[Senate Hearing 108-16]
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                                 ______

2003

                                                         S. Hrg. 108-16

                ENERGY USE IN THE TRANSPORTATION SECTOR

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

                                HEARING

                               before the

                              COMMITTEE ON
                      ENERGY AND NATURAL RESOURCES
                          UNITED STATES SENATE

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                                   to

  RECEIVE TESTIMONY REGARDING ENERGY USE IN THE TRANSPORTATION SECTOR

                               __________

                             MARCH 6, 2003


                       Printed for the use of the
               Committee on Energy and Natural Resources
               COMMITTEE ON ENERGY AND NATURAL RESOURCES

                 PETE V. DOMENICI, New Mexico, Chairman
DON NICKLES, Oklahoma                JEFF BINGAMAN, New Mexico
LARRY E. CRAIG, Idaho                DANIEL K. AKAKA, Hawaii
BEN NIGHTHORSE CAMPBELL, Colorado    BYRON L. DORGAN, North Dakota
CRAIG THOMAS, Wyoming                BOB GRAHAM, Florida
LAMAR ALEXANDER, Tennessee           RON WYDEN, Oregon
LISA MURKOWSKI, Alaska               TIM JOHNSON, South Dakota
JAMES M. TALENT, Missouri            MARY L. LANDRIEU, Louisiana
CONRAD BURNS, Montana                EVAN BAYH, Indiana
GORDON SMITH, Oregon                 DIANNE FEINSTEIN, California
JIM BUNNING, Kentucky                CHARLES E. SCHUMER, New York
JON KYL, Arizona                     MARIA CANTWELL, Washington
                       Alex Flint, Staff Director
                     James P. Beirne, Chief Counsel
               Robert M. Simon, Democratic Staff Director
                Sam E. Fowler, Democratic Chief Counsel
                    Bryan Hannegan, Staff Scientist
                   Deborah Estes, Democratic Counsel
         Jennifer Michael, Democratic Professional Staff Member
                            C O N T E N T S

                              ----------                              

                               STATEMENTS

                                                                   Page

Alexander, Hon. Lamar, U.S. Senator from Tennessee...............    36
Bingaman, Hon. Jeff, U.S. Senator from Arizona...................     3
Bunning, Hon. Jim, U.S. Senator from Kentucky....................    41
Cromwell, Richard, III, General Manager and CEO, Sunline Transit 
  Agency.........................................................    31
Dana, Greg, Vice President, Environmental Affairs, Alliance of 
  Automobile Manufacturers.......................................    16
Frankel, Emil H., Assistant Secretary for Transportation Policy, 
  Department of Transportation...................................    10
Friedman, David, Senior Analyst, Clean Vehicles Program, Union of 
  Concerned Scientists...........................................    22
Garman, David K., Assistant Secretary, Energy Efficiency and 
  Renewable Energy, Department of Energy.........................     3
Murkowski, Hon. Lisa, U.S. Senator from Alaska...................     2
Thomas, Hon. Craig, U.S. Senator from Wyoming....................     1

                               APPENDIXES
                               Appendix I

Responses to additional questions................................    57

                              Appendix II

Additional material submitted for the record.....................    67

 
                ENERGY USE IN THE TRANSPORTATION SECTOR

                              ----------                              


                        THURSDAY, MARCH 6, 2003

                                       U.S. Senate,
                 Committee on Energy and Natural Resources,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 10:06 a.m., in 
room SH-216, Hart Senate Office Building, Hon. Craig Thomas 
presiding.

            OPENING STATEMENT OF HON. CRAIG THOMAS, 
                   U.S. SENATOR FROM WYOMING

    Senator Thomas. I wonder if we could begin, please. Things 
are a little disorganized this morning. We are having some 
votes and all those kinds of things. So we would like to go 
ahead and then make the changes as we go.
    This hearing will take testimony on options to reduce 
energy use in the transportation sector. The topic is 
important, obviously. In light of our continuing dependence on 
imports, the transportation sector accounts for as much as two-
thirds of our oil demand. Advanced vehicle technologies, such 
hybrids, diesels, hydrogen fuel cells and others, offer a great 
promise for the reduction in demand for foreign oil, although 
some of it may be some time in the future.
    In particular, the committee is interested in the following 
questions: One, what benefits can hybrid and diesel engine 
technologies offer conventional internal combustion engines? 
What fuel efficiency benefits are likely? Two, how can we 
diversify our fuel supply for use in transportation? Can 
alternative fuels, like ethanol, biodiesel and natural gas play 
a role? Three, what is envisioned for the President's 
FreedomCAR and Hydrogen Fuel Initiatives? What policies, 
incentives, and funding levels and incentives will be required?
    We are pleased to have five witnesses today. The Honorable 
David Garman, Assistant Secretary of Energy for Energy 
Efficiency and Renewable Energy, will provide an overview of 
DOE's vehicle R&D activities, including the President's 
Hydrogen Fuel Initiative.
    The Honorable Emil Frankel, Assistant Secretary of 
Transportation for Transportation Policy, will discuss how DOT 
programs can help limit our oil demand.
    Mr. Richard Cromwell from Sunline Transit Agency in 
Thousand Palms, California, will describe the fleet manager's 
experience with alternative fuel vehicles and our options to 
diversify our transportation fuel supply.
    Mr. Gregory Dana from Alliance of Automobile Manufacturers 
will address some of the technologies automakers are focusing 
on today.
    And David Friedman from the Union of Concerned Scientists 
will summarize their recent work, showing that hybrid 
technologies could dramatically increase fuel economy in a 
short period of time.
    We appreciate the witnesses joining us today to provide an 
assessment of these new and exciting technologies, what we can 
expect from cars and trucks in the future.
    Before we begin, I would like to inform the members that 
the record will be open until 6 p.m. today in order to allow 
members to submit questions. We already have a number of 
individuals and groups who have submitted statements for the 
record. I ask at this time to make those part of the record. We 
have statements from: the Honorable Dave Camp, U.S. Congressman 
from Michigan; Robert Horton, chairman and CEO of Alchemix 
Corporation; Stephen Tang, president and CEO of Millennium 
Cell; Preston Chiaro, president and CEO, U.S. Borax; American 
Petroleum Association; Jeffrey Serfass, president of National 
Hydrogen; Phil Lambert, executive director of the National 
Ethanol Vehicle Coalition; Donald Huberts, CEO, Shell Hydrogen; 
Anthony Eggert, associate research director, Institute of 
Transportation Studies, UC Davis. So as you can see there is a 
great deal of interest and a great deal of collective knowledge 
in this area.
    Senator Bingaman, do you have comments before we begin?
    [The prepared statement of Senator Murkowski follows:]
  Prepared Statement of Hon. Lisa Murkowski, U.S. Senator From Alaska
    Mr. Chairman thank you for calling this hearing today regarding 
energy use in the transportation sector. The transportation sector is 
the largest user of petroleum of any other sector. It consumes 69 
percent of all oil consumed in the U.S. I look forward to hearing the 
testimony of the panel.
    If we are to reduce our dependence on foreign sources of oil, one 
of the areas we must address is the efficiency of the energy use in the 
transportation sector.
    This should include supporting new technologies that reduce carbon 
emissions and improve fuel efficiency. These proposals must be 
entertained with the idea that the goal we seek is to protect our 
environment, while not adversely impacting our economy.
    In his most recent State of the Union address, President Bush 
announced a $1.2 billion dollar Hydrogen Fuel Initiative. This is an 
ambitious proposal, and I look forward to watching it develop.
    One of the major challenges of this initiative will be: Where do we 
get the hydrogen to fuel these new vehicles?
    Hydrogen can realistically be produced three ways:
          1. The disassociation of water through electrolysis, which 
        requires a great deal of water and electricity;
          2. Stripping the methane out of a natural gas stream, and 
        then turning the methane into hydrogen; or
          3. Turning coal bed methane into hydrogen.
    All of these processes require a great deal of natural resources. I 
am sure I don't have to remind the members of this committee and the 
witnesses here today that there is an abundance of natural resources in 
my State of Alaska.
    Just to review: Conservative government estimates indicate that 
there are between 65 to 314 trillion cubic feet of natural gas and 120 
million short tons of known coal reserves in northwest Alaska and 
another 20 million short tons of coal identified throughout the State. 
There are almost certainly more reserves that remain unidentified.
    Of course there are many obstacles to the production of these 
resources. Restrictive federal laws and mundane permitting processes 
make it virtually impossible to extract these resources.
    The president's initiative is a step in the right direction, but if 
we are serious about a hydrogen economy we must talk about how we are 
going to produce the hydrogen.
    It is not likely that we will be able to generate hydrogen with out 
the use of fossil fuels, and this will only increase the demand for 
natural gas and other natural resources. This is one other reason this 
country needs the Alaska natural gas pipeline.
    Thank you Mr. Chairman.

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

    Senator Bingaman. Well, thank you very much, Mr. Chairman. 
Let me first say that this is a very important issue. I know 
most of the focus on it, at least in the last month since the 
State of the Union address, has been about the President's 
Hydrogen Initiative. And, as I understand that initiative, it 
is a proposed long-term solution to an immediate problem.
    It is something that clearly I would like to see us move 
ahead with. But it does not hold out any real promise for 
dealing with the issue which is the subject of today's hearing; 
that is, reducing the need for additional oil for our 
transportation sector. It does not hold out any promise of 
dealing with that for at least 15 or 20 years.
    So, I would like to have some discussion today from the 
witnesses about what is planned for the immediate and the near 
term. Is there anything that can be done or should be done? The 
obvious options that come to mind are an increase in CAFE 
standards, which we have debated here extensively in the 
Congress. And, I would be interested in seeing particularly 
what the Administration witness's view on that is at this 
particular time.
    Another option that is urged, particularly by economists, 
is raising the gasoline tax. I assume that is not something the 
administration is endorsing this morning. But I would be 
interested in knowing what is being proposed to deal with the 
immediate problem that we have of growing imports of oil to 
meet our need for petroleum in the transportation sector.
    I also have some issues, some questions that I look forward 
to asking, related to the Hydrogen Initiative the President has 
come up with.
    So thank you very much for having this hearing, Mr. 
Chairman.
    Senator Thomas. Thank you.
    Gentlemen, we will have statements, if you would like, then 
the questioning time, if that is satisfactory. If you want to 
hold your statements to some sort of a little shorter time, 
why, the total statements will be in the record.
    So, Assistant Secretary Garman, welcome back to the Hill.

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

    Mr. Garman. Thank you, Mr. Chairman. Mr. Chairman, members 
of the committee, I appreciate the opportunity to testify 
before you today on energy use in the transportation sector. As 
the chart behind me shows, there is an imbalance between 
domestic oil production and transportation's demand for 
petroleum. That imbalance, now about 11 million barrels a day, 
is projected to keep growing. And we will not close this 
imbalance--if we are really honest with ourselves, we will not 
close that gap with regulation, new domestic production, or 
even both.
    Although promoting efficiency in the use of oil and finding 
new domestic sources of oil are important short-term 
undertakings, over the long term a petroleum-free option is 
eventually required. We ultimately want a petroleum system, a 
transportation system that is free of dependence on foreign 
energy supplies and free of all harmful emissions.
    We also want to preserve the freedom of consumers to 
purchase the kind of vehicles they want to have. And that is 
the concept between the FreedomCAR partnership and the 
President's Hydrogen Fuel Initiative, which are designed to 
help develop the technologies necessary for hydrogen fuel cell 
vehicles and the infrastructure to support them.
    A transportation system based on hydrogen provides several 
advantages. Hydrogen can be produced from diverse domestic 
resources, freeing us from a reliance on foreign imports. 
Hydrogen can fuel ultra-clean internal combustion engines, 
which would reduce auto emissions by more than 99 percent. And 
when hydrogen is used to power fuel cell vehicles, the 
combination results in more than twice the efficiency of 
today's gasoline engines with none of the harmful air 
emissions. In fact, fuel cells' only byproducts are pure water 
and waste heat.
    But to bring about the mass market penetration of hydrogen 
vehicles, government needs to partner with the private sector 
to conduct the R&D needed to advance investment in a hydrogen 
fuel infrastructure that performs as well as the petroleum-
based infrastructure we now have. And that is going to be 
difficult.
    Our current gasoline infrastructure has been forged over 
the last century in a competitive market. It is incredibly 
efficient. And it can deliver refined petroleum products that 
began as crude oil a half a world away to your neighborhood for 
less than the cost of milk, drinking water, or any other liquid 
product you can buy in the supermarket.
    We are currently bound to a petroleum infrastructure. And 
before drivers will purchase a fuel cell vehicle, they have to 
have confidence in a hydrogen refueling infrastructure. That is 
why the President, in his State of the Union address, made a 
new national commitment backed over the next 5 years by $1.7 
billion for the FreedomCAR partnership and Hydrogen Fuel 
Initiative.
    Government is not going to build the hydrogen 
infrastructure. The private sector will do that, as the 
business case becomes clear. But as we develop the technologies 
needed for the fuel cell vehicles, we also want to develop the 
technologies required by the infrastructure to support them.
    But some of those technology challenges are daunting. For 
example, we have to lower the cost of producing and delivering 
hydrogen by at least a factor of four. We have to develop more 
compact, lightweight, low cost hydrogen storage systems, so 
vehicles will get the kind of range that consumers demand. We 
have to lower by a factor of at least ten the cost of materials 
for fuel cells themselves.
    But fortunately, we are not starting from scratch. 
Beginning back in November 2001, the Department of Energy began 
working with industry, academia, and stakeholders on a 
comprehensive technology road map. We have achieved a 
remarkable consensus on what needs to be done.
    And as important as hydrogen is for the long term, we have 
maintained a robust R&D program in the non-hydrogen 
transportation technologies. Under the FreedomCAR partnership, 
we have proposed a funding increase in fiscal year 2004 for our 
hybrid technology program, as well for increases in materials 
technology programs. Many of these technologies will deliver 
fuel savings both prior to and after the introduction of fuel 
cell vehicles, since lightweight materials and hybrid 
technologies will be incorporated into the fuel cell vehicles, 
as well as the conventional and hybrid models that precede 
them.
    And automakers are starting to introduce technologies that 
have resulted in part from DOE's work in this area. At the 
recent Detroit auto show, the major U.S. automakers announced 
that they will have a variety of new hybrid gasoline-electric 
models entering the market in the 2004 to 2008 time frame. Of 
course, hybrid vehicles are more expensive compared to 
conventional vehicles, which is why the President proposed a 
tax credit for hybrid vehicles in the national energy plan and 
in subsequent budget submissions. And we urge that Congress 
adopt this important incentive for more efficient vehicles.
    And DOE is also going to continue its Clean Cities Program, 
which is a unique voluntary approach supporting alternative 
fuel vehicles. And we also strongly support a renewable fuel 
standard that will increase the use of clean, domestically 
produced renewable fuel, such as ethanol and biodiesel.
    But as important as the renewable fuel standard and the 
Clean Cities program are, their goals really illustrate the 
challenges we face. Taken together, the renewable fuel standard 
and Clean Cities are expected to offset about 4 billion gallons 
of gasoline use per year by 2010. Now that sounds impressive 
until it is compared to the demand for petroleum used in the 
transportation sector. In the year 2000, we used approximately 
130 billion gallons of gasoline and over 33 billion gallons of 
highway diesel. With that realization, the critical importance 
of the FreedomCAR partnership and the Hydrogen Fuel Initiative 
as a long-term strategy becomes clear.
    With that, Mr. Chairman, I would be pleased to answer any 
questions you might have, either now or in the future. Thank 
you.
    Senator Thomas. Fine. Thank you very much.
    [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, Members of the Committee, I appreciate the 
opportunity to testify before you today on energy use in the 
transportation sector.
    I would like to begin by looking at the transportation sector in 
the context of the overall flow of energy in our economy. A diagram 
developed by Lawrence Livermore National Laboratory [Figure 1] * 
represents the current ``energy flows'' in the U.S. economy. It should 
not be regarded as a highly precise representation of these flows, but 
it is extremely useful in helping policymakers visualize complex energy 
data.
---------------------------------------------------------------------------
    * Figures 1 and 2 have been retained in committee files.
---------------------------------------------------------------------------
    The primary energy inputs, including oil, coal, natural gas, 
nuclear and renewable energy are shown on the left. The relative sizes 
of the lines or ``pipes'' represent the relative contributions of the 
primary energy inputs, the impacts of energy conversion, and the end 
uses.
    By using this diagram it is easier to visualize how the energy 
flows move toward electricity generation or through the different 
sectors of our economy. The diagram makes clear some inescapable 
features of energy use in the transportation sector:

   The transportation sector is almost entirely dependent on 
        oil. In fact, it is about 97 percent dependent on oil;
   A majority of the oil we use is imported. We are currently 
        importing about 55 percent of our oil from foreign sources a 
        percentage that is expected to increase to 68 percent by 2025;
   A large amount of energy is rejected or wasted and 
        transportation is the least efficient of the three sectors of 
        our energy economy; and
   Looking more specifically at oil, as we do in the next graph 
        [Figure 2], we see an imbalance between petroleum demand for 
        transportation and domestic production and that automobiles and 
        light trucks are the dominant reason behind that demand.

    In the early 1990s, the petroleum required just by our highway 
vehicles surpassed the amount produced domestically. The ``gap'' 
between production and transportation demand is growing--and is 
projected to keep growing. The current gap between total U.S. 
consumption and net production of oil is roughly 11 million barrels per 
day. And this is a gap that we are unlikely to close with regulation, 
new domestic production, or both. Although promoting efficiency in the 
use of oil and finding new domestic sources of oil are important short-
term undertakings, over the long-term a petroleum-free option is 
eventually required.
    We also face environmental challenges resulting from our current 
transportation system. We have made tremendous progress in reducing 
pollutant emissions from our cars and trucks as well as our stationary 
power sources and we will continue to make incremental gains through 
regulatory approaches such as the Tier II fuel standards. But for true 
efficiency gains, we must develop a wholly new approach to powering our 
vehicles.
    We ultimately want a transportation system that is free of 
dependence on foreign energy supplies and emissions-free. We also want 
to preserve the freedom of consumers to purchase the kind of vehicles 
they want to drive. That is the concept behind the FreedomCAR 
partnership and Hydrogen Fuel Initiative, which are designed to develop 
the technologies necessary for hydrogen fuel cell vehicles and the 
infrastructure to support them.
    Secretary Abraham unveiled the FreedomCAR partnership in January 
2002 at the North American Auto Show in Detroit with the major U.S. 
automakers by his side. And President Bush unveiled the 
Administration's Hydrogen Fuel Initiative during his State of the Union 
address in January. As the President put it:

          With a new national commitment our scientists and engineers 
        will overcome obstacles to taking these cars from laboratory to 
        showroom, so that the first car driven by a child born today 
        could be powered by hydrogen and pollution free.

    A few days later, at an event attended by at least two members of 
this Committee, the President reiterated his commitment to his new 
Hydrogen Fuel Initiative. After viewing fuel cell vehicles from 
DaimlerChrysler, Honda, Nissan, Ford, Toyota and General Motors, the 
President said:

          The technology we have just seen is going to be seen on the 
        roads of America. And it's important for our country to 
        understand that by being bold and innovative, we can change the 
        way we do business here in America; we can change our 
        dependence upon foreign sources of energy; we can help with the 
        quality of the air; and we can make a fundamental difference 
        for the future of our children.

    A transportation system based on hydrogen provides several 
advantages:

   Hydrogen can be produced from diverse domestic sources, 
        freeing us from a reliance on foreign imports for the energy we 
        use at home;
   Hydrogen can fuel ultra-clean internal combustion engines, 
        which would reduce auto emissions by more than 99 percent; and,
   When hydrogen is used to power fuel cell vehicles, the 
        combination results in more than twice the efficiency of 
        today's gasoline engines and with none of the harmful air 
        emissions. In fact, fuel cells' only byproducts are pure water 
        and waste heat.

    But, to ultimately succeed in the mass-market penetration of 
hydrogen fuel cell vehicles DOE, in partnership with the Department of 
Transportation (DOT) and the private sector, must conduct the necessary 
research and development to advance industry's investment in a 
hydrogen-based infrastructure that performs as well as the petroleum-
based infrastructure we now have.
    Our current gasoline/hydrocarbon infrastructure has been forged in 
a competitive market. It is ubiquitous and remarkably efficient. It can 
deliver refined petroleum products that began as crude oil half a world 
away to your neighborhood for less than the cost of milk, drinking 
water, or many other liquid products you can buy at the supermarket. We 
are currently bound to that infrastructure. We have no alternative. Our 
vision sees drivers able to go anywhere in America and refuel their 
hydrogen-powered vehicle. That is necessary before they will be 
comfortable purchasing one.
    That is why the President, in his State of the Union address, 
proposed that the federal government significantly increase our 
spending on hydrogen infrastructure research and development, including 
hydrogen production, storage, and delivery technologies, as well as 
fuel cells. Over the next five years, we will spend an estimated $1.7 
billion on the FreedomCAR partnership and Hydrogen Fuel Initiative, 
$1.2 billion of which is for the Hydrogen Fuel Initiative, which 
includes funds for fuel cells and hydrogen. Of the $1.2 billion figure, 
$720 million is ``new money.''
    We will not build the infrastructure. The private sector will do 
that as the business case becomes clear. But as we develop the 
technologies needed by the vehicles, we will also develop the 
technologies required by the infrastructure. In cooperation with DOT, 
we will convene the parties needed for technology partnerships, we will 
collaborate on the needed codes and standards, and we will promote 
international cooperation in this effort.
    There is growing worldwide interest in hydrogen and fuel cell 
technology, as reflected in the dramatic increase in public and private 
spending since the mid-1990s in the U.S. and elsewhere. We estimate 
current investments across the U.S. government agencies to be well over 
$200 million, about $120 million of which is for hydrogen and polymer 
electrolyte membrane (PEM) fuel cell research and development (R&D). In 
2003, the Japanese government nearly doubled its annual fuel cell 
research, development and demonstration (RD&D) budget (compared to 
2002) to approximately $268 million, and is this month launching a 
joint government/industry demonstration of hydrogen fuel cell vehicles, 
including the deployment of more than seven new hydrogen refueling 
stations. Governments and companies in Canada, Europe, and Asia are 
also investing heavily in hydrogen RD&D. For example, ten new hydrogen 
refueling stations will be built in Europe over the next few years to 
fuel hydrogen-powered buses. By comparison, the U.S. currently has 
approximately ten hydrogen refueling stations, and plans several more 
as appropriate to fund limited ``learning'' demonstrations to help 
identify R&D needs to make hydrogen and fuel cell technologies cost 
competitive and technologically viable.
    The economic stakes are high--a recent report by 
PricewaterhouseCoopers projects global demand for all fuel cell 
products (in portable, stationary, and transportation power 
applications) to reach $46 billion per year by 2011 and to grow to more 
than $2.5 trillion per year in 2021. The United States should strive to 
be a leader in hydrogen and fuel cell technology development and 
commercialization in order to secure a competitive position for future 
energy technology innovations, new products, and service offerings. 
Furthermore, the more than 19 million barrels per day of petroleum 
projected to be imported to the U.S. by 2025 will cost our economy an 
estimated $188 billion per year (based on EIA projections) in real 2001 
dollars.
                                approach
    In November 2001 my office began a formal hydrogen vision and 
``roadmapping'' effort. Working with industry, stakeholders and 
academia, we developed a national approach for moving toward a hydrogen 
economy--a solution that holds the potential to provide virtually 
limitless clean, safe, secure, affordable, and reliable energy from 
domestic resources.
    To realize this vision, the Nation must develop advanced 
technologies for hydrogen production, delivery, storage, conversion, 
and applications. The National Hydrogen Energy Technology Roadmap, 
which we released in November 2002, identifies the technological 
research, development, and demonstration steps required to make a 
successful transition to a hydrogen economy.
    This past fall, the Department also developed an internal Hydrogen 
Posture Plan (Plan) to support the President's Hydrogen Fuel 
Initiative. The Plan identifies specific technology goals and 
milestones that would accelerate hydrogen and fuel cell development to 
enable an industry commercialization decision by 2015. My Office of 
Energy Efficiency and Renewable Energy led the development of the plan 
in collaboration with DOE's Office of Fossil Energy, Office of Nuclear 
Energy, Office of Science, and Office of Management, Budget, and 
Evaluation.
    The Plan integrates the Department's planning and budgeting for 
program activities that will help turn the concept of a hydrogen-based 
economy into reality. More specifically, the Plan outlines the 
Department's role in hydrogen energy research and development in 
accordance with the National Hydrogen Energy Roadmap. The Plan is 
currently in draft and under policy review. The development of the Plan 
could not directly involve industry and other non-government 
stakeholders because of the inclusion of fiscal year 2004 through 2008 
budget planning. Their input to other efforts such as the Hydrogen 
Roadmap, the Hydrogen Vision, the FreedomCAR Partnership Plan, and the 
Fuel Cell Report to Congress (which included four workshops with 
industry) has been considered in the development of the Plan.
    To ensure that the Department continues to conduct its hydrogen 
research in a coordinated, focused, and efficient manner, the DOE 
Hydrogen Working Group that developed the Plan will continue to 
function. This Working Group will be chartered to meet regularly and 
perform the following functions:

   Evaluate the progress of the Department's hydrogen and 
        related activities with regard to milestones and performance 
        goals;
   Strengthen information exchange on technical developments;
   Help ensure that the various activities (e.g., budgeting, 
        execution, evaluation, and reporting) remain well coordinated;
   Provide suggestions for management improvements and stronger 
        technical performance; and,
   Coordinate, through the Office of Science and Technology 
        Policy, with other agencies (e.g., the Department of Defense, 
        DOT, National Aeronautics and Space Administration, Department 
        of Commerce) conducting similar research and development 
        activities to ensure our efforts our complementary and not 
        duplicative.

    In anticipation of an energy bill this year, the Department is also 
preparing to form a Hydrogen Technology Advisory Committee (HTAC). This 
advisory group, composed of a diverse group of experts from industry, 
academia, and other stakeholders, would provide input to the Secretary.
    My testimony today draws heavily from DOE's planning efforts 
including the Posture Plan, the FreedomCAR Partnership Plan, the 
Hydrogen Roadmap, and the Fuel Cell Report to Congress. These documents 
describe how DOE will integrate its ongoing and future hydrogen R&D 
activities into a focused Hydrogen Program. The program will integrate 
technology for hydrogen production (from fossil, nuclear, and renewable 
resources), infrastructure development (including delivery and 
storage), fuel cells, and other technologies supporting future hydrogen 
fueled vehicles. Successful implementation of the Administration's 
integrated plans and activities is critical to the FreedomCAR 
partnership and Hydrogen Fuel Initiative. Coordinating hydrogen 
activities within DOE and among the federal agencies will improve the 
effectiveness of our RD&D activities and strengthen its contribution to 
achieving the technical milestones on the road to a hydrogen economy.
                         technology challenges
    Let me now review the challenges to be faced and how these 
challenges are to be met. Achieving our vision will require a 
combination of technological breakthroughs, market acceptance, and 
large investments in a national hydrogen energy infrastructure. Success 
will not happen overnight, or even over years, but rather over decades; 
it will require an evolutionary process that phases hydrogen in as the 
technologies and their markets are ready. Success will also require 
that the technologies to utilize hydrogen fuel and the availability of 
hydrogen occur simultaneously.
    Some of the significant hurdles to be cleared include:

   Lower by a factor of four the cost of producing and 
        delivering hydrogen;
   Develop more compact, light weight, lower cost, safe, and 
        efficient hydrogen storage systems that will enable a greater 
        than 300 mile vehicle range;
   Lower by a factor of at least ten the cost of materials for 
        advanced conversion technologies, especially fuel cells;
   More effective and lower cost (by a factor of ten) carbon-
        capture and sequestration processes (a separate program 
        critical to fossil-based production of hydrogen);
   Designs and materials that maximize the safety of hydrogen 
        use; and
   The development of needed codes and standards as well as the 
        education of consumers relative to the use of hydrogen.

    The Department has drafted a work breakdown structure consistent 
with each of the critical areas identified in the Roadmap (production, 
delivery, storage, conversion, and end-use) and has identified 
milestones and decision points that are part of the effort. Examples of 
key program milestones that support FreedomCAR and achievement of a 
hydrogen economy include the following:

   On-board hydrogen storage systems with a six percent 
        capacity by weight by 2010 (more aggressive goals are being 
        established for 2015);
   Hydrogen production at an untaxed price equivalent to $1.50 
        per gallon of gasoline at the pump by 2010;
   PEM automotive fuel cells that cost $45 per kilowatt by 2010 
        and $30 per kilowatt by 2015 and meet 100,000 miles of service 
        life; and,
   Zero emission coal plants that produce hydrogen and power, 
        with carbon capture and sequestration, at $0.79 per kilogram at 
        the plant gate.

    In the near future, we plan on partnering with energy companies to 
establish more specific goals related to technology and components 
needed to produce and distribute hydrogen using various fossil, nuclear 
and renewable pathways. In this exercise, we will be looking at the 
full range of hydrogen technology areas covered in the Roadmap. 
Advances in other technologies will also be necessary for the ability 
of a hydrogen fueled vehicle to realize its full potential. These 
include:

   Improved energy storage, (e.g., batteries that are more 
        durable, cheaper, and better performing);
   More efficient and cost effective electric motors;
   Inexpensive and more effective power electronics; and
   Better materials for lighter, but strong, structural 
        members.

    These technologies will enable hydrogen-fueled vehicles to be more 
efficient, and to help lower the vehicle cost to the consumer.
    In the near- to mid-term, most hydrogen will likely be produced by 
technologies that do not require a new hydrogen delivery infrastructure 
(i.e., from distributed natural gas). As RD&D progresses along 
renewable, nuclear, and clean coal and natural gas production pathways 
(including techniques for carbon sequestration) a suite of technologies 
will become available in the mid- and long-term to produce hydrogen 
from a diverse array of domestic resources. The economic viability of 
these different production pathways will be strongly affected by 
regional factors, such as feedstock availability and cost, delivery 
approaches, and regulatory environment.
    For hydrogen to become a viable fuel, advanced hydrogen storage 
technologies will be required, especially for automotive applications, 
where a driving range of at least 300 miles is needed. Current storage 
systems are too heavy, too large, and too costly. Technologies to 
convert hydrogen into useful energy--fuel cells and combustion 
technologies--must also be further improved to lower cost and improve 
performance.
    Detailed analysis of life-cycle costs and benefits for alternative 
hydrogen production pathways, carbon sequestration, and other elements 
will continue. ``Well-to-Wheels'' analyses have led to the conclusion 
that the energy and environmental benefits depend greatly on how 
hydrogen is manufactured, delivered and stored, and on the economic 
feasibility of sequestration for fossil feed stocks. The results of 
these studies will help in making down-select decisions and to ensure 
that the relative merits of specific hydrogen pathways are evaluated 
properly and in comparison with other energy alternatives. Out-year 
planning will identify needs for RD&D on production and storage 
technologies, delivery infrastructure, and education and safety/codes 
and standards. Public education of consumers and local code officials 
must also be pursued concurrently with the RD&D.
    Finally, industry must develop and construct the infrastructure to 
deliver hydrogen where it is needed. We will work with the DOT to help 
industry develop a safe, efficient, nation-wide hydrogen 
infrastructure. The hydrogen distribution infrastructure can evolve 
along with the conversion and production technologies, since much of 
the infrastructure that is developed for fossil-based hydrogen will 
also be applicable to renewable- and nuclear-based hydrogen. We will 
partner with industry to develop infrastructure in pilot projects, and 
industry will expand locally, regionally, and ultimately nationally.
                           interim strategies
    As important as we believe hydrogen is for the long term, we are 
still working, in cooperation with other federal agencies, to maintain 
a robust, and in some areas growing, research and development program 
in non-hydrogen transportation technologies.
    Under the FreedomCAR partnership we have proposed a funding 
increase in fiscal year 2004 for our hybrid (gasoline-electric and 
diesel-electric) technology, as well as increases in materials 
technology. We believe many of these technologies will deliver fuel 
savings both prior to and after the introduction of fuel cell vehicles, 
since lightweight materials and hybrid technologies are expected to be 
incorporated into fuel cell vehicle designs. Therefore, these 
investments are expected to pay off in the interim, as well as over the 
long term.
    In addition, we had a number of interim strategies in mind as we 
established specific, measurable performance goals for our program. And 
our FY 2004 budget is aligned with these goals. For example:

   We are working to develop technologies for heavy vehicles by 
        2006 that will enable reduction of parasitic energy losses, 
        including losses from aerodynamic drag, from 39 percent of 
        total engine output in 1998 to 24 percent;
   The 2006 goal for Transportation Materials Technologies R&D 
        activities is to reduce the production cost of carbon fiber 
        from $12 per pound in 1998, to $3 per pound; and
   The 2010 goal for Hybrid and Electric Propulsion R&D 
        activities is to reduce the production cost of a high power 
        25kW battery for use in light vehicles from $3,000 in 1998 to 
        $500, with an intermediate goal of $750 in 2006, enabling cost 
        competitive market entry of hybrid vehicles.

    Automakers are introducing technologies that have resulted in part 
from DOE's work in this area. At the recent North American 
International Auto Show in Detroit, the major U.S. automakers announced 
that they will have a variety of new hybrid gasoline-electric models 
entering the market in the 2004 to 2008 timeframe.
    Of course, hybrid vehicles are more expensive compared to 
conventional vehicles, which is why the President proposed a tax credit 
for hybrid vehicles in his National Energy Plan, and subsequent to that 
in his 2004 budget submission. We urge that Congress adopt this 
important incentive for more efficient vehicles.
    And we will continue support for our Clean Cities program, a 
unique, voluntary approach supporting more than eighty local coalitions 
that deploy alternative fuel vehicles (AFVs) and promote supporting 
infrastructure. The Clean Cities goals, against which we are making 
steady progress, are as follows:

   One million AFVs operating exclusively on alternative fuels 
        by 2010;
   One billion gasoline gallon equivalents of alternative fuels 
        per year used in AFVs by 2010 (approximately equivalent to 
        saving 24 million barrels of oil annually); and
   Seventy-five percent of Clean Cities coalitions self-
        sustaining by 2005.

    We look to Clean Cities to maintain important momentum toward 
alternative fuels until hydrogen-powered cars become available.
    The Administration strongly supports a renewable fuels standard 
(RFS) that will increase the use of clean, domestically produced 
renewable fuels, especially ethanol, which will improve the Nation's 
energy security, farm economy, and environment.
    As important as the RFS and the Clean Cities program are, their 
goals illustrate the daunting challenges we face. Taken together, the 
RFS and Clean Cities are expected to offset about four billion gallons 
of petroleum use per year by 2010. That sounds impressive until it is 
compared to the demand for petroleum for transportation uses. In the 
year 2000, we used approximately 130 billion gallons of gasoline and 
over 33 billion gallons of diesel (highway use only). With that 
realization, the critical importance of the FreedomCAR partnership and 
Hydrogen Fuel Initiative as a long-term strategy becomes clear.
    And, if we are to achieve real progress in the near term and our 
ultimate vision in the long term, we must continue to nurture 
productive partnerships with the private sector. It is the private 
sector that will make the major investments necessary for the 
transition to a radically different transportation future. Those 
investments will not be made in the absence of a clear-cut business 
case.
    Mr. Chairman, I appreciate the opportunity to present this 
testimony today, and I would be pleased to answer any questions you may 
have now or in the future.

    Senator Thomas. Mr. Secretary, Secretary Frankel.

     STATEMENT OF EMIL H. FRANKEL, ASSISTANT SECRETARY FOR 
      TRANSPORTATION POLICY, DEPARTMENT OF TRANSPORTATION

    Mr. Frankel. Mr. Chairman, members of the committee, it is 
a pleasure to be here to testify on the Department of 
Transportation's efforts to promote the development of hydrogen 
fuel cell transportation and other promising technologies.
    At DOT, we see development of these new technologies as an 
integral part of our move toward sustainable mobility. DOT has 
long recognized the complex interdependence of energy, the 
environment, and transportation. A hydrogen-based 
transportation system has the potential to revolutionize that 
relationship. Developing this system will require a partnership 
among Federal agencies. Given the Department of 
Transportation's responsibilities and jurisdiction, we look 
forward to playing an important role in this partnership.
    In the State of the Union address, as Secretary Garman has 
reminded us, President Bush recognized our need to reduce 
America's dependence on foreign oil. For nearly half a century, 
transportation has accounted for about one-fourth of total U.S. 
energy use and currently accounts for two-thirds of U.S. oil 
consumption. The development of a marketable hydrogen vehicle, 
as the President has proposed, will greatly reduce the Nation's 
dependence on foreign oil, and we are committed to achieving 
that goal. Today, more than ever, we must pursue a clean, safe, 
and secure energy future.
    The Department of Transportation is poised to join with our 
colleagues in taking on this challenge. Just as the Department 
of Energy has a clear leadership role in implementing the 
President's new Hydrogen Fuel Initiative and the existing 
FreedomCAR partnership, DOT has a leading role as DOE's partner 
in ensuring safe and effective implementation of this new 
technology in the Nation's transportation system. Under the 
auspices of the national energy policy, the Department of 
Transportation plays an important role in meeting this 
challenge.
    The Department of Transportation has existing authority and 
regulatory responsibility for vehicle safety and fuel economy 
through the National Highway Traffic Safety Administration, 
NHTSA, and for pipeline and hazardous material safety through 
the Research and Special Programs Administration, RSPA.
    Furthermore, DOT has a unique role in providing capital to 
support and maintain the safety of the Nation's transportation 
infrastructure. Our research efforts have already put hydrogen 
fuel cell buses on the road in demonstration projects, and the 
Federal Transit Administration is working to integrate these 
vehicles into commercial fleets.
    The Maritime Administration (MARAD) and the Federal 
Railroad Administration are exploring potential fuel cell 
applications in ships and trains. Through these roles, the 
Department is a major partner in the process of developing 
commercially available hydrogen fueled vehicles. In order to 
make our efforts successful, the Nation will require the 
concurrent development of a system to produce, store, and 
distribute hydrogen. Because DOT has primary responsibility for 
the safe transportation of hydrogen, we expect to play a major 
role in this development.
    In the words of Energy Secretary Abraham, ``Unless we work 
on parallel tracks, developing the vehicle and the 
infrastructure concurrently, instead of consecutively, this 
process could take three decades or longer.'' Secretary Mineta 
looks forward to working with Congress, with the Federal 
agencies, industry, and others to assure progress in hydrogen 
infrastructure, vehicle safety, and the application of hydrogen 
fuel cell technology.
    The Department of Transportation has responsibility for 
ensuring the safe performance of all vehicles. NHTSA, the 
agency that sets safety standards for all new motor vehicles, 
is working with the Department of Energy and trade 
associations, such as the National Hydrogen Association, to 
ensure the safety of new hydrogen-based fuel systems.
    As hydrogen fuel cell technology is developed for use in 
additional modes of transportation, other elements of the 
Department of Transportation will have a role to play. Before 
heavier-duty vehicle rail or marine applications can be 
deployed commercially, we will need to address maintenance and 
repair intervals and develop safety standards for such criteria 
as fuel system integrity under crash conditions.
    The Department of Transportation has an important 
regulatory role to play concerning safe delivery of hydrogen. 
RSPA administers the Nation's pipeline and hazardous material 
safety programs that will be vital in a hydrogen economy. RSPA 
develops and enforces safety standards for the transportation 
of hazardous gases, liquids by pipeline or as vehicle cargo. 
And we currently oversee approximately 600 miles of hydrogen 
pipelines.
    Finally, in the President's fiscal 2004 budget request for 
RSPA, the Department is pursuing the development of a hydrogen 
fuel infrastructure and standards for hydrogen vehicle fuel 
systems, so that fuel cell vehicles, direct hydrogen-fueled 
vehicles and other alternative-fueled vehicles can be developed 
as a safe alternative to conventional petroleum-fueled 
vehicles.
    As the United States' lead agency in the development of 
international codes and standards both for vehicles and 
hazardous materials, the Department of Transportation is 
working on steps that may lead to the establishment of 
international safety codes. The Department is currently 
involved in a number of programs to develop fuel cell and other 
advanced vehicle technologies.
    As I mentioned, FTA has been in the forefront of research, 
development and demonstration of fuel cell buses and, with the 
Department of Energy, has conducted a six-year program to prove 
the concept of the fuel cell bus for the transit industry. We 
currently have two 40-foot fuel cell buses in demonstration 
projects, one here in the District of Columbia and one in 
California.
    FTA oversaw completion of a new bus in 2002 that integrates 
fuel cell and hybrid technologies for an even greater boost in 
efficiency. This bus is also already operating in commercial 
service. FTA is currently managing an effort with United 
Technologies Corporation (UTC) to develop and demonstrate a 
specific fuel cell powerplant for transit buses and every other 
heavy-duty vehicle. A national heavy-duty fuel cell vehicle 
working group has been established to coordinate and share 
information in this area.
    Furthermore, local jurisdictions have used bus capital 
funds to purchase clean buses. Similarly, the Federal Highway 
Administration has provided funding for advanced buses and 
trucks, among other projects under CMAQ, the Congestion 
Mitigation and Air Quality Improvement program.
    MARAD administers an interagency program on marine fuel 
cell applications with the U.S. Coast Guard, the Navy, the 
Department of Energy, and NOAA, that funds the development of 
marine fuel cell powerplants. These will benefit ship design, 
operations and maintenance while reducing conventional 
pollutants and carbon dioxide output.
    Thank you for the opportunity to provide this testimony 
before this committee. The Department of Transportation plans 
to play and wants to play an important role in developing the 
safety standards and technologies required for the hydrogen 
infrastructure, refueling, and storage and distribution 
systems, as well as the fuel cell vehicles themselves.
    This concludes my prepared testimony. I would be happy to 
answer any questions when we get to that point in the hearing.
    Senator Thomas. Thank you.
    [The prepared statement of Mr. Frankel follows:]
    Prepared Statement of Emil H. Frankel, Assistant Secretary for 
          Transportation Policy, Department of Transportation
    Good morning Mr. Chairman and Members of the Committee.
    It is a pleasure to be here today to testify on the U.S. Department 
of Transportation's (DOT) efforts to promote the development of 
hydrogen fuel cell transportation and other promising technologies. At 
DOT, we see development of these new technologies as an integral part 
of our move towards sustainable mobility. DOT has long recognized the 
complex interdependence of energy, the environment, and transportation. 
Hydrogen fuel cells have the potential to revolutionize that 
relationship. Development of a hydrogen-based transportation system 
will require a partnership among federal agencies. Given our 
complementary experience with pipelines and heavy-duty vehicle fuel 
cell applications, DOT looks forward to working with the Department of 
Energy on this issue.
    In his State of the Union Address, President Bush recognized our 
need to reduce America's dependence on foreign oil. For nearly half a 
century, transportation has accounted for about one-fourth of total 
U.S. energy use and currently accounts for two thirds of U.S. oil 
consumption. The development of a marketable hydrogen vehicle, as the 
President has proposed, will greatly reduce the nation's dependence on 
foreign oil. We will accomplish this mission by developing technology 
and infrastructure for commercially viable hydrogen fuel cells to power 
cars, trucks, homes and businesses free of air pollution or greenhouse 
gases. Today, more than ever, we must pursue a clean, safe, and secure 
energy future.
    The Department of Transportation is poised to take on this 
tremendous challenge. Just as the Department of Energy has a clear 
leadership role in implementing the President's new Hydrogen Fuel 
Initiative and the existing FreedomCAR Partnership, the Department of 
Transportation has a clear leadership role as DOE's partner in ensuring 
the safe and effective implementation of this new technology in the 
Nation's transportation system.
    The Department of Transportation has regulatory responsibility for 
vehicle safety and fuel economy, through the National Highway Traffic 
Safety Administration (NHTSA), and for pipeline safety, through the 
Research and Special Programs Administration (RSPA). Furthermore, DOT 
has a unique role in providing capital to support, and maintain the 
safety of, the Nation's transportation infrastructure. Through DOT's 
ongoing programs, DOT also has extensive on-the-ground experience in 
the use of fuel cells in medium- and heavy-duty vehicles. Through these 
roles, the Department is committed to being a major partner in the 
process to develop infrastructure necessary to support commercially 
available hydrogen-fueled vehicles.
    DOT is supporting work on the use of fuel cells in vehicles, 
particularly heavy-duty vehicles. The Federal Transit Administration 
(FTA) and the Federal Highway Administration (FHWA) have already put 
hydrogen fuel cell buses on the road in demonstration projects and FTA 
is working to integrate these vehicles into commercial fleets in 
several cities. The Maritime Administration (MARAD) and Federal 
Railroad Administration (FRA) are exploring potential fuel cell 
applications in ships and trains. We look forward to working with DOE 
as we bring these efforts to fruition.
    In order to make our efforts successful, the Nation will require 
the development of an infrastructure system to produce, store and 
distribute hydrogen. Because DOT has primary responsibility for 
pipeline safety, we expect to be a major part of the process to plan 
the concurrent development of infrastructure to support the pace of 
commercially available vehicles. In the words of Energy Secretary 
Abraham, ``unless we work on parallel tracks, developing the vehicle 
and the infrastructure concurrently instead of consecutively, this 
process could take three decades or longer.'' Secretary Mineta looks 
forward to working with the Congress, Federal agencies, industry, and 
others to assure progress in hydrogen infrastructure, vehicle safety, 
and the application of hydrogen fuel cell technology.
    In the near term, we are continuing efforts to enhance the fuel 
efficiency of new vehicles.
      ensuring the safety of the nation's transportation system: 
                         vehicle safety issues
    Several agencies within DOT have responsibilities for ensuring the 
safe performance of passenger and cargo vehicles. NHTSA sets safety 
standards for all new motor vehicles. NHTSA is working with the 
Department of Energy to ensure that new hydrogen-based fuel systems for 
motor vehicles meet the need for safety, both during normal vehicle 
operation and during crashes.
    NHTSA has begun collaboration with DOE and will participate in a 
new interagency working group on hydrogen fuel systems. NHTSA's 
researchers are also working with such trade associations as the 
Hydrogen Association, which has a meeting scheduled today here in 
Washington, DC to discuss fuel systems, and with academic and industry 
experts in the field. In addition, NHTSA has canvassed organizations in 
Europe that are working on hydrogen fuels and has collected much of the 
published research on the subject.
    NHTSA's next step is to develop a research plan, using the existing 
research data as a basis for deciding what needs to be done to ensure 
the safety of hydrogen fuel systems. With the first fuel-cell vehicles 
already on the road, the agency will continue to research adequate 
safety measures to address fuel cell vehicle safety.
    As hydrogen fuel-cell technology is developed for use in heavier 
transport vehicles, other elements of DOT will also have roles to play. 
Before these heavier-duty vehicles can be deployed commercially, FTA 
will need to address maintenance and repair intervals, and will work 
with NHTSA to develop safety standards for such criteria as fuel 
integrity under crash conditions. Similarly, as fuel cells are adapted 
to locomotive engines, heavy-duty trucks, and marine vessels, both as 
power plants and auxiliary power units, safety standards will need to 
be developed by such DOT modal administrations as FRA and Federal Motor 
Carrier Safety Administration, among others.
            ongoing dot advanced technology vehicle programs
    Beyond these emerging activities that aid the development of a 
hydrogen-based transportation system, the Department of Transportation 
is currently involved in a number of programs to develop fuel-cell and 
other advanced vehicle technologies. Such programs include: fuel cell 
transit buses, 21st Century Trucks, and efficiency technologies in the 
intelligent transportation system.
    FTA has been in the forefront in the research, development, and 
demonstration of fuel cell buses. FTA and DOE had previously conducted 
a program to prove the concept of a fuel cell bus for the transit 
industry (1988-1994). This effort resulted in three test bed 30-foot 
fuel cell buses. To further demonstrate the feasibility and potential 
commercialization of transit applications, FTA extended its efforts to 
40-foot transit buses, the staple of transit service operations. Two 
40-foot fuel cell buses have been developed. The Washington 
Metropolitan Area Transit Authority (Metro) recently agreed to a one-
year demonstration of a fuel cell bus in revenue service operations. 
Metro plans to operate this fuel cell bus on a variety of Metrobus 
routes throughout the Washington, DC metropolitan area once pre-
training activities are completed. A second fuel cell bus is currently 
being demonstration at SunLine Transit in Palm Springs, California.
    FTA most recently managed an effort to develop a 30-foot fuel cell 
hybrid bus. This bus was completed in 2002 and is currently operating 
in revenue service operation at SunLine Transit under a demonstration 
and evaluation program. FTA is currently managing an effort with United 
Technologies Corporation Fuel Cells to develop and demonstrate a 
specific fuel cell power plant for transit buses and other heavy-duty 
vehicles. A national Heavy-Duty Fuel Cell Vehicle Working Group has 
been established to coordinate and share information in this area.
    The TEA-21 Clean Fuels Formula Program was created to help areas 
meet and maintain the National Ambient Air Quality Standards under the 
Clean Air Act, and to support emerging clean fuels and advanced 
propulsion technologies for transit buses, and to create markets for 
those technologies. Although Congress never appropriated funds for the 
Clean Fuels Formula Program, it directed in appropriations acts that 
the funds authorized for this program be merged with the Section 5309 
bus capital funds. These funds are available for replacement, 
rehabilitation, and purchase of buses and bus-related equipment, and 
the construction of bus-related facilities. Local jurisdictions have 
used these funds to operate clean buses in the nation's transit fleets.
    Similarly, the Federal Highway Administration (FHWA) has provided 
funding for advanced buses and trucks under the Congestion Mitigation 
and Air Quality Improvement (CMAQ) program. These funds provide in 
excess of $1.5 billion annually for States and localities to reduce 
emissions in areas that do not, or did not, meet the national air 
quality standards. Under the CMAQ program, advanced vehicle 
demonstrations have been conducted in several places, including a fuel 
cell bus demonstration in Chicago.
    The Maritime Administration (MARAD) administers an interagency 
program on marine fuel cell applications, with the U.S. Coast Guard, 
the Navy, DOE, and NOAA. Under this program, two 2500 kw marine fuel 
cell plant design contracts were awarded by the Navy and are underway. 
One 500 kw fuel cell plant may be fabricated in future years. Marine 
fuel cell power plants will benefit ship design, operations, manning 
and maintenance. In addition to reducing conventional pollutants, the 
projected high operating efficiency of fuel cells will also reduce 
CO2 output.
      ensuring the safety of the nation's transportation system: 
                      the hydrogen infrastructure
    DOT has an important regulatory role to play concerning the current 
and future delivery infrastructure. Our Research and Special Programs 
Administration (RSPA) administers the nation's pipeline and hazardous 
materials programs that will play critical parts in a hydrogen economy. 
DOT is responsible for developing safety standards for the 
transportation of gaseous hydrogen and hazardous liquids by pipeline 
and enforces these standards through a comprehensive federal and state 
pipeline inspection program. As part of the nation's pipeline system, 
approximately 600 miles of low-pressure pipelines currently carry 
hydrogen. Wide-scale adoption of hydrogen technologies in 
transportation will likely lead to an infrastructure comprised, in 
part, of an expanded hydrogen pipeline system. The higher pressures and 
volumes potentially raise safety and security risks that may require 
additional regulatory actions (standards and codes) together with 
additional enforcement efforts.
    Through its hazardous materials program, DOT already is responsible 
for identifying and managing the risks presented by the transportation 
of hydrogen in commerce. This includes not only the transportation of 
hydrogen as a compressed gas or cryogenic liquid, but also its 
transportation as cargo aboard vehicles or as vehicle components (like 
fuel cells) that contain hydrogen as a fuel.
    We routinely work with industry to address new technologies and 
applications that are not currently provided for in our regulations--
such as fuel cells--to provide for their use in the marketplace while 
ensuring that they are safe. Currently, large quantities of hydrogen 
are not transported but as demand increases, associated volumes will 
require DOT to address the security and safety risk associated with the 
larger number of hydrogen shipments moving through populated areas--
using all surface modes--rail, highway and water.
    As the U.S. lead agency in the development of international codes 
and standards for hazardous materials, DOT is already taking the steps 
necessary to ensure that energy materials, including hydrogen for fuel 
cells, may be safely and securely transported when installed in motor 
vehicles, or other applications, and when transported individually as 
new or replacement parts.
    The Department also is addressing critical education and training 
needs in the emergency response community, working with the National 
Association of State Fire Marshals, the California Fuel Cell 
Partnership, and others.
    Moreover, in the President's FY 04 budget request for RSPA, the 
Department is pursuing the development of a hydrogen fuel 
infrastructure and standards for hydrogen vehicle fuel systems, so that 
fuel cell vehicles, direct hydrogen-fueled vehicles and other 
alternative fuel vehicles can be developed as a safe alternative to 
conventional petroleum fueled vehicles.
                            the cafe program
    While these programs to develop hydrogen fuel cell and advanced 
technologies will lead to improved fuel economy and lower emissions in 
the longer term, DOT is involved in a number of activities that will 
yield such improvements in the nearer term. One is the Corporate 
Average Fuel Economy (CAFE) program. NHTSA has proposed light truck 
fuel economy standards for model years 2005 through 2007, with due 
consideration of recommendations in the recently released National 
Academy of Sciences study. The proposed increases are the highest in 20 
years and can be implemented without compromising safety or employment, 
saving approximately 2.5 billion gallons of gasoline and improving the 
environment.
    I thank you for the opportunity to provide this testimony before 
the Committee. I can assure you that DOT plans to play an important 
role in developing the safety standards and technologies required for 
the hydrogen infrastructure, refueling, and storage and distribution 
systems, as well as for the fuel cell vehicles themselves.
    This concludes my prepared testimony. I would be happy to answer 
any questions you or members of the Committee may have.

    Senator Thomas. Thank you, Secretary Frankel.
    Mr. Dana.

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

    Mr. Dana. Mr. Chairman, thank you for the opportunity to 
testify before the committee regarding energy and the 
transportation sector. My name is Greg Dana. And I represent 
the Alliance of Automobile Manufacturers, a trade association 
of ten car and light truck manufacturers.
    The Alliance supports efforts to create an effective energy 
policy based on broad, market-oriented principles. Policies 
that promote research and development and deployment of 
advanced technologies and policies which provide customer-based 
incentives to accelerate demand of these advanced technologies 
set the foundation.
    I would like to address some of the technologies automakers 
are focusing on today. The Alliance fully supports President 
Bush's Hydrogen Fuel Initiative to spend $1.2 billion 
developing fuel technologies, as well as infrastructure for 
fuel cell vehicles to be widely available. The fuel cell is the 
primary alternative to the battery for supply power to an 
electric vehicle's motor. Although a fuel cell looks like a 
battery, the former uses hydrogen fuel to continuously produce 
electric current, whereas the latter stores electricity in its 
electrodes.
    Fuel cells work by chemically combining hydrogen and 
oxygen, a process that produces electricity in water. Because 
they produce less than one volt each, fuel cells must be 
stacked in a row to produce enough voltage for a motor. 
Hydrogen can be produced by reformulating a hydrogen-containing 
fuel or it can be stored in its pure form.
    Automakers are racing to make fuel cell vehicles 
commercially viable, cost effective, and appealing to 
consumers. However, as the President recognizes, an 
infrastructure of hydrogen refueling stations will have to be 
in place across the Nation in order to encourage broad 
marketplace acceptance. Together with the already established 
FreedomCAR Initiative, the automobile companies look forward to 
working with government agencies to overcome technical and cost 
barriers, so we can deliver fuel cell vehicles and other 
advanced technology products to the American consumer.
    Hybrid-electric vehicles can offer a significant 
improvement in fuel economy. These products capture power 
through regenerative braking. When decelerating an internal 
combustion vehicle, the brakes convert the vehicle's kinetic 
energy into heat, which is lost to the air.
    By contrast, a decelerating hybrid vehicle can convert 
kinetic energy into stored energy that can be reused during the 
next acceleration. Hybrid vehicles do not require additional 
investment in fuel infrastructure, which helps reflect their 
potential for near-term acceptance.
    Today hybrid vehicles face cost challenges. Advanced lean-
burn technology diesel and gasoline vehicles employ highly 
sophisticated and costly combustion and emissions technologies 
that greatly enhance the existing advantages of lean-burn 
internal combustion engines. For example, advanced lean-burn 
technology diesel and gasoline vehicles are able to achieve 
exceptional combined city/highway mileage performance that can 
be higher than comparable conventional gasoline engine 
vehicles, offering both important energy conservation benefits 
and reduced lifetime fuel costs for consumers.
    Moreover, the lean-burn technology's fuel economy benefits 
are immediate and will improve as these vehicles come to market 
with the introduction of near zero sulphur fuels. These 
vehicles must meet the new stringent EPA Tier II emission 
requirements through significant reductions of all regulated 
emissions.
    Advanced lean-burn technology diesel and gasoline vehicles' 
conservation and environmental benefits are complemented by 
exceptional overall engine performance characteristics, 
including high torque power, application, various vehicle 
categories and classes, and low maintenance costs, all of which 
will help ensure consumer acceptance when the technology 
becomes available in the marketplace.
    At present, current technology light-duty diesel vehicles 
comprise 40 percent of new vehicle sales in Europe, a figure 
that is projected to increase to 70 percent by the end of the 
decade. By contrast, current technology light-duty diesel 
vehicles represented less than 1 percent of the U.S. market in 
2002 due to U.S. emission requirements.
    An internal combustion engine vehicle powered by liquid 
hydrogen combines the goals of near-zero emissions with the 
utility and flexibility of an internal combustion engine, 
emitting only water vapor when burned. Combined with existing 
state-of-the-art technology, this same internal combustion 
engine can also run on gasoline. Such dual fuel capacity 
enables the vehicle to be switched to gasoline operation, 
should it become necessary, eliminating any restrictions that 
might be imposed by range or hydrogen availability.
    In the fuels area, the auto industry is producing numerous 
vehicles that can operate on alternative fuels. In fact, the 
industry already offers more than 25 vehicles powered by 
alternative fuels. Approximately 2 million of these vehicles 
are on the road today and more are coming. Today, auto 
manufacturers offer alternative vehicles on the following 
fuels: natural gas, ethanol, biodiesel, and liquified petroleum 
gas.
    The largest share of alternative fuel vehicles being 
produced by U.S. manufacturers are vehicles that can operate on 
a mixture of 85 ethanol and 15 percent gasoline. The Government 
has supported efforts to produce these vehicles by providing 
extra fuel economy credits to help meet CAFE requirements. 
While the volume of vehicles is now approaching a critical 
mass, we think continuation of these government incentives will 
spur further development of the needed ethanol infrastructure.
    The race is on among all companies. And breakthroughs are 
being made every year. A continuous dialogue with policymakers, 
like those who serve on this committee, will ensure that the 
United States continues to be a leader for innovative and 
world-class technology, not only for the motor vehicle fleet 
but for all sectors of our economy.
    Thank you for the opportunity to testify today.
    Senator Thomas. Thank you, sir. We appreciate it very much.
    [The prepared statement of Mr. Dana follows:]
Prepared Statement of Greg Dana, Vice President, Environmental Affairs, 
                  Alliance of Automobile Manufacturers
    Mr. Chairman, thank you for the opportunity to testify before your 
Committee regarding automakers' efforts to develop advanced technology 
vehicles. I represent the Alliance of Automobile Manufacturers, a trade 
association of 10 car and light-truck manufacturers. Our member 
companies include BMW Group, DaimlerChrysler Corporation, Ford Motor 
Company, General Motors Corporation, Mazda, Mitsubishi, Nissan North 
America, Porsche, Toyota Motor North America and Volkswagen of America.
    Alliance member companies have more than 620,000 employees in the 
United States, with more than 250 manufacturing facilities in 35 
states. Overall, a University of Michigan study in 2001 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.
                           alliance r&d focus
    The University of Michigan study also found that the total R&D 
spending by the industry is approximately $18.4 billion per year, with 
much of it in the high-tech sector. In fact, the study stated the 
following: ``The level of automotive R&D spending and the relatively 
high employment of research scientists and engineers in the U.S. auto 
industry has traditionally earned it a place in any U.S. government 
listing of high technology industries generally thought to be central 
to the long-term performance of the U.S. economy.''
    The auto industry is committed to developing and utilizing emerging 
technologies to produce cleaner, more fuel-efficient cars and light 
trucks. According to EPA data, fuel efficiency has increased steadily 
at approximately 1.5% per year on average from 1975 to 2001 for both 
cars and light trucks. The National Academy of Sciences (NAS), in its 
2001 report to Congress, introduced their discussion of promising 
technologies by stating that ``the 1992 NAS report outlined various 
automotive technologies that were either entering production at the 
time, or were considered ``emerging'' based upon their potential and 
production intent. Many of the technologies identified in the 1992 
report as ``proven'' or ``emerging'' have already entered production. 
This has occurred primarily by market/competitive driven forces and 
occurred during a time that CAFE standards remained relatively 
unchanged. Automotive technology has continued to advance, especially 
in microelectronics, mechatronics, sensors, control systems, and 
manufacturing processes.
    Auto manufacturers are working on future technologies such as 
hybrid, advanced lean-burn, hydrogen fueled internal combustion 
engines, and fuel cell vehicles that may lead to substantial 
improvements in efficiency and emissions performance without 
sacrificing safety, utility, and performance. These new and emerging 
technologies all share the need for cooperative efforts that bring all 
the key stakeholders together .including the automakers, energy 
providers, government policy makers and most importantly, the 
customers.
                     key energy policy initiatives
1. Promoting Market Based Principles
    The Alliance supports efforts to create an effective energy policy 
based on broad, market-oriented principles. Policies that promote 
research and 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. This competition drives 
automakers to develop and introduce breakthrough technologies to meet a 
variety of demands and customer needs in the marketplace.
    The NAS report in 2001 summarized this diversity of demand and 
priorities in the marketplace when it stated that ``automotive 
manufacturers must optimize the vehicle and its powertrain to meet the 
sometimes-conflicting demands of customer-desired performance, fuel 
economy goals, emissions standards, safety requirements and vehicle 
cost within the broad range of operating conditions under which the 
vehicle will be used. This necessitates a vehicle systems analysis. 
Vehicle designs trade off styling features, passenger value, trunk 
space and utility. These trade-offs will likewise influence vehicle 
weight, frontal area, drag coefficients and powertrain packaging, for 
example. These features together with the engine performance, torque 
curve, transmission characteristics, control system calibration, noise 
control measures, suspension characteristics and many other factors, 
will define the drivability, customer acceptance and marketability of 
the vehicle.''
    This is a long way of saying that in the end, the customer is in 
the driver's seat. Market based incentives and approaches ultimately 
will help consumers overcome the initial cost barriers of advanced 
technologies during early market introduction thereby increasing demand 
and bringing more energy efficient vehicles into the marketplace. This 
will also accelerate cost reduction as economies of scale are achieved 
in a timelier fashion.
2. Maintaining Technology Focus
    The Alliance and its 10 member companies believe that the best 
approach for improved energy conservation and fuel efficiency gains 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.
    The Alliance fully supports President Bush's Hydrogen Fuel 
Initiative to spend $1.2 billion developing fuel technologies as well 
as infrastructure needed for fuel cell vehicles to be widely available. 
The fuel cell is the primary alternative to the battery for supplying 
power to an electric vehicle's motor. Although a fuel cell looks like a 
battery, the former uses hydrogen fuel to continuously produce electric 
current whereas the latter stores electricity in its electrodes. Fuel 
cells work by chemically combining hydrogen and oxygen, a process that 
produces electricity and water. Because they produce less than one volt 
each, fuel cells must be stacked in a row to produce enough voltage for 
the motor. Hydrogen can be produced by reformulating a hydrogen-
containing fuel or it can be stored in its pure form.
    Automakers are racing to make fuel cell vehicles commercially 
viable, cost effective and appealing to consumers. However, as the 
President recognizes, an infrastructure of hydrogen fueling stations 
will have to be in place across the nation in order to encourage broad 
marketplace acceptance. Together with the already established 
FreedomCAR initiative, the automobile companies look forward to working 
with government agencies to overcome technical and cost barriers so we 
can deliver fuel cell vehicles and other advanced technologies products 
to the American consumer.
    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.
                new technologies promises and challenges
Focus on Powertrain and Vehicle Technologies
    Automobile companies around the globe have dedicated substantial 
resources to bringing cutting-edge technologies--electric, fuel cell, 
advanced lean burn, hybrid-electric vehicles as well as alternative 
fuels--including hydrogen fueled internal combustion engines--to the 
marketplace. Each of these technologies brings a set of unique 
advantages. At the same time, each technology has a unique set of 
challenges that inhibit widespread commercialization and acceptance. 
The internal combustion engine, fueled by relatively inexpensive 
gasoline, has been and continues to be, a formidable competitor against 
which all new technologies must compete.
    For consumers sensitive to cost, fuel economy gains must be 
compared to the increased investment costs and risks in their new 
vehicle purchase decision. Assuming a fuel cost of $1.50 per gallon, a 
20% increase in vehicle fuel efficiency offers an annual fuel savings 
of just over $150. This cost must be weighed against the convenience, 
utility and performance of the alternative.
    The Alliance supports 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.
    In reviewing Senate legislation that was recently introduced to 
spur the sale of advanced technology fuel-efficient vehicles, the 
Alliance believes that the overall concepts found in Senator Orrin 
Hatch's new bill offer a solid framework, but we also support the 
inclusion of tax credits for advanced lean-burn technology vehicles. 
Automakers look forward to working with this Committee and the Senate 
Finance Committee as a new energy and tax package is developed this 
year.
    Automakers are keenly aware of the importance of consumer choices 
and the challenges to deliver new technologies that meet their 
affordability, performance and utility needs. While fuel cell vehicles 
are still many years away from being widely available, there are a 
number of other advanced technology vehicles in the marketplace today, 
or in the near future, for consumers.
            Hybrid-Electric Vehicles
    Hybrid-electric vehicles can offer a significant improvement in 
fuel economy. These products capture power through regenerative 
braking. When decelerating an internal combustion vehicle, the brakes 
convert the vehicle's kinetic energy into heat, which is lost to the 
air. By contrast, a decelerating hybrid vehicle can convert kinetic 
energy into stored energy that can be reused during the next 
acceleration. Hybrid vehicles do not require additional investment in 
fuel infrastructure which helps reflect their potential for near-term 
acceptance. Today, hybrid vehicles face cost challenges.
            Battery Electric Vehicles
    Vehicles that utilize stored energy from ``plug-in'' rechargeable 
batteries offer zero emissions. Battery electric vehicles continue to 
face weight, energy density and cost challenges that limit their 
customer range and affordability.
            Advanced Lean Burn Technology Vehicles
    Advanced lean-burn technology diesel and gasoline vehicles employ 
highly sophisticated and costly combustion and emissions technologies 
that greatly enhance the existing advantages of lean-burn internal 
combustion engines. For example, advanced lean-burn technology diesel 
and gasoline vehicles are able to achieve exceptional combined city/
highway mileage performance that can be higher than comparable 
conventional gasoline engine vehicles, offering both important 
conservation benefits and reduced lifetime fuel costs for consumers. 
Moreover, the technology's fuel economy benefits are immediate and will 
improve as these vehicles come to market with the introduction of near 
zero sulfur fuels. These vehicles must meet the new stringent EPA Tier 
II emission requirements, through significant reductions of all 
regulated emissions.
    Advanced lean-burn technology diesel and gasoline vehicles' 
conservation and environmental benefits are complemented by exceptional 
overall engine performance characteristics, including high torque 
power, application to various vehicle categories and classes, and low 
maintenance costs-all of which will help ensure consumer acceptance 
when the technology becomes available in the marketplace.
    At present, current technology light-duty diesel vehicles comprise 
40% of new vehicle sales in Europe, a figure that is projected to 
increase to 70% by the end of the decade. By contrast, current 
technology light-duty diesel vehicles represented less than 1% of the 
U.S. market in 2002 due to U.S. emission requirements.
            Hydrogen Fueled Internal Combustion Engine
    An internal combustion engine vehicle powered by liquid hydrogen 
combines the goals of near-zero emissions with the utility and 
flexibility of an internal combustion engine, emitting only water vapor 
when burned. Combined with existing state-of-the-art technology, this 
same internal combustion engine can also run on gasoline. Such dual 
fuel capacity enables the vehicle to be switched to gasoline operation 
should it become necessary, eliminating any restrictions that might be 
imposed by range or hydrogen availability.
Focus on Fuels and Infrastructure
    Much of the discussion regarding energy policy and the 
transportation sector centers 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 their 
products--fuel efficiency, safety and emissions--and attempting to move 
forward with advanced technologies, they must have the best possible 
and cleanest fuels. EPA has begun to address gasoline and diesel fuel 
quality, but fuel needs to get even cleaner. This is important to 
enable advanced lean burn vehicles to comply with increasingly 
stringent emissions standards and because gasoline will remain the 
prevalent fuel for years to come and may eventually be used for fuel 
cell technology.
            Low Sulfur Gasoline
    In 1999, new EPA rules were issued which direct oil refiners to 
reduce the amount of sulfur in gasoline to an average of 30 parts per 
million, a reduction of 90% over current levels. Low sulfur gasoline is 
vital to ensuring that vehicle pollution control devices, such as 
catalytic converters, work more efficiently. The Tier II emissions 
regulations were required under the 1990 Clean Air Act and will be 
phased in beginning in the 2004 model year.
            Low Sulfur Diesel
    Automakers 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 has gained wide 
acceptance in Europe and other countries representing about 40% of new 
passenger vehicle sales. 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. However, their use in the U.S. must be enabled 
by significantly cleaner diesel fuel.
    In 2001, EPA promulgated its low sulfur diesel rule that the 
Alliance aggressively supported as a strong step toward enabling use of 
clean diesel technology in light duty vehicles. In addition to lower 
sulfur, however, diesel fuel also must have higher cetane, lower 
aromatics and adequate lubricity, and the quality of the diesel fuel 
currently sold in the U.S. is inadequate with respect to these 
properties. Unless better fuel quality can be assured nationwide, 
companies will hesitate to introduce clean diesel technologies into the 
U.S. market.
    Besides enabling advanced technologies, cleaner conventional fuels 
will provide emission benefits in the existing fleet of on-road 
vehicles. More information and details can be found in the World-Wide 
Fuel Charter which is endorsed by automakers around the world.
            Alternative Fuels
    Beyond conventional fuels, the auto industry also is producing 
vehicles that can operate on alternative fuels. In fact, the industry 
already offers more than 25 vehicles powered by alternative fuels. 
Approximately 2 million of these vehicles are on the road today and 
more are coming. Today, auto manufacturers offer alternative fuel 
vehicles on the following fuels:

   Natural gas
   Ethanol
   Biodiesel
   Liquefied petroleum gas (propane)

    The largest share of alternative fuel vehicles being produced by 
U.S. manufacturers are vehicles that can operate on a mixture of 85% 
ethanol and 15% gasoline. The government has supported efforts to 
produce these vehicles with extra fuel economy credits to help meet the 
CAFE requirements. While the volume of vehicles is now approaching a 
critical mass, we think continuation of these government incentives 
will spur further development of the needed ethanol infrastructure.
    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, automakers have advanced 
technology vehicles in the marketplace now and have announced 
aggressive production plans for the near future.
    The race is on among all companies and breakthroughs are being made 
every year. A continuous dialogue with policymakers, like those who 
serve on this Committee, will ensure that the United States continues 
to be a leader for innovative and world-class technology not only for 
the motor vehicle fleet but for all sectors of our economy.
    This concludes my testimony. Thank you for the opportunity to 
testify before the Committee today.

    Senator Thomas. Mr. Friedman, we are glad you are concerned 
about this issue.

  STATEMENT OF DAVID FRIEDMAN, SENIOR ANALYST, CLEAN VEHICLES 
             PROGRAM, UNION OF CONCERNED SCIENTISTS

    Mr. Friedman. Thank you, Mr. Chairman. We are concerned 
about a lot of things. That is in our name.
    I am here representing the Union of Concerned Scientists. 
And we are a nonprofit organization of more than 60,000 
scientists and citizens working for practical environmental 
solutions. I would like to start off actually partly where 
Senator Bingaman left off, which was focusing on the problem of 
our oil use today, the immediate effects and the immediate 
solutions that we can apply to those problems.
    Today, we send more than $200,000 overseas every minute to 
buy oil. Even if we stopped importing oil, though, the U.S. 
economy would still be vulnerable. Global price hikes affect 
the cost of U.S. oil, whether we purchase it within our country 
or from somewhere else. This is because we buy oil on a global 
market, and prices are set by that global market. As long as 
the U.S. economy is tied to oil, we will be susceptible to 
OPEC's market power and Persian Gulf instability.
    Finally, the oil use in our transportation sector also 
creates many significant environmental problems that impact our 
health and our economy. I think we do have to face the fact 
that there is no single silver bullet to address this problem. 
However, there is a broad set of technologies that can be used, 
many of which can be applied within the next decade. We should 
use these transportation technologies as an investment to cut 
our near-term and long-term oil use. And just like other 
investments in technology, investing in automotive technology 
will reduce our oil dependence while also being an engine for 
economic and job growth.
    First, I would like to start with many conventional 
technologies that have not been addressed yet today. These are 
short-term, low-risk technology options that are proven, cost 
effective, and available to automakers today. We can put these 
technologies on the road over the next ten years. And the 
result can be a stabilization in the growth of oil use from our 
cars and trucks. That would be a very impressive result.
    These technologies include things like efficient gasoline 
engines that incorporate variable valve technology, 
displacement on demand, and even gasoline-direct injection. We 
are also looking at improved transmissions, such as continually 
variable transmissions and efficient manual transmissions that 
the computer on board the vehicle can shift instead of the 
driver.
    Also available are more mundane technologies, simple things 
like improving the aerodynamics of our cars and trucks, lower 
rolling resistance tires, and even things like electronic power 
steering.
    Diesel, as you heard, is also another possible conventional 
technology option, though it is looking like it will not be as 
cost effective as many of these other gasoline and conventional 
technologies. Diesel has not made a significant entry into the 
U.S. market for several reasons. It is not because of air 
quality concerns, but rather because of the cost of the 
technology. Diesel has made significant inroads in Europe 
because there are gasoline taxes that favor diesel use.
    Further, diesels are getting cleaner, but they do make it 
harder to address public health concerns regarding air quality, 
since they are unlikely to catch up with the cleanest gasoline 
cars.
    Because these conventional technologies exist today and are 
cost effective, we do not need a major research program to get 
them on the road. Instead, we need to push to get automakers to 
put them in showrooms, providing consumers with the choices 
they currently do not have, choices like a 30- or 35-mile-per-
gallon SUV or a 30- to 33-mile-per-gallon pickup truck.
    The last push to get conventional technologies on the road 
proved very effective, cutting our passenger vehicle oil use by 
more than 25 percent in the year 2000, according to the 
National Academy of Sciences. The current approach, a 1.5-mile-
per-gallon increase in the light truck fuel economy average, 
however, is a very modest goal. This would be the first 
increase in fuel economy standards in a decade but is extremely 
modest when you consider the wide availability of technologies. 
It will also have a negligible impact on our oil use, saving 
less than one day's worth of oil each year between 2005 and 
2008.
    These gasoline technologies are key for short-term and 
near-term improvements in fuel economy and productions in oil 
use. Hybrid technology and fuel cells definitely offer 
significant promise in the medium and longer term. Hybrid 
technology can double the fuel economy of our cars and trucks. 
Dedicated alternative fuels offer near-term air quality and oil 
savings benefits. And these same alternative fuels, such as 
natural gas and possibly methanol, will provide a major source 
of hydrogen in the transition to renewable hydrogen feed 
stocks.
    Fuel cells offer long-term promise, but it certainly will 
be a challenge to get there. It will not be a small or 
inexpensive task. And so, therefore, the Government does need 
to provide vision and focus, along with clear goals and funding 
in order to achieve those benefits. Hybrid technologies and 
alternative fuels also need support, specifically in terms of 
market incentives, like tax credits that can buy down the 
initial cost of these vehicles and make them more affordable to 
consumers.
    Finally, in closing I would like to say that as an 
engineer, I see the broad array of available technologies as an 
opportunity, an opportunity to roll up our sleeves and get to 
work, making vehicles that are safer, cleaner, and less 
dependent on oil. Because the available conventional 
technologies and advanced technologies will complement each 
other, this is not an either/or proposition. We must continue 
to focus on policies that will put conventional technology to 
work while we also invest in longer term technology options.
    Thank you for the opportunity to testify today on this 
important issue.
    Senator Thomas. Thank you, sir.
    [The prepared statement of Mr. Friedman follows:]
 Prepared Statement of David Friedman, Senior Analyst, Clean Vehicles 
                 Program, Union of Concerned Scientists
    Thank you Mr. Chairman and Members of the Committee for the 
opportunity to testify before you today. My name is David Friedman and 
I am an engineer and Senior Analyst in the Clean Vehicles Program at 
the Union of Concerned Scientists (UCS). UCS is a nonprofit 
organization of more than 60,000 scientists and citizens working for 
practical environmental solutions.
    Today, I would like to begin by briefly describing the numerous 
challenges--ranging from growing dependence on foreign oil to public 
health concerns--posed by our transportation sector. I will then focus 
on both the technologies available today as well as the technologies of 
the future that will help us meet these challenges. UCS firmly believes 
that technology is available today that can increase our efficiency, 
help protect public health and provide consumers with safe 
transportation. We must continue to focus on policies that will put 
that technology to work for us now even while we invest in the 
technologies of the future.
               energy, oil, and the transportation sector
    The United States currently uses about 20 million barrels of oil 
each day. Two thirds of that oil is used in the transportation sector. 
So, for the most part, our oil problem is a transportation problem and 
the economic, political, environmental and health risks associated with 
our oil dependence are inherently linked to the amount of fuel our 
transportation system requires every day.
Oil Markets
    As the world's largest oil consumer, the United States is 
particularly exposed to the risks posed by an oil market beyond our 
control. Reliance on the economically powerful OPEC cartel \1\ and the 
politically unstable Persian Gulf nations will only grow over time as 
oil supplies dwindle. OPEC owns four-fifths of the world's remaining 
proven oil reserves and nations in the Persian Gulf own two-thirds 
(Figure 1). Only a small proportion about 2 percent of the proven 
reserves lies within the United States.
---------------------------------------------------------------------------
    \1\ OPEC, the Organization of Petroleum Exporting Countries, 
consists of Algeria, Gabon, Indonesia, Iran, Iraq, Kuwait, Libya, 
Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela.
---------------------------------------------------------------------------
Economic Impacts
    Importing large amounts of oil carries significant economic costs: 
we send more than $200,000 overseas each minute to buy foreign oil.\2\ 
But even if we imported no oil at all, the US economy would still be 
vulnerable. The world oil market determines the price we pay for oil, 
so global price hikes affect the cost of US oil because all oil 
retailers (domestic and foreign) charge more. As long as the US economy 
is tied to oil and oil is traded globally we will be susceptible to 
OPEC's market power and Persian Gulf instability. To date, the economic 
costs of oil dependence have been tremendous, totaling $7 trillion over 
the past 30 years by one estimate (Greene & Tishchishyna, 2000).
---------------------------------------------------------------------------
    \2\ UCS estimate based on the Energy Information Administration's 
import cost figure of $119 billion in 2000 (EIA, 2001c).
---------------------------------------------------------------------------
    The political instability of the Persian Gulf has caused three 
major price shocks over the past 30 years. The Iraqi invasion of Kuwait 
in 1990 took an estimated 4.6 million barrels per day out of the global 
oil supply for three months. The Iranian revolution reduced global oil 
supplies by 3.5 million barrels per day for six months in 1979, and the 
Arab oil embargo eliminated 2.6 million barrels per day for six months 
in 1973 (EIA, 2001b). In each of these cases, the world oil supply 
dropped only about 5 percent (Davis, 2001), but world oil prices 
doubled or tripled (Greene et al., 1998). In the wake of these oil 
price hikes, US inflation increased markedly, accompanied by downturns 
in our gross domestic product (BLS, 2001;BEA, 2001;EIA, 2001a). In each 
case, recession followed.
    Petroleum imports also exact a toll on our international balance of 
trade: the $119 billion we spent on foreign oil in 2000 accounted for a 
fourth of that year's US trade deficit (EIA, 2001c). The situation is 
likely to worsen as imports increase. Today, the United States imports 
over half the petroleum products we use; this portion can only rise as 
our oil appetite grows (Figure 2).


    Finally, consumers themselves feel a significant bite from our oil 
dependence. Forty percent of our daily oil consumption in 2000 (about 8 
million barrels per day) went to fuel our cars and trucks, at a cost to 
consumers of $186 billion. By 2020, oil consumption is expected to grow 
by nearly 40% and consumers will be spending around $260 billion 
dollars per year to fuel up their cars and trucks.
Environmental Impacts
    The cars and trucks we drive every day were responsible for over 
20% of the global warming emissions produced by the United States 
during 2000: 1,450 million tons (358 million metric tons, carbon 
equivalent) of the heat-trapping gases linked to global warming.\3\ 
Most of these gases will stay in the atmosphere for more than 100 
years, contributing to an increase in the earth's average surface 
temperature. This is projected to rise 2.5 to 10.4 deg.F (1.4 to 
5.8 deg.C) between 1990 and 2100, if no major efforts are undertaken to 
reduce emissions of global warming gases. As the earth continues to 
warm, we face a great risk that the climate will change in ways that 
threaten our health, our economy, our farms and forests, beaches and 
wetlands, and other natural habitats.
---------------------------------------------------------------------------
    \3\ This UCS estimate is based on EIA 2000a. Each gallon of 
gasoline burned emits nearly 19 pounds of carbon dioxide, the primary 
pollutant responsible for global warming. The production and delivery 
of gasoline are responsible for another 5 pounds per gallon of global 
warming pollutants (Wang 1999).
---------------------------------------------------------------------------
    Cars and trucks are also major contributors to air pollution. 
Regulations have helped clean up passenger vehicles over the past three 
decades. However, rising demand for travel and increased vehicle 
ownership will outpace even the standards on the books through this 
decade. Cars and trucks will need to clean up their act even more if we 
are to eliminate the threat air pollution poses to public health 
especially to our children and the elderly.
    Finally, producing and distributing the gasoline that went to fuel 
our cars and trucks in the year 2000 resulted in the emission of 
848,000 tons of smog-forming pollutants and 392,000 tons of benzene-
equivalent toxic chemicals, in addition to the pollutants emitted from 
the tailpipes of vehicles.\4\ Altogether, cars and trucks are the 
largest single source of air pollution in most urban areas. As with US 
oil use and global warming emissions, upstream air pollution is 
expected to continue to rise significantly over the next two decades, 
posing the greatest health threat to children, the elderly, and other 
vulnerable members of our population. Gasoline and oil distribution 
also leads to water and ground pollution and catastrophic oil spills 
such as the Exxon Valdez that harm the entire ecosystem.
---------------------------------------------------------------------------
    \4\ The production, refining, and delivery of each gallon of 
gasoline in the United States emit an estimated 6.4 grams (0.014 
pounds) of smog-forming pollutants (Wang 1999). Upstream activities 
also release harmful toxic pollution in the air. This poses a major 
health hazard near refineries, along distribution routes, and at 
gasoline stations. For every gallon of gasoline delivered, 2.9 grams 
(0.0065) pounds) of benzene-equivalent toxic emissions are produced 
(Winebrake et al. 2000; Wang 1999).
---------------------------------------------------------------------------
     a comprehensive, technology based, plan to kick our oil habit
    While the problems of our oil dependence loom large, there is a 
suite of technology options that can be used to turn things around. We 
can take advantage of the technical and engineering prowess of U.S. 
industries to put these technologies to work in a comprehensive 
approach that can ultimately move the transportation sector away from 
oil. No single silver bullet can solve the problems posed by our use of 
cars and trucks--but if we, as a society, choose now to invest in a 
variety of solutions, ranging from near to long term, together they can 
eliminate the use of oil for transportation and at the same time 
address many of the other problems associated with our transportation 
system.
    Because it will likely take most of the first half of this century 
to finally move ourselves off oil in the transportation sector, we must 
take advantage of every option that is afforded to us in that time. 
Conventional technologies can be put on the road over the next 10 years 
to stabilize oil use from cars and trucks. Hybrid technology can then 
begin to actually reduce that amount of oil below today's levels. 
Together, conventional and hybrid technology can fill the gap while the 
long-term hope offered by hydrogen fuel cells and alternative fuels 
begins to materialize.
    At the same time these technologies are being put into play to 
address oil dependence and energy security, they offer the opportunity 
to address the air quality and safety problems associated with cars and 
trucks. The aggressive use of conventional and advanced technology can 
mark a return to ``the age of the engineer,'' \5\ as Ford's then Vice 
President of Car Product Development, Robert B. Alexander characterized 
the period in the late 1970's when automakers were challenged to 
provide consumers with more socially responsible vehicles by 
simultaneously improving safety, fuel economy, and emissions. The 
current and future levels of technology available in automobile 
development provide the exact same opportunity to both transform the 
internal combustion engine vehicles we have been driving for the past 
100 years and to work on new technologies such as fuel cells and 
alternative fuels that offer the promise of addressing transportation 
problems in the longer run.
---------------------------------------------------------------------------
    \5\ Robert B. Alexander, speech before the Management Briefing 
Seminars sponsored by the Michigan Chamber of Commerce and the 
University of Michigan (Traverse City, MI) August 4, 1977.
---------------------------------------------------------------------------
    The technologies available today and those being developed for the 
future provide the opportunity to integrate air quality, safety, and 
reduced oil dependence into the regular redesign process that takes 
place for each car and truck model every 3-5 years. These three goals 
then become a complementary part of a refocused redesign process that 
can diminish and then ultimately kick our oil habit while also 
protecting public health through improved air quality, and making our 
highways safer. These technologies and this shift in focus are well 
within the abilities of our automobile and fuels industries, but will 
require a change in their priorities--a change that will need to be 
driven by clear signals from the government.
    Like other investments in technology, using automotive technology 
to build a fleet of cleaner, safer, cars and trucks while reducing our 
oil dependence will be an engine for economic and job growth. For 
example, our analysis indicates that a reaching a fleet average of 40 
mpg over the next ten years will provide consumers a net savings of 
more than $29 billion per year by 2015 because savings at the pump far 
outweigh the added vehicle costs. The money saved would be spent 
throughout the economy, yielding a net increase of 182,700 new jobs in 
areas such as the service industry, agriculture, construction, 
manufacturing and even 41,100 additional jobs for the US auto industry 
and their suppliers.
    The federal government can play a key role in addressing oil 
dependence while simultaneously helping to make our highways safer and 
improving air quality. Providing a clear vision that guides technology 
development to meet these goals can fulfill part of this role. This 
vision must capture the urgency of the problems while providing 
realistic goals, timelines, and performance metrics. Finally, the 
vision needs to include rolling up our sleeves and getting this 
technology on the road and be backed up by the necessary policies and 
resources to truly address the problems that exist today.
Conventional Technology
    The most effective near term approach to addressing the many 
problems associated with our cars and trucks is to put existing and 
emerging convention technology to work. These technologies can reverse 
the 15 year trend of declining fuel economy and dramatically improve 
fuel economy over the next ten years--filling a stop-gap role by 
keeping keep passenger vehicle oil use near today's 8 million barrels 
per day, rather than letting it continue to grow at unprecedented 
rates.
    Many of the technologies that could have been used improve fuel 
economy while making safer and cleaner vehicles have been left on the 
automakers' shelves. These technologies include efficient engines that 
incorporate lower friction components, variable valve technology, 
displacement on demand, gasoline direct injection, and turbo or super-
charging. Improved transmission technologies have also been developed: 
e.g. 6-speed automatic transmissions with aggressive lock-up control, 
continuously variable transmissions, and efficient ``manual'' 
transmissions that are shifted by a computer instead of by the driver. 
Integrated starter/generator technology that can turn off the engine 
instead of letting it idle have seen use in Japan and Europe and are 
available to US automakers. More mundane technologies can also be put 
to work: e.g. improved aerodynamics, lower rolling resistance tires, 
and electronic power steering.
    Putting these technologies to work--according to our analysis and 
that of the National Academy of Sciences, researchers at MIT, and 
others--means that it is possible to make SUVs like the Ford Explorer 
that reach 34-35 miles to the gallon, family cars like the Ford Taurus 
that get up to 41-45 mpg, and full-size pickups like the Dodge Ram that 
can reach 30-33 mpg--all of which will have the same size, comfort, 
performance as consumers expect today along with the same or even 
improved safety (DeCicco 2001, Friedman 2001, NRC 2002, Weiss 2000). 
The added technologies will increase vehicle cost, but will more than 
pay for themselves in gasoline savings.
    Another conventional engine technology that could be used to 
address oil dependence is diesel technology, sometimes referred to as 
``advanced lean burn'' technology. Diesel engines offer improved 
efficiency and, like gasoline vehicles, rely on fuel derived from oil. 
In many ways, diesel is no different from the other conventional 
technologies that can be used to improve fuel economy and should be 
treated within the policy arena in the same way as the other 
conventional technologies listed above.
    Several cautions are in order, however, on diesel:
          1. Unlike the conventional technologies above, diesel makes 
        it harder to address public health concerns regarding air 
        quality. Current diesel technology in Europe is cleaner than 
        past vehicles, but still produces toxic emissions and smog 
        forming emissions that several times dirtier than the average 
        gasoline cars and trucks under Federal Tier 2 emission 
        requirements.
          2. With added emission controls being developed by the auto 
        industry, we expect that diesel vehicles will fall within the 
        allowance of future US emission standards, but are unlikely to 
        catch up with the cleanest gasoline cars. Conventional gasoline 
        vehicles can already meet standards well below those required 
        by current law, while diesel vehicles are expected to qualify 
        within the dirtier emission categories under Tier 2.
          3. Questions remain about whether future standards on the 
        books are sufficient to protect public health, but even with a 
        clean bill of health, diesel may not be as cost effective a 
        fuel economy strategy as employing existing and emerging 
        conventional gasoline technology.
    With those cautions noted, and as long as diesel is held to the 
same standards as gasoline vehicles and provided with the same 
incentives as other conventional technology, it should still be part of 
the mix of conventional technologies being considered.
    The main historical approach to getting conventional technologies 
on the road has been through fuel economy standards; which have proven 
quite effective--saving 43 billion gallons of gasoline in the year 
2000, or a reduction of over 25%, according to recent work by the 
National Academy of Sciences (NRC 2002). The current effort on fuel 
economy is a proposal by the National Highway Traffic Safety Authority 
(NHTSA) to increase the fuel economy standard for light trucks by 1.5 
mpg as of model year 2007, raising it from 20.7 mpg to 22.2 mpg.
    While NHTSA's proposed rule would be the first increase in fuel 
economy standards in a decade, it is an extremely modest goal given the 
suite of technologies available in that timeframe and will not pose a 
challenge to automakers. It will also have a negligible impact on our 
oil use, saving less than one day's worth of oil each year between 2005 
and 2008. Over that timeframe our cumulative oil use will be more than 
30 billion barrels of oil compared to cumulative savings from the NHTSA 
proposal that amount to 0.02 to 0.06 billion barrels of oil from 2005 
to 2008. Significantly more can be done with the use of conventional 
technology and we hope that NHTSA will take greater advantage of this 
in their final rule. We also hope that NHTSA or Congress will address 
many of the regulatory loopholes within existing fuel economy 
regulations that are adding to our increased oil dependence.
    Additional approaches can be taken by the government to support of 
near term technology. Although choice is severely limited in today's 
car and truck market, the government can commit to purchasing the 
highest fuel economy car or truck that meets their needs and increasing 
the overall fuel economy of federal fleets. In this way the government 
can both provide the auto industry with a guaranteed market for 
vehicles that use conventional technology to improve fuel economy while 
also providing leadership by example. Government can also provide 
incentives for the purchase of cars and trucks with above average fuel 
economy.
Advanced Technology
    More recent developments have led to a new suite of technologies 
that can follow on the heels of the conventional technology 
improvements discussed above. These include the development of hybrid 
electric vehicles, hydrogen fuel cell vehicles, and dedicated 
alternative fuel vehicles.
    Hybrid Electric Vehicle Technology provides fuel economy 
improvements primarily during city driving, with the ability to more 
than double city fuel economy while providing incremental benefits on 
the highway. Creating a hybrid entails the use of an electric motor and 
battery along with a conventional internal combustion. The electric 
motor provides regenerative braking that recovers energy in stop and go 
traffic, idle off capability that turns the engine off when you would 
otherwise be wasting fuel at a stop light, and electric motor assist 
that provides the necessary boost for driving around town and 
accelerating onto the highway. Analysis in our recent report on hybrids 
indicates that a fleet of hybrid cars and trucks could reach 50 to 60 
miles per gallon (Friedman, 2003). Hybrids will also provide added 
features that will appeal to consumers: such as improved low-end 
torque, smoother acceleration when using the electric motor, reduced 
engine and brake maintenance and added electrical capacity.
    Honda and Toyota have both offered first-generation hybrid cars in 
the marketplace for the past few years. Ford and GM are planning to 
join the hybrid market with SUVs in 2004 and 2005, while Toyota is 
expected to offer a luxury hybrid SUV that will outperform the 
conventional model. Fully developed gasoline hybrid electric 
technology, technology that builds on the benefits of improved 
conventional vehicles, offers the potential to begin reducing passenger 
vehicle oil use below today's 8 million barrel per day level during the 
next decade while meeting the strictest existing Federal tailpipe 
emission levels, Bin 2.
    Hybrids will cost more than conventional vehicles, especially in 
the early years when production volumes are low and automakers are 
unable to take advantage of economies of scale. Once sufficient 
production volumes are reached, automakers will be able to sell hybrids 
for a profit while consumers save more on gasoline than they spent for 
the added technology--a win/win situation. The challenge with hybrids 
is how to reach those economies of scale as soon as possible. Hybrids 
can benefit from tax credits and other financial incentives to 
encourage consumers to purchase the early hybrid offerings. These tax 
credits must incorporate emissions and fuel economy performance metrics 
to ensure that taxpayer dollars are spent on the most promising 
technology--hybrids that can provide consumers with the greatest 
gasoline savings and cleanest air. Without the assurance that hybrid 
tax credits are going to vehicles that perform better than the average 
vehicle on the road, such a program would run the risk of following in 
the footsteps of the Arizona budget crisis that was created by offering 
tax breaks to alternative fuel vehicles without requiring environmental 
performance metrics.
    The goal of hybrid the tax credits would be to get the technology 
on the road and help familiarize consumers with a new vehicle option. 
Getting hybrids on the road in significant numbers also has the benefit 
of supporting fuel cell vehicles as they both share many of the same 
electric technologies. Hybrid tax credits will not guarantee oil 
savings or improvements in energy security, but they will help to pave 
the road for those benefits to be realized in the future.
    As with some of the conventional technology mentioned, a note of 
caution is also required regarding some vehicles that may end up being 
labeled by some as hybrids:
          1. Of specific concern are vehicles that use the 42 volt 
        integrated starter/generator, or idle-off, technology mentioned 
        in the conventional technology section. This is a wonderful 
        conventional technology that can provide fuel economy 
        improvements of more than 10%, but as noted above, hybrids 
        provide more than just idle-off capability and the two 
        technologies should not be confused when establishing policies 
        and providing incentives for hybrid technology. If treated like 
        hybrids instead of conventional technology, these idle-off 
        systems have the potential to repeat the problems of the 
        Arizona budget crisis on a national scale.
          2. Of additional concern are vehicles that use hybrid 
        technology to increase the weight and power of a vehicle 
        without providing fuel economy benefits. These ``muscle 
        hybrids'' represent a squandering of hybrid technology and are 
        reminiscent of past technology trends where conventional fuel 
        ``efficiency'' technology was used to make vehicles heavier 
        instead of helping them to get better fuel economy. Policies 
        must also recognize that the label ``hybrid'' does not 
        inherently imply improved fuel economy performance.
    Hydrogen Fuel Cell Vehicle Technology offers the ultimate potential 
of complete energy independence, dramatic reductions in greenhouse gas 
emissions and zero tailpipe emissions. Fuel cells combine hydrogen with 
oxygen in the air to produce electricity, water, and some heat. If the 
hydrogen is stored on-board the vehicle, no smog forming emissions, 
carbon dioxide or toxic pollutions are emitted from the tailpipe. 
Hydrogen fuel cell vehicles can also provide a smooth, quite and 
comfortable ride possible with electric drive technology. Fuel cells 
can also be used for many other things, from powering laptop computers 
to providing the electricity for a hospital, home or office building.
    To be successful, fuel cell vehicles will rely on many of the 
conventional and hybrid technologies reaching the consumer market 
before fuel cells--therefore efforts made by automakers on conventional 
and hybrid vehicles will also pay off in the scope of their longer term 
fuel cell vehicle development. Many of the same conventional 
technologies that would help today's cars and trucks reach 40 miles per 
gallon, e.g. improve aerodynamics and reduce rolling resistance, along 
with the high strength materials that can make vehicles both lighter 
and safer, will help to fuel cell vehicles efficient and cost 
effective. The technology for the electric motors, batteries and 
electric auxiliary systems in hybrid vehicles will be used in the same 
roles to make fuel cell vehicles work.
    Fuel cell vehicles, however, will not be ready in the same 
timeframe as existing conventional technologies or even hybrid 
vehicles. Without sufficient government support, it will probably take 
more than 20 years for millions of fuel cell vehicles and the necessary 
hydrogen fuel to be offered to consumers. It will take even longer, 
with business as usual, for the majority of the hydrogen to be supplied 
by renewable energy sources. If hydrogen fuel cell vehicles are going 
to be widely available in the marketplace within the next 10 to 15 
years, a government program on the scale of the Apollo project will be 
necessary. And even with such an aggressive program, fuel cells must 
still be considered a long-term investment, needing to be supported by 
the shorter-term investments of getting conventional, hybrid and 
alternative fuel technology on the road.
    As with the Apollo project, a similar program to support hydrogen 
fuel cell vehicles must have a clear development target. The engineers 
knew what they were shooting for: putting a man on the moon and getting 
them back safely by the end of the decade. That meant they needed to 
develop the technology to build a rocket that could put a human on the 
moon and then make it happen within a certain amount of time. For 
today's automotive engineers to know what is being asked of them on 
hydrogen fuel cell vehicles the parallel set of goals would be as 
follows: develop the technology to build a fleet of a safe, clean, 
efficient and cost effective hydrogen fuel cell vehicles; develop the 
technology to provide a clean, cost effective source of hydrogen; and 
then make it happen within the next 15 years. Developing the technology 
is not enough; a fuel cell vehicle ``Apollo-like'' project must also 
include clear vehicle production and fuel supply goals, performance 
targets and timelines along with the resources to make the program 
successful.\6\
---------------------------------------------------------------------------
    \6\ For reference, President Kennedy asked for $531 million in 
fiscal year 1962 alone to support the Apollo program, today that would 
be equivalent to more than 3 billion dollars in the FY 2004 budget.
---------------------------------------------------------------------------
    A final note of caution regarding fuel cell and hydrogen 
technology: just because a fuel cell vehicle runs on hydrogen, it 
should not be assumed that it is clean. Hydrogen can be made from many 
feedstocks and is actually considered an energy carrier and not an 
energy source, or fuel, in and of itself. In that way, it is much like 
electricity; it's overall energy and environmental benefits are linked 
to the fuel or energy source used to make the hydrogen in the first 
place. For that reason it is important to that funding for hydrogen and 
funding for renewable energy go hand in hand. Renewable resources such 
as wind, solar and biomass energy will be vital in making the clean 
hydrogen future a reality. Cuts in renewable funding jeopardize 
investments in hydrogen and fuel cells.
    Alternative Fuels offer the promise of 100% oil displacement, often 
along with significant air quality benefits. In the long term, 
alternative fuels based on renewable, home grown agricultural waste and 
dedicated crops can be one of the backbones of clean, domestic energy 
production--even supplying some of the hydrogen that can be used in 
fuel cell vehicles. In the nearer term, alternative fuels such as 
natural gas can serve both as an alternative to diesel in heavy duty 
vehicles and as a bridge to hydrogen fuel cells (both by helping to 
develop technology to support the use of gaseous fuels and by providing 
a key early feedstock for hydrogen). Alternative fuel support can also 
help domestic industries that provide fuel options that can move us off 
of oil.
    Much like hybrids, one of the hurdles alternative fuels face is 
their high cost in low volume production along with the initial costs 
of building the necessary infrastructure. And again, much like hybrids, 
tax credits for alternative fuel vehicles, fuel, and infrastructure can 
help to build the necessary economies of scale. Many other incentive 
programs are also possible, though clear enforcement mechanisms are 
vital to their success.
    It is important, also, to recognize some of the technical 
limitations associated with some alternative fuel approaches. Vehicles 
that could run on an alternative fuel are not providing energy security 
or environmental benefits if they are actually being run on gasoline or 
diesel, both of which are clearly derived from oil and are not 
alternative fuels. Thus targeting any incentives to directly encourage 
and reward alternative fuel use can both help to ensure growing markets 
for the alternative fuels and provide the associated benefits.
                               conclusion
    The United States has a history putting technology to work in 
solving many of the problems around us. We developed mass-production, 
computers, the Internet, and we put several people on the moon. We now 
have the technology to put people into cars and trucks that don't 
guzzle so much gas and can further develop the technology to put them 
in cars and trucks that don't use gasoline at all.
    As an engineer, I see the broad array of available technology as an 
opportunity to roll up our sleeves and get to work making vehicles 
safer, cleaner and less dependent on oil while saving consumers money 
and creating new jobs. We can rely on existing conventional technology 
over the next ten years to take advantage of this opportunity. At the 
same time, we can make investments in hybrid vehicles, alternative 
fuels, and hydrogen fuel and fuel cell vehicles to take advantage of 
the longer-term opportunities. Because these conventional and advanced 
technologies compliment each other, it is not an either/or proposition. 
And because our need for safe vehicles, clean air and increased energy 
security is so important and immediate we cannot afford to these 
technologies and the opportunities they represent slip through our 
fingers. The Federal Government has a key role to play in developing 
sound policies to ensure that we take advantage of these opportunities.
    Thank you for the opportunity to testify before the Committee 
today. I would be happy to answer any questions you may have.

    Senator Thomas. We have a vote that has just begun. But I 
believe we will go ahead, Mr. Cromwell. If you will do your 
testimony, then we will take a brief recess while we run over 
and do our duty.
    So, Mr. Cromwell, please.

  STATEMENT OF RICHARD CROMWELL III, GENERAL MANAGER AND CEO, 
                     SUNLINE TRANSIT AGENCY

    Mr. Cromwell. Thank you, Mr. Chairman and members of the 
committee. I appreciate this opportunity to discuss the use of 
clean energy in the transportation sector. It is something we 
live and breathe on a daily basis.
    Sunline Transit Agency is the only transit operator in the 
country to generate hydrogen onsite and use it in three fuel 
cell buses. Ours is a small system located in a rural area 
known as the Coachella Valley or Palm Springs Desert Resorts. 
You may know it as the ``Playground of the Presidents'' or the 
``Golf Capital of The World.'' Those slogans have a great deal 
to do with why we became clean air champions.
    We wholeheartedly support the President's commitment to 
hydrogen technologies. However, we are encountering significant 
challenges as we move forward. And we respectfully request your 
help. We know from experience it will take years of refinement 
before heavy-duty fuel cell engines can withstand 19-hour-a-
day/7-day-a-week transit use. We need committed long-term 
funding for the continued development of fuel cell buses. 
Without it, the United States will lose this important industry 
to an international market that appears more ready to support 
it. We are currently being out-spent by hundreds of millions of 
dollars by programs in Japan, Europe, China, and others.
    Because fuel cell technology is not ready for 
commercialization, we urge you to endorse the Clear Act 
incentives for development of natural gas vehicles and the 
development of natural gas infrastructure. Methane is the key 
bridge fuel to a hydrogen economy.
    We also support incentives for fuel efficiency and the use 
of other alternative fuels. We believe there are many paths to 
reduce oil consumption. And America needs to ambitiously pursue 
them all. This is not the time to limit options. It is the time 
to open doors to innovation. And it is absolutely critical from 
our standpoint as we urge you to support early adopters of new 
advanced vehicle technologies.
    Regardless of whether you use natural gas, hybrids, or 
hydrogen, those of us who take the risk and make the investment 
to purchase cleaner new technologies and improve our energy and 
secure air quality are often left with the most expensive 
version of the least reliable technology. We need ongoing 
support to upgrade when improvements become available.
    People often ask us how Sunline started down the clean air/
fuel path. The answer is simple. Eleven years ago, our board of 
directors, all elected officials, passed a resolution mandating 
the use of alternative fuels. Their decision was motivated by 
commitment to clean air, public health, a vibrant tourism 
economy, and a desire to reduce oil imports.
    For nearly 10 years, we operated our public transit, para-
transit, and regional street sweeping fleets 100 percent on 
clean-burning alternative fuels. We currently operate vehicles 
on natural gas, hydrogen, and blended fuels. We created what we 
call the Nation's first clean fuels mall. Our fuels are 
available to the public 24 hours a day. We have over 25 million 
miles of experience on alternative fuels, mostly natural gas. 
And we know what works and why.
    We have created what we consider a highly reputable model, 
where public transit service has a regional clean air catalyst. 
We were able to build seven public access natural gas stations 
by launching a public-private partnership with Energy, the 
largest builder/operator of public natural gas stations.
    We have also built and are operating an outside public 
access hydrogen station. By taking the lead in the Coachella 
Valley's Clean Cities Program and helping other fleet operators 
take advantage of incentives, we have been able to deploy over 
1,000 AFVs in our public and private fleets. Our approach has 
always been to remove barriers to the use of alternative fuels. 
And we stress training, public education, and top-down 
commitment.
    Because of our expertise, we have hosted visitors from 30 
countries and dozens of transit properties from all over the 
United States. We believe problems encountered by fleet 
operators who are switching to alternative fuels can almost 
always be resolved by better training.
    May I leave you with these thoughts to best support the 
President's plan? We need to build a program under the Federal 
Transit Administration with committed funding for fuel cell 
development that runs concurrent with the Department of 
Energy's FreedomCAR and Hydrogen Fuel Incentives; address and 
remove the barriers to utilize hydrogen, such as clarifying 
codes and standards; improve opportunities for public 
education, technician training, and technology transfer; and 
provide tax and other incentives that will help transition the 
market to alternative fuels in advanced vehicle and station 
technologies.
    The private sector has invested billions of dollars in 
hydrogen vehicle and related technologies. At the present time, 
none of these efforts have generated a profit. And my 
background tells me nothing happens until something sells. We 
feel incentives are needed to motivate consumers to buy the 
clean vehicles that are already on the market today and 
encourage infrastructure developers to keep on building.
    While we have faith that our technology partners will be 
successful in bringing down costs and improving reliability, we 
believe government must ensure sustained support to encourage 
the private sector to continue investing.
    I invite all of you to visit us in Thousand Palms and see 
for yourselves what today's model for tomorrow's world looks 
like in a working environment.
    Thank you again for the opportunity.
    Senator Thomas. Thank you.
    [The prepared statement of Mr. Cromwell follows:]
  Prepared Statement of Richard Cromwell III, General Manager & CEO, 
                         Sunline Transit Agency
Why Do We Need To Change Direction?
    We must transform the way we power our transportation sector:
          1. Globally, transportation generates approximately 1/3 of 
        all greenhouse gases. In California (because of a relatively 
        clean power mix), the transportation sector generates more than 
        1/2 of the state's greenhouse gases.
          2. Mobile sources generate more than 2/3rds of the air 
        quality and resulting public health problems in our nation's 
        urban areas.
          3. America's dependence on foreign oil puts our security and 
        economy at risk.
How Do We Get To Where We Are Going?
    SunLine Transit Agency recognized the above issues 10 years ago. We 
also recognized the potential of natural gas to address the issues, and 
our experience has been highly successful. There are two sides to the 
energy sustainability issue. One is technology and the other is 
infrastructure/public awareness. Because hydrogen technology is still 
in development, the most prudent public policy path is through fuel 
cell buses--where the public can see the technology up close, ride the 
bus and be among the influence-makers.
    SunLine Transit Agency is now working on the next energy source--
hydrogen. In fact, we would offer that SunLine Transit Agency has more 
experience with fuel cells and hydrogen than any transit property in 
the country. However, it is important to note that fuel cell technology 
is still in the prototype phase and not yet ready for the street. The 
President announced two important programs: The Freedom Car and the 
Freedom Fuel Initiatives. These programs seek to develop the fuel cell 
industry by focusing on the passenger car market. What the initiatives 
lack is a fuel cell bus component.
What's The Direct Route?
    The Europeans have a major fuel cell bus program underway that 
addresses real world factors such as:

   The lack of current hydrogen refueling network is not a 
        problem for buses. They operate on fixed routes and return to 
        centralized refueling stations.
   Transit districts have highly trained technicians and 
        mechanics who are more adept at handling advanced technologies.
   Transit buses don't have the same packaging and weight 
        constraints as passenger cars.
   Buses can be used as mobile classrooms and are a great way 
        to educate people about new fuel technologies.
Who's Coming Along For The Ride?
    SunLine Transit Agency, along with WestStart-CALSTART, the 
Northeast Advanced Vehicle Consortium and many other partners, is 
seeking $25 million per year in the reauthorization of TEA-21 for the 
development and demonstration of fuel cell bus technology. We do not 
advocate creating a whole new program. In fact, we are asking that the 
Department of Transportation's existing Advanced Vehicle Program be 
modified to focus exclusively on the development of fuel cell buses. 
Such funding would be used to make fuel cell buses commercially viable 
over the six-year life of the next TEA bill.
    Changing the way we power our country is no simple task. We need 
multiple approaches involving multiple federal agencies.
What Are The Key Destinations in our Journey?
            Public/Private Partnerships:
    Government takes the lead by building programs that build demand. 
The private sector takes the lead by satisfying market demand.
            Education:
    Training is key to SunLine's success in alternate fuels usage. 
Technical skills enhance the role of the mechanic. Targeted engineering 
skills will be needed for future business models. When expertise leads 
to implementation, technologies flourish.
            Outreach:
    If we are to achieve the President's goal of having children born 
today driving fuel cell cars on their 16th birthdays, we need to get 
the message out now that there are clean air alternatives. Children are 
consumers. We should be nurturing their lack of fear of adopting new 
technologies.
            Public Will & Responsibility of Elected Officials:
    All government is local. Enlightened public policy happens in 
transit boardrooms across the country. Freedom to move from one place 
to another and clean air to breathe are compelling local issues that 
can drive policy discussions at every level.
The Challenge of Market Limiters
            Multi-Year Funding
    Technology does not move from the lab to the street in one 
generation. Industry and policy leaders must commit to a ``Path of 
Continuous Improvement.'' That requires sustained field testing of 
multiple generations of equipment. As a rule, grantors don't favor 
multi-year projects and appropriators like to spread funds around.
            Supporting the Early Adopter
    Given the lack of support for multi-year funding, those of us who 
adopt new programs and technologies early are taking a disproportionate 
risk for the potential rewards available. We support the establishment 
of a set of criteria to designate proven early adopters for multi-year 
projects while mandating them to share the expertise they develop with 
affiliated agencies.
Enforcing Fleet Rule Standards
    EPAct: Federal agencies are not being closely monitored by the DOE 
to determine if they are spending the dollars they were directed to 
spend on alternate fuel vehicle fleets. As a result, the conversion 
rate, which was intended to be at 10%, has reached only 3.6%, according 
to the GAO. At the very least, we would advocate for more publicity for 
the agencies that do comply.
    Fleets that comply by way of the flex fuels program have absolutely 
no impact on clean air goals as long as E85 remains largely unavailable 
and vehicles are allowed to run on petroleum. If you go back another 
step to the CAFE standards, you add insult to injury when both the 
manufacturer AND the end user get credits for vehicles that do not meet 
clean air standards. The fleet average requirement has remained the 
same over the past ten years while technology has improved 
dramatically. The current standard is weak.
            Clean Cities
    During the same ten-year period mentioned above, great strides in 
fleet conversion have been made through the DOE's Clean Cities Program 
via realistic incentives and effective public outreach. And yet, the 
program is facing widespread budget cuts at a time when significant 
progress is being made. The program's assigned 2010 goals of having one 
million AFVs operating exclusively on alternative fuels and one billion 
gasoline equivalents per year used by AFVs is now in jeopardy. The 
perceived message this budget reduction conveys to supporters seems in 
conflict with the recent administrative directives broadcast from The 
White House.

        Tonight I am proposing $1.2 billion in research funding so that 
        America can lead the world in developing clean, hydrogen-
        powered automobiles. Join me in this important innovation to 
        make our air significantly cleaner, and our country much less 
        dependent on foreign sources of energy.

                        --President George W. Bush, State of the Union 
                        Address, January 28,   2003

    The President's call to reverse America's growing dependence on 
foreign oil harkens to the decision SunLine Transit Agency's board of 
directors made in 1994. That was the year SunLine became the first 
transit agency in the world to park all of its diesel buses and switch 
overnight to a fleet powered 100% by clean-burning compressed natural 
gas (CNG).
    Since 1999, SunLine Transit Agency has worked with the U.S. 
Department of Energy (DOE), U.S. Department of Defense (DOD), and the 
U.S. Department of Transportation (DOT) to develop and test hydrogen 
infrastructure, fuel cell buses, a heavy-duty fuel cell truck, a fuel 
cell neighborhood electric vehicle, fuel cell golf carts and internal 
combustion engine buses operating on a mixture of hydrogen and 
compressed natural gas (CNG).
    Visitors to SunLine's Clean Fuels Mall from around the world have 
included government delegations and agencies, international journalists 
and media, industry leaders and experts and environmental and 
educational groups.
    Three years ago the DOE established a hydrogen infrastructure in 
Southern California at SunLine Transit Agency in Thousand Palms, 
California.
    The investment made by the DOE has yielded significant benefits. 
Not only was the project constructed as scheduled, but it has surpassed 
the original goals under SunLine's Best Test Center for Alternate 
Energy Technologies to become part of SunLine's daily operations and 
maintenance activities. In other words--our ``rolling laboratory'' has 
taken the technology out of the science lab and into the real world.
    One of the project's significant objectives was to educate the 
public on the safety and reliability of fuel cell vehicles. By 
demonstrating fuel cell bus service using compressed hydrogen in a 
normal transit operation, officials and riders alike got to experience 
for themselves the pollution-free transportation technology of the 
future. Another objective was to show the potential to other transit 
operators for using a liquid fuel reformed to hydrogen in fuel cell 
buses.
    SunLine worked with College of the Desert and other partners to 
develop the first training manual for hydrogen fuel cells and related 
technologies. The curriculum, funded in part by the Federal Transit 
Administration and the Department of Defense, is set to be delivered to 
students at College of the Desert and other community colleges 
throughout the state through the California Community Colleges' EdNet 
initiative.
    Other than cost, SunLine's track record of experience has 
identified several challenges to hydrogen commercialization:

   The need to improve fuel cell reliability
   The need to engage the insurance industry in over-coming 
        liability issues
   The establishment of reasonable codes and standards
   The implementation of comprehensive hydrogen education and 
        outreach programs to elevate public awareness to mainstream 
        levels

    Hydrogen technology will one day help solve pollution and resource 
consumption problems. It offers a clean, safe, reliable and 
domestically produced source of fuel. Hydrogen fuel cell vehicles can 
replace those powered by hydrocarbon-based internal combustion engines 
(which emit greenhouse and smog-producing gases). Further environmental 
benefits can be realized when the hydrogen is generated using renewable 
resources, such as solar and wind. The result is a clean fuel that can 
be used to supply public and private transportation vehicles that emit 
only water.
    SunLine has effectively demonstrated the need for a path of 
continuous improvement. Investments in fuel cell technology should be 
made on a measured basis of how they contribute to the global body of 
knowledge. While it is important to test and demonstrate the 
technology, it is also important to invest wisely. Finite resources 
should be devoted to those organizations and programs that have 
demonstrated a passion to make things work, the policies and political 
will to further hydrogen and fuel cell development and the capability 
to perform technology transfer to future organizations.
    Selective investment is a must.
Sunline Fleet Vehicles Operate on Clean-Burning Alternate Fuels
    Since November 2000, SunLine has utilized hydrogen generated on-
site to fuel vehicles including:

   Two Hythane' buses (which use 80% CNG/20% 
        hydrogen)
   The Ballard/XCELLSIS ZEbus (zero-emission fuel cell bus)
   The ThunderPower hybrid electric fuel cell bus
   The nation's first street-legal hydrogen fuel cell mini-car 
        (SunBug)
   Three hydrogen fuel cell powered golf carts
   Pickup powered by a hydrogen powered internal combustion 
        engine
   Over five passenger vehicles brought by automobile 
        manufacturers for testing in the Coachella Valley
   Hydrogen Internal Combustion Engine Shelby Cobra.

    SunLine built and operates the world's first Clean Fuels Mall where 
compressed natural gas, liquefied natural gas, hydrogen and 
Hythane' are available to the public 24 hours a day. 
Additionally, global shoppers for electrolyzers, reformers and other 
equipment that generates, stores and dispenses alternative fuels can 
visit SunLine to see prototype and product-development units in 
operation. SunLine has worked with the equipment manufacturers to 
develop educational displays throughout its facilities.
    SunLine has produced an educational video series entitled ``Energy 
Matters.'' Thirteen, two-minute videos distributed to PBS stations in 
major California markets cover such topics as alternative fuels, 
electricity and the grid, fuel cells, micro-turbines and new car 
technologies. The videos are also available to teachers and 
administrators for use in classrooms. SunLine has worked with the South 
Coast Air Quality Management District to develop a workbook for middle 
school children that corresponds to the video series.
    A significant objective of the XCELLSiS Phase 4 Program was to 
educate the public on the safety and reliability of fuel cell vehicles. 
The ZEbus provided officials and riders alike with an opportunity to 
experience the pollution-free transportation technology of the future. 
The objective of the ThunderPower Program is to demonstrate fuel cell 
bus operations in normal transit operations. The significance of the 
Georgetown Bus Program is to demonstrate the capability of a liquid 
fuel cell bus to other potential transit agencies.

    Senator Thomas. Thank you all very much. We will recess. We 
will be back shortly. I hope you will all stay for the 
excitement of the question period.
    [Recess.]

 STATEMENT OF HON. LAMAR ALEXANDER, U.S. SENATOR FROM TENNESSEE

    Senator Alexander [presiding]. Could we come back to order?
    I am an apprentice chairman today. Senator Bingaman is 
going to watch to make sure I do this correctly. He has done it 
for many years, and I am new.
    I want to thank all of you for coming. Other Senators 
should be coming back as the vote concludes. We will go ahead, 
if we may. I will make a short statement. And then I have a 
couple questions. And then I will ask Senator Bingaman if he 
has questions, and then we will go from there.
    I am very pleased with the President's bold initiative on 
the hydrogen car, because it takes an issue of energy and our 
dependence on foreign oil and gives us a way to talk about it. 
It does a lot of things, but that is one thing it does. The 
American people have lots of things to think about. And energy 
as a subject always seems abstract. It is not very abstract 
today, though. And talking about the future and about the 
hydrogen car gives us a way, it seems to me, to address most of 
the components that help make up a comprehensive energy policy.
    We have to talk about generation. We have to talk about 
use. We have to talk about regulation. We have to talk about 
transmission. We have to talk about research and development 
and who has the allocation of resources to do all those various 
things. So I welcome that discussion.
    And it also puts it in a very practical sense to me, just 
as I think of our own State, as we think about the hydrogen car 
and the future and the kinds of questions that we need to 
consider in terms of that and any other form of alternative 
transportation and other forms of alternative fuel. It affects 
the kind of investments that Nissan and Saturn and 900 auto 
parts suppliers make just in our State.
    It affects TVA's decision to go ahead with a new nuclear 
powerplant, whether that is a wise thing to do or not. It could 
bear on the priorities of the largest energy laboratory at Oak 
Ridge and on investments and priorities at our large research 
universities, like the University of Tennessee and Vanderbilt. 
It affects a company like Eastman, which has had coal 
gasification for 25 years to provide its own fuel and is 
deciding what to do in the future, in terms of whether to 
invest dollars in that.
    It affects whether the Great Smokey Mountains are better 
named the Great Smoggy Mountains, because a lot of that problem 
comes from emissions. And we find Knoxville and Nashville both 
with air pollution problems.
    So the hydrogen car or other alternatives and all the 
questions that surround it help us to have a way to have a 
national conversation about a comprehensive energy policy. And 
that is one of the great byproducts of the President's bold 
discussion.
    I am chairman of the Energy Subcommittee. And in thinking 
of ways to have that committee make its most useful 
contributions, I have talked with the chairman and look forward 
to talking with Senator Bingaman and others about how that 
subcommittee might focus on the hydrogen car proposal and other 
sorts of proposals as a way of advancing that bold idea and 
maybe do that in a continuous way over the next year or two 
years. So I look forward to that opportunity.
    Now let me ask a couple of questions. I hope I do not plow 
too much ground that you already plowed in the first hour 
before the vote. But let me ask this question. And, Mr. Garman, 
I will start with asking you to answer it. But if others would 
like to then comment, I would appreciate your comments.
    Taking the President's hydrogen car idea puts up front 
immediately questions about ``What is the best source of 
hydrogen long term? And what are the biggest obstacles?'' So 
let me ask you: Taking three long-term sources of hydrogen, 
what are the biggest obstacles to their use? One is natural 
gas, one is coal, and one is nuclear. And I suppose I should 
say as a fourth, biomass and other such fuels. I do not want to 
leave out solar and wind. I know they are important in the 
shorter term. But I am looking longer term, especially on the 
familiar.
    So let us start with natural gas, coal, and nuclear. What 
are the biggest obstacles to those as a source of hydrogen? 
What are the problems we have to solve if we want to consider 
those?
    Mr. Garman. Well, as you have pointed out, one of the great 
benefits of hydrogen is that it can be produced from a variety 
of feed stocks. In going through each of those, natural gas is 
actually the producer of most of the hydrogen that is produced 
today. Approximately 9 million metric tons, I believe, are 
produced almost exclusively from natural gas.
    It is a well-known process. It is a steam reformation 
process. It is an excellent near-term approach because, as we 
think about the very first filling stations, and those that we 
actually have in place today, some of those use natural gas and 
reform the natural gas and make hydrogen at the site--at the 
filling station. And that eliminates the need for hydrogen 
pipelines in the near term.
    One of the biggest impediments, of course, is assurance of 
long-term natural gas supply. With natural gas prices that we 
have today, we need to be a little concerned about putting all 
of our hydrogen eggs, if you will, in the natural gas basket. 
We want to make sure----
    Senator Alexander. So supply and price.
    Mr. Garman. Supply and price is a concern there. Right now, 
it has a price advantage. If you do have $4 natural gas, we 
believe that by 2010 we will be able to produce hydrogen at a 
gas station for $1.50 per gallon of gas equivalent untaxed, 
which makes it very competitive with gasoline. And when you add 
the efficiency, inherent efficiency, of fuel cells, you 
actually get--it is a great deal for the consumer.
    The challenge for coal is going to be whether or not we can 
develop effective carbon capture and sequestration technology. 
It does not do us much good on the carbon side of the equation 
if all we are doing is making hydrogen from coal, which we can 
do. We know how to gasify coal and make a hydrogen-rich gas, 
split that off and use that hydrogen. But if we cannot capture 
the carbon dioxide and permanently sequester it so it is not 
released to the atmosphere, then, again, the environmental 
advantages of the President's plan do not really come to 
fruition. So we are not interested in that.
    Nuclear could be a superb way to make hydrogen. Of course, 
the impediments are political and public acceptance more than 
anything else. There are a couple of different ways you can 
make hydrogen with nuclear. You can make it through direct 
electrolysis, or through a thermochemical water splitting 
process using the heat of the nuclear reaction.
    Biomass represents an excellent long-term method of making 
hydrogen. You would similarly gasify the biomass into a 
hydrogen-rich gas. That is carbon neutral. So that is a very 
positive prospect. I guess the biggest impediment on biomass is 
economically collecting agricultural residues, bringing them 
together, and producing the hydrogen.
    Senator Alexander. And let us finish up with wind or 
solar----
    Mr. Garman. Wind or solar----
    Senator Alexander [continuing]. The impediments to those.
    Mr. Garman. Solar is cost. Solar electricity costs around 
25 cents a kilowatt hour today from photovoltaics. If you were 
to take that electrolyzed water, that would be a very expensive 
process. But it can be done. Sunline does it at their facility.
    Wind, we have a lot of wind capacity in areas of the 
country. Again, it is coming in at 4 to 6 cents a kilowatt 
hour. You could use that electricity to electrolyze water and 
produce hydrogen in that method. But then you would have to get 
it to the sources of demand, the population and load centers.
    Senator Alexander. For transmission.
    Mr. Garman. For transmission. So that brings up images of a 
lot of pipelines and infrastructure.
    Senator Alexander. Thank you, Mr. Garman. That is such a 
complete answer, that took up our entire----
    [Laughter.]
    Senator Alexander. No, no. That is good. That is a good 
answer. But I think it is time to ask Senator Bingaman if he 
has questions.
    Senator Bingaman. Well, thank you very much. You raise a 
very interesting set of questions. Let me put up a chart and 
ask maybe a few follow-on questions.
    There is a report that was done by General Motors, Argonne 
National Lab, BP, ExxonMobil, and Shell. It came out in June 
2001. I am sure you have seen that, called Well to Wheel Energy 
Use. I think it is a good report because what it does is it 
gets us away from just talking in terms of how great it would 
be to have a vehicle where you stick hydrogen in one end and it 
runs down the road and out the other end. If anything comes 
out, it is just water vapor or something. And it talks about 
the real energy requirements.
    This is a chart from that study that I have put up on the 
board here. And it shows energy required to deliver one million 
Btus to a vehicle or to vehicles. Several of the points you 
were making, I think, Mr. Garman, seem to be much less 
efficient, I mean, as far as energy use. The suggestion that, 
for example, we use electrolysis at a station in order to 
produce hydrogen--that is the very tall red line there, the 
third from the right in this chart, I think. It shows that you 
have to use over two-and-a-half million Btus of energy in order 
to get one million Btus to a vehicle, if you do it that way.
    I do not know if that is a reason not to do it that way, 
but it seems to me to be at least something we ought to think 
seriously about before we start down that road. So if the 
theory is we are going to use nuclear power or we are going to 
use wind power or we are going to use any--you referred in your 
opening statement to our desire to become a petroleum--to find 
a petroleum-free option. If we are really going to do that, 
then we are not looking at using natural gas. We are not 
looking at using diesel. We are looking at one of these other 
options, which seem to me to have some major drawbacks.
    Do you agree with that analysis? Do you disagree with it?
    Mr. Garman. Well, what this chart is not conveying is the 
inherent efficiency of the fuel cell vehicles. This is just 
conveying what is required to deliver the energy equivalent to 
the vehicles. We have done very similar well-to-wheels 
analysis. And when you consider the fact that the fuel cell 
vehicle, the hydrogen fuel cell vehicle, is two-and-a-half 
times more efficient, it will actually get two-and-a-half times 
more work out of that energy than the gasoline vehicle will, 
and----
    Senator Bingaman. Let me show you another chart that 
directly relates to that.
    Mr. Garman. I looked ahead to your next chart. So I knew 
this was coming.
    Senator Bingaman. Okay. The next chart is also from the 
same study. And it tries to take into account and give credit 
for the efficiency of the fuel cell itself. And it still--do we 
have a copy of these we could give to the folks here? Senator 
Alexander, as well?
    It tries to make the same analysis and basically concludes 
that, as I read the chart, that a diesel hybrid is more 
efficient in the Btus per mile than the fuel cell, when you go 
from the well to the wheel, as they are trying to in this 
analysis. Do you agree with that?
    Mr. Garman. No, sir, I do not. Our well-to-wheel analysis 
showed that the final total well-to-wheel efficiency of a 
diesel hybrid electric is 18 percent. A compressed hydrogen, 
natural gas, steam reformed fuel cell vehicle is 22 percent. 
And to break that down, our diesel fuel chain efficiency is 84 
percent. You multiply that by the vehicle efficiency, which is 
22 percent. And that gives you the 18 percent final efficiency 
for the diesel-hybrid electric fuel vehicle.
    And for the natural gas vehicle, we have a lower fuel chain 
efficiency of only 60 percent compared to the 84 percent of the 
diesel, but a higher vehicle efficiency, 37 percent compared to 
22, which gives you a final wheel-to-wells efficiency of 22 
percent, which is higher than the diesel.
    Senator Bingaman. But now you are saying that we are going 
to spend the next 20 years researching this in order to get a 
four-percent improvement in efficiency?
    Mr. Garman. That is a quite remarkable amount of 
efficiency. And just to illustrate it, if I have a fuel cell 
vehicle, and even if I use natural gas, and even if I do not 
sequester any carbon from the natural gas, and even if I 
account for all of the energy inputs needed to compress the 
natural gas and reform it at the station into hydrogen, my 
vehicles will be twice as efficient as gasoline vehicles, and I 
will have 60 percent fewer carbon emissions compared to the 
gasoline vehicles. So it is an excellent proposition over the 
next 20 years.
    Senator Bingaman. Now on the emissions issue, I have 
another chart from the same study.
    Mr. Garman. I have run out of charts, Mr. Chairman, so I 
know who is going to win this.
    [Laughter.]
    Senator Bingaman. These are all from the same study. And I 
just know these are credible organizations that did this study. 
And one of them is your own Department of Energy.
    And this shows emissions, total system greenhouse gas 
emissions, grams of carbon equivalent per mile. It looks to me 
like if we wanted to--the way I read this, ethanol is by far 
the best on emissions. Hydrogen from natural gas is second. But 
that is not one of the--that is not what you are working on. 
That is not a petroleum-free option, as you are trying to get 
to.
    Mr. Garman. Hydrogen from natural gas is a short-term 
option. Over the long term, a fossil option that has carbon 
sequestration would also be a zero carbon emission proposition.
    Senator Bingaman. Well, let me ask about the carbon 
sequestration from coal that you are talking about. In this 
study, they analyzed--and I think Exxon owns some coal. That 
has been my impression. And they analyzed 75 different 
pathways, fuel pathways, to get to this hydrogen, new world of 
hydrogen. And they did not analyze using coal. They obviously 
think that there are some problems in using coal and getting 
the emissions problems of coal dealt with. Now, you acknowledge 
that there are serious problems.
    Mr. Garman. Yes, sir.
    Senator Bingaman. But do you really think that it is worth 
running down that rabbit patch, or--what is the phrase that 
Senator Gramm used to use around here?
    Mr. Garman. I think that sequestration is a very important 
technology that we cannot deny, particularly when we are 
talking about carbon, which, of course, global emissions of 
carbon is really what we care about. We do not only care about 
what we are emitting here in the United States; we also care 
about what China and other nations are emitting.
    And this kind of technology, were we to perfect it, would 
be very important in ensuring that China and India and other 
nations could participate in the effort to reduce carbon 
emissions. I think China is mining about one billion metric 
tons of coal a year. They plan to continue. And I think it is 
in all of our interests to develop the technologies that can be 
successful.
    Now, it is difficult. I will grant you. It is extremely 
difficult to capture carbon from a waste stream, separate it 
from the flue gas, sequester it in a way where you have 
confidence that it is going to stay where you put it. And that 
is really what the President's FutureGen Initiative announced 
just last week is all about.
    Senator Bingaman. Mr. Chairman, I will wait for another 
round in order to ask a few of the other witnesses these same 
types of questions. Thank you.
    Senator Alexander. Senator Bunning.
    Senator Bunning. Yes. Thank you, Mr. Chairman. I have an 
opening statement. I am not going to read it. I would like to 
submit it for the record.
    Senator Alexander. It will be done.
    Senator Bunning. Thank you.
    [The prepared statement of Senator Bunning follows:]
   Prepared Statement of Hon. Jim Bunning, U.S. Senator From Kentucky
    Thank you, Mr. Chairman.
    Examining our energy use in transportation is important as we look 
to developing a new energy policy in this country.
    Low cost transportation is a major way that we have kept our 
economy from becoming worse than it already has been. Low cost 
transportation enables people to spend money on other goods and enables 
companies to keep product costs down.
    Today, our main source of energy use are petroleum products.
    In 2001, we used 8.6 million barrels of motor gasoline per day, 
which is 44 percent of all of our petroleum consumption. In fifteen 
years, we are expected to use over 20 percent of the world's energy on 
transportation.
    Obviously these statistics cause some concern as we are facing a 
tight reserve of oil and a high possibility of a war with Iraq.
    I am looking forward to hearing about the feasibility of using 
advanced technologies and alternative fuels in transportation. We must 
keep in mind, however, that these alternative technologies and fuels 
must be both economical and practical for consumers to use.
    I appreciate the time the witnesses have taken to come here today 
and testify on this issue.
    Thank you.

    Senator Bunning. I do not know if you were here last week. 
I do not think you were. But we heard last week at a hearing 
that we have an emerging natural gas crisis. I would say it was 
worse than emerging, actually. In fact, I think it is here, if 
we are paying $10 per million Btus. Actually, it is about $7 
right now.
    The spot market, it got to $30 within the last 2 weeks. So 
I think that as record high reserves are being withdrawn from 
underground storage during this winter's heating season, there 
is a severe mismatch between supply and demand for natural gas. 
We enticed an awful lot of electric producers to use natural 
gas turbines to produce electricity.
    On the other hand, the United States has over 250 years of 
a coal reserve. And technology is currently being developed to 
produce hydrogen from coal. There are specific programs and 
technologies that I can show you. And I know you, at the 
Department, have been shown them. Is DOE seriously considering 
coal as a fuel source for developing hydrogen, or not?
    Mr. Garman. Yes, sir, it is. And last week's announcement 
by Secretary Abraham of the FutureGen Project Initiative, which 
is a project to develop both electricity and hydrogen from coal 
with no emissions----
    Senator Bunning. Do you think sufficient funds are being 
allocated to hydrogen from coal projects to allow for those 
projects to compete with other potential sources, such as 
natural gas, other renewables like Senator----
    Mr. Garman. I know that $1 billion is projected from 
Federal funds and anticipated industry cost share over the next 
10 or so years.
    Senator Bunning. Do you think that is sufficient to deal 
with the possible problems we will have extracting the hydrogen 
out of the coal?
    Mr. Garman. It is difficult for me to make that judgment. I 
work mainly in energy efficiency and renewable energy, but I am 
working more closely with our fossil colleagues in the 
Department, as we have tried to align our posture on hydrogen. 
And I would like to take that question back to some fossil 
folks.
    Senator Bunning. I would appreciate that very much. And to 
get a written reply, I would appreciate that, also.
    Mr. Garman. Yes, sir.
    [The following information was received for the record:]
                      coal from hydrogen projects
    As part of the President's Hydrogen Initiative, the Office of 
Fossil Energy has been provided five million dollars of Fiscal Year 
2004 funding to start a new research activity for developing advanced 
coal-to-hydrogen technology. This level of funding is believed to be 
sufficient to support the initial phases of a new program and is 
consistent with milestones established for the early phases of the R&D 
activity. During the planning of this research and development activity 
it has been determined that the effort should encompass a technology 
envelope that begins with the separation of hydrogen from mixed coal-
derived gas (i.e., synthesis gas) streams and conclude at the interface 
between the hydrogen supply system and the utilization device or 
storage unit. Within this technology envelope there are two possible 
processing options that are considered in the production and delivery 
of hydrogen from these mixed gases. In the first option, advanced 
technologies will be developed to more effectively and economically 
separate and store the hydrogen in gaseous form. In the second option, 
advanced synthesis gas conversion processes would be used to produce 
zero-sulfur, high-hydrogen content, coal-derived liquids. These liquids 
would be transported to the consumer in existing systems and reformed 
to produce the hydrogen at the distribution center. The current program 
includes plans for the development of the innovative technology needed 
to support either option. A schedule for the Hydrogen-From-Coal Program 
has been prepared that will achieve technology development milestones 
consistent with the current projected need for the advanced concepts. A 
re-evaluation of the goals and funding of the Hydrogen-From-Coal 
program may be required once the schedule and demands for innovative 
technology needed to support other associated initiatives (e.g., 
FreedomCar, FutureGen) are established.

    Senator Bunning. You just mentioned the President's 
FutureGen Initiative providing almost $1 billion for research 
and development of coal technologies, including uses for 
hydrogen, and that the President's Hydrogen Fuel Initiative and 
FreedomCAR Initiative will provide nearly $1.7 billion for 
development hydrogen fuel cells. In the Hydrogen Fuel 
Initiative and FreedomCAR Initiative, will the DOE focus on 
coal as a use for the hydrogen?
    Mr. Garman. We will focus on coal as a way to produce 
hydrogen. Again, one of the----
    Senator Bunning. But, I mean, you mentioned four others, 
natural gas being one. If we have a short supply of natural 
gas, and that is the easiest of all the things to produce 
hydrogen from, and we can convert that right almost at the 
pump, would it not be kind of foolish to develop it, if we do 
not know we are going to continue to have the source of natural 
gas in the future and the supply being used for other things?
    Mr. Garman. One of the things that we do to hedge against 
that is to have a diversified technology portfolio, where we 
are exploring making hydrogen from coal, hydrogen from 
renewables, hydrogen from natural gas, and hydrogen from 
biomass. We want to make sure we are looking at all the 
possibilities because, again, that is one of the great benefits 
of hydrogen, is that you have a great deal of flexibility.
    Senator Bunning. You mentioned China, I did note, about the 
amount of coal they are using. And do you not think they also 
are looking at alternative fuels, too?
    Mr. Garman. Yes, sir.
    Senator Bunning. So would not they be--if they are mining 
that much coal, would they not be also trying to extract 
hydrogen from that same coal?
    Mr. Garman. Yes, sir. And the Chinese have approached us, 
and we are under discussions with them on some collaborative 
work, so that we can work together on some of these problems.
    Senator Bunning. Well, since we do have a large supply, not 
only in Kentucky but other places, of fossil fuel and coal, I 
suggest that we look to make it clean and be able to do 
something with the extraction of the hydrogen, along with the 
carbon, and make sure that we can dispose of the carbon, so we 
do not have any carbon residues being used in any kind of fuel.
    And I urge the Department to make use of the $2.7 billion 
that has been put into the President's program. And I 
appreciate your answers. Thank you very much.
    Mr. Garman. Thank you, Senator.
    Senator Alexander. Senator Dorgan.
    Senator Dorgan. Mr. Chairman, thank you.
    Because we did not give opening statements, let me make a 
couple of comments and then ask a couple of questions. First of 
all, I appreciate the statements that all of you have given 
today. I think it is helpful.
    I seldom disagree with my colleague from New Mexico, 
Senator Bingaman, and I guess I do not necessarily disagree 
when he says let us talk about the near term, and the short 
term, or immediate. We cannot just focus on the intermediate 
and longer term. We do have short-term issues. So I agree with 
that. But I also think, and he probably agrees, if that is all 
that we do, we lose.
    Every 10, 15, or 20 years, we have an energy debate in the 
Congress. This one will last actually 4 or 5 years, this single 
debate, because we did not get a bill done in the last 
Congress. It is a repeat every time we have this debate. It is 
like the movie ``Groundhog Day.'' You just wake up, and you do 
it again. And 20 years later, you do it again.
    I think it is important for us, instead of debating the 
same construct of our energy circumstances, to try to pole-
vault to new ground. Perhaps everyone has heard me say that my 
first car was an antique Model T Ford that I restored. You put 
gas in the 1924 Model T the same way you put gas in a 2003 car. 
Nothing has changed.
    So when the President called for his Hydrogen Fuel Cell 
Initiative, I thought it was very welcome. I think it is very 
timid, but I think it is welcome. Those who allege and suggest 
that somehow he is doing this in order to avoid other issues, I 
do not buy that. I think putting the administration on record 
in support of new technology and moving to new ground with 
respect to energy is very, very helpful.
    But the fact is, it is very timid. I am mindful that when 
elephants fly, you ought not criticize them for being awkward. 
So I am a little ginger in suggesting there is anything wrong 
with what the President is suggesting except this point. The 
President is suggesting an initiative that does not have very 
much money or boost behind it. Some of the money that is in the 
initiative comes from other areas of the budget that I think 
are very important, and the result was a reduction in biomass, 
wind, geothermal, and distributed energy funding, just to 
mention a few.
    I happen to think this is a big idea. It needs to be an 
Apollo-type project with an aggressive, bold approach. I have 
introduced legislation with a number of my colleagues to that 
extent last week. My bill is a $6.5 billion, 10-year program, 
that is a big idea that says, ``Let us move forward, and get on 
track and set goals.''
    In the Energy bill last year, we had a provision that I 
wrote that required the DOE to set goals to get two-and-a-half-
million vehicles using fuel cells on American roads by 2020. 
Now I admit the goal in last year's energy bill that we sent to 
conference was not an enforceable goal, but it was at least 
establishing a policy goal for this country, which is what I 
think we need to do.
    So rather than move in the right direction in low gear, I 
suggest that we go in high gear. We almost always, when we 
focus on energy, talk about digging and drilling. I come from a 
State that produces natural gas, oil, and coal. So the fact is, 
we will dig and we will drill. But we do that understanding 
there are consequences. We have clean coal technology 
initiatives and other initiatives, which I support. But if 
digging and drilling are our only strategy, then again our 
country loses.
    If the only major debate we have is the satisfaction of 
beating each other up over ANWR or CAFE when we finish an 
energy bill, that is not much satisfaction for my children or 
my grandchildren. And I think we should debate ANWR and CAFE. I 
think we should produce more energy from coal, oil, natural 
gas. I think we should conserve more, and we should have more 
efficiency. I think we should boost limitless and renewable 
sources of energy. All of that ought to be in an energy bill.
    But we need to establish a bold, Apollo-type program to 
move towards hydrogen fuel cell technology for this country's 
future. I will not go into the charts that were just used, but 
the fact is, the fuel cell is so much more efficient and puts 
water vapor out the tailpipe. There are great advantages in 
moving in this direction for our country. And it cannot 
possibly be done without an aggressive public policy.
    You have production. You have storage. You have 
transportation. You have infrastructure. You have all of these 
issues that come to the same intersection, when you talk about 
making this kind of a policy change. It will not happen next 
year. It will not happen 4 years from now. But it will happen 
over a 5-, 10-, 25-, and 50-year period, if it is our 
determination and our public policy in this country to move in 
this direction. I feel very strongly that we need to do it. We 
need to be bold.
    As I say that, let me again come back to my colleague's 
statement. Yes, we have short-term issues that we cannot 
possibly ignore. Let us resolve them. Let us address them. But 
I am more interested in deciding how we can escape from the 
annual 20-year debate that we call ``yesterday forever.'' That 
debate is not very satisfying to me.
    So when I attended the President's speech on this issue, I 
said, ``Good for him.'' But again, it is way too timid. So let 
us boost it, and get to the business of making this happen.
    Mr. Garman, let me ask you the obvious question. $1.7 
billion, or slightly less than half, I think, is new money. But 
some of the money comes out of very important investments. As 
you know, I am a very big supporter of wind energy, which can 
also be used to produce hydrogen, and I hope that will be the 
case. But biomass, wind, geothermal, and distributed energy are 
all cut. I assume you would say to me, ``Yes, but we have 
increased funding for hydrogen fuel cells,'' but this is at the 
expense of others.
    We should be bold and develop a program without cutting 
funding in these very important areas.
    Mr. Garman. To comment on that, Senator, there has been a 
small cut in wind from $44 million to $41.6 million, an 
increase requested for hydro, a small decrease in geothermal 
from $29.8 million to $25.5 million, roughly flat on solar 
photovoltaic.
    Senator Dorgan. Well, where do you get the hydro? I do not 
want you to----
    Mr. Garman. $5.3 million to $7.4 million is hydropower.
    Senator Dorgan. Hydropower.
    Mr. Garman. Hydropower.
    Senator Dorgan. I have $7.4 million from $7.4 million, but 
maybe----
    Mr. Garman. No, we actually ended up with $5.3 million last 
year. But there was a significant cut in biomass mainly in two 
areas. A demonstration program on black liquor gasification for 
pulp mills, because that is a technology that is close to 
commercialization. And the other in our energy supply account, 
there were $26.7 million worth of earmarks.
    When you take that away, we are actually asking for a 
little bit more for biomass than Congress gave us last year. 
Now I realize, I am not suggesting and cannot suggest, that 
earmarks are going to disappear. But I did want to provide that 
bit of context for the committee.
    Senator Dorgan. So you are cutting it, but there is 
actually going to be more.
    Mr. Garman. There is actually----
    Senator Dorgan. Very good, Mr. Garman.
    Mr. Garman. I think there is actually going to be more core 
money for some of our R&D goals in biomass.
    Senator Dorgan. But you have to support the budget that was 
sent to us. I assume that you, because I know a little about 
you, would prefer that we increase investment in wind, 
geothermal, biomass, distributed energy, would you not?
    Mr. Garman. I support the President's budget, Senator.
    [Laughter.]
    Senator Dorgan. I take that is a given. I was just asking 
what do you think.
    Mr. Garman. Well, somewhere above my pay grade, the----
    Senator Dorgan. Mitch Daniels.
    Mr. Garman. I think all of our programs and our efforts are 
incredibly important. But somewhere above my pay grade, the 
dollars that one would put in energy efficiency competes 
against the dollars that one would use for education, curing 
cancer. And, frankly, those decisions need to be made above my 
pay grade and in Congress.
    Senator Dorgan. It is Mitch Daniels. Tax cuts, yes, 
especially cutting taxes.
    Let me make one final point, Mr. Chairman. $6.5 billion 
over 10 years is 1 percent of the President's proposal for new 
tax cuts, in the next 10 years; 1 percent. If we commit 1 
percent to a bold new program of hydrogen fuel cells, it will 
be of incalculable benefit to our country. But it does not have 
quite the same sway in some circles high above your pay grade, 
I think.
    Nonetheless, I really hope that we will take a look at 
these priorities in a significant way, especially here on this 
committee. Senator Domenici, who is not here today, is someone 
who also attended the President's speech. We talked there. I 
think he is very interested in advancing some of these issues, 
as is my colleague Senator Bingaman, and others. We need to 
work together to construct an energy policy that works for the 
long term in this country.
    Thank you very much.
    Senator Alexander. Senator Murkowski.
    Senator Murkowski. Thank you, Mr. Chairman. I am really 
enjoying this conversation.
    Recognizing that within the transportation sector 
essentially petroleum is the number one fuel used here--and I 
appreciate the direction that you all are suggesting that we 
need to move to, this petroleum-free world and recognize that 
the initiatives that have been proposed and the alternatives 
that are out there are laudable and a direction we need to look 
to, but we cannot forget that we are still going to need the 
petroleum for the asphalt that we drive on, for the trains, for 
the marine fuel, for the lubricants, for the vehicles. We are 
never going to be able to be completely free of it; so let's 
just recognize that at the outset.
    And we are recognizing that, in fact, it is important to 
reduce our dependence on foreign oil. I do not have any 
objection to that. It is something that we have been crying for 
in Alaska for a long time: Let us reduce the dependence on 
foreign oil. Let us help you, coming from the North, deliver 
additional domestic petroleum products down here to the lower 
48.
    And so these new technologies that are out there, the 
advancements, are great. They are wonderful. We support them. 
And it was interesting reading the comments from those that 
have spoken this morning. I am sorry I was not here to hear the 
actual presentations. But in reading through the comments, it 
seems that everybody is jumping to that next step, talking 
about what we need to do with the research and the technology, 
talking about the merits of hydrogen-based initiatives, how we 
are going to make these, how we are going to power these. But 
we need to get to that first step. How do we get the hydrogen?
    And I am not going to profess to be any great expert in 
terms of how we get it. But I understand. And the charts this 
morning have been relatively helpful. The conversation, Mr. 
Garman, that you have directed has been helpful in saying: 
These are some of the alternatives. We can look to natural gas. 
We can look to coal methane. We can look to the process where 
we disassociate the water through electrolysis, which requires 
a high amount of energy, a high amount of water.
    And so yes, we need to develop the technology so that we 
can get there. But it still comes back to those base natural 
resources that we have got to be able to provide in order to 
get us to that hydrogen point.
    So you had made a comment earlier, Mr. Garman, about some 
of the obstacles that we face, whether it relates to getting 
our hydrogen from natural gas or through the use of coal, and 
the concerns about the carbon, and that is something that we 
will work towards. I appreciated your statement to Mr. Bunning 
that, in fact, we are moving with that.
    But you indicated that, as it relates to natural gas, that 
this was, I think your word was, it was just a short-term 
option, or ``a near-term approach'' is exactly the words that 
you used. And I am not certain from what you said how you 
envision natural gas playing out in the lifetime of this 
hydrogen initiative. Can you give me some more clarification 
there?
    Mr. Garman. We think that over the near term natural gas 
will be the almost exclusive producer of hydrogen until some of 
these other technologies come into play.
    Senator Murkowski. And can you define ``near term''?
    Mr. Garman. When we are talking about hydrogen and changing 
the infrastructure--I see natural gas being the dominant 
hydrogen producer through at least 2025.
    Senator Murkowski. Okay.
    Mr. Garman. So that near term is pretty long term.
    Senator Murkowski. Well, and it is important to put these 
in time frames that are realistic. And as Senator Bunning had 
indicated, we have a crisis, if you will, as it relates to our 
ability to meet the demand when it comes to natural gas. And we 
are, again, in Alaska trying to do something to help down here 
by getting the natural gas pipeline from Alaska to deliver gas 
here, into the rest of the United States. We still have a long 
way to go on that.
    But if we are not able to meet that natural gas supply 
demand in the short term, where are we?
    Mr. Garman. Alaskan natural gas is very important to the 
Nation over the short and long term. And I know that there is, 
what, at least 85 trillion cubic feet of natural gas just in 
Alaska's North Slope, a lot of that on the Prudhoe Bay gas cap, 
that will play a very important role in our energy future. And 
I think the price of natural gas, until recently, has probably 
been a little on the shy side of what it needs to be to 
amortize that pipeline and bring that gas down.
    But recent prices show that perhaps that is not the case. 
And we are excited about the possibility that that pipeline 
could be built and that Alaska gas could be brought down to the 
lower 48 to solve our near-term and mid-term and long-term 
problems.
    Senator Murkowski. Well, it is real. And again, going back 
to how you get the hydrogen, okay, we talked about natural gas. 
I appreciate your comments there. And again, we need to do 
everything that we can to meet that gas demand. And we will be 
working very, very concertedly on that.
    And we have also had a little bit of discussion about coal 
and the availability of it. That is another area where we are 
certainly in a position to help you. We have 120 million short 
tons of known coal reserves in Northwest Alaska and another 20 
million short tons of coal identified throughout the State.
    Again, with my State, it is a situation of, ``How do we get 
it to you in order that it be effective?'' So we have some 
access issues before we can be able to meet that demand.
    But before we get too excited about a hydrogen initiative 
and the ability to make it happen, we need to make sure that we 
have these supplies that are available. So we will certainly be 
looking forward to working with the administration to make sure 
that we can meet the immediate-term, mid-term, and long-term 
needs for this initiative.
    So thank you.
    Mr. Garman. Thank you, Senator.
    Senator Alexander. I would like to ask a question about 
transmission. And I would like to give the other witnesses a 
chance to react. So let me move from production to transmission 
of hydrogen. And starting with Mr. Frankel and going down the 
line, then, Mr. Garman, you can be last.
    Could you take a minute and talk about the problems and 
opportunities and solutions associated with the transmission of 
hydrogen, or any other remark you might want to make from the 
comments you have heard here, Mr. Frankel?
    Mr. Frankel. Mr. Chairman, thank you. I think a lot of 
this, of course, turns on the technologies that Secretary 
Garman has described. As I indicated in my statement, the role 
of the Department of Transportation, specifically RSPA, is in 
assuring and doing research in what would be the hydrogen 
infrastructure and assuring its safety. That is a specific 
mandate to that agency.
    I think, as Mr. Garman has said, it depends on the 
particular technology developed whether or not we are going to 
need an extensive hydrogen pipeline system. There is some 
system already. It depends on where the reformation, if you 
will, occurs.
    Although we have not yet introduced the bill to reauthorize 
TEA-21, we have been considering research in the area or 
seeking resources so that we can undertake further research in 
the development of safe hydrogen infrastructure, including 
pipelines, which I see as a key role for the Department of 
Transportation in this regard.
    Senator Alexander. Mr. Dana.
    Mr. Dana. Senator, it is one of the many issues I think we 
all face in bringing fuel cell vehicles to market. Today we 
have an infrastructure that has been developed for over 100 
years. We have gas stations literally around the corner from 
wherever we live or work. And as we look forward to putting 
fuel cell vehicles on the road, we have to think about how we 
can make hydrogen available to the consumer in a similar way 
that we make gasoline available to the consumer today.
    So it is one of the big impediments, I think, that we are 
facing as we look to the future, one of the many impediments 
that we see, one of the main--``challenges'' is probably a 
better word--as we look towards the future of the fuel cell 
vehicle. So it is critically important to us.
    Senator Alexander. Mr. Friedman.
    Mr Friedman. Thank you. In terms of the transmission of 
hydrogen or how you get hydrogen to the vehicle, the way we see 
the pathway to fuel cell vehicles is we agree that it will 
start with natural gas. And I think we need to put that amount 
of natural gas in perspective.
    Even if we are at 15 percent of new vehicles by 2020 that 
are fuel cell vehicles, we are still only talking about using 
for transport only a small fraction of the natural gas that we 
use in electricity and power generation.
    The current problems with natural gas really are actually 
transmission problems. They are infrastructure problems. We 
have a fair amount of natural gas that we can tap into in order 
to build the early years of the hydrogen infrastructure. What 
that means is supplying natural gas to fuel stations, and 
reforming natural gas right at the fuel station using today's 
natural gas infrastructure. It is actually a quite elegant 
solution. And the technology is already being developed.
    In the long run when we talk about infrastructure issues 
for hydrogen, we think that actually the best option for 
producing hydrogen is renewable electricity. And so renewable 
electricity supported by things like renewable portfolio 
standards and credits for production of renewable energy mean 
that we can produce electricity with basically no greenhouse 
gas emissions, put that electricity again over existing 
transmission lines, and again at the fuel station create 
hydrogen via electrolysis.
    If you take the graph that was shown before of greenhouse 
gas emissions, if we look at hydrogen from electrolysis, if 
this is based off of renewable fuels, this bar disappears. It 
goes to zero. Minimal transportation issues arise because you 
are using existing infrastructure for both cases, dramatic 
reductions in greenhouse emissions, and significant 
improvements in efficiency.
    So we actually do not think that the transmission problems 
are going to be that difficult to overcome with existing 
technology.
    Senator Alexander. Mr. Cromwell.
    Mr. Cromwell. Thank you, Senator. It is interesting as an 
end user, taking a look from a totally different perspective as 
one that is doing this every day, our philosophy has always 
been to address the barriers that seem to get in the way and 
solve those one by one, utilizing what is in place. Public/
private partnerships are in place that will help us build 
fueling stations, especially in natural gas, which could then 
be easily, hopefully, converted to dispensing of hydrogen in 
the future, making it a sustainable support to make sure that 
we continue in the process of evolving to the goal, which the 
President has already indicated could be 15 years plus.
    And I think an amusing thing I heard the other day is that 
for the last 40 years we said fuel cells would be ready in the 
next 10 years. Well, let us hope that is right. It is certainly 
at a point where it looks very real.
    And then education: I would like to leave this with the 
committee, if I may. This is a book we have produced through 
the help of the FTA and many others. It is a hydrogen 
educational tool that is in connection with our project we did 
with Ballard and the XCELLSIS fuel cell bus. So if I could 
leave that with the committee. It has been put on the InRail 
website. In the first two months it received 132,000 hits. So 
obviously there is interest in moving this program.
    Natural gas, we obviously think, is the direction in which 
to go. There are a million miles of pipeline in the system 
already. We are using natural gas at seven stations. We have a 
hydrogen station in operation that is using gas reforming and 
solar power to generate electricity, to use an electrolyzer.
    We are about ready to put together a project where we use 
wind power to generate hydrogen and develop transportation 
techniques that could see if that might be a good way to do it. 
How do we move it from point A to point B? We have done that in 
a very small package with the city of Palm Desert for the 
Department of Energy, set up a program with golf carts that 
were used in park maintenance. We made the hydrogen at Sunline 
and then transported it over to the city of Palm Desert where 
we fueled the vehicles. And that project was a DOE project that 
went on for 2 years.
    So we know that those kinds of strategies are in place. We 
just need to continue the work forward.
    Senator Alexander. Thank you.
    Mr. Garman.
    Mr. Garman. Yes. You have heard a lot. And I will not add 
much other than we cannot use existing natural gas pipelines to 
transmit hydrogen because of issues of embrittlement, 
compressors, seals, a different materials challenge.
    We have built hydrogen pipelines, and we know how that 
works. We have approximately 500 miles of hydrogen pipelines in 
the country. There is some thinking that maybe it is possible 
to blend natural gas and hydrogen together, maybe up to a 20 
percent blend of hydrogen with a natural gas, and be able to 
use the same pipelines. That has not been validated yet. We are 
not quite sure, but we are looking at all of the options.
    And I think what you hear among the panel are the benefits 
of hydrogen is that it is something that gives you options. 
Natural gas is an option, but prices are volatile. Coal is an 
option, but we are dependent, you know, on the ability to 
develop sequestration technology.
    So I think at this point, a long-term perspective, having a 
diverse technology portfolio, where we are looking at lots of 
options, to generate lots of options for you, the policymakers, 
to determine how we best need to proceed on this, is the right 
way to go.
    Senator Alexander. Thank you very much for your answers.
    Senator Bingaman.
    Senator Bingaman. Thank you very much. First, let me just 
ask Mr. Garman if we can get a copy of that study, the Well-to-
Wheel study that you said that you folks have obtained. I guess 
it may be--is this the one that Arthur D. Little did?
    Mr. Garman. I believe this is the Arthur D. Little study. 
But we will get that for the committee.
    [The information follows:]

    As requested by Senator Jeff Bingaman, attached is the 
Arthur D. Little final report, ``Guidance for Transportation 
Technologies: Fuel Choice for Fuel Cell Vehicles'' that Mr. 
Garman referenced during the March 6 hearing when responding to 
a question by the Senator relating to well-to-wheel efficiency 
of a diesel hybrid electric fuel vehicle (see attached pages 
48, and 74 of the hearing transcript).
    The energy efficiency numbers presented by Mr. Garman at 
the March 6 hearing were calculated from the Arthur D. Little 
report. Attached is an extract from the report that reflects 
information used to calculate the energy efficiency numbers 
presented by Mr. Garman.
    [Note: The attachments have been retained in committee 
files.]

    Senator Bingaman. That would be very useful, if we could 
have that.
    Let me ask Mr. Friedman--could I put up the first of the 
charts that we had there, that one with the red bars on it?
    Your view is that we should produce the hydrogen from 
renewable sources and, therefore, eliminate any emissions and 
eliminate any or, I guess, a lot of the other disadvantages. 
Now on this first chart the production of hydrogen from 
electrolysis, which is what you are talking about, it looks 
like you have to produce--in order to produce 1 billion Btus 
for use in vehicles, you have to use up 2.5 million Btus. Now I 
guess your answer on that is that it is unlimited, the 
renewable sources. I mean, if we use wind or solar, there is no 
limit to the availability of that. And so it still makes good 
sense. Is that----
    Mr. Friedman. Well, there are some limits, obviously, in 
terms of the total capacity. But I think the real way to look 
at it is: Energy use is not necessarily inherently bad. Energy 
use is one of the engines of our economic growth. The problem 
are the results of energy use. And renewable fuels allow us to 
decouple the negative results from energy use from that actual 
energy use.
    So really, I think the potential here is that renewable 
energy can allow our economy to grow and thrive without all 
these traditional problems that we have had to deal with, 
without, you know, the air quality problems, without the waste 
problems.
    Senator Bingaman. Let me just ask you--I am trying to get 
in my mind how it would work. We have, for example, a wind farm 
going on in my State. It is quite a ways from the population 
centers. But that is where the wind happens to be.
    Mr. Friedman. Right.
    Senator Bingaman. But is it your thought that those wind 
turbines would produce electricity which would then be brought 
to the metropolitan areas, and then at that point the 
electrolysis would occur? Or the electrolysis would occur at 
the station, or the electrolysis--where do you see the hydrogen 
being produced?
    Mr. Friedman. Right. There are several models for that. And 
that does not just include--they definitely include wind farms, 
solar farms. They also include producing renewable energy right 
in the city, on top of roofs of buildings and things like that. 
So renewable energy is a very distributed energy source.
    You would very likely produce the hydrogen either within 
the metropolitan area or directly at the fueling station. If it 
is within the metropolitan area, you would still be either 
trucking or piping the hydrogen. But that is a much smaller 
infrastructure that you are dealing with.
    If you just simply electrolyze the hydrogen at the fueling 
station or even in your home, you are still just using the 
current electrical infrastructure. And you are not having to 
even add a hydrogen infrastructure.
    Senator Bingaman. So conceivably, you would have a 
substantial increase in the demand for electricity, but you 
would be meeting that demand through renewable sources and 
thereby avoiding all the negative problems that we saw.
    Mr. Friedman. Yes. And I think we do have to understand, 
obviously this is a long-term solution. There would be an 
increase in the demand for electricity, which also would mean 
upgrades to that infrastructure, which would be very important.
    Senator Bingaman. Let me ask Mr. Frankel on a totally 
different issue: We had in law here for several years a 
prohibition on NHTSA changing or increasing the corporate 
average fuel economy standards on all vehicles.
    Mr. Frankel. Specifically, Senator, on light trucks and 
SUVs.
    Senator Bingaman. Well, I thought we also had it on cars.
    Mr. Frankel. I do not believe so. I think the restriction 
that was in place was for----
    [Note: The following letter was received from the 
Department of Transportation:]

                 U.S. Department of Transportation,
                 Office of the Secretary of Transportation,
                                    Washington, DC, April 11, 2003.
Hon. Jeff Bingaman,
Ranking Member, Committee on Energy and Natural Resources, U.S. Senate, 
        Washington, DC.
    Dear Senator Bingaman: During my March 6th testimony before the 
Energy and Natural Resources Committee on the U.S. Department of 
Transportation's (DOT's) role in reducing energy use in the 
transportation sector, you asked about the restriction that had been 
placed on our efforts to increase CAFE standards. I am correcting my 
response for the record.
    The restriction did indeed apply to all vehicles, as you stated. 
For Fiscal Years 1996 through 2001, the Department of Transportation 
Appropriations Act contained a provision that prohibited the use of 
funds to prepare, prescribe, or promulgate CAFE standards for 
automobiles that differed from those previously enacted. The term 
``automobiles'' included both cars and light trucks. At the request of 
the Administration, Congress lifted this prohibition in late 2001. My 
response focused on light trucks because, immediately after the 
prohibition was lifted, the Department determined that the light truck 
sector had the greatest potential for reducing fuel use. In fact, the 
Department has just issued new CAFE standards for model year 2005 
through 2007 light trucks.
    We also discussed the additional authority DOT may need to reform 
the CAFE program. While we are pursuing reform within our current 
authorization, full-scale reform will require additional authority. The 
Department has already requested such authority from Congress. I am 
enclosing a copy of a letter from Secretary Mineta that outlines the 
Department's views on reform of the CAFE legislation.
    The Department looks forward to meeting the challenge outlined in 
the President's Hydrogen Initiative while also addressing increased 
fuel efficiency in the short term. Please let me know if I can be of 
further assistance.
            Sincerely,
                                           Emil H. Frankel,
                     Assistant Secretary for Transportation Policy.
[Enclosure]
                           The Secretary of Transportation,
                                  Washington, DC, February 1, 2002.
Hon. Thomas A. Daschle,
S-221, The Capitol, Washington, DC.
Hon. Trent Lott,
S-230, The Capitol, Washington, DC.
Hon. J. Dennis Hastert,
H-232, The Capitol, Washington, DC.
Hon. Richard A. Gephardt,
H-204, The Capitol, Washington, DC.
    Dear Gentlemen: The Administration supports increasing fuel economy 
by encouraging new technologies that reduce our dependence on imported 
oil while protecting passenger safety and American jobs. This has been 
our consistent position, as reflected in the President's National 
Energy Plan and our statement of administration policy on the House 
Energy Bill.
    Congress requested that the National Academy of Sciences (NAS) 
review the Corporate Average Fuel Economy (CAFE) program and report 
back to Congress. The President's National Energy Plan also recognized 
the importance of the NAS' work to any changes to the program. The NAS 
recently finalized their report, which made two important findings: (1) 
we can significantly increase fuel economy safely through the use of 
new and existing technology, and (2) the current CAFE system has 
created an incentive for manufacturers to produce smaller and lighter 
cars, which the majority of the NAS committee believes has led to many 
additional traffic injuries and fatalities. The Department, like many 
members of Congress, is deeply concerned by the NAS study's findings 
about the adverse impact the current CAFE program has had on safety.
    On behalf of the Bush Administration, I am writing today to urge 
Congress to provide the Department of Transportation with the necessary 
authority to reform the CAFE program, guided by the NAS report's 
suggestions. As we wrote in our statement of administration policy on 
H.R. 4, ``the Administration looks forward to working with Congress to 
achieve significant improvements to fleet fuel economy by encouraging 
development and introduction of new technologies and reforming the CAFE 
program.''
    Specifically, I look forward to working with Congress on 
legislation that would authorize the Department of Transportation to 
reform the CAFE program, fully considering the NAS report. Possible 
reforms include: (1) adopting fuel economy targets that are dependent 
on vehicle attributes, such as vehicle weight, that inherently 
influence fuel use and have minimal adverse safety consequences; (2) 
utilizing market-based incentives, such as trading of fuel economy 
credits, to obtain fuel savings at the lowest possible cost to the 
consumer while providing continuous incentives for additional fuel 
economy enhancements; (3) encouraging development and implementation of 
new technologies; and (4) establishing realistic, long-term targets and 
deadlines to increase fuel economy safely while providing greater long-
term product planning for the vehicle manufacturers.
    The Administration appreciates that in December 2001 Congress 
lifted the provision that, since Fiscal Year (FY) 1996, has prohibited 
the Department from addressing fuel economy standards. Now that the ban 
has been lifted, we are prepared to develop and evaluate potential 
reforms to the CAFE program. Accordingly, the President's budget will 
request that Congress significantly increase the Department's budget 
for fuel economy standards by providing $1 million for FY 2003. In 
addition, the Department has notified Congress of its intent to 
reprogram funds in FY 2002 so that the Department's fuel economy 
standards program exceeds $800,000--up from just $60,000 in FY 2001.
    To ensure we meet our current obligations, we also will seek public 
comment on new light truck standards for the model years 2005 through 
2010 and on the NAS study's findings and recommendations.
    These efforts build on what the President already has done to 
increase fuel economy, To encourage Americans to buy more fuel 
efficient vehicles today, the President's energy plan proposes tax 
incentives for the purchase of hybrid and fuel cell vehicles totaling 
more than $3 billion (from '02 to '12). To advance and accelerate the 
development of even more fuel efficient vehicles in the future, the 
Administration is funding and working with partners (both research 
universities and the private sector) to leverage resources for research 
and development of new vehicles and fuel technologies, including the 
new fuel cell FreedomCAR program, hybrid vehicles, renewable fuels, and 
ultra-low sulfur fuels.
    I look forward to working with you and others in Congress to 
authorize the Department of Transportation to undertake the reforms 
needed to improve fuel economy by encouraging new technologies, without 
negatively impacting safety or jobs. Thank you for your consideration 
and support.
            Sincerely yours,
                                                  Norman Y. Mineta.

    Senator Bingaman. So there has not been any restriction on 
your ability to increase CAFE standards for cars.
    Mr. Frankel. I think the CAFE standard has been 
legislatively driven. But the restriction on SUVs, which was 
placed within the Department of Transportation and within 
NHTSA, there was a restriction on NHTSA doing any work at all 
for a period of 5 or 6 years up until, I think it was, 2002.
    Senator Bingaman. Yes. So since last year that 
restriction----
    Mr. Frankel. 2001, the end of 2001.
    Senator Bingaman. Yes. That restriction has gone away. Do 
you have any plans in NHTSA to look at the possibility of 
increasing CAFE standards on the rest of the fleet?
    Mr. Frankel. Senator, that is something we will be 
examining with the Congress. I think there was discussion 
around the energy bill in the last Congress, about allowing a 
more fundamental look at reform of the CAFE program. There was 
no bill, and it obviously was not enacted.
    I do not think it is simply a question of increasing the 
standards in and of themselves, whether we are talking about 
SUVs or, in this case, about private automobiles, and that is 
consistent with the National Academy of Sciences study. It is 
timely to take a fundamental look at the CAFE program, and to 
undertake that fundamental look really requires legislative 
authority, statutory authority, which Congress needs to be 
engaged in.
    Senator Bingaman. So you do not think you have the 
authority to do that.
    Mr. Frankel. Not the fundamental look that I think is 
required. There are some elements that can be examined, but we 
need to really undertake a more fundamental examination, 
including some of the elements that were raised in the National 
Academy of Sciences study and have been raised by other people 
about transforming the kind of basis on which classifications 
are made. It is our view that that kind of fundamental review 
is best undertaken with statutory authority.
    Senator Bingaman. Well, Mr. Chairman, I would just suggest 
that NHTSA or any Federal agency has full authority to look at 
any of these issues that they have regulatory responsibility 
for and make recommendations to the Congress.
    Maybe there would have to be some change in law, depending 
on what you recommended. But clearly, if you felt that there 
was some change appropriate in this area, I think you should 
move ahead and give us recommendations.
    Mr. Frankel. Well, certainly that continues to be under 
review at the Department and within the administration, 
Senator.
    [Note: See letter to Senator Bingaman from the Department 
of Transportation, dated April 11, 2003.]
    Senator Bingaman. Thank you very much, Mr. Chairman.
    Senator Alexander. Senator Murkowski.
    Senator Murkowski. Thank you, Mr. Chairman.
    Mr. Friedman, you have been talking a little about the 
electrolysis process. And I understand that in order to get to 
the hydrogen state, you have to disassociate the hydrogen from 
water.
    Mr. Friedman. Yes.
    Senator Murkowski. Now in my State we do not have any 
problem with water. We have more water than most people would 
know what to do with. I am chairing the Subcommittee on Water 
and Power for the Energy Committee and getting into the water 
issues that we have in this country, particularly in the West, 
where, in times of drought and even, quite honestly, when we 
are doing okay, the water market is very, very, very tight.
    How does this process then work so that it is feasible? We 
are talking about another resource that has a finite supply, if 
you will.
    Mr. Friedman. Well, one of the really exciting things about 
fuel cell vehicles is, yes, you start off by cracking that 
water into hydrogen and oxygen. Once you recombine the hydrogen 
and oxygen onboard the fuel cell vehicle, you produce water. So 
you get all that water right back, when you actually use the 
hydrogen.
    So there are no questions of, or concerns over, depleting 
our water resources, because it is just a perfect cycle. It is 
a perfect circle. You crack the water. You make hydrogen. You 
use hydrogen to make electricity. And you get the water right 
back.
    Senator Murkowski. So it is diverted for just a very short 
period of time. I have no idea, really, how long this process 
takes.
    Mr. Friedman. Right. It is diverted. I mean, the minute you 
start, once you fuel up with your fuel cell vehicle, the minute 
you start driving, you are putting water right back into the 
system. So if it took, you know, a few minutes to produce that 
hydrogen, it will maybe take a few days for that hydrogen to--
excuse me, for the water to return to the system.
    Senator Murkowski. So in your opinion, this will not have 
any effect on the limited water market that we have.
    Mr. Friedman. I believe that is correct, and especially 
considering we actually are not talking about very large 
portions of water.
    Senator Murkowski. If I may, Mr. Garman, if we are able to 
achieve what the panel is proposing here, that we really do 
move from a transportation industry that is less reliant on 
petroleum and we do increase our efficiency standards so that 
we are using less gasoline, we are moving from that, we are not 
going to be seeing the gasoline tax go into the Highway Trust 
Fund. It is that Highway Trust Fund that is able to keep our 
roads drivable, essentially.
    So how do we plan, or what is the proposal if we are 
successful in what you are attempting to do, that we will be 
using less gasoline, how do we refill or replenish our Highway 
Trust Fund?
    Mr. Garman. Well, I think your earlier point is very 
important as context, that this transition to the hydrogen 
future takes many decades to happen. So this is a concern or an 
issue that folks in your chair will have to grapple with many 
decades from now, rather than something that is a short term 
issue. But I would imagine that one would tax the hydrogen fuel 
of a vehicle just as one would tax the gasoline fuel of the 
vehicle today, if a sustaining mechanism was needed for the 
Highway and Infrastructure Trust Fund.
    But again, it is difficult for me to project 20 or 30 years 
into the future for that question.
    Senator Murkowski. Thank you.
    Thank you, Mr. Chairman.
    Senator Alexander. Mr. Frankel.
    Mr. Frankel. I might say, Senator and Mr. Chairman, that I 
think there are broader issues in terms of the future of the 
Highway Trust Fund and the financing of the Highway Trust Fund. 
I think that there will be consideration in Congress about 
examining, over this next reauthorization period, the future of 
the Highway Trust Fund and how it is going to be financed.
    We do have a national policy to develop alternatives to a 
petroleum-based transportation system. We may have disputes 
about exactly how we are going to achieve it and how long it is 
going to take us to achieve it. Moving away from a petroleum-
based transportation system is becoming national policy. At 
some point that is going to have an impact on the Highway Trust 
Fund that we have to recognize.
    I think that the administration will have to undertake a 
very careful and serious study of this issue. Some of that work 
is already going on within DOT, and at the Department of 
Energy, and the Department of the Treasury.
    Senator Alexander. I want to thank the witnesses on behalf 
of the committee for your time and your intelligence and your 
help. If different opinions occur to you after you leave or if 
there were things that you wanted to say that you could not 
today because you did not have time, we would be glad to 
receive those comments here in the committee and make them a 
part of the record.
    And I am sure there will be many more hearings and 
discussions on the same subject. Thank you very much.
    [Whereupon, at 12:10 p.m., the hearing was adjourned.]
                               APPENDIXES

                              ----------                              


                               Appendix I

                   Responses to Additional Questions

                              ----------                              

                                    Sunline Transit Agency,
                                Thousand Palms, CA, April 28, 2003.
John Peschke,
Professional Staff Member, Senate Energy and Natural Resources 
        Committee, Hart Building, Washington, DC.
    Dear Mr. Peschke: Enclosed please find answers to questions posed 
by members of the Senate Energy and Natural Resources Committee. If you 
or members of the committee have additional questions or need further 
clarification, please don't hesitate to ask.
    Please also pass on our appreciation to Chairman Domenici for the 
opportunity to offer this input. We are encouraged by the interest 
shown in clean fuels and renewable energy, and by the very thoughtful 
(and difficult!) questions asked by Committee members. Best of luck on 
the final draft of this vital policy.
            Sincerely,
                                      Richard Cromwell III,
                                               General Manager/CEO.

P.S. Should you or any member of the Committee be in the Palm Springs 
area, we would be honored to offer a private tour of our Clean Fuels 
Mall and Beta Test Center for Advanced Energy Technologies.

[Enclosure]
  Responses to Questions From the Senate Energy and Natural Resources 
                               Committee
                        hydrogen fuel production
    Question. What are the advantages of using natural gas or another 
hydrogen carrier fuel as the feedstock for hydrogen in the short term? 
How will this increased demand for natural gas impact natural gas 
supply and prices?
    Answer. No technology that exists today can compete on a cost basis 
with reforming hydrogen from natural gas. Proven reforming technology 
exists, is cost-effective, and when combined with carbon sequestration, 
begins to be competitive with electrolysis from a greenhouse gas 
perspective. If we define ``short term'' as present day--2020 to 2030, 
there would be no negative impact on natural gas supplies. Rather, as 
demand increased, it would become economic to increase production. 
Beyond 2020-2030, it might be necessary to supplement U.S. natural gas 
supplies with imported liquefied natural gas (LNG).
    All that aside, every possible program should be put in place to 
make renewables cost competitive for hydrogen production. SunLine has 
demonstrated solar electrolysis since 2000. It works. We're about to 
demonstrate wind-hydrogen production as well. But until demand is 
sufficiently high to lower the cost of production, it will never be 
competitive. Another ``chicken and egg'' scenario. The solar and wind 
industries need incentives and large orders to increase production.
    Question. Is it more likely that we will have hydrogen fueling 
stations, or we will see hydrogen generated in our garages from 
distribute energy resources?
    Answer. Based on what we're hearing today, it is unlikely home 
electrolysis units would be cost competitive. However, a home reformer 
may be feasible. If manufacturers solve the technology issues that 
currently exist and home reformers become available, there could be a 
mix of home fueling and stations, but the primary method of delivery 
will likely be fueling stations.
                   alternative fuel vehicle mandates
    Question. Should the EPAct alternative fuel vehicle mandate program 
be continued? If so, how should it be fixed? Should we offer credits 
toward compliance for investments in fueling stations or use of fuel?
    Answer. Yes, the EPAct mandate program should be continued. It 
could be improved as follows: Include a study provision intended to 
promote trading of emissions credits between mobile and stationary 
sources; provide double EPAct credits for fleets acquiring dedicated 
heavy-duty alternative fueled vehicles; provide credits for companies 
that make a significant contribution to the development of alternative 
fuel infrastructure; and require the GSA to allocate the incremental 
cost of an alternative fuel vehicle over the entire federal fleet. 
Currently, GSA charges an agency the entire incremental cost of an NGV.
    Substitute language, endorsed by our partners in the Natural Gas 
Vehicle Coalition, follows:
          ``Sec. 13265. The Secretary shall establish an optional 
        program under which fleets subject to the requirements of 
        sections 13251 or 13257(o) of this subchapter may opt out of 
        the requirements of those sections by making a demonstration to 
        the satisfaction of the Secretary that the fleet or covered 
        person is in good standing with the regulations issued pursuant 
        to sections 13251 or 13257(o) and that the fleet will achieve 
        reductions in the use of petroleum fuels if it is permitted to 
        opt-out of the requirements of these sections. The program 
        established by the Secretary shall by rule:
                  (a) Establish a measurable annual petroleum reduction 
                requirement for a covered fleet equal to the amount of 
                alternative fuel the fleet would use if at least 60 
                percent of the annual amount of fuel used in all light 
                duty motor vehicles owned or otherwise controlled by 
                the fleet was alternative fuel.
                  (b) Allow a fleet that opts into the program to 
                achieve petroleum reduction in any manner it chooses, 
                except that reductions in the size of the fleet shall 
                not be considered in determining the total amount of 
                petroleum reduction by the fleet.''
    Question. If we are moving to a fuel-cell based transport fleet, 
should we still be interested in ethanol, biodiesel, natural gas, etc., 
or should we just use them to make hydrogen?
    Answer. We should absolutely still be interested in and provide 
incentives for purchase of alternative fueled vehicles (AFVs) powered 
by ethanol, biodiesel, natural gas, and hydrogen-natural gas blends, as 
well as for hybrid vehicles that dramatically increase fuel efficiency. 
As if not more important, we should provide incentives for purchase of 
alternative fuels at the pump. AFVs can't reduce foreign oil and lower 
emissions unless they alternate fuels are consumed.
    Unlike SunLine, which parked a fleet of diesel buses and went into 
service overnight with a new fleet powered by natural gas, as a 
country, we will never see a wholesale conversion at any point in time 
to a new fuel (hydrogen or otherwise). What we've seen repeatedly this 
past 10 years is that different clean fuels fit different circumstances 
and what works in one location/situation may not in another. Options 
should never be limited. Our goals (displacing imported petroleum and 
improving air quality) should be fuel neutral. What should be mandated 
or regulated is the outcome--not the fuel type.
                 corporate average fuel economy (cafe)
    Question. Should impacts on passenger safety, vehicle technology, 
consumer preferences, and market-economics be considered when 
considering new fuel economy standards?
    Answer. Passenger safety should of course be considered. Consumer 
preferences, however, are directly tied to the price of oil. If the 
price of our national security, air quality, and public health were 
factored into the price of a gallon of gas, every consumer in the 
country would develop an overnight fondness for high fuel efficiency 
vehicles, regardless of design.
    Question. Rather than argue here in Congress about arbitrary mile-
per-gallon levels, should we just get out of the way and let the 
experts at NHTSA do their job?
    Answer. That would be a dangerous precedent in our view. It should 
not be up to government staffers to set policy. That is the role of 
electeds who represent the voters of this country. Turning it over to 
NHTSA without a specific target for reductions opens the door to a 
staff decision that fuel efficiency is less important than the other 
factors cited.
    Question. Should we consider CAFE credits for hydrogen vehicles as 
a way to encourage their manufacture and sale?
    Answer. Yes. In addition to hydrogen's national security and air 
quality benefits, fuel cell vehicles are far more energy efficient than 
traditional internal combustion engines.
    Question. Should we remove the cap on CAFE credits for AFVs to 
provide a greater incentive for their sale?
    Answer. Yes.
    Question. Is ``miles per gallon'' an appropriate efficiency metric 
if we are no longer using gallons of gasoline in the future? Will CAFE 
be needed in a hydrogen-car based system?
    Answer. Gasoline powered vehicles will be on the road 30 years from 
now, so for at least the next generation, ``miles per gallon'' or 
``miles per gas gallon equivalent'' are appropriate metrics. Regarding 
the need for CAFE in a hydrogen-car based system (assuming the absence 
of traditional gas-powered vehicles)--the answer is no. In an all-
hydrogen system, the reasons CAFE standards were passed will no longer 
apply (reduce foreign oil, reduce air pollution).
                          additional questions
    Question. Aside from new R&D funding, what can/should Congress do 
to hasten development of hydrogen-fueled vehicles?
    Answer. Revise DOE's timetable from 2020 back to 2010-2015; 
increase the purchase and use of hydrogen vehicles by federal fleets; 
pass sustained, guaranteed funding for research, development and 
demonstration of heavy duty fuel cell transit buses; offer incentives 
for infrastructure development.
    Question. Which policy actions are more important for deployment of 
advanced technology vehicles--R&D, tax incentives, demonstration 
projects or regulations?
    Answer. No one action can be singled out. A coherent program is 
needed that addresses all of the above. Transitioning to a hydrogen 
economy has been likened to putting a man on the moon.
    Many in the industry think it will be more difficult! We have to do 
everything possible as a concerted, coordinated effort to move the 
technology forward.
    Question. Give the focus on hydrogen as the transportation fuel of 
the future, how much effort should we expend on using other alternative 
fuels? For example, should we use natural gas directly for transport or 
convert it to hydrogen first?
    Answer. As stated above, we will never see a wholesale conversion 
at any point in time to a new fuel (hydrogen or otherwise). Use of all 
alternative fuels should be encouraged/rewarded. Every gallon we use 
(or gas gallon equivalent) reduces our dependency on imported oil, 
reduces airborne pollutants and reduces greenhouse gases.
    Question. Where is the U.S. compared to Europe and Japan in terms 
of competitiveness for the emerging hydrogen market? Will this new 
initiative push the U.S. ahead of its competition?
    Answer. While this question was likely directed toward the 
passenger car market, my answer addresses the heavy-duty transit bus 
market. There are currently seven fuel cell transit buses on order in 
the U.S. compared to 30 buses that will be delivered to 9 European 
cities and Australia through the EU's multi-national CUTE program. 
Japan, Singapore, and a group of undeveloped nations working with the 
World Bank and UNDP likewise have programs underway. Despite the fact 
that transit buses are the most visible vehicles on the road, and that 
public transit is the ideal launch pad for a fuel cell program (because 
of centralized fueling, bus size/shape, and having trained mechanics 
and operators), the U.S. has no committed, sustained funding for the 
ongoing development/refinement of heavy-duty fuel cell buses. Through 
our experience, we've learned it will take several generations of 
engines before a fuel cell can withstand the rigors of the public 
transit environment. Without a multiyear commitment to technology 
development and demonstration, the U.S. will absolutely not be 
competitive with Europe or Japan in this market.
    Question. What is your experience with the fleet mandate program 
for alternative fuels under EPAct? What changes in that program would 
you suggest?
    Answer. Because we converted 100% of our fleet to natural gas in 
1994, we've not had any personal experience with EPAct. However, the 
changes we support are detailed in the section on page 1, Alternative 
Fuel Vehicle Mandates.
    Question. What lessons have we learned from the demonstration 
projects that DOT has funded with SunLine Transit Agency and other 
fleets?
    Answer. We're so glad you asked! We have over 25 million miles of 
experience operating vehicles on compressed natural gas, liquefied 
natural gas, hydrogen and blends of hydrogen and natural gas. From our 
point of view, there are many layers to address.
    First, we have learned that training is the key to the successful 
implementation of any alternative fueled fleet. By properly training 
our mechanics, operators and station technicians, we successfully 
avoided nearly every problem we might have encountered.
    Second, we learned that our community college network is the ideal 
education/training partner. By working together, we've developed 
courses for alternative fuel technicians that help provide a skilled 
workforce from which we can draw. Thanks to funding from FTA and other 
partners, we were recently able to complete the first community college 
level training course on heavy duty fuel cells and related 
technologies. The manual is posted on DOE's National Renewable Energy 
Laboratory's Alternate Fuels Data Center website and has logged more 
``hits'' than any other publication in the site's history.
    Third, vehicles that run on high-pressure gases pose no problem--
whether the gas is natural gas, hydrogen, or a blend. However, 
technology transfer is another key to their successful implementation. 
By working with partners like Ballard, developers of the ZEbus we 
demonstrated for 13 months, and ISE Research, our system integrator on 
the ThunderPower hybrid fuel cell bus demonstration project, our 
mechanics were trained to work on many of the bus' systems. In the case 
of the ThunderPower bus, it was possible for us to integrate a 
prototype bus into our daily route service--operate it, carry 
passengers on it, clean it, fuel it--in short, through the help of 
technology partners, we successfully integrated the bus into a normal 
transit operation.
    Fourth, it is of vital importance to ``bring the community along.'' 
Public outreach should never be overlooked. Public opinion should never 
be underestimated. By educating our residents and visitors, they have 
become clean air proponents.
    Next, FTA's allowing us to form a public-private partnership for 
infrastructure development was a catalyst for over 1,000 alternative 
fueled vehicles to be in daily use in the Coachella Valley. By 
partnering with ENRG, a private sector infrastructure developer, we 
leveraged funding to build seven natural gas stations in our service 
territory. That enabled other fleet operators to be within minutes of 
fuel anywhere in the valley. As an aside, but in support of continued 
incentives for AFVs, together with ENRG, we helped other fleet 
operators access grant funds that were the deciding factor in the 
purchase of many of those 1,000 vehicles.
    Last, and most important relative to hydrogen--because the transit 
bus market in the U.S. is so small in relation to all other heavy-duty 
segments, it will never be profitable for a private sector firm to fund 
the RD&D necessary to develop viable fuel cell buses. We MUST have a 
government-funded program if we are ever to transition from diesel 
transit buses to hydrogen fuel cell buses. That is the only way the 
needed research, development and demonstration will be possible.
    Question. What challenges have you faced in operating several 
different kinds of alternative fuel vehicles in the same fleet?
    Answer. At the risk of over-simplifying the answer--the only 
challenge we feel we face is economic. We are dependent on government 
and private sector funding for all activities that relate to our Beta-
Test Center for Advanced Energy Technologies, where we demonstrate both 
stationary and transportation technologies. We are likewise 
economically challenged when it comes to space. We need to expand our 
facilities to increase the hydrogen production technologies we are 
demonstrating and we need more land to park and maintain these 
prototype vehicles. Our challenge is finding funding. We take care of 
the rest by training, working with partners, having realistic 
expectations, and being so excited by what we do that we don't realize 
other people might view our fun as a ``challenge.''
    Question. You mentioned education and outreach as being important--
who should carry out that function?
    Answer. As I mentioned earlier, the community college network is an 
ideal partner for training technicians. We also strongly advocate an 
engineering degree program with a specialization in fuel cells. 
Regarding outreach, we believe all public agencies should incorporate 
an education/outreach component in every alternative fuel and/or clean 
air program they undertake. We find we are most successful when we work 
with a team of professional writers, graphic artists and education 
partners to carefully craft the messages we disseminate. It is vital to 
make people aware of both problems and solutions and to make them feel 
their participation in the solution is essential.
              Responses to Questions From Senator Bunning
    Question. What fuel option is the DOE currently focusing on for use 
in fuel cells? Is DOE examining all possible options including natural 
gas and methanol from coal and ethanol?
    Answer. According to a DOE presentation we just saw, the answer is 
yes--the agency is examining myriad options for generating hydrogen 
though natural gas is generally regarded as the best near-term 
solution.
    Question. Do you think biodiesel from soybeans and animal fats is a 
viable alternative fuel? Is DOE looking into R&D using biodiesel as an 
alternative source of fuel to help reduce reliance on foreign oil?
    Answer. While we are not familiar with DOE's programs in this area, 
we think biodiesel from soybeans, animal fats and recycled vegetable 
oil are all good options for displacing petroleum. Process economics 
vary widely with feedstocks and incentives are needed for biodiesel to 
be cost-competitive. But if the technological aspects and performance 
issues can be worked out (through research, development and 
demonstration projects in both stationary and automotive engines), it 
can help displace petroleum, support agricultural producers, and 
potentially reduce problematic waste from landfills.
                      fleet demonstration programs
    Question. Do you agree that the transit bus and fleet vehicle 
applications should or will precede the automobile market?
    Answer. Yes. Definitely. Buses have fewer packaging restraints than 
passenger cars, skilled mechanics on staff that perform daily 
maintenance, centralized fueling, and a subsidized purchasing system. 
Buses are mobile classroom and billboards, and are generally in service 
19 hours a day, over 360 days a year. Transit buses have also 
demonstrated a far more successful transition to alternate fuels than 
passenger cars. There are over 6,000 natural gas transit buses on the 
road today, 500 hybrids in use or on order, in addition to biodiesel, 
propane, and electric buses. If the rest of the nation followed 
transit's lead, imports of OPEC oil could be halved.
    In addition, while heavy-duty vehicles account for less than 6% of 
those on the road, they produce 60% of the NOx and over 80% 
of the particulate matter generated by vehicles. Cleaning up the heavy-
duty sector has greater gains at far less cost than attempting the 
widespread implementation of passenger vehicles.
    Question. What kind of coordination is occurring between the 
Department of Transportation and Department of Energy regarding the 
demonstration fleet vehicles including transit buses?
    Answer. From our standpoint, in the past, there has been little 
coordination between the two departments. We recently attended an 
industry meeting where a DOT rep stated his department's role began at 
the point where new technologies were ready for deployment. DOE, 
however, does not fund heavy-duty transit bus R&D--which leaves transit 
operators in a crack in the system. We need a coordinated program for 
research, development and demonstration of multiple generations of fuel 
cell buses and corresponding funding for continuing hydrogen 
infrastructure upgrades in order to have a success. We have the same 
problems with early generations of hydrogen generating, storage and 
dispensing technologies as we do with early generations of fuel cell 
bus engines. The early generations can't withstand the daily rigors of 
the transit environment over a multi-year period. We need continued 
funding for early adapters to upgrade to each next generation to 
improve reliability, efficiency, and cost.
              Responses to Questions From Senator Bingaman
    Question. What does the so-called ``Alternative Fuels Failure'' 
tell us about trying to influence changes in the transportation fuels 
market?
    Answer. The short answer is this: That heavy-duty markets and 
fleets should receive tax breaks, grants, and other incentives to 
become early adapters and developers of infrastructure; that the 
government needs to work closer with and fund industry to ensure 
cleaner engines are manufactured in advance of a profit opportunity; 
and that government fleets should be among the first and most loyal 
consumers. The same is true of stationary generation technologies. 
Government purchases would enable manufacturers to achieve quantities 
sufficient to reduce prices and make cost-effective products available 
to the market.
    The longer answer, and the reason why government has not been a 
major purchaser of AFVs, is GSA policies. They are in contrast sharply 
with the requirements of EPAct and have adversely affected its ability 
to succeed. Please consider the following:

   Amortization of the incremental cost of the vehicle is due 
        in the first year rather spread out over the 3-year lease life. 
        Other vehicles leased by GSA are amortized over three years. 
        This has the effect of adding $700 a month to the cost of the 
        vehicle.
   All Federal agencies wanting to purchase or lease dedicated 
        alternative fuel vehicles must provide GSA with a letter of 
        justification. To our knowledge, no other vehicle purchased or 
        leased by GSA is required to provide such justification.
   Federal agencies that have previously purchased or leased 
        dedicated alternative fuel vehicles are required to re-justify 
        their interest in purchasing the vehicle annually; even in 
        cases where the infrastructure, training and other dedicated 
        alternative fuel vehicles already exist.
   In many cases, Federal agency fleet managers have had their 
        initial request to purchase or lease a dedicated alternative 
        fuel vehicle rejected by GSA. Only after intervention by senior 
        Federal agency staff has the request been approved.
   GSA does not inform its customers that they may request a 
        natural gas vehicle to replace a gasoline vehicle. The customer 
        will not get a natural gas vehicle unless it specifically knows 
        it can do so and specifically requests it. Few of GSA's 
        customers understand they have this option.
   Other Federal agencies have gotten around the GSA process by 
        purchasing the vehicles directly.

    A dedicated natural gas vehicle provides two EPACT alternative fuel 
vehicle acquisition credits.
    GSA has attempted to meet its EPACT obligations by purchasing a 
large number of flex-fuel and bi-fuel vehicles that can operate on 
either gasoline or E-85. Unfortunately, those vehicles operate almost 
exclusively on gasoline.
    The Civic GX is currently certified to the 2004 Tier II, Bin-2 
emissions level. This is equivalent to a Super Ultra Low Emissions 
Vehicle (SULEV). The only vehicle cleaner is an electric vehicle. All 
Civic sedans have received the highest NHTSA safety rating, 5-stars for 
driver and passenger.
    We would, therefore, like to propose some questions of our own for 
GSA:
          1. Do GSA policies and procedures discourage the purchase or 
        lease of dedicated natural gas vehicles by Federal agencies?
          2. I understand that a letter of justification is required by 
        all fleet managers to acquire dedicated natural gas sedans but 
        not other vehicles purchased for the Federal fleet. Why is 
        that?
          3. Please explain the rationale of the GSA lease program that 
        requires the Federal agency to pay all of the incremental costs 
        of the AFV within the first 12 months of the lease rather than 
        3 years of equal payments, which is the norm?
          4. What percentage of GSA alternative fuel vehicles are flex-
        fuel or bi-fuel vehicles?
          5. What percentage of the flex-fuel or bi-fuel vehicles 
        currently in the Federal fleet runs on the alternative fuel?
          6. Please identify what Federal agencies have requested and 
        procured a dedicated natural gas sedan for purchase or lease?
    Question. What makes us think the Hydrogen Fuel Initiative will be 
any more successful than programs in the past to deploy alternate fuels 
and displace petroleum?
    Answer. The U.S. government has the opportunity to correct all 
prior mistakes in regard to transitioning to a new, cleaner fuel. For 
the first time, efforts could truly be coordinated between the 
Departments of Defense, Energy, and Transportation so each has a 
preplanned role in reaching the same end point. In addition, the 
government can look to successful models between government, industry, 
energy providers, OEMs, and transit agencies such as the California 
Fuel Cell Partnership to learn how to leverage the efforts of multiple 
stakeholders. One final thought is that the RFP process and the earmark 
process don't particularly support the advancement and deployment of 
emerging technologies. The Consortia-based Advanced Vehicle Program was 
far more successful in bringing new technologies to the marketplace 
than other government programs.
    Earmarks tend to fragment funds and no coordination between 
projects is required. RFPs are very specific and exclude many very 
viable and necessary projects (and in some cases, manufacturers) 
because of technicalities that often contribute little to the outcome. 
A better system is to establish a pool for projects of a certain type 
and rank them on what they add to the country's objectives, which is 
how the Consortia-based program brought hybrid technologies to the 
marketplace. While very consideration should of course be given to U.S. 
technologies, it is self-defeating to exclude or penalize foreign 
automakers, bus makers, and/or manufacturers whose products perform 
better than similar American products. The goals are to reduce foreign 
oil imports and improve air quality--not subsidize American industry.
    Question. Given that carmakers have already embraced a number of 
more efficient vehicle technologies in products now coming into the 
marketplace (continuously variable transmissions, hybrid electric 
engines), what would be the argument against a national policy to use 
these technologies to reduce gasoline demand and increase our national 
security, instead of sitting by while they are used simply to increase 
vehicle weight even more and keep us in our current state of import 
dependence?
    Answer. There is no valid argument against using hybrid electric 
engines and other technologies already available. We cannot fathom a 
policy that ignores the present while focusing on 15-20 years in the 
future. Every gain that can be made in the interim makes us stronger 
politically and economically and focuses attention on the need to 
change our behaviors and our attitudes now. It is madness to wait when 
viable technology exists.
                                 ______
                                 
                      Alliance of Automobile Manufacturers,
                                    April 28, 2003, Washington, DC.
Hon. Pete Domenici,
Chairman, Committee on Energy and Natural Resources, Washington, DC.
    Dear Chairman Domenici: Enclosed are responses by the Alliance of 
Automobile Manufacturers to a list of questions submitted for the 
record following the March 6, 2003 hearing on energy use in the 
transportation sector.
    Thank you for your leadership on the Committee. If you should have 
any additional inquiries, please let me know.
            Sincerely,
                                                 Greg Dana,
                             Vice President, Environmental Affairs.
[Enclosure]
  Responses to Questions From the Senate Energy and Natural Resources 
                               Committee
    Question 1. Should impacts on passenger safety, vehicle technology, 
consumer preferences, and market economics be considered when 
considering new fuel economy standards? Are these factors considered 
now?
    Answer. Yes. It should be remembered that CAFE is a sales weighted 
average and that the levels reported each year by manufacturers are, to 
a large degree, driven by consumer preference. Consumer preference is 
of course driven by market economics; for example, when fuel prices are 
low, consumers typically opt for vehicles that provide greater utility 
or performance, while placing little value on fuel economy. When NHTSA 
sets CAFE standards at a ``maximum feasible level,'' the agency is 
required to take into account technological feasibility, economic 
practicability, the effect of other Federal motor vehicle standards on 
fuel economy, and the need of the nation to conserve energy. NHTSA does 
consider these factors now. It is not clear that legislative proposals 
before the Congress have always considered these factors.
    Question 2. Does the National Highway Traffic Safety Administration 
(NHTSA) have sufficient authority and expertise to consider these 
impacts? What statutory changes might be needed?
    Answer. NHTSA has sufficient authority and expertise to consider 
these impacts.
    Question 3. Is there any reason to assume that the National Academy 
report on CAFE is less accurate now than it was when released a year 
ago?
    Answer. As you know, when the original report was issued, the 
Alliance raised some serious questions regarding the methodology and 
the assumptions used in the report. For example, we stated that the 
panel underestimated the penetration rates of certain key technologies 
thus the baseline fuel economies already reflect key technologies that 
NAS later applied. Having said that, we also note that the costs and 
the fuel economy benefits of the technology included in the NAS 
analysis do not reflect industry input. The panel generally 
underestimated the costs of the technologies and overestimated the 
benefits.
    Question 4. Rather than argue here in the Congress about arbitrary 
mile-per-gallon levels, shouldn't we just get out of the way and let 
the experts at NHTSA do their job?
    Answer. The Alliance agrees.
    Question 5. Should we consider CAFE credits for hydrogen vehicles 
as a way to encourage their manufacture and sale?
    Answer. TITLE 49, SUBTITLE VI, PART C, CHAPTER 329, Section 32905 
of the U.S. Code provides for CAFE credits for alternative fuels 
including hydrogen. In addition to these existing credits, some credits 
should also be given for hydrogen infrastructure development.
    Question 6. Should we remove the cap on CAFE credits for 
alternative fuel vehicles to provide a greater incentive for their 
sale?
    Answer. Technically, there should be no cap on the credits as an 
incentive for the sale of vehicles that can operate on non-petroleum 
fuels. At a minimum, the Alliance believes that Congress should extend 
the current 1.2 mpg cap on CAFE credits for the sale of dual fuel 
vehicles for at least 4 additional years. This will provide further 
incentive to manufacturers and will further increase the number of 
alternative fuel capable vehicles in public use.
    Question 7. Is ``miles per gallon'' an appropriate efficiency 
metric if we are no longer using gallons of gasoline in the future? 
Will CAFE be needed in a hydrogen-car based system?
    Answer. It might be helpful to consumers to have a means of 
comparing fuel prices using a convenient, readily understood metric 
such as ``miles per equivalent gallon'' We don't believe that CAFE 
would have any applicability in the new world of hydrogen cars.
                          additional questions
    Question 1. Aside from new R&D funding, what can/should Congress do 
to hasten development of hydrogen-fueled vehicles?
    Answer. Incentives for development of the infrastructure to support 
these vehicles are needed.
    Question 2. Which policy actions are more important for deployment 
of advanced technology vehicles--R&D, tax incentives, demonstration 
projects, or regulations.
    Answer. The first three items listed are all important in 
development of advanced technology vehicles.
    Question 3. Given the focus on hydrogen as the transportation fuel 
of the future, how much effort should we expend on using other 
alternative fuels? For example, should (we) use natural gas directly 
for transport or convert it to hydrogen first?
    Answer. There may be many paths to hydrogen as a fuel. Work needs 
to be done to evaluate different production methods for hydrogen.
    Question 14. You say in your testimony that fuel efficiency has 
improved at 1.5% per year for the last 20 years. Why, then, has actual 
fuel economy remained relatively flat?
    Answer. The statement in my testimony refers to the continual 
application of new technology to vehicles, such that the fuel 
efficiency of vehicles has increased continually. Efficiency should not 
be confused with fuel economy, especially fleet average fuel economy. 
The average fuel economy of the fleet has declined in recent years due 
to a shift in the sales mix of the fleet. As fuel prices have remained 
low, consumers have opted for larger, more versatile vehicles.
    Question 15. To what extent do consumer choices play a role in 
determining whether actual fuel economy increases from one year to the 
next?
    Answer. Consumer choice is the paramount driver for whether average 
fuel economy increases or decreases from one year to another. 
Manufacturers continue to offer more fuel efficient models and 
powertrain combinations each year, yet the fleet average economy is 
relatively stable.
    Question 16. What can the Federal government do to encourage the 
auto manufacturers to produce hydrogen fuel-cell vehicles?
    Answer. The Administration has already set in place the Freedom Car 
and Freedom Fuel programs. These efforts directed at basic R&D in the 
development of fuel-cell cars and in the hydrogen infrastructure are 
critical. Beyond this, the most important action the government can 
take is to pass legislation similar to the CLEAR Act of last year that 
provides tax incentives to consumers to purchase advanced technology 
vehicles.
    Question 17. Do we have to wait for the end of the FreedomCAR 
program to see results, or will there be interim technologies that can 
be incorporated sooner?
    Answer. As the PNGV program, the predecessor to the FreedomCAR 
program showed, as discreet developments occur in basic R&D these can 
be periodically moved into mainstream vehicles when opportunities exist 
to provide value to customers.
    Question 18. What is the potential fuel economy benefit of 
technologies of hybrid and diesel technologies?
    Answer. Depending on the type of hybrid system employed in a 
vehicle, the fuel economy benefit can range from very small to upwards 
of 50% improvement (depending on driving conditions) compared to a 
conventional gasoline-fueled vehicle. Advanced technology diesels can 
achieve up to 30-40% improvement compared to a conventional gasoline-
fueled vehicle.
    Question 19. What must be done to improve diesel fuel quality and 
enable widespread diesel use in transportation?
    Answer. Diesel fuel in the United States needs to improve up to the 
levels of fuel sold in Europe and California. Four critical areas of 
fuel quality improvement to enable the next generation of light duty 
diesel vehicles in this country include: cetane, aromatics, lubricity 
and sulfur.

   Cetane, is an indication of how quickly the fuel ignites in 
        the engine. Low cetane levels increase NOx 
        emissions, according to European auto/oil studies. Low cetane 
        causes poor vehicle performance in terms of smoking on start-up 
        and increased noise, vibration and harshness. This issue 
        creates a significant barrier to customer acceptance in the 
        marketplace.
          Importantly, the high cetane levels found in Europe and 
        California have enabled the newer, high performance common-rail 
        diesel engines beginning to emerge in that market. According to 
        Infineum's Worldwide Winter Diesel Fuel Quality Survey 2002, 
        the mean cetane number in Europe was about 53 with a minimum of 
        47 (Romania). In the U.S., the corresponding values were 44 and 
        38 (excluding California which requires higher cetane). That 
        survey shows U.S. cetane levels to be the worst in the world, 
        including developing countries, yet cetane is easily raised. 
        The World-Wide Fuel Charter, endorsed by automakers from around 
        the world including the Alliance, recommends a minimum cetane 
        number of 55 or cetane index of 52 for countries requiring the 
        most advanced technologies and having the most stringent 
        emission standards.
   Aromatics are precursors to soot and particulate emissions 
        and affect both current and future vehicle technologies, 
        especially diesel particulate filter operation. High levels of 
        aromatics will cause premature filter plugging and require more 
        frequent filter regeneration, which, in turn, reduces fuel 
        economy. It also affects NOx emissions, which is one 
        of the most challenging of the new Tier 2 emission standards 
        for diesel-powered vehicles. The World-Wide Fuel Charter 
        recommends a maximum total aromatics content of 15% by weight. 
        The most recent fuel survey conducted by the Alliance \1\ shows 
        U.S. diesel aromatics levels averaging over 36% by volume and 
        ranging to 49% by volume. Europe limits the most troublesome 
        aromatics (multi-ring or poly-aromatics) to 1% by volume.
---------------------------------------------------------------------------
    \1\ Alliance of Automobiles Manufacturers' North American Fuel 
Survey, Summer 2002.
---------------------------------------------------------------------------
   Lubricity affects the amount of wear on moving metal parts. 
        Inadequate lubricity cause excessive pump wear and, in some 
        cases, catastrophic failure. Modern light duty diesels, in 
        particular, require good fuel lubricity due to their very high 
        fuel injection pressures. Fuel additives can assure adequate 
        lubricity very inexpensively (for less than 0.5 cpg). The 
        World-Wide Fuel Charter recommends a maximum of 400 microns 
        wear scar diameter at 60 deg.C using the HFRR (high frequency 
        reciprocating rig) test method. This test method is also 
        incorporated into the European fuel specification, albeit at a 
        slightly higher level of wear (460 microns).
   Sulfur is the most critical fuel component for enabling the 
        new emission control devices needed to achieve Tier 2 emission 
        standards for light duty diesel vehicles. The lower the sulfur, 
        the better the vehicle performance in terns of emissions, 
        durability and fuel economy. The U.S. EPA recently issued a 
        regulation, supported by the Alliance, that will cap sulfur in 
        highway diesel fuel at 15 parts per million (ppm) in late 2006. 
        Europe has adopted a 10 ppm limit on fuel sulfur.

    Question 20. Do you agree with the UCS analysis that automakers 
will have no problem meeting the proposed 1.5 mpg increase in light 
truck/SUV CAFE standards?
    Answer. No, as noted above, CAFE is a sales weighted average 
reflecting customer purchase habits. Consumer demand drives the 
marketplace and consumers place little value on fuel economy. Consumers 
demand better performance and continued improvement in vehicle safety. 
These two factors can have detrimental impacts on fuel economy.
                Response to Question From Senator Akaka
               carbon dioxide emissions and global change
    Question. Within the transportation sector, what percentage of 
carbon dioxide emissions come from vehicles with lower CAFE standards, 
such as SUVs and light trucks, or diesel engines, compared to passenger 
cars with higher CAFE standards?
    Answer. According to the EPA's most recent annual inventory, U.S. 
Greenhouse Gas Emissions and Sinks: 1990-2001 (draft), in 2001, 
transportation sector C02 accounted for 26% of total U.S. 
greenhouse gas emissions. Automobile and light truck C02 
accounted for 9% and 7%, respectively, of the total U.S.GHG emissions 
(or 35% and 26%, respectively, of transport sector C02 
emissions). These statistics illustrate that the transport sector is 
one component of total greenhouse gas emissions and also, while light 
truck sales have increased significantly in recent years, many more 
older automobiles are still on the road today.
                              Appendix II

              Additional Material Submitted for the Record

                              ----------                              

     Statement of Hon. Dave Camp, U.S. Representative From Michigan
    Mr. Chairman, I appreciate the opportunity to submit testimony on a 
subject that has the potential to revolutionize the way Americans view 
the automobile. Hydrogen fuel cell and other alternative fuel, advanced 
technology vehicles have the potential to positively impact the 
American economy, our environment, and bolster national security. The 
ability for cars to run on zero emissions will produce powerful 
results.
    In January President Bush outlined a comprehensive strategy for our 
nation that included a commitment to developing a hydrogen fuel cell 
auto market. As you may recall, President Bush announced a $1.2 billion 
hydrogen fuel project that seeks to make hydrogen-powered fuel cell 
vehicles commercially competitive. The initiative seeks to also reverse 
America's growing dependence on foreign oil by developing the 
technology for commercially viable hydrogen-powered fuel cells to power 
cars and trucks.
    On Tuesday, March 4, 2003 I introduced the CLEAR Act which stands 
for the ``Clean Efficient Automobiles Resulting from Advanced Car 
Technologies Act''. This legislation would provide consumers tax 
incentives for purchasing advanced technology and alternative fuel 
vehicles. These incentives are one of the most positive steps that can 
be taken today to promote increases in the fuel economy of new 
vehicles. With growing concerns about our energy supplies and prices in 
the U.S., we should move quickly to accelerate the introduction of 
these alternative fuels and advanced technologies into the marketplace.
    All of the major automakers that sell in the U.S. market have 
either introduced or have announced plans to introduce vehicles that 
promise to provide advantages of one type or another compared to 
conventional, internal combustion engine technologies. Compared to 
conventional vehicles, these new products may have better emissions 
characteristics, use alternative fuels or may provide significant 
increases in the mileage achieved on a gallon of gasoline. Regardless, 
they utilize new and emerging technologies that--at the present time--
are much more expensive than conventional vehicles with which they must 
compete. As these vehicle technologies gain consumer acceptance and 
production volumes increase, the cost differential between these 
vehicles and conventional vehicles will be reduced or eliminated.
    So what do we need to do to put consumers in the drivers seat and 
provide them the ability to choose--and accelerate the demand for--
these new technologies? The CLEAR Act would provide tax incentives to 
help offset the higher costs of these vehicles, so that the cost to 
consumers can be held at a competitive level. This legislation provides 
incentives for a broad spectrum of vehicle and fuel technologies. This 
broad coverage is very important because the choice of the right 
vehicle and its attributes is best left to the consumer and the 
marketplace, not government decisions or limitations.
    Specifically, the legislation will develop market acceptance of a 
wide range of advanced technology and alternative fuel vehicles 
including: Fuel Cells, Hybrids, Dedicated Alternative Fuels and Battery 
Electric.
    The CLEAR Act provides a tax credit of 50 cents per gasoline-gallon 
equivalent for the purchase of alternative fuel at retail. To give 
customers better access to alternative fuel, we extend an existing 
deduction for the capital costs of installing alternative fueling 
stations. We also provide a 50 percent credit for the installation 
costs of retail and residential refueling stations.
    Finally, we provide tax credits to consumers to purchase 
alternative fuel and advanced technology vehicles. To make certain that 
the tax benefit we provide translates into a corresponding benefit to 
the environment, we split the vehicle tax credit in two. One part 
provides a base tax credit for the purchase of vehicles dedicated to 
the use of alternative fuel or vehicles using advanced technologies. 
The other part offers a bonus credit based on the vehicle's efficiency 
and reduction in emissions.
    Tax incentives will sunset within 6 years for all applications with 
the exception of fuel cell vehicles which are extended to 10 years. 
With minimum development cycles of 2-4 years for new vehicles, 
incentives are needed now to move existing designs to the market so 
they can accelerate the process for customer acceptance.
    The CLEAR Act was introduced in the Senate by Senator Orrin Hatch 
and enjoys broad support from automobile manufacturers, the 
environmental community and alternative fuel groups. I urge my 
colleagues to look seriously at this proposal and initiate this 
important step toward greater vehicle and fleet fuel economy. America 
will be the winner for having provided this opportunity to pull these 
exciting new technologies into the marketplace more quickly than they 
might arrive on their own merit. These consumer based tax incentives 
will put American vehicle owners in the drivers seat by giving them the 
opportunity to purchase these new advanced technology products.
    Thank you Mr. Chairman for allowing me the opportunity to offer my 
views on this important issue.
                                 ______
                                 
             Statement of the American Petroleum Institute
    The U.S. oil and natural gas industry is committed to meeting the 
nation's future transportation fuel needs. Since its beginning, the 
industry has been in a constant state of change, working to better 
serve its customers and a growing nation. Relying heavily on advanced 
technology, the industry has provided improved products to Americans 
with a steadily reduced impact on the environment, and we will maintain 
this commitment in the future.
    We believe that competition and the resulting push to innovate will 
mean that our children and grandchildren will be driving vehicles using 
fuels that, together, are safer, cleaner, and more efficient than ever. 
These improved cars and trucks may well be propelled by something other 
than today's internal combustion engine, whether it is an advanced 
version of that engine or electric hybrids or fuel cell vehicles. We 
believe the 21st century will be an exciting new era for personal 
transportation.
    While we expect conventional hydrocarbon fuels will remain the 
dominant energy source, at least through the mid-century, the oil and 
natural gas industry is committed to providing the fuels for the 
nation's transportation needs regardless of the fuel type. Future 
automobiles may be based on a variety of advanced technology engine-
fuel systems, including hydrogen-powered fuel cells. At least 
initially, all of these systems will likely rely heavily on hydrocarbon 
fuels either directly or indirectly. These advanced fuel/vehicle 
systems should be allowed to compete with each other in the marketplace 
and on a level playing field.
          the role of hydrogen in meeting transportation needs
    The American Petroleum Institute appreciates this opportunity to 
present the views of its member companies on the role of hydrogen in 
meeting the transportation needs of American consumers.
    In his State of the Union Address, President Bush announced a 
Hydrogen Initiative to hasten the development of hydrogen-powered fuel 
cells in motor vehicles. API believes that fuel cell vehicles are an 
exciting new technology that could figure prominently in America's 
transportation and energy future.
    As we understand the program, the Hydrogen Initiative will focus on 
pre-competitive research aimed at advancing the technology to produce, 
store, distribute, and deliver hydrogen for use in fuel cell vehicles 
and electricity generation. The Administration has indicated that the 
Hydrogen Initiative will complement the FreedomCAR initiative, which 
supports pre-competitive research in advanced automotive technologies 
for the mass production of a full range of affordable vehicles, 
including fuel cell vehicles.
    At the outset, we must all recognize that development of hydrogen 
as a viable transportation fuel source will take time. The U.S. 
Department of Energy's National Hydrogen Energy Vision and Roadmap 
reports envision a path for hydrogen development that would span 
between three and four decades. It is important to keep this timeframe 
in mind and recognize that hydrogen research will require a long-term 
commitment. We should also recognize that major technological 
breakthroughs are required before hydrogen can become a viable fuel 
source.
    The increased national interest in hydrogen as a transportation 
fuel is understandable. Hydrogen exists in nearly unlimited abundance 
and, when used in a fuel cell vehicle, generates zero emissions. 
However, it should be noted that hydrogen only exists in combination 
with other chemical elements, and significant energy and costs are 
required to produce and distribute hydrogen for use in fuel-cell 
vehicles.
    API believes that, in weighing the pros and cons of any fuel/
vehicle system, it is vital to undertake a ``well-to-wheels'' analysis 
of the entire system. The ``well-to-wheels'' approach considers energy 
use and emissions for both ``well-to-tank'' (i.e., production and 
distribution of the fuel) and ``tank-to-wheels'' (i.e., use of the fuel 
in the vehicle). When using this approach, different fuel/vehicle 
systems can be analyzed on a comparable basis. The internal combustion 
engine is the benchmark against which the progress of emerging advanced 
fuel/vehicle systems should be measured.
    In considering future transportation fuel needs, there are near- 
and mid-term options for increasing fuel use efficiency and reducing 
emissions. Alternatives include hybrid engine systems--a combination of 
an electric motor and gasoline or diesel engine--and advanced gasoline 
and diesel engine technologies. The rate of market penetration for 
hybrids will likely depend upon price and performance; however, it 
should be recognized that gasoline hybrids are currently in the 
marketplace and numerous auto manufacturers have announced plans to 
introduce a variety of additional hybrid models over the next few 
years. Ongoing R&D continues to focus on reducing the component cost of 
hybrids. All of this suggests that there is substantial promise for 
hybrid technology playing an important role in improving efficiency and 
lowering emissions.
    When comparing greenhouse gas emissions on a well-to-wheels basis, 
a number of advanced vehicle and fuel options compare favorably with 
today's gasoline internal combustion engine. Diesel engines, gasoline 
and diesel hybrids, on-board gasoline reformer based fuel cells (i.e., 
systems where hydrogen is produced on-board the vehicle via extraction 
from gasoline-like fuels), and fuel cell vehicles powered by hydrogen 
produced from natural gas all have lower greenhouse gas emissions. In 
contrast, hydrogen produced via electrolysis of water using electricity 
from typical U.S. sources has very high greenhouse gas emissions. Thus, 
there are a variety of advanced systems that have the potential to 
lower greenhouse gas emissions, but none of these systems result in 
`zero' greenhouse gas emissions.
    To address the areas mentioned above, API member companies have 
undertaken substantial research activity in advanced technologies such 
as hydrogen production and storage, combustion fundamentals, exhaust 
aftertreatment, and improved hydrocarbon-based fuels that enable lower 
emissions and higher efficiency. Much of this work is done in close 
collaboration with automobile and engine manufacturers, the government 
and other partners.
technological breakthroughs needed for hydrogen and fuel cell vehicles 
                              to be viable
    Technological breakthroughs are required to reduce fuel cell 
vehicle costs and to reduce production, delivery and storage costs of 
hydrogen for the system to be competitive against the ever-improving 
performance of advanced internal combustion engine and hybrid vehicle 
systems. Moreover, increased use of hydrogen as a transportation fuel 
involves other challenges, including safety, the potential need for a 
new distribution infrastructure, and a need for approaches that address 
potentially increased emissions due to hydrogen production.
    cost reduction and co2 emissions need to be addressed
    Breakthroughs are needed to lower the cost of fuel cells and fuel 
cell vehicles. For example, the cost of the fuel cell stack needs to be 
reduced substantially to compete with a conventional powertrain. The 
cost of fuel cells has dropped by about a factor of 100 over the last 
10 years, but automakers say that costs must still be reduced by more 
than a factor of 10 for the technology to become competitive.
    Like electricity, hydrogen is an energy carrier, not an energy 
source. To succeed in the market, hydrogen will need to be produced in 
large volumes at reasonable cost. But, without a major breakthrough in 
production technologies, most hydrogen would likely continue to be 
produced from natural gas, the most affordable source of hydrogen with 
current technologies. However, the United States is short of indigenous 
natural gas and, in order to provide large amounts of hydrogen, access 
to the potentially large natural gas reserves on government lands and/
or imported LNG will be needed. Hydrogen production is, therefore, an 
important research area.
    If hydrogen were made from natural gas or other fossil fuel 
sources, then CO2 would also be generated as a by-product. 
If low greenhouse gas emissions are to be achieved in that scenario, it 
would be necessary to separate, capture and store the CO2 
generated (i.e., CO2 sequestration). Thus, breakthrough 
research focusing on CO2 separation, capture and storage 
methods is also important. If, on the other hand, sufficient 
electricity could be generated by renewable or nuclear technologies to 
make hydrogen from water, then CO2 sequestration 
technologies would be less important. However, cost reduction 
breakthroughs in renewable and nuclear technologies would be needed.
        distribution infrastructure issues need to be addressed
    Hydrogen distribution could take one of two forms: pipelines or 
specially designed, very-low temperature tankers. Currently, high-
pressure tankers are limited in their energy-transporting volume. 
Because hydrogen has a much lower energy density than gasoline, it 
would require 19 hydrogen tankers to carry the energy value of one 
gasoline tanker assuming the hydrogen and gasoline tankers were of 
similar size. On the other hand, pipelines could move much greater 
volumes, but existing natural gas pipelines are not suited for hydrogen 
and new ones would be required.
    Developing a distribution infrastructure for hydrogen for direct 
fuel use would be costly. However, there are alternatives such as using 
the existing hydrocarbon fuels infrastructure and extracting the 
hydrogen with an on-board reforming system or producing the hydrogen at 
the retail station. These alternatives would help resolve safety and 
infrastructure issues needed for the initial introduction of fuel cell 
vehicles, provide time to advance breakthrough research, and provide a 
`bridge' to hydrogen should breakthrough research be successful. The 
on-board gasoline reformer faces a number of challenges that must be 
overcome as well. Reducing reformer start-up time and energy losses are 
key areas of improvement where R&D is and needs to be focused.
             safety and storage issues need to be addressed
    Issues related to hydrogen production and distribution, retail 
delivery, storage and vehicle safety must all be addressed and the 
unique safety challenges should be addressed through the development of 
data-based codes and standards. Breakthroughs in hydrogen storage are 
needed and are being progressed. Areas of focus include advanced 
materials for low-pressure storage, technologies to extend driving 
ranges and reducing storage costs.
                             looking ahead
    As we move into this new century, the U.S. oil and natural gas 
industry will continue working with the automotive industry and 
government to keep improving our fuels and vehicles. Working together, 
we have made tremendous progress since the 1970s in reducing emissions 
and improving fuel economy while maintaining consumer satisfaction. 
Reduced auto emissions have contributed heavily to the dramatic 
reductions in overall emissions of major pollutants. Despite a 41 
percent increase in energy consumption in that time period, ambient 
levels of carbon monoxide have been reduced by 28 percent, sulfur 
dioxide by 39 percent, volatile organic compounds by 42 percent, and 
particulate matter by 75 percent. We will accomplish a great deal more 
this decade under existing standards of the Clean Air Act as well as 
new national vehicle emission and fuel standards that come into effect 
in 2004 and 2006.
    The auto and oil industries have made tremendous progress together 
over the years, introducing a range of improved vehicles and enabling 
fuels to reduce emissions, and increase fuel economy, and performance. 
We fully expect this trend to continue and strongly support R&D focused 
on achieving the full potential of advanced internal combustion 
engines, hybrids, and advanced fuels. We also recognize the long-term 
commitment required for R&D focused on the breakthroughs necessary to 
enable fuel cell vehicles and hydrogen fuel opportunities.
    Moreover, whatever role government plays in fuel cell development, 
it should be a broad one. Government should encourage a multi-faceted 
approach. We believe that government's research role should be focused 
on pre-competitive, breakthrough research, leaving it to the private 
sector to build on this research and move the outcomes into the 
commercial development phase. The government should not prematurely 
focus on one approach while discouraging other approaches that may have 
high potential. Advanced technologies should compete on a level playing 
field with the American consumer ultimately making the choice of which 
technologies will be successful.
    Our industry wants to work with government and others in the 
private sector to evaluate fuel cells and other advanced vehicle fuel 
systems from a well-to-wheels perspective. We believe that fuel cells 
may have an important role to play in the nation's transportation fuels 
future. We also believe that the fuel cell and hydrogen challenge 
should be viewed as a system. Each piece of the system, including the 
primary source of hydrogen, the production, distribution, retail 
delivery, and storage of hydrogen and the fuel cell vehicle itself, has 
challenges that must be overcome with innovative breakthroughs in order 
for the system to become competitive. We should take advantage of, and 
capture, the benefits of advanced gasoline and diesel technologies, 
including hybrid technology, in the near- and mid-term while the 
challenges of fuel cell and hydrogen technologies are being researched. 
The U.S. oil and natural gas industry is committed to playing a leading 
role in this important national effort.
                                 ______
                                 
     Statement of Jeffrey A. Serfass, President, National Hydrogen 
                              Association
    The National Hydrogen Association (NHA) is an industry led trade 
association dedicated to removing barriers to the implementation of 
hydrogen energy systems. The NHA is comprised of nearly 80 members, 
including energy companies, automobile manufacturers, fuel cell 
developers, industrial gas producers, chemical companies, national 
laboratories, and universities. The NHA was formed in 1989 to foster 
the development of hydrogen technologies and their utilization in 
industrial and commercial applications and to promote the transition 
role of hydrogen into the energy field. The NHA serves as a catalyst 
for information exchange and cooperative projects and provides the 
setting for mutual support among industry, government, and research 
organizations.
    The NHA applauds the Department of Energy's National Hydrogen 
Energy Roadmap. The Roadmap, developed in 2002, is a well-balanced plan 
with an intelligent transition strategy first relying on conventional 
feedstocks and optimized hydrogen fueled conventional conversion 
devices to pave the way for the introduction of the fuel cell, when it 
is market-ready.
    The NHA supports the President's Hydrogen Fuel Initiative, 
announced in his State of the Union address on January 28. This 
initiative, if fully funded, will go a long way toward creating the 
infrastructure necessary for clean transportation using domestically-
produced hydrogen.
    The NHA recognizes the need for economic incentives, including tax 
policies, at the appropriate point in the technology development and 
early commercialization. The NHA advocates increasing incentives as 
technologies--such as hydrogen powered ultra low emission vehicles 
(ULEVs) and zero-emission vehicles (ZEVs) become available for buyers. 
The NHA advocates incentives (rather than mandates, requirements, or 
regulations) to ease market penetration. This includes voluntary 
emission credit trading schemes to begin to manage greenhouse gas 
emissions.
    The NHA also supports initiatives involving use of hydrogen for 
stationary power, portable power, and transportation. The organization 
pledges to work to make all these visions a reality.
                      benefits of hydrogen energy
    The global appeal of hydrogen is that it has the potential to free 
most countries from the requirement to import large quantities of oil. 
The global markets for vehicles, aircraft, and electricity represent 
growth industries through the 21st Century. Estimates are that the 
number of vehicles worldwide could grow by a factor of 10 over the next 
century. Approximately 40% of the human race has no access to 
electricity and many of those who have access are served by electricity 
that is either unreliable or not available 24 hours per day. Such 
unfulfilled demand makes it an imperative to develop cleaner methods of 
transportation and power production that will be globally applicable 
and that can reduce environmental degradation.
    Given the structural changes in electric utility markets, with 
their eventual globalization, and the existence of global vehicle and 
aircraft markets, the focus of a global hydrogen vision coincides with 
a shift to marketing products that could operate globally on hydrogen. 
Satisfying the demand for clean electricity, cars and aircraft with 
hydrogen-fueled products will, in turn, drive the development of 
adequate hydrogen production and storage to support it. It has been 
recognized for more than a decade that automakers must make world cars 
and aerospace companies must design and sell aircraft globally. With 
the restructuring of the electric utility industry, utilities are 
forming subsidiaries that are looking beyond their home territories and 
countries, as well as signing worldwide agreements to provide energy to 
industrial and commercial clients.
    Five major trends have emerged that are shaping today's discussion 
of a hydrogen bridge.
          1. There is an increasing emphasis on National Energy 
        Security.
          2. There is increased interest in climate change and the 
        specific role of CO2 in global warming.
          3. The acceptance of renewable energy, particularly 
        photovoltaics for niche markets, has increased dramatically.
          4. Restructuring of the utility industry has allowed serious 
        consideration of distributed generation and alternate energy 
        delivery systems.
          5. The emphasis on zero-emission vehicles (ZEVs) and ultra-
        low-emission vehicles (ULEVs) in Southern California and a 
        growing interest in other parts of the world has created a 
        clean vehicle market for auto manufacturers.
    Since the 1970s, environmental concerns have continued to become 
more acute, especially with exploding population growth and rapid 
industrial development throughout the world. Issues of the environment 
also have become globally connected issues. Issues and concerns that 
were once only considered in a local or national context are now 
perceived as international issues. Internationally common concerns 
about nuclear power plant accidents, atmospheric nuclear testing, acid 
rain, ozone depletion, and climate change all attest to this 
globalization. The use of hydrogen energy in a fuel cell results in no 
harmful emissions at the point of use. Hydrogen produced from renewable 
resources also reduces harmful emissions during production. Hydrogen 
can be produced renewably through electrolysis of water, or through 
reformation of fossil fuels. This enables hydrogen to be the key to 
energy diversity, and sustainability.
    In many countries, increasing concerns about carbon dioxide, ozone, 
nitrogen oxides, volatile organic compounds, sulfur oxides, and many 
other emissions have led to more stringent regulations. Under the 
increased severity of environmental regulations and the greater scope 
of environmental problems, the concept of a hydrogen energy system is 
very attractive. As an energy carrier, hydrogen is clean. In its purest 
form, hydrogen can be produced from water or biomass and recyclable 
back to water.
    The tragic events of September 11, 2001 sounded a clarion call for 
the need for energy security. Each country has the potential to provide 
for its own energy needs, including economic growth, through the use of 
hydrogen energy.
    There is strong and growing interest in using hydrogen as a 
transportation fuel. With the market price of transportation fuels 
being the largest use for petroleum and higher than the market price 
for other applications, this offers a unique opportunity for hydrogen 
to become cost competitive with conventional fuels. The NHA believes a 
thrust in the area of transportation will provide a large, long term 
opportunity for commercial application of hydrogen energy technologies 
and contribute to the creation of a hydrogen energy infrastructure. 
Automobiles provide the best opportunity to engage the public now in 
the benefits and reasons to move toward hydrogen energy. Buses and 
fleets, however, can provide an even earlier market, with fewer 
infrastructure considerations through use of centralized refueling and 
should be a central part of near term programs.
    At this time of increasing industrialization and population growth, 
the vision of sustainably produced hydrogen, driven by an inexhaustible 
clean energy source for the mid-21st Century, is more attractive than 
ever. But is there a way to bridge from our fossil fuel, nuclear, and 
electric present to a hydrogen electric future? Is there an affordable, 
acceptable, and sensible role for hydrogen that we should be developing 
over the next 10 to 50 years to create a future hydrogen economy and, 
if so, what actions need to be undertaken?
                        challenges for hydrogen
    Over time, expanding demand and constrained supply will make 
traditional fossil sources less abundant and more expensive than at 
present. Over the past 25 years, many environmental factors have moved 
much of the industrial world from a nuclear and fusion future for 
electricity, to one based on an increasing displacement of fossil fuels 
by renewables into the 21st Century. While electricity produced from 
renewables is very clean, electricity is not a universal energy 
carrier. Electricity cannot, for example, be used as aircraft fuel, for 
long-range road vehicles, or for manufacturing processes that require a 
hydrogen source. Long-term electric storage is prohibitively expensive. 
Hydrogen could provide storage capability for electricity, fuel 
aircraft and ground transportation, and still be used in the production 
of ammonia, hydrocarbons, plastics, and other products. The challenge 
will be developing commercially acceptable ways of storing, 
transporting, and utilizing renewably produced hydrogen.
    A bridge strategy for hydrogen will only be effective if it relies 
on hydrogen's unique capabilities rather than forcing hydrogen to 
compete with lower-cost, more convenient energy carriers that meet the 
same needs. In considering this statement, it should be pointed out 
that methane (natural gas) is also a form of renewable energy; it can 
be produced from waste products or gasified biomass, which will not 
disappear as an energy carrier when the last natural gas well is 
depleted. Natural gas may well have a lower price than hydrogen when 
produced renewably. To compete with natural gas, hydrogen may have to 
rely on its unique chemical and physical properties.
    A hydrogen bridge strategy also must consider the status of 
hydrogen production, storage, and end use. Today hydrogen is obtained 
primarily by processing fossil fuels (natural gas and oil) or recovered 
as a by-product from chemical and petroleum processing. Production from 
natural gas requires reformers. Production from coal requires carbon 
sequestration. Future production can be achieved through biomass 
gasification, by electrolysis with the electricity supplied by 
renewable sources, and eventually through various photobiological, 
photochemical, and thermochemical processes. Efficiency gains in 
electrolysers are desirable for this option to be economically 
competitive with natural gas reforming.
    Pipelines designed for transportation and storage of hydrogen are 
in use today, but storage technology must be improved. For long-range 
transport, storage densities must approach 10% by weight for hydrogen. 
This is achievable today with liquid hydrogen storage.
    Storage onboard vehicles must allow for driving ranges competitive 
with today's gasoline engine technologies. Compressed hydrogen gas is a 
viable option, and several companies are working on tanks to allow 
higher pressure storage than exists today.
    Hydride storage is also a promising option, with a number of 
companies exploring various designs for portable power applications, as 
well as automotive applications.
    New developments in gaseous and metal hydride storage technologies 
have not allowed sufficient storage densities. This has led to 
increasing consideration, particularly in Europe, of liquid hydrogen as 
the principal form of hydrogen storage for vehicles. Lack of progress 
in magnetic refrigeration has deferred consideration of distributed 
hydrogen liquefaction.
    Nanotube technology also shows promise, but is a longer-term option 
in need of additional RD&D, as well as technology validation.
    Utilization of hydrogen is a complicated issue. Three applications 
of interest are aircraft, ground transportation, and power generation. 
The major enabling technology for two of these options (ground 
transportation and power generation) is fuel cells. Current estimates 
are that early fuel cell production units will cost $2,500/kW. This is 
too expensive for widespread vehicle use by at least a factor of 10. 
The advantages of a fuel cell over a combustion turbine or other engine 
systems are the increased efficiency and reduced NOx 
emissions. The development of a fuel cell vehicle operating on hydrogen 
might evolve from an engine hydrogen system in which at some future 
point the engine would be replaced with a fuel cell.
    In order to realize a hydrogen energy economy, a hydrogen 
infrastructure must be developed. This may include traditional 
approaches such as trucking in hydrogen and pipelines, as well as on-
site hydrogen generation from fossil fuels or electrolysis.
    One challenge to creating the necessary infrastructure is the lack 
of hydrogen safety codes and standards. Fortunately, the U.S. 
Department of Energy continues to support industry's efforts to develop 
the necessary codes and standards to permit hydrogen production, 
storage, and use, including siting hydrogen refueling stations.
    Market distribution channels need to be adapted to hydrogen. In 
addition, the public must be convinced hydrogen is safe and that 
conveniences (such as driving range, ease of refueling, etc.) need not 
be compromised by using hydrogen energy.
    Partnerships between energy companies and automotive companies, 
such as FreedomCAR, and demonstration activities such as the California 
Fuel Cell Partnership, are beginning to explore how to meet these 
challenges.
    Liquid Hydrogen Option--Today, merchant hydrogen is delivered as a 
liquid. The exceptions are delivery by hydrogen pipelines and over-the-
fence delivery of hydrogen. No hydrogen gas transfers are inter-
regional today. The ease with which hydrogen liquid can be turned into 
a gas allows for a scenario where all hydrogen applications that can be 
met by hydrogen gas also can be met by liquid hydrogen. The cost of 
liquid hydrogen is significantly greater than hydrogen gas. However, 
lower storage and distribution costs and higher storage densities for 
many applications of liquid hydrogen could give it a more competitive 
cost, in units such as cost per mile, as compared to gaseous hydrogen; 
the converse is not true. For instance, new high-tech liquid hydrogen 
containers are anticipated to lower transportation costs by as much as 
50%.
    If hydrogen is used in aircraft, storage volume requires that 
hydrogen must be liquid. The International Standards Organization (ISO) 
is developing standards for storing and dispensing liquid hydrogen. 
ISO's expectation is that liquid hydrogen will be the principal means 
of intercountry transfer of hydrogen. Two advantages of the liquid 
option are that it eliminates a basic storage issue (10% hydrogen 
storage by weight), and it is the prime method for the delivery of 
merchant hydrogen today. For industrialized countries, liquid hydrogen 
is the default fuel for on-board storage since more than 10% of the 
storage system weight would be hydrogen.
    A liquid hydrogen option almost certainly requires, at least 
through the mid-term, a centralized option for hydrogen production 
since economic liquefaction plants must be large. This probably means 
either a national electric grid with inexpensive power or steam 
reforming of large quantities of natural gas. Except in countries with 
extensive natural gas pipelines, liquid hydrogen may be the favored 
method of hydrogen distribution since it offers more flexibility. Until 
magnetic refrigeration becomes a reality, liquid hydrogen production is 
not an option for small-scale production.
    The economics for renewable technologies must be comparable in cost 
for performing the same function as the energy source that is being 
replaced. If photovoltaics are replacing storage batteries costing $35/
kWh in the Andes so that villagers can watch a World Cup Soccer match 
on television, then photovoltaics or wind systems are economical. If a 
remote village has no power, then the price paid for renewables can be 
economical, even if it is a significant portion of a family's available 
income, as is the case in remote Alaska. In the long term, advances in 
PV, wind, solar thermal, and biomass technologies and manufacturing 
techniques will allow the penetration of these technologies into 
virtually all energy markets. The largest factor in decreasing prices 
is increases in production capacities. The deployment of these 
technologies in remote locations supports the development of a bridge 
for a hydrogen vision.
    This ``village path'' strategy must be examined on a case-by-case 
basis; however, any alternative to a renewable path is likely to add to 
environmental problems around the world as fossil fuel use expands to 
meet the needs of increasing populations and intensified 
industrialization. As nations are forced to greatly increase purchases 
and use of fossil fuel, especially petroleum, energy will continue to 
drain their economies.
                                outlook
    The role of hydrogen in a future sustainable energy economy is 
becoming clear. There is unprecedented interest from industry, as 
demonstrated by the active roles traditional energy companies, such as 
BP, ChevronTexaco, and Shell are taking in hydrogen. In addition, most 
of the world's leading automotive manufacturers, including BWM, General 
Motors, Ford, DaimlerChrysler, Toyota, and Honda, all have hydrogen R&D 
activities, and many have developed prototypes utilizing hydrogen 
internal combustion engines or fuel cells. The variety of approaches 
taken by this growing hydrogen industry is indicative of hydrogen's 
ability to meet a diverse, sustainable energy market. Industry leaders 
recognize that a hydrogen energy future is inevitable, and they have 
chosen to be a part of it.
    The government has also demonstrated increased interest in hydrogen 
energy. In addition to growing technology development funding, the U.S. 
Department of Energy announced a Hydrogen and Fuel Cell initiative, 
FreedomCAR, and is restructuring to focus efforts on resolving the 
challenges of hydrogen production, storage, and use, including cost-
competitiveness. Legislators are considering tax incentives for clean 
energy technologies, including fuel cells and hybrids. The Department 
of Defense has extended its fuel cell buy-down program yet again, and 
is investing billions of dollars into portable fuel cell applications.
    In fact, the growing interest in hydrogen by various governmental 
agencies underscores the need for core competency in hydrogen 
technologies to reside in one place, as was the case in the former DOE 
Hydrogen Program. Basic R&D efforts often yield results that may be 
applicable, even revolutionary, for an application outside the intended 
scope of study. Only through evaluation from a knowledgeable core 
competency base can this information be properly transferred between 
agencies and programs in a way to benefit all stakeholders.
    The National Hydrogen Association and its members are well 
positioned to work with government to meet the challenges facing the 
widespread adoption of hydrogen technologies. With strong membership 
from the energy sector, automotive manufacturers, fuel cell companies, 
industrial gas suppliers, and a growing number of hydrogen producers 
and component developers, the NHA represents the common interests of 
the hydrogen community. Through partnerships with the government, the 
NHA will continue to support the development of hydrogen safety, codes 
and standards to permit the siting of hydrogen energy systems. Ongoing 
efforts include international standards and national codes for hydrogen 
refueling stations, and international standards for components, 
including liquid and gaseous hydrogen tanks, and metal hydride 
canisters, as well as hydrogen production equipment.
    The hydrogen industry has a growing interest in educating 
regulatory agencies, decision makers, taxpayers, and the public on the 
benefits of hydrogen technologies, as well as safety aspects of 
hydrogen energy systems. Too often hydrogen project developers have 
been stalled in attempts to implement projects because regulatory 
agencies (including DOT as well as local and state building, fire, and 
fuel gas code officials) have indicated they are not familiar with the 
technologies or the expertise available on hydrogen energy systems. The 
National Energy Policy called for hydrogen education and outreach, and 
the NHA is working closely with DOE and other agencies to create a 
cost-effective, but robust program to provide the information needed to 
facilitate the acceptance of hydrogen energy systems in transportation, 
stationary power, and portable power applications.
    With all this interest focused on the creation of a diverse 
hydrogen energy economy, hydrogen is truly ``The Freedom Fuel''.
    components of comprehensive hydrogen legislation supporting the 
          freedomcar program and the hydrogen fuel initiative
    The NHA recognizes the important role of domestic fossil fuel 
resources including coal, gasoline, natural gas and diesel to 
transition to a hydrogen economy. In the near-term, a significant 
portion of hydrogen will be produced from fossil fuel feedstocks. The 
NHA supports further technological development for these processes 
aimed at reducing the cost of hydrogen and reducing or eliminating the 
environmental effects from these methods.
    The NHA also supports technological and economic development of 
renewable energy technologies, and envisions a growing portion of 
future hydrogen production to come from renewables. The end point would 
be a diverse portfolio of hydrogen generation technologies and 
feedstocks, with as much hydrogen production from renewables as is 
practical. Longer-term continuation of fossil fuel feedstock and even 
nuclear production of hydrogen are possible if the environmental damage 
and security issues from these methods could be eliminated or 
sufficiently mitigated. Ultimately, society and the market will 
determine the energy mix consistent with its resources, social 
structure, population, economy, and environmental requirements.
    The National Hydrogen Association embraces the House-Senate 
Conference resolution on the Brown and Walker Hydrogen Future Act of 
2002 and its components as a starting point for new legislation 
authorizing work in support of the President's Hydrogen Fuel Initiative 
with DOE's FreedomCAR program. We would keep the concepts, update the 
language, add components and modify the structure to reflect both the 
focus of the Initiative as well as the broader hydrogen interests 
presented below:

   Preamble--describe this as the first five-year component of 
        a 15-year program to make clean, cost-effective hydrogen 
        vehicles and a hydrogen infrastructure a commercial reality.
   Lay out the vision:
                --At the end of 5 years demonstrate that technical and 
                life performance targets have been met. Develop the 
                national infrastructure plan
                --5-10 years hydrogen fuel cell cars in small fleets 
                and reduced costs. Show at the end of 10 years that an 
                assembly line can produce cars that satisfy the 
                performance and life goals in quantities of 10,000. 
                Demonstrate refueling infrastructure in the field. Show 
                at least one commercialization success.
                --10-15 years large vehicle fleets begin to install 
                infrastructure continue to improve performance, reduce 
                cost and extend life of vehicle and fuel cell.
   Program should include:
                --Hydrogen infrastructure demonstrations in 
                coordination with vehicle demonstrations
                --Broad-based Educational Activity to prepare the 
                public
                --Develop a National Plan for infrastructure deployment
                --Technical development plan for deployment
                --Funding for demonstration projects
                --Assist commercialization of early fuel cell and 
                hydrogen opportunities in portable and stationary 
                applications
                --Some funding to colleges and universities to fund 
                technologists and do fundamental research on catalysts, 
                materials and membrane development
   How do you make it happen?
                --Fully fund a 5 year authorization of funds for the 
                President's Fuel Initiative:
                        --FY '04 $100 million for President's Fuel 
                        Initiative and increasing $25 million per year 
                        to FY'08.
                        --Freedom Car following its projected funding 
                        pattern.
                --Joint programs with state and local government on:
                        --Education for code officials and motor 
                        vehicle inspectors
                        --Coordinate state, local and federal 
                        incentives
                        --Demonstration programs which involve state 
                        and local officials in the technical program 
                        and the educational activity
                --Use of clean technology in national parks. This can 
                range to only allowing in fuel cell hydrogen power tour 
                buses to requiring RVs to use only fuel cell hydrogen 
                generators and park vehicles only operate on fuel cells 
                and hydrogen.
                --Deployment only occurs if codes and standards exist 
                to assure safe. A mention of the need for a rational, 
                comprehensive and tested set of codes and standards 
                should be included in the legislation.
   Structure the bill to focus on the following four program 
        components:
                --Hydrogen Production--improve existing production 
                technologies from currently available feed stocks and 
                develop radically better production technologies, with 
                the ultimate goal of producing hydrogen from 
                sustainable fuels and renewable energy.
                --Hydrogen Infrastructure--including codes and 
                standards and interaction with states and cities, for 
                both distribution and dispensing of hydrogen.
                --Hydrogen Storage--both at fueling stations and on 
                board vehicles.
                --Hydrogen End Uses--Fuel cells and engines in 
                commercial vehicles and other applications.
   Address the following four functional elements:
                --Basic Research, in areas such as electrochemistry, 
                catalysis, storage and electronics, to improve on the 
                existing technical knowledge, and to address problems 
                for which no solution is in sight.
                --Demonstrations, to validate technical readiness and 
                gain public support at the component, full system, and 
                integrated infrastructure levels.
                --Early Commercialization of component, technology and 
                product successes, with tax incentives, buy downs, 
                etc., to provide the stimulus to the formation and 
                continued health of emerging businesses before the 
                entire infrastructure and set of system components are 
                available.
                --Education and Outreach directed toward the education 
                system, children, the public and political leaders, 
                well linked to demonstrations.
   Provide funding authorization consistent with the 
        President's announced initiative, addressing all of the 
        structural elements and functions above. We don't have the 
        basis for generating funding numbers, but the trajectory should 
        recognize the expensive nature of demonstrations and the role 
        of industry cost-sharing.
   Provide incentives for manufacturers and users
                --Technical assistance in the development of 
                manufacturing processes (very likely the tolerance 
                required for making a suitable hydrogen vehicle on an 
                assembly line will require a revamping of our machine 
                tool industry and the application of new manufacturing 
                techniques, the national labs have the ability to 
                assist in the development of the new unit processes 
                needed.)
                --Tax credits either to subsidize the vehicle sale 
                price or as a rebate to purchasers
                --Tax credits to subsidize the deployment of 
                infrastructure
   Continue the independent advisory and oversight committees, 
        and the interagency task force.
                --An interagency committee to oversee hydrogen and fuel 
                cell development chaired by DOE Secretary and including 
                DOT, DOD, NASA, EPA and other agencies as thought 
                appropriate. As a Presidential initiative, OSTP should 
                also be a participant.
                --An oversight committee that reviews both Freedom Car 
                and the President's Fuel Initiative. It could be HTAP 
                to review the both programs and provide guidance while 
                the National Academy of Science (Engineering) provides 
                an assessment of technical readiness to move to the 
                next phase of activity.
   Although the President's initiative is focused on personal 
        vehicle transportation, the legislation should embrace the 
        supporting technical and early commercialization roles of 
        stationary and even portable applications, and buses, off-road 
        and industrial vehicles as precursors to commercial 
        automobiles.
   Although the economic and environmental superiority of fuel 
        cells is real, the use of hydrogen in internal combustion 
        engines provides an additional, possibly earlier, path to the 
        development of a vehicle and fueling infrastructure.
   The program's deliverables cannot be precisely timed, but 
        must include multiple demonstrations along the path, even in 
        this initial five-year period, including limited deployment of 
        prototype fleets with the supporting infrastructure. Industry 
        and government will have to work together to decide on the 
        appropriate demonstration points.
                                 ______
                                 
Statement of Phil Lampert, Executive Director, National Ethanol Vehicle 
                            Coalition (NEVC)
    I am Phil Lampert, Executive Director of the National Ethanol 
Vehicle Coalition (NEVC). The National Ethanol Vehicle Coalition is the 
primary national advocacy association for the advancement of E85 
vehicle technology, fuel utilization and infrastructure development. 
Established as a non-profit organization, the NEVC enjoys the 
membership and support of all three domestic auto companies, various 
state corn growers associations, the 29 states comprising the 
Governors' Ethanol Coalition as well as farming, other stakeholders, 
and individuals interested in establishing E85 as the preferred 
alternative transportation fuel. The NEVC appreciates the opportunity 
to provide comments for the record of the Committee's hearing on 
Transportation Energy Use.
    The Mission of the NEVC is to promote the use of 85 percent ethanol 
as a renewable form of alternative transportation fuel while enhancing 
agricultural profitability, advancing environmental stewardship and 
promoting national energy independence.
    The Department of Energy estimates that the nation is now importing 
56% of our total petroleum needs and more than 70% of our nation's 
annual consumption of transportation fuels. Gasoline and diesel fuels 
power our economy and allow Americans the great mobility upon which we 
have become accustomed. While hydrocarbons continue to dominate the 
transportation fuel sector and will do so for decades to come, a number 
of other forms of fuels have begun to be introduced to the nation's 
motoring public. These alternative transportation fuels include 85% 
ethanol, 85% methanol, compressed natural gas, propane, bio-diesel, and 
electricity. Each of these alternative fuels provide advantages in that 
they can be produced domestically, they contribute to American jobs, 
and they are lower in the emissions of exhaust pollutants and 
greenhouse gases. We believe E85 can play a unique role in addressing 
our nation's energy security needs.
    $3 billion to total farm income, and reduce greenhouse gas 
emissions significantly. As auto manufacturers continue to make 
significant investments to bring E85-capable vehicle technology to the 
marketplace, there is an urgent need for incentives and other 
mechanisms to expand the E85 refueling infrastructure and to build 
support for increased use of E85 in these vehicles.
    Like all fuels, E85 has advantages and disadvantages when compared 
to gasoline. E85 can be produced from agricultural products, biomass, 
and even waste such as wood chips and municipal solid waste. E85 
vehicles have traditionally been marketed with no pass-thru cost to the 
consumer, as the manufacturers are currently absorbing the small 
incremental cost to produce a vehicle that can operate on gasoline and/
or E85.
    Additionally, 85% ethanol fuels significantly reduce the incidence 
of Greenhouse Gas Emissions. In a January 1999 report titled Effects of 
Fuel Ethanol Use on Fuel-Cycle Enemyand Greenhouse Gas Emissions, the 
Center for Transportation Research at Argonne National Laboratory 
concluded:

          That using today's current corn to ethanol technology, for 
        every vehicle mile traveled the use of E85 resulted in a 73-76% 
        reduction in petroleum use, a 14-19% reduction in greenhouse 
        gas emissions, and a 34-35% reduction in fossil energy use; and 
        that using ``NEAR FUTURE'' cellulosic ethanol production, for 
        every vehicle mile traveled the use of E85 resulted in a 73-75% 
        reduction in petroleum use, a 68-102% reduction in greenhouse 
        gas emissions, and a 70-79% reduction in fossil energy use.

    However, even with no additional costs to the consumer for the 
vehicle, operating a vehicle on E85 is more costly than operating one 
on gasoline. (E85 contains 27% less energy per gallon than gasoline.) 
In order for domestic renewable fuels such as E85 to compete with 
gasoline, incentives are needed to make the cost of E85 comparable to 
that of gasoline. In addition, notwithstanding the number of E85 
vehicles on the road, utilization of E85 as a motor fuel has been 
limited by the lack of adequate fueling infrastructure. Similar 
incentives are needed to expand the existing E85 refueling 
infrastructure.
    The energy policy debate in the 107th Congress recognized the 
important role of E85 as a domestically produced alternative fuel. 
Provisions in the House-passed version provided economic incentives in 
the form of tax credits for alternative fuels infrastructure 
development, including E85. In the Senate-passed bill, provisions were 
included that provided incentives in the form of income tax credits for 
both infrastructure development and an income tax credit for the retail 
sale of E85 of up to 50 cents per gasoline gallon equivalent.
    On behalf of the National Ethanol Vehicle Coalition, as your 
Committee moves forward in development of a comprehensive national 
energy policy, I urge the following provisions be incorporated in any 
final energy bill:

   A 50 cent per gallon to income tax credit to fuel retailers 
        selling E85;
   Up to a $30,000 income tax credit for each E85 refueling 
        station established ;
   Elimination of the Alternative Minimum Tax on income from 
        the sale of E85;
   Authorization of $8 million annually for a period of 5 years 
        to the Department of Energy for education, promotion and 
        assistance programs for the advancement of E85 as an 
        alternative fuel;
   Refundable tax credits for those companies without a tax 
        liability, including transferability of tax credits;
   Repeal of the limitation on tax credit accumulation and 
        value.
   Assurance that tax credits for infrastructure development 
        are not hindered by AMT, limits on refunds, etc., and
   The permitting of tax credits for new infrastructure 
        development to be used by an ``upstream'' taxable entity .

    Thank you.
    Taken together, these and other provisions will help provide the 
needed incentives for an expanded E85 vehicle fleet, refueling 
infrastructure, fuel utilization and consumer acceptance, all to the 
benefit of our farming economy, the environment and our nation's energy 
security.
                                 ______
                                 
         Statement of Donald P.H. Huberts, CEO, Shell Hydrogen
    Thank you, Mr. Chairman. I am Don Huberts, the Chief Executive 
Officer of Shell Hydrogen.\1\ I appreciate the opportunity to provide 
testimony to the Committee today to discuss the path to a hydrogen 
economy--the barriers we face and the opportunities presented in 
transitioning towards a hydrogen infrastructure.
---------------------------------------------------------------------------
    \1\ ``Shell Hydrogen'' refers to a global business consisting of 
separate companies and other organizational entities within the Royal 
Dutch/Shell group of companies. Each of the companies of the Royal 
Dutch/Shell group of companies is an independent entity and has its own 
separate identity.
---------------------------------------------------------------------------
    As the CEO of Shell Hydrogen, I am responsible for leading the 
development and execution of all the global business activities of the 
Royal Dutch/Shell Group relating to hydrogen fuel and fuel cells. This 
includes our activities in hydrogen refueling and fuel cell power 
generation, and our development of hydrogen generation, storage, and 
purification technologies. Shell Hydrogen has offices in Houston, 
Amsterdam, and Tokyo and through its local U.S. affiliate has many 
activities in the United States. For example, Shell is a founding 
member of the California Fuel Cell Partnership, of which I was Chairman 
elect during 2002. Shell is also a sustaining member of the National 
Hydrogen Association. I will expand on our activities below.
    Shell Hydrogen was established in 1999 as a global business 
division of the Royal Dutch/Shell Group of Companies (Shell), one of 
the largest energy companies in the world, with operations in over 135 
countries. Shell is the leading retailer of transportation fuels in the 
U.S. and in many other countries throughout the world. Shell companies 
in the U.S. comprise 28 percent of the assets of Royal Dutch/Shell; as 
such, they represent a very important part of the Group's portfolio. 
Shell companies in the U.S. are involved in all aspects of the energy 
business--exploration & development, oil products, gas & power, 
chemicals, renewables, and hydrogen. Our heritage in this country spans 
more than 90 years, and while you have likely heard a lot during the 
past ten years about U.S. businesses ``going global,'' we have operated 
that way for a long, long time. In fact, we are one of the world's 
first truly multi-national companies.
    Shell's commitment to sustainable development is demonstrated by 
our actions. Sir Philip Watts, the Chairman of our Committee of 
Managing Directors, is the co-chairman of the World Business Council 
for Sustainable Development. Shell has incorporated the principles of 
sustainable development into its strategies, operations, processes, 
budgeting, and training and reward systems. We are developing 
alternative energy sources, such as renewables and hydrogen, which we 
aim to grow into viable businesses that will meet our customers' future 
energy needs.
    We report annually on our actions to meet our economic, 
environmental and social responsibilities in our publication The Shell 
Report: People, Planet and Profits, a public document that is available 
as a booklet or on-line.
    Out of this commitment, Shell Hydrogen was established to create 
business opportunities related to hydrogen energy, including: 
developing and investing in key technologies for hydrogen storage, 
reforming fossil fuels, and hydrogen purification; and forming 
cooperative ventures and partnerships to explore commercially viable 
approaches to building a hydrogen economy. Shell Hydrogen is committed 
to the rapid development-to-market application of hydrogen energy 
technology by bringing together manufacturers, suppliers, distributors, 
legislators, investors, and consumers. This has led to a number of 
innovative cooperative programs, partnerships, and joint ventures on an 
international scale through local affiliates.
    California: Shell is cooperating with more than 20 partners from 
the automotive, energy, fuel cell industries, and government to prepare 
the path for bringing commercially viable solutions to the densely 
populated state of California that seeks to improve environmental 
standards in the face of air-quality problems and increasing energy 
demands. In West Sacramento, the Partnership has opened a demonstration 
hydrogen fuel-cell project. A fleet of hydrogen-powered vehicles are 
serviced at a compressedhydrogen fuelling station before being operated 
on local highways.
    Iceland: Shell is working as a partner in Icelandic New Energy Ltd. 
in a pioneering project that involves all phases of developing a 
hydrogen-based economy. It involves the manufacture of hydrogen and 
development of a basic hydrogen infrastructure and the study of vehicle 
performance under real conditions. In the first phase, three hydrogen-
powered buses, fuelled by compressed hydrogen made from water, will be 
introduced, possibly followed by a transition to an entirely hydrogen-
driven public transport fleet. The ultimate goal is that all passenger 
vehicles, trucks, and eventually shipping will be converted by 2030. In 
addition, the project envisions development of auxiliary markets for 
smaller fuel cells and bottled hydrogen, and longer-term, bulk exports 
of hydrogen.
    Japan: Shell is involved in a three-year project in Atsugi 
laboratory to develop a liquid hydrocarbon fuel reformer capable to 
producing and dispensing hydrogen on the retail forecourt of an 
existing service station. The R&D effort will use catalytic partial 
oxidation (CPO) to split hydrogen from gasoline, ensuring that sulphur, 
carbon and nitrogen are eliminated and leaving only pure hydrogen for 
fuel-cell use. Another target is increasing the reformer size from the 
current 50-kW unit to one capable of producing 1,000 kg of hydrogen 
daily (capable of fuelling 200 cars).
    Furthermore, together with Showa Shell Sekiyu K.K., the first 
hydrogen refueling station will be demonstrated in Tokyo. This is part 
of the Japan Hydrogen and Fuel Cell Demonstration Project, a program 
sponsored by the Japanese Ministry of Economy, Trade and Industry to 
build five hydrogen refueling stations in the Tokyo metropolitan area. 
The station will provide liquid and compressed hydrogen to a fleet of 
prototype fuel cell vehicles provided by several automotive companies, 
which will be used on the city's streets. Showa Shell will operate the 
station for two years from April 2003.
    The Netherlands: In Amsterdam, Shell is involved with the Amsterdam 
Transport Company (GVB) to test three hydrogen fuel-cell buses for two 
years as part of the Clean Urban Transport for Europe, or CUTE Project. 
Currently the Project has fuel-cell demonstration projects in nine 
European cities and is an initiative of the European Union. Delivery of 
the first buses is expected in the 3rd quarter 2003, with a hydrogen 
fuelling installation in place by June. Compressed hydrogen fuel will 
be produced on site at an installation being developed at the GVB Bus 
Depot North.
    Technology: In addition to these groundbreaking early fueling 
initiatives, Shell Hydrogen companies invest in technologies that are 
necessary to enable the hydrogen economy. Shell has been making 
significant investments in hydrogen production, as our companies are 
the fourth largest producers of hydrogen in the world, mostly for use 
in our refineries and chemical plants. The key challenge is to extend 
hydrogen from being used primarily for industrial purposes to becoming 
a transportation fuel.
    Because distribution costs are high, it is likely that small-scale 
generation by either natural gas reforming or water electrolysis will 
occur. Shell is investing in reforming and purification technologies 
through its affiliates HydrogenSource LLC in Connecticut and QuestAir 
Inc in Vancouver, Canada, to ensure cheap and clean hydrogen is 
available when it is needed. Through our experience in these ventures, 
and with the promise offered by these companies' technologies, we 
believe that small-scale hydrogen production costs will continue to 
come down over the next 5-10 years.
    Besides reducing the costs of cost of production, new and 
innovative ways must be developed to store hydrogen. To address this 
need, Shell and its partners are investing in Hera Hydrogen Storage 
Systems, which develops solid-state hydrogen storage solutions based on 
metal- or chemical-hydrides. The aim is to store enough hydrogen in a 
small space to power many different fuel cell applications. Currently, 
because hydrogen is such a light, diffuse gas, it is still difficult to 
store enough hydrogen on board a vehicle to give it adequate range 
between refueling. Shell intends to sell hydrogen as a fuel for fuel 
cell cars and other hydrogen-consuming fuel cell applications once the 
market develops, and our investments in Hera, HydrogenSource and 
QuestAir support that aim.
    The pace of change and the level of research into hydrogen and fuel 
cells have been accelerating for a number of years. Many of the 
technologies in existence today hold promise for initial commercial 
deployment in the coming 3 to 5 years. We consider it likely that PEM 
fuel cells, which operate at up to 200 deg.F, will be the first to 
commercialize, initially in portable power units, then for stationary 
power, and finally for transportation first in fleets, and then from 
around 2010 in passenger vehicles.
                     the path to a hydrogen economy
    Today I would like to share with you two topics of direct relevance 
to a hydrogen economy and hydrogen infrastructure:
          1. Shell's Scenarios on the future of energy, including 
        hydrogen, to 2050;
          2. The role of government in fostering the hydrogen economy.
    The most important points I want you take away from my testimony 
are:
          1. The future of our energy and hydrogen infrastructures is 
        highly uncertain. A significant hydrogen economy may emerge by 
        2020 or not until 2050, depending as much on complex societal 
        drivers and unpredictable disruptive events, as on technology 
        breakthroughs.
          2. Governments can play an important part in stimulating 
        development of the necessary hydrogen related technologies and 
        providing encouraging incentives during the early stages. The 
        sustained political will of the U.S. Government is particularly 
        important in this regard. However, governments must allow the 
        markets and consumers the freedom to make the fundamental 
        commercial choices. Otherwise, money and time is wasted 
        clinging to political choices that turn out not to be 
        commercially the best options.
                            shell scenarios
    Shell's views about the future of energy are shaped by scenarios 
that look out to 2050 in terms of energy needs, possibilities, and 
choices. We've been using scenarios for 30 years to help us think about 
the future. Scenarios are not predictions. Rather, they are ways of 
challenging assumptions, encouraging debate, and exploring 
possibilities. They are tools for focusing on critical uncertainties--
the unexpected discontinuities or unknown possibilities that could 
transform our business environment. Our scenarios don't pinpoint future 
events; rather, they consider the forces that might push the future 
along a different path.
    Scenarios are credible, relevant and challenging alternative 
stories about how things might develop. Credibility is essential. We 
harness our experience in energy businesses and technology 
development--as well as a wide range of outsider expertise--to develop 
them. What I will tell you today comes from our most recent work in 
this area: ``Energy Needs, Choices and Possibilities--Scenarios to 
2050.''
    Let me say before I begin that I fully understand that this House 
Science Committee is particularly interested in hydrogen fuels for 
transportation. Our scenario work includes transport, of course, but it 
is not confined to this sector, as important as it is. Because of the 
interrelationships and uncertainties associated with all energy 
sectors, Shell has taken a ``holistic'' approach to looking at the 
future.
    What questions do our long-term energy scenarios attempt to answer?

   First, there is an overearching question about the ability 
        of a dynamic energy system to respond to the threat of climate 
        change in this half-century.
   Other key questions explored in the scenarios include:
   When will oil and gas resources fail to meet rising demand? 
        What will replace oil, particularly in transport?
   Who will drive the expansion of renewables? How will energy 
        storage for renewables like solar and wind be solved?
   How might a hydrogen infrastructure develop?
   How will the choices of consumers and citizens affect energy 
        paths?

    We looked at important influences that are likely to shape the 
future of energy, including demography, urbanization, income and market 
liberalization. And, we looked at three critical drivers that have the 
potential to bring about fundamental changes in the energy system--
resource constraints, technology development and changing social and 
personal priorities.
    A word or two about global resource constraints: Some people see 
impending limitations on the ability of fossil fuel resources to 
continue meeting growth in energy demand. We think scarcity of oil 
supplies is unlikely before 2025, and could be delayed even longer. 
Natural gas resources are much more uncertain. Scarcity could occur as 
early as 2025, or well after 2050. The more immediate issue is whether 
we can develop the infrastructure to deliver remote gas economically.
    There is no shortage of coal, but resources are concentrated in a 
few countries and are becoming increasingly costly to exploit, among 
other reasons, due to tightening emission standards. Renewable 
resources, like solar and wind, will compete with food and leisure for 
land use and require new forms of energy storage. Technological 
advances are at the core of the transition to new forms of energy. 
These advances offer superior or new qualities--often transforming 
lifestyles as well as energy supplies.
    In the long term, two potentially transforming energy technologies 
are:

   Solar photovoltaics, which offer the possibility of abundant 
        direct and widely distributed energy, and
   Hydrogen fuel cells, which offer the possibility of high 
        performance and clean energy from a variety of fuels.

    Both are in the early stages of development and face large 
challenges. Energy storage is the fundamental problem. Both still have 
a long way to go on affordability, although they will benefit from 
manufacturing economies.
    People's choices also affect energy development in two ways--by 
their personal preferences as consumers and their priorities as 
citizens. Personal lifestyle choices and consumption patterns drive the 
energy system. These forces operate within frameworks shaped by social 
attitudes and concerns, such as energy security, air quality and the 
climate change.
    Now about the scenarios we've developed to the year 2050. There is 
no limit, of course, as to how many we could generate about the future. 
But our experience is that we can better engage people by limiting our 
thinking to two focused and thought-provoking scenarios. They are 
called Dynamics as Usual and the Spirit of the Coming Age. I'll talk 
briefly about both of them.
    Dynamics as Usual focuses on the choices that people make about 
clean, secure and increasingly sustainable energy that--with growing 
resource scarcities--drive the evolution toward renewable sources. 
However, this transition is anything but smooth and reflects intense 
competition among priorities and technologies. Dynamics as Usual 
explores the continuation of the dynamic which has shaped the evolution 
of energy toward lower-carbon fuels--with electricity as the carrier--
in response to demands for cleaner, more convenient energy.
    Spirit of the Coming Age focuses on the energy choices made by 
consumers in response to revolutionary new technologies--which arise 
from unexpected sources--and transform the system.
    The two scenarios reflect differences in energy resources, timing 
and nature of technology development and social and personal 
priorities. However, the scenarios also have important common features, 
including:

   the vital role of natural gas as a bridging fuel during at 
        least the next two decades;
   pressure on the oil market as new vehicle technologies 
        diffuse;
   he shift towards distributed heat and power supply for 
        economic and social reasons, and
   in the long term, the potential for renewables to be the 
        eventual primary source of energy if robust energy storage 
        solutions are found.
Dynamics as Usual
    Let me focus on the four main elements of Dynamics as Usual:
          1. existing technologies respond,
          2. the `dash for gas',
          3. renewables boom and bust, and
          4. the oil transition and renewables renaissance.
    Let's consider each of these points in turn.
    First, existing technologies respond. The demand for clean, secure 
and sustainable energy stimulates a drive for energy efficiency within 
existing technologies, particularly the internal combustion engine. 
Advanced internal combustion and hybrid engines deliver the same 
performance as standard vehicles--but use as little as half of the 
fuel. Fuelling inconvenience limits the appeal of fuel cell vehicles.
    The spread of high-efficiency vehicles disrupts oil markets. Prices 
are depressed until firmed by growing developing country demand for 
transport and heating fuels after 2015. Oil consumption grows 
steadily--but weakly--for 25 more years.
    Second, the dash for gas. Natural gas use expands rapidly early in 
the century--reflecting its economic and environmental advantages in 
liberalized markets. Where gas is available it fuels most new power 
generation and accounts for three-quarters of incremental OECD capacity 
up to 2015. Older coal plants cannot meet tightening emissions 
standards and are increasingly replaced by gas.
    The rising costs and logistical complexity of expanding coal 
deliveries from northern mines prompts China to embark on major gas 
import projects. Pan-Asian and Latin American gas grids emerge. Large-
scale LNG trade is increasingly competitive. By 2020 gas is challenging 
oil as the dominant source of primary energy. However, expansion 
thereafter is constrained by concerns for security of supply.
    New nuclear plants have trouble competing in deregulated markets. 
Most existing nuclear capacity is maintained, but nuclear steadily 
loses market share in OECD countries.
    Third, the renewables boom and bust. Strong government support in 
OECD countries enables renewable energy to grow rapidly for two decades 
through established electricity grids. The cost of wind energy 
continues to fall as turbines exceed 3 MW.
    By 2020 a wide variety of renewable sources is supplying a fifth of 
electricity in many OECD markets. Then growth stalls.
    Limited electricity growth constrains expansion in OECD countries 
and with little progress on energy storage, concerns about power grid 
reliability block further growth of wind and solar. In developing 
countries, renewables do not fully compete with low-cost conventional 
resources.
    As renewables stagnate and gas security concerns grow, it is not 
clear what will fuel future energy supplies.
    It is a decade of great energy policy dilemmas.
    Fourth and lastly, the oil transition and renewables renaissance. 
Around 2040, as oil becomes scarce, advances in biotechnology together 
with vastly improved vehicle efficiency allow a relatively smooth 
transition to liquid biofuels or Fischer-Tropsch fuels. The existing 
transportation system can be modified at low cost.
    A new generation of renewable technologies emerge. The most 
important is organic and thin film embedded solar materials. New ways 
of storing and utilizing distributed solar energy are developed.
    By 2050 renewables reach a third of world primary energy and are 
supplying most incremental energy.
Spirit of the Coming Age
    Now let me turn to three key elements of the second scenario, 
Spirit of the Coming Age:
          1. breaking paradigms,
          2. the ubiquitous fuel cell,
          3. the hydrogen economy.
    Let's talk about breaking paradigms.
    The Sony Walkman was repeatedly dismissed by focus groups. Portable 
computers and mobile phones are examples of innovations that broke 
existing paradigms. Such developments often come from niche market 
fringes--ignored by incumbent suppliers--where physical constraints 
force innovation and consumers are willing to pay a premium.
    In this scenario technological development is rapid and--
critically--societies adopt new technologies more or less immediately. 
With abundant gas supplies, innovations push fuel cells into a variety 
of new applications. The outlook is bright.
    By 2015, installations of both stationary and mobile fuel cells 
have won broad public acceptance. After all there are already hundreds 
of installations in place in the U.S. and in highly environmentally 
conscious Germany. This scenario says that by the end of the decade 
there is growing enthusiasm for the technology.
    Automobiles manufacturers know that hydrogen fuel cell vehicles 
match the public mood because they are cleaner, quieter and offer high 
performance. They can also support more electrical services--digital 
communications, pre-entry heating and cooling, and in car 
entertainment--which consumers want but which require too much power 
for many traditional engines. The constraint is the fuel infrastructure 
and the potential health hazards of alternative fuels.
    Demand for stationary fuel cells--for businesses willing to pay a 
premium to ensure highly reliable power--helps drive fuel cell system 
costs down. This provides a platform for transport uses, stimulating 
further cost reductions--well below conventional power and heat 
technologies.
    In this scenario, by 2025 a quarter of the OECD vehicle fleet uses 
fuel cells. The global automobile industry rapidly consolidates around 
the new platform. Technical advances in transport and power services 
feed off each other, solving mutual problems. Fuel cells also benefit 
from broader developments in material technology.
    Cars no longer need to be idle for 95 percent of the time. Through 
docking stations, they can provide energy to homes and buildings.
    Now, let's talk about the emergence of a hydrogen economy. The 
advantages of the new technology push the transition to hydrogen well 
before oil becomes scarce. The higher the demand for fuel cells, the 
less oil fetches. Renewable energy makes steady but unspectacular 
progress until 2025. ``Green energy'' niches remain small in most 
regions.
    After 2025 the growing use of fuel cells for heat and power creates 
a rapidly expanding demand for hydrogen. It is widely produced from 
coal, oil and gas fields, with carbon dioxide extracted and sequestered 
at source. By 2050 a fifth of carbon dioxide emissions from the 
production and use of energy are being sequestered.
    Large-scale renewable and nuclear energy schemes to produce 
hydrogen by electrolysis start to become attractive after 2030. 
Renewable energy becomes a bulk supply business and starts to expand 
rapidly. Hydrogen is transported in gas grids until demand justifies 
dedicated hydrogen pipelines.
    A century-long process of hydrogen infrastructure development 
begins. The need for sequestration peaks after 2050 although only a 
small part of the total sequestration capacity has been used. It all 
sounds very positive. Still, it is worth noting that even in this most 
optimistic scenario for hydrogen it takes another 40 years before 
hydrocarbons fully lose their dominance of the energy industry.
    What I've just given you is an overview of our two long-term energy 
scenarios. They both underscore the complex interplay between 
scientific and technical advances and social, political and market 
developments. They also underscore the inherent uncertainty on the 
timing and nature of the hydrogen economy.
                           role of government
    Shell has extensive experience with government influence around the 
world, as no other industry is subject to so many policies and such 
political control. We know that policies can make or break projects, 
technologies and even whole industries. We have also learned that 
subsidies meant to encourage an industry can sometimes wreck it. We've 
learned that policies have to be intelligent and properly structured, 
not just well meant.
    Policies related to the hydrogen and fuel cell industries are only 
now beginning to be formed. It is very important that the right 
principles are ingrained in these policies and that they are carefully 
framed.
    This must be based on an appreciation for the challenges in 
producing hydrogen. Hydrogen is made either from electricity by 
splitting water, or extracted from natural gas or other fossil sources. 
Therefore, the energy in the hydrogen will always be more expensive 
than that of the sources used to make it. Hence, competitiveness must 
come from the additional benefits produced in cleaner air, lower 
CO2 emissions through greater efficiency or sequestration, 
and improved energy supply security. These externalities need to be 
reflected in price signals received by the market, otherwise technology 
alone cannot bridge the gap in cost. The incumbent petroleum based 
technology already has an infrastructure in place and is made from a 
relatively low cost feedstock. Hydrogen can only compete in the early 
years with the involvement and consistent support of government.
    Our participation in the California Fuel Cell Partnership has 
provided valuable insight into the potential social benefits resulting 
from the use of fuel cells, and the hurdles for implementation of a 
hydrogen infrastructure. Through working in partnership with car 
manufacturers, federal and state government agencies, and other energy 
companies, we have researched pathways for a transition to a hydrogen 
economy in California. Such co-operation is unique and essential to 
ensure a hydrogen transition becomes feasible.
    The federal government has a key role to play in setting up the 
playing field for private enterprise to compete. Previous experiences 
with alternative fuels such as compressed natural gas (CNG) show that 
without prolonged government engagement and strong, visible and vocal 
commitment to deliver a shift in the fuel used in society, these 
initiatives are destined to fail and remain niche products. In addition 
to the sort of fiscal support and R&D funding proposed in the 
President's recent Hydrogen Fuel and FreedomCAR initiatives, the 
government should also work towards harmonized international codes and 
standards, increasing levels of public education, and mitigating the 
risk of in developing a new fuel infrastructure. Finally, as I pointed 
out earlier, it should ensure that the integral social, environmental, 
and economic costs and benefits to society of any fuel are properly 
considered by the market.
    The transition to hydrogen will be a long and capital intensive 
process, and will need a sustained political will to realize the 
significant benefits of cleaner air, lower greenhouse gas emissions, 
and a decreased reliance on foreign energy sources. Many of the 
existing technical and cost hurdles can be overcome with sustained and 
consistent government support, but even so the huge investment for the 
infrastructure changeover can only be supported by industry if it can 
be done on a commercial basis. The initial investment has been 
estimated by Shell at around USD 20bn for the U.S. alone, to supply 2% 
of the cars with hydrogen by 2020 and to make hydrogen available at 25% 
of the existing gasoline retail stations. In the subsequent decades, 
further build-up of the hydrogen infrastructure will require hundreds 
of billions of US dollars. Support from the government in mitigating 
some of the risks around such large investments will clearly be 
indispensable. However, if the hydrogen sector is to truly take off, 
most of the capital will come from the private sector. Therefore, it 
will be consumers, and by extension, the capital markets that will 
ultimately determine how much money flows into this new industry.
    I hope that I have convinced you that Shell believes in hydrogen 
and is putting its money on the table. Through the companies of Shell 
Hydrogen, we are already a significant investor and we are willing to 
invest further as opportunities arise. Shell believes that governments 
should promote research and development--and provide significant 
funding--but, that they should do so in a way that allows for 
innovation and competition in the marketplace, and provides customer 
with a choice.
    I would be happy to answer any questions.
                                 ______
                                 
  Statement of Anthony Eggert, Associate Research Director, Hydrogen 
  Pathways Research Program, Institute of Transportation Studies, UC 
                                 Davis
    Mr. Chairman and Members of the Committee, thank you for the 
opportunity to provide testimony on hydrogen and hybrid vehicles and 
the development of a hydrogen economy infrastructure. I recently 
returned to Institute of Transportation Studies at the University of 
California--Davis (ITS-Davis) to help develop and lead the Hydrogen 
Pathways Research Program. Previous to that, I was an engineer for Ford 
Motor Company, working on the hydrogen fuel vehicle demonstration 
program. In 2002, ITS-Davis established the Hydrogen Pathways Research 
Program to address the issues that are before your committee today, how 
to develop a successful, efficient and market-based hydrogen economy. 
UC Davis is one of the leading university research centers for the 
study of advanced environmental vehicles and fuels including hybrids, 
fuel cells and hydrogen and has a distinguished track record of over 20 
years of valuable research in these areas. I was excited by the 
President's call to advance hydrogen fuel and power research that he 
outlined in the State of the Union. I hope this committee will:
          1. Make hydrogen research and development the highest 
        priority within the federal government's energy research and 
        development portfolio.
          2. Fund the DOE's Hydrogen Technology program at $100 million 
        in FY-04.
          3. Greatly expand existing federally funded university-based 
        research programs.
          4. Substantially increase the funds allocated within federal 
        programs, including DOE's FreedomCAR and Fuels, to initiate new 
        competitively-bid university based research and graduate 
        education programs.
          5. Focus federal research on interdisciplinary graduate 
        research programs.
          6. Develop the public knowledge base by engaging universities 
        on the cutting edge of this new and exciting set of 
        technologies.
          7. Use the nation's universities as the primary instrument to 
        accomplish the Education and Outreach goals of the DOE's 
        National Hydrogen Energy Roadmap
Make Hydrogen Research a National Priority
    President Bush was correct to call for a national initiative on 
hydrogen fuel and hydrogen technologies in his February State of the 
Union speech. In it, the President said:

          ``I ask you to take a crucial step, and protect our 
        environment in ways that generations before us could not have 
        imagined. In this century, the greatest environmental progress 
        will come about, not through endless lawsuits or command and 
        control regulations, but through technology and innovation. 
        Tonight I am proposing 1.2 billion dollars in research funding 
        so that America can lead the world in developing clean, 
        hydrogen-powered automobiles.
          ``A simple chemical reaction between hydrogen and oxygen 
        generates energy, which can be used to power a car--producing 
        only water, not exhaust fumes. With a new national commitment, 
        our scientists and engineers will overcome obstacles to taking 
        these cars from laboratory to showroom--so that the first car 
        driven by a child born today could be powered by hydrogen, and 
        pollution-free. Join me in this important innovation--to make 
        our air significantly cleaner, and our country much less 
        dependent on foreign sources of energy.''

    His vision to lead the nation towards a hydrogen economy should be 
supported and where necessary, enhanced by Congress. Specifically, 
Congress should use the Department of Energy's Hydrogen Energy Roadmap 
as a guideline to support at least $100 million in FY-04 for Hydrogen 
Technology, as well as increased support for Department of 
Transportation and Department of Defense vehicle and stationary fuel 
cell research programs that are ongoing and producing results. 
Additionally, all three agencies should be aggressive in supporting a 
coordinated federal university-based competitive research program on 
the key technologies and science questions still to be answered in 
storage, energy conversion, hydrogen production and delivery systems, 
distribution strategies and stakeholder coordination, advanced 
materials and manufacturing techniques for fuel cells, and market 
development and stationary fuel cell technology. The federal government 
should use the nation's universities as the primary agent to address 
the education and training of our future engineers, scientist, business 
leaders, and policy makers. In addition, the nation's university can 
help educate and outreach challenges of educating the public on the 
value of developing and using hydrogen fuel. The nations universities 
are perfectly suited to this role because we establish research 
collaborations, share results for the nation's benefit and train 
tomorrow's engineers, scientists, policymakers and business leaders.
Greatly Expand Existing Federal Research Programs Directly Addressing 
        the H2 Economy
    In the area of university research, there are several programs that 
are small but have been demonstrated to be effective in the area of 
advanced environmental vehicles and fuels. The Department of Energy has 
several programs of note within their FreedomCAR program (previously 
PNGV). DOE's Graduate Automotive Technology Education (GATE) program is 
a small ($500K total) but effective program that funds 10 university 
centers nationwide focusing on advanced automotive technologies 
including fuel cells and hydrogen. DOE's FutureTruck program is a 4-
year university program that brings together the resources of the 
university, industry and government to design and produce ultra-clean 
high-efficiency sport utility vehicles. NSF's Integrative Graduate 
Education and Research Traineeship supports a significant 
transportation research effort integrating transportation policy and 
technology at UC Davis.
    While these programs are to be commended, they are dwarfed by a 
number of federal research programs that support federal research in a 
variety of areas including astronomy, medical technology, 
microelectronics and fusion power. To use one example, current federal 
support for university-based hydrogen vehicle research and hydrogen 
economy infrastructure is less than one percent of the $4.6 billion in 
federal research that will be spent on cancer research by NIH in 2004. 
If we as a nation truly want to lead in the area of developing a 
hydrogen economy, hybrid vehicles and hydrogen powered vehicles and 
fuel cells, we need to dramatically increase our funding for university 
and federal laboratory research in this area. The federal government 
will benefit from a continued and consistent government allocation of 
funds directed towards university-based research and education in the 
field of advanced environment vehicles and fuels.
A Robust Competitive University Federal Government Research Program is 
        Vital
    Many of the benefits of hybrids and fuel cell vehicles such as 
clean air, reduced carbon emissions, and energy security are conferred 
to the public realm. Therefore, it is appropriate for the public to 
participate in this process and encourage a rapid transition to these 
technologies through federal research support. A robust federal 
university research program provides multiple benefits of research 
results, collaboration with industry and training the future engineers, 
scientists, policymakers and business leaders on the complex issues of 
hydrogen for transportation. Federally supported university research is 
crucial to addressing the large challenges and problems that still face 
us in the next ten to forty years. Many of the hurdles will be solved 
through new technologies and reducing manufacturing costs through new 
materials, new vehicle design and cost reduction strategies for storing 
and making hydrogen in a clean, efficient manner. I am confident these 
hurdles will be overcome, but at present, many of the research needs 
are too risky and costly for single companies and industry consortiums 
to solve without long-lead support by the federal government. Federally 
supported university research can reduce technology cost and develop a 
new workforce to lead the nation and the world into a hydrogen fuel 
economy. Locating a significant fraction at universities allows the 
federal government to competitively select the best proposals maximize 
industry collaboration and develop the future hydrogen economy 
workforce through grants that support graduate and undergraduate 
research.
Focus on Interdisciplinary Graduate Research
    Today's transportation issues are extremely complex and require 
that both industry and government effectively integrate the knowledge 
from a variety of disciplines in order to make intelligent and informed 
business and policy decisions. Transition to a hydrogen fuel economy 
will be difficult and require enormous coordination and the development 
of a new generation of professionals to help lead the transition. To 
address this need, ITS-Davis has established an interdisciplinary 
research institution with contribution from numerous academic 
departments including, but not limited to: engineering, economics, 
business, and environmental science and policy. We see this as an 
increasing and encouraging trend in universities around the country 
that should be strongly supported through competitively awarded federal 
research support.
Develop the Public Knowledge Base
    Due to concerns over intellectual property and competitive 
advantage, it is often extremely difficult to know the state of 
technology within the private industry. By funding research at public 
universities, knowledge is developed, published and disseminated within 
the public realm. This allows everyone, including the public, access to 
a knowledge base from which informed decisions can be made. 
Additionally, universities have no vested interest in the outcome of 
research and are therefore often considered to be a good objective 
source of knowledge.
    One of our core responsibilities at ITS-Davis is to educate the 
next generation of engineers, scientists, policy-makers, professors, 
and business leaders in the areas of advanced environmental vehicles 
and fuels. Anyone with research experience realizes that the knowledge 
contained within the final research report pales in comparison to the 
knowledge imparted to the researcher throughout the process. For this 
reason, it is important to establish the expertise within people (i.e. 
students) who will carry their knowledge with them and disseminate it 
throughout their future careers in industry, government and academia.
    Another advantage of performing research at universities with 
graduate students is that students develop a passion for the subject 
matter during the course of their studies. I realized the importance of 
this during a previous position within the automotive industry where I 
had some responsibility for college recruitment. Prior to these 
programs, automotive engineers coming out of colleges just eight years 
ago only wanted to work on one of two programs--fast cars or fast 
trucks. Now, because we have university students learning and applying 
their knowledge within these environmental vehicle research programs, 
we find that they develop a passion for the technology. We now have 
graduates requesting, ``I want to work on your hybrid program; your 
emissions-reduction program, or your fuel cell program''. This is 
ultimately what is going to change the industry--the passion of the 
people who work there.
   how uc davis is contributing to the national effort to develop a 
                         hydrogen fuel economy
    I want to share with you the ways that UC Davis is making a 
difference in developing the technology, people and infrastructure to 
create a hydrogen economy, advance the hydrogen fueled vehicle program 
and partnering with industry. We are developing the students, 
analytical tools and policy roadmaps that are necessary to create a 
hydrogen fuel economy in the future.
Hydrogen Pathways Research Program
    The Hydrogen Pathways Research Program is a multi-year program 
designed to look at the near to mid-term introduction of hydrogen as a 
transportation fuel from a technical, economic and policy perspective. 
Bringing together people already working on these issues, the Hydrogen 
Pathways Research Program has already engaged a broad consortium of 
leading industry partners, federal stakeholders and state agencies.
    Due to the long transitional time associated with vehicle turnover 
and fuel infrastructure introduction, business and policy decisions, 
like those this committee is considering, are being made today. These 
near-term decisions will affect the transportation sector for many 
years to come. It is very important that your work on federal energy 
policy and the surface transportation reauthorization legislation are 
shaped by the current knowledge and that future policy is shaped from 
the best available objective research.
Brief Description of Additional Related ITS-Davis Research
    About 35 graduate students and ten faculty members are involved in 
advanced environmental vehicle and fuels research on the UC Davis 
campus. Graduates of our interdisciplinary Transportation Technology 
and Policy (TTP) program have obtained positions within the automotive 
and energy industries, academia, environmental NGO, and government. The 
following is a sampling of our larger programs:
    Fuel Cell APUs: A $3 million project under the direction of Dr. 
C.J. Brodrick is developing and testing fuel cell auxiliary power units 
(APUs) that power truck-trailer refrigeration and other auxiliary 
systems. The new APUs could eliminate the need for idling big-rig 
diesel engines, which is inefficient, expensive, noisy, and polluting 
and could power electric systems in aircraft, leading to fuel savings 
in the nation's future commercial aircraft fleet.
    Advanced Vehicle Modeling: ITS-Davis researchers conduct extensive 
computer modeling of vehicle and heavy-duty truck emissions, fuel 
economy and performance. ITS-Davis is completing a five-year, $3 
million fuel-cell-vehicle modeling program, directed by Dr. Robert 
Moore, which was sponsored by 20 companies and three government 
agencies.
    Advanced Vehicle Power System Evaluations: Researchers at ITS-
Davis, headed by Dr. Andrew Burke, study energy storage and conversion 
technologies (including ultracapacitors) for electric, hybrid-electric 
and fuel cell vehicle applications for a variety of government and 
industry sponsors.
    Hybrid Vehicle Prototypes and Component Evaluations: The UC Davis 
Hybrid Vehicle Driveline Research and Design Center, directed by Dr. 
Andrew Frank, designs and builds vehicles that demonstrate improved 
overall efficiency, high fuel economy and low emissions. The HEV 
Center's current efforts focus on plug-in hybrid-electric vehicles 
(HEV's) and continuously variable transmissions (CVTs).
    New Advanced Environmental Vehicle Laboratories: The UC Davis 
College of Engineering and ITS-Davis are planning to build a new 
advanced environmental vehicle facility. This project would create 
large synergies by clustering UC Davis clean-vehicle research and 
education programs. The facility would include high-bay vehicle 
laboratory space, a distributed computing facility and a hydrogen 
refueling station. Co-funding by public and private sources is 
currently being sought.
    We are especially proud of the success of our expanding graduate 
education and research program--much of it directed at electric-drive 
vehicles. The National Science Foundation awarded ITS-Davis a $2.6 
million Integrative Graduate Education and Research Traineeship (IGERT) 
grant for our innovative Transportation Technology and Policy graduate 
program, the only transportation institute in the country to be funded. 
In addition, the U.S. Department of Energy awarded UC Davis two (of ten 
nationally) Graduate Automotive Technology Education (GATE) Centers--to 
ITS-Davis for fuel cell vehicles and to the Department of Mechanical 
and Aeronautical Engineering for Hybrid Electric Vehicles. UC Davis won 
the first two (1998 and 2001) FutureCar and FutureTruck competitions 
sponsored by the U.S. Department of Energy and the USCAR program of the 
U.S. auto makers, and placed third overall in the 2002 FutureTruck 
competition.
    In conclusion, I thank you for the opportunity to present my views 
and help advance the interest in the nation and your committee in 
developing and promoting our nation's future hydrogen fuel economy and 
infrastructure. I am confident that a federal leadership role in this 
area is crucial to advancing the state of technology and speed the 
development of the research, workforce and infrastructure needed to 
develop a hydrogen economy infrastructure.
                                 ______
                                 
 Statement of Stephen S. Tang, Ph.D., President & CEO, Millennium Cell
    As the troop buildup continues for Iraq, we are reminded all too 
often about our dependence on foreign oil. President Bush said it best 
when announcing the new Freedom CAR and Fuel Initiative, ``We import 
over half of our crude oil stocks from abroad. It jeopardizes our 
national security to be dependent on sources of energy from countries 
that don't care for America, what we stand for, what we love. It's also 
a matter of economic security, to be dependent on energy from volatile 
regions of the world.'' The President's plan to invest $1.2 billion in 
research on developing a clean, hydrogen-powered automobile has the 
potential to give Americans new options. But unless we align the 
development effort with market realities, the hydrogen-powered 
automobile will join its battery-powered brother as just another doomed 
solution for achieving environmental, geopolitical, and economic goals.
    When it comes to vehicles, American consumers have made their 
preferences clear. They want roominess, high performance, convenience 
and comfort. Those preferences drive the market in SUVs, minivans, 
light trucks, and luxury cars. Unfortunately, hydrogen proponents often 
believe that consumers will accept higher costs, greater inconvenience, 
and compromises in comfort and performance to convert to hydrogen out 
of a sense of altruism.
    A development effort that doesn't target consumer preferences from 
the beginning is unlikely to attract the kind of serious investments 
that will be required to make hydrogen cars technologically possible 
and to commercialize them. The $1.2 billion proposed by the president 
in his State of the Union address provides much-needed seed money for 
research--but at some point, large infusions of private capital will be 
required.
    Gasoline is a dirty fuel, but it is otherwise unequalled for 
convenience and performance. If fuel cells are to replace gasoline, 
consumers will require a familiar liquid fuel and a technology that 
turns it into usable hydrogen energy on demand. Every other storage and 
delivery technology requires unacceptable compromises with performance 
and convenience, all likely to be fatal in the marketplace.
    The federal government has an important role to play in nurturing 
this technology and bringing it to market. The government can be most 
constructive as a super-consumer--adopting hydrogen fuel in military 
applications and supporting public/private partnerships for 
commercially viable applications.
    It need not be out of a sense of charity or environmental virtue: A 
military vehicle that runs on hydrogen from a chemical hydride storage 
system, whether it burns it in an internal combustion engine or 
processes it through a fuel cell, has tremendous tactical advantages--
the fuel tanks won't explode or catch fire.
    Public buildings could use hydrogen fuel cells that operate stand-
alone power plants, impervious to disruptions in the power grid. Cars 
did not replace horses because cars were cleaner or more virtuous, but 
because they provided superior convenience, freedom, and performance. 
Hydrogen cars will replace gasoline-powered vehicles for the same 
reasons--or not at all.
                                 ______
                                 
       Statement of Preston Chiaro, President and CEO, U.S. Borax
                u.s. borax--millennium cell partnership
About U.S. Borax
    U.S. Borax supplies nearly half the world's demand for refined 
borates from its mine in California's Mojave Desert--one of the richest 
deposits on the planet. Borates are minerals containing boron, the 
fifth element on the Periodic Table. They are essential for plants and 
part of a healthy diet for people. Borates are also key ingredients in 
the manufacture of glass, ceramics, fiberglass insulation, detergents, 
fertilizers and wood preservatives. Thousands of household products--
from barbecue charcoal to contact lens solution, and from brake fluid 
to kitchenware--also contain borates.
    Borax got its start 131 years ago in California's Death Valley. The 
twenty mule teams used to haul ore out of the remote desert lives on as 
a symbol of Borax's commitment to innovation. To this day, the company 
pioneers the majority of borate production, distribution and 
application advances around the world--and continues to prospect for 
opportunities that benefit the company, its customers and consumers at 
large. Borax is also an industry leader in ensuring that its operations 
and products contribute to a sustainable future as defined in social, 
environmental and economic terms.
    Borax invests in collaborative and independent research to develop 
new applications and to advance society's understanding of borates' 
properties and potential. One of the most promising new developments 
features borates acting as a hydrogen carrier in safe, clean-burning 
fuel cells, built to power zero-emission vehicles. (For more 
information on Borax, borates and our commitment to sustainable 
development, please visit www.borax.com)
U.S. Borax Partnership with Millennium Cell
    In 2001 U.S. Borax entered into a partnership with Millennium Cell, 
a development-stage company that has created a proprietary technology 
to safely generate and store hydrogen or electricity. Millennium Cell's 
core business strategy is to partner with market leaders in the four 
business areas of micropower, transportation, batteries and the 
borohydride fuel supply chain. Along with Borax, Millennium Cell's 
partners include Ballard Power Systems, a leading global fuel cell 
manufacturer, DaimlerChrysler, and Air Products and Chemicals; they 
also have a research agreement with Oak Ridge National Laboratory.
    Millennium Cell has invented and developed a proprietary process 
called Hydrogen on DemandTM that safely generates pure 
hydrogen from environmentally friendly raw materials. In the process, 
the energy potential of hydrogen is carried in the chemical bonds of a 
sodium borohydride, which in the presence of a particular catalyst, 
releases hydrogen.
    The primary components of the reaction are water and sodium 
borohydride, a derivative of sodium borates. The process supplies pure 
hydrogen for energy applications without the need for compression or 
liquefaction. Hydrogen from this system can power fuel cells, or be fed 
directly to internal combustion engines.
    DaimlerChrysler has a conventional minivan that runs on this 
technology. The van runs up to 300 miles on a single tank of sodium 
borohydride fuel--the only system so far to demonstrate that it is 
safer and provides similar miles to the gallon as gasoline. What makes 
it superior to gasoline is that the fuel is nonflammable, its only 
waste product is water, and--because the spent fuel is recyclable--the 
system is sustainable. Unfortunately, at present, sodium borohydride 
fuel is considerably more expensive to produce.
    Despite the economic hurdle, Hydrogen on DemandTM 
technology solves three critical problems related to the use of 
hydrogen: generation, storage and safety. The system stores the energy 
of hydrogen in an inert, non-flammable liquid, and releases its 
hydrogen only when passed over a catalyst. Because hydrogen is produced 
and consumed on demand, no storage technology is required. Finally, the 
system features an on-board fuel cell that is safe for drivers and 
passengers.
    Hydrogen on DemandTM technology also addresses three 
critical problems associated with fossil fuels: finite resources, 
foreign dependence and environmental impact. The advantage lies in the 
fact that sodium borohydride fuel can be recycled. When the system and 
necessary infrastructure are fully developed, recycling spent fuel 
would be handled in a closed-loop system, resulting in zero loss. The 
environmental effect would be replacing millions of mobile sources of 
greenhouse gases--automobiles--with a smaller number of stationary 
sources--recycling plants. Any emissions from those plants would be 
much easier to control. Finally, world reserves of borates are more 
than sufficient to fill the fuel cycle and to keep up with growth (a 
study on borate reserves is available from U.S. Borax). In fact, U.S. 
Borax's California mine alone could meet the needs of the nation's 
fleet of automobiles.
    Although, the Hydrogen on DemandTM technology shows 
great social and environmental promise, the cost is still prohibitively 
expensive. Millennium Cell and its partners, including Borax, are 
working to develop a more efficient, cost-effective process for 
producing sodium borohydride. Borax, as the world leader in borate 
technology, has already made strides in this process, but more funding 
is needed to transform this possibility into a reality.
    U.S. Borax is very supportive of the President's visionary 
announcement of a $1.2 billion research initiative for hydrogen-fueled 
automobiles. The Department of Energy's support in this field of 
research is key to its success and a hydrogen future for the 
transportation sector. U.S. Borax looks forward to being a part of this 
new, visionary initiative in its partnership with Millennium Cell.
                                 ______
                                 
 Statement of the American International Automobile Dealers Association
    Mr. Chairman, and distinguished Members of the Committee, AIADA 
appreciates the opportunity to submit comments regarding energy use in 
the transportation sector, specifically as it relates to automotive 
sales and consumer needs.
    The American International Automobile Dealers Association (AIADA) 
is the national trade association representing over 10,000 American 
dealers who hold franchises for international nameplate automobiles and 
who employ nearly 433,000 American workers who sell and service some of 
the finest automobiles and trucks available in the world. Franchised 
automobile dealers are engaged in the business of offering new and used 
vehicles for sale to the retail public. Auto dealers also service these 
vehicles to satisfy the needs of customers as well as meet the 
standards of their manufacturers, and/or government agencies. AIADA 
members are independent, American-owned businesses. While they maintain 
contractual franchise agreements with various manufacturers, there is 
no direct connection between the entities.
    Automobile dealers also play an integral role in their communities. 
Not only do dealerships provide hundreds of thousands of jobs across 
the country, dealers take great pride in their civic involvement. 
Additionally, dealers donate millions of dollars annually to a variety 
of charitable and civic causes, greatly benefiting their communities.
    AIADA members strongly support reasonable and workable efforts to 
increase energy efficiency and to encourage drivers to buy and drive 
energy efficient automobiles and trucks. In fact, our members sell some 
of the most energy efficient automobiles and trucks in the world, like 
the Honda Civic hybrid and Toyota Prius. Whether its evolutionary 
technology, designed to make the existing fleet more efficient, or 
revolutionary technology such as electric vehicles or hybrid vehicles, 
international nameplate manufacturers and dealers have stood at the 
forefront in bringing high-quality fuel-efficient vehicles to the 
American consumer. Today, consumers can enter thousands of dealerships 
across the United States and buy or lease exceptionally efficient and 
safe cars and trucks. And more can and will be done in the years to 
come to see that Americans drive safe, non-polluting and efficient 
personal transportation. Our members will remain in the vanguard of 
that effort.
    As Congress moves forward on ways to encourage energy efficiency in 
the transportation sector, AIADA supports the ability of the consumer 
to choose the vehicles that best meet their transportation and 
lifestyle needs. Automobile dealers are the final link in the retail 
chain that begins in the design of automobiles and flows through 
production, distribution and sale to the retail consumer. In the entire 
process of bringing automobiles from the drawing board to the customer, 
the dealer and dealership employees are where the ``rubber hits the 
road'' between the automobile industry and the motoring public. As 
such, dealers have a unique and important story to tell regarding 
consumers and vehicle safety.
 government must consider commercial viability when promoting advanced 
                               technology
    Ultimately the American consumer will steer the changes in advanced 
fuel technology. Consumers must feel confident that these vehicles will 
meet their transportation needs while having access to the fuel 
infrastructure necessary for operation. By partnering with the auto 
industry, the government can better recognize the challenges that lay 
ahead in delivering these vehicles to the public.
    As manufacturers and the broader industry develop new technologies, 
the government should consistently offer benefits, regardless of 
technology, in order to spur overall investment in cleaner fueled 
vehicles. An open process that supports and encourages the development 
of such research and development will allow for the best possible 
products to come to market, rather than targeting one advancement over 
another.
    Auto manufacturers are working on future technologies such as 
hybrid, advanced leanburn, hydrogen fueled internal combustion engines, 
and fuel cell vehicles that may lead to substantial improvements in 
efficiency and emissions performance without sacrificing safety, 
utility, and performance. These new and emerging technologies all share 
the need for cooperative efforts that bring all the key stakeholders 
together, from automakers to energy providers, government policy makers 
and most importantly, the customer. Consumers will be able to choose 
the automobile that is right for them based on their safety, 
transportation and fiscal needs.
    Nevertheless, ultimately it is the consumer who drives demand. As 
noted by the National Academy of Science in the 2001 report on CAFE, 
``automotive manufacturers must optimize the vehicle and its powertrain 
to meet the sometimes-conflicting demands of customer-desired 
performance, fuel economy goals, emissions standards, safety 
requirements and vehicle cost within the broad range of operating 
conditions under which the vehicle will be used. This necessitates a 
vehicle systems analysis. Vehicle designs trade off styling features, 
passenger value, trunk space and utility. These trade-offs will 
likewise influence vehicle weight, frontal area, drag coefficients and 
powertrain packaging, for example. These features together with the 
engine performance, torque curve, transmission characteristics, control 
system calibration, noise control measures, suspension characteristics 
and many other factors, will define the drivability, customer 
acceptance and marketability of the vehicle.''
  consumer tax incentives are needed for advanced technology vehicles
    AIADA supports market-oriented tax incentives for the purchase of 
qualifying advanced technology, hybrid, electric-powered and 
alternative fuel vehicles. The NAS report noted that these vehicles 
``face significant cost hurdles.'' (ES-8) Tax incentives could ``jump 
start'' the market penetration of these highly fuel-efficient vehicles.
    While automakers begin to manufacturer more highly fuel-efficient 
vehicles, huge cost disparities exist between these and other 
automobiles in the marketplace. Consumers often buy vehicles that fit 
their budget over every other need, and tax credits to manufacturers 
and consumers help level the playing field for the new technologies.
    Such incentives would first encourage manufacturers to develop and 
introduce advanced technologies by enhancing the market for vehicles 
that use such technologies. Advanced fuel-efficient technologies are 
the most costly in their first years of introduction, so incentives 
would facilitate the introduction of these items by helping to bridge 
the price differential between these vehicles and conventional 
vehicles.
    Today, hybrid and other fuel-efficient technologies are available 
in the automobile market. Consumers currently have options between low 
and highly efficient vehicles, and financial considerations often drive 
the vehicle purchase. By getting tax credits to consumers immediately, 
we can help get even more fuel-efficient cars on the road.
    Congress has considered a variety of technology-based incentives in 
recent years to encourage consumers to purchase advanced technology 
vehicles, notably the CLEAR Act provisions that were included in last 
year's comprehensive energy bill. AIADA has generally supported these 
incentives. However, ideally, we believe that such incentives should be 
performance-based and technology-neutral, i.e., they should be designed 
to encourage the production and sale of fuel-efficient vehicles, 
regardless of the technology selected by the manufacturer to achieve 
high fuel efficiency, and benefit the consumer.
the introduction of hybrid vehicles and other advanced technology into 
    the marketplace demonstrates the industry's commitment to fuel 
                               efficiency
    Consumers have a variety of fuel-efficient vehicle choices in the 
marketplace including hybrid vehicles. The voluntary investment by the 
industry to produce these vehicles demonstrates the willingness to 
provide cleaner car options.
    Hybrid vehicles run on two sources of power: electric and internal 
combustion. These products capture power through regenerative braking. 
When decelerating an internal combustion vehicle, the brakes convert 
the vehicle's kinetic energy into heat, which is lost to the air. By 
contrast, a decelerating hybrid vehicle can convert kinetic energy into 
stored energy that can be reused during the next acceleration. Because 
of the dual source of power, vehicle emissions are dramatically 
reduced.
    Hybrids also form a bridge technology between the internal 
combustion engine and fuel cell vehicles. While these vehicles sell at 
higher prices due to the technology in the automobile, prices are much 
more modest than hydrogen fuel cell vehicles, and they do not require 
the investment in fuel infrastructure.
    Additionally, lean-burn diesel provides further energy savings. 
Advanced lean-burn technology enhances the existing advantages of lean-
burn internal combustion engines (diesel and gasoline direct 
injection). With future emission control technologies, the development 
of advanced lean-burn technology will provide the necessary reductions 
of nitrogen oxides (NOx) and particulate matter emissions to 
meet the new stringent EPA Tier 2 levels.
    Advanced lean-burn direct-injection technology, including diesel 
and gasoline direction-injection engines, offers important advantages 
in both fuel savings and cleaner emissions. Advanced lean-burn direct-
injection technology has the potential to meet or exceed the fuel 
savings realized by other vehicle technologies, including hybrid 
electric vehicles, reducing fuel consumption between 20-60% compared to 
conventional gasoline engines. Moreover, the technology's fuel economy 
benefits are immediate and will improve as this technology comes to 
market with the introduction of near zero sulfur fuels.
    This Tier 2 compliant technology also offers reductions in 
NOx and particulate matter, traditionally unattainable in 
lean-burn engines. Advanced lean-burn direct-injection technology will 
help reduce pollutants and greenhouse gases, since it produces fewer 
HC, CO, C02, and evaporative emissions than conventional 
gasoline engines. Overall, the technology will offer benefits matching 
those of low emitting gasoline and hybrid vehicle technologies.
    Advanced lean-burn technology diesel and gasoline vehicles' 
conservation and environmental benefits are complemented by exceptional 
overall engine performance characteristics, including high torque 
power, application to various vehicle categories and classes, and low 
maintenance costs-all of which will help ensure consumer acceptance 
when the technology becomes available in the marketplace.
     key technical and cost barriers for fuel cells must be lowered
    There is still work to be done to overcome the technological and 
financial barriers to the development of commercially viable, 
emissions-free fuel cell vehicles. Hydrogen is four times as expensive 
to produce as gasoline, and fuel cells are now ten times more expensive 
than internal combustion engines.
    Storage systems for hydrogen are also inadequate for use in the 
wide range of vehicles that consumers demand. Two leading fuel cell 
tanks store hydrogen at 5,000 and 10,000 pounds per square inch, 
powering a car for 182 miles and 300 miles, respectively. Currently, 
tanks cost between $20,000 and $50,000 each. In order to be 
commercially viable for the average consumer, costs need to be lowered 
to $200 and $500.
    While there are a variety of options to make hydrogen fuel for 
automobiles, most are not viable yet for the mass market. Currently, 
companies that traditionally provide fuel for vehicles are focusing on 
outfitting gas stations to reform natural gas into hydrogen on-site.
    Companies estimate that in order for fuel to be widely available 
for consumer use, the fuel needs to be available at 30% of the gas 
stations in a given area. The cost to refit a gas station is about 
$400,000, according to BP PLC, a nationwide oil company. Furthermore, 
estimates by the Society of Automotive Engineers show that a nationwide 
hydrogen fueling system would cost up to $300 billion.
    The technology needs to improve and the infrastructure needs to 
come to the market at the same time in order for consumers to invest in 
these automobiles.
                      public-private partnerships
    The President recently announced a hydrogen fuel initiative to 
complement his FreedomCAR program, and NHTSA has expressed support for 
continued targeted government research spending. Government supported 
research can help provide a bridge to market introduction for advanced 
technologies that may be considered to be of too high a development 
risk for individual companies to pursue.
    AIADA believes any such programs must be open to all manufacturers 
that have a substantial research capability within the U.S. With the 
increasing globalization of the world auto industry, distinctions based 
on historic geographic bases of companies have less and less relevance. 
There are nearly 433,000 taxpaying Americans nationwide involved in 
retailing the automobiles manufactured by companies with a substantial 
research presence in the U.S., and there is no justification for 
categorically barring such companies from participation in joint 
government-industry research programs. This practice puts AIADA 
American workers at an unfair disadvantage in the competitive 
marketplace, and ultimately harms the American consumer.
                               conclusion
    AIADA supports energy efficient technology and other alternative 
methods to power vehicles, so long as the government does not hinder 
the consumer's right to choose the vehicles that meet their 
transportation needs. From bringing down vehicle manufacturing costs to 
ensuring alternative fuels are available in the marketplace, more work 
is needed to make some technology cost-effective for use in cars, 
trucks, homes or businesses, and the government should not mandate its 
use before the marketplace is accepting. Additional research and 
development is needed to spur rapid commercialization of these 
technologies so they can provide clean, domestically produced energy 
for transportation and other uses.
    Again, thank you for this opportunity to share our stand on energy 
in the transportation sector. Should you have any questions, please 
contact us at 703-519-7800.
            Sincerely,

    Heidi Blumenthal,
    Director of Legislative Affairs.
Judy Ostronic,
Director of Legislative Affairs.
      
                                 ______
                                 
  Prepared Statement of Stephen A. Evered, Director, Legislative and 
                     Regulatory Affairs, Honeywell
    While hydrogen fuel cells have gained wide coverage as the front-
running technology in the race to reduce America's dependence on 
foreign oil, researchers agree that the timetable for fuel cells' mass-
market introduction is stretching well into the next decade. In the 
near term, variable valve timing, cylinder deactivation and five and 
sixspeed automatic transmissions are leading candidates to improve 
efficiency, although these evolutionary improvements amount to modest 
gains.
    In Europe, much higher fuel prices and strict standards for carbon 
dioxide emissions mean that automakers must offer vehicles with much 
higher fuel efficiency than in the North American market. There, a 
recently reinvented technology--the turbocharger--has realized 
tremendous fuel economy gains for both gasoline & dieselpowered 
vehicles. The turbocharger is set of two connected fans, or turbines, 
that recycle the energy from wasted exhaust gases by forcing more air 
into the engine, thereby increasing power.
    At the same time that fuel efficiency has become an important topic 
again here in the United States, turbodiesels and gas turbos are 
enjoying a quiet renaissance in this market. The reason is simple: 
turbos allow consumers--and automakers--to have their cake and eat it, 
too.
    Consumers get the benefit of improved fuel economy full-time with 
power on demand when needed. And unlike efforts in the past to force 
consumers into smaller, lighter vehicles to achieve high fuel economy, 
turbo-powered vehicles don't compromise safety, utility, performance or 
size in order to achieve sizeable efficiency gains. This is the case 
for turbo diesels, but also for modern turbo gasoline engines.
    Along with direct injection and common rail fuel systems, the 
modern turbocharger is largely responsible for the European diesel boom 
of the last decade. Virtually all-modern diesel engines use 
turbochargers. These enable diesel-powered vehicles to achieve 30-50 
percent better fuel economy than conventional gasoline-powered 
vehicles.
    Today, turbodiesels represent more than 40 percent of all new 
vehicle sales in Europe. In heavier vehicles like multi-purpose 
vehicles (Europe's answer to the minivan) and luxury sedans, the number 
is roughly 70 percent.
    Gasoline turbocharging has long been associated with high-
performance vehicles in both the U.S. and Europe. Some consumers hold 
negative perceptions about gasoline turbochargers based upon their sins 
of the past: ``on or off'' turbo boost, poor reliability and 
durability, and higher insurance rates.
    But gasoline turbos have advanced to the point today where many 
consumers wouldn't know they're driving a turbocharged car until they 
noticed that their responsive, fun-to-drive cars sipped fuel like a 
much smaller, economy car.
    Automakers today, led by the Europeans, are turbocharging and often 
downsizing gasoline engines. This gives vehicles the performance of a 
much bigger engine, with the increased fuel economy and lower emissions 
of the smaller turbo engine.Today, fully 10 percent of gasoline cars 
are turbocharged in Europe, that number is expected to rise to nearly 
30 percent by 2010. In America, only 1 percent of the market is gas 
turbo, but that number is also poised to rise quickly through the end 
of the decade.
    Contrary to the race-ready image of the previous generation of 
turbo cars, some companies are demonstrating that turbochargers are 
perfectly compatible with mainstream, family vehicles. Every Saab 
vehicle sold in North America has a gas turbo engine. Most Volvo 
vehicles either are equipped with a standard gasoline turbo engine, or 
offer one as an option.
    Turbos can give automakers an edge in manufacturing cost savings 
because the same basic engine can be tuned to deliver more or less 
power, depending upon the application. In the U.S., where many four-
cylinder engine manufacturing plants are underutilized, turbos allow 
more of this manufacturing capacity to be used because the turbo 
engines can power a broader variety of vehicles. Also, by switching 
from a complex dual overhead cam V6 to turbo four-cylinder, the car 
becomes less expensive to build. Automakers also like the opportunity 
to build brand equity-and profits-afforded by the turbo option.
    To see how the gas turbo compares in the real world, Volkswagen 
proves a good example. VW's most popular vehicle sold here, the Jetta, 
has several optional engines. Two of these are the naturally-aspirated 
(i.e. non-turbo) 2.0 liter four-cylinder and a smaller 1.8 liter turbo.
    Both achieve similar fuel economy ratings of 27 mpg in mixed city 
and highway driving, but the turbo motor makes 150 horsepower, while 
the non-turbo makes only 115. Carbon dioxide emissions are identical at 
.74 lbs. per mile driven. The turbo motor makes 162 foot-pounds (ft./
lbs.) of torque; the non-turbo 2.0 liter makes only 122 ft./lbs. These 
differences translate to 0-60 mph times of 8.2 seconds for the smaller 
turbo, compared to only 10.6 seconds for the non-turbo.
    One achieves great gas mileage. The other drives like a much more 
responsive European sedan and gets great gas mileage. At similar levels 
of performance, gas turbos yield a 10 to 20 percent fuel economy 
improvement. Another version of the same 8 liter turbo motor sold in 
the Audi TT sports coupe produces an overachieving 225 horsepower. To 
put that in perspective, the BMW 330i makes exactly the same horsepower 
from a 3.0 liter six-cylinder that is 66% bigger.
    What's driving this turbo boom? According to Rob Gillette, 
President and CEO of Garrett Engine Boosting Systems, ``Some are 
looking to increase fuel economy and reduce emissions. Other people are 
asking for more power. We satisfy both, and unlike so many technologies 
you read about, this technology is available today.'' Part of the 
Honeywell Corporation, Garrett is the largest supplier of turbos for 
diesels worldwide, and second largest for gas turbos. They're working 
on the next generation of turbochargers that will further increase fuel 
economy, performance and decreased emissions.
    Turbocharging technology can be further improved to enhance 
performance and fuel efficiency of the 3 major powertrain envisioned 
for the short, mid and longer term: Internal combustion (gasoline and 
diesel), hybrids, and fuel cells engines.
    Honeywell recommends support for the following R&D projects to 
bring three major technologies to the market.

   Variable geometry turbochargers for gasoline engines: 
        already used successfully on diesel engines, variable geometry 
        needs to be adapted to gasoline engines; Variable geometry 
        enables the optimization of airflow at low engine speed and 
        acceleration that starts of the turbo effect.
   Electric boosting: the turbocharger is assisted by 
        electricity enabling to totally suppress turbo lag (boost on 
        demand), and answering the needs of larger vehicles and/or of 
        vehicles used for towing. The electric turbo is also beneficial 
        to the hybrid powertrain as the turbo can be used as a 
        generator when boost is not needed by the engine (the turbo 
        ``gives back'' some electric power to the hybrid engine in 
        steady state mode). Electric boosting also applies to fuel cell 
        engines that need boosting devices to improve efficiency and 
        reduce the number/size/weight of fuel cells needed for vehicle 
        motion. The exhaust temperature in a fuel cell engine is lower 
        than that in an internal combustion engine. As a consequence, 
        the overall energy that can be extracted from the exhaust is 
        lower, and an electric device must assist the turbocharger.
   Oil-less turbochargers: Using aerospace technology, 
        Honeywell is able to develop air bearings that run on foils, 
        suppressing the need for oil as a lubricant. Eliminating oil 
        enables more flexibility in packaging the engine (the turbo can 
        be placed anywhere), permitting better utilization of space 
        under the hood. Moreover, oil-less turbos are a must for fuel 
        cell engines that cannot tolerate the risk of contamination by 
        oil (a drop of oil causes degradation of the chemical process 
        generated by the fuel cell engine).

    The ultimate device for fuel cell engines would be an oil-less-
electric turbocharger.
    Another way to accelerate the penetration of smaller/more fuel 
efficient boosted engines would be to promote their purchase by the 
end-consumer. For example, significant tax incentives based on how fuel 
efficient a vehicle is, in its category, compared to the average fuel 
efficiency level of all vehicles in its category (or compared to any 
standard determined for this category), would be a positive tool to get 
people to favor fuel efficient engines over less fuel efficient engines 
in all vehicle categories.
                                 ______
                                 
          Statement of the Alchemix Corporation, Carefree, AZ
                              introduction
    The world's largest transportation and energy companies recognize 
that hydrogen atoms have the potential to fuel the world as a 
sustainable energy resource. The prospects for many applications, 
especially in transportation are exciting. The vision is that air 
combined with hydrogen produces electricity in fuel cells at two to 
three times the efficiency of gasoline burned in the internal 
combustion engine. Instead of carbon dioxide and carbon monoxide 
emissions, water vapor is produced, effectively creating a drainpipe 
instead of a tailpipe. But before a hydrogen economy can be realized, 
hydrogen must be readily available at low cost to replace fossil fuels.
    Alchemix Corporation has invented and is pursuing the 
commercialization of the HydroMax technology, a process which will 
achieve these goals by producing hydrogen at very low cost, utilizing 
steam and carbon as primary inputs. Alchemix has filed over 100 claims 
of invention in the United States and internationally to protect its 
break-through technology, which has been demonstrated on a laboratory 
scale and is currently being demonstrated in a pilot plant scale.
    The key to the economics of the HydroMax technology is the use of 
carbon feedstocks that have little or no value such as petroleum coke, 
high sulfur coal, municipal waste, discarded tires, biomass and sewage 
sludge.
    A HydroMax plant becomes a cogeneration facility when high volumes 
of excess steam produced in the process are routed to a steam turbine 
to make electricity. The HydroMax technology can also be used to 
produce other products including ammonia for fertilizer and tailored 
syngases (mixtures of hydrogen and carbon monoxide tailored to the 
desired percentage of hydrogen). Tailored syngas can be routed to 
existing refining processes in order to make diesel, methanol, ethanol, 
methane or gasoline. HydroMax plants can be built today to economically 
provide electrical power generation as well as alternate fuels for 
conventional engines. As hydrogen demand escalates, these same plants 
can be converted to produce pure hydrogen.
    Aker Kvaerner, the world's second largest engineering company, has 
developed preliminary engineering and cost data indicating that the 
HydroMax technology will create hydrogen for a fraction of the cost of 
hydrogen currently available through competing processes. At present, 
Alchemix Corporation is seeking to site its first plant in cooperation 
with a strategic partner.
    Today, the world consumes roughly 16 trillion standard cubic feet 
(scf) of hydrogen annually having a market value of roughly $60 
billion. Over 92% is used for the refining and desulfurization of oil 
in refineries and the production of ammonia and methanol.\1\ The 
remainder is used primarily for industrial processes, chemical 
manufacturing and the preparation of food. Over the next decade, 
hydrogen demand for current uses is expected to grow at double-digit 
rates. A great deal of this growth will stem from the need for more 
hydrogen to refine the increasingly heavier, higher sulfur crude oils 
that are being produced today. More hydrogen will also be needed by 
refineries to meet regulations that require lower levels of sulfur in 
gasoline and diesel fuel. Far larger growth in the demand for hydrogen 
will occur when it begins to replace oil in the transportation sector 
(66% of all oil used in the United States is for transportation).
---------------------------------------------------------------------------
    \1\ Source: SRI Chemical and Health Business Services per Chemical 
Engineering magazine, ``The Utility of Hydrogen,'' September, 2001.
---------------------------------------------------------------------------
                          process description
    The HydroMax technology is a two-step process. First, steam 
contacts a molten metal to form metal oxide and produce hydrogen. The 
hydrogen produced requires no further separation or purification after 
the un-reacted steam is condensed. In the second step, metal oxide 
reduction, the metal oxide is reduced with a carbon source into metal. 
Both process steps occur in the same reactor, but at different times. A 
production plant requires at least two furnaces operating in tandem in 
order to produce hydrogen continuously. Metal smelting furnaces that 
are commercially available today can be adapted for use as the reactor 
vessel.
    Metal is not consumed in the process. It simply acts as a carrier 
for the oxygen from one part of the process to the other. The choice of 
metal is critical for the economic viability of the process. The metal 
must have a high affinity for oxygen to maximize the yield of hydrogen. 
The metal oxide formed in the hydrogen production step must also be 
readily reduced by carbon.
    After some experimentation, Alchemix has selected a mixture of iron 
and tin. Iron strongly attracts the oxygen in steam to form iron oxide. 
The iron oxide is then reduced back to iron by reacting with carbon and 
air. Carbon dioxide is formed in this process. The tin does not oxidize 
but allows operation at lower temperatures and helps to remove sulfur 
at low cost. The following simplified Figure 1* Diagram shows the 
principal reactions.
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    * Figures 1-4 have been retained in committee files.
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    The tin contained in the melt reacts with sulfur to form tin 
sulfide (SnS). Tin sulfide is then combusted to form stannic oxide 
(SnO2) and sulfur dioxide (SO2) in the post 
combustion zone of the furnace. The stannic oxide is recycled back to 
the furnace while the sulfur dioxide is removed by scrubbing and then 
used to produce ammonium-sulfate, a high value fertilizer. Since sulfur 
is removed in the process and becomes a valuable by-product, low value 
high sulfur coal and petroleum coke can be used as feedstocks.
    Both reactors are maintained at approximately 1300 deg.C, a 
temperature at which any carbon compound is quickly reduced to 
elemental carbon. This feature enables the use of universally available 
carbon sources having little or no value such as petroleum coke, 
automobile tires, high sulfur coal, municipal waste, biomass and sewage 
sludge. Characteristically, such feedstocks can be secured with long-
term contracts that will also secure stable low costs for hydrogen.
    The basis of the HydroMax technology involves the reduction of iron 
oxide to pure iron. Alchemix has adapted widely used metal smelting 
reactors to both produce hydrogen and reduce iron oxide back into iron. 
Furnace reactors are currently operating in more than twenty commercial 
installations worldwide using this top-submerged lance design. These 
furnaces routinely convert the oxide ores of tin, lead, copper, zinc 
and iron into metal. The principal function and attraction of these 
reactors is to create efficient contact between gases and molten 
liquids so that the oxygen in the liquid metal oxides can react quickly 
with carbon leaving only metal. The natural ores processed in these 
furnaces frequently contain more than 50% gangue (rock or other 
materials associated with the metal oxides). The absence of gangue 
substantially simplifies the HydroMax process relative to existing 
smelter operations.
    To date, Alchemix has demonstrated its ability to produce hydrogen 
and reform metal oxide efficiently in laboratory (kilogram scale) 
reactors. At present, work is being conducted in a pilot plant (0.3 
meter) at CSIRO (Commonwealth Scientific and Industrial Research 
Organization) in Melbourne, Australia. These plants were chosen and 
adapted to the HydroMax technology, demonstrating the viability of the 
lance injection technology for hydrogen production while relying on the 
proven success of lance injection to reform a variety of metals. 
Current initiatives are focused on the demonstration of hydrogen 
production and iron ore reduction rates.
                       plant production capacity
    The commercial scale plant assumed for modeling is capable of 
producing 47 million standard cubic feet per day (MMscd) of hydrogen 
(40,000 metric tons per year) and 1.6 million metric tons per year of 
steam. This represents a mid-sized plant when compared to SMR hydrogen 
plants in the United States. The operating plan is based on 98% 
availability with 351 days of operation per year. The plant would be 
shut down two weeks per year for furnace re-bricking, boiler inspection 
and other longer repairs. The availability of the HydroMax plant is 
consistent with lance injection smelter experience where 98% 
availability is routine. A process flow diagram for hydrogen production 
is shown in Figure 2.
                              competition
    The leading method of producing commercial hydrogen today is Steam 
Methane Reformation (SMR) which requires natural gas (methane) as a 
feedstock. Drawbacks to this process are the relatively high cost of 
natural gas and its price volatility. Another is that hydrogen produced 
by SMR is commingled with carbon gases. These gases must be removed in 
additional process steps that are not required when HydroMax technology 
is used.
    SMR is a three-step process. The first step is the reaction of 
methane with steam to produce a gas mixture containing mostly carbon 
monoxide and hydrogen (i.e. syngas). The second step is the conversion 
of the carbon monoxide to carbon dioxide by the addition of more steam 
(water gas shift). Gas produced in this reaction contains hydrogen, 
steam and carbon dioxide. In order to provide a clean hydrogen gas, a 
third process step, typically Pressure Swing Absorption (PSA) separates 
and purifies the hydrogen.
    By contrast, HydroMax generates separate streams of hydrogen and 
carbon dioxide so that a process step to separate these gases is not 
required. The HydroMax process is 82% efficient in converting energy 
input to hydrogen and steam as compared to 78.5% for SMR.
                               economics
    When natural gas is at current low levels of $4.00 per thousand 
cubic feet (MCF), the operating cost of producing hydrogen via SMR is 
about $0.45 to $0.50 per pound. Capital recovery (i.e. depreciation) 
adds about $0.03 per pound to the cost. For every $1.00 increase in the 
price of natural gas, the cost of producing hydrogen via SMR will 
increase by about $0.08/lb.
    The cost of producing hydrogen via the HydroMax process is 
substantially below that of SMR. This conclusion is based on modeling 
done by Aker Kvaerner. Data for the model came from experimental work 
at CSIRO, Pittsburgh Mineral and Environmental Technologies and 
HIsmelt, a subsidiary of Rio Tinto that designs furnaces.
    A HydroMax plant producing 47 MMSCFD of hydrogen (40,000 metric 
tons per year) will also produce more than 36 megawatts of power from 
excess steam. When carbon sources with a negative net cost are 
available, such as municipal waste or sewage sludge, it is possible to 
produce hydrogen at even lower costs. Larger HydroMax plants can be 
built and will benefit from increasing economies of scale.
    While lower costs will stimulate increased demand for hydrogen, the 
ability to secure long-term contracts for coal, waste or petroleum coke 
insures hydrogen cost stability even during periods of price volatility 
for oil and natural gas. Predictable long-term, low cost supplies of 
hydrogen from abundant local carbon sources are essential to creating a 
shift to a hydrogen based economy.
               hydromax processes for syngas and ammonia
    Before a hydrogen-as-fuel economy can be achieved, reasonably 
priced hydrogen must be available in large quantities. The HydroMax 
technology can successfully address this challenge because it has 
multiple applications that can be accommodated from a single plant. The 
same HydroMax plants that are built today to provide hydrogen for oil 
refineries or to produce ammonia or syngas can be used tomorrow to 
produce clean hydrogen for the transportation sector as demand 
increases. In the interim, these plants can stand on their own as 
viable economic entities producing lower cost and cleaner energy as 
compared to contemporary fuels.
    HydroMax is a process that can also combine low cost hydrogen with 
hydrocarbons to produce tailored syngases which can then be easily 
refined into a variety of high value products including methanol and 
gasoline. This is done simply by injecting a hydrocarbon together with 
steam which produces tailored syngas as shown in Figure 3. By measuring 
and controlling the amount of steam and hydrocarbon with on-line 
analyzers and controllers, engineered syngas can be produced. 
Subsequently, the tailored syngas can be routed to existing refining 
processes in order to make diesel, kerosene (jet fuel), methanol or 
gasoline.
    When needed for electricity, syngas can be burned in combined-cycle 
gas turbine power plants which are far more efficient and cleaner than 
any solid fuel boiler. (Hydrogen turbines also exist, and may prove 
competitive for electricity generation without the need to make 
syngas.) Excess steam created by the HydroMax process can produce 
additional electricity from a steam turbine.
    When air is injected with steam instead of carbon as shown in 
Figure 4, an ammonia precursor gas is produced. This can be introduced 
into a synthesis loop for the production of ammonia (NH3). 
Ammonia constitutes the largest world market for hydrogen today. The 
agricultural community requires hydrogen as a chemical feedstock for 
the production of crop fertilizers such as ammonium nitrate 
(NH4NO3).
                          environmental impact
    Eventually, the HydroMax technology can play a key role in the 
transition to a much cleaner environment that is based on a global 
hydrogen economy. During this transition, low cost and reliably priced 
syngas from HydroMax gasification plants can stimulate increased use of 
existing gas-to-liquid synfuel processes available from ExxonMobil, 
Shell, Sasol/Chevron, Syntroleum and others.
    The environmental impact of carbon dioxide (CO2) 
emissions from a HydroMax plant is measured on the amount of 
CO2 emitted per unit of total output which includes both 
hydrogen and steam used to produce electricity. CO2 
emissions from a HydroMax plant will exceed those from an SMR plant of 
equivalent hydrogen capacity; however, a great deal of energy is 
produced without any CO2 emissions when excess steam is used 
to generate electricity. When both hydrogen and electricity production 
are considered, the HydroMax technology is competitive with SMR. When 
biomass, sewage sludge or municipal waste is used as the carbon source, 
HydroMax is clearly the superior environmental choice as hydrogen and 
steam are produced using only renewable inputs. In this case, the 
process yields no net CO2 emissions in the production of 
hydrogen, syngas or ammonia.
    An application with huge environmental implications for the United 
States and other coal-rich, oil-poor nations is the conversion of coal-
fired power stations to plants that burn hydrogen or syngas. Coal is a 
dirty, solid fuel which creates pollution when it is burned. Major 
emissions during combustion include airborne particulates, sulfur 
oxides, nitrous oxides, heavy metals, carbon dioxide and solid waste. 
With the exception of carbon dioxide, these pollutants can be nearly 
eliminated by converting the energy in coal to either hydrogen or 
syngas prior to combustion.While not eliminated, CO2 
emissions can be reduced significantly.
    The 750 coal-fired power plants currently operating in the United 
States generate 52% of this country's electricity, but their efficiency 
in converting fuel to electricity is less than 30% on average. By 
installing a HydroMax plant at these sites, overall coal-to-power 
efficiency can be increased economically from 30% to 48% while reducing 
net carbon dioxide emissions by 37.5%. This is explained in Appendix 
I--Reducing Emissions by Re-powering the Coal-fired Electric Utility 
Industry.
    The ability to produce syngas from coal and biomass at low cost 
creates a large market for the HydroMax process. In addition, the 
identical plant can be converted to produce pure hydrogen when demand 
warrants.
                                summary
    Hydrogen is now the focus of intense international interest due to 
current efforts to develop fuel cells for clean transportation and 
distributed power generation. However, hydrogen must first be made 
available in large quantities to supply the hydrogen fuel when needed. 
Alchemix has developed the HydroMax process to produce hydrogen at low 
cost from steam and carbon sources such as coal, petroleum coke and 
biomass. HydroMax plants can provide the additional hydrogen needed by 
oil refineries today to refine and desulfurize increasingly heavy crude 
oils to progressively more stringent specifications. Later, these same 
plants can be converted to produce hydrogen as demand warrants. These 
multiple capabilities insure that the HydroMax Technologies can provide 
the bridge to a hydrogen based economy. There is a compelling case to 
be made politically, environmentally and economically for the 
adaptation of the HydroMax technology. The ability to convert high 
sulfur coal into hydrogen or syngas cleanly and economically provides a 
path to energy independence for coal-rich, oil-poor nations such as the 
United States, China, India and Indonesia. The flexibility to use 
biomass as a feedstock provides a large source of renewable energy that 
yields no net increase in carbon dioxide emissions.
    Alchemix is currently soliciting help to build a small commercial 
plant which will prove the scalability of the HydroMax Technologies. 
After this plant has been in operation for about six months, full scale 
commercial plants of virtually any size can be built.
                               Appendix I
   reducing emissions by re-powering the coal-fired electric utility 
                                industry
    An application of the HydroMax process that has significant 
environmental implications is the conversion of coal-fired power plants 
to generating stations that burn hydrogen or syngas. Coal is a dirty, 
solid fuel that creates considerable pollution when it is burned. The 
primary emissions during combustion include airborne particulates, 
sulfur oxides, nitrous oxides, heavy metals and carbon dioxide plus 
solid waste. These pollutants, with the exception of carbon dioxide, 
can be nearly eliminated by converting the energy in coal to either 
hydrogen or syngas via the HydroMax process prior to combustion. Even 
CO2) emissions can be reduced substantially.
    Today, there are 750 coal-fired power plants operating in the 
United States. These facilities generate 52% of the electricity in this 
country,\2\ but their efficiency in converting fuel to electricity is 
less than 30% on average. In contrast, when gases are burned in 
combined-cycle turbines, the energy in fuel can be converted to 
electricity at a rate of 50% or more.
---------------------------------------------------------------------------
    \2\ ``Fuel Sources for Electricity Generation in 2000'', U.S. 
Department of Energy, Energy Information Administration.
---------------------------------------------------------------------------
    In the HydroMax process, 82% of the original energy contained in 
coal is converted to syngas and steam. Syngas represents 52.5% of the 
plant's output while steam represents 29.5%. Syngas is converted to 
electricity in a combined-cycle gas turbine which operates at 50% 
efficiency or better. The steam is converted to power in a steam 
turbine which operates at 75% efficiency. So, the overall coal-to-power 
efficiency is 48% (52.5 x 0.50 + 29.5 x 0.75). This means that existing 
coal-fired power plants can boost power output by 60% if an Alchemix 
syngas plant and combined-cycle turbine are added. It also means that 
existing coal-fired power plants could generate the same amount of 
power they are producing today with 37.5% less coal. This would reduce 
their current CO2 emissions by 37.5%.
    There is an additional incentive to use HydroMax for the many coal-
fired power plants that were built near sources of high sulfur coal. 
Many of these plants are precluded from using the lower cost, high 
sulfur coal due to the high capital costs associated with installing 
large scrubbers to remove sulfur dioxide emissions. Instead, they burn 
higher priced, low sulfur coal. Since HydroMax removes the sulfur and 
other pollutants economically, these plants can return to the use of 
high sulfur coal and reduce fuel costs substantially while also 
reducing emissions.
    As an example, high sulfur bituminous coal with high Btu content 
can be delivered and cleaned for $22 per short ton (see the table 
below). At 12,500 Btu/lb or 25 MMBtu/short ton, the price of such high 
sulfur coal is $0.88 per MMBtu. A low sulfur coal of comparable Btu 
value would cost at least $40 per short ton delivered or more than 
$1.60 per MMBtu. Thus, there is an additional economic incentive to 
make the conversion to HydroMax. The cost of coal per MMBtu drops by 
45%. In this case, total fuel costs are reduced by 65% while producing 
the same amount of electricity. The ability to combine lower cost fuel 
and higher conversion efficiency provides overwhelming benefits that 
are environmentally compelling.

                        COST OF HIGH SULFUR COAL

                              ($/Short Ton)

        Mining....................................................$12.00
        Royalty................................................... $1.00
        Local Transport........................................... $2.00
        Dee Cleaning.............................................. $7.00
                                                                  ______
          Total...................................................$22.00

    About 639 of the total amount of energy consumed in the United 
States comes from oil and natural gas while 3790 comes from coal. The 
HydroMax technology reduces CO2 emissions by 37.5% over 
conventional coal-fired boilers. If a sufficient number of coal-fired 
power plants are converted to HydroMax, the U.S. would experience a 
substantial reduction in carbon dioxide emissions. This would 
significantly advance efforts to meet limits on greenhouse gas 
emissions stipulated by the Kyoto Treaty. HydroMax will also bring 
power producers into compliance with environmental regulations on 
SOX, NOX, heavy metals and airborne particulates. 
In addition, the doubling of coal use to replace imported oil would 
create a boom in domestic employment and substantially reduce the 
United States' imbalance of trade.