
    least five times today. Over 20 percent of our electricity is
    from nuclear energy. Secondly, it is an enabling technology in
    medical sciences. This is probably not as well known. At
    Madison we actually have two departments of nuclear
    engineering, so to speak. One in the medical school, medical
    physics, and one in engineering, engineering physics. And
    third, it is really an underlying technology for national
    security. The difficulty is we really have some current threats
    and issues.
        So, the first thing I put up here is that over the last 20
    years, and particularly over the last 10 years, we've had a
    precipitous fall in the number of nuclear engineering programs,
    that is the degree-programs, approximately 50 percent of what
    we had about 20 years ago. Similarly, if I could have the next
    one. I am going to make the staff help me a bit here. We've had
    a precipitous drop in the number of university research
    reactors. Dr. Moniz made a mention of this earlier and I think
    this is another indication of our loss of infrastructure. And
    probably the most important thing, if you want to move on, so I
    can stay within my 5 minutes, is the human resource. The thing
    that most concerns me because I am at a university and what
    concerns me is education and people, is that we have had a very
    precipitous drop, particularly in the last 8 to 10 years of
    enrollment in nuclear engineering programs at the Ph.D. level,
    the masters level and the BS level. And that has led us to the
    final picture. I am used to PowerPoint these days. I apologize.
    I am back to posters. And this is a study from the American
    Society of Engineering Education, and I want to spend a bit of
    time on this. This was done for the ASEE and basically shows
    the deficit in employment where we look at bachelors and
    masters graduates in the industry. And this is primarily the
    nuclear industry. So, I think primarily utility industry is a
    sample case. And what you see here is a bar of red which is
    growing and something in the future estimated to be about 500
    individuals, which is at least three times the number of
    graduations we seen in the discipline. So, we have a real
    threat relative to the human resource. Okay? And that is really
    what I want to address today. The testimony talks abut a number
    of things. Our panel work gave a wide range of recommendations
    which you have in written form.
        I want to address three things. First of all, because I am
    interested in the human resource and how we can effectively
    change the direction, is that we recommend fellowships for
    masters and Ph.D. graduates in nuclear engineering. I focus on
    graduate because the masters degree is one of the silent
    successes in education. And what you find is we have a number
    of people that come from various disciplines--physics,
    mathematics, other branches of engineering--into nuclear
    engineering and what we are recommending is an increase of the
    masters and Ph.D. fellowships to essentially support these
    students. Secondly, increased funding for NERER grants. Dr.
    Moniz made mention of the NERI program, which is a unique
    program for university, industry and laboratory partnership.
    But the NERER grants are particularly the equivalent of the NSF
    grants for universities. Because it was mentioned earlier,
    nuclear engineering, or nuclear energy, is essentially
    precluded from support by NSF and so the NERER program is the
    only way in which basic research, innovative research, can be
    done at universities. So, we recommend and strongly support an
    increase in the NERER grant program. What it really does is
    really create knowledge and attracts talent. I am back to the
    human resource. It attracts talent of faculty going into the
    discipline and that to me is incredibly important for keeping
    the pipeline going.
        And the third thing is continuation and augmentation of
    what is called, I guess in the lingo of the DOE industry
    matching grant program. What that really is is something that
    was thought up about 10 years ago by my predecessor, the chair
    of nuclear engineering at Madison, Max Carbin, in where he
    suggested that the deal we support with the industry provide a
    match, fifty-fifty match, of essentially flexible funds for
    departments. Those funds could be used for scholarships,
    undergraduate scholarships, for improvement of infrastructure
    of the various departments which they have been used for,
    laboratories, etc. Also, they could be used for outreach. And
    that program has been enormously successful to the point that
    it is oversubscribed every year. And it really provides
    flexible funds for programs.
        And I think that is about it. I want to identify three
    things in particular and open it up for questions if you have
    any.
        [The prepared statement of Dr. Corradini follows:]

         Prepared Statement of Dr. Michael L. Corradini, University of
                             Wisconsin, Madison, WI

        It is an honor to present testimony at this committee hearing on
    the current state and future of nuclear science and engineering
    programs. I would like to thank Chairman Bingaman for inviting me here
    today. I currently am chairman of the Engineering Physics Department at
    the University of Wisconsin, Madison and a Member of the National
    Academy of Engineering. I was also chairman of a seven-member
    subcommittee of the Nuclear Energy Research Advisory Committee. This
    subcommittee was tasked with examining the Future of Nuclear
    Engineering Programs and University Research and Training Reactors. It
    is in this capacity that I would like to address the senate committee
    today, on the particular issue of human resources and related nuclear
    energy topics.

                               CURRENT SITUATION

        Nuclear science and engineering was born from early discoveries of
    noted physicists in the late 1890's. These discoveries, along with the
    discovery of nuclear fission in the 1930's, convinced a group of
    leading physicists and engineers to recommend that the United States
    support nuclear research for the common good of the nation; i.e.,
    nuclear science and engineering would provide for our nation's
    security, supply some of its power and contribute to medical advances
    enhancing human health. This promise from nuclear energy has come to
    pass. For example, over 20% of the electricity in our nation comes from
    nuclear fission power plants. In these times of energy shortages and
    electrical power outages, reliable, safe and economic fission power is
    a proven, valued and sustainable resource. Additionally, the use of
    nuclear science and engineering advances have been pivotal in the
    improvement of human health, by advances in medical imaging, nuclear
    medicine and radiation treatment of cancer. The key ingredient in all
    of these advances is talented people with the motivation, skill and
    dedication to innovate, educate and use the technology in a safe,
    economic and sustainable manner.
        Nuclear engineering programs and departments were originally formed
    in the late 1950's and 1960's from interdisciplinary efforts in many of
    the top research universities, providing the people for the emerging
    nuclear industry. In the same time period, university nuclear reactors
    were constructed and began operation, providing key facilities needed
    for research and training of students engaged in nuclear technology.
    Since the 1960's, U.S. universities have led the world in nuclear
    engineering with a commitment to furnish the necessary human resources
    and associated infrastructure.
        However, over the last decade, the U.S. nuclear science and
    engineering educational structure has not only stagnated but is in a
    state of serious decline. The number of nuclear engineering degree
    programs (Figure 1) and the number of operating university nuclear
    research and training reactors (Figure 2) has fallen by about half, and
    the enrollment in nuclear engineering degree programs has plummeted
    (Figure 3). Enrollment declines are particularly worrisome at the
    masters level, where many students from other engineering and science
    disciplines focus on nuclear engineering as a capstone professional
    degree. Only in the last year have enrollments nationwide seemed to
    stabilize, and a small increase is noted in undergraduate enrollments.
        On the other hand, the demand for nuclear-trained personnel is
    again on the rise. A study by the American Society of Engineering
    Education (G. Was, T. Quinn, D. Miller, 1999--see Figure 4) indicates
    that the shortfall in qualified nuclear engineers at the bachelor and
    masters level could reach over 500 professionals annually by 2003.
    Workforce requirements at operating U.S. nuclear power plants are
    increasing and will undoubtedly remain high, given the plans for plant-
    life extension in the vast majority of operating U.S. light-water
    reactors. In addition, there is a continued growth of nuclear power in
    the Pacific Rim and continued advances in the design of a future
    generation of nuclear fission reactors. Moreover, new initiatives have
    begun in applied radiation sciences in collaboration with medical
    research as well as biotechnology. Finally, nuclear science and
    engineering expertise continues to be needed for national security,
    including technology related to arms reduction and verification and
    enforcement of international treaties as well as providing the U.S.
    Navy with effective, safe nuclear propulsion. There is a need to
    provide an adequate supply of professionals to meet the nation's needs
    in the coming decades.

      FUTURE OF NUCLEAR ENGINEERING PROGRAMS AND FACILITIES: PANEL CHARGE

        In November 1999, the DoE Office of Nuclear Energy, Science and
    Technology requested that Nuclear Energy Research Advisory Committee
    (NERAC) establish an ad hoc panel to consider educational issues
    related to the future of nuclear science and engineering; i.e., address
    the future of university nuclear engineering programs, establish a
    process toward support of university research and training reactors,
    and identify appropriate collaborations between DoE national
    laboratories and university programs. The panel consisted of myself,
    Marvin Adams of the Texas A&M University, Donald Dei, Chief Physicist
    of the U.S. Naval Nuclear Propulsion Program, Tom Isaacs, Senior
    Scientist at Lawrence Livermore National Laboratory, Glenn Knoll of the
    University of Michigan, Warren Miller, Senior Advisor to the Lab
    Director at Los Alamos National Laboratory, and Kenneth Rogers, Retired
    Commissioner of the U.S. Nuclear Regulatory Commission. The panel made
    a series of recommendations to the DoE.

            FUTURE OF NUCLEAR ENGINEERING PROGRAMS: RECOMMENDATIONS

        First, we recommended that DoE assist universities as they refocus
    nuclear engineering programs to enhance research activities in nuclear
    science and engineering, as well as to maintain the human resource
    necessary for continuing the discipline through the 21st century. It
    should be noted that the National Science Foundation has historically
    left support of nuclear engineering research and infrastructure to the
    DoE. Thus, our panel proposed that specific efforts of the DoE should
    focus on:
        1. Enhancing the graduate student pipeline to maintain the health
    of the discipline: This effort should be focused on providing a
    continuing supply of graduates with post-baccalaureate education and
    technical expertise that can be employed at our leading universities,
    the national laboratories and all parts of the industry; i.e.,
    providing role models for future undergraduate and graduate students.
    This requires a coordinated effort for recruitment at each level in the
    university program as well as the proper resources for graduate student
    fellowships and scholarships. Currently, the DoE and the industry have
    limited programs for these fellowships; i.e., the current program of
    $0.8 million provides fewer than 5 new doctoral fellowships every year
    for the whole nation in fission and health physics. This effort needs
    to be augmented in size and scope for our future success in the
    discipline. This is particularly important at the masters level, where
    many undergraduates from various engineering and science disciplines
    can obtain advanced training in nuclear engineering. The panel
    recommended that the DoE consider the more historic Atomic Energy
    Commission traineeship model for doctoral fellowships and masters
    scholarships in nuclear science and engineering at a steady-state level
    of $5 million per year; i.e., awarding a steady-state of 20 doctoral
    fellowships each year and 40 masters scholarships.
        2. Recruiting and retaining new faculty in nuclear science and
    engineering fields: The panel recognized that nuclear engineering
    departments have had difficulties in attracting new faculty members
    into their programs. Future faculty need to see potential research
    opportunities and active research programs in their field before
    seeking an academic career. The panel recommended that a targeted
    research program for junior faculty (6 years or less from the time of
    their first academic appointment) would be of great benefit to the
    young faculty. In addition, it could benefit the nuclear engineering
    programs by demonstrating to their administrators that a program exists
    to provide new faculty the opportunity to begin their research careers.
    This ``Nuclear Engineering Junior Faculty Research Initiation Grant''
    program would be run in a manner similar to the NSF or DoD Young
    Investigators program. It would be a competitive program in support of
    DoE basic research needs in nuclear science and engineering affiliated
    with the mission-oriented goals of the nation's energy policy.
        3. Enabling and enhancing research discoveries in nuclear science
    and engineering: A science-based research program, predicated on
    involvement of these universities, should be supported. It should also
    extend to the national laboratories and the nuclear industry in peer-
    reviewed, pre-competitive research and development. To accomplish this,
    we recommend maintaining the Nuclear Engineering Education Research
    program (NEER), as well as significantly increasing the base funding
    for the NEER. Currently, this program involves a very modest investment
    in university research into basic nuclear science and engineering ($5
    million in FY2000). This program has allowed university researchers to
    be able to pursue high-risk ideas and make discoveries that can take us
    beyond our present understanding; i.e., provide the ``spark'' for
    innovation and future technologies. Since the NSF and other basic
    science programs generally believe that nuclear science and engineering
    basic research is the responsibility of the DoE mission-oriented
    office, the NEER program plays a very critical role in sustaining the
    intellectual growth and development of the discipline in our university
    research communities. The panel recommended that the NEER program funds
    be substantially increased to near $20 million per year. This program
    includes the Junior Faculty Research Initiation Grant program mentioned
    above. The panel also supported the Nuclear Energy Research Initiative
    program (NERI). The panel also recognized that this program should be
    synergistic but remain separate from the NEER program. NERI involves
    larger collaborative research and development tasks, which establishes
    a research partnership among universities, national laboratories and
    industry, and which places a larger emphasis on engineering
    applications and integrated technologies that respond to the DoE
    mission guidance.
        4. Improving the undergraduate nuclear science and engineering
    experience: The panel recognized that the undergraduate discipline will
    continue to evolve in the 21st century and this evolution will be
    different within various university programs. Nevertheless, the panel
    feels that the discipline should be preserved as a ``systems
    engineering core competency''. This belief is predicated on the need
    for our graduates to have professional training in nuclear fission
    engineering within the context of systems engineering and design. This
    may be one of the most important responsibilities of university nuclear
    engineering faculty as they reestablish the groundwork for a resurgence
    of the discipline in the future. This is a fertile area for innovation
    in which research advances can play a role in the reshaping of
    undergraduate and graduate curricula and their associated pedagogy.
    Curriculum development should be a key part of DoE resource investment
    in the future. The DoE can also partner with the NSF in this particular
    area since the NSF has historically been very active and quite
    effective in promoting improvement in undergraduate science and
    engineering education. The current program at the DoE that supports the
    core competency in ``nuclear systems engineering'' is the ``DoE/
    Industry'' Matching Grant program. This program was begun in 1991 by
    the efforts of my predecessor as chair at the University of Wisconsin.
    Over the 10 years since its inception, it has become a powerful force
    in improving the educational infrastructure for undergraduates in
    nuclear science and engineering. It is a true ``public-private''
    partnership, in which industry matches DoE contributions dollar for
    dollar, and needs to be maintained in the DoE at a level of at least $1
    million/yr. It provides flexibile funds for scholarships as well as
    infrastructure improvements for laboratories and curricular
    innovations, which are crucial for maintaining excellence of these
    educational programs.
        5. Enhancing national activity in nuclear science and engineering
    outreach. It is my personal opinion that nuclear engineering
    specifically (and probably the physical sciences in general) suffers
    from a distinct lack of understanding by the general public. One could
    contend that this is one of underlying reasons why the technology is
    viewed with uncertainty and apprehension. The panel felt that the
    university nuclear engineering programs may be in the best position to
    work with the DoE to develop an innovative approach to public outreach
    and education. Innovations in this area could have a major impact in
    regard to the image of the discipline and preserving its future human
    resource needs.

      FUTURE OF UNIVERSITY RESEARCH AND TRAINING REACTORS: RECOMMENDATIONS

        Since nuclear science and engineering is expected to be an
    important part of the research and development landscape in the 21st
    century, a lasting federal investment is needed to support this
    infrastructure at universities. University research and training
    reactors (URRs) are an important part of the nuclear engineering
    infrastructure that must be maintained. The panel felt that URRs:

       Are vital for advancement of knowledge in nuclear science
            and engineering education at the graduate level and provide
            powerful research tools for the advancement of many other
            disciplines;
       Provide undergraduate and graduate students with an
            otherwise unobtainable ``hands-on'' educational experience,
            allowing for learning about nuclear fission reactor processes,
            and understanding the interaction of radiation with matter
            (also providing for enrichment courses for professional nuclear
            engineers);
       Give the general public an opportunity through outreach
            activities to better understand and become familiar with
            nuclear processes and ionizing radiation as well as nuclear
            fission power.

        The URRs have a major impact on research and development in the
    neutron sciences and technologies, and also provide necessary
    facilities for the education of future scientists and engineers who are
    critical to sustaining the nation's technological base in a diverse
    spectrum of fields. Research work at existing URRs is responsible for
    developing new radio-pharmaceuticals for diagnosis and treatment of
    cancers, for providing structural information on new high-technology
    materials, for developing critical data on the behavior of metals,
    ceramics, polymers, and reactor coolants in radiation environments, and
    for providing critical data from neutron activation analysis to make
    advances in a variety of diverse fields (e.g., allowing archaeologists
    to date prehistoric artifacts). Most of these areas of technology are
    uniquely in the domain of nuclear research reactors and not easily
    duplicated on accelerator-based radiation sources. The facilities that
    exist or can be developed at URRs for the study of materials, trace
    element analysis, and for producing isotopes are complementary rather
    than competitive to those found at the National Laboratories. This URRs
    are located in the highly creative and multidisciplinary environment of
    the university where a diversity of students can take advantage of
    these unique resources. In their role of providing graduate education
    and training for radiation scientists, URRs exploit these benefits of
    the university and provide educational advantages that are generally
    superior to those afforded by the national user facilities. This is the
    concept for ``feeder research reactors'' that has been highly
    successful in Europe and is an important factor in propelling these
    countries into their present dominant leadership roles in the nuclear
    sciences. With adequate support of URRs, this model can also be
    implemented here to help ensure that these technologies are not
    permanently lost by the U.S.
        The URRs also have a major impact in the realm of undergraduate
    education, outreach and training. Based on U.S. data collected by the
    panel for its report to NERAC, over 1000 students are enrolled in
    courses that use these URRs annually, and over 5000 visitors tour a URR
    or are given demonstrations at a URR annually. Beyond these educational
    activities, many URRs are used for nuclear reactor operator training
    with local nuclear utilities. The panel felt that these URRs and the
    university programs that support them are unique and may be in the best
    position to work with the DoE to develop innovative approaches to
    outreach and education.
        Currently, there are twenty-eight university reactors in the U.S.
    with total annual support of about $10 million from their individual
    university budgets and over $5 million from extramural research and
    services. These university expenditures are specifically for the
    operational, safety and licensing activities of these nuclear reactors;
    i.e., staff salaries as well as materials and supplies related to
    operation. The panel has recommended a competitive peer-reviewed
    program be instituted to provide the resources above a base program,
    that are needed to revitalize URRs as a key resource at universities in
    the U.S. The panel proposed to:
        Maintain a base program for University Research and Training
    Reactors: This panel recognized that the DoE Office of Nuclear Energy
    currently has the ``University Reactor Fuel Assistance and Support'' as
    an on-going program for university research and training reactors.
    These program funds are provided for reactor refueling, reactor
    instrumentation and reactor sharing for users of these facilities
    (i.e., researchers at universities with funded research in need of
    research reactor services). These current programs serve as the minimum
    external resource base that helps maintain this educational
    infrastructure for the operation of these university research and
    training reactors. Specifically, the DoE budget lines for reactor
    replacement fuel, reactor instrumentation upgrade and reactor user
    sharing total about $4.3 million for FY2000. Note that the bulk of
    these funds are for reactor refueling costs ( $2.8 million); the
    remaining $1.5 million represents less than 10% of the total
    operational costs.
        Establish a Competitive Peer-Reviewed Program for University
    Reactors: The panel proposes that a competitive peer-reviewed program
    augment current DoE financial support for these university research and
    training reactors. This program would focus on activities beyond
    operation and would support infrastructure costs associated with
    personnel and instrumentation upgrades in support of extramurally
    funded research (e.g., from DoE NEER or NERI grants) as well as
    facility upgrades and personnel costs that involve innovative training
    and educational outreach activities. This program would provide
    additional multi-year grants for reactor facilities that are part of
    focused proposals by groups of collaborators that can emphasize
    research, training and/or educational outreach. The panel believes that
    such a program can provide the needed financial support for qualified
    university research and training reactors. These resources are for
    activities that go beyond what is needed only for base operation and
    provide a competitive arena where innovative ideas can be nurtured. The
    total program cost would be $15 million per year, which is consistent
    with the proposals to DoE by the University Working Group in 1996 and
    with previous studies dating back to the 1988 study by the National
    Resource Council. The panel suggests that this program be instituted
    incrementally in FY02 and FY03 budgets to allow for development of the
    needed DoE administration that would accompany this new activity. The
    panel recommends the following elements for this expanded DoE program
    for URR support:
    A. Key Elements of Competitive Program
        1) Multi-year funding awarded through peer-reviewed proposal
    process.
        2) Proposals encouraged for research, for education and for public
    outreach.
        3) Funding levels ranging from small outreach efforts to multi-
    university teams.
        4) URR is required to ``qualify'' before its proposal is
    considered. (Specific qualifying criteria have been proposed by the
    panel see part C).
        5) University must provide cost-sharing (auditable using NSF-like
    procedures).
    B. Suggested Guidelines to this Competitive Program
       Defined missions: The RFP would include suggestions for
            missions for research, education/training and outreach, with a
            university or university teams free to propose different
            missions.
       Base infrastructure funding: The program would allow a
            specified fraction of the budget to be used for personnel,
            instrumentation upgrades and materials and supplies related to
            the specific deliverables in the proposal. If DoE does not wish
            to directly fund such items, then the cost sharing offered by
            the universities could be used. Overhead (indirect costs) on
            the contracts could also help the university with base and
            infrastructure funding.
       Funding period: One to five years. (5 years would be needed
            for a ``center'', but shorter periods should not be discouraged
            for other projects.)
       Level of cost sharing: This needs to be consistent with
            other federal agencies; e.g., NSF and NIH require a 33-50% cost
            share (with a possible maximum instituted, so that universities
            can afford to submit large proposals).
       Funding level: The panel proposed funding to ramp up to
            $15M/yr (just for this program, without reducing other NEST
            programs). This funding level was taken from the URR Center of
            Excellence proposal (1996). It is similar to what was
            originally proposed in the NRC study in 1988 and is also
            consistent with general comments in the DoE 1994 report and the
            proposal by the University Working Group in 1996. The panel
            feels this is a minimum level of investment based on the basic
            principle that annual infrastructure investments of about 5-10%
            of the initial capital investment is needed to maintain a level
            of competence; note that the capital investment for these URRs
            is well over $250 million. The panel realizes this is a
            preliminary estimate and may need to be increased as better
            data become available once the competitive program is
            operating.
    C. Proposed Qualifying Criteria for University Nuclear Reactors
        The panel would propose the following criteria to qualify
    university nuclear reactors for research support from the Department of
    Energy Office of Nuclear Energy under the proposed competitive peer-
    reviewed program for research, training and outreach.

       The university reactor must demonstrate an acceptable
            operational and safety record over the last five years.
       The university reactor must demonstrate that it contributes
            to the educational infrastructure of a suitable degree
            program(s).
       The university reactor must demonstrate that substantial
            financial support comes from the university and will continue
            through at least the program support period.
       The university reactor must have a commitment from the
            appropriate university official for its continued operation
            through at least the program support period.
    improvement of university--doe laboratory interactions: recommendations
        The first of the current DoE National Laboratories were created,
    staffed and managed by university personnel following World War II.
    Thus, these laboratories began with intimate ties to universities, and
    substantial interactions have continued between the laboratory and
    university communities. The panel surveyed several DoE Laboratories and
    the survey indicated unanimous agreement that university interactions
    are beneficial and should be expanded.
        There are a host of ways the laboratories and universities can
    continue to build upon their interactions, including collaboration on
    papers, student internships at labs, research subcontracts from labs to
    universities, large collaborative research projects (for example funded
    by NERI program), and many others. All of these are important and
    beneficial; however, the panel believes the most important interaction
    mechanism is to increase the engagement of faculty members (and thus
    their graduate students) in funded research that is of programmatic
    interest to the laboratories. Research funding in line with laboratory
    objectives is by far the best way to attract both faculty and
    laboratory interest; programmatic relevance ensures short-term benefit
    to the lab and produces graduates that are interested and expert in
    laboratory problems (which is a long-term benefit).
        The panel examined several specific approaches that could increase
    collaboration between universities and laboratories. Some of these
    strategies have a common theme that would require exercising some level
    of central authority within the DoE.

       Increased Nuclear Engineering and Health Physics
            Fellowships: These are an excellent means of interacting with
            top graduate students, since these students are required to
            spend an intern period at the DoE national laboratories. And
            this is directly in accord with our proposed increase of
            graduate student fellowships.
       Increased personnel exchanges between Laboratories and
            Universities: Laboratories could create programs such as a
            ``Distinguished Visitor Program,'' under which university
            faculty could spend extended periods (e.g. sabbaticals) at
            laboratories. Laboratories could encourage its staff to give
            seminars and/or spend time as visiting faculty at universities.
       Designated University Awards: Universities provide largely
            untapped resources that could participate more fully in DoE
            applied and basic research programs. To take more advantage of
            this resource, DoE could negotiate a financial incentive for
            subcontracting a certain percentage of the laboratory's budget
            to universities. Laboratory management could also require
            individual programs (or divisions or directorates) to
            subcontract a set amount or percentage to universities each
            year.
        senate bill 242: university nuclear science and engineering act
        I have read Senate Bill 242 in detail and am very supportive of its
    elements. It addresses all of the issues that I have outlined
    previously. It realistically augments the current DoE University
    Programs budget in a phased-fashion, and it is responsive to the needs
    of assuring a future that nurtures the human resources nuclear energy
    will need. Let me conclude my comments in support of S. 242 with two
    major points that I would like to emphasize:

       An important aspect of Senate Bill 242 is that it provides
            for the enhancement of the human resource that nuclear science
            and engineering will need to continue to contribute to the
            common good of this nation. This ``people-focus'' supports all
            aspects of nuclear science and engineering as the industry
            decides to pursue additional nuclear electrical generating
            capacity or the medical community uses new advances in medical
            imaging and cancer treatments.
       In addition, Senate Bill 242 provides the infrastructure
            support for the necessary facilities for the education of
            future scientists and engineers. This support will provide
            undergraduates and graduate students with an otherwise
            unobtainable ``hands-on'' educational experience, allowing for
            understanding of nuclear fission-reactor processes and
            interaction of radiation with matter.

        Therefore, I fully support the authorization of $30 million in
    FY2002 with increased funding in a phased manner to $64 million by FY
    2006.
          senate bill 472: support for continued use of nuclear energy
        I have also read Senate Bill 472 in some detail and although I do
    not consider myself an expert in all of the aspects of this omnibus
    bill, I am quite supportive of its general approach and many of its
    specific recommendations, as well as the funding needed to accomplish
    these tasks. Let me provide comments on significant items:
    1. Support for Nuclear Energy
        a. Renew Price-Anderson: This legislation provides the essential
    liability coverage for nuclear activities. It has been and continues to
    be a rational and reasonable way to assure for compensation from
    accidents if needed.
        b. Assistant Secretary for Nuclear Energy: This is necessary since
    it elevates the Director for Nuclear Energy to a position held in prior
    administrations.
        c. Nuclear Engineering Educational Support: I have commented on
    this.
        d. Nuclear Engineering Efficiency Improvement: This provision would
    provide funding for incentives to utilities to make capital investments
    that would increase the electricity output of nuclear power plants. In
    this time of rising energy costs and electricity shortages, such a
    provision provides a needed mechanism to rapidly provide more
    electrical power with this economic, safe and reliable technology.
        e. Nuclear Generation Study provides a status of new and re-
    licensed plants.
    2. Encourage New Nuclear Power Plant Construction
        a. Completion of Unfinished Plants: This is a mechanism that can
    provide for the industry to bring unfinished nuclear power plants on-
    line by the end of 2004, following a careful review of their viability
    and reliability.
        b. Generation IV Reactor Program: This is an important program that
    will allow the DoE to develop a program plan with the needed industrial
    input and guidance. The program provides a roadmap for new evolutionary
    plant designs, research and development to supply future electrical
    energy needs, with improved economics, safety and sustainability.
        c. Early-site Permit Demonstration Program: This is an interesting
    concept to provide a ``bank'' of locations that are pre-approved by the
    Nuclear Regulatory Commission for nuclear power plant sites. This has
    the potential of taking several years off of the construction time for
    nuclear power plants and making them more economic.
    3. Assure a Level Playing Field for Nuclear Power
        There are numerous improvements being proposed that will improve
    the competitive aspects of nuclear power production. I would endorse
    many of these; e.g., qualification for environmentally preferable
    purchase programs, consumer information disclosure standards, no
    discrimination for international programs.
    4. Improve Nuclear Regulatory Commission Regulations
        Once again there are numerous improvements that need to be
    implemented, which will not compromise the general public health and
    safety, but are needed for process enhancement. I would also endorse
    many of these; e.g., remove duplicative antitrust review requirements,
    simplify hearings for licensing actions, give the NRC authority over
    decommissioning obligations of non-licensees.
    5. Development of Nuclear Waste Solutions
        The stalemate over disposal of high-level waste that has existed
    for over three decades is totally unacceptable. This is one of the most
    important areas that require legislative attention to assure continued
    use of nuclear power in the 21st century. It is my view that this is
    primarily a political rather a technical issue. To quote a former
    governor and a former Secretary of the Interior, Bruce Babbitt, the
    disposal of nuclear waste is ``almost entirely a political issue. There
    is not much left to quarrel about'' at Yucca Mountain, Nevada, the site
    of the proposed repository for spent nuclear fuel. The former Secretary
    of the Interior called the site ``safe and solid'' at a recent Nuclear
    Energy Assembly Conference on May 22nd, 2001. Former Secretary Babbitt
    said that the political nature of waste disposal ``stems from the
    inability to appreciate the reality of geologic time and how stable
    land forms are over relatively short times geologically speaking.'' I
    am also aware that the proposed Yucca Mountain repository siting
    decision is being delayed due to political reasons. Therefore, I fully
    support the concept of an Office of Spent Nuclear Fuel Research as a
    backup. This proposal has as its charter, the development of a national
    strategy for spent fuel. This was part of the Title III interim storage
    bill proposed during the 106th Congress.
        In summary, the omnibus Senate Bill 472 has my full support.

        The Chairman. Thank you all very much. I think all the
    testimony has been very useful. Let me just ask a very few
    questions here and then we have one additional panel. Dr.
    Holdren, let me start with you. One of the things you focused
    on in this 1997 PCAST report was, or at least one of the things
    you raised there, was the role of government in commercializing
    these high public benefit energy technologies. Could you
    elaborate a little bit as to what you see as the appropriate
    governmental role in this?
        Dr. Holdren. Yes, I can do that, although to do so I will
    have to go somewhat beyond what the PCAST study 1997 itself
    addressed because our mandate was to look at research and
    development and not at demonstration and deployment. We went a
    little bit beyond that mandate in suggesting that in cases
    where there is a very high public benefit associated with a new
    technology, the Government's investment in research and
    development should be added to by an investment at the
    demonstration stage and perhaps in efforts to buy down the
    costs of the new technology to the point of commercial
    competitiveness with the justification that the high public
    benefit not realized in private returns justifies the
    Government's moving beyond R&D. In those kinds of cases, one
    could imagine, for example, a situation where you have a new
    technology whose cost would fall rapidly if you could get the
    total quantity of production up a bit. But there is this
    barrier to be overcome. The production will not rise under
    market conditions if the initial price is too high to compete
    with what else is out there. So, you get the Government
    involved, and there are various ways to do this, in subsidizing
    the incremental cost required to get production to the level
    where the new technology becomes competitive, and again the
    reason for it is the public benefit. For example, in reduced
    emissions of air pollutants, greenhouse gases, reduced
    dependence on foreign oil, and so on and so forth, a wide array
    of public benefits that might justify that sort of involvement.
        The second PCAST study in 1999 on international cooperation
    looked at this in more detail because it did have a mandate to
    look beyond R&D toward demonstration and deployment. It did
    look in more detail at specific mechanisms for doing this and
    also looked in more detail at the circumstances under which it
    would make sense.
        The Chairman. Let me ask Dr. Moniz a question that I asked
    Mr. Blake a little bit earlier. This whole problem of
    measuring, or metrics, in the expenditure of R&D funds--what do
    you believe the pitfalls are in going down that road? I mean I
    am concerned, I guess, that building too many metrics into this
    system can cause us to make some very shortsighted decisions,
    and I would just be interested in any comments you have as to
    how we avoid that.
        Dr. Moniz. Well, Mr. Chairman, I think the physicist's
    response is always, to quote Einstein, ``not everything that
    can be counted counts and not everything that counts can be
    counted.'' And I think that does apply to much of the research
    enterprise. Indeed, in 1996, I would just observe when I was
    serving at OSTP we did a multi-agency study of metrics in the
    GPRA context for basic research. And I think that report raises
    many of the cautions that you elude to. Indeed, it is complex
    analysis involving, as Bob said, both retrospective and
    prospective issues but when all was said and done, certainly
    especially in the research phase, we emphasized that there was
    simply no replacement for forums of merit review and peer based
    review to evaluate particularly prospective investments.
        Now, having said that, we certainly do not argue that R&D
    investments are somehow immune from accountability, from using
    measures. I believe the Academy report, for example, the matrix
    that Bob referred to, is the kind of approach which clearly has
    some subjective judgments in filling in the boxes which is
    very, very important and a way to go. It is also a case that
    when one takes a sensible system, and I will just finish with
    one example, that one has in some sense a mixed kind of
    approach appropriate to the job. It is not one size fits all.
    Let's take for example a major investment, and I will just pick
    an example. Let's say, at Fermilab to explore the Higgs boson.
    There are clearly very quantitative metrics that should be
    applied to the issue of building the facility on time, on
    schedule, on costs, et cetera. But those same metrics cannot
    sensibly be applied to the actual research outcome because the
    outcomes themselves are of course what you are trying to learn.
    So, the issue would be, and I would refer back to, and I would
    be happy to explain, at some other time, go into more detail,
    in the 1996 report together with the National Academy report. I
    believe it maps out what is fundamentally a sensible way of
    evaluating research programs and looking at progress.
        The Chairman. Well, I could ask questions here for several
    more hours and I am sure you folks could educate me on a lot of
    things, but let me just stop with that. And thank you very much
    for coming. We will take your testimony and do our best to
    learn from it and incorporate the lessons into what we wind up
    legislating here. Thank you very much.
        Let's take a 5-minute break and then we will do the third
    panel.
        [Recess.]
        The Chairman. If we go ahead with the third panel. We have
    three witnesses here in this third and last panel on
    reprocessing of nuclear fuel. First, Dr. Tom Cochran who is a
    senior scientist and nuclear program director with the NRDC
    here in Washington. Mr. Jacques Bouchard who is with the French
    Atomic Energy Commission. Thank you very much for being here.
    And Dr. Greg Choppin, who is with the Department of Chemistry
    at Florida State University in Tallahassee. Thank you very much
    for being here. Dr. Cochran, why don't you go ahead. And the
    full statement of each of you will be included in the record.
    If you could take just 5 or 6 minutes and summarize your main
    points, we would appreciate it.

       STATEMENT OF THOMAS B. COCHRAN, PH.D., DIRECTOR, NUCLEAR
               PROGRAM NATURAL RESOURCES DEFENSE COUNCIL

        Dr. Cochran. Thank you, Mr. Chairman. My name is Thomas B.
    Cochran. I am director of nuclear program at the Natural
    Resources Defense Council. I am a member of the Department of
    Energy's Nuclear Energy Research Advisory Committee but I am
    testifying today on behalf of NRDC and not the advisory
    committee. I am pleased to be here today to testify about U.S.
    nuclear energy policy and proposals for funding, research and
    development by the Department of Energy's office of nuclear
    energy. My testimony will focus on research and development of
    advanced fuel processing technologies and whether the United
    States should abandon its long-standing nonproliferation policy
    and promote the development and deployment of pyroprocessing
    and transmutation technologies.
        Let me begin with a few general observations. Civilian
    nuclear activities have directly and indirectly contributed to
    the spread of nuclear weapons. In my written testimony I've
    given you several examples. Several non-weapons States have
    pursued nuclear weapons primarily through the plutonium
    production and reprocessing route. And again in my written
    statement I've given you the example of Taiwan's covert nuclear
    weapons program that was conducted under the cloak of its
    civilian nuclear energy program. Unfortunately, the nuclear
    nonproliferation threat stemming from civilian nuclear power
    technologies is still alive today as evidenced by Iran's
    pursuit of a nuclear weapons option by purchasing nuclear
    expertise and dual use technology from Russia.
        Because of the real proliferation risk associated with the
    separation of plutonium by reprocessing, the U.S. Government
    has long taken the position that it does not encourage the
    civilian use of plutonium and accordingly does not itself
    engage in commercial plutonium processing. The United States
    has also recognized as far back as the Ford administration, and
    largely because of the work of Mr. Fri who was on the previous
    panel, that the closed nuclear fuel cycle with reprocessing in
    plutonium separation and recycling is uneconomical and presents
    an unacceptable proliferation risk.
        Unfortunately, while the United States has actively sought
    to limit reprocessing in some regions of proliferation concern,
    it regrettably has taken the position that it will honor its
    existing commitments with regard to the use of plutonium in
    civilian nuclear programs in Western Europe and Japan, thus
    establishing an unworkable double standard in dealing with
    global nuclear weapons proliferation and leading to the
    stockpiling of huge quantities of weapons usable plutonium in
    Western Europe and Japan. Large reprocessing plants, plutonium
    stockpiles and advanced research on new fuel processing
    technologies in non-weapons States provide an ideal cover for
    nascent nuclear weapons States to pursue a nuclear weapons
    option while claiming their programs are entirely for peaceful
    purposes. Advanced reprocessing research even in weapons States
    provides the necessary justification for the nascent nuclear
    weapons States to pursue similar research ostensibly for
    peaceful purposes.
        The Bush administration's national energy policy has
    recommended that the United States should reexamine its
    policies to allow for research and development and deployment
    of fuel conditioning or reprocessing technologies such as
    pyroprocessing.
        In my view, implementation of the Bush plan and the
    supporting legislative proposals would be a grave mistake. Let
    me explain why.
        First, reprocessing light water reactor spent fuel is
    uneconomical today and will remain so for the foreseeable
    future. The issue then is whether there are new reactor
    concepts using new fuel cycles that are cheaper and more
    proliferation resistant than the light water reactor once-
    through fuel cycle. The simple answer is that there are no
    known fuel cycles that are cheaper, and no known fuel cycles
    that rely on reprocessing that are more proliferation resistant
    than the once-through fuel cycle. In fact, neither
    pyroprocessing nor any other reprocessing scheme proposed to
    date is cleaner, less waste intensive or more proliferation
    resistant than the once-through fuel cycle, that is, direct
    disposal of spent fuel, the practice planned for use in the
    United States today.
        I will not go into the history of the pyroprocessing
    program. It is in my written remarks. The claim that
    pyroprocessing, which is an electro-refining technique, the
    claim that it is proliferation resistant is misleading.
    Pyroprocessing is less proliferation resistant than the once-
    through fuel cycle in use today. It is more proliferation
    resistant than aqueous reprocessing, which the United States
    abandoned commercially more than 20 years ago because it was
    uneconomical and because it carries a high proliferation risk.
    Pyroprocessing appears less risky than aqueous reprocessing
    because the plutonium is not completely separated from other
    radioactive actinides and therefore an additional processing
    step is needed to obtain weapons-usable plutonium. This would
    make it very difficult for terrorists to steal the plutonium
    from a pyroprocessing plant or the Integral Fast Reactor fuel
    cycle which relied on pyroprocessing.
        However, the most serious nonproliferation threat
    associated with reprocessing technologies is not the terrorist
    threat, but the so-called State threat. The Integral Fast
    Reactor concept and the pyroprocessing technique that it
    utilized offers little in the way of reducing this State
    threat. If pyroprocessing facilities are located in non-weapons
    States, these States will have cadres of experts trained in
    plutonium chemistry and metallurgy along with hot cells and
    other facilities that can be readily used for the recovery of
    plutonium for weapons. In this regard, pyroprocessing cannot
    meet the so-called timely warning international safeguards
    criterion.
        In one respect, pyroprocessing is actually worse than
    aqueous reprocessing in terms of their respective proliferation
    risks. Pyroprocessing involves access to technologies for
    working with plutonium in metallic form, the form that is used
    for weapons. What is more, engaging in pyroprocessing research
    now will encourage or provide an excuse for non-weapons States
    to do the same, thus giving these States yet another avenue to
    get closer to a weapons option without declaring their true
    intention. No one would want to see Iran engaging in
    pyroprocessing research associated with the Bushehr reactor now
    under construction.
        Another problem with pyroprocessing, and this is the
    Achilles heel, is that there are no known fuel cycles that rely
    on pyroprocessing that show any promise of being economical in
    the foreseeable future. For the United States to pursue an
    expensive pyroprocessing R&D effort at this stage is simply a
    waste of taxpayers money.
        Now, I wish to turn to the issue of accelerator
    transmutation of waste.
        The Chairman. Could you do that fairly quickly for us,
    please?
        Dr. Cochran. Yes. The argument for transmutation of waste
    is that you will select out certain isotopes, burn them in
    accelerators or fast reactors, and thereby reduce the long-term
    health effects from radioactive release from a geologic
    repository and reduce the uncertainty in the long-term dose
    assessment as well.
        This proposal sounds worthy in theory but in practice, it
    is a ridiculous proposal. First, it is extremely expensive. The
    Department of Energy estimated that the life cycle cost would
    be something on the order of $280 billion. Secondly, even if
    you did not go back and process all of the existing spent fuel
    but say only process future spent fuel, you would only reduce
    the dose from the geologic repository, for example, Yucca
    Mountain, by a factor of 2. So, you would be paying hundreds of
    billions of dollars to reduce the dose tens of thousands or
    hundreds of thousand of years from now by a factor of 2. The
    argument is even worse in that there is not a shred of evidence
    in any of the accelerated transmutation of waste proposals that
    the collective dose reductions associated with the geological
    repository will in fact be less than the collective dose from
    operating all of the reprocessing facilities in transmutation
    facilities. So, in fact you would be spending tens to hundreds
    of billions of dollars most likely to give people more cancer
    rather than less.
        In closing, NRDC does not object to continued support of
    university nuclear research programs or the Department of
    Energy's Nuclear Energy Research Initiative or the study of
    Generation IV reactors and fuel technologies. Research on
    advanced fuel cycle technologies should be limited to paper
    studies until there is clear evidence that the new technology
    is cheaper, inherently safe and more proliferation resistant
    than the light water reactor operating on the once through fuel
    cycle. At this time, Congress should reject any legislative
    proposals to fund dual use technologies such as power
    processing and accelerated transmutation of waste beyond such
    paper studies. Thank you, Mr. Chairman.
        [The prepared statement of Dr. Cochran follows:]

       Prepared Statement of Thomas B. Cochran, Ph.D., Director, Nuclear
                   Program Natural Resources Defense Council

        My name is Thomas B. Cochran. I am the director of the Nuclear
    Program and hold the Wade Greene Chair for Nuclear Policy at the
    Natural Resources Defense Council (NRDC). I am a member of the
    Department of Energy's (DOE's) Nuclear Energy Research Advisory
    Committee (NERAC), but I am testifying today on behalf of NRDC, not
    NERAC. I am a fellow of the American Physical Society and the American
    Association for the Advancement of Science. I received my Ph.D. in
    nuclear physics from Vanderbilt University, where I also did my Masters
    research thesis in radiation chemistry. I was an AEC Health Physics
    Fellow at Vanderbilt and spent one month training at a pilot nuclear
    fuel reprocessing plant at Oak Ridge National Laboratory. I am the
    author of The Liquid Metal Fast Breeder Reactor: An Environmental and
    Economic Critique and co-author of several books on nuclear weapons and
    the nuclear weapons programs of the United States and the Soviet Union/
    Russia.
        I am pleased to be here today to testify about U.S. nuclear energy
    policy and proposals for funding research and development by the DOE'
    Office of Nuclear Energy. My testimony will focus on research and
    development of advanced fuel processing technologies and whether the
    United States should abandon its longstanding non-proliferation policy
    and promote the development and deployment of pyroprocessing and
    transmutation technologies. Let me begin with a few general
    observations.
        Civilian nuclear activities have directly and indirectly
    contributed to the spread of nuclear weapons. India's first nuclear
    weapons test in 1974, for example, used plutonium produced in a
    Canadian-supplied research reactor using U.S.-supplied heavy water as a
    moderator, and the plutonium was separated in a reprocessing plant
    built from blueprints supplied by an American firm, Vitro
    International. This plant was nominally part of India's civilian
    breeder reactor research and development program. Between 1955 and
    1974, Argonne and other DOE national laboratories trained some 1100
    Indian scientists and engineers in nuclear fuel cycle technology,
    including techniques for plutonium separation. Some nations have
    established nominally civilian nuclear programs as a pretext to acquire
    technologies for military programs or have acquired materials,
    equipment, technologies or technical personnel from the civilian sector
    for their nuclear weapons programs. Israel's plutonium production
    reactor and reprocessing plant at Dimona were provided by France
    ostensibly for civilian purposes, but were actually used for military
    purposes.
        Several non-weapon states have pursued nuclear weapons primarily
    through the plutonium production and reprocessing route. For example,
    Taiwan's covert nuclear weapons program was conducted under the cloak
    of its civilian nuclear program. Under intense pressure from the United
    States Taiwan's program was shut down in the 1970s, restarted in the
    1980s, and shut down a second time under pressure by the United States.
    In the 1970s the United States had provided a small amount of plutonium
    to Taiwan for research purposes and some was fabricated into metal in
    what was claimed to be a civilian facility. Evidence strongly suggested
    that Taiwan planned to divert the plutonium from its safeguarded
    facility for weapons research. Subsequently, Taiwan provided assurances
    to the United States that it would not reprocess, dismantled its
    reprocessing research facility and sent the separated plutonium back to
    the United States. Similarly, South Korea began a secret nuclear
    weapons program based on plutonium production and reprocessing. Under
    pressure from the United States South Korea agreed to end its program.
        Unfortunately, the nuclear nonproliferation threat stemming from
    civilian nuclear power technologies is still alive today, as evidenced
    by Iran's pursuit of a nuclear weapons option by purchasing nuclear
    expertise and dual-use technology from Russia.
        Because of the very real proliferation risks associated with the
    separation of plutonium by reprocessing, the United States government
    has long taken the position that it does not ``encourage the civil use
    of plutonium and accordingly, does not itself engage in plutonium
    processing.'' The United States has also recognized as far back as the
    Ford Administration that the closed nuclear fuel cycle with
    reprocessing and plutonium separation and recycling, is uneconomical
    and presents unacceptable proliferation risks. In fact it was the Ford
    Administration, not the Carter Administration, which stopped commercial
    reprocessing in the United States by refusing to subsidize the
    completion of the Barnwell reprocessing plant in South Carolina. For
    existing light water reactors the closed fuel cycle has been, continues
    to be, and in the foreseeable future is projected to be more expensive
    than ``once-through'' utilization followed by direct disposal of spent
    fuel.
        Unfortunately, while the United States has actively sought to limit
    reprocessing in some regions of proliferation concern, it regrettably
    has taken the position that it will ``honor its existing commitments
    regarding the use of plutonium in civil nuclear programs in Western
    Europe and Japan,'' \1\ thus establishing an unworkable double standard
    in dealing with global nuclear weapons proliferation and leading to the
    stockpiling of huge quantities of weapon-usable plutonium in Western
    Europe and Japan.
    ---------------------------------------------------------------------------
        \1\ White House National Policy Statement of September 1993.
    ---------------------------------------------------------------------------
        Large reprocessing plants, plutonium stockpiles and advanced
    research on new fuel processing technologies in non-weapon states
    provide an ideal cover for nascent nuclear weapon states to pursue a
    nuclear weapons option while claiming their programs are entirely for
    peaceful purposes. Advanced reprocessing research, even in weapon
    states, provides the necessary justification for nascent nuclear weapon
    states to pursue similar research ostensibly for peaceful purposes. It
    is primarily for these reasons that NRDC believes the better course is
    to oppose all commercial use of nuclear weapon-usable materials,
    including separated plutonium and highly enriched uranium, and oppose
    the research, development and commercialization of nuclear fuel
    reprocessing technologies.
        The Bush Administration's National Energy Policy has recommended
    that ``"the United States should reexamine its policies to allow for
    research, development and deployment of fuel conditioning methods
    [i.e., reprocessing] (such as pyroprocessing) that reduce waste streams
    and enhance proliferation resistance,'' and ``[t]he United States
    should also consider technologies, in collaboration with international
    partners with highly developed fuel cycles and a record of close
    cooperation, to develop reprocessing and fuel treatment technologies
    that are cleaner, more efficient, less waste intensive, and more
    proliferation resistant.'' Some of the legislative proposals being
    considered by the Senate are designed to implement the Bush
    Administration proposal. In my view implementation of the Bush plan and
    these legislative proposals would be a grave mistake. Let me explain
    why.
        First, as noted above, reprocessing light water reactor spent fuel
    is uneconomical today and will remain so for the foreseeable future.
    The issue then is whether there are new reactor concepts using new fuel
    cycles that are cheaper and more proliferation resistant than the light
    water reactor once-through fuel cycle. The simple answer is that there
    are no known fuel cycles that are cheaper, and no known fuel cycles
    that rely on reprocessing that are more proliferation resistant, than
    the once through fuel cycle. In fact, neither pyroprocessing nor any
    other reprocessing scheme proposed to date is cleaner, less waste-
    intensive or more proliferation-resistant than the once-through fuel
    cycle, i.e., direct disposal of spent fuel, the practice planned for
    use in the United States today.
        Why is there so much interest in pyroprocessing in the United
    States? Pyroprocessing is an outgrowth of the failed Liquid Metal Fast
    Breeder Reactor (LMFBR) program. After the Clinch River Breeder Reactor
    Demonstration Reactor was cancelled in 1983 in response to criticisms
    that the Liquid Metal Fast Breeder Reactor fuel cycle would have
    produced huge quantities of separated plutonium and posed a significant
    proliferation risk, Argonne National Laboratory began promoting the
    Integral Fast Reactor (IFR) concept. The IFR concept relied on
    pyroprocessing, an electro-refining technique, instead of aqueous
    reprocessing, the traditional method for separating plutonium from
    spent fuel. Also the IFR concept envisioned that a pryroprocessing
    facility would be located at each fast reactor site. The IFR concept,
    like its LMFBR predecessor is grossly uneconomical. When IFR R&D was
    terminated, the proponents of pryprocessing used the excuse that this
    was the best methodology for processing and disposing of EBR-II spent
    fuel. Now that this program has run its course Argonne and Argonne-West
    are seeking additional Congressional funding to preserve their program
    by suggesting that pryroprocessing R&D could be continued for some
    illusory ``proliferation-resistance'' benefit.
        The claim that pyroprocessing is ``proliferation resistant'' is
    misleading. Pyroprocessing is not more proliferation resistant than the
    once-through fuel cycle in use today. It is more proliferation
    resistant than aqueous reprocessing, which we abandoned more than 20
    years ago because it was uneconomical and because it carried a high
    proliferation risk. Pyroprocessing appears less risky than aqueous
    reprocessing because the plutonium is not completely separated from
    other radioactive actinides and therefore an additional processing step
    is needed to obtain weapon-usable plutonium. This would make it very
    difficult for terrorists to steal the plutonium from the IFR fuel
    cycle. However, the most serious nonproliferation threat associated
    with reprocessing technologies is not the terrorist threat, but the so-
    called ``state threat.'' The IFR concept and the pyroprocessing
    technique offer little in the way of reducing this threat. If
    pyroprocessing facilities are located in non-weapon states, these
    states will have cadres of experts trained in plutonium chemistry and
    metallurgy along with hot cells and other facilities that can be
    readily used for the recovery of plutonium for weapons. In this regard
    pyroprocessing cannot meet the so-called ``timely warning''
    international safeguards criterion.
        In one respect pyroprocessing is actually worse than aqueous
    reprocessing in terms of their respective proliferation risks.
    Pyroprocessing involves access to technologies for working with
    plutonium in metallic form, the form most often used for weapons.
        What is more, engaging in pryroprocessing research now will
    encourage or provide an excuse for non-weapons states to do the same,
    thus giving these states yet another avenue to get close to a weapon
    option without declaring their true intention. No one would want to see
    Iran engaging in pyroprocessing research associated with the Bushehr
    reactor now under construction.
        Another problem with pyroprocessing is that there are no known fuel
    cycles that rely on pyroprocessing that show any promise of being
    economical in the foreseeable future. For the United States to pursue
    an expensive pyroprocessing R&D effort at this stage is simply a waste
    of the taxpayers money.
        In sum, pyroprocessing R&D is a waste of money and an unnecessary
    proliferation risk. It is being promoted by entrenched interests that
    have lived off the taxpayer for decades and are now engaged in a last
    ditch effort to preserve their existence without substantive
    justification.
        I now wish to turn to the issue of accelerator transmutation of
    [nuclear] waste (ATW). This program has been combined with accelerator
    production of tritium, a proposal to develop a backup method for
    producing tritium, under a budget category called ``Advanced
    Accelerator Applications.'' The argument for transmutation of waste is
    that by reprocessing spent fuel, separating out selected isotopes and
    transmute these isotopes with accelerators and/or fast reactors, the
    long-term health effects from radioactivity released from a geologic
    repository can be reduced and the uncertainty in the long-term dose
    assessment would also be reduced. The proposal sounds worthy in theory,
    but in terms of practicality it is a ridiculous proposal. First, to
    have any significant impact on the first geologic repository, all the
    existing spent fuel would have to be reprocessed. This is such an
    extremely expensive proposition that it simply not credible. DOE
    estimated the life-cycle cost of the ATW program at approximately $280
    billion! \2\
    ---------------------------------------------------------------------------
        \2\ DOE, ``A Roadmap for Developing Accelerator Transmutation of
    Waste (ATW) Technology,'' October 1999, p. E-2.
    ---------------------------------------------------------------------------
        There are about 40,000 tonnes of power reactor spent fuel spent
    fuel in storage in the United States. Over the future lifetime of
    existing reactors another 40,000 tonnes or so will be generated. Even
    if only the future waste were transmuted, the theoretical impact at the
    geologic repository--at Yucca Mountain if it is licensed--would be to
    reduce the long-term dose from those isotopes transmuted only by about
    one-half. It is ridiculous to suggest that we should spend hundreds of
    billions of dollars today to reduce the radiation dose to people living
    tens to hundreds of thousands of years from now by a factor of two or
    less.
        It the arguments get even worse. There is not a shred of evidence
    in any of the ATW proposals that the collective dose reductions
    associated with the geologic repository, assuming ATW is implemented,
    will be less than the collective dose from operating the reprocessing
    facilities and the transmutation facilities. In fact everything we know
    about these facilities today suggests the opposite--ATW would result in
    a higher collective radiation dose to people than they would receive if
    ATW were not implemented. We should not spend hundreds of billions of
    dollars to give more people cancer. Finally, ATW provides yet another
    cover for non-weapon states to engage in reprocessing and the study of
    plutonium and actinide chemistry and metallurgy. It is a serious
    proliferation risk.
        With regard to backup tritium production, this apparently is not a
    request coming from the Administration. Rather, this request comes from
    a Los Alamos accelerator group which lost a bid to produce tritium for
    weapons when the Administration decided to qualify TVA reactors for
    this purpose in the event that the pace of nuclear arms reductions lags
    behind the decay curve of tritium. If the United States needs a second
    backup method for tritium production, we should use another reactor
    alternative. Reactors have reliably produced tritium for weapons for 40
    years.
        The NRDC does not object to continued support of university nuclear
    research programs, the DOE Nuclear Energy Research Initiative (NERI),
    and the study of Generation IV reactor/fuel cycle technologies.
    Research on advanced fuel cycle technologies should be limited to paper
    studies until there is clear evidence that the new technology is
    cheaper, inherently safe, and more proliferation resistant than the LWR
    operating on a once-through fuel cycle. At this time Congress should
    reject any legislative proposals to fund pyroprocessing or ATW R&D
    beyond such paper studies.

     COMMENTS ON SPECIFIC LEGISLATIVE PROPOSALS BEFORE THE 107TH CONGRESS,
                                  1ST SESSION

    S. 193 Department of Energy Advanced Scientific Computing Act.
            (Bingaman, et al.)
        The Department of Energy is already subsidizing the supercomputer
    industry through the Accelerated Strategic Computing Initiative (ASCI)
    program to the tune of some $5.2 billion for fiscal years 1992-2004. It
    should be made clear that funding under S193 should be for non-defense
    work, i.e., other than ASCI and other National Nuclear Security
    Administration (NNSA) activities, and that it should be accommodated by
    drawing down the ASCI weapons computing program to a more sensible
    level of funding. GAO has demonstrated in several reports that DOE is
    able to effectively utilize only a fraction of the new computing
    capacity it is rushing to install.
    S. 242 Department of Energy University Nuclear Science and Engineering
            Act. (Bingaman, et al.)
        I concur that university nuclear science departments are on the
    decline. Because of the wide range of nuclear activities in the United
    States, including environmental cleanup of sites contaminated by
    radioactivity, nuclear medicine and nuclear related national security
    programs, as a general matter university nuclear programs could benefit
    from federal support. Due to the lack of U.S. student interest in
    nuclear engineering, U.S. nuclear engineering departments are
    increasingly relying on foreign students to fill the student ranks in
    these departments. The Congress may wish to consider restrictions on
    nuclear training of foreign nationals, particularly in cases where the
    students are from countries that do not share U.S. nonproliferation
    policies and objectives. Consequently, I recommend that the
    undergraduate and graduate fellowships and faculty grants under this
    proposed legislation be limited to the support of U.S. citizens.
    S. 259 National Laboratories Partnership Improvement Act of 2001.
            (Bingaman, et al.)
        This legislative proposal should be rejected in that it is an
    unwarranted subsidy for small businesses that meets vague criteria,
    e.g., work that can ``support the missions of the National Laboratories
    or facilities,'' or encourage ``the exchange of scientific or
    technological expertise.''
    S. 388 National Energy Security Act of 2001. (Murkowski, et al.)
        SEC. 106. Nuclear Generation Study--An NRC report on the state of
    nuclear power would be useful. As a regulatory agency NRC at least
    should maintain the semblance of independence and not take positions
    for or against the relicensing of nuclear power plants.
        SEC. 107. Development of a National Spent Nuclear Fuel Strategy and
    Establishment of an Office of Spent Nuclear Fuel Research--This
    legislative proposal should be rejected. To a large extent this
    proposal is an unnecessary duplication of the work of the DOE Office of
    Civilian Radioactive Waste Management. There is no evidence that
    reprocessing of spent fuel is economical so there is no merit to this
    aspect of the proposed activities. Moreover, establishment of this
    office and carrying out recycle research activities would be counter to
    the nonproliferation interest of the United States for reasons given in
    my general comments above.
        SEC. 410. Nuclear Energy Research Initiative--The NERI program of
    the department is a good program and deserves the support of the
    Congress
        SEC. 411. Nuclear Energy Plant Optimization Program--Plant
    optimization is in the interest of the nuclear industry. Congress
    should not subsidize a mature industry to do what is in their economic
    interest to do without federal subsidization.
        SEC. 412. Nuclear Energy Technology Development Program--A roadmap
    to design and develop a new energy facility is premature. There is
    nothing coming out of the NERI studies or GEN IV programs that is
    commercially attractive and justifies federal support at this time.
        SEC. 420. Nuclear Energy Production Initiatives--Congress should
    not subsidize a mature industry to do what is in their economic
    interest to do without federal subsidization.
        SEC. 830. Emission Free Control Measures Under at State
    Implementation Plan--Sec. 830 offers unwarranted federal subsidies to
    nuclear power plant operators in the form of emission credits, since
    the facilities do not emit air pollution causing acid rain (sulfur
    dioxide), ozone smog (nitrogen oxide), or mercury as do many fossil
    fuel-fired power plants. Under the Clean Air Act, fossil fuel-fired
    power plants are offered economic incentives to adopt the most
    efficient pollution control measures available for sulfur dioxide and
    nitrogen oxide emissions by requiring operators to have emission
    allowances equal to the amount of pollution emitted at each fossil
    fuel-fired power plant. This section would undermine the reductions in
    acid rain and ozone smog pollution achieved under these Clean Air Act
    programs at fossil fuel-fired power plants by giving nuclear power
    plant operators emission allowances that would flood the market,
    significantly lower the value of banked allowances and discourage
    continued investment in pollution control measures at fossil fuel-fired
    power plants. This is an unjustified and damaging federal subsidy.
    S. 472 Nuclear Energy Electricity Supply Assurance Act of 2001.
            (Domenici, et al.)
    Title I--Support for Continued Use of Nuclear Energy
                Subtitle A--Price Anderson Amendments
        The Price Anderson Act should not be renewed. This is an
    unwarranted federal subsidy to a mature industry. Moreover, the
    industry and its supporters cannot have it both ways. They cannot claim
    nuclear reactors are safe, and that Generation IV reactors will be even
    safer, and then claim that Price Anderson is necessary. Asserting a
    requirement for Price Anderson coverage of supposedly ``inherently
    safer'' Generation IV reactors is disingenuous and unwarranted. The
    single criterion that will do most to insure that Generation IV designs
    are safe is for the Congress to explicitly exclude any Price Anderson
    coverage of new nuclear power plants.
                Subtitle C--Funding of Certain Department of Energy
                        Programs
        SEC. 122. Nuclear Energy Research Initiative--The NERI program of
    the department is a good program and deserves the support of the
    Congress.
        SEC. 123. Nuclear Energy Plant Optimization Program--Plant
    optimization is in the interest of the nuclear industry. Congress
    should not subsidize a mature industry to do what is in their economic
    interest to do without federal subsidization.
        SEC. 124. Uprating of Nuclear Plant Operations--Whether to increase
    the power at a nuclear power plant is a decision to be made by the
    plant owner and the Nuclear Regulatory Commission. Congress should not
    by subsidizing a mature industry to do this.
        SEC. 125. University Programs--See comments under S. 242 Department
    of Energy University Nuclear Science and Engineering Act. (Bingaman, et
    al.) above.
        SEC. 126. Prohibition of Commercial Sales of Uranium and Conversion
    Held by the Department of Energy Until 2006--This legislative proposal
    should be supported so as not to jeopardize the HEU Purchase agreement
    with Russia.
        SEC. 127. Cooperative Research and Development and Special
    Demonstration Projects for the Uranium Mining Industry--This appears to
    be a sweet heart deal for Rio Algom and possibly other uranium mining
    companies. Congress should not by subsidizing the uranium mining
    industry which has been in business in the United States for more than
    50 years.
        SEC. 128. Maintenance of a Viable Domestic Uranium Conversion
    Industry--This appears to be a sweet heart deal for Converdyn, owned by
    Honeywell and General Atomics, to make them more profitable. General
    Atomics has been surviving off of this type of special interest
    legislation for 30 years. Congress should not by subsidizing General
    Atomics or the uranium conversion industry, a mature industry.
        SEC. 129. Portsmouth Gaseous Diffusion Plant--First Congress
    privatized the domestic uranium enrichment industry and is now stepping
    in to subsidize the maintenance of the Portsmouth gaseous diffusion
    plant. This has more to do with job security than nuclear energy
    security.
        SEC. 130. Nuclear Generation Report--An NRC report on the state of
    nuclear power would be useful.
    Title II--Construction of New Nuclear Power Plants
        SEC. 203. Early Site Permit Demonstration Program--This is an
    unwarranted federal subsidy of the nuclear industry, a mature industry
        SEC. 204. Nuclear Energy Technology Study for Generation IV
    Reactors--The Generation IV studies deserve support. The primary goal
    should be to identify reactor concepts that are economically
    competitive, inherently safe and more proliferation resistant than
    light water reactors operation on a once through fuel cycle. The
    following goals should be deleted:

              (3) substantially reduce the production of high-level waste,
            . . .;
              (5) sustainable energy generation . . .
              (6), substantially improve thermal efficiency . . .

        These goals will generally conflict with, the goals related to
    economics, safety and proliferation resistance, and have no independent
    utility
    Title III--Evaluations of Nuclear Energy
        SEC. 302 offers unwarranted federal subsidies to nuclear power
    plant operators in the form of emission credits, since the facilities
    do not emit air pollution causing acid rain (sulfur dioxide), ozone
    smog (nitrogen oxide), or mercury as do many fossil fuel-fired power
    plants. Under the Clean Air Act, fossil fuel-fired power plants are
    offered economic incentives to adopt the most efficient pollution
    control measures available for sulfur dioxide and nitrogen oxide
    emissions by requiring operators to have emission allowances equal to
    the amount of pollution emitted at each fossil fuel-fired power plant.
    This section would undermine the reductions in acid rain and ozone smog
    pollution achieved under these Clean Air Act programs at fossil fuel-
    fired power plants by giving nuclear power plant operators emission
    allowances that would flood the market, significantly lower the value
    of banked allowances and discourage continued investment in pollution
    control measures at fossil fuel-fired power plants. This is an
    unjustified and damaging federal subsidy.
    Title IV--Development of National Spent Fuel Strategy
        This legislative proposal should be rejected. To a large extent
    this proposal is an unnecessary duplication of the work of the DOE
    Office of Civilian Radioactive Waste Management. There is no evidence
    that reprocessing of spent fuel is economical so there is no merit to
    this aspect of the proposed activities. Moreover, establishment of this
    office and carrying out advanced fuel recycle research activities would
    be counter to the nonproliferation interest of the United States for
    reasons given in my general comments above.
    Title V--National Accelerator Site
        There is no redeeming social merit to this legislative proposal for
    reasons given under my general remarks above.
    S. 597 Comprehensive and Balanced Energy Policy Act of 2001. (Bingaman,
            et al.)
    Title XIV--Research and Development Programs
        SEC. 1405. Enhanced Nuclear Energy Research and Development--The
    goals are very general authorization of appropriations lacks
    specificity. With respect to the goals see comments under S. 472
    Nuclear Energy Electricity Supply Assurance Act of 2001. (Domenici, et
    al.), Sec. 204 Nuclear Energy Technology Study for Generation IV
    Reactors, above.

        The Chairman. Thank you very much. Mr. Bouchard, why don't
    you go right ahead.

     STATEMENT OF JACQUES BOUCHARD, DIRECTOR, FRENCH ATOMIC ENERGY
           COMMISSION, NUCLEAR ENERGY DIVISION, PARIS, FRANCE

        Mr. Bouchard. Mr. Chairman, thank you very much for giving
    me the opportunity to testify on the important issue of
    reprocessing for the future of nuclear energy. There are few
    doubts today that nuclear fission will still play a role in the
    satisfaction of future energy needs all around the world. It is
    among the solutions that are proposed in the recent NEPD report
    and it has been mentioned by both your President and your Vice
    President and it was also an important point of the European
    Union green report issued last November as well as it is part
    of the future plans for energy in Asian countries, in
    particular Japan and China.
        The results obtained with the 400 existing nuclear reactors
    show that nuclear electricity production is today economically
    competitive and with a very low impact on the environment. The
    safety records for the last 15 years are most satisfactory. The
    only problem that remains a real difficulty in some countries,
    France in particular, is the management of highly radioactive
    wastes. For most of the people, the actual concern is the long
    term behavior of long lived radioactive elements. In this
    respect, reprocessing of spent fuels is a key point as it
    allows a strong reduction of both the volume and the long term
    radio toxicity of wastes.
        Historically, reprocessing of spent fuels, followed by
    recycling of valuable materials, that means uranium and
    plutonium, was intended to increase the use of natural
    resources. It was part of a scheme which included breeders in
    order to extract most of the energy contained in the natural
    uranium. That remains a clear objective for the future. With
    existing light water reactors, we burn only 1 percent of the
    natural uranium and we let aside 99 percent either in
    provisional storage or in waste disposal. If we don't improve
    the situation, with increasing energy needs, we shall exhaust
    in a few decades the uranium resources, at least those which
    can be recovered at a reasonable price. Thus, reprocessing is a
    cornerstone for satisfying future energy needs.
        In shorter terms, it is also a key point for waste
    management. In any other activity, a good waste management
    policy includes selection of various types of wastes, recycling
    of what can be reused and disposal solutions adapted for each
    kind of product. Nuclear wastes should not be an exception to
    this basic rule.
        For France, we consider that nuclear spent fuel is not even
    a waste as it still contains a huge amount of energy valuable
    products. The way we treat it at the output of the reactor is
    of major importance for the waste management policy. With
    present technologies, the fuel unloaded from reactors still
    contains 95 percent of uranium and 1 percent of plutonium and
    it contains also four percent of actual wastes, fission
    products and minor actinides.
        Reprocessing allows us to separate uranium and plutonium
    from the actual wastes and then, with the vitrification
    process, to put these wastes in a robust containment for long
    term storage or final disposal. It is basically a wise policy
    for waste management. The main argument often opposed to this
    policy has been that by extracting the plutonium, we could open
    various possibilities of diversion and thus we may create a
    weakness in the nonproliferation policy. Let me try to bring
    some consideration in this discussion.
        First, we are certainly not underestimating the risk of
    proliferation and we're fully sustaining the various measures
    which are taken on an international basis to try to avoid this
    risk. The plutonium coming from light water reactors, a large
    majority of existing production facilities, is not at all
    suitable for nuclear weapons, but we agree on the fact that we
    cannot completely exclude a wrong use of it, even if it will be
    much more difficult than other proliferation routes. A
    reasonable way to limit the risk, while taking benefit of
    reprocessing, is to burn the plutonium as soon as possible
    after extracting it from spent fuels. It is what we are doing
    in France. The plutonium extracted at La Hauge is used to
    fabricate MOX fuels and we have presently 20
    reactors loaded partially with MOX fuel. That means
    that, except for the necessary hold up for recycle management,
    we have no plutonium on shelves.
        Therefore, the diversion risk is limited to the operations
    themselves, output of the reprocessing plant, transportation
    and fuel fabrication. There, we have very strict domestic and
    international controls, and we are fully convinced that they
    are suitable to avoid any significant diversion.
        Last but not least, we consider that from the
    nonproliferation point of view, it is better to burn plutonium
    rather than to keep it in store, even if it will be quite
    difficult to recover from stored spent fuel with existing
    technologies. In other words, we think it would not be easy to
    explain to French people, for instance, that we should have to
    dispose of hundreds or thousands of tons of plutonium
    underground somewhere in the country.
        Now, looking at the future, assuming that nuclear energy
    will still be needed, and very probably on a larger scale than
    presently, reprocessing will more than ever be necessary for
    both economy of resources and waste management. The existing
    technology of which we have now a large industrial experience--
    I recall that we have reprocessed more than 18,000 tons of
    spent fuel in La Hauge--has proved to be efficient and
    economic. But progress should be made and we are working on it
    in the same way as we are working on future reactor designs.
        Taking the present concern on waste management, while
    assuming the problem of plutonium is completely solved by
    reprocessing and recycling, we should consider the possibility
    of destroying the other actinides, the so-called minor ones,
    neptunium, americium, et cetera. Several countries have
    important R&D programs on partitioning and transmutation. We
    have already succeeded in developing complementary processes
    which could be implemented in reprocessing plants to extract
    those minor actinides. We know how to burn them, either in
    reactors or in accelerator driven systems. For the future, we
    should try to develop an integrated approach based on the
    recycling of all the actinides in such a way that the actual
    wastes to be definitely disposed will only be the unavoidable
    fission products, the amount of which is directly related to
    the energy production.
        Other improvements should be considered. One, for instance,
    will be to limit as much as possible the transportation of
    radioactive materials. And there, an objective could be to have
    reprocessing and fuel fabrication on the same site and not too
    far from the reactors. Anyway, technical solutions can be
    developed, either improvement of existing technologies of
    reprocessing or developments of new ones such as, for instance,
    dry processing or pyroprocessing which has been successfully
    tested in your country in the frame of the Integral Fast
    Reactor studies developed by Argonne National Laboratory.
        Mr. Chairman, as a conclusion, I would say that
    reprocessing will be, in our view, sooner or later a necessity
    for use of nuclear energy as sustainable development. It is
    already an efficient tool for waste management and in some
    countries an industrial reality. It can certainly be improved
    to be still more efficient, more proliferation resistant and
    cheaper.
        Thank you for your attention.
        The Chairman. Thank you very much. Dr. Choppin, why don't
    you go right ahead.

    STATEMENT OF DR. GREGORY R. CHOPPIN, FLORIDA STATE UNIVERSITY,
                DEPARTMENT OF CHEMISTRY, TALLAHASSEE, FL

        Dr. Choppin. Thank you. A variety of radionuclides are
    present in the fuel elements of nuclear reactors after their
    irradiation. Many countries process this spent reactor fuel to
    recover the unburnt uranium and the plutonium that has been
    produced for recycle in a reactor for future power production.
    The United States has followed a ``once-through'' policy under
    which the spent fuel of power reactors is considered as waste
    for direct disposal without processing.
        The United States did develop aqueous processing systems in
    connection with the weapons production of the cold war. The
    spent fuel, whether from reactors for plutonium weapons
    production or for civilian power production is treated by the
    aqueous PUREX process in which solvent extraction removes the
    uranium and plutonium from the fission products. This is a
    primary international process for treatment of irradiated fuel
    for the recovery of these elements at present. Many of these
    radiochemical separations developed for processing and recovery
    of plutonium for weapons can be used in the treatment of the
    waste to minimize the amount that must be placed in permanent,
    long term storage.
        Our national policy of direct disposal was based on a
    concern over other nations recovering the plutonium from the
    irradiated fuel of their power reactors and using it to produce
    weapons. Unfortunately, this policy was not adopted by any
    other nation, so the nonproliferation intent of the policy must
    be considered a failure. A disadvantage of the direct disposal
    system is that it may result in the creation of repositories
    which can be mined in the future for the recovery of the
    plutonium for use as weapons material. Processing schemes that
    do not remove all the fission products from the uranium and
    plutonium to be recycled to power reactors for further burning
    can be a more effective nonproliferation approach than direct
    disposal.
        New aqueous technologies for handling spent fuels have been
    developed but have only been demonstrated in the laboratory or
    at the pilot plant level. While these new systems serve to
    complement the PUREX process, they do not overcome some of the
    disadvantages of that processing technology, such as a large
    amount of secondary waste that requires repository disposition.
    It is unlikely that any large scale processing of nuclear spent
    fuel will, in the future, be based on aqueous systems. Non-
    aqueous processes being developed as replacements on properties
    such as differences in the volatility of the compounds being
    separated or differences in the oxidation-reduction behavior in
    molten salt media. The advantages of non-aqueous processing are
    that they have a much higher radiation resistance, use more
    compact equipment, produce smaller amounts of secondary waste
    volume, and are more proliferation-resistant than aqueous
    processes. The disadvantages of non-aqueous methods are the
    greater difficulty of conducting the separations and the
    smaller decontamination factors, in general, than aqueous
    processes.
        Based on the gaseous diffusion process, which uses the
    volatility of uranium hexafluoride for separation of the
    uranium isotopes, volatility techniques with fluorides have
    been studied for separation of uranium and plutonium from
    irradiated fuel. This separation is limited by the fact that
    volatile fluorides are formed by several fission products.
    Research continues on evaluation of volatility processes for
    uses in practical full scale separations. Greater interest in
    non-aqueous systems has been focused on the use of pyrochemical
    processes in which molten salts are used as the solvent
    systems. Such processes have been investigated for the
    treatment of the spent fuel from molten salt breeder and light
    water power reactors. The inherent radiation resistance of
    molten salts allows the processing of spent fuel after
    relatively short cooling periods. This is a major advantage in
    the consideration of processing methods that might be used in
    connection with transmutation of nuclear waste by irradiation
    in reactors or accelerators to destroy the longest lived
    nuclides.
        The electrometallurgical separation process for spent fuel
    developed at Argonne National Laboratory is based on a molten
    salt system that has been used successfully in a demonstration
    project in which stored experimental breeder reactor fuel is
    processed. It is also being studied as the processing system
    for use should the United States proceed with an accelerator
    transmutation program for the destruction of long lived
    isotopes and fission projects to reduce concerns over long term
    repository safety.
        There are problems with the application of non-aqueous
    systems to the legacy weapons wastes in this country because of
    the huge volume of these wastes. The millions of gallons of
    wastes stored in underground tanks at Department of Energy
    sites have high salt concentrations that make the application
    of non-aqueous systems much more difficult. Modifications of
    the PUREX-type solvent extraction system are likely to be the
    technologies used for these systems. However, for spent fuel
    from civilian reactors and the stored spent fuel from former
    weapons production, non-aqueous systems have many advantages
    and are expected to be the base for the next generation of
    technologies. An apparent disadvantage of the non-aqueous
    systems, their lower degree of separation of uranium and
    plutonium from some fission products is, in fact, an advantage
    since it leaves the separated uranium and plutonium with a
    higher level of residual radioactivity, reducing the
    possibility of its diversion by theft for clandestine weapons
    production.
        Thank you.
        [The prepared statement of Dr. Choppin follows:]

    Prepared Statement of Dr. Gregory R. Choppin, Florida State University,
                    Department of Chemistry, Tallahassee, FL

        A variety of radionuclides are present in the fuel elements of
    nuclear reactors after their irradiation. Many countries process this
    spent reactor fuel in order to recover the unburnt uranium and the
    plutonium that has been produced for recycle in a reactor for further
    power production. The United States has followed a ``once-through''
    policy under which the spent fuel of power reactors is considered as
    primary waste for direct disposal without processing.
        The United States developed aqueous processing systems in
    connection with the weapons production of the cold war. This processing
    resulted in the production of very large quantities of nuclear wastes
    which now require attention for final disposition. Many of the
    radiochemical separations developed for processing and recovery of the
    plutonium for weapons can be used in the treatment of the waste to
    minimize the amount that must be placed in permanent, long-term
    storage. The usefulness of such separation processes and the operating
    parameters for their optimum performance are strongly dependent on the
    concentration of the components to be removed, the physical state of
    the material, the availability of the processing agents, the nature and
    quantity of the secondary waste streams produced, and the capital
    costs. In a processing approach, the radionuclides in the waste can be
    separated into fractions for permanent storage, for use in industry,
    medicine, etc., or for transmutation by further irradiation into non-
    radioactive or short-lived nuclides, reducing concerns over the safety
    of repository disposition which must extend into the far future.
        Our national policy of direct disposal was based on a concern of
    other nations recovering the plutonium from the irradiated fuel of
    power reactors and using it to produce weapons. Unfortunately, this
    policy was not adopted by other nations, so the non-proliferation
    intent of the policy must be considered a failure. A disadvantage of
    the direct disposal system is that it may result in the creation of
    repositories which could be mined in the future for the recovery of
    plutonium for use as weapons material. With time, such mining would get
    progressively simpler as the radioactivity level decreases greatly over
    the first 300-1000 years, while the plutonium can be considered to be
    useful by recovery over a period of about a quarter of a million years.
    Processing schemes that do not remove all the fission products from the
    uranium and plutonium to be recycled to power reactors for further
    burning can be a more effective non-proliferation approach than direct
    disposal. A strong interest in Europe in transmutation of the longest-
    lived nuclides, including plutonium, requires processing in order to
    separate these nuclides prior to the destruction in either an
    accelerator or a reactor. A further disadvantage of the direct disposal
    policy is that it isolates the United States from other nuclear
    countries which employ processing and, consequently, reduces our
    influence on their national policies in relation the handling and
    disposition of potential weapons material.
        Now I discuss separation technologies and my view of the direction
    in which the development of such technologies should proceed.
    Dissolution of the spent fuel, whether from reactors designed for
    plutonium weapons production or from civilian power production,
    utilizes concentrated nitric acid systems. These aqueous solutions,
    since the late 1940's, have been treated by the PUREX process, which
    uses a solvent extraction system to remove the uranium and plutonium
    from the nitric acid solution in which the fission products remain. The
    uranium and plutonium are extracted into an organic solvent and
    subsequently, back-extracted into a second aqueous solution for further
    purification and separation of the uranium and plutonium. The PUREX
    process was developed in connection with the weapons program of the
    Manhattan Project in the United States and has remained the primary
    international process for treatment of irradiated fuel for the recovery
    of the uranium and plutonium.
        A variety of new aqueous technologies for handling spent fuel
    materials have been developed, both in the United States and in Europe.
    Thus far, most of those processes have only been demonstrated in the
    laboratory or at the pilot plant level. In many cases, the processes
    are designed primarily to improve the separation of specific fission
    product elements in order to allow separation of the shorter-lived
    radionuclides from the longer-lived ones. The shorter-lived elements
    could then be disposed of in short-term repository systems, and the
    longer-lived elements reserved for the million-year repository. While
    these new systems serve to compliment the PUREX process, they do not
    overcome some of the disadvantages of that processing technology. A
    major disadvantage of the PUREX and associated aqueous-based
    technologies is the large amount of secondary waste that is produced
    and which requires repository disposition, either for the short term
    (hundreds of years) or long term (hundreds of thousands of years).
        It is my strong conviction that any large scale processing of
    nuclear spent fuel will not use, in the future, a primary technology
    based on aqueous systems. This conviction has been formed as a result
    of interactions and collaborations with nuclear scientists and
    technologists in Europe, Russia, Japan and elsewhere. British Nuclear
    Fuels Ltd. is a leading processor of spent nuclear fuel, not only for
    English power plants, but also for those of several other nations.
    Frequent contacts with BNFL personnel over the last 5-6 years have
    involved discussions of their future processing plans, which emphasize
    non-aqueous systems. Similarly, there is extensive research being
    conducted in Japan and in France on non-aqueous systems as the main
    basis for future processing plants. It should be noted that the United
    States has been active in this field, and in particular, Argonne
    National Laboratory which completed last year a successful four-year
    demonstration program of the application of its electrochemical, molten
    salt technique to the processing of a quantity of spent fuel from the
    former Experimental Breeder Reactor in Idaho.
        Non-aqueous processes have been extensively used for uranium
    isotope enrichment in this country and elsewhere, and for
    electrorefining of plutonium metal and production of metallic fuel for
    advanced nuclear reactors. Such non-aqueous processes are based on
    properties such as differences in the volatility of the compounds being
    separated or the differences in the oxidation-reduction behavior of
    actinide elements in molten salt media. The advantages of non-aqueous
    processes are that they have a much higher radiation resistance, use
    more compact equipment, produce smaller amounts of secondary waste
    volume, and are more proliferation-resistant than aqueous processes.
    The disadvantages of non-aqueous methods are the greater difficulty of
    conducting the separations and smaller decontamination factors, in
    general, than aqueous processes. Most of these non-aqueous processes
    are very sensitive to even small amounts of moisture and/or oxygen, and
    must be operated in isolated cells under inert atmospheres.
        Based on the gaseous diffusion process, which uses the volatility
    of uranium hexafluoride for separation of the uranium isotopes,
    volatility techniques with fluorides have been used in test
    demonstrations for separation of uranium and plutonium from irradiated
    fuel. Volatility techniques were also studied for use in fuel
    processing in the molten salt reactor project at Oak Ridge National
    Laboratory. The separation of uranium and plutonium from the fission
    products in irradiated nuclear fuel is limited in these processes by
    the fact that volatile fluorides are formed by several fission products
    (e.g., iodine, technicium). Other volatile systems, which might be
    adaptable to use in the separation of actinides from other radioactive
    elements, are not as well developed as the fluoride volatility systems.
    Research is continuing in a number of national laboratories on
    evaluation of these volatility processes for use in practical full-
    scale separation systems.
        Greater interest in non-aqueous systems has been focused on the use
    of pyrochemical processes in which molten salts are used as the solvent
    systems. Such processes have been investigated for the treatment of the
    spent fuel from reactors such as the Liquid Metal Fast Breeder Reactor
    and the Experimental Breeder Reactor, as well as spent fuel from light
    water reactors. The inherent radiation resistance of molten salts
    allows the processing of spent fuel after very short cooling periods.
    This is a major advantage in the consideration of processing methods
    that might be used in connection with transmutation of nuclear waste to
    destroy the longest-lived nuclides.
        The electrometallurgical separation process for spent fuel
    developed at Argonne National Laboratory is based on a molten salt
    electrochemical system. In this direct transport process, uranium fuel
    is anodically dissolved as U\3\+ from a pool of molten cadmium into a
    molten salt, where it is transported through the salt to a cathode
    where it is deposited as metallic uranium. As mentioned earlier, this
    system has been used in a demonstration project to process a portion of
    the stored Experimental Breeder Reactor fuel. It is also being studied
    presently as the processing system for use should the United States
    proceed with an accelerator transmutation program for the destruction
    of long-lived isotopes and fission projects. The transmutation concept
    has aroused considerable interest in Europe where an accelerator system
    is under serious study as part of a European Union research project. In
    the transmutation systems, it is important to be able to recycle the
    irradiated material repeatedly with relatively short intermission times
    between the cycles as only a small fraction of the long-lived
    radioactive nuclides are destroyed in a single cycle. The requirement
    for short times between the irradiation cycles essentially eliminates
    aqueous processes for processing the irradiated targets between the
    successive irradiations to isolate the long-lived nuclides for
    production of the target for the next irradiation cycle.
        There are problems with the application of non-aqueous systems to
    the legacy weapons wastes in this country because of the huge volume of
    those wastes. The many millions of gallons of wastes stored in the
    underground tanks at the Savannah River and Hanford sites have very
    high salt concentrations which would make the application of non-
    aqueous systems much more difficult. For these wastes, it would seem
    that modifications of the PUREX-type solvent extraction systems would
    remain the more useful technologies. However, for spent fuel from
    civilian reactors and the stored spent fuel from former weapon
    production, non-aqueous systems have many advantages and most likely
    will be the base for the next generation of technologies. An apparent
    disadvantage of the non-aqueous systems, their lower degree of
    separation of uranium/plutonium from some fission products, is, in
    fact, an advantage since it leaves the separated uranium and plutonium
    to be recycled into fuel with a higher level of residual radioactivity,
    reducing the possibility of its diversion by theft for clandestine
    weapon production.

        The Chairman. Thank you very much. Let me just ask a couple
    of questions here. Dr. Cochran, I take it that your view is
    that in addition to all the nonproliferation concerns that you
    folks have about opening this area up again, you think that
    there's just no evidence that it is economical to go forward
    with any of this reprocessing or to go forward with any of this
    transmutation of nuclear waste. Is that the bottom line from
    your perspective?
        Dr. Cochran. That is correct. These are dual-use
    technologies that can be used for civilian and weapons purposes
    and none of them have a shred of a chance of being economical.
    Mr. Bouchard claims that reprocessing in France is economical.
    What is true, what I would agree is that COGEMA could make a
    profit on reprocessing foreign spent fuel because countries
    such as Japan and Germany had either legal impediments to
    continuing to use nuclear powerplants or public opposition that
    forced them to seek a reprocessing option as a solution to
    their legal or political problems. That allowed France and also
    the U.K. to make money on reprocessing other people's fuel.
    However, that fuel cycle is not less expensive than the once-
    through fuel cycle. The United States uses the cheaper fuel
    cycle and even in France today they are recognizing that the
    cost of reprocessing is more than the once-through fuel cycle
    and there is pressure on the French to back off on reprocessing
    at least the domestic fuel.
        The issue before this committee is whether we should
    promote dual purpose technologies and you will be promoting
    this around the world by bringing in nuclear programs in other
    countries, non-weapons countries, whether we should be
    promoting this when there's not a shred of a chance of it ever
    being economical. If Mr. Bouchard is right that reprocessing is
    economical, give him all of our excess plutonium from weapons.
    Give it to him for free. He will not take it because it is not
    economical even to make the plutonium into MOX if it
    is given to him. It is more expensive.
        The Chairman. Now, when you are saying is non-economical,
    you mean that in comparison to the direct deposit.
        Dr. Cochran. Exactly. Now, take the pyroprocessing, the
    fuel cycles that use pyroprocessing are really fast reactor
    fuel cycles. That means you have to have a reactor hooked up to
    this fuel cycle. It is like the liquid metal fast breeder
    reactor that we started to build here and they built in France
    and it turned out to be all over the world uneconomical. The
    electricity price from operating that reactor and that fuel
    cycle on a commercial basis would have been two and a half,
    three times what it would be to operate an existing light water
    reactor fuel cycle on the once through test.
        Mr. Bouchard also made another statement about running, if
    we expand nuclear power in the future, and there's no evidence
    that it is expanding on a global basis, but if we did, we would
    run out of low cost uranium. He and many people in the nuclear
    industry do not understand some fundamental concepts about
    mining metals, minerals. Historically, the increasing
    efficiency in the extracting of metals has always outpaced the
    depletion, the increase in price due to the depletion of the
    low cost resources. Uranium today on the global market is one-
    third in today's dollars of what it was when the AEC started
    the uranium industry by offering people $7 a pound to go out
    and discover and produce yellowcake uranium, even after running
    the nuclear industry for the entire life of most of the
    reactors in this country. We now are relicensing for another 20
    years. After running the entire life of the industry, the price
    of uranium has gone down even though we mine the low cost
    resources. It goes down; it doesn't go up. It is true of every
    mineral resource.
        The Chairman. You are saying there's plenty of the resource
    particularly as you get better systems for refining.
        Dr. Cochran. For extraction. That is the history of every
    gold, platinum, iron, you name it. Go to Resources For The
    Future, over on Massachusetts Avenue and ask them, give us the
    history of mineral prices in constant dollars. Look at all of
    them. It goes down; it does not go up.
        The Chairman. Let me ask if Mr. Bouchard wished to make any
    comment, or Dr. Chopin.
        Mr. Bouchard. Yes, thank you Mr. Chairman. I would like to
    comment on the economy. In fact, let me say, that it is best is
    to look to the figures and we have first, an OECD report which
    is not very old. It is 2 years ago which made the comparison on
    an international business between the cost of reprocessing and
    recycling as compared to a direct cycle and for the part of the
    cost which is related to the end of the cycle, they got 0.21
    cents, U.S. cents, for the reprocessing and recycling and 0.13,
    thirteen, for the direct cycle. So, it is clear that there is a
    difference. That does not mean it is exactly equivalent but the
    difference is quite low as compared to the cost of the kilowatt
    hour. There are more recent studies in France which has been
    done by Mr. Charpin deChapella and at least two of them are not
    well known as in favor of nuclear energy.
        So, let me say that they got similar figures and in the
    case of the recycling and reprocessing story, they go through
    all the end of the recycle cost 0.23, which is close to the
    0.21 of the OECD study. There is only a small difference on the
    perimeter of the account. And this is compared to a cost of a
    kilowatt hour, which is around 2 cents, U.S. cents, which is
    what we got presently in France. And so, we have a difference
    which is between the reprocessing and recycling scenario and
    the direct cycle. We have a difference, which is on the order
    of five percent of the cost of the kilowatt hour. But, but we
    know everything on the reprocessing and recycling scenario
    because we applied it every day. We have reprocessed a lot. We
    have recycled all of the plutonium we got from the reprocessing
    and so we know completely all the figures. We know everything.
        It is not the same under the direct cycle. We have not yet
    solved the problem of direct final disposal of spent fuel and
    in our country we are considering today that it will be a dead
    end. We have no real solution to a direct final disposal of the
    spent fuel. So, in fact, I think that for the economy, there is
    no matter today to discuss. We can discuss 0.01 cents on
    something. It is not the main problem. The problem is what do
    we do with the spent fuel; what do we do with the plutonium and
    when Dr. Cochran said that we cannot avoid to recycle and we
    can use for a long time, very long times, only 1 percent of the
    natural uranium, I say that we don't solve the problem in fact.
    Not only, we don't use the resource. But we keep the plutonium
    and recoup the plutonium as Dr. Choppin said as a mine. If we
    put it in the underground, we keep the plutonium as a mine for
    the future.
        So, it is certainly not the solution we would prefer on our
    side. So, it is clear that on both economy and in the use of
    the resources, it is for us, there is no real discussion today
    on what is important or what is the benefit. I agree on the
    fact that we can discuss some of the values and techniques
    according to their proliferation resistance and so on. This is
    a matter for development, clearly.
        The Chairman. Let me defer to Senator Domenici here. This
    is an issue he's spent a lot of time on. Go right ahead.
        Senator Domenici. Thank you very much, Mr. Chairman. And I
    first apologize for the lateness and I will not take a lot of
    time. I want to thank you for the kinds of hearings you are
    holding. I've looked at the areas you are covering and I
    commend you. It is kind of boring when everybody tells you what
    you ought to be doing and then when you do it, nobody shows up.
    If there were a few of my brethren here on this side, I would
    say that also in front of them. In any event, you are bound and
    determined to get the witnesses to tell us about these issues,
    and I want to say to the three witnesses, we are glad to have
    you here.
        Mr. Bouchard, I want Senator Bingaman to know that I have
    been to your country and you were my host and Senator it was
    truly an experience to see how France is treating nuclear power
    and the waste that comes from it. I am reminded that somebody
    in high offices in France just recently lectured our President
    about Kyoto and it was interesting as I listened to the
    exchange. Our President seemed to be asking if the great leader
    from France understood that we don't have 75 percent of our
    electricity produced by nuclear but rather we have a great deal
    of it produced by coal and by sources that pollute the air.
        Maybe it would be easier to comply with Kyoto if we had 70
    or 80 percent of our powerplants nuclear. On the other hand, to
    see their reprocessing and the way they handle the entire cycle
    caused me to conclude first, Mr. Chairman, that there is no
    real urgency that we immediately find a way to permanently
    dispose of nuclear waste. I mean, the nuclear waste in this
    country is a small quantity, I am led to believe, that it is
    about an American football field, 8 foot high, and that is the
    whole thing. That is the whole accumulation. And I would hope
    that as a result of these hearings and your bill that we would
    say we ought to proceed with ways to resolve this problem and
    it might take a little while to do it but in the meantime, we
    ought to explore the value of another generation of nuclear
    powerplants because they are on the horizon.
        And I would hope that soon, Dr. Cochran, you will be able
    to sit down with those who are thinking of a small reactor
    modular in form and easily licensable because of a duplication
    capability that would change dramatically the physical premise
    upon which it is built so you can't have a meltdown and a lot
    of other things that are going to be happening. And I would
    hope we would look at those and say, maybe the world could use
    those so we don't have to worry about global warming. And I
    note that your organization is concerned occasionally about
    growth in the world, economic growth and the production of more
    energy, and I commend it for those stands. But I do believe
    that we must proceed on both fronts, that is the non-nuclear
    and the nuclear in an effort to help really solve the problem
    of economic growth and jobs for poor countries and rich
    countries. So, let me say to you, or ask you, Mr. Bouchard, in
    a brief summary, what advice do you give us with reference to a
    spent fuel program?
        Mr. Bouchard. Thank you, Senator. I do not think I have to
    give advice. I should only say that at the present time once
    more we have had some experience with reprocessing in several
    countries now. We know the limit and the advantage of the
    present technology. It can be used and it is used on an
    industrial basis already. And we also see what kind of new
    developments can be done in the future. That there is room for
    R&D it is clear, room for R&D both on the reactors and on the
    fuel cycle which is used with these reactors and I mentioned in
    my presentation one or two routes or one or two axis which
    seems to us important for the future. One is to try to have a
    more integrated fuel cycle, the other reactor, and the other
    the fabrication, everything if possible on the same site.
        And this is clearly an objective. Another one is to limit
    the definite disposal of waste to only that which is completely
    unavoidable. That means the fission products themselves. But to
    try to recycle everything else, that means uranium, plutonium
    and other actinides. And these are roots for the future. I
    think that we have a program of development on that and we are
    ready to cooperate. We have already had some discussion with
    the Department of Energy and we are ready to cooperate on such
    programs with your country, clearly.
        Senator Domenici. Let me be a little specific. I think we
    all understand that in 1977 the then-President of the United
    States, President Carter, halted by executive decree United
    States efforts to reprocess spent fuel and developed mixed
    oxide MOX for our civilian reactors on the ground
    that plutonium could be diverted and eventually transformed
    into bombs. He argued that the United States should halt its
    program of reprocessing as an example to the world to follow.
    Now, as I understand it, I am not criticizing what the
    President did all those many years ago but the truth of the
    matter is, the world did not follow the example and proceeded
    with reprocessing such that France, Great Britain, Japan and
    Russia all now have some kind of MOX fuel program.
    So, it would seem to me that those countries, including yours,
    do not believe that reprocessing is a serious adjunct to
    proliferation. Would you address that?
        Mr. Bouchard. Yes, certainly. I am considering that in the
    proliferation route itself it is certainly not the way to a
    reprocess light water reactors and to use the plutonium coming
    from there. It is certainly not the best proliferation route.
    Nevertheless, we have to take precautions to avoid, as I said,
    the diversion of plutonium even if it's not good plutonium, the
    diversion of plutonium from any step. But the best way for that
    is to burn it and there is a reason why we have MOX
    fuel. There is a reason why we try to fabricate the
    MOX as soon as possible after the reprocessing of
    the spent fuel in order to avoid to avoid to keep plutonium on
    shelves. It is clear. So, we have only to consider as a risk
    the diversion during the operations themselves. And as matter
    of fact we have done this, since the time of the decision you
    mentioned 25 years ago. Now, there has been no case of
    diversion which has been observed on any reprocessing route,
    civilian, reprocessing business. So, I mean we have an
    experience which is showing that the risk is not so big and we
    have many, many controls organized both on domestic and on
    international business to be sure that we are following every
    gram of plutonium everywhere on the route. So, I mean we
    certainly can still improve the situation but it is clear that
    we have a solution today which is quite robust and it is clear,
    as you said, that if we reprocess, we have to fabricate
    MOX fuel as soon as possible in order to burn the
    plutonium.
        Senator Domenici. I just want to make one more point and I
    will ask you all three on the environment on the issue of
    plutonium. Let me talk for just a minute and ask you a
    question, then I will ask Dr. Cochran a question. Testimony
    before the committee seems to try to maintain that reprocessing
    is not economic. I am fully aware and the chairman asked the
    right question a while ago. Uranium is very cheap and as a
    consequence at this particular time in our history if we just
    took this reprocessing all by itself, it probably would not be
    economic. But let me just say I think there's a debate on the
    floor of the Senate right now that talks about the fact that we
    have spent $9 billion and have collected $21 billion from
    ratepayers to try to establish a permanent underground storage
    facility at Yucca Mountain. Now, we cannot discard that as a
    cost of a policy that says the only thing we ought to do is
    bury it forever. That has got to be built in or it has to be
    built in on the other side of the ledger in terms of
    reprocessing and what reprocessing does to simplify the waste
    disposition issues. So, could I ask you, Dr. Bouchard, and then
    I will yield to you on all three questions, Doctor. Does not
    reprocessing if it is part of a country or an international
    approach, doesn't it simplify the waste disposition issue if
    you had before that only considered permanent storage of the
    total spent fuel content as they come out of the reactor?
        Mr. Bouchard. You're right. Let's say first that
    reprocessing simplifies the waste management because it reduces
    both the volume, both the volume and the radiotoxicity, the
    long-term radiotoxicity of waste and the reason is simple. In
    the spent fuel, the main contributor to the long-term
    radiotoxicity is the plutonium itself. And so, if you extract
    the plutonium and burn it, you have reduced what you have to
    put in the waste. It is clear. And on the other hand, as I
    said, we are more and more convinced that the final disposition
    of spent fuel is not at all easy to manage. Besides the
    drawback I mentioned on the creation of the mining of
    plutonium, there is also the practical aspect of who will
    accept to put all these fuels underground in the final
    repository. It is not at all the position in our country, by
    the way.
        Senator Domenici. Now, Dr. Cochran, if you would like to
    address the three things that have come out that I've asked
    about, we'd be pleased to hear you.
        Dr. Cochran. Yes, I would like to elaborate on the history
    that you began with President Carter. In fact, Mr. Bob Fri, who
    was on the previous panel, previously served under the Ford
    administration at ERDA, and it was in fact the Ford
    administration, and Bob Fri played an important part in this,
    that stopped the reprocessing industry in the United States
    when the Ford administration, after India exploded its first
    nuclear test in 1974 and Taiwan had been conducting its covert
    nuclear weapons program with reprocessing, decided not to
    subsidize the completion of the Barnwell plant in South
    Carolina. So, you should always give the Ford administration at
    least equal credit for foreseeing the problems, the economic
    problems and the nonproliferation problems associated with
    reprocessing in this country.
        Senator Domenici. If you would permit me, I will correct
    the record and say that both the Carter administration and the
    Ford administration did it, and I will add to that I think even
    though there were two, they both made a mistake.
        Dr. Cochran. That is where you and I would disagree. Now,
    you mention France, the U.K. and Russia. I would think you
    would join me in advocating a moratorium on reprocessing in
    Russia and in fact in the last administration, Dr. Moniz, also
    on the previous panel, tried to get a 20 year moratorium and
    actually got Minister Damov, the Minister of Atomic Energy, to
    agree to a 20 year moratorium but the deal fell through over
    the Iranian problems. The reason you should join me in seeking
    a moratorium on reprocessing in Russia is, in fact, first the
    Ministry of Atomic Energy is like our old AEC and military
    plutonium production and materials production and weapons
    production and civil programs are entirely integrated both in
    terms of their management and in terms of their facilities. And
    it is not in the U.S. national security interests for Russia to
    continue a large commercial reprocessing program at their
    military facilities.
        Secondly, they are awash in excess plutonium and as you
    know they have 30 tons of plutonium from civilian reprocessing
    which they could not use, recycle, unlike the French program,
    and it is in storage with inadequate physical security. There
    was a statement about reprocessing simplifying the waste
    disposition issue. That is extremely misleading. First of all,
    you do not create less waste by reprocessing in terms of shear
    volume of materials because you create a lot of other waste
    streams in the process. Secondly, you do not reduce the
    problems associated at the repository in any significant extent
    other than delaying when you have to build a repository. The
    French still have to bury their spent fuel and in fact they are
    behind the United States in siting and building a repository.
    They simply do not have a site yet. We at least have Yucca
    Mountain site. So, they have a lot of fission products. They
    are stuck in a vault and they're forcing air over them to cool
    them because they do not have a solution to their waste
    problem.
        Now Mr. Bouchard says, you take the plutonium out and burn
    it. In fact, he's going to take the plutonium out and burn from
    the first cycle but the economics gets progressively worse on
    recycling and he has no plans to continue to recycle and so
    forth. And so all of the plutonium doesn't come out of his
    waste and he still puts plutonium in the mines. He mentions
    that light plutonium from light water reactor fuel is not so
    good for weapons. In fact, maybe he does not know it, the
    French tested a nuclear weapon with reactor grade plutonium and
    in fact it is useful for weapons. It is just not as good for
    weapons programs but it was good enough for the Taiwanese. It
    was good enough for the South Koreans and that is why they
    sought a reprocessing facility.
        In fact, the French tried to sell South Korea a
    reprocessing plant in 1975 and the United States shut that
    program down for national security reasons. So, the issue here
    is very simple. We are talking about dual use technologies that
    can be used for weapons and for civil research. The civil
    aspects look sort of interesting but the weapons aspects look
    very dangerous and before you embark on bending metal and
    building R&D facilities you ought to think very hard about the
    implications of spreading this technology around in non-nuclear
    weapons States. I totally agree with you. We should support
    university nuclear programs. They are in decline. We have a lot
    of use for nuclear engineers and scientists because of our
    waste programs, our national security programs, our medical
    programs. I support R&D on Generation IV technology. Let's do
    the paper studies. But let's don't go out and promote these
    programs like pyroprocessing at Argonne which are totally
    uneconomical and frankly I do not support your constituents at
    Los Alamos developing accelerator transmutation of waste.
        I mean, most of us think that that program is being pushed
    by people who lost their bid to get the tritium production
    facility and they're looking for jobs and they're promoting
    this technology as a way to maintain their accelerator program
    at Los Alamos and it is an uneconomical program. It will never
    go anywhere, Senator, and you should not support it despite the
    fact that they're your good friends and constituents. Thank you
    very much.
        Senator Domenici. Well, let me make sure that for the
    record and that you know I am not supporting it for the reasons
    you have talked about. I thank you very much for attributing my
    tremendous concern for my constituents. But frankly I think it
    is a rather exciting idea and you and I will disagree. But
    actually, all waste produced in these various processes is not
    the same waste. Waste produced by reprocessing is not the same
    waste that we are contemplating burying at Yucca Mountain.
        Dr. Cochran. It is pretty close.
        Senator Domenici. It is less toxic than what we are going
    to put underground and plan to leave there for 10,000 years.
    There is no question about that and transmutation not only
    yields a less toxic but it is so less toxic that there's no
    problem with disposing of the residual waste from
    transmutation. It is very simple to do. Now, I know we
    disagree. I can make my statement and then we will hear you as
    an expert. I do not want to leave in any antagonistic mode
    because I am thrilled to hear that we ought to proceed with
    third and fourth generation nuclear reactor research. I think
    that we ought to take the lead in saying that America should do
    that with the world and I told my friend, the chairman, I think
    America with the world on that would be talking about a post-
    Kyoto environment that would permit us to no longer worry about
    global warming. It would be a rather exciting concept.
        Now, let me ask--there's been a synthesis on the economy.
    And I think we have to look at the other issues. For example,
    if you look at the fuel cycle, the most dangerous for the
    general public, the most dangerous part of it is the uranium
    mining. So, that if we do not reprocess, we will have more
    uranium mining, not in the United States for quite a while,
    maybe 300 years, but eventually. But in the rest of the world,
    they will have it right now because they have to keep mining to
    produce it and therefore you are exposing the public to more
    danger than you are by reprocessing and storing in a
    repository.
        In our country, we have to look at the fact that we have
    one heck of a lot of uranium 235 and plutonium 239. Now, what
    are going to do with it from the weapons? We can bury it, and
    how do we know what kind of government we will have in a
    thousand years, 300 years, ten thousand years. We are burying
    stuff that is going to be a tremendous mine. They could go up
    and they can start making weapons and devastate the world. And
    we are leaving that for a future generation. I do not think
    that is moral even. So, we want to burn it. Well, how are we
    going to burn it? By making MOX fuel and that
    requires fabrication. It requires some kind of recycling. We
    can also involve the transmutation. I was on the stats
    committee that looked at transmutation sometime ago in the
    United States. We recommended against it. Since that time,
    there have been better developments, better methodologies. I
    was on the international committee that the Department of
    Energy had 2 years ago to re-look at the issue.
        I have also been very involved in European meetings and so
    forth, and I still have concerns about transmutation. I am not
    sure it is a proper process but I think it deserves extensive
    study and extensive investigation because it could certainly
    reduce the long-term problem. It could also reduce the stored
    plutonium and uranium problem. And I do not think as the United
    States is involved we can ignore those. So, we have a little
    different problem. One other aspect, I think that is important
    in the question of reprocessing, is that if we reprocess, we
    are in line with the rest of the world and therefore we then
    can interact and influence their policies. What we have done
    with the direct once-through process is to isolate ourselves
    from the rest of the world and have no impact on their national
    policies with regard to reprocessing and disposition. So, I
    think, again for our national welfare independent of economics,
    we should be involved to a sufficient extent to share with them
    and participate in their discussions. Thank you.
        Senator Domenici. Mr. Bouchard, you were shaking your head
    negatively while Dr. Corcoran was speaking with reference to
    what kind of waste comes out of this stream if you reprocess.
    Would you care to express your view in words because we cannot
    record your head shaking?
        Mr. Bouchard. Thank you very much. I apologize because in
    the written testimony we gave some figures with some graphs
    showing what happens, but we had no time to prepare the
    necessary presentation for the audition. But, if you have time
    to look to the written testimony, you will see that we have put
    one graph, which is the volume of waste produced by the
    reprocessing and comparing the volume of waste for direct cycle
    with the various types of waste we create at the reprocessing
    and the main part, which is the high level waste, for those who
    contains most of the fission products corresponds to something
    which is approximately 8 percent of the volume of waste of the
    direct cycle. And in addition to that, we create two other
    kinds of waste which are less toxic as you said, Senator, and
    which are still in low volume. I can show the figure to Dr.
    Corcoran, which are still in low volume as compared to the
    direct fuel cycle. We have made progress during the last 10
    years as you can see on these figures.
        Senator Domenici. Mr. Chairman, I want to thank you very
    much for staying over and taking this time to let me ask a few
    questions. I would make one observation and share it with you
    with reference to Russia. This same visit that I spoke of in
    France took me to Russia and the result of that trip was that
    the U.S. Government put up $2 million within 6 months in the
    supplemental appropriation at the request of myself and Senator
    Stevens to begin implementing an agreement with Russia so that
    the plutonium that they had which was unstored and was
    available far more than any of us would ever think should be
    the case. And we have started down a path of using that money
    to see if we cannot turn that plutonium into something that
    could not be used for weapons again.
        But I would tell you, what you learn in the meantime is
    that you are going to wait for a new generation of Russian
    leaders, if ever, to agree with us with reference to the value
    of spent fuel. It is valuable to them. They are not one,
    they're not even a miniscule interested in getting rid of it.
    They want to keep it because they're going to use it. And you
    do not have any of their leaders that look at like we do, that
    wouldn't it be nice to put in the ground for 10,000 years.
    They're saying if you want to be crazy, you be crazy. We are
    not going to do that. In fact, they wonder why we do not go to
    the breeder reactors. That is what they think about nuclear
    activities.
        So, I do not think we can stop them from doing what you
    suggested we stop them from doing. But I think we have a very
    big obligation to work to try to get some of that plutonium
    that is part of their military converted and stored so it can
    never be used. But to ask for a moratorium there in that
    country that would not produce plutonium from reprocessing and
    the like, I really do not believe. In many things we ought to
    try to get agreements. That one would not work.
        And could I close by saying to Dr. Cochran, I do appreciate
    your statements. I do not appreciate very much the insinuation,
    which you said with a smile on your face, which I will now
    record with my words, that I am for transmutation because of
    Los Alamos. I am for a lot of things as Los Alamos is for. I am
    for a lot of things Sandia is for and Argonne and our great
    laboratory in California, but essentially I think the
    contribution to this very onerous problem by Los Alamos in
    looking at transmutation is a good contribution, and it may not
    come out as the technology but I believe the scientists are
    doing some real thinking when they work on that. Thank you very
    much, Mr. Chairman. It is good to be here.
        The Chairman. Thank you very much. Let me thank all three
    witnesses very much and indicate that we will keep the record
    open on this hearing through next Tuesday to permit anyone to
    submit an additional statement if they have a statement to make
    or any additional information they think we should be aware of.
    Thank you very much for testifying. The hearing is concluded.
        [Whereupon, at 12:35 p.m., the hearing was recessed, to be
    reconvened on July 19, 2001.]

                                   APENDIXES

                                  ----------

                                   Appendix I

                       Responses to Additional Questions

                                  ----------

                                State of New Hampshire,
               Governor's Office of Energy & Community Service,
                                                        August 2, 2001.
    Hon. Jeff Bingaman,
    Chairman, Committee on Energy and Natural Resources, Dirksen Senate
            Office Building, Washington, DC.
    Re: Response to Questions--July 13, 2001 Hearing

        Dear Chairman Bingaman: On behalf of the National Association of
    State Energy Officials (NASEO), the following constitutes my response
    to the questions provided in your letter of July 20, 2001.
                           LIHEAP (Questions 1 and 2)
        Senator Murkowski's question concerned the appropriate split
    between base and emergency funding for LIHEAP. The National Energy
    Assistance Directors' Association (NEADA) will be responding to this
    question on behalf of the states. As a general matter, both the
    approach of Senator Murkowski ($3 billion base funding and $1 billion
    emergency funding) and your approach ($3.4 billion base funding and
    $600 million emergency funding) would be a tremendous step in a
    positive direction. LIHEAP funds are vastly insufficient to respond to
    the needs of the public at this time. In general, the states have
    strongly supported significant increases in the base funds, with
    advanced funding to enable the states to efficiently plan for the
    upcoming heating/cooling season. Emergency funds are also critical. We
    look forward to the opportunity to work with the Committee to ensure
    that appropriations for LIHEAP are significantly increased, consistent
    with the proposed authorizations.
                STATE ENERGY PROGRAM FUNDING (Questions 5 and 6)
        In response to both questions 5 and 6, NASEO and the state energy
    offices are strongly supportive of regional energy planning efforts.
    With increasing funds regional efforts could expand and permit more
    creative solutions to our energy problems. Language on regional efforts
    included in Senator Murkowski's bill and in Chairman Bingaman's bill
    recognize the importance of these regional efforts. While, in many
    cases, states are undertaking activities within their own borders, this
    would permit the expansion of those efforts. As you know, many of our
    energy markets are not limited to the borders of our own states.
        Increased funding would enable states to expand efforts in energy
    emergency preparedness. Last December, my office sponsored a meeting in
    Manchester, New Hampshire, between all the Northeastern and Mid-
    Atlantic states with all relevant industry representatives and federal
    agencies (e.g., Coast Guard, Department of Energy, Department of
    Transportation, Environmental Protection Agency) to discuss our
    response efforts and coordinated pre-planning. In light of increasing
    price and supply volatility of critical fuels these regional efforts
    need to be expanded.
        We have begun to integrate our energy and environmental efforts at
    the state and regional level, bringing together NASEO representatives
    with those of the National Association of Regulatory Utility
    Commissioners (NARUC), Environmental Council of the States (ECOS state
    environmental commissioners), State and Territorial Air Pollution
    Program Administrators/Association of Local Pollution Control Officials
    (STAPPA/ALAPCO), to jointly work on policies, programs and regulations.
    This type of regional activity will be supported by expanded SEP funds.
    For example, the Western Regional Air Partnership, being led by Utah,
    is attempting to respond to the requirements of the Grand Canyon
    Visibility Task Force, in a creative and cost-effective manner, by
    utilizing energy programs to help deal with environmental imperatives.
    This involves both supply-side and demand-side responses. The state
    energy offices in the western states, working together and with the
    Western Interstate Energy Board and the Western Governors' Association,
    are attempting to help the region address complicated siting issues for
    energy infrastructure and coordinate transmission and generation
    issues. This requires extensive regional cooperation.
        In the Southeast, the energy offices working with the Southern
    States Energy Board and the Southern Governors' Association are
    attempting to develop unique programs on such issues as alternative
    fuels, siting, etc. In my region, we are working together with our
    environmental officials and our utility commissioners on technical
    standards for distributed generation. In each of the regions we are
    attempting to learn from each other and coordinate our efforts in
    expending our public benefits funds. State Energy Program funds help
    facilitate these efforts. They need to be expanded.
        One of the great benefits of SEP funding is the enormous leverage
    provided from both private and non-federal public funds. Greater
    expansion of program funds will allow even more leverage. For example,
    most of the state energy offices facilitate private financing of energy
    projects both in the public and private sectors. Our most recent
    estimates are that the energy service company industry conducts up to
    $1.5 billion/year in energy efficiency projects. The energy offices
    facilitate these efforts. We hope, in the future, to expand the
    regional efforts to embrace greater cost-effectiveness and reduce
    transaction costs in project implementation.
        In short, the state energy offices are planning on expanding
    regional cooperative efforts. We look forward to working with the
    Committee in providing creative solutions. We hope this is responsive
    to your questions.
                Sincerely,
                                             MaryAnn Manoogian,
                                                              Director.
                                     ______

                         Maine State Housing Authority,
                                   Energy and Housing Services,
                                           Augusta, ME, August 2, 2001.
    Senator Jeff Bingaman,
    U.S. Senate, Committee on Energy and Natural Resources, Washington, DC.
        Dear Senator Bingaman: The purpose of this letter is in response to
    your letter dated July 20, 2001, regarding follow-up questions based on
    my testimony for the Committee on Energy and Natural Resources on July
    13th.
        On behalf of the National Energy Assistance Directors Association,
    I have responded to questions 1 through 4 regarding the Low Income Home
    Energy Assistance Program, (LIHEAP) and Weatherization Assistance
    Program, (WAP) submitted by the Office of Senator Murkowski.
        If you have any other questions or concerns, please feel free to
    call me at (207) 624-5708 or by email at jchoate@mainehousing.org.
    Thank you for inviting me to speak before the committee.
                Sincerely,
                                              Jo-Ann L. Choate,
                                                        LIHEAP Manager.

        Question 1. What is the virtue of increasing the base LIHEAP
    funds--which get distributed to states using a formula--verses
    increasing the emergency funds which can go to where they are most
    needed?
        Answer. Formula grant funds and emergency funds serve different
    purposes. Formula grant funds are used to provide planned direct
    assistance to approximately 5 million households per year. These are
    very low-income households that need program assistance on an ongoing
    basis to pay their heating and cooling bills. Emergency funds are
    primarily designed to offset higher that expected demand as a result of
    lower than average temperatures during the winter months and warmer
    than average temperatures during the summer months. In addition, funds
    are also used to offset higher than expected energy prices due to
    changing market prices.
        Question 2. Given that most LIHEAP funds have been spent in
    regional areas that experienced extreme weather, wouldn't it make more
    sense to set aside more funds for emergency programs?
        Answer. While emergency funds are needed to address changes in
    temperature and price spikes in energy prices, formula grants are
    needed to address on-going needs of low-income households to pay their
    home energy bills. As such, setting aside more funds for emergency
    programs at the expense of the regular grant program would cause
    reduced funding for millions of low income households in areas that did
    not experience severe temperature or price increases.
        Question 3. Given the wide variance in percentage of households
    served by existing LIHEAP funds, doesn't this suggest the need for a
    change to the allocation formula?
        Answer. The intent of the current law formula is to distribute a
    higher relative percentage of funds to states with relatively colder
    temperatures when the appropriations level is less than $1.975 billion.
    At higher funding levels, funds shift to warmer weather states. As
    result, as shown in the following table, at a funding level of $3.4
    billion, the total allocation for Maine would increase by 43.9%, while
    the allocation for Alabama would increase by 379.2%. A copy of the
    allocation table is attached.
        Question 4. How much funding would it take to fully fund all needs
    under the LIHEAP program--and how many of those homes could be
    Weatherized for the same amount of money?
        Answer. The LIHEAP program is currently serving approximately 5.0
    million households or about 17% of the eligible population. Assuming
    that program assistance was expanded to serve 50% of the eligible
    population at the current basic level of $225 per household, the total
    cost would be approximately $6.6 billion per year.
        The weatherizing of homes does not eliminate the need for LIHEAP.
    Even if program funds were quadrupled to $612 million, at an average
    cost of $1,750 per unit, total funding would only serve 300,000
    households or about 6% of total eligible LIHEAP households. At the same
    time, by targeting WAP funds to households with the highest energy
    burdens and energy consumption levels, the program helps to reduce a
    household's energy burden, thereby reducing a least a portion of the
    family's need for energy assistance.
        The Oak Ridge National Laboratory report entitled ``State Level
    Evaluations of the Weatherization Program in 1990-1996: A Meta-
    evaluation That Estimates National Savings'' found that the WAP has
    significantly improved its energy savings results during the past
    several years. In 1996, WAP showed savings of 33.5 percent of gas used
    for space heating--up from 18.3 percent savings in 1989. The increase
    in savings was based in large part on the introduction and use of more
    sophisticated diagnostic tools and audits.
        Each family receiving weatherization services can reduce their
    energy use by an average of 22 percent, making their energy costs more
    affordable. By reducing energy use, each family can realize average
    savings of $300 or more each year. More importantly, these savings will
    occur each year for several years after the weatherization work has
    been provided. The savings achieved as a result of this year's
    investment will reach more than $369 million during the life of the
    conservation services installed in the homes. More than $72 million is
    expected to be saved this year alone in those households weatherized
    using DOE and other leveraged funds.
        The Oak Ridge Meta-Evaluation report also concluded that the WAP
    possessed a favorable cost-benefit ratio of 2.40 to 1.0. Simply stated,
    the federal funds provided to support the Program have a 140% return on
    investment or nearly $2.50 in benefits for every dollar invested. This
    positive ratio of benefits continues to increase as state and local
    agencies integrate advanced technologies and constantly improve their
    return on investment.
                                     ______

                 National Electrical Manufacturers Association,
                                           Rosslyn, VA, August 3, 2001.
    Hon. Jeff Bingaman,
    Chairman, Committee on Energy and Natural Resources, Dirksen Senate
            Office Building, Washington, DC.
        Dear Chairman Bingaman: Thank you for the Committee's thoughtful
    questions on our testimony forwarded with your letter of July 20, 2001.
    Attached are the responses to the questions you submitted for Senator
    Murkowski.
        We look forward to working with you, the Committee, and Committee
    staff in the months ahead as energy efficiency legislation and
    legislation on the electric transmission infrastructure proceed through
    the Senate. We believe our members, the manufacturers of electrical
    products for our homes, commerce and industry, are stakeholders that
    provide unique and valuable perspectives on our Nation's technology
    needs.
                Sincerely,
                                            Malcolm E. O'Hagen,
                                                             President.
    [Attachment.]
     NEMA Responses to Additional Questions Submitted by Senator Murkowski
        Question 9. You mentioned in your testimony that NEMA generally
    favors market mechanisms--and favors standards only on a case-by-case
    basis. How, then, would you respond to Dr. Nadel's call to broaden the
    standards process to include more appliances?
        Answer. NEMA supports the National Appliance Energy Conservation
    Act (NAECA) requirements to set efficiency levels for covered products
    at the level that is technologically feasible and economically
    justified, Under existing law, the Secretary of Energy has the
    authority to add additional types of consumer products to the list of
    products for which mandatory energy efficiency standards are required
    under the NAECA and the Energy Policy and Conservation Act.
    Specifically, section 322(b) of EPCA authorizes the Secretary of Energy
    to classify a consumer product as a covered product, and therefore
    subject to efficiency standards requirements, if the Secretary
    determines that such a classification is necessary or appropriate in
    carrying out the purposes of the Act and that the product in household
    use consumes at least 100 kilowatt hours of electricity. Similarly,
    section 341(a) of EPCA authorizes the Secretary, by rule, to include
    additional types of industrial equipment as covered equipment to be
    subject to energy efficiency standards requirements if doing so is
    necessary to carry out the purposes of the Act.
        Voluntary, consensus-driven codes and standards will achieve the
    greatest level of cooperation and distribution of energy efficient
    technology in the marketplace. Industry consensus energy efficiency
    standards offer an important, cost-effective alternative to government-
    imposed standards and provide for more rapid introduction of compliant
    technologies. An excellent example is the NEMA PremiumTM
    motors program, which illustrates the efforts already undertaken by
    industry to accelerate the market penetration of highly efficient
    motors. Under the NEMA PremiumTM program, highly efficient
    motors of up to 500 horsepower that can comply with stringent energy
    efficiency standards receive the NEMA PremiumTM designation.
        The NEMA PremiumTM program was a collaborative effort
    with the Department of Energy, motor manufacturers end electric
    utilities. It has broad support, and has been endorsed by the
    Consortium for Energy Efficiency. When compared to existing Federal
    regulations, NEMA PremiumTM covers a broader range of motors
    than do minimum Federal energy efficiency standards (up to 500
    horsepower, where Federal standards apply only up to 200 hp). Moreover,
    NEMA PremiumTM is a far more exacting technical standard,
    determined by using NEMA MG1 standards, which include over 30 critical
    motor operating characteristics in addition to motor efficiency.
    Introduction of NEMA PremiumTM motors in the agricultural
    and commercial sectors would save 5.8 gigawatts of energy and prevent
    the release of nearly 80 million metric tons of CO2 over 10
    years.
        These and similar market based solutions should be relied upon
    wherever possible to expedite the introduction of the most highly
    energy efficient equipment. The Federal government can play an
    important leadership role and take advantage of the work done to
    produce the NEMA PremiumTM standards, by acquiring only
    motors that have the NEMA PremiumTM designation, and by
    assuring that failed motors are not rewound, but are replaced with
    motors that have the NEMA PremiumTM designation.
        Before expanding mandatory standards requirements, Congress should
    consider carefully DOE's existing workload in the standards-setting
    area and the availability of resources. Recognizing that its statutory
    mandates exceed the resources available, the Department of Energy has
    adopted a prioritization process for meeting its regulatory
    responsibilities. NEMA believes that the priority setting process is a
    reasonable response by the Department to the many demands it faces.
    Expansion of mandatory standards requirements would necessarily impose
    additional burdens on the Department of Energy. Congress should be sure
    that DOE can meet its existing responsibilities in a timely manner
    before increasing those responsibilities.
        In all cases, before Congress mandates the issuance of test
    procedures, labeling requirements or efficiency standards for any
    additional products, it should be assured that such standards are
    technically and economically feasible and would contribute to
    substantial energy savings. Before new standards are required a study
    of the need for such standards should be conducted by the Secretary of
    Energy.
        Question 10. What other options would you suggest to improve the
    rate at which out appliances become more energy efficient? ``Smart''
    technology?
        Answer. Appliances on the market now are vastly more efficient than
    in the past. The appliance industry is highly competitive, and
    extremely responsive to consumer demand. Therefore, if consumers place
    a value on the energy efficiency of a product, industry can be expected
    to respond.
        Developing a market demand for energy efficient products has long
    been the challenge. With the experience of the State of California in
    these last months, the marketplace may be primed to consider energy
    efficiency in purchasing decisions. Consumer education and increased
    energy efficiency awareness among the general public are essential to
    take advantage of this opportunity.
        The replacement of older, less efficient appliances with new
    efficient ones will save significant amounts of energy. Congress may
    wish to consider encouraging the voluntary retirement of less efficient
    appliances through the Weatherization program or the Low Income Home
    Energy Assistance program. Federal housing programs also should
    emphasize early changeout of high energy consumption appliances. For
    the public at large, consideration might also be given to a
    collaborative incentive program with industry.
        Question 11. I was intrigued by a number of your suggestions on the
    appropriate Federal role in energy efficiency and energy policy in
    general. How many of your suggestions can be accomplished through
    administrative action as opposed to legislation?
        Answer. A blend of legislative and administrative action is
    necessary. For example, DOE can, and does, promote user education on
    energy efficiency under its existing authorities. DOE also can, and
    does, support energy efficiency upgrades through programs such as FEMP.
    There is widespread agreement, however, that some of these programs
    will be more effective if certain changes are made to the underlying
    statutes, such as the extension and clarification of energy saving
    performance contracting authorities. And there are other areas where
    statutory limitations, suck as spending limits in the Weatherization
    program, may limit the effectiveness of Federal programs in stimulating
    the deployment of energy efficient technologies, and need to be
    reexamined.
        DOE promotion of economically sound energy efficient consumer
    products and systems, particularly in collaboration with industry, is
    possible under existing authorities, but may be enhanced through
    statutory changes, such as the formal authorization of the Energy Star
    program and provisions for allocation of responsibilities for this
    program between DOE and the Environmental Protection Agency.
        NEMA believes that further legislative direction to increase energy
    efficiency in Federal facilities is necessary. Many of the existing
    federal building energy efficiency authorities date from the Energy
    Policy Act of 1992 and before, and need refreshing. With respect to the
    procurement of energy efficient products, for example, the Federal
    government should lead by example, and specific statutory directives to
    assure that the government seeks out the most efficient products on the
    market are appropriate. An example is the NEMA PremiumTM
    program for motors. NEMA recommends that Congress require the Federal
    government to use the NEMA PremiumTM standard as the
    specification for the acquisition of new motors, and require that
    failed motors not be rewound, but be replaced with motors meeting
    carrying the NEMA PremiumTM designation.
        Statutory requirements to increase Federal building energy
    efficiency would be more effective in achieving results than
    Administrative directives or even Executive Orders issued by the
    President. While important in expressing the commitment to and
    establishing the framework for Federal government energy conservation
    efforts, these have not in the past always produced concrete results.
    For example, NEMA has recommended specifically that Federal facilities
    should be required by law to achieve the Energy Star building rating.
    The Department of Energy's Energy Star Buildings Program has made
    significant advances in improving the efficiency of commercial
    buildings. However, the vast majority of Federal facilities have not
    yet achieved the Energy Star rating, a classification given only to the
    top 25% of buildings in terms of watts used per square foot. It is time
    to assure that Federal facilities measure up. A statutory mandate would
    be critical to assuring that agencies treat this as a priority and
    devote the necessary resources to implementing all practical efficiency
    upgrades.
        DOE already has statutory responsibilities with respect to the
    adoption and updating of Federal building energy codes, and in
    rendering determinations about the energy efficiency of code updates
    that then trigger responsive action by the States. NEMA has proposed
    that new construction or buildings that undergo major renovation or
    remodeling should adhere to the most current consensus energy
    efficiency standards, as contained in ASHRAE/IESNA 90.1-1999. An
    explicit direction from Congress to the Department of Energy to update
    the Federal building energy code to reflect the latest standard update
    would be beneficial in expediting the Federal code revision process.
        DOE also is required to make a determination as to whether the
    ASHRAE/IESNA Standard 90.1-1999 will save energy in commercial
    buildings. The issuance of this determination triggers important
    requirements that states review and update their building codes
    accordingly. Congress should direct DOE to issue this determination
    immediately. The 1999 update was developed over 10 years through a
    process involving all interested stakeholders. It is ready for
    consideration by the states, and that consideration should be
    expedited.
        With respect to the process by which appliance standards are set,
    as indicated in the written testimony, NEMA believes that is essential
    that DOE closely follow the ``process improvement rule'' in every
    standards-setting activity. The energy efficiency standards program was
    stalled for several years before the process improvement rule was
    issued in 1996. Since that time, and pursuant to the process
    improvement rule, consensus has been reached and new standards
    promulgated for products including clothes washers and ballasts. If the
    process improvement rule is not utilized and applied fully to every
    consumer, industrial and commercial product, however, there is a risk
    that the gridlock that characterized the standards program prior to
    1996 will return. Direction from Congress to DOE to formally
    incorporate the process improvement rule into the department's
    regulations would provide additional assurance to industry that the
    requirements of the rule would be strictly enforced, and thereby lay
    the groundwork for further consensus standards development activities.
                                     ______

                           Goodman Manufacturing Company, L.P.,
                                           Houston, TX, August 3, 2001.
    Hon. Jeff Bingaman,
    U.S. Senate, Committee on Energy and Natural Resources, Dirksen
            Building, Washington, DC.
    Re: Committee Hearing held July 13, 2001

        Dear Senator Bingaman: Recently, I received your request, to
    respond to follow-up questions from the July 13th hearing before the
    Energy and Natural Resources Committee submitted for the record by the
    office of Senator Murkowski. Please see my responses to Senator
    Murkowski's questions below.
              Questions for Third Panel--Air Conditioning Standard
    Mr. Parks--you indicated that Goodman supports the 13 SEER standard

        Question 5. Given your market share and status as the second
    largest U.S. manufacturer, wouldn't the 13 SEER standard put you at a
    significant advantage relative to your smaller competitors?
        Answer. Goodman does not have a significant advantage given the 13
    SEER air conditioner is manufactured today and has been for almost 15
    years by virtually all manufacturers. 13 SEER technology has been
    available to both large manufacturers like Goodman and to small
    manufacturers like Goetl Air Conditioning for approximately 15 years.
    The Air Conditioner and Refrigeration Institute's own data shows that
    virtually all manufacturers including small and large produce 13 SEER
    equipment today and most have been for several years. Thus, all
    manufacturers would certainly be capable of continuing to produce 13
    SEER equipment five years from now when the rule would go into effect.
        In addition, we believe that everyone stands to gain from adopting
    13 SEER as the new standard. Lower electricity bills for the consumer,
    less electricity consumption relieving some of the pressure on utility
    companies, our environment gets a break and the HVAC industry has the
    opportunity to better meets the needs of our customers. In fact,
    raising the minimum efficiency standard to 13 SEER is goad for our
    industry because we believe consumers will begin replacing older, lower
    efficiency air conditioning units before they break down in order to
    save money on their electric bills. When production volumes increase
    due to market demand for a higher SEER product, consumer prices for
    those units will come down.
        Question 6. Given a 12 SEER standard, wouldn't there still be
    significant demand for 13+ SEER units among those consumers who
    benefit?
        Answer. Most often consumers opt to purchase the lowest minimum
    energy efficiency product they can find. This is especially true in the
    case of property owners that are not responsible for monthly utility
    costs leaving the renter with no choice in the matter. As a result,
    often those who can least afford it are most effected by high utility
    costs. ``We did sell a 10 SEER [current minimum SEER] unit to a lady
    with a rental unit. She didn't care if it was a 10 because she wasn't
    paying the electric cost.'' This is a quote from a recent article
    discussing the importance of increased energy efficiency standards for
    air conditioners, the Dallas Morning News, June 19, 2001.
        Rather than a select few, Goodman believes that persons of all
    income levels should enjoy this benefits by owning the most efficient
    equipment available at a reasonable price. The 13 SEER equipment
    translates to a 30 percent savings over present standards on consumers'
    air conditioning bills and would prevent the need to build at least 53
    (400 megawatt) power plants by the year 2020, thereby improving air
    quality across the nation.
        Establishing a 13 SEER standard is the most cost-effective way to
    reduce harmful emissions, keep electric bills more affordable and
    reduce the need for new generating plants--all accomplished with
    technology that has been available for several years and is in use
    today.
        On behalf of Goodman Manufacturing, I hope this information is
    useful as you consider the role of energy efficiency as part of the
    nation's energy solution. We hope you will consider the significant
    benefits associated with increased energy efficiency standard for air
    conditioners and urge Congress to strengthen air conditioning
    efficiency standards to the 13 SEER level. Please feel free to contact
    me if you have any further questions.
                Sincerely,
                                         David R. Parks, Ph.D.,
                                                             President.
                                     ______

                    Air-Conditioning & Refrigeration Institute,
                                         Arlington, VA, August 3, 2001.
    Senator Jeff Bingaman,
    Chairman, Senate Energy and Natural Resources Committee, Washington DC.
        Dear Mr. Chairman: Enclosed please find a copy of my responses to
    your questions on the National Appliance Energy Conservation Act
    rulemaking covering residential central air conditioning and heat pump
    products. I appreciate the opportunity to add to the Senate Energy
    Committee's record on this important subject.
        If you or your staff have any further questions, please do not
    hesitate to contact me.
        Thank you.
                Very sincerely,
                                 Clifford H. ``Ted'' Rees, Jr..
                                                             President.
    [Enclosure.]
         Responses of Clifford H. ``Ted'' Rees, Jr., to Questions From
                                Senator Bingaman
        Question 1. Why, then, would we require a less cost-effective 13
    SEER standard, particularly when those consumers who need a more
    efficient air conditioner can go out and buy one?
        Answer. There are customers for whom a 13 SEER product makes good
    economic sense. They are primarily in the southern half of the country,
    particularly in southern Florida and the southern tip of Texas, where
    air conditioning is needed virtually all year. Many of the members of
    ARI market 13 SEER products--they are more expensive, and for good
    reason--they cost more to make. And there certainly would be economic
    benefits for those manufacturers who make 13 SEER products to sell more
    of them. But those short-term benefits would be outweighed in the long
    run by a reduction in overall sales because the 13 SEER standard does
    not make good economic or energy efficiency sense for the vast majority
    of the country. A 13 SEER standard is simply not a reasonable national
    standard.
        I should point out, contrary to what the Committee has been told,
    that nearly half of the original equipment manufacturers in the United
    States today do not make 13 SEER equipment, and risk being put out of
    business if a 13 SEER minimum is imposed. The Department of Justice
    expressed particular concerns about the anti-competitive impact of such
    a standard on smaller manufacturers.
        But, as the question suggests, consumers can purchase 13 SEER
    equipment today--as well as 14, 15, and 16 SEER products--if they can
    afford it and if they believe it makes economic sense. To impose a 13
    SEER standard on all American consumers, however, would cause profound
    and disproportionate hardship on lower income consumers, the elderly on
    fixed incomes, and smaller equipment manufacturers, without justifiable
    energy savings.
        Question 2. Doesn't it make sense to spend some time reviewing why
    the previous Administration despite all advice for a 12 SEER standard--
    changed to a less-economic 13 SEER standard at the last minute?
        Answer. One of the legal challenges raised by ARI to the last-
    minute 13 SEER standard (which was sent to the Federal Register on the
    last day of the previous Administration and published on January 22,
    2001) is that there was not sufficient time to analyze and respond to
    the purported support for a 13 SEER standard. And this is one of the
    primary reasons that the current Administration withdrew the rule
    published on January 22, 2001--to take the appropriate time to analyze
    the potential energy savings and the technological feasibility and
    economic justifications for a 13 SEER standard, as DOE is required to
    do under the applicable statute. Upon reviewing the millions of dollars
    of data in the record at DOE relating to a new SEER standard, DOE has
    issued a supplemental proposed rule in the Federal Register on July 25,
    2001 which would increase the SEER by 20 percent to a 12 SEER. It is
    apparent from the DOE notice of July 25, 2001, that after a more
    thorough review DOE believes that there is economic justification in
    the record to support raising the standard to a 12 SEER, not a 13 SEER.
    Our analysis agrees with their conclusion.
        Question 3. Why should consumers in Alaska or Minnesota--where
    payback period is more than 20 years--be forced to purchase an
    uneconomic air conditioner or heat pump?
        Answer. Consumers in most of America--not just Alaska or
    Minnesota--should not be forced to purchase a 13 SEER air conditioner.
    The attached map of the United States demonstrates that the payback for
    such equipment does not make economic sense in energy costs savings in
    most of the country. There are other methods of achieving energy
    savings without penalizing the customer. For example, ARI members,
    except for one, have developed and participated in the North American
    Technician Excellence program, which is a program to improve
    installation and service of air conditioners and will increase
    efficiency enormously. Additionally, service maintenance contracts
    would assure continuing efficiency of installed equipment.
        Question 4. Wouldn't it be more prudent to promote the 12 SEER
    standard, and let consumers in Texas and Florida purchase a more
    efficient air conditioner based on their needs?
        Answer. Yes. The cost differential between a 12 and 13 SEER product
    is simply too extreme to impose the 13 standard on everyone. Although
    one manufacturer has claimed that the cost differential between the 2
    standards is only $100.00, that estimate was based on a very limited
    survey of 3 contractors from 2 states. ARI's estimates, which are based
    on variances in equipment costs and nationwide surveys, demonstrate
    that the average differential between a 12 and 13 SEER product is
    $407.00. (For example, the differential between the installed price
    from a contractor in Dumfries, Virginia and one in Riverdale, New
    Jersey is $2,577.00!)
        Moreover, some critics of the proposed 12 SEER standard allege that
    ARI's predictions of increased costs are inflated because predictions
    of cost increases in 1992 when the 10 SEER standard was imposed were
    not accurate. There is a significant difference in the 1992 predictions
    and the current ones, however: (1) in 1992, compressor manufacturers,
    independently--as a result of long standing research--introduced a new
    scroll compressor technology, at very little cost; and (2) the average
    product shipped in 1987 (when the rule was first drafted) was
    approximately a 9 SEER product, only one point below the proposed 10
    SEER standard; whereas, in the current situation, there is no
    compressor technology on the horizon to provide efficiency gains at
    minimal cost, and the average product shipped today is close to an 11
    SEER product which is two points below a 13 SEER.
        And finally, advocates for a 13 SEER standard have claimed that ARI
    had inaccurately predicted a $700 increase in cost in 1992 when the 10
    SEER standard was imposed, but as the attached transcript of the DOE's
    November 16, 2000 hearing clarifies, Steven Nadel of the Association
    for Energy Efficiency Economy admits that the $700 ARI estimate
    pertained only to a California Energy Commission rulemaking as an
    estimate for a California only standard.
        In short, the 12 SEER standard is economically justifiable after
    taking into appropriate account the climatic, regional and economic
    differences in our nation, whereas a 13 SEER minimum standard would
    impose unjustifiably harsh punishment on certain consumers and regions
    of our country.
        2 Attachments: 1. Cooling Hours Payback Map, and 2. Nov. 16, 2000
    DOE Hearing Transcript have been retained in committee files.
                                     ______

                          National Energy Management Institute,
                                         Alexandria, VA, July 31, 2001.
    Hon. Jeff Bingaman,
    Committee on Energy and Natural Resources, U.S. Senate, Washington DC.
        Dear Senator Bingaman: I have just arrived back in town and am in
    receipt of your letter dated July 20, 2001 relating to Senator
    Murkowski's questions.
        As I reviewed the list of questions asked by the Senator, I
    realized they were out of the scope of my testimony. I have no further
    comment on the issues he proposed.
                Sincerely yours,
                                                Erik S. Emblem,
                                                    Executive Director.
                                     ______

      Responses of Steven Nadel, American Council for an Energy Efficient
                  Economy to Questions From Senator Murkowski
        Question 1. The 13 SEER standard will save 4 quads of energy at a
    cost of $4 billion to consumers; the 12 SEER standard will save 3 quads
    of energy at a cost of $1 billion to consumers. In other words, the 12
    SEER standard gives consumers 3/4 of the energy savings at 1/4 the
    cost. Why then would we require a less cost-effective 13 SEER standard,
    particularly when consumers who need a more efficient air conditioner
    can go out and buy one?
        Answer. This question contains points about energy savings, costs,
    and net financial savings. I will attempt to answer each of these.
    Regarding energy savings, according to DOE's analysis, a 12 SEER
    standard will save 2.9 quads, a 13 SEER standard 4.2 quads, so a SEER
    12 standard will have 69% of the savings of the 13 SEER standard. Or
    stated another way, a 13 SEER standard will increase savings 45%
    relative to a 12 SEER standard. Regarding costs, according to DOE's
    analysis, for the most common unit (a split air conditioner), 12 SEER
    has an incremental cost to the consumer of $213 and 13 SEER has an
    incremental cost of $335, so 12 SEER is 64% of the cost of 13 SEER, not
    1/4 of the cost. I am not clear what the $4 billion figure is you refer
    to, but the $1 billion I believe is the net savings (benefits minus
    costs) for 13 SEER. According to DOE's analysis, the comparable figure
    for 12 SEER is $2 billion. In the opinion of my organization, ACEEE,
    DOE's estimates of net savings are unrealistically low for both 12 SEER
    and 13 SEER and in fact net savings for both standards will be
    significantly higher (our rationales are briefly explained below in my
    response to question 3).
        The reasons to require 13 SEER in our opinion are several-fold.
    First, when the economic analysis is corrected, benefits for consumers
    are greater at 13 SEER than 12 SEER. Second, energy savings are 45%
    higher for 13 SEER than 12 SEER, and given the energy problems facing
    the U.S., we need to pursue all cost-effective energy savings. Third,
    there are very substantial peak demand savings associated with the
    increase from 12 to 13 SEER. Reducing peak demand will improve system
    reliability and will reduce summer electricity prices for all consumers
    (reduced peak demand increases supply relative to demand, reducing
    market-clearing prices). Fourth, the larger energy savings from 13 SEER
    translate into larger emissions reductions from the new standard,
    helping to reduce the cost of Clean Air Act reforms for ``3
    pollutants'' and for likely eventual steps to reduce greenhouse gas
    emissions.
        Question 2. Doesn't is make sense to spend some time reviewing why
    the previous Administration despite all advice for a 12 SEER standard--
    changed to a less-economic 13 SEER standard at the last minute?
        Answer. In our opinion, given the energy problems facing the
    country and the need of the nation to both improve energy efficiency
    and increase energy supplies, available Congressional and DOE time
    should be devoted to these endeavors and not to a look back at actions
    that have already been taken. For example, in the National Energy
    Policy, the President has directed that DOE look into opportunities for
    setting new standards that are technically feasible and economically
    justified. In an effort to help achieve this objective, in my testimony
    I suggested a look forward to investigate ways to make the standards-
    setting process more effective in the future.
        Regarding the statement in the above question, I would like to note
    that advice went both ways. Relative to the original proposal for a 12
    SEER air conditioner standard and a 13 SEER heat pump standard, some
    parties advocated a weaker standard (e.g. 12 SEER on both products) and
    some a stronger standard (e.g. 13 SEER on both products). The final
    rule was based on comments on the draft rule. It is fairly common for a
    final rule to include changes from a draft rule; if changes weren't
    sometimes made, then the final hearing and comments would be a charade.
    Also, this rulemaking took 7\1/3\ years, and under DOE procedures there
    was no proposed rule until more than 7 years had passed, so even the
    proposed rule was relatively ``last minute'' with the final rule
    following three months later.
        Question 3. As the chart shown by Mr. Rees tells us, there are vast
    parts of the country where the payback period for a 13 SEER air
    conditioner will be too long to allow the consumer to recover their
    extra costs. Why should consumers in Alaska or Minnesota--where the
    payback period is more than 20 years--be forced to purchase an
    uneconomic air conditioner or heat pump?
        Answer. There are several responses to your question. First, the
    data provided by Mr. Rees are based on ARI cost estimates and are
    higher than the incremental cost of these products in many markets
    today, even though SEER 13 is presently a niche product today and not a
    mass-market product. For this reason, DOE has de-emphasized use of the
    ARI cost estimates. Using the DOE cost estimates, payback periods in
    northern states would be lower than shown by ARI.
        Second, even the DOE analysis doesn't account for two very
    important factors: (a) the fact that past experience shows that the
    actual cost of standards, once implemented, are substantially less than
    a priori DOE estimates; and (b) the fact that summertime electricity
    prices (when air conditioning is used) have risen substantially since
    1996 (DOE's analysis is based on summer 1996 electric bills). These
    issues were discussed in my written testimony. When we correct for
    these two factors, even a 13 SEER air conditioner used only 300 hours
    per year (a typical figure for the far-north) will have a payback
    period of approximately 8 years relative to a 12 SEER unit.
        Third, in the far north relatively few homes have central air
    conditioners, so relatively few homes are affected relative to the much
    larger number of homes in warm climates that have central air
    conditioners.
        Fourth, there are benefits for northern regions in addition to
    direct consumer benefits. These benefits include reduced summertime
    peak demand, reduced summertime electricity prices for all consumers
    (due to the effect of reduced demand on market prices), and reduced
    emissions of air pollutants from power plants. For example, there is
    strong support for the 13 SEER standard in Oregon and Washington due to
    the impacts of reduced peak demand on summertime electricity prices and
    because freeing up power in Oregon and Washington allows them to sell
    excess power to California at a profit. And finally, under the federal
    standards program as currently implemented, there is a single national
    standard, that applies equally in every state. For most products this
    works fine, but for climate-sensitive products such as air conditioners
    and furnaces, there is always a need to compromise given substantially
    different energy use in the northern and southern states. For these
    products, it might make sense to split the country into two regions and
    set separate standards for each.
        Question 4. Wouldn't it be more prudent to promote the 12 SEER
    standard, and let consumers in Texas and Florida purchase a more
    efficient air conditioner based on their needs?
        Answer. Under standards, consumers are always free to buy more
    efficient products than the standards require. However, experience
    shows that most sales are at or near the standard level and only a
    limited number of consumers buy more efficient products due to the many
    market barriers that led to the establishment of standards in the first
    place. Currently, 13 SEER units have only about a 5% market share
    nationally, and while the market share for 13 SEER is higher in Florida
    and Texas, my understanding is that even in these states 13 SEER
    accounts for a minority of product sales. By setting the federal
    standard at 13 SEER, the market share of these units will be much
    higher, increasing energy savings, peak demand savings and net economic
    benefits (the latter is true with reasonable economic assumptions).
    Looked at another way, my understanding is that sales of 12 SEER (but
    not 13 SEER) units are already quite high in Florida and Texas, so
    without a 13 SEER standard, these states will not receive significant
    benefits. One possible compromise might be to set a 12 SEER national
    standard but permit warm states to set higher standards. However, for
    this option to work, manufacturer support will be needed, as
    manufacturers have traditionally opposed such arrangements, insisting
    on a uniform national standard.
        Question 7. Mr. Nadel, you made several recommendations as to other
    appliances that could be covered by an expanded appliance standard
    process. Some of your recommendations follow standards adopted by the
    California Energy Commission--did they evaluate the costs to consumers
    and impacts on consumer choice in setting their standards?
        Answer. Yes, California evaluates both of these factors in setting
    state standards. The California process to set these standards includes
    (1) an initial hearing and data collection/analysis; (2) publication of
    draft standards, an energy savings and economic analysis, and a hearing
    on these materials; (3) publication of revised materials and a hearing
    on these materials; and (4) publication of a final proposal, a hearing
    on this proposal, and adoption of a final standard. At this point steps
    1-3 are completed and the final step is scheduled to take place
    shortly. In general, the California standards are set at levels that
    many existing products can meet since the California market is much
    smaller than the national market and because the California standards
    are typically scheduled to go into effect one year after adoption
    rather than the 3 years typically used for federal standards.
        Question 8. Will your upcoming report on the effects of these
    standards also evaluate consumer costs and other market impacts in
    addition to energy savings?
        Answer. Yes, our report will fully evaluate consumer costs and
    benefits. In the table on the next page I provide our preliminary
    results. In addition, we look at other market impacts by reviewing
    available data and interviewing industry experts.

             ESTIMATED NATIONAL SAVINGS FROM STANDARDS ON PRODUCTS NOT COVERED BY EXISTING FEDERAL STANDARDS
    ----------------------------------------------------------------------------------------------------------------
                                                         National energy     National energy
                                                        savings in 2010     savings in 2000     NPV for
                                           Effective                                           purchase    Benefit-
                  Products                   date    ----------------------------------------  thru 2020  cost ratio
                                            (year)               (Tril.              (Tril.      ($)
                                                       (Twh)      Btu)     (Twh)      Btu)
    ----------------------------------------------------------------------------------------------------------------
    Torchieres..........................     2005       28.8      293.9     52.4      522.0     22,789        4.4
    Ceiling fans........................     2008       12.0      122.6     48.1      479.1     15,953        4.7
    Furnace and heat pump fans..........     2008        9.2       94.0     46.1      459.0     20,658        6.5
    Electronic equip. & power supplies..     2005       22.5      229.3     28.6      285.1     13,822        5.0
    Unit and duct heaters...............     2005       NA         53.1     NA        149.7      4,241        6.2
    Dry type transformers...............     2005        1.9       19.7      5.4       54.1      2,796        5.8
    Vending machines....................     2008        1.2       12.1      4.0       40.0      1,198        4.5
    Commercial refrigerators & freezers.     2005        1.9       19.9      3.2       31.8      1,375        6.8
    Traffic lights......................     2005        0.3        3.6      2.6       26.2        710        2.6
    Exit signs..........................     2005        0.8        8.5      2.3       23.3      1,179        7.5
    Commercial clothes washers..........     2008        0.7        6.8      2.1       21.3      2,000        6.7
    Beverage merchandisers..............     2008        0.6        6.1      2.0       20.2        621        5.1
    Ice-makers..........................     2005        1.1       10.9      1.7       16.5        564        3.0
    Packaged large HVAC.................     2008        0.3        2.9      1.4       14.2        387        3.4
      Total.............................                81.4      883.2    199.9    2,142.4     88,293        5.0
    ----------------------------------------------------------------------------------------------------------------

        [Senator Larry E. Craig submitted the following technical
    response of Argonne National Laboratory to the testimony of
    Thomas B. Cochran and asked that this response be printed in
    the hearing record.]

                          ARGONNE NATIONAL LABORATORY

                Responses to the Testimony of Thomas B. Cochran
        Cochran. ``My testimony will focus on research and development of
    advanced fuel processing technologies and whether the United States
    should abandon its longstanding non-proliferation policy and promote
    the development and deployment of pyroprocessing and transmutation
    technologies.''
        Response. The United States government position that it does not
    ``. . . encourage the civil use of plutonium and accordingly, does not
    itself engage in plutonium processing'' is based on proliferation risks
    associated with the separation of pure plutonium by reprocessing. The
    pyroprocess is an advanced technology that cannot separate pure
    plutonium. In fact, the product of the pyroprocess is a highly
    radioactive mixture of uranium, plutonium, minor actinides, and some
    fission products. This material is not suitable for use as weapons
    materials. The implication that promoting development and deployment of
    pyroprocessing and transmutation technologies is abandonment of
    longstanding nonproliferation policy is false. Indeed, pyroprocessing
    provides a proliferation resistant alternative to traditional PUREX
    reprocessing that-strongly supports U.S. nonproliferation objectives.
        Cochran. ``Civilian nuclear activities have directly and indirectly
    contributed to the spread of nuclear weapons.
        . . .
        Unfortunately, the nuclear nonproliferation threat stemming from
    civilian nuclear power technologies is still alive today, as evidenced
    by Iran's pursuit of a nuclear weapons option by purchasing nuclear
    expertise and dual-use technology from Russia.''
        Response. In the history of more than 50 years of civilian nuclear
    energy deployment, neither a single commercial electricity generating
    reactor plant nor any commercial reprocessing facility has been
    utilized to obtain weapons materials. In all cases, the weapons
    materials were acquired through uranium enrichment or from plutonium
    produced in special purpose small reactors.
        In countries that do not already nave nuclear weapons, all
    commercial nuclear facilities are under the international safeguards
    regime. The economic penalty and the energy security compromise
    resulting from safeguards violations are so great that these commercial
    nuclear facilities would not be the choice for weapons materials
    production, even in the future.
        Cochran. ``Advanced processing research, even in weapon states,
    provides the necessary justification for nascent nuclear weapon states
    to pursue similar research ostensibly for peaceful purposes. It is
    primarily for these reasons that NRDC believes the better course is to
    oppose all commercial use of nuclear weapon-usable materials, including
    separated plutonium and highly enriched uranium, and oppose the
    research, development and commercialization of nuclear fuel
    reprocessing technologies.''
        Response. If a nascent weapons state wishes to produce weapons
    material, relatively straightforward chemical reprocessing methods are
    already available. Research on advanced technologies such as
    pyroprocessing does not increase the already existing proliferation
    risks. In fact, developing proliferation-resistant alternatives to
    replace already existing aqueous reprocessing will support the U.S.
    nonproliferation policy goals.
        Since current commercial reactors produce about 40% of their energy
    over the life of the fuel by fissioning plutonium, opposing all
    commercial use of nuclear weapon-usable materials requires elucidation.
    Plutonium is, in fact, simply a natural part of nuclear energy, even in
    the once-through uranium fuel cycle. Further, fissioning plutonium in a
    fast reactor will reduce the inventory of plutonium already contained
    in spent LWR fuel.
        Worldwide, nuclear power deployment and R&D is driven by a need for
    energy. History has shown that we can guide development in other
    countries through technical leadership, but that trying to lead by
    abstinence has failed.
        Cochran. ``The simple answer is that there are no known fuel cycles
    that are cheaper, and no known fuel cycles that rely on reprocessing
    that are more proliferation resistant, than the once-through fuel
    cycle.''
        Response. The once-through fuel cycle may not be cheaper in the
    long run if the waste management implications are factored in. The
    once-through fuel cycle would add to the accumulation of plutonium
    contained in the spent fuel at the rate of about 80 tons of plutonium
    per year around the world indefinitely, and at a greater rate if
    nuclear enegy expands as expected. After long cooling period, the
    plutonium contained in the spent fuel can be more easily accessed,
    creating real proliferation concerns, or worse, creating a source of
    plutonium that is not a concern because it has been forgotten by the
    international community.
        Cochran. ``However, the most serious nonproliferation threat
    associated with reprocessing technologies is not the terrorist threat,
    but the so-called `state threat.' The IFR concept and the
    pyroprocessing technique offer little in the way of reducing this
    threat.''
        Response. This argument is irrelevant to the merits of the IFR
    concept and pyroprocessing. Having decided to become a weapons state, a
    country would pursue facilities and technologies relevant to that end,
    not those that are irrelevant. The IFR has features that ameliorate,
    and in large measure eliminate, concerns about nuclear proliferation.
    Advantages for nonproliferation are, in fact, a major asset of the IFR.
        The IFR is compatible with the most rigorous safeguards provisions,
    and it provides a basis for dealing with the most egregious concerns
    about safeguards: excess weapons plutonium and the long-term
    accumulation of plutonium, both separated and in waste inventories. IFR
    technology does not involve separating plutonium. The IFR pyroprocess
    that separates fission product wastes cannot produce pure plutonium.
    Plutonium is always codeposited with other actinides (neptunium,
    americium, curium) and uranium. The product carries enough highly
    radioactive fission products to necessitate remote handling of even the
    refabricated fuel. All processing steps, including fuel fabrication,
    are conducted remotely in a small hot cell. Unauthorized access is
    impossible and any attempt would be easy to detect. The compactness of
    the fuel cycle facility means that transportation of spent fuel and
    refabricated fuel can be eliminated by locating the facility at the
    power plant site. IFR products would still need aqueous reprocessing
    for any use other than in the IFR (e.g., after covert diversion), just
    as does spent LWR fuel. Furthermore, IFR can consume stocks of
    plutonium that currently are increasing daily. And finally, by
    integrating the latest safeguards technologies into the IFR fuel cycle,
    an unprecedented level of nonproliferation transparency can be
    achieved.
        Nations that choose to pursue nuclear reprocessing presently have
    one technology available, called PUREX. This technology was designed
    specifically to produce highly purified plutonium for the construction
    of nuclear weapons. Introduction of IFR technology would provide a
    proliferation-resistant alternative that strongly supports U.S.
    nonproliferation objectives.
        Cochran. ``In one respect pyroprocesing is actually worse than
    aqueous reprocessing in terms of their respective proliferation risks.
    Preprocessing involves access to technologies for working with
    plutonium in metallic form, the form most often used for weapons.''
        Response. This assertion is not true. In the aqueous reprocessing,
    plutonium is recovered as plutonium nitrate, which is easily converted
    to plutonium metal. In pyroprocessing, pure plutonium metal is never
    produced. The product is a highly radioactive mixture of uranium,
    plutonium, minor actinides and some fission products, that is
    unsuitable as weapons material.
        Cochran. ``There is not a shred of evidence in any of the ATW
    proposals that the collective dose reductions associated with the
    geologic repository, assuming ATW is implemented, will be less than the
    collective dose from operating the reprocessing facilities and the
    transmutation facilities. In fact everything we know about these
    facilities today suggests the opposite--ATW would result in a higher
    collective radiation dose to people than they would receive if ATW were
    not implemented.''
        Response. The radiological toxicity of the spent fuel consists of
    two components: fission products which decay to the background
    radiological toxicity level of the original uranium ore in about 300
    years, and actinides which have long half lives and hence take millions
    of years to decay to that extent. With pyroprocessing, the actinides
    are recovered collectively and can be transmuted or fissioned in the
    ATW or in the fast reactor. The dose from operating the transmutation
    facility is the same as the standard nuclear power plant. The dose from
    operating a pyroprocessing facility is expected to be a small fraction
    of that from a power plant.
        On the other hand, the benefits of removing actinides from the
    repository are tremendous and would allow the following specific
    contributions toward a solution to the nuclear waste problem:

       Removal of actinides, which have long half lives hence long-
            term radiological toxicity, from the waste, thereby reducing
            the effective lifetime of the waste from hundreds of thousands
            of years to a few hundred years. Actinides can be recycled as
            fuel in the fast reactor.
       Since the source for long-term radiological release from the
            repository is essentially eliminated, the EPA standard for
            long-term release and NRC regulatory requirements can be met
            more easily.
       The amount of waste stored in the repository can ue
            increased by a factor of about 10 because the long-term heat
            source is eliminated.
       The lower heat source leads to a cooler repository resulting
            in higher confidence in superior repository performance
            modeling involving ground water movement.

        Pyroprocessing does not obviate the need for the Yucca Mountain
    repository. The above technical attributes will allow the technical
    performance requirements for such a permanent repository to be met more
    easily and reduce the burden of long-term stewardship, resulting in
    significant improvements in the licensing process and economics.
        As for the transmutation, it can be done more effectively and
    economically in fast reactors because the engineering complexity and
    cost penalties associated with the accelerator driven spallation
    neutron source are eliminated. Furthermore, actinides are valuable
    resources for electricity generation. Current commercial reactors
    utilize less than 1% of uranium resources. Fast reactors can accomplish
    a full utilization of uranium resources increasing the nuclear energy
    potential by a factor of 100. This will enable nuclear energy to have a
    significant impact on reducing the greenhouse gas emission.
        In fact, the fast reactor with pyroprocessing is the only advanced
    reactor concept that can answer all of the five crucial questions
    raised by the New York Times editorial on May 29, 2001, namely: (1)
    impact on global warming, (2) weapons risks, (3) waste disposal, (4)
    rector safety, and (5) economics.

                                  Appendix II

                  Additional Material Submitted for the Record

                                  ----------

                     Statement of Chevron Energy Solutions
        Chevron Energy Solutions appreciates the opportunity to discuss the
    need for energy efficiency in our country, and barriers we have
    encountered in trying to do business with the Federal government to
    increase energy efficiency in public buildings. We believe that some
    small, but critical changes to current law would help increase the use
    of Energy Savings Performance Contract provisions which we, as well as
    many others, believe are underutilized. These changes would help both
    public officials and contractors cut through the ``red tape'', and get
    the job done of increasing energy efficiency in our public buildings.
        By way of background, Chevron Energy Solutions is an energy
    services company headquartered in San Francisco, California, with 12
    offices nationwide. In July 2000, Chevron acquired the retail energy
    services business of PG&E Corporation, and integrated the expertise
    into Chevron's own proven capabilities in this area. Chevron Energy
    Solutions has programs for energy management, energy efficiency, power
    quality, and power reliability to meet the ever-changing and growing
    demand of both private companies and public agencies. With the Federal
    government, over the past several years, we have done and continue to
    do a substantial amount of contract work for the Department of the Navy
    and other Federal agencies (many high security agencies) in both energy
    efficiency and infrastructure improvement upgrades. In the State of
    California alone, we have implemented energy performance contracts for
    community colleges and school districts, municipalities and other
    government agencies in an effort to assist them in meeting the
    challenges associated with energy shortages and escalating energy
    costs. We are also under contract with the Metropolitan Washington
    Council of Governments to make energy performance contracts available
    to their member agencies and departments throughout the greater
    metropolitan Washington area.
        Energy Savings Performance contracts are an important and
    innovative tool for government agencies to fund energy efficiency
    measures. We estimate a savings of over $175 million in energy costs
    could be saved in Federal buildings alone under existing law--and
    substantially more if some changes are made to existing law. Government
    facilities represent a significant opportunity to help us meet our
    national energy goals. Our experience has shown that many of these
    facilities have aging and energy inefficient equipment and
    infrastructure that requires modernization to allow them to operate at
    peak efficiency. To help address these needs, and provide a financial
    mechanism to obviate the necessity of a large capital outlay, Congress
    included ``performance contracts'' as part of the Energy Policy Act of
    1992 to allow energy upgrades to be paid for through savings obtained
    through energy efficiency.
        We are very supportive of the energy contracting provisions in
    current law, but we have learned that ``one size does not fit all'',
    and increased flexibility is needed. We strongly advocate that changes
    be made in existing law to provide for some of this additional
    flexibility. If these changes were made, we believe that these
    provisions would be more workable and utilized by more Federal
    departments and agencies and could result in energy cost savings of
    greater than $500 million. In addition, State and local government
    agencies are adopting and implementing similar provisions, which mirror
    the Federal statute.
        The focus of current law is on ``cost savings'' and not necessarily
    on ``energy savings''--and it is important that we also address
    conservation as a means to help us meet our national energy goals.
    Reducing energy use does not always correlate with cost savings,
    although in many instances it does. The rising cost per unit of energy
    may also mean that a performance contracting initiative may result in a
    reduction in the total amount of energy consumed, yet there may be no
    cost savings at all. Therefore broadening the scope of the law is not
    only desirable, but it is entirely appropriate.
        We would recommend that the following changes be made to existing
    law and added to the Senate bill S. 352:
        (1) Broaden the definition of energy savings measures to include
    infrastructure improvements that contribute to energy conservation,
    including operational efficiency of building heating, ventilation and
    air conditioning systems, lighting systems, building envelopes,
    domestic and hot water systems, measures that result in verifiable
    operational efficiencies within the building, and other comparable
    measures. Certainly, these measures should be a part of the overall
    definition because they represent the breadth of what energy efficiency
    is about--that certainly operational changes are key to achieving this
    goal. Efficiencies do not arise solely from one piece of equipment
    within a facility, but from the interrelationship of systems within the
    facility.
        (2) Allow for a single contract to cover work that is related to
    implementing energy efficiency measures. In order to install energy
    efficiency measures, often times other incidental work must be done
    first. For example, asbestos may need to be removed prior to revamping
    a building's electrical system or a roof repaired prior to revamping
    the heating system. Under current law, the agency must let a separate
    contract for this work although the work is related to installation of
    the energy efficiency measures. This work could very well be done, and
    should be done by the same contractor. If the Federal agency had the
    option to provide one umbrella contract for all work related to
    implementing the energy savings contracts, then this would eliminate
    ``red tape'', and the energy efficiency measures could be installed
    faster and less expensively. In addition, Federal agencies should have
    the option to finance these costs from their capital budgets.
        (3) Expand provision to cover ``energy usage'' as a factor that can
    be counted in determining the ``savings.'' This would provide
    incentives for conservation, and not restrict the ``savings'' solely to
    costs. We recommend that changes would provide for being able to
    account for a corresponding reduction or change in energy use. With
    rising energy costs, there may be no decrease in funds but yet energy
    is being conserved.
        (4) Provide incentives and educate school districts regarding
    performance contracting. Public schools are continually plagued with
    aging inefficient energy systems, and lack funds up front to pay for
    the upgrades. Performance contracting is a tool that would allow public
    schools to do the necessary upgrades without expending capital funds up
    front. We recommend that DOE and the Department of Education work
    together to develop incentives for public schools to use performance
    contracts.
        (5) Provide some flexibility in the methodology in how the energy
    savings are verified. In current law, an ``annual energy audit'' is
    required. An ``annual audit'' is not always necessary because energy
    efficiency standards are in place and the use of these conventional
    standards (which have already been verified) is accurate measurement.
    For example, if there is a lighting retrofit, the specifications for
    those lights include energy use and costs--therefore, ``an annual
    energy audit'' performed by the contractor to verify energy savings is
    unnecessary and redundant.
        Again, we appreciate the opportunity to submit testimony for the
    record and believe that these changes are needed to add flexibility to
    this provision so that it will be more fully utilized and ultimately
    increase energy efficiency at our government facilities. We are hopeful
    that Congress will include these changes in the energy legislation now
    being considered.
        Thank you for your consideration.
                                     ______

           Statement of Craig G. Goodman, President, National Energy
                             Marketers Association

                                I. INTRODUCTION

        My name is Craig G. Goodman. I am submitting this testimony as
    President of the National Energy Marketers Association (NEM). NEM is a
    national, non-profit trade association representing a regionally
    diverse cross-section of both wholesale and retail marketers of energy
    and energy-related products, services, information and technology
    throughout the United States. NEM members include: small regional
    marketers, large traditional international wholesale and retail energy
    suppliers (as well as wind and solar power), billing and metering
    firms, Internet energy providers, energy-related software developers,
    risk managers, energy brokerage firms, information technology providers
    and manufacturers and suppliers of advanced distributed generation.
    Membership includes both affiliated and unaffiliated companies.
    Affiliated and independent marketers have come together under the NEM
    auspices to forge consensus and to help eliminate as many issues as
    possible that would delay competition.
        NEM members urge lawmakers and regulators to implement: 1) laws and
    regulations that open markets for natural gas and electricity in a
    competitively neutral fashion; 2) rates, tariffs, taxes and operating
    procedures that unbundle competitive services from monopoly services
    and encourage true competition on the basis of price, quality of
    service and provision of value-added services; 3) standards of conduct
    that protect consumers; and 4) policies that encourage investments in
    new technologies, including the integration of energy,
    telecommunications and Internet services to lower the cost of energy
    and related services.
        As a national trade organization, NEM brings a wide range of
    experiences, as well as broad perspectives to its testimony in this
    proceeding that should aide the United States Senate Committee on
    Energy and Natural Resources and enhance the quality of the record to
    be developed here. NEM currently participates in more than 50
    restructuring proceedings around the country and at FERC. The testimony
    and recommendations presented here represent major issues and barriers
    to price competition that are most often confronted in proceedings
    around the country.

                                 II. BACKGROUND

        Electricity represents the last vestige of 60 years of the most
    complicated price and allocation controls known to man. The retail U.S.
    energy business is one of the largest single businesses in the world.
    It represents nearly a trillion dollars a year, of which, energy is
    only about $300 billion. Currently, however, utility bills include all
    manner of products, services, information and technologies which are
    truly separate and very competitive businesses.
        In the U.S., there are very few true supply monopolies or demand
    monopsonies. But between competitive sources of supply and demand there
    are two, full-blown, government sanctioned monopolies. One is an
    interstate transmission monopoly, and one is a local distribution
    monopoly. Current rules governing these monopolies are incredibly
    complex, hard to audit and impose enormously unnecessary costs on
    consumers in many different ways.
        To help consumers and to lower energy prices quickly, monopoly
    barriers to new energy supplies must be repealed, and aggressive
    conservation and load reduction incentives must be implemented
    immediately. At the same time, both state and federal policies must
    squeeze the monopoly profits out of the two monopolies between supply
    and demand so that more competitive supplies can meet demand at lower
    prices.
        Utilities should not have a monopoly or competitive advantage to
    provide competitive products, services, information and technologies.
    Utilities should perform solely natural monopoly functions. Regulated
    utilities should sell transportation services on a ``no frills'' cost
    of service basis. Needed infrastructure investments should be given
    targeted, performance-based incentives. Regulations, tariff structures,
    interconnection rules, back up rates and operational protocols should
    be uniform and designed to permit competitive suppliers to provide all
    other energy-related products, services, information and technologies
    at competitive, not monopoly, prices.

                              III. RECOMMENDATIONS

        There are a number of actions that federal and state governments
    need to take to encourage new investments in distributed generation
    technologies as an important part of the competitive restructuring of
    U.S. energy markets. NEM members operate in virtually every market that
    has opened for competition, and their broad base of experience was the
    basis for the attached document entitled, ``National Guidelines for
    Implementing Distributed Generation and Related Services.'' * In this
    document, NEM recommends fair and uniform business practices for
    interconnection, reasonable regulation of emissions, balanced planning
    and distributed generation valuation, fair tariffs for regulated
    services, and the ability to sell excess power.
    ---------------------------------------------------------------------------
        * The document has been retained in committee files.
    ---------------------------------------------------------------------------
        NEM also recommends the expansion of existing energy and
    environmental tax credits to include Qualified Restructuring
    Investments such as advanced metering, computer system upgrades, and
    distributed generation and the provision of tax and performance based
    regulatory incentives for infrastructure upgrades, congestion
    management, maintenance and streamlined interconnection procedures.
    A. Implementation of Distributed Generation Technology
        Electric demand is increasing as a result of economic expansion and
    the 21st century digital revolution. As congestion on the existing grid
    mounts, investment in distributed generation can provide significant
    relief to consumers quickly and cost effectively. Accordingly, NEM
    urges the adoption of five principles to encourage implementation of
    distributed generation.
        As a general matter, regulators should unbundle and redesign
    distribution rates, eliminate penalties, redundant charges, and
    barriers to entry and implement tariffs that encourage investments. As
    currently designed, utility tariffs represent significant economic
    barriers to consumers that wish to invest in distributed generation and
    related technologies. NEM maintains that utility tariffs, operating
    practices and procedures must be rewritten to recognize that
    distributed generation can increase en orgy supplies, enhance system
    reliability and lower energy costs to both the utility and the
    consumer.
        Utilities must provide equal, non-discriminatory access to markets
    for power and auxiliary services. Interconnection of distributed
    generation, in and of itself, does not provide distributed generation
    investors with equal and open access to either wholesale or retail
    markets. Distributed generation must have access to markets for the
    sale of generation and capacity as well as ancillary services.
    Distributed generators must also be able sell the output of their
    generation to the wholesale market and trade demand or energy reduction
    as a replacement for generation (``negawatt market''). Additionally,
    uniform and reasonable retail wheeling rates should be developed to
    maximize customer choice and permit a market for the local sale of
    power.
        Federal and state governments must adopt uniform technical
    requirements and procedures for the interconnection of distributed
    generation technology. National, or at a minimum, statewide technical
    safety and reliability requirements, application procedures, forms,
    standards agreements, related testing and certification requirements
    and the elimination of existing penalties can reduce the costs and
    risks of investments by consumers in competitive new distributed
    generation technology. Uniform interconnection standards, policies and
    practices must be implemented to lower the costs of installation.
        Consistent siting requirements and reasonable environmental
    permitting of distributed generation will reduce the cost and
    uncertainty associated with compliance for all parties. Similarly,
    local siting and environmental permitting requirements must allow
    investors in distributed generation technologies to comply in a
    realistic and timely fashion. At a minimum, emissions requirements
    should be phased in to provide manufacturers time to meet unrealistic
    or overly stringent emissions targets.
        Finally, utilities should not be granted a monopoly or competitive
    advantage to provide competitive products, services, information or
    technology. Utilities should perform solely natural monopoly functions.
    Essentially, regulated utilities should sell regulated distribution
    services on a ``no frills'' cost of service basis. Regulations, tariff
    structures, interconnection rules, back-up rates and operational
    protocols should be designed to permit competitive, non-utility
    suppliers to provide each of the products, services, information and
    technologies that are not natural monopoly functions. The provision of
    distributed generation technology can and should be opened immediately
    to competition.
    B. Federal and State Tax and Regulatory Incentives are Needed
            Immediately for Investments in New Energy Supplies,
            Conservation, Technology, and Infrastructure Immediately
        The United States has entered the digital age with an energy
    infrastructure constructed for the industrial revolution. The United
    States is operating on a level of reliability that cannot support
    digital power quality needs. A flicker of the lights in Silicon Valley
    has global impacts.
        One of the lowest cost, highest yield policy solutions is to create
    targeted tax incentives to encourage all forms of new energy supply,
    technology and conservation investments. This includes investments in
    new pipes and wires to reduce congestion, advanced metering systems,
    new computer systems, new energy supplies as well as distributed
    generation. Both the state and federal governments have powerful and
    effective tools to encourage new investments in energy supply and
    conservation. The federal tax code already contains a myriad of
    targeted energy, environmental and efficiency tax credits that should
    be updated to increase the supply of electricity and natural gas and
    reduce consumption. Either or both the existing energy tax credits
    contained in Section 48 of the Internal Revenue Code (IRC), or the
    existing credit for research contained in Section 41 of the IRC, could
    be expanded to include ``qualified energy restructuring investments.''
    The credit should be available to both regulated and unregulated
    entities. To ensure that restructuring tax credits and regulatory
    incentives are targeted and effective, investments that are not
    ``qualified'' should also not qualify for stranded cost recovery.

                                   CONCLUSION

        Our country is urgently in need of new generation investments, and
    it is in the public interest that customers be incented to make these
    investments as soon as practicable. Toward that end, competitive
    barriers to entry must be removed to create a hospitable market for
    distributed generation investments including the adoption of uniform
    technical requirements and interconnection procedures as well as the
    elimination of redundant fees and charges. Furthermore, reasonable
    emissions standards and environmental permitting and siting
    requirements for distributed generation should be adopted.
        At the wholesale level, distributed generation investors must have
    equal and open access to the markets for power and ancillary services.
    At the retail level, utilities' tariffs must be fully unbundled, and
    the utilities' role in the market should be defined as that of a no-
    frills, wires-only distribution company. All other competitive
    functions and products, including the installation and supply of
    distributed generation, should be provided by the competitive
    marketplace.
        Additionally, existing tax and regulatory incentives must be
    expanded to encourage new investments in energy supply, technology and
    conservation. NEM experts are available to work with Committee staff to
    draft appropriate language to implement these recommendations.
                                     ______

     Statement of Rone Lewis III, Senior Vice President of Ingersoll-Rand
              (IR) and President of IR's Independent Power Sector
        Thank you for giving me the opportunity to submit for the Senate
    Energy and Natural Resource hearing record my testimony on the role of
    microturbine technology and distributed power generation in addressing
    America's growing energy crisis.
        First, let me begin by giving you some background information on
    Ingersoll-Rand and its Independent Power Sector. Ingersoll-Rand is an
    $8.8 billion company with more than 50,000 employees operating in over
    100 countries. We serve four major global markets: climate control,
    industrial productivity, infrastructure and security and safety. In the
    area of Industrial Productivity, I am president of IR's Independent
    Power sector, which focuses on identifying, developing and marketing
    alternative-power and energy-management solutions.
        As you may be aware, Chairman Bingaman and Members of the
    Committee, a new type of electrical generator, called a microturbine,
    is rapidly becoming available to fit the electricity and heating needs
    of typical commercial buildings and industrial plants. About the size
    of a commercial refrigerator, microturbins hold great promise in
    supplying America's facilities with reliable and affordable power.
        Microturbines are small combustion turbines that produce anywhere
    from 25 to 500 kilowatts of electric power. They burn a variety of
    fuels such as natural gas or diesel to produce the same kind of
    electricity provided by a utility electrical grid. Because the gas
    turbine engine has relatively few moving parts, it is quite reliable
    and can operate for long periods--typically 8,000 hours or more--with
    little maintenance. Microturbines produce very low emissions as they
    burn fuel. They are designed to easily meet stringent environmental
    regulations, including California's strict emission standards.
    Microturbines are also relatively quiet emitting low noise levels.
        Our PowerWorks brand of microturbines, which has been in
    development for more than 10 years, will provide 70 kilowatts of energy
    to customers. They are designed to be placed in or near facilities such
    as hotels, supermarkets, hospitals, laundries, multi-family dwellings,
    schools and greenhouses, to name a few. These are locations that need a
    reliable, cost-effective and efficient energy source for electricity
    and heat.
        A $1.4 million research grant from the U.S. Department of Energy
    contributed to the development of the PowerWorks microturbine, which is
    designed to meet the same high standards found in chillers, boilers and
    furnaces. Our microturbines are manufactured to operate for
    approximately 10 years under typical operating conditions. Through
    their cogeneration capability, the PowerWorks microturbines can also
    fulfill a facility's hot water and other heating requirements.
        PowerWorks connects directly to the electrical distribution system
    of a facility to provide high quality electricity. Our microturbines
    work 24 hours a day, seven days a week for long periods with low
    maintenance. Designed to help satisfy electric power needs by producing
    electricity at the point of consumption, the PowerWorks microturbine
    also supports peak shaving applications. This means that microturbines
    can enable businesses and consumers to reduce their reliance on the
    power grid, especially during costly peak use hours.
        IR began the field-testing phase of its microturbine development
    program last fall in several kinds of facilities located throughout the
    United States. We plan to introduce our first commercial production
    units this fall.
        There is no argument that this country's need for this type of
    energy is increasing at a steady rate. California's energy crisis
    underscores the need for increased energy efficiency, cleaner
    technologies and more reliable production. Deregulation, volatile
    energy pricing and tighter emission regulations have all prompted an
    interest in energy alternatives, such as ``green'' technologies like
    the microturbines. And there is probably no better way to get reliable
    and affordable energy than from your own, on-site generating equipment.
        Distributed energy holds great promise in the United States for
    improving the generation of electricity. The report released this
    spring by Vice President Dick Cheney's energy task force revealed that
    this Administration is committed to the use of renewable and
    alternative energy, and specifically that ``microturbines could easily
    capture a significant share of the distributed generation market.''
        Furthermore, the Cheney Report was absolutely accurate in noting
    several challenges to the use of distributed energy. First, there is a
    lack of national, uniform standards governing interconnection of
    distributed energy to the local power grids, which is hampering the
    roll-out of the technology into the local marketplace. The microturbine
    industry needs a consistent, reliable process for grid interconnection
    approval that focuses on practical and cost effective safety
    requirements; a timely approval process that prevents foot dragging on
    distributed power projects; and no punitive charges from the utility
    for either disconnecting from the grid or using the grid as a backup.
    The industry is also interested in support for selling unused power
    back to the power grid.
        Long-standing regulatory policies that support monopoly supplies
    also must be reversed. This will increase competition, and encourage
    the development and environmentally-friendly alternative energy
    technologies. The Cheney Report correctly states, ``The tools that form
    the necessary interface between distributed energy systems and the grid
    need to be less expensive, faster, more reliable and more compact.''
        We are pleased that the report recommends that the President direct
    Energy Secretary Abraham to focus R&D efforts on integrating current
    alternative technology programs regarding distributed energy, hydrogen
    and fuel cells. Fuel cell technology is of particular interest to IR
    because several of our industrial products currently utilize diesel
    engines. Fuel cell technology promises a more environmentally sound
    alternative and continued federal research programs can accelerate the
    development of these programs.
        All developers of microturbine technology would be interested in
    Congressional and Administration support for tax credits for companies
    who install or use microturbine technology. Tax credits are essential
    to helping businesses finance their utilization of this technology,
    just as they have with other alternative energy sources, such as solar
    power. In addition, continued investment in our nation's natural gas
    infrastructure will help to ensure that a ready supply of natural gas
    is available.
        We look forward to working with the Senate Energy and Natural
    Resources Committee, the rest of the Congress, and the Bush
    Administration to develop the necessary regulatory and legislative
    support that would make power from microturbine technology more readily
    available. We believe that once the technical, business and regulatory
    barriers are removed, distributed power generation will be able to
    fulfill its promise to America.
        Thank you.
                                     ______

     Statement of Robert C. Richardson, Cornell University, Chair, Physics
       Policy Committee, American Physical Society, and Member, National
                                 Science Board

                [DOE Science for the Future--A Discussion Paper]

                                  INTRODUCTION

        The role of science and technology in maintaining the well being of
    our nation is growing and changing rapidly. Because of the extent and
    speed of these changes, it is essential to reexamine the ways in which
    support for scientific research is organized within the U.S.
    government. The advent of a new Administration and Congress provides an
    opportunity to address emerging problems in ways that may not be
    possible at other times.
        We, the authors of this discussion paper, are especially concerned
    about the future of the scientific research supported by the Department
    of Energy. The DOE is the federal government's third largest sponsor of
    basic research, and the largest sponsor of research in the physical
    sciences.
        The DOE Office of Science oversees outstanding national
    laboratories whose capabilities for solving complex interdisciplinary
    problems are not easily matched elsewhere. It also builds and operates
    large-scale user facilities of importance to all areas of science. In
    large part, it has been enormously successful in these efforts. Thus,
    the vitality of the U.S. scientific enterprise is strongly dependent
    upon DOE support.
        For about a decade, however, DOE Science budgets have been
    declining in purchasing power, and have fared significantly less well
    than those of other agencies. These difficulties have been exacerbated
    by weakness in overall federal support for the physical sciences (as
    compared to biology and medicine) and by the perception of management
    and security problems throughout the Department.
        The decline in funding for DOE Science implies that our nation has
    seriously underinvested in the research that it will need to sustain
    its health, security, and economic prosperity in the 21st Century.
        We believe that this situation has reached crisis proportions, and
    that future U.S. leadership in many essential areas of science is in
    jeopardy. Our purpose in these remarks is to suggest actions to
    strengthen DOE Science that might be taken jointly by the new
    Administration and Congress.
        We have considered alternatives ranging from keeping the status quo
    to major rearrangements of the existing science agencies. Of these
    various alternatives, we believe that two kinds of solutions to these
    problems--depending upon circumstances--may be feasible and effective.

                         THE PROBLEMS OF SCIENCE AT DOE

        The DOE Science budget has stagnated and declined, in part, because
    the DOE roles in civilian basic research and in the support of
    university faculty and students are neither adequately understood in
    Washington nor appreciated by the public at large.
        DOE as a whole has four main missions: national security,
    environmental restoration, science and technology, and energy. Its role
    in national security is to maintain our nuclear deterrent. The
    environmental role is to correct problems left behind under the
    pressures of the Cold War. The mission in science and technology
    uncovers new knowledge and propels the growth of our economy. The
    energy mission is to secure some degree of independence from
    fluctuations in the fossil fuel supply, and to develop environmentally
    sound energy technologies for sustainable development. In principle,
    the four missions can support each other.
        It is inevitable in a complex national-security program as large as
    that of the DOE that there will be problems from time to time. It is
    also inevitable that new environmental problems will be uncovered.
    These problems in the DOE weapons and environmental programs have given
    the overall agency a negative image that, in practice, has proved
    damaging to all of DOE, including its missions in science and energy.
    In particular, DOE Science has not received the support that it badly
    needs.
        The question of leadership is an essential part of the problem. The
    Director of the DOE Office of Science has responsibilities comparable
    to those of the director of the NSF and not very different from those
    of the directors of NIH and NASA; but he or she does not have
    comparable authority or visibility. Without that authority, it has
    become very difficult for DOE Science to make its case for necessary
    long-term investments in research.
        In considering responses to this situation, we have agreed upon the
    following guidelines:

       The DOE missions in national security, environmental clean-
            up, science and energy are each important in their own ways.
            Any solution to present problems within DOE should tailor
            management, facilities, and budgets so as to optimize the
            performance of each of these missions rather than applying
            ``one-size'' solutions to all.
       Science and technology in the United States has prospered
            greatly from diversity of funding sources and modes of support.
            For example, the fact that the NSF differs from the mission
            agencies in both purpose and style has made it possible for
            U.S. scientists to take risks and tackle challenging and
            important problems. Similarly, the DOE has developed great
            expertise in building and operating large facilities, and in
            overseeing important interdisciplinary national laboratories.
            That expertise has been extremely valuable throughout all of
            the U.S. scientific and technological community--in government,
            industry, and universities. The diversity of funding sources
            should be maintained.
       The primary responsibility of the DOE's science and energy
            programs should be to provide the new knowledge needed for
            ensuring the scientific and technological base of our nation's
            economic prosperity in the 21st Century. The mode in which
            those programs assume this responsibility should take advantage
            of the DOE's experience with large facilities and multi-
            disciplinary research efforts.

                             ALTERNATIVE STRATEGIES

        Starting from these guidelines, we propose two alternative kinds of
    solutions, without indicating a preference for one over the other.
    Alternative A is a restructuring of the DOE based on the assumption
    that the Department will remain essentially intact in the next
    Administration. Alternative B is based on the assumption that it may
    become feasible or inevitable that some or all of the present
    responsibilities of DOE be shifted to other agencies. After discussing
    both of these alternatives, we mention, for the sake of completeness,
    two other strategies that we believe are highly undesirable.
    Alternative A--Enhance the leadership and visibility of DOE science and
            energy by revising the management structure within the
            Department
        One way to accomplish this goal would be to elevate the Director of
    the DOE Office of Science to the rank of Under Secretary for Science
    and Energy, with additional responsibilities as Science Adviser to the
    Secretary. This scheme would improve the visibility and influence of
    science in DOE, and would place the person in charge of science at a
    level above the large number of staff offices that are inevitable in
    such a complex agency. A primary objective would be to have a widely
    respected and influential scientist in a position where he or she can
    be an effective leader and spokesperson for DOE science and energy.
        A variant of this scheme, which goes part of the way toward our
    more ambitious Alternative B described below, would be to remove some
    administrative and regulatory responsibilities from DOE and convert it
    into a subcabinet agency. The director of this agency, like the
    directors of NSF and NASA, would be chosen for scientific and technical
    leadership, and would have clear responsibility for guiding the agency
    in directions consistent with long-term national goals.
    Alternative B--Combine DOE science and energy programs with NIST, NOAA,
            and possibly USGS to form the major part of a new 21st Century
            Department of Commerce
        The idea here is to create a ``National Institutes of Science and
    Advanced Technology'' (NISAT) within a cabinet-level department in
    analogy to the Natibnal Institutes of Health within HHS. An alternative
    would be to combine these same entities; that is, ``NISAT,'' into an
    independent sub-cabinet agency analogous to NASA in structure and
    governmental status.
        The major feature of Alternative B is that it would simultaneously
    reorganize both DOE and DOC in a way that would be consistent with the
    scientific and technological challenges of the next decades. The new
    agency would be a visible recognition by the U.S. government that long-
    term research drives economic progress. Its primary mission would be
    the initiation and management of large-scale and/or multidisciplinary
    research.
        While many of the specific responsibilities of this agency would be
    closely related to national needs, its style of operation would reflect
    our modern understanding of the essential connections between
    applications and fundamental new knowledge; thus this agency would
    support both basic and applied research. The existence of such an
    agency might provide a sharpened focus on the needs of the physical
    sciences in federal budgeting processes. As before, scientific
    leadership at the highest level would be necessary for the success of
    this new agency.
        Finally, we mention two alternatives that have been suggested by
    others that we consider to be highly UNDESIRABLE.
    Move DOE Science into NSF
        Merging DOE Science and the NSF would double the size and
    complexity of the NSF. There would be a serious mismatch between the
    science and management activities, and it might be difficult to
    establish a culture that would maintain the strength of the national
    laboratories and that would allow both single-investigator ``small
    science'' and multidisciplinary, multi-investigator ``big science'' to
    thrive.
        Whether this merger could happen without degrading what works very
    well in DOE or NSF is highly questionable. Diversity of funding sources
    for research would be substantially reduced. Many scientific fields
    would be limited to one possible federal funding source, and innovative
    scientists whose research projects did not fit into NSF programs would
    have no other sponsors to whom to appeal.
        Most importantly, the NSF is the only federal agency whose sole
    responsibility is the support of science, unconstrained by specific
    missions. In its fifty years of existence, the NSF has served this
    nation extraordinarily well. We believe that it is essential to
    maintain the unique quality of this agency.
    Create a Department of Science, including all Federal R&D programs
        The creation of a federal Department of Science has been proposed
    several times in recent years as a means for concentrating federally
    funded research and development and making it easier to track and
    manage. Presumably, a Department of Science would be a civilian agency,
    perhaps including the 6.1, 6.2. and 6.3 programs of the Department of
    Defense. This consolidation would have the very major disadvantage of
    completely eliminating the diversity of funding sources as well as
    destroying the unique nature of the NSF. Other serious disadvantages
    have been discussed in previous analyses of this proposal.
                                     ______

       Statement of Arpad A. Bergh, President, Optoelectronics Industry
                            Development Association
        On behalf of the Optoelectronics Industry Development Association
    (``OIDA''), I would like to offer support for a government-industry
    initiative to develop a new form of energy efficient lighting based on
    solid state optoelectronics. In particular, OIDA endorses legislation
    recently introduced by Senators Jeff Bingaman and Mike DeWine--S.
    1166--that would establish a government-industry initiative to
    accelerate the development of solid state lighting.
        The ``Next Generation Lighting Initiative Act'' would create a 10-
    year program for the Department of Energy and a consortium of the solid
    state lighting industry for the purposes of conducting the research and
    development necessary to enable solid state lighting to become a
    primary source for the nation's general lighting needs.
        OIDA is a non-profit association of optoelectronics companies,
    national laboratories and universities established to strengthen and
    advance optoelectronics technology. OIDA members are leaders in the
    research and development of new enabling optoelectronics technologies
    for areas such as fiber optic communications, digital imaging, and
    optical storage.
        Optoelectronics involves the merging of optics and electronics into
    various complementary devices and has become a strategic enabling
    technology in today's information-based economy. Optoelectronics
    applications extend broadly through society, including the fields of
    computing, communication, entertainment, education, electronic
    commerce, health care and transportation. Optoelectronics defense
    applications include military command and control functions, imaging,
    radar, aviation sensors, and optically-guided weapons.
        OIDA urges the Congress to pass S. 1166 expeditiously in order to
    achieve the considerable benefits of energy savings, productivity
    gains, and consumer advancements that would come from full scale
    development of solid state lighting.

                         DOMINANT LIGHTING TECHNOLOGIES

        Lighting technology is currently dominated by the incandescent
    light bulb and the fluorescent light tube. These two light sources are
    the primary means for general lighting in the United States and
    throughout the world. Despite the dominant role of these lighting
    technologies, neither has achieved significant advancements in energy
    efficiency over the past several decades. This is all the more
    noteworthy given that approximately 70 percent of the energy used by
    these lighting technologies is wasted as heat.
        Incandescent and fluorescent lighting, as well as certain other
    forms of lighting currently available, are very energy-inefficient.
    These forms of lighting convert only a small portion of the consumed
    electric energy into visible light. A 100 watt incandescent light bulb,
    for instance, emits only 5 percent of the energy it uses as useful
    light, while the equivalent figure for the more efficient fluorescent
    tube is less than 30 percent. These inefficiencies are dictated by
    physics and are not subject to significant improvement.
        Lighting consumes a significant portion of the energy generated in
    the United States--approximately 20 percent--and this share is growing.
    It is widely accepted that the United States must pursue strategies for
    limiting the growth of its energy consumption devoted to lighting
    needs. Conservation and improved electronic controls alone will not be
    sufficient for limiting this energy need. The solution lies with new
    technologies, principally solid state lighting.

                              SOLID STATE LIGHTING

        Solid state lighting technology utilizes inorganic and organic
    semiconductor devices known as light emitting diodes (``LEDs'') and
    organic light emitting diodes (``OLEDs'') to convert electricity to
    light. LEDs have existed for over 30 years and today are used in
    applications such as digital displays, instrument panel lighting,
    signage, and traffic signals. LEDs' primary advantages include
    significantly longer-life and energy efficiency. LEDs' use in highway
    signs and signals, for example, require 80-90 percent less energy than
    incandescent signals and have significantly longer running lives. It
    has been estimated that replacing all existing incandescent traffic
    signals in the United States with LED signals would save nearly 2.5
    billion kilowatt hours annually. OLEDs have the promise of highly
    efficient low cost, large area, flexible light sources that can be
    mounted on walls and ceilings or even on furniture.
        Unlike incandescent and fluorescent technology, solid state
    lighting technology is not subject to the same laws of physics that
    result in the conventional lighting sources' poor energy efficiency. In
    theory, solid state lighting could achieve near 100 percent
    electricity-to-light conversion ratio. While actual ratios for solid
    state lighting have not yet approached such high levels, technological
    advancements are consistently raising the energy efficiency of solid
    state lighting.
        The adoption of solid state lighting for more general illumination,
    such as residential and office lighting, has been stymied by the
    inability to produce solid state ``white light'', the most common form
    of lighting used by the general public. This barrier, however, has now
    been overcome. Several types of white light LEDs have been developed
    and efforts are on-going to improve on existing white light technology
    for solid state applications. Nevertheless, the industry faces
    significant challenges in bringing to market cost-effective white light
    LEDs.
          solid state lighting as a primary source of general lighting
        Adoption of solid state lighting as a primary source of general
    lighting in the United States holds the promise of significant and far-
    reaching benefits:
        Energy, Efficiency. It is estimated that significant adoption of
    solid state lighting over the next twenty years could reduce global
    electricity usage for lighting by 5O percent, and reduce total global
    electricity consumption by 10 percent. These changes equate to an
    overall reduction in annual global energy needs of 1,000 terawatt-
    hours.
        Cost Efficiency. Solid state lighting using LEDs will be more cost
    efficient in terms of product maintenance and replacement. Unlike
    incandescent bulbs and fluorescent tubes, LEDs are durable, long-
    lasting, and easier to program and operate.
        Environmental Impact. The energy efficiency of LEDs could translate
    into major cuts in carbon emissions if solid state lighting is adopted
    broadly. It has been estimated that the United States could avoid 276
    metric tons of carbon emissions by 2020 if solid state lighting could
    garner a significant share of the general lighting market.
        Economic Impact. A flourishing solid state lighting industry would
    have important economic benefits to the United States in terms of
    employment, growth in supplier and equipment industries, research and
    development and new applications. Furthermore, as solid state lighting
    becomes a leading source for general lighting outside the United
    States, the U.S. solid state lighting and related industries will reap
    expanded economic benefits for the nation.
        Improved Quality and Flexibility. Solid state lighting promises
    better quality and more versatile sources of lighting, including the
    ability to tune colors to virtually any shade or tint. In addition,
    solid state lighting offers other desirable qualities, such as light-
    weight, thinness, flexibility in deployment, and compatibility with
    integrated circuits to produce ``smart'' light.
        Based on these important qualities and benefits of solid state
    lighting, a government-industry solid state lighting initiative would
    be in the United States' economic and energy security interests. The
    United States would benefit not only from major energy and cost
    savings, improved quality, and a positive environmental impact, but
    also from the ability to enhance and maintain the competitiveness of
    the U.S. solid state lighting industry at a time when this technology
    is being aggressively pursued by other nations. These benefits
    represent a solid foundation and justification for proceeding with a
    solid state lighting initiative as set forth in S. 1166.

       FOREIGN DEVELOPMENT EFFORTS AND THE CHALLENGE TO THE UNITED STATES

        Efforts are underway in other countries to rapidly develop solid
    state lighting as a viable alternative to conventional lighting
    technologies. Government-sponsored industry consortia have been
    established in Japan, Europe, Korea, and Taiwan to develop more
    efficient solid state lighting technologies. It is generally believed
    that without a substantial government/industry commitment in the United
    States competitors such as Japan and Europe will come to dominate solid
    state lighting and become the standard-bearers of this important
    technology.
        A national investment is necessary to further develop solid state
    lighting and to ensure that the United States can obtain a leadership
    position. This can best be achieved through the cooperation of
    industry, government, and academia.
        The optoelectronics industry, the Department of Energy, and several
    National Laboratories have been working to develop a coordinated
    approach to solid state lighting. OIDA itself has put much effort into
    addressing the necessary requirements for full scale development of
    solid state lighting. These include much basic research, which is
    especially suited for universities, harnessing work at the National
    Laboratories, and the development of an infrastructure of supplier and
    equipment firms that can be available for the commercialization of this
    new technology.
        The potential for solid state lighting was thoroughly reviewed this
    spring at a National Academies of Science workshop. Based largely on
    work from many sources, Senators Jeff Bingaman and Mike DeWine have
    formulated legislation that reflects the most promising approach to
    this type of broad-based technology development.

              THE NEXT GENERATION LIGHTING INITIATIVE ACT--S. 1166

        The Next Generation Lighting Initiative Act was introduced on July
    11, 2001 and is designed to establish a national research and
    development infrastructure for bringing about the types of advances in
    solid state lighting that will allow this technology to become more
    broadly applied and eventually available as a primary source of general
    lighting.
        The legislation would involve two types of funding for research and
    development on solid state lighting: 1) direct sponsored research from
    the Department of Energy, and 2) grants to universities, National
    Laboratories and infrastructure providers that would be administered by
    an industry-led consortium.
        Industry Consortium. The ``Next Generation Lighting Initiative
    Consortium'' would be composed of companies, National Laboratories, and
    other research entities and would provide basic and manufacturing
    related research contracts. The consortium would be funded through both
    membership fees and Department of Energy grants. Entities receiving
    funding directly from the Department of Energy would obtain full
    intellectual property rights, while consortium members would have
    royalty-free access to research results from universities, National
    Laboratories, and infrastructure providers.
        The consortium would provide the framework for the entire program
    in that it would coordinate with the Department of Energy in assessing
    technology requirements, maintain a technology roadmap, and administer
    the efforts of participating universities, National Laboratories, and
    supplier and equipment infrastructure firms. All efforts would involve
    cost sharing.
        The consortium is to be broadly representative of entities engaged
    in solid state lighting research and development. It would have a
    participation agreement applicable to all members and would be open to
    all U.S. companies.
        The initiative is designed to result in the commercialization of
    solid state lighting technology. As such, it would involve extensive
    industry participation. To facilitate such participation, the grants
    under the research and development funding program would not be subject
    to the Federal Acquisition Regulations, but rather subject to review by
    commercial auditors to ensure that funds are expended in a manner
    consistent with the program's objectives.
        Planning Board. The initiative would also establish a Planning
    Board that would include seven members representative of solid state
    lighting activity generally. Four members would be appointed by the
    Secretary of Energy and three members would be nominated by the
    consortium. It is not intended that the Planning Board would function
    as a federal advisory committee. Rather, it would have a specific task
    of developing strategies for solid state lighting. These strategies
    would be made available to the Department of Energy, the consortium,
    Congress, and the public.
        Annual Review. In addition, the initiative would be subject to an
    independent annual review by a federal advisory committee or under the
    auspices of the National Academy of Sciences. In particular, the Board
    on Science, Technology and Economic Policy of the National Academy of
    Sciences would be well qualified to conduct such annual reviews.
        Funding. The Department of Energy Initiative would authorize up to
    $480 million in grants for solid state lighting research and
    development over a period of ten years. The objective of the initiative
    is to develop by 2011 white LEDs that, compared to incandescent
    lighting technologies, are longer lasting, more energy efficient, and
    cost-competitive.
        Studies indicate that technology development necessary for
    commercializing solid state lighting could be achieved within ten
    years. To realize this goal, however, it will be necessary to make
    substantial investments in research and development. Based on the
    critical tasks identified in the solid state lighting industry's
    roadmaps, it appears that annual funding of approximately $50 million
    will be necessary to complement current industry efforts. Funding would
    not continue beyond the point at which this technology is readily
    avail4ble for broad-based applications.
        OIDA strongly endorses the Next Generation Lighting Initiative Act
    and urges the Congress to enact this important technology development
    initiative. This legislation offers the best approach for combining the
    resources of industry, government, and academia in an effort to bring
    to the commercial marketplace the next generation of lighting
    technology and to maintain a leadership role for the United States in
    this important field.