[Senate Hearing 108-347]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 108-347

                        CLEAR SKIES ACT OF 2003

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

                                HEARINGS

                               before the

              SUBCOMMITTEE ON CLEAN AIR, CLIMATE CHANGE, 
                           AND NUCLEAR SAFETY

                                 OF THE

                              COMMITTEE ON
                      ENVIRONMENT AND PUBLIC WORKS
                          UNITED STATES SENATE

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                                   ON

                                 S. 485

   A BILL TO AMEND THE CLEAR AIR ACT TO REDUCE AIR POLLUTION THROUGH 
EXPANSION OF CAP AND TRADE PROGRAMS, TO PROVIDE ALTERNATIVE REGULATORY 
CLASSIFICATION FOR UNITS SUBJECT TO THE CAP AND TRADE PROGRAM, AND FOR 
                             OTHER PURPOSES


                               __________

                             APRIL 8, 2003
                              MAY 8, 2003
                              JUNE 5, 2003


                               __________


  Printed for the use of the Committee on Environment and Public Works



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                            WASHINGTON : 2003
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               COMMITTEE ON ENVIRONMENT AND PUBLIC WORKS

                      one hundred eighth congress
                             first session

                  JAMES M. INHOFE, Oklahoma, Chairman
JOHN W. WARNER, Virginia             JAMES M. JEFFORDS, Vermont
CHRISTOPHER S. BOND, Missouri        MAX BAUCUS, Montana
GEORGE V. VOINOVICH, Ohio            HARRY REID, Nevada
MICHAEL D. CRAPO, Idaho              BOB GRAHAM, Florida
LINCOLN CHAFEE, Rhode Island         JOSEPH I. LIEBERMAN, Connecticut
JOHN CORNYN, Texaa                   BARBARA BOXER, California
LISA MURKOWSKI, Alaska               RON WYDEN, Oregon
CRAIG THOMAS, Wyoming                THOMAS R. CARPER, Delaware
WAYNE ALLARD, Colorado               HILLARY RODHAM CLINTON, New York

                Andrew Wheeler, Majority Staff Director
                 Ken Connolly, Minority Staff Director
                                 ------                                

     Subcommittee on Clean Air, Climate Change, and Nuclear Safety

                  GEORGE V. VOINOVICH, Ohio, Chairman
MICHAEL D. CRAPO, Idaho              THOMAS R. CARPER, Delaware
CHRISTOPHER S. BOND, Missouri        JOSEPH I. LIEBERMAN, Connecticut
JOHN CORNYN, Texas                   HARRY REID, Nevada
CRAIG THOMAS, Wyoming                HILLARY RODHAM CLINTON, New York

                                  (ii)

  
                            C O N T E N T S

                              ----------                              
                                                                   Page

                             APRIL 8, 2003
                           OPENING STATEMENTS

Carper, Hon. Thomas R., U.S. Senator from the State of Delaware..    34
Inhofe, Hon. James M., U.S. Senator from the State of Oklahoma...     1
Jeffords, Hon. James M., U.S. Senator from the State of Vermont..    15
    Forum, weather and climate change, National Research Council. 17-33
Thomas, Hon. Craig, U.S. Senator from the State of Wyoming.......    36
Voinovich, Hon. George V., U.S. Senator from the State of Ohio...     3

                               WITNESSES

Colburn, Ken, Executive Director, Northeast States for 
  Coordinated Air Use Management (NESCAUM).......................    57
    Prepared statement, New Jersey DEP Secretary Bradley Campbell   115
Hawkins, David G., Climate Center Program Director, Natural 
  Resources Defense Council......................................    59
    Prepared statement...........................................   117
McCullough, Glenn, Jr., Chairman, Tennessee Valley Authority.....    49
    Prepared statement...........................................   101
    Responses to additional questions from:
        Senator Jeffords.........................................   106
        Senator Voinovich........................................   105
Melewski, Bernard, Adirondack Council............................    62
    Prepared statement...........................................   138
    Responses to additional questions from Senator Jeffords......   145
Rogers, James, CEO and President, Cinergy Corporation, on behalf 
  of the Edison Electric Institute...............................    55
    Prepared statement...........................................   109
Trisko, Eugene, United Mine Workers of America...................    60
    Prepared statement...........................................   134
    Responses to additional questions from:
        Senator Jeffords.........................................   137
        Senator Voinovich........................................   136
Whitman, Hon. Christine Todd, Administrator, U.S. Environmental 
  Protection Agency..............................................    38
    Prepared statement...........................................    79
    Responses to additional questions from:
        Senator Jeffords.........................................    87
        Senator Thomas...........................................   100
        Senator Voinovich........................................    99
                                 ------                                

                              MAY 8, 2003
                           OPENING STATEMENTS

Carper, Hon. Thomas R., U.S. Senator from the State of Delaware..   179
Inhofe, Hon. James M., U.S. Senator from the State of Oklahoma...   147
Jeffords, Hon. James M., U.S. Senator from the State of Vermont..   153
    Letters:
        Americans for Clean Air..................................   171
        Clean Air Act, several organizations.....................   159
    Report, Mercury MACT under the Clean Air Act, NESCAUM........   154
Voinovich, Hon. George V., U.S. Senator from the State of Ohio...   151
    Article, Akron Beacon Journal................................   176
    Report, Natural Gas 1999 Summary Report, National Petroleum 
      Council...................................................248-329

                               WITNESSES

Bluestein, Joel, president, Energy and Environmental Analysis, 
  Inc............................................................   188
    Prepared statement...........................................   228
Krimmel, James, president, Zaclon Chemical.......................   183
    Prepared statement...........................................   207
McSlarrow, Hon. Kyle E., Deputy Secretary, U.S. Department of 
  Energy.........................................................   173
    Prepared statement...........................................   201
Metz, Richard, co-executive officer, Unimark, L.L.C..............   184
    Prepared statement...........................................   208
Thumb, Steve, principal, Energy Ventures Incorporated............   186
    Prepared statement...........................................   214

                          ADDITIONAL MATERIAL

Report, Natural Gas 1999 Summary Report, National Petroleum 
  Council.......................................................248-329
Statement, American Chemistry Council............................   225
                                 ------                                

                              JUNE 5, 2003
                           OPENING STATEMENTS

Carper, Hon. Thomas R., U.S. Senator from the State of Delaware..   334
Inhofe, Hon. James M., U.S. Senator from the State of Oklahoma...   336
    Letter, Clear Skies Act, EPA Administrator Christine Todd 
      Whitman....................................................   334
Lieberman, Hon. Joseph I., U.S. Senator from the State of 
  Connecticut....................................................   366
Thomas, Hon. Craig, U.S. Senator from the State of Wyoming.......   337
Voinovich, Hon. George V., U.S. Senator from the State of Ohio...   331

                               WITNESSES

Benson, Steven A., senior research manager, Energy and 
  Environmental Center, University of North Dakota...............   353
    Prepared statement...........................................   401
Brownstein, Mark S., director, Enterprise Strategy...............   377
    Prepared statement...........................................   442
Bucher, Richard, W.L. Gore and Associates, Inc...................   355
    Prepared statement...........................................   404
Cogan, Douglas G., deputy director of social issues, Investor 
  Responsibility Research Center.................................   375
    Excerpt, Southern Co.'s Proxy Statement......................   440
    Prepared statement...........................................   421
    Reports, IRRC Social Services..............................423, 431
Krozner, Randall S., member, Council of Economic Advisers........   338
    Prepared statement...........................................   389
McGinnis, Jim, managing director, Morgan Stanley.................   374
    Prepared statement...........................................   419
Monroe, Larry S., program manager, Office of Pollution Control 
  Research, Southern Company.....................................   352
    Prepared statement...........................................   391
Nappier, Hon. Denise, Treasurer, State of Connecticut............   369
    Prepared statement...........................................   408
Taylor, Wes, president of production, TXU Energy North America...   372
    Prepared statement...........................................   415
Thorning, Margo, senior vice president and chief economist, 
  American Council for Capital Formation.........................   371
    Prepared statement...........................................   409
  

 
                      THE CLEAR SKIES ACT OF 2003

                              ----------                              


                         TUESDAY, APRIL 8, 2003

                                       U.S. Senate,
                 Committee on Environment and Public Works,
     Subcommittee on Clean Air, Climate Change and Nuclear 
                                                    Safety,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 2:12 p.m. in room 
406, Senate Dirksen Building, the Hon. George V. Voinovich 
[chairman of the committee] presiding.
    Present: Senators Jeffords, Inhofe, Thomas, Cornyn, and 
Carper.
    Senator Voinovich. The hearing will come to order.
    I am very pleased that the chairman and ranking member of 
the full committee are here today. Senator Inhofe, who is 
chairman of the committee, has another meeting he has to 
attend. He asked if we extend the courtesy of doing his opening 
statement.

 OPENING STATEMENT OF HON. JAMES M. INHOFE, U.S. SENATOR FROM 
                     THE STATE OF OKLAHOMA

    Senator Inhofe, I really thank you for being here. We look 
forward to your opening statement.
    Senator Inhofe. Thank you, Senator Voinovich. There is an 
Armed Services meeting at the same time. There is a problem we 
have been trying to resolve, unsuccessfully.
    Thank you, Madame Administrator, for coming before us to 
testify on the Clear Skies Act. I know that the signal that is 
sent by your presence here shows how significant this is to the 
Administration.
    I would like to begin by complementing the Administration 
for taking the Clean Air Act into the 21st Century. This 
legislation cuts emissions of sulfur dioxide, nitrous oxide, 
and mercury by 70 percent, which is the largest reduction ever 
called for by any American President.
    As you know, the Clean Air Act has resulted in tremendous 
gains in improving the air quality in our Nation in the last 30 
years. Lead, which was commonplace in gasoline, is virtually 
gone from our air sheds. That has led to improvements in 
control technologies from the auto industry, power plants, and 
other industrial sectors.
    As a result, U.S. manmade emissions have declined 
dramatically for all six criteria pollutants. They declined by 
29 percent. That is at a time when population has increased by 
38 percent, the GDP has increased by 160 percent and the 
vehicle miles traveled 143 percent. It is a success story.
    The power industry has been a vital part of that success. 
Since 1970, emission rates at coal-fired power plants for 
sulfur dioxide and nitrogenous oxides have been cut by more 
than half. Unfortunately, each additional turn of emissions 
reduction in our Nation's States to reduce comes at an 
increasingly expensive price tag.
    The current Act is plagued by bureaucratic and sometimes 
contradictory programs. Every new significant regulation is 
greeted by endless rounds of litigation that do more for trial 
lawyers than they do to clean up the air. A prime example of 
that is the 1997 PM/ozone rule that still has not been 
implemented because of the years of litigation.
    Generators face an uncertain future as to what costs will 
be imposed on them. Without certainty, generators will hesitate 
to invest in significant capital necessary to build a new base-
load coal plant to meet our Nation's growing demand.
    Two years ago, natural gas prices spiked and the Nation 
witnessed a crisis that took place in California. They spiked 
again this February going as high as $19.50. We should not 
strain natural gas supplies beyond its ability to continue to 
service residential consumers and industrial users.
    Preserving our diverse fuel mix also promotes national 
security. More than half of the Nation's electricity currently 
from coal. Our Nation has been called the Saudi Arabia of coal. 
As this chart shows, 85 percent of the ultimately recoverable 
fuel reserves on a Btu basis are coal. That's simply too 
important of a resource to push aside.
    I was talking to Chairman McCullough of TVA right before 
this meeting, and we both agree, we have to have all forms of 
energy.
    The only issue I remain concerned about is mercury. When 
the President's announced his Clean Skies initiative, we were 
told that the Phase 1 cap of 26 tons would be based on the 
benefit of controls installed to meet the sulfur dioxide and 
nitrogen oxide caps. It now appears that the 26 tons has been 
redefined as a cost-effective level. My constituents tell me 
that 26 tons is an unrealistic target and will cause fuel-
switching from coal to natural gas, which I find very 
troubling. I believe we should return to basing the mercury 
level on actual coal benefits.
    I am pleased, however, that the bill does not attempt to 
regulate carbon dioxide, which is not a pollutant under the 
Clean Air Act. As you know, I am an avid proponent of taking 
costs into consideration. To the extent that there is any 
consensus in the climate change to date, it is that even the 
draconian Kyoto Protocol would have no measurable effect on 
global temperatures. In other words, regulating carbon dioxide 
would bring no measurable benefits, at extreme costs.
    The President's Clear Skies approach is the sensible 
approach and will result in the most significant reforms. By 
putting in place a cap and trade program based on the Acid Rain 
Program--the most successful and efficient program in the Clean 
Air Act Amendments of 1990--power plant operators will have the 
flexibility to choose which plants should have which control 
technologies, so that the system gets the biggest bang for the 
environmental buck.
    I look forward to your hearing today, Mr. Chairman.
    [The prepared statement of Senator Inhofe follows:]

   Statement of Hon. James M. Inhofe, U.S. Senator from the State of 
                                Oklahoma

    Thank you Madam Administrator for coming before us to testify on 
the President's Clear Skies legislation. I appreciate your presence 
here today and the signal it sends as to how important this legislation 
is to the Administration.
    I would like to begin by complimenting the Administration for 
taking the Clean Air Act into the 21st century. This legislation cuts 
emissions of sulfur dioxide, nitrogen oxides, and mercury by 70 percent 
the biggest reductions ever called for by an American President.
    As you know, the Clean Air Act has resulted in tremendous gains in 
improving the air quality in our nation over the last 30 years. Lead, 
which was commonplace in gasoline, is virtually gone from our airsheds. 
The Act has led to improvements in control technologies from the auto 
industry, power plants, and other industrial sectors. As a result, U.S. 
man-made emissions have declined dramatically for all six criteria 
pollutants by 29 percent since 1970.
    The power industry has been a vital part of that success story. 
Since 1970, emission rates at coal-fired power plants for sulfur 
dioxide and nitrogen oxides have been cut by more than half.
    Unfortunately, each additional ton of emissions reduction that our 
nation seeks to reduce comes at an increasingly expensive price tag. 
The current Act is plagued by bureaucratic and sometimes contradictory 
programs, and every new significant regulation is greeted by endless 
rounds of litigation that do more for trial lawyers than they do to 
clean up the air. A prime example of that is the 1997 PM/ozone rule 
that has still not been implemented because of years of litigation.
    Generators face an uncertain future as to what costs will be 
imposed on them. Without certainty, generators will hesitate to invest 
the significant capital necessary to build a new base-load coal plant 
to meet our nation's growing demand into the future. Two years ago, 
natural gas prices spiked and the Nation witnessed the California 
energy crisis. Prices spiked again this February, going as high as 
$19.50. We should not strain natural gas supplies beyond its ability to 
continue to service residential consumers and industrial users. 
Preserving our diverse fuel mix also promotes national security. More 
than half of the nation's electricity currently comes from coal. Our 
country has been called the ``Saudi Arabia of coal.'' As this chart 
shows, 85 percent of the ultimately recoverable fuel reserves on a Btu 
basis are coal. That is simply too important a resource to push aside.
    One issue I remain concerned about is mercury. When the President 
announced his Clear Skies Initiative, we were told that the phase 1 cap 
of 26 tons would be based on the co-benefit of controls installed to 
meet the sulfur dioxide and nitrogen oxides caps. Now it appears the 26 
tons has been redefined as a cost-effective level. My constituents tell 
me that 26 tons is an unrealistic target and will cause fuel switching 
from coal to natural gas, which I find very troubling. I believe we 
should return to basing the mercury level on actual co-benefits.
    I am pleased, however, that the bill does not attempt to regulate 
carbon dioxide, which is not a pollutant under the Clean Air Act. As 
you know, I am an avid proponent of taking costs into consideration. To 
the extent that there is any consensus in the climate change debate, it 
is that even the draconian Kyoto protocol would have no measurable 
effect on global temperatures. In other words, regulating carbon 
dioxide would bring no measurable benefit at extreme costs.
    The President's Clear Skies approach is the sensible approach, and 
will result in the most significant reforms. By putting in place a cap 
and trade program based on the Acid Rain program the most successful 
and efficient program in the Clean Air Act Amendments of 1990 power 
plant operators will have the flexibility to choose which plants should 
have which control technologies so that the system gets the biggest 
bang for the environmental buck.
    I look forward to hearing from you on this aggressive initiative 
for reducing air emissions.

  OPENING STATEMENT OF HON. GEORGE V. VOINOVICH, U.S. SENATOR 
                     FROM THE STATE OF OHIO

    Senator Voinovich. Thank you, Mr. Chairman.
    I am probably going to have a little longer statement than 
I ordinarily would, but this is an initial hearing on something 
very, very important to the future of our country and to our 
economy and to the environment. It is going to be the first 
that we intend to have during this session of Congress on the 
Clean Air Act. It is an issue that is critically important to 
me and very important to my home State of Ohio, which is a 
major manufacturing State. For several years now, this 
committee has been grappling with the complex issue of how to 
clean our air by reducing emissions without putting our economy 
in a stranglehold. Today, we are here to discuss the Clear 
Skies Act, S. 485, which is a proposal sent to us by President 
Bush to reduce power plant emissions and protect our economy, 
and improve our environment and public health.
    As we hear testimony on Clear Skies from our three 
distinguished panels, I think we need to keep in mind the 
important context in which we consider this legislation. I 
think so often here in Congress we get so wrapped up in the 
weeds and the grass that we don't see the big picture. It is no 
secret that our economy is struggling. One of the key reasons 
our economy is sputtering is that we don't have an energy 
policy. As I have often stated, we sorely need to develop a 
long-overdue energy policy for our Nation. As a member of the 
Energy Task Force, I will do everything I can to work for 
passage of an energy bill that harmonizes the needs of our 
economy and our environment this year. These are not competing 
needs; a sustainable environment is critical to a strong 
economy, and a sustainable economy is critical to providing the 
funding necessary to improve the environment.
    We need a policy that broadens our base of energy resources 
to create stability, guarantee reasonable prices, and protect 
America's security. It has to be a policy that will keep energy 
affordable. Finally, it has to be a policy that won't cripple 
the engines of commerce that fund the research that will yield 
future environmental protection technologies.
    Right now, about 86 percent of the electricity generated in 
my State comes from coal-fired facilities. The chairman of the 
committee has made it clear how much energy is produced in this 
country from coal, about 50 percent. For generations, the use 
of coal for electricity not only provided affordable and 
reliable electricity for Ohio manufacturers, it helped to keep 
the costs of natural gas down, as well. This combination of 
affordable electricity and low-cost natural gas is absolutely 
critical to the health of Ohio's manufacturing base and, just 
as important, our Nation's manufacturing base.
    The Clean Air Act, enacted in 1970 to protect and enhance 
the quality of the Nation's air resources, has been extremely 
successful in reducing emissions of pollutants. As these charts 
show, since 1970, emissions of all criteria pollutants have 
been reduced by 29 percent, despite the fact that energy use is 
up 42 percent, electricity use has grown 159 percent, and the 
Gross Domestic Product has grown 160 percent. However, the 
current approach to regulation utilized by the EPA is plagued 
with burdensome and overlapping regulations that are subject to 
costly and time-consuming litigation and have become 
unnecessarily costly.
    There are now more than a dozen separate regulations on the 
books for sulfur dioxide and nitrogen oxide alone, with 
additional regulations around the corner. As this chart 
illustrates, the regulatory process at EPA is long, complex and 
costly. Further litigation over several of these regulations 
has already delayed their implementation, forestalling the air 
quality benefits that they were designed to achieve. This 
patchwork of existing and soon-to-be-implemented regulations, 
coupled with the delays bred by continuous litigation over 
them--on both sides, for that matter--has created enormous 
uncertainty for utilities, co-ops, and municipal generators. 
This uncertainty has curtailed investments in technology that 
would reduce emissions at existing plants, prevented numerous 
new facilities from coming on line, and caused several 
utilities to try to phaseout coal-based generation altogether 
by fuel switching.
    Fuel switching--changing from coal-based generation to 
natural gas-based generation--I believe is a tremendous threat 
to the economy of not just Ohio, but to the Nation as well. 
There are currently over 5,000 power plants in the United 
States that generate over 850,000 megawatt hours of electricity 
annually. In 2002, 19 percent of our electricity was generated 
by natural gas, as opposed to 50 percent generated by coal. 
Reliance on natural gas for even this much generation has put a 
tremendous strain on natural gas supplies and pushed prices on 
available gas to record highs.
    The President's National Energy Policy Task Force projected 
that over 1,300 new power plants will need to be built to 
satisfy America's energy needs over the next 20 years. Because 
of the emissions limits and regulatory uncertainty triggered by 
the Clean Air Act, the Department of Energy currently predicts 
that over 90 percent of these new plants will be powered by 
natural gas. Further, analysis by EIA and the EPA shows that a 
large percentage of coal-fired plants are likely to be replaced 
by natural gas-fired plants in the near future.
    We do not have enough natural gas to power all of these new 
facilities, and we do not have the capability to increase our 
supply to meet this demand. Unless Congress develops a plan to 
deal with this situation, we are looking at major natural gas 
shortages, spikes in natural gas prices, and significant spikes 
in electricity prices.
    Shortages in natural gas supply--and the resultant increase 
in natural gas prices--do not just affect utilities. Many other 
industries rely on natural gas, and I think a lot of Americans 
are not aware of this, such as the farming community, the steel 
and metal industries as is pointed out on that charge, chemical 
and polymer manufacturers. My chemical and polymer people in 
the State of Ohio are in deep financial trouble today because 
of the high cost of natural gas. They are completing with 
people in the global marketplace that don't have those large 
costs. It also impacts on the food processing industry.
    It is not difficult to understand why a major shortage of 
natural gas, coupled with skyrocketing prices for natural gas 
and electricity, will ensure that many of our companies will no 
longer be able to remain competitive in the global marketplace. 
I recently met with manufacturers in my hometown of Cleveland, 
about 50 of them, and I was shocked when two of them told me 
that they were seriously considering moving their operations 
overseas because of high energy prices.
    Although high electricity prices would severely affect 
businesses and their ability to compete in the global 
marketplace, it will have an even more profound impact on low-
income families and the elderly, as some of you on this 
committee have seen before. High energy costs impact most on 
those that are least able to pay for it. This chart is based on 
the Department of Energy statistics, and shows that low-income 
families pay a disproportionate share of their income on 
energy, which prevents that money from being used for other 
necessities. The Centers for Disease Control states that more 
of our elderly and children died from heat exposure between 
1979 and 1999 than from all other natural disasters combined.
    For several years now, I have been trying to work on a 
bipartisan basis to head off this oncoming train wreck. During 
the last Congress we held several hearings on the need to 
harmonize our environmental and energy policies that 
highlighted the need to promote energy development and 
environmental protection. I worked with Senators Bingaman and 
Murkowski on comprehensive energy legislation, and with Senator 
Jeffords and Senator Carper to try to find a bipartisan Clean 
Air reform last year. Unfortunately, we were not able to enact 
comprehensive energy legislation on a bipartisan basis, and we 
are no closer today to solving the problems than we were a year 
ago, 2 years ago, or 3 years ago.
    In order to defuse the time bomb of skyrocketing natural 
gas and electricity prices that is sitting in our laps, 
Congress must enact a comprehensive energy policy that will 
increase our development of natural gas supplies and ensure 
that we have a diverse fuel mix for electricity generation that 
includes nuclear, renewables, natural gas, and coal. To get 
there, the Senate must pass both comprehensive energy 
legislation and also deal with this legislation that is before 
us today.
    In my opinion, the Clear Skies that you are here to testify 
about will improve the Clean Air Act by providing greater 
certainty that emissions are reduced, while providing a stable 
regulatory environment that allows utilities to install 
necessary pollution controls without the fear that those 
controls will be obsolete before they are paid for. It will 
result in cleaner air, less regulation and litigation, and 
lower energy costs to manufacturers and American consumers. 
Simply put, this legislation can provide tremendous benefits to 
the environment, and is crucial to the long-term survival of 
our economy and our manufacturing base.
    I am not going to get into the details of the legislation 
in terms of the tonnage that is going to be reduced, because I 
am sure that you will mention that in your testimony. But I 
will mention that the emissions cap and trading program in 
Clear Skies is based on the proven success of the Acid Rain 
Program contained in Title IV of the Clean Air Act, which to 
date has been the most effective clean air program, having 
reduced SO2 emissions by 37 percent through 2000, 
while saving hundreds of millions of dollars in compliance 
costs.
    The Clear Skies Program will provide power plants with the 
flexibility to choose among various options for reducing 
emissions that best fits their specific circumstances, while 
saving over $1 billion in compliance costs.
    Clear Skies also contains several provisions that reform 
existing Clean Air Act programs to streamline the regulatory 
process and help reduce the existing patchwork of regulations 
and rules.
    The flexibility of Clear Skies' market-based cap and trade 
program and the certainty of its emissions reduction targets, 
combined with these reforms, will ensure that real reductions 
called for in this bill can be achieved without forcing 
utilities to fuel-switch and without forcing electricity and 
natural gas prices through the roof. Perhaps most importantly, 
Clear Skies will help ensure that the least of our brothers and 
sisters will not be forced to forego heating their homes, and 
that our companies will not be forced to move overseas to 
remain competitive in the global marketplace due to high 
electricity and natural gas prices.
    As I mentioned at the beginning of my remarks--and I 
apologize for the length of them--this is the first of several 
hearings that we intend to hold in this subcommittee on Clear 
Skies. It is my intention to mark up Clear Skies at the 
subcommittee level as quickly as possible, and I will push hard 
to have the full committee report a bill to the floor and have 
the Senate pass it during this Congress.
    I want to thank our witnesses this afternoon. Administrator 
Whitman, I appreciate your coming to present the President's 
proposal to the subcommittee.
    It is also a pleasure to have the Administrator testify 
before us today, especially on a topic as important as this 
one. I look forward to your testimony. I look forward to the 
testimony of the other witnesses that will be before us today.
    Senator Jeffords is the ranking member of the Environment 
and Public Works Committee.
    [The prepared statement of Senator Voinovich follows:]

 Statement of Hon. George V. Voinovich, U.S. Senator from the State of 
                                  Ohio

    This hearing is the first of several that we intend to have during 
this Congress on reforms to the Clean Air Act. This is an issue that is 
critically important to me and to my home State of Ohio, a major 
manufacturing State. For several years now, this committee has been 
grappling with the complex issue of how to clean our air by reducing 
emissions without putting our economy in a stranglehold. Today, we are 
here to discuss the Clear Skies Act (S. 485), which is a proposal sent 
to us by President Bush to reduce power plant emissions and protect our 
economy.
    As we hear testimony on Clear Skies from our three distinguished 
panels today, I think we need to keep in mind the important context in 
which we consider this legislation. It is no secret that our economy is 
struggling. One of the key reasons our economy is sputtering is that we 
don't have an energy policy. As I have often stated, we sorely need to 
develop a long overdue energy policy for our Nation. As a member of the 
Energy Task Force, I will do everything I can to work for passage of an 
energy bill that harmonizes the needs of our economy and our 
environment this year. These are not competing needs. A sustainable 
environment is critical to a strong economy, and a sustainable economy 
is critical to providing the funding necessary to improve our 
environment.
    We need a policy that broadens our base of energy resources to 
create stability, guarantee reasonable prices, and protect America's 
security. It has to be a policy that will keep energy affordable. 
Finally, it has to be a policy that won't cripple the engines of 
commerce that fund the research that will yield future environmental 
protection technologies.
    Right now, about 86 percent of the electricity generated in Ohio 
comes from coal-fired facilities. For generations, the use of coal for 
electricity generation has not only provided affordable and reliable 
electricity for Ohio manufacturers, it has helped to keep the costs of 
natural gas down as well. This combination of affordable electricity 
and low-cost natural gas is absolutely critical to the health of Ohio's 
manufacturing base, and our Nation's manufacturing base.
    The absence of a comprehensive national policy that harmonizes 
energy production and environmental protection has led to an 
unfortunate (and predictable) situation in which the rules and 
regulations intended to protect our environment are threatening to 
undermine our economy while failing to achieve significant 
environmental goals.
    The Clean Air Act, enacted in 1970 to protect and enhance the 
quality of the nation's air resources, has been extremely successful in 
reducing emissions of pollutants. As these charts show--Since 1970, 
emissions of all criteria pollutants have been reduced by 29 percent 
despite the fact that energy use is up 42 percent [CHART 1], 
electricity use has grown 159 percent and Gross Domestic Product has 
grown 158 percent [CHART 2]. However, the current approach to 
regulation utilized by the EPA is plagued with burdensome and 
overlapping regulations that are subject to costly and time-consuming 
litigation and have become unnecessarily costly.





    There are now more than a dozen separate regulations on the books 
for sulfur dioxide (SO2) and nitrogen oxide (NOx) alone with 
additional regulations around the corner. As this chart illustrates, 
the regulatory process at EPA is long, complex and costly [CHART 3]. 
Further, litigation over several of these regulations has already 
delayed their implementation, forestalling the air quality benefits 
that they were designed to achieve. This patchwork of existing and 
soon-to-be-implemented regulations, coupled with the delays bred by 
continuous litigation over them, has created enormous uncertainty for 
utilities, co-ops, and municipal generators. This uncertainty has 
curtailed investments in technology that would reduce emissions at 
existing plants, prevented numerous new facilities from coming online, 
and caused several utilities to try to phase-out coal-based generation 
altogether by fuel switching.



    Fuel switching changing from coal-based generation to natural gas-
based generation is a tremendous threat to the economy of not just 
Ohio, but to the Nation as well. There are currently over 5,000 power 
plants in the United States that generate over 850,000 megawatt hours 
of electricity annually. In 2002, 19 percent of our electricity was 
generated by natural gas as opposed to 50 percent generated by coal 
[CHART 4]. Reliance on natural gas for even this much generation has 
put a tremendous strain on natural gas supplies and pushed prices on 
available gas to record high prices.



    The President's National Energy Policy Task Force projected that 
over 1,300 new power plants will need to be built to satisfy America's 
energy needs over the next 20 years. Because of the emissions limits 
and regulatory uncertainty triggered by the Clean Air Act, the 
Department of Energy currently predicts that over 90 percent of these 
new plants will be powered by natural gas. Further, analysis by EIA and 
the EPA shows that a large percentage of coal-fired plants are likely 
to be replaced by natural gas-fired plants in the near future.
    We do not have enough natural gas to power all of these new 
facilities, and we do not have the capability to increase our supply to 
meet this demand [CHART 5]. Unless Congress develops a plan to deal 
with this situation, we are looking at major natural gas shortages, 
spikes in natural gas prices, and spikes in electricity prices.



    Shortages in natural gas supply and the resultant increase in 
natural gas prices do not just affect utilities. Many other industries 
rely on natural gas such as the Farming Community, the Steel and Metal 
Industries, Chemical and Polymers Manufacturers and Food Processing 
Industry [CHART 6]. It is not difficult to understand why a major 
shortage of natural gas coupled with skyrocketing prices for natural 
gas and electricity will ensure that many of our companies will no 
longer be able to remain competitive in the global marketplace. I 
recently met with a group of Manufacturers in my hometown of Cleveland. 
I was shocked when two of them told me that they were seriously 
considering moving their operations overseas because of high energy 
prices.



    Although high electricity prices would severely affect businesses 
and their ability to compete in the global marketplace, it will have an 
even more profound impact on low-income families and the elderly. 
Everyday, many Americans are forced to make choices between paying for 
electricity or food and other essentials such as medicine when energy 
prices are high. This chart, based on Department of Energy statistics 
shows that low-income families pay a disproportionate share of their 
income on energy which prevents that money from being used for other 
necessities [CHART 7]. The Center for Disease Control (CDC) states that 
more of our elderly and children die from heat exposure (8,015 between 
1979 and 1999) than from all other natural disasters combined. The CDC 
also claims that air conditioning is the No. 1 preventative factor 
against heat exposure.



    For several years now, I have been trying to work on a bipartisan 
basis to head off this oncoming train wreck. During the last Congress, 
I held several hearings on the need to harmonize our environmental and 
energy policies that highlighted the need to promote energy development 
and environmental protection. I worked with Senators Bingaman and 
(Frank) Murkowski on comprehensive energy legislation, and with Senator 
Jeffords and Senator Carper to try to find a bipartisan compromise on 
Clean Air Act reform. Unfortunately, we were not able to enact 
comprehensive energy legislation or reach a bipartisan Clean Air 
agreement, and we are no closer to solving these very real problems.
    In order to defuse the time bomb of skyrocketing natural gas and 
electricity prices that is sitting in our lap, Congress must enact a 
comprehensive energy policy that will increase our development of 
natural gas supplies and ensure that we have a diverse fuel mix for 
electricity generation that includes nuclear, renewables, natural gas 
and coal. To get there, the Senate must pass both comprehensive energy 
legislation that promotes domestic natural gas development and multi-
pollutant legislation that will streamline the regulatory process, 
maintain the diversity of our fuel mix and achieve greater emissions 
cuts to protect our environment.
    While the task of passing comprehensive energy legislation is 
underway over in the Energy Committee and I commend Chairman Domenci 
for the work he doing on the bill--the task of passing multi-pollutant 
legislation falls on us here in this committee.
    Earlier this year, in order to move multi-pollutant legislation 
that will protect both our environment and our economy through the 
committee, Chairman Inhofe and I introduced the Clear Skies Act (S. 
485) by request. This bill--which calls for 70 percent reductions in 
SO2, NOx, and Mercury--will deliver far-reaching benefits 
and maintain energy diversity by expanding and strengthening a proven 
mandatory, market-based approach to reducing emissions.
    The Clear Skies Act will improve the Clean Air Act by providing 
greater certainty that emissions are reduced while providing a stable 
regulatory environment that allows utilities to install necessary 
pollution controls without the fear that those controls will be 
obsolete before they are paid-for. It will result in cleaner air, less 
regulation and litigation, and lower energy costs to manufacturers and 
American consumers. Simply put, this legislation will provide 
tremendous benefits to the environment and is crucial to the long-term 
survival of our economy and our manufacturing base.
    Specifically, the Clear Skies Act would establish federally 
enforceable emissions limits for SO2, NOx and Mercury. For 
SO2, Clear Skies sets a Phase I cap of 4.5 million tons in 
2010 and a Phase II cap of 3 million tons in 2018 down from 11.2 
million tons in 2000. For NOx, Clear Skies sets a Phase I cap of 2.1 
million tons in 2008 and a Phase II cap of 1.7 million tons in 2018 
down from 5.1 million tons in 2000. For Mercury, Clear Skies sets a 
Phase I cap of 26 tons in 2010 and Phase II cap of 15 tons in 2018 down 
from 48 tons in 2000. These reductions are a not only robust a 73 
percent reduction for SO2, a 67 percent reduction for NOx, 
and a 69 percent reduction for Mercury, they would constitute the 
largest Clean Air Act emission reduction targets ever requested by a 
President.
    The emissions cap and trading program in Clear Skies is based on 
the proven success of the acid rain program contained in Title IV of 
the Clean Air Act--which to date has been the most effective clean air 
program, having reduced SO2 emissions by 37 percent through 
2000 while saving hundreds of millions of dollars in compliance costs. 
The Clear Skies program will provide power plants with the flexibility 
to choose among various options for reducing emissions that best fits 
their specific circumstances while saving over $1 billion annually in 
compliance costs.
    Clear Skies also contains several provisions that reform existing 
Clean Air Act programs to streamline the regulatory process and help 
reduce the existing patchwork of regulations and rules.
    The flexibility of the Clear Skies' market-based cap and trade 
program and the certainty of its emissions reduction targets--combined 
with these reforms--will ensure that the real reductions called for in 
this bill can be achieved without forcing utilities to fuel switch and 
without forcing electricity and natural gas prices through the roof. 
Perhaps most importantly, Clear Skies will help ensure that the least 
of our brothers and sisters will not be forced to forego heating their 
homes--and that our companies will not be forced to move overseas to 
remain competitive in the global market due to sky-high electricity and 
natural gas prices.
    As I mentioned at the beginning of my remarks, this is the first of 
several hearings that we intend to hold in this Subcommittee on Clear 
Skies. It is my intention to mark-up Clear Skies at the Subcommittee 
level as quickly as possible and I will push hard to have the full 
committee report a bill to the floor--and to have the Senate pass it 
this Congress.
    I want to thank our first witness this afternoon, Administrator 
Whitman, for coming to present President Bush's proposal to the 
Subcommittee. It is always a pleasure to have the Administrator testify 
before us especially on a topic as important as this one.
    I look forward also to the testimony of our other witnesses and to 
working with the members of this Subcommittee as we move forward on 
this vital legislation.
    Senator Voinovich. Senator Jeffords?

OPENING STATEMENT OF HON. JAMES M. JEFFORDS, U.S. SENATOR FROM 
                      THE STATE OF VERMONT

    Senator Jeffords. Thank you, Senator. I am glad you are 
continuing to pursue multi-pollutant legislation. That's one of 
my favorite topics, as you well know.
    Also, I am pleased that the Administrator has come by today 
to listen to us.
    As most people know, I am a sponsor of S. 366, the Clean 
Power Act of 2003. This pollutant legislation has 19 other 
cosponsors, both Democrats and Republicans. Our bill is nearly 
identical to the one reported out by the committee last year. 
This bill basically passed the committee last year. Its 
ambitious deadlines show that we want to reduce emissions of 
core pollutants quickly to protect human health and the 
environment. The Administration's plan, Clear Skies, takes a 
different much more leisurely approach toward a few of our 
goals. This is troubling to me, since every moment of delay 
means more people that die prematurely due to power plant 
pollution. More acid rain will fall, and more mercury will spew 
into our lakes and streams, threatening children's health.
    The often-quoted and peer-reviewed study of Abt Associates 
says that power plant pollution, mainly fin particulate matter, 
is causing approximately 30,000 premature deaths annually. 
That's happening now, and I hope everyone here considers that a 
crisis.
    And yet, the Administration has not acted to regulate 
sources of this pollution under its broad authority granted by 
the existing Clean Air Act. One might even say that the 
Administration is deregulating these sources through the so-
called NSR reforms and increasing pollution.
    If the Administration were to act aggressively under the 
Clean Air Act's present authorities, according to the scenario 
that EPA presented to industry in the fall of 2001, then the 
bars in yellow on this chart are the kinds of emission levels 
we would see. Clearly, these levels are substantially lower 
than those for the pollutants under Clear Skies.
    If the Adminstration were to put forward the original EPA 
``straw proposal''--that was the agency's interpretation in 
2001 of what levels of reductions are necessary and feasible to 
protect public health--the numbers would be much lower than 
Clear Skies, almost down to the yellow levels you see on the 
chart.
    Instead of these two decent options, the Administration has 
put forward Clear Skies. Apparently, the only way to make Clear 
Skies' levels and timing look good is to assume a ``Rip Van 
Winkle'' approach at EPA. That means that EPA would have to be 
essentially asleep at the switch for the next decade and not 
regulate any further.
    We know that is ridiculous at best, given the millions of 
people who are and will be living in areas with unhealthy air. 
Indeed, today's utility witness lays out the numerous 
regulations which will require emission reductions from power 
plants over the next decade and longer.
    And finally, it is ``whistling past the graveyard'' for the 
Administration to continue ignoring the need to control 
greenhouse gas emissions. As global warming skeptics have told 
us, increasing emissions increases the risk of global change. I 
ask that a summary of a forum on weather and climate at the 
National Academy of Sciences be included in the record.
    [The referenced document follows:]

    
   
    
    
    Senator Jeffords. Omitting carbon dioxide from a long-term 
emissions control program; that will drive investments makes no 
sense from a financial or an environmental perspective. As the 
CEO from Cinergy will tell us, and has told us in the past, 
certainty is important. The Administration has not provided 
certainty on carbon.
    In its legislation the Administration asks Congress to do 
away with or downgrade the numerous programs that Congress 
established to protect local and regional air quality and to 
push control technology forward. This includes hurting States' 
ability to stop interstate pollution, cutting provisions to 
protect air quality and visibility in the National Parks, and 
delaying air toxics reduction efforts.
    In this legislation the Administration has asked Congress 
to extend attainment deadlines beyond current law, so people 
will breath unhealthy and smoggy air even longer. They want us 
to adopt a host of weak emissions performance standards, even 
weaker than current practice. These are supposed to take the 
place of the New Source Review requirements and are unrelated 
to local air quality needs.
    In exchange for all of this deregulation, we will get caps 
that are not adequate or timely enough to save all the saveable 
lives and protect the environment, and these caps will not 
stimulate the technological development that will allow us to 
use our vast coal resources safely and effectively.
    Obviously, this exchange isn't acceptable at all of the 
supporters of my bill, and Clear Skies will not become law. 
But, as I have said several times over the last 2 years, I am 
more than happy to collaborate with the Administration and all 
of the interested parties to move comprehensive 4-pollutant or 
3.5-pollutant legislation. It could become law quickly with 
Administration support; so far, however, my offer of compromise 
has been treated with silence or disdain.
    Finally, on an unrelated note, while the Administration is 
here, I want to say that I appreciate the EPA's efforts to take 
immediate emergency action at the Elizabeth Mine Superfund site 
in Vermont, in the agency's words to address ``the potential 
for a slope failure and tailing flood wave'' of up to 1 million 
cubic yards if contaminated mill tailings. That is 
unacceptable; they are willing to try to help us with it, and 
we appreciate it.
    Elizabeth Mine is one of only seven sites on the National 
Priorities List that received no funds in fiscal year 2002. Had 
the Administration fully funded the Superfund Program and 
renewed the Superfund fees, the current emergency could likely 
have been avoided.
    I look forward to working with you and your staff to ensure 
that we don't face a similar emergency during next year's 
spring thaw.
    Thank you, Mr. Chairman.
    Senator Voinovich. Thank you, Senator Jeffords.
    Now I would like to call on the ranking member of the 
subcommittee, Senator Carper.

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

    Senator Carper. Mr. Chairman, thank you for holding this 
hearing today.
    I want to welcome Governor Whitman to head up this hearing, 
and all the other witnesses. We are glad you are with us on 
this important issue.
    I want to thank our chairman for holding this hearing 
today. He has had a full day of providing leadership on 
hearings. This one is important and near and dear to his heart, 
and this one is certainly near and dear to mine.
    To follow up on what Senator Jeffords said, I think there 
is room for an alternative here. There is room for a third way, 
and my hope is that we can work really hard on both sides of 
the aisle with the Administration to find the third way, which 
would include 4-P. We will see how it unfolds.
    I think this is going to be the beginning of a productive 
discussion on how we can address our shared goals of continued 
progress toward cleaner air. Power plants are just one element 
of that effort, and what we do to address them will set a model 
for the debate on other sources of pollution, such as cars, as 
well as debate in other countries, including India and China, 
who are watching our efforts closely.
    I expect that today we will hear debated questions about 
the levels of pollution reductions and deadlines established in 
the various bills. I will make it clear that I believe that the 
Clear Skies bill just doesn't go far enough. It doesn't go fast 
enough to be considered a truly serious effort.
    On the other hand, we need to be sure that we here in this 
committee--and here in the Senate, and here in the Congress--
don't set standards that are so tight or so fast that they are 
unacheivable by any significant portion of the industry. Along 
with Senators Judd Gregg and Lincoln Chafee, I have developed a 
4-P proposal, a Clean Air Planning Act that we should consider, 
as I said earlier, a middle-ground-approach, a centrist 
approach, and we are going to be introducing it tomorrow.
    Today's hearing, though is about the President's plan. I am 
not going to try to steal any spotlight--I'm tempted to, but 
I'm not going to try to steal any spotlight to describe our 
bipartisan alternative. However, I am convinced that the 
results that would occur if Clear Skies were to pass would be a 
step backward from our current laws and would ultimately lead 
to higher costs for all of us because of unnecessary delays. I 
am also convinced that we can do better, and that's why we have 
developed our approach. I believe it is decompromise.
    A critical issue is how a multipollutant proposal, whether 
it is 3 or 4, will impact the diversity of fuel used to 
generate electricity in this country. Today, a bit more than 52 
percent of our electricity is generated by coal; approximately 
16 percent from natural gas; roughly 22 percent from nuclear, 
with the remainder from hydropower or renewables. Twenty years 
from now, I believe we an--and I believe we should--have a 
similarly diverse fuel supply. We could achieve such a diverse 
position and still address CO2. We can have a 4-P 
bill, such as our Clean Air Planning Act, and still enjoy the 
benefits that our domestic coal supply offers.
    Analysis that I have seen suggests that the Clean Air 
Planning Act would result in a similar generation of fuel mix 
by 2020, with only a slightly larger shift to natural gas from 
coal, maybe 3 percent, under our Clean Air Planning Act, when 
compared to Clear Skies in 2020. And this is with controls on 
carbon, and timelines are 5 years sooner than those proposed by 
the Administration.
    Well, this is an important debate, as we all know. I 
suggest that we agree, maybe from the outset, on four 
principles to help guide our debate, and here they are.
    No. 1, 4 is better than 3. A comprehensive 4 emissions 
strategy that includes carbon reductions will provide 
regulatory certainty and offer the greatest environmental and 
economic benefits.
    No. 2, markets do work. Cap and trade-based emission 
standards provide the maximum incentive to achieve cleaner 
power.
    No. 3, stairs are better than cliffs. Prompt but gradual 
reductions through multiphase or declining caps are more 
desireable than single-phased cuts.
    And No. 4, eliminate redundancy only when emission 
reductions are secured. Existing regulatory programs, such as 
New Source Review, will need some modernization on my view in 
light of tight emission caps that we should put in place.
    Thanks, Mr. Chairman.
    Senator Voinovich. Thank you.
    Senator Thomas?

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

    Senator Thomas. Thank you, Mr. Chairman.
    I will try to be fairly brief, Administrator, so that you 
will get a chance, perhaps, to talk.
    The issue of clean air is of great importance to all of us, 
of course, and I am very grateful for the proposal that you 
have brought forth, and the Administration. I think it is a 
move in the right direction.
    I want to talk a little bit about the fact that it affects 
us differently in different parts of the country. I spent this 
morning on the Energy Committee, talking about an energy 
policy; and all of these things kind of go together, as a 
matter of fact. Wyoming has some of the cleanest air and the 
world's most vast resources of coal and natural gas, as well as 
other resources; as you know, the quality issues differ in the 
west than they do in the east. In part because of our abundance 
of low-sulfur coal, we don't have acid rain. We don't have 
ozone nonattainment areas due to power plants. We don't have 
fine particle problems. We do have an issue with visibility. 
This has been addressed on a regionwide basis through the WRAP 
program, which puts in place a program to reduce SO2 
emissions over the next 15 years. I am pleased that Clear Skies 
embraces the WRAP program for the west.
    I am also pleased that the Administration endorses a 
separate western NOx program so that costly controls that may 
be necessary to address health risks of ozone nonattainment in 
the east are not mandated in the west.
    I wanted to discuss how to address the additions of 
Oklahoma and Kansas to the western NOx zone. When the change 
was made in the Clear Skies legislation this year,a the NOx 
allowances for Kansas and Oklahoma were left in the east. This 
action has produced an unfair situation for us in the west, and 
I think we need to correct the map.
    The west also has a difference from the east and the 
midwest with respect to mercury. The mercury emitted from sub-
bituminous coal and lignite that we burn in the west is quite 
small in volume and different in form than the mercury 
emissions produced when eastern bituminous coal is burned. 
Western mercury emissions aren't typically captured in 
scrubbers, so there is little ``co-benefit'' in reducing 
emissions of mercury by installing scrubbers for 
SO2. We must determine how Clear Skies can 
accommodate the unique circumstances associated with mercury 
emissions from western coal.
    It is my understanding that EPA modeling projects that 
power plants will reduce mercury emissions by switching from 
sub-bituminous coal to bituminous coal. I am deeply concerned 
about that as a dramatic change, and don't believe it is in the 
best interest of energy and environmental policies.
    Currently, generation of electricity from coal represents 
more than 50 percent, as we have heard. Making massive changes 
in the regulatory structure would have a devastating impact on 
the Nation's reliable energy. Also, major fuel switching to 
natural gas has occurred, and experts agree that we will have a 
shortage.
    I think we have to look at the big picture where we do what 
we have to, and be realistic about where we can be in the next 
20 years.
    So thank you for being here, and I look forward to working 
with you.
    [The prepared statement of Senator Thomas follows:]

 Statement of Hon. Craig Thomas, U.S. Senator from the State of Wyoming

    Mr. Chairman, thank you for holding this hearing today on the Clear 
Skies proposal. The issue of clean air is of great importance to the 
entire nation, but particularly to the West and my State of Wyoming 
where we have some the nation's cleanest air and world-class reserves 
of coal and natural gas, as well as wind resources. As you know, air 
quality issues are different in the West than they are in the East. In 
part, because of our abundance of low-sulfur coal, we don't have acid 
rain. We don't have ozone non-attainment areas due to power plants 
(Southern California and Phoenix have a problem due to mobile sources). 
And, we don't have fine particle problems.
    We do, however, have an issue with visibility, and we have 
addressed that on a region-wide basis through the Western Regional Air 
Partnership (WRAP), which has put in place a program to reduce 
SO2 emissions over the next 15 years. I was pleased to see 
the Clear Skies Act embraces the WRAP program for SO2 in the 
West. I am also pleased that the Administration endorses a separate 
Western NOx program, so that costly controls that may be necessary to 
address health risks of ozone nonattainment in the East are not 
mandated in the West.
    On that note, I wanted to discuss how to address the additions of 
Oklahoma and Kansas to the Western NOx zone.. When the change was made 
in the Clear Skies legislation this year, the NOx allowances for Kansas 
and Oklahoma were left in the East. This action has produced an unfair 
situation for us in the West.
    In addition to being different with respect to SO2 and 
NOx, the West also is different from the East and Midwest with respect 
to mercury. The mercury emitted from sub-bituminous coal and the 
lignite that we burn in the West is quite small in volume, and 
different in form from the mercury emissions produced when Eastern 
bituminous coal is burned. Western mercury emissions aren't typically 
captured in scrubbers, so there is little ``co-benefit'' in reduced 
emissions of mercury from installing scrubbers to reduce 
SO2. We must determine how Clear Skies can accommodate the 
unique circumstances associated with mercury emissions from Western 
coal.
    It is my understanding that EPA modeling now confirms that reducing 
mercury emissions from the 48 tons or so that the Nation emits today, 
to 26 tons in 2010, will require far more than application of controls 
to meet SO2 and NOx requirements. Instead, EPA modeling 
projects that power plants will reduce mercury emissions by switching 
from sub-bituminous coal to bituminous coal.
    I am deeply concerned about this dramatic change and do not believe 
this is in the best interest of our energy and environmental policies. 
Currently, generation of electricity from coal represents more than 50 
percent. Making massive shifts in our regulatory structure could have 
devastating impacts on our nation's most reliable energy source. 
Already, major fuel switching to natural gas has occurred and experts 
agree that we will have a shortage. I think we must look at the big 
picture and look at where we want to be, and realistically where we can 
be, in 20 years.
    Thank you and I welcome the witnesses and the Administrator's 
comments on these issues.
    Senator Voinovich. Senator Cornyn?
    Senator Cornyn. Mr. Chairman, in the interests of time and 
getting to the questions, I will yield my time.
    Senator Voinovich. I just want to note that at the 
beginning, Administrator Whitman will take one question from 
the chairman and one from Senator Carper, and after that she is 
going to leave and Assistant Administrator Holmstead will 
remain to answer any other questions that the subcommittee has.
    We are very happy to have you here with us. Thank you for 
serving our country.

STATEMENT OF HON. CHRISTINE TODD WHITMAN, ADMINISTRATOR, UNITED 
STATES ENVIRONMENTAL PROTECTION AGENCY ACCOMPANIED BY: JEFFREY 
   HOLMSTEAD, ASSISTANT ADMINISTRATOR FOR AIR AND RADIATION, 
                ENVIRONMENTAL PROTECTION AGENCY

    Administrator Whitman. Members of the committee, I am very 
happy to be here at what is the beginning, I believe, of an 
extraordinarily important process to address the President's 
Clear Skies Act of 2003, legislation that will provide cleaner 
air for all Americans. I do hope that this is the beginning of 
the process that will enable us to see a 3-pollutant bill 
enacted this year.
    Since the Clean Air Act was enacted in 1970, we've gone a 
long way in reversing the environmental damage that decades of 
unchecked pollution had inflicted on our environment. In that 
timeframe, as you have heard several times, we have reduced 
emissions of six key pollutants by 25 percent, while in fact 
our economy has grown by 160 percent.
    While laudable, there is still more that needs to be done. 
Children suffer from asthma at alarmingly high rates. Many of 
our National Parks are shrouded in a murky haze, and our 
environment continues to endure damage from poor air quality, 
even as we have continued to vigorously enforce the Clean Air 
Act.
    To address this situation, President Bush has proposed 
Clear Skies, the most significant improvement to the Clean Air 
Act in over a decade, and the most important emission 
reductions proposed by any President for the electric utility 
sector. Clear Skies is a powerful new tool for the next 
generation of air quality, building on the success of the Clean 
Air Act, while recognizing its original command and control 
methodology might not be the most efficient way to continue to 
improve our air. Indeed, it is important to note that Clear 
Skies is based on the most successful program in over a decade 
to address air quality, the Acid Rain Trading Program, which 
was created in 1990 as part of the amendments to the Clean Air 
Act. The Acid Rain Program had its genesis in the innovative 
idea that harnessing the power of the market could reap 
impressive environmental gains. By utilizing this pioneering 
cap and trade strategy, the Acid Rain Program has achieved 
nearly universal compliance and has cost far less to implement 
than traditional regulatory approaches, and has already reduced 
emissions levels to lower than those that were projected when 
the Act was passed.
    Far from providing a regulatory escape for old power 
plants, Clear Skies is aimed directly at the previously 
grandfathered plants. It would result in almost all facilities 
of over 300 megawatts--and many smaller ones, as well--taking 
action onsite, something that we have not been able to achieve 
under the Clean Air Act to date.
    Said another way, when Clear Skies is fully implemented, 85 
percent of the coal-generated power will be from facilities 
that will have advanced pollution control technology in both 
the east and the west. Clear Skies will set a uniform objective 
standard for mandatory reductions of 70 percent from 2000 
levels of the three most dangerous air pollutants emitted by 
the power utility: sulfur dioxide, nitrogen oxide, and mercury.
    Although it sets the goals, Clear Skies does not regulate 
the path to meeting those goals. This flexibility enables 
States and facilities to pursue the most cost-effective 
approach to cleaning the air, and helps ensure our ability as a 
Nation to respond quickly and efficiently to changes in the 
energy marketplace. By moving away from simple command and 
control toward a more market-based approach, we will remove 35 
million more tons of SOx, NOx and mercury from the air over the 
first 10 years of the Clear Skies Act than what the current 
Clean Air Act would achieve in the same timeframe.
    While the Clean Air Act enables EPA to regulate these three 
pollutants through the rulemaking process, unlike Clear Skies, 
there is no mandatory cap and no guarantees that emissions will 
reach those lower beneficial levels set by Clear Skies.
    When fully implemented, Clear Skies would result in $96 
billion in environmental and health benefits each year, 
benefits that include virtually eliminating the chronic acidity 
in northeastern lakes; improving visibility in our National 
Parks; avoiding 12,000 premature deaths; and preventing 15 
million fewer days when sufferers of respiratory illnesses are 
unable to carry out their normal daily activities because of 
poor air quality, according to our analysis last year.
    Clear Skies is not a change in direction, but a course 
adjustment. While our goal of cleaner air remains fixed, we 
believe that over 30 years of experience and the lessons that 
we have learned from addressing air pollution should be 
reflected as we move forward. Our environment isn't static. Our 
efforts to improve it shouldn't be static, either.
    With or without Clear Skies, there are hundreds of counties 
all across America that will have to meet the Clean Air Act 
fine particulate and ozone standards. Either we move forward 
with clear legislative guidance, or face the uncertainty of 
regulation, rulemaking, and litigation. We believe that Clear 
Skies is the far preferable path.
    In the President's State of the Union address, he stated 
that Clear Skies was one of his top domestic priorities, and I 
can attest to that fact. Every time that I have met with him 
subsequent to that, as recently as a few weeks ago, he has 
asked me about the status of this legislation.
    With strong backing from the President, the time to enact 
this legislation is now. From improving our air to increasing 
energy security to protecting human health, Clear Skies is a 
clear win for the American people. In the coming months I look 
forward to working with you to pass this legislation and begin 
reaping the environmental and health benefits that it will 
secure.
    I thank you again for the opportunity to appear, and would 
be happy to answer questions in the time allotted.
    Senator Voinovich. Thank you very much for your testimony.
    One of the things I would like to see if your EPA could 
produce would be a list of the lawsuits on both sides of the 
Clean Air Act, and how they have impacted on moving to improve 
air and public health, and utilities unwillingness to move 
forward with improvements to make their facilities more 
efficient and to provide more reasonable energy.
    Administrator Whitman. We can certainly provide that.
    Senator Voinovich. I think one of the issues here is that 
the current law has really tied us up in a cobweb of litigation 
that is not really making any improvement in the public health 
of this country or improving our air quality. We are nibbling 
away at it. There are critics that say that Clear Skies is not 
as environmentally protective as future Clean Air requirements 
would be, and that in fact it would roll back the Clean Air 
Act--as one of the Senators said, put us in a ``Rip Van 
Winkle'' environment.
    It seems to me that one of the major advantages of Clear 
Skies is that it provides both regulatory and environmental 
certainty; that is, the fact that significant emissions are 
locked into statutory deadlines that cannot be circumvented or 
delayed the way that most requirements are now being delayed.
    I would like you to comment on that allegation, that Clear 
Skies would roll back the current Clean Air Act.
    Administrator Whitman. Well, obviously, Senator, we don't 
agree with that. As you stated, putting a mandatory cap on the 
three emissions, making it clear what is to be expected, and 
requiring a 70 percent reduction from 2000 levels are very 
significant movements forward, we believe, and great 
improvements to the Act.
    You see there a chart that will tell you what we expect to 
get in emissions reductions from the Clean Air Act as it 
currently exists, and what we expect under Clear Skies. You 
will notice that in some of those columns there is--well, first 
of all you will notice that the numbers show a dramatic 
reduction, but you will also notice that there is a blank there 
for mercury, because we have not yet set a mercury standard. 
That process is in progress. We have it scheduled to be 
proposed before December of this year. It will be final in 2004 
and become enforceable in 2007 or 2008, and that is without 
litigation. We know that everything we do gets litigated. One 
of the big benefits of having Congress act with mandatory 
levels is that when Congress acts, people listen, and they 
start to respond. When EPA acts, they go to court. And that 
means that we spend a lot of time in litigation, as you pointed 
out.
    Now, we are proud of the results that we have achieved on 
the individual cases that we brought, but they are incremental. 
As you point out, Senator, it's more of a ``nibbling away.'' By 
providing certainty with a cap and trade proposal with the 
steep 70 percent reductions that the President is calling for, 
Clear Skies will, as our modeling has shown, give us a 35-
million-ton greater reduction in those three pollutants over 
the next 10 years than we can get moving forward under the 
Clean Air Act as it now exists. And that is with the vigorous 
enforcement of New Source Review as one of the tools.
    Senator Voinovich. Senator Carper?
    Senator Carper. Governor Whitman, as I mentioned earlier in 
my testimony, I mentioned that Senators Chafee and Gregg will 
be joining me tomorrow as we introduce our 4-pollutant bill, 
which is similar but not identical to legislation that some of 
us introduced last October, S. 3135.
    My question of you is this. Has EPA conducted, to your 
knowledge, formal economic and environmental analysis of the 
legislation that we introduced last October, S. 3135?
    Administrator Whitman. Senator, I am not sure of the status 
of that, but I can certainly find out for you.
    Senator Carper. If you could. If you could do that, I would 
appreciate it. If you would be willing to share that analysis 
with us, I would welcome that very much.
    My other question would be, would EPA anticipate conducting 
an environmental and economic analysis on our new legislation 
that we will be submitting tomorrow, introducing tomorrow?
    Administrator Whitman. We would be happy to work with you 
on that, Senator.
    Senator Carper. Those are my questions, Mr. Chairman. Thank 
you.
    Administrator Whitman. Senator, I understand--looking at 
the time, there are a few more minutes left here, and I would 
be happy to do some quick answer----
    Senator Voinovich. That would be wonderful. Thank you very 
much.
    Senator Jeffords?
    Senator Jeffords. At the budget hearing you said that there 
is a correlation between greenhouse gas emissions and global 
warming, from an EPA and EIA project that these emissions by 
power plants will grow by leaps and bounds over the course of 
Clear Skies. Why shouldn't this legislation guarantee real 
greenhouse gas reductions from this sector?
    Administrator Whitman. Well, Senator, as you may know, this 
Administration has undertaken a number of different programs 
directed at greenhouse gases. And as you point out, it is more 
than just carbon; there are six of them.
    First of all, as far as Clear Skies is concerned, Clear 
Skies is directed at improving and enhancing the progress that 
has already been made under the Clean Air Act, and as has 
already been stated, carbon is not a regulated pollutant under 
that act. So Clear Skies is directed at the three most 
egregious emissions from the power plants that we feel can be 
addressed now, and we want to enhance those benefits and get at 
them quickly in a way that makes sense for that sector.
    But we have a number of programs right now that are 
underway. We also have as an extraordinary commitment from the 
Administration on research on global climate change--if we get 
energy bill incentives--that includes programs to encourage 
people to use alternate technology and to improve alternatives 
to the standard energy sources that we use. That means that we 
encourage more conservation and more renewable resources. We 
believe that we will make significant progress toward the 
President's goal of an 18 percent reduction in greenhouse gas 
intensity over the next 10 years.
    Senator Jeffords. The present law and our bill put a lot of 
emphasis on reducing the number of premature deaths. Is the 
principal purpose of Clear Skies to reduce the number of 
premature deaths from power plant pollution?
    Administrator Whitman. That is certainly an enhancement of 
it. It is not the only reason to enact Clear Skies. We also 
look at the other environmental benefits that go along with it, 
and the reduction of other health concerns, such as asthma and 
bronchitis, from bad air quality.
    Senator Jeffords. But it's not the principal purpose. All 
right.
    According to the modeling, the agency's straw proposal 
would save 7,000 more lives annually than Clear Skies, and 
achieve $60 billion more benefits in avoided health damages per 
year, at an incremental cost of only $3.5 billion per year in 
2020.
    Why are Clear Skies's weaker requirements and slower 
deadlines better than the emissions reductions in the straw 
proposal for public health?
    Administrator Whitman. Well, Senator, the straw proposal 
was just that. It was our first cut, and it was a straw. On 
further analysis of that straw proposal the agency determined 
that many of the targets there were not feasible, neither 
timewise nor at levels that had been projected. That was the 
first go-round, and as we looked at the technical capabilities 
that exist in reaching some of those numbers, and also looking 
at the economic dislocation, the impact it would have, and the 
overall feasibility of achieving those goals, we determined 
that those were not the best way to approach this.
    Senator Jeffords. I would be willing to defer my other 
questions to Mr. Holmstead----
    Administrator Whitman. You can get all the really technical 
answers from him. He knows what he's talking about.
    [Laughter.]
    Senator Jeffords. Thank you, Mr. Chairman.
    Senator Voinovich. Mr. Thomas?
    Senator Thomas. Thank you, Mr. Chairman.
    I am told, and your EPA modeling now confirms, that 
reducing mercury emissions significantly will require more than 
application of controls on SO2 and NOx requirements. 
Instead, I understand, EPA's modeling projects that power 
plants will reduce mercury emissions by a significant amount by 
switching from sub-bituminous to bituminous coal.
    If so, what kind of an impact do you think that would have 
on the costs and environment and economic and energy policy in 
the west?
    Administrator Whitman. Senator, first of all, we do believe 
that in Phase 1 of the Clear Skies Act that the vast majority 
of the mercury goal can be attained through co-benefits. The 
last few tons may require something more than just a co-
benefit, moret than just an enhancement of existing SOx and NOx 
technology, tweaking that technology a little bit further to 
capture more mercury with a cap than without, or maybe some 
other actions, but we do not believe that what will be left out 
there for Phase 1 is going to require a large investment from 
the utilities. Our modeling doesn't show that.
    Without a mercury cap, I don't think there is any incentive 
to reduce mercury emissions. We have taken into account, as we 
developed Clear Skies, the difference in the type of coal--
lignite coal versus other coals. We recognize that as we set at 
the credits that utilities get for reducing mercury, reducing 
emissions from the lignite coal. We believe we are reflective 
and balanced, understanding that we still need to achieve the 
goals for air quality. We recognize the different types of coal 
and the technology available to address the mercury in 
different types of coal varies, and the expense of doing that 
varies terrifically, as well. So we have tried to anticipate 
that in the legislation.
    Senator Thomas. As you know, we are also working on an 
energy policy, and bituminous coal is one of the longer-term 
resources that we have available, and it seems to me that all 
those things have to be taken into account.
    So I hope----
    Administrator Whitman. Clear Skies anticipates a 10 percent 
increase in coal as a power source overall. In the course of 
Clear Skies, coal use will grow in both the east and the west. 
It may not grow as fast in the west as it would without any 
kind of a mercury cap, but it will still continue to grow.
    Senator Thomas. Thank you.
    Senator Voinovich. Senator Cornyn?
    Senator Cornyn. Thank you.
    Governor Whitman, you and I have discussed--my colleague 
was talking about bituminous coal, and I want to talk to you a 
little bit about lignite, which you mentioned.
    I am concerned, as I know you are, about fuel diversity. 
Much of the electricity generated in Texas, about 40 percent, 
is produced by coal-fired power plants. Under Clear Skies, EPA 
estimates that figure will drop down to 25 percent in 2020, 
which is a significant decrease. This is of particular interest 
to me because some of the plants in Texas, of course, are using 
locally mined lignite coal, a practice that is a win-win 
situation because it creates jobs, cuts down transportation 
costs.
    My question is this. Does EPA have any figures on whether, 
in Texas, the declining coal used under Clear Skies would be 
native lignite--that is, Texas coal--or coal that was imported 
from out of State?
    Administrator Whitman. I'm sure we could get that for you, 
Senator. I don't know that answer off the top of my head.
    Senator Cornyn. OK, if you would, please.
    Just one quick follow-up, and if you would like to supply 
the answer to us later, that would be fine.
    Does EPA have any figures on the decline in coal-mining 
jobs in Texas that accompanies this significant decline in 
percentage of coal-fired generation?
    Administrator Whitman. Again, I don't, but in fact your 
next--do you have an answer to that?
    OK, we both of us have to find that. I was hoping that the 
Assistant Administrator would be able to answer it right now. 
We will have to get you that.
    Senator Thomas. We'll be glad to send coal down from 
Wyoming, of course.
    [Laughter.]
    Senator Cornyn. Thank you, Mr. Chairman
    Senator Voinovich. I thank you, Administrator Whitman. We 
really appreciate your being here today.
    Administrator Whitman. Thank you very much. Thank you for 
this hearing, again. We appreciate it.
    Senator Voinovich. Mr. Holmstead, do you want to sit in the 
warm chair?
    [Laughter.]
    Senator Voinovich. As I mentioned in my opening remarks, 
the threat of fuel-switching--utilities switching from coal-
based generation to natural gas generation--is a major concern 
that must be addressed. In other words, if I look at everything 
that is being suggested, the one thing that I try to really pay 
attention to is, how far do you take us to the point where 
utilities say, ``Chuck it, we're going to go to the use of 
natural gas''? And to me, that's very, very bad because that 
then--that cost will be passed on to all their customers, and 
then I believe that would have a devastating impact on our 
economy.
    What effect will Clear Skies have on this in terms of fuel-
switching? Do you think it will cause more utilities to fuel-
switch?
    Mr. Holmstead. This is an issue that both we and other 
parts of the Federal Government have looked at pretty closely, 
for the very reasons that you suggest. As a matter of energy 
policy, we think it would be a mistake to become overly 
dependent on natural gas, so we have looked at this issue very 
carefully. I know, for instance, that EIA has looked at this 
issue very carefully. And all of our analysis shows that even 
with the stringent caps in Clear Skies, that the way the 
industry will meet those caps is by installing control 
technology on coal-fired plants and not by switching to natural 
gas.
    So we see essentially no impact on future demand for 
natural gas in the utility sector. I think when we compare a 
scenario that has us not taking any other action, the so-called 
``Rip Van Winkle'' scenario, to Clear Skies, as far as 2020, I 
think the increase in natural gas usage for power generation is 
about 2 percent. But we all know that the ``Rip Van Winkle'' 
scenario can't be the case under the current Clean Air Act. So 
we think that under Clear Skies you will actually get less 
fuel-switching than you would get under the current Clean Air 
Act.
    As I think you know, Mr. Chairman, one of the things that 
we tried to do here--and I know that Senator Carper and others 
are looking at the same type of issue--is to give the industry 
certainty and longer timeframes to plan out their investments, 
so that they can actually raise the capital and plan out their 
investments and preserve coal use. But when you have shorter 
time periods, which you sometimes do from the time a regulation 
is passed until it is implemented, it actually tends to 
encourage more fuel-switching than you would get under a 
multipollutant scenario.
    So the bottom line is that by using this more efficient, 
more certain tool, we avoid the need for any fuel switching in 
the power industry.
    Senator Voinovich. Is this philosophy of Clear Skies based 
on what we have had pretty much with the acid rain provisions 
of the Clean Air Act? I mean, there has been so much 
controversy about that, but it is my understanding that that 
has been fairly successful in moving forward and getting steady 
improvement.
    Mr. Holmstead. Well, I think this is the best indication of 
its success. Wherever I go now I run into someone who claims to 
have invented Title IV, Acid Rain Program, which I think is an 
indication of how well it has worked. Back in 1990--and by the 
way, it was actually my idea----
    [Laughter.]
    Mr. Holmstead.--the Acid Rain Program was highly 
controversial back in 1990, and there was a lot of skepticism 
over whether it would prove to be effective. But President 
Bush, the first President Bush, made that really the 
centerpiece of his Clean Air Act reforms, with support from 
people in this room today.
    What that has shown is that when you use a market-based 
program--and I believe I can quote Senator Carper, when he says 
that ``markets do work''--and you give people an economic 
incentive to over-control and to find good ways to reduce their 
pollution, you can actually achieve greater gains quicker than 
you otherwise would.
    So back in 1990, I think EPA projected that the cost of the 
Acid Rain Program would be somewhere in the neighborhood of $6 
billion to $7 billion. The industry said it would be more than 
that. Now we know, 10 or 12 or 13 years later, that in fact the 
annual cost isn't $6 billion to $10 billion; it's more like $1 
billion to $2 billion. It has substantially reduced pollution. 
It has done it in a way that we've never had to bring any 
enforcement actions because it is completely self-implementing. 
So I think it has really been, by everyone's measure, one of 
the most successful programs under the Clean Air Act. And the 
Clear Skies approach is really designed to build on that, 
simply to extend that to the two other pollutants and 
substantially lower the cap for SO2.
    Senator Voinovich. Senator Carper?
    Senator Carper. Thank you, Mr. Chairman.
    Mr. Holmstead, welcome. It is good to see you again, and 
thank you for your testimony today and your response to my 
questions. Thank you for quoting me, and don't forget that 
first principle, too----
    [Laughter.]
    Senator Carper. [continuing] . . . and as I've said now and 
then, you're welcome to do that.
    Let me say, as I said earlier, I think we can have a 4-P 
rule, such as the Clean Air Planning Act that we are 
introducing tomorrow, and still enjoy the benefits that our 
domestic coal supply offers. I say that as the only native West 
Virginian in the U.S. Senate. An analysis that I have seen 
suggests that the Clean Air Planning Act would result in a 
similar generation fuel mix by 2020; I alluded to that during 
my earlier statement. But just a slightly larger shift, maybe 3 
percent, to natural gas from coal, under legislation that we 
will be introducing, as compared to Clear Skies in 2020.
    With that in mind, any idea why the President is offering a 
bill that does not include CO2, while at the same 
time addressing SOx, NOx, and mercury?
    Mr. Holmstead. I think Governor Whitman--as she said, the 
Administration has determined that there are really better ways 
of addressing the CO2 issue and global warming in 
general. As you well know, CO2 is one of six gases 
that is believed to contribute--possibly contribute--to global 
climate change. CO2 and all of these other gases 
come from many different sectors of the economy, and it is 
really a global problem.
    On the other hand, the issues that we are trying to deal 
with in the Clear Skies Act have to do fundamentally with the 
power sector. The power sector is responsible for about 65 
percent of total SO2 emissions in the United States, 
responsible for somewhere in the neighborhood of 25 percent of 
the NOx, and I think more than 25 percent of the mercury. 
Pollutants which are having immediate and direct health 
impacts. So we just think that that sort of regulatory approach 
is appropriate for the three pollutants, but that approach 
under the Clean Air Act just isn't well-suited for dealing with 
CO2. As the Governor mentioned, we have a number of 
other programs that are proving to be successful, although some 
of them are only starting out, for dealing with the issue of 
CO2 emissions.
    Senator Carper. Any idea what percentage of CO2 
is produced in this country by our electric utilities?
    Mr. Holmstead. I know it's a significant percentage. I 
don't have that number at my fingertips, but we could certainly 
provide it to you.
    Senator Carper. I understand it's a bit more than a third.
    All right. One second question, if I could. A group of 
companies called the ``Clean Energy Group''--and I think some 
of them actually have representatives present in this room--I 
understand they ran an analysis of the legislation that Senator 
Chafee and I and others introduced last fall, and in that 
analysis they considered the cost of our bill as introduced, 
and then they considered our bill as if it were a 3-P bill, the 
same dates and levels as our bill but without any kind of 
carbon control. And what they found--this, to me, was amazing--
they found that by adding CO2 to the other 3 Ps they 
would increase the total system cost of compliance by just 
about 1.5 percent.
    My question is this. If we can get the benefit of carbon 
controls for less than 2 percent in additional compliance 
costs--that's actually within the margin of error on most 
models--why is the Administration not addressing carbon?
    Mr. Holmstead. I guess what I would have to say is that I 
haven't seen that analysis. I suppose that could be correct, 
although the numbers that I've seen in terms of cost for 
CO2 suggest that it could be more than that. But I 
think the real answer is, we believe it is important to look at 
CO2 in its proper context. To the extent that we 
need to address CO2 and other greenhouse gases, the 
fact that we may make some modest reduction from one sector of 
the U.S. economy is probably not very relevant, and we think it 
would be much more efficient to focus on improvements in 
technology. I know, being a native of West Virginia, you must 
be aware of the President's proposal on FutureGen, which is $1 
billion to try to develop a power plant working with other 
partners a power plant that would have zero emissions of 
CO2 and zero emissions of pollutants. We think it is 
important to focus our efforts on those sorts of things that 
really can resolve the issue in the longer term instead of 
looking at shorter-term things.
    And I think my personal perspective is, I would hate to 
have us lose the benefits of very substantial reductions in 
these other pollutants that are having immediate health 
consequences, as we continue to take a much longer time to try 
to develop an elusive consensus on CO2.
    Senator Carper. Mr. Chairman, my time has expired.
    Let me just say, as I relinquish this microphone, that I 
find it of more than just passing interest, that we could add a 
fourth P to the Administration's proposal and not have a very 
substantial impact on the fuel mix, coal or natural gas, 
between what it is today and what it might be in the year 2020, 
and I think that's relevant to this debate.
    The other thing that I described as amazing, that is 
surprising to me, that we can add a fourth P to a 3-P proposal, 
so that we are comparing apples with apples, and do so while 
adding less than 2 percent to the compliance cost. Those aren't 
my numbers; those are the numbers that were produced by a 
consortium of the Clean Energy Group, which includes a number 
of companies and utilities in this country.
    Thank you again.
    Senator Voinovich. Senator Cornyn?
    Senator Cornyn. Mr. Chairman, I asked Governor Whitman 
about lignite. My understanding is that lignite coal is not 
only used significantly in Texas, but also in North Dakota, 
Louisiana, and Mississippi.
    My concern has to do with the technology availability to 
reduce mercury--removal levels in lignite coal. I discussed 
this at the earlier budget hearing with Governor Whitman, and 
while I applaud her goals and optimism, I want to make sure 
that for Texas it doesn't represent a big gamble.
    Can you tell me about any commercially available technology 
that is available today for mercury removal from lignite?
    Mr. Holmstead. We understand that the technology known as 
Activated Carbon Injection, or ACI, is designed--and should be 
successful--in removing mercury from lignite.
    Now, your question was, is that commercially available, and 
I think the answer to that is that it's not at this point. We 
don't have full-scale kinds of projects. But that's one of the 
reasons why we are really focused on having an overall cap as 
opposed to plant-by-plant kinds of requirements. One of the 
things that we all learned in 1990 is that as much as we may 
know about what we think are appropriate ways to reduce 
emissions, that the marketplace, left to its own devices, can 
find better ways of doing it. And so by having emission caps, 
first of 26 tons and then 15 tons, it may be that for that 
lignite plant it doesn't make sense to put specific controls on 
that, but another plant could over-control
    So the real issue here is how we get to that overall cap, 
and so we're not as concerned about specific--what can be 
achieved at a specific plant.
    I will say that we recognize that it seems to be more 
expensive to reduce mercury emissions from lignite coal, and we 
have tried to address that in terms of the allowances. So I 
think you are probably aware that we have tried to account--we 
would like to be able to equalize the cost of control across 
the different coal types, and we believe, based on what we've 
seen, that it can be controlled; it's just more expensive to do 
so. So we have taken that into account in the allowance system.
    Senator Cornyn. I appreciate the fact that the bill does 
take into account the particular difficulty with which mercury 
removal from lignite is greater than other types of coal. But 
just to clarify, you are saying that to your knowledge there is 
no currently commercially available technology to remove 
mercury from lignite?
    Mr. Holmstead. I think to be completely correct, I should 
say that there is a commercially available technology. To my 
knowledge it has not been used on a full-scale lignite plant 
yet. I think the vendors are telling people that they will 
guarantee that it can be used, but the folks that do the 
technology reviews believe that's the case.
    But you are correct, we don't at this point have--at least 
as far as I know--a full-scale, full-size plant burning lignite 
that uses ACI technology.
    Senator Cornyn. No demonstration of it----
    Mr. Holmstead. I am sure my staff will correct me, which 
they are fond of doing, but I do think that we have some cases 
where we have plants burning lignite coal that have other 
control systems designed to reduce NOx and SOx, but also 
reducing mercury. So I believe that we have some evidence of 
that, but you are correct that there is much more uncertainty 
about exactly how we would get emission reductions from plants 
burning lignite.
    Senator Cornyn. Are you referring to the North Dakota test? 
My staff advises me, and you can just check this out and get 
back to me----
    Mr. Holmstead. I would be happy to.
    I understand that there is a difference between the lignite 
in North Dakota and the lignite in----
    Senator Cornyn. I just want to make sure that we're 
comparing apples with apples. So I would ask you to provide my 
staff with the test on North Dakota or any other place where 
you have found this to be successful, or claim to be 
successful, so that we can compare that to our situation in 
Texas.
    I yield back for now.
    Senator Voinovich. There being no other questions, you are 
excused, Mr. Holmstead. I know you will be available to the 
committee and staff as we move along to try to mark this bill 
up.
    Mr. Holmstead. Thank you very much for the chance.
    Senator Cornyn. Mr. Chairman, I just have one or two other 
questions I would like to submit in writing, if I may, and get 
responses in writing.
    Senator Voinovich. Let the record show that Senator Cornyn 
will be submitting questions in writing. We are now going to 
ask Mr. Glenn McCullough, chairman of the TVA, to be our next 
witness.
    Mr. McCullough, we are very pleased that you are here today 
to testify on behalf of Public Power. You may proceed with your 
testimony.

STATEMENT OF GLENN MC CULLOUGH, JR., CHAIRMAN, TENNESSEE VALLEY 
                           AUTHORITY

    Mr. McCullough. Thank you, Mr. Chairman, and members of the 
Subcommittee.
    On behalf of the TVA Board and our employees, thank you for 
the opportunity to discuss our views on clean air and more 
specifically, the Clear Skies Act of 2003. As both steward of 
the environment and provider of electricity in the Tennessee 
Valley, TVA has a unique perspective on the clean air issues 
facing our region and the Nation. Each day TVA works to find 
the best balance for providing affordable reliable electricity 
to fuel a sustainable and vibrant economy and enhancing 
environmental quality.
    No aspect of that balance is of greater importance than the 
issue you are considering today--clean air. Through 158 local 
utilities and 62 large industrial customers, TVA supplies 
electricity for 8.3 million people across a seven-State region. 
The President's national energy policy recognizes the 
importance of a diverse generating mix for our Nation.
    TVA's power system reflect such diversity. The diversity of 
our system requires a comprehensive commitment to environmental 
stewardship. That commitment is reflected by a record of 
emissions reductions. Since 1977, TVA has reduced sulfur 
dioxide emissions by 76 percent. We plan to invest an 
additional $1.5 billion to build an additional five scrubber 
systems. This action, along with switching to low sulfur coal, 
will reduce SO2 emissions 85 percent from 1977 
levels and when completed will result in scrubbers on more than 
half of our capacity.
    In the past 8 years TVA has reduced nitrogen oxide 
emissions by 50 percent, and in the future we are investing 
more than $1.1 billion to install selective catalytic reduction 
systems or similar technologies on 25 generating units. In 
combination with other controls, the SERs will reduce our NOx 
emissions by 75 percent during the ozone season.
    By 2005, we will have SERs on more than 60 percent of our 
coal-fired capacity. So far TVA has invested more than $3 
billion for clean air improvements, and by 2010 we will have 
invested nearly $5.6 billion.
    As I outlined, we are in the midst of one of the most 
aggressive emission reduction programs in the Nation which 
means that between now and the end of decade, TVA will spend an 
average of nearly $1 million a day to improve air quality. We 
know that emissions from all sources--stationery and mobile--
must continue to be reduced.
    For that reason, Mr. Chairman, I am here today to endorse 
the Clear Skies Act of 2003. While the current Clean Air Act 
has done much to improve air quality, it contains provisions 
that could threaten reliability and affordability of the 
Nation's electricity supply. Affordable, reliable electricity 
is achieved, in part, by the industry's ability to use a 
diverse number of fuel sources including coal, our Nation's 
most abundant energy source.
    The Tennessee Valley depends on coal for about 60 percent 
of our electricity. Unfortunately, this vital energy resource 
currently faces a complicated web of overlapping, duplicative, 
and unnecessarily costly emission control requirements to 
create enormous uncertainty for future investment.
    For example, there are more than a dozen separate 
regulations for sulfur dioxide and nitrogen oxides alone. At 
times disputes over these regulations have significantly 
delayed the improvement of air quality they were designed to 
achieve. This piecemeal approach should be replaced with a set 
of timetables and reduction targets for sulfur dioxide, 
nitrogen oxide, and mercury.
    We believe that Clear Skies, a well-designed multi-emission 
approach, will continue the national trend of better air 
quality and provide additional benefits. Those benefits include 
a streamlined regulatory process; sustained diversity in the 
Nation's fuel supply; and market-based mechanisms for achieving 
reductions that are fair. They are fair to both public and 
private power providers.
    Clear Skies would give the utility industry the certainty 
it needs to plan and to finance emission reductions without 
unduly driving up prices for consumers. Such results have been 
demonstrated by the very successful Acid Rain Program, as has 
been referenced to today.
    While TVA endorses the reduction targets and timetables in 
Clear Skies, some provisions could be addressed to achieve the 
same environmental benefit and be less burdensome to coal-fired 
generations. Specifically, we urge you to ensure that the 
interim 2010 mercury targets reflect the Administration's 
intent of reducing mercury to levels achievable via a cap-and-
trade system through the co-benefits provided by sulfur and 
nitrogen control technologies. This would allow utilities that 
have already reduced mercury through sulfur and nitrogen 
technologies to realize credit for previous action.
    In conclusion, Clear Skies is a very aggressive proposal. 
Unlike those advocating for more stringent targets and 
timetables, TVA uniquely knows what is required to achieve 
reductions such as those called for in Clear Skies. As I 
mentioned earlier, TVA will have invested $5.6 billion in 
emission reductions by the end of this decade. Achieving the 
results contemplated by Clear Skies would require TVA to invest 
an additional $4 billion between now and 2018.
    To achieve more on a faster timetable would increase costs 
considerably and place an unrealistic burden on both the 
consumer and the economy for little additional environmental 
benefit. The TVA appreciates the Subcommittee's valuable work 
in shaping a balanced, achievable path to cleaner air for our 
Nation.
    Thank you. I will be happy to respond to any questions you 
may have.
    I would ask that my written statement be placed in the 
record in its entirety.
    Senator Voinovich. Mr. McCullough, are you familiar at all 
with the bill that was marked up by this committee last year, 
the Jeffords-Lieberman bill?
    Mr. McCullough. I have not researched that bill, Senator.
    Senator Voinovich. One of the provisions that is contained 
in the bill deals with the issue of greenhouse gases, 
CO2. There has been some debate on whether or not 
CO2 ought to be included in Clear Skies. Preliminary 
to that, I have been doing what I can, working with Senator 
Carper and some other people to see if we cannot find some kind 
of a compromise that will deal with the issue of greenhouse 
gases.
    Mr. McCullough. Yes, sir.
    Senator Voinovich. The question is: If we cap 
CO2, what impact would that have on TVA?
    Mr. McCullough. Mr. Chairman, I would have to know what the 
cap might be. We believe that the President's proposal to 
voluntarily reduce greenhouse gases is responsible, and is one 
that has worked. TVA, over the last decade, has reduced our 
greenhouse gas emission by over 200 million tons. We have done 
that by introducing renewables, by biomass, co-firing our coal 
units, and by other technologies.
    We believe that the Administration's proposal to 
voluntarily call for a reduction in greenhouse gases at this 
point in time with the level of technology still advancing in 
terms of greenhouse gas sequestration and containment, is a 
responsible way to proceed.
    Senator Voinovich. I would like you to run the numbers on 
the bill last year. There will be a number in the bill that I 
am sure Senator Carper introduces. I would just like to get 
your honest opinion about what impact it would have on your 
operation.
    What impact do you think that Clear Skies would have on 
your ability to maintain your diverse fuel mix? You have 60 
percent coal. What is the rest of it?
    Mr. McCullough. Mr. Chairman, that is right. TVA's 
generation mix is about 60 percent goal. Clear Skies is very 
ambitious and very aggressive. Control will be required to 
achieve the reductions in nitrogen oxide and sulfur dioxide 
that Clear Skies calls for. It provides a 15-year period of 
time so that utilities can prepare to meet these reductions in 
a way that is responsible for the consumer.
    At the same time, we can continue to rely on what is about 
a 300-year most abundant supply of fuel that this Nation has. 
We can continue to implement clean coal technologies that are 
reducing in a really significant way the NOx and sulfur 
emissions. We feel that we can continue to add to the diversity 
in the strength and not reliance of any one single fuel mix of 
renewals, the expansion of safe nuclear, and hydroelectric. We 
believe that all of these diverse generation mixes are the key 
to having energy security and achieving additional reductions 
in emissions.
    Senator Voinovich. Thank you.
    Senator Carper?
    Senator Carper. Welcome, McCullough. We are delighted to 
have you before us today.
    I understand you may have a common bond with our chairman. 
Have you ever been an elected official?
    Mr. McCullough. Yes, sir.
    Senator Carper. What position did you hold?
    Mr. McCullough. Senator, I was elected mayor of Tupelo, 
Mississippi.
    Senator Carper. Are there any famous people who ever born 
in Tupelo?
    [Laughter.]
    Mr. McCullough. Elvis Presley might come to mind.
    Senator Voinovich. Thank you, very much.
    [Laughter.]
    Senator Carper. He does a great Elvis impersonation. He 
just gave us a little piece of it here. This is the guy who 
started the Rock and Roll Hall of Fame when he was Mayor of 
Cleveland.
    Senator Voinovich. Absolutely.
    Senator Carper. You guys may want to get together and jam 
later.
    [Laughter.]
    Senator Carper. I want to follow up on a question of a 
response that was going back and forth between you and our 
chairman. The question I think he was asking was the effect on 
TVA of the enactment of legislation that addresses 
CO2, that addresses carbon. You indicated, 
understandable, that you would have to know what the caps were 
before you would be able to give some indication of how you and 
the folks of TVA would be able to respond and comply.
    The legislation introduced by our colleague, Jim Jeffords, 
who has already gone, if I am not mistaken, his legislation 
says that by 2008, we should have reduced emissions of 
CO2, of carbon, so that the levels are back to those 
that existed in 1990.
    The proposals that I and some others will introduce 
tomorrow have two goals: an interim goal and then a longer-term 
goal. By 2009, we would expect the industry to have levels of 
emissions no greater than what existed in 2005.
    Further, by 2013, we would expect those levels of emissions 
to have been reduced to have existed in 2001. So in 2009 we 
want to be back down to 2005 levels, and in 2013 we want to be 
back down to 2001 levels.
    If you could give us some initial reaction to that, I would 
welcome it. You have an array of proposals here from Senators 
Jeffords' very aggressive approach, to the Administration which 
chooses not to include carbon in their proposal, to what I have 
outlined, the stair step approach.
    What are your thoughts?
    Mr. McCullough. Senator, and Mr. chairman, I will get the 
analysis run. We will certain respond in more detail as to how 
that could affect TVA's system.
    We believe that a reduction in greenhouse gases to an 18 
percent intensity of the U.S. economy by 2012 is responsible 
and very ambitious, and yet an achievable greenhouse gas 
strategy.
    I will be happy to take a look at the caps that are called 
for and do the analysis on our system and get that information 
to you in more detail.
    Senator Carper. You mentioned the 18 percent reduction. I 
think Governor Whitman may have alluded to that as well in her 
own testimony.
    My understanding is that it is not an outright 18 percent 
reduction, but it is an 18 percent slower growth in the level 
of emissions.
    Mr. McCullough. It is my understanding that in 2012, we 
would have a greenhouse gas intensity that would not exceed 18 
percent of the economic activity. The is a range, a ratio, that 
you can measure there.
    Senator Carper. We will have an opportunity to double check 
that. I will double check it and perhaps you could as well. But 
my understanding is that the 18 percent reduction is not a 
reduction overall, but it is a reduction of 18 percent in the 
growth.
    I see some members of the audience nodding their heads. So 
I am thinking maybe there is something to that.
    Mr. McCullough. Yes, sir.
    Senator Carper. This is more of a personal question, but we 
are among friends. Just talk to me about your own personal 
commitment and views on clean air. You have an obligation to 
the folks who work for you and your customers. Talk to me about 
your obligations that you feel to the people who may live in 
the areas that you serve and the rest of us who live downwind. 
Talk to us about SOx and NOx and CO2 from your 
heart.
    Mr. McCullough. Thank you for the question, Senator. TVA 
does have an intense responsibility to ensuring that our air is 
cleaner. As I said, we have invested over $3 billion to date to 
bring down NOx and sulfur dioxide emissions significantly. By 
2005, TVA will reduce nitrogen oxide emissions by 75 percent.
    Senator Carper. By when?
    Mr. McCullough. By 2005.
    Senator Carper. Compared to what?
    Mr. McCullough. Going back to 1997 levels when we started 
this ambitious selected catalytic reduction system strategy. By 
the same year in 2005, we are going to reduce carbon dioxide 
emissions by 85 percent through the employment scrubbers.
    Now, going forward, if Clear Skies were implemented, we 
would have to install SERs on 23 additional units at a cost of 
another $5 billion by 2018.
    Senator Carper. You said $5 billion by 2018?
    Mr. McCullough. Yes, sir.
    Senator Carper. Give me some idea of what your revenues are 
in a year? Do you have any idea what your revenues were last 
year?
    Mr. McCullough. Yes, sir. Our revenues in fiscal year 2002 
were $6.8 billion.
    Senator Carper. So, looking at between now and 2018, we are 
talking about revenues probably close to $200 billion?
    Mr. McCullough. Our revenues are growing at 2 to 3 percent 
per year. I would have to project that out for you.
    Senator Carper. I was just trying to get an understanding 
of what percent of your revenues a $5 billion is suggesting. It 
sounds like it is about 2 or 3 percent.
    Mr. McCullough. We are spending $527 million in this fiscal 
year alone on clean air. That is on a $7 billion budget. We are 
projecting to reduce SOx emissions by 85 percent by 2005. 
Again, we would have to control 40 additional generation units 
if Clear Skies were enacted by the year 2018. This is very 
aggressive.
    Senator Carper. Just out of curiosity. How do you fund 
those investments? How much did you say this year?
    Mr. McCullough. $527 million.
    Senator Carper. How do you fund that?
    Mr. McCullough. Although we are owned by the Federal 
Government, TVA is totally self-financed. We do not rely on any 
appropriated dollars. So all of the funding for clean air, for 
a higher quality of water, for power generation, and 
transmission upgrades to run our system and to reduce our debt, 
comes from the ratepayers of the Tennessee Valley.
    Senator Carper. Do you issue debt?
    Mr. McCullough. Yes, we do issue bonded indebtedness.
    Senator Carper. Will you issue debt in part to pay for 
those kind of investments?
    Mr. McCullough. Yes, this Board is committed to continuing 
to bring our debt down.
    Senator Carper. To quote a native son of Tupelo, ``Thank 
you very much.''
    [Laughter.]
    Mr. McCullough. You are welcome, very much.
    Senator Voinovich. Are you familiar with the Jeffords-
Lieberman numbers for the 3-Ps--NOx, SOx, and mercury?
    Mr. McCullough. No, sir; I am not.
    Senator Voinovich. I would like to get your reaction to 
what those numbers would do if that legislation had passed. The 
real issue is whether or not it would have caused you to fuel 
switch?
    Mr. McCullough. Mr. Chairman, we would like to do that 
analysis in detail and report back to you.
    Senator Voinovich. Have you ever calculated what impact 
fuel switching to most probably natural gas would have on your 
customers?
    Mr. McCullough. It would result in an increase in cost due 
to the volatility in the price of natural gas. We do rely on 
natural gas for peaking capacity, but primarily our system, as 
I stated, is close to 60 percent coal. We are about 25 percent 
nuclear. We are uprating our nuclear units bringing on line the 
first reactor in the 21st century at Browns Ferry. We are 
modernizing our turbines in 29 of our hydroelectric facilities. 
We are doing renewables. We are doing solar, wind, and land 
fill gas. We rely on natural gas for peaking capacity.
    Senator Voinovich. Thank you.
    Senator Carper, do you have anything else?
    Senator Carper. I have just one last quick question.
    We had a hearing last week with the Department of Defense. 
We were talking about their interest in being ``excused'' from 
strict compliance with some of our environmental laws when it 
comes to cleaning their environmental hazards and waste sites.
    One of the points that we made to the Department of Defense 
is that while we are not interested in doing anything that 
curtails the readiness and their ability to defend our security 
at home and our interests abroad, we felt that because they are 
a government agency, they had a special obligation to be good 
stewards of our environment. Your authority is not exactly a 
government entity but created by the government and has a 
special standing and I think maybe a special responsibility.
    I was pleased to hear of your interest in looking to 
renewables--wind, solar, and others--as you provide power to 
your customers.
    I would also ask you just keep in mind the special standing 
that you have and the special responsibility that you have with 
respect to our environment and our clean air. I think you have 
that. I just want to reinforce that today.
    Mr. McCullough. Thank you, Senator. We definitely concur 
with that point. I can assure you that we take that 
responsibility very seriously.
    Senator Carper. The last question I would ask is: People 
sometime say to you, ``What do you want to do next in your 
life?'' I always tell them, ``I would like to move to a little 
city--not Cleveland. Just a little city and maybe be their 
mayor.''
    What is it like being mayor of Tupelo?
    Mr. McCullough. It is a wonderful opportunity.
    Senator Carper. My home town is a wonderful city. That was 
a great opportunity. The opportunity to serve at TVA is 
likewise. I was with three mayors from Alabama earlier this 
morning. It is a great accountability to be held accountable 
and to have this opportunity to hear your thoughts and to 
respond.
    Thank you, Mr. McCullough.
    Senator Voinovich. Thank you for joining us.
    Mr. McCullough. My pleasure.
    Senator Voinovich. The first witness of our next panel will 
be Mr. Jim Rogers, CEO and President, Cinergy Corporation. Mr. 
Rogers is going to be here on behalf of the Edison Electric 
Institute which represents the major utility companies in the 
United States. This is an Ohio-based utility, Cinergy 
Corporation.
    Mr. Rogers is not only representing them but he is also 
representing the Edison Electric Institute.
    He will be followed by Ken Colburn of the Northeast States 
for coordinated Air Use Management; David Hawkins, Climate 
Center Program Director, Natural Resources Defense Council; 
Eugene Trisko, United Mine Workers of America; and Bernard 
Melewski, Adirondack Council.
    Mr. Rogers, we are very happy to have you here today with 
us. Thank you.

     STATEMENT OF JAMES ROGERS, CEO AND PRESIDENT, CINERGY 
    CORPORATION, ON BEHALF OF THE EDISON ELECTRIC INSTITUTE

    Mr. Rogers. Thank you, Mr. Chairman. I appreciate the 
opportunity to be here today. I want to start by thanking you 
personally for your leadership on this Subcommittee and driving 
these important issues forward because it is critical to entire 
economy to get it right.
    As you said in your opening statement, it is really all 
about harmonizing our energy, environmental, and economic goals 
in this country. I have every hope that with your leadership we 
will get that done.
    While it is your job to harmonize, my job is to translate 
our country's goals and policies into kilowatt hours delivered 
into the homes and businesses of Ohio, Indiana, and Kentucky. I 
take my stewardship in a very serious way. That is why I have 
been for many years a supporter of multi-emission legislation 
that has ultimately been embodied in the Clear Skies proposal.
    My job is to purchase fuel. We purchase almost $800 million 
a year, or 30 million tons of coal to purchase gas, to build 
power plants, to build scrubbers and SERs to reduce emissions, 
to invest in new technologies.
    Senator Carper, this really goes to your question about 
stewardship, we spent $950 million to reduce emissions. On NOx, 
we spent on $800 million, which is significantly more than many 
projected that it would be because of the compressed time lines 
that occurred. With respect to Clear Skies, we are going to 
spend roughly $1.5 billion.
    My job is to make sure this impact on our customers, our 
investors, and our communities is done in a way that creates a 
value for all of them. My testimony lays out all of the 
specific issues. It urges you to go to work. I am prepared to 
go to work and to spend the $1.5 billion to make further 
emissions reductions.
    I do not think that there is any question that the Clean 
Air Act is broken. I think everybody that is sitting here could 
support that. Just look at the proposals--whether it is Senator 
Jeffords' proposal, or whether it is your proposal, Senator 
Carper, or whether it is Clear Skies--everybody is pointing to 
the fact that it needs to get fixed. There needs to be a sense 
of urgency about getting it fixed. I do not think anybody 
disagrees with that.
    I think the other thing is we need to reach agreement. 
Every day we delay, every day we are in court litigating the 
Clean Air amendments in the Clean Air Act, is a day delayed in 
reducing emissions. I urge you to have a robust debate, but not 
an endless debate. Again, every day you debate is one less day 
we have to reduce emissions.
    The important issues are to maintain coal's position in the 
mix. This is a diversity of fuel issue. We have to get that 
right. We have to keep coal in the mix. Under the current Clean 
Air Act, we are going to become increasingly dependent on gas. 
In my judgment that is not a good thing for this country.
    In the last 3 years we have built 10 years of generating 
capacity in this country, all gas-fired. No time in the history 
of our country have we built so much generation predicated on 
one fuel. What I worry about is where the gas is going to come 
from? Is it going to be new L&G terminals with all the 
environmental issues there and the importation and further 
dependency on the Middle East? Is the gas going to come from 
wilderness areas? Is it going to come from offshore? Is it 
going to come from Alaska?
    These are the questions we need to ask. We have not 
answered those questions in an affirmative way that really 
allows the gas supply to be there. Just this winter in Ohio 
three still plants were shut down because gas prices went so 
high. Heating is a very critical factor to make sure we have 
adequate heating.
    I would urge you to remember back to 1978 when this 
Congress passed the law banning the burning of natural gas to 
generate electricity. It was repealed 6 years later, but the 
fact of the matter is that we think of gas as a premium fuel. 
If we go back to that way of thinking again and looking at the 
supply/demand balance, we may well. If we go back to that way 
of thinking again, where do we turn to meet the demand for 
electricity in this country. The place we turn is to coal where 
we are so dependent today.
    My recommendation to you is to go to work, get it done, 
give us the ability to go to work and continue to reduce 
emissions in the future.
    Thank you very much.
    I would ask that my written statement be placed in the 
record in its entirety.
    Senator Voinovich. Thank you.
    Our next witness will be Ken Colburn, Executive Director, 
Northeast States for Coordinated Air Use Management.
    We are glad to have you here today.

STATEMENT OF KEN COLBURN, EXECUTIVE DIRECTOR, NORTHEAST STATES 
               FOR COORDINATED AIR USE MANAGEMENT

    Mr. Colburn. Thank you, Mr. Chairman. My name is Ken 
Colburn. I am Executive Director of NESCAUM, an association of 
air quality agencies of the eight Northeast States. I am 
pleased to fill in for New Jersey Department of Environmental 
Protection Commissioner, Bradley Campbell, who had to leave for 
some appointments with Members of Congress.
    The Northeast States strongly support an integrated multi-
pollutant approach to reducing power plant emissions, and have 
so testified before you in the past. We applaud the 
Administration and the committee for making such legislation a 
priority in this Congress.
    In the Northeast, where sulfur dioxide and nitrogen oxide 
emissions from upwind power plants contribute significantly to 
fine particle and ozone pollution, acid rain, and poor 
visibility in our wilderness areas, we have long appreciated 
the need for Federal action.
    Mercury contamination had led to fish consumption 
advisories on our lakes and rivers, creating an urgent need to 
curb the buildup of this persistent neurotoxin in our 
environment. We see the problem of climate change as presenting 
unprecedented challenges for our ecosystems and quality of 
life, but also great economic opportunity for those who develop 
the clean energy technologies of the future.
    For these reasons, the Northeast States have followed with 
keen interest the multi-pollutant initiatives now before 
Congress, including the Administration's ``Clear Skies'' 
proposal. In evaluating each, we have asked three core 
questions:
    Is it comprehensive? Does it adequately address public 
health and the environmental challenges we face? Does it ensure 
continued clean air progress, not only at the national level, 
but at the local, State, and regional levels as well.
    Recognizing Clear Skies as a starting point for the 
committee's deliberations, I want to focus my remarks today on 
how Clear Skies can be improved to meet these tests.
    First, emission reductions can and should happen sooner. 
Many areas of the country need to attain new, more stringent 
standards for ozone and fine particles in the next four to 7 
years. Yet, the emissions caps in Clear Skies will not be fully 
implemented until 2018. Delaying these cuts for another 15 
years is a problem for States trying to reach attainment, but 
it is an even bigger problem for individuals experiencing 
serious health concerns.
    Second, we can and should do more to reduce mercury 
emissions. Given the availability of highly effective control 
technologies, and the bioaccumulative threat posed by this 
toxin, we should not depend only on co-benefits from other 
controls. Mercury emissions should be capped at a level around 
half what Clear Skies proposes.
    Third, national multi-pollutant legislation must address 
the intractable problem of transported air pollution, and must 
not weaken or remove the regulatory tools that States rely on 
to improve air quality at the local and State levels. There is 
no guarantee that regional transport concerns will be solved 
under Clear Skies. Yet, States would be unable to secure 
Federal help in addressing transport until after 2012. Even 
then, new hurdles for Federal intervention could make the 
current transport provisions of the Clean Air Act essentially 
unenforceable.
    States support constructive reform of the Clean Air Act 
provided it advances clean air objectives and is strictly tied 
to implementation of new reduction requirements. Clear Skies 
appears to go too far in the direction of regulatory reform, 
however, weakening or even eliminating several provisions of 
the Clean Air Act before its caps even take effect. Several 
such concerns including New Source Review, regulation of non-
mercury toxins, potential local impacts, and protection of 
States' rights are listed in an attachment to my testimony.
    The bottom line is that it is better for States to have too 
many tools and not need to use them than to have States in a 
Catch-22 position with the responsibility for reaching 
attainment, but without the tools to do so.
    The final issue I want to address is carbon dioxide. It 
belongs in multi-pollutant legislation because without it, the 
market signals and business certainty needed to promote sound 
investment decisions will remain absent. The result will be 
greater climate risk and higher costs for both the industry and 
consumers. The Northeast States feel so strongly about the need 
to act on climate change that they have made State level 
commitments to reduce greenhouse gas emissions. Some have 
included carbon in their own aggressive 4-P initiatives. 
Regulation of carbon does not need to be onerous, but carbon 
does need to be ``in.''
    In short, we support multi-pollutant legislation that does 
both more and less than Clear Skies proposes, more (and sooner) 
in terms of pollution reductions, and less in terms of altering 
the Clean Air Act.
    Earlier, the EPA Straw Proposal was mentioned. We urge the 
committee to revisit EPA's Straw Proposal and other current 
legislative initiatives to see about capturing the additional 
benefits I have already enumerated.
    In closing, let me thank you for considering our views. 
Again, we commend the Administration for keeping multi-
pollutant legislation on its legislative agenda. The Northeast 
States believe that the opportunity for real progress here is 
as great as the need for it. We look forward to playing a 
constructive role in this effort.
    Thank you, Mr. Chairman.
    I would ask that my written statement be placed in the 
record in its entirety.
    Senator Voinovich. Thank you.
    Mr. Hawkins?

STATEMENT OF DAVID G. HAWKINS, CLIMATE CENTER PROGRAM DIRECTOR, 
               NATURAL RESOURCES DEFENSE COUNCIL

    Mr. Hawkins. Thank you, Mr. Chairman.
    I would request that my full statement be placed in the 
record in its entirety.
    On behalf of the National Resources Defense Council, I will 
try to highlight the three major policy failings in the 
Administration proposal. They are: The proposal fails to 
protect public health; it repeals or weakens key safeguards in 
existing law, and that by ignoring carbon dioxide it worsens 
global warming.
    On the first point, public health, the evidence is 
undisputed that power plant pollution contributes to some 
30,000 premature deaths a year in the United States along with 
other damages. The first question you should ask about any 
proposal before us: How good a job does it do in reducing that 
toll of public health damage?
    The first chart to your right shows that the Administration 
proposal does not do an adequate job. It fails to protect 
public health, especially when compared to proposals that were 
sent into the Administration but never came out of the 
Administration. I refer to what was called the ``Straw 
Proposal'' of EPA.
    That was the label on the document. The analyses were not 
straw analyses. They used the same peer-reviewed methods as the 
Administration's proposal, but analyzed a tighter cap. Governor 
Whitman testified that those proposals did not go forward 
because they were determined to be infeasible.
    If EPA determined them to be infeasible, it has not 
published the results of that conclusion. Indeed, the only 
analysis on the Agency's website and the only analysis we have 
seen publicly shows the opposite--that it is feasible, that you 
can achieve these reductions faster.
    I urge the committee to ask these kinds of questions: Is 
there an analysis that shows that the better program is 
infeasible? If so, this committee should see it, especially 
before voting on something that has the results which I will 
display on the next slide.
    Compared to the proposal it rejected, the Administration's 
bill saves $3 billion for the industry, but at a cost of $60 
billion in public health damage to the American public. That is 
an incredibly bad bargain. Before you vote for it, I would hope 
you would want full answers to why that is a justifiable 
outcome.
    These damages do not just occur in 2020, but in fact, they 
occur all the way along between now and 2020 as a result of the 
higher emissions allowed by the Administration proposal, 
compared to the EPA proposal that they rejected. This second 
chart shows that all along the way that the emissions from the 
Administration proposal are significantly higher than the 
emissions under the EPA proposal. Again, a discussion of why 
this better proposal was rejected is what is critical here.
    When you look at the pollutant mercury, you see again 
dramatically higher loadings. This is a snap shot in 2015 of 
the mercury loadings under the Administration's bill compared 
to the EPA proposal which was rejected. As you can see, the 
mercury emission loadings are much higher around the country. I 
want to draw your attention both to the Great Lakes Regions, to 
the Adirondacks regions, as well as to the Mid-Atlantic 
Regions. These are all dramatically higher mercury loadings.
    That mercury, once released to the environment, will stay 
there for decades, if not hundreds of years. That is a 
commitment not just for this generation, but for future 
generations.
    The next slide illustrates the weakening changes to current 
law. The testimony before you, especially from Governor 
Whitman, indicated that it would be better to get these 
pollution reductions through a cap. Well, it is a false choice 
to say that you have to weaken the current law in order to have 
a cap.
    The first President Bush did not do that. A cap was adopted 
by this Congress for sulfur dioxide in 1990. It has produced 
economic benefits. It has produced efficiencies. Not one word 
of the existing law was weakened or repealed as a result. You 
do not need to do it in this legislation, either.
    Finally, since my time is almost at an end, I just want to 
say a few words about global warming. This is a problem that 
will not get easier by ignoring it. The investments made to 
comply with a multi-pollutant bill will be long-term capital 
investments. We need to do something about this problem of 
global warming in making those investments. For business 
certainty we need to do something about this problem to 
preserve the option of stabilizing global warming.
    Carbon dioxide emissions from the electric sector are 40 
percent of U.S. CO2. They have gone up by 26 percent 
since 1990. That is three times the rate of the increase in the 
rest of the economy. They will go up by another 38 percent 
between now and 2025, according to the base case analyses. If 
we do not do something about this, we will dig ourselves a 
deeper hole. We can do something, and we should.
    Thank you very much.
    Senator Carper. Thank you very much.
    Mr. Trisko, welcome.

   STATEMENT OF EUGENE TRISKO, UNITED MINE WORKERS OF AMERICA

    Mr. Trisko. Thank you, Senator. It is my pleasure.
    I am Eugene Trisko. I am an attorney here representing the 
United Mine Workers of America. The UMWA is the labor union 
that represents the Nation's organized coal miners. The Union 
supports additional reductions in SO2, nitrogen 
oxide, and mercury from coal-fired power plants provided that 
the reductions are achieved in a manner that preserves coal 
miners jobs.
    The Union supports the emission tonnage reduction targets 
in the Clear Skies Act and has only a couple of suggested 
changes to the bill. We further believe that the time to act on 
this legislation is now.
    Since 1990, the UMWA has lost thousands of coal mining jobs 
as a consequence of fuel switching in response to the acid rain 
provisions of Title IV. The Union is very sensitive to the 
risks of additional job losses through new clean air 
legislation.
    For this reason, the UMWA appreciates the concerns that the 
Administration has expressed toward its interest in the 
development of the Clear Skies Act, including the provision of 
incentives to encourage the early installation of control 
technologies.
    The UMWA became active in the Clear Skies process in August 
2001 in response to the release of EPA's initial ``Straw Man.'' 
The UMWA believes that a single phase approach to reducing 
SO2 emissions can be developed in a manner that 
reduces the risk of fuel switching by encouraging the use of 
available emission control technologies, thereby maximizing the 
co-benefits of mercury reductions.
    The United Mine Workers respectfully request the committee 
to consider limiting Eastern SO2 reductions to a 
control program with a three million ton cap and a reasonable 
final deadline, perhaps similar to the 10-year deadline 
provided by the Title IV Acid Rain Program. This will provide 
larger emission reductions in time to assist States in 
attaining the new PM2.5 standard.
    The Mine Workers agree that differentiating NOx control 
requires between Eastern and Western States makes sense in 
light of OTAG modeling results showing the miner contribution 
of Western NOx emissions to ozone affecting Eastern States.
    The Union also supports the mercury tonnage targets and 
timetables in Clear Skies. This approach will provide time for 
new mercury control technologies to be developed and 
commercially demonstrated.
    On the other hand, the Mine Workers urge elimination of the 
emission auction provisions of the Clear Skies Act. Requiring 
sources both to reduce emissions and to pay for auctioned 
allowances is a form of double taxation. Over time this new 
energy tax would create major disincentives to the use of coal 
reserves in eastern States producing higher sulfur coals.
    The Mine Workers are concerned that efforts to craft new 
clean air legislation should remain focused as the Clear Skies 
Act is on reducing the air pollutants contributing to domestic 
air quality problems.
    Regulating global concentrations of greenhouse gases under 
the Clean Air Act is not feasible. Carbon dioxide, the 
principle greenhouse gas, is not harmful to human health, and 
could not properly be classified as a criteria air pollutant. 
Global greenhouse gas concentrations are projected to increase 
into the foreseeable future, driven by the economic growth of 
developing nations exempt from the Kyoto protocol.
    Moving forward on climate change requires a truly global 
agreement on greenhouse gases that recognizes the common but 
differentiated responsibilities of parties to the Rio Treaty 
with an equitable apportionment of emission limitation targets 
among all parties.
    Mr. Chairman, on October 24, 2001, the presidents of seven 
labor unions conveyed their views on this issue to this 
committee. A copy of their letter is attached to my full 
statement.
    Finally, we need to recognize that State utility 
restructuring efforts and other economic forces have degraded 
the financial health of the electric utility industry. The 
industry is littered with companies in or teetering on the edge 
of bankruptcy. Under these circumstances, UMWA recommends that 
the committee consult with the congressional Research Service 
or the General Accounting Office on the financial implications 
of the Clear Skies Act and other proposed emission controlled 
legislation.
    Both the tonnage reductions and timetables for compliance 
should reflect sound financial and economic assumptions about 
the ability of the industry to comply.
    Thank you.
    I would request that my full statement be placed in the 
record in its entirety.
    Senator Carper. Thank you very much, Mr. Trisko.
    Mr. Melewski. Welcome.

       STATEMENT OF BERNARD MELEWSKI, ADIRONDACK COUNCIL

    Mr. Melewski. Thank you. Good afternoon. My name is Bernard 
Melewski. I am the Counsel and Deputy Director of the 
Adirondack Council. I would like to thank the committee for 
this opportunity to be with you today.
    The Adirondack Council is a private not-for-profit 
organization dedicated to enhancing the natural and human 
communities of the Adirondack Park in New York State. The six-
million acre Adirondack Park is the largest park of any kind in 
the contiguous Untied States. It is nearly three times the size 
of Yellowstone National Park, and almost half the Adirondack 
Park is publicly owned and protected as forever wild by the New 
York State Constitution since 1895.
    Due to its location and its thin soils, the Adirondack Park 
has suffered the worst environmental damage from acid rain in 
America. Prevailing winds carry power plant emissions from 
outside New York's borders into the Adirondack Mountains where 
they fall as acid precipitation. The acidity alters soil 
chemistry, inhibits plant growth, and releases heavy metals 
that are toxic to plants, animals, and fish. Reports conducted 
by a host of Federal agencies have shown that more than 500 of 
the Park's 2,800 lakes and ponds have become too acidic to 
support their native life.
    Each spring our waters suffer acidic shock for weeks as the 
winter's nitrogen loaded snow pack melts. The Park's high 
elevation spruce and fir trees and its spectacular maples are 
disappearing at an alarming rate. Every report issued in the 
past 10 years reflects these observations and worse and 
predicts continuing damage if more is not done to control power 
plant emissions.
    In 1998 the Adirondack Council was invited by this 
committee to testify about S. 172, the Acid Rain Control Act, 
legislation then proposed by the late Senator Patrick Moynihan. 
We said in 1998 that any new legislation that seeks to bring an 
end to the acid rain problem should, at a minimum, contain two 
provisions. The same holds true today.
    First, build on the successful sulfur dioxide cap-and-trade 
program by creating a third phase of reductions of 50 percent 
or more. Second, create a new year-around cap-and-trade program 
for nitrogen oxides that reduces emissions by 70 percent or 
more.
    The Clear Skies Act meets and exceeds those emissions 
targets. The Clear Skies Act embraces the reductions in the 
Moynihan proposal and then goes further with an additional 
phase of cuts. The emission caps in the Clear Skies Act will 
set the course for recovery of the Adirondacks.
    Three years ago when the Adirondack Council last testified 
before this committee, Senator Voinovich observed that New York 
had to show that we were willing to do what were asking of the 
States upwind. Well, Senator, it is done, and we are back.
    Last week the Pataki Administration in New York adopted the 
toughest acid rain regulations in the country despite the fact 
that more than 80 percent of our acid deposition problem 
originates outside our borders. We are doing what we can but we 
need Congress' help.
    New York is part of the EPA brokered 22-State State 
Implementation Plan that will reduce nitrogen emissions 
significantly during the summer ozone season in 2004. The SIP 
call is only a summer seasonal program and will not address in 
a significant way the total loading of nitrogen to sensitive 
areas. New York will require its power plants to implement 
year-around controls immediately under the new regulations.
    The Clear Skies Act does not impose those year-around 
controls until 2008. The Council requests that the committee 
take a look at whether imposition of year-around control 
controls could be advanced.
    In the markup of Senator Jeffords' bill last session, 
Senator Clinton offered an amendment which was adopted by this 
committee. The amendment would ensure that the benefits 
anticipated by new emission caps were, in fact, occurring in 
sensitive areas. If not, the Administrator would have the 
authority to reduce emissions from contributing sources to 
reduce acid deposition to tolerable levels. We appreciate that 
Senator Jeffords has retained the provision in the 
reintroduction of his bill this session. We would appreciate 
this consideration by the committee.
    We would also request that the committee examine whether 
there can be faster timetables, especially in the out-years for 
the second phases of SOx and NOx reductions in Clear Skies. 
Every year that can be gained and every ton that can be saved 
will hasten the biological recovery of our forest, our streams, 
and our coastal estuaries and will save thousands of lives.
    Last spring President George W. Bush visited the Adirondack 
Park on Earth Day. He said that he was committed to solving the 
acid rain problem. The President chose the occasion of the 
State of the Union message to renew that commitment to call for 
action this year. The introduction by the leadership of this 
committee of the Clear Skies Act is an important step forward.
    I want to extend on behalf of the Board of Directors of the 
Adirondack Council an invitation to all of members of this 
committee to visit the Adirondack Park and see what a wonderful 
resource you will save. Perhaps you will have the good future 
to hear the haunting call of the loon in the Adirondack 
Wilderness and know that the same experience has been preserved 
for future generations by the actions you take this year.
    Mr. Chairman, the Senate committed itself to the task of 
ending the destruction of acid rain over a decade ago. We think 
it is time to finish the job.
    Thank you again.
    I would request that my full statement be placed in the 
record in its entirety.
    Senator Voinovich. Thank you very much.
    Mr. Melewski, I am sorry I was not here to hear all of your 
testimony. But you mentioned in the testimony the adoption of 
the caps proposed for sulfur dioxide and nitrogen oxide in 
Clear Skies will set the course for recovery of the Adirondacks 
and the many other acid rain ravaged sections of the country.
    If you mentioned this, I apologize. I know we have had some 
dialog with your organization last year in terms of the issue 
of greenhouse gases. You indicated that you were in favor of 
moving forward on these three because you felt that it was time 
for something to be done.
    Would you comment on your frustration over the last couple 
of years with the lack of real movement in terms of making any 
difference for your part of the country and why you feel that 
not including greenhouse gases is something that you feel 
comfortable with?
    Mr. Melewski. Well, Senator, if it were just the last 
couple of years, we would be happy. It has actually been over a 
10-year period. As you know, our organization joined with New 
York State in suing the U.S. EPA several times to get reports 
out that reveal that the Clear Air Amendments of 1990 were not 
adequate to protect the Adirondack Park and many other 
sensitive areas.
    We have continued to generate and to publicize scientific 
inquiries that verify the need for additional action. We have 
had a string of our New York Senators--D'Amato, Moynihan, 
Schumer, and Clinton--all introducing legislation trying to 
make this the No. 1 environmental priority in New York. As I 
mentioned in my testimony, Governor Pataki has already 
implemented regulations that, in effect, have adopted the 
Moynihan proposal.
    So the difficulty in the last couple of years has been the 
ongoing controversy over carbon dioxide and global warming. We 
would be pleased to see a bill move out of this committee and 
onto the floor that has provisions on climate change and global 
warming. We would not be pleased to see any controversy or lack 
of agreement on that one issue keep us from moving forward on 
the very desperately needed measures for sulfur, nitrogen, and 
mercury.
    Senator Voinovich. I think last year when we contacted you, 
you indicated that same position. I think at that stage of the 
game you were in favor of a more aggressive program that we had 
talked with you about. It was not Clear Skies.
    But you feel that the numbers in Clear Skies will move down 
the road and start making some difference for you?
    Mr. Melewski. Yes, absolutely. As I stated in my testimony, 
the Moynihan legislation represented the minimum that needs to 
be done, in our opinion, to change the course of direction in 
the Adirondack Park. Clear Skies meets those same standards and 
exceeds them. In fact, all the major proposals that have been 
introduced in this committee, or are about to be introduced, as 
Senator Carper mentioned, would resolve the acid rain problem.
    The facts are that the faster we get the cuts and the 
deeper the cuts are, the quicker the biological recovery will 
occur in the Adirondacks. If we had to choose between deeper 
and faster, faster would be the choice.
    Senator Voinovich. You just want to get going?
    Mr. Melewski. We just want to get going.
    Senator Voinovich. Mr. Rogers, obviously one of the major 
drivers for Clear Skies is the need for regulatory certainty. 
Can you explain why certainty is so important to your company, 
especially with regard to your need to raise capital that will 
fund the pollution control projects that you need in the 
future?
    Once you have answered that, I would be interested in your 
comments about living in this regulatory environment that we 
have been in for the last couple of years. What impact do you 
feel it has had on your ability to make the air cleaner, 
improve public health, and provide more efficient energy?
    Mr. Rogers. The key to certainty, Senator, really is having 
a road map so that you can do the work in a systematic way on 
each of your power plants. What that requires is knowing what 
the SO2 regulations will be, what the NOx 
regulations will be, what the mercury regulations will be. We 
sit here today with no clarity with respect to what those 
regulations will be in the future.
    What Clear Skies offers is a clear path. It allows us to 
time investments. Our company's balance sheet was under 
tremendous pressure. Many of the coal-fired utilities' balance 
sheets have been under great pressure of just complying with 
NOx.
    This work on the back end of your plants is in terms of 
building scrubbers, but at the same time maintaining the 
reliability of your system. If you phase it in over the right 
period of time, not only do you maintain the integrity of your 
balance sheets, you attract the necessary capital to make the 
investments, but you smooth out the impact on consumers over a 
period of time rather than having steep increases.
    The primary reason we support Clear Skies is that it gives 
a clear path and allows you to plan investments, to plan 
construction, and at the end of the day, it translates into 
delivering cleaner power at lower cost.
    One of the challenges we have had, is there has been so 
much litigation, for instance, around NOx. The time lines have 
been compressed, and that translates into greater costs and a 
greater need for workers that are qualified. We also need to 
make the right investments.
    So from our standpoint, timing matters. The sooner we know 
the plan, the sooner we go to work. We are able to execute this 
over a period of time and that translates into lower costs for 
consumers. That is very important.
    Senator Voinovich. We have to strike a balance. We heard 
from Mr. Hawkins that we ought to move forward. When do you get 
to the point that you say to your shareholders that it is 
better for us to fuel switch to natural gas? If that happens, 
then as I mentioned in my opening statement, you then have a 
situation where the cost just skyrockets. You have a lot of 
people to just pick up and leave.
    Where is that balance? We are talking about numbers and we 
are talking about time. You want to strike that. What is your 
reaction?
    Mr. Rogers. I think the industry has actually, 
interestingly enough, almost defaulted to a place where we have 
increasingly become dependent on gas-fired generation. As I 
mentioned, as an industry, we have built 10 years of capacity 
in a 3-year period. It is all gas-fired. No other time in our 
history have we been so dependent on one fuel.
    Our company, for instance, has added 2,000 megawatts of 
gas-fired peaking. We are converting one of our small coal 
plants to gas. But at the end of the day, there are limits on 
how much you can switch to gas. I think you already see that. 
Nobody in their right mind is going to plan to build a coal-
fired plant which takes five to 7 years to build when you do 
not know what the regulations will be with respect to SOx, NOx, 
or mercury.
    It leaves the industry in a place where you continue to 
default to gas-fired peakers. That is not the long-term 
solution for this country, to become so dependent on one fuel.
    Senator Voinovich. Let me tell you what worries me. If you 
have reached that point where that decision is made for fuel 
switching, it impacts on your industries. Your industries 
leave. As I told Senator Jeffords last year, they are not going 
to Vermont. They are going somewhere else.
    I do not think a lot of people who are involved in this 
issue understand how devastating natural gas prices are today, 
not only on heating costs but what they have had on electric 
costs. We move the jobs out of the United States to some other 
place that burns coal. They do not have the types of 
environmental concerns, and in terms of the environment of the 
world, we have made no progress.
    If you can keep the pressure on to get you to use clean 
coal technology and other technology for mercury and other 
things, that you keep the jobs here, you develop the 
technology, and then you can either sell or give that 
technology away to other countries in the world that are going 
to be out there manufacturing this stuff. That is the delicate 
balance that we have to try to achieve.
    Mr. Rogers. Unfortunately, Senator, there is no silver 
bullet for these issues. We have to invest in technology. At 
the same time, we have to work to help our customers become 
more efficient in terms of their use of energy. At the same 
time, if we do not pay attention to the supply/demand balance 
on the gas side and if we continue to default to more and more 
gas-fired generation, that is going to translate to times where 
we could not run some of our gas-fired units when we needed 
them because there was no capacity in the pipelines. You need 
that kind of infrastructure investment that had not occurred. 
You need to look at the prices this summer and the number of 
plants that shut down for the short term--but it could be for a 
longer term.
    One of the great fears of the gas industry is that the 
volatility of the gas prices and the rising gas prices forces a 
lot of industries, as you suggested, to basically pack up and 
leave town and leave the country. That is not a good answer 
long term for creating jobs.
    What I worry about is jobs. We are in an economy where the 
growth is only two to two-and-a-half percent. That is still 
better than other parts of the world, but not what we expect, 
and not what we hope for. If prices of gas continue to go up 
and we do not use the resources that we have in an 
environmentally responsible manner, we have created a death 
spiral for ourselves that makes it even more difficult for us 
to succeed as a country.
    Senator Voinovich. Thank you.
    Senator Carper?
    Senator Carper. Thank you, Mr. Chairman.
    To each of our witnesses, we are glad you are here. We
    appreciate your testimony and your responsiveness to our 
questions.
    I do not mean to pick on you, Mr. Rogers. Let me just ask 
my first question of you and then we will pick on some others. 
I want to read you a statement by a leader of a major utility 
company. I just want you to listen to it and then react to it, 
if you do not mind. It is quote. It goes back to sometime in 
2001. It says:
    ``My company seeks comprehensive multi-emissions power 
plant legislation because we want long-term clarity and 
certainty built into our environmental compliance and planning 
process. This kind of reasoning dictates the necessity of 
including a carbon commitment in the legislation. Without some 
sense of what our carbon commitment might be over the next 10, 
15, or 20 years, how can I or any other utility CEO have an 
adequate picture of what the future requirements our plants may 
face? How can we prudently plan?''
    You probably recognize those words because they are your 
own. Those were words that I am told that you stated in a 
presentation in September 2001 before a forum on applied 
research and public policy.
    I do not recall everything that I say anyone that I suspect 
any of the rest of us do. But I found that to be a powerful 
statement and one that I certainly welcome. I do not know you 
well, but I know your reputation, and your reputation is a 
person who says what he thinks and someone who can take what he 
says to the bank.
    I presume you meant what you said in 2001. I would just 
like to ask you to reflect on what you said and think about it 
today.
    Mr. Rogers. Thank you. My staff read that back to me in 
preparation for today.
    [Laughter.]
    Mr. Rogers. I am here to say that it was just as brilliant 
then as it might be perceived today. Let me make a point--and 
this is from a personal standpoint and not speaking for EEI. I 
am just speaking for Jim Rogers, CEO of one company.
    We burn 30 million tons of coal a year. We have significant 
emissions. As a consequence of that, we have a responsibility 
to get it right, not only with respect to our emissions, but 
with respect to the costs to our consumers. I am concerned 
about climate change. I think it is an issue that we need to 
address. But we need to have in this country reasonable 
expectations about what is possible.
    Yes, we want certainty. One of the things I said in a more 
detailed way is that we need to find a way to take a risk at 
first strategy that allows us to flatten the curve. I think the 
reduction in carbon intensity is a step in that direction. 
There has been a number of voluntary steps that we have taken 
as a company, and in fact, that our industry has taken, to 
reduce CO2 emissions. These are all steps in the 
right direction.
    But unfortunately we cannot have the certainty that we 
desire. One, we have yet to find a technology that really 
reduces CO2. That is an issue. We have not found a 
substitute for the coal-fired plants and gas-fired plants that 
we have in this country. Yet, we still have a requirement to 
keep our TVs on and to run our computers and to maintain the 
lifestyle that we have grown accustomed to.
    I think we need to go to work. I think we are going to 
work. There are many voluntary programs, first steps, good 
steps, more investments in technology. But we need to work to 
reduce our carbon intensity. We have taken steps in that 
direction.
    I believe this is an issue that we will not go away. It is 
an issue that we have to deal with. But I do not think at the 
end of the day--and I going to be blunt with this point--there 
is a lot of theology around it also. I will not dare go there. 
I will leave that to you.
    But I think the importance of making progress on SOx, NOx, 
and mercury is great. I look to the difficulty that the Senate 
had in just coming together around the simple question of 
reporting emissions. I think that will become even more 
difficult to do more than even that.
    I am a realist. I say and I urge you to think. We need to 
make progress with SOx, NOx, and mercury. Let us not fight for 
days and months and years around CO2 while we ignore 
making progress on those three pollutants. I would urge you to 
continue the debate, to continue the investigation, to continue 
the investment in new technologies, and to continue to issue on 
the front burner, but not delay moving forward on these other 
things, waiting to come up with the perfect solution for that.
    In an ideal world I would love for it to happen. But I do 
not think it going to happen for the reasons I stated.
    Senator Carper. About once a week I hear someone here on 
Capitol Hill say, ``Don't let the perfect be the enemy of the 
good.'' I was very encouraged when I read your statement. I 
realize there was something said about 18 months ago. I 
appreciate the way you have spoken today--I think from your 
heart.
    I would just like to my colleagues on my right and my left. 
I think there are other CEOs of utilities around this country 
who share that conviction, who are not comfortable with the 
idea that we are putting as much carbon into the air from a lot 
of sources as we are and what the long-term consequences for 
us, whether we are in Tupelo, Mississippi, Cleveland, Ohio, 
Vermont, or Delaware.
    I want to ask a question, if I could, of Mr. Trisko. You 
may have been in the room earlier in the day when I introduced 
myself as the only native-born Senator from West Virginia and 
one who still has a lot of family in West Virginia and who goes 
back there from time-to-time for a reunion at Grand View State 
Park. If I would take a course here in Congress that undercut 
coal, I could go back to the reunions, but I would not be as 
warmly welcomed as I might want to be.
    I would like to ask you to share with us what are some 
recent developments, particularly as we look forward, to being 
able to use our abundant coal resources, to use them to create 
energy, electricity, but to do so in a way that we do not have 
problems with the kind of problems we have had in the past with 
coal with respect to SOx, NOx, and mercury.
    I have heard just in the last 24 hours some really 
inspiring information about reductions in those emissions from 
coal, and from a coal that has been turned into a gas. Talk to 
us about that kind of technology.
    Mr. Trisko. Senator, I would be happy to, on a couple of 
levels.
    First, in terms of the pragmatic and what is necessary for 
utilities to achieve the kinds of reductions that are called 
for by Clear Skies. There has been very significant progress 
made in the last decade in particular on technologies that 
reduce SO2 emissions and NOx emissions.
    Scrubbers, particularly the so-called magnesium-enhanced 
limestone scrubbers--lime or limestone, but those that utilize 
a magnesium enhancement--are capable of achieving in excess of 
95 percent removal of SO2 at a quite reasonable cost 
per ton. In some cases, it is 98 percent or more. As a 
byproduct of the scrubbing process, you also achieve mercury 
reductions.
    NOx technology improvements also are notable. In the last 
few years, largely as a result of the emphasis on reducing 
transported ozone in the Eastern United States and the 
development of EPA's SIP call, the commercial development of 
selective catalytic reduction technology has progressed quite 
rapidly. It had been used in Europe and in other countries. It 
is our understanding that SCR technology now is capable of 
achieving NOx emission rate limits at coal plants of NOx at 0.7 
pounds. That would be for a large base load plant application.
    One of the greater difficulties that we see in terms of the 
pragmatic here and now in complying with multi-emission 
legislation really is in the mercury area. While it is true 
that the use of conventional emission control technologies such 
as scrubbers--and some particulate control equipment--reduces 
mercury as a byproduct, we do not have a commercially 
demonstrated system.
    The activated carbon injection technology that EPA relies 
upon largely in its models to estimate the prospective costs of 
mercury of Clear Skies, that technology has only been applied 
at a handful of plants on a demonstration basis. Those plants 
were selected based on the generous size of their particulate 
removal equipment. They may not be representative of the 
hundreds of coal plants that do not have that particularly 
generous particulate electrostatic precipitator configuration.
    Looking forward over the longer term, there certainly is 
reason for optimism in terms of the development of advanced 
clean coal technologies going beyond conventional pulverized 
coal systems, such as integrated gasification combined cycle 
equipment that will virtually eliminate the emissions of 
criteria pollutants, and as a consequence of their improved 
thermal efficiency, also make great progress in terms of carbon 
reductions.
    But for purposes of legislation or regulation at the 
current moment, we are not quite ready for prime time in terms 
of those systems. That is why the kinds of programs that the 
Administration is advancing through its clean coal technology 
programs to us makes sense as a form of insurance. We are not 
just the Saudi Arabia of coal. Our coal reserves in their 
energy content are equivalent to the world's known oil 
reserves. But those kinds of technology developments make a lot 
of sense to ensure that that resource in the future will be 
available for our use.
    Senator Carper. Thank you.
    Mr. Chairman, if we have a chance to ask a couple of other 
questions later, I would like to. My time has expired for now.
    Senator Voinovich. Senator Jeffords.
    Senator Jeffords. Mr. Hawkins, I would like to know if you 
have any comments on the EPA or the other witnesses' testimony 
that you have not had a chance to make and would like to make.
    Mr. Hawkins. Yes, Senator Jeffords. Maybe I will make a 
comment on a theme that has been raised by a number of Senators 
and the panel, and that is the topic of coal. The fact is that 
the status quo is not good for U.S. coal, in addition to being 
not good for the climate.
    The current uncertainty about what is going to happen with 
climate policy is causing investors to behavior rationally. 
What do I mean by that? They are not investing in coal. The 
forecast for new capacity in the United States is not going to 
coal. It is going to natural gas. Because of that uncertainty, 
the only entities that are proposing to build coal plants are 
coal companies. With few exceptions a power company will not 
even make the effort to try to permit a significant coal plant.
    Basically, the uncertainty about global warming policy has 
caused people to be nervous about investing in conventional 
coal. And that uncertainty has caused them to not have 
sufficient incentive to invest in advanced coal technologies 
either.
    Senator Carper asked the question about technologies for 
carbon. In his own State, Delaware, there is advanced 
technology in operation today at the Motiva Refinery. The feed 
stock is not coal. It is petroleum coke. But the technology is 
basically the same. It is commercially demonstrated. You put 
the coal or the petroleum coke in there. You gasify it. Then in 
order to manage the carbon, you need to capture the carbon and 
you need to do something with it.
    In this country we are storing CO2 for purposes 
of oil recovery in enhanced oil recovery operations. We are 
storing 30 million tons of it a year. All of the elements of a 
strategy that would allow coal to continue to be used, and 
decouple it from a global warming problem, are out there today. 
They are not being used in an integrated package because there 
is absolutely no market incentive to do so.
    That is going to stay that way until this committee starts 
the process rolling. It is not too soon to start it. We can 
develop a program that sends the signal that gets people moving 
and gets the investors making the right decision. Eugene Trisko 
and I could sit in a room and come up with something. I think 
it would address the needs of the coal industry and it would 
address the needs of protecting the climate. It would provide 
business certainty. I think it would address Jim Rogers' needs 
as well.
    We just have to get over what is an irrational fear of 
addressing this issue. It will not get easier. The longer we 
ignore it, the harder it will get.
    Senator Jeffords. Thank you. That is very helpful.
    Mr. Colburn, what would Clear Skies do to your State's 
abilities to protect public health, achieve attainment, and to 
operate their existing pollution control programs?
    Mr. Colburn. Senator, there are several ways that State 
authorities would be impacted. I have listed several on an 
attachment to my testimony. Perhaps rather than go through 
those individually, I will cover just a few of the high points.
    The most important aspect of your question is what happens 
following whatever Federal solution or Federal reductions 
emanate from a bill passed by Congress this session. Under 
Clear Skies, for example, it is not clear that the reductions 
achieved will produce attainment everywhere in all the States. 
Under Federal law now, the States have the responsibility for 
achieving Federal health-based air quality standards.
    If the States lose any of their current regulatory 
authorities as a result of Federal multi-pollutant legislation, 
it is not clear what mechanisms they will use to fulfill this 
responsibility to achieve attainment. One of our biggest fears, 
then, is the apparent reduction in State authorities that are 
incorporated in the Clear Skies proposal. We feel, as I 
indicated in my testimony, that it is a far safer and far 
better approach for States to retain all the authorities that 
exist in the current Clean Air Act and not need to use them if 
attainment is reached everywhere or is easily reached with a 
few additional mechanisms that States impose. This approach is 
much more likely to guarantee that healthy air quality is 
achieved than depriving States of those tools, as called for in 
some of the provisions of Clear Skies.
    If the tools are not used, that is wonderful. A State that 
is in attainment cannot use Section 126, for example. I think 
that is the outcome we all want.
    In addition, there are other hazardous air pollutants 
besides mercury emitted by the power sector. It may be that 
scientific investigations now under way show that several of 
those should be regulated in form or another. States currently 
have the authority to do so.
    That authority is deleted under Clear Skies. There is a 
little bit of a question about this, Senator, but it even 
appears that under Clear Skies State actions to go beyond 
Federal requirements to meet their State SIP requirements, may 
be prohibited or constrained.
    Essentially the States feel that while Clear Skies itself 
represents a good step in the right direction, perhaps not as 
far, or as fast, or for as many pollutants as need be, they are 
fundamentally getting their arms tied behind their back in 
exchange for that down payment of initial reductions. It is not 
clear to us that that will end up being a good trade in the 
end. We are concerned about that.
    Senator Jeffords. Thank you.
    Mr. Trisko, would your Union support a CO2 cap 
that would produce no significant impact on domestic coal 
production?
    Mr. Trisko. Senator, that is a hypothetical question. I 
learned in law school a long time ago to avoid answering 
hypothetical questions, but I would be happy to comment upon 
the question.
    First of all, I am not at liberty to state whether 
President Cecil Roberts of the United Mine Workers would or 
would not support such a hypothetical cap. You would have to 
address the question to him directly. But that being said, 
given the wealth of analytical evidence that is available to us 
through the studies that have been done leading up to Kyoto and 
subsequent to Kyoto for the design of an alternative ``Kyoto-
lite'' approach, however it might be characterized, we have yet 
to see a program that would cap domestic utility carbon 
emissions that would not have adverse effects upon coal 
consumption.
    One analysis that has been made available to us was done by 
a private group--for the bill that Senator Carper is currently 
associated with--analyzed the prospective impact of those 
emissions caps on the domestic utility industry. It suggested 
that in the worst case the bill could be associated with a 41 
percent reduction of coal utilization.
    We would like to see and encourage the committee to pursue 
additional analyses of alternative measures. In fact, when the 
mine workers were approached last year for their prospective 
support to Senator Carper's proposal, that was our request. We 
want to see the numbers. We want to understand what the bill 
would do.
    Senator Jeffords. Thank you.
    Mr. Melewski, why does the Adirondack Council support 
legislation that eliminates the New Source Review Program?
    Mr. Melewski. Well, Senator, first of all, I do not think 
the Clear Skies program eliminates the New Source Review 
Program. There is a moratorium on new initiatives for a period 
of years. There is a troubling new standard that is provided in 
the Clear Skies bill. We do not offer any particular expertise 
in those provisions. They have been intensely discussed since 
the bill was introduced. I know that many members of the 
committee have problems with them.
    We can offer a simple solution that is one that was taken 
in 1990 which is to keep the existing Act in place and create 
new programs on SO2, NOx, SOx, and hopefully 
something on the climate change.
    Senator Jeffords. Mr. Chairman, that exhausts my present 
desires to pursue anything more. We will expect the answers to 
our questions that have been submitted.
    Thank you.
    Senator Voinovich. Thank you.
    I just have one last question for the panel. You have all 
heard each other comment about each other's testimony. Would 
any of you like to comment on any of your fellow panelist's 
testimony?
    Mr. Colburn?
    Mr. Colburn. Thank you, Mr. Chairman. I would make one 
comment. I think Mr. Trisko raised an extremely important point 
when he suggests that at the current time the situation is 
such-and-such. I would remind the committee that we are not 
talking about the current time. We are talking about 15 years 
from now.
    The reason that is important, Senator, is this. I was the 
Air Director of the State of New Hampshire in 1995 when we 
installed the first selective catalytic reduction NOx control 
technology (SCR) on a coal-fired plant in, I believe, the 
world, but certainly in America. Soon after that, there were 
deliberations as part of the OTAG process (Ozone Transport 
Assessment Group), in which industry indicated how impossible 
it was to secure the steep reductions in Nox reductions that we 
were already getting. I was the only guy there with canceled 
checks about how much it would actually cost to control NOx.
    That process essentially took 6 years--1995 to 2001. Now, 
we are looking at the ability to replicate a 6- or 7-year 
process like that--twice--before Clear Skies would be fully 
implemented. In terms of coal use, I think there is a strong 
technology opportunity for the integrated coal gasification 
that Mr. Trisko and Mr. Hawkins mentioned that could create a 
bright future for coal. This technology would preserve and 
potentially even increase coal usage while diminishing 
dramatically its environmental impacts.
    Right now there is an energy penalty for coal gasification. 
In the way we use coal today, we are paying a health penalty. 
Let us pay the energy penalty instead, and stop paying the 
health penalty, and do so in the next 5 or 6 years instead of 
the next 15 years.
    All of this can be done. It has been done. It has been done 
at less cost than EPA ever estimated, just like the acid rain 
program. We do not have to have it all in the bag today. We 
have seen in the past the progress that has been made when we 
set our minds to it.
    Perhaps my favorite saying is: If you ask an engineer to do 
something, you will get nothing but problems--why it cannot be 
done as fast, what could go wrong, and so forth. But if you 
tell an engineer to do something, you will get nothing but 
solutions.
    That is what has happened in the past, Senators, when 
Congress told the engineers and companies like Mr. Rogers' to 
do something. They go to it and achieved spectacularly beyond 
our expectations. They will do so again.
    Senator Voinovich. As a Governor of a State that encouraged 
a company to put on a $650 million scrubber at the Gavin Plant, 
an extraordinary amount of money has gone into these 
investments. This new SER technology was done at Gavin. They 
had to buy out a town in the vicinity there because of a plume 
that settled over the town. They just finally just bought the 
property.
    I think this concept of this technology is around the 
corner. We have a long way to go. It is very expensive.
    One of the things that puzzles me is that last year Tom 
Moynihan from Catholic Charities testified about the cost of 
energy on poor people. Clean Air Trust put them on. He was the 
villain of the month because he testified about that.
    You talked about deaths of 30,000 people. If they cannot 
afford their energy cost and they cannot afford their air 
conditioning, then they die. You talked about individuals that 
lose their jobs. They go overseas and they do not have the 
money to pay for health care, they are not in very good shape.
    It is very disturbing to me. It is very typical here in 
this Congress. We do not really very often put each other's 
shoes on and try to work with each other to figure out how 
things should be worked out. That is why we are not really 
getting very far here. It is a very frustrating place to be for 
me as a Governor and as a Mayor who was able to try to work 
things out.
    Mr. Trisko, I would like you to comment.
    Mr. Trisko. Senator, thank you. In exchange for your 
remarks, I will be quite brief on this subject. To paraphrase 
the gentleman from Tupelo, it is now or never for this 
legislation. It is now appropriate for the Congress to move a 
three-pollutant bill. If Congress delays and there is further 
inaction, we may lose the opportunity to realize the benefit of 
the public health and environmental protections that the bill 
offers.
    Mr. Rogers. Mr. Chairman, I would like to echo Mr. Trisko's 
comments. I do think now is the time. I think one of the themes 
that is consistent among all of us here today--and I have tried 
to listen carefully to the themes--one of the themes that 
emerges is that the Clean Air Act is not working. It needs to 
get fixed. Now is the time to fix it. I think everybody here 
recognizes that.
    My dad was a lawyer. He used to say that the devil was in 
the details. My mom quickly responded that God is in the 
details. The way I understand this issue I think there are 
enough details for the both of them.
    I would urge you to roll up your sleeves as you do, and you 
have, and you did as a Governor, and go to work. Work through 
the details, find the right sets of compromises, and go to work 
so that we can turn our engineers loose. We can turn our people 
loose and go to work and solve the problems in a way that 
allows us to meet our energy goals, meet our environmental 
goals, keep our economy going, and keep jobs in the U.S. That 
has to be an important ingredient in this whole discussion.
    Senator Voinovich. Mr. Hawkins?
    Mr. Hawkins. Senator, if I might make a comment on costs. 
Of course you are right. It is important to consider the costs 
of policies you adopt. But EPA has done that consideration and 
it has presented you some of that information. That is more 
that they have to present. If requested, perhaps they would do 
so.
    But the analyses that they have conducted, for example, of 
the more protective option that the Administration rejected, 
had a compliance cost of $10 billion a year. Those are EPA's 
calculations. The electric sector revenues in 2020, which is 
the forecast year, are $330 billion. So $10 billion is a lot of 
money. But $10 billion as an addition to a $330 billion total 
is a small amount of money. It is about a 3 percent increase in 
the cost of generating electricity. That is not a large amount 
of money.
    The same analysis was done to examine a policy that would 
have capped emissions at 75 percent reductions for SOx, NOx, 
and mercury, and imposed a carbon cap at year 2008 levels. That 
analysis was done in response to your request to the Energy 
Information Agency back in the spring 2001.
    EIA came back and said that that would raise the average 
electricity rate from 6.7 cents per kilowatt hour to 7.1 cents 
per kilowatt hour. That is about a 5 or 6 percent increase.
    In terms of poor people's needs, of course those should be 
addressed. Senator Jeffords' bill has provisions in it which 
could be incorporated into a piece of legislation that calls 
for establishment of a public trust that could make funds 
available for things like lifeline rates and other purposes to 
make sure that there is no adverse impact while we actually go 
about protecting health and starting to address global warming.
    There are ways to solve these problems. We want to work 
with you to try to find them.
    Thank you.
    Senator Voinovich. I do a lot of meeting with people in my 
State. We are in a global market place. It is very interesting 
that another great cost that they all have is health care 
costs. They are competing with other countries that do not have 
the same health care costs. You just start adding all of this 
up. It is not really a rosy scenario about jobs in this country 
and where are going. I think we have to realize that we are in 
a global market place and that the environmental concerns that 
we have also have to be balanced with the economic concerns of 
the people in our country.
    Senator Carper has one more question. I think we will then 
wrap it up.
    Senator Carper. Thank you, Mr. Chairman.
    In your testimony, Mr. Colburn, I believe you said--and I 
am going to paraphrase you--you said that carbon does not need 
to be onerous. It does need to be in the bill.
    Give us some idea of the approach you would have us take 
with respect to carbon.
    Mr. Colburn. Senator, I think that even the greatest 
trading foes admit that trading of carbon dioxide does make 
sense because its impact is global. There are no local impacts 
from climate change. It is all global impact. There are impacts 
that happen locally, of course. But carbon dioxide's impact on 
climate change is a global concern.
    While many horror stories have been suggested about carbon 
taxes or carbon control costs in the $25, $50, or $100 range 
per ton, I think an effective mechanism could be established--
probably through a cap, but a lenient enough cap such that the 
effective price of carbon were very small at a very small cost. 
I would rhetorically argue for perhaps 25 cents per ton.
    The important thing is what you said before, Senator: 
Markets work. Well, if markets work, let us get carbon in the 
market. Let us not pat it on the head and give it some 
technology development money and shoo it away. Let us get it in 
the market. Let us do so in a way that is not terribly onerous 
with a cap that does not create a substantive burdens for Mr. 
Rogers' company and other utilities. But let us let the market 
work on carbon.
    Senator Carper. Senator Voinovich was talking earlier about 
the economic impact of what we are discussing here. To the 
extent that we drive up the cost of energy for our consumers, 
including for industry, manufacturing businesses as well, there 
is a concern that we hasten the exodus of manufacturing jobs 
from this country. We ought to be concerned about that. I know 
that I am. We ought to be concerned about the out-of-pocket 
costs for consumers for buying their electricity. We are all 
mindful of that.
    Earlier I said in my questioning of another witness, that 
the Clean Energy Group has actually done an analysis of a 4-P 
bill which includes carbon dioxide, and concluded that if we 
added a fourth pollutant, carbon dioxide--to a 3-P bill, SOx, 
NOx, and mercury--that we would see over the next 15 or so 
years an increase of about 1.5 percent the cost of adhering to 
emissions requirements.
    It is not free, but it is 1.5 percent. It does provide a 
measure of certainty. To this Senator and former Governor who 
cares a lot about economic development and maintaining jobs, 
where do we do reach a tradeoff? What is acceptable--a 1.5 
percent increase? Those are not my numbers. Those are the 
numbers from the Clean Energy Group.
    But to have the kind of certainty and arguably taking real 
steps toward addressing global warming, is that an unreasonable 
tradeoff? I would ask any of our witnesses to respond. Mr. 
Trisko?
    Mr. Trisko. Senator, my first question with respect to the 
economic impact that you cited from that study was whether the 
Clean Energy Group had analyzed the impact of the proposal 
nationally or whether that was an impact related to its 
generation sources. The Clean Energy Group is primarily fueled 
by oil, nuclear, and natural gas. It has some coal generation, 
but it is not representative of the Nation's coal-fired 
utilities.
    Senator Carper. I understand that it is national. It is not 
just the Clean Energy Group. It is national, which I think 
makes it even more of significance to us.
    Mr. Trisko. One of my previous responses to the committee's 
questions encouraged the committee to pursue analyses through 
EIA, EPA, and others, of alternative approaches. We would 
certainly be interested in seeing that study when it is 
released.
    My second point with respect to the reasonableness of the 
impacts is from a more global perspective. I have attended 
every international negotiation session since the Rio Treaty 
was negotiated in 1992--Geneva, Bonn, Kyoto, Buenos Aires and 
others.
    We have in the climate change arena an extremely serious 
breakdown of the negotiation process that must be remedied. If 
you believe in the seriousness of the problem, and you believe 
the science in all good faith, that international breakdown 
must be remedied if progress is to be made on this front. The 
developing countries, led by the G-7 and China, essentially 
have repudiated any effort, however offered in good faith to 
discuss future limits on the growth of their emissions. These 
are not absolute constraints or cutbacks or rollbacks, but 
merely to discuss future limits on the growth rates of their 
emissions.
    The United States put forward an ``evolution'' proposal in 
Kyoto in 1997 that said, ``Listen, we, Annex One industrial 
countries, we are meeting here in order to agree on substantive 
emissions reductions. But we have a political problem. 
Recognize our political problem. We cannot go back to our 
capitals. We cannot go back to Washington empty-handed and say, 
we have just agreed to negotiate among ourselves--Europe, the 
United States, and Japan--a set of emission reductions. We need 
to have some sign from you, from India, from China, from 
Brazil, from Korea, from Mexico. We need some sign that after 
we meet our reductions, that you will then be willing to sit 
down and talk about future limits so that we can have a global 
agreement.''
    That proposal, which we put forward through New Zealand--
they tend to be more articulate than we are, and they sound a 
lot more diplomatic--that proposal triggered a 5-hour 
filibuster. It subsequently led to the removal of the issue of 
evolution from future United Nations meetings. We must solve 
this fundamental problem at a global level before we can make 
progress on the issue of climate change.
    Senator Carper. I think that is a good cautionary note. I 
do not know these numbers off the top of my head. It would be 
interesting to know, to the extent that there is carbon dioxide 
that is emitted from manufacturers, from utilities, and from 
other sources, what portion of global CO2 emissions 
from the U.S. versus some of the other nations that you have 
mentioned.
    That does not take away from the validity of the point that 
I think you are making.
    Mr. Hawkins, do you have a closing comment?
    Mr. Hawkins. Yes, I agree with Eugene Trisko that we need 
to have an effective strategy for addressing the engagement 
with developing countries. But sitting back and telling them 
that they should shape up is not an effective strategy. An 
effective strategy is using good old fashion American know-how, 
applying it to the job, showing the world that it is easier to 
solve this problem than they think, and that they need not be 
afraid of it. We can do that.
    We have the capacity in this country, the biggest economic 
power on earth, to prove out these technologies. When you are 
out of the room, Senator, I mentioned the Motiva Refinery in 
your own State, which is operating gasification technology to 
convert a filthy fuel, petroleum coke, into a clean energy 
source. That same technology can be used, and would be used, if 
we start to apply the market signal that Ken Colburn is talking 
about.
    When we do that, we will have something to talk to China 
and India about. China is going to build 500 gigawatts of new 
coal-fired capacity in the next 30 years. We will have 
something to talk to them about. We will say, ``Look what we 
are doing in the United States. We are evolving into modern 
technology. We are going to use our coal without messing up the 
planet with climate change. You can do it, too.''
    We are actually demonstrating that it is affordable. That 
is what we can do and that is how we can start to break these 
logjams.
    Senator Carper. In response to what Mr. Hawkins has said, 
we worry a lot about the exporting of manufacturing jobs. I 
know I do. I know others do. Would it not be great if we could 
somehow export technology to address these kinds of concerns.
    Mr. Rogers, your quick comment.
    Mr. Rogers. Senator, let me make an observation with 
respect to that study. While I have not studied it in great 
detail, I would observe that it is a national number. Let us 
not forget that any kind of legislation that adversely affects 
coal is going to have a disproportionate impact on the Midwest 
and the Southeast.
    I think we really need to keep that in mind. Since I am in 
the Midwest, I know we serve the steel industry, the auto 
industry, and the chemical industry. They are going to be 
adversely impacted in a dramatic way.
    While it is interesting to have a national number, when you 
look at the Midwest where 80 percent of its energy comes from 
the burning of coal, we need to remember it is going to have a 
disproportionate impact on that part of our economy. That is 
the industrial heartland of this country.
    With respect to the whole carbon issue worldwide, let us 
not get fooled with even the European countries. While they 
stepped up and gave lip service to Kyoto, countries like 
Germany, for instance, have agreed with the Green Party to shut 
down their nuclear units. How are they going to serve their 
demand in that country and reduce their emissions? They will 
not and they cannot.
    The same is true with Spain. We used to own wind farms in 
Spain. We saw that they started to change how they dispatch 
renewable. We started to discount it. We sold our assets and 
left. While they pay lip service to it, the reality is that 
their day-to-day behavior indicates anything but the capability 
to achieve those targets. We need to be circumspect in our 
approach and not get tricked by the lip service that others may 
pay.
    Senator Carper. Mr. Chairman, I have no more questions.
    I would like to make a quick brief comment. I am encouraged 
by today's hearing. I am encouraged by what I have heard here 
and in other earlier witnesses. I am encouraged by the kind of 
comments that Mr. Rogers made today and his comments of 
September 2001. He spoke with sincerity then and today.
    Mr. Trisko's explanation and description of the kind of new 
technology which would enable us to pull coal out of places 
like West Virginia and to use it in its abundance in ways that 
do not harm our environment and our air in the way they do.
    Jim Riley, who sits right behind me, reminded me of a visit 
that we paid to W.L. Gore. They make Gortex, but they make a 
lot of other products as well, including an infiltration system 
that is being used on a demonstration model down in North 
Carolina. The demonstration project is run by the EPA. They are 
removing mercury out of the air emissions by more than 95 
percent. I am encouraged by that kind of technology and the 
potential of what they can mean to us for cleaner air, and at 
the same time to enable us to stay in business and to be 
competitive as a Nation.
    Each and every one of you is most welcome. Thank you all.
    Senator Jeffords. Mr. Chairman, I have a question. I ask 
that three documents we have be made a part of the record. It 
is an analysis of the bill and two lists of studies of mercury.
    Senator Voinovich. Without objection.
    [Material to be supplied follows:]
    Senator Voinovich. Mr. Melewski, do you have a quick 
statement to finish up?
    Mr. Melewski. Yes, I have a quick statement. It is a more 
esoteric observation about climate change.
    I testified today that in 1998 we were here and had asked 
for similar changes to the Clean Air Act. My recollection is 
that the representative from Cinergy testified that it saw no 
reason to see a change in the Clean Air Act. Now we are here 
with Mr. Rogers 5 years later. We are both asking this 
committee to work together, to put a bill together, and move it 
to the floor. I think that is a significant climate change.
    Mr. Trisko. Evolution.
    Senator Voinovich. Mr. Rogers said to us today, ``It is 
time to move forward.''
    With that, we are adjourned.
    [Whereupon, at 5:08 p.m., the committee was adjourned, to 
reconvene at the call of the chairman.]
    [Additional statements submitted for the record follow:

     Statement of Hon. Christine Todd Whitman, Administrator, U.S. 
                    Environmental Protection Agency

                            I. INTRODUCTION

    Thank you, Mr. Chairman and Members of the committee for the 
opportunity to speak with you today about the Clear Skies Act of 2003. 
Based on one of the most successful programs created by the Clean Air 
Act, Clear Skies is a proposal to substantially reduce emissions of the 
three most harmful pollutants from power generation and to do so in a 
way that is much faster and more efficient than under current law. As 
President Bush said in the State of the Union Address, Clear Skies will 
advance our goal of ``promot[ing] energy independence for our country, 
while dramatically improving our environment.'' The Administration is 
committed to working with this Subcommittee and Congress to pass 
legislation this year. The widespread support for multi-pollutant 
legislation to reduce power plant emissions is a strong indicator that 
the time for action on this critical issue is now. Failure to enact 
Clear Skies this year will delay important public health and 
environmental benefits.
    This country should be very proud of the progress we have already 
made in cleaning up our air. Since the Clean Air Act was first enacted 
in 1970, we have reduced emissions of the six primary air pollutants by 
25 percent. During the same time period, the economy has grown 
significantly the Gross Domestic Product increased 160 percent; vehicle 
miles traveled increased 150 percent; energy consumption increased 40 
percent; and the U.S. population increased 35 percent.
    Although we have made much progress since 1970, we still face major 
air quality challenges in many parts of the country. Clear Skies is the 
most important next step we can take to address these challenges and 
achieve healthy air and a clean environment for all Americans. Clear 
Skies would make great strides toward solving our remaining air quality 
problems in a way that also advances national energy security and 
promotes economic growth. It would reduce power plant emissions of 
SO2, NOx and mercury by approximately 70 percent from 
today's levels and do it faster, with more certainty, and at less cost 
to American consumers than would current law. Last year's EPA estimates 
project that, over the next decade, all the programs of the existing 
Clean Air Act would reduce power plant emissions of SO2 and 
NOx by approximately 23 million tons. Over the same time period, Clear 
Skies would reduce emissions of these same pollutants by 58 million 
tons a reduction of 35 million tons of pollution that will not be 
achieved under current law\1\.
---------------------------------------------------------------------------
     \1\Except where otherwise noted, the projected emission levels, 
costs and benefits in this testimony are all based on analyses of the 
Clear Skies Act of 2002 conducted in 2002. EPA is currently analyzing 
the Clear Skies Act of 2003 using updated modeling assumptions and 
other updated information. We expect that the new analyses will be very 
similar to the 2002 analyses, but specific projections will likely 
change somewhat.
---------------------------------------------------------------------------
    When fully implemented, Clear Skies would prolong thousands of 
lives each year, providing billions of dollars in economic benefits, 
save millions of dollars in health care costs, and increase by millions 
the number of people living in areas that meet our new, more stringent 
health-based national air quality standards. Clear Skies would also 
virtually eliminate chronic acidity in northeastern lakes, reduce 
nitrogen loading in coastal waters, and help restore visibility in our 
national parks.
    The Clean Air Act has been, and continues to be, a vehicle for 
great progress in improving the health and welfare of the American 
people. The Clear Skies Act substantially expands one of the most 
successful Clean Air Act programs the Acid Rain Program and reduces the 
need to rely on complex and less efficient programs. The result would 
be significant nationwide human health and environmental benefits; 
certainty for industry, States and citizens; energy security; and 
continuing low costs to consumers.

             II. CLEAR SKIES PROVIDES SIGNIFICANT BENEFITS

    The heart of Clear Skies is a proven cap-and-trade approach to 
emissions reductions. Mandatory caps restrict total emissions and 
decline over time. Clear Skies would continue the existing national 
cap-and-trade program for SO2, but dramatically reduce the 
cap from 9 million to 3 million tons. Clear Skies would also use a 
national cap-and-trade program for mercury that would reduce emissions 
from the current level of about 48 tons to a cap of 15 tons, and would 
employ two regional cap-and-trade programs for NOx to reduce emissions 
from current levels of 5 million tons to 1.7 million tons. The specific 
caps and their timing are set forth in Table 1.

                               Table 1. Clear Skies Emission Reductions Timetable
----------------------------------------------------------------------------------------------------------------
                                                            Clear Skies Emissions Caps
                                   Actual Emissions  ---------------------------------------- Total Reduction at
                                        in 2000         First Phase of      Second Phase of          Full
                                                          Reductions          Reductions        Implementation
----------------------------------------------------------------------------------------------------------------
SO2.............................  11.2 million tons.  4.5 million tons    3 million tons in   73%
                                                       in 2010\1\.         2018\1\.
NOx\2\..........................  5.1 million tons..  2.1 million tons    1.7 million tons    67%
                                                       in 2008\1\.         in 2018\1\.
Mercury.........................  48 tons...........  26 tons in 2010...  15 tons in 2018\1\  69%
----------------------------------------------------------------------------------------------------------------
\1\Because sources can reduce emissions early, earn allowances for those actions, and use those allowances
  later, actual emission levels will be higher than the cap in the first years of these phases.
\2\The NOx cap is divided between two zones with separate trading programs under each zone. Zone 1 includes the
  31 eastern states in the continental U.S. and eastern Texas. Zone 2 includes the remaining states
  participating in the WRAP process as well as Nebraska, Kansas, Oklahoma, and some of Western Texas.

    Although national in scope, Clear Skies recognizes and adjusts for 
important regional differences in both the nature of air pollution and 
the relative importance of emissions from power generation. The eastern 
half of the country needs reductions in NOx emissions to help meet the 
ozone and fine particle standards, which generally are not an issue in 
the western half of the county (with the exception of California, which 
does not have significant emissions from existing coal-fired power 
plants). The western half of the country needs NOx reductions primarily 
to reduce the regional haze that mars scenic vistas in our national 
parks and wilderness areas, and the nitrogen deposition that harms 
fragile forests. Recognizing these regional differences, Clear Skies 
would establish two trading zones for NOx emissions and prohibit 
trading between the zones to ensure that the critical health-driven 
goals in the East are achieved.
    Clear Skies also recognizes the special visibility protection 
measures that have been developed by States participating in the 
Western Regional Air Partnership (WRAP). Clear Skies would essentially 
codify the WRAP's separate SO2 backstop cap-and-trade 
program, which would come into effect only if the WRAP States did not 
meet their 2018 SO2 emissions targets.
    Finally, Clear Skies requires tough, technology-based new source 
standards on all new power generation projects and maintains special 
protections for national parks and wilderness areas when sources locate 
within 50 km of ``Class I'' national parks and wilderness areas.
Significant Public Health and Environmental Benefits
    The public health and environmental benefits of Clear Skies present 
compelling reasons for its immediate passage. EPA projects that, by 
2010, reductions in fine particle and ozone levels under Clear Skies 
would result in billions of dollars in health and visibility benefits 
nationwide each year, including as many as 6,400 prolonged lives. Using 
an alternative methodology, 3,800 lives would be prolonged by 2010. 
Under EPA's base methodology for calculating benefits, Americans would 
experience significant benefits each year by 2020, including:

      12,000 fewer premature deaths (7,000 under an alternative 
analysis),
      11,900 fewer visits to hospitals and emergency rooms for 
cardiovascular and respiratory symptoms,
      370,000 fewer days with asthma attacks, and
      2 million fewer lost work days.

    Using the alternative methodology, by 2020 Americans would 
experience 7,000 fewer premature deaths each year.
    Methodologies do not exist to quantify or monetize all the benefits 
of Clear Skies. Still, it is clear that the benefits far exceed the 
costs. EPA estimates that the health benefits we can quantify under 
Clear Skies are worth $93 billion annually by 2020--substantially 
greater than the annual costs of approximately $6.5 billion. An 
alternative approach projects annual health benefits of $11 billion, 
still significantly outweighing the costs. The Agency estimates an 
additional $3 billion in benefits from improving visibility at select 
National Parks and Wilderness Areas. These estimates do not include the 
many additional benefits that cannot currently be monetized but are 
likely to be significant, such as human health benefits from reduced 
risk of mercury emissions, and ecological benefits from improvements in 
the health of our forests, lakes, and coastal waters.
    Clear Skies would achieve most of these benefits by dramatically 
reducing fine particle pollution caused by SO2 and NOx 
emissions, which is a year-round problem. Of the many air pollutants 
regulated by EPA, fine particle pollution is perhaps the greatest 
threat to public health. Hundreds of studies in the peer reviewed 
literature have found that these microscopic particles can reach the 
deepest regions of the lungs. Exposure to fine particles is associated 
with premature death, as well as asthma attacks, chronic bronchitis, 
decreased lung function, and respiratory disease. Exposure is also 
associated with aggravation of heart and lung disease, leading to 
increased hospitalizations, emergency room and doctor visits, and use 
of medication.
    By reducing NOx emissions, Clear Skies also would reduce ozone 
pollution in the eastern part of the country and help keep ozone levels 
low in the western portion of the country. Ozone (smog) is a 
significant health concern, particularly for children and people with 
asthma and other respiratory diseases who are active outdoors in the 
summertime. Ozone can exacerbate respiratory symptoms, such as coughing 
and pain when breathing deeply, as well as transient reductions in lung 
function and inflammation of the lung. Ozone has also been associated 
with increased hospitalizations and emergency room visits for 
respiratory causes. Repeated exposure over time may permanently damage 
lung tissue.
    Current estimates indicate that more than 350 counties fail to meet 
the health-based fine particle and ozone standards. As a result, 45 
percent of all Americans live in counties where monitored air was 
unhealthy at times because of high levels of fine particles and 
ozone.\2\ Clear Skies, in combination with existing control programs, 
would dramatically reduce that number, as shown in Figure 1. In areas 
where attainment is not projected, Clear Skies would assist those areas 
in addressing the air quality problems. Even counties currently 
measuring attainment would benefit from the reductions under Clear 
Skies. Throughout the West, Clear Skies would hold emissions from power 
plants in check, preserving clean air in high-growth areas and 
preventing degradation of the environment, even as population and 
electricity demand increase.
---------------------------------------------------------------------------
     \2\These numbers are based on the most current monitoring data 
available to EPA. It is more current than the data that was available 
at the time that EPA conducted its analyses last year of the Clear 
Skies Act of 2002. The newer data confirms that we have serious air 
quality problems in many counties, but it shows improvement--fewer 
counties violating the ozone and fine particle standards. As a result, 
compared to last year's analyses, the new analyses may show less 
residual non-attainment (counties out of attainment in 2010 and 2020).


    Clear Skies would also reduce mercury emissions from power plants. 
EPA is required to regulate mercury because EPA determined that mercury 
emissions from power plants pose an otherwise unaddressed significant 
risk to health and the environment, and because control options to 
reduce this risk are available. Mercury, a potent toxin, can cause 
permanent damage to the brain and nervous system, particularly in 
developing fetuses when ingested in sufficient quantities. People are 
exposed to mercury mainly through eating fish contaminated with 
methylmercury.
    Mercury is released into the environment from many sources. Mercury 
emissions are a complex atmospheric pollutant transported over local, 
regional, national, and global geographic scales. EPA estimates that 60 
percent of the mercury falling on the U.S. is coming from current man-
made sources. Power generation remains the largest man-made source of 
mercury emissions in the United States. In 1999, coal-fired power 
plants emitted 48 tons of mercury (approximately 37 percent of man-made 
total). These sources also contribute 1 percent of mercury to the 
global pool.
    Mercury that ends up in fish may originate as emissions to the air. 
Mercury emissions are later converted into methylmercury by bacteria. 
Methylmercury accumulates through the food chain: fish that eat other 
fish can accumulate high levels of methylmercury. EPA has determined 
that children born to women who may have been exposed to high levels 
may be at some increased risk of potential adverse health effects. 
Prenatal exposure to such levels of methylmercury may cause 
developmental delays and cognitive impairment in children. Clear Skies 
will require a 69 percent reduction of mercury emissions from power 
plants.
    In addition to substantial human health benefits, Clear Skies would 
also deliver numerous environmental benefits. For example, under Clear 
Skies, we project that 10 million fewer pounds of nitrogen would enter 
the Chesapeake Bay annually by 2020, reducing potential for water 
quality problems such as algae blooms and fish kills. In fact, the 
Chesapeake Bay States, including NY, VA, MD, PA, DE, WV and DC, 
recently agreed to incorporate the nitrogen reductions that would 
result from Clear Skies legislation as part of their overall plan to 
reduce nutrient loadings to the Bay. Clear Skies would also accelerate 
the recovery process of acidic lakes, virtually eliminating chronic 
acidity in many Northeastern lakes. For decades fish in the Adirondacks 
have been decimated by acid rain, making many lakes completely 
incapable of supporting populations of fish such as trout and 
smallmouth bass. The Acid Rain Program has allowed some of these lakes 
and the surrounding forests to begin to recover; Clear Skies would 
achieve additional needed reductions. Clear Skies would also help other 
ecosystems suffering from the effects of acid deposition by preventing 
further deterioration of Southeastern streams. Finally, Clear Skies 
would improve visibility across the country, particularly in our 
treasured national parks and wilderness areas.
    Clear Skies is designed to ensure that these public health and 
environmental benefits are achieved and maintained. By relying on 
mandatory caps, Clear Skies would ensure that total power plant 
emissions of SO2, NOx and mercury would not increase over 
time. This is a distinct advantage over traditional command-and-control 
regulatory methods that establish source-specific emission rates but 
which allow total emissions to increase over time. Like the Acid Rain 
Program, Clear Skies would have much higher levels of accountability 
and transparency than most other regulatory programs. Sources would be 
required to continuously monitor and report all emissions, ensuring 
accurate and complete emissions data. If power plants emit more than 
allowed, financial penalties are automatically levied without the need 
for an enforcement action. More importantly, every ton emitted over the 
allowed amount would have to be offset in the following year, ensuring 
no net environmental harm. This high level of environmental assurance 
is rare in existing programs; Clear Skies would make it a hallmark of 
the next generation of environmental protection.
Reasonable Costs and Energy Security for Consumers and Industry
    The President directed us to design Clear Skies to meet both our 
environmental and our energy goals. Under Clear Skies, electricity 
prices are expected to remain at or below current levels over the next 
decade. Our extensive economic modeling of the power industry looked at 
a broad array of factors to gauge the effects of Clear Skies on the 
energy industry and they all show that cleaner air and energy security 
can go hand-in-hand.
    Clear Skies would maintain energy diversity. With Clear Skies, coal 
production for power generation would be able to grow by almost 10 
percent from 2000 to 2020 while air emissions are significantly 
reduced. EPA's extensive economic modeling for Clear Skies demonstrates 
that the proposal's emission reductions would be achieved primarily 
through retrofitting controls on existing plants. Clear Skies's 
timeframe and certainty enable the power sector to meet aggressive 
emission reduction targets without fuel switching. This is important 
not only to power generators and their consumers who want to continue 
to rely on our most abundant, reliable, affordable and domestically 
secure source of energy, but also to other consumers and industries 
whose livelihoods could be hurt by a rise in natural gas prices. Our 
analysis shows that Clear Skies would not cause a significant increase 
in natural gas prices.
    Under Clear Skies by 2010, about three-fourths of U.S. coal-fired 
generation is projected to come from units with billions of dollars of 
investment in advanced SO2 and/or NOx control equipment 
(such as scrubbers and Selective Catalytic Reduction, which also 
substantially reduce mercury emissions). In 2020, the percentage is 
projected to rise to 85 percent. Cost effective strategies and 
technologies for the control of sulfur dioxide and nitrogen oxides 
emissions exist now, and thanks in good part to the Clear Skies market-
based system improved methods for these pollutants, and for mercury, 
are expected to become increasingly cost-efficient over the next 
several years. In fact, the Institute of Clean Air Companies forecasts 
that the U.S. markets for most technology sectors will remain fairly 
strong, adding momentum to the air pollution control technology 
industry. We expect that the Clear Skies Act will provide great 
benefits to American jobs in the engineering and construction 
industries.
    One of the key reasons Clear Skies would be cost-effective is its 
reliance on cap-and-trade programs. Like the Acid Rain Program upon 
which it is based, Clear Skies would give industry flexibility in how 
to achieve the needed emission reductions, which allows industry to 
make the most cost-effective reductions and pass those savings on to 
consumers. Power plants would be allowed to choose the pollution 
reduction strategy that best meets their needs (e.g., installing 
pollution control equipment, switching to lower sulfur coals, buying 
excess allowances from plants that have reduced their emissions beyond 
required levels). Like the Acid Rain program, Clear Skies includes 
banking provisions, enabling companies to save unused allowances for 
future use. Banking creates a tangible, quantifiable, economic 
incentive to decrease emissions beyond allowable levels, which EPA 
projects will result in significant early benefits due to over-
compliance in the initial years, particularly for SO2. It 
also leads to gradual emissions reductions over time, and therefore a 
less disruptive transition to tighter emission controls needed to 
address lingering problems. Based on past experience under the Acid 
Rain Program, by placing a monetary value on avoided emissions, Clear 
Skies would stimulate technological innovation, including efficiency 
improvements in control technology, and encourage early reductions.
Assistance to State and Local Governments
    Under the current Clean Air Act, State and local governments face 
the daunting task of meeting the new fine particle and ozone standards. 
Clear Skies would substantially reduce that burden. By making enormous 
strides toward attainment of the fine particle and ozone standards, 
Clear Skies would assist State and local governments in meeting their 
obligation under the Clean Air Act to bring areas into attainment with 
these health-based standards, and provide Americans with cleaner air.
    Clear Skies' assistance to States goes beyond ensuring that power 
plants will reduce their emissions. Clear Skies relies on a common-
sense principle if a local air quality problem will be solved in a 
reasonable timeframe by the required regional reductions in power plant 
emissions, we should not require local areas to adopt local measures. 
Under Clear Skies, areas that are projected to meet the ozone and fine 
particles standards by 2015 as a result of Clear Skies would have a 
legal deadline of 2015 for meeting these standards (i.e., will have an 
attainment date of 2015). These areas would be designated 
``transitional'' areas, instead of ``nonattainment'' or ``attainment,'' 
and would not have to adopt local measures (except as necessary to 
qualify for transitional status). They would have reduced air quality 
planning obligations and would not have to administer more complex 
programs, such as transportation conformity, nonattainment New Source 
Review, or locally based progress or technology requirements in most 
circumstances.

           III. IMPROVING THE CLEAN AIR ACT WITH CLEAR SKIES

    Clear Skies would improve the Clean Air Act in a number of ways. It 
would build on the proven portions of the Clean Air Act like the 
national ambient air quality standards and the Acid Rain Program and 
reduce reliance on complex, less efficient requirements like New Source 
Review for existing sources. The mandatory emissions caps at the heart 
of Clear Skies guarantee that reductions will be achieved and 
maintained over time. In contrast, uncertainties with respect to 
regulatory development, litigation, and implementation time make it 
difficult to estimate how quickly and effectively current regulations 
would be implemented under the current Clean Air Act. The level of 
SO2 and NOx reductions we expect over the next decade with 
Clear Skies legislation could not be achieved under the existing Act. 
After that, we know that Clear Skies would achieve significant 
reductions, while both the timing and level of reductions under the 
current Clean Air Act are unclear.
Early Reductions
    One of the major reasons we need Clear Skies now is that adoption 
of Clear Skies would provide greater protection over the next decade 
than the traditional regulatory path. The Clear Skies Act will result 
in significant over-compliance in the early years, particularly for 
SO2, because sources are allowed to bank excess emissions 
reductions. For reasons described below, our analyses indicate that the 
cumulative SO2 and NOx emissions reductions achieved by 
Clear Skies over the next decade would not be achieved in the same 
timeframe under the current Clean Air Act. Last year's EPA estimates 
project that power plants would emit 35 million fewer tons of NOx and 
SO2 over the next decade under Clear Skies than they would 
under the current Clean Air Act this more than doubles the reductions 
otherwise expected and would ensure significantly larger human health 
and environmental benefits. Our analysis suggests that the amount of 
pollution controls that the industry will have to install under Clear 
Skies over the next decade will stretch the limits of available labor 
and other construction resources, but can in fact be accomplished while 
maintaining energy reliability and continuing the downward trend in 
electricity prices.

Legislation Now Is Better than Regulation Followed by Years of 
        Litigation
    Even if Clear Skies is not passed by Congress, power plants will be 
required to reduce their emissions of SO2, NOx and mercury. 
There is no more cost effective way than Clear Skies to meet the 
requirements of the current Clean Air Act or to achieve our public 
health and environmental goals. We know that, absent new legislation, 
EPA and the States will need to take a number of regulatory actions, 
although it is unclear now when the requirements will come into effect 
or what their control levels will be.
    Clear Skies has several benefits over the regulatory scheme that 
will otherwise confront power generators. Clear Skies is designed to go 
into effect immediately upon enactment. Power plants would immediately 
understand their obligations to reduce pollution and would be rewarded 
for early action. As a result, public health and environmental benefits 
would begin immediately. Given Clear Skies' design, it is unlikely that 
litigation could delay the program (particularly since Congress would 
decide the two most controversial issues the magnitude and timing of 
reductions). In contrast, under the current Clean Air Act, power plants 
would not know what their obligations would be until after EPA and 
States started and completed numerous rulemakings.
    Past experience suggests that litigation delays on the regulatory 
path are likely. Our experience with two cap-and-trade programs the 
legislatively created Acid Rain Trading Program and the 
administratively created NOx SIP Call illustrates the benefits of 
achieving our public health and environmental goals with legislation 
rather than relying solely on existing regulatory authority.
    Though we project a great deal of benefits will arise from 
implementation of the NOx SIP call, the journey has been difficult and 
is not yet over. The NOx SIP call was designed to reduce ozone-forming 
emissions by one million tons across the eastern United States. The 
rulemaking was based on consultations begun in 1995 among States, 
industry, EPA, and nongovernmental organizations. A Federal rule was 
finalized in 1998. As a result of litigation, one State was dropped and 
the 2003 compliance deadline was moved back for most States. Most 
States are required to comply in 2004, although two States will have 
until 2005 or later. Meanwhile, sources in these States continue to 
contribute to Eastern smog problems. Although the courts have largely 
upheld the NOx SIP Call, the litigation is not completely over. 
Industry and State challenges to the rules have made planning for 
pollution control installations difficult, raised costs to industry and 
consumers, and delayed health and environmental benefits.
    In contrast, reductions from the Acid Rain Program began soon after 
it passed (even before EPA finalized implementing regulations). There 
were few legal challenges to the small number of rules EPA had to issue 
and none of the challenges delayed implementation of the program. The 
results of the program have been dramatic and unprecedented. Compliance 
has been nearly 100 percent. Reductions in power plant SO2 
emissions were larger and earlier than required, providing earlier 
human health and environmental benefits. Now, in the ninth year of the 
program, we know that the greatest SO2 emissions reductions 
were achieved in the highest SO2-emitting States; acid 
deposition dramatically decreased over large areas of the eastern 
United States in the areas where they were most critically needed; 
trading did not cause geographic shifting of emissions or increases in 
localized pollution (hot spots); and the human health and environmental 
benefits were delivered broadly. The compliance flexibility and 
allowance trading has reduced compliance costs by 75 percent from 
initial EPA estimates.
    [See 2001 Acid Rain Program Progress Report submitted for the 
record.]
    It is clear from this example that existing regulatory tools often 
take considerable time to achieve significant results, and can be 
subject to additional years of litigation before significant emissions 
reductions are achieved. Under this scenario, there are few incentives 
to reduce emissions until rules are final and litigation is complete, 
posing potentially significant delays in achieving human health and 
environmental benefits.
    The Clean Air Act contains several provisions under which EPA will 
be required to impose further emission controls on power plants in 
order to allow States to meet the new national ambient air quality 
standards (NAAQS) for PM2.5 and ozone. For example, Section 
126 of the Clean Air Act provides a petition process that States can 
use to force EPA to issue regulations to reduce emissions of 
SO2 and NOx from upwind sources, including power plants. A 
number of States have indicated that they intend to submit Section 126 
petitions in the near future. However, compared to Clear Skies, this 
approach will almost certainly involve years of litigation and 
uncertainty about reduction targets and timetables.
    Additional reductions are required from power plants through the 
regional haze rule's BART (Best Available Retrofit Technology) 
requirements and forthcoming mercury MACT (maximum achievable control 
technology) requirements. EPA is required to propose by the end of 2003 
a MACT standard for utility mercury emissions that must be met, plant-
by-plant, by every coal-fired utility with unit capacity above 25 
megawatts. EPA is required to finalize this rule by the end of 2004. 
The Act generally gives sources 3 years within which to comply with 
MACT standards. This compliance obligation could be delayed by a court 
if EPA's rule is challenged.
    Because these regulations will be the product of separate Federal, 
State and judicial processes, comparable health and environmental 
protection is likely to cost more under the current Clean Air Act than 
under Clear Skies. EPA estimates that a comprehensive, integrated 
approach relying on cap-and-trade programs could reduce costs by one 
fourth as compared to the regulatory approach achieving comparable 
emission reductions. These cost savings would be passed on to the 
public through lower electricity prices and greater profitability to 
investors and owners of electric generation.

New Source Review
    Some have suggested that Clear Skies is an attempt to undermine the 
Clean Air Act. This is simply not true. To achieve the next generation 
of environmental progress, we must build on the successful provisions 
in laws that have served us well and learn from those provisions that 
have not served us well, or have had only limited success. New Source 
Review (NSR) is an example of a program that EPA and stakeholders have 
long recognized is not working well.
    There is a misconception that the principle goal of the NSR program 
is to reduce emissions from power plants. This is simply incorrect. 
Reducing emissions from power plants is the principle goal of Clear 
Skies. The NSR program is triggered only when facilities emitting large 
amounts of air pollution are built, and when modifications at these 
facilities result in significant increases in air pollution. The NSR 
program is not designed to result in nationwide reductions of air 
pollution from power plants. When it comes to reducing harmful air 
emissions from power plants, Clear Skies would accomplish more than 
NSR.
    Clear Skies would significantly modify the NSR program for power 
plants, but contain some important backstops. We expect that existing 
power plants would not have to go through NSR for modifications. New 
sources would no longer have to go through the entire NSR process, but 
some aspects of the process would still apply. Although we believe that 
with a tight cap on emissions, new sources will always install good 
controls, we did not want to run the risk that a new source would be 
uncontrolled. Therefore, as a backstop, Clear Skies would require all 
new power plants to meet New Source Performance Standards that are set 
in the statute.
    In addition, new power generators locating within 50 km of a Class 
I area (e.g., national parks or wilderness areas) would still be 
subject to the current NSR requirements for the protection of those 
areas. Finally, new power plants will also have to meet the current NSR 
requirements that they will not cause or contribute to a violation of 
the national ambient air quality standards.

                       IV. WINDOW OF OPPORTUNITY

    Because of the lessons learned over the last decade, there is 
increasing support for legislation such as Clear Skies that would 
significantly reduce and cap power plant emissions and create a market-
based system to minimize control costs. From environmental groups to 
coal companies, there is increasing broad-based support demonstrating 
that multipollutant legislation is a preferable path to cleaner air. 
Such an approach would address an array of air pollution concerns 
associated with power generation--including fine particles, smog, 
mercury deposition, acid rain, nitrogen deposition, and visibility 
impairment--at lower cost and with more certainty than currently 
allowed by the Clean Air Act.
    The Acid Rain Program is widely accepted as one of the most 
effective air pollution programs ever adopted and has consequently 
attracted worldwide attention and emulation. The Program's track record 
has encouraged Congress to consider broader applications of cap-and-
trade programs to address multiple air pollutants. The common elements 
of the proposals considered by Congress are mandatory caps on emissions 
of multiple pollutants from the power generation sector, implemented 
through allowance trading programs modeled after the Acid Rain Program.
    There is no better time for Congress to be considering 
multipollutant legislation. President Bush has indicated that Clear 
Skies is his top environmental priority. The number of proposals being 
considered by Congress also indicates a consensus behind the basic idea 
of a multipollutant cap-and-trade approach. The Large Public Power 
Council, Edison Electric Institute, Adirondack Council, and numerous 
individual utilities have all expressed support for the scope and 
framework of Clear Skies. If legislation passes quickly, we will begin 
achieving emissions reductions and related health benefits now. 
Congress needs to act now so that we do not lose a decade's worth of 
health and environmental benefits from reducing fine PM pollution, 
smog, acid deposition, nitrogen deposition, and regional haze. Further, 
as EPA continues to implement additional forthcoming regulations under 
the existing framework of the Act, the likelihood of our ability to 
pursue an integrated program diminishes and with it diminish the 
numerous advantages that I have delineated today of an approach like 
Clear Skies.
    Legislation is also needed now to help States with their air 
quality planning and provide incentives for industry innovation, which, 
in turn, would lower costs and emissions. Such incentives are 
particularly compelling this year as we approach the task of reducing 
mercury emissions from the power industry. If designed correctly, 
legislation could provide the incentive that spurs technological 
innovation. When stringent yet flexible mechanisms exist, substantial 
technological improvements and steady reductions in control costs can 
be expected to follow.
    Congress obviously has much to consider as it weighs Clear Skies 
and other multipollutant proposals this year. We anticipate and welcome 
a rigorous and healthy debate on these issues.
                                 ______
                                 
 Responses of Hon. Christine Todd Whitman to Additional Questions from 
                            Senator Jeffords

    Question 1. In the last 4 years, has EPA performed any modeling or 
possess information which suggests that lower levels of emissions of 
SOx, NOx, and mercury, than would be achieved by implementation of the 
Clear Skies legislation are feasible and could be achieved with less 
than a $5 billion annual incremental cost beyond the cost of Clear 
Skies? If so, please provide the Committee with the data, including 
parsed model runs, and a summary of the data.
    Response. During the development of the Clear Skies Act, the 
Administration looked at a number of policy options, analyzing air 
quality and economic impacts as well as the feasibility of installing 
the pollution controls necessary to comply with the environmental 
requirements. Last year, EPA provided to Congress model outputs, parsed 
model runs and summary data for each of the multi-pollutant scenarios 
that were analyzed for both air quality and economic impacts during the 
development of Clear Skies. EPA also provided the model outputs, parsed 
model runs and summary data for the economic and air quality analysis 
of Clear Skies that was done last year.
    One of these modeling runs used during the development of Clear 
Skies is more stringent and has an incremental cost of less than $5 
billion in annual costs. However, EPA's analysis of engineering, labor 
and capital markets for the power sector indicates that the ability of 
this sector to install the level of pollution controls required to meet 
the first phase requirements of this developmental scenario would 
significantly stretch the available labor resources beyond that which 
is feasible. This analysis raises concerns over the feasibility of 
requiring more pollution reduction than Clear Skies does in its first 
phase and/or installing controls sooner than the bill does. Notably, a 
program faced with a labor shortage would also be much more expensive, 
a consideration modeled in the work we supplied Congress. Additionally, 
we have found that the timing of the requirements in Clear Skies is an 
important part of ensuring the pollution controls can be financed. 
Enclosed are summary results of our engineering study and financial 
analysis of Clear Skies for your further consideration (Attachments 1 
and 2).

    Question 2. Please provide the Committee with any analysis, 
including parsed IPM runs and summaries, that the Agency has performed 
regarding S. 3135, the Clean Air Planning Act of 2002. The requested 
analysis does not need to represent the official Administration 
position, the Committee would like to receive whatever analysis EPA has 
performed using taxpayers dollars
    Response. EPA analyzed S. 3135, the Clean Air Planning Act of 2002, 
using the Integrated Planning Model (IPM) for sulfur dioxide 
(SO2), nitrogen oxides (NOx) and mercury emissions. EPA 
analyzed the CO2 provisions in S. 3135 using an off-line 
analysis that relied on the same methodology that EPA used in 2001 to 
respond to a request from Senators Smith, Voinovich and Brownback to 
analyze CO2 components of various multi-emission power plant 
policy options. We have provided the modeling outputs and off-line 
spreadsheet analysis to your staff. EPA does not have parsed IPM runs 
for S. 3135.
    Question 3. If I understood Mr. Holmstead's testimony correctly, he 
indicated that it is possible that there could be a 1.5 percent cost 
differential or somewhat more than that for implementation of S. 485 
versus S. 3135, Senator Carper's bill. Please explain how larger 
emissions reductions, including carbon dioxide, could be accomplished 
with so little difference in cost.
    Mr. Holmstead did not testify about the cost differential between 
S. 485 and S. 3135. However, EPA's analysis of S. 3135 projected annual 
costs at about $5.6 billion and $9.0 billion in 2010 and 2020, 
respectively. This is approximately 53 percent and 38 percent greater 
than the cost of Clear Skies for those same years (based on 2002 
analyses).

    Question 4. Please provide and compare a list of the assumptions 
used in the IPM models already run, or in the process of being run, 
specifically on the Clear Skies legislative proposal for three 
different periods: the period prior to introduction of S. 2815, the 
period prior to introduction of S. 485, and the period following 
introduction of S. 485.
    Response. Extensive documentation regarding the Integrated Planning 
Model (IPM), including every model assumption, can be found on EPA's 
website (http://www.epa.gov/airmarkets/epa-ipm/index.html). For the 
year prior to introduction of S. 2815 until July 2003, EPA used 
modeling results from IPM V.2.1 to analyze the projected economic 
impacts of that bill. A copy of the main documentation report for that 
version of the model is enclosed (Attachment 3). Beginning in July 
2003, EPA has used an updated version of the model in its analysis of 
S. 485, the Clear Skies Act of 2003. The documentation of this latest 
version of IPM (version 2.1.6) is also enclosed (Attachment 4). This 
documentation explains all the changes in the current version of IPM 
from the earlier version. A summary of all the changes can be found at 
the beginning of the document. Since introduction of S. 2815, IPM has 
undergone a routine update, and various IPM assumptions were revised. 
This version of IPM (V.2.1.6) was used to model S. 485 and continues to 
be used today. Documentation for the updated version of IPM can also be 
found on the website.

    Question 5. The Clean Air Act Amendments of 1990 created strict 
attainment deadlines in Federal law because the States were having 
difficulty in controlling regional pollution and achieving healthy air. 
Why does the Clear Skies legislation propose to loosen and extend 
attainment deadlines, since that would assure that more people will 
live in areas with unhealthier air longer than required by the current 
Act?
    Response. If enacted, Clear Skies would deliver early human health 
and environmental benefits almost immediately compared to the current 
Clean Air Act. Asserting otherwise shows a fundamental misunderstanding 
of how a cap and trade program works. The cap and trade program would 
provide incentives to start reducing emissions immediately. EPA 
projects that two-thirds of the counties currently out of attainment 
with the fine particle standards would come into attainment by 2010 as 
a result of Clear Skies, the proposed non-road heavy duty diesel rule, 
and existing State and Federal control programs. Without Clear Skies, 
only half of those counties are projected to attain in 2010 based on 
existing control programs and the non-road diesel rule.
    Areas that are projected to meet the ozone and PM 2.5 standards by 
2015 as a result of Clear Skies and other programs would have a legal 
deadline of 2015 for meeting these standards (i.e., will have an 
attainment date of 2015). These areas would be designated 
``transitional'' areas.

    Question 6. Would Clear Skies require additional legislation in the 
future to obtain greater reductions in mercury beyond the roughly 70 
percent in 2018 (or later) mandated in the bill, even if good science 
indicates more aggressive action is needed to protect public health?
    Response. Clear Skies would require approximately a 70 percent 
decrease in mercury emissions, as it does for SO2 and NOx. 
It is an expansion of the acid rain trading program, and, as in the 
acid rain trading program, the Congress holds the sole power to adjust 
the caps. Due to the scientific and technological uncertainties 
regarding mercury, Section 410 of the Clear Skies Act would require a 
comprehensive assessment of the Phase II cap for mercury, along with 
those for SOx and NOx by 2009. This assessment is to include an 
examination of the latest scientific and technical information related 
to mercury effects, environmental chemistry, and control approaches. 
Based on that assessment, the Administrator could submit any 
recommendations to Congress to revise the Phase II caps.

    Question 7. Please provide a table comparing the proposed national 
emission standards for affected units in section 481 of S. 485 with the 
emissions performance required by permit for each new or modified--
boiler or integrated gasification combine cycle plant, gas-fired 
combustion turbine, and any combustion turbine that is not gas-fired or 
coal-fired, for the last 5 years.
    Response. The Clear Skies Act calls for significant reductions due 
to the two-phased caps. Thus, we believe that the section 481 values 
are redundant in the long run. The review of available limited permit 
data demonstrates a range of values both below and above levels set in 
section 481.
    The EPA does not maintain a comprehensive record of the details of 
permit information for new and modified sources. Information is 
available on some, but not all, facilities receiving permits over the 
past 5 years. A partial compilation for new source permits for new or 
modified boilers, integrated gasification combine cycle plants, gas-
fired combustion turbines, and combustion turbines is contained in the 
National Coal-Fired Utility Projects Spreadsheet. This compilation of 
information, supplied by all 10 EPA Regions, about new utility projects 
was updated in May 2003, and can be accessed at http://www.epa.gov/ttn/
catc/products.html#misc.

    Question 8 What are the average emission rates for NOx and SOx for 
new coal-fired power plants permitted over the last 5 years? What are 
the averages for modifications at existing coal-fired power plants 
permitted in the same period?
    Response. In general the NSR program has been delegated to States, 
therefore EPA does not track all permit applications for new or 
modified coal plants. See question 7 for more details. Based on the 
permit information available, new coal plants have been permitted at 
NOx levels ranging from approximately 0.07 lbs/mmBtu to 0.15 lbs/mmBtu 
and SO2 levels ranging from approximately 0.13 lbs/mmBtu to 
0.30 lbs/mmBtu. We do not have comparable information on permits for 
modifications at existing power plants.

    Question 9 Does EPA disagree with the Abt Associates peer-reviewed 
study done a couple of years ago which estimates about 30,000 people 
are dying prematurely every year right now from power plant pollution? 
If so, why?
    Response. EPA agrees that fine particle pollution contributes to 
premature deaths as well as other serious health effects. That is why 
this Administration is seeking the fastest method for achieving air 
quality improvements over the next decade. EPA has not analyzed the 
total number of premature deaths attributable each year to fine 
particle pollution, or the total contribution of a particular sector to 
health effects associated with air pollution. Instead of calculating 
total premature deaths from fine particles, EPA'S analyses have focused 
on quantifying the incremental benefits of adopting particular 
regulatory strategies. In 1995, EPA projected the human health benefits 
of Title IV of the Clean Air Act (the Acid Rain Program). That analysis 
suggested that, by 2010, the Title IV program alone would prevent 
approximately 10,000 premature deaths each year. While the Acid Rain 
program has been very successful in reducing harmful emissions from 
utilities, Clear Skies will provide even further health protection. We 
have estimated that Clear Skies reductions by 2020 could prolong as 
many as 14,100 lives annually (while an alternative approach would set 
this figure at 8,400 lives prolonged annually.)

    Question 10. In a recent EPA briefing on Clear Skies for Senate 
staff, an Agency presenter admitted that mercury reductions would be 
greater in 2008 under the mercury MACT rule than under Clear Skies. 
Please explain how Clear Skies mercury controls would not lead to an 
increased health risk to newborns and pregnant women, compared to 
completely carrying out the mercury MACT standards.
    Response. Thank you for the opportunity to clarify this much-
discussed issue. The utility MACT rulemaking process and the underlying 
analyses are not yet completed, and therefore we cannot state 
definitively whether the ultimate mercury emission reductions under 
MACT would be greater or less than those that would be achieved under 
Clear Skies.
    After the proposed rule is published in December, 2003, the Agency 
will assess the public comments submitted before publishing the final 
rule in December, 2004. The statute requires compliance 3 years 
following promulgation (i.e., December, 2007), although States have the 
ability to delay the requirement for a year (i.e., until December, 
2008). While the statutory timing for the implementation of the utility 
MACT is prior to the Clear Skies' Phase I cap date, it is almost 
certain that the utility MACT will be litigated. Therefore, the timing 
is highly uncertain.
    In contrast, under Clear Skies we believe that mercury emission 
reductions will begin as soon as Clear Skies is enacted because the 
cap-and-trade system provides firms certainty in their business 
planning and an incentive to bank allowances in the early years of the 
program. What's more, since Clear Skies is a multi-pollutant approach 
to emissions reductions, some mercury reductions will be achieved as a 
co-benefit from the installation of SO2 and NOx controls. 
Clear Skies will therefore likely result in earlier emissions 
reductions than the MACT rule, reducing the health risk to newborns and 
expectant mothers sooner than MACT.

    Question 11. Does Clear Skies eliminate the residual risk 
provisions of Section 112 with respect to mercury and electric 
utilities? Also, would these statutory provisions be eliminated or 
deferred for other hazardous air pollutants under the Clear Skies 
legislation? Please justify.
    Response. Under the Clear Skies Act of 2003 (CSA), the 
Administrator would conduct a comprehensive assessment of the Phase II 
caps pursuant to section 410 (Evaluation of Limitations) and then 
recommend to Congress whether changes to the Phase II caps are 
appropriate. This evaluation and possible recommendation and the 
required reduction in mercury emissions make the provisions of section 
112(f) of the Clean Air Act as they apply to mercury from electric 
utility generating units unnecessary. However, the section 112(f) 
provisions for hazardous air pollutants other than mercury, would 
remain in effect under the Clear Skies Act of 2003.
    Clear Skies logically modifies the deadlines for addressing 
residual risk from non-mercury hazardous air pollutants from the power 
sector to run from the start of the allowance requirement of section 
472 rather than within 8 years of issuance of a MACT standard under the 
current provisions of the Clean Air Act. This modification will allow 
EPA to have sufficient emissions and exposure data after SO2 
and NOx allowance compliance strategies are in place to make the 
necessary determination of the need for a residual risk standard for 
these non-mercury hazardous air pollutants.

    Question 12. Please explain how Clear Skies will achieve greater 
reductions in 2018 in mercury emissions than would be achieved by MACT 
requirements in the present law.
    Response. EPA entered a settlement agreement to propose the Utility 
MACT in December, 2003, after which the Agency will consider public 
comments submitted on the proposal and issue a final rule in December, 
2004. Until the entire rulemaking process is complete, it is not 
possible to determine whether the CSA would obtain mercury reductions 
greater than or less than the Utility MACT. We can be fairly certain, 
however, that Clear Skies will achieve reductions sooner than would be 
achieved under MACT. Due to Clear Skies' incentives for early 
reductions, reductions would start occurring as soon as the legislation 
passed. With MACT, the final rule won't be issued for another 15 
months, and then with litigation uncertainties, it is impossible to 
know when emissions reductions might begin.

    Question 13. As I understand it, the National Park Service, Federal 
land managers, and EPA have documented that air pollution degrading 
visibility and causing acid deposition in the National Parks and 
Wildlife Refuges is coming from power plants many miles away, sometimes 
more than 50 or 100 miles away. For example, dozens of power plants 
impact the Smoky Mountains National Park, but only one falls within the 
31 mile/50 kilometer perimeter of the park. That's the limit contained 
in the Clear Skies proposal for use as a test to determine whether 
better control technology is required. Would Clear Skies allow new 
power plants to be sited or old ones reconstructed in places that could 
degrade visibility or cause increased deposition in the National Parks?
    Response. Clear Skies would require individual new facilities to 
have, at a minimum, modern pollution controls as specified in section 
481 (National Emission Standards for Affected Units) of the Clear Skies 
Act. Subsequent review by the Federal Land Manger of facilities within 
the 50km limit would ensure that the potential impacts of well 
controlled new sources do not result in significant local effects in 
Class I areas.
    Clear Skies would benefit the ecosystems and air quality in 
national parks across the country, especially in the eastern States. 
The reductions in acid rain, eutrophication, mercury deposition and 
regional haze from Clear Skies would improve these treasured resources. 
By addressing air pollution from a regional perspective, the transport 
of air pollution into national parks and wilderness areas would be 
reduced.
    An examination of our emissions projections for the Class I area in 
your question--the Great Smoky Mountain National Park (GSMNP)--serves 
to illustrate the strength of the Clear Skies approach to these issues. 
Using air quality modeling approaches in our 2003 analysis, we 
forecasted emissions with and without Clear Skies for the GSMNP air 
shed, which stretches over several hundred kilometers in the eastern 
US. There are substantial overall reductions in SO2 and NOx 
emissions affecting this air shed as compared to the base case that EPA 
modeled (which assumes continued implementation of existing control 
programs, but no new Federal or State regulatory control programs). 
Under the base Case, EPA projects that emissions of SO2 in 
the Southern Blue Ridge Airsheds that encompass the GSMNP will be 
approximately 5 million tons in 2020. Clear Skies will drop these acid 
rain-causing pollutants to less than 2 million tons in 2020.
    NOx emissions will also drop dramatically under Clear Skies. We 
project that Clear Skies will reduce emissions of NOx in these airsheds 
from approximately 1 million tons in the 2020 base case down to 
approximately 200,000 tons in 2020. We believe that Clear Skies will 
result in approximately $600 million of benefits in the Great Smokies 
in 2010 and $2 billion of benefits in the Great Smokies in 2020. And, 
this figure does not include the many benefits for which we cannot 
assign a monetary value. These projected improvements include all 
forecasted growth in new sources. Clear Skies would provide the 
regional reductions necessary to improve visibility and ecosystem 
protection of our National Parks and Wilderness areas.

    Question 14. What measurable effects will Clear Skies have on 
episodically acidic lakes and streams in the U.S.?
    Response. When analyzing the effects of Clear Skies on lakes and 
streams, EPA focused on the Northeast and the Southeast the areas of 
the country with most acid-sensitive aquatic ecosystems. The results of 
our 2003 analysis are presented below.
    From this analysis, we found a small improvement in reducing the 
percentage of southeastern streams that are episodically acidic. This 
is primarily due to the long period of time that Southeastern soils 
hold decades of acid loadings that continue to be released, even as 
loadings are reduced. Thus, in the Southeast, Clear Skies would slow 
the deterioration of stream health expected under the Base Case and 
would prevent additional streams from becoming chronically acidic. In 
the Northeast, there is an initial appearance of a perverse effect of 
more lakes characterized as episodically acidic, but actually most of 
these lakes have shifted from the more serious chronically acidic 
category to episodically acidic. In fact, Clear Skies is projected to 
eliminate chronic acidity in Adirondack region lakes, whereas more than 
1 in 10 is chronically acidic in the Base Case in 2020.

    Question 15. How will conformity work in the transitional areas 
proposed to be created in Clear Skies?
    Response. Under the Clear Skies Act, transportation conformity 
(dealing with highways and mass transit) and general conformity 
(dealing with all other Federal actions) would not apply to areas 
designated as transitional for a specific pollutant (for example, ozone 
or particulate matter), since these areas would not be designated as 
nonattainment for that pollutant. Conformity requirements would apply 
only in nonattainment and maintenance areas. If an area is designated 
transitional for one pollutant and nonattainment for another pollutant, 
then conformity would apply for the nonattainment pollutant but not for 
the transitional pollutant. This approach is based on the common-sense 
principle that we should not require local areas to adopt local 
measures if their air quality problem will be solved in a reasonable 
timeframe by the reductions in power plant emissions required by Clear 
Skies.

    Question 16. If the pending NSR enforcement actions against power 
plants were all decided in EPA's favor, the targeted facilities would 
make significant reductions of SOx and NOx. Under the models run for 
Clear Skies, how much would each of these targeted plants probably 
reduce annual emissions compared to the reductions they would make if 
the NSR enforcement actions were decided in EPA's favor?
    Response. Because many of the enforcement actions are on-going, EPA 
is unable to estimate the emission reductions that would be obtained at 
all of the plants currently subject to enforcement action. Furthermore, 
the enforcement actions that have been settled have resulted in a range 
of reductions and timing, making the outcome of future cases difficult 
to project. Aggregate emissions from the power sector under Clear Skies 
would be reduced by 70 percent beyond today's emission levels. Under 
Clear Skies, total emissions are capped at this 70 percent reduction 
level indefinitely. NSR enforcement does not provide you with that 
guarantee because even if you have the most stringent standard at every 
plant, if the number of plants keeps growing, the amount of emissions 
can grow as well.

    Question 17. What would be the approximate emissions performance 
for NOx and SOx for each of the power plants covered by the Agency's 
NSR enforcement actions if all the cases were decided in EPA's favor?
    Response. See answer to Question 16.

    Question 18. If all power plants defined as ``affected units'' 
under Clear Skies were required to apply BACT for the relevant 
technology and fuel source today, what would be the total NOx and SOx 
emissions from those sources?
    Response. EPA has not performed this analysis of emission 
reductions. But command and control regulations (such as BACT) have 
consistently been shown to be far more costly at achieving a given 
emission reduction target than a cap and trade approach (such as Clear 
Skies).

    Question 19. Administration witnesses have testified, and the 
Agency's 90-day report on NSR, indicate that the application of NSR to 
new sources works well and effectively. Why is it necessary in Clear 
Skies to eliminate it or replace it with something else?
    Response. Given the tight caps and the backstop of technology 
standards for new power plants, we believe that the significant 
governmental and industry resources involved in the NSR program would 
no longer be needed for power plants if Clear Skies were to pass. The 
Clear Skies legislation provides clear advantages over the NSR program. 
The caps in Clear Skies guarantee emissions are capped indefinitely; 
under NSR total emissions can still increase. The market-based 
mechanisms in Clear Skies allow firms the most flexibility to reduce 
emissions at the lowest cost possible. The program has inherent 
incentives for firms to begin reducing emissions early. The 
administrative burden of Clear Skies is much lower than that of NSR. 
Clear Skies provides the regulatory certainty that plant managers need 
when planning for the future. The tight caps in Clear Skies would 
provide an increasing economic incentive for new sources, as well as 
existing sources, to install good pollution controls.
    The caps would also provide economic incentives to drive 
technological innovations. To ensure that new power plants put on good 
controls in the early years of the program, Clear Skies also sets 
technology-based standards that new sources would be required to meet. 
Clear Skies also maintains protections for Class I areas from power 
plants locating within 50 km of their boundaries. States are still 
required to ensure that constructions of new sources are consistent 
with plans for attaining the applicable National Ambient Air Quality 
Standards. Protection for other local concerns can still be addressed 
by State programs because Clear Skies does not preempt State authority 
to impose more stringent controls.

    Question 20. According to current EPA material, in 2010, Clear 
Skies would bring 34 counties into attainment for the fine particle 
standard and 10 counties into attainment for the ozone standard. 
According to EPA, the existing schedule under the Clean Air Act will 
require areas to achieve attainment by 2009. Based on EPA modeling, how 
many counties will not be in attainment in 2010 for either the 
PM2.5 or the ozone NAAQS primarily because of power plant 
emissions and how many people will be living in them?
    Response. Our most recent analysis projected that, in 2010, Clear 
Skies would bring an additional 42 counties into attainment for the 
fine particle standard and an additional 3 counties into attainment for 
the 8-hour ozone standard beyond the number projected under the Base 
Case (i.e., existing control programs plus the proposed non-road diesel 
rule). Absent additional State or Federal regulation, 124 counties 
nationwide (with a population of 77.1 million people) would have 
monitoring data showing that they were not attaining one or both of 
these standards in 2010. This widespread non-attainment cannot wholly 
be attributed to any single source category, but it is likely that the 
power generation and mobile sectors play a dominant role in most 
locations.
    Our current model results do not allow us to quantify the 
contribution of power plant emissions to nonattainment. But given that 
power plants are responsible for about two-thirds of the emissions 
inventory for SO2 and about one-fifth for NOx, and that 
large portions of nonattainment are due to regional transport, it is 
clear that power generation plays a significant role in projected 
nonattainment throughout the eastern 35 States and DC. For this part of 
the country, absent additional State or Federal regulation, 109 
counties (with a population of 53.9 million people) would have 
monitoring data showing that they were not in attainment with one or 
both of these standards.

    Question 21. Since Clear Skies eliminates the final MACT standard 
for mercury, what provisions in the Administration proposal will ensure 
that toxic hot spots do not result from using a cap-and-trade system 
for mercury emissions?
    Response. Clear Skies would reduce nationwide mercury emissions by 
70 percent from current levels. As occurred under the Acid Rain 
Program, and as the Clear Skies modeling indicates, under a cap-and-
trade system the largest emission reductions tend to take place in the 
areas with the largest emissions. Therefore, sources with the most 
mercury emissions are expected to reduce emissions the most. The 
Administration proposal is not expected to create areas of increased 
mercury deposition. Additionally, if a State decides that local 
conditions warrant, it can impose more stringent controls.

    Question 22. If the Administration is certain that Clear Skies will 
be helpful in achieving attainment on schedule, then why is it 
necessary in that legislation to delete (or diminish) State authorities 
such as section 126 that are intended to assure attainment?
    Response. We believe that the first phase reductions in NOx, SOx 
and Hg in Clear Skies would push the power generation sector about as 
far and fast as is technically and economically feasible. The 
cumulative reductions from Clear Skies would be greater over the next 
decade than would be likely under current CAA authorities, including 
section 126.

    Question 23. EPA's estimates say that in 20 years Clear Skies would 
leave the Smokies with more than 2.5 times the amount of nitrogen 
deposition than would allow recovery of the ecosystem. When would 
recovery of the Smokies ecosystem occur under Clear Skies?
    Response. EPA's 2003 analysis shows that in 20 years, Clear Skies 
will reduce nitrogen deposition in the Smokies region between five and 
20 percent. The Agency believes this would help the area's acid-
sensitive streams and nitrogen-sensitive forests recover. However, we 
are technically unable to model the environmental benefits of this 
reduction in nitrogen deposition at this time.

    Question 24. Does the public and do companies' shareholders have a 
right to know about air emissions that may cause long-term damage like 
greenhouse gases?
    Response. The Agency takes seriously its role to provide quality 
data to the public and the scientific community. Greenhouse gas (GHG) 
information is provided in several of EPA outreach initiatives, 
reports, and on-line sources. For the power sector specifically, in 
EPA's annual Emission Scorecard we publish plant-level emissions data 
for SO2, NOx and CO2 from the Acid Rain Program 
reported to us as required under section 821 of the Clean Air Act 
Amendments. Another EPA product, E-Grid, provides a data base of plant-
level emissions that is designed to be highly user-friendly 
(www.epa.gov/cleanenergy/egrid). Finally, the US GHG Emission and Sinks 
Report, published every April, is another source of information on 
aggregate GHG emissions for those seeking information on emissions data 
for economic sectors of interest. Copies of EPA's latest Emissions 
Scorecard and GHG Emissions and Sinks Report are enclosed (Attachments 
5 and 6).
    Other agencies are also working to make sure that greenhouse gas 
emissions information is readily available to the public. The 
Department of Energy has maintained a voluntary registry for emissions 
reductions since 1997. In 2001, 228 participants in 25 different 
industries or services reported 1,705 projects to the registry. The DOE 
is currently working with a large interagency team, of which EPA is an 
active participant to improve this registry, per President's Bush's 
February 2002 directive. The Energy Information Administration's annual 
US inventory of GHG emissions (published as required by section 1605(a) 
of the Energy Policy Act of 1992) is available at http://
www.eia.doe.gov/oiaf/1605/ggrpt/index.html

    Question 25. Under Clear Skies legislation if enacted, would States 
be able to retain their existing NSR programs for application to 
electric power plants? If so, would a State be eligible for SIP credits 
if the application of that States NSR program resulted in more 
stringent requirements for power plants than are required under Clear 
Skies?
    Response. Yes, States would have the option of retaining their 
existing NSR programs as they apply to electric power plants. Nothing 
in the Clear Skies legislation would preempt existing State authority 
in this regard. Moreover, there is nothing in Clear Skies that would 
prohibit a State from receiving proper credit in its ozone or other 
attainment demonstration for any State Implementation Plan requirements 
beyond Clear Skies.

    Question 26. Your testimony says that the new transitional areas 
allowed under Clear Skies would have a legal deadline of 2015 to meet 
the national air quality standards. But, the legislation says that EPA 
will review their attainment status by the middle of 2016, and if 
they're in nonattainment, then sometime in the next 4 years the area 
must submit a revised SIP. So it appears an area could easily get an 
extra four or 5 years until 2021 before they have to adopt actual 
controls. Do the current laws attainment deadlines have to be extended 
6 to 10 years because the caps in Clear Skies are too weak and too 
late?
    Response. Clear Skies creates a transitional designation for those 
areas that, based on modeling done after Clear Skies, are projected to 
come into attainment with the power plant reductions from Clear Skies 
and other Federal measures. In addition, if Clear Skies is projected to 
improve an areas air quality, but not enough to bring it into 
attainment, those areas can be designated transitional if, by the end 
of 2004, the State submits and EPA approves additional local measures 
and a demonstration that those local measures will bring the area into 
attainment by 2015. If an area does not meet the criteria for 
transitional classification, then the attainment date will be governed 
by the existing Clean Air Act.
    The only areas that would be eligible for a 2015 attainment date 
are those that have a combination of Federal and local measures that 
are projected to bring them into attainment. Although the legal 
deadline for attaining the ozone and PM2.5 NAAQS would be 2015 for 
these transitional areas, as a practical matter, we expect many of 
these areas to attain prior to 2015.
    The provisions specifying what happens if an area does not attain 
by 2015 have been created as a backstop in case actual circumstances 
and monitoring do not match the modeling projections. These provisions 
are similar to the current provision of the Act contained in section 
179(d) of the Clean Air Act, which requires a State with an area that 
does not attain the standard by the legal deadline to submit another 
State Implementation Plan to EPA within 1 year.

    Question 27. According to your testimony, when Clear Skies is fully 
implemented, 85 percent of the coal-generated power will be from 
facilities that will have advanced pollution control technology in both 
the east and west. Please identify those facilities that will not have 
advanced pollution control technology and the approximate share of the 
total emissions inventory for each pollutant that they will as a group 
represent.
    Response. The facilities that IPM projects to install advanced 
pollution control technology can be identified using the IPM parsed 
output files available on our website (http://www.epa.gov/airmarkets/
epa-ipm/results2003.html). This website includes an explanation of the 
various types of pollution controls that sources may install in the 
model to meet the caps under Clear Skies, with additional details are 
provided in the documentation (refer to QJ4). Notably, facilities that 
have ``advanced pollution control technology'' for SO2, NOx 
and/or mercury are using scrubbers, SCRs and activated carbon 
injection, respectively. Virtually all coal-fired units control 
particulates through highly effective electrostatic precipitators or 
baghouses. If these units do not also have the above advanced controls, 
they are called ``uncontrolled'' for SO2, NOx and mercury. 
After the implementation of the Clear Skies Act, the uncontrolled coal-
fired plants are projected to emit just under 1.7 million tons of 
SO2 (out of 4.26 million tons for all coal sources), 640 
thousand tons of NOx (out of 1.5 million tons for all coal sources), 
and 7.2 tons of mercury (out of 22.2 tons for all coal sources). It is 
important to note that IPM best predicts the types of units making 
changes and is not able to accurately predict every unit's future 
situation, even though the parsed runs show individual units that do 
not install these advanced controls. Results generally show that 
smaller, old, less efficient units that are less likely to have 
advanced controls.

    Question 28. When Clear Skies is fully implemented, will any coal-
fired power plant operate without pollution controls?
    Response. Under the Clear Skies Act of 2003, by 2020, about 80 
percent of coal-fired capacity will come from plants with advanced 
pollution controls (scrubbers, SCR and/or activated carbon injection). 
We expect more controls to be installed after 2020, but believe that 
the extent of additional controls is subject to a great deal of 
uncertainty. As noted previously, almost all power plants operate with 
technology to control particles. However, as with other multi-pollutant 
policy options using a cap-and-trade, market approach (as well as under 
the current Clean Air Act acid rain provisions), some coal-fired 
sources would operate without ``advanced pollution controls'' as we 
have defined them (See QJ27), where lower cost emissions reductions are 
available from other facilities and emission allowances are purchased 
to meet compliance needs. Clear Skies modeling, which takes into 
account that some sources may operate without advanced pollution 
controls, still shows substantial benefits from Clear Skies 
implementation throughout the country and widespread advanced pollution 
controls in place.

    Question 29. What are the current emissions characteristics of the 
coal gasification combined cycle power plants in the U.S., and at any 
of those abroad for which EPA has data?
    Response. There are two coal gasification combined cycle (IGCC) 
units in the country. One is Tampa Electric Company's Polk Power 
Station Unit #1 IGCC Power Plant, a 250 MW unit that is located near 
Tampa, FL. The other is PSI Energy's Wabash River Generating Station 
Unit #1, a 262 MW plant in West Terre Haute, IN.
    Using data in EPA's Emissions Scorecard 2001 (which includes 
emissions data for power plants in the Acid Rain Program--see 
www.epa.gov/airmarkets/emissions/score01/index.html), the following 
emissions data is provided for year 2001:
    Polk unit: SO2 emissions 0.15 lbs/mmBtu
    NOx emissions 0.10 lbs/mmBtu
    Wabash River unit: SO2 emissions 0.14 lbs/mmBtu
    NOx emissions 0.17 lbs/mmBtu
    Mercury emissions estimates for these plants in 1999 (based on 1999 
EPA Mercury ICR data):
    Polk unit: 61.9 lbs/yr
    Wabash: 133.6lbs/yr
    EPA does not have data for overseas coal gasification plants.

    Question 30. The NOx SIP Call starts reductions in May 2004. Why 
does the Clear Skies NOx cap start in 2008, rather than 2010, as the 
caps do for SOx and mercury?
    Response. Sources are largely expected to meet the Phase I NOx 
requirements of Clear Skies by expanding their utilization of existing 
control equipment (equipment that has been, or will be, installed in 
response to regional NOx reduction programs such as the NOx SIP call ) 
from the 5 month ozone season to year round. In contrast, EPA analysis 
projects that it would be necessary for sources to install additional 
control technology to meet the SO2 and Hg caps of Clear 
Skies. As a result, it is possible to begin the NOx reductions of Clear 
Skies earlier, because the potential for straining the capital, labor, 
and equipment markets for control equipment construction is lower than 
it would be for SO2 and Hg emissions. In addition, the NOx 
reductions of Clear Skies are needed earlier than those of 
SO2 and Hg in order to meet the ozone attainment deadlines, 
which occur earlier than those for particulate matter.
    It is important to note that Clear Skies provides incentives for 
early reductions, so it is likely that plants will begin reducing 
emissions soon after the passage of the legislation. In contrast, 
compliance with the NOx SIP call was prolonged by a lengthy rulemaking 
process and lawsuits postponing implementation until 6 years after the 
rule was finalized.

    Question 31. In EPA'S written testimony, it says that the 
legislation will still require new power plants to meet the current NSR 
requirements that they will not cause or contribute to a violation of 
the NAAQS. However, the legislation actually says that the source must 
demonstrate that the emissions increase from the unit will not cause, 
or contribute to, air pollution in excess of any NAAQS. That's a 
different standard. Why is it necessary to change the existing test in 
law?
    Response. EPA did not intend to suggest in its written testimony 
that the Clear Skies legislation would result in a change to the 
existing test for determining whether a new source would cause or 
contribute to a violation of the NAAQS. EPA does not believe that this 
language in the Clear Skies Act would be interpreted in our 
implementation, or by a court, as setting a different standard than do 
the current NSR requirements.

    Question 32. Are there any electric generating units in the US that 
have never installed pollution control equipment through the New Source 
Review process? If so, please identify those facilities.
    Response. Yes, there are electric generating units in the US that 
have never installed pollution control equipment through the New Source 
Review (NSR) program. EPA does not have a comprehensive listing of 
which power plants have installed control equipment as a result of this 
programs. Because there are multiple programs that may apply to a 
particular plant--with New Source Review (NSR) requirements applying 
only to new (or certain modified) sources--we are unable to attribute a 
particular installation of a control technology to any one program.
    While some power plants control their emissions using advanced 
SO2 or NOx pollution control equipment (i.e., end-of-the-
stack equipment), many do not. Some plants have not been subject to a 
regulatory program that requires the installation of specific 
technology or sets a performance standard. Others have been subject to 
a program, like the Acid Rain Program, which allows flexibility in 
choosing the most cost effective compliance strategy (e.g. add-on 
controls, fuel switching, efficiency improvements). Of those plants 
that operate with advanced pollution control devices, many installed 
that equipment for reasons other than NSR requirements. Unit level 
information on NOx and SO2 controls for Acid Rain units can 
be found in Appendix B at: www.epa.gov/airmarkets/emissions/score01/
index.html

    Question 33. Under current law, areas will need to attain for the 
fine particulate matter standard by 2009, or they could, under certain 
limited circumstances get an extension to 2014. According to a scenario 
in the 1997 impact assessment to accompany the PM2.5 NAAQS, 
getting close to attainment using power plant reductions would require 
60 percent reduction in SOx emission from those sources. In what year 
would Clear Skies likely reach a 60 percent reduction in SOx emissions 
from power plants?
    Response. In the 1997 assessment which accompanied the revision of 
the PM NAAQS, the analysis provided a broad implementation scenario for 
the purpose of projecting both the costs and benefits of alternative 
NAAQS levels. In this analysis, EPA assumed that implementation of the 
new fine particle NAAQS would lead to an initial reduction of SOx 
emissions from the electric power industry by lowering the SOx 
emissions caps under the Title IV trading and banking program in order 
to reduce the formation of sulfate particles. In one scenario, the 
Agency assumed that power plant SOx emissions would be reduced by 60 
percent to 3.58 million tons. Under Clear Skies, power plants emissions 
are capped at a lower level of 3 million tons in 2018. Due to the 
ability to bank early reductions under Clear Skies, this emissions cap 
is projected to be achieved after the 2020 time period, but this is 
only because emissions would be lower than the permissible cap level in 
the early years of the program.
    Just to clarify, if all areas are designated non-attainment by the 
end of 2004, areas will have an attainment date no later than 2009, 
with possible extensions to 2014. In certain circumstances, areas can 
be given two additional 1-year extensions to meet the standard.

    Question 34. What is the impact on the zone 2 States of the 
addition of Kansas and Oklahoma? Please justify the inclusion of these 
States in zone 2. What is the impact of the change on non-attainment in 
areas east of these two States?
    Response. By placing Kansas and Oklahoma under the Zone 2 NOx 
emissions cap, the effective NOx emission rate will change slightly 
from 0.24 lbs/mmBtu to 0.21 lbs/mmBtu in 2020. Different control levels 
are appropriate in the eastern and western sections of the country 
because each faces different types of environmental problems. NOx 
reductions in the East are needed to address ozone and fine particulate 
matter nonattainment issues, as well as acid rain and eutrophication of 
water bodies. NOx reductions in the West are primarily aimed at 
improving visibility in national parks and ensuring that the West 
continues to meet ozone and fine particulate matter standards. (The 
exception is California which has some counties currently in non-
attainment.) Kansas and Oklahoma were grouped with the western States 
because they are not believed to be significant contributors to 
nonattainment in eastern States.

    Question 35. Please submit the cost-benefit analysis that EPA has 
performed on a proposal that has been described to the Committee: a 2 
million ton cap on sulfur dioxide emissions by 2013. Please describe in 
detail the costs and benefits of this target and timetable, and include 
a comparison of costs and benefits of this alternative with the costs 
and benefits of the SOx target and timetable included in the Clear 
Skies Act.
    Response. Over the last 2 years, EPA has focused on analysis of 
strategies to reduce SO2, NOx, and mercury emissions and not 
strategies addressing a single pollutant, especially in the more 
detailed analyses that have been done. Cost-benefit analyses of multi-
pollutant approaches limiting emissions from power plants require 
specification of the cap levels and deadlines for all pollutants.
    Although during the development of the Clear Skies Initiative EPA 
performed a preliminary analysis of a multi-pollutant scenario in which 
the SO2 cap of 2.25 million tons in 2010 was specified 
(along with caps for NOx and mercury) for use in internal 
Administration discussions, we have not performed an analysis of a 
stand-alone 2 million ton SO2 cap. As explained in QJ1, 
however, there were several feasibility concerns raised by seeking such 
stringent reductions in the first phase of a multipollutant program.

    Question 36. Under Clear Skies, it seems possible that the new so-
called transitional areas allowed in the proposed legislation would 
have until 2020 before they would need to have a SIP adopted and 
implemented. That's well after the 2009 or 2010 attainment date that 
the Act requires following designation. Under S. 485, what's the latest 
possible date at which a transitional area would be absolutely required 
to have a SIP adopted demonstrating attainment?
    Response. SIPs are meant to contain those State control measures 
that are necessary to bring an area into attainment based on 
projections of future air quality and economic activity. If EPA 
modeling projects that transitional areas come into attainment with 
Federal control measures and State control measures that are already 
adopted, then there is no need to have additional State control 
measures to bring the area into attainment, and thus nothing new is 
required for an approvable SIP.
    Under Clear Skies, if an area that is forecast to attain the 
standard does not do so by the end of 2015, it then would be required 
to be designated as nonattainment and to submit a SIP demonstrating 
attainment no later than June 2020. The process for these areas is 
similar to that under the existing CAA section 179(d) provision for 
areas that fail to attain the standard by their attainment dates.
    For additional information on transitional areas, please see the 
answer to Question 26.

    Question 37. Is it accurate to say that low-income families and the 
elderly, who generally have less access to health care, suffer 
disproportionate harm from ambient air pollution? If so, what does the 
Agency's estimate is the aggregate and per capita quantified harm 
experienced by this population from ambient air pollution?
    Response. Certain groups may be more susceptible to harm from 
ambient air pollution. Older people are especially vulnerable to air 
pollution because (1) the immune system weakens with age, (2) chronic 
conditions (e.g., chronic bronchitis or heart attacks) may be more 
likely to develop in those who have experienced a lifetime of elevated 
exposure, and (3) older people are more likely to have pre-existing 
heart and lung conditions that may be exacerbated by elevated short-
term exposures to fine particles and ozone.
     To the extent that individuals with lower incomes experience 
higher rates of some cardiovascular and respiratory diseases than other 
groups, they may experience more adverse effects, as exposure to air 
pollution can exacerbate these existing conditions.
    EPA has not analyzed the per capita number of premature deaths or 
other health impacts attributable each year to ambient air pollution 
for the entire population or for certain subpopulations. Rather, EPA 
has focused on quantifying the benefits of adopting particular 
regulatory strategies. This gives us an indication of the potential 
magnitude of the benefits that could be achieved by reducing air 
pollution under a given regulatory strategy. For example, EPA's 
analysis of the benefits of the 2003 Clear Skies Act projects 
substantial benefits for older Americans. By 2020, Clear Skies would 
prevent 14,100 premature deaths each year. (An alternative methodology 
for calculating health benefits projects approximately 8,400 premature 
deaths prevented each year). In addition, EPA projected that each year, 
by 2020, Americans would also experience approximately 30,000 fewer 
visits to hospitals and emergency rooms, 23,000 fewer non-fatal heart 
attacks, and 8,800 fewer cases of chronic bronchitis. Many of these 
benefits would accrue to older Americans.
    EPA has not apportioned the benefits of Clear Skies or other 
regulatory strategies to people of different income classifications. We 
do not have an example of the magnitude of benefits that could be 
achieved by reducing air pollution for low-income families.
    Question 38. Please compare the reductions in total tons of sulfur 
dioxides and nitrogen oxides emissions required by the Clean Air Act 
Amendments of 1990 from 1990 to 2010 and those required under the Clear 
Skies legislation from 2004 to 2024.
    The CAA amendments of 1990 achieved considerable reductions from 
the power sector. EPA's data and analysis suggests that SO2 
emissions will have gone from 15.7 million tons in 1990 to roughly 9.7 
million tons in 2010, achieving a reduction of 38 percent. Some of the 
SO2 reductions are attributable to various State rules. For 
NOx, emissions will have gone from 6.7 million tons in 1990 to 3.9 
million tons in 2010 (42 percent reduction). NOx reductions are 
attributable to the amendments of 1990, the NOx SIP call, the OTC 
trading program, and various State rules.
    With Clear Skies, reductions of SO2 and NOx for the 
first 2 decades after enactment would be even greater than those 
projected to be achieved from 1990 through 2010. From 2000 to 2020, EPA 
projects that, with Clear Skies, SO2 emissions would 
decrease by 62 percent (from 11.2 to 4.2 million tons) and NOx 
emissions would decrease by 66 percent (from 5.1 to 1.7 million tons). 
In addition, mercury emissions would decrease by 54 percent (from 48 to 
22 tons). Ultimately, Clear Skies will reduce annual emissions of these 
three pollutants by an average of 70 percent. It is difficult to 
calculate the reductions in total tons of SO2 and NOx 
because of the difficulty in determining what emissions would have been 
in the absence of Title IV and what they will be in under the Clean Air 
Act in the absence of Clear Skies.

    Question 39. In testimony, Mr. Holmstead said that the Agency 
thinks that under Clear Skies there will be less fuel-switching, from 
coal to natural gas, than under the current Clean Air Act. How much 
fuel switching does the Administration project will occur between now 
and 2020 if there are no statutory changes in the Clean Air Act?
    Response. Past EPA analysis indicates that industry makes different 
compliance strategy decisions when all emission reduction requirements 
are known up front, as with Clear Skies. This contrasts to situations 
when the requirements are identified over time and compliance with some 
is required before all are specified, as under the current Act. EPA 
performed an analysis of a hypothetical ``business-as-usual'' case that 
was similar to the Straw Proposal EPA was evaluating in Fall 2001 in 
order to show this comparison. This past analysis indicated that fuel 
switching is a more likely compliance option when industry learns the 
specifics of requirements over time rather than up-front, even when 
control requirements are similar. Uncertainties created by litigation 
even further complicate the second scenario.
    Thus, compared to Clear Skies, EPA's full implementation of the 
current CAA will likely result in considerably greater disruption to 
industry including additional fuel switching and a more substantive 
impact on gas consumption and prices--due to the less efficient, 
piecemeal approach to these regulations (e.g., MACT, NSR, BART, and 
other efforts to achieve the NAAQS). However, EPA cannot predict how 
much fuel switching would occur under the current Act because that 
would depend on the specific requirements the industry will face, which 
are dependent upon numerous State and Federal rulemakings that have not 
yet been completed and are not possible to reliably predict (the above 
mentioned analysis was meant to be illustrative of the drawbacks of 
sequential rulemaking and never intended to represent how EPA and 
States would implement the existing Clean Air Act).

    Question 40. Please describe how, if at all, Clear Skies provides a 
market incentive for owners or operators of fossil-fuel power plants 
to--1) increase their efficiency (MmBtu input per MWh output), 2) 
invest in the development and siting of coal gasification combined 
cycle plants in the next 20 years.
    Response. The cap-and-trade approach of Clear Skies inherently 
encourages fuel efficiency, including investment in new generation 
technologies that are more efficient than their predecessors. A plant 
that can create a marketable product, such as electricity, steam, or 
hydrogen, using less fuel, will produce less pollution for a given 
quantity of product. As a result this efficient plant will have to 
retire less (or purchase fewer) emission allowances a valuable 
commodity for a given amount of product. Clear Skies makes it more 
expensive to emit NOx, SO2, and Hg, thereby making more 
efficient plants, such as IGCCs, more economically competitive.

    Question 41. Do you believe that the current statutory language or 
the consent decree regarding the MACT requirements for hazardous air 
pollutants could result in a rule that controls mercury only at the co-
benefits level--in the 40-50 percent range per unit?
    Response. The current statutory language regarding mercury 
emissions from coal-fired electric utility units defines existing 
source MACT to be``. . . the average emission limitation achieved by 
the best performing 12 percent of the existing sources (for which the 
Administrator has emissions information) . . .'' There is no language 
in the settlement agreement that would change this statutory direction. 
At the current time, any appropriate subcategorization scheme and the 
assessment of the individual floors for the MACT proposal have not been 
completed. Moreover, after the utility MACT rule is proposed in 
December, 2003, EPA will evaluate public comments submitted in response 
to the proposal before finalizing the rule in December, 2004. Thus, it 
is premature to speculate whether the Utility MACT standard would 
impose controls more or less stringent than achieved as a co-benefit 
provided by imposing reductions of other pollutants.

    Question 42. Please explain how the alternative methodology for 
presenting quantified benefits of Clear Skies (i.e. $11 billion in 
2020) complies with the Agency's data quality guidelines under the Data 
Quality Act.
    Response. The purpose of the alternative methodology was to explore 
how sensitive EPA's main analytic conclusions (that the benefits 
outweigh the costs) were to changes in scientific and economic 
assumptions in the estimate of the Clear Skies approach. This type of 
sensitivity analysis is fundamental to sound and comprehensive analysis 
of major environmental issues. Notably, we have found that even with 
these alternative assumptions for key variables, the benefits outweigh 
the costs. EPA's report on its analysis of the Clear Skies approach 
summarized the foundation for this alternative estimate. EPA's data 
quality guidelines were still being developed at the time the Clear 
Skies analysis was completed, but conducting this type of sensitivity 
analysis would not have been inconsistent with the objectives of those 
guidelines for rigorous analysis.

    Question 43. When does the Agency plan to deliver to the 
participants of the utility MACT FACA/work group the modeling and 
economic analysis that was promised to them for delivery on April 11, 
2003?
    Response. The Utility MACT Working Group was a Federal advisory 
committee organized for approximately 1 year as a working group under 
the Clean Air Act Advisory Committee (CAAAC). The Working Group 
finished its work when it delivered its final report to the CAAAC on 
October 30, 2002. The meetings and report were very informative and 
helpful to the rulemaking process. The agency is committed to do all 
the necessary analysis in order to propose a rule in accordance with 
our obligations under the Clean Air Act and Administrative Procedure 
Act. All of this analysis will be available to the public.
                                 ______
                                 
 Responses of Hon. Christine Todd Whitman to Additional Questions from 
                           Senator Voinovich

    Question 1. Much has been said by critics that Clear Skies is not 
as environmentally protective as future Clean Air Act requirements 
would be--that it in fact would ``roll back the Clean Air Act.'' It 
seems to me that one of the major advantages to Clear Skies is that it 
provides both regulatory and environmental certainty--that is, the fact 
that significant emission reductions are locked in according to 
statutory deadlines in 2008, 2010 and 2018 that cannot be circumvented 
or delayed the way that most requirements are now. How would you 
respond to those critics?
    Response. Clear Skies would provide dramatic environmental benefits 
by reducing emissions from the power sector more than any control 
program any other Administration has ever proposed. It does so while 
allowing the downward trend in energy prices to continue and while 
promoting energy independence.
    It is correct that one of the most important benefits of Clear 
Skies is that it would provide both regulatory and environmental 
certainty. Clear Skies builds on the successes of the Clean Air Act and 
would significantly improve air quality across the Nation by requiring 
power plants to reduce their emissions of SO2, NOx and 
mercury by 70 percent. The mandatory emissions caps at the heart of 
Clear Skies are a sure thing and guarantee that reductions will be 
maintained over time. Because cap-and-trade programs include economic 
incentives for early action, Clear Skies would begin improving public 
health immediately. Through the end of this decade, the Clear Skies Act 
would clearly reduce power plant emissions more than would the current 
Act. Clear Skies also allows firms to make the reductions in the most 
cost-effective means possible. We do not have confidence in what would 
occur under the current Act after this decade, so we are unable to make 
a definitive statement about how reductions under the current Act would 
compare to reductions under Clear Skies in the out years. We do know, 
however, that the statutory caps in Clear Skies would provide certainty 
of reductions that could not be delayed by litigation. Without Clear 
Skies, we also know that, under the current Act, EPA and States will 
need to develop and issue regulations to reduce power plant emissions, 
but the levels and timing of these regulations are unknown. The 
uncertainties regarding regulatory development, litigation, 
implementation time, etc. under the current Act compare unfavorably 
with the certainty provided to this sector by Clear Skies.

    Question 2. The threat of fuel switching--utilities switching from 
coal based generation to natural gas based generation--is a major 
concern that must be addressed. What effect will Clear Skies have on 
this problem--will it cause more utilities to fuel switch?
    Response. The emissions reductions in the Clear Skies proposal 
would be achieved through the installation of emissions controls, 
rather than fuel switching. Under Clear Skies, 68 percent of U.S. coal-
fired generation is projected to come from units with advanced 
SO2 and/or NOx control equipment (such as scrubbers and SCR, 
which also substantially reduce mercury emissions) by 2010. In 2020, 
the percentage is projected to rise to 81 percent. In addition, the 
regulatory certainty provided by Clear Skies would likely result in 
fewer sources using repowering as a compliance strategy in the face of 
the complex requirements of the existing CAA.
    We believe that fuel switching is more likely under the current 
Clean Air Act than under Clear Skies. Past EPA analyses have indicated 
that industry makes different decisions about how to make specified 
emission reductions when it knows all of the requirements up front 
(which would happen with Clear Skies) as compared to a situation where 
it learns about the requirements over time and has to start meeting 
some requirements without knowing specifics of future additional 
requirements (which would happen under the current Act). These past 
analyses have indicated that fuel switching is a more likely compliance 
option when industry learns the specifics of requirements over time 
rather than at once even when the control requirements are similar. 
Thus, we believe that, compared to Clear Skies, EPA's full 
implementation of the current CAA will likely result in considerably 
greater disruption to industry including additional fuel switching and 
a more substantive impact on gas consumption and prices--due to the 
less efficient, piecemeal approach to these regulations and litigation 
uncertainty (e.g., MACT, NSR, BART, and other efforts to achieve the 
NAAQS). EPA cannot predict how much fuel switching would occur under 
the current Act because that would depend on the specific requirements 
the industry will face, and those depend on numerous State and Federal 
rulemakings that have not yet been completed.

    Question 3. How will the Clear Skies Act affect electricity prices 
and natural gas prices?
    Response. EPA analysis projects that Clear Skies would not 
significantly impact electricity prices or gas prices. Forecasted 
trends would continue with or without Clear Skies. Clear Skies gives 
industry the certainty and flexibility it needs to make the most cost-
effective investment decisions for reducing pollution. Costs are 
sometimes passed on to electricity ratepayers in the form of higher 
electricity prices, and modeling projects prices to be 2 percent higher 
in 2020 with Clear Skies compared to the base case. Also, Clear Skies 
ensures that coal-fired generation remains one of the cheapest methods 
for generating electricity, and does not have a major impact on natural 
gas supplies. Natural gas prices are projected to be less than 2.5 
percent higher in 2020 with Clear Skies compared to the base case.

    Question 4. Critics of Clear Skies have claimed that it would be 
possible to have greater emission reductions in a faster timetable 
during Phase I of Clear Skies. As evidence of this claim, these critics 
have pointed to a straw proposal that I understand was a staff proposal 
that leaked out of EPA during Administration consideration of the Clear 
Skies Initiative. How would you respond to those critics?
    Response. The Administration discussed a number of policy options 
in the process of developing the Clear Skies proposal, including a 
straw proposal that EPA management presented as a way of initiating the 
inter-agency discussions necessary to develop an Administration 
position. EPA no longer believes that the straw proposal is feasible. 
In large part, this is because EPA's analysis of engineering, labor and 
capital markets for the power sector indicates that their ability to 
install the level of pollution controls required to meet the Phase I 
requirements of Clear Skies would significantly stretch the available 
labor resources. The Administration proposed different emissions caps 
and timing in Phase I of Clear Skies out of consideration for the 
engineering and construction markets ability to respond to the added 
demand for the installation and operation of emission control 
equipment.

    Question 5. If our goal is to reduce harmful emissions from power 
plants--should we be focusing our attention on NSR or on Clear Skies?
    Response. There is no doubt that we should be focusing on Clear 
Skies if our goal is to bring cleaner air to Americans as quickly and 
cost-effectively as possible. Clear Skies would bring vast improvements 
in air quality due to its substantial reductions in power plants 
emissions. Clear Skies sets forth a mandatory program that would 
dramatically reduce and permanently limit power plant emissions.
    The dramatic emission reductions required by Clear Skies--70 
percent reductions in SO2, NOx and mercury--will drive new 
power plants and virtually all large existing power plants to install 
good controls. Our modeling projects that 80 percent of the coal-fired 
generation in 2020 would come from units with advanced SO2 
and/or NOx controls.
    In contrast, New Source Review (NSR) does not require emission 
decreases--it prohibits emission increases and will be largely 
redundant when Clear Skies is fully implemented. The NSR program is not 
designed to result in nationwide reductions of air pollution from power 
plants. NSR is triggered only when facilities emitting large amounts of 
air pollution are built, or when modifications at large facilities 
result in significant increases in air pollution. In fact, NSR cannot 
be expected to decrease significantly nationwide emissions because 
facility operators will avoid the type of project that makes the 
facility subject to the program. In addition, given the nationwide cap 
on power plant SO2 emissions, compliance with NSR should not 
reduce national SO2 emissions.

                                 ______
                                 
 Responses of Hon. Christine Todd Whitman to Additional Questions from 
                             Senator Thomas

    Question 1. As you know the mercury characteristics of coal burned 
in western power plants is very different than coal in other regions. 
How does the Phase 1 mercury cap, which will supposedly be achieved 
through co-benefits, take into consideration these regional 
distinctions in coal chemistry?
    Response. Different types of coal may achieve different mercury 
reductions from units with PM, SO2 and NOx controls 
installed. Recent test data indicates that the installation of NOx and 
SO2 controls on plants burning bituminous coals resulted in 
greater mercury reduction on average than plants burning subbituminous 
coals or lignite coals. Likewise, the test data indicated that 
installation of NOx and SO2 controls on plants burning 
subbituminous coals resulted in somewhat greater mercury removal than 
plants burning lignite coals. On average, units burning lignite coal 
showed the least mercury removal of the three coal types. However, 
there is limited data on mercury removal from lignite coal.
    In an effort to recognize the difference in mercury control among 
coal types, Clear Skies attempted to help equalize the cost of reducing 
mercury emissions across coal types--and the easiest way to do this was 
to adjust the allocation scheme. The adjustment factors of 1 for 
bituminous, 1.25 for sub-bituminous, and 3 for lignite coals reflect 
this variation in coal types. We believe the adjustment factors we used 
are directionally correct based on the test data currently available. 
EPA and others are currently collecting more information, and expect 
that this information will inform the debate on allocations further. We 
look forward to further discussion on this and other subjects.

    Question 2. The Administration has incorporated the western 
SO2 program adopted by the Western Regional Air Partnership 
(WRAP) into Clear Skies. Given that the WRAP program does not call for 
significant SO2 reductions until the 2013-2018 timeframe, 
what co-benefits are being used to calculate the 2010 mercury cap in 
the west? Specifically, from where does the Agency specifically see 
those reductions being realized?
    Response. Western sources would be required to meet NOx and 
SO2 reductions under Phase I of Clear Skies. Clear Skies was 
designed to allow much of the first phase mercury reductions to be 
achieved through installation of NOx and SO2 controls 
(selective catalytic reduction (SCR) and scrubbers, respectively) 
because such controls also remove mercury.
    Under EPA's updated 2003 modeling results, much of the Phase I 
mercury reductions needed to meet the 26 ton cap would be achieved 
through the installation of such controls. A small portion of the Phase 
I reductions would likely need to be achieved through mercury-specific 
control technologies (e.g., activated carbon injection). With the 
mercury cap, we would expect the power industry to optimize their NOx 
and SO2 controls for the greatest mercury removal. Because 
Clear Skies uses a cap-and-trade approach to reducing emissions, 
sources have an incentive to install controls that achieve reductions 
of both mercury and one or both of the other pollutants, to engineer 
these controls for greater mercury removal and to operate the plants 
that achieve the greatest mercury co-benefit removal a little more than 
they might without a mercury cap. Further, Clear Skies contains a 
safety valve price in order to protect against unexpected volatility in 
the mercury market.

    Question 3. As it affects the Western U.S., help the Committee walk 
through the calculations of the Phase 1 mercury cap that is supposed to 
be achieved through co-benefits. The Phase 1 national cap of 26 tons 
represents a 46 percent reduction. If western mercury emissions of 4.3 
tons were reduced by that amount it would result in a western cap of 
2.0 tons. However, if all of the available sources in the west were 
scrubbed at an unrealistic level of 100 percent, the remaining western 
emissions would be 3.61 tons, much above the Phase I cap. Thus western 
sources would have no choice but to buy allowances in the market in 
order to comply. How, does this represent a realistic view of co-
benefits?
    Response. We are uncertain how some of the numbers contained in the 
question were derived. We would be happy to have EPA staff explore this 
issue with Senator Thomas' staff .
                               __________
  Statement of Hon. Glenn McCullough, Jr., Chairman, Tennessee Valley 
                               Authority

    Thank you, Mr. Chairman and members of the Subcommittee. On behalf 
of the TVA Board of Directors and our employees, I would like to thank 
you for the opportunity to appear today to discuss the Tennessee Valley 
Authority's views on clean air and more specifically S. 485, the Clear 
Skies Act of 2003. In our role as both steward of the environment and 
provider of electricity in the Tennessee Valley, TVA is uniquely 
positioned to comment on clean air issues facing our region and the 
Nation, and we appreciate the opportunity to share these views today.
    TVA, and 158 power distributors, serves the 8.3 million people of 
the Tennessee Valley by producing affordable, reliable electricity 
while supporting sustainable economic development and maintaining 
stewardship of the region's natural resources. TVA's unique mission 
gives us the opportunity to see first hand the importance of finding 
the best balance between fueling a sustainable and vibrant economy and 
enhancing the quality of our natural environment. The TVA Board works 
every day to find that balance as it relates to many issues, and no 
aspect of that balance is of greater importance than the issue you are 
considering today--clean air.
    TVA was created by Congress in 1933 to enhance the quality of life 
in the Tennessee Valley region. We do that by providing flood control 
and maintaining navigation on the Tennessee River, the nation's fifth 
largest river system, and by generating and transmitting electricity in 
the seven-State area that is the Tennessee Valley. TVA meets the power 
needs of the region's homes, businesses, schools, and industries 
through 158 power distributors and by directly serving 62 large 
industries. TVA's electric power system includes 59 coal-fired units at 
11 plant sites, three nuclear plants, 29 hydro-power plants, six 
combustion-turbine plants, three wind turbines, and 15 solar 
installations. The President's National Energy Policy recognizes the 
importance of diversity in energy supply including new emphasis on 
promoting nuclear energy, clean coal technologies, and renewable energy 
sources. TVA's mix of fossil, nuclear, hydroelectric and renewable 
generation not only helps ensure the reliability of the TVA system but 
also illustrates the value and benefits of such diversity for our 
Nation.
    TVA is committed to its stewardship of the environment in the 
Tennessee Valley. I am proud to say that TVA has reduced sulfur dioxide 
(SO2) emissions by 76 percent since 1977. In addition, we 
have reduced ozone-season emissions of nitrogen oxide (NOx) by 50 
percent in the past 8 years. Through 2001 TVA has invested more than $3 
billion to achieve these reductions even as the population, the economy 
and the energy needs of the Valley continue to grow at rates faster 
than the national average.
    Since 1990, the population in the Tennessee Valley has grown by 
more than 15 percent, gross regional product by nearly 50 percent, and 
demand for electricity by more than 10 percent. In the past decade TVA 
has achieved historically high levels of operational performance and 
reliability in our power system and maintained affordable power rates--
all while reducing emissions of sulfur dioxide and nitrogen oxide from 
our power plants. These actions demonstrate TVA's commitment to air 
quality and to finding the right balance between fueling the region's 
economy and continuing air quality improvements.
    Today, TVA is in the midst of one of the most aggressive emissions 
reduction programs in the Nation. In November 2002, TVA approved plans 
to construct five more flue-gas desulfurization systems, or scrubbers, 
to reduce sulfur-dioxide at coal-fired power plants in Kentucky, 
Alabama, and Tennessee. These scrubbers will cost about $1.5 billion 
and collectively will reduce emissions of sulfur dioxide by an 
additional 200,000 tons per year. When construction is complete, we 
will have installed FGD scrubbers on more than half of our coal-fired 
generating capacity. This action, in combination with switching to low 
sulfur coal, will reduce TVA's total sulfur dioxide emissions by 85 
percent since 1977 (see attachment GRAPH 1).
    In addition to sulfur dioxide controls, we are investing more than 
$1.1 billion to reduce nitrogen oxide emissions by constructing 
controls such as selective-catalytic-reduction systems or SCRs on 25 
coal-fired generating units. By 2005, TVA will have installed SCRs or 
similar technologies on more than 60 percent of its coal-fired 
generating capacity. These SCRs, in combination with low NOx burners 
and other controls, will reduce nitrogen oxide emissions by 75 percent 
during the ozone season (see attachment GRAPH 2). Between now and the 
end of this decade, we are committed to spending almost $1 million per 
day to accomplish these emission reductions. By 2010, TVA will have 
invested nearly $5.6 billion in cleaner air.
    We believe this investment to reduce emissions from our coal-fired 
plants will pay significant dividends while providing a cost-effective 
return on that investment to continue air quality improvements in our 
region. We also know, however, that emissions from all sources--
stationary and mobile--must continue to be reduced. For that reason I 
am pleased today to appear before this subcommittee to endorse the 
Clear Skies Act of 2003.
    The current Clean Air Act has done much to reduce emissions and as 
a result the air quality we enjoy in this country has been improved 
significantly. However, the current Act is plagued with problems that 
could threaten the reliability and affordability of the nation's 
electric power supply. Low-cost, reliable electric power results, in 
part, from the power industry's ability to use a variety of energy 
sources, including coal. Today, the Tennessee Valley region depends on 
coal for approximately 60 percent of its power supply. Coal is also our 
nation's most abundant energy source for the future. Unfortunately, 
this critical energy resource faces a complicated web of overlapping, 
duplicative, and unnecessarily costly emission control requirements 
that do not provide the greatest return on investment and, furthermore, 
create enormous uncertainty for future investment. For example, there 
are now more than a dozen separate regulations for sulfur dioxide and 
nitrogen oxides alone and more regulations are just around the corner. 
At times, disputes over these regulations have significantly delayed 
the very air quality progress they were designed to achieve, thereby 
creating enormous uncertainty for future investment.
    TVA believes this piecemeal approach to regulating power plant 
emissions should be replaced with a set of emission reduction targets 
and timetables for sulfur dioxide, nitrogen oxides, and mercury. We 
believe that Clear Skies, a well-designed multi-emission approach, will 
continue the national trend of better air quality and provide 
additional benefits. These benefits include a streamlined regulatory 
process; sustained diversity in the nation's fuel supply; and more 
flexible, market-based mechanisms for achieving emissions reductions 
that are fair for both private and public power providers. This 
approach would also reduce compliance costs; and give the utility 
industry the certainty it needs to effectively plan and finance 
emission reductions without unduly burdening ratepayers. Such results 
have been well demonstrated by the very successful Acid Rain Program 
and they can and should be replicated elsewhere in the Act. Clear Skies 
appropriately allows continued use of SO2 and NOx allowances 
that are guaranteed under existing programs. This is an important 
feature of the bill and should be preserved because companies will be 
encouraged to reduce emissions early and achieve greater levels of 
environmental benefit.
    We do not believe, however, that Clear Skies or other market-based 
programs should replace all features of the Clean Air Act that regulate 
electric utility emissions. The National Ambient Air Quality Standards 
have been a vital part of the improvement in national air quality and 
they should be preserved as is done in Clear Skies.
    While TVA endorses the Clear Skies Act's reduction targets and 
timetables, we believe there are some provisions of the current bill 
that can be improved to achieve better overall results. Specifically, 
we urge you to ensure that the interim 2010 mercury target reflect the 
Administration's intent of reducing mercury to levels achievable via a 
cap and trade system through co-benefits with sulfur dioxide and 
nitrogen oxide control technologies. This would allow TVA and other 
utilities that have already reduced mercury through investments in 
sulfur dioxide and nitrogen oxide reductions to realize credit for 
their early actions. Otherwise, some may be required to install very 
expensive and as yet unproven mercury-specific controls, such as carbon 
injection and finishing baghouses.
    Before I close, I want to emphasize that Clear Skies is a very 
aggressive proposal. As I mentioned earlier, TVA knows from first hand 
experience that extensive resources--time, equipment and skilled 
workers--will be necessary to make the reductions Clear Skies will 
require. Many of the critics of Clear Skies have never planned, 
designed, constructed, operated or financed these massive pollution 
control systems.
    At TVA, we will soon have SCR or similar systems on 25 units and 
scrubbers on 18 units raising TVA's total investment in cleaner air to 
$5.6 billion. Achieving the results contemplated by Clear Skies would 
require us to construct 23 additional SCR systems and install scrubber 
technology on 40 more units at an additional cost of $4 billion between 
now and 2018. To do more, sooner than what Clear Skies requires would 
increase costs considerably while placing an unrealistic burden on the 
economy of the Tennessee Valley and our ratepayers.
    I appreciate the opportunity to talk with you today about this 
important legislation. We at TVA are committed to improving the quality 
of life for the 8.3 million people of the Tennessee Valley. The TVA 
Board is setting a new standard of excellence for TVA's business 
performance and in our public service. On our watch at TVA, we are 
striving to find the best balance between providing the affordable, 
reliable supply of electricity that sustains a vibrant economy and 
continuing to improve the environmental quality of the Valley. Thank 
you again for allowing me to address these issues with you today and I 
am pleased to answer any questions you may have for me.





                               __________
                                 ______
                                 
  Responses of Glenn McCullough to Additional Questions from Senator 
                               Voinovich
    Question 1. Do you think that Clear Skies will have a positive 
effect or negative effect on the air quality in the Great Smoky 
Mountains National Park?
    Response. The emission reductions required by the Clear Skies Act 
will have a positive effect on the air quality and resources of the 
Smokies. In my testimony, the emission reductions targets and 
timetables in Clear Skies were noted as being very aggressive. The 
reduction targets will result in deep cuts in emissions of nitrogen 
oxides (NOx) and sulfur dioxide (SO2) from utilities, and the timetable 
for these reductions is both short and certain. Unlike many 
requirements of the existing Clean Air Act that are prone to prolonged 
litigation, Clear Skies provides a logical and tested framework for 
achieving these reductions rapidly.
    In my testimony, I also noted that TVA has already reduced its NOx 
emissions by over 50 percent since 1995 and has made a 76 percent 
reduction in SO2 since 1977. TVA's reductions undoubtedly have 
contributed to the improvements in air quality here in the Tennessee 
Valley. Yet air quality challenges remain, particularly in the Park. 
Clearly all air emission sources will have to reduce their emissions if 
we are to see overall improvements to the Park's air quality. With its 
national focus, Clear Skies should prove more effective in improving 
mountain air quality than any regional or single-source programs.

    Question 2. As I mentioned in my opening remarks, fuel switching is 
a major concern of mine. I noticed in your testimony that you have a 
pretty diverse fuel mix for electric generation at TVA. What impacts do 
you think Clear Skies would have on your ability to maintain that 
diverse fuel mix?
    Response. Clear Skies will enable us to maintain a diverse mix of 
generation assets and fuel sources. Make no mistake; Clear Skies will 
require a continuation of major investments in pollution control 
technologies for our coal-fired plants. Yet, with these investments, 
TVA will be able to continue to provide affordable, reliable electrical 
power that is needed to support sustainable economic development while 
advancing TVA's stewardship of the region's natural resources.

    Question 3. What impact would passage of the Clean Power Act (S. 
366) have on TVA's ability to provide reliable affordable electricity 
to its consumers?
    Response. Our review of the Clean Power Act indicates that the 
nation's infrastructure for generating and delivering energy in our 
region would be severely compromised. Sharp reductions of CO2 by 2007 
would require a drastic shift from coal-fired generation to natural-
gas-fired and nuclear generation. The enormity of this shift in fuel 
sources stretches the ability to realistically predict the consequences 
of such a change. Estimates from both DOE and EPA are shocking. Apart 
from a large increase in the cost of power, extensive reliance on 
natural gas as a primary fuel for electricity generation throughout the 
Nation would undoubtedly result in serious reliability and availability 
problems. It could also have devastating impacts on the use of natural 
gas for residential uses.
    We have estimated that this legislation could require TVA to shut 
down over 3900 MW of our coal-fired generation, or more than 25 percent 
of the coal-fired generation on our system.

                                 ______
                                 
  Responses of Glenn McCullough to Additional Questions from Senator 
                                Jeffords

    Question 1. What impact would passage of the Clean Air Planning Act 
(S. 3135) have on TVA's ability to provide reliable affordable 
electricity to its consumers?
    Reponse. Our review of the Clean Air Planning Act prompted, in 
part, a statement in my testimony that to do more sooner than what 
Clear Skies requires would increase costs considerably while placing an 
unrealistic burden on the economy of the Tennessee Valley and our 
ratepayers.

    Question 2.  What amount of reductions will Clear Skies require TVA 
to make in 2010 and in 2020 that aren't already planned or expected by 
TVA planners and management under the current Clean Air Act? In your 
response, please include any planning documents that discuss possible 
reductions required to be made in order to achieve attainment with the 
ozone or fine particulate matter NAAQS.
    Reponse. As I testified, TVA currently is in the process of 
installing selective catalytic reduction (SCR) NOx controls on 25 of 
TVA's 59 units and 5 more scrubbers to control SO2 emissions from 12 of 
our units. We are installing these controls to meet requirements of the 
current Clean Air Act. Under Clear Skies, we project that we will have 
to install 23 additional SCRs on our system and scrubbers to control 
emissions from 40 more units. Some of these latter controls could be 
required when EPA issues additional regulations, but the number and 
schedule for additional control systems depends on the requirements of 
any future regulations and the resolution of the litigation that 
inevitably follows EPA rulemakings under the current Clean Air Act.

    Question 3. In your testimony, you stated that if Clear Skies were 
implemented, TVA would have to install pollution controls on 23 
additional units at a cost of another $5 billion by 2018. How much 
would TVA electricity consumers rates rise as a result of Clear Skies 
implementation?
    Reponse. I stated that TVA will soon have SCR or similar systems on 
25 units and scrubbers on 18 units raising TVA's total investment in 
clean air to $5.6 billion. Achieving the results contemplated by Clear 
Skies would require us to construct
    23 additional SCR systems and install scrubber technology on 40 
more units at an additional cost of $4 billion between now and 2018.
    Spending an additional $4 billion between now and 2018 would impose 
a significant financial burden on TVA. TVA's goal has always been to 
pay necessary expenses out of existing revenues rather than increase 
rates and this would be our first response to costs incurred under 
Clear Skies. We have historically resisted rate increases unless 
absolutely necessary, as evidenced by the fact that the rate increase 
that is being discussed for fiscal year 2004 would only be our second 
in the last 16 years.

    Question 4, What are TVA's projected annual pollution control 
capital and operating costs for the next 10 years? Please distinguish 
between the two categories in your answer.
    Reponse. Through 2010, TVA forecasts capital expenditures for air 
pollution control equipment of over $2.3 billion dollars. This 
translates to an average annual amount of approximately $300 million 
per year. Annual operating and maintenance costs associated with these 
controls are expected to average $34 million per year.

    Question 5. What percentage of the TVA electricity consumers rate 
($/kwh) does each of the categories in the previous question represent? 
Please reply for each of the last 3 years and the next 3 years.
    Reponse. The rates that TVA charges its distributor customers and 
directly served customers are bundled rates that include all components 
of TVA's cost structure. The contributions of these individual 
components are not singled out. The spending levels discussed in the 
above response represent about 3.8 percent of TVA revenue over this 
period.

    Question 6. Based on the Southern Appalachian Mountains Initiative 
analysis, utilities close to the Great Smoky Mountains National Park 
are having the greatest impact on air pollution problems. In order to 
return the Smokies to the natural visibility range of 77 miles in the 
summer, haze pollution would need to be reduced by 90 percent. But, as 
I understand it, Clear Skies would only provide a visibility 
improvement of 4 or 5 miles (that takes it from an average of 14 to 18 
or 19 miles). Will TVA support or make deeper SOx reductions than Clear 
Skies would require in order to improve the visibility problems 
plaguing the park?
    Reponse. The work done by the Southern Appalachian Mountains 
Initiative indicates that sources in States closest to the Smokies have 
a greater impact than sources in more distant States but this same 
research also shows that the closer sources account for less than 50 
percent of the emissions that impact the Park. In other words, as a 
group, more distant sources are contributing substantially to air 
quality conditions in the Park. This is one reason why TVA supports 
national legislation like Clear Skies that will produce emission 
reductions from these more distant sources. I testified that Clear 
Skies is a very aggressive proposal. It will require deep cuts in 
emissions on top of what TVA and other utilities are already making. 
Because of limitations on necessary equipment and skilled labor, we 
think it would be very difficult to either accelerate the schedule or 
level of reductions called for by Clear Skies.

    Question 7. How many TVA plants are located more than 50 kilometers 
from Great Smoky Mountains National Park?
    Reponse. Our Bull Run Fossil Plant is approximately 46 kilometers 
from the nearest park boundary, and our Kingston Fossil Plant is 
approximately 49 kilometers from the park boundary. TVA is installing 
SCRs and scrubbers at these plants as part of our current system 
reductions. All of our other nine coal-fired plants are located greater 
than 50 kilometers from the park boundary.

    Question 8. About 3 years ago, Joe Bynum of TVA testified before 
this Subcommittee. He said that TVA is a Federal agency and 
corporation. If that's the case, it seems inappropriate if not illegal 
for TVA to be suing EPA in court over New Source Review. Why hasn't TVA 
complied with EPA's administrative order on NSR, since all Federal 
agencies are required to comply with such orders under the Clean Air 
Act unless national security is invoked?
    Reponse. There is nothing inappropriate or unlawful about TVA 
requesting the Eleventh Circuit Court of Appeals to review the EPA 
administrative order on NSR. EPA challenged the propriety of TVA's 
lawsuit and asked the Eleventh Circuit to throw TVA out of court. By 
unanimous decision, the Court found that TVA could sue EPA over the 
order and has allowed TVA's lawsuit to continue. Unlike other targeted 
electricity providers, TVA did not have an opportunity to contest EPA's 
allegations of NSR violations before an independent trial court. The 
Court of Appeals is the only entity to which TVA could turn to afford 
us and our ratepayers an opportunity to make our case before an 
independent entity and show that our efforts to maintain the 
reliability, availability, and safety of our power plants did not and 
does not violate NSR.

    Question 9. If TVA fully complied with the EPA order on NSR as soon 
as possible, what would be the approximate reduction in TVA plant 
emissions annually and what would be the emissions performance at each 
of your fossil plants?
    Reponse. If TVA had to comply with the EPA NSR administrative order 
as soon as possible, we do not know what the approximate emission 
reduction would be. This uncertainty is due in part to the order 
because it does not identify specific levels of control (these are to 
be determined by the States that regulate TVA's plants) nor does it 
identify specifically all of the units that TVA may have to control. I 
testified to the reductions that TVA is already making on its system 
and is committed to make. These reductions are very close to the level 
of reductions (on a proportional basis) that EPA has required of other 
utilities that have now settled EPA's NSR claims or litigation. 
However, EPA in these settlements has generally required that the 
agreed-to reductions be made by 2012. TVA plans to complete similar 
reductions underway on its system by the end of the decade.

    Question 10. Your testimony was that TVA will spend $5.6 billion by 
2010 in cleaner air. In 2010, how many tons of pollution will TVA be 
emitting generally and at each plant?
    Reponse. Estimates for future emissions (as opposed to emission 
reductions) depend on generation levels on our entire system and at 
each plant in the system. However, ignoring this uncertainty, we 
estimate that after we complete the installation of the additional SCRs 
on the TVA system, annual NOx emissions from our system will be about 
230 thousand tons per year. When we complete the installation of the 
five additional scrubbers on our system, we estimate system SO2 
emissions will be near 360 thousand tons per year. Attached are tables 
showing our estimates of emission rates by plants for both NOx and SO2.

    Question 11. How many tons of allowances did TVA plants need to buy 
to ``true-up'' in each of the last 5 years, meaning that TVA facilities 
had emitted more pollution than their allocation under Title IV?
    Reponse. Unlike some utilities, TVA decided to install emission 
controls and employ other strategies to comply with Title IV rather 
than buying SO2 emission allowances. Since the inception of the Title 
IV program of the Clean Air Act Amendments 1990, TVA has maintained a 
bank of SO2 allowances and has not purchased allowances to ``true-up''. 
Part of our strategy was to create a ``bank'' of allowances to help us 
better schedule the installation of necessary controls. TVA's bank was 
created by reducing emissions earlier than required, including the 
installation and operation of scrubbers on our two largest units. While 
TVA has periodically bought and sold allowances in the market, the net 
effect has been that TVA is effectively neutral in the emissions 
allowance market.

    Question 12. TVA has recently announced plans to increase customer 
rates by about 8 percent. Are these increases to pay for restarting 
Brown's Ferry Unit 1 nuclear reactor or for NOx and SOx pollution 
controls?
    Reponse. TVA's recently announced plan to increase its wholesale 
rates by an average of 5.9 percent is necessary to cover the increasing 
costs of NOx and SOx pollution controls while continuing to pay down 
the debt. By 2010, TVA will have invested nearly $5.6 billion in clean 
air. While these investments to date have been made out of existing 
revenues, the enormity of future clean air investments makes a rate 
increase necessary.
    The rate increase that is being discussed is not an attempt to pay 
for the costs of restarting TVA's Browns Ferry Unit 1. By 2015, the 
investment in Brown's Ferry Unit 1 is projected to pay for itself from 
operating cash-flows. Additionally, TVA is exploring alternative 
financing arrangements to pay a portion of the restart costs.

    Question 13. You stated that TVA is spending $527 million this 
fiscal year on clean air. Please describe the projects (>$5 million) 
that TVA defines as clean air and how they will contribute to cleaner 
air.
    Reponse. These clean air related projects consist of SCR projects 
to reduce NOx emissions at seven TVA plants (Allen, Bull Run, Colbert, 
Cumberland, Kingston, Paradise, and Widows Creek) and SO2 reduction 
projects consisting of scrubber and fuel switches at three plants 
(Colbert, Johnsonville, and Paradise).
                               attachment

                                           Tennessee Valley Authority
                                    Projected 2010 Annual SO2 Emission Rates
----------------------------------------------------------------------------------------------------------------
                                                                          SO2                          Expected
                                                  --------------------------------------------------   2010 SO2
                Plant                     Unit                                                        Rate (lb/
                                                    SO2 Control Technology           Status             MMBtu)
----------------------------------------------------------------------------------------------------------------
Allen...............................          1-3    .....................    .....................          0.9
Bull Run............................               Scrubber...............  By 2010................          0.3
Colbert.............................          1-4    .....................    .....................          1.0
Colbert.............................            5  Scrubber...............  By 2010................          0.3
Cumberland..........................            1  Scrubber...............  Existing...............          0.3
Cumberland..........................            2  Scrubber...............  Existing...............          0.3
Gallatin............................          1-4    .....................    .....................          1.0
John Sevier.........................          1-4    .....................    .....................          1.4
Johnsonville........................         1-10    .....................    .....................          1.4
Kingston............................          1-4  Scrubber...............  By 2010................          0.3
Kingston............................          5-9  Scrubber...............  By 2010................          0.3
Paradise............................          1-2  Scrubber...............  Existing...............          0.5
Paradise............................            3  Scrubber...............  By 2010................          0.3
Shawnee 1-9.........................          1-9    .....................    .....................          1.0
Shawnee 10..........................           10    .....................    .....................          0.6
Widows Creek........................          1-6    .....................    .....................          1.2
Widows Creek........................            7  Scrubber...............  Existing...............          0.5
Widows Creek........................            8  Scrubber...............  Existing...............          0.5
----------------------------------------------------------------------------------------------------------------


                                           Tennessee Valley Authority
                                 Projected 2007 Ozone Season NOx Emission Rates
----------------------------------------------------------------------------------------------------------------
                                                                          NOx                          Expected
                                                  --------------------------------------------------   2010 NOx
                Plant                     Unit                                                        Rate (lb/
                                                    NOx Control Technology           Status             MMBtu)
----------------------------------------------------------------------------------------------------------------
Allen...............................          1-3  SCR....................  Existing...............          0.1
Bull Run............................               SCR....................  By 2005................          0.1
Colbert.............................          1-4  SCR....................  By 2006................          0.1
Colbert.............................            5  SCR....................  By 2005................          0.1
Cumberland..........................            1  SCR....................  Existing...............          0.1
Cumberland..........................            2  SCR....................  By 2005................          0.1
Gallatin............................          1-4  LNB & OFA..............  Existing...............          0.3
John Sevier.........................          1-4  LNB & OFA..............  Existing...............          0.4
Johnsonville........................         1-10  BLR OPT 1-6............  Existing...............          0.6
                                                   LNB U7-10..............  Existing...............          0.5
Kingston 1-8........................          1-8  SCR....................  By 2005................          0.1
Kingston............................            9  OFA....................  Existing...............         0.45
Paradise............................          1-2  SCR....................  Existing...............          0.1
Paradise............................            3  SCR....................  Existing...............          0.1
Shawnee 1-9.........................          1-9  LNB....................  Existing...............          0.4
Shawnee 10..........................               AFBC...................  Existing...............          0.3
Widows Creek........................          1-6  LNB....................    .....................          0.5
Widows Creek........................            7  SCR....................  Existing...............          0.1
Widows Creek........................            8  SCR....................  By 2005................          0.1
----------------------------------------------------------------------------------------------------------------
Expected Technology--Other control technology may be installed.
SCR--Selective Catalytic Reduction
OFA--Over-fired Air
ANCT--Advanced NOx Control Technology
LNB--Low NOx Burner
AFBC--Atmospheric Fluidized Bed Combustion

                               __________
  Statement of Jim Rogers, CEO and President, Cinergy Corporation, on 
                behalf of the Edison Electric Institute

Introduction
    Good morning. My name is Jim Rogers and I am Chairman, President 
and CEO of Cinergy Corp, which is a Midwest leader in electricity 
generation. Our regulated delivery operations in Ohio, Indiana, and 
Kentucky serve 1.5 million electric customers and about 500,000 gas 
customers. Cinergy's core energy system comprises approximately 13,300 
megawatts at 14 base load stations and seven peaking stations. This 
portfolio includes 37 coal-based units that we operate and at least 
partially own. Altogether Cinergy is responsible for the operation of 
114 electric generation units at 40 locations in 15 States. And, just 
so you fully understand why Cinergy is so interested in today's topic, 
more than 90 percent of the megawatt hours that we generate come from 
coal units. As I like to say, Cinergy is the largest non-nuclear 
utility in the United States
    Today I am also testifying on behalf of the Edison Electric 
Institute (EEI). EEI is the association of U.S. shareholder-owned 
electric companies, international affiliates and industry associates 
worldwide. EEI's U.S. members serve more than 90 percent of all 
customers served by the shareholder-owned segment of the industry, 
generate approximately three-quarters of all of the electricity 
generated by electric companies in the country, and serve about 70 
percent of all ultimate customers in the Nation.
    Since 2000, Cinergy has testified before this committee on several 
occasions, urging it to pass legislation that would alter the way power 
plant emissions are regulated. We have worked with the environmental 
community, with industry and with many of you on this committee. While 
we have not achieved unanimity within all of the stakeholder groups, 
there has been general consensus that the current Clean Air Act fails 
to deliver certainty for the environment, certainty for consumers or 
certainty for the industry.
    In fact, in testimony in May 2000, major environmental groups 
recognized that the lack of certainty requires immediate attention:
    ``The Act is designed to address air pollution from the power 
sector on a pollutant-by-pollutant basis. The result is that there are 
numerous EPA regulatory initiatives all underway at present affecting 
different pieces of the power plant pollution problem, on different 
time scales, and with different geographic targets and often-different 
criteria. Each of these regulatory proceedings is subject to delay and 
court review the time has come to improve on the Act's current 
regulatory scheme for power plants. Surely the devil will be in the 
details but the stage has been set for a policy discussion that could 
drive us to a better, cleaner outcome.''\1\
---------------------------------------------------------------------------
     \1\Testimony before the Subcommittee on Clean Air, Wetlands, 
Private Property and Nuclear Safety, Committee on Environment and 
Public Works, May 17, 2000. Testimony submitted on behalf of Clean Air 
Task Force, NRDC, USPIRG, National Environmental Trust and other 
environmental groups.
---------------------------------------------------------------------------
    The multi-emissions idea has also garnered tremendous support from 
a diverse group of stakeholders including the United Mineworkers of 
America, International Brotherhood of Electrical Workers, the National 
Governors Association, the National Association of Counties, the 
Environmental Council of States, Candidate Al Gore, and, of course, 
President Bush.
    The Edison Electric Institute's CEO Policy Committee on 
Environment, which I chair, has for several years actively addressed 
the multi-emissions issue. That committee recommended to the Board of 
Directors that EEI embrace the scope and framework of the President's 
Clear Skies Initiative. The Board has adopted that recommendation.

The Progress We Have Made
    Before I venture into why multi-emissions legislation is so 
important, let me first quickly review how far the industry has come. 
The electric power industry has reduced its air emissions 
significantly, even as demand for electricity has increased. Attached 
is a chart that demonstrates that we have dramatically reduced our 
emissions of sulfur dioxide (SO2) and nitrogen oxides (NOx.) 
We have also reduced particulate matter (PM10) by over 90 
percent. Moreover because some particulate matter, SO2 and 
NOx controls have some mercury reduction co-benefits, our industry has 
also reduced mercury emissions significantly by almost 40 percent from 
75 tons per year to approximately 48 tons per year.
    We have done all this despite a steady climb in electricity demand 
and without sacrificing the reliability and affordability of the 
electricity that we produce.
    Cinergy itself has invested considerable sums in clean air 
compliance. In the decade of the 90's, we spent more than $650 million, 
primarily to meet the SO2 and NOx requirements of Title IV 
of the Clean Air Act. Between 2000 and 2005, we will spend an 
additional $800 million to build Selective Catalytic Reduction (SCR) 
pollution control units to meet the NOx SIP Call. To meet Clear Skies, 
we estimate our capital expenditures for just pollution control 
equipment will top these two sums combined or $1.5 billion. And 
unfortunately for Cinergy and most other utilities these costs are not 
back-loaded. We estimate that more than two-thirds of these 
expenditures are necessary to meet the first phase of the Clear Skies 
targets. Having said all that, the widely diverse commitment to support 
multi-emission legislation, even in the face of the costs I have just 
noted, clearly demonstrates that the electric utility industry is 
prepared to do more but we need to do it the right way.

Keeping Coal in the Fuel Mix
    Low-cost, reliable electricity results, in part, from our ability 
to utilize a variety of readily available energy resources coal, 
nuclear energy, natural gas, hydropower, and new renewable energy 
resources such as wind and solar. Fuel diversity is key to affordable 
and reliable electricity. A diverse fuel mix helps to protect consumers 
from contingencies such as fuel shortages or disruptions, price 
fluctuations and changes in regulatory practices. A diverse fuel mix 
takes advantage of regional differences in fuel availability that have 
evolved over many decades. I have attached a chart showing that 
different parts of the United States are dependent on different sources 
of electricity.
    While coal fuels slightly more than 50 percent of the generation 
produced in the United States, coal fuels more than eighty percent of 
the electrical generation in the Midwest. These coal plants help to 
keep the price of electricity down for consumers and businesses, an 
extremely important issue in Midwest States whose economies are already 
financially strapped.

Coal and the Clean Air Act
    But coal-based electric generators face emissions control 
requirements in the Clean Air Act that are duplicative, contradictory, 
costly and complex--creating enormous uncertainty for future 
investment. Attached to my testimony is an EPA chart showing the 
complexity of the Clean Air Act for electric generators over the next 
decade (and it doesn't even include all the pre-2000 requirements that 
continue now and into the future). While I think many of these 
deadlines are ambitious and will be missed, the chart does show the 
regulatory muddle that coal-fired power faces.
    The net result of the current regulatory system is a planning 
nightmare that makes it virtually impossible for electric generators to 
have any stable notion of what requirements will be in place for our 
plants at any point in the future. In addition to this chaos, are the 
long construction cycles and large capital expenditures that prohibit 
us from accurately assessing which plants should be retrofitted with 
controls, which plants should be switched to different coals or to 
natural gas, which plants should be retired and when any of this should 
take place. The result is a system that threatens the reliability and 
affordability of our nation's electric supply.
    This regulatory morass also puts more pressure on the natural gas 
supply and delivery systems that already are yielding gas prices of 
great concern to the nation's industrial users and electric customers. 
Just this past winter, spikes in natural gas prices forced the 
Wheeling-Pittsburgh Steel Corp. to reduce or halt operations at three 
plants in Ohio. According to the American Chemistry Council, every 
dollar that the price of natural gas increases translates to about $1 
billion in additional annual costs for the chemical industry that alone 
employs more than one million people directly.
    Stephen Brown, director of energy economics at the Dallas Federal 
Reserve Bank stated that ``strong energy prices weaken the economy and 
it's likely to retard the recovery. Nine of the 10 last recessions have 
been preceded by sharply higher energy prices.''\2\
---------------------------------------------------------------------------
     \2\Wall Street Journal, February 28, 2003 ``Effects of Gas 
Shortage Rip Through Economy
---------------------------------------------------------------------------
    Ironically, the present system also does not advantage those 
seeking further emissions reductions from coal-fired power plants. The 
piecemeal approach inherent in the current Clean Air Act necessarily 
involves many sequential scientific and technical decisions by EPA and 
the States that may not necessarily be resolved in favor of the 
environmental community and, regardless are typically late in being 
made and then litigated by all sides, causing further delay. This 
regulatory soup may deliver cleaner air it hasn't so far but the chaos 
that accompanies this approach makes the timing of that environmental 
progress doubtful. And we will have the nation's energy policy set by 
Brownian motion. The end result of all of these rulemakings randomly 
bouncing against each other will form a totally unpredictable pattern. 
However there will be some certain consequences significantly higher 
electricity prices and further delays in environmental benefits.
    For instance, implementation of National Ambient Air Quality 
Standards requires a series of sequential steps including monitoring of 
each air shed, designating nonattainment areas, inventorying emissions 
in the nonattainment area, modeling emissions in the nonattainment 
area, creating attainment demonstrations, and, finally, implementing 
these plans. Each step requires administrative action by the State or 
in some cases the State legislature followed by a formal approval by 
EPA. Because of this cumbersome process, there have been no 
nonattainment designations for either the fine particle NAAQS or the 8-
hour ozone NAAQS, both of which were established in 1997. Once those 
designations of nonattainment areas occur, the Clean Air Act still 
allows States up to 12 years to bring nonattainment areas into 
compliance.
    There is also no certainty around mercury reductions. While EPA is 
under a court order to finalize a mercury rule for coal-fired power by 
December 15, 2004, considerable uncertainty surrounds this endeavor. 
Under the Clean Air Act, maximum achievable control technology (MACT) 
standards are supposed to be based on the performance of the best 
available control technology in actual use in the source category. For 
coal-fired utility boilers, no high removal mercury-specific technology 
is in place. What reductions have occurred result from the installation 
of control technology aimed at other emissions. But data quality and 
variability issues make simple extrapolation of these results (which is 
necessary in determining a standard) very problematic. Reductions 
fluctuate without explanation over time at a single unit; similar units 
with similar controls and coals experience very different results. As a 
result, EPA will need to build into the final rule emissions targets 
that reflect these fluctuations.
    Add to this the reality that while the Clean Air Act generally 
requires a 3-year implementation period, there are extensions 
available, making implementation more likely in 2009 or 2010 and that 
does not count any delays spawned by the inevitable litigation, further 
delaying the implementation date.
    By the way, the nominal 3-year period is too short for utilities to 
design, permit and install SO2 scrubbers, the most cost 
effective means for bituminous coal to reduce mercury emissions. If 
utilities are held to the 3 years, we will be forced to focus our 
capital dollars on other extremely expensive and unproven technologies 
or switching to natural gas--both of which are ill-conceived outcomes 
for ratepayers, shareholders and the breathing public.

Why a Multi-Pollutant Approach Makes Sense
    In contrast to the current piecemeal approach to regulation 
inherent in the existing Clean Air Act, a well-designed multi-emission 
approach is the best roadmap for further reducing power plant 
emissions. The right multi-emission bill will benefit electricity 
producers, consumers and the environment, by:
      Locking in major emission reductions today
      Locking in a timeline for those reductions so that 
emission control strategies can begin today resulting in cleaner air 
sooner
      Lowering the cost impact for consumers
      Coordinating reductions so that utilities are able to use 
multi-pollutant control technology
      Providing the electric industry in need of certainty with 
the time necessary to attract capital for the multi-billions of 
investments that will be needed to meet the new requirements
      Maintaining coal as a generation fuel thereby preserving 
natural gas reserves for consumers, farmers and businesses that rely on 
natural gas for their operations
      Saving jobs at existing coal-fired power plants and in 
the coal industry and creating new jobs to construct massive pollution 
control projects
      Providing flexibility through market-based programs such 
as emissions trading and early reduction credits
      Easing implementation for States to meet Federal clean 
air standards

The Clear Skies Act (S. 485)
    The ``Clear Skies Act'' would require the most ambitious emissions 
reductions ever from power plants, ensuring air quality results that 
are cleaner, sooner, and cheaper. The emissions reductions would be 
rock solid, due to continuous emissions monitoring and large penalties 
for non-compliance. The scope and framework of the Clear Skies Act are 
ambitious and, for many companies including small public power systems, 
extremely painful. This is especially true for the first phase of Clear 
Skies.
    Clear Skies would deliver additional dramatic reductions of power 
plant emissions cutting SO2, NOx and mercury emissions by 70 
percent from current levels while reducing costs and providing greater 
business certainty by combining multiple, overlapping regulations into 
a single set of reduction requirements.
    An essential component of Clear Skies is that is provides industry 
with the time needed to attract capital necessary to make the 
reductions without jeopardizing the balance sheets. Given the current 
economic situation for our industry, we must spread the huge Clean Air 
capital investments over more than a few years in order to maintain our 
economic health.
    And, the appropriate timelines also saves existing and creates new 
jobs. A deliberate approach to meeting emission reduction goals is 
essential for continued reliable electric generation and cost-
effectiveness. Retrofits of additional selective catalytic reduction 
(SCR) systems for NOx, flue gas desulfurization systems (scrubbers) for 
SO2, activated carbon and fabric filters for mercury will be 
needed on over 100 GW of power plants, which is the equivalent of 250 
medium sized generation units. Each of these installations will require 
capital expenditures of anywhere from $60 million to more than $200 
million.
    Clear Skies represents probably one of the largest construction 
projects this nation will see. These installations must be spread over 
time to ensure reliability and stable prices that will not occur if too 
many large units are off line for retrofits at once. A smooth timeline 
also provides a steady construction program over the next 15 years. As 
we found with the NOx SIP Call, if controls are pushed within too 
narrow a time window, aside from increasing pressure on switching to 
natural gas, there will be labor and materials shortages and 
bottlenecks, which will greatly (and unnecessarily) increase costs.
    Congress in the Clean Air Act Amendments of 1990 afforded the 
industry a decade to comply with reductions of fifty percent in 
SO2 and NOx emissions. And just as Congress said in the 1990 
amendments, a defined emissions target set over a reasonable timeframe 
resulted in real environmental improvements. Emissions reductions of 
seventy percent for three different emissions will be more costly, 
resource intensive and time consuming. Providing two phases of 
reductions, with the first phase limited to a fifty percent reduction, 
squares not only with reality but also with the precedent established 
in 1990.
    As I have mentioned, the targets in the Clear Skies proposal are 
aggressive. To provide the planning certainty we need to meet these 
goals, the Clear Skies Initiative must also harmonize the existing 
Title I requirements including New Source Review; facilitate emissions 
trading; provide credit for early reductions; and distribute emission 
allowances equitably. The industry also has concerns about the auction 
provision that would only increase costs for those spending billions in 
retrofits with no commensurate environmental benefit. S. 366
    While I prefer to emphasize the positive aspects of the Clear Skies 
Act, I cannot go without noting that S. 366, which Senator Jeffords and 
co-sponsors introduced on February 12, 2003, is unworkable and would 
cause tremendous economic hardship for my company, the industry and the 
Nation. All of the bill's new requirements would be placed on top of 
the existing Clean Air Act, exacerbating the complexity of an Act that 
already can give the Tax Code a run for being crowned the ``most 
convoluted, Byzantine and difficult to understand'' Federal law.
    More importantly, S. 366 would greatly impact electricity prices, 
natural gas prices, coal consumption and other key factors. As you 
know, in November 2001, Mary J. Hutzler, the Acting Administrator of 
the Energy Information Administration, that as a result of S. 556, 
``the average delivered price of electricity in 2020 is projected to be 
33 percent higher'' and ``natural gas prices are also higher by 20 
percent.''\3\ An earlier EIA report pegged the loss of coal generation 
at 38 to 42 percent while natural gas generation increased by 60 
percent.
---------------------------------------------------------------------------
     \3\Statement of Mary J. Hutzler, Acting Administrator, Energy 
Information Administration, Department of Energy, before the Committee 
on Environment and Public Works (Nov. 1, 2001) p.3
---------------------------------------------------------------------------
    And significantly, the analysis did not actually capture the full 
costs of S. 366 since many new, troublesome provisions were added in 
June 2002. EIA did not model S. 556's ``Outdated Power Plants'' 
provision, which will almost immediately cancel out the cap and trade 
program supposedly contained in the bill, and dictate compliance 
strategy. In fact, the Congressional Budget Office last November 
estimated the impact of S. 556 to power generators as possibly reaching 
$60 billion in just the year 2012.

Conclusion
    While I know the challenges are daunting, I do believe that this 
Subcommittee can craft multi-emission legislation that both meets 
environmental goals and provides the industry with a workable roadmap. 
To do otherwise will ignore both an opportunity to make tremendous 
progress on Clean Air while ensuring the economic health of the energy 
industry. This industry, which faces enormous uncertainty on all 
fronts, is also the target of a morass of new Clean Air Act regulations 
which I have outlined today. These regulations threaten coal and 
dramatically increase compliance costs, yet leave environmental 
progress up in the air. With the economy in perilous shape at the 
national and State level, massive increases in the use of natural gas 
for generation will be very destructive. Environmental goals can and 
must be met, but fuel switching and consumer price increases must be 
kept to a minimum. That is why EEI and Cinergy support multi-pollutant 
legislation and the scope and framework of the Clear Skies Initiative. 
It delivers clean air with certainty while protecting workers, 
consumers and industry.
    Finally, the time to act is now. I strongly believe that the window 
for passing multi-pollutant legislation will close next year due to 
national elections and further regulatory developments. So I 
respectfully ask this Subcommittee not to squander this unique 
opportunity to create a new chapter of Clean Air progress for the 
American people. It is time to find a sensible, practical solution to 
the environmental issues facing coal-fired power before we jeopardize 
our future.
    We look forward to working with the committee, the Administration 
and other key Members of Congress to help make this legislation a 
reality.
    Thank you.

    
    
    
    
    
    
                               __________
   Statement of Bradley Campbell, Director, New Jersey Department of 
    Environmental Protection, on Behalf of the Northeast States for 
                Coordinated Air Use Management (NESCAUM)

    Good afternoon. My name is Brad Campbell. I am Commissioner of the 
New Jersey Department of Environmental Protection. I speak today for 
the eight Northeast States that make up the Northeast States for 
Coordinated Air Use Management (NESCAUM). I understand that many of the 
views I will offer are also shared by the States of the larger Ozone 
Transport Commission. I appreciate the opportunity to testify before 
the committee today to present a Northeast States' perspective on the 
critically important issue of Federal action to reduce power plant 
pollution.
    I want to begin by emphasizing that the Northeast States strongly 
support efforts to enact multi-pollutant legislation, and have so 
testified before this committee in the past. We applaud the 
Administration and this committee for making passage of such 
legislation a priority for the 108th Congress. It has been over a 
decade since the last Clean Air Act Amendments, and the time has 
clearly come for a new national policy to address the broad array of 
public health risks and environmental harms caused by power plant 
emissions.
    In the Northeast, where sulfur dioxide and nitrogen oxides 
emissions from upwind power plants contribute significantly to problems 
ranging from fine particle and ozone pollution to acid rain, 
eutrophication of surface waters, and poor visibility in our parks and 
wilderness areas, we have long appreciated the need for concerted 
Federal action. With mercury contamination necessitating fish 
consumption advisories for most of our lakes and rivers, we see an 
urgent need for new measures to curb the continued buildup of this 
persistent, potent neurotoxin in our environment. And we see the 
problem of climate change as presenting unprecedented challenges for 
our ecosystems and quality of life, but also great economic opportunity 
for those who develop and provide the clean energy technologies of the 
future.
    For all of these reasons, the Northeast States have followed with 
keen interest the development of several multi-pollutant initiatives 
now before Congress, including the Administration's ``Clear Skies'' 
proposal. In evaluating each initiative, we have asked three core 
questions:

      Is it comprehensive?
      Is it adequate to address the significant public health 
and environmental challenges we face?
      Does it strengthen our ability to ensure continued clean 
air progress, not only at the national level, but also at the local, 
State and regional levels?

    Recognizing Clear Skies as a starting point for the committee's 
deliberations, I want to focus my remarks today on where and how we 
believe Clear Skies needs to be improved to meet these tests.
    First, emissions reductions can and must happen sooner. As you 
know, many areas of the country need to attain new, more stringent 
health-based Federal standards for ozone and fine particles in the next 
4-7 years. Yet the emissions caps in Clear Skies won't be fully 
implemented until 2018. Delaying necessary cuts for another 15 years is 
problematic for States trying to reach attainment, but it's even more 
problematic for the tens of thousands of people who experience serious 
health effects associated with unnecessarily high levels of fine 
particle and ozone pollution.
    Second, we can and must do more to reduce mercury emissions. Given 
the persistent, bioaccumulative threat posed by this neurotoxin and the 
availability of highly effective control technologies, power plant 
mercury emissions should be capped at levels at least 50 percent lower 
than the 15 ton figure proposed in Clear Skies.
    Third, national multi-pollutant legislation must address the 
intractable problem of interstate pollution transport in a concrete and 
effective manner, and must not weaken or remove crucial regulatory 
tools that States rely on to improve air quality at the local, State, 
and regional levels.
    Clear Skies offers no guarantee that long-standing regional 
transport concerns will be solved under a new national emissions 
trading program, yet States would be prohibited from petitioning for 
Federal action to address transport until after 2012. Even then, the 
new hurdles Clear Skies establishes for Federal intervention would make 
the current transport provisions of the Clean Air Act practically 
unenforceable.
    States support constructive reform of the Clean Air Act, provided 
it genuinely advances our clean air objectives and is strictly tied to 
the actual implementation of new reduction requirements. Clear Skies 
appears to go too far in the name of regulatory reform, however, 
proposing to substantially weaken or even eliminate several provisions 
of the current Clean Air Act. A list of several such concerns--
including New Source Review, regulation of non-mercury toxins, 
potential local impacts, and protection of States' rights--is attached 
to my written testimony. The bottom line is that when it comes to 
protecting public health, it is far better to have too many tools and 
not need some than to have too few tools and come up short regarding 
our citizens' quality of life.
    The final issue I want to address is carbon dioxide. We believe it 
belongs in multi-pollutant legislation because without it, the market 
signals and business certainty needed to promote sound long-term 
resource choices and investment decisions by the electric power 
industry will remain absent. The inevitable long-term result is greater 
climate risk--and higher costs--for both industry and consumers. The 
Northeast States feel so strongly about the need to act on climate 
change that many have made State-level commitments to reduce greenhouse 
gas emissions and/or have included carbon in their own, more aggressive 
4-pollutant initiatives. The several such efforts already in effect 
show that the Northeast States are willing to lead by example, but as 
downwind States, we can't do it all by ourselves.
    In short, we support multi-pollutant legislation that cost-
effectively does both more and less than Clear Skies proposes. More--
and sooner--in terms of pollution reductions; less in terms of changing 
the Clean Air Act.
    This is precisely how the ``Straw Proposal'' that EPA originally 
drafted as the Administration's multi-pollutant initiative could be 
described. The Straw Proposal called for emissions reductions closer to 
85 percent (compared to Clear Skies' 70 percent) and, importantly, for 
reductions to be fully implemented by 2010-12. Moreover, EPA's own 
analysis showed that the health benefits of this substantially more 
aggressive approach far outweighed its costs. EPA's analysis showed 
that implementing the Straw Proposal would cost $3.5 billion more than 
Clear Skies in 2020, but it would produce $59 billion in additional 
health benefits. We urge the committee to re-visit EPA's Straw Proposal 
and other current legislative alternatives that go further toward 
capturing these benefits.
    In closing, let me thank you for considering our views and again 
commend the Administration for pushing forward on multi-pollutant 
legislation. The issues are complex, and the debate will no doubt be 
intense. But the Northeast States look forward to playing a 
constructive role, and we hope all sides can agree that the opportunity 
and need for real progress on these issues is as great as the public 
health, environmental and energy challenges we face are daunting.

Technical Concerns of the Northeast States Regarding S. 485, the Clear 
        Skies Act of 2003
    Clear Skies diminishes or repeals entirely some of States' most 
important tools for achieving Federal, health-based air quality 
standards:
      New Source Review (NSR)
      The utility Maximum Achievable Control Technology (MACT) 
rule as it applies to hazardous air pollutants (HAPs) other than 
mercury
      Residual risk requirements for mercury
      Lowest Achievable Emission Rate (LAER) and offset 
requirements and conformity for most areas of the country
      Use of Section 126 until 2012, and only then under a 
higher burden of proof
      Some Prevention of Significant Deterioration (PSD) 
requirements
      Protection of visibility in Class I airsheds.
      Clear Skies appears to undermine, if not preempt 
entirely, State and local authority to adopt and to take State 
Implementation Plan (SIP) credit for more stringent requirements for 
power plants.
      Clear Skies provides no protections against adverse local 
health and environmental impacts that could arise, and does not require 
even a minimum level of control at each power plant.
      Regulatory relief under Clear Skies is provided 
expeditiously, but corresponding emission reduction requirements are 
delayed for years--a serious unbalancing of these dual policy 
objectives.
      Clear Skies' approach to allocating allowances appears to 
continue the practice of rewarding past high emitters, rather than 
encouraging economic efficiency through output-based allocation 
approaches and/or approaches that reward combined heat and power (CHP) 
applications.
                               __________
 Statement of David Hawkins, Climate Center Program Director, Natural 
                       Resources Defense Council

Summary
    Mr. Chairman and members of the Subcommittee, thank you for 
inviting me to testify on behalf of NRDC, the Natural Resources Defense 
Council, and its more than 500,000 members regarding S. 385, the 
Administration's bill to amend the Clean Air Act. We have examined the 
Administration proposal and we conclude it would harm public health, 
weaken current pollution fighting programs and worsen global warming.
    In my testimony today, I will emphasize three major policy failures 
in the Administration's bill. S. 385 would do the following to our 
nation's clean air program:
      Allow power plant pollution to continue to inflict huge, 
avoidable health damages on the public.
      Repeal or interfere with major health and air quality 
safeguards in current law.
      Worsen global warming by ignoring CO2 
emissions from the power sector.
    NRDC supports good legislation to amend the Clean Air Act. We 
worked with the first Bush Administration in 1989 and supported the cap 
and trade program that was enacted in the 1990 amendments to the law. 
But the current Administration proposal is not good legislation: it 
would take two enormous steps backward and fail to take a critical step 
forward on global warming.
    Fortunately, your choices are not limited to accepting the 
Administration's plan or taking no action. As Senators you have the 
right to ask the Administration to explain the policy choices in the 
bill it has sent to you. If you conduct a thorough inquiry into the 
Administration plan and alternatives we believe you will conclude that 
the Administration's bill should not become law. Congress can do much 
better and the public deserves much better. We want to work with you to 
deliver that better solution to the public.

 I. THE ADMINISTRATION PLAN IMPOSES UNACCEPTABLE AND AVOIDABLE HEALTH 
                          COSTS ON THE PUBLIC

    Air pollution from power plants imposes a staggering toll of death, 
disease, and environmental contamination on the American people.
    Sulfur dioxide (SO2) and nitrogen oxides (NOx) emissions 
from power plants create dangerous concentrations of fine particles and 
ozone (soot and smog) in the air that 175 million people breathe. Soot 
and smog caused by power plant emissions is causing 30,000 premature 
deaths, hundreds of thousands of asthma attacks, and millions of days 
of illness and lost work each year.
    Mercury emissions from power plants fall from the air and wash into 
lakes, rivers, and coastal waters, where they concentrate in fish. 
Mercury is a potent brain poison (neurotoxin) even in very small 
amounts. Forty-four States have issued warnings against eating local 
fish because of mercury contamination.
    Power plant pollution is causing a major, ongoing public health 
crisis. The Bush Administration's proposed air pollution plan fails to 
stem this crisis.
    By any comparison, the Administration's plan allows power plant 
owners to continue an unacceptable and unjustifiable toll of 
preventable death and illness. Measured against alternative legislative 
proposals including an alternative proposal developed within the 
Administration itself in 2001 the Administration plan would result in 
more than 100,000 additional early deaths and millions of additional 
asthma attacks and other illnesses between now and 2020. The 
Administration's plan also would result in hundreds of tons more 
mercury released into the atmosphere over this period. The same 
conclusions emerge when the Administration's plan is measured against 
faithful enforcement of the current Clean Air Act.
    The Administration rejected an alternative proposal, developed by 
EPA in August 2001, that would have dramatically reduced this toll of 
death, illness, and environmental contamination. When expressed in 
monetary terms, the benefits of the EPA proposal dwarf its cost. But 
the Administration has submitted to you the much weaker plan found in 
S. 385. By sending you its weaker plan, the Administration is asking 
you to vote for a program that saves power plant owners $3.5 billion 
per year in pollution control costs but imposes at least $61 billion 
per year in additional avoidable health costs on the American people.
    In our view, the Administration owes you and the American people 
some straight answers to these questions:
    Why should the public accept the enormous toll of preventable death 
and illness from power plant pollution that will still occur under the 
Administration's plan?
    Why should Americans suffer tens of billions of dollars each year 
in health costs that could be avoided at a fraction of that cost?
    Why don't the American people have a right to expect whether from 
the current Clean Air Act or any new legislation much deeper and 
quicker reductions in power plant pollution than the Administration's 
plan would provide?

The Administration Plan vs. the EPA Proposal
    The original ``Clear Skies'' proposal was developed in 2001 by the 
Environmental Protection Agency.\1\ The EPA proposal was developed with 
the goal of delivering at least as much clean-up of sulfur, nitrogen, 
and mercury emissions as required under the current Clean Air Act with 
the purported advantages of a cap and trade program. Unfortunately, 
while the Administration's plan before you today keeps the title, the 
program has been converted from one that speeds clean air to one that 
shields power plant owners from faster cuts in their pollution.
---------------------------------------------------------------------------
    \1\U.S. EPA, ``Comprehensive Approach to Clean Power: Straw 
Proposal and Supporting Analysis for Interagency Discussion,'' August 
3, 2001. (``EPA August 2001 Analysis'') Available at http://
www.catf.us/publications/other/EPA--Straw--Proposal.pdf.
---------------------------------------------------------------------------
    After intense lobbying by power plant owners, the White House 
rejected the targets and timetables in the EPA proposal and proposed a 
plan allowing much greater continuing pollution from this industry. The 
larger pollution loads allowed by the Administration's CSI plan are 
summarized in the following chart:

                           Bush Administration Plan (CSI) v. EPA Proposal (Aug. 2001)
----------------------------------------------------------------------------------------------------------------
                                         Sulfur Dioxide (SO2)     Nitrous Oxide (NOx)          Mercury (Hg)
----------------------------------------------------------------------------------------------------------------
EPA Proposal.........................  2 million tons in 2010.  1.9 million tons in      24 tons in 2008
                                                                 2008.                   7.5 tons in 2012, with
                                                                1.25 million tons in      70 percent facility-
                                                                 2012.                    specific reduction
Administration Plan..................  4.5 illion tons in 2010  2.1 million tons in      26 tons in 2010
                                       3 million tons in 2018.   2008.                   15 tons 2018
                                                                1.7 million tons in
                                                                 2018.
----------------------------------------------------------------------------------------------------------------

    The differences in the amount of pollution allowed by these two 
plans, both year by year and cumulatively out to 2020, are huge.\2\ The 
Administration's plan would result in 42 million tons more pollution 
than the EPA proposal: For SO2, 18 million tons more through 
2012 and 34 million excess tons out through 2020. For NOx, 3 million 
tons more through 2012 and 8 million excess tons out through 2020. The 
Administration's plan would also allow 58 tons more mercury through 
2012 and 163 tons more out through 2020.
---------------------------------------------------------------------------
    \2\The results shown in the figures below are based on EPA analyses 
with the Integrated Planning Model (IPM), the standard modeling tool 
used by all stakeholders in the power plant debate. They show the 
pattern of emissions expected under the two plans, including the impact 
of ``banking,'' which results in some reductions below the caps in 
early years in order to emissions at levels above the caps in later 
years.



    Health Consequences of Administration Plan's Excess SO2 
and NOx. The Administration's plan means large numbers of Americans 
will continue to die prematurely or suffer illness caused by the 
excessive pollution power plants would continue releasing under the 
plan. Figure 7 shows EPA's estimates of the additional premature death 
toll and illness in 2020 under the Administration's plan:\3\
---------------------------------------------------------------------------
    \3\EPA calculated the incidence of premature death and illness for 
both its August 2001 proposal and the Administration CSI plan using the 
same peer-reviewed methods and summarized the results in its technical 
analysis documents. The health comparisons in this testimony are taken 
from the incidence figures presented in those documents. See, EPA 
August 2001 Analysis, supra, note 1, Appendix A at 3, and EPA CSI 
Technical Support Package, September 2002 at 29, at www.epa.gov/
clearskies.
---------------------------------------------------------------------------
      7100 additional premature deaths
      4600 additional chronic bronchitis cases
      5100 additional hospital stays and ER visits
      7 million additional days of respiratory illness
    
    
    While EPA has not presented the cumulative additional premature 
deaths and illnesses allowed under the Administration's plan, those 
numbers are even larger. Using EPA methods, the Clean Air Task Force 
calculates that between 2008 and 2020, the Administration's plan would 
allow more than 100,000 additional premature deaths and would allow 
millions more asthma attacks and other illnesses.\4\
---------------------------------------------------------------------------
    \4\Clean Air Task Force, ``Health Damages Estimates for Clear Skies 
Initiative and Straw Proposal,'' April 2003.
---------------------------------------------------------------------------
    While we have fundamental concerns about attempting to reduce human 
death, illness, and misery into dollars, it is important to note EPA's 
estimate of the costs the Administration's proposal would impose on the 
public in monetary terms. EPA analyses show that the Administration 
proposal would result in $61 billion more in premature death and 
disease costs per year by 2020 than the EPA August 2001 proposal. While 
the EPA August 2001 proposal would cost industry $3.5 billion dollars 
more per year to implement, it would achieve over $15 in health 
benefits for every clean-up dollar spent. For some as yet unexplained 
reason, the Administration chose a plan that would inflict an 
additional $61 billion a year in health damages on the public in order 
to save power plant owners $3.5 billion in compliance costs. See Figure 
8.



    The additional pollution from power plants under the 
Administration's plan will leave dozens of cities and counties out of 
attainment of the national ambient air quality standards for fine 
particles (soot) and ozone (smog) the Clean Air Act's bedrock measure 
of public health protection.
    The Administration's analysis shows that its plan would leave 107 
counties home to 77 million Americans in violation of these public 
health standards in 2010. 64 counties with 60 million residents would 
remain in violation even in 2020 after the plan's delayed second-phase 
requirements in 2018.
    The stronger power plant emission curbs in EPA's 2001 proposal 
would bring 85 percent of eastern counties with unhealthy soot levels 
into compliance with the fine particle standard, and 90 percent of 
eastern counties with unhealthy smog levels into compliance with the 
ozone standard. Greater power plant pollution reductions would reduce 
population exposure in the remaining counties and make it substantially 
easier for them to reach the health standards with reasonable controls 
on other sources.
    Health Consequences of Administration Plan's Excess Mercury. Coal-
burning power plants are the largest industrial source of mercury air 
pollution, and the only one still not subject to clean air safeguards. 
Mercury emissions from power plants fall from the air and wash into 
lakes, rivers, and coastal waters, where they concentrate in fish. 
Mercury is a potent neurotoxin even in very small amounts. Forty-four 
States have issued warnings against eating local fish because of 
mercury contamination.
    Methylmercury (the form of mercury that is absorbed in tissue) is 
highly toxic, interfering with the development and function of the 
central nervous system. Infants can ingest methylmercury from breast 
milk when mothers have eaten contaminated fish. Children who eat such 
fish are exposed that way as well. Children and infants are at higher 
risk of mercury poisoning because their nervous systems continue to 
develop until about age 14. Health effects linked to prenatal 
methylmercury exposure include:\5\
---------------------------------------------------------------------------
    \5\U.S. EPA, 1997f. Mercury Study Report to Congress, Volume V: 
Health Effects of Mercury and Mercury Compounds. EPA-452/R-97-007; 
Toxicological Effects of Methylmercury, National Academy Press, 
Washington, DC, 2000.
---------------------------------------------------------------------------
      poor performance on tests of attention and language
      impaired memory
      inability to process and recall information
      impaired visual and motor function
    One in 12 women of childbearing age has mercury levels above EPA's 
safe health threshold, according to a Centers for Disease Control and 
Prevention report published in January 2003 and a Journal of the 
American Medical Association published last week.\6\ Nationally, this 
translates into nearly 4.9 million women of childbearing age with 
elevated levels of mercury from eating contaminated fish and more than 
300,000 newborns at risk of neurological impairment from exposure in 
utero.\7\
---------------------------------------------------------------------------
     \6\Centers for Disease Control, January 2003. Second National 
Report on Human Exposure to Environmental Chemicals; Susan E. Schober, 
et. Al, ``Blood Mercury Levels in U.S. Children and Women of 
Childbearing Age, 1999-2000,'' Journal of the American Medical 
Association, 289: 1667-74 (2003)
     \7\Derived by the Clean Air Task Force from 2000 census data and 
fertility data from the National Center for Health Statistics.
---------------------------------------------------------------------------
    An estimated 60,000 children are born each year at a significantly 
increased risk of adverse neurological effects from mercury and current 
exposure levels increase the number of children ``who have to struggle 
to keep up in school and who might require remedial classes of special 
education,'' according to the National Academy of Sciences.\8\ Eating 
mercury-tainted fish also can harm cardiovascular and immune systems in 
adults.\9\
---------------------------------------------------------------------------
     \8\Toxicological Effects of Methylmercury, National Academy Press, 
Washington, DC, 2000.
     \9\High levels of mercury in seafood linked to infertility. BJOG: 
an International Journal of Obstetrics and Gynecology. 109:1121-5, 
2002; Toxicological Effects of Methylmercury, National Academy Press, 
Washington, DC, 2000.
---------------------------------------------------------------------------
    Every ton of mercury emissions from power plants adds to the 
cumulative and persistent mercury loadings in our lakes and streams. 
EPA's IPM runs show that under the Administration's plan, power plants 
would add loadings of 163 tons more mercury through 2020 than under the 
EPA proposal.\10\ Because mercury is an accumulative toxin, these added 
tons will do their damage for scores of years after they are released.
---------------------------------------------------------------------------
     \10\While most mercury comes from coal-fired power plants, the IPM 
runs reveal that several tons of mercury come from oil-fired plants 
that would not be covered under the Administration's plan (or under the 
EPA 2001 proposal). These tons of mercury are also of concern and 
should be covered by mercury controls under either new legislation or 
existing law.
---------------------------------------------------------------------------
    The cumulative and persistent nature of mercury contamination 
underscores the need to minimize emissions from all sources. The weak 
and delayed mercury provisions in the Administration's plan will result 
in a failure to apply technology capable of removing power plants as a 
significant source of mercury. This means more continued mercury 
pollution not only from U.S. sources but from power plants worldwide. 
As we have demonstrated with another brain poison, lead, when the U.S. 
shows leadership in advancing policies to cut dangerous pollution, the 
rest of the world follows. The United Nations has identified global 
mercury pollution as a priority but the signal by the Administration's 
plan is that the U.S. will go slow. This will almost certainly 
translate into a global go-slow approach, meaning higher mercury 
emissions from the rest of the world continuing to be deposited in the 
U.S..

The Administration Plan vs. the Clean Air Act
    It is also appropriate to assess whether the Administration's plan 
would deliver more pollution reduction than the current Clean Air Act, 
or less. In fact, the Administration's plan would result in millions of 
tons more pollution than faithful enforcement of the current law.
    SO2 and NOx: The Administration claims that its plan 
would reduce SO2 and NOx emissions by 35 million tons more 
than the current Clean Air Act through 2012. In fact, just the opposite 
is true: compared to enforcing the current law, the Administration's 
plan actually would allow major increases in SO2 and NOx in 
the next ten to 15 years.
    What accounts for these different assessments of the 
Administration's plan? The secret is in the Administration's yardstick. 
The Administration is comparing its proposal with a misleading 
``baseline'' that expressly assumes EPA does not enforce the Clean Air 
Act. EPA Assistant Administrator Holmstead has candidly called this the 
``Rip Van Winkle scenario.''\11\ The Rip Van Winkle scenario includes 
only the power plant pollution limits that are on the EPA books at this 
moment principally the SO2 reductions already required by 
the Title IV 1990 acid rain program and NOx cuts ordered under the 
``NOx SIP call'' in 1997. The Rip Van Winkle scenario assumes that EPA 
goes to sleep, doing nothing more for more for a decade.
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     \11\Mr. Holmstead so characterized the Administration's baseline 
assumptions in a presentation to the National Association of Regulatory 
Utility Commissioners in Washington on February 24, 2003.
---------------------------------------------------------------------------
    But the existing Clean Air Act requires much more than that. It 
requires the States and EPA to bring our cities and counties into 
compliance with the national ambient air quality standards for fine 
particles and ozone (soot and smog pollution) before the end of this 
decade, unless accomplishing that task can be shown to be not possible. 
EPA concedes that meeting health standards will require steeper and 
faster reductions in power plant SO2 and NOx emissions than 
assumed in the Rip Van Winkle scenario or required by the 
Administration's plan.
    Undr the current Clean Air Act the pathway for meeting public 
health standards begins with the designation of which cities and 
counties across the country do not attain the standards, based on 
several years of pollution measurements. These ``nonattainment 
designations'' will take place in early 2004 for ozone and by the end 
of 2004 for fine particles.\12\
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     \12\The deadline for ozone designations is set forth in a consent 
decree entered in American Lung Ass'n, et al. v. Whitman, D.D.C. Civil 
Action No. 02-2239 (March 13, 2003). EPA has committed to an end-of-
2004 deadline for fine particle designations as ``one of the Agency's 
highest priorities, due to the serious health implications of 
PM2.5 fine particle exposure. . . .'' Memorandum from 
Jeffrey R. Holmstead, Assistant Administrator, to Regional 
Administrators (Nov. 14, 2002), at 3.
---------------------------------------------------------------------------
    The Clean Air Act then requires the States and EPA to implement the 
emission reduction measures needed to meet these public health 
standards within 5 years of these designations, by 2009, or sooner if 
feasible the law says ``as expeditiously as practicable.''\13\ Deadline 
extensions are allowed only if a State rigorously demonstrates that 
pollution control measures to meet health standards on time are not 
available or feasible.\14\ No such demonstrations have been made. While 
the States have primary responsibility to address local pollution 
sources, the Clean Air Act gives EPA special responsibility for 
interstate pollution that interferes with attainment of the health 
standards in areas downwind. EPA is required to order pollution 
reductions from upwind power plants where needed to bring areas in 
downwind States into timely compliance with the health standards.\15\
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     \13\Clean Air Act Sec. 7502(a)(2)(A). See Sierra Club v. EPA, 294 
F.3d 155, 162-63 (D.C. Cir. 2002) (State must adopt all reasonably 
available measures capable of advancing the date on which the polluted 
area will attain the NAAQS). ``In order for the EPA to determine 
whether an area has provided for implementation as expeditiously as 
practicable, the State must explain why the selected implementation 
schedule is the earliest schedule based on the specific circumstances 
of that area. Such claims cannot be general claims that more time is 
needed but rather should be specifically grounded in evidence of 
economic or technologic infeasibility.'' Memorandum from John S. Seitz, 
director of EPA's Office of Air Quality Planning and Standards, to EPA 
regional air division directors (November 2, 1999), at 1
     \14\Clean Air Act Sec. 7502(a)(2)(A). EPA also may grant a maximum 
of two 1-year deadline extensions if an area has met all its 
requirements and experiences ``no more than a minimal number'' of 
violations of the health standards in the otherwise applicable deadline 
year.
     \15\Clean Air Act Sec. 7410(a)(2)(D)(I), Sec. 7426.
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    Administration spokesmen refuse to say how much reduction in power 
plants' SO2 and NOx pollution is needed under current law to 
meet the public health standards on time. But EPA's analyses of the 
Administration's plan show that it will not result in sufficient clean-
up to attain the standards on the schedule required by current law.
    As I have already noted, the weak emission reductions in the 
Administration's plan leave 107 counties in nonattainment in 2010 and 
64 counties in 2020. As mentioned above, current law requires 
attainment by 2009 or sooner unless this schedule is not practicable. 
But the Administration has presented no analysis arguing that its 2018 
schedule for completing SO2 and NOx reductions is the 
fastest practicable schedule. Indeed, analyses on EPA's web site show 
that while there may be some labor constraints between now and 2005, 
those constraints disappear well before 2010.\16\
---------------------------------------------------------------------------
     \16\U.S. EPA, Engineering and Economic Factors Affecting the 
Installation of Control Technologies for Multipollutant Strategies, 
October 2002.
---------------------------------------------------------------------------
    In short, current law requires more reductions sooner than the 
Administration's plan and EPA's analyses show deeper and faster 
reductions are feasible.
    The Administration may claim to be making a 35 million ton advance 
over the Rip Van Winkle scenario, but that is a phony measure. In fact 
an objective reading of the current law and EPA's analyses show that 
the Administration's plan would result in far more power plant 
SO2 and NOx air pollution compared with enforcing the 
existing Clean Air Act
    Mercury: The Clean Air Act also requires faster and deeper 
reductions of mercury than the Administration's plan. The current Act 
requires each mercury-emitting power plant to cut its emissions by 
installing the maximum available control technology (``MACT'').\17\ EPA 
must issue mercury standards in 2004.\18\ Compliance with the MACT 
standard is required 3 years later, at the end of 2007.\19\ Given the 
extreme toxicity of mercury, the current law does not permit emissions 
trading between mercury-emitting sources.
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     \17\Clean Air Act Sec. 7412(n)1)(A) provides that EPA shall issue 
MACT standards for power plants if the Administrator determines, after 
a study, that such standards are ``necessary and appropriate.'' The 
Administrator made this determination for power plant emissions of 
mercury in 2000. 65 Fed. Reg. 79,825 (December 20, 2000).
     \18\Puruant to a consent decree in NRDC v. EPA, et al., Case No. 
92-1415 (D.C. Circuit), EPA is required to propose a mercury MACT 
standard by the end of 2003, and to promulgate the standard by the end 
of 2004.
     \19\Clean Air Act Sec. 7412(i)((3)(A). Under certain 
circumstances, EPA may allow a specific facility one extra year for 
compliance. Id. Sec. 7412(i)((3)(B).
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    Because EPA has not yet issued the MACT standard, the 
Administration argues that no one can say how much mercury it will 
allow. Mercury MACT controls on other sources, however, provide a good 
indication of what is feasible. The MACT pollution controls on 
municipal and medical waste incinerators, for example, eliminate at 
least 90 percent of these sources' mercury emissions.
    In December 2001, EPA told the Edison Electric Institute, the power 
sector's main trade association, that an equivalent MACT standard for 
power plants would reduce mercury emissions from 48 tons to 5 tons 
nationwide by the end of 2007.\20\ In the regulatory development 
process now underway, EPA is evaluating performance requirements that 
would achieve a reduction to 5 tons per year. The weakest option being 
analyzed by the agency (at the request of the utility industry) is a 
level only slightly higher than the Administration's plan second-phase 
target of 15 tons.
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     \20\U.S. EPA, ``Discussion of Multipollutant Strategy, Meeting 
with Edison Electric Institute'' (Sept. 18, 2001), available at http://
cta.policy.net/currentstatus.pdf.
---------------------------------------------------------------------------
    No one, including the Administration, has contended that a standard 
as weak as the Administration's plan first-phase target 26 tons could 
pass muster under the MACT requirement of current law. Even a MACT 
standard that reduced emissions by only 70 percent would cut mercury 
pollution to 15 tons 10 years earlier than the Administration 
legislation.
    The Administration's plan, however, would repeal the MACT 
requirement and delay any initial mercury reductions to 2010. After 
that, the Administration's plan would allow 26 tons per year from 2010 
through 2017, and 15 tons every year thereafter. Compared to the 5-ton 
level, the Administration's plan would allow more than five times as 
much mercury pollution through 2017, and three times as much each year 
after. From 2008 through 2020, that would be 284 tons more cumulative 
loading of mercury under the Administration's plan.

II. THE ADMINISTRATION PLAN REPEALS AND WEAKENS CRITICAL CLEAN AIR ACT 
                              PROTECTIONS

    The Administration's bill takes with one hand while it also takes 
with the other. In addition to allowing more pollution than needed to 
protect public health or allowed by current law, the Administration's 
bill repeals or weakens each of the specific programs and requirements 
in the current Clean Air Act that are effectively reducing power plant 
pollution today and that will reduce it further tomorrow.
    The repealers, exemptions and weakening provisions in the 
Administration's bill do great damage to fundamental precepts of the 
Clean Air Act that have helped deliver cleaner air for over thirty 
years.
      The current law requires cleanup of polluted areas as 
quickly as practicable but the Administration's plan would grant 
automatic delays to 2015.
      The current law requires new sources locating in polluted 
areas to meet state-of-the-art pollution standards and avoid making 
existing health problems worse but the Administration's plan would 
exempt all sources (even those not covered by any cap) from those 
requirements until 2015, allowing more than a decade's worth of new 
pollution sources to make air quality worse.
      The current law gives States victimized by interstate 
pollution effective rights to remedy that pollution but the 
Administration's plan makes those remedies ineffective against power 
plants and prohibits any reductions from power plants under these 
provisions until 2012.
      The current law requires new and modified power plants to 
limit pollution increases to avoid turning clean air areas into 
polluted areas but the Administration's bill repeals this safeguard 
except for a narrow 30 mile circle around certain national parks and 
wilderness areas.
      The current law requires new and modified power plants to 
meet up to date emission performance standards to protect areas with 
clean air but the Administration repeals this safeguard for nearly all 
existing plants and replaces it with a more polluting performance 
standard for new plants.
      The current law requires EPA to adopt rules to minimize 
toxic pollution from power plants but the Administration's bill repeals 
most of those requirements and replaces them with a weak performance 
requirement for mercury that is delayed 10 years from the current law's 
schedule.
    The Administration defends all of these dismantling provisions as 
eliminating programs that are not required since its plan establishes 
national caps for certain power plant pollutants. But the current 
Administration ignores what the first Bush Administration recognized 
that national caps cannot protect local air quality and must not 
override the tools that are in the law to protect communities from 
pollution increases that harm local air quality. Neither the first Bush 
Administration nor Congress sought to repeal the tools that protect 
local air quality when the acid rain cap program was enacted in 1990. 
Repeal of those tools is no more justified now.
    Delaying Attainment of Public Health Standards. Section I of this 
testimony sets forth EPA's legal obligations under the current Clean 
Air Act to assure the attainment of the national ambient air quality 
standards for fine particles and ozone (soot and smog) by 2009 at the 
latest, or sooner (``as expeditiously as practicable'').
    The Administration's bill would postpone the attainment deadline 
for the country's unhealthy air areas by 6 years or more. As long as 
States could show that their polluted areas would attain the smog and 
soot standards by 2015, those areas would be labeled ``transitional'' 
rather than ``nonattainment'' and be granted automatic extensions of 
the deadlines to meet health standards.\21\ Since the requirement to 
attain the standards ``as expeditiously as practicable'' applies only 
to nonattainment areas,\22\ States would be under no obligation to 
bring air quality into line with the health-based standards any earlier 
than 2015. In other words, the Administration's bill would force as 
many as 175 million Americans to breathe harmful amounts of air 
pollution for at least 6 years longer than current law allows.\23\
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     \21\H.R. 999 I.H. (``Sec. 3. Other Amendments''), at 227 lns. 5-
22.
     \22\See 42 U.S.C. Sec. 7502(a)(2).
     \23\Current law permits limited postponement of the 2009 deadline 
only where the EPA makes an appropriateness determination ``considering 
the severity of nonattainment and the availability and feasibility of 
pollution control measures.'' Id. Sec. 7502(a)(2)(B). See also id. 
Sec. 7502(a)(2)(C), (D). The Administration's bill does not condition 
the availability of the 2015 postponement on any such determination. 
See H.R. 999 I.H. at 227 lns. 5-22.
---------------------------------------------------------------------------
    By labeling hundreds of polluted counties ``transitional'' rather 
than ``nonattainment,'' the Administration's bill also would allow 
every major industrial source built or modified in those areas to make 
health problems worse by evading the lowest achievable emissions rate 
(``LAER'') and offset requirements of current law. Under current law, 
anyone wishing to build or modify a major source of air pollution in a 
``nonattainment'' area must ensure that the source employs state-of-
the-art methods to minimize its pollution (LAER) and must offset any 
added emissions so as not to degrade the already poor air quality in 
the area.\24\ This requirement applies not just to power plants, but to 
all other major air pollution sources (oil refineries, chemical plants, 
manufacturing facilities, etc.) as well.\25\
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     \24\42 U.S.C. Sec. Sec. 7502(c)(5), 7503(a)(2), (c).
     \25\Id. Sec. 7502(c)(5).
---------------------------------------------------------------------------
    Under the Administration's plan, these health safeguards would no 
longer apply in areas relabeled as ``transitional.'' In other words, 
the Administration's bill would make it easier for the owners of oil 
refineries, chemical facilities, paper mills, and power plants to churn 
out additional pollution in hundreds of counties where the air is 
already unhealthy to breathe. It is important to emphasize that while 
the Administration's plan caps only power plant emissions the bill 
would create this loophole for all major industrial sources. Amazingly, 
the Administration has not offered a word of justification for this 
remarkable assault on the Act's public health safeguards.
    Weakening Safeguards Against Upwind Pollution. Pollution from power 
plants in upwind States is responsible for violations of the soot and 
smog standards in many downwind States. The delay of attainment 
deadlines through the ``transitional area'' scheme described above 
would assure that many such downwind States receive more pollution 
transported from upwind areas over the next 12 years. The 
Administration's bill exacerbates this problem by eliminating, as a 
practical matter, the rights of downwind States under section 126 of 
current law to remedy pollution transported from upwind sources. Now 
that Federal courts have upheld the rights of States to combat 
interstate pollution, the Administration's bill would effectively 
eliminate these rights by establishing a series of new, insurmountable 
tests before a harmed downwind State can gain relief. And even if the 
State is able to pass these new extreme tests, the bill prohibits any 
emission reduction from power plants before 2012, no matter how 
compelling the case is that the power plants are creating serious 
health problems that can only be abated with stronger emission 
controls. Even if EPA itself believes that better controls are 
warranted and essential, it too is prohibited from requiring any 
cleanup from power plants before 2012.
    Section 3(r)(6) of the Administration's bill amends section 126 of 
the current Clean Air Act to prohibit EPA from ordering reductions in 
power plant pollution transported from upwind States unless EPA makes a 
series of new, onerous findings: EPA must find that every cheaper 
reduction (in terms of cost per ton of emissions and in terms of cost 
per microgram of air quality improvement) has already been made from 
industrial boilers, on-road mobile sources, off-road mobile sources, 
and any other category identified by EPA.\26\
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     \26\See Sec. 3(r)(6)(D) (adding CAA Sec. 126(d)(2)(B)(i) & (ii)).
---------------------------------------------------------------------------
    These provisions would effectively override key court decisions 
that have upheld EPA's reasonable interpretation of the Act set forth 
in two rulemakings addressing interstate transport of NOx 
pollution.\27\ These cases upheld EPA's determination to require 
reduction of upwind emissions that ``contribute significantly'' to 
downwind pollution. While it was necessary for EPA to show that these 
reductions are cost-effective, the agency was not required to show that 
all other more cost-effective ways to reduce emissions and 
concentrations had been exhaustively required first.\28\ In doing so, 
the courts upheld EPA's rejection of far more onerous and unmanageable 
approaches pushed by industry and opposing upwind States.\29\
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     \27\63 Fed. Reg. 57356 (Oct. 27, 1998) (NOx SIP Call rulemaking); 
64 Fed. Reg. 28250 (May 25, 1999) and 65 Fed. Reg. 2674 (Jan. 18, 2000) 
(Section 126 rulemakings).
     \28\See Michigan v. EPA, 213 F.3d 663 (D.C. Cir. 2000) (upholding 
NOx SIP Call approach); Appalachian Power Co. v. EPA, 249 F.3d 1032 
(D.C. Cir. 2001) (upholding same approach in section 126 rulemaking).
     \29\See Michigan, 213 F.3d at 675-680; Appalachian Power at 249 
F.3d at 1044-1051.
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    In particular, EPA found in 1998 that the second approach 
demonstrating cost-effectiveness per microgram of air quality 
improvement would be utterly impractical. Furthermore, it would be 
inconsistent with an emissions trading approach, which requires 
emissions to be treated as equivalent on a ton-for-ton basis, and 
cannot work if each ton of emissions must be weighted differently 
depending on its distance from a particular spot where air quality 
improvement per microgram is assessed.\30\
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     \30\U.S. EPA, ``Rulemaking for Section 126 Petitions--Responses to 
Comments Which are Outside the Scope of the June 24, 1999 Notice of 
Proposed Rulemaking,'' Docket A-97-43, XII-A-01, 65 Fed. Reg. 52931 
(Aug. 31, 2000).
---------------------------------------------------------------------------
    In addition to imposing new, essentially insurmountable tests, the 
bill would block EPA from granting downwind States any relief from 
upwind power plant pollution until after 2012. This stands in stark 
contrast to the extremely expedited relief structure of the current 
Clean Air Act. As EPA has noted:
    Section 126 provides a tool for downwind States, the entities with 
most at stake, to force EPA to confront the issue directly. It also 
sets up an abbreviated, and hence potentially faster, process to 
achieve emission reductions. . . . . In contrast [to the SIP process] 
Congress required very expeditious EPA action on a [section 126] 
petition and from 3 months up to 3 years for sources to comply.\31\
---------------------------------------------------------------------------
     \31\65 Fed. Reg. 2674, 2681 (Jan. 18, 2000).
---------------------------------------------------------------------------
    In an example of ``Catch-22,'' section 3(r)(6) of the 
Administration's bill states that before giving a State relief from 
transported pollution from power plants, EPA must first determine that 
the State has achieved all more cost-effective emissions reductions (on 
both a per-ton and per-microgram basis) from both on-road and off-road 
mobile sources. But this places States in an impossible situation, 
since the Clean Air Act elsewhere preempts States from controlling 
emissions from on-road vehicles and engines, CAA Sec. 209(a), and 
nonroad vehicles and engines, CAA Sec. 209(e).\32\
---------------------------------------------------------------------------
     \32\States may control these mobile sources of emissions only by 
adopting California standards. CAA Sec. Sec. 177 & 209(e)(2).
---------------------------------------------------------------------------
    As EPA has previously recognized, ``Congress provided section 126 
to downwind States as a critical remedy to address pollution problems 
affecting their citizens that are otherwise beyond their control, and 
EPA has no authority to refuse to act under this section.''\33\ But the 
Administration's legislative response to the problem of transported air 
pollution is to saddle downwind, polluted States with insurmountable 
barriers to relief.
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     \33\65 Fed. Reg. at 2681/1 (emphasis added).
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    Eliminating Safeguards Against Pollution Hotspots. Under the 
Administration's bill, a power plant can pollute at any level so long 
as it buys sufficient pollution allowances credits from other 
plants.\34\ The fact that power plant pollution may decline nationwide, 
however, provides no protection to the communities affected by a plant 
whose emissions stay the same, or even increase, because of its owner's 
reliance on emissions trading. The ``New Source Review'' (NSR) 
provisions in the Clean Air Act provide important protection against 
the emergence of ``pollution havens'' or ``hotspots'' in response to an 
emissions trading system. NSR requires any person planning to build a 
new major pollution source, or to change an existing one in a way that 
will cause an emissions increase, to demonstrate that the source will 
use the most effective pollution control methods available and that its 
emissions increase will not degrade air quality either locally or in 
downwind communities\35\ or national parks.\36\
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     \34\H.R. 999, (``Sec. 403. Allowance System'') at 14 ln. 15 15 ln. 
18.
     \35\42 U.S.C. Sec. Sec. 7475, 7501-7503. Current law requires a 
company to demonstrate that the planned construction or other change 
will not cause or contribute to pollution in excess of certain maximum 
allowable increases and maximum allowable concentrations that are 
separated from the NAAQS by a safety margin. 42 U.S.C. 
Sec. 7475(a)(3)(A). The administration's bill simply requires a 
demonstration that the planned activity will not cause or contribute to 
a violations of or inability to achieve the NAAQS itself. H.R. 999 I.H. 
(Sec. 483(c)(1), (2)) at 224 ln. 15 225 ln. 8.
     \36\Current law requires a company to demonstrate that the planned 
construction or other change will not degrade visibility or other air 
quality related values at any national park. 42 U.S.C. Sec. 7475(a)(5), 
(d). If the administration's bill were enacted, such a demonstration 
would not be required unless the plant in question were located within 
fifty kilometers of a park. H.R. 999 I.H. (Sec. 483(b)) at 224 lns. 8-
14. This despite the fact that emissions from major pollution sources 
have been shown to have a negative impact on parks as far as 700 
kilometers away. See Gebhart, K., ``Preliminary Particulate Sulfur 
Source Attributions for BRAVO by Trajectory Mass Balance Regressions'' 
(presentation for BRAVO conference call on November 21, 2002) (analysis 
on file with the Clean Air Task Force).
---------------------------------------------------------------------------
    The Administration's bill would eliminate Federal New Source Review 
provisions for power plants, however.\37\ If the bill were enacted, a 
company would be free to cause even massive pollution increases by 
building a new plant or expanding an old one without adopting up-to-
date pollution controls or determining whether air quality will get 
worse locally or downwind.
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     \37\See H.R. 999 (``Sec. 483. Exemption from Major Source 
Preconstruction Review Requirements and Best Available Retrofit Control 
Technology Requirements'') at 223 lns. 10-14 (``An affected unit shall 
not be considered a major emitting facility or major stationary source, 
or a part of a major emitting facility or major stationary source for 
purposes of compliance with the requirements of parts C and part D of 
title I.'').
---------------------------------------------------------------------------
    To replace the Federal NSR program, the Administration's bill calls 
on States to submit State Implementation Plan (SIP) revisions to create 
a new and less protective State New Source Review program. The bill 
sets no deadlines for these SIP revisions. The bill does not clearly 
provide that the public must have an opportunity to comment on a permit 
application. The bill authorizes new loopholes for such State programs 
that would allow existing power plants to increase emissions by tens of 
thousands of tons each with no public process. And the bill exempts 
existing and new power plants everywhere in the country (except within 
a narrow 30-mile circle around national parks) from the current law's 
safeguards for clean air areas.
    Replacing Up-To-Date Technology with Obsolete Standards. In place 
of repealed requirements for case-by-case determination of up-to-date 
pollution control performance, the Administration's bill would 
substitute a requirement that EPA establish certain emissions standards 
that would apply to new power plants.\38\ The bill sets these standards 
at much more polluting levels, however, than the emissions levels of 
plants being built today. In other words, these standards are already 
obsolete and behind the curve of current requirements. For example:
---------------------------------------------------------------------------
     \38\Id. (Sec. 481(b)(1), (c)(1), (d)) at 205 lns. 1-9, 207 ln. 9 
211 ln. 7.
---------------------------------------------------------------------------
    For boilers and integrated gasification combined cycle (``IGCC'') 
plants, the bill sets a SO2 emissions limit of 2.0 lb/
MWh.\39\ Three recently issued permits for coal-fired boilers set 
SO2 emissions limits of 1.0, 1.2, and 1.0 lb/MWh, 
respectively.\40\
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     \39\Id. (Sec. 481(c)(1)((A)) at 207 lns. 17-18.
     \40\Wygen 2 plant in Wyoming; Roundup plant in Montana; IPP plant 
in Utah.
---------------------------------------------------------------------------
    For boilers and IGCC plants, the bill sets a NOx emissions limit of 
1.0 lb/MWh.\41\ Three recently issued permits for coal-fired boilers 
each set NOx emissions limits of 0.7 lb/MWh.\42\
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     \41\H.R. 999 (Sec. 481(c)(1)(B)) at 207 lns. 19-20.
     \42\Wygen 2 plant in Wyoming; Roundup plant in Montana; IPP plant 
in Utah.
---------------------------------------------------------------------------
    For boilers and IGCC plants, the bill sets a PM emissions limit of 
0.2 lb/MWh.\43\ Three recently issued permits for coal-fired boilers 
set PM emissions limits of 0.12, 0.15, and 0.15 lb/MWh, 
respectively.\44\
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     \43\H.R. 999 (Sec. 481(c)(1)(C)) at 207 lns. 21-22.
     \44\Wygen 2 plant in Wyoming; Roundup plant in Montana; IPP plant 
in Utah.
---------------------------------------------------------------------------
    The bill does not place any obligation on EPA to update these 
already-obsolete emissions standards until 8 years after the agency 
incorporates them into its regulations.\45\ Even then, the bill gives 
the agency discretion to avoid reviewing and updating the 
standards.\46\
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     \45\H.R. 999 (Sec. 481(e)(1)) at 211 lns. 8-18.
     \46\Id. (Sec. 481(e)(2)) at 212 lns. 3-8.
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    This is a sharp contrast with current law, under which the case-by-
case review of LAER and (in areas other than nonattainment areas) 
``best available control technology'' (BACT) assures that emission 
performance for new and modified plants keeps pace with improvements in 
pollution control capabilities. Because of BACT and LAER, the state-of-
the-art in industrial pollution control has repeatedly graduated to 
successively higher levels of environmental performance as sources were 
built or modified over the last two decades.
    For example, a review of EPA's data base for BACT and LAER 
determinations reveals that over just the past 10 years, the state-of-
the-art in NOx emissions controls for utility boilers and furnaces has 
advanced from no controls (``good combustion practices'') to low NOx 
burners to selective catalytic reduction (``SCR'') to selective non-
catalytic reduction (``SNCR'') and circulating fluidized bed 
(``CFB'').\47\ Recent determinations by permitting authorities show 
that further improvements are in the wings.\48\
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     \47\See http://cfpub1.epa.gov/rblc/cfm/basicsearch.cfm.
     \48\See, e.g. Letter from Richard L. Goodyear, permit programs 
manager, State of New Mexico Air Quality Bureau, to Larry Messinger, 
Mustang Energy Company (December 23, 2002), at 1-2 (``The analysis must 
include a discussion of the technical feasibility and availability of 
IGCC and CFB for the proposed site in McKinley County . . . .'').
---------------------------------------------------------------------------
    As EPA and the courts have recognized, Congress intended the Clean 
Air Act to perform this ``technology-forcing'' function.\49\ The 
Administration's bill erases that function, leaving in its place static 
emissions standards that do not even represent the state-of-the-art in 
pollution control today.
---------------------------------------------------------------------------
     \49\See ``Background Statement on the Environmental Protection 
Agency's Top-Down Policy'' (June 13, 1989) (citing S. Rep. No. 95-252, 
95th Cong., 1st Sess. 31 (1977)), reprinted in, 3 A Legislative History 
of the Clean Air Act Amendments of 1977 at 1405; 123 Cong. Rec. A9171 
(remarks of Senator Edmund G. Muskie), reprinted in 3 Legislative 
History at 729. See also WEPCO v. EPA, 893 F.2d 901, 909 (7th Cir. 
1990).
---------------------------------------------------------------------------
    EPA Assistant Administrator Holmstead has acknowledged in testimony 
delivered before this committee that the New Source Review requirements 
have not adversely impacted construction or investment associated with 
new power plants. He testified that:
    With regard to the energy sector, EPA found that the NSR program 
has not significantly impeded investment in new power plants or 
refineries. For the utility industry, this is evidenced by significant 
recent and future planned investment in new power plants.\50\
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     \50\Testimony delivered Assistant Administrator Jeffrey Holmstead 
to the U.S. Senate Committee on Environment and Public Works on July 
16, 2002.
---------------------------------------------------------------------------
    This committee should recall that in 1990, the first President Bush 
did not seek to repeal these safeguards when he sought a cap and trade 
program for SO2 from power plants and Congress did not enact 
such a repeal. Those programs have worked in tandem for the past 13 
years. The Act's safeguards for local air quality have not interfered 
with the acid rain cap and trade program and have not prevented the 
very large economic savings provided by the cap and trade mechanism. 
Experience proves that both programs can work together and this 
Congress should not ignore that fact.
    Eliminating Protections for National Parks. The Administration's 
bill would exempt owners of new and modified power plants from the 
obligation to meet up to date pollution performance standards (BACT) 
and examine the impacts of any added pollution on national parks or 
wildernesses--called ``Class I areas``--(except those within 30 miles 
of the plant). The bill also eliminates the role of the Federal land 
manager (typically the National Parks Service superintendent for a 
national park) in assuring that the air quality of these treasured 
lands is protected.
    Under current law, if a new or expanded pollution source could 
affect a Class I area, the Federal land manager has an opportunity to 
review the draft permit and an accompanying air quality analysis to 
assure that factors relevant to protecting national parks and 
wilderness areas are taken into consideration, and that harmful effects 
are mitigated. The Federal land manager's review would be eliminated 
under the Administration's bill for all plants outside the 30 mile 
cordon around each park or wilderness.
    The Administration's bill would also repeal the current Clean Air 
Act program to lift the haze shrouding the nation's parks by obligating 
the States to require the best available retrofit technology (``BART'') 
on all major sources of air pollution built between 1962 and 1977 that 
contribute to the haze.\51\ The Administration's bill exempts all power 
plants the primary contributor to park haze from the BART 
requirement.\52\ In so doing, the bill lets off the hook those 
intransigent companies that have not yet installed the best available 
retrofit technology on their plants.
---------------------------------------------------------------------------
     \51\42 U.S.C. Sec. 7491(b)(2)(A).
     \52\H.R. 999 (Sec. 483(a)) at 223 lns. 10-18.
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    If the Administration elected to enforce the requirement, instead 
of lifting it, the installation of BART on just the largest power 
plants would reduce annual SO2 emissions by 4.5 million 
tons, and annual NOx emissions by 1.9 million tons.\53\ Those 
reductions alone would be equivalent to what the Administration's bill 
would purportedly achieve in its entire 8-10 year first phase.
---------------------------------------------------------------------------
     \53\MSB Associates, analysis using EPA list of BART eligible 
sources exceeding 750 MW (analysis on file with the Clean Air Task 
Force).
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    Eliminating Protections for Other Areas With Clean Air. The 
Administration's bill weakens air quality safeguards across the rest of 
the country. Except in the 30 mile cordon around our national parks and 
wildernesses, the bill eliminates any case-by-case review of proposed 
new power plants anywhere in the country. Under current law, plants 
locating in the vast majority of the country areas classified as 
``Class II PSD areas,'' with air quality better than the national 
health standards must undergo New Source Review and demonstrate that 
they will be equipped with ``best available control technology'' (BACT) 
and will not cause excessive degradation of air quality (``pollution 
increment consumption'') in the surrounding area. And, as already 
mentioned, plants locating in nonattainment areas must meet the 
``lowest achievable emission rate'' (LAER) and must offset any 
additional pollution.
    The Administration's bill repeals these requirements, creating a 
vacuum where there is no federally enforceable obligation for new or 
modified power plants to provide anyone with notice of their intent to 
build or expand, no requirement to review air quality impacts, and no 
requirement to case-by-case review of emission control performance. The 
only requirement would be to meet the obsolete national standard 
described above.
    Weakening Safeguards Against Hazardous Air Pollution. I have 
already described how the Administration's bill would repeal the 
current Clean Air Act's requirement for applying ``maximum achievable 
control technology'' (MACT) to power plants to curb their mercury 
emissions. The bill requires no mercury controls until 2010 (a 2-year 
delay over the current law) and substitutes much weaker mercury caps in 
place of the plant-by-plant MACT requirement. For 2010 through 2017, 
the bill's 26 ton cap represents merely the mercury reductions 
incidental to the bill's phase-one caps for SO2 and NOx. 
Mercury cuts beyond these incidental reductions are not achieved until 
2018. In other words, the Administration's 3-pollutant bill is 
effectively a 2-pollutant bill until 2018.
    Also repealed with mercury MACT is the current law's requirement 
that EPA establish MACT standards for all hazardous air pollutants 
emitted by power plants, not just mercury. For hazardous pollutants 
other than mercury, the bill leaves only the authority to set 
``residual risk'' standards through a complex risk-based process, but 
the earliest that those regulations are permitted to take effect is 
2018 a full 11 years after the MACT compliance deadline of the current 
Clean Air Act. Moreover, the bill repeals the Clean Air Act's 
``residual risk'' protections entirely for mercury without regard to 
any health risks that remain under the bill's weaker mercury caps.\54\
---------------------------------------------------------------------------
     \54\Sec. 3(a)(5).
---------------------------------------------------------------------------
    The Administration's bill allows unrestricted emissions trading of 
mercury, something never before allowed under the Clean Air Act for a 
hazardous air pollutant. The current Clean Air Act requires mercury 
reductions at each power plant, based on the emissions reductions 
achievable through advanced technologies applied to individual 
emissions units. By allowing mercury trading, the bill would allow some 
power plants not to reduce their emissions at all. Instead, they could 
buy mercury emission allowances from other power plants and do nothing 
to stop contamination of local lakes and streams. Some plants could 
even increase their mercury emissions.
    Indeed, EPA's own analyses of the Administration's bill acknowledge 
mercury pollution increases above today's levels from ``specific 
sources in some States,'' due to the trading features of the bill and 
the bill's repeal of the 2007 MACT standard.\55\ This dirtier outcome 
would not be allowed if the plant-specific MACT standard were to remain 
in effect. EPA's data also show that parts of New England, the Great 
Lakes, Gulf Coast region and other areas will receive only very small 
reductions in mercury deposition under the bill.\56\
---------------------------------------------------------------------------
     \55\See U.S. EPA, ``Technical Support Package for Clear Skies,'' 
Section B: Human Health and Environmental Benefits, at 44.
     \56\Id.
---------------------------------------------------------------------------
    Because unrestricted trading of mercury emissions could lead to 
toxic hotspots where mercury contamination increases, the Clean Air Act 
as well as other legislative proposals (notably the Clean Power and 
Clean Smokestacks Acts)--bar trading in mercury emissions. Hotspot 
risks under the Administration's bill are made worse by the fact that 
the bill does not require continuous emissions monitoring (CEMS) for 
mercury. EPA itself has identified continuous monitoring and reporting 
as design features essential to the environmental integrity of the acid 
rain trading program.\57\ Mercury emissions trading is allowed even 
without continuous monitoring so long as the Administrator determines 
that ``CEMS for mercury with appropriate vendor guarantees are not 
commercially available.''\58\ The responsible approach would be to make 
any mercury trading (if some carefully limited program were shown to 
prevent hotspots) contingent on the development of reliable continuous 
monitoring systems for the pollutant.
---------------------------------------------------------------------------
     \57\Testimony of Jeffrey Holmstead, Assistant Administrator, 
Office of Air & Radiation, U.S. EPA, Before the Subcommittee on Public 
Health of the Committee on Health, Education, Labor and Pensions, U.S. 
Senate, at 4-5, September 3, 2002.
     \58\Sec. 405(a)(2)(B)(ii).
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III. THE ADMINISTRATION BILL ALLOWS UNLIMITED GROWTH IN CARBON DIOXIDE 
              FROM POWER PLANTS, WORSENING GLOBAL WARMING

    As you know, even though electric power plants are responsible for 
40 percent of U.S. carbon dioxide (CO2) emissions, the 
Administration's bill does not contain any provision to reduce or even 
limit the growth in these emissions. This feature of the 
Administration's bill is not just an omission; it is a serious 
affirmative mistake that will make it more difficult for the U.S. to 
take responsible action in the near future to begin addressing the real 
dangers of global warming.
    The Administration's bill would set in motion major capital 
expenditures at existing power plants over most of the next two 
decades. To implement such a program without addressing CO2 
emissions is to invite shortsighted investment decisions and promote 
even greater resistance to proposals to limit CO2 when we do 
decide to act. A choice to ignore CO2 emissions in a power 
plant bill is not just a choice to leave this decision open for 
tomorrow. It is a decision that will raise the cost and difficulty of 
beginning to address the nation's largest source of global warming 
pollution.
    Such a choice is not responsible. Delay will turn what is still a 
manageable threat into a runaway, unmanageable problem. In the national 
security context, the current Administration has no difficulty 
understanding that waiting until a danger has fully developed runs the 
risk of foreclosing our ability to avert that danger. This logic 
applies strongly to the danger posed by global warming. If we wait 
until this danger has fully developed, it will be too late to prevent.
    Global warming is a problem that has enormous built-in inertia. The 
most important global warming gas, CO2, stays in the 
atmosphere for hundreds of years. The largest sources of 
CO2, fossil-fueled power plants, have lifetimes of 50 years 
and more. Managing the threat of global warming is like navigating a 
supertanker to avoid running aground we have to start altering course 
long before we arrive at the reef. While in the global warming context 
we may not have identified exactly how close we are to the reef or how 
severely our ship will be damaged from striking it, it is a fact that 
if we steam ahead with our current energy systems until we have all the 
evidence required to satisfy the skeptics, we run very large risks of 
locking ourselves into very large-scale unavoidable damage.
    We are already unalterably committed to a future in which the 
concentration of global warming gases will be substantially higher than 
pre-industrial levels. To avoid reaching concentrations that are 
several times pre-industrial levels, we will need to change the 
technology we use to generate power and for transportation. In the 
decision whether to include CO2 in a power plant emission 
control bill, this Congress will either stimulate investors to get 
serious about developing and using new climate-friendly power 
technology or it will send a signal to procrastinate.
    Advocates of delay argue we should not act until we know exactly 
how sensitive the climate is to added CO2 and exactly how 
harmful a given temperature rise will be. Unfortunately, we cannot put 
the world on ``pause'' while we do more research. We cannot afford to 
wait for resolution of these uncertainties before we begin to change 
energy investments. The CO2 we emit may cause a temperature 
rise at the high end of published estimates, the low end, or in 
between; the damage done by a specific temperature rise also may be 
larger or smaller. But once we know for sure, it will be too late to 
change course. The fact is that continuing on our current path will 
commit us to an outcome that we will not be able to undo.
    A paper by Ken Caldeira and colleagues published 2 weeks ago in 
Science magazine demonstrates the danger of continued procrastination. 
Using mid-range estimates of climate sensitivity, the authors conclude 
that we would need to be building the equivalent of about 20 
CO2-emission-free power plants a week worldwide, starting 
now, to keep global temperatures from increasing more than 2 
Centigrade.\59\ Consider that global temperature in the last ice age 
was 5 C cooler than today and you can appreciate that 2 would be a very 
big change. On our current path, however, the world is on track to add 
the equivalent of less than 2 CO2-emission-free plants per 
week between now and 2030\60\. The authors go on to demonstrate that 
even assuming a best-case outcome for these uncertainties, we still 
need a massive increase in CO2-emission-free energy 
resources compared to current forecasts.
---------------------------------------------------------------------------
     \59\K. Caldeira et al., ``Climate Sensitivity Uncertainty and the 
Need for Energy Without CO2 Emission,'' Science 299, 2052 (2003).
     \60\International Energy Agency, World Energy Outlook 2002, 
October 2002.
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    Today people talk about the need to design climate policy to avoid 
``premature retirement'' of existing capacity. But tomorrow's 
``existing'' capacity is being designed and financed today and it is 
not being designed to be climate friendly. Policy procrastination just 
locks us in to more high-carbon capacity that will either have to be 
retired ``prematurely'' or will emit amounts of CO2 that 
could make it impossible to stabilize concentrations of global warming 
emissions at safe levels.
    The U.S. Energy Information Administration forecasts that the 
United States will build the equivalent of over 1350 medium-sized 
fossil energy power plants between now and 2025 (405,000 MW).\61\ The 
path we are on today will result in skyrocketing emissions of 
CO2 in the U.S. and globally. Figure 9 shows current 
forecasts for the U.S. and the world over the next 25-30 years: U.S. 
emissions are projected to increase by 40 percent and world emissions 
by nearly 70 percent over year 2000 levels. These emissions will stay 
in the air for hundreds of years making the task of protecting the 
climate that much harder and more expensive.
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     \61\U.S. Energy Information Administration, Annual Energy Outlook 
2003.



The Need to Set Real Policies Now
    The problem of delay is particularly intense with respect to the 
electric power sector. As we know, power plants have extremely long 
lives. There are plants in the U.S. more than 60 years old that are 
still operating today. New plants built in the next decade or two will 
be operating in the third quarter of this century, and their cumulative 
emissions will determine how much the climate warms. While we 
procrastinate, energy demand keeps growing and more investments are 
made in power plants that are no less carbon-emitting than yesterday's 
plants.
    Which brings us to the choice before you. Including provisions to 
limit CO2 in a power plant bill can speed the process of 
bringing advanced technologies to market; leaving CO2 out 
will keep that activity on the back burner. Analyses discussed in 
NRDC's testimony to the full committee in June 2002 show that it is 
possible to craft legislation that limits power plant CO2 
with modest impacts on the economy.\62\
---------------------------------------------------------------------------
     \62\See Testimony of David G. Hawkins on S. 556, June 12, 2002.
---------------------------------------------------------------------------
    The Administration and many in Congress have resisted including a 
binding limit on CO2 in power plant legislation out of an 
apparent belief that any binding cap will have unacceptable impacts on 
electricity rates and fuel diversity. That is not correct.
    For example, even the Administration's own analyses conclude that 
some versions of binding CO2 caps would have very modest 
impacts on electricity rates and fuel use, even when using a number of 
conservative (and we believe, flawed) assumptions.\63\ In September and 
October 2001, both EPA and EIA analyzed a binding carbon cap for the 
electric sector using a set of requirements specified by Chairman 
Voinovich, former Senator Smith, and Senator Brownback.\64\ Among the 
scenarios examined by EIA and EPA were requirements to cut 
SO2, NOx, and mercury emissions by 75 percent from 1999 
levels in two stages (2007 and 2012) and to cap power sector 
CO2 emissions at forecasted 2008 levels.\65\
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     \63\A number of flaws in the administration's analyses of ``four-
pollutant'' bills are described in NRDC's testimony of June 12, 2002 at 
the full Committee hearing on S. 556, the Clean Power Act. Testimony of 
David G. Hawkins at 12-16.
     \64\Energy Information Administration, ``Reducing Emissions of 
Sulfur Dioxide, Nitrogen Oxides, and Mercury from Electric Power 
Plants,'' September 2001. (``EIA S-V-B report'') and U.S. EPA, 
``Analysis of Multi-Emissions Proposals for the U.S. Electricity 
Sector,'' October 2001.
     \65\Letter of June 8, 2001 from Senators Smith, Voinovich, and 
Brownback to John Weiner, EIA, reproduced in EIA S-V-B report at 
Appendix A. Compliance with the CO2 cap could be achieved with on-
system reductions or credits for ``sinks'' enhancements or reductions 
from other source categories. EIA's report calculated costs assuming 
that only CO2 emission reductions from U.S. energy facilities would be 
used for compliance.
---------------------------------------------------------------------------
    EIA's report calculated this set of requirements would result in an 
average electricity rate of 7.1 cents per kwh, compared to a 1999 
average electricity rate of 6.7 cents per kwh. EIA projected coal 
consumption in 2020 would be the same as in 1999.\66\
---------------------------------------------------------------------------
     \66\While this result represents a decrease in coal consumption 
from no-control forecasts, EIA's report assumed no penetration of coal-
gasification technology in the electric sector, even by 2020. This is 
inconsistent with the Department of Energy's programmatic goals for 
this technology. EPA's report on the S-V-B scenario forecasts smaller 
price and fuel impacts than EIA's, due to EPA's broader assumed trading 
options than EIA assumed.
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    While power sector CO2 emissions need to decline below 
2008 levels, the key point is the need to set a schedule now for 
limiting and then decreasing emissions of CO2. By adopting a 
schedule now, you can provide the maximum lead-time for the industry 
and achieve long-term reductions at the most gradual rate of change. By 
adopting a schedule for limiting carbon emissions you put market forces 
to work to deliver the clean energy resources we will need to meet 
economic growth without disrupting the climate that strongly influences 
the quality of life in our country and others around the globe.
    We can do three things to limit carbon emissions from energy use. 
First, produce and use energy more efficiently. Second, dramatically 
increase our reliance on renewable energy resources. Third, pursue 
methods to capture and permanently store CO2 from the fossil 
energy sources we continue to use. All three of these methods will be 
stimulated by adopting a program to limit CO2 emissions from 
the power sector. All three will languish if Congress ignores 
CO2 in a power plant bill.
    Members of this committee and others in Congress are concerned 
about the impact of climate policy on coal. The U.S. and other large 
countries, including China, India, Russia (to mention just a few) have 
abundant coal resources. While coal and other fossil fuels have 
continuing environmental impacts, including global warming emissions, 
the reality is that large amounts of coal will continue to be used.
    Fortunately, technologies in commercial operation today demonstrate 
it is feasible to capture CO2 from coal-based power plants 
in a form that can be kept out of the atmosphere provided that suitable 
geologic repositories are developed. As I mentioned in my June 2002 
testimony to the full committee, in the U.S. today we inject over 30 
million tons of CO2 annually into oil fiqelds to recover 
additional oil. Yet, none of that CO2 is supplied by power 
plants. Rather it is pulled out of natural CO2 reservoirs 
and piped hundreds of miles to be stuck back in the ground.
    Because industrial CO2 can still be emitted to the air 
in unlimited amounts for free, there is not an adequate economic 
incentive to use and optimize existing technology to capture these 
emissions. Nor is there an adequate incentive to invest to bring down 
the costs of today's gasification and CO2 capture systems.
    Ironically, the current policy procrastination has made the U.S. 
coal industry's posture a very uncertain one. No one believes that 
action on global warming can be delayed indefinitely and this causes 
investors to be leery of large new investments in conventional coal-
fired power plants. On the other hand, without a policy resolution, 
setting forth a program to limit CO2 emissions over time, 
the uncertainty is too great for most investors to develop and plan to 
deploy advanced coal technologies like gasification and capture 
systems.
    In sum, failure to include CO2 limits in a power plant 
bill has real costs. It would keep the U.S. and the world on a path of 
accelerating CO2 emissions a path that is unacceptably risky 
given what we already know about the potential of global warming to 
change our lives for the worse. It would steer investments at the 
margin to patching up old, existing capacity that should be replaced 
with modern, efficient systems. And it would continue the policy 
uncertainty that operates as an obstacle today to business planners 
considering what energy investments they should pursue.
    The good news is that by acting now to adopt a schedule for 
limiting CO2 emissions we can change behavior and make it 
easier to address global warming. For example, the International Energy 
Agency forecasts that nearly the world will build new coal plants equal 
to nearly five times the current U.S. coal plant capacity between now 
and 2030.\67\ While seemingly a daunting prospect, this projection 
really means that two out of every three coal power plants forecasted 
to be operating in 2030 are not yet designed or built. With U.S. 
leadership, we can design new energy projects to rely on climate-
friendly technology. Doing so will expand our options to reconcile 
aspirations for improved economic well-being around the world while 
preserving the climate we all depend on to provide us with a hospitable 
place to live.
---------------------------------------------------------------------------
     \67\IEA, World Energy Outlook 2002, October 2002.
    
    
                              figure 9\68\
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     \68\GW=gigawatt, which is 1000 MW of capacity. Current U.S. coal 
capacity is just over 300 GW.
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    In conclusion, let me suggest it is time for all sides to stand 
down from the posturing of past years on this issue and adopt a more 
pragmatic approach. There are many sensible policies that can be 
adopted to start limiting CO2 emissions and there are many 
compelling reasons to do so. Working together, members of both parties 
and the Administration would be able to identify a path forward that 
all could embrace and all could point to as a real accomplishment. NRDC 
will work with you to help make that happen.

                               __________
       Statement of Eugene Trisko, United Mine Workers of America

    Mr. Chairman and members of the committee: I am Eugene M. Trisko, 
an attorney in the District of Columbia. I am pleased to be here today 
to testify on behalf of the United Mine Workers of America (UMWA), the 
labor union representing the nation's organized coal miners. I have 
worked with the UMWA for some 20 years on issues related to the Clean 
Air Act and global climate change, including the development and 
implementation of the Clean Air Act Amendments of 1990, the Byrd-Hagel 
climate resolution, and the proposed Clear Skies Act.
    The UMWA supports additional reductions in sulfur dioxide 
(SO2), nitrogen oxides (NOx) and mercury from coal-fired 
power plants, provided that the reductions are achieved in a way that 
preserves coal miners' jobs. UMWA members mine, process and transport 
coal in their daily jobs. Their economic interests are entwined with 
energy and environmental issues in a very direct manner.
    Since 1990, the UMWA has lost thousands of coal mining jobs as a 
consequence of fuel-switching in response to the acid rain provisions 
of Title IV. Coal production in major eastern coal producing States 
declined by more than 113 million annual tons between 1990 and 2000, 
while more than 30,000 coal mining jobs were lost. Most of these 
reductions and job losses were the result of switching from higher-to 
lower-sulfur coals to meet the emission reductions required by Title 
IV. Dozens of mining communities have all but ceased to exist across 
economically depressed Appalachia and the rural Midwest. The union is 
understandably sensitive to the risk of additional job losses through 
new multi-emission legislation.
    For these reasons, the UMWA appreciates the concerns that the 
Administration has expressed toward its members' interests in the 
development of the proposed Clear Skies Act, and is gratified that the 
proposal reflects UMWA's suggestions about the need for incentives to 
encourage the early installation of control technologies. Our statement 
today is intended to point out some remaining concerns about the design 
of multi-emission legislation.

Background: The Role of Coal in America's Energy Supply
    Coal is an indispensable part of America's energy supply. The U.S. 
has a demonstrated coal reserve base of over 500 billion tons, with an 
estimated 275 billion tons of recoverable reserves. At current 
production rates, this represents about 275 years of recoverable 
reserves.
    Coal represents some 95 percent of all U.S. fossil fuel energy 
reserves. About one-quarter of global known coal reserves are found in 
the United States. U.S. recoverable coal reserves have the energy 
equivalent of about one trillion barrels of oil, an amount comparable 
to the world=s known oil reserves.
    More than one-half of our nation's electricity is generated by 
coal. To back coal out of our energy supply mix means that we would 
have to find another fuel to replace it, most likely natural gas. Such 
a fundamental shift in U.S. energy policy would bring into question not 
only the cost but also the availability of natural gas supplies. 
Substantial increases in demand for natural gas inevitably would lead 
to higher costs and greater dependence on foreign sources for supply. 
At the margin, our gas supplies are imported from Canada and other 
sources in the form of LNG.
    Natural gas futures prices now exceed $4 per million BTU at the 
wellhead, and persist at that level for contract purchases several 
years into the future. Gas prices exceeded $10 per million BTU in many 
markets this winter. Environmental policies that drive electric 
utilities away from coal which costs about $1 per million BTU at the 
mine--and toward natural gas conflict with our energy policy goals of 
maintaining a reliable, low-cost mix of generating sources.
    The UMWA also recognizes that Americans demand a cleaner 
environment at the same time they demand low-cost, reliable and 
available energy. For coal to continue to play the vital role that it 
can and should play in our energy mix, we must ensure that coal is 
consumed with minimum emissions consistent with the use of available 
technologies. The United States must continue to develop highly 
advanced technologies to convert coal to a cleaner and more efficient 
form of energy.

The UMWA Supports a Three-Pollutant Approach
    The UMWA supports in principle the emission reduction tonnage 
targets contained in the proposed Clear Skies Act. The UMWA has some 
suggested changes intended to improve the environmental effectiveness 
of the proposal, while reducing the risk of large-scale, disruptive 
fuel-switching.
    The union consulted with the Administration during the development 
of the Clear Skies Act. UMWA engaged this issue in August 2001 in 
response to the release of EPA's initial ``strawman'' proposal, calling 
for, inter alia, a 2.0 million ton cap on sulfur dioxide emissions to 
be achieved by 2010. Through a process of inter-agency negotiations, 
that proposal was modified to a two-phase program with a 3.0 million 
ton final cap. The UMWA supported the 3.0 million ton final cap, but 
argued for a single-phase program.
    The positions that UMWA has taken on the Clear Skies Act can be 
summarized as follows:

    1) A single phase approach to reducing SO2 emissions can 
be developed in a manner that reduces the risk of fuel-switching by 
encouraging extensive use of available emission control technologies, 
thereby maximizing the ``co-benefits'' of mercury reductions;
    2) Two-phase proposals for SO2 control may encourage 
fuel-switching and resulting job losses, while reducing the use of 
control technologies that also achieve mercury reductions;
    3) A 2.0 million ton cap on SO2 emissions is excessively 
stringent and could lead to the shut-down of smaller units forced to 
install emission controls;
    4) Differentiating NOx control requirements between eastern and 
western States makes sense in light of OTAG modeling results showing 
the minor contribution of western NOx emissions to ozone affecting 
eastern States; and
    5) An initial target for mercury reductions should be set based on 
expected ``co-benefit'' reductions from a single-phase SO2/
NOx control program, with a subsequent target based on the results of 
these reductions, and advances in available mercury control 
technologies.

    In November 2001, UMWA President Cecil E. Roberts testified before 
this committee:

    ``An SO2 and NOx control plan along these lines could be 
implemented as a first step in a longer-range plan to reduce mercury 
emissions. The experience in mercury ``co-benefits'' achieved by the 
first phase controls for SO2 and NOx emissions would be 
vital in assessing the feasibility of ultimate mercury reduction 
targets. In light of this, the committee may want to consider early 
reduction allowances for SO2 controls that also reduce 
mercury emissions on the theory that such reductions are more valuable 
than those strategies that only reduce SO2 alone. There is 
precedent for such extra credit in Title IV of the 1990 Amendments, 
which allocated 2:1 bonus allowances to utilities that chose to install 
control technology.''

    With this background, the UMWA respectfully requests the committee 
to consider constraining the eastern SO2 reductions called 
for by the Clear Skies Act to a single phase control program with a 
reasonable final deadline, perhaps similar to the 10-year deadline 
provided by the Title IV SO2 control program.
    A single-phase SO2 program would serve to maximize the 
use of emission control technologies such as flue gas scrubbers that 
also reduce mercury. More important, emission reductions would be 
achieved in time to assist States in attaining the new PM2.5 
standard. A longer-term, two-phase program may not deliver sufficient 
reductions in time for States to demonstrate attainment by the expected 
2015 attainment deadline.
    Because NOx controls tend to be added incrementally, from low-NOx 
burners to selective catalytic reduction, there is less need for a 
single-phase NOx control program. The targets and timetables for NOx 
reductions also may take into account the longer-term attainment 
schedule for the 8-hour ozone standard that EPA is developing, modeled 
on the 17-year schedule that Congress approved for the 1-hour ozone 
standard.

Eliminate Allowance Auctions
    The UMWA urges elimination of the emission auction provisions of 
the Clear Skies Act. Requiring sources both to reduce emissions and to 
pay for auctioned allowances is a form of double taxation whose rates 
rise in relation to the sulfur content of coal. Auction ``tax rates'' 
would be highest in West Virginia, Pennsylvania, Ohio, Kentucky, 
Indiana, Illinois and other States producing higher-sulfur coals. Over 
time, this new energy tax would create a major disincentive to the use 
of coal reserves in these States.

Avoid Entanglement with Climate Issues!
    The UMWA does not support reduction schemes that force or encourage 
electric utilities to switch away from coal, thereby causing economic 
harm to coal miners and their communities. UMWA is particularly 
concerned that efforts to craft new multi-emission control legislation 
should remain focused as the Clear Skies Act is--on reducing the air 
pollutants contributing to air quality problems such as nonattainment 
with EPA's new 8-hour ozone and PM2.5 standards.
    The union is strongly opposed to efforts to use the Clean Air Act 
as a vehicle for regulating greenhouse gas emissions.
    Regulating greenhouse gases under the air quality framework of the 
Clean Air Act is not feasible. It is not possible to set enforceable 
limits on domestic atmospheric concentrations of greenhouse gases 
generated and transported globally. Carbon dioxide, the principal 
greenhouse gas, is not harmful to human health and could not properly 
be classified as a ``criteria'' air pollutant.
    There are no commercially available means to reduce carbon 
emissions from the electric generation sector. Limits on carbon 
emissions would require switching from coal to natural gas or other 
higher-cost energy sources, with potentially devastating impacts on the 
economies of coal-producing States.
    The Kyoto Protocol exempts rapidly growing developing nations from 
limits on greenhouse gas emissions, and unilateral actions by the 
United States to reduce carbon emissions would have no measurable 
impact on future concentrations of greenhouse gases. Global greenhouse 
gas concentrations are projected to increase into the foreseeable 
future, irrespective of ratification and implementation of the Kyoto 
Protocol. These increases will be driven predominately by the economic 
growth of developing nations.
    The U.N. Framework Convention on Climate Change calls for the 
United States and other parties to establish global atmospheric 
greenhouse concentration targets to prevent ``dangerous'' anthropogenic 
interference with climate. To date, the U.N. FCCC process has failed to 
engage this debate. Indeed, the FCCC's ``second review of adequacy of 
commitments'' has been stalled since November 1998 when China and other 
developing nations refused to discuss the adequacy of developing 
country commitments. In Kyoto, developing countries staged a 6-hour 
filibuster against the U.S. ``evolution'' proposal, calling for 
subsequent negotiation of developing country commitments. These 
subsequent negotiations were contingent upon full and complete 
performance of all Annex I country obligations under the Kyoto 
Protocol.
    The deficiencies of the Kyoto Protocol and the U.N. FCCC process 
should be resolved through multilateral negotiations involving 
developed and developing countries, potentially leading to a new global 
agreement on greenhouse gases that recognizes the ``common but 
differentiated'' responsibilities of parties to the FCCC, with an 
equitable apportionment of emission limitation targets among all 
parties.
    The UMWA's concerns about including greenhouse gas emission 
restrictions within domestic Clean Air legislation are shared by other 
labor unions. On October 24, 2001, the presidents of seven labor unions 
conveyed their views on this issue to this committee. A copy of their 
letter is attached to this statement.

Need to Consider Financial Impacts
    The failure of many State utility restructuring efforts and other 
economic forces have degraded the financial health of the electric 
utility industry. The industry is littered with companies in or 
teetering on the edge of bankruptcy. Credit downgrades are daily news.
    The multi-billion dollar annual cost associated with new emission 
control legislation raises questions about the ability of the utility 
industry to raise needed debt and equity capital. In many States, it is 
no longer possible to simply pass through the costs of new emission 
controls to utility ratepayers.
    Under these circumstances, UMWA recommends that the committee 
consult with the congressional Research Service or the General 
Accounting Office on the financial implications of proposed emission 
control legislation. Both the tonnage reductions and the timetables for 
compliance should reflect sound financial and economic assumptions 
about the ability of the industry to comply.
    UMWA appreciates the opportunity to share its views on the proposed 
Clear Skies Act with the committee, and looks forward to the 
opportunity for further input to the development of multi-emission 
legislation as your deliberations proceed.
    Thank you.

                                 ______
                                 
    Responses of Eugene Trisko to Additional Questions from Senator 
                               Voinovich

    Question 1. Obviously, fuel switching is an issue that is important 
to you--as your members will be forced out of their jobs if utilities 
switch to natural gas as their primary fuel for electricity generation.
    How does Clear Skies affect your industry?
    Response. EPA's current analyses of Clear Skies show relatively 
little overall impact on domestic coal production compared to EPA's 
base case business-as-usual scenario, with a slight shift from western 
to eastern bituminous coals by 2020. For reference, see Jeff 
Holmstead's recent article in Electric Perspectives at: http://
www.eei.org/ep/editorial/May--03/0503ClearSkies.htm
    This shift reflects the increased use of control technologies 
needed to meet CSA emission targets, and the relative ease of removing 
mercury from high-chlorine content eastern coals.
    UMWA has been advised by EPA staff that the main risks of fuel 
switching under Clear Skies would exist in the early years of the 
program, following enactment. Utilities would be able to bank 
SO2 allowances against future reduction requirements, and 
would have a strong incentive to switch to lower-sulfur western coals 
in order to reduce their current emissions.
    Many subbituminous western coals have emission rates of 0.6-1.0 lb 
SO2/MMBTU, while there are virtually no eastern coals with a 
sulfur content less than 1.0 lb. SO2. The lower the sulfur 
content of the coal feed, the larger the number of allowances that can 
be banked relative to the nominal 1.2 lb. allocation formula employed 
in Title IV, Phase II.
    These considerations led UMWA to propose a system of early 
reduction bonus allowances in Clear Skies, similar to the ``Byrd-Bond'' 
amendment to Title IV, which the bill now incorporates. CSA provides 
250,000 tons of SO2 allowances as a set aside for plants 
that install scrubbers prior to the initial 2010 Phase I cap.
    UMWA's initial proposal for this early action program was 500,000 
tons of allowances in each of the years 2007, 2008 and 2009. Any 
increase in the 250,000 ton early action reserve would be helpful in 
encouraging the early use of control technologies that reduce 
SO2 as well as mercury as a cobenefit.
    The risk of early fuel switching also underlies UMWA's proposal for 
a single phase SO2 control program, as explained in my 
direct testimony. Such a program would create incentives for early 
scrubbing to reduce both SO2 and mercury, and minimize the 
risks of short-term fuel switching that would not be consistent with 
preservation of eastern coal mining production capacity.

    Question 2. Is Clear Skies better for your industry in the long run 
than other alternatives--including business as usual, the Clean Power 
Act (S. 366) and the Clean Air Planning Act (S. 3135)?
    Response. Clear Skies is significantly more favorable to coal 
production and consumption in the long-run than either S. 366 or S. 
3135. The principal reason for this is that these alternatives include 
requirements for carbon emission reductions, which would serve as an 
impediment to coal use.
    For the reasons set forth in my direct testimony, UMWA would not 
support an amendment to the Clean Air Act including carbon dioxide 
limits on coal power plants. The international climate change process 
must first be redirected to embrace all major greenhouse gas emitting 
nations. Unilateral actions by the U.S. would have no meaningful impact 
on global concentrations of greenhouse gases, and could impose 
unacceptable economic hardships on coal producing and consuming States.
    Further, as stated in response to the Committee's hearing 
questions, UMWA welcomes analyses by EPA, EIA or other agencies of the 
potential fuel market impacts of alternative bills before the 
Committee.

                                 ______
                                 
    Responses of Eugene Trisko to Additional Questions from Senator 
                                Jeffords

    Question 1. As it has been explained to me, the future for new coal 
generation and consumption in the next 20 years or so is pretty dim. 
According to EIA, most new capacity is going to be natural gas, unless 
we quickly bring in coal gasification technology. What are the 
projections for employment in the coal mining field over the next 10 
years or so, if cleaner, more efficient coal fired generation is not 
installed within that period?
    Response. EPA and DOE projections for coal mining employment show a 
general downward trend, reflecting increased productivity. This is a 
continuation of an historic trend based on increased mechanization at 
mines. EPA's projections of mining employment for Clear Skies may be 
referenced at: http://www.epa.gov/air/clearskies/tech--sectiond.pdf
    EPA's analysis suggests a small positive increase in coal jobs 
(900-1,400) due to Clear Skies relative to the reference case in 2005 
and 2020. This is mainly due to increased production in the Midwest.
    EIA's projections of future natural gas capacity additions may not 
be realistic in view of recent increases in the wellhead price of gas, 
and poor experience in finding rates for new gas. A business as usual 
scenario for coal over the next 10 years reflecting realistic gas price 
assumptions likely would indicate substantial increases in generation 
from existing plants, especially those with relatively low capacity 
factors, in order to supply increased electric demand. This would imply 
a beneficial impact on coal mining jobs.

    Question 2. Do you believe that the current statutory language or 
the consent decree regarding the MACT requirements for hazardous air 
pollutants could result in a rule that controls mercury only at the co-
benefit level--in the 40-50 percent range per unit?
    Response. The statutory language of section 112 will control EPA's 
determination of an appropriate MACT for coal-fired units. The consent 
decree impacts only the timing of the proposal and its promulgation as 
a final rule. The MACT may subcategorize by coal type, and under 
applicable precedent should reflect consideration of worst case 
operating conditions.
    It is UMWA's understanding that the ICR data collected by EPA can 
be interpreted to support a MACT that is consistent with a cobenefit 
level of reduction. The MACT determination under section 112 looks at 
the performance of the top 12 percent of units, based on controls 
actually in use. It is unlike a section 111 NSPS determination, which 
considers what may reasonably be anticipated as state-of-the-art 
control technology.
    Thus, in determining MACT, EPA may not consider the effectiveness 
of activated carbon injection and other emerging mercury control 
technologies that are not in actual commercial use. Instead, the agency 
must focus on the effectiveness of controls in place among its ICR 
sample of 80 plants.
    Because these controls remove mercury as a co-benefit of other 
emission control technologies for SO2, NOx and particulates, 
it is reasonable to expect that EPA's MACT proposal(s) should be 
consistent with a cobenefit level of mercury reduction.

                               __________
           Statement of Bernard Melewski, Adirondack Council

    Good Morning. My name is Bernard Melewski. I am the Deputy Director 
and Counsel of the Adirondack Council. I would like to thank the 
chairman, and the Members of the committee for the opportunity to be 
here with you this morning and to provide testimony regarding Senate 
Bill 485-the Clear Skies Act.
    The Adirondack Park is the largest park of any kind in the 
contiguous United States. It is nearly three times the size of 
Yellowstone National Park and covers one fifth of the State of New 
York, making it equal in size to the State of Vermont. The Adirondack 
Park is roughly six-million acres of public and private land containing 
the largest assemblage of old growth forest east of the Mississippi 
River. The Adirondacks include the headwaters of five major drainage 
basins. Lake Champlain and the Hudson, St. Lawrence, Mohawk and Black 
rivers all draw water from the Adirondack Park. Within the Park are 
more than 2,800 lakes and ponds, and more than 1,500 miles of rivers 
fed by an estimated 30,000 miles of brooks and streams. The Park 
contains 46 mountain peaks more than 4,000 feet in elevation. Forty-
five percent of the Park is publicly owned Forest Preserve protected as 
``Forever Wild'' by the New York State Constitution since 1895. One 
million acres of these public lands are further protected as 
Wilderness.
    The Adirondack Council was founded in 1975. It is a private, not-
for-profit organization dedicated to enhancing the natural and human 
communities of the Adirondack Park through research, education, 
advocacy and legal action. We receive no Federal or State funding.
    Our interest in The Clean Air Act and the problem of acid rain is 
long held. We helped craft the first acid rain law in the country which 
was adopted in 1984. The New York law identified both sulfur dioxide 
and nitrogen oxide as precursors to acid rain, sought limits on total 
emissions from power plants within the State and even proposed an 
innovative trading mechanism that Congress adopted nationwide in the 
Clean Air Act Amendments of 1990.
    The Adirondack Council was also an active participant in the 
national debate that led to the adoption of the acid rain program in 
Title IV of the Clean Air Act Amendments of 1990. Our publication, 
``Beside the Stilled Waters,'' which was produced and distributed in 
cooperation with our member organizations, brought the problem of acid 
rain to the attention of the Nation and to Congress. (See Also ``Acid 
Rain and the Adirondacks: A Legislative History.'' Albany Law Review. 
Vol 66 Number 1 2002)
    The acid rain program, as adopted, was not without controversy. 
Congress adopted an innovative ``cap and trade'' program, modeled after 
the New York legislation, which would abandon the so-called ``command 
and control'' approach to regulation, in favor of a free wheeling 
pollution allowance trading program that would provide utilities with 
the flexibility to make compliance strategies part of their long-term 
business planning. The Adirondack Council, among others raised concern 
that the cap on total emissions might not be low enough to protect 
sensitive areas. Others debated both the need for and the cost of the 
program
    The Adirondack Council was also one of the most severe critics of 
the program EPA designed to implement Title IV. We had concerns about 
the initial allocation of credits, the adequacy of the continuous 
monitoring systems, and, together with the Natural Resources Defense 
Council sought changes in Federal court. (Cases consolidated under EPA 
v. Browner) We are pleased to say that years of good-faith negotiation 
between the USEPA, the affected industry and the conservation community 
resulted in very positive changes. Unfortunately, EPA now administers 
an efficient mechanism that will accomplish a goal that, in hindsight, 
was too modest.
    In 1992, a deputy administrator for the EPA grandly pronounced in a 
press release that the regulations implementing the new Clean Air Act 
Amendments would mean ``the end to acid rain in the Adirondacks.'' 
Certainly that was the intention of the Senate and the House. But 
wisely, Congress had ordered a series of reports that would advise the 
members of the success or failure of the goals of the acid rain 
program.
    Sadly the news has nearly all been bad.
    Due to its location and its thin soils, the Adirondack Park has 
suffered the worst environmental damage from acid rain in America. It 
is the region where the problem was first documented in the United 
States. Prevailing winds carry power plant emissions from the Ohio 
Valley into the Adirondack Mountains, where they fall as acid rain, 
acid snow, acid fog and dry acidic particles. The acidity alters soil 
chemistry, inhibits plant growth and releases heavy metals that are 
toxic to plants, animals and fish.
    Reports conducted by a host of Federal agencies have shown that 
more than 500 of the Park's 2800 lakes and ponds have become too acidic 
to support their native life over the past 40 years. The same is true 
for 28 percent of the Park's 2,000 miles of navigable rivers. Each 
spring the percentage of acidic rivers explodes to almost 60 percent 
over the course of several weeks as the winter's acidic snowpack melts. 
The Park's high elevation spruce and fir and its spectacular maples, 
are disappearing at an alarming rate. Similar damage to forests is 
worsening across the East Coast, as well as the Colorado Rockies and 
the coastal mountains of California.
    Every report issued by the Federal Government in the past 10 years 
reflects these observations, and worse, predicts continuing damage if 
more is not done to control power plant emissions. The dire predictions 
are also reflected in a host of other reports from scientists in the 
field which we discuss later in this testimony.
    In 1998, the Adirondack Council was invited by this committee to 
testify about Senate 172, the Acid Rain Control Act, proposed 
legislation then sponsored by the late Senator Patrick Moynihan. We 
said at that time that any legislation that seeks to address the acid 
rain problem should, at a minimum contain two provisions. The same 
holds true today:
      Build on the successful sulfur dioxide cap-and-trade 
program by creating a third phase of reductions further along the 
current time line. All of the advantages of the current program can be 
preserved in a predictable, flexible, and cost-effective manner while 
reducing sulfur-dioxide emissions by an additional 50 percent or more.
      Create a new year-round cap-and-trade program for 
nitrogen-oxide emissions from utility smokestacks that mirrors the 
successful program already in place for sulfur. The role of nitrogen 
deposition both in high elevation waters and forests and in our coastal 
estuaries is now much better understood and accepted by the scientific 
community. This cap and trade program should reduce nitrogen emissions 
from utilities nationwide by approximately 70 percent or more of 1990 
levels, resulting in a substantial and beneficial cut that is also 
reasonably achievable.
    It is our conclusion that the bill before you now, Senate 485, the 
Clear Skies Act, meets and exceeds those two minimum provisions. The 
bill embraces the cuts envisioned in the Moynihan-D'Amato-Schumer-
Clinton proposals over the past several sessions of Congress and then 
goes beyond those levels in an additional phase of reductions We 
believe that adoption of the caps proposed for sulfur dioxide and 
nitrogen oxide in the Clear Skies Act will set the course for recovery 
of the Adirondacks, and the many other acid rain ravaged sections of 
the country.
    Just last week, final approval was granted for the State of New 
York to adopt the toughest acid rain regulations in the country. The 
New York initiative was announced by Governor Pataki 3 years ago, when 
I last testified before this subcommittee. Senator Voinovich was 
presiding that day. The Senator, upon hearing the news of the 
announcement, said, as I recall, that it was an important step. That 
New York had to show that it was willing to do what we were asking of 
the rest of the country. Well Senator, it is done, and we are back. The 
adoption of the regulations reaffirms once again New York's commitment 
to this issue, despite the fact that more than 80 percent of our acid 
deposition problem originates outside our borders. We are doing what we 
can, but we need your help.
    The Pataki rules are modeled to implement the provisions of the 
Acid Deposition Control Act authored by the late Senator Moynihan in 
1997, which was reintroduced in the last session of Congress by 
Senators Schumer and Clinton. New York will require over the next 
several years a 50 percent reduction from its power plants of sulfur 
dioxide emissions and a 70 percent cut in emissions of nitrogen oxides 
from current levels.
    The new rules in New York raise an important issue that should be 
considered as an amendment to the Clear Skies Act. New York is part of 
the EPA brokered 22 State SIP Call compact that will reduce nitrogen 
emissions significantly during the summer ozone season by 2004. Under 
the new rules, however, New York power plants will be required to 
implement year-round controls in 2004.
    USEPA has established a 22-State utility cap-and-trade program for 
nitrogen emissions as the preferred response for State compliance with 
its new ozone program. The EPA SIP call, which is only summer seasonal, 
will not address in a significant way, the acid rain problem. The acid 
rain dilemma is the total loading of nitrogen to sensitive areas. For 
high elevation areas the main concern stems from the buildup of 
nitrogen in the snow pack and the subsequent ``acidic shock'' to 
aquatic systems in the spring of the year. Year-round controls will be 
necessary to address the nitrogen problem. Furthermore, only nationwide 
reductions will address the problems outside of the 22-State region 
covered by EPA's plan.
    Congress can level the competitive playing field for the utility 
industry by enacting national controls which will permit an expanded 
allowance trading market that will be more efficient and cost 
effective. The Congressional Budget Office, in its report, Factors 
Affecting the Relative Success of EPA's Nox Cap-and-trade Program (June 
1998), identified similar benefits to providing additional statutory 
authority in a report on the proposed rules this summer.
    The Clear Skies Act as currently drafted does not impose those 
year-round controls until 2008 for the SIP Call States. The Adirondack 
Council requests that the committee to take a look at whether the 
imposition of year-round controls could be advanced for the States in 
that eastern trading region.
    The Adirondack Council would appreciate consideration of two other 
amendments to the Clear Skies Act today as well. The second amendment 
has already been considered once by this committee. In a mark-up of 
then Chairman Jefford's bill last session, Senator Clinton offered up 
an amendment which was adopted by the committee. The amendment was 
similar to a provision of Senate 588 of last year, which would ensure 
that measurements of water chemistry were conducted in acid sensitive 
areas of the country. If by a date certain the benefits anticipated by 
the legislation were not occurring in sensitive areas, the 
Administrator would have the authority to reduce emissions from 
contributing sources to reduce acid deposition in the affected area to 
levels where the affected water bodies have the capacity to neutralize 
acids sufficiently to avoid additional damage.
    We have every reason to expect that, with the level of reductions 
proposed in the Clear Skies Act, that such a provision might never need 
be invoked. But we prefer a belt and suspenders in this case. Neither 
our region of the country, nor any other that suffers from acid rain, 
should need to wait another 12 years to solve this problem. We urge you 
to consider adding language that allows a limited reopener by the 
Administrator to protect sensitive resource areas. We appreciate that 
Senator Jeffords has retained the provision in the reintroduction of 
his bill this session.
    Our third request is that the committee examine whether there can 
be faster timetables, especially in the out years for the second phases 
of SOx and NOx reductions. One of the remarkable aspects of the 1990 
Amendments was that the industry was able to fully comply with two 
phases of sulfur dioxide reductions only 5 years apart. New York is 
requiring our power plants to implement year-round reductions of 
nitrogen oxides very rapidly. While we concede that our generators had 
a very public ``notice'' 3 years prior, the committee should examine 
whether a more ambitious timetable can be accomplished in the out 
years. The faster we lower emissions, the quicker we will see recovery.
    There are many issues ahead to resolve, including the timing and 
depth of the reductions in emissions of the target pollutants. We 
encourage you to adopt the deepest cuts in the faster manner that can 
be accomplished in negotiations with your colleagues. We are excited by 
the fact that this bill which you sponsor, Mr. Chairman, and that of 
Senator Jeffords and the bill anticipated from Senators Carper and 
Chafee all will solve the acid rain problem. Every year that can be 
gained and every ton that can be saved will hasten the biological 
recovery of our parks, our rivers and our coastal estuaries, and will 
save thousands of lives.
    Last spring, President George W. Bush visited the Adirondack Park 
on Earth Day. He said he was committed to solving our acid rain problem 
and we believe him. We were pleased to see the President chose the 
solemn occasion of the State of the Union message to renew that 
commitment. The introduction by the leadership of this committee of the 
Administration's proposal is an important step forward. The Clear Skies 
Act is a good point at which to begin your deliberations Congress now 
has the historic opportunity to stop acid rain, smog and haze from 
harming our environment and our health.
    I want to extend at this time, on behalf of the Board of Directors 
of the Adirondack Council, an invitation to all the members of this 
committee to visit the Adirondack Park and see what a wonderful 
resource you will have saved. Perhaps, you will hear the haunting call 
of the loon in the wilderness and know that you have acted to ensure 
that future generations will share the experience.
    This nation committed itself to the task of ending the destruction 
of acid rain over a decade ago. We think it is time to finish the job. 
We urge the earliest consideration of measures to improve Title IV of 
the Clean Air Act and bring an end to acid rain this year.. Thank you 
again.

Reports to Congress have shown the need for more cuts in emissions
    The first report was due in 1993, from the USEPA (ordered under 
sec. 404, Title IV appendix B of the 1990 CAAA). Entitled the Acid 
Deposition Standard Feasibility Study Report to Congress, the report 
(dated October 1995) was finally released in 1996 under the threat of 
litigation from the Adirondack Council and the State of New York.
    The report concluded that the pollution reductions accompanying the 
1990 Clean Air Act Amendments would not be sufficient to allow recovery 
of certain sensitive ecosystems and that some would continue to get 
worse. The report was particularly compelling for New Yorkers because 
it revealed that, despite the reductions expected from the 1990 CAA 
Amendments, the loss of nearly fifty percent of its lakes and 
acidification of most streams in the Adirondack Park could be expected.
    The second of two reports to Congress, the Report of the National 
Acid Precipitation Assessment Program, NAPAP Biennial Report to 
Congress: An Integrated Assessment, was submitted to Congress during 
the August recess in 1998 (ordered under Sec. 901J of the 1990 CAAA). 
It was due in 1996 and it too was released under pressure from then 
Senators Moynihan and D'Amato and the threat of litigation from the 
State of New York. The NAPAP report confirmed and substantially 
elaborated upon the findings of the earlier report to Congress 
submitted in 1996 from the EPA.
    We believe that a fair reading of both reports to Congress lead to 
the same two findings:

    First, the mechanism of a national cap in emissions coupled with 
the pollution allowance trading program has been an outstanding 
success. Facilities are in compliance with Title IV and on schedule. 
The administrative and implementation costs of the program are less 
than projected at the time of adoption. The simple, efficient design of 
the program, coupled with large automatic penalties for exceedences, 
and the diligence of EPA Administrators and the regulated community are 
all factors in this success.
    The administrative and implementation costs are far below those 
associated with traditional regulatory approaches because in many ways 
the program is self-implementing. Devices known as Continuous Emissions 
Monitors (CEMS) count each ton of pollution as it is emitted from the 
smokestack. At the end of each year a utility must have enough credits 
(either initially allocated or purchased) to cover those emissions. The 
accounting of allowance holdings and trading is in a data base 
maintained by EPA. Each pollution credit is tracked with its own serial 
number.
    The compliance costs of the program are proving to be far below 
those estimated when Title IV was adopted. EPA estimated that the fully 
implemented program would cost four billion dollars a year, and 
industry estimates were much higher. A report by the the Massachusetts 
Institute of Technology found compliance costs of less than one billion 
dollars per year. Again, the design of the program helped achieve these 
relatively low compliance costs. Other factors, such as rail 
transportation improvements that reduced the cost of transporting low-
sulfur coal were crucial here as well.
    The market for trading allowances is improving as well. Each year 
there are more ``economically significant'' trades occurring and the 
value of each allowance is rising steadily. In fact, the Adirondack 
Council is a market participant. We have acquired thousands of 
pollution allowance credits, most of them donated as a community good-
will gesture by utilities in New York. Unlike most other holders of 
allowances, it is our intention to retire all credits we may obtain by 
transferring them to a retirement account we maintain with USEPA. 
Thousands of individuals around the Nation, have ``Clean Air 
Certificates'' on their home or office walls, assuring them that the 
Adirondack Council has permanently retired, in their name, one-ton of 
sulfur dioxide emissions.
    There is a real need for emission reductions beyond those called 
for in the 1990 Amendments. Projections (by EPA and ICF Resources) of 
what new SO2 and Nox reductions would cost indicate that 
deep new reductions could be achieved at or near the initial four 
billion dollar estimate made by the House and Senate in 1990.
    The second major finding of both reports to Congress was that 
despite the success of the regulatory scheme, the overall cap in 
emissions is too high to accomplish one of the primary goals of 
Congress, which was to protect sensitive resource areas from the 
harmful effects of acid rain.
    The NAPAP report also confirmed that acid rain is not just an 
Adirondack problem.

Ecological damage is significant and widespread
    The damage that sulfur and nitrogen pollution causes is far from a 
regional issue. It is an issue of national importance. Excess nitrogen 
in waters and in soils--``nitrogen saturation``--can be found in the 
North East and in West Virginia's Allegheny Mountains, Tennessee's 
Great Smoky Mountains, Colorado's Front Range of the Rockies and even 
as far west as the San Bernardino and San Gabriel Mountains. High 
levels of nitrogen deposition are causing nitrate to leach in stream 
water from these watersheds. This nitrate leaching acidifies streams 
and strips base cations from soils. In snow covered areas, the flush of 
nitric acid stored in the snowpack is the leading cause of ``acid 
pulses'' or ``spring shock'', which is responsible for fish kills 
during spring thaws.
    NAPAP found that high elevation areas in the Northeast and the 
Appalachians are bathed in acidic cloud water for extended periods of 
time. Sulfuric acid from sulfur dioxide emissions is the significant 
cause of the widespread loss of red spruce trees in these areas. The 
reason for the die back is the leaching of calcium from the spruce 
needles and aluminum from the soils by the acidic fog which makes the 
trees susceptible to frost and winter injury.
    The coastal estuaries of the entire east coast suffer from airborne 
inputs of nitrogen that can make up nearly 40 percent of the total 
nitrogen loaded into their systems. In estuary systems such as the Long 
Island Sound, Narragansett Bay, the Chesapeake Bay and Tampa Bay in 
Florida, nitrogen-based pollution is overloading the water with 
nutrients. This causes ``eutrophication,'' an overabundance of algae. 
When algae dies and decays, it depletes the water of precious oxygen 
needed by all aquatic animals. This condition is known as hypoxia. 
Algae blooms are also associated with fin fish kills, shellfish kills 
and human illness.
    NAPAP also concluded that areas of the United States that are not 
seeing damage now are likely to in the future, due to an effect known 
as soil acidification. Over the long term, acidic deposition is slowly 
leaching away key soil nutrients, like calcium and magnesium (known as 
base cations) that are essential for plant growth. This nutrient 
depletion is occurring in high-and mid-elevation forests in New 
England, New York and the Southern Appalachians. NAPAP cited studies 
which concluded that fifty-nine percent of the commercial pine forest 
soil in all of the South East has low enough reserves of these 
chemicals to warrant concern.
    Acid deposition, whether from sulfur-or from nitrogen-based 
pollution, not only leads to base depletion, but also results in the 
release of toxic compounds from soils to living things. For example, 
the release of aluminum from soils rapidly accelerates when pH drops 
below 5. The release of aluminum interferes with plant biochemistry. It 
is also the leading cause of fish mortality in affected lakes. In other 
words, it is not only the acidity directly, but also the aluminum 
toxicity that is responsible for the damage. This effect is very 
widespread. NAPAP cited studies, conducted in the Shenandoah National 
Park, show that fish species richness, population density, condition, 
age distribution, size and survival rate were all reduced in streams no 
longer able to neutralize acidity. Another NAPAP study of streams in 
the Adirondacks, Catskills and Northern Appalachians in Pennsylvania 
showed that episodic acidification ``acid pulses'' had long term 
adverse effects on fish populations including significant fish 
mortality.
    Lake acidification, whether from sulfur or nitrogen is also clearly 
implicated in the increase in mercury concentrations found in fish. 
Acidity leads to greater conversion of mercury from its less toxic 
elemental form to methyl mercury, which is much more toxic. Fish 
consumption warnings due to mercury contamination are common in many 
states and are on the rise. The bio-accumulation of mercury in some 
species of fish in New York has reached levels that threaten our loon 
population, which are dependent on the fish as a primary food source. 
In dozens of lakes in the western mountains of the Adirondack Park and 
in the Catskill Mountain reservoirs of New York City's water supply, 
the levels of mercury in some fish species exceed that which is safe 
for human consumption, and children and women of child-bearing age are 
urged to avoid perch and bass altogether. The acid rain problem is now 
a public health problem.
    The cost to Americans from acid rain is not just the loss of 
pristine lakes in one of its greatest parks, or the almost 
imperceptible die out of sensitive species of trees, or even the haze 
obscures the views of four national parks, it is also in the loss of 
our great monuments, our collective tribute to our ideals and to those 
who have come before us.
    The Capitol building is crumbling. The corrosive effects of acid 
rain are eating away at its marble and that of many of the great 
monuments on the mall. The Lincoln memorial corrodes more every year. 
So it is with buildings and monuments throughout the Capitol, so 
numerous and so obvious that until recently you could purchase an 
illustrated guide to the acid rain damage to our nations capitol, 
thoughtfully provided free of charge to the public by the U.S. Park 
Service. (Acid Rain and our Nation's Capital, U.S. Dept. of the 
Interior/U.S. Geological Survey, 1997)
    The monuments to the fallen on the great battle sites of the Civil 
War, Gettysburg and Vicksburg, are dissolving from the acid bath they 
endure each rainy day. The Statute of Liberty stands melting on its 
solitary island.
    This is why the fight to stop acid rain has been joined by many of 
the nation's prestigious organizations dedicated to historic 
preservation, such as the National Trust For Historic Preservation and 
the ``Save Our Sculpture'' Project of the Smithsonian.
    All of this disturbing information was been exhaustively peer 
reviewed and verified by the May 1998 National Acid Precipitation 
Assessment Program Biennial Report to Congress.
    Other studies have found similar results.
    Environment Canada, in its 1997 report ``Toward a National Acid 
Rain Strategy'', said that reducing sulfur emissions significantly 
beyond the current Clean Air Act requirements in both countries would 
be needed for all of eastern Canada to be protected from acid rain. In 
southern Canada, an area the size of France and Britain combined 
continues to receive harmful levels of acid deposition. As many as 
95,000 lakes in the region will remain damaged.
    A study released by Trout Unlimited in 1998, that was conducted by 
the University of Virginia found that without deep additional 
deposition reductions up to 35 percent of Virginia trout streams would 
become ``chronically acidic'' and would no longer support trout 
populations. The study further estimated that thousands of trout stream 
miles in the Southern Appalachians may be lost to acidification.
    While we hold no special expertise in the field of the health 
effects of air pollution, a brief review of the literature reveals some 
interesting facts. EPA's 1995 study, Human Health Benefits from Sulfate 
Reductions Under Title IV, estimates that every dollar spent reducing 
SO2 emissions could generate ten dollars in savings from 
reduced health care costs. Considering the steep rise in asthma cases, 
acting to reduce air pollutants now is an important health initiative.
    In 1999, Nature, perhaps the most respected journal of its kind, 
published the broadest geographical study of acid rain to date. Written 
by 23 scientists, all of them top acid rain researchers, and taking 
samples from roughly 200 sites, the study again confirmed and 
elaborated on the disturbing findings of earlier works.
    Unfortunately, the next scheduled report by NAPAP to Congress is 
again 2 years overdue. It is easy to predict that its findings will 
only stimulate more demand for action by Congress on acid rain. Several 
studies released since that time only reinforce the desirability of 
moving ahead.
    In May of 2000, the Ecological Society of America released it 
workshop report from its 1999 conference of 50 of North America's top 
research scientists. The report States that parts of New Hampshire, 
Maine and California were suffering lake acidification and forest death 
as severe as those observed in New York's most sensitive areas. Major 
findings of the report included:

      More cuts are needed in sulfur dioxide and nitrogen 
oxides to protect sensitive areas of the country from environmental 
damage;
      The White Mountains of New Hampshire and the lake country 
of Maine were showing little or no recovery;
      Nitrogen oxides can be equal in destructive power to 
sulfur dioxides;
      Nitrogen saturation, already begun in the Adirondacks, is 
actually worse in the San Gabriel and San Bernardino Mountains of 
southern California, which had the highest concentrations of nitrogen 
in North America;
      Acid shock is more widespread than previously believed; 
and
      It is very important to continue the long-term research 
into the effects of acid rain, including studies of cloud water, dust 
particles, rain, sleet and snow.

    At the beginning of the last session of Congress, the Hubbard Brook 
Research Foundation released a new summary report, Acid Rain Revisited 
of its findings of the scientific advances since the 1990 Clean Air Act 
Amendments. The report's main conclusions are that our soil problems 
are getting worse and the forests are dying faster than we thought. The 
Hubbard Brook study is one more brick in a huge wall of evidence that 
acid rain must be stopped as soon as possible.
    Briefly stated, the findings include:

      Acid rain is still a problem and has a greater 
environmental impact that previously projected;
      Acid deposition has altered soils and stressed trees in 
areas of the Northeast and has impaired lakes and streams;
      The Clean Air Act has had positive effects, but emissions 
and deposition remain high compared to background conditions; and
      The rate and extent of ecosystem recovery from acid 
deposition are directly related to the timing and degree of emission 
reductions.

    And in January of 2003, the US Environmental Protection Agency's 
Office of Research Development issued a report showing that the cuts in 
air pollution since 1990 have produced corresponding modest-but--
encouraging improvements in concentrations in lake water across the 
Northeast, including the regions's hardest-hit area, the Adirondack 
Park. The good news from that report is that we have been taking the 
right approach by reducing sulfur dioxide and nitrogen oxide emissions 
from power plants. We are targeting the right sources and the right 
pollutants. Our natural ecosystems are beginning to show signs of 
chemical recovery, but is a long road from the start of chemical 
recovery to full biological recovery-the point where you see the fish, 
trees, and other native species coming back in healthy numbers. We need 
to continue down this road and act this year to make significant new 
cuts that will not only turn the corner but also accelerate the natural 
healing process.
    The call for additional action on acid rain is not just a New York 
plea.
    The problems these pollutants bring are felt from Maine to Florida 
and beyond. The actions we call for will improve the environment and 
public health to the benefit of virtually every American.
    In May 1998, the Conference of New England Governors and Eastern 
Canadian Premiers recommended additional reductions in utility 
emissions of SO2 and NOx, similar to the provisions of the 
Moynihan legislation.
    In August of 2002, the unanimous report of the Southern Appalachian 
Mountains Initiative, released by representatives of eight southern 
States (North Carolina, South Carolina, Kentucky, Virginia, West 
Virginia, Tennessee, Georgia and Alabama), concluded that its mission 
cannot be accomplished without emissions reductions in States outside 
the region. The final report also States that ``The SAMI States support 
and will promote national multi-pollutant legislation for electric 
utility plants to assure significant sulfur dioxide and nitrogen oxide 
reductions, both inside and outside the SAMI region. This national 
multi-pollutant legislation should result in no less than the 
reductions for sulfur dioxide and nitrogen oxides represented by the 
Administration's Clear Skies Initiative''. We concur. congressional 
action is the best solution
    The sad alternative of more delay is continued destruction of the 
nations most pristine resources and treasured monuments. The failure to 
act now will also heighten the desire to find alternative, and more 
confrontational, routes to stop acid rain.
    The disturbing and overwhelming evidence of the destruction of the 
streams, lakes and forests on public lands, protected by New York's 
State Constitution as ``Forever Wild'' and the pollution of our coastal 
estuaries has raised grave concern in New York. Absent clear movement 
by Congress to adjust the sulfur program and deal with the companion 
problem of nitrogen as long-range transport of pollutants, there have 
already been numerous efforts in New York to mitigate the problem 
through any other avenue available. In the past several years, the 
Office of the Attorney General of the State of New York has sought 
legal redress via other provisions of the Clean Air Act. Most recently, 
Attorney General Eliot Spitzer has brought suit against 17 utilities in 
five States, using the long arm of the Clean Air Act to force change.
    In 2000, New York's State Senate passed unanimously a bill that is 
intended to discourage the trade or sale of excess pollution allowances 
that our own utilities may own for the eventual use in 12 upwind 
States. I assure you, the New York State Senate is not known for its 
hostility to business or to the free market. The State Senate action, 
we believe, reflects a consensus that something must be done. The State 
Assembly did adopt the same measure, which was signed into law that 
year. Not surprisingly, a coalition of utilities challenged the measure 
on constitutional grounds, winning at the Federal district court level. 
The lower court decision is currently under appeal by the State, where 
an opinion is pending. (See Clean Air Markets Group, 194 F.Supp. 2d.147 
NDNY 2002)
    We believe that the greater the delay in action by Congress to 
repair the flaw in the acid rain program, the more likely that you will 
see actions like those just mentioned in New York taken in other 
affected States. The better alternative is to fulfill the original 
intent of Congress to solve the acid rain problem by taking action 
soon.

                                 ______
                                 
  Responses of Bernard Melewski to Additional Questions from Senator 
                                Jeffords

    Question 1. The Hubbard Brook Research Foundation, the preeminent 
institution for the study of acid rain, has said that cuts in sulfur 
dioxide of at least 80 percent beyond phase II (that's down to about 
1.8 million tons) will be necessary if we are to see biological 
recovery in the lakes and streams of the Adirondacks by mid-century. 
You probably know that Clear Skies stays above that level, at the 3 
million ton level, until at least 2061. Is that acceptable to your 
members?
    Response. Our members are interested in stopping the damage from 
acid rain as soon as possible. We would prefer an elimination of all 
power plant emissions upwind of the Adirondacks. Reductions of an 
additional fifty percent in emissions of acid rain precursors from 
power plants, which is the minimum that needs to be done, has been 
proposed in Congress virtually every year since the passage of the 1990 
Clean Air Act Amendments without success.
    The Hubbard Brook Foundation report is not a revelation to 
scientists in the field, but is a logical outcome. The faster we cut 
emissions and the deeper the cuts the more rapid the chemical change 
and then biological recovery. Thus an 80 percent reduction promotes 
full recovery at a faster rate than a 50 percent reduction.
    Recent studies published by the USEPA and others provide scientific 
certainty that Congress targeted the correct pollutants from the 
appropriate sources in enacting Title Four of the Clean Air Act 
Amendments of 1990. Signs of chemical recovery are there in the waters 
of the Adirondacks ans elsewhere. But more must be done and soon.
    But every year of delay means more damage to sensitive areas like 
the Adirondack Park. That is why our testimony puts emphasis on the 
need to reach agreement on the fastest timetable with the deepest cuts 
that can move out of Committee and pass the Senate this year.

    Question 2. EPA's climate assessment work indicates that virtually 
all brook and brown trout habitat, as well as fifty to seventy percent 
of maple forests, could be lost throughout New York due to global 
warming. And, as a result, the character of heavily visited areas like 
the Adirondacks may change. Do you believe that there is a significant 
risk of substantial ecological and economic harm facing the Adirondacks 
due to global warming?
    Response. The Adirondack Council, in the fall of 2002, held a major 
conference entitled AClimate Change and the Future of the Adirondacks.@ 
The conference reaffirmed that climate change is real and could 
eventually have profound impacts on the natural resources, weather 
patterns and tourism industry within the Adirondack Park.
    As we testified, the Adirondack Council is supportive of the 
addition of provisions on climate change in any bill that the Committee 
and the full Senate may choose to advance. There are a number of 
proposals from mandatory controls to phased decreases in carbon dioxide 
emissions that provide an opportunity for compromise. We do not 
support, however, further inaction on sulfur and nitrogen emissions 
from power plants due to disagreement in the Senate over the 
appropriate provisions on climate change. We need action on acid rain 
as soon as possible.
    It is also important to acknowledge that stopping acid rain is an 
integral part of any climate change strategy. Recent studies from NAPAP 
to the Hubbard Brook Foundation acknowledge that acid deposition is 
disrupting the life cycle of our forests. From Maine to Georgia, our 
forests are in poor health due to the complex and damaging impact of 
acid deposition. Healthy forests are critical to carbon sequestration 
and to moderate the affects of global warming by cooling the landscape. 
The Adirondack Park, with its AForever Wild@ Constitution protection, 
may be a model for future climate change programs.
    Restoring the vitality of our forests should be a critical element 
of any climate change strategy, and that means bringing and end to acid 
deposition as rapidly as possible.
                                 ______
                                 
  Response of Bernard Melewski to an Additional Question from Senator 
                               Voinovich

    Question. In your testimony, you mentioned that adoption of the 
caps proposed for sulfur dioxide and nitrogen oxide in the Clear Skies 
Act will set the course for recovery of the Adirondacks, and the many 
other acid rain ravaged sections of the country.
    Critics of Clear Skies claim that the bill will actually roll back 
the Clean Air Act.
    Would the recovery you talk about in your testimony be faster under 
current Clean Air Act provisions?
    Response. The existing provisions of the Clean Air Act are not 
adequate to solve the acid rain problem. First, it is an unreliable 
assumption that the law will be expeditiously executed. The historic 
reality of Clean Air Act implementation has been erratic enforcement, 
prolonged litigation and fits and starts in implementation. This 
pattern has endured over a number of Democratic and Republican 
Administrations. Notably, there has been one exception and that has 
been the implementation of the cap and trade market-based provisions of 
Title Four of the Clean Air Act Amendments of 1990, the Acid Rain 
Provisions. The Clear Skies Act, S. 485 , and other major proposals 
before the Committee seek to capitalize on the success of that program 
which to date has met or exceeded all deadlines with virtual 100 
percent compliance by the affected industry, at significantly below 
projected cost.
    While the mechanism has been shown to be worth emulating, the caps 
on emissions established in 1990 were too high to achieve the 
fundamental goal of the program: to stop the damage to sensitive 
resources from acid rain. This gap between goal and performance has 
been documented in several Reports to Congress since 1990. The Act must 
be amended to lower the emission caps on sulfur and to establish a new 
cap-and-trade program on nitrogen year-round. A similar cap-and-trade 
approach was recently proposed for carbon dioxide emissions for the 
northeast by New York Governor George Pataki.
    Recent efforts to discredit the Clear Skies Act have compared 
projected outcomes from full implementation of the existing Act, with 
the projected levels of sulfur dioxide and nitrogen emissions predicted 
for the Clear Skies proposal. If one extends the comparison to other 
bills sponsored in the Committee, one readily finds that none of the 
major proposals are as effective in both nitrogen and sulfur reductions 
as the predicted outcome of faithful implementation on of the Clean Air 
Act. Either one presumes that nobody knows what they doing on Capitol 
Hill or one has to conclude, as we do, that hypothetical scenarios 
should not be the basis for establishing national policy.


                        CLEAR SKIES ACT OF 2003

                              ----------                              


                         THURSDAY, MAY 8, 2003

                                       U.S. Senate,
                 Committee on Environment and Public Works,
     Subcommittee on Clean Air, Climate Change and Nuclear 
                                                    Safety,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 9:35 a.m. in 
room 406, Dirksen Office Building, Hon. George Voinovich 
[chairman of the subcommittee] presiding.
    Present: Senators Voinovich, Carper, Jeffords [ex officio] 
and Inhofe [ex officio].

 OPENING STATEMENT OF HON. JAMES M. INHOFE, U.S. SENATOR FROM 
                     THE STATE OF OKLAHOMA

    Senator Inhofe. The hearing will come to order.
    We have an awkward situation this morning that I will 
explain to you. That is we have a vote beginning in about 5 
minutes. I have a conflict with the Senate Armed Services 
Committee where we are currently marking up that bill, so I 
will go ahead with an opening statement. By the time I am 
through, I believe the members will be coming in. If not, we 
will recess until they come in and I won't be able to stay. Let 
me than you for coming, Mr. McSlarrow. It is always a pleasure 
working with you in many, many capacities and this is another.
    I also want to extend my appreciation to Richard Metz who 
made the trip here today from Oklahoma to explain the pressures 
facing the natural gas industry.
    This hearing will help us understand the relationship of 
clean air requirements to natural gas supplies, price levels 
and price volatility. Natural gas is a vital fuel source in 
meeting our Nation's energy requirements. Natural gas heats 
homes, creates electricity for power, plants and industrial 
users, and is used as a feedstock in the production of many 
goods and services.
    In 2002, these sectors consumed almost 22 trillion cubic 
feet of natural gas. Powerplants generating electricity for the 
grid consumer consume about one fourth that amount, as does the 
residential market. The remaining half is largely consumed by 
commercial and industrial users.
    I am committed to maintaining a diverse fuel mix in the 
generation of our Nation's electricity. Natural gas is an 
important an integral fuel in maintaining that diversity. 
Unfortunately, over the last decade due to clean air 
requirements, virtually all powerplants coming on-line has been 
gas-fired. One of the strengths of natural gas historically was 
that it provided needed supplies at fairly stable and 
reasonable prices. I am concerned this strength has been eroded 
by the over-reliance on gas to meet our electricity needs. The 
effects are already becoming clear. While natural gas prices 
were fairly stable through the 1990's, the prices have become 
more volatile in recent years. As this chart shows, in 2000 and 
early 2001, average monthly natural gas wellhead spot prices 
climbed from about $2 to $9, then settled down to $2 at the end 
of that year. Earlier this year, average prices climbed to more 
than $7 with prices spiking at $19 on February 25.



    As this next chart shows, gas prices are not only becoming 
more volatile, but are projected to increase in real terms. As 
you can see, according to Energy Administration reports, the 
2003 projected prices through 2005 are higher for the same 
period than had been forecast for just the year before. Even 
2003 projections now look overly optimistic given current 
prices of $6.



    Of course these price swings and hikes do not occur in a 
vacuum. Part of this is due to limits on production and 
restrictions on constructing pipelines which are issues I 
believe need to be resolved to help the industry continue to 
supply this critical fuel source.
    At the same time as gas production is facing increased 
challenges, demand has increased and that demand is projected 
to increase more in the future as this chart shows. This spike 
in demand has had adverse impacts on small businesses, many 
fertilizer manufacturers and plants have gone out of business 
as a result of the price spikes over the last few years. Many 
manufacturers use natural gas not only to power their 
facilities but in the production process itself. U.S. chemical 
producers are now the world's highest cost producers because 
they are dependent upon natural gas prices and prices are 
higher here than elsewhere in the world.



    I remain concerned that with the large amount of investment 
needed by coal plants to comply with significant emissions 
reductions contemplated under Clear Skies, fuel switching could 
become even worse despite the rising prices. As I have said 
before, one of my top priorities is to ensure that quality 
science drives policy and not the other way around. We have had 
some bad experiences in the past where policies were derived 
and concluded and then they come up with the science to justify 
the policy positions.
    It is imperative that this committee be sure the modeling 
assumptions used to justify the bill related to fuel switching, 
natural gas markets, and control technologies are accurate and 
objective. In future hearings on Clear Skies, I hope the 
Administration will provide us with the necessary data to make 
these evaluations.
    I have testimony from the Aluminum Association and 
Fertilizer Institute and will submit them for the record. 
Without objection, it will be submitted.
    With that, we have a vote in progress and I believe 
probably the members of the committee are going to vote and 
then come here. I appreciate the indulgence of the audience, of 
you Mr. McSlarrow and you Mr. Metz for having to proceed in 
this manner. Thank you very much.
    We are now in recess subject to the call of the chair.
    [Recess.]

  OPENING STATEMENT OF HON. GEORGE V. VOINOVICH, U.S. SENATOR 
                     FROM THE STATE OF OHIO

    Senator Voinovich. The hearing will come out of recess.
    I understand from talking to the chairman of the committee 
that he began the hearing this morning and shared his opening 
statements with you.
    I would like you to know this is the second hearing we have 
had on the Clear Skies Act, S. 485 and continues the discussion 
we in this committee have had for several years on the complex 
issue of how to clear our air by reducing emissions without 
putting our economy in a stranglehold.
    Today's hearing will focus on the issues surrounding our 
use of natural gas to generate electricity. There is perhaps no 
greater illustration of our need to harmonize our environmental 
and energy policies than the effects of fuel switching from 
coal-based generation of electricity to natural gas-based 
generation on our economy. Americans consumed 22.6 trillion 
cubic feet of natural gas in 2001; currently we consume 
approximately 25 trillion cubic feet annually and are projected 
to consume 37.5 trillion cubic feet in 2025. Natural gas is 
used to heat homes, generate electricity and in the commercial, 
industrial and transportation sectors.
    Historically, the industrial sector has been the largest 
natural gas consuming sector, consuming 7.5 trillion cubic feet 
in 2001, followed by residential use for home heating, water 
heating and cooking and natural gas consumption in the 
industrial and residential sectors is roughly about what it was 
in the 1980's. Natural gas for electricity generation, however, 
has risen considerably during the last two decades to 5.3 
trillion cubic feet in 2001 and is projected to grow even more 
dramatically over the next 2 years. EIA projects that 30 
percent of the electricity generated in 2025 will be natural 
gas-based, a significant increase over the 17 percent of our 
electricity that was generated by natural gas in 2001 and 2002.
    Reliance on natural gas for even this much generation has 
put a tremendous strain on natural gas supplies and pushed 
prices on available gas to record high prices. The President's 
National Energy Policy Task Force projected that over 1,300 new 
powerplants will be needed to be built to satisfy America's 
energy needs over the next 20 years. Because of the emissions 
limits and regulatory uncertainty triggered by the Clean Air 
Act, the Department of Energy currently predicts that over 90 
percent of these new plants will be powered by natural gas.
    Just this week, I was told by the CEO of a major utility in 
Ohio that does business not only in Ohio but in the Midwest, 
that due to regulatory uncertainty, surrounding coal-based 
generation that confronts him, the only option he has when 
building new capacity is to switch to natural gas because of 
where we are today in terms of the uncertainty of the future.
    We do not have enough natural gas to power all these new 
facilities and we do not have the capability to increase our 
supply to meet this demand. We do, however, have major domestic 
reserves of natural gas in the Rockies, off the East Coast, off 
the West Coast and in the Gulf of New Mexico that are off 
limits for development. We have tremendous reserves of natural 
gas in Alaska without the ability to pipe it down to the lower 
48. Perhaps most disturbing, we have seen a 5.6 percent decline 
in natural gas supplies in the continental United States in 
2002 and a 2.3 percent decline in domestic natural gas 
production in 2002.
    Unless Congress develops a plan to deal with the situation, 
we are looking at major natural gas shortages and enormous 
increases in natural gas prices which will inevitably lead to 
higher electricity prices. Shortages of the natural gas supply 
result in increase in natural gas prices and do not just affect 
utilities. This is very important. Many other industries rely 
on natural gas such as the agriculture community, the steel and 
metal industries, the plastic manufacturing industry which is 
being devastated in Ohio because of the high cost of natural 
gas, polymer manufacturers and the food processing industry.
    A major shortage of natural gas coupled with skyrocketing 
energy prices will ensure that many of our companies will no 
longer be able to remain competitive in the global marketplace. 
Today we will hear from Jim Krimmel, the President of Zaclon 
Chemical, Inc., an Ohio-based chemical manufacturer with 
worldwide sales who will discuss the enormous burdens that 
increased energy costs have placed on his business and 
threatened the very existence of his company.
    Although high natural gas prices have severely affected 
businesses and their ability to compete in the global 
marketplace, they have an even more profound impact on low 
income families and the elderly. Each year, many Americans are 
forced to make choices between paying to heat their homes, for 
food or other essentials such as medicine and energy prices are 
very, very high.
    In order to diffuse the time bomb of skyrocketing natural 
gas and electricity prices that is sitting in our lap, Congress 
must enact a comprehensive energy policy that will increase our 
development of natural gas supplies and ensure that we have a 
diverse fuel mix for electricity generation that includes 
nuclear renewables, natural gas and coal. To get there, the 
Senate must pass both comprehensive energy legislation that 
promotes domestic natural gas development and multi-pollutant 
legislation that will streamline the regulatory process, 
maintain the diversity of our fuel mix and achieve greater 
emissions cuts to protect our environment.
    I am pleased to note that our distinguished Majority 
Leader, Senator Frist, has brought the Energy bill to the 
Senate floor this week in order to address our Nation's need 
for a comprehensive energy policy. It is no coincidence that we 
are considering both energy legislation and environmental 
legislation at the same time as they really are two sides of 
the same coin. Any worthwhile energy policy must take into 
account protection of the environment and at the same time any 
worthwhile environmental policy must take into account 
protection of our economy.
    The Clear Skies Act, S. 485, I believe is an example of 
environmental legislation that will protect our economy, will 
improve the Clean Air Act by providing greater certainty that 
emissions are reduced while providing a stable, regulatory 
environment that allows utilities to install necessary 
pollution controls without the fear that those controls will be 
obsolete before they are paid for. It will result in cleaner 
air, less regulation, and litigation. It will lower energy 
costs to manufacturers and American consumers. Simply put, this 
legislation will provide tremendous benefits to the environment 
and is crucial to the long term survival of our economy and our 
manufacturing base.
    I want all of you to note here that manufacturing in this 
country is really under pressure today. It is more vulnerable 
today and more at risk than at any time in my career in 
government.
    The flexibility of the Clear Skies market base cap and 
trade program and the certainty of emissions reduction targets 
will ensure that the real emissions reductions called for in 
this bill can be achieved without forcing utilities to fuel 
switch and without forcing electricity and natural gas prices 
through the roof. Perhaps more importantly, Clear Skies will 
help ensure that the least of our brothers and sisters will not 
be forced to forego heating their homes and that our companies 
will not be forced to move overseas to remain competitive in 
the global marketplace due to high cost of electricity and 
natural gas.
    As I mentioned at the beginning of my remarks, this is the 
second hearing we are holding in this subcommittee on Clear 
Skies. It is my intention to hold a third hearing on this 
legislation in the near future that will focus on emissions 
reduction technology and issues surrounding the financial 
stability of the utilities that are required to install such 
equipment in order to complete with the Clean Air Act 
requirements.
    I also intend to mark up Clear Skies at the subcommittee 
level following the Memorial Day recess and I want to restate 
my firm commitment to push hard to have the full committee 
report to the floor and have the Senate pass this bill in this 
Congress.
    I want to thank our first witness this morning, Deputy 
Secretary McSlarrow for coming to present the Administration's 
take on natural gas supply and pricing issues to the 
subcommittee. I look forward also to the testimony of our other 
witnesses and to working with members of the subcommittee as we 
move forward on legislation to address these critical issues.
    Senator Jeffords, the ranking member of the committee, has 
joined us. Senator Jeffords?

OPENING STATEMENT OF HON. JAMES M. JEFFORDS, U.S. SENATOR FROM 
                      THE STATE OF VERMONT

    Senator Jeffords. Thank you.
    It is always important that the committee collect 
information on the effects of legislation on various sectors of 
the economy, including energy, industry and natural gas. Of 
course, however, the committee's first and foremost 
responsibility is to be sure the Nation's laws are protective 
of public health and the environment. It is our job to set 
performance standards for industry that are adequately 
productive and wherever possible, fuel neutral. These standards 
should not be skewed to protect any one industry but should 
encourage sustainable, economic development.
    The Clear Skies proposal does not fit that criteria. As one 
analyst said, ``It is the best case scenario for coal.'' The 
proposal was designed to protect 40 or 50 year old coal-burning 
plants from any risk of having to meet modern environmental 
standards or needs. That is hardly fuel neutral and so it does 
nothing to stimulate the development of technology to burn coal 
more cleanly and efficiently.
    I have grave concerns that Clear Skies will do a much worse 
job than the current Clean Air Act when fully and faithfully 
implemented. Clear Skies caps are too weak, the deadlines are 
too late, and the State authorities are to degraded. Because of 
these flaws, the bill will delay the attainment in many areas 
forcing millions of people to breathe unhealthy air longer than 
the current Air Act allows. That is the outcome that I am not 
willing to accept.
    As I have noted in previous hearings, quality and timely 
information is crucial if we are going to work out a compromise 
on multi-pollutant legislation that can be supported by this 
committee. Unfortunately, such information has been hard to 
come by from this Administration. I am starting to believe that 
this is because they are not interested in compromise.
    Governor Whitman promised me in February that the 
information flow would improve but I am still waiting on 
answers to questions from March. Perhaps Mr. McSlarrow can 
explain today why the Department of Energy has completely 
failed to provide an NSR document log that it promised on 
September 25, 2002 would be delivered to the committee on 
October 24, 2002. In addition, at some point very soon, the 
Administration will have to explain why they are not allowing 
EPA to run emissions and economic modeling for the Federal 
Advisory Committee working on the Utility MACT Rule.
    Without objection, I would like to place in the record 
NESCAUM's effort to analyze what EPA won't.
    Senator Voinovich. Without objection.
    [The information referred to follows:]

  Mercury MACT Under the Clean Air Act: An Assessment of the Mercury 
        Emissions Outcomes of Stakeholder Group Recommendations
                          nescaum--may 8, 2003

1.0 Background
    Mercury is a persistent, bioaccumulative, neurotoxic pollutant. 
When released into the environment and deposited or carried into water 
bodies, mercury is easily converted to methylmercury, a particularly 
toxic mercury compound, and accumulates in sediments. Methylmercury is 
readily transmitted up the food chain and accumulates in the tissues of 
animals. Exposure to mercury can cause numerous adverse effects in 
plants, birds, and mammals, including humans.
    In humans, methylmercury is transported across the placenta into 
the brain of the developing fetus. In young children and fetuses, 
methylmercury inhibits the normal development of the nervous system, an 
effect that may occur even at low exposure levels. This damage 
frequently is not apparent until later in the developmental process, 
when motor and verbal skills are found to be delayed or abnormal. 
Developmental effects have been found in children exposed in utero, 
even though their mothers did not experience any symptoms of adult 
toxicity. States are sufficiently concerned about the public health 
impacts of mercury exposure that most have posted advisory warnings 
about fish consumption--the primary exposure route in humans.
    In 1998, the U.S. Environmental Protection Agency (EPA) identified 
mercury as the hazardous air pollutant of ``greatest potential 
concern'' associated with coal-fired electricity production.\1\ 
Moreover, coal-fired power plants were identified as the largest 
remaining source of airborne mercury emissions in the U.S. following 
the regulation of other important mercury sources, such as municipal 
and medical waste incinerators, in the late 1990's. Under a legal 
settlement reached pursuant to the Clean Air Act Amendments of 1990, 
EPA is required to promulgate mercury emissions standards for 
electricity generating utility boilers by December 2004. These 
standards--which according to the explicit language of the Clean Air 
Act must reflect the utilization of ``Maximum Achievable Control 
Technology'' for mercury--are expected to be implemented by December 
2007.
---------------------------------------------------------------------------
     \1\U.S. EPA. 1998. Study of Hazardous Air Pollutant Emissions from 
Electric Utility Steam Generating Units--Final Report to Congress.
---------------------------------------------------------------------------
    To assist in the development of Maximum Achievable Control 
Technology (MACT) standards for power plant mercury emissions, EPA 
convened a multi-stakeholder group known as the Utility MACT Working 
Group (hereafter, Working Group). The Northeast States for Coordinated 
Air Use Management (NESCAUM) has participated in this group since its 
inception. NESCAUM is an interstate association of air quality control 
agencies in the eight Northeast States (the six New England States, New 
York, and New Jersey). Together with other Working Group participants, 
NESCAUM worked to develop a set of specific recommendations to EPA 
concerning issues related to the setting of MACT standards for mercury 
emissions, consistent with the requirements of the Clean Air Act.
    Ultimately, the stakeholder groups participating in the Working 
Group could not agree on a single set of recommendations for mercury 
emissions standards. Instead, the Working Group's deliberations 
resulted in separate recommendations from a range of stakeholders, 
including distinct recommendations from four major stakeholder groups: 
the State and Local Agency Stakeholders,\2\ the Environmental 
Stakeholders,\3\ the Clean Energy Group (CEG),\4\ and multi-industry 
stakeholders under the name ``Majority Industry Group.''\5\ The first 
three of these groups reached significant consensus, however, jointly 
signing a memorandum to the members of the Clean Air Act Advisory 
Committee indicating that there were, in fact, broad areas of agreement 
among them.\6\ This memorandum also expressed concern that the final 
report of the Working Group had obscured the extent to which consensus 
had been achieved among many of the stakeholders on important issues.
---------------------------------------------------------------------------
     \2\State and Local Agency Stakeholders included NESCAUM, STAPPA/
ALAPCO, the State of New Jersey, and the Regional Air Pollution Control 
Agency (RAPCA) based in Dayton, Ohio. (The State of Texas also 
participated in the Working Group, but preferred to offer a separate 
opinion on several issues.)
     \3\Environmental Stakeholders included the Clean Air Task Force, 
National Wildlife Federation, National Environmental Trust, Natural 
Resources Defense Council, and Environmental Defense.
     \4\The Clean Energy Group was represented in the Working Group by 
PG&E National Energy Group. Two of its members, Consolidated Edison and 
Public Service Enterprise Group, also participated in the Working 
Group. Other Clean Energy Group members include Conectiv, Exelon 
Corporation, KeySpan, Northeast Utilities, and Sempra Energy.
     \5\The Majority Industry Group was represented principally by 
Cinergy, the Class of 85 Regulatory Response Group, Latham & Watkins, 
the National Mining Association, Seminole Electric Cooperative, 
Southern Company Generation, the United Mine Workers, the Utility Air 
Regulatory Group, West Associates, the American Public Power 
Association, and the National Rural Electric Cooperative Association.
     \6\``Areas of Agreement Among Stakeholders in the Utility MACT 
Working Group,'' Memorandum dated October 30, 2002.
---------------------------------------------------------------------------
    Throughout the Working Group's deliberations, EPA represented its 
intention to model the impact of stakeholder group recommendations on 
mercury emissions from the electric power sector using ICF's IPM model. 
Recently, however, EPA indicated that it will delay--and perhaps forego 
entirely--any IPM analysis of stakeholder recommendations. In light of 
this decision, NESCAUM decided to analyze the emissions impacts of the 
recommendations of these four stakeholder groups participating in the 
Working Group.
    Each of the stakeholder groups submitted recommendations for 
mercury reductions in terms of a specific rate-based emission standard 
or an alternative approach allowing sources to meet either a specific 
rate-based emission standard or a specific percentage reduction 
requirement. NESCAUM undertook this analysis in order to translate each 
group's recommendations into the annual tons of mercury that would be 
released to the environment. Notwithstanding this analysis, NESCAUM 
urges EPA to model the stakeholder group recommendations with IPM, 
consistent with its original representations, in order to provide a 
more complete picture of the emissions impact of implementing various 
policy options for regulating mercury from power plants.

2.0 Methodology
    The total mercury tonnage that would be emitted under each 
stakeholder group's MACT recommendation was calculated using the 
underlying fuel consumption data and uncontrolled mercury emissions 
information reported in EPA's Utility Air Toxics Study data base. This 
analysis does not attempt to project growth in fuel consumption, nor 
does it model changes in the methods of electricity production. Such a 
dynamic analysis would require the use of a system dispatch model like 
IPM. However, we are confident that this analysis provides reasonable 
estimates of the annual tons of mercury that would be emitted by the 
electric power sector under each of the scenarios considered.
    All of the stakeholder group recommendations were analyzed using a 
subset of the power plants in the EPA Utility Air Toxics Study data 
base.\7\ Plant-by-plant mercury emissions estimates were downloaded 
from EPA's website.\8\ These data were compared with mercury input 
concentrations in the coal purchased by power plants, which was 
compiled from first, second, third and fourth quarter 1999 coal data 
downloaded from the same source.\9\ There were 412 power plants for 
which both coal data and EPA plant emissions estimates existed for 
mercury. These 412 facilities--emitting an estimated 44.6 tons of 
mercury in 1999--were included in the analysis. EPA estimates that the 
entire universe of facilities in its Utility Air Toxics Study data base 
emitted approximately 48 tons of mercury in 1999.
---------------------------------------------------------------------------
     \7\This was necessary because certain data were not available for 
a small subset of the facilities in the EPA Utility Air Toxics Study 
data base.
     \8\``Plant by Plant Emissions Estimates,'' Wordperfect file 
downloaded March 26, 2002 from http://www.epa.gov/ttn/atw/combust/
utiltox/utoxpg.html.
     \9\Data base compiled by Michael Aucott of the New Jersey 
Department of Environmental Protection.
---------------------------------------------------------------------------
    Because the State and Local Agency Stakeholder group recommendation 
did not include lignite, coal-fired power plants that reported lignite 
as their primary coal type were excluded from the analysis of that 
group's recommendations, eliminating 11 facilities. These 11 facilities 
generated an estimated 3.1 tons of mercury emissions in 1999. 
Eliminating these 11 facilities left 401 coal-fired power plants 
available for the analysis of this stakeholder group's MACT 
recommendation. In 1999, these 401 power plants emitted an estimated 
41.5 tons of mercury.
    In converting the stakeholders' recommendations to annual mercury 
emissions in tons, the analysis assumes that those sources whose 
emissions are already below the recommended limits will not increase 
their emissions to the maximum allowable level.

3.0 Analysis of Stakeholder Group Recommendations
    Annual emissions in tons of mercury from electric power plants 
after the MACT standard is implemented are estimated below for each of 
the recommendations of the four stakeholder groups. The results of this 
assessment are summarized in Appendix A.

3.1 State and Local Agency Stakeholder Group
    Recommendation: The State and Local Agency Stakeholders recommended 
a plant-by-plant standard equivalent to the less stringent of 0.4-0.6 
pounds per trillion British thermal units (lbs/TBtu) or a 90 percent 
reduction (from the mercury content in coal). This standard would only 
apply to bituminous and subbituminous coal. This stakeholder group did 
not submit a recommendation for plants burning primarily lignite.
    Two approaches were analyzed. The first allowed sources to choose 
between complying with a rate-based emission standard of 0.6 lbs/TBtu 
or a 90 percent reduction from the mercury content in coal. It was 
assumed that sources would select the less stringent of these two 
compliance paths. Using this approach, of the 401 facilities included 
in this stakeholder group's analysis, 47 facilities would continue to 
emit at current levels (i.e., current emissions are below the proposed 
standard), 188 would choose to comply with the 90 percent control 
efficiency option, and 166 would choose to comply with the emission 
rate standard of 0.6 lbs/TBtu. Overall, this would result in annual 
mercury emissions of approximately 6.7 tons.
    The second approach allowed sources to choose between a rate-based 
emission standard of 0.4 lbs/TBtu or a 90 percent reduction. Using the 
method applied above, 43 of the 401 facilities included in the analysis 
would continue to emit at current levels (i.e., current emissions are 
below the proposed standard), 306 would choose to comply with the 90 
percent control efficiency option, and 52 would choose to comply with 
the emission rate standard of 0.4 lbs/TBtu. Overall, this would result 
in annual mercury emissions of 6.3 tons.

3.2 Environmental Stakeholder Group
    Recommendation: The Environmental Stakeholders recommended a plant-
by-plant standard of 0.19 lbs/TBtu for fluidized bed combustion (FBC) 
facilities and 0.21 lbs/TBtu for all other facility types. This 
standard would apply to all coal types.
    The Environmental Stakeholder Group's recommendation applied to all 
coal types, allowing the 11 lignite-burning plants to be included in 
this analysis, yielding a total of 412 facilities for which adequate 
data were available to assess the emissions impact of the recommended 
standards. Overall, the Environmental Stakeholder Group's recommended 
standards would result in annual mercury emissions of 1.9 tons.

3.3 Clean Energy Group Recommendation
    Recommendation: The Clean Energy Group recommended a plant-by-plant 
standard of 0.320 lbs/TBtu for FBC facilities burning bituminous or 
subbituminous coal, 1.223 lbs/TBtu for all other boiler types burning 
bituminous or subbituminous coal, 11.984 lbs/TBtu for FBC facilities 
burning lignite, and 9.091 lbs/TBtu for all other boiler types burning 
lignite. Although CEG has indicated it would support a standard 
allowing sources to comply with either a specified emission rate or a 
specified control efficiency, CEG made emission rate recommendations 
only based on its understanding that IPM cannot model control 
efficiency standards.
    The Clean Energy Group's recommendation was applied to all 412 
facilities for which adequate emissions data were available. Overall, 
the Clean Energy Group's recommended standards would result in annual 
mercury emissions of 13.1 tons.

3.4 Majority Industry Group Recommendation
    Recommendation: The Majority Industry Group recommended a plant-by-
plant standard of 3.7 lbs/TBtu for hot stack facilities burning 
bituminous coal, 2.2 lbs/TBtu for saturated stack facilities burning 
bituminous coal, 3.2 lbs/TBtu for wet stack facilities burning 
bituminous coal, 4.2 lbs/TBtu for facilities burning subbituminous 
coal, 6.5 lbs/TBtu for facilities burning lignite, and 2.0 lbs/TBtu for 
FBC facilities.
    NESCAUM did not have access to data regarding the stack 
characteristics of the facilities burning bituminous coal (i.e., hot, 
saturated, or wet), and thus was unable to precisely convert the 
Majority Industry Group's recommendation into total tons of mercury 
emitted annually. We bracketed the range of annual emissions, however, 
by calculating tons emitted from facilities burning bituminous coal 
assuming: (1) that for the low (most stringent) end of the range, all 
such facilities would comply with the lowest recommended emission rate 
of 2.2 lbs/TBtu, and (2) that for the high (least stringent) end of the 
range, all such facilities would comply with the highest recommended 
emission rate of 3.7 lbs/TBtu. Emission rates for other facilities and 
fuel types were applied as recommended. Overall, the Majority Industry 
Group's recommended standards would result in annual mercury emissions 
between 25.0 and 30.0 tons.

4.0 Discussion
    Under the Federal Clean Air Act, the mercury MACT standard for the 
electric generating sector is required to be proposed by December 2003, 
promulgated in final form by December 2004, and is expected to be 
implemented by December 2007. Thus, under the existing Clean Air Act 
(i.e., unmodified by any Federal multi-pollutant legislation applicable 
to the power sector), the public can expect reductions in mercury 
pollution from power plants to occur by the end of 2007.
    It is difficult to predict the level at which EPA will ultimately 
set the mercury MACT standard. However, it is worth noting that some 
States have already moved to adopt mercury standards in the range of 
stringency recommended by the State and Local Agencies Stakeholder 
Group and on a similar timeline to that expected under the Clean Air 
Act for implementation of a Federal MACT standard. In March 2003, for 
instance, a coalition\10\ of an electric generating company and several 
environmental groups publicly issued a joint recommendation to the 
Connecticut General Assembly calling for legislation establishing 
stringent mercury emission standards for Connecticut's coal-fired power 
plants. Specifically, their proposal would require coal-fired plants in 
Connecticut to achieve either a mercury emission rate of 0.6 lbs/TBtu 
or a 90 percent control technology efficiency by July 2008. The 
proposal further directs the Connecticut Department of Environmental 
Protection to consider new emissions standards for mercury in 2012. 
Similarly, the Massachusetts Department of Environmental Protection has 
concluded that the removal of at least 85-90 percent of mercury in flue 
gas has been demonstrated to be technologically and economically 
feasible.\11\
---------------------------------------------------------------------------
     \10\This coalition included PSEG Power Connecticut, Clean Water 
Action, the Connecticut Coalition for Clean Air, and the Clean Air Task 
Force.
     \11\``Evaluation of the Technological and Economic Feasibility of 
Controlling and Eliminating Mercury Emissions from the Combustion of 
Fossil Fuel,'' Massachusetts Department of Environmental Protection, 
December 2002.
---------------------------------------------------------------------------
5.0 Conclusion
    This analysis was conducted to facilitate comparisons among 
different Stakeholder Group recommendations within the EPA Utility MACT 
Working Group process and several legislative proposals currently 
before Congress to reduce multiple types of pollutant emissions from 
the power sector, including mercury. Most of these legislative 
proposals would set aside the MACT process authorized under the Clean 
Air Act and would address power plant mercury emissions directly, in 
most cases by establishing a national cap on power sector mercury 
emissions and (in some cases) also establishing facility-specific 
minimum mercury reduction requirements. An important dimension of all 
of these proposals is the timeframe over which mercury reductions would 
be implemented. As noted several times in this discussion, under 
current law new MACT standards will be implemented by the end of 2007. 
By comparison, at least one proposal now before Congress delays full 
action on mercury for more than a decade compared to the mercury MACT 
process.
    The consequences of delay in implementing new mercury control 
requirements are potentially significant in terms of foregone 
reductions in the quantities of this persistent, bio-accumulative toxin 
that will be released to the environment over the next 10 to 15 years. 
Compared to the MACT recommendations of the State and Local Agency 
Stakeholder Group, for example, the more delayed legislative proposal 
noted previously would result in the allowable emission of an 
additional 258 tons of mercury between 2007 and 2020. Even assuming EPA 
picks a less stringent MACT standard representing a middle ground 
between the more centrist Stakeholder Group recommendations summarized 
in Appendix A, foregone emissions reductions relative to the more 
delayed legislative proposals now before Congress could be significant. 
For example, utilizing the same comparison as above, a MACT standard 
equivalent to an annual cap of 11 tons--if implemented in 2008--would 
likely reduce cumulative emissions by more than 180 tons by 2020, 
compared to a phased approach that delays similar levels of control for 
another 10 years. This represents approximately 4 years worth of 
mercury emissions at current emission rates (44.6-48.0 tons per year). 
Due to its persistence in the environment, any additional mercury 
emitted as a result of delaying new control requirements will remain 
bioavailable for years, needlessly accumulating in the food chain that 
ultimately reaches humans.
    We hope that the results of this analysis will help avoid lost 
opportunities of this nature by providing useful guidance both to EPA 
in reaching its final mercury MACT determination for power plants and 
to policymakers in Congress as they consider multi-pollutant 
legislation incorporating mercury emission limits.

                              Appendix A.

                       SUMMARY OF ANALYSIS RESULTS
                          NESCAUM--May 5, 2003
------------------------------------------------------------------------
                                 Recommended      Relevant    Post-MACT
                                   Mercury         Annual       Annual
      Stakeholder Group            Emission       Baseline    Emissions
                                   Standard        (tons)       (tons)
------------------------------------------------------------------------
Environmental Stakeholders...  0.19 lbs/TBtu
                                for FBC
                                facilities.
                               44.6...........          1.9
0.21 lbs/TBtu for all other
 facility types for all coal
 types
State and Local Agencies.....  0.4-0.6 lbs/            41.5      6.3-6.7
                                TBtu or a 90
                                percent
                                reduction,
                                applied to
                                bituminous and
                                subbituminous
                                coal.
Clean Energy Group...........  0.320 lbs/TBtu
                                for FBC
                                facilities
                                burning
                                bituminous or
                                sub-bituminous
                                coal.
 
1.223 lbs/TBtu for all other
 boiler types burning
 bituminous or sub-bituminous
 coal
 
11.984 lbs/TBtu for FBC
 facilities burning lignite
                               44.6...........         13.1
9.091 lbs/TBtu for all other
 boiler types burning lignite
Majority Industry Group......  3.7 lbs/TBtu
                                for hot stack
                                facilities
                                burning
                                bituminous
                                coal.
 
2.2 lbs/TBtu for saturated
 stack facilities burning
 bituminous coal
 
3.2 lbs/TBtu for wet stack
 facilities burning
 bituminous coal
 
4.2 lbs/TBtu for facilities
 burning subbituminous coal
 
6.5 lbs/TBtu for facilities
 burning lignite
                               44.6...........    20.0-30.0
2.0 lbs/TBtu for FBC
 facilities
------------------------------------------------------------------------

    Senator Jeffords. The Administration's behavior on this 
issue makes me think they don't want information in the public 
domain if it might show the mercury caps in Clear Skies are 
above what is achievable and cost effective with today's 
technology. This failure to deliver promised information looks 
like intentional derailing of the Utility MACT Rule. At the 
right time, I hope the court enforcing the consent decree will 
note the Administration's bad faith on this
    Mercury is a potent air toxic emitted by coal burning 
powerplants. Emissions must be reduced quickly and deeply. I 
ask that a letter on mercury from more than 200 State and local 
conservation organizations and officials be included in the 
hearing record.
    Senator Voinovich. Without objection.
    [The information referred to follows:]
205 State and Local Conservation Organizations, Businesses and Elected 
                               Officials
                                                       May 7, 2003.

U.S. Senate and House of Representatives,
Washington, DC 20003.

Dear Senators and Members of Congress: As the Senate and House begin 
consideration of the President's air pollution proposal, introduced on 
February 27 by Senators James Inhofe and George Voinovich and 
Representatives Billy Tauzin and Joe Barton, it is critical that you 
are aware of our concerns that the bill moves the Nation backwards 
rather than forwards on air pollution. Rather than build on a firm 
foundation of the Clean Air Act, the President's bill severely 
undermines that foundation, leaving the public to rely solely upon a 
system of pollution caps that will allow higher emissions over a much 
longer period of time than current law. We strongly urge you to reject 
this approach.
    This unfortunate reality is especially evident in the sections of 
the President's bill that address emissions of mercury, an extremely 
toxic heavy metal. Much of the mercury pollution emitted into our air 
ends up in our food chain, accumulating in fish, a staple of the 
American diet. The problem is widespread: 44 States have posted mercury 
advisories warning people to limit consumption of fish from 10,179, 247 
acres of lakes and 414, 973 miles of rivers.
    For those who eat mercury-tainted fish, the health risks are 
serious, especially for unborn infants and very young children whose 
neurological systems are developing.

      A recent study by the Centers for Disease Control 
Prevention estimates that 8 percent of women of child-bearing years in 
the U.S. have unsafe levels of mercury that put their children at risk 
for developmental delays, neurological damage and other health 
problems.
      As many as 300,000 children are born in the United States 
each year with a heightened risk for health effects related to mercury 
exposure.

    As mercury contamination becomes a more pressing public health 
issue, businesses that support the recreational fishing industries 
stand to lose. The sport fishing industry alone generates more than 
$100 billion per year in revenues. This figure does not even begin to 
calculate the risk of mercury contamination to American businesses that 
depend on a robust market for fish sold in the grocery stores or at 
restaurants all across the Nation, nor does this number begin to value 
the loss of fish as a source of food for those who rely on it for their 
families or their way of life.
    After years of research, EPA concluded in 2001 that it was 
necessary and appropriate to set mercury standards under Section 112 of 
the Clean Air Act for power plants, the largest industrial source, and 
a source which is currently unregulated. These standards, which are due 
to be proposed this year, will be based on technologies that can remove 
as much as 90 percent of the mercury in coal from power plant 
smokestacks before it is released into the air, bringing the national 
power plant mercury load down to roughly five tons per year by 2008. 
This level of protection is not only possible but absolutely warranted 
by the severity of the health concerns and the level of the economic 
threat.
    It is therefore alarming that the President's pollution plan 
eliminates these standards entirely. Instead, the President proposed to 
impose a national cap on mercury emissions. However, that cap would 
allow power plants to emit 26 tons of mercury until 2018, after which 
time they could continue to emit 15 tons of mercury each year. Even at 
this late date, the mercury levels allowed by the President's plan are 
three times higher than levels that would result from vigorous 
enforcement of current law.
    The President's plan weakens mercury protections in several other 
important ways:

      Under current law, coal-fired power plants would have 
stringent emission limits written into a permit. The President's bill 
would repeal source-by-source permitting, allowing polluters to 
``trade'' mercury. It also would likely result in mercury emissions 
increasing at specific power plants, according to EPA.
      Under current law, EPA is required to impose stricter 
standards if risks to public health remain. The President's bill 
removes that public health safeguard.
      Under current law, new sources of mercury are required to 
meet stringent mercury emission limits. Under President's bill, 
controls would be imposed on new power plants only if ``economically 
and technologically feasible'' for the plants to comply.

    Please take these concerns into consideration as you prepare to 
legislate on power plant emissions policy. We strongly urge you to 
reject any policy that weakens current law for any power plant 
pollutant and instead insist upon building on the strong foundation of 
the current Clean Air Act to strengthen public health safeguards.
            Sincerely,
                                   al

    Alabama Environmental Council Jayme Hill, Executive Director
        Birmingham, AL
                                   ar

    Eugene Levy, Rabbi Temple Banai Israel
        Little Rock, AR

    Timothy Reeves, Pastor
        First Presbyterian Church, Stuttgart
        Stuttgart, AR

    June Simmons
        All Our Children, Inc. West
        Memphis, AR
                                   ca

    Evan Paul Environment California
        Sacramento, CA

    Hanan Obeidi
        Southern California Public Health Association President

    George Luna Mayor Pro Tem
        City of Atascadero

    Carolyn Jackson
        Board Member, Park, Recreation, and Community Services Board
        City of Burbank

    Susan R. Ellis
        Environmental Commissioner
        City of Calabasas

    Robert Yalda
        Traffic and Transportation Division Manager
        City of Calabasas

    George Chapjian Mayor
        City of Duarte

    Connie Boardman, 8Mayor
        City of Huntington Beach

    Bonnie Lowenthal Councilmember
        City of Long Beach

    Dan Baker Councilmember
        City of Long Beach

    Christine Mulholland Vice-mayor
        City of San Luis Obispo

    Kenneth E. Schwartz, FAIA Councilman
        City of San Luis Obispo

    Kevin McKeown Mayor pro tem
        City of Santa Monica

    Michael Feinstein Councilmember
        City of Santa Monica

    Philip Gatch
        Director
        Community Development Agency
        City of Thousand Oaks

    Ben Wong Councilmember
        City of West Covina
                                   co
    Chris Cooper, Owner
        Pearl Street Software 1630A 30th St. 106
        Boulder, CO 80301

    Mark Rogers, Owner
        Conservation Consulting 433 Chestnut Way
        Broomfield, CO 80020

    Heidi Cies, Owner
        Heidi Cies Graphic Design 5440 Conley Way
        Denver, CO 80222

    Mark Stamper, Owner M
        ark Stamper Construction
        13284 W. 65th Drive
        Arvada, CO 80004.

    Ann S. Egan, Owner
        Awnings by Annie
        P.O. Box 2103
        Eagle, CO 81631

    William W. Gray, Owner
        Brush Creek Caretaking and Housesitting
        P.O. Box 2103
        Eagle, CO 81631

    Christopher N. Tennis
        Sanchez Tennis & Associates, LLC
        470 Fountaintree Lane Boulder,
        Colorado 80304

    Matthew Lancaster, ASMP
        Remarkable Earth Photography
        2855 Ash Street
        Denver, Colorado 80207

    Bill Clymer President
        CFV!
        P.O. 142
        Victor CO, 80860

    Robin Hubbard
        Environment Colorado Field Director
        Denver, CO

    Huron Bait and Tackle 866
        Washington St
        Thornton, Co. 80229

    Intermountain Communication Services, Inc.
        Dave Moore, Owner
        1416 Grand Ave.
        Glenwood Springs, CO 81601

    Ted Pascoe
        Physicians for Social Responsibility,
        Colorado Chapter 1738 Wynkoop #1
        Denver, CO 80202

    Amanda Champany, Community Organizer
        Colorado People's Environmental and Economic Network
        2332 E. 46th Ave
        Denver, CO 80206

    A-1 Scuba and Travel Center
        1800 W. Oxford Ave
        Englewood, CO 80110

    George Ewing, Manager
        Great Outdoor Clothing Company
        14500 W. Colfax Ave, #514
        Lakewood, CO 80401

    Mike Gilbert, Manager
        303 Boards
        14500 W. Colfax Ave 371
        Lakewood, CO 80401
                               sportsfan

    Scott Meyer, Manager
        14500 W. Colfax Ave
        Lakewood, CO 80401

    Carlos Santana Jr., Manager
        Just Sports USA
        14500 W. Colfax Ave #329
        Lakewood, CO 80401

    Mike Whitney, Manager
        The Athlete's Foot
        14500 W. Colfax Ave 407
        Lakewood, CO 80401

    Amanda Champany
        The Colorado People's Environmental and Economic Network
        2332 E 46th Ave
        Denver CO 80206

    Ted Pascoe
        Physicians for Social Responsibility-Colorado 1738 Wynkoop 1
        Denver, CO 20202
                                   ct

    Susanne Brazauskas
        Collaborative Center for Justice
        40 Clifford Street
        Hartford, CT 06114-1717

    Kelly Benkert
        Connecticut Public Interest Research Group
        Hartford, CT
                                   de

    Michael E. Riska Executive Director
        Delaware Nature Society
        Hockessin, DE
                                   fl

    Ronald Saff M.D.
        Allergy & Asthma Diagnostic Treatment Center
        2300 Centerville Rd.
        Tallahassee, FL. 32308

    Doreen Archer, Co-President
        League of Women Voters of Space Coast
        1265 St. George Rd.
        Merritt Island, FL 32952

    Mark Ferrulo
        Florida Public Interest Research Group
        Tallahassee, FL

    Harley Gutin Attorney at Law
        5190 North U.S. 1
        Cocoa, FL 32927

    Dr. D.K. Cinquemani, Ph.D., Chair
        Safe Earth Alliance 7100 Ulmerton Rd. 174
        Largo, FL 33771

    Southern Alliance for Clean Energy
        Ulla Reeves, Regional Air Director
        Pensacola, FL

    National Environmental Trust
        Tom Sadler
        Florida Representative
        Miramar, FL

    Legal Environmental Assistance Foundation
        Cynthia Valencic
        Vice President
        Tallahassee, FL

    Florida Consumer Action Network
        Bill Newton
        Executive Director
        Tampa, FL

    Southeastern Fisheries Association
        Bob Jones
        Executive Director
        Tallahassee, FL

    Florida Wildlife Federation
        Manley Fuller President
        Tallahassee, FL

    Allen Broussard Conservancy
        Dr. Wm. J. or Margaret Broussard
        3660 N. Riverside Drive
        Indialantic, FL 32903

    Friends of the Scrub
        Contact: Edwina R. Davis 430 Bahama Dr.
        Indialantic, FL 32903

    American Birding Association
        Dr. Wm. J. or Margaret Broussard, 321-777-0839
        St Cloud, FL
                                   ga
        Benjamin E. Mays Center
        8307 Creek Street Jonesboro, GA 30236
        Felicia Davis, executive director

    Georgia Kids Against Pollution Hunter's Bay Activity Center
        225 Johnson Road
        Forest Park, GA 30297
        John Taylor (Director)

    Jennifer Giegerich
        Georgia Public Interest Research Group
        Atlanta, GA

    Physicians for Social Responsibility/Atlanta
        Ed Arnold,
        Executive Director
        Atlanta, GA
                                   il

    American Friends Service Committee
        Chicago, IL

    Beverly Area Planning Association
        Chicago, IL

    Bolingbrook Earth Watch
        Bolingbrook, IL

    Chicago Recycling Coalition
        Chicago, IL

    Citizen Action/Illinois
        Chicago, IL

    Citizen Advocacy Center
        Elmhurst, IL

    Coalition for Consumer Rights
        Chicago, IL

    Community Action Group
        Chicago, IL

    Community Renewal Society
        Chicago, IL

    Crossroads Christian Youth Center
        Big Rock, IL

    Delta Institute
        Chicago, IL

    Human Action Community Organization
        Harvey, IL

    Illinois Audubon Society
        Danville, IL

    Illinois Center for Citizen Involvement
        Champaign/Urbana, IL

    Illinois Citizen Action
        Libertyville, IL

    Illinois Public Interest Research Group (Illinois PIRG)
        Chicago, IL

    Illinois Student Environmental Network
        Champaign/Urbana, IL

    Jensen Environmental Management
        Glen Ellyn, IL

    Lake County Conservation Alliance
        Grayslake, IL

    League of Women Voters of Illinois
        Chicago, IL

    Lyons Incineration Network
        Lyons, IL

    MCS: Health & Environment
        Evanston, IL

    Metro Seniors in Action
        Chicago, IL

    National Council of Jewish Women

    Prairie Sun Consultants
        Naperville, IL

    Protestants for the Common Good
        Chicago, IL

    Save the Prairie Society
        Westchester, IL

    Sheil Center
        Chicago, IL

    South Austin Coalition
        Chicago, IL

    South Cook County Environmental Action Coalition
        Blue Island, IL

    South Suburban Citizens Opposed to Polluting Our Environment
        Chicago Heights, IL
                                   in

    Valley Watch, Inc.
        John Blair, President
        Evansville, IN 47713

    Save the Dunes Council
        Michigan City, IN

    South Bend-Elkhart Audubon Society
        South Bend, IN

    Knob and Valley Audubon Society
        New Albany, IN
                                   la

    Susan Spicer Owner/Chef
        Bayona Restaurant
        New Orleans, LA

    Patrick Singley, Owner
        Gautreau's Restaurant
        New Orleans, LA

    John Harris, Owner/Chef
        Lilette Restaurant
        New Orleans, LA

    Gulf Restoration Network
        Cynthia Sarthou, Executive Director
        New Orleans, LA

    Citizens for a Clean Environment
        Bill Herke, Ph.D.
        Board Member and AFS Certified Fisheries Scientist

    Rene Bajeux, Owner/Chef

    Bingo Starr, Chef
        Rene Bistrot Restaurant
        New Orleans, LA

    Margaritaville Cafe
        New Orleans, LA

    The Alliance for Affordable Energy
        Micah Walker, Program Director
        New Orleans, LA

    Informed Choices
        Nancy Hirschfeld, President
        Slidell, LA

    Citizens Against Hazardous Waste Clarence Chandler
        DeQuincy, LA

    Louisiana Environmental Action Network (LEAN)
        Marylee Orr, Executive Director
        Baton Rouge, LA
                                   me
        Natural Resources Council of Maine
        Sue Jones, Air and Energy Project Director
        Augusta, ME
                                   ma
        Clean Water Action/Fund
        Brian Carlson Energy/Climate Organizer
        Boston MA 02108

    Frank Gorke
        Massachusetts Public Interest Research Group
        Boston, MA
                                   mi
        American Lung Association of MI 25900
        Greenfield, Suite 401
        Oak Park, MI 48237

    Michigan Environmental Council 119
        Pere Marquette Drive, Suite 2A
        Lansing, MI 48912

    National Environmental Trust
        Vicki Levengood
        Lansing, MI

    ACCESS
        2651 Saulino Court
        Dearborn, MI 48120

    Sierra Club
        3423 Charing Cross Road
        Ann Arbor, MI 48108

    Ecology Center
        117 N. Division St.
        Ann Arbor, MI 48104

    MI Council of the Environment and Jewish Life
        Bloomfield Hills, MI

    West Michigan Environmental Action Council
        1514 Wealthy St., SE, Suite 280
        Grand Rapids, MI 49506

    East Michigan Environmental Action Council
        21220 West 14 Mile Road
        Bloomfield Hills, MI 48301

    League of Conservation Voters
        Ann Arbor, MI

    League of Women Voters of Michigan
        200 Museum Drive, Suite 104
        Lansing, MI 48933-1997

    Grey Panthers
        Huron Valley
        Arthur Parris
        2115 Nature Cove Court, Apt. 106
        Ann Arbor, MI 48104

    SWDEV
        Detroit, MI 48209

    Catholic Archdioces
        305 Michigan Ave.
        Detroit, MI 48226-2605

    National Wildlife Federation
        Great Lakes Field Office
        213 W. Liberty, Suite 200
        Ann Arbor, MI 48104-1398

    Brian Imus
        PIRGIM
        Ann Arbor, MI
                                   mo

    Learning Disability Association of Missouri
        Springfield, MO

    Citizens for Missouri's Children
        St. Louis, MO

    Shannon Baker
        Missouri PIRG
        St. Louis, MO
                                   mn
        Clean Water Action Alliance of MN
        Patience Caso, Water Program Coordinator
        Minneapolis, MN

    Rochester's Energy Future Coalition
        Gael Entrikin
        Rochester MN

    Mankato Area Environmentalists
        Sister Gladys Schmitz, SSND
        Mankato, MN

    Izaak Walton League of America, Minnesota Division
        Steve McNaughton, President
        St. Paul, MN

    Friends of the Boundary Waters Wilderness
        Sean Wherley
        Policy and Education Coordinator
        Minneapolis, MN

    St. Croix River Association
        Richard Meierotto Board of Directors
        Afton, MN

    Mississippi Corridor Neighborhood Coalition
        Amy Luesebrink and Randy Kouri, Co-Presidents
        Minneapolis, MN

    St. Croix Valley Interstate Group, Sierra Club
        Kathleen Vollmer, Executive Committee Member
        Stillwater, MN

    Environmental Association for Great Lakes Education (EAGLE)
        Craig Minowa, Technical Director
        Duluth, MN
                                   nc
        Appalachian Voices
        Scott Gollwitzer, Staff Attorney/Clean Air Campaign Coordinator
        Asheville, NC

    North Carolina Public Interest Research Group
        Elizabeth Ouzts
        Chapel Hill, NC
                                   nj
        New Jersey Environmental Lobby
        Marie A. Curtis
        Executive Director Trenton, NJ

    New Jersey Public Interest Research Group
        Dena Motolla
        Trenton, NJ
                                   ny
        Environmental Advocates of New York
        Val Washington
        Executive Director
        Albany, NY
                                   oh
        Ohio Environmental Council
        Kurt Waltzer
        Clean Air Program Coordinator
        Columbus, OH

    Ohio Public Interest Research Group
        Amy Simpson
        Cleveland, OH
                                   pa
        Joseph Otis Minott Executive Director
        Clean Air Council
        Philadelphia, PA

    PennEnvironment
        David Masur
        Philadelphia, PA
                                   ri
        Childhood Lead Action Project
        Roberta Hazen Aaronsen

    Innovative Product Systems
        Len Pichea, President

    A Wish Come True
        Lee Green

    Rhode Island Public Interest Research Group
        Kate Strouse-Canada

    Clean Water Action
        Sheila Dormody, RI Director
                                   sc
        SC Wildlife Federation
        2711 Middleburg Drive, Suite 104
        Columbia, SC 29204

    SC Environmental Watch
        Rainie Jueschke
        Columbia, SC 29202

    State Rep. Joe Neal
        309B Blatt Bldg.,
        Columbia, SC 29211

    SC Department of Natural Resources
        Charlie Moore
        Rembert C. Dennis Building 1000 Assembly Street
        Columbia, SC 29201

    SC Nurses Association
        1821 Gadsden Street
        Columbia, SC 29201
                                   tn
        Tennessee Environmental Council
        Will Callaway, Executive Director
        Nashville, TN

    Southern Alliance for Clean Energy
        Stephen Smith, Executive Director
        Knoxville, Tennessee
                                   tx
        Friends of the Sabine
        Richard LeTourneau, Chairman
        Longview, Texas

    Texas Environmental Democrats
        Darby Riley, President
        San Antonio, Texas

    Galveston--Houston Association for Smog Prevention (GHASP)
        John D. Wilson, Executive Director
        Houston, TX

    Texas Black Bass Unlimited
        Ed Parten, President

    Texas Association of Bass Clubs
        SMART (Sensible Management of Aquatic Resources)

    John Spicer
        Long Supply Company

    April Plaza Marina and Hotel
        Ron Werner, Owner

    Fly Angler's Edge
        Kenny Murph, Manager

    Honey Hole Fishing Magazine
        Jerry and Debra Dean, Owners
                                   ut
        American Lung Association of Utah
        1930 South 1100
        East Salt Lake City, UT 84106-2317

    American Cancer Society
        941 E. 3300 S
        Salt Lake City, UT 84106 (801)483-1500

    Wasatch Clean Air Coalition
        Salt Lake City, UT

    Dr. Richard E. Kanner
        Director of the Pulmonary Function Lab at the University of 
Utah; former member and Chairman of the Utah Department of 
Environmental Quality's Air Quality Board

    J.E.D.I. WOMEN
        352 South Denver St. (440E) Suite 260
        Salt Lake City, Utah 84111

    Save our Canyons
        68 South Main Street, 4th floor
        Salt Lake City, UT 84101

    Utah River Keepers

    Salt Lake City Council Member Nancy Saxton
        451 South State Street
        Salt Lake City, Utah 84111

    Utah State Representative Mark Litvack
        181 East Edith Avenue
        Salt Lake City, Utah 84111

    Professor John Veranth
        Research Assistant Professor of Pharmacology and Toxicology
        University of Utah Health Sciences Center 50 North Medical 
Drive
        Salt Lake City, Utah 84132

    Utah State Representative Jackie Biskupski
        753 East Roosevelt Avenue
        Salt Lake City, Utah 84105

    Wayne Samuelson, M.D.
        University of Utah School of Medicine 308 Park Building
        Salt Lake City, Utah 84112

    Great Salt Lake Audubon
        P.O. Box 520867,
        Salt Lake City, Utah 84152-0867

    Families Against Incinerator Risk
        165 South Main Street
        Salt Lake City, UT 84111

    HEAL UTAH
        68 S Main St, Suite 400
        Salt Lake City, UT 84101
                                   wa
        Washington Toxics Coalition
        Seattle, WA

    Northwest Energy Coalition
        Seattle, WA

    Washington Physicians for Social Responsibility Environment and 
Health Committee,
        Seattle, WA

    Washington Association of Churches
        Seattle, WA

    RE Sources
        Bellingham, WA

    Coalition For Environmentally Safe Schools
        Olympia, WA

    Lutheran Public Policy Office
        Tacoma, WA

    Seattle Audubon Society
        Seattle, WA

    Dr. Don Johnson
    Okanogan County PUD Commissioner
        Okanogan, WA

    Transportation Choices Coalition, Spokane Chapter
        Spokane, WA

    NW Sustainable Energy for Economic Development
    Seattle, WA
                                   wi
        Trout Unlimited--Fox Valley Chapter Tom Deer, President
        1271 Maple St.
        Neenah, WI 54956

    Trout Unlimited--Oconto River Chapter
        Dave Brunner
        5473 Cardinal Rd.
        Gillett, WI 54124

    Wisconsin Conference of the United Methodist Church
        Reverend Dave Steffenson, Ph.D., Eco-Justice Coordinator,
        Board of Church & Society PO Box 21
        Columbus, WI 53925

    Lutheran Office for Public Policy
        Reverend Sue Moline-Larson
        322 E. Washington Avenue
        Madison, WI 53703

    Family Farm Defenders
        John Peck, Executive Director
        PO Box 1772
        Madison, WI 53701

    Lake Superior Greens
        Jan Conley
        2406 Hughitt
        Superior, WI 54880

    River Alliance of Wisconsin
        Diana Toledo, Acting Director
        306 E. Wilson Street
        Madison, WI 53703

    Citizens Utility Board
        Steve Hinicker, Director
        16 N. Carroll Street
        Madison, WI 53703

    Melissa K. Scanlan
        Executive Director
        Midwest Environmental Advocates 702 East Johnson Street
        Madison, Wisconsin 53703

    Laura Olah
        Executive Director
        Citizens for Safe Water Around Badger
    E12629 Weigands Bay S
        Merrimac, WI 53561

    Bob Olsgard
        Lake Superior Waterkeeper
        The Lake Superior Alliance
        Spooner, WI
    Senator Jeffords. I would also like to place into the 
record a letter from a coalition of public health and 
environmental organizations stating their support of the 
current Clean Air Act.
    Senator Voinovich. Without objection.
    [The information referred to follows:]
                        Americans for Clean Air
                                                       May 7, 2003.
The Honorable James Inhofe, Chair,
Committee on Environment and Public Works
U.S. Senate
Washington, DC 20510

The Honorable Billy Tauzin, Chair,
Committee on Energy and Commerce
U.S. House of Representatives
Washington, DC 20515
Dear Chairman Inhofe and Chairman Tauzin: For over three decades, the 
Clean Air Act has worked to improve public health and protect the 
environment. We, the undersigned health, senior's, religious, labor, 
civil rights, children's, parent's, women's, consumer and environmental 
organizations strongly support the Clean Air Act and vigorously oppose 
legislation that will weaken or delay the implementation of the law.
    The Clean Air Act is working. By enforcing the law, air pollution 
levels have dropped at the same time the nation's economy has grown 
dramatically. The Clean Air Act amendments that you have introduced at 
the request of the administration would disrupt this progress, harm 
public health and worsen global warming. If the Clean Air Act is 
changed, it should be strengthened, not weakened.
    Today, the Clean Air Act is designed to protect the health of all 
Americans. Pregnant women, children, people with heart disease and lung 
diseases (such as asthma and emphysema), seniors and other populations 
at risk for diseases like cancer must be protected from the harmful 
effects of poisonous mercury in our waters, toxic air pollution, smog 
and soot. America's National Parks and other unique landscapes must be 
protected from air pollution, haze and irreversible damage to our 
environment.
    The Clean Air Act sets strong standards to cut pollution from power 
plants and other industrial sources to meet the health-based air 
quality standards for soot and smog. Power plants are required to 
sharply reduce their sulfur and nitrogen emissions by the end of this 
decade. Current law also requires power plants to install state-of-the-
art technologies that will deeply cut mercury contamination by 2008.
    The Bush Administration's air pollution proposal weakens the Clean 
Air Act in several important ways. The bill delays deadlines to meet 
the health standards and relaxes pollution reduction requirements for 
power plants and other major pollution sources. The proposal repeals 
the requirement for power plants to install state-of-the-art pollution 
controls to reduce toxic mercury emissions. Critical states' authority 
to set strong clean-up standards is repealed. The plan also makes 
global warming worse by allowing carbon pollution to increase.
    The current Clean Air Act provides critical tools that the states 
and the Environmental Protection Agency can use to achieve clean air. 
Please do not weaken industry's responsibility to clean up power plants 
and other smokestacks. Do not postpone the requirements to meet health-
based standards. Do not diminish the rights of downwind states to 
protect themselves from pollution produced outside their borders.
    All Americans have a right to breathe clean, healthful air. That is 
the promise of the landmark Clean Air Act. This promise should never be 
broken.
            Sincerely,
Alpha-1 Foundation.

American Association of People with Disabilities.

American Cancer Society.

American Heart Association.

American Lung Association.

American Public Health Association.

American Thoracic Society.

Asthma and Allergy Foundation of America.

Breakthrough Technologies Institute.

Center for International Environmental Law.

Central Conference of American Rabbis.

Children's Environmental Health Network.

Citizens Coal Council.

Citizens for a Better Environment.

Clean Air Task Force.

Clean Air Trust Education Fund.

Clean Water Action.

Clear The Air.

Climate Solutions.

Coalition on the Environment and Jewish Life (COEJL).

Consumer Action.

Defenders of Wildlife.

Environmental Defense.

Environmental Defense Center.

Environmental Integrity Project.

Friends Committee on National Legislation.

Friends of the Earth.

Green House Network Greenpeace.

Healthy Schools Network.

International Primate Protection League.

Kids Against Pollution.

League of Conservation Voters.

League of United Latin American Citizens.

League of Women Voters of the United States.

National Adult Day Services Association.

National Association for the Advancement of Colored People (NAACP).

National Association of the County and City Health Officials.

National Audubon Society.

National Consumers League.

National Council on the Aging.

National Environmental Trust.

National Parks Conservation Association.

National Wildlife Federation.

Natural Resources Defense Council.

OMB Watch.

Our Children's Earth Foundation.

The Ocean Conservancy.

Physicians for Social Responsibility.

Presbyterian Church (USA) Washington Office.

Public Citizen.

Public Employers for Environmental Responsibility.

Religious Action Forum.

Sierra Club.

Trust for America's Health.

Union of American Hebrew Congregations.

Union of Concerned Scientists.

United Church of Christ Justice and Witness Ministries.

United Methodist Church General Board of Church and Society.

United Steelworkers of America.

U.S. Environmental Watch.

U.S. Public Interest Research Group.

Wildlands CPR.

Women's Environment and Development Organization.

Women's International League for Peace and Freedom.

Woman's National Democratic Club.

Working Assets.

20/20 Vision.
    Senator Jeffords. Finally, most projections indicate that 
new electricity generation will come largely from natural gas 
for mainly economic reasons. Most of that generation will be 
for peaking power and those natural gas facilities that are new 
baseload will be replacing older, inefficient natural gas-fired 
plants and not replacing coal.
    According to the testimony of today's witnesses and the 
experts in the natural gas industry, there will be plenty of 
natural gas to meet the projected growth of demand for 
electricity but if coal wants to expand its market share beyond 
the current 55 percent it now enjoys and really grow, then the 
test is simple, produce power that meets public health and 
environmental needs of America today and into the future.
    Thank you, Mr. Chairman.
    Senator Voinovich. Thank you, Senator Jeffords.
    Mr. McSlarrow, we apologize for holding you up this 
morning. We had a very important vote in the U.S. Senate that I 
was particularly interested in, the legislation to open up NATO 
to seven new nations. It is a historic day for those nations 
and for our country and the future of NATO organizations. I 
apologize for not getting started on time.
    We are very happy to have you here today and look forward 
to your testimony.

 STATEMENT OF HON. KYLE E. MC SLARROW, DEPUTY SECRETARY, U.S. 
                      DEPARTMENT OF ENERGY

    Mr. McSlarrow. Thank you, Mr. Chairman.
    With your permission, I would like to briefly summarize my 
testimony and submit it in full for the record.
    I am pleased to appear before you today to discuss the 
Administration's National Energy Policy and to discuss why we 
think Clear Skies is a critical component as you said of the 
President's strategy to confront both our energy and 
environmental challenges. We are pleased the Senate is now 
considering a comprehensive energy bill and commend Chairman 
Domenici and the members of his committee for acting so 
swiftly. We commend you, Mr. Chairman and this committee for 
moving aggressively to consider the Clear Skies legislation.
    The Nation's demand for electricity is projected to grow 
significantly over the next 22-25 years. Between now and 2025, 
the United States will likely have to add between 446 and 665 
gigawatts of new generating capacity to meet growing demand. 
This is equivalent to adding the entire power generation sector 
in Germany and Japan combined to the U.S. power grid. 
Concurrently, with this expansion of the Nation's power fleet, 
power generators will also be called upon to make new 
investments in pollution control technologies to meet 
tightening environmental standards.
    Over the past 25 years, America's electricity utility 
industry has invested billions of dollars in advance 
technologies to improve the quality of our air. In terms of 
long term energy trends, we long ago ceased to fully provide 
for our petroleum needs domestically and though most of our 
natural gas demand can be met with North American production, 
the trend here is also toward a greater share of imported 
natural gas. Coal, our most abundant energy resource, is 
actually projected to reduce its percentage share of 
electricity generation.
    President Bush recognized that to prevent these problems 
from becoming a permanent feature of American life, we needed a 
long term plan. President Bush's National Energy Policy 
released in May 2001 reflected a few fundamental principles. 
First, we need to maintain a diversity of fuels from multiple 
sources. Second, we should seek opportunities for increased 
investment trade, exploration and development which are 
increasing every year far beyond the traditional markets of the 
last 50 years. Third, we should focus research and development 
on initiatives that seek long term solutions to our energy 
challenges as we have done with energy efficiency, renewable 
energy, hydrogen, fusion and nuclear energy as well as the 
recently announced zero-emission FutureGen coal project.
    The National Energy Policy also highlighted the growing 
need for attention to the Nation's electricity markets and 
infrastructure. We strongly believe that Clear Skies is a key 
component to meet that goal as is a comprehensive energy bill 
that includes a sound electricity title to modernize our 
wholesale electricity markets. A well functioning, wholesale 
market brings its own rewards. As confidence is gained that the 
system is reliable and capable of coping with the high demand 
for electricity, there will increasingly be less need for 
restrictive and prescriptive regulation. That is the point when 
much needed investment is likely to be attracted--investment in 
new technologies and improved generation and transmission 
facilities that produces additional energy and environmental 
benefits.
    When the opposite is true, when uncertainty reins, when 
reliability is questioned, when prices seem detached from 
market forces, investment vanishes. The present uncertainty in 
the wholesale electricity market is not simply affected by 
policy choices that center on transmission assets and market 
designs. The uncertainty extends to the generation of 
electricity itself and that is why it is so important to 
provide greater regulatory certainty about the kinds of 
investment choices the generating industry will have to make 
over the next two decades. We believe the Clear Skies proposal 
does just that.
    It is difficult to quantify what the cost to our energy 
impacts will be if multi-pollutant legislation is not enacted. 
The Energy Information Administration from which most of our 
numbers are drawn, the EIA baseline, includes all future 
legislation and regulations that have been specified or enacted 
but does not include regulations not yet promulgated. 
Therefore, we know in the absence of this legislation before 
the committee, mercury regulations will be promulgated by 
December of next year but we do not know what those regulations 
will be. We can anticipate that additional regulations on 
SO2 and NOx will be required but we do not know what 
those regulations will be either. We can anticipate additional 
regulations to reduce regional haze, but again, we don't know 
what they will be.
    What we should be concerned with is this. Uncertainty, 
delay and litigation which are the chief hallmarks of the 
current process under the Clean Air Act are not likely to 
produce greater environmental benefits but instead are likely 
to lead to more costly solutions and risk affecting the energy 
fuel mix in ways that are unwarranted and unforeseen. Although 
we have not contrasted Clear Skies to this unknown regulatory 
future, we have compared it to a future predicated on current 
control programs.
    Under Clear Skies natural gas consumption, which is 
currently projected to increase to about 35 trillion cubic feet 
in 2025 increases to 36 trillion cubic feet, 1 tcf additional. 
However, we do not project that a significant change in natural 
gas supply is needed due to the implementation of Clear Skies. 
Wellhead natural gas prices follow the baseline pattern after 
decreasing from the unusually high prices that occurred in 
2001.
    Clear Skies helps maintain coal as an important fuel 
source, thereby avoiding excessive pressure on natural gas 
prices. In our baseline, coal consumption would increase about 
38 percent through 2025. Under Clear Skies, it increases to a 
lesser extent but still an increase of 26 percent. EIA also 
projects electricity prices will lower throughout the 
projection period for both the baseline scenario and under 
Clear Skies. The effect of emission reductions is roughly a 0.3 
cents per kilowatt hour price increase.
    In closing, one of the concerns we have is the ever 
increasing reliance on natural gas. Because our marginal supply 
of natural gas will increasingly come imported liquefied 
natural gas, we should be concerned that we not place too much 
stress on the natural gas supply by forcing a level of fuel 
switching from coal to gas that leads to higher volatility and 
higher prices. Natural gas supply as a low cost, reliable 
source of electricity is not automatic. One only has to witness 
the winters of 2000, 2001 and the one we just experienced to 
see the point. It is therefore critically important that we 
maintain a balanced, diversity of fuels to provide low cost and 
abundant electricity. The key to this is that we not assume 
that all policy objectives can be achieved simply by unlimited 
reliance on natural gas.
    Thank you.
    Senator Voinovich. Again, we want to thank you for being 
here this morning.
    I understand the Natural Petroleum Council is currently 
working on a natural gas report that was requested by Secretary 
Abraham last year. This report follows a similar report issued 
by the NPC in 1999 which I will, without objection, enter into 
the record.
    [The document is printed in the appendix to this hearing 
record:]
    Senator Voinovich. Can you give us any idea of the scope of 
that report and when it is going to be released?
    Mr. McSlarrow. I believe the target for release is 
September. The scope of the report is much the same as the 1999 
report which is a comprehensive look at both the supply and the 
demand side of the natural gas equation, as well as a look at 
technologies for exploration and production.
    The reason it was asked for is because as you know there is 
a significant debate going on right now in the natural gas 
industry about the future of supply and demand in this country. 
There are increasing concerns about whether or not and to what 
extent we are going to meet our needs with domestic or at a 
minimum, North American production. I can't tell you at this 
point obviously the conclusions of that report will be. I have 
been briefed on interim analyses but I would say this. Nothing 
I have seen right now leads me to any other conclusion than 
that we have a looming problem in natural gas supply.
    Senator Voinovich. What does the Administration believe are 
the potential effects on our manufacturing sector of any policy 
or legislation that will result in massive fuel switching from 
coal to natural gas? Have you calculated what impact that would 
have on the economy of this country?
    Mr. McSlarrow. I am unaware.
    Senator Voinovich. For that matter, what is already 
happening?
    Mr. McSlarrow. I am unaware of a calculation but I will go 
back and check and see if EIA has something and something for 
you for the record. There is no question that those industries 
with huge variable fuel costs, particularly with what has 
happened in natural gas, experience a huge crunch. If we have 
quantified it, I will get that to you.
    Senator Voinovich. It is interesting because last week I 
had the man who is in charge of Bayer in the United States, 
with 22,000 employees in the U.S., who fundamentally said the 
cost of natural gas here was so much higher than it is in 
Europe and frankly, he was giving consideration to moving some 
of his operations back to Europe because of the high cost of 
natural gas. They are competing with these products in the 
global marketplace.
    Who would have information on that type of thing, the 
Department of Commerce or who?
    Mr. McSlarrow. It is possible the Department of Commerce 
and also it is possible that our Energy Information 
Administration would have that as well as manufacturing groups 
themselves. We will do some research and get back to you.
    Senator Voinovich. I would like to find out if there is 
anybody monitoring this at all in the Federal Government and we 
can get some statistical information.
    Mr. McSlarrow. There is usually a statistic for everything 
in the government, so I am sure it is there.
    Senator Voinovich. an article in the Akron Beacon Journal 
last Sunday, which I will without objection enter into the 
record.
    [The information referred to follows:]
              [From the Akron Beacon Journal, May 4, 2003]

                      Natural Gas Outlook: Costly
                           (By Jim Mackinnon)

    This past long, cold winter, if followed with a long, hot summer, 
may leave Northeast Ohio natural gas users more under the weather than 
usual.
    Natural gas supplies, already sharply depleted by a frigid winter 
that drove up heating usage, will come under even more pressure if 
prolonged hot weather this summer causes natural gas-powered 
``peaking'' electric plants to fire up more than usual to meet air-
conditioning demand. Those plants use a lot of natural gas and may be 
needed for sustained periods just when gas companies want to fill their 
underground storage systems ahead of next winter.
    And it looks like Mother Nature may not provide much help. The 
latest National Weather Service long-range outlook says it is likely 
much of the Nation will have above-normal temperatures this summer.
    The result may be higher-than typical prices for natural gas users, 
though producers and sellers such as Dominion East Ohio say we won't 
have to worry about running out of the fuel.
    ``This past winter is going to have a lot of repercussions,'' said 
Jeff Murphy, director of pricing and regulatory affairs for Dominion 
East Ohio. ``All things considered, we're seeing a lot of upward 
pressure on prices.''
    Basically, that means tight supply, low production and increasing 
demand.
    And while that may be good for natural gas producers, it's not for 
those who buy gas.
    The latest Federal information shows 741 billion cubic feet of 
natural gas in underground storage nationally as of April 24--well 
below the more than 1.6 trillion cubic feet stored in the same period a 
year ago. The 5-year average of natural gas storage for this time of 
year is about 1.3 trillion cubic feet, according to the Energy 
Information Administration.
    To get some idea of how weather can play havoc with natural gas 
supplies as well as household heating bills, look at Dominion East Ohio 
customers.
    They burned a lot more gas on average this past winter than during 
the previous year, Dominion East Ohio spokesman Neil Durbin said.
    The average Northeast Ohio household from December 2001 through 
February 2002 burned 42.3 thousand cubic feet of gas, he said. From 
December 2002 through February this year, that average household burned 
63.5 thousand cubic feet of gas, he said.
    The end result: Way less natural gas left in underground storage by 
the time spring arrived.
    ``We're going to have to scramble to put gas in the ground. That 
will keep gas prices high,'' said Chuck Faber, director of corporate 
development for Twinsburg-based natural gas and oil explorer North 
Coast Energy Inc. The natural gas industry will want to have about 
three trillion cubic feet of gas stored in time for next winter to be 
comfortable, he said.
    ``We could see $7 (wholesale natural) gas in the summertime,'' 
Faber said. The wholesale price now is about $5 per thousand cubic 
feet. Residential customers pay more--there are taxes, and utilities 
tack on additional charges for transporting and delivering the gas to 
households, which is where they make their profit.
    There could be price spikes, too, if hurricanes temporarily shut 
down natural gas production platforms in the Gulf of Mexico, Faber 
said.
    Gas producers have been increasing well drilling, but North Coast 
and other companies remain reluctant to ramp up production 
dramatically, Faber said. The cost of drilling a 4,000-to 5,000-foot-
deep well is between $160,000 to $180,000, while a 10,000-foot well can 
cost between $1.5 million and $2 million, he said.
    In addition, it's been harder for drillers to get financing to put 
in new wells, said FirstEnergy Corp. spokeswoman Kristen Baird. The 
Akron utility produces, buys and sells natural gas for its own gas-
fired peaking plants as well as for retail customers.
    ``We anticipate pricing will continue to be on the high end,'' 
Baird said.
    The Energy Information Administration reports that natural gas 
production in the U.S. fell by 2.6 percent last year, but should 
increase by 1.5 percent this year. Even so, demand is expected to 
increase by 2.7 percent this year compared to last.
    ``The big gas wells are being depleted,'' said Peggy Laramie, 
spokeswoman for the American Gas Association, which represents the 
natural gas utility industry.
    Because of supply and demand imbalances, the association feels that 
natural gas prices are going to fluctuate a lot more than they did in 
the late 1990's, Laramie said. To increase supply, the association and 
its members are lobbying the Federal Government to relax regulations 
and allow them to drill for natural gas in places now off limits to 
them.
    The Federal Government, meanwhile, is looking to ensure that 
companies don't engage in price fixing or other illegal means to boost 
prices and profits.
    It's not all bad news for consumers out there.
    John Tobin of the Colorado-based Energy Literacy Project said North 
America gas supplies are vast. But while the supply is there, getting 
it to customers by drilling and putting it in pipelines is proving more 
difficult, he said.
    Tobin said he thinks competition from lower petroleum prices will 
help moderate natural gas prices. Energy sources have to compete 
against each other, he said.
    But Faber at North Coast Energy said his outlook is that natural 
gas will trade and sell at a premium relative to oil, even though 
traditionally oil has been more expensive than gas. Part of that has to 
do with the increased demand for gas, which burns more cleanly than 
oil, and the ability of oil to be more easily transported, he said.
    Wellhead prices--basically, wholesale prices--are well down from 
their peaks in February and early March.
    Nationally, the wellhead price of natural gas in the 2002-2003 
winter heating season averaged $4.44 per thousand cubic feet, $2.08 
more than the previous winter, according to Federal data.
    But don't expect to see the return of $2 per thousand cubic feet 
wellhead prices, energy analysts and others said. They estimate 
wellhead natural gas will range between $4.50 and $5.50 per thousand 
cubic feet through at least the summer and probably into 2004.
    For huge industrial consumers of natural gas, the higher costs eat 
away at profits.
    Besides its use in heating buildings and making electricity, 
natural gas is a key component for fertilizer makers, polymer companies 
and the steel industry.
    The Timken Co. burns about 8 billion cubic feet of natural gas a 
year, said Peggy Claytor, senior government affairs specialist for the 
Canton maker of bearings and specialty steel. Claytor, the company's 
former energy purchaser, specializes in energy and environment issues 
for Timken.
    About 92 percent of the gas Timken uses is used to heat treat 
bearings and steel, with the remainder used for such things as heating 
boilers, she said.
    While Timken and other companies can hedge the financial costs of 
gas, they often have to eat the higher energy costs, she said,
    ``You do not have the luxury of shutting down (a plant) because you 
have customer obligations to meet,'' Claytor said.
    The higher prices have been a strong incentive for Timken and other 
companies to become more energy efficient, she said. Timken's changes 
have lowered the its natural gas consumption by 34 percent, she said.
    The recession and slow economic growth have also moderated natural 
gas prices by reducing industrial and business demand, she said.
    ``An economic recovery will put more pressure on prices,'' Claytor 
said. ``In a sense, we are fortunate that our economic recovery has 
been anemic.''
    Senator Voinovich. Highlights the pressures placed on 
natural gas supplies by the frigid winter that we had in Ohio 
and notes that the National Weather Service is predicting that 
much of the Nation will have above normal temperatures this 
summer. If hot weather this summer causes natural gas power 
plants to operate at higher than average levels, what impact 
will that have on our natural gas supplies and prices?
    Mr. McSlarrow. It will have a huge impact. We have a 
problem right now. We are coming out of a season in which we 
had low storage. This is the time when you traditionally build 
storage all the way through the summer to get ready for the 
next winter heating season. The last numbers I saw were that we 
were about 700 billion cubic feet in storage which is about 500 
billion cubic feet below the 5 year average.
    If we have a hot summer and natural gas is consumed in 
greater amounts for the generation of electricity for air 
conditioning and the like, we are going to go into the next 
winter even lower than we did the last. That puts us at risk 
for a lot more higher and volatile prices.
    Senator Voinovich. We have been joined by Senator Carper. 
Senator, would you want to make a statement or ask Mr. 
McSlarrow some questions?
    Senator Carper. Is Senator Jeffords next in line to ask 
questions?
    Senator Jeffords. Yes, but I will defer.
    Senator Carper. Let me defer to you and then I have some 
welcoming comments for Mr. McSlarrow. I have just had an 
exciting train ride from Delaware this morning. I want to calm 
down just a little bit before I say anything.
    Senator Voinovich. Senator Jeffords?
    Senator Jeffords. I just have one question. How many coal 
plants does the Administration project are going to switch to 
natural gas due to the environmental regulations over the next 
10 years?
    Mr. McSlarrow. I don't have a number off the top of my 
head. We will get that for the record.
    Senator Jeffords. I would appreciate that because obviously 
this is a very difficult question in the sense of the future of 
this country and our energy costs.
    Senator Voinovich. Senator Jeffords, I can say this to you. 
All of the new powerplants in Ohio that have been built, and 
there have been a lot of them, are all fueled by natural gas.
    Senator Carper?

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

    Senator Carper. I have calmed down.
    Deputy Secretary McSlarrow, how are you doing?
    Mr. McSlarrow. Very well, Senator.
    Senator Carper. Glad you are here and glad you are in your 
position.
    I get to come over and spend some time with your boss this 
afternoon. I am looking forward to that as well. It has to be a 
busy time for you with the energy bill coming to the floor. A 
good deal of what we will discuss there actually has some 
ramifications for what we are covering here as you know.
    I have introduced, along with Senator Chafee and Senator 
Gregg, legislation to attempt to slow the growth of emissions 
of CO2 principally from our utilities in this 
country. I did not have a chance to hear your testimony this 
morning but I am mindful of the concern that some have raised 
and I hear a little here today about if we adopt a fourth 
pollutant, address CO2 in clean air legislation this 
year, we will exacerbate the shift from coal to natural gas.
    Let me say by way of a disclaimer, I know I am the only 
United States Senator who was born in West Virginia and I still 
have a lot of family there and a lot of affection for that 
State and its economy. It is not driven entirely by coal but it 
is still a major part of the economy of my native State. I am 
not interested in doing anything that is going to harm that 
industry or West Virginia, for that matter.
    I just heard the chairman say in Ohio all the new utility 
plants that have come on line of late have been natural gas in 
nature. I think the same is true in Delaware. That has happened 
with a three pollutant bill. It just happened because of 
concern of States and industry to clean up the air. For the 
most part, it is easier and maybe cheaper for them to move 
toward natural gas than coal.
    I want to make a couple of points and I would be interested 
in your thinking on this as well. There is a fair amount of 
uncertainty within the investment community on whether or not 
they ought to invest in utilities that are making major 
investments in coal-fired plants. We have heard testimony about 
the emissions from clean coal technology that are really just 
as good as what you are going to find in natural gas-fired 
plants but there is a reluctance on the part of investors to 
invest in companies or utilities that are going to bring those 
on line because they don't know if we are going to pass a 3-P 
or 4-P bill. They don't know if it is going to be a market 
driven system, will there be caps and trades available, and are 
just uncertain of the nature of what we are going to do 
legislatively and what you will be doing regulatorily. Are we 
going to make any changes in new source review. There is a lot 
of uncertainty.
    One of the reasons why I am interested in a 4-P bill that 
addresses carbon dioxide is I want to provide some certainty. I 
want to provide some certainty to the utilities and I want to 
provide some certainty to the investors as well.
    I have seen information that suggests if our legislation, 
the legislation that Senators Chafee, Gregg and I have 
introduced, were to become law there would be I am told a 3 
percent further shift from coal to natural gas. I don't want to 
even see that.
    That is a round about way of asking this question. Let's 
talk about the willingness of investors to invest in clean coal 
technology and how that willingness might be driven, increased, 
enhanced by some certainty with respect to what we are going to 
be doing on new source review and whether or not we are going 
to be regulating carbon.
    Mr. McSlarrow. There is no question that certainty is in 
some ways at the center of much of the debate and at the center 
of much of the concern, both in terms of those who would invest 
in utilities and in particular kinds of plants and those who 
actually have to operate them and those who have to produce 
fuels.
    My initial point would be we can provide certainty about 
passing Clear Skies, that would provide certainty, but to be 
fair to the question you asked, I think we really do have a 
concern. The numbers I have seen on your bill are a little 
larger in terms of the fuel switching but I also understand you 
just introduced a new version, so it's possible there is a 
difference between last year and now.
    This is about marginal costs. This entire energy debate 
whether natural gas, coal or anything else in terms of what 
drives the cost of fuel in the electricity generation sector 
and the more we switch to natural gas and the more we have that 
effect, and there is no question that any bill that has a 
carbon cap is going to have some effect in a way that 3-P bill 
won't, is going to increasingly place this kind of pressure on 
natural gas at a time when it's already volatile in our view, 
and not very well understood as a driver of all the generation 
costs for all the other fuels.
    There is no question that we have uncertainty surrounding 
the new source review rulemakings but again, as soon as we 
complete them, we will have certainty. The great thing about 
Clear Skies is that by making very clear the targets and 
allowing people the kind of time to make the investment 
decisions, not so much in the assets themselves but in the 
technologies that can control the emissions, we think gives the 
kind of confidence at least in the discussions I have had with 
market analysts, then the kind of confidence that this is worth 
investing in. They understand the rules of the road and are 
pleading for them. They also know that they are reasonable and 
achievable. I think we have a game plan right now that does 
that.
    Carbon caps, putting aside the entire policy debate about 
carbon and focusing on energy impacts, the scary thing about 
carbon caps is we don't understand the control technologies 
necessary to deal with it. We do have some understanding, and 
are putting a lot of money into, carbon sequestration. For 
example, as you well know, the President has proposed a billion 
dollar FutureGen coal plant, not just to produce electricity 
and hydrogen but also to demonstrate how you can divert a 
carbon stream and sequester it.
    I think we need to do those things first. We have a lot of 
work to do to understand how to deal with these things let 
alone before you get to the policy debate of whether or not you 
should deal with it.
    Senator Voinovich. I'd like to point out, Senator Carper, 
our third hearing will deal with emissions technology and the 
issues surrounding financial stability.
    Senator Carper. Great.
    Senator Voinovich. What the investors have to say about the 
current situation as contrasted to Clear Skies or hopefully we 
will even get into talking about what Senator Jeffords offered 
last year with his legislation. Do you have more questions?
    Senator Carper. Maybe a point and maybe a short question.
    I mentioned the numbers I have heard, 3 percent increase in 
terms of shifting from coal to natural gas that might be driven 
by our legislation. While I am not interested in seeing a 1 
percent shift, it is not as great as some had feared.
    The other number I would share is if we pass a 4-P bill or 
a 3-P bill, there are going to be certain costs incurred by 
generators of electricity that will be driven by that. If we 
add a fourth P or add carbon to that, there are some additional 
costs. The numbers we understand have been driven not by us but 
by more objective people than the authors of the bill, suggest 
that the additional cost to utilities would be about 2 percent.
    If those numbers are indeed correct, a 2 percent additional 
cost by adding a fourth P, and a 3 percent shift from coal to 
natural gas, I think it is important that we figure out with 
some certainty if those numbers are correct and if they are, 
then we have to make the judgment of whether that is worth a 
tradeoff in terms of reducing the threat of global warming and 
what that poses for our country and for our planet.
    My own view is those are costs that are worth assuming 
given the benefit although that is one about which reasonable 
people will disagree.
    Let me ask you more of a personal question. Senator 
Voinovich has heard me talk about this before. I was not one to 
put a lot of stock in global warming for a long time. Kyoto 
accords came and went and I didn't pay a lot of attention to 
it. I didn't pay much attention to it until we had a couple of 
researchers from Ohio State University who came to Delaware a 
few years ago to receive a recognition and a major award.
    The research they had done was for the last 20 years going 
around the world and climbing to the top of some of the tallest 
mountains in the world and measuring the disappearance of the 
ice caps and charting it for the last couple decades. I sat up 
and took notice. I have continued as we have gone forward since 
then.
    Now I am in a position where we have the opportunity to do 
something about it and we have the President's proposal which 
is not to address it now but to do more research. We have 
Senator Jeffords' approach which is to do even more than 
utilities can do in a realistic manner.
    Take off your hat as Deputy Secretary of Energy and do you 
think at all about global warming? Do you worry at all about 
what it poses to us? Is it something that has crossed your 
mind? Where are you as a human being on this one?
    Mr. McSlarrow. It is hard to testify as a human being.
    Senator Carper. It is hard for us to ask questions as human 
beings too.
    Mr. McSlarrow. Of course. I really don't know of anybody 
that doesn't think about it, debate it or argue it.
    Senator Carper. I think there are plenty of people who 
don't.
    Mr. McSlarrow. I would say this. The issue is one where I 
think on a personal level and I suspect for a lot of people it 
is one where you want to be right. You described a couple of 
alternatives but you left one out and that is what the 
President is doing on the subject. It is not like we are 
standing still. We have an aggressive, 18 percent greenhouse 
gas intensity reduction target in a decade.
    Senator Carper. I'm sorry, say that again?
    Mr. McSlarrow. An 18 percent reduction in greenhouse gas 
intensity.
    Senator Carper. It is an 18 percent reduction in growth and 
we are not talking about cutting it below what it is this year 
or next year?
    Mr. McSlarrow. Right.
    Senator Carper. But whatever it is going to be x number of 
years from now, we are going to reduce that growth by 18 
percent?
    Mr. McSlarrow. Right. To the issue you raised which is 
where are you in terms of what you are worrying about. I think 
there is enough uncertainty about the science and on the 
effects and how we deal with it. We are spending $4 billion a 
year. This is what the President has requested to do the R&D on 
the science and technology but in addition to that, we are 
actually trying to at least put us in a position if down the 
road we get some certain answers to these questions we are in a 
position to deal with it.
    I am comfortable with that as a human being and most 
importantly as the guy who works for the President because at 
the end of the day there is enough uncertainty about this that 
if we go another direction and risk not your bill but other 
proposals that I have seen, really devastating the coal 
industry and really placing us in a position where we are 
relying on natural gas which we are forecasting even without 
those kinds of measures is going to be doubling in terms of the 
liquefied natural gas imports we are going to have in another 
20 years.
    Senator Carper. Mr. Chairman, I would like to say this as 
much to you as to our witness. I am a native of West Virginia 
but I represent Delaware now and have lived there for over 30 
years. We have a lot of farming in our State and I know you do 
in Ohio. We have a lot of chemical plants, Dupont, Hercules and 
others in our State and I know you do in Ohio. I am mindful of 
the cost pressures that are coming to bear on those industries 
as well as others because of the jump in the price of natural 
gas. I am mindful of that and I know we need to keep our eye on 
the availability of natural gas and the price.
    We are going to have an opportunity when we debate the 
energy bill over the next couple of weeks to consider things 
like a natural gas pipeline from Alaska and whether or not we 
should support that. We are going to have the opportunity to 
actually consider whether we ought to seriously study looking 
at some places off our coast for natural gas, places we haven't 
looked for a while. Those are factors that need to come to this 
discussion as well. I am sure they will.
    Thank you. It's good to see you.
    Senator Voinovich. Thank you, Mr. McSlarrow. Thanks for 
being here.
    Mr. McSlarrow. Thank you, Mr. Chairman.
    Senator Voinovich. Our next panel of witnesses consists of 
Mr. Jim Krimmel, President, Zaclon Chemical. Mr. Krimmel has 
testified before on the spike in gas prices in 2000-2001. Our 
next witnesses will be Mr. Richard Metz, Co-Executive Officer, 
UNIMARK, L.L.C., Mr. Steve Thumb, Principal, Energy Ventures 
Incorporated, Mr. Joel Bluestein, President, Energy and 
Environmental Analysis, Inc.
    I would like the witness to know that we'd like you to 
limit your statements to 5 minutes. We would welcome to the 
record your complete statements.
    We will start this morning with Mr. Krimmel.

     STATEMENT OF JAMES KRIMMEL, PRESIDENT, ZACLON CHEMICAL

    Mr. Krimmel. Thank you. It is very nice to see you again.
    I want to thank the subcommittee for allowing me to speak 
here today. What I have to tell you is very simple. If you look 
at my testimony it is very simple stuff but it is very vital as 
well. It is vital to me, vital to my family, my employees and 
my employees' families. It is the story of the effect of the 
escalating natural gas cost on one small manufacturer, Zaclon 
Inc.
    Zaclon is my company. We are located in Cleveland, Ohio. We 
are a producer of specialty chemicals as well as some bulk 
chemicals. We sell worldwide. We are the world's largest 
producer of zinc ammonium chloride galvanizing fluxes and we 
sell in 19 countries. We are a small company, 35 employees, 
less than $12 million in annual revenues, unfortunately. We not 
only have domestic competitors but our primary competitor is 
European and has been historically. Increasingly we are seeing 
the Asian competitors starting to penetrate the markets we are 
serving as well.
    I am also currently the chairman of the Board of Directors 
of the Ohio Manufacturers Association. The OMA, with its 2,500 
member companies, is the voice of manufacturing in Ohio and a 
vital part of the strength of Ohio's economy.
    In the interest of time, I would like to the graphs I have 
included. I am kind of a visual person. If you would take a 
look at my first graph, it shows the energy costs for Zaclon 
Inc. over the past 15 years, the company has been in existence 
for 16 years. I don't know what happened to the data in our 
first year. I guess we weren't very efficient in those days.
    This is an interesting chart in that it shows our energy 
costs, utility costs by medium, water, electricity, natural gas 
and you can see by far natural gas is our highest utility cost. 
You can also see that from 1999 to 2002, it shows a 63 percent 
increase in our natural gas costs.
    This is interesting enough but it is much more telling if 
you combine it with sales. My next chart superimposes our 
product sales over our total energy costs. You can see here 
that despite declining sales, our total energy costs have been 
increasing over the past 10 years.
    The reason is largely fuel switching in my opinion coupled 
with inadequate exploration of natural gas. The fundamentals of 
natural gas have changed in the last 3 years. The volatility is 
unbelievable. It adds a level of uncertainty in our business 
that is very difficult to deal with. In the long run, as 
manufacturing recovers, as it will, and additional fuel 
switching occurs, the problem is only going to get worse. It is 
ont going to get better. That threatens the very existence of 
companies like mine, Zaclon and all 35 of our employees. It is 
not a huge number of employees but to all of us who have jobs, 
it is very important that we continue to be in business.
    To further illustrate the changes in energy cost to Zaclon 
Inc. I included a couple pie charts and the pie charts show 
that in 1999, and this is true for the years prior to 1999, 
energy was 10 percent of my total cost picture, raw materials 
were 44 percent, labor 21 percent and all other costs amounted 
to another 25 percent.
    The cost structure in 2002 shows energy is now 15 percent 
of my total cost. While we have been able to reduce raw 
material cost to 39 percent, labor has remained roughly steady 
and we haven't had to reduce people. I am trying desperately 
not to have to reduce people as a way of offsetting some of the 
increased energy costs. We are trying to improve efficiencies, 
we are doing that but it is just not enough. As natural gas 
continues to escalate, it is going to be more of a challenge 
for my company and my employees.
    The final chart I show is a bunch of data points, 172 data 
points over 15 years of Zaclon's natural gas delivered price. 
If you look at data points starting at 134, 2001, you can see 
how the volatility and the price has increased, our delivered 
price for natural gas.
    Prior to that time, we had seasonal peaks. We had the 
predictable winter peaks, some lower areas at lower prices 
during the summer but since 2001, that is simply not the case. 
The peaks are much higher and the average pricing is much 
higher. The last peak, the end of February, our delivered price 
of natural gas in March was over $11 per 1,000 cubic feet. I 
basically curtailed operations, I just couldn't afford to make 
product and sell it at that natural gas price.
    In closing, I strongly urge you to serious consider what 
you do here and how it impacts the price of natural gas because 
it is so vitally important to my company and to others across 
the Nation, small, medium and even large manufacturers. We 
really want to keep these companies going, we want to keep the 
jobs there but we need some help too.
    Thank you very much.
    Senator Voinovich. Mr. Metz, Senator Inhofe asked me to 
welcome you as a resident of Oklahoma. I don't know whether he 
had a chance to say hello to you or not when he was here. We 
are glad to have you here today.

   STATEMENT OF RICHARD METZ, CO-EXECUTIVE OFFICER, UNIMARK, 
                             L.L.C.

    Mr. Metz. I represent a small company, 11 employees. I have 
been in the EMP side and the marketing side of oil and gas for 
35 years and have concentrated over the last 10 years with the 
creation of UNIMARK. Our focus and function is to help small 
producers market their gas and at the same time, they will be 
discussing with me where the price of gas is going and what we 
can expect. As a result of that, I have tried to follow the 
marketplace and help them understand what my future forecast 
would be for prices or demand for gas so they can decide 
whether they want to put their funding capital into drilling 
additional wells and would they be able to get an economic 
return over the life of those.
    I, like the gentleman to the right, have put together some 
graphs and included those with my testimony. If you look at 
Exhibit A of that, it is a graph of the production in the U.S. 
in bcf per day. Over time, we used to see a summer curtailment 
or decline in the consumption, therefore we had to have a 
summer curtailment or decline in the production. As additional 
demands are made on gas, that summer curtailment as you can see 
is going away.
    Senator Carper. Would you go back and take it from the top 
of Exhibit A?
    Mr. Metz. Exhibit A is taking the EIA dry gas production 
data that is published monthly and determining a bcf per day. 
What are we producing? If you do it on a monthly basis, you get 
some strange things when February comes along and that kind of 
stuff. I revised the data to 1 billion cubic feet per day. This 
is the U.S. dry production after they process and treat it. 
That's what ends up in the pipeline to be consumed.
    You can see back in the late 1980's, every summer there was 
a falloff in the production because there was a falloff in the 
demand. We had excess capacity. Prices reflected part of that. 
As the system has gone forward, we have trouble running in 
place, keeping up with our production last year because every 
year, those wells that are there are declining. So you have to 
add so many new wells to make up for the difference.
    You can see starting in the early to mid 1990's, we are 
basically running wide open 365 days a year. Statistically, the 
same numbers in a table form says that since 1996, we have been 
producing 97 plus percent of the total peak production each 
year. So if you hiccup, you are in trouble. I am seeing that 
happening.
    I am marketing as for 400-500 small producers primarily in 
Oklahoma. They are not curtailing gas, we are moving all the 
gas they have and they are out trying to find more. On the 
other hand, what is the future price going to be, what is the 
demand going to be. Those things are impacting their decisions. 
The energy business has been through a little turmoil in the 
last couple of years starting with Enron and others that things 
aren't a guarantee that what people say is going to happen will 
so they are a little more conservative.
    Our drilling in the last 12 to 18 months has been more 
conservative and therefore, we are having trouble keeping just 
our gas levels where they are.
    Exhibit C is somewhat like Senator Inhofe's graph showing 
where prices are and extreme volatility. When you have those 
kinds of numbers going up and down, he has trouble figuring out 
how he's going to market his product or make it a reasonable 
amount and the producer has trouble figuring out which 
prospects he should drill and will he get a reasonable return.
    From that graph you can see the real deal is that people 
are more concerned there is going to be enough because the 
price goes up when a scarcity of the commodity. With those 
kinds of volatility, I want to say in the last week the price 
of gas as varied by more than 10 percent. That makes everyone 
nervous.
    As the Administration witness discussed, the storage levels 
are extremely low. We are going to have to put in over 12 
billion cubic feet a day between now and the end of October to 
get back to last year's levels. You can see on Exhibit D where 
we can be ready to meet the winter needs of a normal winter or 
colder in some areas as we had last year. Even though we drew 
down storage to the lowest levels than they have since they 
started keeping this information, last winter was not an 
abnormally cold winter across the U.S. Certain areas were, but 
on average we were 4 percent warmer than normal. So we have a 
real problem in filling up that storage. That is why we don't 
have summer curtailments anymore in production.
    The bottom line, the producers would like obviously to see 
better prices; at the same time, they don't want those prices 
to cause displacement of industry and consumers. I think the 
biggest thing from the supply side is to be sure we don't make 
off limits certain onshore and offshore areas that could lead 
to additional production.
    That is the bottom line of where I am coming from.
    Senator Voinovich. Thank you.
    Mr. Thumb?

     STATEMENT OF STEVE THUMB, PRINCIPAL, ENERGY VENTURES 
                          INCORPORATED

    Mr. Thumb. I am Steven Thumb and I appreciate the 
opportunity to present testimony before you today.
    I am Energy Ventures Analysis' principal that is in charge 
of their oil and gas practice and have followed and 
participated in the industry for over 30 years.
    You have written copies of my testimony, so I thought I 
would merely go forward with some major points. I am focusing 
on the impact of the proposed Clean Air requirements on the 
natural gas supply sector.
    First, with respect to the current status of the natural 
gas supply sector, over the last 2 years, the gas supply has 
been challenged to meet the Nation's natural gas demand levels. 
This in turn has caused natural gas prices to reach record 
levels and demand destruction in the nonelectric sectors.
    For example, in the industrial sector, natural gas 
consumption has declined 26 percent or 5.5 bcfd a day since 
2000. Because a series of companies had to go bankrupt, idle 
capacity or essentially cut back production because they can't 
pass through the high cost of natural gas. In addition, the 
residential customer is seeing gas supply costs increase $17 
billion.
    The primary reason for the situation is U.S. production is 
declining and western Canada production can no longer fill the 
gap. More specifically, U.S. production has been declining for 
each of the last six quarters and the cumulative to date is a 
3.5 bcf per day decline or 6 percent. As a way of comparison, 
that is out of an average consumption for the U.S. on an 
average basis of about 57 bcfd a day.
    More important than this current challenge and its 
associated impacts is it is not going to go away for an 
extended period of time as a result of the combination of high 
decline rates for existing production and the limited increases 
in drilling activity. These latter two items have basically put 
the industry on a treadmill to maintain production, let alone 
to try and increase it.
    The high decline rates of existing production in essence 
have reduced the average practical well life from about 10 
years in the early 1990's to about 3 years today. With respect 
to the limited increases in drilling activity we have had 
despite these record gas prices, two of the major reasons are 
environmental restrictions and moratoria and the lack of scale 
for the remaining undiscovered reserves.
    Concerning the latter item, this is the reason the major 
EMP firms left the shelf region of the Gulf of Mexico which 
historically has been the most prolific region we have had in 
the U.S. Basically, the large scale plays just aren't there. As 
a result, it is becoming increasingly clear that the U.S. gas 
supply sector just cannot depend on traditional sources of 
supply to meet projected increases in demand.
    Instead, in the longer term, U.S. gas supply sector will 
have to rely on a series of emerging gas supply sources of 
which I noted six in my written statement to fill any gap 
between supply and demand. One of the key dilemmas with these 
emerging sources of supply is that they are for the most part 
very large, complex and capital intensive projects that will 
require an extended timeframe to develop.
    My written testimony provided several examples of the 
complex and risky nature as well as the lengthy timeframe to 
develop these emerging resources. Included in these examples 
were industry's current delay in developing offshore eastern 
Canada, the long period of time it takes to permit and build 
new LNG terminals, and the fact the earliest the lower 48 will 
receive Arctic gas supplies will be 2009 and that will be from 
Canada's McKenzie Valley Pipeline Project.
    With respect to the two Arctic gas pipeline projects, 
namely the McKenzie Valley and Prudhoe Bay projects, let me 
note that their combined initial capacity, net of incremental 
Canadian demand, is only 1.3 bcfd a day greater than the loss 
in current production levels over the last six quarters 
identified in my opening comments. That is a very small 
increase. The basic point is we are going to need that just to 
replace what we've lost.
    Senator Carper. Would you say that again? I want to make 
sure I understand what you just said.
    Mr. Thumb. You have two projects, one coming down from 
McKenzie Bay and the other from Prudhoe Bay. Their combined 
initial capacity net of what Canada will need primarily for its 
heavy oil to sands projects will only be 1.3 bcfd a day greater 
than the loss in production we have seen from existing in the 
last six quarters.
    With respect to the proposed Clean Air requirements, one of 
the significant impacts of those requirements is the proposed 
increases in the Clean Air requirements is that they will cause 
coal-fired generation to be reduced and as a consequence, gas-
fired generation to increase. This has already happened under 
existing regulations. For example this year we had closure of 
the Possum Point coal plant in Virginia and the Gannon plant in 
Florida both of which were replaced by gas units on the same 
site. This increasing dependency on electric sector gas-fired 
generation which will only serve to exacerbate the problems or 
the challenge for the U.S. gas supply sector is already 
happening. Electric sector gas demand has increased, 45 percent 
or 4.7 bcfd a day since 1996. Of particular concern for the 
U.S. gas supply sector is the accelerated timetables and the 
higher emission requirements contained in some of the proposed 
initiatives as both will serve to only overload an already 
overloaded gas supply sector.
    With respect to the increased production levels, of 
particular concern to the supply sector are the carbon dioxide 
limitations since the power industry has no viable control 
option and as a result must rely totally on switching 
generation to lower carbon containing fuels, primarily natural 
gas.
    Of the various clean air initiatives you all are 
considering, S. 366 and S. 843 with their accelerated 
timetables for emission reductions and their larger emission 
reduction requirements, particularly CO2 
requirements, would represent an overload for the U.S. gas 
supply sector which would force the rest of the U.S. economy 
into hardship.
    With respect to S. 485, it also represents a challenge for 
the U.S. gas supply sector. However, by eliminating the 
mandatory CO2 requirements that are included in the 
other bills and by providing a longer implementation period for 
the required emission reductions, it may be at least manageable 
from a natural gas supply standpoint.
    In summary, the U.S. gas supply sector is really struggling 
to meet existing demand. The acceleration of the proposed Clean 
Air requirements timelines and higher emission levels will only 
further raise gas prices. The empirical evidence to date 
clearly suggests that the net results of accelerated Clean Air 
requirements would be very high gas prices with all their 
attendant cost increases on the other sectors and demand 
destruction within the non-electric sectors.
    Thank you for your time.
    Senator Voinovich. Thank you, Mr. Thumb.
    Mr. Bluestein?

      STATEMENT OF JOEL BLUESTEIN, PRESIDENT, ENERGY AND 
                  ENVIRONMENTAL ANALYSIS, INC.

    Mr. Bluestein. Thank you.
    I have submitted more detailed testimony but for the sake 
of brevity I would like to summarize the key points.
    Thank you for the opportunity to testify today. My name is 
Joel Bluestein, President of Energy and Environmental Analysis, 
Inc. EEA has been providing energy and environmental consulting 
services since 1974. Among our major areas of expertise are 
analyzing and forecasting supply, demand and price of natural 
gas, the impacts of regulatory policy on energy markets and 
energy technologies. We have done this work for natural gas 
producers, pipelines, local distribution companies, power 
generators, technology developers, the U.S. Department of 
Energy, the U.S. Environmental Protection Agency and other 
public, private and institutional clients.
    The key points of my testimony are largely what you have 
heard already, the gas supply/demand balance has gotten tighter 
and will remain tight; gas prices will be higher than in recent 
history, perhaps significantly higher; power generation will be 
the major growth sector for gas demand. All of this will happen 
independent of any new environmental regulation of the power 
sector. However, multi-pollutant regulation of the power sector 
can be accomplished I believe without exacerbating the gas 
supply/demand balance and it can be designed to reduce the gas 
issue by encouraging development of new, clean and more 
efficient coal and gas technologies through gradual 
implementation and allocation of allowances to new plants.
    There is a figure at the beginning of my testimony which 
summarizes our most recent 20 year forecast of North American 
natural gas prices and it shows that we expect gas prices at 
the Henry Hub to average about $5.70 per million btu for the 
next 2 years and decline to a level around $4.50 per million 
btu in constant dollars for the remainder of the forecast. This 
is substantially higher than historical prices as you have 
heard.
    The roots of this change reflect the tighter balance of 
supply and demand for natural gas resulting in higher prices 
and increased volatility. It does not mean that we are running 
out of natural gas but it does mean that gas producers need to 
look farther afield and spend more money to meet the demand for 
gas and that is reflected in the price.
    Our forecast involves a scenario that requires very large 
investments of capital, a lot of positive policy decisions such 
as support for Alaskan gas pipeline, development of new 
drilling areas, development of LNG terminals, et cetera. If 
these don't occur, then there is more upside potential than 
downside on gas prices.
    The question of how we can best ensure an adequate gas 
supply is complex and important. It is already being discussed 
in other forums as mentioned earlier and it probably needs a 
lot more discussion. I think the question for today is how does 
the gas supply price and supply outlook affect environmental 
regulation of the power generation sector? My short answers are 
that multi-pollutant regulation of NOx, SO2 and 
mercury should and can be accomplished without exacerbating the 
gas supply balance and that multi-pollutant regulation should 
and can be designed to allow and encourage a new generation of 
cleaner, more efficient coal plants that will allow continued 
use of coal for power generation in an environmentally sound 
manner.
    I think the concern that air regulations will push gas 
demand for power generation inexorably until it threatens our 
economy is overstated. The EPA modeling of the Clear Skies Act 
and many separate mercury control scenarios does not show 
significance switching from coal to gas, even though it was 
done assuming much lower gas prices than we currently project. 
Under our higher projected gas prices, we would expect even 
less switching to gas.
    While a lot of new gas generating capacity has been built 
recently, in certain areas, these new gas plants actually 
reduced gas consumption by replacing older, less efficient gas 
generation. We have seen old gas powerplants retired in Texas 
because they cannot compete with the new, more efficient gas 
plants and it has been estimated that replacing all the old gas 
plants in Texas with new state-of-the-art gas combined cycle 
plants could reduce gas consumption for power generation in the 
State by over 200 bcf per year.
    Use of even more efficient combined heat and power could 
make this reduction even greater and could apply in other parts 
of the southwest as well as parts of the west, south and north 
east. So new, efficient gas plants can be part of the solution.
    At the same time, the higher gas prices go, the better the 
economics of coal look. Coal plants today with SO2 
and NOx controls are highly competitive in the market. New coal 
plants being built are even cleaner. New coal technologies 
being developed such as fluidized bed and integrated 
gasification combined cycle plants are cleaner and more 
efficient yet. This kind of new technology is vital to 
addressing additional pollutants such as mercury or even 
CO2.
    Multi-pollutant programs such as proposed here will help 
the development of new, clean coal technologies by providing 
increased regulatory certainty and flexibility to find 
effective compliance solutions.
    One shortcoming of the Clear Skies Act in supporting new 
technology is that the grandfathering approach to allowance 
allocation disadvantages new plants in general and new coal 
plants in particular. The failure to allocate allowances to new 
coal plants creates a disincentive for companies to develop 
these plants and drives the power sector more toward gas.
    An allocation approach that includes new plants through 
updating the allocation and rewards efficiency is one way to 
help ensure that we can continue to rely on our substantial 
coal resources. Phased implementation of emission caps is also 
important for the development of new technology. Command and 
control programs and cap and trade programs with large 
reduction steps don't provide enough time for technology 
development. On the other hand, delaying the imposition of the 
regulation doesn't provide a sufficient driver for technology 
development. A series of more gradual steps can jump start 
technology development, keep it moving and avoid economic 
disruption.
    I believe that an appropriately designed, gradual cap and 
trade approach could even be used to address CO2 
reductions by promoting a long term, balanced mix of gas 
renewables, advanced coal technology such as IGCC with 
sequestration, combined heat and power and other efficiency 
measures. This is illustrated in my testimony with an approach 
in which the emission caps actually increases for the first 
several years and then levels off and begins a very gradual 
decline to an end point in 2060.
    In conclusion, we do see higher gas prices in the future 
regardless of what regulations are imposed on the power 
generation sector. This increase and its implications need to 
be addressed separately from the effect of multi-pollutant 
regulations. Higher gas prices will increase the value of new, 
clean, efficient coal technologies and multi-pollutant 
legislation can encourage the development of these technologies 
and limit reliance on gas by providing allowance allocations 
for new, clean coal and efficient gas technologies through 
updating and by setting gradually declining emission caps from 
an early starting point.
    Thank you again for this opportunity to speak.
    Senator Voinovich. Thank you, Mr. Bluestein.
    We will start a series of questions. I will try and limit 
mine to 5 minutes. Then I will give Senator Carper a chance and 
keep going back and forth.
    Mr. Krimmel, you mentioned it is essential that American 
manufacturers have access to affordable, reliable energy in 
order to compete in the global marketplace. I noticed in your 
testimony that you really are concerned about this.
    Could you share with us your experiences in that global 
marketplace and how it has impacted your business and as 
chairman of the Ohio Manufacturers Association, how it has 
impacted some of your other associates in that organization?
    The thing I remember most from your testimony when we had 
the listening session in Cleveland was that but for your energy 
costs, you had a profitable year and because of the spike in 
the cost, you lost money. I have commented I think the 
beginning of the recession in Ohio started with the spiking of 
gas prices during that period of time which sent a real chill 
through the manufacturing sector.
    Mr. Krimmel. Yes, I certainly agree. In fact, when I 
arrived in Washington today I saw a graph of manufacturing jobs 
in Ohio and while my testimony indicates there are over 1 
million direct manufacturing jobs in Ohio, I am sad to say it 
has crossed below a million just recently. The graph really 
begins dropping precipitously in 2001 the number of 
manufacturing jobs in Ohio. If you do the inverse of that and 
track natural gas, that is when the natural gas became very 
high priced and volatile. I think it was a major contributor to 
the loss of these jobs.
    I can't emphasize enough that there are certain things I 
can do better than my European competitors, better than my 
Asian competitors. I am not afraid of paying my people $20 a 
hour while the Asians are paying $20 a week because my workers 
are much more productive than their workers and I am investing 
in productivity improvement. That is an important asset. I can 
offset that.
    I cannot offset the natural gas difference and I wasn't 
certain before I came here today what the difference in price 
of natural gas in Asia and here was but I heard earlier 
testimony that indicated our prices here are nearly double what 
they are, what my competitors in Asia are paying.
    My strategy to reverse the trend of declining sales which I 
showed in the one chart and we started to turn around in 1997 
was through increased exports, mainly to Latin America. We 
currently export about 17 percent of our materials to Latin 
America. Prior to that time, it was just a declining domestic 
market that was affecting my sales.
    My ability to continue to grow that export market was 
severely affected by the run-up in natural gas, I just couldn't 
compete with the materials coming over from Asia and Europe in 
Latin America. So it has had that type of impact. It is life 
threatening to a company like Zaclon and I have heard Henry Hub 
prices of $5.70. You have to understand that translated into 
delivered prices to a company like Zaclon of about $7.50 and 
that is exactly twice what it has historically been.
    How can I offset that? I am not certain how I can offset 
that. I will do everything I can but I don't know.
    Senator Voinovich. Have you heard the same complaints or do 
you have any statistics on the price of natural gas on the 
other manufacturers?
    Mr. Krimmel. I certainly have heard the same complaints. 
Natural gas is a major cost factor for all manufacturers in 
Ohio, not only the chemical manufacturers but yes.
    Senator Voinovich. Does the Manufacturers Association 
maintain any kind of statistical analyses on its impact?
    Mr. Krimmel. I don't think we have done an in-depth 
analysis of the impact of natural gas prices on the loss of 
jobs in Ohio. I am not certain. I will check into it and if 
there is, I can provide that.
    Senator Voinovich. It would be interesting to me. I would 
be interested in having a survey of your membership to get an 
on-the-street appraisal of what impact it has had on their 
businesses, not only in this country but also in the global 
marketplace in terms of international competition and what 
indication they have of the costs their competitors are having 
to pay for natural gas.
    Mr. Krimmel. I will see, Senator, whether we have anything 
first, I don't think so, and if not, I will see what we can 
initiate and get information to you.
    Senator Voinovich. Thank you.
    Senator Carper?
    Senator Carper. Mr. Thumb, I think I understood you to say 
earlier in your testimony that electric generators have no 
other alternative than switching to natural gas to meet 
CO2 limits. I am wondering if there are maybe some 
other alternatives than just that one. Among the alternatives 
are becoming more efficient and one of those opportunities 
might be through co-generation, another could be coal 
gasification.
    Yesterday, I went for a drive in Washington. I don't 
normally do that, I normally jump on a train and come down here 
and go home every night to Delaware. I drove a car and I saw 
Senator Voinovich doing the same thing. I don't often see him 
driving around Washington.
    Senator Voinovich. Because I don't have a car here.
    Senator Carper. The folks from GM were good enough to loan 
us both a car for a few minutes and we went for a short drive. 
The cars we drove were powered by hydrogen and used fuel cells 
and there is a fair amount of interest and focus on fuel cell 
technology, mobile fuel cell technology in our cars, trucks and 
vans as we look toward to having those on the road in some 
numbers by the end of this decade.
    Not as much attention has been given to the use of fuel 
cells as a stationary source of power within the manufacturing 
business or it could be in a home and the ability for us to 
generate the electricity we need through fuel cells and even 
sell electricity onto the grid.
    Did I hear you correctly when you said that, Mr. Thumb?
    Mr. Thumb. If I said that, I spoke incorrectly. I thought I 
said primarily natural gas was the alternative. In my written 
testimony, I did try to make that point that substantially a 
change will have to come and then went through the other 
potential fuels, the possibility of increasing hydro, the 
possibility of our getting new and I went into the renewables 
potential and tried to point out those. I do think the one 
footnote tries to clarify that. My apologies, I thought I said 
primarily.
    It is a big shift. Every time we model it a huge percentage 
of that shift goes to natural gas and hopefully I used the word 
primarily.
    I was interested in your point on fuel cells. If you would 
allow me, natural gas is a big contributor if you are going to 
fuel cell technology. I think only 5 percent of hydrogen comes 
from natural sources and then you have to get it from others 
and natural gas is one of the big ones to generate that kind of 
hydrogen.
    Again, I am deeply concerned about the supply sector and 
that is the only thing I came to testify to you about.
    Senator Carper. I don't know if any of our witnesses are up 
to speed on clean coal technology and what you see waiting in 
the wings or what has been developed at the R&D level, pilot 
technology level. Are any of you able to share with us some up 
to date reports with respect to clean coal technology, 
particularly as it pertains to levels of emissions we are able 
to achieve? Mr. Bluestein?
    Mr. Bluestein. I can give a small report. I think we are 
all aware of integrated gasification combined cycle technology 
which is certainly not the newest technology. As mentioned 
earlier, criteria pollutant levels comparable to natural gas 
combined cycles and also offers the opportunity for lower cost 
method of removing CO2 which could be sequestered. 
Deputy Secretary McSlarrow mentioned the zero generation coal 
technology being pursued. There is a new plant in Pennsylvania, 
a company called WMPI that is going to be used coal waste that 
has been left around for many years to generate electricity and 
steam and clean diesel fuel and potentially could be shifted to 
generate hydrogen from coal.
    I think if we are looking at controlling CO2, 
clearly the answer in the long term is that we have to be able 
to use these clean coal technologies and generate electricity 
with sequestration or generate hydrogen. Mr. Thumb is correct, 
right now most hydrogen comes from natural gas. In the long 
term, it could come from coal and that technology is known. It 
is an issue of making it less expensive.
    I think the key issue here is how does multi-pollutant 
regulation facilitate that change. How is the legislation 
written to encourage that technology conversion? I think for 
example the Carper-Chafee-Gregg bill makes some good steps in 
that direction. There are also aspects of Clear Skies that help 
that.
    Senator Carper. In the second round, I want to come back to 
that point with you, Mr. Bluestein, and with others on the 
panel. I would like to discuss what do we need to be doing 
legislatively in order to encourage the investment in those 
kinds of technology, not just by the Government, not just by 
the Federal Government, but what do we need to do to encourage 
investment in those kinds of technologies by the utilities and 
by those who invest in utility companies?
    Mr. Thumb. Senator, on your question, you said any of us. I 
am not an expert in those clean coal technologies but if you 
would allow, one of my colleagues with whom I work closely is 
here and could provide additional response if you choose. He 
happens to be sitting in the first row. That is up to you if 
you would like to hear his response.
    Senator Carper. That is fine with me. Would you identify 
yourself for the record?
    Mr. Hewson. My name is Tom Hewson.
    I would just like to reiterate what Mr. Bluestein said as 
well, that obviously we have been making a large investment in 
doing research, in trying to improve clean coal technologies. 
We are trying to push the limits and get more and improved 
technologies. IGCC, which I think you mentioned, is one of the 
technologies in which we are spending a lot of time and effort 
and has the potential to reduce or improve the fuel efficiency 
of coal fired generation significantly above more conventional 
technologies today.
    We are still pursuing, we still have a ways to go before we 
make them competitive with existing conventional technologies.
    Senator Carper. Thank you.
    Mr. Thumb. You specifically mentioned co-gen and I just 
wanted to let you know in all the analysis we have done, 
including the analysis that I tried to summarize for you today 
does include 25,000 megawatts of co-gen which the industry is 
planning to do, so we already have that in our numbers. Even 
with that, we still see this problem for the supply sector.
    I would encourage you that the timelines are what concerns 
the gas supply sector the most, to the extent those timelines 
can be extended even slightly to allow more time to come in so 
things other than natural gas that would help the sector. We 
have a real problem.
    Senator Voinovich. Are you familiar with the comparison of 
our natural gas prices with those overseas?
    Mr. Thumb. Probably cannot do those off the top of my head. 
To do what comes out of Zeiberg and Germany and those in Asia, 
those are well published and I would have to go back and look 
them up. I cannote to you that we have done research in this 
battle between naptha and oil for ethylene which we used to 
have an advantage in the 1990's and 1980's has switched and the 
latest numbers I have is we have now gone to a 23 percent 
switch. We were 23 percent less competitive than we were before 
because of the change in the naptha/oil/gas. That is just on 
the ethylene crackers. Then you have to go through the whole 
chain to figure out the rest.
    The chemical industry is hurting and I tried to put some of 
that in my testimony about this fundamental shift between the 
competition between Europe and Asia, particularly Asia. We were 
at one time the world's largest exporter of chemicals and it 
doesn't look like that past is going to happen. Asia and Europe 
are definitely going to intrude upon that with this fundamental 
shift in the raw material feedstock.
    Senator Voinovich. That is the same type of information I 
have gotten from some people who have stopped by to see me. 
Does anyone know why is it that their prices are so much lower 
than ours?
    Mr. Metz. My scope is a lot smaller than Oklahoma versus 
the world but I would say they are closer to the sources and 
they have been importing LNG and the pipelines have been built 
from the former Soviet Union and that kind of thing, those 
things are in place and those supplies. In the world we have 
more gas than we consume. It is just trying to get it to the 
customer.
    Senator Voinovich. Mr. Thumb, do you have any comment on 
that?
    Mr. Thumb. I was trying to do the specifics. I don't think 
I can recall from memory the specifics but the fundamental 
situation particularly in Europe is you do have the supplies, 
you do have supplies coming in from several different sources 
and that has been able to hold it.
    We don't have the multitude of supply options they do and 
plus we are a very mature region. We are going to have to build 
those and we talked about some of these projects, LNG and the 
Arctic gas supplies that will come in hopefully in time.
    They do have the Russian, they do have the Norwegian gas, 
the UK gas as well as that which is on shore that has helped 
them. Asia, I can't do off the top of my head because it is 
very much broken into pieces. It is such a huge area, I would 
have to do research for you.
    Senator Voinovich. Any information you would like to submit 
after this hearing, I would like to see. I think too often when 
we look at some of our things, we just think of the United 
States and whether we like to admit it or not, we are in the 
global marketplace. It is impacting our standard of living and 
it gets back to how do you balance your environmental concerns 
with your economic concerns.
    As Senator Carper mentioned, we will have the energy bill 
on the floor for discussion and the issue is, are there areas 
we should be looking at that would be reasonably productive in 
terms of natural gas, the whole issue of bringing the gas line 
down from Alaska. That is not something around the corner but 
we certainly have to look at those issues. Then you have to 
look at the issue of this balance between went does a utility 
or someone who has to make a decision decide to switch to 
natural gas from something they are now doing.
    Mr. Bluestein your comment was if we put more pressure on 
people that you would see more use of clean coal technology. 
How fast do you do that over a period of time. I keep hearing 
that if you have these caps that are unrealistic or realistic 
but don't give people enough time to comply with it, the only 
choice someone has is to switch to natural gas.
    I guess my point is that I keep hearing from our people in 
Ohio, with the uncertainty we have out there today, and we both 
agree on uncertainty, the only thing I am looking for is any 
new facilities are going to use natural gas. Do you want to 
comment on that?
    Mr. Bluestein. Yes, I think you touched on several key 
points. To take the last, we have heard a variety of situations 
directly and indirectly from large power generating companies 
that with uncertainty over CO2 regulation, they are 
not willing to take a risk. That suggests to me that they need 
to get some certainty through some legislative action.
    At the same time, I agree with you and others here that 
unless something on CO2 or any other pollutant is 
done cautiously it can have grave consequences for the economy. 
I don't know if you had a chance to look at the second chart in 
my testimony but I think the key is timing, as in many things. 
On the one hand, there are these new technologies and people 
will agree that they are not quite ready today, the costs are a 
little too high and we need to work on them more.
    On the other hand, the key driver for those technologies is 
regulation. If we delay the regulation for 10 years, most 
likely we will find ourselves at exactly the same point again. 
If you look at the conventional cap and trade program, it is 
kind of like a cliff. There is an emission level, you come 
along to some point and everybody jumps off the cliff. That is 
a little scary for people.
    The alternative I think is to build a staircase. If we 
replace that cliff by a stair step of gradual reductions, it 
doesn't mean that the bottom has to be any further away in 
terms of the timeline but phase in things gradually, then what 
you do is give people the certainty of where they are going, 
give those people certainty that they need to go somewhere.
    Our history has been that U.S. industry has been very 
effective at finding ways to meet environmental regulations 
given a decent warning. If we could phase it in gradually, then 
I think that would jumpstart these technologies but with no 
timing, I agree, it can be very difficult and probably have 
dire circumstances, particularly for CO2. I think it 
can be done with the proper program design.
    Senator Voinovich. Mr. Metz, you said we have had a tough 
winter and by this time, we should be building reserves for the 
next one. What is your prediction? If we do have a very hot 
summer, what impact do you think that is going to have relative 
to the prices we have experienced this last winter?
    Mr. Metz. Today the price for this time of year are higher 
than they have ever been. With a very hot summer, the people 
who have to fill the storage to keep the residential people 
warm next winter don't know what next winter is going to be 
like, so they have to get to the historic levels. So they 
become a buyer of gas out there like the manufacturer is trying 
to do. When there are more buyers than sellers, the price is 
going to increase. I don't think it will be quite as dramatic 
if it was 20 below zero on a day but those people have a lot of 
pressure to get back to those 3.1 trillion cubic feet of gas in 
storage by the end of October. That puts more and more pressure 
on the marketplace.
    Senator Voinovich. There is no way that the supply can 
compensate at all for that?
    Mr. Metz. No, I don't. To me the price, when it was at high 
levels in the year 2001, there wasn't this massive amount of 
new gas supply that came to the marketplace under those price 
scenarios. It was a little growth and trying to maintain which 
is very hard. As Mr. Thumb said, the places to drill in the 
U.S. are very mature, so there is not a lot of big reservoirs 
waiting to happen. The biggest reservoir you can think of is 
the North Slope and that is a long term process to get that gas 
down to the U.S.
    Senator Voinovich. Some say that don't worry about it, we 
will have liquefied natural gas. That isn't cheap, is it?
    Mr. Metz. If the current price, the things I have read, is 
$3 plus for gas on a long term basis can make those more 
viable, but the current level of imports of LNG is 1.2 percent 
of the total consumption we have. They are talking about 
increasing that 15 fold over the next 10 or 12 years. That is a 
major increase. I keep seeing people who want to site an LNG 
import facility have problems getting that done. I think that 
is a very strong goal to try to reach, so I am not sure it is 
going to be as significant in the timeframe people are 
predicting.
    Senator Voinovich. It is relatively expensive?
    Mr. Metz. It is expensive to a degree. When LNG first 
started, the people who had it were the Algerians and that kind 
of thing and they wanted to price it at a much higher price, so 
all that business fell apart. A lot of those were mothballed 
and not used.
    I think now the biggest supplier of LNG is Trinidad, so 
that is much closer to the U.S. and there has been a lot of 
rethinking of how it should be priced. So it is more viable 
today I believe but it still has a cost. You can't instantly 
have enough ships to haul it in because they take special ships 
to do that. You have to have unloading facilities and 
regasifying facilities and you have to get past the permitting 
to be able to do that.
    Even though it is out there, gas in the world is greater 
than we consume, it is just not easy to move across the ocean.
    Senator Voinovich. It would be interesting to measure. We 
have an economic stimulus bill we are considering now and I 
have discussed that with a lot of people in my State and they 
have said to me if you could do something about the natural gas 
prices, it would have more effect on my business than any 
stimulus package you could pass here in Washington.
    We have an economy that is pretty fragile right now. It 
seems to me that we have to start looking at some of these 
other costs that we have that are bringing us down. For 
example, I have been hearing more and more complaints from 
manufacturers about competition from China. People are 
complaining about litigation costs and some of the other things 
out there impacting on our economy.
    I think so often we just don't face up to some of the real 
problems we have. It would be wonderful if somehow we could 
compromise to get people in a room and work out some of these 
issues that have been around for a long time and we don't 
address them. I don't think we are making great progress in 
improving the quality of the environment, nor are we doing very 
much in terms of providing reasonable energy for our businesses 
and our people and our country.
    Senator Carper?
    Senator Carper. Mr. Krimmel, I meant to as you this 
question earlier but it slipped my mind. How long have you 
lived in or around Cleveland?
    Mr. Krimmel. Fifty-six years. I am from Cleveland, went to 
school in Cleveland and started my business in Cleveland.
    Senator Carper. I presume you have seen a number of mayors 
of Cleveland come and go over that time?
    Mr. Krimmel. I have, yes.
    Senator Carper. Were there any you thought did an 
especially good job?
    Mr. Krimmel. As I recall, the real turnaround in Cleveland 
came under Senator Voinovich. I have to give him some credit 
for that.
    Senator Carper. I have heard that from many people. Every 
time they visit the Rock and Roll Hall of Fame, they come back 
singing his tune.
    On a more serious note, Mr. Bluestein, you talked a bit 
about steps versus cliffs and said our experience as a Nation 
is when we put in place environmental regulations and give 
reasonable amounts of time for compliance, then usually with 
Yankee ingenuity and a lot of hard work and some good 
investment, our companies and businesses can get there and stay 
in business and remain profitable and do the right thing for 
the environment.
    We have introduced the legislation I have referred to a 
couple of times along with Senator Chafee and Senator Gregg. 
When you characterize the approach we have taken with respect 
to CO2, we don't mandate. I think in Senator 
Jeffords' bill he mandates getting back to 1990 emission levels 
I think within this decade. In our legislation, we say by 2009, 
CO2 emissions have to be where they were in 2005. By 
the year 2013, we call for ratcheting down CO2 
emissions where they were in 2001. Is that a cliff or is that a 
staircase approach?
    Mr. Bluestein. I think the key issue in that legislation is 
that you also allow off-sector reductions. I think in doing any 
kind of CO2 mitigation, there are two safety valves. 
One is off-sector reductions which you incorporate; the other 
would be timing which is the example I gave.
    I agree there is a huge amount of uncertainty about how we 
reach long term CO2 targets. It is critical that we 
promote long term solutions like new coal technology, 
sequestration, other things we probably haven't thought of yet. 
I think if there were no off-sector reductions allowed in the 
legislation you've offered, I would be concerned. I think with 
the off-sector reductions, it offers a safety valve.
    The concern I would have is does it at the same time 
provide the push for the new coal technologies? That is what 
you really need to move forward.
    On the other hand, you do have an allocation program that 
is more favorable to new technologies including coal 
technologies. So that is a bonus for going down that longer 
term path.
    Senator Carper. Someone told me the other day that if you 
consider the amount of coal reserves we have in this country 
and compare those to the amount of oil reserves they have in 
Saudi Arabia or Iraq, we are the Saudi Arabia of coal and we 
have more coal reserves maybe than any country in the world. 
Can one of you confirm that for me?
    Mr. Hewson. The other two are Russia and China and I do 
think we are No. 1 ahead of those. We are uniquely in our 
carbon fuels gifted with coal. Saudi Arabia and Iraq are gifted 
with oil and gas.
    Senator Carper. And North Dakota is gifted with wind and 
lignite.
    Mr. Chairman, it seems to me and it is kind of fortuitous 
that as we hold this hearing, we are literally taking up the 
debate on the energy bill almost at the same time. There are so 
many things we can do in the context of energy legislation. 
Part of that deals with renewable forms of energy, whether 
hydro or geothermal, solar or even biomass. The Dupont Company 
has come up with new technology that enables them to take the 
entire cornstalk and turn that into ethanol and to do so in a 
way that is so energy efficient they believe we will no longer 
need a tax subsidy to be able to compete with gasoline.
    Down in Brazil, they are doing a similar kind of thing with 
sugar cane which is exciting and encouraging.
    We talked earlier about natural gas production, being able 
to complete a pipeline from Alaska to get some of that natural 
gas to us and I think there is going to be a proposal to do a 
study to look offshore to see if there are some places that it 
makes sense to search for natural gas.
    I am a former Navy guy and I believe nuclear power has an 
appropriate role in providing some of our energy needs. I 
believe legislation coming to us supports expansion of nuclear 
power. We talked a bit about fuel cells. We have not talked too 
much about conservation. I think one of the damning things I 
have heard about the bill coming out of committee to us in the 
Senate on the conservation side is it just doesn't do that 
much. They focus a good deal on the production side but not 
very much on the conservation side, and little if anything on 
more efficient cars, trucks and vans, little if anything with 
respect to the air conditioners we will be using this summer 
and how to use a lot less electricity from more efficient air 
conditioning.
    I keep coming back to the matter of what can we do to 
incentivize the investment in clean coal technology, not just 
the R&D, but to encourage utilities and investors to put their 
money where their mouths are. We know we have the technology, 
we know it works. I think part of the challenge for us is how 
do we craft legislation where there is a 3-P or hopefully a 4-P 
bill that incentivizes the investment in that kind of 
technology.
    Mr. Bluestein talked a bit to that and I don't know if you 
have anything else you want to add but for me that is not the 
whole ball game, but it is a big part of it.
    Senator Voinovich. Senator Carper, I can tell you, and I am 
not here to push Clear Skies, but I have it authoritatively 
from the utilities in our State and other utilities that if 
Clear Skies passed, they would move forward with clean coal 
technology, that the caps in that and the certainty of that 
would cause them to move forward with clean coal technology so 
we could burn our coal and also the advantage of developing 
clean coal technology is that you can either sell it or give it 
away to other places in the world because we know darned well 
that China and Russia have large supplies of coal. We know they 
are going to be burning that, either clean or burning and 
emitting into the environment and ultimately impact us 
environmentally and directly or indirectly in terms of our 
economy because of competing in the global marketplace.
    Senator Carper. Mr. Bluestein, I think I understood you to 
say in your testimony, talking about the effect of Clear Skies 
legislation on clean coal and willingness of investors to 
invest in clean coal facilities, that there would be some 
positive effect that would come from Clear Skies. Did you say 
that and could you compare the positive effect on the adoption 
of clean coal technology in a practical world from Clear Skies 
with the effect that might come out of legislation Senator 
Chafee, Senator Gregg and I have introduced?
    Mr. Bluestein. There is definitely a positive effect from 
either bill through providing certainty and flexibility. The 
cap and trade program provides a huge amount of flexibility to 
affected sources to try different technologies, have 
flexibility in compliance. Both of the bills, the one Senators 
Carper, Gregg and Chafee have introduced and Clear Skies 
provide flexibility and that is important for existing and new 
plants.
    The other way such a bill can affect future construction I 
think the biggest piece is through the allocation of 
allowances. There is something like $9 billion worth of 
allowances that are going to be distributed under this kind of 
system, $9 billion per year of allowances. That can have a big 
effect on choices that companies make.
    In the Clear Skies Act, all of those allowances go to old 
plants. Some people see that as a benefit for coal. It is not 
really, it is a benefit for existing plants. A lot happen to be 
coal plants but in terms of coal with a ``C'' the ability to 
develop new technologies, the ability to have coal as a 
continuing important part of our energy mix, we have to look to 
the future and that is why I think a system where allowances 
are periodically reallocated to all the plants including new 
plants provides an incentive to develop and build new coal 
plants and develop new coal technologies that are part of the 
mix I think we all agree we need.
    So I think that is the second piece that is very important 
and which is in the bill that Senators Carper, Chafee and Gregg 
have introduced.
    Senator Carper. I think that this has been a good hearing. 
I presume this is the last panel?
    Senator Voinovich. Yes, it is.
    Senator Carper. I would note one of our witnesses, I am not 
sure who, actually mentioned we can improve our efficiency in 
generating electricity by introducing more energy efficient 
coal-fired plants, by introducing more energy efficient nuclear 
plants. Someone also mentioned that we can save ourselves some 
natural gas by introducing the next generation of natural gas 
powered electric utilities. That is true too. Some of these 
plants are pretty old, aren't they, and rather inefficient?
    Mr. Bluestein. Yes, and to the extent that new gas 
generation replaces less efficient gas generation, it is 
reducing gas consumption.
    You mentioned efficiency. We can also allocate allowances 
to electric efficiency improvements so we can use that 
mechanism because it is a zero sum game. It is electricity that 
you generate or you don't and somehow it relates to the 
emissions you create or don't create. If we are going to have a 
market-based system, which is what the cap and trade program 
is, we ought to include all of the market and allow that market 
to function. The idea is the market is going to find the least 
cost way of meeting our emission goals, so we have to include 
everybody.
    I think the topic of efficiency has been mentioned several 
times and that includes end use efficiency. There are ways we 
can include that in the program and reap those benefits as 
well.
    Senator Carper. Good point. Thank you.
    Mr. Thumb. IF I could add to the question, you are right, 
when we do build combined cycle plants, they do displace steam 
generator plants. Basically, it takes about seven molecules in 
a combined cycle plant to produce the same amount of 
electricity as it takes 10 molecules inside a steam generator, 
the so-called efficiency effect. That efficiency effect because 
of the way this Nation evolved is highly concentrated in three 
areas, Texas, Florida and California.
    We are basically building between 1998 and about 2007, 
266,000 megawatts of new capacity of which about 70 percent of 
these new combined cycles, 184,000 megawatts. There is only 
125,000 megawatts of existing steam generator and except for 
the three units I note, we really aren't getting that 
efficiency effect. This is new gas, not that it isn't great, 
but I wanted to add it tends to be very regional specific 
because of the way this Nation evolved. It is never 
homogeneous.
    Those plants, basically those 60 percent plants beyond what 
we have right now, are located in other regions and that will 
be incremental gas demand.
    Senator Carper. It's been a good panel and a very good 
hearing. We are grateful to each of you for being here and 
sharing your thoughts and responding to our questions.
    Senator Voinovich. Thank you very much.
    We stand adjourned.
    [Whereupon, at 11:55 a.m., the subcommittee was adjourned, 
to reconvene at the call of the chair.]
    [Additional statements submitted for the record follow:]

   Statement of the Honorable Kyle E. McSlarrow, Deputy Secretary of 
                                 Energy

    Mr. Chairman, I am pleased to appear before you today to discuss 
the Administration's National Energy Policy and to discuss why we think 
Clear Skies is a critical component of the President's strategy to 
confront our energy and environmental challenges.
    Though it is often overlooked, the President's National Energy 
Policy directed the Administrator of the Environmental Protection 
Agency to work with Congress to propose legislation that would 
establish a flexible, market-based program to significantly reduce and 
cap emissions of sulfur dioxide, nitrogen oxide, and mercury from 
electric power generators. The President's National Energy Policy 
concluded that, as our energy needs grow, additional innovations would 
be necessary to continue improving our environmental conditions. The 
success of the Clean Air Act Acid Rain program in promoting innovation 
and emission reductions is well known especially by Members of this 
committee--and served as the template for the Clear Skies legislation 
now before this Committee.
    We are pleased that the Senate is now considering a comprehensive 
energy bill reported out of the Senate Energy committee, and commend 
Chairman Domenici and the members of his committee for acting so 
swiftly. And, we commend you, Mr. Chairman, and this committee for 
moving aggressively to consider the Clear Skies legislation.

Introduction and Outlook
    Over the past century, we have witnessed the power of energy to 
drive global economic development. In the 1970's, we learned firsthand 
how energy shortages and resulting high prices can compromise economic 
growth and the quality of life to which Americans have grown 
accustomed. Clearly, the availability of reliable, affordable energy is 
critical to sustained economic growth.
    We have a series of long-term energy challenges that require action 
now. These challenges are present along the entire energy continuum, 
affecting crude oil, refinery products, natural gas, electricity 
generation and transmission, the environment, and economic growth.

The Nation's Power Industry
    To understand the need for Clear Skies, it is important to 
understand the current make-up of the Nation's electric power industry. 
The U.S. power-generating sector remains the envy of the world. On any 
given day, approximately 5,000 generating plants can make available up 
to 900,000 megawatts of electricity for virtually every home and 
business in the country. Fossil fuels supply about 70 percent of the 
Nation's requirements for electricity generation. Coal, alone, accounts 
for more than 50 percent of the electricity Americans consume. 
Primarily because of the power sector's use of abundant supplies of 
American coal and natural gas, consumers in the United States benefit 
from some of the lowest cost electricity of any free market economy.
U.S. Electricity Generation by Fuel
    America's economic progress and global competitiveness have 
benefited greatly from this low cost electricity. Electricity is an 
essential part of America's modern economy. While the Nation has made 
dramatic progress in ``decoupling'' overall energy consumption from 
economic growth, increased economic activity remains closely linked to 
the availability of affordable electric power and is likely to remain 
so well into the future.
    The Nation's demand for electricity is projected to grow 
significantly over the next 22 years. Between now and 2025, the United 
States will likely have to add between 446,000 and 656,000 megawatts of 
new generating capacity to meet growing demand. This is equivalent to 
adding the entire power generation sectors of Germany and Japan, 
combined, to the U.S. power grid. Concurrent with this dramatic and 
capital intensive expansion of the Nation's power fleet, power 
generators will also be called upon to make new investments in 
pollution control technologies to meet tightening environmental 
standards. Over the past 25 years, America's electricity utility 
industry has invested billions of dollars in advanced technologies to 
improve the quality of our air. Each year, a substantial portion of 
normal plant operations costs again amounting to several billions of 
dollars a year are associated with operating installed technologies 
that reduce air emissions.
    The investment has returned dividends. By installing new 
technologies to capture tiny particles of fly ash, the power industry 
has significantly improved air quality by dramatically reducing 
particulate matter. The power industry has also installed sulfur 
dioxide controls on more than 90,000 megawatts of capacity as part of a 
successful effort that has cut SO2 emissions substantially 
since 1970. Most of the nation's coal-fired plants have also installed 
nitrogen oxide controls that have helped make initial NOx reductions. 
In short, advanced technology given the time to mature and be deployed 
can be effective.
    Technological improvements have permitted the Nation's power sector 
to continue generating relatively low cost power and, at the same time, 
use the energy resources America has in most abundance. America's use 
of coal, for example, has actually tripled since 1970 even as our air 
has become cleaner. Advanced technology also offers a pathway toward 
the prospects of achieving even greater reductions in air pollutants in 
the future.
    At this point, let me review long-term energy trends with a focus 
on natural gas and coal which should help illustrate our challenges. My 
comments here are based on analyses prepared by the Department of 
Energy's independent analytical arm, the Energy Information 
Administration, in its Annual Energy Outlook 2003 (AEO 2003). All 
statistics are based on EIA's reference case scenario for the year 
2025, which assumes current laws and regulations, including the Eastern 
U.S ozone SIP call, but not future regulations, such as those to 
implement the new Clean Air Act ozone and particulate matter standards 
or the mercury MACT standard.
    The reference case also assumes continued improvement in energy 
consuming and producing technologies, consistent with historic trends.

Natural Gas Trends
    The natural gas share of electricity generation is projected to 
increase from 17 percent in 2001 to 30 percent in 2025. By 2025, total 
natural gas consumption is expected to increase to almost 35 trillion 
cubic feet, which will amount to 26 percent of U.S. delivered energy 
consumption. Industrial consumption the largest natural gas-consuming 
sector--is expected to increase by 3.4 trillion cubic feet over the 
forecast, driven primarily by economic growth. Combined consumption in 
the residential and commercial sectors is projected to increase by 2.6 
trillion cubic feet between 2001 and 2025, driven by increasing 
population and healthy economic growth, and accompanied by gradually 
rising prices in real terms. Natural gas remains the overwhelming 
choice for home heating throughout the forecast period. Natural gas 
consumption in the generation sector doubles by 2025 due to lower 
capital costs, higher efficiencies, lower construction lead times, and 
lower emissions.
    In the short term, domestic natural gas prices are expected to 
remain high in 2003 and are at risk for significant volatility through 
at least the next 12 to 18 months. EIA estimates that the current 
natural gas storage level is the lowest on record for this point in the 
annual cycle. As long as temperatures remain at or below normal this 
summer, natural gas storage levels should rise sharply over the coming 
months. But if this summer is hotter than normal, natural gas prices 
would jump as cooling demand would compete with the need to build 
storage inventories. A large rebound in the economy, poor results from 
the ongoing increase in natural gas drilling, or a continued tight oil 
market might also spur volatility.
    On that note, drilling for natural gas expected to increase 
substantially, but a fourth U.S. LNG terminal is expected to open this 
year at Cove Point, Maryland, and a Kern River Pipeline extension from 
the Rockies to the West Coast opened earlier this month--greatly 
increasing the capacity to move gas from a key producing area. In
    In 2004, declining oil prices should ease natural gas prices, and 
strong natural gas drilling should increase productive capacity through 
the end of the year.
    Domestic gas production is expected to increase more slowly than 
consumption over the long-term forecast, rising from 19.4 trillion 
cubic feet in 2001 to 26.8 trillion cubic feet in 2025. The national 
average wellhead price is projected to reach $3.90 per thousand cubic 
feet, in 2001 dollars, by 2025.
    Increased U.S. natural gas production through 2025 is projected to 
come primarily from unconventional sources and from Alaska. 
Unconventional gas production increases by 4.1 trillion cubic feet over 
the forecast period--more than any other source, largely because of 
expanded tight sandstone gas production in the Rocky Mountain region. 
Annual production from unconventional sources is expected to account 
for 36 percent of production in 2025, compared to 28 percent today. An 
Alaska natural gas pipeline is projected to begin flowing gas to the 
lower 48 States in 2021, reaching 4.5 billion cubic feet per day in 
2023, with further expansion beginning in 2025. In 2025, total Alaskan 
gas production is projected to be 2.6 trillion cubic feet.
    Conventional onshore non-associated production is projected to 
increase by 1.2 trillion cubic feet over the forecast, driven by 
technological improvements and rising natural gas prices. However, its 
share of total production declines from 34 percent in 2001 to 29 
percent by 2025. Non-associated offshore production adds 560 billion 
cubic feet, with increased drilling activity in deep waters; however, 
its share of total U.S. production declines from 22 percent in 2001 to 
18 percent by 2025. Associated dissolved production declines by 800 
billion cubic feet, consistent with a projected decline in crude oil 
production. Lower 48 associated-dissolved natural gas is projected to 
account for 8 percent of U.S. natural gas production in 2025, compared 
with 15 percent in 2001.
    A key question facing producers and policymakers today is whether 
natural gas resources in the mature onshore lower 48 States have been 
exploited to a point at which lower discoveries per well eliminate the 
possibility of increasing--or even maintaining--current production 
levels at reasonable cost. Depletion has been counterbalanced 
historically by improvements in technology that have allowed gas 
resources to be discovered more efficiently and developed less 
expensively, have extended the economic life of existing fields, and 
have allowed natural gas to be produced from resources that previously 
were too costly to develop. In EIA's projection, technological progress 
for both conventional and unconventional recovery is expected to 
continue to enhance exploration and reduce costs. However, there is a 
significant debate within the industry itself as to whether this will 
occur.
    The difference between U.S. natural gas production and consumption 
is net imports. Net imports of natural gas, primarily from Canada, are 
projected to increase from 3.6 trillion cubic feet in 2001 to 7.8 
trillion cubic feet in 2025. Net imports contributed 16 percent to 
total natural gas supply in 2001, compared to an expected 22 percent in 
2025. Almost half of the increase in U.S. imports is expected to come 
from liquefied natural gas (LNG). By 2025, EIA expects expansion at the 
four existing terminals and construction of three new LNG terminals.
    Growth in pipeline imports from Canada partly depends on the 
completion of the MacKenzie Delta pipeline, which is expected to be 
completed in 2016 and expanded in 2023. Net imports from Canada are 
projected to provide 15 percent of total U.S. supply in 2025, about the 
same as in 2001. Mexico is projected to go from a net importer of U.S. 
natural gas to a net exporter in 2020, as an LNG facility begins 
operating in Baja California, Mexico, in 2019, predominantly serving 
the California market. By 2025, the United States is expected to import 
about 350 billion cubic feet of natural gas from Mexico per year.

Coal Trends
    The share of electricity generated from coal is projected to 
decline from 52 percent in 2001 to 47 percent in 2025 as a more 
competitive electricity industry invests in less capital-intensive and 
more efficient natural gas generation technologies. Nonetheless, coal 
remains the primary fuel for electricity generation through 2025, and 
EIA projects that 74 gigawatts of new coal-fired generating capacity 
will be constructed between 2001 and 2025.
    EIA's analysis here does not incorporate a projection of several 
Clean Air Act programs that could have a significant impact on the use 
of coal such as the mercury MACT. Although this rule has not been 
proposed, based on requirements of the Clean Air Act it is designed to 
require the control of mercury on a source by source basis by the end 
of 2007, which could be very costly and cause an even greater decline 
in the share of electricity generated by coal.
    EIA projects growing domestic consumption over the forecast 
horizon, and projects a simultaneous reduction in real coal prices to 
generators by approximately 12 percent by 2025. Average annual coal 
consumption is projected to increase by 1.3 percent per year between 
2001 and 2025. As domestic coal demand grows, U.S. coal production is 
projected to increase at an average rate of 1.0 percent per year.
    The decline in prices is driven by the expectation of continued 
improvements in labor productivity, and the continued market expansion 
of western coal, which has a lower minemouth price than eastern coals. 
As western production makes further inroads into markets traditionally 
supplied by eastern coal, the average heat content of the coals 
produced and consumed will drop as well, reflecting the lower thermal 
content per ton of western than eastern coals.

President Bush's National Energy Policy
    We long ago ceased to fully provide for our petroleum needs 
domestically, and though most of our current natural gas demand can be 
met with North American production, the trend here is also toward a 
greater share for imported natural gas. And coal, our most abundant 
energy resource, is actually projected to reduce its percentage share 
of electricity generation.
    We are often at the mercy of events and decisions over which we 
have often limited and sometimes no control. When winters and summers 
are mild; when all refineries or pipelines are online; when supply from 
abroad is abundant and reliable; when prices are reasonable, we do not 
feel this dependency. However, when almost any one of these factors 
breaks down, markets react instantly, and we face the higher prices and 
volatility that have become by now an almost certain cyclical 
phenomenon.
    These trends are a concern.
    President Bush recognized that to prevent these problems from 
becoming a permanent, recurring feature of American life, we needed a 
long-term plan for energy security that would promote reliable, 
affordable and environmentally sound energy for the future.
    President Bush's National Energy Policy, released in May, 2001, 
reflected a few, fundamental principles. First, we need to maintain a 
diversity of fuels from a multiplicity of sources. Second, we should 
seek opportunities for increased investment, trade, exploration and 
development, which are increasing every year, far beyond the 
traditional markets of the last 50 years. And third, we should focus on 
research and development on initiatives that seek long-term solutions 
to our energy challenges, as we have done with energy efficiency, 
renewables, hydrogen, fusion, and nuclear energy, as well as the 
recently announced zero-emission FutureGen coal project.
    While these initiatives hold enormous promise for the future, we 
recognize the need for immediate actions to address the nation's 
growing energy demand. Clear Skies figures prominently on this list. 
I'd like to mention just a few of the actions currently underway, 
particularly those focused on ensuring adequate supplies of natural gas 
and electricity.
    To increase and diversify domestic supplies of natural gas, the 
Administration, among other actions, has streamlined the process by 
which permits are granted for important energy projects, such as 
pipelines and refineries, and accelerated the leasing of non-restricted 
Federal lands where environmentally appropriate.
    The Administration is encouraging new gas well investment by 
allowing for access to high quality resources and growth in pipeline 
delivery capability. We recognize that recoverable resources tend to be 
more difficult to develop and produce because the U.S. is a mature 
producing area. This increases ultimate supply costs, which requires 
ever increasing prices to be economically viable. A number of 
locations, such as portions of the Rocky Mountain area and the eastern 
Gulf of Mexico, are currently unavailable to exploration and 
development even though they are expected to contain substantial 
volumes of recoverable natural gas.
    Interstate pipelines have been expanding delivery capacity, but 
additional expansions are needed to satisfy expected market growth. In 
2002, 54 interstate pipeline projects were completed, adding about 12.8 
billion cubic feet of capacity per day throughout the U.S., and 
proposals for expansions in 2003 through 2005 have been announced for a 
number of pipelines. The gas pipeline network has grown extensively 
over the past decade to meet the increasing demand for gas and to 
accommodate diversified gas sources. Regulatory lags in obtaining 
authorization for expansions of pipeline capacity are being addressed 
by initiatives at the Federal Energy Regulatory Commission (FERC) aimed 
at streamlining this approval process.
    The Administration also strongly supports the construction of a 
commercially viable Alaska natural gas pipeline as a critical part of 
our energy security portfolio.
    The National Energy Policy also highlighted the growing need for 
attention to the nation's electricity markets and infrastructure. The 
Administration's overarching goal is to ensure that Americans have 
abundant, affordable, clean and secure electricity supplies, and we 
strongly believe that Clear Skies is a key component of meeting this 
goal, as is a comprehensive energy bill that includes a sound 
electricity title to modernize our Nation's antiquated wholesale 
electricity laws.
    The Administration believes that there really is only one viable 
policy choice: we must complete the transition to effective competition 
in wholesale power markets.
    Well-functioning markets will, we believe, lead to lower costs for 
consumers and businesses. But there is more than simply the benefit of 
lower prices. A well-functioning market brings its own rewards. As 
confidence is gained that the system is reliable and capable of coping 
with high-demand for electricity, there will increasingly be less need 
for restrictive and prescriptive regulation. And that is the point when 
much-needed investment is likely to be attracted--investment in new 
technologies, and in improved generation and transmission facilities 
that produce additional energy and environmental benefits.
    When the opposite is true when uncertainty reigns, when reliability 
is questioned, when prices seem detached from market forces investment 
vanishes.
    The present uncertainty in the wholesale electricity market is not 
simply affected by policy choices that center on transmission assets 
and market designs. The uncertainty extends to the generation of 
electricity itself. That is why it is important to provide greater 
regulatory certainty about the kinds of investment choices that the 
generating industry will have to make over the next two decades.
    We believe that the President's Clear Skies proposal does just 
that.

S. 485, Clear Skies Act of 2003
    In 2000, 39 percent of the total energy consumed in the U.S. was 
for power generation. Since 1975, total U.S. energy use has grown by 
about 1.1 percent per year, while GDP and electricity consumption have 
grown by nearly 3 percent per year. We project future electricity 
growth to be somewhat less, below 2 percent per year, but it is clear 
that electricity is either the fuel of choice or fuel of necessity for 
many applications.
    Our electric power is among the lowest in cost of any free market 
society. Low cost electricity is part of America's competitive edge in 
international markets. Cheap power translates to prosperity and 
available resources to overcome problems in many areas unrelated to 
energy but essential to our quality of life. A major reason that 
electricity in the U.S. is relatively inexpensive is that roughly one-
half of our generation comes from coal.
    S. 485, the Clear Skies Act of 2003, is a multi-pollutant, market-
based cap and trade program that will reduce power plant emissions of 
sulfur dioxide (SO2), nitrogen oxides (NOx) and mercury by 
approximately 70 percent from today's levels--and do it faster, with 
more certainty, and at less cost to American consumers than would 
current law.
    Flexibility of compliance choices, maintenance of fuel diversity, 
and the cost savings passed on to consumers through lower electricity 
prices are among the benefits of the approach taken in Clear Skies, 
particularly when compared with other proposals that support more 
stringent targets, shorter compliance periods, or command and control 
regulatory approaches. The cap-and-trade system of emission reductions 
used in S. 485 should translate into reduced impacts on fuel markets in 
particular, coal and gas than equivalent emission reductions achieved 
through other approaches.
    The Clear Skies Act substantially expands one of the most 
successful Clean Air Act programs the Acid Rain Program and reduces the 
need to rely on complex and less efficient programs. Power plants would 
be allowed to choose the pollution reduction strategy that best meets 
their needs (e.g., installing pollution control equipment, switching to 
lower sulfur or mercury coals, buying excess allowances from plants 
that have reduced their emissions beyond required levels). And like the 
Acid Rain program, Clear Skies includes banking provisions, enabling 
companies to save unused allowances for future use. The result would be 
significant nationwide human health and environmental benefits; 
certainty for industry, States and citizens; energy security; and 
continuing low costs to consumers.
    S. 485 establishes a coordinated timeline for control of major 
emissions that provides adequate time to attract investment funds and 
avoids premature retirement of working capital. The patchwork of 
existing and soon-to-be-implemented regulations under the Clean Air 
Act, coupled with the delays bred by continuous litigation over them, 
has created enormous uncertainty for utilities, co-ops, and municipal 
generators. This uncertainty has curtailed investments in technology 
that would reduce emissions at existing plants and prevented numerous 
new facilities from coming online. Clear Skies provides industry with 
the time needed to attract capital necessary to reduce emissions 
without jeopardizing energy security.

Energy Impacts of Clear Skies
    It is difficult to quantify what the cost or energy impacts will be 
if multipollutant legislation is not enacted. The EIA ``baseline'' 
includes all future legislation and regulations that have been 
specified, but does not include regulations that have not yet been 
promulgated. We know that in the absence of S. 485, mercury regulations 
will be promulgated by December 2004. But we do not know what those 
regulations will require; that knowledge will come only after a lengthy 
rulemaking process. We can anticipate that additional reductions in 
SO2 and NOx will be required to attain ambient air quality 
standards for fine particulate matter. But we do not know what those 
regulations will be. We can anticipate additional regulations to reduce 
regional haze, but again, we do not know what those regulations will 
require.
    What we should be concerned with is this: uncertainty, delay, and 
litigation are not likely to produce greater environmental benefits; 
they instead are likely to lead to more costly solutions, and they risk 
affecting the energy fuel mix in ways that are unwarranted and 
unforeseen.
    Although we have not contrasted Clear Skies to this unknown 
regulatory future, we have compared it to a future predicated on 
current control programs. Under Clear Skies, natural gas consumption, 
which is projected to increase from 23 to 35 trillion cubic feet of gas 
in our baseline projection to 2025, increases to 36 trillion cubic feet 
per year in 2025. However, we do not project that a significant change 
in natural gas supply is needed due to the implementation of Clear 
Skies. Wellhead natural gas prices follow the baseline pattern, after 
decreasing from the unusually high prices that occurred in 2001.
    Clear Skies helps maintain coal as an important fuel source, 
thereby avoiding excessive pressure on natural gas prices. In our 
baseline projection, coal consumption would increase about 38 percent 
through 2025. Under S. 485, we project approximately a 26 percent 
increase.
    EIA projects that electricity prices will be lower throughout the 
projection period than in 2001, for both the baseline scenario and 
under S. 485. The effect of the emission reductions is roughly a 0.3 
cent per kilowatt-hour price increase above the baseline in 2025.
    One of the concerns we have is in the ever-increasing reliance on 
natural gas for generation of electricity. As I have noted previously, 
this is primarily a function of efficiency and costs, but because our 
marginal supply of natural gas will increasingly come from imported LNG 
we should be concerned that we not place too much stress on natural gas 
supply by forcing a level of fuel switching from coal to gas that leads 
to higher volatility and higher prices. Natural gas supply as a low-
cost and reliable source of electricity is not automatic one has only 
to witness the winters of 2000-2001, and 2002-2003 to see the point.
    In both the near and long term, the price of a commodity like 
natural gas is determined by the interaction of supply and demand. 
However, the determinants of supply and demand in the near term can be 
quite different than the factors that determine prices in the long 
term. In the near term, factors such as weather related increases in 
demand, storage levels, productive capacity at the wellhead, and 
disruptions in supply lines can be paramount because of the difficulty 
of quickly increasing the number of producing wells. Long-term market 
conditions, however, depend more on such factors as
      the ability of markets to respond to price increases with 
adequate investments in new wells;
      continuing availability of alternative fuels for 
generation;
      a viable market for imported gas;
      the continued development of new technologies; and
      emissions reductions required under future regulation
    The difference in what affects natural gas prices in the near term 
versus long term has important policy implications. We have to 
recognize that in the short run it is hard to do much about natural gas 
supply. From the time natural gas prices spike, the industry rule of 
thumb is that it takes 6-18 months for production to increase. And, 
unlike oil, there is currently no large international spot market in 
liquefied natural gas to moderate gas supply scarcity.
    The elasticity of natural gas demand plays a significant role in 
price volatility. Because many users cannot switch to alternative fuels 
quickly, demand tends to be more inelastic in the short run. Inelastic 
demand means that small changes in demand lead to significantly higher 
prices than under less inelastic demand. Demand becomes less elastic as 
electric generators or industrial users lose their ability to switch to 
another fuel or as any user loses the ability to reduce consumption in 
response to higher prices.
    It is, therefore, critically important that we maintain a balanced 
diversity of fuels to provide low-cost and abundant electricity. And 
the key to this is that we not assume that all policy objectives can 
simply be achieved with unlimited reliance on natural gas.

The Role of Research
    One of DOE's fundamental missions is the advancement of energy-
related technology. I would be remiss if I did not emphasize again that 
the projections I have presented today assume only a continuation of 
historic trends in technology evolution. We have the ability to change 
those trends through dramatic technology improvements. We intend to do 
exactly that.
    The President has launched a suite of relevant technology 
initiatives: FreedomCAR and the Hydrogen Fuel Initiative (the hydrogen/
fuel cell vehicle and infrastructure program), FutureGen (a program to 
develop a zero-emission coal-based power plant, coproducing low-cost 
hydrogen and sequestering CO2), and fusion electric power 
plants. Success in these areas will dramatically change the energy, 
economic, and environmental future of the Nation.
    The future role of coal in our energy mix may also be highly 
sensitive to the success we have in our program to improve Integrated 
Gasification Combined Cycle (IGCC) technology, an inherently clean way 
to produce power from coal. This technology has already been 
demonstrated at commercial scale, but additional support is being 
provided by DOE to enhance its efficiency, reduce technological risk, 
and drive down capital costs. In addition, as I mentioned earlier, we 
are also pursuing R&D targeted specifically on one of the tougher 
challenges in Clear Skies mercury control.

Conclusion
    In conclusion, we believe that Clears Skies, which provides a range 
of benefits improved health, cleaner air, and economic efficiency--is 
the best approach to address our dual energy and environmental 
challenges. Clear Skies avoids the more serious economic consequences 
of other approaches to cleaner air and provides market-based 
flexibility to the energy sector. Clear Skies, combined with our many 
other efforts to develop new, reliable, and secure sources of energy, 
will deliver significant environmental protection. It will help us to 
achieve our national goal of abundant, affordable, and clean sources of 
energy by maintaining fuel diversity and by providing greater 
regulatory certainty.

                               __________
  Statement of Jim Krimmel, President, Zaclon, Inc., Chairman of the 
                 Board, Ohio Manufacturers' Association

    Chairman Voinovich and members of the Senate Subcommittee on Clean 
Air, Climate Change, and Nuclear Safety, good morning and thank you for 
the opportunity to testify today.
    My name is Jim Krimmel and I am President of Zaclon, Incorporated.
    My company, which is located in Cleveland, Ohio, is a manufacturer 
of both specialty and basic chemicals with wide applications and 
worldwide sales. Currently, we are the largest producer of galvanizing 
fluxes in the world, and sell products in 19 countries. But we're a 
small company, with only 35 employees and under $12,000,000 in annual 
revenues. Our primary competitors are domestic, European, and 
increasingly Asian.
    I am also the current Chairman of the Board of Directors for the 
Ohio Manufacturers' Association. The OMA, with its' 2500 member 
companies is the voice of manufacturing in Ohio the strength of Ohio's 
economy.
    Today, as job providers in Ohio, manufacturers employ over a 
million people directly and countless million others in the service, 
finance and other industries employed indirectly by Ohio's 
manufacturing companies.
    As you know, Ohio is an energy intensive state that ranks in the 
top five nationwide in both commercial and residential energy 
consumption.
    To maintain a competitive advantage in today's tough global 
marketplace, it is essential that Zaclon and Ohio's other manufacturers 
have access to dependable, low cost energy sources. But in recent 
years, energy, and more specifically natural gas, has been anything but 
low cost. And fuel switching related to compliance with ever tightening 
air regulations coupled with inadequate exploration and drilling for 
natural gas is a major factor in this unprecedented run-up and 
volatility in natural gas prices. As the manufacturing economy improves 
and as more fuel switching occurs, the problem will only get worse. The 
high price and volatility of natural gas has threatened and continues 
to threaten the very existence of small and medium sized manufacturers 
like Zaclon. In that respect, my company's experiences are a good 
illustration. The charts that I've included with my testimony tell the 
story.
    This first graph shows Zaclon's Energy/Utility Costs by medium over 
the past 15 years. It demonstrates both the magnitude and volatility of 
expenditures that my company has faced during that time. By itself, 
this chart is interesting enough in that it shows a 63 percent increase 
in natural gas costs from 1999 to 2002. The run-up in natural gas 
prices back in 2001 nearly put us out of business despite imposing an 
energy surcharge on our customers.
    What is more revealing, however, is this next graph which 
superimposes Zaclon's product sales on the energy cost numbers over the 
past 10 year period.
    This combination of increasing energy costs with declining sales 
revenues is unsustainable for any length of time. We are running out of 
other cost reduction opportunities, and we really can't pass the 
increases on to our customers without giving up a significant share of 
the U.S. market to our overseas competitors.
    To further emphasize the impact of escalating natural gas prices on 
Zaclon, the next two pie charts show a comparison of my company's total 
cost structure between the most recent year 2002--and 1999 before the 
run up of natural gas costs.
    As you can see energy costs have increased from 10 percent in 1999, 
which was pretty typical for years before 1999, to 15 percent in 2002. 
And what's causing this problem is natural gas price. The final chart 
shows Zaclon's delivered cost per MCF of natural gas for a 15-year 
period.
    You can see that except for predictable seasonal swings, the price 
of natural gas was stable until recent years. Since that time it is 
high and unstable. This makes running our business very difficult, and 
often unprofitable. Soaring energy costs combined with a tough global 
marketplace represent a serious threat to Zaclon's existence.
    In closing, I strongly urge you to consider carefully the impact of 
what you do in this committee on the competitiveness of companies like 
Zaclon. Any additional legislation that encourages fuel switching to 
natural gas without addressing the supply side of the equation could 
very well put me out of business.
    Thank you for the opportunity to testify here today.
    I would be happy to answer any questions.
                               __________
              Statement of Richard A. Metz, UNIMARK L.L.C.

    Natural Gas is the most environmentally friendly fossil fuel. On 
the other hand, it is a fuel which requires special handling in order 
to deliver it from the supply source to the consumer. Currently, it is 
moved through pipelines, which limits the supply source to production 
areas that are accessible to pipelines.\1\ This makes the United States 
primarily dependent upon supply sources in North America.
---------------------------------------------------------------------------
     \1\For 2002 LNG imports represented 1.1 percent of the total U.S. 
consumption.
---------------------------------------------------------------------------
    Although the supply of gas has been adequate to meet the needs of 
consumers over the past 25 years, the free market price of gas today 
reflects the tightening of supply/demand equation. First, the attached 
graph (Exhibit ``A'', Gas Production in the United States) reflects the 
daily average volume of gas (Dry Gas) produced in the United States 
over the past 15 years.\2\ As you can see over this period, summer 
curtailment of gas is now nonexistent.\3\ Since 1996 annual gas 
production has been at more than 97 percent of peak capacity. No 
additional supply exists at this time to take on additional demand.
---------------------------------------------------------------------------
     \2\Data source EIA Natural Gas Monthly
     \3\Exhibit ``B'' details the same information in tabular form.
---------------------------------------------------------------------------
    There have been periods when consumer demand exceeds the supplier's 
ability to meet that demand. When this occurs, the price of gas begins 
to increase until the price gets to a level that an existing consumer 
ceases to consume gas. This process repeats itself until the demand 
level is in equilibrium with supply. The industry nomenclature for this 
process is ``Demand Destruction.'' The loss of existing demand hurts 
the industry affected, the suppliers, and ultimately the overall U.S. 
economy. The attached graph\4\ (Exhibit ``C'') shows that since 2000 
the price of gas has had periods of dramatic increases. This is another 
point on the curve which demonstrates that supply/demand balance for 
gas is very tight.
---------------------------------------------------------------------------
     \4\Exhibit ``C'' demonstrates the historic value of the ``Gas 
Futures 12 Mo. Forward Average'' as traded on the NYMEX.
---------------------------------------------------------------------------
    Finally, the winter space heating requirements of the residential 
and commercial sectors are major consumers of gas\5\ and the 
consumption rate is directly tied to the winter temperatures.\6\ On a 
cold day consumption can exceed 90 BCF. At the same time the U.S. 
production and Canadian imports are approximately 62 BCF per day. In 
order to meet this additional demand, stored gas must be withdrawn to 
meet the shortfall. Exhibit ``D'' provides a historical perspective of 
the withdrawal and injection into storage. The storage level for the 
winter season of 2002-2003, although starting at a normal level, was 
drawn down beyond the level of the prior 4 years. The first thought is: 
the past winter was colder than normal. It wasn't. Exhibit ``E'' shows 
the cumulative Heating Degree Days\7\ for a normal winter and for the 
past winter. The past winter, although colder than most of the recent 
winters, was still 4 percent warmer than normal. Therefore, the current 
low storage level can't be attributed to an abnormally cold winter.
---------------------------------------------------------------------------
     \5\Represent over 43 percent of total gas consumption.
     \6\The demand for gas by these two sectors varies such that the 
average annual consumption for 2002 was only 55 percent of the peak 
monthly usage.
     \7\A Heating Degree Day is a day in when the average of the high & 
low temperature is less than 65 F. For example, if the high and low on 
a day is 50 F and 20 F the average is 35 F, resulting in a 30 Heating 
Degree Day, (30 = 65 F-35 F).
---------------------------------------------------------------------------
    When the winter is over and storage is depleted, the entities 
supplying gas to the residential and commercial customers have to 
refill storage (fill season) in order to meet the winter demand again 
next year. As things now stand (April 25, 2003), it will take an 
average storage injection rate of 12.7 BCF per day during the remainder 
of the fill season to get back to the storage level that existed last 
year at the beginning of winter. This compares to the average fill rate 
for the prior 5 years of 9.2 BCF per day. This increase in storage 
demand of 3.5 BCF per day has to come from somewhere. At the current 
time it can't come from the supply side, so it has to come out of 
existing demand and is done so, as stated earlier, by the price of gas 
increasing to the point where an existing consumer can't afford to burn 
gas and, either shuts in its facility, or switches to an alternate 
energy source.
    If the government then mandates that electric generators have to 
reduce their emissions (quick fix is replacement of coal fired 
generators with gas fired ones) this will add additional demand to the 
supply/demand equation and result in higher prices.
    The other side of the equation is that higher prices should lead to 
additional supply, either through additional drilling or increased 
imports. Although increased imports (LNG) is the hot buzz word for 
additional gas supplies it will be a long and slow process for LNG to 
have a meaningful impact. This results in additional supplies having to 
come from drilling. It is a time consuming process to find and develop 
additional supplies. It is even harder when the government has declared 
many onshore and offshore areas off limits for drilling. The producing 
sector will fight the good fight, but it is much harder to prevail with 
one hand tied behind its back.
    The bottom line is additional stress on the supply of natural gas 
will lead to economic displacement of industry which can't afford to 
pay higher prices and still be competitive. I am confident that the 
producing industry can meet the challenge of supplying gas to the 
consumers, but it will have to be at higher prices. These prices will 
have to be even higher if areas of this country are off limits to 
exploration.











                               __________
             Statement of Steve Thumb, Energy Ventures Inc.

Executive Summary
    The U.S. natural gas supply sector is currently being challenged to 
meet the nation's demand for natural gas. This has caused natural gas 
prices to increase to record levels and significant demand destruction 
within the non-electric sectors for natural gas demand. The primary 
reason for this phenomenon is that U.S. gas production has been 
declining for each of the last six quarters. The cumulative effect of 
this decline has been to reduce U.S. gas production approximately 3.5 
BCFD, or 6 percent. This decline in U.S. gas production is occurring 
throughout the Nation, as five of the seven major supply areas in the 
U.S. are in decline.
    To date the greatest degree of demand destruction has occurred 
within the industrial sector, where the resulting high gas prices have 
caused a number of firms to declare bankruptcy and other firms to idle 
capacity. Both of these events have had an adverse effect on the U.S. 
economy. To date, total demand destruction within the industrial sector 
equates to approximately 5.5 BCFD, or 26 percent of total industrial 
sector gas demand. Higher gas prices also have affected the residential 
sector, as gas supply costs for this sector have increased 
approximately $17 billion from the 5 year average for the late 1990's.
    This challenge for the U.S. gas supply sector will continue over 
the intermediate term, as U.S. production levels are projected to 
continue to decline for some time, primarily because of the limited 
increase in gas-directed drilling activity despite record gas prices. 
One of the major reasons for the limited increase in drilling activity 
is the limitations the industry faces in gaining access to prospective 
acreage as a result of environmental restrictions and moratoria. The 
potential reserves that are off limits because of these restrictions, 
which are increasing rather than decreasing, has been estimated by 
industry sources at between 200 and 450 TCF. Another significant reason 
for the limited increase in gas-directed drilling activity is the lack 
of scale for prospective exploration and development activity. Even 
though undiscovered reserves exist, many of these reserves are 
contained in a series of relatively small plays. Majors and large 
independents need large reserve plays in order to effectively use their 
staffs, impact their current production levels and effectively allocate 
capital. Relying on smaller independents to develop these smaller 
reserve plays has reached a point of diminishing returns because of the 
downsizing of the U.S. exploration and production industry.
    As a result of these and other factors, the industry will be 
challenged to maintain, let alone increase, production levels from 
traditional supply areas. Instead, the industry will have to rely on a 
series of emerging sources of gas supply to fill any gap between supply 
and demand. However, it will be an extended period of time before these 
emerging sources of supply are able to make a significant contribution 
to the U.S. supply sector. As a result, any acceleration in U.S. gas 
demand requirements only will exacerbate the challenge for the U.S. 
supply sector and lengthen the period of high gas prices and further 
demand destruction in other sectors.
    With respect to these emerging sources of supply, which include 
deep reserves below 15,000 feet, the complex subsalt play, reserves 
offshore Eastern Canada, frontier coalbed methane basins, new LNG 
terminals and reserves from the Arctic areas of both Canada and the 
U.S., the challenge and extended timeframe for the industry to develop 
these highly complex and very capital intensive sources of supply 
cannot be emphasized enough. For example, despite a number of industry 
announcements concerning possible new LNG terminals, the FERC has 
granted only one certificate for a new terminal and only one other 
project has applied for a certificate. With respect to the potential 
for Arctic gas supplies the earliest date for a completion of a 
pipeline to deliver these supplies is approximately 2009 and these 
supplies will be from Canada's MacKenzie Delta. Arctic gas supplies 
from the Prudhoe Bay will not be available until 2013 at the earliest. 
To place the potential of these massive supply projects in perspective, 
the initial combined capacity of these two Arctic pipelines, net of the 
incremental gas demand requirements for Canada's heavy oil sands 
developments, will only be 1.3 BCFD, or 475 BCF per year, greater than 
the decline in U.S. production over the last six quarters.
    One of the significant impacts of the proposed increases in clean 
air requirements is that it will cause coal-fired generation to be 
reduced. A significant portion of this decline in coal-fired generation 
will need to be made up by additional gas-fired generation. This higher 
level of gas-fired generation will increase natural gas demand 
requirements within the electric sector, which will further exacerbate 
the challenge to the U.S. gas supply sector. This increasing dependence 
of the electric sector on gas-fried generation is most evident in the 
recent experience of the industry. Since 1996 gas demand within the 
electric sector has increased approximately 4.7 BCFD, or 45 percent. 
This is one of the major reasons for the current challenge within the 
U.S. gas supply sector.
    Of particular concern is both the acceleration of the target dates 
for the proposed changes in clean air requirements and the increases in 
the levels of emission reductions contained in some proposed 
initiatives. Accelerating the time line for these changes in clean air 
requirements will represent a significant challenge for the U.S. gas 
supply sector, as it is improbable that the time line for the large, 
complex and expensive emerging sources of gas supply required to meet 
future demand increases can be accelerated. In fact, the more probable 
scenario is that there will be delays in the time lines for some of 
these emerging sources of supply, which has been the case for offshore 
Eastern Canada.
    Similarly, increasing the levels of emission reductions will cause 
an even greater reduction in coal-fired generation and increases in 
both gas-fired generation and gas demand within the electric sector. 
This will only heighten the challenge for the gas supply sector. Of 
particular concern are the carbon dioxide limitations, since the power 
industry has no viable control options and must rely totally upon 
switching generation to lower carbon containing fuels, of which the 
most significant is natural gas. Carbon dioxide limits, because they 
place an effective cap on fossil fuel generation, significantly 
increase the challenge for the U.S. gas supply sector.
    Of the various Clean Air Act initiatives currently being considered 
S 366 (Clean Power Act of 2003) and S 843 (Clean Air Planning Act of 
2003), with their accelerated time tables for emission reductions and 
their large emission reduction requirements, particularly their 
CO2 emission reduction requirements, would represent the 
greatest challenge for the U.S. gas supply sector. With respect to S 
485 (Clear Skies Act of 2003) it would also present a challenge for the 
U.S. gas supply sector. However, by eliminating the mandatory carbon 
dioxide limitations and providing for a longer implementation period 
for the required emission reductions it presents a challenge that may, 
at least, be manageable.
    In summary, the U.S. gas supply sector is challenged to meet 
existing demand levels. This challenge, which likely will extend over 
the intermediate term because of limitations associated with 
traditional supply areas, has resulted in natural gas prices reaching 
record levels and significant demand destruction within the non-
electric sectors for natural gas demand.
    The acceleration of the proposed clean air requirement timelines 
and higher levels of emission reductions will only serve to heighten 
and extend this challenge to the U.S. gas supply sector, as these 
changes in clean air requirements will increase gas demand in the 
electric sector. Furthermore, since the gas supply sector is heavily 
dependent on a series of complex and capital intensive emerging sources 
of supply to meet projected increases in natural gas demand, it is 
doubtful that the timeline for additional gas supplies can be 
accelerated materially. In particular, the proposed carbon dioxide 
limits may place the gas industry in a position where it is severely 
challenged to meet the increases in electric sector gas demand 
requirements. Empirical evidence to date is that when the U.S. gas 
supply sector is challenged to this degree the net result is that 
natural gas prices will be pushed to record levels, with all the 
attendant cost increases for the other sectors, and demand destruction 
within the non-electric sectors for natural gas demand.
    Current Status U.S. Gas Supply
    Over the last 2 years the U.S. natural gas supply sector has been 
challenged to meet demand. The primary reason for this phenomenon is 
that U.S. production has been declining for each of the last six 
quarters, as illustrated in Exhibit 1.\1\ This decline in U.S. 
production, which equates to approximately 3.5 BCFD, or 6 percent of 
total production, has caused natural gas prices to reach record 
levels\2\ and resulted in significant demand destruction\3\ in the non-
electric sectors for natural gas demand. The latter has impacted 
adversely the U.S. economy.\4\
---------------------------------------------------------------------------
     \1\There also have been declines in production in Canada's Western 
Canadian Sedimentary Basin as documented in ``Canada Looks to Other 
Sources to Offset Steep WCSB Declines,'' Natural Gas Week, March 10, 
2003, p. 16 and ``Analysts Sound the Alarm on U.S., Canadian Gas 
Production'' Natural Gas Week, April 28, 2003, pp 5-6.
     \2\See Exhibit A-1 in the Appendix for a summarization of natural 
gas prices.
     \3\The term demand destruction is used often in the natural gas 
industry to describe the loss of demand as a result of high gas prices. 
As discussed in subsequent sections of this paper it often involves 
firms going out of business and plants idling capacity because these 
entities cannot pass through the high gas costs to their customers.
     \4\American Chemical Council, Background Paper on Natural Gas 
Price Shocks and The Economy, February 28, 2003.
---------------------------------------------------------------------------
                               EXHIBIT 1
                      U.S. NATURAL GAS PRODUCTION



    This decline in U.S. production is occurring throughout the United 
States, as five of the seven major supply areas in the U.S. are in 
decline.\5\ The areas in decline include the San Juan basin, the 
Permian basin, the Mid-Continent area, the onshore Gulf Coast area and 
the shelf of the Gulf of Mexico. Of these areas the most significant 
decline has occurred in the shallow water region, or shelf, of the Gulf 
of Mexico, which historically has been the most prolific producing area 
in the U.S., as it at one time accounted for 26 percent of U.S. 
production. The steady decline in production from the shelf of the Gulf 
of Mexico is summarized in Exhibit 2. Furthermore, the recent 
development of the deepwater region of the Gulf of Mexico, with its 
extensive use of modern exploration and production technology, has not 
been able to offset the decline in production from the shelf, and as a 
result production for the entire Gulf of Mexico is declining.
---------------------------------------------------------------------------
     \5\See Exhibit A-2 and A-3 in the Appendix.
---------------------------------------------------------------------------
                               EXHIBIT 2
        PRODUCTION FROM SHALLOW WATERS (SHELF) IMPACT ON DEMAND



    The supply and demand imbalance resulting from this decline in U.S. 
production has caused natural gas prices to rise to record levels, 
which has caused, in turn, a decline in natural gas demand. This 
decline in demand has been most pronounced in the industrial sector 
where firms have had to idle capacity or have gone out of business 
because they can no longer compete at the current elevated prices for 
natural gas. This decline in industrial activity, which has impacted 
adversely the U.S. economy, has been most pronounced in the basic 
chemicals and primary metals sectors, with the latter being impacted 
adversely by higher gas-fired electricity prices.\6\\7\
---------------------------------------------------------------------------
     \6\Bankrupt fertilizer firms include Farmland (Midwest and 
Louisiana), Vicksburg Chemical (MS), Agrifos (TX), Mulberry Phosphates 
(FL) and Agway (Syracuse, NY). Mississippi Chemical (Yazoo City, MS) 
has had a 1 year credit extension and Terra Industries (Sioux City, IA) 
has acknowledged limited ability to effectively hedge future gas 
prices. Mississippi Chemicals has permanently shut down its 
Donaldsonville, LA plant and Air Products has ceased production at its 
Pace, FL plant. (Source: Company announcements and trade press.)
     \7\Currently idled aluminum plants include Alcan's West Virginia 
plant, the Mead, Tacoma and Trentwood, WA plants for bankrupt Kaiser, 
Alcoa's Troutdale, OR and Rockdale, TX plants, the bankrupt Longview, 
WA plant and the Goldendale plant. These eight plants may never reopen. 
At present in the Pacific Northwest, which is the heart of the U.S. 
aluminum industry, only two plants are operating (i.e., Glencore's 
Columbia Falls in Kalispell, MT at 20 percent capacity and Alcoa's 
Ferndale plant in Bellingham, WA). (Source: Company announcements and 
trade press.)
---------------------------------------------------------------------------
    With respect to the chemical industry, which accounts for over 50 
percent of industrial sector demand, there has been a fundamental shift 
in the competitiveness of the U.S. chemical industry versus overseas 
facilities because of the higher U.S. gas prices. This has occurred 
because the U.S. chemical sector is heavily based upon natural gas and 
natural gas liquids, while the European and Asian chemical producers 
are based heavily on oil (i.e. naphtha). Higher U.S. gas prices have 
caused the ratio between gas and oil prices to shift from 0.6 in the 
1990's to 1.0 at present, which has provided European and Asian 
chemical producers with a competitive advantage. One example of the 
impact of this shift in competitive position between these regions is 
the recent closure of a Louisiana ethylene and plastics plant in order 
to move operations to Germany, where gas prices are lower and more 
stable.
    With respect to the net impact of higher prices on industrial 
sector demand, the best estimate to date is that industrial sector 
demand has declined approximately 5.5 BCFD, or 26 percent, over the 
last 2 years, as illustrated in Exhibit 3.\8\\9\
---------------------------------------------------------------------------
     \8\``As Gas Prices Increase To New Norm, Chemical Sector Could Be 
Hit Hard,'' Inside FERC's Gas Market Report, February 28, 2003, pp 9-
10; and ``Chemical Analysts Grow Bearish As U.S. Sector's `Golden Era' 
Closes,'' Natural Gas Week, February 24, 2003, p. 5.
     \9\``Record U.S. natgas prices punish manufacturers'' Reuters, 
February 25, 2003.
---------------------------------------------------------------------------
Impact Of Cost
    In addition to causing a reduction in demand within some sectors, 
the high gas prices resulting from declining production levels have 
increased substantially the costs of natural gas supply for the other 
sectors. For example, in the residential sector the supply component 
for residential gas costs has increased approximately $17 billion from 
the 5 year average during the late 1990's.

                               EXHIBIT 3
                           INDUSTRIAL DEMAND



            Intermediate Term Outlook For U.S. Gas Supply

    This challenge for the U.S. gas supply sector likely will continue 
over the intermediate term, as U.S. production levels are projected by 
EVA and others to continue to decline,\10\ as gas-directed drilling 
activity has been slow to respond to increases in natural gas prices 
and decline rates for existing production are high.\11\\12\ One of the 
major reasons for the limited increase in drilling activity during this 
period of elevated gas prices is the limitations the industry faces in 
gaining access to prospective acreage, as a result of environmental 
restrictions and moratoria.\13\ While there is tension between the 
exploration and production industry and other industry observers over 
the exact amount of the potential reserves that are not accessible 
because of the various environmental restrictions, the figure has been 
placed at approximately 200 TCF by the National Petroleum Council study 
and even higher by a study conducted by Texaco (i.e., 450 TCF). 
Furthermore, these environmental limitations on access to prospective 
acreage are increasing rather than decreasing, even though U.S. 
production is declining. Recent examples include (a) restrictions on 
drilling under the Great Lakes even though Canada has done such for 
years, (b) a nearly 75 percent reduction in the offshore acreage that 
was planned to be offered in the Gulf of Mexico Sale 181 and (c) 
Pennsylvania's access restriction of 56 percent of the acreage for the 
Trenton-Black trend within that State.
---------------------------------------------------------------------------
     \10\``Analysts See Bullish Gas Market Rebalanced by Pricing 
Factors,'' Natural Gas Week, December 30, 2002, p. 3; and ``Analysts 
Sound The Alarm on U.S., Canadian Gas production,'' Natural Gas Week, 
April 28, 2003, pp 5-6; and ``CERA Warns of Fragile Balance In Supply/
Demand Outlook for 2003,'' Inside FERC's Gas Market Report, February 
14, 2003, p. 1.
     \11\See Exhibit A-4 in the Appendix.
     \12\The annual rate of decline in production from new U.S. wells 
accelerated to 27 percent in 2002 from 17 percent in 1990. See ``EIA's 
Rosy Gas Supply Projections in Doubt,'' Natural Gas Week, March 10, 
2003, p. 9.
     \13\``Witnesses Urge Greater Access As Check for Rising Gas 
Prices,'' Natural Gas Week, March 3, 2003, p. 7; and ``Producers 
Concerns Unheeded In New Rockies Reserves Study,'' Natural Gas Week, 
January 20, 2003, p. 3-4 and ``AGA Calls For Access to Closed Areas: 
Court Upholds Forest Land Closings,'' Inside FERC's Gas Market Report, 
December 20, 2002, p. 16.
---------------------------------------------------------------------------
    Another major reason for the limited increase in gas-directed 
drilling activity is the lack of scale for prospective exploration and 
development activity. Even though undiscovered reserves exist, many of 
these reserves are contained in a series of relatively small plays. 
Majors and large independents need large reserve plays in order to 
effectively use their staffs, impact their current production levels 
and effectively allocate capital. It is this diminishing size and 
concentration of reserve targets that led the majors away from further 
development of the shallow waters in the Gulf of Mexico.\14\
---------------------------------------------------------------------------
     \14\``Drilling Boom Deemed Unlikely Despite Natural Gas Price 
Surge,'' Natural Gas Week, March 3, 2003, p. 1.
---------------------------------------------------------------------------
    Relying on smaller independents to develop these smaller reserve 
plays has reached a point of diminishing returns because of the 
downsizing of the U.S. exploration and production (E&P) industry. For 
example, the tabulation of E&P firms in the U.S. industry by the Oil 
and Gas Journal has declined from 400 in 1990 to 176 at present, with 
the smallest firm having assets of only $197,000.\15\
---------------------------------------------------------------------------
     \15\``Special Report OGJ 200/100'' Oil and Gas Journal, September 
9, 2002, pp 70-90.
---------------------------------------------------------------------------
    As a result of these and other factors, the industry will be 
challenged to maintain, let alone increase, production levels from 
traditional supply areas.\16\ Instead, the industry will have to rely 
on a series of emerging sources of gas supply to fill any gap between 
supply and demand. However, it will be an extended period of time 
before these emerging sources of supply are able to make a significant 
contribution to the U.S. supply sector. As a result, any acceleration 
in U.S. gas demand requirements only will exacerbate the challenge for 
the U.S. supply sector and lengthen the period of high gas prices and 
further demand destruction in other sectors.
---------------------------------------------------------------------------
     \16\This challenge will continue to exist even during potential 
periods of downward gas price volatility, which for example might occur 
do to unforeseen weather events, such as very warm winter weather.
---------------------------------------------------------------------------
Long-Term Outlook For U.S. Gas Supply Sector
    Exhibit 4 summarizes the long-term outlook for natural gas demand 
for several different forecasters. While there are some differences in 
assumptions for each of these forecasts, they tend to cluster around 30 
TCF for 2015.

                                Exhibit 4
                 Various Gas Demand Projects For 2015\1\
------------------------------------------------------------------------
                                            Forecast (TCF/Year)
                                 ---------------------------------------
                                   PIRA     EEA     Gil     EIA     EVA
------------------------------------------------------------------------
Total Gas.......................    28.8    29.3    29.4    29.5    30.5
------------------------------------------------------------------------
\1\Source: EIA, Annual Energy Outlook 2002 and EVA.

    Reaching this 30 TCF level will be a major challenge for the U.S. 
supply sector, as empirical evidence to date illustrates that this 
level of supply cannot be attained by further development of 
traditional sources of supply. Instead, the industry will have to rely 
on a series of emerging sources of supply, which include the 
exploration and/or development of: (1) deeper reserves (i.e., >15,000 
ft), (2) the highly complex subsalt play in the Gulf of Mexico, (3) 
reserves offshore Eastern Canada, (4) new coalbed methane reserves in 
frontier basins, (5) new LNG terminals and (6) reserves in the Arctic 
areas of both Canada and the U.S.\17\ The challenge and extended 
timeframe for the industry to develop these highly complex and very 
capital intensive sources of supply cannot be emphasized enough. For 
example, it can take up to 9 months on a super computer to process the 
seismic data associated with the subsalt play, which is still in its 
infancy.\18\ Also, drilling a single well for the deep Madden play in 
Wyoming, which used to take over a year, still takes over 200 days even 
with the application of significant improvements in drilling 
technology. Last, a string of expensive dry holes (i.e., approximately 
$440MM to date) over the last 2 years in exploration for potential 
reserves offshore Nova Scotia has forced the industry to reevaluate 
development of the area and delay its time table.\19\
---------------------------------------------------------------------------
     \17\EPRI, Gas Supply Outlook-Gauging Wellhead Deliverability Now 
and in the Future (1004588), February 2002.
     \18\For other non-subsalt exploration plays it typically takes 
less than a month to process the associated seismic data and that is 
accomplished on a basic computer.
     \19\``East Coast Canada Loses Luster As Petro-Canada Abandons 
Well,'' Natural Gas Week, May 5, 2003, p. 16.
---------------------------------------------------------------------------
    The lengthy timeframe for some of these emerging sources of supply 
is best illustrated by the time lines for new LNG terminals and the 
development of a pipeline(s) for Arctic gas supplies. While the Nation 
is reopening and/or expanding each of the existing four LNG terminals, 
additional LNG supplies beyond the capabilities of the four terminals 
will be required to meet projected demand levels. At present, despite a 
number of industry announcements concerning possible new LNG terminals, 
the FERC has granted only one certificate for a new LNG terminal and 
only one other project has applied for a certificate. In addition, 
there has been the announced cancellation of at least two proposed new 
LNG terminals, as the combination of stiff resistance, primarily on 
environmental grounds, and the expensive nature of these facilities 
have forced several potential industry participants to reconsider their 
involvement in such projects. Also, the U.S. industry has learned that 
even with new LNG terminals, it will have to compete with the rest of 
the world for available supplies. This tension with the rest of the 
world was made very clear this last winter when, despite record U.S. 
gas prices, LNG imports were limited to just 15 percent above the 
levels for the winter of 2000/2001, because of high LNG demand from 
Asian countries.
    With respect to the possibility of Arctic gas supplies, the 
construction of a gas pipeline from the Arctic region to the North 
American market place will be a massive project that will task severely 
the existing infrastructure of the region. At present the earliest 
possible date for the first of the Arctic pipelines, which will be from 
Canada's MacKenzie Delta, is the end of 2008 or early 2009. 
Furthermore, it appears that approximately 75 percent of the initial 
capacity of this pipeline will be required to meet Canadian gas demand 
associated with its growing development of heavy oil sands 
projects.\20\ Beyond this there is the possibility of the $19.4 Billion 
Arctic gas pipeline from Prudhoe Bay, which is projected to be longer 
than the Great Wall of China. While specifics on the timetable for this 
massive project are limited, the earliest potential date for a second 
Arctic gas pipeline appears to be 2013. The possibility of building 
both Arctic pipelines at the same time is not even being considered by 
the industry, because of inadequate infrastructure within the region. 
For example, for the earlier MacKenzie Valley pipeline movements of 
pipe sections will require one truck haul every 5 minutes along the 
Yukon highway system and a doubling of the capacity of the White Pass 
Railway. Furthermore, the tractor and trailer units for these hauls 
will have to be twice the typical length of such units in order to move 
the 82-foot sections of pipe.\21\
---------------------------------------------------------------------------
     \20\``Canadian Energy Exports to U.S. May Slow As Capacity 
Tightens,'' Natural Gas Week, April 14, 2003, p. 1.
     \21\``Report Says Southern Pipe Route The More Feasible 
Alternative'' Natural Gas Week, February 3, 2003, p. 4 and ``The 
Aboriginal Pipeline Group'' Oil & Gas Journal, March 3, 2003, p. 8.
---------------------------------------------------------------------------
    To further place the challenge to the U.S. supply in perspective, 
the initial combined capacity of both of these huge Arctic gas pipeline 
projects, net of the incremental demand for Canada, will be only 1.3 
BCFD, or 475 BCF per year, greater than the decline in current U.S. 
production over the last six quarters. Further increases in the 
capacity of these projects likely will not occur until several years 
after the completion of the Prudhoe Bay pipeline project (i.e., 
approximately 2015 or thereafter).

Impact Of Proposed Clean Air Requirements
    One of the significant impacts of the proposed increases in clean 
air requirements is that it will cause coal-fired generation to be 
reduced. A significant portion of this decline in coal-fired generation 
will have to be made up by additional gas-fired generation, as other 
forms of generation are limited in their ability to increase 
significantly.\22\ This higher level of gas-fired generation will 
increase natural gas demand requirements within the electric sector, 
which will further exacerbate the challenge to the U.S. gas supply 
sector. This increasing dependence of the electric sector on gas-fired 
generation is most evident in the recent experience of the industry. 
Since 1996 gas demand within the electric sector has increased 
approximately 1.7 TCF (i.e., 4.7 BCFD), or 45 percent. This is one of 
the major reasons for the current challenge within the U.S. gas supply 
sector.
---------------------------------------------------------------------------
     \22\Dependence upon natural gas generation is directly 
attributable to other power sources having only a very limited ability 
to offset coal generation losses. Hydro power expansion is limited by 
the lack of appropriate sites and growing permitting opposition. 
Nuclear power is hindered by its very high production costs and 
continuing waste disposal problems. Nor are other renewables able to 
displace large coal losses because of resource limitations and high 
costs. For example, areas offering Class 5-7 wind resources are very 
limited and distant from load centers. Lower class wind resources are 
far too expensive to develop and transmit. In addition, because wind 
power units only operate at best 25 to 33 percent of the time, 
additional gas-fired generation is required to supplement wind power 
units in order to replace the lost base load coal-fired generation.
---------------------------------------------------------------------------
    Of particular concern is both the acceleration of the target dates 
for the proposed changes in clean air requirements and the increases in 
the levels of emission reductions contained in some proposed 
initiatives. Accelerating the time line for these changes in clean air 
requirements will represent a significant challenge for the U.S. gas 
supply sector, as it is improbable that the time line for the large, 
complex and expensive emerging sources of gas supply that will be 
required to meet future demand increases can be accelerated. In fact, 
the more probable scenario is that there will be delays in the time 
lines for some of these emerging sources of supply, which has been the 
case for the development of the region offshore Eastern Canada.
    Similarly, increasing the levels of emission reductions will cause 
an even greater reduction in coal-fired generation and increases in 
both gas-fired generation and gas demand within the electric sector. 
This will only heighten the challenge for the gas supply sector. Of 
particular concern are the carbon dioxide limitations since the power 
industry has no viable control options and must rely totally upon 
switching generation to lower carbon containing fuels, of which the 
most significant is natural gas. Carbon dioxide limits, because they 
place an effective cap on fossil fuel generation, significantly 
increase the challenge for the U.S. gas supply sector.
    If the natural gas supply sector is not capable of meeting the 
challenge of increased gas demand within the electric sector, as a 
result either of an accelerated time table for new clean air 
requirements or the increased emission reduction levels proposed in 
some initiatives, then the alternative is for an extended period of 
high gas prices and demand destruction within the other sectors for 
natural gas demand. Both these latter items will have an adverse impact 
on the U.S. economy. From one perspective this alternative is a mirror 
image of what is currently occurring within the U.S. gas industry.

Current Clean Air Act Initiatives
    The three Senate proposals have significantly different impacts on 
the natural gas industry. S 366 (Clean Power Act of 2003) poses by far 
the largest natural gas supply challenge because (1) its much tighter 
carbon dioxide and SO2 limitations create the greatest 
demand shifts toward natural gas; (2) its much shorter compliance 
period gives the gas supply industry the least time to expand its 
supply base; (3) its much tighter mercury limit is heavily dependent 
upon mercury control technology performance that has not been 
commercially demonstrated yet and may force the shutdown of a large 
portion of the existing coal power plant fleet; and (4) its new source 
standards forces the greatest amount of older coal based capacity to be 
retired.
    In comparison to S 366, S 834 (Clean Air Planning Act of 2003) will 
reduce the challenge to the natural gas supply sector by phasing in 
slightly higher limitations over a longer period (i.e., four additional 
years). Its longer scheduled compliance period allows the natural gas 
industry valuable time to expand its supply base, while reducing 
natural gas demand pressure by permitting greater coal generation with 
its alternative emission limitations. Also, mercury technology risk is 
greatly reduced, as limitations are more in line with current DOE 
research targets.
    Finally, S 485 (Clear Skies Act of 2003) also presents a challenge 
for the U.S. gas supply sector. However, by eliminating mandatory 
carbon dioxide limitations and providing for longer periods for 
implementing the required emission reductions, it presents a challenge 
that may, at least, be manageable.

Conclusions
    Currently the U.S. gas supply sector is challenged to meet existing 
demand levels. This challenge, which likely will extend over the 
intermediate term because of limitations associated with traditional 
supply areas, has resulted in natural gas prices reaching record levels 
and significant demand destruction within the non-electric sectors for 
natural gas demand.
    The acceleration of the proposed clean air requirement time lines 
and higher levels of emission reductions will only serve to heighten 
and extend this challenge to the U.S. gas supply sector, as these 
changes in clean air requirements will increase gas demand in the 
electric sector. Furthermore, since the gas supply sector is heavily 
dependent on a series of complex and capital intensive emerging sources 
of supply to meet projected increases in natural gas demand, it is 
doubtful that the timeline for additional gas supplies can be 
accelerated materially. In particular, the proposed carbon dioxide 
limits may place the gas industry in a position where it is severely 
challenged to meet the increases in electric sector gas demand 
requirements. Empirical evidence to date is that when the U.S. gas 
supply sector is challenged to this degree that the net result is that 
natural gas prices will be pushed to record levels, with all the 
attendant cost increases for the other sectors, and demand destruction 
within non-electric sector for natural gas demand.

                                APPENDIX
                              Exhibit A-1

                HENRY HUB NATURAL GAS PRICE WEEKLY DATA



                              Exhibit A-2
                   PRODUCTION FROM SELECTED REGIONS I



                              Exhibit A-3
                  PRODUCTION FROM SELECTED REGIONS II



                              Exhibit A-4
                        RIG COUNT FOR GAS WELLS



                    RIG COUNT FOR THE GULF OF MEXICO



                               __________
              Statement of the American Chemistry Council

    The American Chemistry Council welcomes this opportunity to comment 
on the Clear Skies Act as it relates to the all-important issue of 
natural gas supply and demand. Our country's standard of living and the 
economic health of our citizens and our industries that provide the 
wealth of our jobs are tied intimately with the energy supply including 
a competitively priced natural gas component.
    It is impossible to discuss the benefits of Clear Skies legislation 
without first asking Congress how it plans to address the larger issue 
of restoring balance to the natural gas markets.
    Over the past decade, environmental legislation and policies, like 
the Clean Air Act, have had the effect of triggering a dramatic run-up 
in demand for natural gas. Other environmental policies have put the 
nation's most promising natural gas reserves off limits. As a result, 
all consumers are hurt by the high prices that result from the 
increased demand and shrinking natural gas supply.
    American manufacturers are being priced out of the marketplace. 
Plants are closing. Jobs are moving overseas. Over 35,000 well paying 
jobs in the chemical industry are at risk due to the latest run-up of 
natural gas prices and sustained natural gas prices of over $6.00/MMBtu 
will threaten over 200,000 jobs economy wide. Natural gas pricing 
forecasts call for more of the same.
    At the end of the day, the real environmental benefits that could 
be achieved by Clear Skies legislation will mean little to American 
manufacturers, if current energy policies continue, and more 
manufacturers and jobs are driven off shore because America now has the 
world's highest energy prices.
The Natural Gas Crisis
    Last month an energy-consulting firm, Energy and Environmental 
Analysis, issued a report saying that, ``US natural gas prices will 
average $6.00/MMBtu at Henry Hub through the current storage injection 
season.''
    Prices next winter will increase further, averaging $6.40 from 
November through March and peaking as high as $6.60 between December 
and February, the firm said. ``Declining gas productive capacity due to 
the anemic drilling activity in 2002 has resulted in extremely tight 
market conditions,'' EEA said in its monthly report.
    Those US prices are more than double the price of natural gas in 
Europe, more than triple the price in parts of Asia, and nearly ten 
times the price of natural gas in the Middle East, North Africa, 
Russia, and Venezuela.
    Natural gas is a regional commodity, but industries that depend on 
natural gas compete in a global marketplace. The chemical industry is 
an example. Chemical makers use natural gas to power their plants and 
as a raw material that is converted into plastics, fibers and other 
materials that are bought and sold around the world. In recent years, 
when the price of natural gas was at its historic average, the chemical 
industry posted a $20 billion trade surplus. Today, the US is net 
importer of chemicals. Today, the US is the world's high cost producer 
of chemicals because it pays the highest prices for natural gas. With 
its competitive advantage gone, US chemical production capacity is 
being shut down and thousands of good-paying jobs are moving overseas.
    What's happening to natural gas is simple--the oft proven laws of 
supply and demand at work. Demand for natural gas is booming and supply 
is declining. The gap is growing rapidly and, as a result, the price of 
natural gas has tripled since 1999. Compounding the problem--the 
inventory of natural gas is now at historic lows. These inventories are 
unlikely to be replenished over the summer to a level sufficient to 
drive down prices in the face of next winter's heating demand.
    What America faces is not a seasonal disturbance, but a fundamental 
structural imbalance in supply and demand for natural gas. America has 
developed a tremendous demand for natural gas. It is clean. It is 
efficient. It is critical to making important products Americans use 
every day. And until recently, it was abundant and competitively 
priced.
    Consumers demand it for heating their homes. Half of new homes are 
now heated by gas. Environmentalists demand it because it is clean 
burning. Industries, including the chemical industry, demand it because 
it is an excellent raw material for making thousands of products that 
we each use, every day.
    More recently the electric utility sector of the US economy has 
turned to natural gas. Because of the low capital costs, shorter 
construction lead times, and environmental policies, natural gas used 
to generate electricity has increased by 35 percent in the past 5 
years. Natural gas consumption for electricity generation is projected 
to increase from 5.3 trillion cubic feet in 2001 to 10.6 trillion cubic 
feet in 2025.
    America's economy is becoming one that is increasingly reliant on 
natural gas.
    Natural gas prices and subsequent impacts leave us with questions 
about how much Clear Skies will help our situation. While Clear Skies 
could slow the drive to natural gas for power generation, and could 
even promote clean coal technologies for future generating capacity, 
additional action is needed. Environmental policies like Clear Skies 
will have little bearing on businesses like ours if our operations 
continue to be driven off-shore by runaway energy prices.
Congress Needs to Act
    Unfortunately, the nation's current natural gas supply is running 
low. Production capacity is lower today than it was 30 years ago when 
Americans were consuming far less natural gas.
    The paradox is that America has adequate domestic natural gas 
reserves to meet current and future needs. Unfortunately, Congress 
won't allow access to those natural gas reserves. The most promising--
and desperately needed--reserves are currently off-limits to 
development. Many of these reserves are in partially restricted areas 
like the northern Rocky Mountains, Alaska, or in fully restricted areas 
such as the eastern Gulf of Mexico and off the East and West Coasts.
    In the final analysis, the natural gas crisis is a domestic 
political and public policy problem. Environmental policies are driving 
new demand for gas to generate electricity and heat homes. Other 
environmentally driven policies keep critically needed supplies off 
limits. As a Nation, we can't have it both ways. We can't demand more 
natural gas and continue to cutoff the natural gas supply.
Natural Gas Implications for the Clear Skies Act
    This economic and energy context shapes how we look at 
environmental policies like Clear Skies. National air quality policies 
have sharply accelerated the switch from coal to natural gas by 
electricity generators. The Clear Skies proposal, in its current form, 
has the potential to slow the stampede from coal to gas and to 
partially help secure a period of more stable, diverse and sustainable 
supply of competitively priced energy.
    Clear Skies does not go far enough, however, to promote the 
development and use of clean coal technologies for future generating 
capacity. Clear Skies largely supports the continued use of existing 
generating capacity with add-on technology controls, but does little to 
encourage the adoption of control technologies that will actually grow 
the use of coal in America and mitigate the demands on natural gas.
    When compared to other multipollutant legislation that has been 
introduced, Clear Skies would best promote continued fuel diversity. 
Clear Skies attempts to balance the demand for continued Clean Air 
progress with maintaining energy diversity. The debate surrounding the 
introduction of Clear Skies highlights this delicate and tenuous 
balancing act--even minor changes to the bill could drive utilities to 
switch to natural gas.
    Clear Skies does not put mandatory controls on CO2 emissions. If 
Congress does enact mandatory CO2 controls, the days of coal-fired 
power generation are numbered. Coal, the one domestically abundant 
energy source that keeps energy prices in reasonable balance will no 
longer be used. Natural gas prices will skyrocket with even greater 
demand and subsequent shortages of supply. The three-pollutant 
approach, described in Clear Skies with implementation carried out over 
a reasonable timeframe will enable utilities to make use of the latest 
clean coal technology and move forward with development of additional 
coal technologies.
    The right timelines also could enable power generators to maintain 
their diverse fuel base, and assure market entry of advanced fossil 
technologies, including natural gas and coal technologies. The same 
holds true for timelines and stringency chosen to control mercury 
emissions. Too tight a timeline or too stringent mercury reduction will 
force utilities to fuel-switch.
    Clear Skies should provide an exemption for all energy efficient 
and low-emitting combined heat and power (CHP) generators. Many of our 
member companies rely heavily on CHP systems to provide the steam and 
electricity for internal manufacturing processes. These systems are 
universally recognized as being ultra-efficient when compared to 
traditional fossil fueled utility power generators because they capture 
the heat from the electricity generation process for use in the host 
chemical plant. Today's systems can reach or exceed efficiencies as 
high as 80 percent, nearly twice that of the best combined-cycle gas 
fired utility generator. Obviously getting twice the energy outputs 
from the same energy inputs is beneficial. Congress should be 
encouraging greater CHP usage by commercial, industrial and residential 
interests.
    The American Chemistry Council has not yet finalized our position 
on Clear Skies legislation as environmental policy. But Clear Skies 
also has implications on national energy policy, and in that regard, 
our position is clear: Clear Skies can slow the stampede in power 
generation from coal to natural gas and Clear Skies can help America 
maintain a more diverse fuel base. But Clear Skies cannot, by itself, 
restore balance to natural gas markets and it will not stop new 
generating capacity from being almost exclusively natural gas fired and 
increasing the price of natural gas. Last, Clear Skies alone cannot 
make American manufacturing more competitive and help our economy 
regain and maintain its strength in global markets by lowering energy 
prices.
    Congress must open up the domestic natural gas supply and restore 
balance to our nation's fuel diversity. A strong long-term economy that 
includes an energy policy that improves the economic well being of all 
citizens must be coupled with the actions that lead to improved health 
and environment.

                               __________
   Statement of Joel Bluestein, President, Energy and Environmental 
                             Analysis, Inc.

Summary of Testimony
    Natural gas prices are likely to be higher in the future than in 
the last 15 years and power generation is the fastest growing component 
of natural gas demand. New multipollutant regulations are not a primary 
driver for the increase in gas prices, however. In addition, higher gas 
prices are likely to reduce the potential for wide-spread switching 
from gas to goal as a result of increased regulation. Finally, a 
gradually implemented multipollutant program that rewards the 
development and implementation of new technology could promote a more 
balanced mix of power generation assets and help avoid over-reliance on 
gas.

Introduction
    Thank you Mr. Chairman and members of the Subcommittee for the 
opportunity to testify today. My name is Joel Bluestein and I am the 
President of Energy and Environmental Analysis, Inc. EEA is located in 
Arlington, Virginia and has been providing energy and environmental 
consulting services since 1974. Among our major areas of expertise are:

      Analyzing and forecasting the supply, demand and price of 
natural gas
      Analyzing the impacts of regulatory policy on energy 
markets
      Analyzing new energy technologies in the context of 
environmental regulations.

    We have done this work for natural gas producers, pipelines, local 
distribution companies, power generators, technology developers, the 
U.S. Department of Energy, the U.S. Environmental Protection Agency and 
other public, private and institutional clients. I have been at EEA for 
14 years and have over 20 years of experience in the energy and 
environmental field.
    Today I'd like to briefly share with you our current outlook on 
supply and price of natural gas in North America and some views on the 
relationship between that outlook and multipollutant legislation.

Gas Price Forecast
    EEA quarterly prepares a 20 year forecast of North American natural 
gas supply, demand and price that we call our Natural Gas Compass. 
Figure 1 summarizes our current view of the price for natural gas over 
that period. It shows that we expect gas prices at the Henry Hub to 
average about $5.70/MMBtu (in constant 2002 dollars) for the next 2 
years and decline to a level around $4.50/MMBtu for the remainder of 
the period except for brief periods later in the forecast.
    This is a significant increase from gas prices over the last 15 
years, which have mostly stayed below $2.50/MMBtu. The roots of this 
change have been quite visible in the last few years and reflect the 
end of the ``gas bubble'' of the 1990's or more precisely the fact that 
the balance of supply and demand for natural gas has been growing 
tighter in recent years. A tighter balance between supply and demand 
results in higher prices and increased volatility. This does not mean 
that we are ``running out'' of natural gas, it does mean that gas 
producers need to look further afield and spend more money to meet the 
demand for gas, and that is reflected in the price.



    Our forecast includes new development of natural gas in several 
U.S. areas including Alaska, the deep Gulf of Mexico and the Rockies as 
well as imports from the Mackenzie Delta in Western Canada and the 
Maritimes area off of Canada's east coast. We also project increased 
imports of liquefied natural gas (LNG) through the four existing LNG 
terminals and the addition of several new LNG terminals in the later 
part of the forecast. Finally, we project that adequate pipeline 
capacity must be constructed to bring the gas to places where it is 
needed.
    This scenario reflects what we see as a realistic though 
challenging period of growth for the natural gas industry. It requires 
very large investments of capital, though not more than has been 
invested in the past. It also requires a variety of positive policy 
decisions such as support for an Alaskan gas pipeline, development of 
LNG terminals, construction of other new pipelines, etc. If any of 
these does not occur, the price forecast is higher. One might say that 
there is more upside potential than downside on gas prices.
    This price forecast is driven by the consumption of natural gas 
growing from 22.3 trillion cubic feet (Tcf) in 2002 to 28.2 Tcf in 2015 
and 30.4 Tcf in 2020. The largest portion of this growth is in the 
power generation sector, growing from 4.3 Tcf in 2002 to 8.4 Tcf in 
2015 and 9.5 Tcf in 2020. While there is some variation, these 
consumption projections are not significantly different from those 
developed by other forecasters, including the U.S. Energy Information 
Administration.
    So I agree with the basics of much of what has been said on this 
topic:

      The gas supply/demand balance has gotten tighter and will 
remain tight.
      Gas prices will be higher than in recent history, perhaps 
significantly higher.
      Power generation will be the major growth sector for gas 
demand.

Relationship to Multipollutant Regulation
    The question of how we can best and most appropriately ensure an 
adequate gas supply is a complex and important one that is already 
being addressed in other forums. I think the question for today is: 
``What does this gas price outlook say about environmental regulation 
of the power generation sector?"
    The EEA forecast does not include any significant switching from 
coal to gas in the power generation sector. We do include the large 
amount of new gas-fired generation that has been built in recent years, 
about 150 GW from 1998 through 2002, and continued construction of new 
gas capacity in the near future. We also project new coal capacity 
coming on line, mostly after 2010.
    It must be pointed out that, in certain areas, this new gas 
capacity actually reduces gas consumption by replacing older, less 
efficient gas generation. We have seen old gas plants retired in Texas 
because they cannot compete with the new, more efficient gas plants. 
It's been estimated that replacing all of the old gas plants in Texas 
with new, state-of-the-art gas combined cycle plants could reduce gas 
consumption for power generation by over 200 Bcf per year. The use of 
even more efficient combined heat and power (CHP) can make this 
reduction even greater. The same is true in other parts of the 
Southwest, as well as parts of the West, South and Northeast. In some 
States where markets have not opened up yet, this potential is 
currently being lost because incumbent utilities can choose to dispatch 
their old less efficient plants rather than the new plants.
    There seems to be a lot of concern that, either on its own or due 
to various environmental restrictions, the demand for gas for power 
generation will inexorably grow until it threatens our economy. I think 
this concern is overstated and unfounded, certainly as regards the 
power generation sector. Although we see continued growth in new gas-
fired generation, we do not expect massive switching from coal to gas 
under any 3-P regulatory scenario currently being discussed.
    At the gas prices we are forecasting, switching to gas will not be 
the most economic choice except for the least economic, highest cost-
of-control coal plants. The capital cost of a new combined cycle plant 
is much less than a new coal plant, but still much more than the cost 
of even a complicated control retrofit at most coal plants. And then, 
the cost of fuel for even an efficient new combined cycle gas plant at 
$4.50/MMBtu is over $30/MWh. This is almost three times the fuel cost 
for even an inefficient coal plant burning coal at $1/MMBtu or less. 
There is a lot of money to be made on the coal side of that 
competition. This is reflected in the U.S.
    EPA's extensive modeling of regulatory scenarios in which they are 
hard-pressed to show any significant switching to gas even with gas 
prices two or three times lower than the prices we are forecasting.
    The higher gas prices go, the better the economics of coal look. We 
might have greater concern over switching if there were no way to burn 
coal efficiently and cleanly. But this is not the case. There are many 
coal plants today that efficiently and economically limit their 
SO2 and NOx emissions and are highly competitive in the 
market. New coal plants being built are even cleaner. New coal 
technologies being developed, such as integrated gasification combined 
cycle plants, are cleaner and more efficient yet.
    New technology is vital to addressing control additional pollutants 
such as mercury or even CO2. The concern then becomes 
whether the appropriate technologies will be available to provide 
adequate reductions. In the history of pollution control programs, 
industry has always found ways to control pollution more effectively 
and less expensively than originally thought possible. But that may be 
little comfort to plant owners who face a new set of pollution control 
challenges.
    Multipollutant programs like the Clear Skies Act and those proposed 
by Senator Jeffords and Senators Carper, Chafee and Gregg, despite 
differences in detail which I don't propose to address, all will likely 
help the development of new, clean coal generation by providing 
increased regulatory certainty and flexibility to find effective 
compliance solutions. Emission cap and trade programs provide a variety 
of tools to address the problem, including: the timing and stringency 
of the cap, cost mitigation measures and availability of off-sector 
trading.
    One shortcoming of the Clear Skies Act in supporting new technology 
is that the ``grandfathering'' approach to allowance allocation 
disadvantages new plants in general and new coal plants in particular. 
The failure to allocate allowances to new coal plants creates a 
disincentive for companies to develop these plants and drives the power 
sector more toward gas. An allocation approach that includes new plants 
and rewards efficiency is one way to help ensure that we can continue 
to rely on our substantial coal resources.
    I agree with those who endorse phased implementation of emission 
caps. However, I would add that starting the programs earlier and 
phasing them in more gradually is critical to ensuring the availability 
of appropriate technology. Development of new technology requires a 
driver, which in this case is regulation. Then technology development 
needs money and time for research, development and commercialization. 
Command and control programs and cap and trade programs with large 
reduction steps don't provide enough time for technology development. 
However, delaying the imposition of the regulation doesn't provide a 
sufficient driver for development. A series of gradual steps can jump-
start technology development and keep it moving.
    This can be illustrated for the topic that probably creates the 
greatest concern for over-reliance on natural gas--CO2 
reduction. I think it's clear that switching to gas alone is not an 
adequate approach to CO2 mitigation. CO2 
reduction will require a mix of gas, renewable, and advanced coal 
technologies such as integrated gasification combined cycle with 
sequestration or coal-based hydrogen production, combined heat and 
power and other efficiency measures. Overly aggressive near-term 
reduction requirements will not help us promote the development of new 
technologies. On the other hand, neither will continued delay of 
regulation. The point was made at the last hearing on this topic that 
delay in addressing CO2 regulation is one more reason that 
companies are reluctant to construct new coal capacity today. Finally, 
the long-term reduction goals required to address climate change are 
much greater than the levels currently being discussed even in 4-P 
legislation and must be recognized early to provide the right 
direction.
    Figure 2 shows a cap and trade approach that applies gradual 
CO2 reductions to jump-start technology development and 
promote long-term solutions while avoiding near-term economic 
distruption, including excessive switching to gas. In fact, in this 
approach, the emission cap increases for the first several yars, then 
levels off and begins a very gradual decline. It is designed to reach 
an 80 percent CO2 reduction by 2060, which is calibrated to 
meeting a 450 part per million (pp) atmospheric CO2 level. 
An economic "circuit breaker" could be used during the declining 
portion of the program to adjust the rate of decline and avoid economic 
disruptions.



    This approach would send an immediate signal that new technology is 
required and provide financial support for new technology through an 
immediate, active market in CO2 allowances, even though 
reductions are not immediately required. It would provide immediate 
financial return for ``no regrets'', voluntary actions while reducing 
the transaction cost and verification concerns. The schedule would also 
avoid any immediate devaluation of existing assets, since major 
reductions don't start until 2015. At the same time it makes a 
commitment to meet the long-term goals. More information on this 
approach is included as Attachment A. A similar, less gradual approach 
could be used to promote new technology for mercury control.

Conclusion
    In conclusion, we do see higher gas prices in the future, 
regardless of what regulations are imposed on the power generation 
sector. This increase and its implications need to be addressed 
separately from their implications on multipollutant regulation. 
However, higher gas prices will increase the value of new, clean, 
efficient coal technologies. We need to continue the use of coal as a 
major component of our power generating mix. However, the future of 
coal-based generation should not be the continued use of 50 year old 
plants but rather the construction of new, more advanced coal 
technologies. That, in fact, is probably the long-term path to wider 
use of coal in our economy through the development of coal-based liquid 
fuels or hydrogen. Multipollutant legislation can encourage the 
development of those technologies by providing equitable allowance 
allocations for new plants and by setting gradually declining emission 
caps from an early starting point.
    Thank you again for this opportunity to speak and I'll be happy to 
respond to any questions at the appropriate time.






                        CLEAR SKIES ACT OF 2003

                              ----------                              


                         THURSDAY, JUNE 5, 2003

                                       U.S. Senate,
                 Committee on Environment and Public Works,
     Subcommittee on Clean Air, Climate Change and Nuclear 
                                                    Safety,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 9:35 a.m. in 
room 406, Senate Dirksen Building, Hon. George V. Voinovich 
[chairman of the subcommittee] presiding.

REVIEW OF EMISSIONS CONTROL TECHNOLOGIES AND UTILITY-SECTOR INVESTMENT 
                                 ISSUES

    Present: Senators Voinovich, Carper, Thomas, Cornyn, and 
Inhofe [ex officio].

  OPENING STATEMENT OF HON. GEORGE V. VOINOVICH, U.S. SENATOR 
                     FROM THE STATE OF OHIO

    Senator Voinovich. Good morning. The hearing will please 
come to order.
    This is the third hearing we've had on the Clear Skies Act, 
S. 485 and continues a discussion that we have had in this 
committee for several years on the complex issues on how to 
clear our air by reducing emissions without doing irreparable 
harm to our economy and this country's competitive position in 
the global marketplace.
    Today's hearing will focus on the issues surrounding 
current and projected emissions control technologies and their 
impact on utility sector investments. Several times throughout 
the course of these hearings I have stated that we need to 
enact a comprehensive energy policy that harmonizes the needs 
of our economy and our environment. We cannot forget that one 
of the major reasons that we have been successful economically 
and competitively in the world marketplace is our ability to 
purchase reliable, affordable energy supplies.
    We must also keep in mind that we must do better in 
protecting the quality of our air. Despite the fact that the 
Clean Air Act has been extremely successful in reducing 
emissions of pollution, emissions of all criteria pollutant 
have been reduced by 29 percent since the Act was passed, 
despite that fact that both electricity and energy use have 
both increased significantly over the same period of time, the 
fact is, there is still significant room for improvement, and 
that's why this legislation has been introduced.
    As we look at the issues surrounding emission control 
technologies and the financial stability of our utility sector, 
it is very clear that the nexus between the environment and the 
economy is rather than an academic or political exercise, a 
very real issue for those who will be affected by the decisions 
we make on this committee and in the Senate.
    The Clear Skies Act establishes legislative emission caps 
for SO2, NOx, and mercury that will require 
utilities to reduce their emissions of these pollutants by 
approximately 70 percent by 2018. In order to meet these 
reduction requirements, utilities will need to rely on 
different technologies to capture each of the pollutants. The 
primary technology used by utilities to reduce SO2 
is the flue gas desulfurization, FGT unit, which we like to 
call, easier, scrubbers, which can achieve about a 95 percent 
reduction in SO2 emissions.
    Utilities that need to reduce NOx emissions generally 
install selective catalytic reduction, SR units, which can 
remove about 90 percent of the NOx in our power plants. In 
order to reduce emissions of mercury, utilities must rely on 
the combination of scrubbers, SCRs and other emission reduction 
technologies that are currently available until new mercury 
specific technologies are brought on line. The level of mercury 
removal from this method depends on a combination of control 
technologies used and the rank of the type of coal, bituminous, 
subbituminous or lignite, and composition or chlorine level of 
the coal.
    Investor owned utilities, co-ops and municipal generators, 
in conjunction with the Administration and others in the public 
sector, are currently working on the development of several new 
mercury specific control technologies, including activated 
carbon injection, clean coal technologies and integrated coal 
gasification combined cycle technologies. However, 
demonstration projects using these technologies are in their 
infancy and results have varied greatly.
    The technologies that utilities, co-ops and municipal 
generators have to install in order to meet the Clean Air 
requirements constitute major capital investment for these 
entities. I can recall when I first became Governor of Ohio 
that we put in place a plan that helped AEP to add scrubbers to 
their Gavin plant in order to reduce SO2 emissions. 
Those scrubbers at that time cost over $675 million, a decade 
ago. I also understand that AEP has recently installed SCRs at 
Gavin in order to reduce NOx emissions at an additional cost of 
over $250 million.
    Although the capital expenses that generators have had to 
install to date are high, the projected expenses for installing 
new equipment to meet new EPA regulations will be even greater. 
I understand that over 100,000 megawatts of coal power plant 
capacity will have to be retrofitted with SCRs by 2005 in order 
to meet the requirements of the NOx SIP call, which they're all 
going to make or try to make.
    Additional equipment will be required to meet EPA's new 
standards for ozone and particulate matter which will go into 
effect in 2004-2005. Further, EPA is set to propose a new rule 
on the mercury MACT next year, that will require significant 
reductions in mercury emissions by 2008, despite the fact that 
we don't have any mercury-specific reduction technologies 
available to install.
    It is understandable why many people feel the environmental 
policies that have been developed over the last decade have 
focused more on eliminating coal-based generation than 
eliminating emissions. This is despite the fact that over 50 
percent of our electricity generation is coal based and that we 
have over 250 years worth of coal available domestically. These 
tremendous capital expenses for installation of emissions 
reduction technologies have direct impact on generators' 
ability to provide reliable, affordable electricity to 
residential, industrial and manufacturing customers. Utilities, 
co-ops, municipal generators that rely on coal for a large 
percentage of their generation are facing the choice of either 
investing hundreds of millions of dollars on emission control 
technologies or fuel switching to natural gas in order to meet 
air quality standards.
    Further, the California electricity crisis, the recent 
energy trading scandals, the significant increases in natural 
gas prices, have left utilities financially strapped and forced 
several major energy companies to declare bankruptcy. The end 
result will be inevitably higher energy prices and a drag in 
our economy. All sides in the debate on multi-pollutant 
legislation agree that the current approach to regulation 
utilized by EPA is plagued with burdensome, overlapping 
regulations that are subject to costly and time consuming 
litigation and have become unnecessarily costly.
    In the first hearing on this topic, I stated that there are 
now more than a dozen separate regulations on the books for 
sulfur dioxide and nitrogen oxide, with additional regulations 
around the corner. We also discussed the fact that litigation 
over several of these regulations has already delayed their 
implementation, forestalling the air quality benefits that they 
were designed to achieve. The patchwork of existing and soon to 
be implemented regulations, coupled with the delays bred by 
continuous litigation, has created enormous uncertainty for 
utilities, co-ops and municipal generators, and has stymied 
efforts to improve the environment. This uncertainty has 
curtailed investments in technologies that would reduce 
emissions at existing plants, prevented numerous new facilities 
from coming on line and caused several utilities to consider 
phasing out coal based generation altogether by fuel switching.
    With the implementation of the Clean Air Act provisions, 
other Federal environmental regulations and State clean air 
laws, they combine to create uncertainty for electricity 
generators. They have a tremendous impact on the ability of 
private sector utilities to raise capital and make strategic 
long term investment decisions, such as decisions on the 
purchase and installation of emission control technologies.
    It's absolutely imperative that we act to pass legislation 
that will bring sanity to our environmental policy and prevent 
situations like this from taking place. Clear Skies will 
eliminate many of the problems that have arisen from EPA's 
implementation of the Clean Air Act. It will result in 
significant emission reductions and protect our air quality and 
public health. It will provide generators with a realistic and 
certain time table to meet emission standards. And it will 
ensure that they can continue to provide affordable, reliable 
electricity to residential, industrial and manufacturing 
customers and move forward with the emissions reductions.
    As I mentioned at the beginning of my remarks, this is the 
third hearing on Clear Skies. I intend to mark up Clear Skies 
at the next subcommittee level as soon as possible. And I want 
to restate my firm commitment to push hard to have the full 
committee report a bill to the floor and to have the Senate 
pass it this Congress.
    I want to thank our first witness this morning, Chairman 
Kroszner, for coming to present the Administration's take on 
these vital issues to the subcommittee. I also look forward to 
the testimony of our other witnesses. I'd like to make it very, 
very clear that we are going to stick, I'm going to be very 
fastidious about the 5 minute rule, because we have a lot of 
witnesses today, we want to move along and I may, if we get to 
the third panel, even require that it be less than 5 minutes. 
But we'll see how things move along this morning.
    I would now like to call on the ranking member of this 
committee, Senator Carper.

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

    Senator Carper. Thanks, Mr. Chairman. Good morning to our 
chairman of the full committee, Senator Inhofe, good morning. 
And to our first witness and other who will follow, glad you 
are here. It looks like it's standing room only here in our 
hearing room. That's a great thing.
    Mr. Chairman, I want to start off by thanking you and your 
staff for working with us as we have gone through the gyrations 
of the last week or so trying to figure out how many witnesses 
we were going to have. I'm most grateful for the way that 
you've approached this. I think we've got a great lineup and 
we're looking forward to learn a lot from them and from one 
another as we prepare to mark up.
    I especially want to welcome a couple of folks from 
Delaware who are here. One of our witnesses is from W.L. Gore, 
and they're going to be sharing with us some of the technology, 
exciting technology that they've developed in their testing and 
implementing around the country with respect to controlling 
emissions of mercury. Chris Koons, who works with W.L. Gore, 
was good enough to set up a briefing earlier this year and 
maybe late last year. One of the people who showed us their new 
technology is Rick Bucher, who's going to be sharing that with 
us again today. That technology apparently removes as much as 
90 percent of mercury emissions from coal-fired plants. That 
got my attention and I think we'll be interested in hearing 
what they have to say.
    I'm told that Chris Koons going to play the role of Vanna 
White in working with the visual aids. That will be an 
interesting role for her. Thank you both for coming.
    And it's these kinds of technologies that I think move us 
and help move our country and the Congress toward a cleaner 
environment, which we all want to support.
    I'm also looking forward to the third panel, when we'll 
have the opportunity to hear maybe for the first time before a 
Senate committee an aspect of this debate that we've not 
previously considered, and that is the view of this issue, 
particularly the issue of global warming, for investors, 
investors who invest in the utility industry.
    One week ago today in the New York Times there was an 
article in the business section that I'd like to quote from 
briefly, and then Mr. Chairman, I'm going to ask consent that 
the full article be entered into the record. It was written by 
a woman whose name is Catherine Seely, I hope I've got that 
right, if she's listening or watching. But she said this, she 
said, ``Almost a quarter of the shareholders of the Southern 
Company, one of the Nation's largest utilities, voted at an 
annual meeting today to require the company to analyze and 
report on the potential financial risks associated with its 
emissions of the pollutants that cause global warming.''
    The article goes on to say that last year similar 
resolutions concerning global warming garnered an average 
support of 18 percent, while this year the average has grown to 
more than 25 percent. More and more companies are beginning to 
face such questions about their environmental record for 
investors while here in Congress we continue to discuss new 
legislative strategies to clean up our air. On Wall Street, 
there is a growing call for companies to recognize that 
emissions, including CO2 and those that lead to 
global warming, should be addressed. An increasing number of 
shareholders who vote with their dollars are beginning to 
invest their capital based on how companies are addressing 
these issues. And those shareholders and the companies are 
looking to us for a signal on what will come.
    While today's hearing focuses on the Clear Skies Act, I 
want to remind the committee that along with Senators Chafee 
and Gregg, I've introduced a Clean Air Planning Act, which 
represents what we think is a sensible solution to this 
problem. The bill would provide a market based and flexible 
approach to regulating CO2, NOx, mercury and 
SO2 emissions, while continuing to provide 
affordable and reliable electricity.
    And I'd be remiss if I didn't take just a moment, Mr. 
Chairman, to say something about our good friend Christy 
Whitman, I always address her as Governor Whitman when she 
comes before this panel, who since her last hearing announced 
her plans to step down as the Director of EPA. I will miss her 
personally, and I certainly wish her and her family the very 
best in all that lies ahead, and I wish President Bush, another 
old Governor, some good luck in nominating a replacement who is 
as capable and as cooperative as Governor Whitman has been on 
many issues that we've dealt with her together. She's been a 
strong advocate for moving a multi-pollutant bill through this 
committee and through the Senate, and I hope we can meet that 
challenge even after she's gone.
    I also hope that before she leaves, she'll be able to 
respond to the requests that Senators Chafee and Gregg and I 
made to her this past April, when we asked for an analysis of 
the Clean Air Planning Act. And to date, we've not received it. 
Having that information we think is critical to our ability and 
this committee's to evaluate alternative options and to develop 
effective legislation.
    Mr. Chairman, let me conclude with this. Something I said 
at our first hearing on this topic, I just want to repeat it, I 
said it I think when Governor Whitman was before us, and here 
it is. We should agree on at least a set of principles to guide 
us as we move forward, and I again offer the following four 
principles.
    No. 1, and four is better than three, a comprehensive four 
mission strategy that includes carbon reductions will provide 
regulatory certainty and offer the greatest environmental and 
economic benefits. No. 2, markets work. Cap-and-trade-based 
emissions standards provide the maximum incentive to achieve 
cleaner power.
    No. 3, stairs are better than cliffs. Prompt but gradual 
reductions through multi-phase or declining caps are more 
desirable than single phase cuts. And last but not least, No. 
4, eliminate redundancy only when emission reductions are 
secured. Existing regulatory programs such as new source review 
will need some modernization in light of tight emission caps.
    Well, that's it. I look forward to the hearing. It's going 
to be a good one, and Mr. Chairman and all our witnesses, thank 
you all for making it possible.
    Senator Voinovich. Thanks very much, Senator Carper.
    I'd like to call on the chairman of our committee, Jim 
Inhofe.

 OPENING STATEMENT OF HON. JAMES M. INHOFE, U.S. SENATOR FROM 
                     THE STATE OF OKLAHOMA

    Senator Inhofe. Thank you, Mr. Chairman. I would also say 
favorable things about Governor Whitman, particularly since she 
recanted the very statement that you read at a later date. It 
takes a very large person to do something like that.
    I want to thank Dr. Kroszner for testifying on this current 
state of the knowledge regarding emissions control technology. 
As you know, this topic is of great significance to not just 
the four of us at this table, but our committee. While I would 
have preferred that this data had come to us earlier, I 
appreciate the Administration is here today to ensure that this 
subcommittee has the most up to date information as it 
considers the legislation.
    I want to reiterate something the chairman said that I'm 
committed to the Clear Skies goal of reducing the SOx and NOx 
and mercury emissions by 70 percent, which is the most 
aggressive Presidential initiative in the United States history 
to reduce power plant emissions. That's worth repeating, 
because you don't hear this very often out in the media. This 
is the most aggressive Presidential initiative in the history 
of reducing power plant emissions.
    But I am concerned that the phase one mercury interim cap 
is too stringent and creates too much uncertainty. U.S. 
utilities contribute only 1 percent of the mercury emitted 
globally and new scientific findings have called into question 
the health effects associated with mercury emissions. While I 
intend to address the question of the current state of science 
regarding mercury at a future full committee hearing, the focus 
of this hearing is on the control equipment.
    The decisions we make should be based on the best available 
facts about how well the technologies work because regulation 
of mercury is very, very costly. These costs are passed on to 
consumers as higher electric prices. And high prices are like a 
regressive tax on the poor in our Nation. That's something that 
everybody has to have. And it's one that hits the poor harder 
than it does the wealthy.
    I'm aware that the Administration has expended much effort 
to incorporate into its models the most accurate assessments of 
what the various technologies accomplish in terms of reducing 
SOx and NOx and mercury. While reducing emissions levels can be 
extremely expensive, much is understood about the capture of 
SOx and NOx in particulate matter. There is little uncertainty 
regarding the costs and emissions capture rates in SOx in the 
latest technologies such as scrubbers and bag housing.
    Mercury stands in sharp contrast. While there are 
technologies under development, and we'll hear of some of them 
toady, as Senator Carper pointed out, there is no commercially 
proven and available technology to remove mercury from coal-
fire emissions. My main interest in this hearing is the 
estimated mercury phase one co-benefits level. I feel compelled 
to note my longstanding frustration at the ever-evolving 
definition of co-benefits as this process has progressed. So I 
want to make clear at this hearing how I define it.
    Mercury co-benefits are the levels of mercury expected to 
be achieved as a result of meeting SOx and NOx phase one 
emissions limitations. Dr. Kroszner, when it becomes question 
and answer time, I'll be asking for your definition to see if 
you're in agreement with that.
    Clearly, the state of knowledge regarding mercury capture 
is rapidly evolving. It is still in its infancy. Much 
uncertainty remains about the levels of capture that are 
achieved using proven technologies. Dr. Kroszner, you written 
statement reflects both these statements. While Clear Skies has 
a hard cap of 26 tons, your models predict that the co-benefits 
will result in emission levels in the range of 34 to 46 tons. 
This range also demonstrates the level of uncertainty that 
exists even now about the levels of control and what the 
various technologies will achieve.
    My primary interest is to better understand the major 
assumptions your models make about various combinations of 
equipment. Specifically, how have the models evolved from the 
2002 to 2003 for both EPA and EIA and also what equipment 
combinations drive the differences between the co-benefit 
results projections.
    I would like to compliment the Administration for the level 
of attention given to continually upgrade its estimates by 
working with researchers and industry to improve the 
assumptions it uses in the models. This new information is 
profound in its implications. I am also encouraged the 
Administration is continuing in its efforts to reconcile the 
differences between the EPA and the EIA models so that Congress 
has the latest information as to the science, as the science 
matures.
    So Mr. Chairman and Mr. Ranking Member, I'm delighted to 
have all three panels. And I do agree with your restriction on 
time. Otherwise, it's going to last the whole day.
    Senator Voinovich. Thank you, Mr. Chairman.
    Senator Thomas.

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

    Senator Thomas. Thank you, Mr. Chairman. I agree with your 
restriction on time also, so I'll be very brief.
    I agree with what the chairman has just said, but I 
certainly welcome this hearing. We all agree we want clean air 
and we want to move in that direction, of course. So we need to 
talk about it.
    Since the enactment of the Clean Air Act, there have been 
significant reductions in NOx and SO2 and 
technologies exist for both of these emissions. My concern is 
the lack of commercially demonstrated technology for mercury, 
particularly for western coal, and general belief that mercury 
can be captured by adding scrubbers in the routine way of doing 
it. This may work for eastern bituminous coal, it does not work 
in the west.
    So I agree very much with what the chairman has said, and I 
look forward to it, and I appreciate your being here and hope 
we can come up with a reasonable approach to continue to get 
clean air. Thank you.
    Senator Voinovich. Thank you, Senator Thomas.
    Dr. Kroszner, you can proceed with your testimony. We're 
very happy that you're here today.

 STATEMENT OF RANDALL S. KROSZNER, MEMBER, COUNCIL OF ECONOMIC 
                            ADVISERS

    Dr. Kroszner. Thank you very much, Mr. Chairman, ranking 
member and members of the committee. I'm delighted to be able 
to address you today on this extremely important issue of the 
Clear Skies Act of 2003.
    I will just give you a few highlights of the testimony to 
try to keep in the 5 minute limit, and if I may just submit for 
the record the formal written testimony that I have.
    Senator Voinovich. Without objection. And Senator Carper, 
without objection, we'll include that which you referenced in 
are opening statement earlier.
    Senator Carper. Thanks, Mr. Chairman.
    Dr. Kroszner. Thank you very much.
    Strict enforcement of environmental rules can be dated back 
as early as 1306, when a man was allegedly executed for burning 
coal in London. In the United States, concern for air quality 
dates back to the mid-19th century, when many municipalities 
began to issue smoke ordinances. Responsibility for regulating 
air polluters rested almost exclusively with States and 
localities until the 1970's.
    During these years, the Federal Government began to take a 
more active role in environmental regulation with the passage 
of the National Environmental Policy Act, Clean Air Act, and 
further amendments later in the 1970's. One common thread over 
time has been that the U.S. air quality regulatory policy, and 
indeed, environmental regulation in general, has typically 
relied on command and control regulation. This type of 
regulation mandates technologies or processes, does not take 
advantage of the power of markets, and is therefore by its very 
nature more expensive and less efficient than is necessary.
    In contrast, the President has crafted an initiative that 
will clean our air using a proven market based method. 
Announced in February of 2002, the Clear Skies Act would be the 
most significant and aggressive step America has ever taken to 
cut power plant emissions of three harmful pollutants: sulfur 
dioxide, nitrous oxide and mercury. The proposal, which builds 
upon the highly successful 1990 acid rain trading program, will 
cut emissions by approximately 70 percent over the next 16 
years.
    Clear Skies employs a dynamic approach to regulation that 
mandates specific emission-reduction emission caps, while 
providing managers with flexibility to reduce emissions in the 
most efficient and least costly manner possible. Through a 
market-based cap-and-trade program, Federal emission limits, or 
caps, are set and emissions permits are distributed to 
electricity generators. Managers then have the advantage to 
determine the most efficient means of action; whether it is 
sale or purchase of unused allowances, or banking of credits 
for later use, Clear Skies provides regulatory certainty and 
lays out the timeframes necessary for managers to design a 
cost-effective strategy tailored to both current budget and 
future plans.
    With this structure, we uphold the principal feature of the 
President's initiative, improving air quality more cost-
effectively, so Americans can continue to rely on clean and 
affordable electricity. Clear Skies will achieve faster 
reductions than in the current Clean Air Act by creating 
incentives for over-compliance and innovation--the means to 
reduce pollution by more than or earlier than required--and 
then those who do so, can generate and sell extra credits.
    The Clear Skies Act will improve health, visibility and a 
diverse range of ecosystems by reducing the emissions of NOx, 
SOx and mercury. In short, Clear Skies will result in dramatic 
progress toward solving our Nation's persistent air quality 
problems.
    As you are well aware, the crucial element of any 
regulatory policy is not only recognition of the benefits 
received from emissions reductions, but also the resource costs 
associated with the policy. Those costs, it must be emphasized, 
are ultimately borne by the citizens, whether by stockholders 
or companies making the reductions, or by consumers of 
electricity, or both. Therefore, the Administration takes the 
economic modeling of Clear Skies quite seriously. In this 
respect, over the past year we have gained better understanding 
of the costs to abate NOx and SOx and the co-benefits 
associated with reduction of mercury.
    Understanding the removal costs associated with mercury is 
still in a bit of an early stage, exactly as the Senators had 
been describing. The goal of Clear Skies is to reduce mercury 
emissions by 70 percent by 2018, with an interim cap of 
approximately a 50 percent reduction by 2010. Mercury emissions 
will be reduced from current levels of approximately 48 tons to 
15 tons in 2018, with an interim cap of 26 tons in 2010.
    Clear Skies is designed to meet the goal of reducing the 
mercury with a trading program that is more cost-effective than 
the program currently required by the Clean Air Act. The 
interrelationship of the cap levels for NOx, SOx and mercury is 
also a very important feature of the Clear Skies program to 
provide much more flexibility, greater regulatory certainty and 
help in planning cycles with the co-benefit of mercury 
reductions from the NOx and SOx emissions controls.
    So in looking at the total resource costs, and looking at 
the cost of mercury removal, I want to talk more during the 
question period about some of the new data that has been 
gathered throughout the EPA's information collection request 
and various pilot programs. What we've been finding is that 
even though there are uncertainties, I just want to highlight a 
couple of the empirical estimates of interest. The first phase 
of the mercury-reduction cap is designed to take advantage of 
the interrelationship of NOx, SOx and mercury emissions and do 
this through SCRs, scrubbers, NOx and SOx controls determining 
co-benefits.
    Our updated analysis suggests that the NOx and SOx limits 
in Clear Skies would lead to estimates of annual mercury 
emissions in 2010 of controls between 34 and 46 tons. What I 
can do is provide you with more details during the question 
period. But just to sum up, the President's Clear Skies 
legislation calls for a 76 percent reduction in power emissions 
during the next decade and a half. The legislation will meet 
the required health based standards laid out in the Clear Air 
Act. It will achieve those results sooner than required at a 
much lower cost to consumers.
    We look forward to working with the committee and Congress 
to create a market based system that will provide early 
reductions and affordable energy prices for consumers. Thank 
you, Mr. Chairman and I look forward to answering your 
questions.
    Senator Voinovich. Thank you, Dr. Kroszner.
    I'll start the questioning off. You stated that Clear Skies 
will achieve faster reductions than the current Clean Air Act. 
Can you explain in greater detail how these provisions will 
work and how quickly you believe emissions will be reduced?
    Dr. Kroszner. What we've done is we have a market-based 
system that gives incentives for early reduction. Unlike the 
uncertainty associated with the so-called MACT that will be 
coming down the line, we have a very clear structure of how 
there will be reductions that need to be occurring by 2010 and 
then by 2018. A clear system of SOx that will give incentives 
for people to start innovating today and reducing today rather 
than spending a lot of time litigating hoping that there can be 
changes in the MACT.
    So I think the market based structure that we have gives 
the incentives for earlier reductions than we otherwise would 
get through the current structures.
    Senator Voinovich. In other words, because of the certainty 
of the provisions of Clear Skies, it will lay out a pattern for 
the future which will make it much easier for people to move 
forward because they'll know what's expected of them rather 
than what we currently have on the books.
    Dr. Kroszner. Precisely. There's a great deal of 
uncertainty associated with the mercury MACT, and there's 
likely to be a lot of litigation associated with that, which of 
course engenders a great deal of uncertainty. Something like 
Clear Skies, which very clearly sets out with legislative 
mandates a very clear time table, provides much more certainty 
for firms to do this, as well as the cap-and-trade program that 
also gives the incentive for early innovations and early 
reductions.
    Senator Voinovich. Several of the witnesses we're going to 
hear today will argue that we need to put a cap on carbon 
dioxide emissions in order to improve the financial health of 
investors. However, the political reality we face in Congress 
is the regulation of carbon will not become law for at least 
some time. That's the lay of the land here.
    Would you like to comment on that?
    Dr. Kroszner. I think it's extremely important to go ahead 
with the Clear Skies legislation. The President is very much 
committed to improving the health of American citizens through 
exactly this kind of means, and improving visibility at our 
national parks and throughout the country. And moving quickly 
and moving today on this legislation is something that is very 
important. We should not delay for other reasons, we should go 
on this. We get much earlier health benefits by moving promptly 
on exactly this.
    Senator Voinovich. There are many of us that realize that 
there is very much concern about carbon.
    Dr. Kroszner. Yes.
    Senator Voinovich. We've been working very conscientiously 
to try and find some kind of a compromise that does not cap 
carbon but would encourage technology and also the 
sequestration of carbon, which is a major problem that we have, 
the lack of it is a major problem today. Has the Administration 
given any consideration to some compromise in this area?
    Dr. Kroszner. I think the Administration's proposal so far 
with the registry system, with the reduction system that we 
have in place, the commitment to reduce intensity by 18 percent 
over time, goes precisely in that direction of trying to deal 
with these issues in a way that is as market based as possible. 
But of course, we look forward to working with Congress as we 
develop and get more information about the costs and benefits 
of carbon and of carbon reduction. The issues are still really 
in a very, very early stage. So I think we need to gather more 
data.
    But obviously as we gather more data, and do more analysis, 
we very much look forward to working with you to see what 
should be done. But I believe that the proposals and the 
program that we have today, with the 18 percent reduction in 
intensity over time, is an excellent way to deal with the 
problems, at least on the science that we have today.
    Senator Voinovich. Thank you.
    Senator Carper.
    Senator Carper. Thanks, Mr. Chairman, and Dr. Kroszner, 
thank you for being with us today and for your testimony.
    I found your written testimony informative and are verbal 
testimony as well. However, I think it's remarkable in that 
your testimony does not ever mention the issue of carbon 
dioxide or greenhouse gases or climate change or global 
warming. And I'm just wondering, has the Council of Economic 
Advisers conducted an analysis of the impact for the Clear 
Skies Act on, or really any other multi-pollutant bill, and 
what impact those legislation, those pieces of legislation will 
have on CO2 emissions from the power sector? Do you 
think this is an issue that we should consider?
    Dr. Kroszner. We have not undertaken any specific analysis 
of that issue. We've been looking primarily at the three main 
pollutants of NOx, SOx and mercury. So we've been looking at 
the interaction among those primarily.
    That is not to say that carbon isn't a very important 
issue. As I'd mentioned, the President has his plan for the 18 
percent reduction in intensity of carbon emissions.
    Senator Carper. Eighteen percent reduction, could you put 
that in context? Is it 18 percent reduction below what it is 
right now to what it would otherwise be at some date in the 
future?
    Dr. Kroszner. It's 18 percent reduction in the intensity. 
So that is the amount of emissions relative to GDP. So it's a 
ratio.
    Senator Carper. Below the intensity this year? Five years 
from now, 10 years from now? Is it an 18 percent reduction 
below current levels?
    Dr. Kroszner. It is an 18 percent reduction over time from 
current levels. That is my understanding of the program.
    Senator Carper. We'll come back and verify that. In fact, 
let me just ask you to verify that for the record.
    Dr. Kroszner. Certainly.
    Senator Carper. My understanding is it's an 18 percent 
reduction, not below current levels, but below what they would 
otherwise be at some date in the future. And maybe we can 
verify that.
    Dr. Kroszner. Certainly we'll do that for you, Senator.
    Senator Carper. In your testimony, why don't you address 
CO2? I think it's just peculiar, it's an issue that 
is deemed to be important by a lot of people, and you never 
mention it.
    Dr. Kroszner. It certainly is an important issue. I don't 
mean to not mention it, or by not mentioning it say that it is 
not an important issue that we continue to look into and 
continue to spend an enormous amount of resources studying, 
much more than any other country. But I did not realize that 
this testimony was to be focusing in that. I thought it was to 
be focusing on the Clear Skies Act itself. That's why I tried 
to limit myself to focus on the three main pollutants in Clear 
Skies.
    Senator Carper. You stated very directly in your testimony 
that Clear Skies is designed to meet the Clean Air goal of 
reducing mercury with a trading program that I believe you say 
is more cost-effective than the program currently required bay 
the Clean Air Act. Here's my question. What is the cost that 
you're using of the current Act's requirement for comparison 
purposes? And second, what is the cost of the Clear Skies 
mercury program?
    Dr. Kroszner. The cost of the Clear Skies mercury program, 
let me talk just a little bit generally about how we get to 
those costs. What we're doing is looking at the NOx and SOx 
reductions from scrubbers, SCRs, et cetera, using various forms 
of technology. And we do get some co-benefits with a reduction 
in the level of mercury that gets into the sky, simply by 
taking out the NOx and the SOx. And that then gives us 
estimates of how much would be taken out just by the mere fact 
of controlling NOx and SOx based on 2010 and 2018 goals that we 
have in mind.
    Then what we do is say, let's try to see what will the 
costs be of moving beyond the co-benefits if we need to move 
beyond the co-benefits. And currently both the EPA and EIA 
estimates are that the costs to meet the interim goal, 2010, 
would be on the order of $650 million to $700 million per year. 
Both modeling techniques suggest that that's approximately what 
the cost would be to achieve our interim goal of 26 tons.
    Senator Carper. I got lost there in the weeds. I asked two 
questions. Just come back and answer them as directly as you 
can. First, what is the cost that you're using of the current 
Act's requirements for comparison purposes? Because what you're 
asserting in your testimony is that the trading program within 
the Clear Skies initiative is more cost-effective than the 
current Act. What is the cost you're using for the basis of 
your comparison? I think you may have just given me the cost of 
the Clear Skies mercury program. But let me just have both of 
those again, please.
    Dr. Kroszner. Sure. The mercury MACT program, the 
implementation of it, is highly uncertain. So we don't have a 
specific number for the MACT implementation, though we very, 
very strongly believe, and I think it's from past experience 
with other attempts to use something like MACT, is that 
relative to a SOx system, it's going to be much more costly to 
do plant by plant types of controls, use the MACT structure, 
which looks not at cost reduction, but looks at just particular 
technology use.
    So by taking that approach rather than an approach that 
allows for SOx, allows for companies to try to choose the most 
cost efficient means of reducing things, we know that that will 
be more expensive relative to an alternative. But I don't have 
a specific number to give you that.
    Senator Carper. If I could just ask you to attempt to 
respond in writing for the record on the two questions. If you 
could do that, that would be much appreciated.
    Dr. Kroszner. Sure.
    Senator Carper. Thank you. I see my time's expired. Thanks, 
Mr. Chairman.
    Senator Voinovich. Chairman?
    Senator Inhofe. Thank you, Mr. Chairman. Let me read a 
couple excerpts from a letter, since Senator Carper has made 
some requests of the Administration insofar as CO2 
is concerned. This is a letter which I will want to insert in 
the record at this time, but will read just a couple sentences. 
This is from Christine Todd Whitman to both Senator Voinovich 
and myself.
    ``I noted with particular interest the comments by several 
witnesses that we not hold hostage Clear Skies certain and 
aggressive reductions of sulfur dioxide, nitrogen oxide and 
mercury emissions to a debate on whether carbon dioxide should 
be regulated. The Administration shares these views. As the 
President stated in his March 13th, 2001 letter to several of 
your colleagues, `I do not believe that the Government should 
impose on power plants mandatory emissions reductions for 
carbon dioxide, which is not a pollutant under the Clear Air 
Act.' ''
    [The referenced letter follows:]

    
    
    Senator Inhofe. A lot of us have looked at this over a 
period of time and tried to sort out the emotions from the 
science in terms of greenhouse gases, CO2, global 
warming, and go back and looking at it historically when we can 
recall during that 500 year period ending in 1300 which was 
considered to be the medieval warming period, going into the 
little ice age, then going back into a warming period. The 
interesting thing being that that second warming period ended 
in 1940. So we went into a cooling phase. And what happened in 
1940? It was the expanded use of automobiles, CO2 
emissions and all that. Totally contradicts the assumptions 
that many people have, their belief certainty of this whole 
global warming concept.
    So my request is, and I'm asking this on the record in this 
meeting, that if you do go back and do, as Senator Carper is 
asking you to do, evaluate and look at CO2, that you 
take into consideration the fairly new Harvard study of the 
1,000 climate change period. It involved 240 scholars and came 
up and pretty much opened this up and gave new concepts to this 
whole discussion.
    All I want, and I said this on the first day I became 
chairman of this committee, is that we're going to look at 
sound science. We're going to adhere to that. So I'm going to 
ask you to take that into consideration in anything that you're 
doing.
    Now, I mentioned to you in my opening statement that my 
definition on the, by the term co-benefits in the context of 
the mercury provisions, I'd like to have you give us your 
definition or the Administration's definition.
    Dr. Kroszner. I think we're very much consistent with the 
definition that you had given. The co-benefits are the benefits 
of mercury reduction that come along with trying to reduce the 
emissions of NOx and SOx. So those are the ones that by trying 
to meet particular caps on NOx and SOx, you also get in terms 
of mercury reduction.
    Senator Inhofe. That's excellent. I agree with that.
    What are the main drivers that are responsible for the co-
benefits level of 34 tons for EPA and 46 for EIA?
    Dr. Kroszner. They have slightly different modeling 
approaches. Let me highlight a few of the differences. We've 
been spending the last 6 months really trying to dig deep into 
these models and I really want to very much commend EPA and EIA 
for working so closely together. We've really been running them 
ragged and I really want to praise them for the great progress 
that they have made in helping us.
    Senator Inhofe. And as you do this, if you'd use as layman 
terms as possible.
    Dr. Kroszner. I will try to, since I'm very much a layman 
also in many of these areas. One has to do with the amount of 
mercury removal, getting at this notion of how much mercury 
comes out when you apply these different types of technologies. 
And there seems to be a fair amount of agreement on the two 
sides for bituminous coal. There seems to be enough data and 
similarity of modeling techniques that we'll get roughly 90 
percent reduction from the technologies that we have some 
information on.
    For other types of coal, we don't have quite as much data 
and there's a little bit more difference between the two sides 
on that. So that's one of the areas I wanted to highlight, is 
differences in the two approaches. They make somewhat different 
assumptions about natural gas prices. They make somewhat 
different assumptions about growth in the demand for 
electricity over the next 20 years. And also a little bit of 
differences in the way that they think about the coal models. 
That is the choice of different types of coal to be used. And I 
think there are some differences in the way they think about 
how flexible contracts are and such.
    So I'd highlight those as probably the three or four major 
areas of differences between the two that have led to what I 
would think of as sort of a sensitivity analysis that now gives 
us a range of 34 to 46.
    Senator Inhofe. And it's my understanding that those 
entities are meeting and talking about these differences and 
the outcomes, the results that they're coming up with?
    Dr. Kroszner. Yes. We've had a lot of convergence, and have 
a much, much better understanding for the differences in the 
two models; and EPA and EIA continue to work together. And 
again, I have to praise them for the gauntlet we've kind of put 
them through. I don't think they've ever been asked to work so 
closely together before. And I think both sides have benefited 
quite a bit. This is really how science improves.
    Senator Inhofe. Thank you very much, Dr. Kroszner.
    Senator Voinovich. Senator Thomas?
    Senator Thomas. Thank you. I guess I need to pursue that a 
little further. What is the latest estimate that you have then 
of the co-benefits for mercury?
    Dr. Kroszner. Roughly, from the EPA models, we have on the 
order, I'm sorry, for co-benefits----
    Senator Thomas. Reduction in phase one.
    Dr. Kroszner. The estimates coming out of the models are 
that by meeting the SOx and NOx caps by 2010, we would have 
between 46 and 34 tons of mercury still being put into the air. 
That's where we are in terms of the two modeling approaches.
    Senator Thomas. Your original one was what level?
    Dr. Kroszner. The original focus, or the original one using 
less data that we have was one based on EPA in the upper 20's.
    Senator Thomas. Twenty-six, I believe, wasn't it?
    Dr. Kroszner. Yes, the cap is set there. I certainly want 
to emphasize, and this is not a model to minimize what EPA and 
EIA have done, there's always some uncertainty. These are 
really estimates that come out of the models. That's true 
whether it's trying to estimate co-benefits in mercury or 
trying to estimate what economic growth will be in 2010, which 
is another exercise that I do at the Council of Economic 
Advisers.
    So that's why I say, these numbers are estimates, so upper 
20's is roughly where we were, and now we're in the range of 
sort of upper 30's, I would say, upper 30's to low 40's, as the 
reasonable range for where we are.
    Senator Thomas. So that in terms of what the expectation 
will be, then, in the regulation, will be where?
    Dr. Kroszner. The President's proposal has a 26 ton cap in 
2010. What we wanted to do, the request from the committee was 
to try to provide updated information, and we've gathered new 
information from last year, and we're eager to share that with 
you. So we wanted to present that to you. But the President's 
proposal is a cap of 26 tons in 2010.
    Senator Thomas. I guess I don't understand that. If your 
information and data shows one thing, and your President's 
program shows another, how do you reconcile those two things?
    Dr. Kroszner. Obviously we have put forward a program based 
on the best science that we had available at the time, as the 
proposal was put forward in February of 2002. And we wanted to 
provide you with updates on where the science is.
    Senator Thomas. So you'll be supporting an update based on 
the newest data?
    Dr. Kroszner. We support the President's proposal. We think 
it's a very good proposal, of course.
    Senator Thomas. I don't understand that. Tell me what 
you're talking about.
    Dr. Kroszner. But we wanted to provide you with the new 
information. Obviously----
    Senator Thomas. You want us to change it, then, is that it?
    Dr. Kroszner. Occasionally Congress does change things that 
the President puts forward. I know that that does happen.
    Senator Thomas. That does happen, yes.
    Dr. Kroszner. As shocking as it has been to me in my 2 
years in Washington. So of course, we understand that that 
could be a possibility. But the President's proposal certainly 
is with the 26 ton cap in 2010, but obviously we wanted to 
provide you with the updated information.
    Senator Thomas. Thank you.
    Senator Voinovich. Dr. Kroszner, when the mercury number 
came to our attention, that the Administration suggested in the 
Clear Skies proposal, many of us were skeptical of that number. 
What you're saying here today is that after working between EPA 
and with the Department of Energy that that number of 26 does 
not reflect the most recent information that you've been able 
to derive in terms of co-benefits, and that is that rather than 
the 26 ton number that the number should be somewhere between 
34 and 46?
    Dr. Kroszner. If you are choosing the number based on the 
estimates of the co-benefits. First, of course, as I had said 
in response to Senator Thomas, there is uncertainty around 
these estimates. So I don't want to say that these are 
necessarily the true numbers that we know with certainty. We 
don't know them with certainty.
    But also, there could be other factors.
    Senator Voinovich. Is 34 better than 26, based on your 
information or not?
    Dr. Kroszner. We have more data, so we have more data than 
we had from before, and I think we've improved our modeling 
techniques over time. But there may well be more considerations 
that come in to making these calls. Because the science brings 
us so far, but there's certainly some uncertainty that is still 
left over. There still may be room for policy judgments that 
come in.
    So I think that it is important to take co-benefits in as 
one very important factor. But it is, I think, one very 
important factor in that it is a policy judgment as to whether 
one wishes to take more factors into account or not. And that's 
why we wanted to make sure to provide you with the information 
on co-benefits. But of course, other factors can come in to 
make the decision on where it's appropriate to put a particular 
cap.
    Senator Voinovich. Have you done any investigation into in 
the event that you had the 26 number in this, whether that 
would cause utilities to fuel switch to natural gas?
    Dr. Kroszner. We've looked into that. Fortunately, the 
flexibility of the Clear Skies policy allows people not to have 
to fuel switch. Projections from both models suggests that 
there would be relatively little fuel switching between coal 
and natural gas over time. It's precisely because of the 
flexibility that Clear Skies allows. So this is not something 
that should be seen as putting to death one type of fuel. It's 
something that I think is very valuable in maintaining fuel 
diversity, which is an important part of our fuel security 
program.
    Senator Voinovich. You haven't really looked at that 
number, then?
    Dr. Kroszner. We have modeled, the models predict whether 
there will be a lot or a little fuel switching. And there will 
be relatively little fuel switching under both models.
    Senator Voinovich. You're saying that the 26 number would 
not cause fuel switching?
    Dr. Kroszner. There would be a small amount of fuel 
switching but not very much. What people will do is, given the 
model's assumption about electricity demand, about the prices 
of natural gas, is that people may choose to pay more for the 
permits, the permit prices would go up. But that might be a 
more effective means of trying to generate electricity than 
switching to gas. So, that flexibility allows----
    Senator Voinovich. So what you're saying is that part of 
the decisionmaking has to do with the price of natural gas?
    Dr. Kroszner. The price of natural gas and the price of the 
permits. So the models both predict what those will be over 
time. Look at the choices that the managers would make between 
choosing to continue to use coal and choosing to switch to 
natural gas. The model suggests that there would be relatively 
little switch between coal and natural gas.
    Senator Voinovich. Senator Carper?
    Senator Carper. Thanks, Mr. Chairman.
    Several of us on this panel, there aren't a whole lot of us 
here, but several of us here on this panel are very much 
interested in working on an issue that we're not discussing 
today, but it's an issue that will be before the Senate, and I 
hope fairly soon, and the issue is asbestos. There are, as you 
know, in this country a lot of people who have been exposed to 
asbestos over the years. Many of them have become sick and have 
died. They're not getting the kind of financial help that they 
need. In the meanwhile, a fair amount of money is being 
siphoned off to help people who are not sick and will never be 
sick from asbestos exposure.
    And we're working, Senator Voinovich and I and others are 
working with Senator Hatch. I think Senator Thomas has an 
interest in this issue as well. We're trying to come up with an 
approach to create a trust fund where companies, manufacturing 
companies and others, insurance companies, would contribute 
money into a trust fund from which would be paid claims to 
folks who meet certain medical criteria from their exposure to 
asbestos over the years.
    One of the reasons why companies are interested and 
insurance companies are interested in contributing to a fund, 
creating a trust fund, and contributing a lot of money to it, 
and Senator Hatch was talking yesterday about, I think about a 
$108 billion trust fund that would be created for this purpose. 
One of the reasons why companies are interested in doing this 
is because it provides some certainty for them in an uncertain 
world. One of the lessons that I learned, and I'm sure Governor 
Voinovich learned this long before I did, being one of the 
Governors of our States, in promoting economic development and 
job creation, companies like certainty. And to the extent that 
we can provide that, we ought to. We try to provide a nurturing 
environment for job creation and business development in my 
State, as Governor Voinovich did in Ohio.
    Which leads me to this question, there are a number of 
utilities, one of whom will testify later today, who will talk 
about the value of certainty in their industry, the idea of 
knowing what they're up against in terms of caps on sulfur 
dioxide, nitrogen dioxide, mercury and SO2. In your 
verbal testimony, I don't recall hearing anything about the 
economic value of certainty. It may be there in your written 
materials and I missed it.
    But companies have raised with me and I suspect others on 
the panel the need for certainty. And I'd just like to hear 
from you how you would include that in an economic model. How 
would that be valued?
    Dr. Kroszner. Certainly it's something that economists 
often talk about as a risk premium when there is greater 
uncertainty, greater risk associated with taking one path 
versus taking another. And so of course there has to be some 
compensation for the greater risk or greater uncertainty. 
Typically for, let's say, a riskier firm, if they were to issue 
bonds, they would have higher interest rates associated with 
them. If there's greater uncertainty for the firm itself, there 
is more difficulty in their planning processes, it's more 
difficult for them to think about what they need to do going 
forward.
    So it makes their planning cycle more difficult, it can 
make their planning cycles more difficult for firms to figure 
out where they need to be investing in different areas. So it 
can raise the cost of capital in general if there is greater 
uncertainty, and it can also just make it more difficult for 
firms to move forward to invest, because they're just not sure 
where they should be going.
    Senator Carper. Thank you for that response. How would you 
include that in an economic model, in the work that you do?
    Dr. Kroszner. What it would be is in terms of an economic 
model going forward, let's say, with the challenges that the 
economy may be facing now, we may be seeing less investment 
than we otherwise would be, because of uncertainties about the 
economic future. So one way in which we take it into account is 
that it would reduce overall investment in the economy if there 
are broad uncertainties. If there's much more certainty about 
the direction of the economy, let's say it's a good direction 
for the economy, then of course, managers will be able to make 
plans more easily, they're more likely to go forward and 
increase capital spending plans. So that would be one way in 
which I would take uncertainty into account in an economic 
model.
    Senator Carper. If you want to give it some further thought 
later and want to respond further in writing, that would be 
welcome. Thank you.
    I think I have time for one more. What price signal does 
the President's voluntary emissions intensity approach, and 
that's where we're talking about the 18 percent, and that's 18 
percent below a baseline. There's an increase in the emissions. 
And when you're talking about 18 percent reduction, it is an 18 
percent reduction below the baseline, or projected increase. 
But what price signal does the President's voluntary emissions 
intensity approach send to the markets and to industry about 
reducing greenhouse gases?
    Dr. Kroszner. What it does is it, I believe, provides some, 
the combination of Clear Skies and our carbon plan does provide 
some certainty for going forward and provides an incentive for 
the companies to reduce their emissions. We don't have a 
specific price signal that is out there now, but implicitly 
there will be one that will be developing, the choices people 
make to try to reduce to meet this 18 percent intensity 
reduction. But there's not a specific number that is out there 
now. But there is an incentive that is there.
    Senator Carper. Thanks very much.
    Senator Voinovich. Mr. Chairman.
    Senator Inhofe. I have only one question. You say that 
there will be no fuel switching. Is this true for both the EPA 
and the EIA models, or just the EPA?
    Dr. Kroszner. I believe it's for both models that they 
would have relatively little fuel switching associated with the 
President's proposal.
    Senator Inhofe. Thank you. No further questions.
    Senator Voinovich. Senator Cornyn, do you have any 
questions?
    Senator Cornyn. Not of this witness. Thank you.
    Senator Voinovich. Thank you.
    Dr. Kroszner, we'll be submitting some other questions to 
you in writing and we'd like you to get back. Senator Carper is 
concerned about some of the responses that you have given. All 
I can say to you is, and to the other people who are coming 
here, when I talk with utility executives, and I have been 
authorized by one of them to say publicly, American Electric 
Power, which is a very large producer of electricity, that they 
will never build another coal-fired facility, and they will 
switch to natural gas unless this situation is clarified for 
them. They are very supportive of the President's Clear Skies 
proposal.
    Thank you very much. We'll have our next panel.
    Dr. Kroszner. Thank you very much.
    Senator Voinovich. While the panel is coming forward, I'm 
going to introduce them and give you a little background on 
them. Our first witness is Dr. Larry Monroe. He's the Program 
Manager of Pollution Control Research and he's speaking on 
behalf of the Southern Company and the Edison Electric 
Institute, EEI. Our next witness will be Dr. Steven Benson, 
Energy & Environment Research Center, the University of North 
Dakota. And our third witness is Dr. Richard Bucher, who is 
here from W.L. Gore and Associates, and was referenced by 
Senator Carper in his opening statement.
    We want to thank you all for coming today and again like to 
remind you, I hope that somebody tipped you off that it's 5 
minutes, and hopefully if there are some things that you didn't 
get out in your statement you can bring them forward in the 
question and answer period.
    Dr. Monroe, we'll start with you.

   STATEMENT OF LARRY S. MONROE, PROGRAM MANAGER, POLLUTION 
               CONTROL RESEARCH, SOUTHERN COMPANY

    Mr. Monroe. Thank you, Mr. Chairman, Senator Carper, 
Senator Cornyn. My name is Larry Monroe, and I work for the 
Southern Company. The Southern Company is a regional energy 
company serving some 4 million customers in the southeastern 
United States. I'm a chemical engineer and I work on finding 
effective emissions control technologies. I'm also speaking 
today on behalf of the Edison Electric Institute.
    The state of power plant mercury control technologies is 
still in its infancies. There are no commercial technologies 
available. By that, I mean there are no vendors that are 
offering a process to the industry that includes a guarantee of 
performance. There are two near-commercial technologies 
available, the first is coke control by flue gas 
desulfurization systems, also called scrubbers, installed to 
control sulfur dioxide, called SO2, and perhaps 
aided by nitrogen oxide, NOx controls. And the second of these 
technologies is activated carbon injection.
    Mercury can exist in three forms at the exit of a power 
plant: the elemental vapor, the ionic form or attached to fly 
ash as particulate mercury. The form of the mercury in the flue 
gas determines how easily it can be removed.
    Now to the first of the near-commercial processes, coke 
control by SO2 removal, and possibly NOx removal 
processes. The most common sulfur dioxide control process is 
the wet scrubber, where powdered limestone and water are mixed 
with flue gas to remove SO2. The ionic form of 
mercury is soluble and is also removed with relatively high 
efficiency in these scrubbers. Therefore, the amount of mercury 
control in the scrubber depends on how much ionic mercury is 
present, which is highly dependent on how much chlorine is in 
the coal.
    The coals in the eastern U.S., mostly bituminous coals, 
contain significant amounts of chlorine and therefore produce 
maybe 60 percent ionic mercury. And the scrubbers in the 
limited testing done to date can remove as much as 90 percent 
of that, for a total mercury removal of 55 percent.
    However, the coals found in the western U.S., mostly 
subbituminous and lignite coals, are naturally low in chlorine 
and produce only about 25 percent ionic mercury, which means 
that a scrubber would only remove about 22 percent of that 
mercury.
    Claims have been made based on German research and now 
tested in the U.S. that selective catalytic reduction systems 
installed to reduce NOx converts some of the remaining 
elemental mercury into the ionic form, the form that can be 
captured in scrubbers. Testing conducted thus far appears to 
show that these NOx reduction systems do appear to help with 
the mercury chemistry but only for eastern bituminous coals and 
not at all for subbituminous and lignite coals. Studies at a 
very limited number of power plants suggest that this 
combination of NOx and SO2 controls for plants 
burning eastern bituminous coals may increase the 55 percent 
mercury scrubber capture to around 80 to 90 percent, when a 
selective catalytic reduction system for NOx control is added.
    However, the low chlorine content of the western 
subbituminous and lignite coals apparently prevents the 
selective catalytic reduction system from oxidizing the 
mercury, so the combination of NOx and SO2 controls 
remains at the 22 percent mercury, due to the scrubber alone. 
Let me emphasize that these estimates in mercury reductions are 
based on tests at only 10 plants, less than 1 percent of the 
1,140 plants in the country. Therefore, we have no way of 
knowing how many plants will be able achieve these States 
performance numbers.
    The second near-commercial technology for mercury control 
in power plants is activated carbon injection. The very first 
full scale test of any mercury control process in the Nation 
was a test of activated carbon injection performed at a 
Southern Company plant, Alabama Power's Plant Gaston. I would 
be happy to give more details about activated carbon injection 
in the question and answers.
    Finally, recent modeling by EPRI suggests that U.S. utility 
emissions of mercury are only a small contribution to 
deposition of mercury in the continental United States. 
Significant reductions of utility emissions will only reduce 
deposition in the U.S. by about 1.5 percent and will only 
decrease exposure of the most sensitive population, that is 
women of child bearing age, by one half of 1 percent in the 
year 2020 as compared to 1999.
    In summary, there are no commercial technologies that I can 
buy to control mercury emissions from power plants. The two 
most promising, coke control with scrubbers, and maybe 
selective catalytic reduction, and activated carbon injection, 
are under investigation but still need further testing under 
various coal types, geographic locations and operating 
conditions. Both seem to work better for eastern bituminous 
coals, leaving us with no good technology choices for western 
subbituminous and lignite coals.
    Southern Company and EEI understand that some mercury 
reductions will occur as SO2 and NOx control systems 
are installed. But we can only guess at the exact amount. More 
testing and research is needed. Any regulatory program for 
mercury reduction must consider the state of the technology, 
the costs and the energy impacts of meeting the requirements. 
Failure to follow the right path will lead to significantly 
increased costs, further switching from coal to natural gas for 
power generation, and possible disruption of the Nation's 
energy supply.
    I would be glad to answer any questions you might have.
    Senator Voinovich. Thank you, Dr. Monroe.
    Dr. Benson?

STATEMENT OF STEVEN A. BENSON, SENIOR RESEARCH MANAGER, ENERGY 
      AND ENVIRONMENTAL CENTER, UNIVERSITY OF NORTH DAKOTA

    Dr. Benson. Thank you, Mr. Chairman, members of the 
subcommittee, for the opportunity to testify and share 
information on mercury control technologies and challenges for 
western lignite and subbituminous coals. My name is Steve 
Benson and I'm a Senior Research Manager at the Energy and 
Environmental Research Center at the University of North 
Dakota, where we have conducted research on mercury measurement 
and mercury control technologies for approximately the last 20 
years.
    The first thing I'd like to do is cover two main points. 
The first is that the west produces over 50 percent of the coal 
in our country. And aggressive regulation could put western 
utilities and their customers at a serious economic 
disadvantage. The second point is that the configuration of 
western plants suggests that there is not a one fit for all 
solution to mercury control technologies in the west.
    As Dr. Monroe mentioned, the form of mercury emitted from 
power plants is dependent upon the composition of coal. Western 
coals contain low amounts of chlorine and produce mostly 
elemental mercury in the flue gas. Western coals also contain 
high levels of calcium and sodium oxide that tie up the 
available mercury, further increasing the elemental form of 
mercury.
    As compared to eastern bituminous coals that have higher 
levels of chlorine, the levels of the oxidized mercury in the 
flue gas dominates the form of mercury. The problem with 
elemental mercury is that it is not very reactive, and cannot 
be captured with most existing flue gas pollution control 
equipment. This represents a significant emission reduction 
challenge for western coals since a cost-effective commercial 
system for effective capture of elementary mercury is not yet 
available.
    The most common western plant control configurations 
include electrostatic precipitators and fabric filters for 
particulate control and wet and dry scrubbers for sulfur 
control. Selective catalytic reduction for NOx control are not 
very common.
    Currently research is underway on technologies for reducing 
mercury emissions from low-rank coal or western coal-fired 
power plants. These include activated carbon injection, 
upstream of existing electrostatic precipitators and fabric 
filters, oxidation of elemental mercury by chemical addition or 
catalyst for capture by wet scrubbers and dry scrubbers, and 
also some emerging novel approaches, such as mercury absorption 
by noble metals and other means.
    The results to date have been varied. Existing research 
suggests that mercury removal by particulate and sulfur control 
is two to three times lower for western low ranked coals than 
for eastern bituminous coals. Fabric filters were the only 
particulate control device that appears to remove appreciable 
amounts of elemental mercury. But this has only been 
accomplished where the chlorine levels are sufficiently high, 
which is not typical of low-rank coals.
    The technical challenges that need to be addressed include 
decreasing the quantity of carbon necessary to control mercury 
emissions, decrease in the impact of chemical additives on 
boiler corrosion, understanding ash blinding of catalytic 
oxidation systems, and the understanding of the impacts of coal 
variability. Western coal variability and composition, 
especially for lignites, has humbled many researchers and 
technology developers, including myself, in the past.
    Most of the current research and development efforts have 
been conducted on a pilot scale. Long term field tests are 
needed to confirm the technical and cost-effectiveness of the 
most promising technologies and approaches. In addition, for 
any technology to be effective, we need continuous, reliable 
mercury monitors to measure both oxidized and total mercury 
species in the flue gases.
    An additional issue is that fly ash produced by many 
western coal-fired power plants is a valuable by-product 
producing a revenue stream. The use of activated carbon reduces 
the usefulness of this product and may require returning the 
fly ash and carbon materials back to landfills. Thus, in 
addition to the cost of activated carbon disposal costs would 
be incurred.
    As I previously noted, cost-effective commercial mercury 
control technologies are not available for western lignite and 
subbituminous coals where the mercury is in the elemental form. 
Although an aggressive research and development program is 
being pursued, it is doubtful a cost and technically effective 
control technology will be available by 2007, an EPA regulatory 
target.
    In summary, aggressive control targets could seriously 
disadvantage western utilities and their customers who rely on 
affordable power. Currently there is no commercially available 
technologies that can be applied to control mercury emissions 
from western coal-fired power plants. Significant additional 
research is required to prepare the western utility sector for 
implementation of mercury control standards.
    Thank you. I would be glad to answer any questions.
    Senator Voinovich. Thank you.
    Dr. Bucher.

  STATEMENT OF RICHARD BUCHER, W.L. GORE AND ASSOCIATES, INC.

    Mr. Bucher. Good morning, Chairman Voinovich, Ranking 
Member Carper and members of the subcommittee. My name is 
Richard Bucher and I'm here to speak on behalf of W.L. Gore and 
Associates about some exciting technical advances that may 
offer a solution to the vitally important challenge of reducing 
mercury emissions.
    Gore is a leading company in the field of advanced 
materials that provide creative solutions to longstanding 
problems. We believe that a new mercury capture system we have 
developed and that has been recently tested at the EPA may well 
offer dramatic improvements in the effectiveness, efficiency 
and cost of mercury capture from flue gas. We are excited by 
this development as an improvement of this kind in mercury 
control could greatly contribute both to the long term 
sustainability of power generation from coal and to the health 
of all Americans.
    My employer, W.L. Gore and Associates, best known as the 
maker of Gore-Tex fabric, has built a reputation since the 
1970's as a leading supplier of high performance filtration 
devices to our Nation's industrial applications. Beginning in 
the 1990's, Gore scientists and engineers have discovered and 
developed a series of radical improvements to our filters 
through embedding additional materials and properties into the 
structure of the filters that makes them work.
    These advances have led to new applications for capturing 
over 99.99 percent of fine particulate to catalytically 
destroying over 99 percent of carcinogenic dioxins and most 
recently, for capturing over 90 percent of mercury in flue gas 
streams. The result is a cleaner, safer, healthier environment 
and more sustainable industry.
    Our invention in the area of mercury capture has moved well 
beyond the lab bench and shows dramatic promise for the future. 
The key to our technology lies in an increased capacity to 
capture and hold mercury, which allows the mercury collection 
function as illustrated in this figure to be moved from a 
consumable, as with activated carbon on the left, to a system 
component. That's with the Gore technology shown on the right.
    The Gore system, which employs the same filter bags as the 
activated carbon system as shown here, employs the same filter 
bags for particulate control as a filter insert on the inside 
of the filter which contains the mercury control functionality. 
This system means that end users don't need any additional 
system infrastructure such as activated carbon silos or 
injection equipment or space. The fly ash is free of 
contamination, allowing plants to continue to sell as opposed 
to landfill this valuable by-product of the coal-fired 
industry.
    And finally, the system is completely passive in nature. 
Once installed, it is always operating, continuously protecting 
the air we breath. It does not require additional operators, 
maintenance or monitoring.
    Initial bench scale studies of our technology conducted at 
the EPA research facility in North Carolina demonstrate an 
unprecedented level of mercury capture, efficiency and capacity 
as illustrated in this figure. On the Y axis we have mercury 
capacity of absorbent, on the X axis we have various 
technologies. The red bars represent the absorbent capacities 
of activated carbons as reported in the literature, and the 
blue bars represent the advances made with the Gore technology. 
Some of these cases are up to two orders of magnitude or 100 
times more efficient at capturing mercury.
    Following this success, our most significant testing to 
date was conducted at the EPA on their pilot scale coal 
combustion unit. The 7 week trial with 24 hour operation was 
designed to test the long term viability of the technology 
under a variety of conditions. As shown here in this figure, 
mercury concentration of the flue gas is on the Y axis, various 
conditions on the X axis. The red bar is showing the amount of 
mercury coming into our filters. The blue bar is showing the 
amount of mercury leaving our filters. And again for a variety 
of conditions, both with western subbituminous coals and 
western lignite coals.
    These results, assuming further successful field 
verification, will allow coal burning facilities to easily 
comply with the most stringent regulations set forth in the 
Clear Skies Act of 2003 and the Clean Air Planning Act of 2003. 
Our mercury technology is being designed to provide the 
benefits stated above, while potentially costing considerably 
less than carbon injection.
    For example, activated carbon injection for a 110 megawatt 
facility, projected the EPA to cost $700,000 per year. When the 
lost revenue of unsalable fly ash is included, those numbers 
inflate to a range from $1.1 million to $1.5 million per year. 
Current estimates our technology could be 38 to 83 percent 
lower than those estimates, making our approach much easier to 
implement and more cost-effective.
    Although we have not begun marketing this technology, our 
interactions with prospective customers have been nothing short 
of extremely encouraging. Owners and operators have expressed 
enthusiastic support of the concept, citing the ease of 
implementation, minimal impact on system performance, and most 
of all, the preservation of fly ash value, which is so critical 
to their bottom line.
    I appreciate the opportunity to testify before you today 
regarding the important issue of mercury emissions control. 
W.L. Gore and Associates remains committed to developing 
innovative, economically feasible technology to address our 
Nation's air quality challenges. We look forward to continuing 
to work with the committee, the EPA and the coal-fired power 
industry to make this technology a commercial reality. Thank 
you again for allowing me to testify, and I'd be pleased to 
answer any questions you may have.
    Senator Voinovich. I thank all of you for your testimony 
this morning.
    The big question that we're laboring with is the issue of 
the tonnage that we have in the mercury requirement and the 
Clear Skies legislation. And as I mentioned earlier, there were 
many of us that were skeptical about those numbers, and feel 
that the more recent numbers coming from the EPA and from the 
Department of Energy are more reflective of reality. That's No. 
1.
    No. 2, there's obviously a difference of the three of you 
in terms of the state of technology. Mr. Bucher, you have 
testified that you've got some new technology here and that 
it's a lot more reasonable than the activated carbon. What is 
the difference in terms of the capital investment in regard to 
this, to the other technologies that are available? In other 
words, to install, we talked about the cost of operation, but 
what about the initial capital improvement? I'd be interested 
in that. And in addition to that, also the issue of how much 
testing has gone into this to the extent that the two other 
gentleman at the table here are a little skeptical about 
whether or not there is technology out there to deal with the 
particular coal that they've mentioned here at the table.
    Mr. Bucher. Certainly. The two approaches that I've 
outlined both include, most facilities today do not have a 
baghouse. The EPA has assumed that most facilities would adopt 
a baghouse, whether they're using activated carbon injection, 
that they pose as being the most cost-effective solution. Their 
numbers, which I based those annual yearly expenses, include 
capital expenditures, amortized over a period of years. So it's 
the total ownership costs of both technologies, to answer your 
first question.
    To answer your second question, all the testing that we've 
done to date up until about 1 month ago has been confidential 
in nature. We have not shared it widely with the industry, 
which would explain why most people you would ask about mercury 
control from coal would not be familiar with our technology. We 
have done a 7-week long test at the EPA, like I mentioned, 
which is a short test but in the field of mercury control a 
relatively long test.
    And it, granted, is on a small, pilot scale facility 
roughly the size of this room. We realize that more extensive 
testing is going to be required in the field, real facilities. 
And we have some plans in place to have that testing start 
beginning in the late summer to fall time period.
    Senator Voinovich. I think the real question is that if you 
were a utility and got a new technology, the real issue would 
be how good is the testing and for how long and how much does 
it cost and what do your bankers think of it.
    [Laughter.]
    Senator Voinovich. Dr. Benson or Dr. Monroe, would you like 
to comment?
    Dr. Benson. I think the key thing that we look at when we 
consider a technology that's out there and commercially 
available is that it has been demonstrated in the field for 
sufficient amounts of time. I guess that is the key. And pilot 
scale systems have their limitations. They don't always 
represent the variability of the fuels that you may see and 
they also may not represent the flue gas compositions that 
you're concerned with.
    Senator Voinovich. Dr. Monroe?
    Mr. Monroe. Specifically on this technology, I would just 
mention that only about 14 percent of the Nation's power plants 
have this baghouse technology installed at present. So that 
would require additional capital investments.
    From my point of view, from a utility, I'd rather capture 
the mercury in a co-benefits, in a scrubber sort of system, 
whether an SCR is available or not. If I install a scrubber on 
a 500 megawatt plant, sort of a medium size plant, that's $75 
million to $100 million investment for that. If I have to add a 
selective catalytic reduction system for NOx, that's an 
additional $50 million to $60 million. And to add the baghouse 
on top of that would be yet another increment of capital of $20 
million to $30 million.
    So I'd rather avoid that capital expense if I can perfect 
another technology. Once I have a baghouse, then to me it's a 
commodity question, does this technology work better, cheaper, 
faster that activated carbon.
    More generally, I'd just like to point out----
    Senator Voinovich. Let me see if I understand this. What 
you're basically saying is that you would get the scrubber and 
you'd get the SCR and try to get the best that you could from 
co-benefits and probably not invest in a baghouse, does that 
have to do with the activated carbon thing, the baghouse?
    Mr. Monroe. Yes.
    Senator Voinovich. OK. And that's what you try to do. And 
if that wasn't good enough, then you'd have to probably go to 
the activated carbon and the baghouse, and then at that stage 
of the game, you'd probably want to be looking at what Mr. 
Bucher is talking about?
    Mr. Monroe. That's correct. Particularly in the current 
regulatory business as usual, in a MACT case, I may have to 
control mercury on every power plant. So I may install more 
baghouses under a MACT scenario than I would under Clear Skies.
    I want to return to the testing, just to state that the 
electric utility industry is somewhat unique. We have to make 
the power as soon as someone needs it. We don't have any way to 
store it, aside from a few sort of off-peak storage systems 
there. So we require our equipment to run 100 percent of the 
time. Most industries, if you're talking about a refinery or 
chemical plant, typically design their equipment for 90 percent 
availability, so that it runs 90 percent of the time. It's not 
as crucial if they have to shut down their process to fix 
something as it is in the electric utility business, 
particularly in Atlanta, Georgia, in the middle of an August 
afternoon.
    So we require much more testing. We require more robust 
designs and long term testing before we can accept that 
equipment, just due to that unique nature of our business.
    Senator Voinovich. Senator Carper?
    Senator Carper. Gentlemen, thank you all very, very much 
for illuminating testimony and I think in some respects very 
encouraging testimony.
    Before I ask some questions of our witnesses on this panel, 
Mr. Chairman, I'd like to submit for the record a report from 
the Northeastern States for Coordinated Air Use Management. 
It's entitled Environmental Regulations and Technology: 
Controlling Mercury Emissions from Coal-Fired Boilers. It was 
published in September of 2000. The report examines the 
feasibility and the appropriateness of mercury control issues.
    It concludes by stating that past experience suggests that 
further delay in the regulation of mercury emissions from power 
plants cannot be justified on the basis of concern about 
technology availability. On the country, delay is likely to 
stall efforts to advance promising control technologies. Mr. 
Chairman, I would ask that a copy of this report be included in 
the record, please.
    Senator Voinovich. Without objection.
    Senator Carper. Dr. Bucher, let me ask sort of a follow-up 
question here from your testimony. What will happen to the 
promising technology that you've described and that we've seen 
demonstrated visually here, what will happen to this kind of 
promising technology if we simply pick a mercury cap that can 
be achieved due to co-benefits of controlling sulfur dioxide 
and nitrogen oxide?
    Mr. Bucher. Senator, I go frequently in front of our 
leadership at Gore in order to state the case for the business 
potential. And obviously they have many options on where to 
invest their funds for research and development. If we were not 
able to paint a clear case of potential market that it's going 
to be available and that we'd be able to sell our product into, 
it would be very difficult for them, justify it for me to ask 
for increased funding and additional research and development.
    Senator Carper. Dr. Monroe commented a bit on the 
feasibility and cost-effectiveness of implementing the kind of 
controls you were talking about. He mentioned the price of 
baghouses and all. Would you just think of it and just sort of 
respond to any thoughts that come to mind in response to what 
he's talked about. In the end, they've got to be able to 
produce electricity in ways that are cost-effective. We 
understand that. Would you just care to respond to anything he 
said?
    Mr. Bucher. Certainly. And clearly I see Dr. Monroe's 
point, that if you have a wet SGD scrubber system you can add 
an SCR for NOx and you can get those benefits that you need for 
mercury. That may be an attractive way to go. However, the 
EPA's reports are indicating that that is not always going to 
be the preferred technology. You're not always going to be able 
to achieve those mercury caps with those technologies. Their 
analysis has shoed that for most of these western coals that 
we're talking about, the subbituminous and the lignite, those 
systems, the most economically attractive solution is a 
baghouse with activated carbon injection. That's why we use 
that as the basis for our report to show how we could save 
those customers money over that solution.
    Senator Carper. When I visited with you and Chris Koons and 
others of your associates at W.L. Gore back in, I think it was 
January, you described another project. I think you referred to 
it as an advanced hybrid, as I recall. I believe it required, 
it removed almost 100 percent of, I think it was small 
particles, maybe 99.9 percent from coal exhaust. How is that 
different from the mercury technology that you've described 
here today, and what is the status of that advanced hybrid 
technology in the marketplace?
    Mr. Bucher. You're speaking of the advanced hybrid 
technology actually that the EERC, which Dr. Benson is from, 
was the inventors. Gore is the party that is commercializing 
the technology.
    Senator Carper. Dr. Benson, you were present at the 
creation?
    Dr. Benson. One of my colleagues actually did the 
development.
    Mr. Bucher. That technology, as you mentioned, is focused 
on controlling the fine particulate. It's really a more, it's 
attempting to be a more cost-effective solution than a 
traditional baghouse, as I picture it up there. An interesting 
story about when we first brought that facility up and running 
in Big Stone, South Dakota is, many of the operators, when they 
reported to work those first several mornings after the system 
went on line, they came into the control room and said, what's 
wrong? Why aren't we operating?
    Because they had come to work and every day for 20 years, 
they come to work and they'd see smoke coming out of the 
smokestack. This time they showed up to work, there was no 
smoke, so they said, the plant's not operating. The controllers 
said, well, we're at full load. Just an indication of the 
ability of these advanced technologies to control emissions far 
beyond what it has been in the past.
    And they're continuing to operate, right now actually that 
facility is down for a week of maintenance and they will be 
coming on line about a week from now.
    Mr. Monroe. If I might comment.
    Senator Carper. Dr. Monroe, please.
    Mr. Monroe. We are currently testing at one of my plants a 
competition to that device, using similar principles that was 
invented by the Environmental Protection Agency out of their 
North Carolina laboratories jointly with Southern Research 
Institute, a not-for-profit in Birmingham. So it's very 
intriguing technology to us, also.
    Mr. Bucher. And if I can add one more thing onto that, our 
mercury control technology is being designed to work with the 
traditional pulse chip baghouse, our advanced hybrid baghouse, 
or the co-pack baghouse that Dr. Monroe's referring to.
    Senator Carper. Mr. Chairman, I'm going to have to learn 
more about baghouses. Thank you all. I hope we'll have a second 
round here.
    Senator Voinovich. Senator Cronyn?
    Senator Cornyn. Thank you, Mr. Chairman, and I want to 
commend you for calling this hearing today on this very 
important subject, and thank all the witnesses for being here 
and sharing your expertise.
    I know the Administration has put a lot of work into the 
Clear Skies initiative, and I'm grateful for their efforts. I 
think the framework proposed has potential, but I'm concerned 
about unintended consequences and maybe getting out ahead of 
the science before Congress seeks to impose some requirement 
that ends up being impossible to meet or certainly not possible 
within the economies involved.
    But I'm hopeful that technology will ultimately provide 
some answers. But I guess my concerns, gentlemen, largely focus 
on two areas. One is the importance of maintaining fuel 
diversity. And second, on mercury removal. And I want to ask 
you in a minute about the technology, more about the technology 
that you talked about in terms of meeting the regulatory burden 
that would be imposed by the bill.
    But in my State of Texas, as no doubt you know, coal, 
specifically lignite coal, must remain a viable energy source 
for Texas utilities. Forty percent of electricity in Texas is 
powered by coal. And I'm not convinced that there's enough 
natural gas there to counter-balance a drop in coal usage, 
particularly given the limitations that we've imposed on access 
to probable reserves of natural gas.
    So we find, what I don't want us to do is find ourselves in 
a catch-22 where we get out ahead of technology, and I'm not in 
any way demeaning the promise, indeed, I'm hopeful, Dr. Bucher, 
that you and others are able to finally perfect the technology 
that will accomplish the goals that you seek. But I don't want 
to be in a position of imposing a requirement by law that 
results in reduction in fuel diversity and a dependence on 
ever-shrinking forms of energy and in the process, making 
electricity so expensive to consumers that it creates 
additional problems.
    I've been repeatedly told by Administration officials that 
they think the technology will be available in the future to 
accomplish mercury removal. But I'm struck by the speculative 
nature, really, that tell us where we are at this point. And I 
know Dr. Bucher, your company, which I read is credited with 
producing Gore-Tex and other remarkable inventions, that you 
have maintained this technology as confidential given the 
proprietary reasons which I certainly respect, and you're not 
marketing this technology.
    But I just would be interested, perhaps, to hear from each 
of you of the consequences of Congress imposing a standard 
today that there is not currently technology available to meet. 
Dr. Monroe, maybe you can respond to that first, please.
    Mr. Monroe. We're sort of acutely aware of that problem, 
with the given regulatory program, with the MACT for mercury 
that we're struggling now, how do we continue to make coal-
based power without these technologies available. I share your 
worry about fuel diversity. The southeast that my company 
serves is more heavily dependent than Texas on coal. We also 
burn, probably a third of the coal that we burn comes from the 
Powder River Basin in Montana and Wyoming, so that issue is 
very important to us also.
    We see the speculative nature of we hope the technology is 
ready in time. We hear it again and again, the NESCAUM report 
that Senator Carper refereed to is sort of an article that 
reads that if you make a regulation, then the technology will 
suddenly appear. Now, I'm a good engineer. My job is to make 
things cheaper every day, for my company. And so I work as hard 
as I can, and the regulations make me work to do that. But we 
could look at other examples of sort of technology approaches 
that didn't work. Fusion is one. The nuclear-solar sort of 
power that was always 10 years away and had been that way for 
40 years running, the new kind of nuclear power plant.
    Another example would be California's zero-emission 
vehicles, where they've just continued to redefine what those 
are and have never really reached the levels that were mandated 
by a State regulation there.
    To get directly to your point, it really does scare us in 
the power industry to think we're racing toward some 
regulations or some legislative solution where we don't have 
the technologies, so that we're struck with a grim choice of 
not providing power to our customers or in violation of the 
law.
    Senator Cornyn. I take it that you're not an eleemosynary 
institution that's involved in providing charitable services in 
the form of electric power. I guess there are economic you have 
to contend with in all of this.
    Mr. Monroe. That's correct. And you know, being a regulated 
utility, I have State governments looking over my shoulder 
second guessing every move I make, also.
    Senator Cornyn. Dr. Benson, would you care to comment on 
the challenges that are presented when Government mandates a 
standard for which technology is not currently available to 
achieve that standard?
    Dr. Benson. From the perspective of somebody that does the 
research and testing of the technologies, I think there's many 
technologies out there that show promise, like W.L. Gore 
technology.
    Senator Cornyn. Don't get me wrong, I hope you're 
successful, ultimately. I'm talking about passing a law this 
sessions. So that's my concern.
    Dr. Benson. I think there are many technologies. It takes 
time, and there are many technologies in the laboratory right 
now and in the pilot scale that show some promise. There are a 
lot of issues that must be overcome with those technologies to 
move them into the demonstration stage. Once the technology 
shows the ability to have good performance during 
demonstration, the information can be used to develop 
performance guarantees. In addition, we need to understand 
impacts of the fuel variability issues on the performance of 
these technologies.
    Senator Cornyn. Dr. Bucher, let me change the questioning 
just briefly a little bit and make sure I understood what you 
said correctly. Did you say that basically it's difficult for 
your company to get financing for a technology for which there 
isn't a currently mandated requirement?
    Mr. Bucher. I think I may have misled you there a little 
bit.
    Senator Cornyn. I just want to give you a chance, I want to 
be fair to you and let you explain what you meant, if I 
misunderstood.
    Mr. Bucher. Certainly. I appreciate that.
    Not difficult for us to obtain financing, difficult for our 
leadership, who's looking at a portfolio of places to invest 
their research and development money. They're going to put that 
in the area where they feel they're going to have the largest 
chance for return. I'm a firm believer in our capitalistic 
system. And if the opportunity is there, it's so much easier 
for me to go in front of them and say, this is a great 
opportunity for not only us as a company, but for us to meet 
some of the needs of the Nation. So without that carrot, so to 
speak, it becomes difficult for them to embrace these kinds of 
programs.
    Senator Cornyn. Thank you for clarifying that.
    Mr. Chairman, my only concern would be imposing a standard 
and then just hoping and praying that there will ultimately be 
a technology available. That's my primary concern. Thank you.
    Senator Voinovich. I share your concern.
    Dr. Monroe, I'm sure you're aware, my State of Ohio relies 
a great deal on burning of coal, both from our part of the 
country and from some other parts. I'm really concerned about 
the whole issue of fuel switching. That's something that's very 
paramount in my thinking as the former Governor of the State of 
Ohio, and I'm concerned about the environment for our 
manufacturers.
    Last year I had some real problems with Senator Jeffords' 
legislation on the four Ps, and my concern was that if it went 
into effect that it would force our utilities to switch to 
natural gas. Natural gas already today is really under stress, 
and the cost is escalating, in fact I think it's one of the 
reasons some of our businesses are in trouble today, because of 
the high cost of natural gas. And if we add to that problem 
fuel switching, I can see a lot of our industries either 
closing down or going some place else. That's not the United 
States, somewhere else in the world.
    With the revelations expressed by the Administration on co-
benefits and your extensive knowledge of the industry and 
technology available in regard to mercury emissions, what do 
you think would happen to the utility sector, and you're 
talking also for EEI, if the Clear Skies Act was passed as it's 
introduced?
    Mr. Monroe. First, talking for Southern Company, we support 
the approach of Clear Skies. We would like to be working with 
the Administration and working with Congress on some of those 
details about the timing and the levels. EEI has a slightly 
different position than Southern Company on that.
    Assuming it was passed as written, focusing specifically on 
mercury issues there, the SO2 and the NOx issues 
are, as Chairman Inhofe mentioned earlier, there's not much 
uncertainty about NOx controls and SO2 controls. We 
know what they cost. We know how they perform, although my 
company's been surprised as well as AEP, with the installation 
of selective catalytic reduction systems, with unintended 
consequences of those. So it's still not risk free for NOx.
    Senator Voinovich. You're talking the SCRs?
    Mr. Monroe. Yes.
    Senator Voinovich. Yes. I'm well aware of that with the 
plume that they had. They actually had to buy out a town in 
order to eliminate a problem from that plume.
    Mr. Monroe. Our problem has been slightly different. We 
have stopped up the catalyst. It has small holes about a 
quarter inch in diameter, several million in the gas flow pad, 
and we stopped every one of those up and had to shut the plant 
down for that. So there are still risks there.
    For mercury, as given the cap that's in place now, it would 
certainly cost more than I think most people think at the 
moment, because it would require an alternative to just the SCR 
for NOx and the SO2 scrubbers to do the additional 
mercury control. So that then we would be very interested in 
W.L. Gore's technology. We would probably be looking at 
building baghouses for, not for particulate control, which we 
do a good job at, but only to add something, whether it's that 
technology, activated carbon or something that's invented in 
the meantime, some absorbent to just capture the mercury.
    So that instead of getting sort of the benefits of the 
other investments that would require additional investments. It 
would make our coal plants more expensive to operate. We would 
probably shut down some of our marginal coal plants on that 
basis, and it would be yet another push for us to burn more 
natural gas.
    Senator Voinovich. Dr. Benson, do you want to comment on 
that?
    Dr. Benson. I agree with Dr. Monroe.
    Senator Voinovich. Well, in other words, what you're saying 
is, one of the things we're looking at is that we've got the 26 
tons and we're talking about increasing that to 34 or between 
34 and 46. How much of a difference would that make in terms of 
your situation?
    Mr. Monroe. The cost to the industry would probably measure 
in the several billion dollars a year for that additional 
increment, because of the additional baghouses and activated 
carbon.
    Senator Voinovich. So what you're saying is that 26 
probably, that would mandate the baghouses and the activated 
carbon and that approach? And let's say, 34, that would not 
require that?
    Mr. Monroe. I'd have to say that we do not know what that 
number would be. The problem we have is we've tested very few 
power plants. I can't tell you what that tonnage would be. It's 
certainly more, the co-benefits will leave us with emissions of 
certainly more than 26 tons. I think the range expressed by the 
Administration, 34 to 46, is probably in the ball park 
somewhere there.
    Having worked with EPA on assumptions in their modeling, 
and they're proposing the 34 ton model, my opinion is, and 
again with my bias being a utility engineer, I think the 
technology is not quite as aggressive, it won't work quite as 
well as EPA. So I would tend to look at the higher end of that 
range.
    Senator Voinovich. Well, the next issue is that if you had 
it at 34 rather than 26, how much influence would that have on 
the decisionmaking of people like Mr. Bucher and his company?
    Mr. Monroe. It would simply be the extent of the market 
penetration of these other technologies that will add to the 
co-benefits. Certainly from an electricity price, if we have to 
do any more to get to the 34 tons, then the 26 would cost even 
that much more. It puts more pressure on the western coal 
users, whether they're in the west or actually buy the coal 
from the west, just because of the technologies that are 
available there.
    The one thing that the Clear Skies approach does with the 
SOx is allow utilities like mine to take some risks on 
technologies. If I try a risky technology for mercury on a 
trading program, theoretically I can buy my way out of a 
failure by going to the market and buying those allowances, as 
compared to sort of a strict command and control MACT scenario, 
where I'd have to meet it at every plant. So that that scenario 
is much more costly, because I can't afford to take any risks 
on the technology, so I buy the most robust and therefore the 
most expensive.
    Senator Voinovich. So the SOx is essential for you to have 
the flexibility to move on this area?
    Mr. Monroe. Yes.
    Senator Voinovich. Well, I think that we're not going to 
get that done today, we want to hear from the other witnesses, 
but I'd like to really get a sense of, if you went from 26 to 
34, what it would have in terms of moving forward on new 
technology. Also then, you needed to look at the environmental 
benefits that you would get from the difference. That's 
something we haven't talked a lot about today. But maybe it's a 
subject of a hearing in terms of mercury and what it's 
contributing. I read half of it's natural and then half of it's 
caused by us, and a lot of it's caused by utilities. And do we, 
is there free mercury in the air.
    In know one of the things in my State, because in our lakes 
we discourage people from eating our fish, particularly 
pregnant women, more than once a month or something because of 
the fact there's concern it might influence their baby. And so 
I need just a whole lot more information in that area. Because 
that's what we're trying to look at, is we're trying to improve 
again, getting back to harmonizing. We want to provide readily 
available low cost energy so that we can have a good economy 
and be competitive in the global marketplace. At the same time, 
we have to balance that in terms of our environment, public 
health and what we know in that arena. That's the real 
challenge that we have here sitting at this table.
    Mr. Monroe. If I can make a few comments. I'm not a human 
health expert, I'm an engineer. But I follow that debate in the 
mercury issue. And I would encourage you to hear some more 
about the science of that. There's controversy about what low 
levels of mercury, and incidentally the only route of interest 
is actually through the consumption of fish for humans. That is 
the only thing we worry about for mercury exposure.
    And there's two competing studies on health effects that 
sort of come to different conclusions. A follow-up to one of 
them was just published in the Lancet which cast some doubt on 
whether the referenced dose that EPA has set forward is, it 
suggested it may be much more conservative than necessary.
    So I would encourage you and be happy to help supply 
suggestions for witnesses.
    Senator Voinovich. I hope it's better than what we're 
getting on the issue of greenhouse gases and global warming. 
We've had several hearings on that, and if you listen to one 
side, it's one way, and you listen to the other side, it's 
another way. I've always found usually somewhere in between is 
where it really is.
    Senator Carper. We're not yet in full agreement on the need 
to address greenhouse gases and global warming. But at least, 
Mr. Chairman, and I suspect Senator Cornyn as well are in 
agreement that SOx needs to be in whatever bill we enact. 
That's a good thing.
    Dr. Monroe, I think you said earlier, I've just been 
thinking about this during the course of this conversation, 
that, are you a chemical engineer?
    Mr. Monroe. I am.
    Senator Carper. And a utility engineer as well. Thinking 
about all the work that lies ahead for your industry, I just 
think, you've got pretty good job protection.
    [Laughter.]
    Senator Carper. That's got to be a comforting thing.
    Mr. Monroe. It's the best time to be in this job and at the 
same time the worst time to be in this job.
    Senator Carper. Our sons are 13 and 14, and we're talking 
about what they're going to be when they grow up. I'm going to 
walk away from this conversation thinking more about maybe 
chemical engineering as a promising field.
    Earlier in your testimony, you referred to the NESCAUM 
report that I asked to be made part of the record. There was a 
question of whether or not, if we set a standard, a regulatory 
standards, somehow that incents industry to come up with ways 
to meet that standard. You used, I think, fusion as an example 
and said that it's always been 10 years away for the last 40 
years. I would just, and I know I've heard that a lot myself, 
but fusion was never a regulatory requirement, which is an 
interesting point, never a regulatory requirement.
    I would make another one of those unanimous consent 
requests while the chairman is not listening to me, and----
    [Laughter.]
    Senator Carper. While he's talking to his close colleague 
and associate over there, Mr. Chairman, I'm sorry to interrupt, 
but I am going to ask, Senator Lieberman is not here today, 
he's not going to be able to join us. He's given me a statement 
he'd like submitted for the record. If we could do that, I'd 
appreciate it, and he would too. So I'd ask unanimous consent.
    Senator Voinovich. Without objection.
    Senator Carper. Thank you, sir.
    [The prepared statement of Senator Lieberman follows:]

 Statement of Hon. Joseph I. Lieberman, U.S. Senator from the State of 
                              Connecticut

    Thank you, Mr. Chairman. I appreciate your convening today's panel 
on investor risk and climate change. While over the past few years we 
have already heard from many witnesses about the range of promising 
technologies to control pollutants from power plants, we have not yet 
heard about these issues from the perspective of investors. I am 
particularly pleased that Denise Nappier, the esteemed treasurer of my 
State of Connecticut, was invited to speak on this matter. I trust she 
will give an eloquent and persuasive presentation. As you well know, 
Mr. Chairman, I have long been concerned about the growing threat of 
global climate change and our nation's resistance to taking credible 
action to counter it. The science is now overwhelming and indisputable: 
carbon dioxide emissions are heating up the planet, and the longer we 
do nothing, the worse it will get. That is why I have introduced the 
Climate Stewardship Act with Senator McCain-the only legislative 
proposal on the table that would actually stem the increase of our 
nation's greenhouse gas emissions-and, with Senator Jeffords, have 
introduced the Clean Power Act, which would cut the emission of major 
pollutants from the nation's power plants.
    But the Bush Administration's do-nothing policy on climate change 
is much more than a mammoth environmental problem. It also creates two 
other kinds of problems.
    First, a foreign policy problem. Just this Tuesday, a troubling 
poll from the Pew Center for the People and the Press confirmed once 
again that our great nation's stature in the world is shrinking. Some 
attribute our loss of stature solely to the war in Iraq, but that's 
just not the case. Removing Saddam Hussein was the right thing to do, 
and much of the world will come to respect us for acting on principle. 
No, the core problem is that the world sees an American administration 
that on a broad range of issues is happy to lecture but not willing to 
listen. As Tony Blair has said, America must not only speak to the 
world. To truly lead, we must hear the concerns of our friends and 
allies, including the outpouring of concern about climate change and 
the consequences of America, the world's largest emitter of carbon 
dioxide, doing nothing to stem it. The fact is, America produces about 
a quarter of the world's greenhouse gases, but under the Bush 
Administration's neglectful watch has shown an unwillingness to produce 
any of the world's climate change solutions.
    Second, the Bush Administration's neglectful approach to climate 
change creates a big economic problem. The ongoing regulatory 
uncertainty produced by the Bush Administration's refusal to act leaves 
businesses waiting, wondering, and spinning their wheels rather than 
making the long-term investments today that they would make if they 
were confident of how government would approach this problem. When it 
comes to climate change laws, businesses deserve more than instructions 
to place their fingers in the wind. They deserve an answer from us in 
Washington so that they can get down to the business of serving their 
customers, producing profits, and creating jobs.
    Institutional investors see the problem quite clearly. Treasurer 
Nappier, for instance, is the steward of some $17 billion in pensions 
that are the nest egg of Connecticut's working families. Unfortunately, 
as we will hear from her, her ability to invest that money wisely has 
been impaired by the now chronic uncertainty surrounding what 
companies' obligations will be to abate climate change.
    Mr. Chairman, my staff has talked with many investment analysts on 
Wall Street who tell the same story. There is a general understanding 
that constraints on greenhouse gases are an inevitable fact of the 
future. Analysts understand the size and the scope of the global 
warming problem and understand that America cannot keep its head in the 
sand forever. They understand that the climate is changing and 
executives are willing to invest in solutions-but they will put off 
those investments if they think the regulatory climate will keep 
changing each step of the way.
    The Coalition for Environmentally Responsible Economies (CERES), a 
coalition of environmental, investor and advocacy groups, has long 
warned us of the strong link between climate change and investment 
risk. In its April 2002 report, Value at Risk: Climate Change and the 
Future of Governance, CERES warned that ``there is mounting evidence 
that failure to respond to the risks posed by climate change could 
result in multi-billion dollar losses for U.S. businesses and 
investment portfolios.'' The report found a pressing need for corporate 
leaders and institutional investors to tackle climate change more 
aggressively, noting that ``it is increasingly evident that the costs 
of inaction are likely to far outweigh the costs of action.'' The 
report went further to state that ``climate change represents a 
potential multibillion dollar risk to a wide variety of businesses and 
industries. It should, therefore, command the same level of attention 
and urgency as any other business risk of this magnitude.'' Mr. 
Chairman, I ask unanimous consent for this report to be entered into 
the record.
    The World Resources Institute also released a recent evaluation of 
the effects of climate change on shareholder value, in this case the 
value of oil companies. WRI found that different oil companies were 
positioned very differently on this issue, depending on how each 
company had hedged its risks in anticipation of policies to address 
global warming. For the companies that had acted wisely, WRI saw little 
impact; for those that had not done so, WRI saw a loss of more than 6 
percent in shareholder value. Mr. Chairman, I ask unanimous consent for 
this report to be entered into the record as well.
    Finally and most recently, CERES conducted a yearlong dialog among 
experts in the electric power sector, investors, and environmentalists 
on the issue of climate change. The resulting report, The Electric 
Power Sector, Investors, and Climate Change, due to be released today, 
concludes that the inevitable rise of carbon-regulating legislation, 
along with the direct financial consequences of climate change, 
justifies corporate and investor action. This problem, CERES has found, 
crosses industry and sector lines, and presents serious risks for all 
corporate shareholders alike.
    Climate change is real and must be addressed. The heat is on the 
Administration to do something, do something decisive, do something 
credible, and do something soon. What John McCain and I have proposed 
is a moderate, measured, and market-based response to get us on the 
right track without creating a shock to our economy. It would help, not 
hurt, businesses crying out for a hint of what is to come. It would 
improve America's stature in the world. And most of all, it would 
protect America from the growing environmental threat posed by global 
warming.
    Senator Carper. I wondered if I could start off with Dr. 
Benson on this. A couple of times in the testimony today I've 
heard the term fly ash used. It sounds like it's a product for 
which there can be some value, or not. We have a large coal-
fired utility, electric utility in the southeastern part of 
Delaware. And if anybody in the audience has ever been to 
Bethany Beach or Rehoboth Beach or Dewey Beach or Fenwick 
Island, or any of those great Delaware beaches, you've been not 
too far away from the Indian River power plant, which uses a 
lot of coal and create electricity for the DelMarVa peninsula.
    They create fly ash as a by-product of their operation. And 
the fly ash has elements in it, mercury among others, but it 
doesn't have a commercial value and it has to be landfilled, 
which is not inexpensive. And instead of having the ability to 
sell fly ash and make some money off of it, they have to figure 
out what they're going to do with it, and it costs money to 
landfill it. God only knows what kind of potential hazards that 
will pose for us later in this century.
    Dr. Benson, any comments that you'd like to share with us 
no the cost-effectiveness of, or the economic value of dealing 
with fly ash and the stuff that goes into it, the mercury and 
what are the benefits for some of the new technology that we're 
talking about here with respect to resale of taking a waste 
product and turning it into something that has market value?
    Dr. Benson. The ability to utilize fly ash in various 
products, such as cement, use it for cement replacement, use it 
in other types of building materials, is dependent on the fuel 
composition, which dictates the fly ash composition. For 
western coals, there's a lot of calcium in the fly ash, so it's 
a great cement replacement material. By adding, for example, 
carbon based materials, it decreases the ability to utilize the 
ash, because the carbon interferes with the ability of the 
concrete formation process. So that's one of the issues.
    So you want to look for alternative sorbent technologies, 
if there's another mercury sorbent, such as calcium silicate or 
something else that can be used, that does not interfere with 
the cement making process. Also the W.L. Gore technology, which 
does not use a sorbent or a carbon material, does not interfere 
with the process of utilizing the material.
    The mercury that's absorbed into the fly ash based on our 
testing is fairly stable. We've heated the material up over 200 
degrees to 300 degrees Centigrade and the mercury stays in the 
fly ash. So it seems to be stable once it gets there, with most 
technologies that we've been studying.
    Senator Carper. Dr. Bucher, I think you made some mention 
of fly ash in your testimony. Would you just go back and expand 
on that a little bit, at W.L. Gore, when you're thinking about 
how to make a product or a process that will have a return on 
your investment, how does this issue of turning fly ash into a 
marketable commodity figure in?
    Mr. Bucher. It figures in very strongly. As Dr. Benson 
indicates, some facilities today sell their fly ash, and as you 
indicate, some facilities do not. When we go and visit and talk 
to some of the plants that are currently selling their fly ash, 
when they think about one, not being able to get the revenue 
from selling it, and then two, paying someone to put it in the 
ground in a landfill, it's a very considerable delta that just 
drives them to find any solution that they can other than 
having to contaminate their fly ash.
    So it's things like that that provide avenues for creative 
technologies to come in and solve those problems in a way that 
provides extra benefits to those customers, giving them further 
reason to employ, and as Dr. Monroe says, take some chances on 
some new technologies, because it will provide them that value 
in the end.
    Senator Carper. Thank you.
    Senator Voinovich. Senator Cornyn?
    Senator Cornyn. I don't have any further questions, Mr. 
Chairman.
    Senator Voinovich. I want to thank you very much. This has 
been very, very fascinating, and it's certainly been helpful to 
me and created some more questions that I need to get answered. 
Thank you very much.
    Our next panel, and I'll introduce them as they're coming 
forward because of our time limitations, and I apologize to 
them for their long wait. First is the Honorable Denise 
Nappier, Treasurer of the State of Connecticut. Dr. Margot 
Thorning, who's the Chief Economist for the American Council 
for Capital Formation. Mr. Wes Taylor, President of Production 
of TXU Energy. Mr. Jim McGinnis, Managing Director of Morgan 
Stanley. Mr. Douglas Cogan, Deputy Director, Social Issues 
Service, Investor Responsibility Research Center. And Mr. Mark 
Brownstein, Director of Enterprise Strategy, PSEG Service 
Corporation.
    The chairman suggested that we try to--well, make sure that 
your testimony is within the 5 minutes. We would like to have 
some questions asked today and we're probably going to have to 
wrap up this hearing by 12:30 at the latest. Again, we 
appreciate your presence here.
    We're going to start out with Denise Nappier, who is the 
Treasurer of the State of Connecticut. We're very happy to have 
you with us today.

STATEMENT OF THE HONORABLE DENISE NAPPIER, TREASURER, STATE OF 
                          CONNECTICUT

    Ms. Napper. Good morning, Senator. I appear before you as 
an institutional investor and the principal fiduciary of a $17 
billion pension fund representing 160,000 beneficiaries and 
plan participants. As Treasurer, I'm elected by the people of 
my State who like millions of Americans, seek to ensure their 
families' economic future through investments in the capital 
markets.
    I appreciate the opportunity to testify about the 
relationship between climate change, corporate governance and 
the well-being of institutional and individual investors.
    I know that you have testimony from others more expert than 
I on the science of climate change, so I won't go there. But I 
will share with you the perspective of an institutional 
investor who has the responsibility, the fiduciary 
responsibility, to consider the long term value of our pension 
funds.
    We have all learned about a number of very painful but very 
valuable lessons following Enron and the corporate scandals 
that followed. We must not allow ourselves to lose sight of 
those lessons. We've learned about the disastrous impact on our 
investment savings, on our jobs and on the economy.
    That is when transparency, accountability and an honest 
assessment of risk is not viewed by companies as priorities. As 
institutional and individual investors, we need accurate and 
complete disclosure information that could affect the current 
and future health of the companies we invest. And that goes 
beyond accounting to include among other things climate change 
as a risk factor.
    Now, the consequences of those companies that do not act 
responsibly today and take steps to assess and mitigate the 
risks associated with climate change can be quite devastating. 
For example, companies could face the prospects of losing their 
competitive edge, incurring litigation costs or being saddled 
with unforeseen capital expenses just to name a few. And all 
these factors, all of these factors and others, can erode 
shareholder value and place today's seemingly solid investment 
in jeopardy.
    Now, climate change may well be about our planet's future. 
But it is also about the financial risks to corporations and 
the impact on the retirement savings of millions of Americans. 
As a result, we have every right, as shareholders, to know what 
is being done about it and how America's corporations will 
protect their bottom line and thereby the value of our 
investments.
    I believe that this issue is quickly becoming the leading 
edge of the next wave of corporate governance issues, and that 
the marketplace must begin to closely scrutinize companies to 
determine whether they have honestly, directly and thoroughly 
evaluated climate change as a risk factor and developed a 
proper response to it. In finance, where there is risk there 
can also be reward. A report by the Rose Foundation last year, 
the Environmental Fiduciary, reviewed the findings of a number 
of studies on this issue and concluded that in many cases, 
improving environmental performance provides a measurable boost 
to profitability and shareholder value, especially over the 
long term.
    So we have a real opportunity here to not only protect our 
shareholder value, but also to achieve added value. Now, while 
you in Congress are debating the merits of a legislative 
response to climate change, such as whether or not to enact 
mandatory caps on carbon emissions, other nations are preparing 
to implement the provisions of the Kyoto Protocol, which 
include mandatory provisions.
    Many of these companies in which we invest, particularly 
companies such as GE, Exxon-Mobil and Chrysler, operate in a 
global economy. For them, carbon regulation is not a future 
possibility, it is an imminent reality. And many State 
governments are also considering and enacting legislation 
addressing climate change.
    Now, beyond the regulatory environment, shareholders are 
now advancing this issue. This year, resolutions on climate 
change were introduced at 23 U.S. companies and the Connecticut 
pension fund filed two of these and co-filed on a third.
    Shareholders are asking companies to report on their 
greenhouse gas emissions, or to set a goal to reduce emissions 
or to report on the potential future financial risks to the 
company from their past, present and future emissions and to 
issue a plan to mitigate that risk. Some of these resolutions 
were withdrawn after productive discussions between 
shareholders and management. However, you should know that most 
of the resolutions were opposed by management and the 
directors. That opposition may prove to be shortsighted. That 
is penny wise and pound foolish.
    At an annual shareholder meeting of American Electric 
Power, and I realize that my time--I need to wrap up.
    Senator Inhofe [assuming the chair]. I'm sorry. We'll have 
to go on to Dr. Thorning. Dr. Thorning?

 STATEMENT OF MARGO THORNING, SENIOR VICE PRESIDENT AND CHIEF 
       ECONOMIST, AMERICAN COUNCIL FOR CAPITAL FORMATION

    Ms. Thorning. Thank you, Mr. Chairman. I appreciate the 
opportunity to appear before this committee to comment on the 
impact of the Clear Skies Act and the proposals to cap carbon 
on the financial health of the utility sector.
    First, the Clear Skies amendment is, while a challenge for 
the utility industry and in the judgment of many, not likely to 
significantly imperil the financial health and well-being of 
the utility industry. Carbon caps on the other hand are a 
different story. Some proponents of carbon caps suggest that 
this will give certainty to the investing community.
    I think that the argument is flawed for three reasons. 
First, the goalposts are not likely to stay the same. The Kyoto 
Protocol targets, which were just discussed and which are 
similar to the targets in Senator Jeffords' bill, are not 
likely to hold. The European Union is already moving beyond the 
Kyoto target. Proponents of climate change measures there are 
suggesting targets of perhaps 60 to 70 percent reductions in 
CO2 by the year 2050 will be required. And that's 
what they'll be discussing at the COP 9 meetings in Italy this 
fall.
    So the goalposts are likely to shift, thereby increasing 
investor uncertainty and making it difficult for utilities to 
plan capital structures. If we go down this path of carbon 
caps, there will be increasing pressure from the European Union 
to try to keep up with them in terms of the targets that they 
are suggesting should be adopted.
    Second, U.S. firms, if they accept these carbon caps, will 
be held to them. We have a different regulatory structure in 
the United States compared to the European Union. In Europe, 
there is much more flexibility between regulators and the 
regulated. Utility companies that fail to meet their emission 
targets, and by the way, Europe is not on target to meet its 
Kyoto targets, are likely to have much more flexibility and not 
face the draconian penalties that U.S. firms would face if they 
failed to meet their targets. It's another source of 
uncertainty.
    Third, as energy prices rise, if we put in place carbon 
taxes, the demand for electricity, the product is likely to 
fall as energy intensive sectors move abroad at an even quicker 
rate than they really are and consumer demand and industry 
demand falls. That's another source of uncertainty for the 
utility community, the demand for their product.
    A better approach, I think, is based on the one the Bush 
Administration is advocating, which is an 18 percent reduction 
in greenhouse gas emissions per dollar of GDP over the next 
decade, compared to the 14 percent baseline forecast. One way 
to help achieve that goal is to take a hard look at U.S. 
Federal tax policy. A study that the American Council for 
Capital Formation Center for Policy Research commissioned 
recently showed that out of 14 countries, the U.S. has the 
slowest capital cost recovery for investments in energy assets. 
I ask you to note Table 1 in my testimony which I'd like 
included in the record. Table 1 shows that, for example, for 
transmission investments and transmission assets, U.S. investor 
only gets 29 cents on the dollar back after 5 years, whereas in 
Brazil they get 50 cents back on the dollar. In China, they get 
$1.04 back on the dollar. They are subsidizing those types of 
investments.
    Similar story for combined heat and power and for 
investment in other energy assets. So as the Treasury study in 
the year 2000 suggested, because of the increasingly 
competitive nature of the utility industry, we need to take a 
hard look at the class lives and depreciation schedules that 
are provided for investments in those assets and speed them up, 
with a goal of making it easier for companies to make the kind 
of expenditures that will let them reduce CO2.
    Finally, I think we need to recognize that climate change 
and addressing the potential threat of climate change is a 
global problem. Imposing carbon caps on one industry and one 
country or even in the industrialized world will make virtually 
no difference in global concentrations of CO2 in the 
next hundred years. Because the growth in emissions, for 
example, 84 percent of the growth in CO2 over the 
1990-2010 period is coming form China and Indian. So instead, 
we need a global solution that helps transfer existing 
technologies for clean coal and other energy sources to the 
developing world, so that they can try to meet the aspirations 
of their population for faster economic growth, as well as 
emitting less CO2 and other emissions.
    Senator Inhofe. We'll have to cut it off at that point.
    Senator Voinovich. Senator Inhofe? During question and 
answer time, you'll both have an opportunity.
    Mr. Taylor.

 STATEMENT OF WES TAYLOR, PRESIDENT OF PRODUCTION, TXU ENERGY 
                         NORTH AMERICA

    Mr. Taylor. Chairman Inhofe, Senator Carper, Senator 
Cornyn, my name is Wes Taylor and I'm President of Production 
at TXU Energy North America.
    I appreciate the opportunity to appear at this hearing and 
provide TXU's perspective on Senate Bill 485, focusing on the 
capital investment ramifications of emission reductions. As one 
of the Nation's largest energy providers, TXU made 
environmental stewardship a corporate priority long ago. Since 
1990, TXU has added more than 2,600 megawatts of generation 
with zero air emissions. Our commitment to renewable energy has 
increased to the point where we are one of the largest 
purchasers of wind energy in the Nation.
    TXU has been among the Nation's leaders in the voluntary 
reduction of greenhouse gas emissions, eliminating, avoiding or 
sequestering CO2 emissions by more than 193 million 
tons since 1991. TXU has decreased its rate of SO2 
emissions by 38 percent, decreased its rate of NOx emissions by 
70 percent and our SO2 and NOx emission rates remain 
below the national average.
    Despite these significant accomplishments, more remains to 
be done. TXU supports President Bush's efforts to reduce 
SO2, NOx and mercury emissions through a three 
pollutant framework such as that used in Senate Bill 485.
    I want to emphasize that this legislation must not cause 
the shutdown of power plants, which are vital to our Nation's 
electricity infrastructure, and also must not cause fuel 
switching that could impair fuel diversity and adversely impact 
our Nation's economy. TXU has a credible basis for issuing this 
caution. Our company has been an industry leader in the 
reduction of SO2 and NOx emissions. We are very 
familiar with available control technologies and have a good 
understanding of both the cost and the effectiveness of these 
controls.
    Unfortunately, S. 485's provisions regarding mercury 
emissions go well beyond co-benefits in phase one and the 
control technology to achieve these reductions is unproven and 
undeveloped. Therefore, no one has the ability at this time to 
fully evaluate the costs associated with controls necessary to 
achieve the mercury emission limitations contained in the bill, 
and this significant financial uncertainty may have the 
unintended consequence of causing plant closures or fuel 
switching rather than investing in SO2 and NOx 
control technology.
    The adverse economic impacts of such actions may be totally 
disproportional to the harm sought to be addressed by S. 485. 
The EPA itself states that less than 1 percent of global 
mercury emissions are produced by U.S. power plants. So I urge 
the committee to proceed with caution and understand all the 
facts concerning the economic and other impacts created by the 
public policy contained in this legislation.
    I have submitted a prepared statement with additional 
details. I am also submitting for your use the 2002 
environmental review of TXU, which contains details on our 
SO2 and NOx emission reduction programs and 
documentation of our exemplary environmental record.
    I respectfully request that my prepared statement and this 
report be included in the record of this hearing. In closing, I 
again want to thank you for the opportunity to be here and I'll 
be pleased to respond to questions.
    Senator Inhofe. Thank you, Mr. Taylor. And for all of you, 
your complete statement will be made a part of the record.
    Mr. McGinnis.

 STATEMENT OF JIM MC GINNIS, MANAGING DIRECTOR, MORGAN STANLEY

    Mr. McGinnis. Mr. Chairman, thank you. Senators, good 
morning. My name is Jim McGinnis, I'm a managing director of 
Morgan Stanley, the investment banking division, with 
responsibilities in providing advice on capital raising, 
restructuring and mergers and acquisitions involving companies 
in the energy sector.
    Senator Carper, you might be interested to know my wife and 
I make our home in Greenville, Delaware, although my office is 
in New York.
    Senator Carper. I know that.
    Mr. McGinnis. I focus my work on power and energy 
providers, utilities and on regulated competitors alike through 
a 14 year period characterized by nearly continuous and 
episodically chaotic structural change in this sector. The 
utility and power generation energy is a large user of investor 
capital at some $800 billion of institutional and individual 
investment dollars deployed in the Nation's power and gas 
utility and generation sectors.
    Yet despite that large number, investor sensitivities to 
smaller incremental cash-flows requirements for debt repayments 
or new capital spending can sharply affect any individual 
company's access to capital. And an event related swell of 
concern in the market can and has in the past 12 months 
effectively cutoff access to capital for even large companies 
for significant periods of time.
    I believe that this investor sensitivity drives a basic 
need for clarity in multi-emissions legislation. Capital 
providers to the industry can be expected to react poorly to 
financially significant expenditures required of utilities and 
unrelated generators in the context of potentially shifting 
requirements, on proven technologies and uneven regulatory 
treatment. This need for clarity has heightened importance now, 
at a time when industry participants have been roiled by 
unprecedented financial disruptions and failures, and by 
persistent uncertainties elsewhere in the public policy arena. 
Investors and company leaders are currently wrestling with an 
unprecedented variety of fundamental uncertainties, State by 
State changes and policies related to industry restructuring, 
purchase power contract disputes, as in California, accounting 
standard revisions related to energy purchasing, hedging and 
trading activities, uncertainty over aspects of currently 
pending legislation such as PUHCA reform, FERC transmission 
policy, transmission siting rules and transmission tax policy 
on transfers and ownership, and certain aspects of bankruptcy 
code reform, just to name a few.
    One important attribute of legislation to reduce power 
generator emissions which supports the objective of clarity is 
the abundance of market signals from freely traded emissions 
allowances. Allowance trading improves the ability of affected 
companies to make clear choices as to the most cost-effective 
of various strategies they can employ in meeting emissions 
reduction strategies targets, and promotes capital efficiencies 
when capital is scarce.
    Now a few comments on financial stress in the industry. The 
electric sector is in the midst, though perhaps the trailing 
end, of the worst ever period for credit rating deterioration. 
Since January 1, 2002, we have seen 232 separate rating 
downgrades, some of multiple rating categories at one time 
versus 18 rating downgrades. These downgrades are a symptom of 
massive investor losses on bonds and bank loans to companies in 
the sector and the merchant power generation marketing in 
particular.
    Also during the 2 years ending March 31, 2003, equity 
losses for investors have been staggering as well. I won't 
repeat some of the numbers that have been included in my 
written statement.
    There are related impacts on utilities from the recent 
merchant power sector value destruction episode. In recent 
years, statewide restructuring in California, New York, 
Illinois, Texas, Pennsylvania, Delaware and Washington, DC. has 
resulted in large legacy generation portfolios of certain 
incumbent utilities to be transferred in those locations to 
unregulated power merchants, many of which have experienced a 
sharp decline in financial strength, and are counter-parties to 
the host utilities in meeting their demand needs for legacy 
customers.
    Thus in evaluating legislation to reduce power generator 
emissions, which envisions one of the Nation's most ambitious 
private investment programs ever conceived, I would submit that 
the committee members examine several important market 
dynamics, multiple critical uncertainties in upcoming energy 
policy decisions, uncertainties related to fuel costs and 
availability and generally the weakened financial capacity of 
the industry's generation participants.
    Thank you.
    Senator Voinovich [resuming the chair]. Thank you very 
much.
    Mr. Cogan.

   STATEMENT OF DOUGLAS G. COGAN, DEPUTY DIRECTOR OF SOCIAL 
        ISSUES, INVESTOR RESPONSIBILITY RESEARCH CENTER

    Mr. Cogan. Thank you, Mr. Chairman and members of the 
subcommittee. My name is Douglas Cogan. I am the Deputy 
Director of Social Issues for the Investor Responsibility 
Research Center. I'm honored to have this opportunity to share 
with you an investor perspective of clean air legislation, 
especially as it concerns climate change.
    Our Nation's electric utilities account for 40 percent of 
America's and 10 percent of the world's man-made CO2 
emissions. Addressing climate change necessarily involves this 
industry. Companies and investors that ignore this fact do so 
at their own peril. Investors loath uncertainty, as you know. 
Certainty will not be achieved until carbon dioxide is 
recognized as an emissions source that will be managed and 
controlled.
    Electricity providers are poised to invest tens of billions 
of dollars to reduce power plant emissions of NOx, SOx and 
mercury. The concern of many investors is that the value of 
these investments may be compromised if they fail to address 
CO2 emissions as well. A more prudent and certain 
approach would be to consider these four emission sources 
together as part of an integrated strategy.
    Consider what Jim Rogers, chairman and CEO of Cinergy, one 
of the Nation's largest coal burning utilities, told this 
committee 2 years ago. He said, ``Who will make a decision to 
invest a billion dollars in a new coal plant if you can only 
guess about future regulation? A new power plant today that 
fails to address CO2 will be as dated in 5 years as 
current law is today.'' Investors have raised this issue with 
electric utilities over the last 10 years through the filing of 
shareholder resolutions. With mounting support from large 
pension systems and endowments, shareholder support for 
corporate disclosure on climate change has increased 
dramatically.
    At three of the Nations' largest electric utilities, AEP, 
TXU and Southern, the support level has reached almost 25 
percent for the resolutions voted on in the last annual meeting 
season. Today you are hearing testimony about processes 
electric utilities use to analyze capital investment decisions 
relating to emissions control. Such analyses involving 
scenarios and decision trees are part of good governance 
practices with respect to climate change.
    Yet when it comes to investor disclosure, these analyses 
are not yielding much useful information. Statements appearing 
in form 10(k) filings of electric utilities typically say that 
management is unable to predict the impact of the Bush 
Administration proposal or related climate change legislation, 
and that possible material impacts cannot be determined at this 
time. Such statements offer neither comfort nor guidance to 
investors. But they are typical in terms of the statements that 
we see in securities filings. That is one reason why 
shareholder resolutions seeking more information from 
management on climate change are setting record proxy votes.
    Companies working with investors can take several steps to 
improve governance practices on climate change. IRRC in a soon 
to be released report commissioned by the CERES coalition of 
investor and environmental groups identifies 14 specific 
governance actions. I will highlight three vitally important 
ones here.
    First, companies should provide regular assessments of the 
climate change issue to shareholders, based on systematic board 
reviews of company financial risks and opportunities. Second, 
companies need to set CO2 emissions baselines and 
provide annual emissions data to investors, so they can gauge 
prevailing emissions trends. Most important, utilities should 
be making forward-looking disclosures of their CO2 
emissions. Investors cannot begin to make meaningful 
evaluations of the impacts of clean air legislation called here 
as the most aggressive clean air initiative in our history, 
until they have access to this forward looking information.
    Congress can facilitate this process by requiring utilities 
and other major carbon emitters to report not only past 
emissions data but also future projections in their securities 
filings. To be fully transparent in this disclosure, aggregate 
emissions data, as well as emissions intensity ratios, should 
be provided.
    The most helpful thing Congress can do, however, is to 
establish once and for all that carbon dioxide is an emission 
source that will be managed and controlled. Many investors see 
this coming. Regardless of the targets and time tables, this 
act alone will provide essential guidance for investors and 
company directors who now have climate change on their 
corporate governance agenda.
    Thank you for this opportunity to testify.
    Senator Voinovich. Thank you.
    Mr. Brownstein.

 STATEMENT OF MARK S. BROWNSTEIN, DIRECTOR, ENTERPRISE STRATEGY

    Mr. Brownstein. Mr. Chairman and members of the committee, 
good morning. I'm honored to be here this morning to represent 
Public Service Enterprise Group and the Clean Energy Group.
    PSEG is a diversified energy company with over $25 billion 
in assets and over $8 billion in annual revenues. Among the 
assets we own are 13,000 megawatts of electric generating 
capacity operating or under construction in New Jersey, New 
York, Connecticut, Pennsylvania, Ohio and Indiana. Clean Energy 
Group is a coalition of companies with more than 100,000 
megawatts of generation capacity nationwide including coal, 
oil, gas, nuclear and renewable. The members of CEG, ConEdison, 
Entergy, Excelon, KeySpan, Northeast Utilities, PG&E National 
Energy Group, Sempra Energy and ourselves, are committed to 
promoting progressive environmental policies that are 
economically sound and sustainable.
    PSEG, which celebrates its 100th anniversary this week, has 
long believed that environmental performance is one indicator 
of overall business performance. That being said, our eye is 
never off the bottom line. In our view, environment and 
economics are inseparable and as with many things in life, the 
secret to success is finding the right balance.
    If you remember only one thing from what I say here today, 
please remember that one word, balance. For PSEG and CEG, the 
single greatest value to be derived from Federal multi-
pollutant legislation, aside from the public health and 
environmental benefits themselves, is certainty. And the best 
way we know to achieve certainty is through a public policy 
outcome that strikes the right balance between environment and 
energy policy objectives.
    I'm aware that this is the third hearing that you've held 
on the many questions surrounding multi-pollutant legislation, 
and I'm also aware that various stakeholders have come before 
you to argue that the current proposals on the table either go 
too far or don't go far enough. From day one, our goal in this 
debate has been to seek and encourage consensus. For we believe 
that it is only through consensus that we can achieve the kind 
of regulatory stability essential to the health of our 
industry.
    You've heard from others here today about the importance of 
certainty, and I echo that concern. This is a very capital 
intensive industry, where large investments are made in assets 
that last 30 years or more. Making large bets on the future is 
an inherently risky proposition, and no amount of legislative 
activity on your part can offer us 100 percent certainty.
    But to the extent that the trajectory of future 
environmental requirements looms large in the planning of any 
major player in our industry, you can make a significant 
difference by crafting legislation that clearly articulates 
expectations over the next 15 years, at least. The past two and 
a half years have been a tumultuous one for our industry. And 
we don't need any more excitement.
    But where some people might argue that now is the wrong 
time to set new environmental requirements, we would argue that 
to take this do nothing approach would be to kill us with 
kindness. Whether you believe that the current oversupply of 
generation and capital crunch will last two or 5 years, the 
fact of the matter is that current market conditions in our 
industry are part of a cycle. At some point, hopefully soon, 
companies like ours will begin to make new investments in our 
Nation's energy infrastructure. And when we do, it is critical 
that we have clear understanding of the environmental 
requirements we will have to meet. Otherwise, I feel we will be 
making suboptimal investments.
    Nowhere is this more true than on the issue of carbon 
dioxide regulation. First off, let me state for the record as 
we've said many times in the past, PSEG believes that President 
Bush was right to reject the Kyoto Protocol. The reductions 
contemplated under that agreement demanded too much, too fast 
for our industry and our economy to handle.
    At the same time, we think the issue of climate change is 
real, and we believe a domestic regulatory response is both 
necessary and inevitable. Given that our industry is singularly 
responsible for over a third of the Nation's greenhouse gas 
emissions and 10 percent of the global greenhouse gas 
emissions, we cannot and should not dodge this issue. With this 
perspective n mind, we believe that we are better off as a 
company and as an industry if we develop and implement a 
moderate response now, rather than wait 10 years, only to find 
that the political problem is now worse or that the 
environmental problem requires a more drastic response.
    In the investment decisions that we have made in the 
interim, we're dead wrong. This is one of the reasons why we 
think the bill introduced by Senators Carper, Chafee and Gregg 
makes such an important contribution to this debate. We're 
encouraged by the leadership that the Bush Administration has 
shown on the issue of multi-pollutant legislation and we deeply 
appreciate the leadership that Senator Inhofe and you, Senator 
Voinovich, have shown in tackling this very difficult issue.
    We encourage you in your efforts to find that balance that 
I talked about earlier, and I thank you for this opportunity to 
testify.
    Senator Voinovich. Thank you, Mr. Brownstein.
    Again, I want to thank all the witnesses for being here 
today. Dr. Thorning, we've heard several of the witnesses talk 
about the need to place a cap on CO2 emissions to 
help the industry. However, if a cap is placed on 
CO2 emissions, utilities, from what I understand, 
will be forced to fuel switch away from low cost, abundant and 
reliable coal to natural gas. As I'm sure you know, natural gas 
prices will only continue to increase as pressure becomes 
increasingly greater already in a tight market.
    How have the increased natural gas prices over the past few 
years affected companies in other sectors, such as the chemical 
and agriculture industry's ability to invest in the market in 
general, and has it affected utilities that rely primarily on 
natural gas for their generation?
    Ms. Thorning. That's an excellent question, Mr. Chairman, 
and I think most of the people in this room know that with 
respect to the higher natural gas prices, our chemical industry 
has been adversely affected, fertilizers, and others that are 
dependent on gas have been very hard hit and face reduced 
competitiveness, not only at home but globally. So industry has 
been very hard hit in terms of trying to maintain 
competitiveness.
    The issue of placing carbon caps, which presumably would 
encourage fuel switching, is one that I think a lot of research 
shows would significantly increase natural gas prices and make 
it even more difficult for the U.S. economy to recover from its 
current slow growth.
    Senator Voinovich. It is a major problem.
    Ms. Thorning. It is a major problem.
    Senator Voinovich. Is it affecting the stock prices of any 
of the companies that are highly reliant, for example, the 
chemical industry?
    Ms. Thorning. Certainly it is. Stock prices have taken a 
very hard hit in the energy intensive sector. The surge in gas 
prices is certainly part of it.
    Senator Voinovich. Thank you. Mr. Brownstein, the political 
reality we face in Congress is that the regulation of carbon 
will not become law. We went through that last year. It's not 
going to happen. And the whole issue is, in light of that fact, 
what is the wisest action for the Senate to take, pass a bill 
that provides certainty now for SO2, NOx and mercury 
and get on with it, or should we just wait until the time comes 
when we deal with CO2?
    Mr. Brownstein. Well, certainly, Senator, I'm in no 
position, have no expertise to comment on political dynamics in 
this body or in Washington. I can only bring to you the 
perspective of my company and my shareholders, which is in a 
perfect world, I suppose, having some form of carbon price 
signal today would be much better for us than waiting.
    I suppose the question of how our company would view 
legislation coming out of this committee or the Senate, and how 
we would feel about that, would depend a lot upon the details 
in it. But I'm hopeful that perhaps we can work with you and 
some others to help change some minds about the value of doing 
something on a moderate basis for carbon in the interim.
    Senator Voinovich. Would a moderate basis not include a 
cap?
    Mr. Brownstein. My view is that you need some type of price 
signal out there. We're very supportive, Mr. Chairman, of 
efforts to provide Government support for the development of 
IGC technology, geological sequestration of carbon. Coal is a 
very important of our generation mix and we want to make sure 
that it continues to be an important part of our generation 
mix. But at the end of the day, our concern is that as 
promising as those technologies are, without some sort of price 
signal that values the carbon benefit that they bring to the 
table, we're concerned that they will never be economic in the 
current marketplace.
    Senator Voinovich. How much of your group's generating 
capacity is attributable to coal?
    Mr. Brownstein. Generating capacity, sir, is about 21 
percent or so, about 26 percent of the megawatt hours we 
generated last year came from coal.
    Senator Voinovich. So it's about a quarter of all your 
group is coal generated?
    Mr. Brownstein. That's right.
    Senator Voinovich. I have, Mr. Taylor, I'm out of time. 
With the implementation of the Clean Air provisions, other 
Federal regulations and State clean air laws combined to create 
uncertainty for electricity generators, they do have an impact 
on the ability of private sector utilities to raise capital and 
make strategic long term capital investments such as decisions 
on the purchase and installation of emission control 
technologies.
    A prime example of this is the recent filing by PG&E 
National Energy Group which requested permission to shut down a 
745 megawatt coal-fired plant in Massachusetts because it 
cannot meet the deadline to instal $125 million worth of SCRs 
and scrubbers. The New England independent system operator is 
likely to rule that the plant must stay on line in order to 
prevent blackouts, forcing either the State of Massachusetts to 
loan the money to the utility or the ISO to pay for the 
installation of the SCRs and scrubbers. In either case, the 
cost will likely be passed on directly to ratepayers. I'd like 
to add this article that recently appeared in the record. And 
I'd like to ask, is it reasonable to assume that we would see 
similar scenarios if Senator Jeffords' four P bill would have 
been enacted last year?
    Mr. Taylor. Chairman Voinovich, I think that the addition 
of a fourth P to the legislation would exacerbate this problem 
and would cause the problem that this company had with their 
Salem Harbor plant to recur many more times around the Nation. 
Some of my fellow panelists this morning have talked about the 
certainty that would come by adding the fourth P to the bill. 
In my opinion, the only certainty that we would have from that 
would be the certainty that we would use less coal, use more 
natural gas and result in higher prices for both electricity 
and natural gas. I believe that it would harm our Nation's 
economy.
    Senator Voinovich. Thank you.
    Senator Carper.
    Senator Carper. Again, this is another excellent panel, and 
we're grateful to each of you for making time in your lives to 
be here with us today and to share your input. Mr. Taylor, I'd 
just say, I'm the only native born West Virginia Senator in the 
U.S. Senate. I'm hoping to go to the Carper family reunion the 
first Saturday in August. I assure you, I don't want to go to 
that reunion having anybody there think that I'm not interested 
in the economic well-being of my native State and the coal 
industry within that State, from which I was born.
    And you make an assertion that if we do take, given some 
balanced steps, reasonable, I think modest steps with respect 
to CO2, and we include a cap and tarde system, the 
opportunity for sequestration really to use a lot of 
innovation, that we're going to see a wholesale shift from coal 
to natural gas. There's actually been some pretty good 
empirical analysis that says that's not really the case, at 
least when you take a reasonably balanced approach. And maybe 
we can have a conversation about that later.
    But the last thing I want to do is push people out of coal 
and exclusively into natural gas. We're aware of the 
consequences of that for a company like Dupont, which is 
headquartered in my State. We're aware, we have a lot of 
agriculture in my State, and we're aware that as the costs of 
natural gas go up, it has an adverse impact on agriculture, 
too.
    So for us, part of the challenge is to find ways to, as we 
look to control the emissions of CO2, to do so in a 
way that doesn't lead to this wholesale shifting away from coal 
and makes less economically viable some of our major 
industries, including chemicals and agriculture.
    I was riding down on the train this morning, Mr. Chairman, 
and sometimes I read the paper. Today I was taking a look at 
the morning paper and I came across a small article in our 
paper from Delaware about a lawsuit that I think several States 
had filed against EPA to force recognition of CO2. I 
think there were three States that were listed. And I believe 
Connecticut may have been one of the States.
    I know you're not the Attorney, you're the Sate Treasurer. 
A more important job, I used to be State Treasurer of Delaware. 
Almost as important as the Auditor. What were you, the Auditor 
of, I know you were the major, were you the auditor?
    Senator Voinovich. Of Cuyahoga County.
    Senator Carper. Another important job. But are you aware of 
the lawsuit that's been brought? I think it involved 
Connecticut, maybe a couple of other States.
    Ms. Nappier. I am aware of the lawsuit, and it essentially 
says that the Federal Government should step up to the plate 
and identify CO2 as a pollutant that ought to be 
regulated, that we should have uniformity as it relates to the 
need to lower emissions. And put it under the, I believe it's 
the P3 legislation, to make it P4.
    Senator Carper. Thank you. You were cutoff, you ran out of 
time and didn't have a chance to finish up your testimony. And 
I'm not going to go back and ask you to read it, but anything 
that you wanted to convey to us or just reemphasize?
    Ms. Nappier. Yes, that shareholder votes in favor of 
climate change resolution has doubled over the last 2 years. I 
think that evidences the growing interest to properly address 
climate change, going out into the future.
    The other thing is that CERES, which is a coalition of 
environmental groups and institutional investors, has had a 
year-long dialog on this whole topic. An important study is 
being released today as we speak here. I would hope that your 
committee would sort of avail themselves of that report, some 
important information coming out.
    Last, that we do have a, I am calling for an institutional 
investor summit this fall that will take a very close look at 
climate change, what needs to happen to better quantify and 
assess the risks associated with climate change, along with the 
need to mitigate that risk. But a group of us will be coming 
together to do just that. And I believe that if we look at 
climate change as merely an environmental issue, we are missing 
the point. It is an investor security issue of the highest 
magnitude.
    Senator Carper. Thanks very much. Mr. Chairman, I hope we 
have another round, but thanks very much.
    Senator Voinovich. Senator Cornyn?
    Senator Cornyn. Senator Carper, unfortunately I had the 
misfortune to be Attorney General for 4 years in my State.
    Senator Carper. There are worse misfortunes.
    Senator Cornyn. A whole State can't be held accountable for 
the actions of a single Attorney General.
    [Laughter.]
    Senator Cornyn. Mr. Taylor, I'm going to pick on you a 
little bit, because we come from the same place and your 
company is the largest electric generator in Texas. I'd like 
for you to clarify a few things for the record for me and for 
the subcommittee. Your company has a generation mix that 
includes coal, natural gas, nuclear and renewable. During our 
subcommittee hearings on the Clear Skies proposal, we've heard 
varying claims regarding the level of emissions controls that 
are currently in place at coal-fired plants. Would you give the 
subcommittee a sense of the emissions controls that TXU 
operates at its coal-fired plants and when those emissions 
controls were installed?
    Mr. Taylor. Senator Cornyn, at TXU we have nine generating 
units that use lignite and coal. Five of those generating units 
had scrubbers installed at the time they were built. This was 
in the late 1970's, roughly 25 years or so ago.
    Since that time, we have spent a great deal of money in 
upgrading those pollution controls and adding additional 
pollution controls. About five or 6 years ago, if memory serves 
correct, we added some, a device called a compact hybrid 
particulate collection system. It was very much like one of the 
systems that the gentleman on the second panel from the Gore 
company described as an advanced technology that removes very 
fine particulates. We spent $121 million installing that 
system.
    We have spent $100 million, roughly, upgrading the 
scrubbers on our plant since 1995. We have spent $230 million 
on NOx controls at all of our power plants since 1997. So the 
total just since the early 1990's is in excess of $450 million.
    Senator Cornyn. Well, obviously TXU has committed 
significant resources to control various emissions. Can you 
explain to us why the circumstances surrounding the proposed 
control of mercury emissions are different?
    Mr. Taylor. Senator Cornyn, first of all, TXU very much 
supports the concept of the multi-pollutant legislation, and we 
certainly commend President Bush and the Administration on the 
introduction of it. We have a great deal of certainty with 
regard to how much it costs to control SO2 and how 
effective those controls are. The same thing is true for NOx. 
We have no technology available for mercury control, other than 
what we get through co-benefits. We would be faced, under this 
bill as currently filed, with spending some $400 million to 
install additional scrubbers on our unscrubbed power plants, 
which we, by the way, are ready and willing to do. We would 
probably spend another $100 million or so on additional NOx 
controls, which we are ready and willing to do. But if we have 
to do that and also are facing a mercury control limit which we 
cannot meet, then our option would probably be that we would 
not install the SO2 controls, not install the NOx 
controls, but simply shut down or fuel switch those units when 
2010 gets here. I cannot overstate the difficulty that we would 
have in committing capital for further SO2 and NOx 
reductions if we knew we could not comply with mercury 
reductions with any existing available technology.
    Senator Cornyn. If TXU and utilities generally decide to 
just give up on coal and go natural gas, what are the financial 
prospects, what are the ramifications of that?
    Mr. Taylor. We believe, first of all, that it would drive 
up our cost structure very considerably. The lignite and coal 
that we burn at our company is just over $1 per million BTU, I 
think $1.20 or so on average this year, if memory serves 
correct, whereas natural gas prices are currently $6. We're one 
of the largest generators in the United States, and it would 
add several billions a year to our cost structure. That would 
make the prices that our customers pay for electricity higher. 
We believe it would also drive up the cost of natural gas, and 
that would have severe adverse impacts on consumers, as well as 
for industry and particularly those industries that use natural 
gas as a feedstock, like the petrochemical industry and the 
plastics industry, for example.
    Senator Cornyn. Thank you very much. I'll yield back my 
time.
    Senator Voinovich. Mr. McGinnis, you've, and I apologize, I 
wasn't here to fully get your testimony, but the real issue 
here is, we have a kind of a patchwork, do source review, NOx 
SIP call, 126 petitions and so on and so forth. And we're 
trying with this Clear Skies legislation to come up with some 
sensible plan that will reduce emissions and improve public 
health and at the same time leave this country in a competitive 
position in terms of the global marketplace.
    Sitting from your perspective, would the passage of this 
legislation make it more attractive for you to finance some of 
the things that Mr. Taylor talked about as contrasted from the 
current situation where we have all these other things that are 
in place?
    Mr. McGinnis. Senator Voinovich, you address the question 
of whether it is easier to finance. There are going to be a 
number of issues, a number of inputs to market pricing of bonds 
and stocks. But I will say that a gist of the part of my 
remarks focused on the need for clarity. And investors seek 
clarity in an industry which has an environment of 
uncertainties, fundamental uncertainties related to regulatory 
policy and other matters.
    So with respect to a Clear Skies bill, it does bring 
clarity on these three emissions. I'd also say that with 
respect to the adoption of additional restrictions on emissions 
that would use technologies that may be beginning to be 
introduced or being developed in R&D labs but are not yet 
proven with unknowable costs yet, doesn't help on the clarity 
point. It decreases clarity, decreases certainty with respect 
to how investors think about the future profits of those 
companies.
    Therefore, more certainty is better here. I think more 
clarity would help investors get comfortable at a time of 
uncertainty otherwise, to put additional dollars into the 
companies that are going to need significant capital raised to 
embark on this emissions reduction program.
    Senator Voinovich. There seems to be some strong opinion of 
some of the witnesses here that we have to add carbon to make 
it the fourth P. The issue is, if we did that, would that make 
it better for you or worse for you or wouldn't it matter?
    Mr. McGinnis. Speaking from the perspective of investors 
and access to capital, the flow of funds, what would improve 
the flow of funds, what would make financing these more 
efficient. Adding a fourth P without the technology in place to 
getting to the emissions standards apply to the fourth P or 
clear costs associated with the equipment required to meet 
those standards, potentially even technology to quantify the 
amount of the emissions creates more uncertainty than not 
having that fourth P in the bill.
    So there would be a lack of clarity on what amounts the 
companies would have to spend over what period of time, because 
we don't have the technology in place to deploy.
    Senator Voinovich. Do you have some of the same concerns 
over the issue, you've heard the testimony on mercury, the same 
concerns about that? We're struggling here with a number, and 
as I mentioned before, when we inserted the number into the 
legislation, there was a lot of people that said it was 
unrealistic because it was too low to take advantage of co-
generation. How do you feel about that?
    Mr. McGinnis. Senator, in particular, I would want to know 
what the costs would be. If I'm an investor in a company that 
is newly faced with an additional requirement for mercury 
reductions, before I make an investment of reasonable size, I 
would want to know what those costs would be to meet that new 
hurdle. And in the absence of such knowledge, I have to add 
that to the list of other uncertainties about that entity. I'm 
likely to migrate, my choice is likely to migrate to a company 
that has greater certainty perhaps in another sector.
    Senator Voinovich. Thank you.
    Ms. Nappier, the Energy Information Administration has 
projected that electricity prices would raise by some 25 to 30 
percent if the 4-P bill was adopted from last year. Natural gas 
prices would risk dramatically. How could that be good for the 
shareholders of a utility and for that matter, and I don't know 
what the mix or where you get your energy from, but in a State 
like my State, where we would fuel switch, our manufacturers 
would have to pay about 45 percent more for their electricity 
and commercial about 35 and our homeowners about 25. How does 
it make it better if you add a fourth P to this legislation?
    Ms. Nappier. Based on the way you've described the 
scenario, it would erode shareholder value.
    Senator Voinovich. I'm sorry?
    Ms. Nappier. I said, based on the way you've described the 
scenario, it wagtail erode shareholder value. You don't need to 
be a rocket scientists to understand that. My concern is this, 
that we need to have full, accurate disclosure of the climate 
change as a risk. We're not getting that kind of information 
from companies. We're asking companies not only to begin to 
quantify the financial risk but to also take steps to come up 
with plans that will help to mitigate that risk. And we want to 
know that. We want to know what it's going to cost our company 
in the long term and how it's going to impact shareholder 
value. We don't have access to that information.
    There was a carbon disclosure project that was completed a 
while ago and surveyed 500 companies. Of the 500 companies that 
responded to the survey, 80 percent say that they are aware 
that climate change is a financial risk factor. But only 40 
percent are doing anything about it. Only 40 percent are 
beginning, they're taking steps to assess the risks, 
financially, operationally, reputationally. Only 40 percent.
    From my perspective, I want to know that. If what you're 
saying is absolutely true, in terms of my portfolio companies, 
like AEP, then that's vital information we need to make our 
investment decisions. And we don't have that information today.
    Senator Voinovich. If the 3-P legislation, the President's 
Clear Skies legislation is passed, for sure you'll have 
certainty about that area, which is uncertain today in terms of 
most people's opinion. So that's, I would think, would be a 
step forward.
    Ms. Nappier. Yes, I believe the 4-P legislation establishes 
a mandatory cap. But I'm not sure that that legislation speaks 
to the right of shareholders to have clear and accurate 
disclosure of information regarding a company's future health 
as it relates to climate change. I'm not sure it does that.
    Senator Voinovich. I think that's something that----
    Ms. Nappier. Regulation does bring on uniformity and that's 
good.
    Senator Voinovich. The issue is you've got Dr. Thorning 
here, you've got Mr. McGinnis, is the fact that that 
information is available going to make a difference in terms 
of, do you think, in terms of the price of shares of stock?
    Ms. Thorning. I'd like to weigh in. I think we need to keep 
our eye on the big picture, which is that addressing climate 
change is going to take a global effort. Shareholders in the 
U.S. cannot materially impact the growth in CO2 
concentrations. We need a global approach that will help the 
developing world where the growth is coming, slowly reduce 
their greenhouse gas intensity. Greenhouse gas intensity is 
falling in the U.S. If the Bush Administration plan is 
implemented and if tax provisions are made more favorable for 
pulling through the capital stock faster, we will be able to 
meet the targets, and shareholder value will be enhanced.
    As I pointed out earlier in my testimony there are many 
uncertainties associated with adopting carbon caps, including 
the fact that the targets will continually tighten. If we go 
down that path, it's going to be very hard to get off of it.
    Mr. McGinnis. I would just point out that while I'm 
sympathetic to the argument that developing a price signal, and 
institutional investors would like a price signal on what would 
happen with carbon emissions, again without knowable 
technologies and knowable costs and time tables, the price 
signal is distorted. So we wouldn't get a very clear read on 
what those costs would be. So it would create greater 
uncertainty rather than less.
    Senator Voinovich. Senator Carper?
    Senator Carper. I want to revisit, and I'm sure we'll 
revisit this one a lot, but the assertion that our chairman 
made with respect to the cost of a 4-P bill versus that of a 3 
pollutant bill. He mentioned 25 percent. I've not heard 25 
percent, I've heard 3 percent. As we go forward, we'll have to 
find out, which is it, 25 or 3 or something in between. Because 
that's an important element here and an important factor in the 
decision that's before us.
    I do know this, that 25 percent of the greenhouse gases 
created in the world today come from the United States. And I 
do know this, that 40 percent of the greenhouse gases that 
emanate in the United States come from our utility industries. 
While we're looking for a global solution, and there's clearly 
plenty of other sources of greenhouse gases around the world 
other than just utilities, we as a nation are a significant 
contributor, and the utility industry is a significant 
contributor, too.
    Mr. Brownstein, I just want to salute you and your utility 
also, those whom you mentioned, the utilities that are 
interested in trying to find a balanced approach to the 
problems before us. You said if we only remember one thing from 
what you said, leaving here today, you talked about balance. 
Just re-emphasize for us the critical point, and I'm going to 
ask Mr. Cogan to come back to a critical point that he would 
have us keep in mind as we leave here today.
    Mr. Brownstein. And I think the discussion that's been had 
here this morning just in this last panel has illustrated that 
very nicely. There's no question, Senator, that if carbon caps 
are set in an unrealistic fashion, you're going to stress out 
the industry and create more uncertainty, as opposed to create 
less. That's one of the reasons why we think it's so important 
that No. 1, we be realistic about what we can accomplish in the 
near term, and No. 2, that we couple that with flexibility 
mechanisms.
    Certainly, if you set a carbon cap and you limit the 
compliance ability just to within the industry, we're going to 
find ourselves in trouble very quickly. But if you set a carbon 
cap in such a way that it incentivizes utilities to go out and 
find low cost reductions in other industrial sectors and even 
around the world, I might add, our first wind turbine project 
was in Chile. Because it made sense economically and also was 
consistent with their developmental goals.
    That if you incentivize through a cap program, you'll 
discover those costs. With respect to our friend from Morgan 
Stanley with whom we often do business, sometimes it's just a 
question of where you set the bar and how you share information 
between parties that give people confidence that there is a way 
forward. That's what we mean by balance. I certainly don't want 
to be in a position where we go forward and we make investments 
in NOx and SO2 and mercury technologies, put off the 
climate debate for 10 years and find that we made a fundamental 
error in how we viewed the overall picture.
    Senator Carper. Thanks, Mr. Brownstein. Mr. Cogan?
    Mr. Cogan. I would concur with everything Mr. Brownstein 
said, Senator. Two additional points I would make. Several 
references have been made during the course of this hearing, 
one to the patchwork of current regulations that are in place, 
and second to the question of uncertainty going forward. My 
concern in the research that we do for institutional investors 
is that neither of those issues, the patchwork of regulation or 
the uncertainty, will go away under a 3-P bill.
    There is a patchwork in place right now with respect to 
carbon dioxide regulation. The vacuum in effect at the Federal 
level is being filled by some States that are passing their own 
legislation, regional air quality groups that are also looking 
at this issue, and certainly at the international level with 
the Kyoto Protocol and many countries that are implementing its 
terms.
    So there is a patchwork that these countries and companies 
already have to deal with. That's not going to go away if there 
isn't a Federal standard that's put in place.
    And the uncertainty won't go away either. The concern is 
that unless there's a dramatic change in the way the science of 
this issue looks, and the trajectories of the emissions being 
what they are, there's a misguided focus on the emissions 
intensity of production. But we don't want to lose sight of the 
fact of what the overall emissions trends are.
    An analogy I might draw is to someone who has their 
cholesterol checked, and an emissions intensity ratio is a 
helpful piece of information if you know your HDL to LDL level. 
That's a good piece of information to have. But you also want 
your doctor to tell you what your overall cholesterol level is 
and whether the trend is up, and whether you're in a level 
where you're facing a greater risk of contracting heart 
disease. We don't want to lose sight of the fact that overall 
emissions in this country and in the world are continuing to 
rise and that therefore, the risk of climate change compounds 
going forward.
    So the uncertainty will still be there in terms of 
addressing this issue. The one certainty that we would have 
with a 3-P bill is that we would be committing, as has been 
said again by Senators in this committee, to the most 
aggressive clean air initiative in history, very well 
intentioned and I think broadly supported in this country, but 
also very expensive. And the concern would be that as we get 
down the road, committing these tens of billions of dollars, we 
find that we're not going to be able to fully depreciate the 
value of those investments because we find that the science and 
the other concerns, the economic risks and opportunities posed 
by climate change are so compelling that we have to shift in 
midstream.
    That's our concern. That's the fundamental uncertainty that 
we feel could be addressed.
    Senator Carper. Let me ask a question of Mr. McGinnis, and 
I think probably Mr. Cogan as well. Do you find that investors 
are shying away from the electric generating sector now due to 
the uncertainty of environmental regulations?
    Mr. McGinnis. It's hard, Senator Carper, to understand when 
a stock price goes down what the specific ratio of rationale 
was, what one investor chose as his motivation to sell versus 
another to buy or more to sell for one reason or another. So 
it's hard to pinpoint. But in general, the focus on destruction 
of value in the merchant power sector has been from 
overbuilding in places which don't require as much supply. So 
environmental concerns from companies who have been focused on 
new construction have not been as important as concerns like 
access to financing and the spark spreads, or that is the 
margins that they experience from making power from gas-fired 
plants in certain regions to be robust.
    So it's not been the prime driver of a lot of the issues 
for the industry. There have been cases, and RG is an example 
of a case which Ms. Nappier from Connecticut would be familiar 
with, in which pollution control and environmental issues, and 
NEG in New England, pollution control and environmental issues 
are very much a part of the economics of some of their 
investments. That has hurt those companies and that has hurt 
their share prices.
    Senator Carper. Mr. Cogan, do you want to take a shot at 
that question, please?
    Mr. Cogan. Yes, you have to think about the type of 
institution that's holding the shares as well. The work that we 
do is largely for institutional investors who are managing 
pension, insurance and endowment assets. By definition, they 
tend to be in these companies for the long term. The trend has 
been toward index investing, and so you're in basically 
whatever is in the index and you're not going to sell it.
    Electric utilities are a vitally important part of that 
index, as they are a vitally important part of our economy. So 
therefore, the institutional investors have to look beyond kind 
of the ebbs and the flows and the swings of this industry, 
again to see where the long term trends are and where it may 
head. That's why I continue to emphasize this need for a longer 
term perspective, a 15 year perspective perhaps, as Mr. 
Brownstein said.
    The way I'd actually like to think of this issue in terms 
of a governance perspective for corporations and shareholders 
is that this issue presents a fundamental gap in governance 
decisionmaking. A CEO of a company typically is in that 
position for about three to 5 years and the investment planning 
horizon that a CEO has tends to match that same time interval.
    In the case of a long-lived asset like a power plant, the 
investment planning horizon may look out 15 years. But the fact 
is, the power plant itself will exist for perhaps 30 or 40 
years, and then emissions from that power plant, the carbon 
dioxide, will remain in the atmosphere for over 100 years. So 
long after the CEO is retired, even long after the plant is 
retired, there is the legacy of the emissions from that plant 
that need to be addressed. This is the gap in governance 
decisionmaking.
    The way institutions can help close this gap is by 
recognizing that they hold assets that are as long, they span 
generations, they are intended to be in perpetuity if they're 
for endowments and pensions. They have that long term interest 
as well to see that the issues are addressed over the long term 
to maintain not only the vitality of the industry but of the 
economy as a whole, and the global environment as well.
    Senator Carper. Your mention of the long term, long-lived 
assets, let me just ask one last question for our State 
Treasurer, Ms. Nappier. Chairman Voinovich suggested earlier 
that Clear Skies will provide more certainty for the industry, 
at least in certain respects. But it's my impression that 
utilities invest on more like a 30 year time horizon. Do you 
believe that investors would benefit from having carbon dioxide 
on the table, given the length of these investments?
    Ms. Napper. I'm not sure I understand your question. 
Investors are long term. You invest for the long haul.
    Senator Carper. Do you believe that investors would benefit 
from having carbon dioxide on the table, given the length, sort 
of the long term length of the investment cycle?
    Ms. Nappier. When you say on the table, what do you mean by 
that? Do you mean regulated? I believe that regulation is 
inevitable. So if it's going to happen, then we should do it in 
concert with everything else that's going on that could have an 
impact on a company's long term health. So I'm very much 
concerned, for instance, what it will do to a company if you 
say today they have to do X, Y, Z and make these capital 
commitments, and then 50 years down the road, all of a sudden, 
the rules change. And they're incurring additional expenses, 
unanticipated.
    So we know that there is a need for more research and 
development to quantify the financial risk exposure to a 
company. And I would hate to have us move forward and just 
regulate for the sake of regulating and then realize that we 
have contributed immensely to the demise of an industry.
    Senator Carper. Thank you very much.
    Senator Voinovich. Thank you. I'd like to thank all the 
witnesses for coming today. I thought this was a very 
interesting hearing, and certainly there's a difference of 
opinion between the witnesses here today. Thank you very much.
    The meeting is adjourned.
    [Whereupon, at 12:40 p.m., the subcommittee was adjourned, 
to reconvene at the call of the Chair.]
    [Additional statements submitted for the record follow:]

Statement of Dr. Randall Kroszner, Acting Chairman, Council of Economic 
                                Advisors

    Mr. Chairman, and members of the committee, I am pleased to appear 
before you this morning to discuss the Clear Skies Act of 2003. At this 
time, it is valuable to pause and reflect on this piece of landmark 
legislation. Strict enforcement of environmental rules can be dated as 
early as 1306-when a man was allegedly executed for burning coal in 
London. In the United States, concern for air quality dates back to the 
mid-nineteenth century, when many municipalities issued smoke 
ordinances. The responsibility of regulating air polluters rested 
almost exclusively with States and localities until 1970. The early 
1970's marked an unprecedented increase in environmental awareness. 
During these years, the Federal Government began to take a more active 
role in environmental regulation with passage of the National 
Environmental Policy Act and the Clean Air Act. Later in the 1970's, 
the Clean Air Act Amendments of 1977 modified these air quality 
regulations.
    One common thread over time has been that the United States' air 
quality regulatory policy, indeed environmental regulation in general, 
typically relies on command-and-control regulation. This type of 
regulation generally mandates technologies or processes, does not take 
advantage of the power of markets and is, therefore, by its very nature 
more expensive and less efficient than is necessary.
    In contrast, the Bush Administration has crafted an initiative that 
will clean our air using a proven, market-based method. Announced on 
February 14, 2002, the Clear Skies Act would be the most significant 
and aggressive step America has ever taken, if enacted, to cut power 
plant emissions of three harmful pollutants sulfur dioxide, nitrogen 
oxide, and mercury. The proposal, which builds upon the highly 
successful 1990 acid rain trading program, will cut emissions by 
approximately 70 percent over the next 16 years.
    Clear Skies employs a dynamic approach to regulation that mandates 
specific emission reduction caps while providing managers with the 
flexibility to reduce emissions in the most efficient and least costly 
manner possible. Through a market-based cap and trade program, Federal 
emissions limits, or caps, are set and emissions permits are 
distributed to electricity generators. Managers then have the advantage 
to determine the most efficient means of action whether it is the sale 
or purchase of unused allowances or banking of credits for later use. 
Clear Skies provides regulatory certainty and lays out the timeframes 
necessary for managers to design a cost-effective strategy tailored to 
both their current budgets and their future plans. With this structure, 
we uphold a principal feature of the President's initiative improving 
air quality more cost-effectively so that Americans can continue to 
rely on clean and affordable electricity.
    To improve air quality, Clear Skies will achieve faster reductions 
than the current Clean Air Act by creating incentives for 
``overcompliance'' and innovation power plants that develop means to 
reduce pollution more than or earlier than required can generate and 
sell extra credits. The Clear Skies Act will improve human health, 
visibility, and diverse range of ecosystems by reducing emissions and 
deposition of NOx, SO2, and mercury. In short, Clear Skies 
will result in dramatic progress toward solving our nation's persistent 
air quality problems.
At What Cost?
    As you are well aware, a crucial element of any regulatory policy 
is not only recognition of the benefits received from emissions 
reductions, but also the resource costs associated with the policy. 
These resource costs, it must be emphasized, are ultimately borne by 
citizens, whether stockholders of companies making the reductions or 
consumers, or both. Therefore, the Administration takes the economic 
modeling of Clear Skies quite seriously. In this respect, over the past 
several years we have gained a better understanding of the costs to 
abate NOx and SO2. Yet, our understanding of the removal 
costs associated with mercury is in a nascent stage.
    The goal of Clear Skies is to reduce mercury emissions by 
approximately 70 percent from current levels by 2018 with an interim 
cap reducing emissions by approximately 50 percent by 2010. That is, 
mercury emissions would be reduced from current levels of approximately 
48 tons to 15 tons in 2018 with an interim cap of 26 tons in 2010. 
Consistent with the principal of improving air quality cost-
effectively, Clear Skies is designed to meet the Clean Air Act goal of 
reducing mercury with a trading program that is more cost-effective 
than the program currently required by the Clean Air Act. The 
interrelationship of cap levels for NOx, SO2, and mercury is 
also a key feature of Clear Skies for providing regulatory certainty, 
flexible capital planning cycles, and the co-benefit of mercury 
reductions from NOx and SO2 emission controls.
    The Administration has been examining, among other things, the 
total resource cost of achieving the mercury reductions required under 
Clear Skies, the marginal cost of mercury removal, and the level of 
mercury co-benefits that could be expected from the NOx and 
SO2 limits in Clear Skies. We have also addressed what 
additional mechanisms and technologies will be needed to meet the 2010 
mercury cap, using different assumptions and models. Major assumptions 
in our models have been extensively reviewed and, if necessary, updated 
over the past several months.
    Before I share our latest results with you, I should highlight that 
any modeling of the effectiveness of mercury control technology is 
uncertain since mercury is not currently regulated in the power sector. 
Current modeling assumptions for mercury are based on data collected 
during the Environmental Protection Agency's (EPA) Mercury Information 
Collection Request (ICR), pilot-scale testing, and some full-scale 
testing. Because the data set we are working with is evolving, 
uncertainties exist in how to interpret the data. For example, 
emissions test data collected for EPA's ICR often reflect a large 
variation in mercury reduction on units with identical emissions 
controls and coal type burned. These differences most likely were 
associated with the operation of the control equipment, but additional 
testing continues to be conducted to understand these differences.
    In general, there is agreement that selective catalytic reduction 
(SCR) technology provides enhancement of mercury reduction for 
bituminous coals. For subbituminous coal, however, there is some 
disagreement on whether SCR technology also provides this enhancement 
of mercury reduction. With only one set of test data on a 
subbituminous-burning unit currently available and more tests currently 
scheduled, this issue continues to be unclear, but more work is being 
done. For one of the most common coal plant configurations, a plant 
with a cold-side electrostatic precipitator for particulate control, 
the Energy Information Administration (EIA) and EPA agree that adding a 
SCR for NOx control and a scrubber for SO2 control will 
result in 90 percent of the mercury being removed from bituminous 
coals. For subbituminous coals, however, the assumed percent removed 
ranges from 27 percent for EIA to 66 percent for EPA. There is an 
ongoing dynamic research process sponsored by EPA, the Department of 
Energy (DOE), the Electric Power Research Institute (EPRI), and vendors 
specifically aimed at furthering our understanding of mercury control, 
with new data being made available on a continuous basis.
    With these uncertainties in mind, I will briefly highlight some of 
the empirical estimates of interest. As you may recall, the first phase 
mercury reduction cap in Clear Skies is designed to take advantage of 
the interrelationship of NOx, SO2, and mercury emissions. 
More specifically, in addition to considering economic consequences and 
benefits of this multi-emission approach, we relied on an estimate of 
mercury removal achieved through installation of NOx and SO2 
controls (SCR and scrubbers, respectively). This removal estimate is 
commonly termed ``co-benefits.''
    Concerning our updated empirical estimate of co-benefits, when the 
NOx and SO2 limits in Clear Skies are modeled without a 
mercury cap (i.e., without a market signal promoting mercury removal), 
estimates of annual mercury emissions in 2010 after installation of NOx 
and SO2 controls vary between 34 tons and 46 tons. An 
important point to understand in this context is that the mercury 
emissions remaining after installation of NOx and SO2 
controls are most sensitive to assumptions regarding emission 
modification factors, or EMFs, which is the amount of mercury removal 
assumed when particular combinations of NOx and SO2 controls 
are installed. As discussed earlier, mercury reduction is dependent on 
coal type burned as well as the existing particulate matter, and NOx, 
and SO2 control devices. For example, in the 
Administration's modeling, we assumed that a bituminous-burning unit 
with a SCR and wet scrubber can achieve 90 percent mercury removal. 
Other key assumptions including electricity demand growth, natural gas 
prices, and coal distribution patterns and prices, however, have not in 
isolation materially changed projected 2010 mercury emission levels.
    While differences exist in this ``co-benefit'' figure, the 
Administration estimates the incremental costs of complying with the 
2010 cap to be $650 million to $700 million per year. A key feature of 
understanding this cost is the safety valve mechanism in Clear Skies. 
This safety valve sets a maximum price of $35,000 per pound. Reducing 
mercury emissions to the level at which the ``safety valve'' would be 
activated between 27 tons and 30 tons is projected to cost between $650 
million and $700 million in 2010. These costs reflect some units adding 
NOx and SO2 controls to enhance mercury reductions, the 
addition of supplemental fabric filters with activated carbon injection 
(ACI) (approximately 6 GW of about 300 GW of coal-fired generation), 
and fuel switching between coal types. Little fuel switching to natural 
gas is projected as a result of the incremental costs of meeting the 26 
ton cap.
    In sum, the President's Clear Skies legislation calls for a 70 
percent reduction in power plant emissions of NOx, SOx and mercury in 
the next 15 years. This legislation will meet the required health-based 
standards laid out under the Clean Air Act--but it will achieve those 
results sooner than required and at a much lower cost to consumers. We 
look forward to working with the committee and Congress to create a 
market-based system that will provide early reductions and affordable 
energy prices for consumers.
    Thank you, Mr. Chairman. I look forward to answering any questions 
you or the members of the committee may have.

                               __________
  Statement of Dr. Larry Monroe, Program Manager of Pollution Control 
    Research on Behalf of the Southern Company and Edison Electric 
                               Institute

    My name is Larry S. Monroe and I am the Program Manager of 
Pollution Control Research for Southern Company. Southern Company is a 
super regional energy company serving customers in Alabama, Florida, 
Georgia, and Mississippi. Southern Company is the second largest user 
of coal in the utility industry with some 21,626 megawatts of coal-
fired generating capacity. I hold a Ph.D. in Chemical Engineering from 
MIT, and have been involved in research on pollution control for coal-
based power plants for over 20 years in university, not-for-profit 
research institute, and corporate settings. At Southern Company, I 
manage a research group that evaluates, develops, demonstrates, and 
troubleshoots technologies to control particulates, SO2, 
NOx, and hazardous air pollutants, including mercury, from fossil-fired 
power plants.
    For the last 2 years, I have been engaged in the national effort to 
develop technologies to control mercury emissions from coal-fired power 
plants, resulting from EPA's decision in December 2000 to develop 
Maximum Available Control Technology (MACT) mercury regulations for 
coal plants. I serve as the utility co-chairperson of the EPRI program 
tasked with developing and evaluating mercury control technologies. I 
have also directed Southern Company's efforts, along with our partners 
including other utilities, EPRI, the Department of Energy, and the 
Environmental Protection Agency, in an attempt to develop cost-
effective controls of utility mercury emissions.
    I have been representing Southern Company and the industry on the 
Utility MACT Working Group, a subcommittee formed under the Clean Air 
Act Advisory Committee to provide advice to the Environmental 
Protection Agency. As a member of the MACT Working group, I have been 
intimately involved in the discussions with all of the stakeholders 
including the environmental community, the State/local/tribal 
regulatory agencies, and the industry stakeholders on the form of the 
regulation and its impacts on the industry and the price of 
electricity. As a part of this effort, I have been the leader of the 
industry stakeholders on advising EPA on our view of the performance 
and cost of the available mercury control technologies.
    Working with EPRI, DOE, and EPA, Southern Company is one of the 
leading utilities in the national effort to develop mercury controls. 
We hosted the first full-scale power plant testing of mercury control 
ever performed in the United States, and are just starting a long-term 
follow-on test at the same site. Southern has also established a unique 
program to explore the fundamentals of mercury chemistry in coal power 
plant flue gas, partnering with EPA, TVA, EPRI, and several other 
utilities.
    Today I am also testifying on behalf of the Edison Electric 
Institute (EEI). EEI is the association of U.S. shareholder-owned 
electric companies, international affiliates and industry associates 
worldwide. EEI's U.S. members serve more than 90 percent of all 
customers served by the shareholder-owned segment of the industry, 
generate approximately three-quarters of all of the electricity 
generated by electric companies in the country, and serve about 70 
percent of all ultimate customers in the Nation.

State of Technology
    The state of technology development for control of mercury 
emissions from coal-fired power plants is very much in its infancy. 
Some early efforts at measuring the mercury emissions from power plants 
were attempted in the mid-1990's, but the sampling techniques used were 
not adequate, and much of that data is questionable. The mercury 
content in typical coal-fired power plant flue gas is very low, 
measured at the parts per trillion level. A good analogy that describes 
the low concentration of mercury in coal-fired power plant flue gas is 
to imagine a pipe, one foot in diameter, built from the earth to the 
moon. If this pipe, all 238,000 miles long, were to be filled with 
coal-fired power plant flue gas, and the mercury all magically brought 
to one end, it would only take up the first 18 inches of this pipe. If 
we compare the mercury in coal-fired power plant flue gas to the other 
criteria pollutants (e.g., particulates, NOx, and SO2) you 
find that the mercury is one million times less concentrated than those 
other species. The low concentrations of mercury, along with the 
propensity of mercury to react in the sampling equipment, contribute to 
the difficulties in accurately measuring and controlling mercury 
emissions at cost effective levels.
    The state of knowledge of mercury chemistry and mercury emissions 
from power plants has been so scarce that, in 1999, the Environmental 
Protection Agency (EPA) required all power plants to sample their coal 
supply and test for mercury content, and required a selected number of 
power plants to sample for the different mercury species before and 
after the flue gas entered existing pollution control devices. Southern 
Company participated in that effort by tracking every coal to every one 
of our power plants and further by sampling two of our plants for 
mercury species and emissions. Unfortunately, this EPA Information 
Collection Request (ICR) data base, while suffering from some flaws in 
data collection and power plant selection, remains the best publicly 
available data base of mercury emissions, with and without controls, 
and of mercury chemistry for U.S. power plants.
    There are currently no commercial technologies that are available 
for controlling mercury from coal-fired power plants. That is, there 
are no vendors that are offering process systems that are supported by 
guarantees from the vendor for mercury control performance under all 
the conditions that an ordinary power plant is expected to encounter 
over the course of normal operating conditions and timelines. Of 
course, there are vendors that will offer their best guess at how a 
particular technology will perform, but the risk of non-performance 
rests with the utility. The reliance on vendor warranties is standard 
practice within the utility industry, and the inability of the vendors 
to issue guarantees is indicative of the pre-commercial status of all 
mercury control technologies.
    The most promising two technologies for mercury control in power 
plants are co-control by flue gas desulphurization (FGD) processes and 
the use of activated carbon injection (ACI) processes. To understand 
the co-control of mercury by FGD processes and the possibility of 
increased mercury control by NOx control processes, namely selective 
catalytic reduction (SCR) systems, a basic understanding of mercury 
chemistry is needed. First, coal is no different than any other solid 
material dug from the earth's crust when it comes to the mercury 
content. In other words, coal is not enriched in mercury compared to 
ordinary rocks. The mercury in coal is there mainly as a sulfide 
compound, at a concentration that averages 50 parts per billion by 
weight. These sulfur-mercury compounds are the most common form of 
mercury found in nature and they tend to be very stable solids, only 
dissolved by a mixture of strong acids. Most everyone is familiar with 
mercury, the metal that is a liquid at room temperature and used widely 
in thermometers and blood pressure instruments seen in a physician's 
office.
    It is not a surprise that a metal that is liquid at room 
temperature would boil at much lower temperatures than ordinary metals, 
and mercury boils at only 674 F. Similarly, when coal burns in a 
utility boiler, mercury in the coal vaporizes and produces the vapor of 
the metal in the high temperature zones of the flame. This form of 
mercury is commonly referred to as elemental mercury, meaning that it 
exists in a form that is not combined with any other element. It is 
also known as ``mercury zero,'' a reference to the chemist's shorthand 
of referring to the electron state of a pure element as zero, or Hg0.
    As the temperature of the coal flue gas is cooled by the process of 
making and superheating steam, the elemental mercury vapor can react 
with other elements to form compounds. Our best knowledge of mercury 
chemistry suggests that mercury vapor can react with either chlorine or 
oxygen to produce mercury chloride (HgCl2) or mercury oxide (HgO). 
Since the electronic state of the mercury atom is now ``plus two,'' 
this form is sometimes called ``mercury two,'' ionic mercury, or 
oxidized mercury. These are all equivalent terms that describe the 
chemical state of the mercury. Finally, either of these two forms of 
mercury, the elemental or the ionic, can attach to solid particles, 
either fly ash or partially burned coal particles, and is typically 
referred to as ``particulate mercury,'' which is a physical description 
of the mercury form. To summarize, we generally classify the mercury in 
coal flue gas as being one of three forms: elemental, ionic, or 
particulate.
    The proportions of the three chemical forms of mercury have a great 
influence over the behavior of the mercury in the flue gas in pollution 
control processes. The particulate form of mercury is the easiest form 
to remove, with high efficiency capture being normal along with the 
coal ash in electrostatic precipitators (ESPs) or bag houses. 
Unfortunately, in most power plants, the fraction of mercury contained 
in the particulate form is only a minor amount of the total mercury.

Flue Gas Desulphurization (FGD)
    The most common method to remove sulfur dioxide (SO2) 
from coal-fired power plant flue gas is a wet scrubber. This device is 
a large tower, where the flue gas enters the tower near the bottom and 
flows upward, exiting through the top. When the flue gas is flowing, 
hundreds of nozzles spray a mixture of powdered limestone and water. 
The flue gas essentially flows up through a rain storm of these 
limestone-water droplets. Since SO2 is an acid, it reacts 
with the alkaline limestone solids and is neutralized.
    The acid and base chemistry is so fast that the performance of the 
wet scrubber is dependent on the mixing between the flue gas and the 
droplets. Therefore, it is necessary to use multiple, large pumps and a 
large number of nozzles to produce the small droplets needed. The 
combined limestone-SO2 product from the scrubber is 
typically calcium sulfate, better known as gypsum the white powder 
found inside wallboard (also called sheetrock). Gypsum is a naturally 
occurring compound, mined both for fertilizer and wallboard.
    In this common FGD process, the wet limestone scrubber, the form of 
the mercury in the flue gas entering the scrubber appears to be the 
most important factor in the efficiency of mercury capture. The ionic 
form of mercury, that which has reacted with oxygen or chlorine, tends 
to be soluble in water and is therefore captured along with the 
SO2, while the elemental mercury, being insoluble in water, 
passes through most of these processes. Therefore, our best 
understanding of the co-control of mercury with SO2 control 
processes suggests that the efficiency of mercury capture by these 
processes is related to the amount of the mercury that has converted 
from the elemental form to the ionic form. Anything that would help 
convert the elemental mercury to the ionic form will presumably 
increase the overall mercury control in plants equipped with wet 
scrubbers. (NOx control processes using selective catalytic reduction 
systems appear under some circumstances, and with some coals, to 
increase the amount of ionic mercury, and this will be discussed 
later.)
    The biggest influence on the eventual form of mercury in the flue 
gas, and the apparent subsequent capture efficiency, appears to be the 
chlorine content of the coal. Coals with higher chlorine levels, when 
burned in a power plant, produce flue gas that is typically higher in 
the ionic form, the form which is most easily captured in an 
SO2 scrubber system. In general, the domestic coals found 
east of the Mississippi River tend to be much higher in chlorine 
content than the coals found in the West.
    More specifically, the rank of the coal tends to be a good 
predictor of chlorine content. Coal rank is an indicator of the age of 
the coal and there are four major classifications of coal rank, listed 
in the order of high rank (or older coal) to low rank (or younger 
coal): anthracite, bituminous, sub bituminous, and lignite. Most coal 
found in the Eastern U.S. is bituminous coal, although there are some 
lignite deposits found in the Alabama-Mississippi coastal plain. These 
lignite reserves are not important to the coal-fired utility industry, 
however. Conversely, most of the coal found in the Western U.S., 
including Texas, is either sub bituminous or lignite rank coal. The 
exception in the West is some bituminous coal found in Colorado 
extending into New Mexico. All of the coals in the Western U.S., 
including the Western bituminous coals, are characterized by low 
chlorine contents, while the bituminous coals in the Eastern U.S. have 
much higher chlorine contents. Therefore, the expected amount of ionic 
mercury and consequently the expected capture in a scrubber will be 
much higher for coals from the Eastern U.S. than from those in the 
Western U.S.
    Typical coal-fired power plant flue gas produced from combustion of 
the bituminous coals found in the Eastern U.S. would contain the 
following proportions of the mercury species: 60 percent ionic mercury, 
38 percent elemental mercury, and 2 percent particulate mercury. The 
particulate mercury would be removed in the power plant's electrostatic 
precipitator. We would expect the scrubber to remove 90 to 95 percent 
of the ionic mercury, and none of the elemental mercury. The overall 
mercury removal in this simple example would then be 56 percent (90 
percent of the ionic and nearly 100 percent of the particulate mercury 
removed). This example is in good agreement with recent testing where, 
at three bituminous-fired power plants studied by EPRI, the FGD system 
removed 43 to 51 percent of the mercury.
    However, most of the coals from the Western U.S. when used in a 
power plant produce much less ionic mercury, with typical estimates of: 
25 percent ionic, 74 percent elemental, and less than 1 percent 
particulate. A scrubber on this power plant would then only be expected 
to remove 90 percent of the ionic and the electrostatic precipitator or 
bag house to remove nearly 100 percent of the particulate mercury. 
Therefore, the total mercury removal would be only 23.5 percent. The 
ICR data base shows that power plants burning low rank coals ranged 
from near zero to 38 percent mercury capture without wet scrubbers, and 
11 to 56 percent on those plants with scrubbers.
    A problem with capturing mercury in wet FGD scrubbers has been 
discovered through analysis of the EPA Information Collection Request 
data base. In some power plants that were tested for mercury species 
and also had wet SO2 scrubbers, the apparent high capture of 
ionic mercury was offset by an increase in the amount of elemental 
mercury as the flue gas moved through the scrubber. So, while the ionic 
mercury appeared to be captured at efficiencies approaching 95 percent, 
some of the ionic mercury, after being captured in the scrubber, was 
converted back to the elemental form, which evaporated from the 
scrubber and was then emitted as elemental mercury.
    An example may help explain the effect. Say that, before the 
scrubber, there are 10 micrograms (one millionth of a gram or 2 
billionth's of a pound) of mercury in one cubic meter (about 35 cubic 
feet) of flue gas. Furthermore, let's say that 60 percent of that is 
ionic and the balance is elemental, or 6 micrograms per cubic meter 
ionic and 4 micrograms per cubic meter of elemental mercury. In a power 
plant that shows this mercury release phenomena, we might see less than 
0.1 microgram per cubic meter of ionic mercury at the stack exit, an 
apparent capture of 98.3 percent of the ionic mercury. But, we see the 
stack exit containing maybe 5.5 micrograms per cubic meter of elemental 
mercury, an increase of 37.5 percent.
    The elemental mercury is not being captured but is actually 
increasing across the scrubber. When looking at the total mercury, the 
10 micrograms per cubic meter at the scrubber inlet is reduced to only 
5.6 micrograms per cubic meter (5.5 elemental and 0.1 ionic) at the 
stack, a total reduction of only 44 percent. The only logical 
explanation to explain these example numbers is that some of the 
captured ionic mercury is being re-released as elemental mercury. In 
this case, the ionic mercury is only being captured at 73 percent, when 
the re-released mercury is included.
    This scrubber mercury re-release is not well understood at this 
point. An analysis by EPRI notes a correlation between an increase in 
the amount of fly ash captured in the scrubber and an increase in the 
mercury re-release. Further work by EPRI on a bench-scale scrubber 
shows that this phenomenon is transient, and it is not easy to predict 
when it will occur. Additionally, private testing by Southern Company 
at our DOE-sponsored flue gas scrubber at Georgia Power's Plant Yates, 
south of Atlanta, has shown that this effect is present at some times, 
and not present at others. The significance of this effect is that the 
overall capture of mercury by a wet scrubber may be less over time than 
a short test period would indicate. Further research of this phenomenon 
is needed.
    Most of the previous discussion assumes that the FGD process used 
is the wet limestone, forced-oxidation scrubber. Another process for 
SO2 control, used widely for low sulfur Western coals, is a 
lime-based spray dryer followed by a bag house that collects both the 
reacted lime along with all of the coal ash. The EPA Information 
Collection Request testing in 1999 indicates that this spray dryer-bag 
house FGD process may give very high mercury removals with bituminous 
coals. However, this is a rare application of this technology, and 
unfortunately is not widely applicable to all bituminous coal 
applications. The technology is only effective for SO2 
control for low sulfur coals, is more expensive than the alternatives, 
and creates a large waste stream that has to be carefully handled for 
disposal. While this approach may be used in a few power plants burning 
Eastern bituminous coal for combined SO2 and mercury 
control, I do not expect it to be very widely selected because of these 
limitations.
    Ironically, the best application of this FGD process is for Western 
coals, but there it appears to make the mercury control worse than just 
particulate control alone. That is, the use of a spray dryer-bag house 
system on most low rank coals (sub bituminous and lignite) is normally 
the best engineering and low-cost FGD solution for plants burning these 
coals for SO2 control, but the evidence suggests that it may 
worsen the mercury collection efficiency as compared to the use of a 
bag house alone. For example, EPA states that sub bituminous coal 
plants in the ICR data base with only bag houses average 72 percent 
mercury control, while those with a bag house and a spray dryer for 
SO2 control average only 24 percent mercury removal.
    Various technologies are being investigated to attempt to further 
oxidize elemental mercury to ensure higher removal in a FGD system. 
Chemical injection, plasma discharges, and dedicated catalysts are all 
being tested and developed. These approaches are all under development, 
and only slow progress is being made.

Selective Catalytic and Non-Catalytic Reduction (SCR & SNCR) NOx 
        Controls
    One of the most intriguing possibilities is the ability of NOx 
control selective catalytic reduction (SCR) systems to enhance the 
amount of ionic mercury in the flue gas. A report on research done by a 
large German utility company in the early 1990's claims that the 
catalyst used in a SCR system was effective in converting a high 
fraction of the elemental mercury to the ionic form, which was then 
captured in FGD equipment. The German claim was that the SCR catalyst 
changed the chlorine chemistry, making it more likely to convert 
elemental mercury to ionic mercury.
    Based on this German research, EPA originally assumed that any 
power plant equipped with a SCR and FGD, burning any type of coal, 
would see: (1) almost all of the elemental mercury converted to ionic; 
(2) the ionic mercury captured in a scrubber in a high proportion; and 
(3) no mercury re-released from the FGD process all adding up to an 
estimate of an overall 95 percent reduction in mercury emissions from 
those plants. A 95 percent mercury capture would require that the SCR 
catalyst be 97.5 percent effective in converting elemental to ionic 
mercury. Furthermore, the FGD system would have to be 97.5 percent 
effective in removing the ionic mercury that is, not only does the 
scrubber have to perform at least as well on mercury as the 
SO2 (even though the mercury is one-millionth times as 
concentrated), but no re-release of mercury can occur. EPA's 
assumptions were highly optimistic and recent power plant testing has 
shown these assumptions are not always true.
    SCR catalyst degrades over time in its performance to reduce NOx, 
requiring replacement every three to 5 years. The catalytic activity is 
reduced by exposure to flue gas, either by poisoning of the catalyst 
active ingredient from the chemicals in the flue gas or by physical 
plugging of the catalyst surface by ash particles. It is not known, at 
present, how this catalyst deactivation affects its ability to oxidize 
mercury. The mercury oxidation of the catalyst could be reduced at the 
same rate as the NOx reduction, or it might be slower or faster. EPRI 
testing has only looked at two power plants and only in two ozone 
seasons (May 1 to September 30). So we have limited information, both 
in the number of plants tested and the time between tests. Therefore, 
any estimate of the long-term potential for co-benefits of SCR and FGD 
for mercury reductions must consider the possibility of catalyst aging 
and the subsequent potential loss in mercury oxidation.
    For the lower rank coals, and particularly those found in the 
Western U.S., this SCR mercury oxidation does not appear to occur. 
Given the German claim of the effect being based on higher chlorine 
content, this is not much of a surprise. The low rank coals are 
typically low in chlorine, and to make matters worse, the ash of these 
coals is alkaline, so that whatever chlorine that is present, being an 
acid, is usually neutralized by the fly ash before it can ever reach 
the SCR catalyst. Testing in an EPRI program sponsored by utilities 
(including Southern Company) along with the Department of Energy (DOE) 
and the EPA has shown that mercury reduction in low rank coals do not 
seem to be helped by the addition of a SCR system. Since the majority 
of the mercury in the flue gases from these coals in the elemental 
state, the addition of any type of FGD system does not appear to 
control mercury emissions to any significant degree. In other words, 
for low rank coals (typically Western U.S. coals), we do see modest 
benefits on mercury control by adding wet FGD systems, but do not see 
any mercury co-benefits from adding an SCR to the power plants burning 
these coals. EPA has also seen the results of the testing, and we think 
that they have revised their assumptions about co-benefits for lignite 
and sub bituminous coal to reflect this new knowledge, that is, there 
are only modest mercury reductions based on co-benefits of NOx and 
SO2 reductions for these coals.
    At the beginning of the MACT development process, EPA had assumed 
that selective non-catalytic reduction (SNCR) systems would contribute 
to increased mercury removal, and explicitly had assumptions about its 
performance in their models. SNCR uses ammonia injection at elevated 
temperatures (1900-2400 F) to reduce NOx without the use of a catalyst. 
Two years of testing have shown that this NOx reduction technology has 
no influence on mercury control in any plant with any coal rank. 
Finally, we think that the Agency has conceded this point and we hope 
that they no longer count SNCR as having any influence on mercury 
control.
    Summarizing the current state of knowledge of controlling mercury 
via co-benefits of SO2 and NOx reductions, there are only a 
handful of power plants that have been tested for short time periods. 
Given this limited amount of data, we think that for bituminous coals 
the mercury reductions with a SCR and FGD will probably be between 80-
90 percent for the best case, and that for sub bituminous and lignite 
coals the reduction will be a modest 20 percent. These estimates are 
optimistic taking into account the previous discussions of catalyst 
aging in SCR systems and mercury re-release for FGD systems, and are 
likely to be reduced even further in the future. We think that EPA is 
currently using an estimate of 90 percent for bituminous coals and 
something less than 90 percent for lignite and sub bituminous.

Activated Carbon Injection
    The second near-commercial technology for mercury control from 
coal-fired power plants is activated carbon injection (ACI). Activated 
carbon is a specially prepared product of coal or biomass that is able 
to adsorb many chemicals from gases or liquids. One of the primary uses 
of activated carbon is the treatment of drinking water. Water filtering 
systems sold for home use in home improvement stores are typically 
cartridge systems that include activated carbon as part of the filter. 
Activated carbon is being used currently to remove mercury from the 
flue gases from municipal, medical, and hazardous waste incinerators. 
In those applications, activated carbon can routinely collect over 90 
percent of the mercury from the flue gas. However, the mercury 
concentrations in the stack after the activated carbon treatment in 
these incinerators are typically higher than that found in coal flue 
gas before treatment. That is, the amount of mercury in every cubic 
foot of incinerator stack gases after the control system using 
activated carbon is typically 5 to 10 times the amount in untreated 
coal flue gases from power plants. Another way to look at a comparison 
between incinerators and power plants is that most every power plant 
would meet the incinerator mercury regulations without any control 
technologies. Simply, incinerator mercury control by activated carbon 
stops where power plant flue gases begin. Therefore, it is not useful 
to use the experience of activated carbon in incinerators to inform the 
debate on its use in power plants.
    The design of activated carbon injection for mercury control relies 
upon the existing equipment used to remove fly ash from the flue gas to 
also remove the added activated carbon. There are many side issues 
associated with the use of activated carbon in this mercury process 
approach, including contamination of the fly ash with carbon and 
interruption of the normal fly ash control by the added load of 
activated carbon. The injection ahead of electrostatic precipitators, 
which are in use by about 80 percent of the U.S. coal power plants, may 
require large amounts of activated carbon to achieve reasonable mercury 
control. The carbon will contaminate the fly ash making it unusable for 
recycling and may threaten the performance of the electrostatic 
precipitator for its intended use of removing fly ash. Injection of 
activated carbon in a bag house will not need as much activated carbon 
as an electrostatic precipitator, but will also contaminate the fly 
ash.
    There have been only a handful of tests on the use of activated 
carbon to control mercury from coal-fired power plants. The very first 
test at full-scale in the United States was performed at a Southern 
Company power plant, Alabama Power's E.C. Gaston Unit 3, located in 
Wilsonville, Alabama. This was the first in a series of four power 
plant tests in a sequence performed by ADA-Environmental Solutions of 
Littleton, Colorado. The test program was sponsored by DOE's National 
Energy Technology Laboratory (NETL) with significant co-funding by 
participating utilities and vendors. All of these four sites are 
somewhat unique, and unfortunately do not well represent the nation's 
power plant fleet.
    Gaston Unit 3 is one of only four power plants in the U.S. that 
have an advanced particulate control system that consists of a small 
bag house installed downstream of the existing electrostatic 
precipitator. This arrangement, known as COHPACTM, is a patented EPRI 
invention. The activated carbon can be injected between the 
electrostatic precipitator and the bag house. The electrostatic 
precipitator collects over 95 percent of the fly ash, while the bag 
house collects the remainder of the ash and the activated carbon. This 
approach to activated carbon injection avoids contamination of the fly 
ash and does not jeopardize the operation of the electrostatic 
precipitator with additional carbon loading. The bag house is a large 
filter, which has hundreds of fabric bags that separate the solid ash 
and carbon from the flue gases, much like the paper bag in a household 
vacuum cleaner. Because the activated carbon can sit on the surface of 
the bags for several minutes and see a substantial amount of flue gas, 
it can effectively collect more mercury from the flue gas than 
injection into an electrostatic precipitator.
    The activated carbon injection testing at Gaston, which burns an 
Eastern U.S. bituminous coal, ended with a 7-day test of mercury 
control, where the average mercury reduction over that time period was 
just under 80 percent, with a high of over 90 percent and a low of only 
36 percent. This was a short-term test and probably does not reflect 
the ability of this system to always perform at this level. We found in 
this testing that the bag house at Gaston is not big enough to 
accommodate the amount of activated carbon needed to consistently 
achieve 90 percent mercury control for even just 1 week of testing. The 
testing was promising and DOE/NETL has funded a follow-on project that 
will test the mercury control at this location for one calendar year. 
This length of testing will allow a better estimate of the potential 
mercury control from this technology over the course of that 1 year. We 
are just starting this longer term testing, and the initial results 
were presented at an international pollution control conference 
sponsored by DOE, EPA, and EPRI just 2 weeks ago here in Washington. 
The initial results are not encouraging we cannot repeat the 
performance of the 7-day test performed in 2001. The electrostatic 
precipitator ahead of the bag house at Gaston Unit 3 is not performing 
as well as it was during the earlier testing, and we cannot inject much 
activated carbon into this system without causing damage to the bag 
house. Two conclusions can be drawn from the first few weeks of 
operation of the long-term testing: (1) the bag house at this unit is 
simply not big enough to handle both the fly ash and carbon loading 
over all operating conditions, and (2) the 80 percent average mercury 
control seen in the earlier 1 week test cannot be sustained over the 
long term. It may be possible to achieve levels higher than 80 percent 
in other power plants with this configuration, assuming that the 
additional capital investment is made to build a large bag house. 
Again, this is a test at a power plant burning Eastern bituminous coal.
    The three other tests of full-scale mercury control using activated 
carbon in the joint industry-DOE project all involve the injection of 
activated carbon into the inlet of an electrostatic precipitator. The 
first electrostatic precipitator injection test was performed at 
Wisconsin Electric's (now We Energies) Pleasant Prairie Power Plant, 
which burns a Western U.S. sub bituminous coal from the Powder River 
Basin in Wyoming and Montana. This unit has a large electrostatic 
precipitator that is likely to be able to handle the additional 
particle loading from the activated carbon. The test that occurred over 
one to 2 weeks was able to achieve a mercury control of between 60 and 
70 percent, but notany higher, regardless of the amount of carbon 
injected into the system. The logical conclusion from the testing seems 
to indicate that there is a chemical limitation on the amount of 
mercury control from low rank coals like lignite and sub bituminous, 
and maybe for Western U.S. bituminous coals from Colorado and New 
Mexico. It appears that, similar to the SCR oxidation of mercury, the 
activated carbon needs sufficient chlorine in the flue gas to collect 
the mercury. Again, this result was over a very limited time span test 
and may not be repeatable over a yearlong period. Longer term testing 
of this approach in several power plants needs to be performed before 
any judgment of the mercury performance can be reliably made.
    An additional consequence became clear during the test at We 
Energies' Pleasant Prairie Power Plant. This site is able to sell all 
of the fly ash it produces for recycling into concrete. The activated 
carbon made the ash not usable for this purpose during the test period, 
but also contaminated the ash for about 4 weeks after carbon injection 
was discontinued. Southern Company declined a similar test at one of 
our sub bituminous coal plants, due to the expense of lost ash sales 
plus the added ash disposal costs.
    The other two tests of activated carbon injection into 
electrostatic precipitators for mercury control were both performed in 
Massachusetts, at PG&E National Energy Group's Salem Harbor and Brayton 
Point power plants. Salem Harbor is peculiar in that it produces a 
large fraction of unburned coal particles that persist into the 
electrostatic precipitator, possibly a result of the large amount of 
South American coal being burned there. This high level of carbon 
produced seems to remove a significant amount of mercury, with a 
baseline removal ranging from 87 to 94 percent with one coal, but 
dropping to 50 to 70 percent with a second coal, all even before 
activated carbon injection. The activated carbon injection was able to 
increase the mercury capture to over 90 percent. Of course, this 
testing has shown that a change of coal supply can dramatically change 
the mercury baseline performance and the subsequent increased capture 
by activated carbon injection.
    Brayton Point is also a peculiar arrangement with two electrostatic 
precipitators in series. In the DOE test, activated carbon was injected 
between the two electrostatic precipitators, much like the injection 
between the ESP and bag house at the Gaston station. The baseline 
mercury removal, that is, the removal before activated carbon injection 
started, was 90.8 percent. This is very high as compared to historical 
data from that unit that recorded baseline mercury removals of 29 to 75 
percent. The results in the 10 days of testing suggest that, for short 
periods, the injection of activated carbon can increase the mercury 
removal from a baseline of 90.8 percent to 94.5 percent with the 
addition of activated carbon (10 pounds carbon injected for every 
million cubic feet of flue gas). Again, the short time of the test and 
the potential change in behavior with a change in coal supply makes it 
hard to extrapolate this performance much beyond the actual period of 
testing.
    All of the electrostatic precipitator tests of activated carbon 
injection to date have involved relatively large, oversized equipment 
where the additional burden of collecting the injected activated carbon 
did not impact the operation, at least in the tests of under 2 weeks 
duration. For the same mercury collection efficiency as a COHPACTM bag 
house, the added carbon cost is substantial enough to justify the 
capital investment to build the bag house.
    Another potentially large problem with this technology is that the 
supply of activated carbon is currently not sufficient to support any 
significant use for utility mercury control. I have publicly stated 
that, due to current uncertainties, Southern Company may use anywhere 
between 500 tons per year to 100,000 tons per year of activated carbon. 
The major U.S. manufacturer of activated carbon, Norit Americas, based 
in Atlanta, Georgia, have told us that they could supply an additional 
20,000 tons per year with their existing capacity. Without long-term 
commitments from buyers, the activated carbon suppliers will very 
likely not make the needed investments to ensure that a large demand 
from the U.S. utility market could be met. In the 1970's, the activated 
carbon industry built capacity in anticipation of clean water 
regulations and those investments resulted in a severe price decrease 
caused by oversupply, when the demand did not appear. The activated 
carbon suppliers are not likely to make the same speculative capital 
investments today. Add to this reluctance to invest ahead of demand the 
fact that it will likely take at least 5 years to design, finance, 
permit, and build activation carbon production facilities, and it 
becomes apparent that, if activated carbon injection becomes the 
technology of choice for power plant mercury control, the supply will 
not be available at the beginning.
    There may be foreign supplies of activated carbon. As discussed at 
a recent conference, there may be about 50,000 to 60,000 tons per year 
available from a major European supplier. Also, China has started 
supplying activated carbon into the U.S. market, but initial experience 
with this material has shown quality control problems with its 
performance. All in all, there may be sufficient carbon available to 
supply a small part of the industry with today's global supply, but 
there is not enough supply for any major use across the Nation by the 
utility industry.
    In early modeling efforts by EPA on the performance of activated 
carbon, the assumptions made about performance and the actual amount of 
activated carbon were grossly optimistic. The Agency used some 
estimates made by DOE in 1999, and the subsequent testing at full scale 
power plants has demonstrated that the performance is not as good as 
the earlier estimates. We think that the current set of performance and 
cost numbers offered by the Utility Air Regulatory Group in the MACT 
Working Group are the best estimate for mercury control processes using 
activated carbon.
    In summary, the limited testing of activated carbon injection for 
power plant mercury control does not represent the average 
configuration of the U.S. power plant fleet, and the short-term tests 
that have taken place only represent what a well-controlled and well-
managed test period performance could be in other words, are likely to 
be close to the best case. Additional testing at the Southern Company 
plant has already shown that the earlier performance cannot be matched 
at this moment. Certainly additional testing, including long-term tests 
of at least 8 months are needed to understand what the actual 
performance of activated carbon injection over longer times would be, 
with the wide variety of coals in use today. At this moment, the DOE/
NETL is evaluating a number of proposals from utilities, vendors, and 
research contractors to test activated carbon for longer periods of 
time on a variety of plants, especially those that burn low rank coals.
    With sufficient capital investment to build a COHPACTM bag house 
large enough to handle both the fly ash and activated carbon, short-
term performance of 90 percent mercury removal with bituminous coals 
may be possible, but, across the industry, an average removal of 80 
percent is more likely to be achieved with today's technology. This 
estimate is based on only one power plant, tested for only 7 days, 
however. It appears that low rank coals, such as lignite and sub 
bituminous coals, may have a limit of 60-70 percent mercury removal, 
regardless of the amount of activated carbon used or whether a bag 
house has been installed. Again, only one power plant has been tested 
for less than 2 weeks to establish this estimate. Under certain 
circumstances, activated carbon injection into a large ESP may be able 
to get incremental mercury control, but only two power plants have been 
tested for less than 2 weeks. Finally, the supply of activated carbon 
is not sufficient today to accommodate a substantial demand from the 
utility sector and it may take 5 years to bring new activated carbon 
production facilities on line.

Other Technologies
    There are other technologies that show some promise in controlling 
mercury emissions from power plants, but they are all still research 
projects and are nowhere close to commercialization. Some of the multi-
pollutant processes being developed do claim that mercury control is 
also removed along with SO2, particulates, and NOx. While 
this may be true, there are large questions about the costs, 
reliability, and long-term performance of these technologies. Most of 
these multi-pollutant processes make either fertilizer or acid chemical 
feedstocks from the NOx and SO2, and the ability to sell 
either of these waste streams in the future is questionable. The larger 
the penetration of these technologies into the utility market, the more 
of the byproducts that are produced, quickly over-saturating any 
potential market.
    Possible future technologies that are being researched include 
capture of mercury by gold-plated surfaces, the use of chlorine 
addition to low rank coals to increase the mercury oxidation, injection 
of sulfur compounds to change the elemental and ionic mercury gases to 
solid sulfides that can be captured in the existing particulate control 
devices. Additionally, a large number of alternative sorbents to 
replace activated carbon, either with a less costly material cost or 
improved performance with less material injected, are under 
development. Unfortunately, we cannot predict whether these efforts 
will succeed, and we cannot base national energy policy on the hope 
that something is invented in time to produce the perceived needed 
level of mercury control.

Timing of Mercury Reductions
    The timing of mercury reductions required, whether by regulations 
under a MACT provision or by a legislative process, needs to take under 
consideration both the state of knowledge about mercury control and the 
ability of the nation's utility industry to install the required 
controls. Already, in the installation of NOx controls for the 2003 
summer ozone season, we have experienced some labor shortages and tight 
supplies of steel, cranes, and auxiliary equipment such as fans, pumps, 
electric motors, switchgear, etc. If mercury control proceeds under a 
MACT regulation, every coal-fired power plant will have to meet the 
stated emissions requirements, and depending on the technologies being 
used, we expect shortages of steel, bag house bags, labor, and 
auxiliary equipment, not to mention the activated carbon supply issues 
discussed earlier. Southern Company estimates that the time required to 
install mercury controls under MACT would be at least 7 years, and the 
time needed for the additional NOx and SO2 controls in Clear 
Skies would take probably eight to 9 years.

Estimates of Benefits of Utility Mercury Reductions
    EPRI and EPA are both engaged in research to attempt to predict the 
net effect on human health from reductions in emissions from U.S. coal-
fired power plants. EPRI has just published their initial findings, and 
we think that EPA is working on similar model predictions. In the EPRI 
study, mercury deposition on the continental U.S. is predicted using a 
global mercury source and deposition model. The results indicate that 
the majority, around 70 percent, of the mercury falling on the U.S. is 
from sources outside the U.S. Additionally, this study predicts that 
U.S. utility emissions are estimated to contribute less than 8 percent 
of the mercury depositing in the U.S. This result is significant, 
because it indicates that reductions of mercury emissions from domestic 
utility sources will have a limited response on the amount of mercury 
depositing. In other words, since most of the mercury falling on the 
U.S. comes from overseas, controlling domestic utility emissions can 
have only a limited impact.
    The EPRI study goes on to estimate the change in human exposure 
from significant reductions in utility mercury reductions. The only 
significant route of exposure to humans is through the consumption of 
large fish, captured in the wild. By estimating the change in U.S. 
deposition from reductions in utility emissions, the change in mercury 
in aquatic systems, and subsequently in fish, can be found. Taking the 
analysis one step further, EPRI has estimated the change in exposure to 
humans in the U.S. from utility mercury reductions.
    The EPRI study looked at mercury reductions in a Clear Skies Act 
approach and in a mercury MACT regulation scenario. The results 
indicate under the Clear Skies approach, in the year 2020, mercury 
deposition in the continental U.S. would be reduced by an average of 
1.5 percent, exposure of women of childbearing age to mercury would be 
reduced by 0.5 percent, and the fraction of the population above the 
reference dose for mercury would be reduced by only 0.064 percent. In 
the MACT approach, also for the year 2020, mercury deposition would be 
reduced by 1.2 percent, exposure of women of childbearing age to 
mercury would be reduced by 0.4 percent, and the fraction of the 
population above the reference dose would be reduced by 0.055 percent. 
Since U.S. utility emissions are only a small contributor to mercury in 
the environment, it is not surprising that significant reductions in 
those emissions will not greatly affect human exposure. One significant 
difference in the two approaches is that the present value incremental 
cost for mercury controls by 2020 is estimated to be about $6 billion 
for CSA and $19 billion for MACT.

Summary
    There are no commercially available technologies for mercury 
controls for coal-fired power plants. There are systems in use in the 
waste incinerator industry, but the EPA requirements for mercury 
control for incinerators allow emitted concentrations to be five to ten 
times higher than uncontrolled coal power plant emissions. In an 
engineering sense, the low concentrations mean that you have to work 
that much harder to get each molecule of mercury. NOx and 
SO2 stack concentrations are one million times higher than 
mercury, so you have to work one million times harder to collect 
mercury as compared to either NOx or SO2.
    There are two near-commercial mercury control technologies at 
present: co-control by FGD systems, with possible beneficial mercury 
chemical changes from SCR systems on plants burning bituminous coals, 
and the injection of activated carbon into existing or new particulate 
control devices, either ESPs or bag houses.
    Plants burning bituminous coal from the Eastern U.S. which have 
installed SCR systems and wet scrubbers are likely to have between 80 
and 90 percent mercury control in the beginning. There are large 
uncertainties about the potential adverse scrubber chemistry that could 
re-release captured mercury and also about the extent of SCR catalytic 
mercury oxidation over time, so it is likely that these estimates may 
decrease as we learn more.
    For low rank coals such as sub bituminous and lignite (along with 
bituminous coal from the Western U.S.), the SCR systems do not appear 
to have any beneficial effects on mercury chemistry, probably due to 
the low chlorine content of the coals. Additionally, the addition of a 
wet FGD scrubber system may increase mercury control slightly, say by 
20 percent, but the addition of a spray-dryer FGD system may even 
decrease the mercury removal as compared to the pre-FGD mercury removal 
performance.
    Activated carbon tests to date have been short, less than 2 weeks, 
and have shown some promise, but also some difficulties. The only long-
term test that is being performed is at Southern Company's Plant 
Gaston, and the year long test is just beginning. The limited data from 
this one short test suggests that activated carbon injection into a 
COHPACTM bag house installed at a plant burning bituminous coal may be 
able to achieve short-term performance of 90 percent mercury removal, 
but an average across a year is more likely to be around 80 percent. We 
do not know what operation problems may occur after an extended period 
of activated carbon injection, but even at the beginning of the year 
long test, we are not able to match the previous short term 
performance.
    Activated carbon injected into an electrostatic precipitator at a 
plant burning Powder River Basin sub bituminous coal has shown mercury 
removal of 60-70 percent, but only for a short test, and with serious 
consequences for ash sales and disposal. The chemistry of low rank 
coals like these may limit the final mercury removal that can be 
achieved with activated carbon. Again, based on this one power plant 
test for a short period, it is likely that a bag house and activated 
carbon injection would still only achieve 60-70 percent mercury removal 
on these coals.
    Activated carbon supply is also an unanswered question. Activated 
carbon vendors have estimated the U.S. utility market may be between 
500,000 and 1,500,000 tons per year. Between domestic supply and spare 
European capacity, there may be up to 150,000 tons per year available 
today. Without firm commitments, the suppliers are unwilling to make 
the investments to increase the supply, indicating that widespread use 
by the utility industry may create a worldwide shortage of activated 
carbon. Given that it takes roughly 5 years to bring a new activated 
carbon production facility on line, the prospects for widespread 
availability of activated carbon may be questionable.
    In addition, the shortages encountered during the installation of 
NOx controls over the last several years have shown that shortages of 
labor, steel, cranes, and auxiliary equipment can occur, and 
installation of mercury controls under a MACT regulation or 
installation of more NOx and SO2 controls will surely cause 
even greater material and labor shortages. The only way to alleviate 
the shortages is to extend the required performance date to install the 
equipment. These shortages could spill over into other industries and 
cause price increases across the board.
    There are other technologies under development for mercury control, 
but they are all very much still in a research stage. Various multi-
pollutant processes are being touted, but they suffer from questions 
about performance, cost, and waste disposal issues. Other processes to 
specifically affect or capture mercury are also under development, but 
are at least eight to 15 years away from deployment, if they work at 
all.
    More tests and longer tests are needed to be able to reliably 
estimate performance and design the appropriate equipment and processes 
for mercury reductions in power plants with different equipment 
installed and burning different ranks of coal. The Department of Energy 
is currently evaluating a number of proposals from the utility 
industry, vendors, and research organizations to test a wide variety of 
plants and coals for mercury control, over a longer test period. The 
electric power industry, along with EPRI and equipment vendors, is 
engaged in a large, coordinated effort to develop and optimize cost-
effective mercury emission reduction processes.
    EPRI modeling suggests that U.S. utility emissions of mercury are 
only a small contributor to deposition of mercury in the continental 
U.S. Significant reductions of those emissions, either under a CSA or 
MACT approach, will only reduce deposition in the U.S. by 1.5 percent, 
and will only decrease exposures of the most sensitive population of 
women of childbearing age by 0.5 percent in 2020, as compared to 1999.
    The utility industry does not have proven technologies to reduce 
mercury emissions, but we know that some reductions will occur as 
SO2 and NOx control systems are installed, either under 
Clear Skies or business-as-usual. The industry does not hold the 
position that mercury reductions should not occur, but asks that right 
timeline should be followed, one that considers the practical aspects 
of the cost and impact of making these reductions. Mercury emission 
reductions that are required before the technology has been fully 
developed will lead to significantly increased costs, to likely fuel 
switching from coal to natural gas, and to possible disruption of the 
nation's energy supply.

                               __________
Statement of Dr. Steve Benson, Energy and Environment Research Center, 
                     The University of North Dakota

    Thank you, Mr. Chairman and members of the subcommittee, for the 
opportunity to testify today. My name is Steve Benson, and I am a 
Senior Research Manager at the Energy & Environmental Center (EERC) at 
the University of North Dakota in Grand Forks, North Dakota. I have 
conducted and managed research, development, and demonstration projects 
on combustion and environmental control systems for the past 25 years.
    The EERC has worked in the area of mercury research for over 20 
years through projects supported by U.S. Department of Energy (DOE), 
the U.S. Environmental Protection Agency (EPA), State agencies, and 
industry and is recognized as a world leader on mercury measurement and 
control. One result of this work has been the establishment of the 
Center for Air Toxic Metals (CATM). Specifically, the EERC has 
conducted work in the following areas related to mercury emissions from 
coal-fired power plants:

      Mercury science and chemistry
      Mercury sampling, measurement, and speciation in flue 
gases
      Transformations of mercury forms during combustion and 
gas cooling
      Mercury sorbent development and testing
      Bench-, pilot-, and field-scale demonstrations of mercury 
control technologies
      Mercury oxidation technologies
      Coal properties impacts on mercury control

    Today, I plan to provide a perspective on the challenges of 
controlling mercury emissions from power plants, with a focus on the 
issues related to western low-rank coals. Specifically, I will discuss 
the impacts of coal type on mercury speciation and control, options for 
control, and challenges to overcome.

Mercury Speciation and Control
    Mercury emissions from utilities burning U.S. coals were determined 
under EPA's Information Collection Request (ICR), which mandated 
mercury and chlorine analyses on coal shipped to units larger than 25 
MWe during 1999 and required emissions testing on 84 units selected to 
represent different categories of air pollution control equipment and 
coal rank.
    Based on ICR data, western coals (lignite and subbituminous) on 
average contain lower levels of mercury, chlorine, and sulfur than 
either eastern Appalachian or interior bituminous coals. Western coals 
are also distinguished by their much higher calcium and sodium 
contents. These differences in constituents have been shown to have 
important effects on the quantity and form of mercury emitted from a 
boiler and on the capabilities of different control technologies to 
remove mercury from flue gas.
    The high chlorine content that is characteristic of eastern 
bituminous coals has been consistently shown to increase the fraction 
of the more easily removable oxidized form of mercury in the total 
mercury emission, as reported both in ICR tests and other mercury 
emission studies. Conversely, the experimental results indicate that 
the low chlorine content of western coals is associated with the 
emission of predominantly elemental mercury that is substantially more 
difficult to remove. The high calcium content of western coals appears 
to further reduce the oxidizing effect of the already low chlorine 
content by removing part of the chlorine throughout the combustion 
process. In short, distinctive differences for western coals result in 
significantly different mercury conversion mechanisms in the combustion 
process that present a unique challenge and employment of effective 
control technologies.
    Measurements of total mercury and speciated mercury forms were made 
before and after the last pollution control device in the plants 
selected for testing under the ICR. These data provide a good starting 
point and valuable guidance for an experimental program targeted at 
developing mercury control technology for western coals. The changes in 
mercury speciation and removal measured across different pollution 
control devices have been correlated with fuel properties. Mercury 
removals were consistently lower for low-chlorine coals and, therefore, 
for western coals. For example, removals across a cold electrostatic 
precipitator (ESP) averaged about 35 percent for bituminous coal 
compared to 10 percent for western low-rank coal (lignite and 
subbituminous), and removals across a cold ESP followed by wet flue gas 
desulfurization (FGD) averaged 65 percent for bituminous coal compared 
to 35 percent for low-rank coal.
    The percentage of elemental mercury in the flue gas leaving the 
furnace and ahead of the pollution control system tended to drop 
sharply, from over 85 percent to about 10 percent at coal chlorine 
contents greater than 150 to 200 ppm, which distinguishes western coal 
from eastern bituminous coal. In general, plants burning coals with low 
levels of chlorine did not reduce oxidized mercury across particulate 
control devices, whereas plants burning coals with high levels of 
chlorine did show some removal of oxidized mercury across particulate 
control devices. Additionally, fabric filters were the only particulate 
control devices that appeared to remove any appreciable amount of 
elemental mercury, but again, significant removal occurs only at coal 
chlorine contents above 200 ppm.
    Both spray dryer absorbers and wet scrubbers remove approximately 
90 percent of the oxidized gaseous mercury entering but essentially 
none of the elemental mercury. Therefore, they can be quite effective 
for mercury removal overall for high-chlorine coals but ineffective for 
low-chlorine coals.
    In summary, the available experimental and field data indicate that 
existing pollution control technologies are not effective in 
controlling the emissions of elemental mercury emitted by low-chlorine 
western coals.

Mercury Control Options Being Investigated
    Currently, the mercury control strategies for western coal-fired 
power plants involve, first, the enhancement of existing control 
technologies and, second, the investigation and development of new 
control technologies. The enhancement strategies include sorbent 
injection with and without flue gas modifications upstream of an ESP or 
fabric filter, and mercury oxidation upstream of a wet or dry FGD. The 
new technologies include mercury capture using the gold-coated 
materials, baghouse inserts, and carbon beds.
    Sorbent injection upstream of an ESP or fabric filter. Many 
potential mercury sorbents have been evaluated, including carbon-based, 
calcium-based, and metal-based (i.e., gold, silver, etc.) sorbents. 
Activated carbon injection is the most promising and mature technology 
available for mercury control. However, the commercial experience is 
primarily from application of the technology at waste incinerators 
where very high chlorine levels are present. The projected annual cost 
for activated carbon adsorption of mercury in a duct injection system 
for a coal-fired utility is significant. Carbon-to-mercury weight 
ratios of 3000 18,000 (lb of carbon injected per lb of mercury in flue 
gas) have been estimated to achieve 90 percent mercury removal from a 
coal combustion flue gas containing 10 mg/Nm3 of mercury. Lower-cost 
and noncarbon-based sorbents that have less impact on fly ash sales and 
more effectively designed sorbent injection processes are needed to 
reduce costs of sorbent injection.
    Recently pilot-scale testing of mercury removal efficiencies for 
activated carbon injection upstream of an ESP only and an ESP baghouse 
(fabric filter) was conducted for a Fort Union lignite coal. The 
results, illustrated in Figure 1, for the ESP only were compared to 
those obtained at full-scale utility boilers, while injecting activated 
carbons into a bituminous coal combustion flue gas upstream of a 
ToxiconTM (pulse-jet FF) and into bituminous and Powder River Basin 
(PRB) subbituminous coal combustion flue gases upstream of an ESP. For 
the ESP cases, the pilot-scale lignite and utility-scale eastern 
bituminous coal tests showed mercury removal efficiency increased with 
increasing activated carbon injection rates. Conversely, mercury 
removal efficiency was never greater than 70 percent, regardless of the 
activated carbon injection rate into the PRB subbituminous coal 
combustion flue gas. This limitation is probably caused by the low 
amount of acidic flue gas constituents such as chlorides that promote 
mercury-activated carbon adsorption.
    The use of the ESP fabric filter showed good control efficiencies 
for lignite and bituminous coal because of the longer contact time with 
the activated carbon sorbents. However, testing conducted at a lignite-
fired power plant equipped with a spray dryer baghouse firing Fort 
Union lignite indicated poor performance of conventional activated 
carbon injection to control mercury. The results indicate poor control 
efficiency for two different types of activated carbons. Mercury 
removal efficiencies were less than 35 percent. The poor results are 
due to the low chlorine containing flue gas and the high proportion of 
elemental mercury in the flue gas stream. These results re-emphasize 
the challenges associated with mercury control for low-rank western 
coals.
    Researchers are striving to attain a more thorough understanding of 
mercury species reactions on activated carbon surfaces in order to 
produce more efficient sorbents. Sorbents for elemental mercury control 
must both oxidize the mercury and provide a binding site.
    Figure 1. Pilot-scale ESP and full-scale ToxiconTM (ESP FF) and ESP 
mercury removal efficiencies as a function of activated carbon 
injection rate.
    Mercury oxidation upstream of wet and dry scrubbers. Mercury 
oxidation technologies being investigated include catalysts, chemical 
agents, and cofiring materials. The catalysts that have been tested 
include selective catalytic reduction (SCR) catalysts for NOx 
reduction, noble (palladium) metal-impregnated catalysts, and oxide-
impregnated catalysts. The chemical agents include chlorine-containing 
salts and cofiring fuels that contain oxidizing agents.
    SCR catalysts have been tested for their ability to oxidize 
mercury. The ability to oxidize mercury has shown mixed results. 
Mercury speciation sampling has been conducted upstream and downstream 
of SCR catalysts at power plants that fire bituminous and subbituminous 
coals. The results of testing indicate evidence of mercury oxidation 
across SCR catalysts when firing bituminous coals. However, when firing 
subbituminous coal, the results indicate limited oxidation. This is 
based on a limited number of tests, and more testing needs to be 
conducted on low-rank coals. The ability of SCR systems to contribute 
to oxidation appears to be coal specific and is related to the 
chloride, sulfur, and calcium content of the coal as well as 
temperature, specific operation of the SCR catalyst, and duration of 
exposure to flue gas. Western coal ash can cause blinding of the SCR 
catalyst and, therefore, limit the use of SCR for western coals.
    Noble metal-impregnated catalysts have shown high potential to 
oxidize elemental mercury. Results from a slipstream device at a North 
Dakota power plant indicated that over 80 percent conversion to 
oxidized mercury is possible for periods of up to 6 months. Additional 
larger-scale, longer-term tests are still needed to determine if the 
technology is feasible. Tests were also conducted using iron oxides and 
chromium, with little success of oxidation.
    Fuel additives for mercury oxidation have shown the potential to 
oxidize mercury. Chemical additives or oxidants such as chlorine-
containing salts added to the lignite have shown the ability to convert 
elemental mercury to more reactive oxidized forms. Recent short-term 
testing conducted at a full-scale pulverized-coal-fired North Dakota 
power plant indicated the injection chloride salts resulted in 
increased mercury oxidation in the flue gas. Mercury oxidation of up to 
70 percent was observed at a salt injection rate that resulted in an 
HCl concentration of 110 ppm in the flue gas. In addition, the 
injection of salt resulted in enhanced removal of mercury across the 
spray dryer baghouse with removal efficiencies of up to 50 percent in 
short-term field testing. Significant operational impacts were observed 
during the short-duration testing. Pressure drop across the spray dryer 
baghouse increased with salt addition. Air heater pluggage was observed 
with some of the salt compounds. The short tests also do not show the 
potential long-term impact on corrosion, operations, and waste 
disposal.

Conclusions
    Currently, there is no single best technology that can be applied 
broadly to control mercury emissions from coal-fired power plants. 
Combinations of available control methods may be able to provide up to 
90 percent control for some plants but not for others, depending upon 
coal type. Lignite-and subbituminous coal-fired power plants are faced 
with the most significant challenge because reliable, demonstrated 
control technologies for highly unreactive elemental mercury are not 
commercially available. Only limited short-term tests have been 
performed to date. Significant research, development, and field testing 
are required to prepare the electric utility sector for implementation 
of mercury standards.

                               __________
       Statement of Dr. Richard Bucher, W.L. Gore and Associates

    Good morning, Chairman Voinovich, Ranking Member Carper and members 
of the subcommittee. My name is Richard Bucher, and I am here to speak 
on behalf of W.L. Gore & Associates, Inc. about some exciting technical 
advances that may offer a solution to the vitally important challenge 
of reducing mercury emissions.
    Gore is a leading company in the field of advanced materials that 
provide creative solutions to long-standing problems. We believe that a 
new mercury capture system we have developed, and that has recently 
been tested at the EPA, may well offer dramatic improvements in the 
effectiveness, efficiency and cost of mercury capture from flue gas. We 
are very excited by this development, as an improvement of this kind in 
mercury control could greatly contribute both to the long-term 
sustainability of power generation from coal, and to the health of all 
Americans.
    I greatly appreciate the opportunity to testify today. My employer, 
W.L. Gore & Associates, is best known as the maker of GORE-TEX fabrics. 
Many of you may own or use GORE-TEX garments for hiking, hunting or 
running. Gore has been using the same high-performance polymer membrane 
that makes our fabrics waterproof, windproof and breathable in many 
other applications for more than 30 years. We manufacture a wide range 
of electronic, medical and industrial materials and devices. Of main 
interest to us today is the application of the GORE-TEX membrane, and 
related membranes, to the field of industrial filtration.
    Gore has built a reputation since the 1970's as a leading supplier 
of high-performance filter bags to the energy industry, cement kilns, 
chemical and metals production facilities, waste incinerators and other 
industrial applications. Beginning in the 1990's, Gore scientists and 
engineers have discovered and developed a series of radical 
improvements to our bags through embedding additional materials and 
properties into the structure that makes the bags work. These advances 
have led to new applications for capturing over 99.99 percent of fine 
particulate, for catalytically destroying over 99 percent of dioxins 
and furans, and most recently for capturing over 90 percent of mercury 
in flue gas streams. The result is a cleaner, safer, healthier 
environment and more sustainable industry.
    Our invention in the area of mercury capture has moved well beyond 
the lab bench and shows dramatic promise for the future. Our product 
relies on the same basic technique as the best current technology using 
activated carbon to capture mercury but in a way that is up to two 
orders or roughly 100 times more effective--and that has dramatic 
positive implications for the waste handling and cost features of our 
solution.
    Current technologies to control mercury emissions from coal fired 
power plants include activated carbon injection, wet scrubber 
technology, selective catalytic reduction (SCR) technology, 
combinations of these, as well as a host of other potential options. 
The United States Environmental Protection Agency's ``Mercury Study 
Report to Congress'' from December 1997 presents an exhaustive review 
of the technological options and their associated financial impact. 
This report indicates that active carbon injection represents the 
greatest potential for the lowest cost, most technically feasible 
solution.
    Unfortunately, activated carbon injection has significant drawbacks 
that make the technology incompatible with some coal fired power 
facilities and fiscally prohibitive to others. A primary drawback of 
activated carbon injection is contamination of the facility's fly ash. 
Not only does the presence of the carbon render the fly ash un-salable, 
but also the presence of mercury has the potential to require the fly 
ash to be classified as a hazardous waste and be disposed of 
accordingly. Additionally, the literature remains inconclusive 
regarding the ability of activated carbon to consistently control 
elemental mercury emissions, making this technology potentially 
incompatible with many existing facilities burning lignite and Powder 
River Basin (PRB) coals. Activated carbon injection also requires a 
coal fired power plant to purchase, store, inject and dispose of a 
large volume of material. This has the secondary impact of requiring 
additional footprint and capital expenditures related to the necessary 
equipment, and also further burdens the particulate capture equipment 
with additional dust loading and pressure drop. Wet scrubber technology 
is incapable of controlling elemental mercury emissions, and SCR 
(selective catalytic reduction) technology is prohibitively expensive 
when employed solely for mercury control.
    The lack of a financially and technically compelling alternative 
for mercury emissions control from coal fired power plants led W.L. 
Gore and Associates, Inc. to create a technology project focused on 
investigating the feasibility of efficiently trapping and immobilizing 
gaseous mercury compounds from flue-gas streams using a reactive filter 
system. The progress to date of this work is summarized in this 
testimony.
    Initial work at Gore focused on developing a wide variety of 
reactive mercury trapping formulations. A bench-top screening 
experiment was then conducted to identify formulations with the best 
opportunity for long-term success. To add credibility and confidence to 
this study, all testing was performed at the EPA's research facility in 
Research Triangle Park, North Carolina. The mercury test reactor 
utilized allowed for control of inlet concentrations of mercury, 
SO2, NOx, H20 and O2. Analysis methods included 
both continuous mercury monitoring and the widely accepted standard 
Ontario Hydro test procedure. To accelerate the testing an inlet 
mercury level of 1 ppm Hg, far in excess of typical coal fired power 
plant emissions, was selected. To further challenge the samples, 
testing was conducted at 185 C (365 F), significantly above typical 
baghouse conditions.
    The performance of the highly active samples were then compared 
with state-of-the-art mercury absorbent technology as reported in the 
literature. Most comparison materials represented treated and untreated 
activated carbons. A summary of the data is shown in figure 1, with 
traditional activated carbon capacities shown in blue (as reported in 
the literature) and capacities for Gore technology shown in maroon. As 
illustrated the Gore technology shows a dramatic increase in the 
adsorption capacity in comparison to conventional materials.



   Figure 1: Mercury adsorption capacity comparison of conventional 
                   technologies with Gore technology.

    The key to our technology lies in this increased capacity to 
capture and hold mercury. This advance has the potential to allow the 
coal fired power industry to move the function of mercury control from 
a consumable material, as with traditional activated carbon injection, 
to a system component, such as a filter bag or a filter bag insert. 
Retrofitting a facility with a fabric filter bag-house already in place 
can be as easy as dropping mercury trapping inserts into the existing 
filters, requiring no additional system infrastructure or space. Most 
significantly this approach does not contaminate the fly ash with 
mercury-laden activated carbon, allowing facilities to continue to 
sell, as opposed to landfill, this valuable by-product of the coal 
fired power industry. Finally, our technology is completely passive in 
nature. Once installed it is always operating, continuously protecting 
the air we breathe, and does not require additional operators, 
maintenance or monitoring.
    Full size samples have been produced to test mechanical performance 
and integrity in a full-scale commercial facility. Figure 2 shows a 
photograph of a full size Gore-Tex filter bag with a mercury capture 
insert. Two such prototypes have been installed on a commercial 
incineration facility and have been successfully operational since 
November 2002. This test continues to run to demonstrate long term 
mechanical integrity.



          Figure 2: Filter bag, mercury capture insert system.

    As indicated, the development of our technology has progressed from 
the laboratory/bench scale phase to pilot testing. Our most significant 
testing to date was conducted at the EPA on their pilot scale coal 
combustion unit. The 7-week trial, with 24-hour operation, was designed 
to test the long-term viability of the technology under a variety of 
conditions, burning both Powder River Basin (PRB) coal and Lignite 
coal. Coal burning trial results, illustrated in Figure 3, indicate 
mercury capture rates consistently in excess of 90 percent.



   Figure 3: Mercury test results before and after the Gore mercury 
capture system. Tests conducted with PRB Coal, Lignite Coal and Mercury 
        doped Nature Gas (to simulate high mercury inlet levels)

    These results, assuming further successful field verification, 
would allow coal burning facilities to easily comply with the most 
stringent regulations set forth in the CLEAR SKIES Act of 2003, and the 
CLEAN AIR PLANNING Act of 2003, and would even approach the control 
levels required in the CLEAN POWER Act of 2003.
    As a private company serving the air pollution control industry for 
over 30 years, we at W.L. Gore & Associates clearly realize that even 
the most advanced technology must provide our customers an economic 
advantage. Our mercury technology is being designed to provide the 
benefits stated above, while potentially costing considerably less than 
activated carbon injection. The EPA research and development report 
titled ``Performance and Cost of Mercury Emission Control Technology 
Applications on Electric Utility Boilers'' identifies carbon injection 
as the most cost-effective approach available to date for utilities 
without existing scrubbers and SCR systems. For example activated 
carbon injection for a 110 MW facility is projected to cost 
approximately $700,000 per year. When the lost revenue of un-salable 
fly ash is added, these numbers inflate to a range from $1.1MM to 
$1.5MM per year. Current estimates indicate our technology could be 38 
percent to 83 percent lower than these values, making our approach both 
easier to implement, and more cost effective.
    Although we have not begun marketing this technology to the coal 
fired power industry, our interactions with prospective customers have 
been nothing short of extremely encouraging. Owners and operators of 
our nations coal fired power plants have expressed enthusiastic support 
for our concept, citing the ease of implementation, minimal impact on 
system performance, and most of all the preservation of fly ash value 
which is so critical to their bottom line. Indeed initial support has 
been so strong that most facilities we've interacted with have eagerly 
volunteered as locations for future field-testing.
    Once again, I appreciate the opportunity to testify before you 
today regarding the important issue of mercury emissions control. W.L. 
Gore & Associates remains committed to developing innovative, 
economically feasible technologies to address our nation's air quality 
challenges. We look forward to continuing to work with the committee, 
the EPA and the coal fired power industry to make this technology a 
commercial reality.
    Thank you again for allowing me to testify, and I'm pleased to 
answer any questions you may have for me.
    GORE-TEX is a Registered Trademark of W.L. Gore & Associates, Inc.
   Statement of Hon. Denise Nappier, Treasurer, State of Connecticut
    Good morning. My name is Denise Nappier, and I am Treasurer of the 
State of Connecticut. I appear before you as an institutional investor 
and the principal fiduciary of a $17 billion pension fund representing 
160,000 beneficiaries and plan participants. As Treasurer, I am elected 
by the people of my State, who, like millions of Americans, have sought 
to ensure their families' economic future through investments in the 
capital markets.
    I appreciate the opportunity to testify today on the relationship 
between climate change, corporate governance, and the well-being of 
institutional and individual investors.
    I am sure you have heard considerable testimony from others more 
expert than I am on the science of climate change, so I won't go there. 
What I will do is give you the perspective of an institutional investor 
whose responsibility it is to look to the long term value of our 
pension fund.
    You know, we all learned a number of very painful but very valuable 
lessons from Enron and the corporate scandals that followed, and we 
must not allow ourselves to lose sight of those lessons. We learned 
about the disastrous impact on our investment savings, our jobs and our 
economy. That is when transparency, accountability and an honest 
assessment of risk are not viewed by companies as priorities, either by 
design or otherwise.
    As institutional and individual investors, we need accurate and 
complete disclosure of information that could affect the current and 
future health of the companies we invest in and that goes beyond 
accounting to include, among other things, climate change as a risk 
factor.
    The consequences for those companies that do not act responsibly 
today and take steps to assess and mitigate the risk associated with 
climate change can be quite devastating. For example, companies could 
face the prospect of losing their competitive edge, incurring 
litigation costs, or being saddled with unforeseen capital expenses, 
just to name a few. All of these factors and others can erode 
shareholder value and place today's seemingly solid investment in 
jeopardy.
    Climate change may well be about our planet's future, but it is 
also about the financial risks to corporations, and the impact on the 
retirement savings of millions of Americans. As a result, we have every 
right to know what is being done about it and how America's 
corporations will protect their bottom line, and thereby the value of 
our investments.
    I believe that this issue is quickly becoming the leading edge of 
the next wave of corporate governance issues, and that the market place 
must begin to closely scrutinize companies to determine whether they 
have honestly, directly and thoroughly evaluated climate change as a 
risk factor and developed a proper response to it.
    You know, in finance, where there is risk, there can also be 
reward. A report by the Rose Foundation last year, ``The Environmental 
Fiduciary'', reviewed the findings of a number of studies on this 
issue, and concluded that ``in many cases improving environmental 
performance provides a measurable boost to profitability and 
shareholder value, especially over the long term.''
    So, we have a real opportunity here to not only protect our 
shareholder value, but also to achieve added value.
    While you in Congress are debating the merits of a legislative 
response to climate change, such as whether or not to enact mandatory 
caps on carbon emissions, other nations are preparing to implement the 
provisions of the Kyoto Protocol which include mandatory provisions. 
Many of the companies in which we invest particularly companies such as 
GE, ExxonMobil, and Daimler Chrysler operate in a global economy. For 
them, carbon regulation is not a future possibility, it is an imminent 
reality. And many State governments are also considering, and enacting, 
legislation addressing climate change.
    Beyond the regulatory environment, shareholders are now advancing 
this issue. This year, resolutions on climate change were introduced at 
23 U.S. companies and the Connecticut pension funds filed two of these 
and co-filed on a third.
    Shareholders are asking companies to report on their greenhouse gas 
emissions, or to set a goal to reduce emissions, or to report on the 
potential future financial risk to the company from their past, 
present, and future emissions and to issue a plan to mitigate that 
risk.
    Some of these resolutions were withdrawn after productive 
discussions between shareholders and management. Most of the 
resolutions, however, were opposed by management and the directors. 
That opposition may prove to be shortsighted penny wise and pound-
foolish.
    At the annual shareholder meeting of American Electric Power held 
this past April, the climate change resolution sponsored by Connecticut 
received the support of 27 percent of shareholders voting. While some 
people may say 27 percent is not a majority, I believe this vote is 
both extraordinary and virtually unprecedented. And I should add that 
an article in the Wall Street Journal the next day shared that view.
    In fact, the percentage of shares voted in support of climate 
change resolutions has doubled in the last 2 years, according to data 
from the Investor Responsibility Research Center. Make no mistake, 
there is significant investor concern about the impact that climate 
change could have on our nation's economy.
    In addition to the shareholder resolutions, other efforts to 
encourage disclosure of potential risk are underway:

      Connecticut is a signatory of the Carbon Disclosure 
Project which surveyed the 500 largest companies in the world, and 
found that while 80 percent acknowledge the importance of climate 
change as a financial risk, only about 40 percent were actually taking 
action to address the risks and opportunities.
      We also participated in a year-long dialog sponsored by 
the Coalition for Environmentally Responsible Economies (CERES), which 
brought together investors, environmental activists and electric power 
companies to discuss the potential financial impact of climate change 
and efforts to mitigate its effects. That final report is to be issued 
shortly.
      We have joined other investors in urging the Securities 
and Exchange Commission to insist on more comprehensive disclosure of 
climate risk.
      And I have begun organizing an Institutional Investor 
Summit which will be held this fall in New York City to discuss these 
issues and set an agenda for action to protect the long-term value of 
our investments.

    In conclusion, to look at climate change only as an environmental 
issue misses the point. Climate change is an investor security issue of 
the highest magnitude, and the work of corporations, legislators, 
regulators, and investors is intertwined and interdependent. That's why 
it is so important that we work together to protect the long-term value 
of our investments, as well as our economic well-being.
    I appreciate the opportunity to share my views with you today, and 
stand ready to work with you in the future. Thank you very much.
                               __________
Statement of Dr. Margot Thorning, Chief Economist, American Council for 
                           Capital Formation

Executive Summary
    U.S. economy. The reason that the Bush Administration rejected the 
Kyoto Protocol approach to addressing climate change was that they had 
analyzed the costs of sharp, near term emission reductions and found 
that the economic costs were significant and the benefits(in terms of 
reduced global concentrations of CO2) were negligible. A range of 
credible macroeconomic models showed that reducing U.S. CO2 emissions 
to the Kyoto Protocol level(7 percent below 1990 levels by 2010) would 
reduce U.S. GDP by 2 to almost 4 percent annually.
    Impact of Clear Skies Act of 2003 (S. 485) on the Financial Health 
of the Utility Sector. Most observers conclude that pollution reduction 
targets in S. 485 will be a challenge for utilities and add billions of 
dollars to utilities costs. Nonetheless, some in the industry believe 
that the Clear Skies goals are achievable and can be reached without 
sharp impacts on electricity prices or on the financial viability of 
the industry. Providing certainty to investors for the next decade and 
a half as to the targets for the three pollutants is, in this instance 
, likely to reduce the risk and the cost of capital for utility 
investors.
    Impact of Carbon Emission Emission Targets on the U.S. Utility 
Sector. Proponents of carbon emission caps for the utility sector argue 
that eventually the U.S. will decide to impose carbon caps and that 
utilities would feel that ``safer'' about investing if they were told 
now what the carbon reduction target would be. The argument has several 
weaknesses. First, imposing carbon caps such as those proposed by 
Senator Jeffords, which requires a reduction in CO2 in the range of the 
cut required by the Kyoto Protocol would be just the first step in a 
series of ever more severe emission reductions. Second, unlike their 
competitors in the EU, U.S. firms would be compelled to meet the 
emission caps mandated by government legislation. Thus, European 
companies are not generally threatened with harsh legal penalties as 
are U.S. firms when targets are missed. Third, carbon caps will 
increase the price of electricity. As U.S. economic growth slows in 
response to higher electricity prices, demand for electricity falls and 
profits decline. Thus, by weakening demand for the product 
(electricity) carbon caps will increase the the risk and uncertainty of 
investment in utilities.
    A Positive Step to Reducing the Risk and Increasing Certainty for 
Utility Investment. Many experts conclude that the depreciation 
allowances provided for utility investments under the Federal tax code 
are out of date. Now that utility markets are becoming increasingly 
deregulated, investors have no assurance that their investment will 
actually pay off. Thus, shorter capital cost recovery periods could 
materially reduce the risk of investment because the payback period 
would be shorter.
    Climate is a Global Issue, Requiring a Global Perspective. Any 
threat of climate change associated with greenhouse gas emissions is 
linked to global emissions, not emissions in any one country or one 
industry. And given that emissions in developing countries like China 
and India are projected to account for 84 percent of the increase in 
global emissions between 1990 and 2010, any climate policy that does 
not address developing country emissions is doomed to failure.

Introduction
    My name is Margo Thorning and I am pleased to present this 
testimony to the Senate Environment and Public Works Committee, 
Subcommittee on Clean Air, Climate Change, and Nuclear Safety.
    The American Council for Capital Formation represents a broad 
cross-section of the American business community, including the 
manufacturing and financial sectors, Fortune 500 companies and smaller 
firms, investors, and associations from all sectors of the economy. Our 
distinguished board of directors includes cabinet members of prior 
Republican and Democratic administrations, former Members of Congress, 
prominent business leaders, and public finance and environmental policy 
experts.
    The ACCF is now celebrating its 30th year of leadership in 
advocating tax, regulatory, environmental, and trade policies to 
increase U.S. economic growth and environmental quality.
    We commend Chairman Voinovich and his committee for their focus on 
positive changes to the Clean Air Act as contained in the Bush 
Administration's Clear Skies proposal. The Clear Skies proposal calls 
for reductions in SO2, nitrous oxides (NOx), and mercury, but does not 
regulate CO2 emissions. The focus of my testimony will be on the 
potential impact of the Clear Skies Act of 2003 and proposals to cap 
power plant carbon emissions, such as those put forward by Senator 
Jeffords, on the financial health and vitality of the utility sector. 
Other proposals include caps on emissions for other sectors of the 
economy.

Impact of Carbon Caps on the U.S. economy
    The reason that the Bush Administration rejected the Kyoto Protocol 
approach to addressing climate change was that they had analyzed the 
costs of sharp, near term emission reductions and found that the 
economic costs were significant and the benefits(in terms of reduced 
global concentrations of CO2) were negligible. A range of credible 
macroeconomic models showed that reducing U.S. CO2 emissions to the 
Kyoto Protocol level(7 percent below 1990 levels by 2010) would reduce 
U.S. GDP by 2 to almost 4 percent annually.
    The models on which the Administration relied showed that as carbon 
emissions are capped or constrained, economic growth slows due to lost 
output as new energy taxes are imposed and prices rise for carbon-
intensive goods, which must be produced using less carbon and more 
expensive production processes. In addition, the capital stock 
accumulates more slowly reflecting the premature obsolescence of 
capital equipment due to the sharp energy price increases required to 
meet a target of reducing emissions to 93 percent of l990 levels by 
2010.
    Instead, the Administration has chosen a different strategy, one 
based on accelerating the downward trend in U.S. greenhouse gas (GHG) 
emission intensity. The goal of reducing economy wide GHG intensity per 
dollar of GDP by 18 percent over the next decade(compared to a 14 
percent reduction under the baseline) will allow continued economic 
growth while encouraging a slowing of the rate of growth of CO2 
emissions. This alternative approach does, however, require a major 
commitment to incentives for deploying new technology, a long term 
research and development program for carbon sequestration, alternative 
energy sources for electricity generation, transportation and energy 
conservation.
    Given the quality and quantity of empirical research by 
demonstrating that near term targets and timetables for CO2 emission 
reductions will cost U.S. jobs, economic growth and competitiveness 
(see www.accf.org for testimony before the Senate Governmental Affairs 
Committee in June, 2001 for more details), it seems unwise to propose 
hobbling the U.S. utility sector with the same type of regime which the 
U.S. Senate rejected by a vote of 95 to 0 in l997 for the U.S. economy 
as a whole. Impact of Clear Skies Act of 2003 (S. 485) on the Financial 
Health of the Utility Sector.
    The focus of the Committees' hearing today is to assess the effects 
of S. 485, the ``Clear Skies Act of 2003'' on the ability of the 
utility sector reduce pollution from SO2, NO2 and mercury and meet the 
expected growth in demand for electricity as well. Most observers 
conclude that pollution reduction targets in S. 485 will be a challenge 
for utilities and add billions of dollars to utilities costs. 
Nonetheless, some in the industry believe that the Clear Skies goals 
are achievable and can be reached without sharp impacts on electricity 
prices or on the financial viability of the industry. Providing 
certainty to investors for the next decade and a half as to the targets 
for the three pollutants is, in this instance, likely to reduce the 
risk and the cost of capital for utility investors.
Impact of Carbon Emission Emission Targets on the U.S. Utility Sector
    Proponents of carbon emission caps for the utility sector argue 
that eventually the U.S. will decide to impose carbon caps and that 
utilities would feel that ``safer'' about investing if they were told 
now what the carbon reduction target would be. The argument has several 
weaknesses.
    First, imposing carbon caps such as those proposed by Senator 
Jeffords, which requires a reduction in CO2 in the range of the cut 
required by the Kyoto Protocol would be just the first step in a series 
of ever more severe emission reductions (see Figure 1). This agenda was 
clearly understood by the architects of Kyoto in 1997. For example, Tim 
Wirth, the former Clinton Administration climate policy negotiator, 
testified in 1997 that carbon emissions had to be cut by up 10 times 
the Kyoto target (a 70 percent reduction). The UK has recently 
announced a target of a 60 perecent reduction by 2050. Adopting a 
proposal such as S. 366, which requires cuts almost as large as the 
Kyoto Protocol would increase the pressure on the U.S. from the 
European Union to adopt the EU's next emission reduction target for the 
second commitment period. The EU is expected to push for a 60 percent 
reduction from 1990 emission levels by the year 2050 at the COP 9 
meeting later this year in Italy. Thus, even if the U.S. imposes a 
carbon cap like that in S. 366, there can be no certainty those caps 
will hold in the future and that the goal posts will not be moved back 
in response to pressure from the EU.
    Second, unlike their competitors in the EU, U.S. firms would be 
compelled to meet the emission caps mandated by government legislation. 
In contrast, the relationship between the regulators and the regulated 
is different for industry in the EU; there is more accommodation and 
willingness to let targets slip if they are not achieved. Thus, 
European companies are not generally threatened with harsh legal 
penalties as are U.S. firms when targets are missed. In addition, the 
European Union's own projections indicate that the EU is not likely to 
meet its first GHG emissions reduction target.
    Third, carbon caps will increase the price of electricity. As U.S. 
economic growth slows in response to higher electricity prices, demand 
for electricity falls and profits decline. As utilities attempt to 
switch from coal to natural gas to reduce CO2 emissions, gas prices 
rise which in turn raises the cost of feedstocks to the chemical and 
fertilizer industries and fuel to other industrial sectors. As previous 
research has demonstrated, carbon caps will make it harder for U.S. 
manufacturing to keep its operations at home and will increase the 
attractiveness of locating in areas like China with low cost labor and 
no carbon emission caps. Thus, by weakening demand for the product 
(electricity) carbon caps will increase the the risk and uncertainty of 
investment in utilities.

A Positive Step to Reducing the Risk and Increasing Certainty for 
        Utility Investment
    Many experts conclude that the depreciation allowances provided for 
utility investments under the Federal tax code are out of date. Now 
that utility markets are becoming increasingly deregulated, investors 
have no assurance that their investment will actually pay off. Thus, 
shorter capital cost recovery periods could materially reduce the risk 
of investment because the payback period would be shorter. A U.S. 
Department of the Treasury report to Congress released in 2000 noted 
that the current class lives for utilities may no longer be appropriate 
because of increased competitiveness in the industry.
    If the United States is to meet the challenges of maintaining 
strong productivity growth, then new investment in all types of assets, 
including energy supply, will be required. For example, investorowned 
utilities estimate needed capital expenditures of almost $90 billion 
over the 2001-03 period. A study commissioned by the ACCF Center for 
Policy Research shows that the United States ranks in the bottom third 
or below in terms of capital cost recovery allowances for transmission 
and generation of electricity, as well as investments in pollution 
control (see Figure 2 and Table 1). For example, after 5 years, a U.S. 
company recovers only 29 percent of its investment in a combined heat 
and power generation facility compared to 51 percent in Germany, 53 
percent in Japan, 100 percent in the Netherlands, and 105 percent in 
China. Thus, investment costs are recovered much more quickly in these 
and other countries with which the United States competes or where U.S. 
business might choose to locate or expand manufacturing operations. 
(See previous ACCF testimony at www.accf.org for additional 
international comparisons.)
    Corporate tax rates are also high in the United States relative to 
our competitors, and this tendency is worsening. The average top 
corporate income tax rate in the European Union has dropped from 34.4 
percent in 1995 to 31.7 percent in 2001; the top U.S. corporate income 
tax rate was 35 percent in 1995 and remains at that level today.

Climate is a Global Issue, Requiring a Global Perspective
    Any threat of climate change associated with greenhouse gas 
emissions is linked to global emissions, not emissions in any one 
country or one industry. And given that emissions in developing 
countries like China and India are projected to account for 84 percent 
of the increase in global emissions between 1990 and 2010, any climate 
policy that does not address developing country emissions is doomed to 
failure. Promoting a voluntary, economy-linked goal for developing 
countries encourages their participation in a global effort without 
threatening their goal of improving living standards for their 
citizens.
    Pro-growth tax changes, including faster depreciation and enhanced 
tax credits combined with regulatory reform could strengthen the U.S. 
economy and reduce emissions intensity.







                               __________
       Statement of Wes Taylor, President, Production, TXU Energy

Introduction and Background
    Mr. Chairman and members of the subcommittee, I am privileged to 
appear today on behalf of TXU and participate in this subcommittee's 
ongoing review of S. 485, the Clear Skies Act. I applaud the 
comprehensive nature of the subcommittee's hearing process for S. 485, 
and I hope that you will find my statement today on electric generator 
capital investment decisions helpful during your continued 
deliberations.
    TXU supports President Bush's efforts to reduce SO2, NOx 
and mercury emissions through a three pollutant framework such as that 
used in the Clear Skies Act. However, if the Clear Skies Act is to 
avoid harmful fuel switching, the Clear Skies legislation must base 
Phase I mercury limits on ``co-benefits'' (i.e., that level of mercury 
emission reduction that results from meeting SO2 and NOx 
emission limitations) and should not mandate controls on carbon 
emissions. Only under these conditions can the Clear Skies Act meet the 
goal of promoting long-term planning certainty for the electric 
generator sector and achieving significant reductions in emissions of 
NOx, SO2 and mercury.
    My statement today will first discuss the general approach used by 
TXU and other electric generators to analyze capital investment 
decisions relating to emission control equipment. Typically, this 
approach includes identification of all potential compliance options, 
including shutting down power plants and switching fuels, and an 
extensive long-term cost/benefit analysis for each compliance option.
    The second part of my statement will focus specifically on TXU's 
selection of the SO2 and NOx controls necessary to meet 
current State and Federal emissions requirements. It has been critical 
that TXU accurately estimate both the cost and effectiveness of the 
available control technologies. Notably, TXU's efforts to significantly 
reduce NOx and SO2 emissions as required by Texas law and 
the Texas State Implementation Plan under the Clean Air Act have been 
extraordinarily successful, resulting in early compliance with all 
applicable mandates in 2003.
    Finally, my statement will address the capital investment analysis 
that would be employed by TXU to evaluate the emission reductions 
proposed in the Clear Skies Act legislation, where mercury controls are 
expected to be the key planning issue. Currently, there is no 
commercially demonstrated control technology for mercury and the 
technologies used in pilot projects have achieved inconsistent results 
at extreme expense, especially for lignite. Because meeting the Clear 
Skies Act SO2 and NOx limits will require significant 
capital investment by electric generators, adding a requirement for 
unproven and expensive mercury control technology could result in very 
costly fuel switching by coal-fired plants. Fuel switching would 
contribute to price spikes in the natural gas market that would impact 
not only the electric generator sector, but also consumers and many 
industries that use natural gas as a raw material or feedstock. The 
Phase I mercury emission reduction contained in the bill needs to be 
set at the SO2 and NOx ``co-benefits'' level, which is not 
expected to result in significant fuel switching by electricity 
generators.
    Even if the Phase I mercury emission reduction contained in the 
bill is revised and set at the SO2 and NOx ``co-benefits'' 
level, meeting the Phase II mercury level of 15 tons in the year 2018 
is wholly a bet on future technology. Such uncertainty presents 
significant investment capital planning problems for electric 
generators, and may very well overwhelm an electric generator's capital 
investment analysis for the Phase I SO2 and NOx limits. 
Moreover, the mercury emission controls would not significantly reduce 
global loading of mercury--the Environmental Protection Agency has 
stated that U.S. electric generators comprise less than 1 percent of 
the global mercury emissions.

General Approach To Capital Investment Decisionmaking For Emission 
        Controls
    By way of background, TXU is a major energy company with operations 
in North America and Australia. TXU manages a diverse energy portfolio 
with a strategic mix of over $30 billion of assets.
    In its primary market of Texas, TXU's portfolio includes 19,000 
megawatts of generation with a fuel mix of coal/lignite, natural gas/
oil, nuclear power and wind. TXU serves five million customers in North 
America and Australia, including 2.7 million competitive electric 
customers in Texas where it is the leading energy retailer.
    TXU's commitment to environmental excellence is well-demonstrated. 
The Company is one of the nation's largest coal/lignite generators, yet 
TXU's SO2 emission rate in 2001 was 21 percent below the 
national average (52 electric generation companies had higher 
SO2 emission rates than TXU in 2000). Similarly, while TXU 
is the 8th-largest generator of electricity in the Nation, the 
Company's NOx emission rate in 2001 was 18 percent below the national 
average (61 electric generation companies had higher NOx emission rates 
than TXU in 2000). Additionally, TXU's CO2 emission rate in 
2001 was 8 percent below the national average and TXU has implemented 
the largest voluntary greenhouse gas reduction program among all the 
investor-owned electric generation companies in the United States.
    The first step in an electric generator's capital investment 
analysis for emission controls is to identify all viable alternate 
investment scenarios for compliance with a new emissions standard. 
During this step of the investment analysis, the alternate investment 
scenarios can range from:
      Attempting a smaller level of capital investment for 
emissions control technologies at a power plant--but typically a 
smaller investment in control technologies results in a significant 
loss of electricity production capacity at the power plant;
      Committing to significant levels of capital investment 
for emissions control technologies in order to achieve the least 
possible loss of electricity production capacity at the plant;
      Fuel switching at a power plant; or
      Closing down a power plant, losing all the generating 
capacity at that power plant but avoiding new capital investment.
    Next, the company will calculate the total economic cost of each 
alternative over the lifetime of the power plant, taking into account 
any income associated with each alternative. This is a detailed net 
present-value analysis that, among other things, requires accurate 
information on the operational costs of a particular control technology 
and its performance in reducing emissions over the remaining life of 
each power plant. Specifically, this long-term economic cost analysis 
of each alternate investment scenario will focus on:

      The amount of capital investment needed up-front and 
known to be needed in the future;
      The operating expenses associated with the current 
capital investment and known future capital investment;
      The overall operating expenses of a power plant under the 
alternative investment scenario (this might include the purchase of 
emissions credits);
      Whether the alternative investment scenario has operating 
restrictions that would reduce the production of electricity (and thus 
reduce income);
      The potential income, if any, from the alternative 
investment scenario (this might include the sales of emissions credits 
or byproducts generated by the emissions control equipment).

    Armed with the net present value figures, and the pro-forma 
financial statements related to the net present values, the company 
will evaluate the financial impacts of each alternate investment 
scenario against any potential financial constraints faced by the 
company, such as borrowing limits, debt covenants, or limits on 
financial ratios. From this process, the company will select a viable 
alternative investment scenario with the highest overall economic 
value.

Capital Investment Decisions Relating To Existing SO2 and 
        NOx Requirements
    It may be helpful to review briefly TXU's capital investment 
decisionmaking process for SO2 requirements under the Clean 
Air Act's acid rain program, and for NOx reductions required under 
Texas State law. Both of these capital investment decisionmaking 
processes used the general framework discussed earlier, but each also 
had unique factors that shaped the analysis. Critical to both types of 
evaluation, however, was the availability of accurate information on 
the costs and effectiveness of the available options for emissions 
control equipment.
    For example, under the Federal acid rain program, SO2 
reductions were achieved by a two-phased national cap without 
additional mandatory plant-by-plant restrictions. Accordingly, TXU and 
other affected electric generators could assess decisions over their 
entire fleet of power plants, choosing investments and controlling 
those plants where emissions reductions made the most economic sense. 
For its capital investment analysis, TXU developed alternate investment 
scenarios using options available throughout its entire portfolio of 
lignite/coal fueled units while maintaining compliance with local 
SO2 emissions limits.
    The primary control technology used to achieve significant 
reduction of SO2 emissions is called a ``scrubber.'' To a 
lesser extent, fuel switching to a low sulfur subbituminous coal can 
also reduce SO2 emissions. In its analysis of SO2 
control equipment investment options, TXU found a wide, plant-by-plant 
variation in the cost of scrubbers, mainly due to different plant 
designs. Variations in cost were dependent on factors such as existing 
control equipment and available space in the plant configuration for 
installation of a new scrubber. In certain instances, elaborate plant 
modifications would be required to withstand the impact of increased 
scrubbing. Installation deadlines also significantly impact the cost of 
installation. Other key drivers in TXU's analysis were the operating 
costs of the scrubbers, and whether the scrubbers could be expected to 
perform at planned removal rates for the life of the facility.
    TXU's decisionmaking process for compliance with the acid rain 
program was enhanced by our knowledge of well-tested scrubber 
technology, coupled with accurate information on the annual operational 
costs for such equipment. Using this information, TXU could develop 
precise alternate investment scenarios and compare the scenarios to 
other compliance strategies, such as purchase of emission credits in 
the open market.
    There are nine coal-fired units in the TXU fleet, five of which are 
scrubbed, accounting for 61 percent of our coal-fired generation. The 
cost estimate for installing scrubbers at the four remaining coal-fired 
units is approximately $400 million.
    In contrast to TXU's experience with the acid rain program, the NOx 
controls required to meet Texas' State NOx limits involved a much more 
complex analysis of alternate investment scenarios. Under a Texas State 
law adopted in 1999, electric generators in Texas were required by May, 
2003 to achieve a 50 percent reduction in NOx emissions from certain of 
its plants, as compared to 1997 emissions. TXU and other generators 
also faced deadlines for achieving other NOx reduction targets in 
various Texas regions to meet the State Implementation Plan 
requirements under the Clean Air Act. Additionally, TXU was required to 
achieve a 25 percent reduction in SO2 emissions from certain 
of its plants. TXU achieved all those NOx and SO2 
reductions, plus more, ahead of schedule. Accordingly, TXU's experience 
in developing a capital investment plan to meet the Texas NOx limits 
may be instructive as to what electric generators would face under the 
Clear Skies Act.
    Generally, two factors increased the complexity of TXU's capital 
investment analysis relating to the Texas NOx requirements:

      First, in contrast to the SO2 scrubber 
analysis, there were many different NOx technologies that could 
potentially achieve reductions at each power plant. This probably holds 
true for the NOx emission limitations contained in the Clear Skies Act 
as well.
      Second, rather than fleet-wide emission limit (as in the 
SO2 example), TXU was required to comply with no less than 
five different localized or regional NOx limits for its power plants.

    This increase in the number of variables complicated the 
alternative investment analysis. Additionally, localized and multiple 
regional NOx limits degrade the market for NOx emission allowances, 
reducing the ability of the NOx emission allowance market to reduce 
overall compliance costs.
    TXU will spend approximately $230 million to complete the NOx 
retrofits required in order to comply with State regulations, through 
2005.
    Although somewhat more complicated than the SO2 acid 
rain program alternative investment analysis, the analysis of TXU's NOx 
alternative investment scenarios was again aided by our knowledge of 
well-tested, proven removal technologies and accurate information on 
the annual operational costs for such equipment. Under the Federal acid 
rain program and the Texas State NOx limits, TXU has committed hundreds 
of millions of dollars for capital investment in control technologies. 
However, the company made that commitment after an extensive economic 
analysis, with relative certainty of the reductions it expected to 
achieve.

Potential Additional Capital Investment Under The Clear Skies Act
    TXU supports a three pollutant framework such as that used in the 
Clear Skies Act. However, if the Clear Skies Act is to avoid harmful 
fuel-switching, the Clear Skies legislation should not mandate controls 
on carbon emissions and must base Phase I mercury limits on ``co-
benefits'' (i.e., that level of mercury emission reduction that results 
from meeting SO2 and NOx emission limitations). Only under 
these conditions can the Clear Skies Act meet the goal of promoting 
long-term planning certainty for the electric generator sector and 
achieving significant reductions in emissions of NOx, SO2 
and mercury.
    As introduced, the Clear Skies Act contains the following schedule 
for reductions in SO2, NOx and mercury emissions:
    The Clear Skies Act contains major reductions in SO2 and 
NOx emissions when compared to today's emission levels. Achieving these 
reductions will require an unprecedented number of state-of-the-art 
emission controls. With the significantly increased number of emission 
controls being installed, an electric generator's capital investment 
analysis must now also include dealing with limitations on the amount 
of emission control equipment that can be installed at any one time, 
based on system reliability requirements for the availability of power 
plants, as well as the shortage of trained professionals that perform 
such installations and the manufacturing capability to handle a major 
surge in orders for emission reduction equipment.
    Appropriately, the Clear Skies Act does not regulate carbon 
emissions. Carbon is not a regulated pollutant under the Clean Air Act, 
nor should it be. Presently, carbon reductions are costly and complex. 
Given these circumstances, TXU supports the voluntary carbon reduction 
goals established by the President, as well as funding additional 
research concerning carbon emission reduction technologies.
    However, the mercury provisions of the Clear Skies Act legislation 
may cause fuel switching by electric generators in order to meet 
emissions limits. Currently, there is no commercially demonstrated 
control technology for mercury. Several pilot tests have used activated 
carbon injection technology, but much remains unknown with that 
technology and it appears to be prohibitively expensive.
    Accordingly, the Environmental Protection Agency's initial position 
was that the Clear Skies Phase I mercury limit of 26 tons in 2010 would 
not require a power plant to install mercury-specific emissions 
controls--the Phase I mercury limit could instead be met solely by the 
amount of mercury removed as a ``co-benefit'' of the SO2 and 
NOx emission controls installed under the Clear Skies Act. There is now 
considerable doubt as to whether the Phase I mercury limit can be met 
through such ``co-benefits''. If the Phase I mercury limit cannot be 
met by ``co-benefits'', power plants must in the near term install 
unproven and expensive mercury-specific emission control technology, or 
fuel switch.
    Given the already significant capital investment required of 
electric generators to meet the Clear Skies Act SO2 and NOx 
limits, the Phase I mercury emission reduction required by the bill 
should be revised and set at the SO2 and NOx ``co-benefits'' 
level, as was initially suggested by the Administration. It is 
important to remember that, even if the Clear Skies Act Phase I mercury 
level is revised and set at the SO2 and NOx ``co-benefits'' 
level, meeting the Phase II mercury limit of 15 tons in the year 2018 
is a bet on future technology.
    The lignite coal used by TXU and other electric generators faces 
additional hurdles with regard to mercury removal. The mercury content 
of lignite is higher than that of bituminous or subbituminous coal. In 
addition, the combination of mercury and other constituents in lignite 
coal is believed to be more difficult to remove using the pilot-tested 
activated carbon injection technology. The lack of a demonstrated 
emissions control technology could result in fuel switching for 
lignite-powered plants, if not plant closings.
    This high level of uncertainty with regard to mercury emissions 
reductions from lignite-powered coal plants requires that TXU factor 
its approach for compliance with the 2018 Phase II mercury levels into 
the planning and decisionmaking process for the Phase I SO2 
and NOx levels. That result occurs because TXU's different compliance 
options for Phase I (for example, continued use of lignite with 
scrubbers or, alternatively, fuel-switching for the SO2 
limit) may have very different implications for meeting the Phase II 
mercury levels. This decision tree is outlined at Figure 1.
    In summary, the lack of a demonstrated emissions control technology 
for mercury prevents accurate long-term planning by the electric 
generating sector. Companies have no idea of the long-term costs 
associated with mercury removal technology or the effectiveness of the 
technology once it is installed. This situation is in sharp contrast to 
the SO2 and NOx analysis discussed earlier, and 
significantly complicates the capital investment analysis.

Conclusion
    TXU supports President Bush's efforts to reduce SO2, NOx 
and mercury emissions through a three pollutant framework such as that 
used in the Clear Skies Act. However, if the Clear Skies Act is to 
avoid harmful fuel switching, the Clear Skies legislation must base 
Phase I mercury limits on SO2 and NOx ``co-benefits'' and 
should not mandate controls on carbon emissions. The Phase II mercury 
limits beyond ``co-benefits'' need to be predicated on the existence of 
a viable, commercially available mercury emission control technology. 
Only under these conditions can the Clear Skies Act meet the goal of 
promoting long-term planning certainty for the electric generator 
sector and achieving significant reductions in emissions of NOx, 
SO2 and mercury.

                               __________
      Statement of Jim McGinnis, Managing Director, Morgan Stanley

Introduction
    Good morning. My name is Jim McGinnis, and I am a Managing Director 
in Morgan Stanley's Investment Banking Division, with responsibilities 
in providing advice on capital raising, restructuring and mergers and 
acquisitions involving companies in the energy sector. I have focused 
my work on power and energy providers, utilities and unregulated 
competitors alike, through a 15-year period characterized by nearly 
continuous, and episodically chaotic structural change in the sector.
    My comments today will address certain of the potential effects on 
capital formation in the power industry which we expect from the 
enactment of multi-emissions technology legislation. In particular, I 
will focus my remarks on the need for and benefits of clarity in the 
context of a major capital expenditure program such as the one this 
legislation envisions. Also, I will discuss a few indicators of the 
economic health of the industry at this time, one characterized by 
companies seeking to repair balance sheets and regain investor 
confidence following a tumultuous period in the sector
    My predecessors, colleagues and I at Morgan Stanley have been very 
active in raising new capital on behalf of companies in this industry 
since the Firm's formation some seven decades ago, through sharply 
different market environments and economic cycles.
    I believe that we institutionally understand the challenges faced 
by our industry clients today in competing for investor capital through 
new issues and consistently providing a competitive return on such 
capital to ensure access to capital for future projects. But today, 
just as in past decades, providing access to capital on reasonable 
terms to this industry is not just a business niche; it is a critical 
underpinning of a healthy national economy.
    The utility industry is a reasonably large user of domestic 
investor capital, with over $800 billion of institutional and 
individual investment dollars deployed in the nation's power and gas 
utility and generation sectors. Yet, despite that large number, 
investor sensitivities to cash-flows, requirements for debt repayments 
or significant new capital spending can sharply affect any individual 
company's access to capital. An event-related swell of concern in the 
market can, and has in the past 12 months, effectively cutoff capital 
access for even financially sizable companies for significant periods 
of time.
    Interruptions or limitations on capital access in our industry 
sector can have far-reaching impacts--impacts as gradual and relentless 
as forcing power-intensive industries to relocate facilities elsewhere 
in search of cheaper power; or as immediate and dramatic as rolling 
blackouts in times of supply crisis.

The Need for Clarity
    Our focus on multi-emissions legislation today is a particularly 
important dimension of this continuous provision of access to capital. 
I believe the various sets of actors in the industry its senior 
management, workforces, local regulators, employees, customers and 
investors generally recognize and accept the impending, reasonably 
sized investment in emissions control technologies as a necessary and 
useful expenditure.
    Indeed, we can observe that some such impending expenditures are 
expected by the market a fact made evident by the market's neutral-to-
slightly positive response to Dominion Resources' recent announcement, 
made April 18th, of its $1.2 billion agreement with the Environmental 
Protection Agency to reduce emissions across its 24,000 MW generation 
portfolio. This agreement, achieved by a financially strong entity with 
supportive local regulatory treatment provided clear costs and benefits 
to its signors.
    In contrast, capital providers to the industry can be expected to 
react poorly to financially significant expenditures required of 
utilities and unregulated generators in the absence of clarity and 
permanence, but rather in the context of potentially shifting 
requirements, unproven technologies and uneven regulatory treatment. 
This need for clarity has heightened importance now, at a time when 
industry participants have been roiled by unprecedented financial 
disruptions and failures, and by persistent uncertainties elsewhere in 
the public policy arena. Investors and company leaders are currently 
wrestling with a variety of fundamental uncertainties: state-by-state 
changes in policies related to industry restructuring; purchased power 
contract disputes, as in California; accounting standards revisions 
related to energy purchasing, trading and hedging activities; 
uncertainty over aspects of currently pending energy legislation such 
as PUHCA reform; FERC transmission policy, transmission siting rules, 
and transmission-related tax policy on transfers in ownership; and 
certain aspects of bankruptcy code reform, just to name a few.
    Clarity as to the durability of legislative requirements is, for 
investors in the power sector, not just a modest benefit, it is a 
defining attribute. Typically, utility companies' economics depend 
predominantly on the policy decisions of State regulators, and the 
framework of regulatory decisionmaking has very significant comparative 
impacts on those companies' access to and cost of capital. To wit, 
California utilities, which, in my view, have experienced many years of 
regulatory antagonism and turmoil, exacerbated by and culminating in 
the 2001 statewide energy crisis, trade at a consistent discount to 
non-California utilities. For example, today, the average non-
California utility enjoys a 32 percent price-to-earnings valuation 
premium to the average of the three major California investor owned 
utilities. It is in the context of such selective localized uncertainty 
that Federal policies related to large, new emissions-reduction 
expenditures must be unambiguous and durable.
    One important attribute of legislation to reduce power generator 
emissions which supports the objective of clarity is the abundance of 
market signals from freely traded emissions allowances. Allowance 
trading improves the ability of affected companies to make clear 
choices as to the most cost effective of various strategies they can 
deploy in meeting emissions-reductions targets and promotes capital 
efficiencies when capital is scarce.

Stress in the Sector
    The basic requirement for clarity in policy decisions related to 
what one of your prior witnesses has identified as one of the largest 
private industry investment initiatives ever conceived comes at a time 
when the financial health of the industry is, at best, on the mend from 
a dramatic and troublesome financial cycle.
    Rather than recount the multiple factors and contributing exogenous 
occurrences which created the downturn in the merchant energy sector 
and its related impacts on utilities, I will focus on its current 
health and the cost-of-capital implications of that current state.
    One co-determinant of the cost of funds and access to bond 
investors for industry participants is the credit rating agency's 
public assignment of a rating to a particular issuer or a particular 
security issued by a company. In a stable industry and economic 
environment, investors might expect to see an equal number of upgrades 
to downgrades to such ratings.
    The electric sector industry is in the midst, though perhaps the 
trailing end, of the worst ever period for credit rating deterioration. 
Since January 1, 2002, we have seen 232 separate rating downgrades 
(some of multiple rating categories at one time) versus only 18 ratings 
upgrades. These downgrades are a symptom, and effect of massive 
investor losses on bonds and bank loans to companies in the sector, and 
in the merchant power generation market in particular.
    Whereas underlying US Treasury yields have improved materially and 
access to high yield or sub-investment grade bond markets has also 
improved markedly over the last 12 months, these helpful indicia should 
not obscure a central point: the industry has been systematically 
downgraded in relative risk/reward terms. This fact may well have a 
large, adverse impact on cost of and access to capital long after the 
current rally in Treasuries or junk bonds subsides.
    Also, during the 2 years ending March 31, 2003, equity losses for 
investors have been staggering as well. The collective equity market 
capitalizations of seven selected merchant power industry participants 
alone, even excluding Enron, declined by $93 Billion from 2 years 
earlier, when the same entities were capitalized by the market at $102 
billion, a staggering loss across some of the then most admired names 
in the industry.
    There are broader impacts on the power sector of the recent 
merchant power sector value destruction episode. In recent years, 
statewide restructuring in California, New York, Illinois, Texas, 
Pennsylvania, Ohio, Delaware and Washington, DC, has resulted in the 
large legacy generation portfolios of incumbent utilities to be 
transferred in those locations to unregulated power merchants, many of 
which have experienced a sharp decline in financial strength. This 
creates some potential for new counterparty exposures for electric 
distribution companies who rely on unregulated megawatt-hours to meet 
supply needs.
    Indeed, some 2/3's or more of the generation capacity sold by ConEd 
in New York City, by DQE in Pittsburgh, by Pepco in Washington, DC, by 
Commonwealth Edison and by Illinova in Illinois, is now owned by one of 
the merchant power owners caught up in the financial turmoil referred 
to above. These generation companies are rated significantly below 
investment-grade rated by the credit rating agencies and are 
experiencing limited access to new capital.
    Thus, in some cases, even those utilities whose parent companies 
did not embark upon a growth-focused expansion into unregulated 
merchant power in 2001-2002 now find a different, vexing credit issue: 
a weak counterparty on which they depend for the bulk of their reliable 
power supply. These unregulated counterparts are poorly equipped to 
absorb a large financial obligation, particularly in the context of any 
lack of clarity on the costs and benefits of such expenditures.

Clarity Will Drive Capital Access
    In evaluating legislation to reduce power generator emissions which 
envisions one of the nation's most ambitious private industry 
investment programs ever conceived, I would submit that committee 
members examine several important market dynamics: multiple critical 
uncertainties in upcoming energy policy and regulatory decisions, 
uncertainties related to fuel cost and availability, and, generally, 
the weakened financial capacity of the industry's generation 
participants.
    In this context, moving forward with legislation that provides 
clarity, durability and an efficient means to allocate expenditure 
decisions can be an important step toward assuring that sufficient, 
well-priced capital will be available from private investors to make 
such significant future expenditures. That assurance is important both 
for the success of an emissions-control policy objective, and also for 
the health of a critical infrastructure industry in this nation's 
economy.

                               __________
  Statement of Douglas Cogan, Deputy Director, Social Issues Service, 
                Investor Responsibility Research Center

    My name is Douglas G. Cogan. I am the Deputy Director of Social 
Issues for the Investor Responsibility Research Center. IRRC is an 
independent research firm, based in Washington, DC, that provides 
impartial information on corporate governance, social and environmental 
issues affecting investors and corporations worldwide. Founded in 1972, 
IRRC serves more than 500 institutional investors, corporations, law 
firms, universities, foundations, religious institutions and other 
organizations.
    IRRC does not take advocacy positions on public policy issues. 
Accordingly, I will not be commenting on the merits of specific clean 
air bills being considered by this committee. I will address three 
broader issues as they relate to the merits of legislation that 
includes CO2 emissions controls. These issues are:

    1. The inevitability of carbon dioxide controls.
    2. The need for more corporate disclosure and investor certainty on 
the climate change issue.
    3. The connection between climate change and good corporate 
governance practices.

Inevitability of carbon dioxide controls
    IRRC has long served as an early warning system for the business 
and investment community. In the 1970's, IRRC published reports on the 
coming deregulation of the electric utility industry and obstacles 
facing nuclear power. In the 1980's, IRRC issued studies on the advent 
of renewable energy and utility energy efficiency programs. In 1992, 
IRRC published a book written by me on business and investment 
responses to climate change.
    Climate change is playing an increasingly important role in capital 
investment decisions, especially for the electric power industry. Our 
nation's electricity providers account for nearly 40 percent of 
America's and 10 percent of the world's manmade CO2 
emissions. Addressing global warming necessarily involves this 
industry. Companies and investors that ignore this fact do so at their 
own peril.
    The question is not whether there will be CO2 controls 
on power plant emissions, but when. Investors need more disclosure and 
guidance on this issue. Congress can help by passing legislation that 
enables utilities and investors to plan effectively for the future and 
reduce prevailing uncertainties.

Need for more corporate disclosure and investor certainty
    Climate change is the greatest environmental challenge facing the 
electric utility industry. Yet many companies still hardly acknowledge 
the issue in their disclosure statements to investors. At best, 
companies say CO2 emissions controls could have a material 
impact on their financial condition, but cannot gauge the magnitude of 
the effect. At worst, they say virtually nothing at all.
    Investors are left to wonder whether this paucity of disclosure 
reflects a lack of guidance and foresight, or a reluctance to 
acknowledge the strategic and material risks posed by climate change. 
Neither answer is acceptable to investors.
    Electric utilities are committing tens of billions of dollars to 
upgrade their coal-fired power plants and install modern pollution 
control equipment. Yet these investments do nothing to address carbon 
dioxide emissions. The most expensive climate change response strategy 
will be to institute CO2 emissions controls after investing 
in equipment to control sulfur dioxide, nitrogen oxide and mercury 
emissions. A more prudent and cost-effective approach would be to 
consider these four emissions sources together as part of an integrated 
strategy.
    Consider what James Rogers, Chairman and CEO of Cinergy Corp., one 
of the nation's largest coal-burning utilities, told this committee 2 
years ago. Chairman Rogers said: ``Who will make a decision to invest a 
billion dollars in a new coal plant if you can only guess about future 
regulation? [A] new power plant bill that fails to address 
CO2 will be as dated in 5 years as current law is today.''
    Investors have raised this very issue with electric utilities over 
the last 10 years through the filing of shareholder resolutions. With 
mounting support from large pension systems and endowments, shareholder 
support for these resolutions has increased dramatically. In the 2003 
annual meeting season, the average support level for climate change 
disclosure resolutions averaged almost 25 percent at three of the 
nation's largest electric utilities AEP, Southern and TXU. No other 
type of proposal in the 32-year history of shareholder activism on 
social and environmental issues has garnered this level of investor 
support. Such institutional backing is consistent with voting trends 
that IRRC is seeing across most industries on the global warming issue. 
(See Figure 1.)
    Corporate governance climate change connection
    Utilities are under pressure from many quarters to address climate 
change. States are enacting legislation to fill the policy vacuum at 
the Federal level. Overseas, the Kyoto Protocol is poised to enter into 
force, affecting U.S. utilities and other multinationals with 
operations abroad. The Bush Administration is pressing for more 
voluntary corporate commitments to control greenhouse gas emissions.
    What can utilities do to respond to these pressures? And can you do 
to help them?
    In terms of what utilities and their investors can do for 
themselves, IRRC in a soon-to-be-released report commissioned by CERES 
finds that companies can integrate climate change into good governance 
practices. Our study lists 14 specific actions. I highlight three 
vitally important ones here:

      First, companies should provide regular assessments of 
the climate change issue to shareholders, based on systematic board 
reviews of company risks and opportunities. In place of blanket 
statements in securities filings that climate change poses 
undeterminable material risks, at a minimum companies should identify 
the risk factors and parameters involved in board assessments.
      Second, companies need to set CO2 emissions 
baselines and provide annual emissions data by which investors can 
gauge prevailing emissions trends. Utilities have been reporting such 
data to the U.S. Environmental Protection Agency for 10 years. They 
should make this information directly available to shareholders as 
well. (Some are already doing so.)
      Most important, utilities should be making forward-
looking disclosures of their CO2 emissions. As an industry, 
electric utilities have pledged to reduce the carbon intensity of their 
emissions by 3 to 5 percent by 2012. But actual emissions projections 
and the effects of proposed CO2 controls vary substantially 
from company to company, and such information typically is not shared 
with investors. (See the attached IRRC Proxy Issues Reports on Southern 
Company and TXU Corp. as examples.) Investors cannot begin to make 
meaningful evaluations of the potential impacts of CO2 
legislation on their portfolio holdings until they have access to such 
forward-looking information.

    Congress can facilitate this disclosure process by requiring 
utilities and other major carbon emitters to report not only past 
emissions data, but also future projections in securities filings. To 
be fully transparent in this disclosure, aggregate emissions data as 
well as emissions intensity ratios should be provided.
    The most helpful thing this Congress can do, however, is to 
establish once and for all that carbon dioxide is an emissions source 
that will be controlled. Many investors see this coming. Regardless of 
the targets and timetables, this act alone would provide essential 
guidance for investors and company directors that have put climate 
change on their corporate governance agenda.
    What has made this issue so difficult to address is a gap in 
governance decisionmaking. A CEO typically looks out only three to 5 
years when making a big capital investment, or about as long as he or 
she normally serves in office. The investment planning horizon for a 
long-lived asset like a power plant may extend up to 15 years. But the 
power plant will operate for 30 years or more. Carbon dioxide emissions 
from that power plant will stay in the atmosphere for 100 years or more 
long after the CEO and even the plant itself is retired. (See Figure 
2.)
    Institutional investors suffer the consequences of this governance 
gap. e are the ones entrusted with pension, insurance and endowment 
assets designed to span generations. These investors have a fiduciary 
duty to advance governance reforms to ensure the long-term viability of 
these assets and the economy as a whole. As our nation's elected 
representatives, you play a complementary role and are in a position to 
bridge this governance gap.
    A more detailed treatment of these issues appears in the 
forthcoming IRRC report commissioned by CERES, Climate Change and 
Corporate Governance: Making the Connection. Excerpts are attached to 
my written testimony. They include profiles of the top five carbon 
emitting investor-owned electric utilities. These profiles illustrate 
the wide divergence in board oversight and current reporting mechanisms 
used by these companies and demonstrate the need for a more concerted 
approach. Thank you for this opportunity to testify. I am happy to 
answer your questions and assist you in any way I can.

                               __________
          IRRC Social Issues Service, 2003 Company Report--J2

                                SUMMARY

    Resolution
    RESOLVED: That the Board of Directors report by August 2003 to 
shareholders on (a) the economic risks associated with the Company's 
past, present and future emissions of carbon dioxide, sulfur dioxide, 
nitrogen oxide and mercury emissions, and the public stance of the 
company regarding efforts to reduce these emissions and (b) the 
economic benefits of committing to a substantial reduction of those 
emissions related to its current business activities (i.e., potential 
improvement in competitiveness and profitability).
    Similar resolution last year? No

Proponents
    Benedictine Sisters Charitable Trust (200 shares), Congregation of 
the Sisters of Charity of the Incarnate Word and Congregation of the 
Holy Cross, Southern Province (70). The proponents are church groups 
affiliated with the Interfaith Center on Corporate Responsibility.

At Issue/New Developments
    TXU is the nation's seventh largest investor-owned electric 
utility, with more than 19,000 megawatts of generating capacity in 
Texas. Largely reliant on natural gas and coal, TXU is the 5 industry 
emitter of carbon dioxide, accounting for 3.2 percent of U.S. 
utilities' CO2 emissions in 2000, according to an 
independent benchmarking study. TXU also is a large industry emitter of 
sulfur dioxide and nitrogen oxides pollutants that contribute to acid 
rain, smog and human health problems. Management opposes the requested 
report as being ``unreasonably speculative with respect to any future 
emissions reductions'' of these pollutants.
    TXU is making substantial investments in pollution control 
technology to comply with the Clean Air Act. Management does not say 
what portion of its overall capital expenditures are being spent to 
meet these requirements, however. TXU notes in its 2002 Form 10-K that 
a ``significant portion'' of its generating fleet was constructed 
``many years ago'' and ``may require significant capital expenditures'' 
as well as ``periodic upgrading and improvement.'' Future government 
controls of CO2 emissions could threaten the economic 
viability of some of TXU's planned power plant retrofits.
    New developments at the company: In October 2002, TXU announced 
plans to terminate and write off its European operations. TXU's stock 
plunged on the news. The company and its managers now are defendants in 
several derivative shareholder lawsuits.

Economic Impact on the Company
    While TXU is making large investments to meet Clean Air Act 
requirements likely totaling hundreds of millions of dollars a year 
such investments will not reduce TXU's CO2 emissions. New 
government controls on such emissions could render some of its power 
plant upgrades uneconomic. Management does not provide shareholders 
with a clear sense of how much it is spending on pollution control, nor 
does it indicate whether future CO2 emissions controls would 
have a material impact on the company. The requested report seeks more 
definitive answers to these questions.

                 I. TXU CORP. AND GLOBAL CLIMATE CHANGE

    TXU Corp. is the nation's seventh largest investor-owned electric 
utility, serving 5 million electricity and gas customers in the United 
States and Australia. (TXU is working with creditors to sell its 
operations in Europe.) TXU also provides wholesale energy sales, 
merchant energy trading and risk management, energy-related services 
and telecommunications.
    TXU owns or leases 19,000 megawatts of generating capacity in 
Texas, where 2.7 million of its electricity customers are located. 
(TXU's Texas operations are subject to competition, beginning in 2002.) 
TXU also sells about 200 billion cubic feet of natural gas annually to 
1.4 million customers. TXU Australia serves about 1 million electricity 
and gas customers, and owns and operates 1,280 MW of generating 
capacity. As of Dec. 31, 2002, TXU employed 14,600 people.

                          Financial Performance
------------------------------------------------------------------------
                                                             % change to
                                       2002         2001         2002
------------------------------------------------------------------------
Revenues (in billions $).........       10.034       10.049        (0.1)
Net income (in millions $).......      (4,232)          655           NA
------------------------------------------------------------------------

    2002 financial results: TXU lost $4.2 billion in 2002, and the 
company's book value was cut in half. On a per share basis, TXU's 2002 
loss was $15.23 per share, compared with earnings of $2.52 per share in 
2001. This most difficult year in the company's 121-year history 
included a decision last October to discontinue and write off its 
European operations. On Oct. 12, management announced it was cutting 
the company's common stock dividend by 80 percent, to 12.5 cents per 
share, in response to capital market concerns regarding the liquidity 
of TXU Corp. and its U.S. and Australian subsidiaries. TXU and its top 
executives now are defendants in several derivative shareholder 
lawsuits, alleging (among other things) false and misleading statements 
in company securities filings, breach of fiduciary duty, abuse of 
control, mismanagement, waste of corporate assets, and breach of the 
duties of loyalty and good faith.

                         Investment Performance
------------------------------------------------------------------------
                                          Total returns ( percent)
      Data as of 12-31-2002       --------------------------------------
                                       1 yr         3 yr         5 yr
------------------------------------------------------------------------
TXU Corp.........................        -58.6        -38.1        -40.8
S&P 500 index....................        -22.1        -37.6         -2.9
Industry group No information
 Industry description: Electric
 Utilities No. of companies in
 group: 200......................
------------------------------------------------------------------------
Source: Compustat

    Environmental expenditures and liability: TXU does not provide a 
breakdown of its expenditures for capital projects related to the 
environment, nor does it provide a projection of future such 
expenditures. In its 2002 Form 10-K, management notes that a 
``significant portion of TXU Corp.'s facilities was constructed many 
years ago. In particular, older generating equipment, even if 
maintained in accordance with good engineering practices, may require 
significant capital expenditures to keep it operating at peak 
efficiency. This equipment is also likely to require periodic upgrading 
and improvement.''
    TXU reported a total of $996 million in capital expenditures in 
2002, down from $1.248 billion in 2001. Total capital expenditures are 
expected to be $1.1 billion in 2003, substantially all of which are for 
maintenance and organic growth of existing operations.
    Under the Clean Air Act and State electric utility restructuring 
legislation, ``grandfathered'' power plants (built before 1978) must 
achieve a 50 percent reduction in nitrogen oxides (NOx) emissions and a 
25 percent reduction in sulfur dioxide emissions by May 1, 2003. This 
requirement will be met through emission reductions at these facilities 
or through the purchase of credits from other permitted facilities as 
an alternative to achieve the same reductions. TXU reports in its 2002 
Form 10-K that it has obtained all of the necessary permits to meet 
these requirements, and says it can expect recovery of reasonable 
environmental improvement costs as part of the State-approved electric 
restructuring plan.
    As part of the State Implementation Plan for the Clean Air Act, TXU 
also must comply with a requirement calling for an 89 percent reduction 
in NOx emissions in the Dallas-Fort Worth ozone non-attainment area and 
a similar 51 percent reduction from power plants in East and Central 
Texas. TXU says the cost of compliance will be reduced because of the 
emission trading provisions in the rules.

TXU and Its Environmental Affairs
    Board oversight: TXU's nine-member board of directors has seven 
standing committees. No board committee is charged with explicit 
oversight of the company's environmental affairs. The board of 
directors has not conducted a formal review of the climate change 
issue. The company has not set targets to reduce carbon dioxide or 
other greenhouse gas emissions, but says it strives to develop and 
implement workable and economically viable emissions reduction 
projects.
    Staff level: TXU employs about 150 environmental, health and safety 
professionals. The top EHS executive is Paul Plunket, Executive Vice 
President, who reports to Tom Baker, TXU Corp. Executive Vice President 
and President of TXU's Oncor energy distribution business. There is one 
reporting level between Plunket and the CEO of the company. TXU has 
conducted company-wide environmental audits since 1987; audits of major 
facilities are conducted every year. Its business units are benchmarked 
against the ISO 14001 environmental management system standard. The 
audit committee of the board of directors reviews audit results; audit 
summaries are not made pubic. TXU says environmental performance is a 
factor in the compensation of top executives, plant managers and other 
employees.
    TXU is one of three U.S. utility companies listed on the Dow Jones 
Sustainability Index. In June 2002, Innovest Strategic Value Advisors, 
Inc. recognized TXU as the fourth highest-ranking company out of 28 
utilities evaluated based on environmental risk factors, enviornmental 
management capacity and environmental opportunity factors. Innovest 
also found that TXU was below the industry average in terms of its 
exposure to a possible carbon tax relative to its stock market 
capitalization (as of Jan. 1, 2000).
    Environmental principles and reporting: TXU has issued an 
environmental report annually since 1991. (The report and its Statement 
of Environmental Principles is available in printed form and on the 
Internet at www.txucorp.com/globcit/envcom/globalreport/principles.) 
The latest report includes a brief policy statement on climate change 
and carbon savings/offsets achieved in the United States and Australia. 
The report also includes statistics on TXU's sulfur dioxide, nitrogen 
oxide and carbon dioxide emissions rates as compared to national 
electric utility averages and the company's investments in wind energy.
    Under the Clean Air Act Amendments of 1990, TXU is required to 
collect hourly emissions data on carbon dioxide, nitrogen oxides and 
sulfur dioxide. The power plant emissions data are recorded in a data 
base maintained by the U.S. Environmental Protection Agency. The 
company also provides a summary of annual mercury emissions from its 
lignite/coal generating facilities on its website and annually reports 
these emissions to the EPA, which makes the information publicly 
available on the Internet in the Community Right-to-Know data base.

TXU and Global Climate Change
    As part of its Statement of Environmental principles, TXU says it 
will ``continue to take prudent steps to voluntarily reduce our 
emissions of greenhouse gases and to promote carbon sequestration 
programs.'' It says it has set ``challenging sustainability targets in 
the medium and long term'' that include increased use of renewable 
fuels, reducing greenhouse gas emissions through more efficient 
electricity production and use, assisting carbon sequestration through 
reforestation and other technologies, and actively promoting 
conservation and load management programs. Quantitative targets have 
not been set, however.
    In its 2002 annual report, TXU says it ``supports a balanced, 
flexible, comprehensive and international approach to the global 
climate change issue.'' It does not comment on the Kyoto Protocol, an 
international agreement that seeks a 5 percent cut in industrialized 
nations' CO2 emissions below 1990 levels by 2012. In its 
2002 Form 10-K, management says, it is ``unable to predict the impact 
of the [Bush] Administration proposal or related legislation'' on 
climate change.
    Carbon dioxide emissions: As noted above, TXU reports information 
to government agencies about its CO2 emissions, but it does 
not make this information readily available to shareholders. Through 
use of Continuous Emissions Monitors on its major power plants, TXU 
reported carbon dioxide emissions equal to 66.8 million metric tons 
(MMT) in 2000. Separately, TXU told IRRC that its operations in the 
United States and Australia emitted 72.8 MMT of CO2 in 2001. 
TXU also collects data on emissions of two other greenhouse gases, 
methane and sulfur hexafluoride.
    According to an independent benchmarking study conducted by the 
Natural Resources Defense Council, TXU was the fifth largest utility 
emitter of carbon dioxide in 2000, accounting for 3.2 percent of U.S. 
utilities' CO2 emissions. That year, natural gas provided 61 
percent of its generation; coal/lignite, 28 percent; and nuclear, 11 
percent. TXU's high ranking in the benchmarking study was mainly a 
function of its large generating base, totaling more than 19,000 
megawatts of capacity. Because its main source of fuel is natural gas 
(which has a lower carbon content than coal or oil), it ranked 56th out 
of 100 utilities studied in terms of CO2 emissions per 
megawatt-hour (MWh) of generation, and it ranked 71st out of 100 in 
terms of CO2 emissions per MWh of generation from fossil 
energy plants. Other utilities with lower rankings (i.e., closer to 1) 
had higher CO2 emissions per unit of power produced.
    TXU reported in its 2001 environmental report that its 
CO2 emissions rate in 2000 was 11 percent below the national 
average (based on tons of CO2 emitted per million Btus of 
energy produced). Similarly, its sulfur dioxide and nitrogen oxides 
emissions rates were 33 and 15 percent below the national average, 
respectively. The NRDC benchmarking study reported that TXU ranked 
fifth in terms of total utility emissions of nitrogen oxides in 2000, 
and 12th in terms of sulfur dioxide emissions.
    Emissions savings: TXU has been a member of the U.S. Department of 
Energy's Climate Challenge program since 1995, and it has reported 
emissions savings under the Section 1605(b) reporting program 
established by the 1992 Energy Policy Act. TXU reported savings/offsets 
of 23 million metric tons of CO2 equivalent in 2001 and a 
total of 196 MMT of savings since 1991 more than any other U.S. 
investor-owned electric utility. TXU says its CO2 emissions 
would have been 28 percent higher in 2001 were it not for savings and 
offsets achieved since 1990.
    Most of TXU's savings are from operation of its Comanche Peak 
nuclear units, which came on line in the early 1990's. The Energy 
Policy Act allows utilities to count as savings any new generation from 
nuclear power plants that began operation or increased their output 
after 1990. (Comanche Peak is the only U.S. investor-owned nuclear 
plant completed after 1990.) Other sources of TXU's emissions savings 
include heat rate improvements in its fossil energy plants, demand-side 
management programs, methane recovery, sulfur hexafluoride reduction 
programs and tree planting.
    In 2001, TXU reported 527,400 tons of emissions savings through its 
demand-side management programs. The company has planted more than 20 
million trees since the early 1970's, including 1.3 million in 2002. 
TXU Australia reported savings/offsets of 230,000 tons in 2001. TXU 
Australia is expected to achieve a 16 percent reduction in its total 
greenhouse gas emissions by 2004.
    Renewable energy: TXU says it encourages ``research and development 
of more efficient, environmentally benign sources of energy and, 
whenever warranted by market opportunity, to offer customers the 
benefits of energy produced from renewable resources.'' TXU offers a 
``green pricing'' option in each jurisdiction it serves. TXU has 
contracts for 382 megawatts of wind power in Texas, making it the 
fourth largest purchaser of wind power in the United States. It also 
has contracts for approximately 20 MW of wind power in Australia and 30 
MW of hydro and landfill gas generating capacity. TXU says it is also 
evaluating photovoltaic, solar thermal, waste-to-energy and biomass 
technologies.

                        II. PROPONENTS' POSITION

    This is the second time that shareholder proponents affiliated with 
the Interfaith Center on Corporate Responsibility have submitted a 
global warming resolution to TXU Corp. In 1997, a resolution filed with 
its predecessor, Texas Utilities, was withdrawn. TXU was targeted again 
this year because it has been identified as one of the top five carbon-
emitting investor-owned electric utilities. The proponents met TXU's 
corporate secretary and members of the company's environmental staff in 
March 2003. Though the discussions were amiable, the proponents elected 
not to withdraw the resolution on the basis that TXU was not willing to 
provide sufficient forward-looking information on the climate change 
issue.
    The resolved clause of the resolution has two elements. It asks the 
company's board of directors to report on:
    (a) the economic risks associated with the Company's past, present 
and future emissions of carbon dioxide, sulfur dioxide, nitrogen oxide 
and mercury emissions, and the public stance of the company regarding 
efforts to reduce these emissions and (b) the economic benefits of 
committing to a substantial reduction of those emissions related to its 
current business activities (i.e., potential improvement in 
competitiveness and profitability).
    In a presentation by Ceres, a coalition working closely with the 
Interfaith Center on the 2003 shareholder campaign, arguments made in 
favor of the global warming resolution filed with electric utilities 
are as follows:
    1. Health and environmental risks from pollutants: Electric 
utilities account for two-thirds of the nation's sulfur dioxide 
emissions, one-third of its mercury emissions and nearly one-quarter of 
its nitrogen oxides emissions. These pollutants contribute to asthma, 
lung and heart disease and mercury bioaccumulation in humans, and cause 
extensive damage to the environment, including acid rain, smog and 
mercury bioaccumulation in fish and other species. At the same time, 
electric utilities account for 37 percent of the nation's carbon 
dioxide emissions, the main gas tied to global warming.
    2. Government regulation of these pollutants: Emissions of sulfur 
dioxide and nitrogen oxides are regulated under the Clean Air Act. This 
Federal law will require substantial additional reductions of these 
emissions as well as mercury in the years ahead. Utilities will have to 
make major new investments in pollution control technology, but this 
technology will not control carbon dioxide emissions.
    3. Risks of not factoring in carbon dioxide controls: The 
proponents believe domestic regulatory controls of CO2 are 
inevitable. Two States (New Hampshire and Massachusetts) have already 
passed laws restricting utility emissions of CO2, and 
Federal legislation has been introduced as well. At the international 
level, the Kyoto Protocol is likely to go into effect this year 
(although the Bush Administration has pulled the United States out of 
the agreement).
    According to studies cited by the proponents, the most expensive 
choice utilities could make is to retrofit existing fossil energy 
plants with new pollution control equipment and then have to reduce 
CO2 emissions from these plants. The proponents argue that 
utilities should factor future CO2 controls into their 
investment strategies now, since it could alter decisions about which 
power plants to retrofit with new pollution control equipment and which 
to replace with new, cleaner energy sources.
    4. Need for greater disclosure by utilities: By some estimates 
cited by the proponents, many electric utilities face a ``carbon 
exposure'' of between 10 and 35 percent of their total market 
capitalization. (In other words, the cost of achieving carbon dioxide 
emission controls as specified by the Kyoto Protocol equals 10 to 35 
percent of the current value of their stock.) Many factors go into 
making this calculation, including a utility's generating assets, fuel 
mix, installed pollution control technologies and whether it is 
competing in a deregulated electricity market. ``Investors cannot 
assess this risk without more disclosure'' from utilities, according to 
Ceres.
    That is why the proposal calls on management to conduct a thorough 
economic assessment of the risks and benefits of achieving substantial 
emissions reductions of the four pollutants listed in the proposal. 
``We believe that taking early action on reducing emissions and 
preparing for standards could better position companies over their 
peers, including being first to market with new high-efficiency and 
low-emission technologies,'' the proponents argue. ``Changing consumer 
preferences, particularly those relating to clean energy, should also 
be considered. Inaction and opposition to emissions control efforts 
could expose companies to reputation and brand damage, and regulatory 
and litigation risk,'' it concludes.

                       III. MANAGEMENT'S POSITION

    Management opposes the resolution seeking more disclosure on the 
company's efforts to address climate change. It argues that the 
resolution would duplicate company reporting activities, increase costs 
and ``require unreasonable speculation with respect to the economic 
risks and benefits of emissions and future emission reductions.''
    Management says it complies with government requirements to monitor 
and annually report to the Environmental Protection Agency emissions of 
carbon dioxide, sulfur dioxide, nitrogen oxides and mercury. The public 
can gain access to this information through government Internet sites.
    TXU also publishes an annual environmental report that includes 
information comparing its sulfur dioxide, nitrogen oxide and carbon 
dioxide emissions rates to national electric utility averages. The 
report also highlights its voluntary reductions in carbon dioxide 
emissions and other greenhouse gases and its investments in wind 
energy. Management says its ``public stance regarding efforts to reduce 
these emissions is embodied in its Statement of Environmental 
Principles and is summarized in the company's annual environmental 
report.''
    Management says additional information on the environmental risks 
associated with emissions is available in public reports filed with the 
Securities and Exchange Commission. ``The reports address capital 
construction costs for sulfur dioxide and nitrogen oxide emissions 
control equipment necessary under current regulations, certain material 
risks associated with environmental compliance, and certain legislative 
and regulatory initiatives that may, in the Company's determination, 
materially impact its operations,'' according to the proxy statement.
    Finally, in response to the proponents' request for more 
information on the economic risks and benefits of future emissions 
controls and efforts to reduce these emissions, management says it 
``cannot accurately predict the outcome of future Federal or State 
legislative actions to regulate emissions'' and that the requested 
report would be ``unduly speculative.''

                           IV. IRRC ANALYSIS

SmartVoter Guidelines
    Voting guidelines for this resolution are presented under issue 
number 3425 in IRRC's SmartVoter product.
Questions Raised
      Is TXU reporting adequately on the global warming issue?
      Could TXU do more to respond to this issue?
    Adequacy of reporting: The proponents believe that management 
should provide shareholders with more information on the company's 
response to global warming. In particular, the proponents want 
management to lay out the costs and benefits of reducing greenhouse gas 
emissions as it invests in other pollution controls at its fossil-fired 
generating facilities. Management says it is already making information 
on its emissions publicly available and that the additional information 
requested by the proponents would be ``unduly speculative.''
    Management can legitimately say that it is providing some 
information to shareholders on this issue:
      Disclosure: It makes reference to the global warming 
issue in its 2002 annual report and Form 10-K.
      Emissions: Its 2001 environmental report provides 
comparative statistical information on its emissions of carbon dioxide, 
sulfur dioxide and nitrogen oxides, and its efforts to reduce these 
emissions.
      Data bases: Its proxy statement cites government data 
bases where shareholders can find more detailed information on the 
company's emissions.
    Shareholders who wish to conduct more than a cursory analysis of 
the company's response to global warming and its exposure to risks from 
controlling emissions may find management's level of disclosure 
inadequate, however. Here are some examples:
      Disclosure: Management says in its 2002 annual report 
that it ``supports a balanced, flexible, comprehensive and 
international approach to the global climate change issue.'' But it 
does not make any mention of the Kyoto Protocol, the pending 
international agreement to address climate change, or indicate whether 
the company has any targets to reduce its greenhouse gas emissions. The 
Form 10-K statement also sheds little light on these questions. It says 
only that management is ``unable to predict the impact of the [Bush] 
Administration proposal or related legislation'' on climate change.
      Emissions: Management says in its environmental report 
that its emissions of CO2, SO2 and NOx are below 
the national average per unit of electricity produced. But it does not 
provide absolute emissions figures, which reveal the company to be one 
of the nation's largest emitters of each of these substances. Among 
U.S. electric utilities in 2000, TXU ranked fifth in CO2 and 
NOx emissions, and 12th in SO2 emissions.
      Data bases: Management makes reference to government data 
bases where its aggregate emissions figures can be found. It says in 
its 2003 proxy statement that such data bases demonstrate the company's 
``support for, and progress toward, voluntary reductions of greenhouse 
gas emissions.'' But management does not provide links or Internet 
addresses to these government sites, which would assist interested 
parties in tracking down this information. Moreover, management does 
not explain why it omits aggregate emissions figures in its own reports 
to shareholders and instead normalizes the data based on electricity 
production. Providing aggregate data would enable shareholders to 
better scrutinize management's claims of progress toward absolute 
emissions reductions.
      Financial implications of regulatory controls: Finally, 
management provides very little information to shareholders about its 
capital expenditures related to environmental protection. It provides 
figures for recent and projected total capital expenditures for the 
company. It also notes that many of its power plants have had to obtain 
permits to come into compliance with new Clean Air Act standards. But 
it does not break out how much of its capital expenditures are being 
used for such environmental purposes. Separately in its Form 10-K, 
management warns that a ``significant portion of TXU Corp.'s facilities 
was constructed many years ago'' and that these facilities ``may 
require significant capital expenditures'' as well as ``periodic 
upgrading and improvement.'' But it attaches no dollar figures to such 
warnings. Shareholders are left to ponder whether these expenditures 
may be material to the company's operations and future financial 
condition.
    Could TXU be doing more to respond to this issue? From the 
preceding discussion, it is clear that TXU could be doing more to 
enlighten shareholders about the risks and opportunities posed by 
efforts to reduce greenhouse gas emissions.
      Disclosure: Management could state in its annual report 
whether or not it believes the Kyoto Protocol reflects a ``balanced, 
flexible, comprehensive and international approach'' to the global 
climate change issue. It could list in its Form 10-K examples of issues 
and uncertainties that render it ``unable to predict the impact'' of 
climate change proposals, and provide at least a broad outline of the 
possible magnitude of such impacts.
      Emissions and data bases: Management could provide links 
or website information to government data bases to which it submits 
aggregate emissions data. Better still, it could provide this 
information in its own company reports. Best of all, it could provide 
historic and projected emissions data so that shareholders can judge 
for themselves how well the company is doing in ``support for, and 
progress toward, voluntary reductions of greenhouse gas emissions.''
      Financial implications of regulatory controls: Management 
could provide a breakdown of its capital expenditures related to 
environmental protection as most other companies do in their Form 10-K 
reports. In particular, management could provide information on its 
past investments and future projections to keep its fossil energy 
plants in compliance with the Clean Air Act. In order to satisfy the 
proponents' request regarding the effects of cutting greenhouse gas 
emissions, management also could give some indication of how efforts to 
achieve the goals of the Kyoto Protocol or comparable U.S. legislation 
might affect its investments in retrofitting and upgrading its older 
plants.
    In the final analysis, shareholders who believe the global warming 
issue does not yet pose a major policy and financial concern for TXU or 
who agree with management that further statements on the issue would be 
``unduly speculative'' will be inclined to vote against this proposal. 
Shareholders who believe the issue does pose concerns despite the 
legislative uncertainties that remain will be inclined to vote for the 
proposal. This latter group of shareholders may conclude, in fact, that 
the uncertain financial consequences of still-evolving response 
strategies to climate change makes the issuance of a forward-looking 
report all the more valuable.

                                 ______
                                 
                EXCERPT FROM TXU CORP.'S PROXY STATEMENT
        Shareholder Proposal Related To An Environmental Report:
                     ``electric utility resolution

    WHEREAS:
    In 2001 The Intergovernmental Panel on Climate Change concluded 
that ``there is new and stronger evidence that most of the warming 
observed over the last 50 years is attributable to human activities.''
    In 2001 the National Academy of Sciences stated that the ``degree 
of confidence in the IPCC assessment is higher today than it was 10, or 
even 5 years ago there is general agreement that the observed warming 
is real and particularly strong within the past 20 years.''
    The United States government's ``Climate Action Report 2002,'' 
concluded that global climate change may harm the country. The report 
highlights risks to coastal communities in the Southeast due to sea 
level rise, water shortages throughout the West, and increases in the 
heat index and frequency of heat waves.
    In July 2002, 11 Attorneys General wrote President Bush, outlining 
their concern over the U.S. Climate Action Report's failure to 
recommend mandatory reductions of greenhouse gas emissions. They 
declared that States are being forced to fill the Federal regulatory 
void through State-by-State regulation and litigation, increasing the 
ultimate costs of addressing climate change. They urged a 
reconsideration of his regulatory position, and adoption of a 
``comprehensive policy that will protect both our citizens and our 
economy.''
    U.S. power plants are responsible for about two-thirds of the 
country's sulfur dioxide emissions, one-quarter of its nitrogen oxides 
emissions, one-third of its mercury emissions, approximately 40 percent 
of its carbon dioxide emissions, and 10 percent of global carbon 
dioxide emissions.
    Scientific studies show that air pollution from U.S. power plants 
causes tens of thousands of premature deaths and hospitalizations, 
hundreds of thousands of asthma attacks, and several million lost 
workdays nationwide every year from pollution-related ailments.
    Standards for carbon dioxide emissions and other air pollutants are 
emerging across multiple fronts. Ninety-six countries have ratified the 
Kyoto Protocol, requiring carbon dioxide reductions. Massachusetts and 
New Hampshire have enacted legislation capping power plants emissions 
of carbon dioxide and other air pollutants. In June 2002 the Senate 
Environment and Public Works Committee passed a bill seeking to cap 
emissions from the generation of electric and thermal energy.
    We believe that taking early action on reducing emissions and 
preparing for standards could better position companies over their 
peers, including being first to market with new high-efficiency and 
low-emission technologies. Changing consumer preferences, particularly 
those relating to clean energy, should also be considered.
    Inaction and opposition to emissions control efforts could expose 
companies to reputation and brand damage, and regulatory and litigation 
risk.
    RESOLVED: That the Board of Directors report (at reasonable cost 
and omitting proprietary information) by August 2003 to shareholders on 
(a) the economic risks associated with the Company's past, present and 
future emissions of carbon dioxide, sulfur dioxide, nitrogen oxide and 
mercury emissions, and the public stance of the company regarding 
efforts to reduce these emissions and
    (b) the economic benefits of committing to a substantial reduction 
of those emissions related to its current business activities (i.e. 
potential improvement in competitiveness and profitability).''
    The Board of Directors recommends a vote AGAINST this proposal for 
the following reasons:
    The Company believes that adoption of the shareholder proposal 
would unnecessarily duplicate ongoing Company reporting activities, 
would needlessly increase costs and require unreasonable speculation 
with respect to the economic risks and benefits of emissions and future 
emission reductions.
    The Company routinely reports to regulatory agencies and the public 
regarding significant environmental matters. Since 1991, the Company 
has voluntarily published an annual environmental report, available in 
printed form and on the Internet, which sets forth its Statement of 
Environmental Principles and presents statistics on the Company's 
sulfur dioxide and nitrogen oxide emissions rates as compared to 
national electric utility averages, voluntary reductions in greenhouse 
gas emissions (including carbon dioxide), and investments in zero-
emission wind energy.
    The Company also annually reports emissions of sulfur dioxide, 
nitrogen oxide and carbon dioxide, which are continuously monitored at 
the generating facilities as required by law, to the State and Federal 
environmental agencies, including the U.S. Environmental Protection 
Agency (EPA), which makes this information publicly available through 
the Emissions Scorecard data base on the Internet.
    The Company also provides a summary of annual mercury emissions 
from its lignite/coal generating facilities on its web page and 
annually reports these emissions to the EPA, which makes the 
information publicly available on the Internet in the Community Right-
to-Know data base.
    The Company's public stance regarding efforts to reduce these 
emissions is embodied in its Statement of Environmental Principles and 
is further reflected in its record of compliance with State and Federal 
sulfur dioxide and nitrogen oxide emissions requirements and 
reductions, which is summarized in the Company's annual environmental 
report. The Company's public support for, and progress toward, 
voluntary reductions of greenhouse gas emissions (including carbon 
dioxide) is reported annually to the U.S. Department of Energy, which 
makes the information available in the Public Use Data base on the 
Internet.
    The Company routinely discloses the economic risks associated with 
emissions in its public reports filed with the Securities and Exchange 
Commission. The reports address capital construction costs for sulfur 
dioxide and nitrogen oxide emissions control equipment necessary under 
current regulations, certain material risks associated with 
environmental compliance, and certain legislative and regulatory 
initiatives that may, in the Company's determination, materially impact 
its operations.
    In its normal course of business, the Company evaluates possible 
additional emissions reductions beyond those required by State and 
Federal regulations. The Company believes that a more detailed report 
on the economic risks and benefits of emissions and emissions 
reductions would be unreasonably speculative with respect to any future 
emissions reductions. For example, the Company cannot accurately 
predict the outcome of future Federal or State legislative actions to 
regulate emissions.
    In summary, adoption of the shareholder proposal would 
unnecessarily increase costs and duplicate ongoing Company reporting 
activities.
    The Board of Directors Recommends a Vote AGAINST This Shareholder 
Proposal.
                                 ______
                                 
                  [Social Issues Service, May 6, 2003]
                      IRRC, 2003 Company Report J2
                              Southern Co.
    Global Climate Change
                            (by Doug Cogan)
    2003 Investor Responsibility Research Center
    Proxy Statement Proposal Related IRRC report 1. Elect directors CG 
Proxy Report 2. Ratify amendment of by-laws permitting book-entry of 
shares CG Proxy Report 3. SP-Report on greenhouse gas emissions SI 
Background Rpt. J2

                                Summary

Resolution
    RESOLVED: That the Board of Directors report by August 2003 to 
shareholders on (a) the economic risks associated with the Company's 
past, present and future emissions of carbon dioxide, sulfur dioxide, 
nitrogen oxide and mercury emissions, and the public stance of the 
company regarding efforts to reduce these emissions and (b) the 
economic benefits of committing to a substantial reduction of those 
emissions related to its current business activities (i.e., potential 
improvement in competitiveness and profitability).
    Similar resolution last year? No
    Shareholder proposals asking Southern to report on the costs and 
liabilities of climate change were filed and withdrawn in 1997, 1999 
and 2002. A proposal on developing renewable energy was supported by 
9.5 percent of shares voted in 2001 and 9.2 percent in 2002.
Proponents
    Sisters of Charity of St. Elizabeth (100 shares); United Church 
Foundation (23,400 shares); Sisters of St. Dominic, Caldwell, N. J. 
(100 shares); affiliated with the Interfaith Center on Corporate 
Responsibility.
At Issue/New Developments
    Southern Company is the nation's second largest electric utility, 
with 37,000 megawatts of generating capacity. Coal represents about 
two-thirds of Southern's fuel mix, making it the 2 industry emitter of 
carbon dioxide, accounting for 6.4 percent of U.S. utilities' 
CO2 emissions in 2000, according to an independent study. It 
is also the 2 industry emitter of sulfur dioxide, nitrogen oxides and 
mercury. Southern plans to spend more than $1 billion by 2004 for 
nitrogen oxides emissions controls at its coal-fired plants. It expects 
to spend an additional $4 billion or more by 2015 to further reduce 
emissions of sulfur dioxide, nitrogen oxides and mercury. Government 
efforts to control CO2 emissions could call into question 
the economic feasibility of some of these pollution control efforts. 
Southern has provided projections of its power generation and emissions 
through 2020. It estimates that its power generation will increase 45 
percent between 2000 and 2020 and that its CO2 emissions 
will increase 16 percent. Management says it is focused on ``addressing 
emissions of greenhouse gases such as CO2.''
Economic Impact on the Company
    Because electricity generation accounts for nearly two-fifths of 
the nation's CO2 emissions, the principal greenhouse gas, 
imposition of new government controls on CO2 could 
compromise the future value of Southern's planned investments in 
pollution control equipment at many of its coal-fired power plants. 
Southern says in its Form 10-K report that the ``cost impacts of such 
[CO2] legislation would depend upon the specific 
requirements enacted.'' The requested report asks management to provide 
a more detailed explanation of the costs and benefits of the company's 
pollution control strategy, given that there may be material risks to 
the company and its shareholders if that strategy fails to properly 
anticipate possible future CO2 emissions controls.

             I. SOUTHERN CO. AND ITS ENVIRONMENTAL AFFAIRS

    Southern Company is the nation's second largest electric utility, 
serving 4 million customers in Georgia, Alabama, Florida and 
Mississippi, with 27,000 miles of transmission lines. Its regulated 
utility companies Alabama Power, Georgia Power, Gulf Power, Mississippi 
Power and Savannah Electric provide nearly 90 percent of earnings. The 
remaining portion of Southern's business activities includes wholesale 
power generation, a competitive retail natural gas business, energy-
related products and services, fiber optics and wireless 
communications, and leveraged leasing activities. Southern employed 
26,178 people as of Dec. 31, 2002.
    Southern had 34,739 megawatts of owned and leased generating 
capacity in its retail system at the end of 2002. Southern Power, its 
electric wholesale generation subsidiary, had 1,612 MW of natural gas-
fired generating capacity in commercial operation. Southern Power 
expects to have a total of 6,600 MW on-line by the end of 2005. 
Southern's generation sources in 2002 were coal, 69 percent; nuclear, 
16 percent; natural gas, 12 percent; and hydro, 3 percent. Average fuel 
costs in 2002 were 1.61 cents per kilowatt-hour. Southern's retail 
electric rates are 15 percent below the national average.

                          Financial Performance
------------------------------------------------------------------------
                                                             % change to
                                       2002         2001         2002
------------------------------------------------------------------------
Revenues (in billions $).........       10.549       10.155          3.9
Net income (in millions $).......        1,318        1,262          4.4
------------------------------------------------------------------------

    2002 financial results: Southern says its financial performance in 
2002 was ``very strong and one of the best in the electric utility 
industry.'' Net income of $1.318 billion from continuing operations 
increased 17.6 percent over income from continuing operations reported 
in 2001. Diluted earnings per share from continuing operations in 2002 
were $1.85 per share, up from $1.61 in 2001. Dividends paid per share 
on common stock in 2002 were $1.355, up from $1.34 in 2001. The company 
had an average of 708 million shares of common stock outstanding in 
2002, an increase of 2.7 percent.
    Future construction and environmental expenditures: Southern 
provides projections for construction expenditures, including 
environmental capital expenditures, over the next 3 years. Its 
projected construction expenditures are as follows: $2.075 billion in 
2003, $2.308 billion in 2004 and $2.354 billion in 2005. Its projected 
environmental capital expenditures are $257 million in 2003, $300 
million in 2004 and $346 million in 2005. Southern forecasts 
electricity demand growth of 3.5 percent a year, and customer growth of 
1.5 percent a year.

                         Investment Performance
 
------------------------------------------------------------------------
                                          Total returns (percent)
      Data as of 12-31-2002       --------------------------------------
                                       1 yr         3 yr         5 yr
------------------------------------------------------------------------
Southern Co......................         17.6        123.8        124.9
S&P 500 index....................        -22.1        -37.6         -2.9
Industry group...................      No data
Industry description: Electric
 Utilities No. of companies in
 group: 200......................
------------------------------------------------------------------------
Source: Compustat

Southern and Its Environmental Affairs
    Board oversight: Southern's 10-member board of directors has five 
standing committees. No board committee is charged with explicit 
oversight of the company's environmental affairs. The audit committee 
is responsible for reviewing environmental compliance audits along with 
other regulatory matters affecting the company. The entire board 
receives updates on environmental management issues periodically. The 
2003 proxy statement makes no reference to environmental issues 
discussed by the board of directors.
    The board of directors has not conducted a formal review of the 
climate change issue. The company has not set targets to reduce carbon 
dioxide or other greenhouse gas emissions, but says it is considering 
them. It has provided projections of carbon dioxide emissions out to 
the year 2020.
    Staff level: Southern employs about 250 environmental, health and 
safety professionals at the corporate level. The top EHS executive is 
Dr. Charles H. Goodman, Senior Vice President, Research and 
Environmental Affairs. Goodman reports to Paul Bowers, President, 
Southern Co. Generation and Energy Marketing; and Dwight Evans, 
President of External Affairs. There is one reporting level between 
Goodman and the CEO of the company. Southern says environmental 
performance is a factor in the compensation of top executives, plant 
managers and other EHS employees.
    Southern has conducted company-wide environmental audits since 
1992. Audits of major facilities are conducted every one to 2 years, 
and are conducted by corporate and facility staff. The audit committee 
of the board of directors reviews audit results. Audit summaries are 
not made public.
    Environmental principles and reporting: Southern issued its first 
environmental policy statement in 1992 and its first environmental 
report in 1993; it has issued the environmental report periodically 
since then. The report includes a climate change policy statement, 
summary of greenhouse gas reduction efforts and a projection of future 
emissions trends.
    Southern's most recent statement on climate change was issued in 
August 2000. Among other things, the policy statement says:
      Climate change is global and long-term in nature.
      Policies should seek to resolve climate change scientific 
uncertainties.
      Solutions must incorporate unrestricted use of market-
based flexibility mechanism, and consider the broadest range of sources 
as well as sinks of greenhouse gases, both domestic and international.
      Policies must protect a secure, economic and diverse 
energy supply, and promote long-term research, development and 
dissemination.
      Public and private partnerships should support 
development and commercialization of higher efficiency, lower emitting 
power generation technologies.
      Cost-effective means should be pursued to reduce, avoid 
and sequester greenhouse gas emissions.
    Southern says in the statement that it is committed to 
``establishing and maintaining dialog with public and private interest 
groups to expand the understanding of the climate change issue and to 
enhance the development and implementation of appropriate climate 
change policy.'' The full policy statement is available at: http://
www.southerncompany.com/planetpower.asp.
    Global Climate Coalition: Southern Company was a founding member of 
the Global Climate Coalition (GCC), which formed in 1989. For more than 
a decade, the GCC was the leading industry group opposed to mandatory 
greenhouse gas controls and U.S. adoption of the Kyoto Protocol. 
Southern was one of five companies that withdrew from the GCC in late 
1999 and early 2000. A Southern spokesman told IRRC that the company 
was concerned the GCC was ``as strident as its most strident member'' 
and that Southern had decided not to align itself with other groups on 
the climate change issue.
    At the time it pulled out of the lobbying group, Southern was 
facing a global warming shareholder resolution that highlighted its 
membership in the GCC. That resolution subsequently was withdrawn. The 
GCC ended its corporate membership program in March 2000, 1 month after 
Southern left the group, and it disbanded altogether in January 2002.
Renewable Energy Development
    Southern is not optimistic about the prospects for renewable energy 
development, especially in its service area. It says on its website 
that ``renewable energy is more expensive and sometimes dramatically so 
than power generated by fossil fuels than coal or natural gas. Even if 
costs weren't a factor, some renewable energy sources aren't available 
on a large scale in the Southeast.'' A shareholder proposal filed with
    Southern on developing renewable energy was supported by 9.5 
percent of shares voted in 2001 and 9.2 percent in 2002.
    Southern does offer an ``EarthCents green pricing'' option that 
allows customers in Alabama and Mississippi to purchase 100 watt blocks 
of renewable energy for $5-6 per month. Similar programs are awaiting 
regulatory approval in Georgia and Florida. The energy will come from a 
portfolio of sources, including landfill methane, wind and solar power. 
In addition, Southern is conducting research on biomass, solar and 
landfill methane technologies. For example, Southern is adding 
switchgrass (a biomass fuel) at two of its power plants to reduce the 
use of coal and related emissions. It has also installed a 250-kW fuel 
cell demonstration plant. Fuel cells emit less greenhouse gases 
inherently than boilers or engines that provide the same energy.
    In its 2002 Form 10-K, Southern acknowledges that commercial 
success of fuel cells and renewables would pose a competitive threat to 
the company and its shareholders. Management states:
    A key element of Southern Company's business model is that 
generating power at central power plants achieves economies of scale 
and produces power at relatively low cost. There are other technologies 
that produce power, most notably fuel cells, microturbines, windmills 
and solar cells. It is possible that advances in technology will reduce 
the cost of alternative methods of producing power to a level that is 
competitive with that of most central power station electric 
production. If this were to happen and if these technologies achieved 
economies of scale, Southern Company's market share could be eroded, 
and the value of its electric generating facilities could be reduced. 
Changes in technology could also alter the channels through which 
retail electric customers buy power, which could reduce Southern 
Company's revenues or increase expenses.

             II. SOUTHERN CO. AND ITS POWER PLANT EMISSIONS
 
   Southern Company is the nation's second largest electric utility 
and the nation's second largest consumer of coal (behind American 
Electric Power). According to an independent benchmarking study 
conducted by the Natural Resources Defense Council, Southern was the 
second largest U.S. utility emitter of carbon dioxide, sulfur dioxide, 
nitrogen oxides and mercury in 2000. That year, Southern had 32,000 
megawatts of capacity and coal provided 76 percent of its power 
generation. With 128 million metric tons of carbon dioxide emissions, 
Southern accounted for 6.4 percent of U.S. utilities' CO2 emissions in 
2000, according to the NRDC study. Southern has told IRRC that it is 
considering the adoption of CO2 emissions control targets.
    To date, Southern has spent considerable sums to comply with the 
Federal Clean Air Act, which addresses sources of air pollution. It 
estimates that its construction expenditures have totaled $400 million 
to achieve significant reductions in sulfur dioxide and nitrogen oxide 
emissions under the first two phases of the Clean Air Act Acid Rain 
provisions. In the 1990's, Southern cut its sulfur dioxide emissions by 
40 percent and its nitrogen oxides emissions by 28 percent, even as its 
electricity generation has increased by 20 percent.
    In addition, Southern has spent $980 million to reduce nitrogen 
oxide emissions from power plants in nonattainment areas around 
Atlanta, Ga., and Birmingham, Ala., to meet a regulatory requirement 
that goes into effect in May 2003. Additional construction expenditures 
for compliance in the Georgia nonattainment area are estimated at $305 
million to achieve standards that will go into effect in May 2005. 
Altogether, Southern expects to spend an additional $4 billion or more 
by 2015 to further reduce its overall emissions-not including carbon 
dioxide.
    Outlook to 2020: Unlike most utilities, Southern provides a long-
term outlook for its power supply and projected emissions, dating to 
2020. Its key projections are as follows:
      Power generation-Southern expects its annual power 
generation to increase from 172 million megawatt-hours in 2000 to 
approximately 250 MWh in 2020, an increase of 45 percent.
      Fuel mix-Southern expects its power supplied from coal to 
decrease from 76 percent in 2000 to 38 percent in 2020; its power from 
natural gas to increase from 4 percent to 53 percent; its power from 
nuclear energy to fall from 16 percent to 6 percent; and its power from 
hydro and oil to stay at about 3 percent.
      Sulfur dioxide and nitrogen oxide emissions-Southern 
expects its emissions of sulfur dioxide to fall from nearly 1.5 million 
tons in 1990 to about 300,000 tons in 2020, a decrease of about 80 
percent. It expects its emissions of nitrogen oxides to fall from 
400,000 tons to about 127,000 tons, a decrease of about 68 percent.
      Carbon dioxide emissions-As a result of generation 
growth, Southern expects its carbon dioxide emissions to increase from 
128 million metric tons in 2000 to approximately 148 MMT in 2020, an 
increase of about 16 percent. It says, ``Although our current 
projections indicate a rise in the years ahead, much focus is being 
placed on how we can continue to meet the energy needs of our customers 
while addressing emissions of greenhouse gases such as CO2.'' From 1990 
to 2020, Southern projects that its CO2 emissions will increase by a 
total of 45 percent.
    Carbon dioxide emissions reduction programs: Since 1991, Southern 
has avoided or offset a total of 55 million metric tons of CO2 
equivalent. It has registered these savings with the Department of 
Energy under Section 1605(b) of the 1992 Energy Policy Act. The savings 
have been achieved mainly through improved performance of three nuclear 
power plants, thereby offsetting generation and emissions from coal-
fired units. Southern has received 20-year license extensions for two 
of its three nuclear power plants, which will extend their expected 
life of operation past 2030.
    Southern has also sequestered carbon through a reforestation 
program that has planted more than 35 million trees. Other carbon 
dioxide emissions savings include 3.6 MMT from demand-side management 
programs, 0.2 MMT from biomass co-firing in coal-fired power plants, 
0.6 MMT of CO2 equivalent from methane reductions and 0.8 MMT of CO2 
equivalent from reductions in sulfur hexafluoride, a potent greenhouse 
gas.

Congressional Legislation
    Several major bills have been proposed in Congress to impose more 
stringent emissions limitations under the Clean Air Act. Three of these 
bills-the Bush Administration's Clear Skies Act, the Clean Power Act of 
2002 and the Clean Air Planning Act of 2002-propose to further limit 
power plant emissions of sulfur dioxide, nitrogen oxides, and mercury. 
The latter two bills also propose to limit emissions of carbon dioxide. 
Though none of these bills was enacted into law in the last Congress, 
similar bills have been introduced in 2003.
    Carbon dioxide legislation: In addition to the Clean Power Act and 
Clean Air Planning Act of 2002, other bills have been introduced in 
Congress, including the Climate Stewardship Act of 2003, which proposes 
capping greenhouse gas emissions by 2010 and returning them to 1990 
levels by 2016. In its 2002 Form 10-K, Southern does not indicate 
whether these bills would have material impacts on the company's 
operations and financial condition. It says the cost impacts of such 
legislation would depend upon the specific requirements enacted.
    Management does say in the Form 10-K that domestic efforts to limit 
greenhouse gas emissions have been spurred by international discussions 
surrounding the Framework Convention on Climate Change and specifically 
the Kyoto Protocol, which proposes international constraints on the 
emissions of greenhouse gases. Southern is involved in a voluntary 
electric utility industry initiative in partnership with the Bush 
Administration, which does not support ratification of the Kyoto 
Protocol or other mandatory carbon dioxide reduction legislation. The 
Bush Administration's voluntary climate initiative seeks an 18 percent 
reduction by 2012 in the rate of greenhouse gas emissions relative to 
the dollar value of the U.S. economy. Electric utilities have pledged a 
3 to 5 percent reduction in the carbon intensity of their emissions by 
2012. Absolute emissions of carbon dioxide would continue to rise. 
Because this initiative is still under development, Southern says it is 
not possible to determine the effect on the company at this time.

New Source Review and Related Lawsuits
    If Southern fails to comply with environmental laws and 
regulations, even if caused by factors beyond its control, that failure 
may result in the assessment of civil or criminal penalties and fines 
against the company. The U.S. Environmental Protection Agency has filed 
civil actions against Alabama Power, Georgia Power and Savannah 
Electric alleging violations of the New Source Review provisions of the 
Clean Air Act. The EPA has also issued notices of violation to Gulf 
Power and Mississippi Power. Management says in its Form 10-K that an 
``adverse outcome in any one of these cases could require substantial 
capital expenditures that cannot be determined at this time and could 
require payment of substantial penalties,'' ranging up to $27,500 per 
day, per violation at each generating unit.
    The New Source Review provisions of the Clean Air Act address older 
power plants that do not meet the more stringent emissions control 
requirements imposed on newest plants. The provisions were meant to 
require the installation of best available pollution control technology 
on older power plants if they were overhauled and underwent major 
modifications. Questions have arisen, however, over what constitutes 
major modification and what is considered routine maintenance for these 
plants.
    In December 2002, the EPA issued final and proposed revisions to 
the New Source Review program that are intended to clarify which 
maintenance expenditures do not warrant obtaining new Clean Air Act 
permits. Several Northeastern States petitioned the District of 
Columbia Circuit Court in February 2003 for a stay of the final rules. 
The stay was not granted. The proposed rules were open to public 
comment and may be revised before being finalized by the EPA. Any final 
regulations must be adopted by the States in the company's service area 
in order to apply to its facilities. Management says it cannot 
determine the effect of these proposed and final rules concerning the 
New Source Review at this time.
    Lawsuits: In November 1999, the EPA began a civil action against 
Alabama Power, Georgia Power and Savannah Electric alleging violations 
of the New Source Review provisions of the Clean Air Act. The lawsuit 
requests penalties and injunctive relief, including an order requiring 
the installation of the best available control technology at six 
affected units. The EPA has issued a notice of violation relating to 
each of these facilities as well as two others owned by Alabama Power.
    The cases against Southern's operating units have been stayed since 
the spring of 2001. A ruling is pending by the U.S. Court of Appeals 
for the Eleventh Circuit in the appeal of a very similar New Source 
Review enforcement action against the Tennessee Valley Authority. 
Because the outcome of the TVA appeal could affect the lawsuits pending 
against Southern's operating units, Alabama Power and Georgia Power 
have become parties to the TVA case as well. Southern believes its 
operating units were engaged in ``common and traditional maintenance 
activities'' of its power plants and ``complied with applicable laws 
and the EPA's regulations and interpretations in effect at the time the 
work in question took place.''

Other Clean Air Act Issues
    Southern's 2002 Form 10-K addresses a number of other requirements 
concerning the Clean Air Act and State clean air standards. These 
requirements are likely to result in additional capital expenditures, 
although in each instance management says it does not have enough 
information to characterize the possible impact on the company's 
operations or financial condition. These include:
    National ambient air quality standards for ozone and fine 
particulate matter: The U.S. Environmental Protection Agency will issue 
final implementation rules in 2004 that are expected to designate 
several areas within the company's service area with nonattainment 
under the new ozone and fine particulate matter standards. State 
implementation plans to bring those areas into compliance could be 
required as early as 2007. Those State plans could require further 
reductions in nitrogen oxide and sulfur dioxide emissions from power 
plants sometime after 2007. Management says the impact of any new 
standards will depend on the development and implementation of 
applicable regulations.
    Regional Transport Rule: The EPA also is expected to issue final 
rules for a Regional Transport Rule for the fine particulate matter 
standard in 2005. This rule would likely require year-round sulfur 
dioxide and nitrogen oxide emission reductions from power plants as 
early as 2010. If issued, this rule would likely modify other State 
implementation plan requirements for attainment of the fine particulate 
matter standard and ozone standard referenced above. Management says it 
is not possible at this time to determine the effect such a rule would 
have on the company.
    Regional haze: Further reductions in sulfur dioxide also could be 
required under the EPA's Regional Haze rules. The Regional Haze rules 
require States to establish Best Available Retrofit Technology (BART) 
standards for certain sources that contribute to regional haze. 
Southern says it has a number of plants that could be subject to these 
rules. State Implementation Plans for these rules are due in 2007 and 
2008. Because new BART rules have not been developed and State 
visibility assessments are only beginning, management says it is not 
possible to determine the effect of these rules on the company at this 
time.
    Compliance assurance monitoring: The EPA's Compliance Assurance 
Monitoring (CAM) regulations require that monitoring be performed to 
ensure compliance with emissions limitations on an ongoing basis. Four 
of Southern's operating companies will be applying for renewal of 
operating permits between 2003 and 2005 that will likely be subject to 
CAM requirements for at least one pollutant (in most cases particulate 
matter). The company is in the process of developing CAM plans, which 
could indicate a need for improved particulate matter controls at 
affected facilities. Because the plans are still in the early stages of 
development, management says it cannot determine the extent to which 
improved controls could be required or the costs associated with any 
necessary improvements.
    Mercury: The EPA plans to issue final rules regulating mercury 
emissions from electric utility boilers by the end of 2004. The program 
is being developed under the Maximum Achievable Control Technology 
provisions of the Clean Air Act. Compliance could be required as early 
as the end of 2007. Because the rules have not yet been proposed, 
management says the costs associated with compliance cannot be 
determined at this time.

Coal Research
    Southern is committed to the continued use of coal as one of its 
main sources of generation. It says on its company website that is 
pursuing development of coal technologies that ``could 1 day generate 
energy from coal while producing dramatically fewer emissions or no 
emissions at all.'' Southern has managed more than $400 million in 
research and development efforts over the last 10 years, much of it on 
clean-coal technologies. ``During the transition period to new clean 
coal technologies and other cleaner generation, it is critical that 
existing units be kept in efficient, operational order to maintain the 
reliability of our electric power system,'' the company says. 
``Utilities must be able to operate and maintain their plants to meet 
increases in demand for electricity.''
    At a facility in Alabama, Southern has successfully tested a 
technology that turns coal into gas, which could be used to produce 
electricity more cleanly than traditional coal plants. Coal 
gasification would cut carbon dioxide emissions by more than one third, 
relative to conventional coal plants, and emissions of sulfur dioxide, 
nitrogen oxides and particulate matter also would be ``significantly 
reduced,'' according to the company. The research program is a 
partnership with the U.S. Department of Energy in which $271 million 
has been invested.
    Southern is also one of eight large coal-burning utilities and coal 
companies to form an alliance that seeks the creation of a ``near zero-
emission'' coal-fueled power plant. The alliance is in support of 
President Bush's FutureGen Initiative, a 10-year public-private 
partnership that seeks to advance the use of hydrogen through 
extraction from coal. An April 22, 2003, press release announcing the 
alliance States that ``The U.S. has more than a 300-year supply of 
coal; therefore, the effort to design near zero-emissions power plants 
promises to create a new way in which coal can power our economy with 
minimal environmental impacts.''
    Southern also became the first utility to join the Zero Emission 
Coal Alliance. The aim of the alliance is to test technology that 
generates electricity with coal in a process that stores carbon dioxide 
in a solid, mineral carbonate form, thereby eliminating greenhouse gas 
emissions. Hydrogen extracted from coal through an anaerobic process is 
used in a fuel cell to generate electricity. Rights to the proprietary 
technology are now held by ZECA Corporation, which aims to be ``the 
premier owner and supplier of Zero Emission Coal and Carbon 
solutions.''

                       III. PROPONENTS' POSITION

    This is the fourth time that shareholder proponents affiliated with 
the Interfaith Center on Corporate Responsibility have submitted a 
global warming resolution to Southern Company. Shareholder proponents 
withdrew resolutions asking the company to report on the costs and 
liabilities of climate change in 1997, 1999 and 2002. The withdrawals 
came because ``the company was willing to be forthcoming with data we 
were asking for,'' according to Sister Patricia Daly, executive 
director of the Tri-State Coalition for Responsible Investment, who has 
been one of the lead filers at Southern.
    Earlier this year, the company once again sent representatives, 
including Dr. Charles Goodman, Southern's senior vice president for 
research and environmental affairs, to meet with Daly and other 
shareholder proponents in New York. Daly told IRRC that this year's 
meeting was not as productive as in years past, ``because they clearly 
had not done their homework on what our new resolution is about.'' 
Company executives presented an update of Southern's environmental 
progress and initiatives. ``But we're in a whole new ballgame now,'' 
Daly explained. ``We want the company to evaluate its data in terms of 
climate change risk, and we don't have any indication that anyone at 
the company is doing this.''
    The resolved clause of the 2003 global warming resolution has two 
elements. It asks the company's board of directors to report on:
    (a) the economic risks associated with the Company's past, present 
and future emissions of carbon dioxide, sulfur dioxide, nitrogen oxide 
and mercury emissions, and the public stance of the company regarding 
efforts to reduce these emissions and (b) the economic benefits of 
committing to a substantial reduction of those emissions related to its 
current business activities (i.e., potential improvement in 
competitiveness and profitability).
    In a presentation by Ceres, a coalition working closely with the 
Interfaith Center on the 2003 shareholder campaign, general arguments 
made in favor of the global warming resolution filed with electric 
utilities are as follows:
    1. Health and environmental risks from pollutants: Electric 
utilities account for two-thirds of the nation's sulfur dioxide 
emissions, one-third of its mercury emissions and nearly one-quarter of 
its nitrogen oxides emissions. These pollutants contribute to asthma, 
lung and heart disease and mercury bioaccumulation in humans, and cause 
extensive damage to the environment, including acid rain, smog and 
mercury bioaccumulation in fish and other species. At the same time, 
electric utilities account for 37 percent of the nation's carbon 
dioxide emissions, the main gas tied to global warming.
    2. Government regulation of these pollutants: Emissions of sulfur 
dioxide and nitrogen oxides are regulated under the Clean Air Act. This 
Federal law will require substantial additional reductions of these 
emissions as well as mercury in the years ahead. Utilities will have to 
make major new investments in pollution control technology, but this 
technology will not control carbon dioxide emissions.
    3. Risks of not factoring in carbon dioxide controls: The 
proponents believe domestic regulatory controls of CO2 are inevitable. 
Two States (New Hampshire and Massachusetts) have already passed laws 
restricting utility emissions of CO2, and Federal legislation has been 
introduced as well. At the international level, the Kyoto Protocol is 
likely to go into effect this year (although the Bush Administration 
has said the United States will not be bound by the agreement).
    According to studies cited by the proponents, the most expensive 
choice utilities could make is to retrofit existing fossil energy 
plants with new pollution control equipment and then have to reduce CO2 
emissions from these plants. The proponents argue that utilities should 
factor future CO2 controls into their investment strategies now, since 
it could alter decisions about which power plants to retrofit with new 
pollution control equipment and which to replace with new, cleaner 
energy sources.
    4. Need for greater disclosure by utilities: By some estimates 
cited by the proponents, many electric utilities face a ``carbon 
exposure'' of between 10 and 35 percent of their total market 
capitalization. (In other words, the cost of achieving carbon dioxide 
emission controls as specified by the Kyoto Protocol equals 10 to 35 
percent of the current value of their stock.) Many factors go into 
making this calculation, including a utility's generating assets, fuel 
mix, installed pollution control technologies and whether it is 
competing in a deregulated electricity market. ``Investors cannot 
assess this risk without more disclosure'' from utilities, according to 
Ceres.
    That is why the proposal calls on management to conduct a thorough 
economic assessment of the risks and benefits of achieving substantial 
emissions reductions of the four pollutants listed in the proposal. 
``We believe that taking early action on reducing emissions and 
preparing for standards could better position companies over their 
peers, including being first to market with new high-efficiency and 
low-emission technologies,'' the proponents argue. ``Changing consumer 
preferences, particularly those relating to clean energy, should also 
be considered. Inaction and opposition to emissions control efforts 
could expose companies to reputation and brand damage, and regulatory 
and litigation risk,'' it concludes.

                       IV. MANAGEMENT'S POSITION

    Management opposes the resolution seeking more disclosure on the 
company's efforts to address climate change. It argues that the 
resolution would duplicate company reporting activities and be unduly 
speculative. It says in its proxy statement that ``the detailed 
information requested on future costs and risks would require knowledge 
of future governmental or other legal action,'' beyond what is already 
discussed in company reports.
    Management says the proponents' request for information on the 
``economic risks associated with the Company's past, present, and 
future emissions'' can be found in the Southern's Annual Report on Form 
10-K, which is available on the Company's website and the website of 
the Securities and Exchange Commission. In addition, details on the 
company's risk factors, including historic and anticipated 
environmental costs and known future contingencies, are included in the 
company's Annual Report to Stockholders in the Management's Discussion 
and Analysis section.
    Finally, management says the company's environmental commitment and 
achievements are described in its Environmental Progress Report, which 
is available for viewing and downloading on the company's website and 
will be sent to stockholders or others upon request.
    Management does not offer any specific comments in its proxy 
statement on the global warming issue or its expenditures to control 
emissions of pollutants regulated by the Clean Air Act. It says only 
that Southern ``is committed to complying fully with all environmental 
laws and regulations as well as maintaining our commitment to 
environmental stewardship in such a way that appropriately considers 
our customers and stockholders.''

                            V. IRRC ANALYSIS

SmartVoter Guidelines
    Voting guidelines for this resolution are presented under issue 
number 3425 in IRRC's SmartVoter product.
    Questions Raised
      Is Southern responding adequately to the risks of global 
warming?
      Could Southern do more to report on these risks to 
shareholders?
    Risks of global warming: As the nation's second largest electric 
utility, and one of the most heavily reliant on coal, Southern has a 
tremendous amount at stake in the global warming debate. Carbon dioxide 
emissions from its power plants account for nearly 2.5 percent of the 
nation's CO2 emissions. As it expands its power generation, Southern 
expects these emissions to grow by another 16 percent by 2020-for a 
total increase of 45 percent between 1990 and 2020.
    Legislation proposed in Congress calls on companies to ``cap and 
trade'' their emissions. Under the Climate Stewardship Act, for 
example, companies would be required to return to 1990 emissions levels 
by 2016. The Kyoto Protocol (which the United States has not endorsed) 
calls for more stringent controls-a 7 percent cut in CO2 emissions 
below 1990 levels by 2012. Management says it is focused on 
``addressing emissions of greenhouse gases such as CO2,'' but it has 
not indicated to shareholders the extent of such controls and whether 
they would have a material impact on the company's operations and 
financial condition. It says the cost impacts of CO2 controls would 
depend upon specific requirements of government legislation.
    Meanwhile, Southern continues to make extensive investments in its 
aging fleet of coal-fired power plants. As the utility industry's #2 
emitter of sulfur dioxide and nitrogen oxides, Southern has spent $1.4 
billion to install pollution control equipment under the acid rain and 
ozone nonattainment provisions of the Clean Air Act. It expects to 
spend an additional $4 billion or more by 2015 to further reduce these 
and mercury emissions. However, its spending on pollution control could 
be higher and come sooner if it loses a series of court cases now 
before U.S. Court of Appeals. At issue is whether Southern's older coal 
plants must install best available pollution control technology when 
they receive modifications. Management says that an adverse outcome in 
any one of these cases could require ``substantial capital 
expenditures'' and could require payment of ``substantial penalties"-
ranging up to $27,500 per day, per violation at each generating unit.
    The proponents are concerned that Southern may find itself making 
costly investments to retrofit existing fossil energy plants with new 
pollution control equipment and later have to reduce CO2 emissions from 
these plants, compromising the future value of these investments. The 
proponents argue that utilities should factor possible CO2 controls 
into their investment strategies now, since that could alter their 
decisions about which power plants to retrofit and which to replace 
with new, cleaner energy sources. Accordingly, they are asking 
management to issue a report on this issue.
    Adequacy of reporting by Southern: Southern provides a much clearer 
outlook for its power generation than most electric utilities. With 
projections out to 2020, management has informed shareholders that it 
expects its power generation to grow by 45 percent, even as it reduces 
its emissions of sulfur dioxide and nitrogen oxides by 68 to 80 percent 
of 1990 levels. These reductions will be made possible not only by 
investments in pollution control equipment at its coal-fired plants, 
but also by construction of new gas-fired plants to meet incremental 
power demand. Natural gas is expected to account for about half of 
Southern generating mix by 2020, while coal's contribution is expected 
to fall from about two-thirds to just over one-third. Because natural 
gas has a lower carbon content than coal and burns more efficiently, 
Southern also expects to reduce the ``carbon emissions intensity'' of 
its power production. For every 3 percent increase in power generation, 
it is projecting only a 1 percent increase in its CO2 emissions.
    As detailed as this reporting is, it still does not answer the 
proponents' fundamental question, however: What will the company do if 
it has to achieve stabilization or reductions in its CO2 emissions over 
the next 10 to 20 years? By 2020, Southern's CO2 emissions are 
projected to be 45 percent above 1990 levels. Accordingly, even 
achieving stabilization at 1990 levels would entail a substantial 
emissions reduction from the levels now being projected.
    On this vital contingency, management offers very little guidance 
in its Form 10-K or other securities filings. With respect to 
government policy, management says the effects on the company would 
depend on the terms of legislative controls. With respect to 
technology, management does acknowledge that the commercial success of 
low-emitting technologies, such as fuel cells and renewables, could 
erode its market share and reduce the value of its electric generating 
facilities, if they achieve economies of scale. But again management 
gives no indication of whether these developments would be material to 
the company and its shareholders. By inference, the suggestion is that 
they could be.
    By reviewing the company's environmental report, shareholders are 
able to glean some other useful pieces of information. With respect to 
renewables, Southern does not see them posing much of a threat-or 
opportunity-in its service area because the available resources are 
limited and the costs of generation are higher than power from coal or 
natural gas. (This assumes no costs of carbon emissions will be added 
to these fuels.) With respect to coal, Southern says it is pursuing 
development of cleaner-burning technologies that ``could 1 day generate 
energy from coal while producing dramatically fewer emissions or no 
emissions at all.'' It does not give a clear sense of the generating 
costs or technological hurdles that remain with clean coal 
technologies, however, so it is not possible for shareholders to 
compare their prospects with those of renewables. Finally, with respect 
to the issue of climate change, Southern continues to regard it as 
``global and long-term in nature,'' and believes that policies ``should 
seek to resolve climate change scientific uncertainties.'' Management's 
key point is this:
    During the transition period to new clean coal technologies and 
other cleaner generation, it is critical that existing units be kept in 
efficient, operational order to maintain the reliability of our 
electric power system. Utilities must be able to operate and maintain 
their plants to meet increases in demand for electricity.
    Herein lies the dilemma for investors. The proponents say 
management must provide better information on the costs and risks of 
this strategy, given that the cost of achieving carbon dioxide emission 
controls ranges from 10 to 35 percent of the current value of utility 
companies' stock, according to some estimates. Management says, 
however, that the detailed information requested by the proponents 
would require knowledge of future governmental or other legal action 
beyond what is already discussed in company reports.
    In the final analysis, shareholders who are satisfied with 
Southern's current level of reporting-which at least provides a clear 
outlook for the company's generating mix and projected emissions 
through 2020-will be inclined to side with management and vote against 
this proposal. Those who feel that management could set some better 
financial parameters around the uncertainties in its outlook-especially 
what legal, regulatory and legislative developments could be material 
to the company and its shareholders-will be inclined to support the 
proponents' call for a more detailed report on the costs and benefits 
of Southern's evolving response to climate change.

                                 ______
                                 
              EXCERPT FROM SOUTHERN CO.'S PROXY STATEMENT
    Shareholder Proposal Related To An Environmental Report:
                     ``ELECTRIC UTILITY RESOLUTION

    WHEREAS:
    In 2001 The Intergovernmental Panel on Climate Change concluded 
that ``there is new and stronger evidence that most of the warming 
observed over the last 50 years is attributable to human activities.''
    In 2001 the National Academy of Sciences stated that the ``degree 
of confidence in the IPCC assessment is higher today than it was 10, or 
even 5 years ago . . . there is general agreement that the observed 
warming is real and particularly strong within the past 20 years.''
    The United States government's ``Climate Action Report--2002,'' 
concluded that global climate change may harm the country. The report 
highlights risks to coastal communities in the Southeast due to sea 
level rise, water shortages throughout the West, and increases in the 
heat index and frequency of heat waves.
    In July 2002, 11 Attorneys General wrote President Bush, outlining 
their concern over the U.S. Climate Action Report's failure to 
recommend mandatory reductions of greenhouse gas emissions. They 
declared that States are being forced to fill the Federal regulatory 
void through State-by-State regulation and litigation, increasing the 
ultimate costs of addressing climate change. They urged a 
reconsideration of his regulatory position, and adoption of a 
``comprehensive policy that will protect both our citizens and our 
economy.''
    U.S. power plants are responsible for about two-thirds of the 
country's sulfur dioxide emissions, one-quarter of its nitrogen oxides 
emissions, one-third of its mercury emissions, approximately 40 percent 
of its carbon dioxide emissions, and 10 percent of global carbon 
dioxide emissions.
    Scientific studies show that air pollution from U.S. power plants 
causes tens of thousands of premature deaths and hospitalizations, 
hundreds of thousands of asthma attacks, and several million lost 
workdays nationwide every year from pollution-related ailments.
    Standards for carbon dioxide emissions and other air pollutants are 
emerging across multiple fronts. Ninety-six countries have ratified the 
Kyoto Protocol, requiring carbon dioxide reductions. Massachusetts and 
New Hampshire have enacted legislation capping power plants emissions 
of carbon dioxide and other air pollutants. In June 2002 the Senate 
Environment and Public Works Committee passed a bill seeking to cap 
emissions from the generation of electric and thermal energy.
    We believe that taking early action on reducing emissions and 
preparing for standards could better position companies over their 
peers, including being first to market with new high-efficiency and 
low-emission technologies. Changing consumer preferences, particularly 
those relating to clean energy, should also be considered.
    Inaction and opposition to emissions control efforts could expose 
companies to reputation and brand damage, and regulatory and litigation 
risk.
    RESOLVED: That the Board of Directors report (at reasonable cost 
and omitting proprietary information) by August 2003 to shareholders on 
(a) the economic risks associated with the Company's past, present and 
future emissions of carbon dioxide, sulfur dioxide, nitrogen oxide and 
mercury emissions, and the public stance of the company regarding 
efforts to reduce these emissions and (b) the economic benefits of 
committing to a substantial reduction of those emissions related to its 
current business activities (i.e. potential improvement in 
competitiveness and profitability).''

THE BOARD OF DIRECTORS RECOMMENDS A VOTE ``AGAINST'' ITEM NO. 3 FOR THE 
                           FOLLOWING REASONS:

    The Company is committed to complying fully with all environmental 
laws and regulations as well as maintaining our commitment to 
environmental stewardship in such a way that appropriately considers 
our customers and stockholders.
    The proposal requests a report to our shareholders on the 
``economic risks associated with the Company's past, present, and 
future emissions.'' The Company currently provides details regarding 
its risk factors including historic and anticipated environmental costs 
and known future contingencies. This information is included in the 
Company's Annual Report on Form 10-K for the year ended December 31, 
2002 (``Form 10-K''). The Form 10-K is available on the Company's 
website and the website of the Securities and Exchange Commission and 
may be obtained from the Company. (See page 2 of this Proxy Statement 
for information on requesting a copy of the Form 10-K from the 
Company.)
    Details on the Company's risk factors, including historic and 
anticipated environmental costs and known future contingencies, are 
also included in the Annual Report to stockholders in the Management's 
Discussion and Analysis of Results of Operations and Financial 
Condition section and in the Notes to Financial Statements.
    In addition, the Company's environmental commitment and 
achievements are described in our Environmental Progress Report. This 
report is available for viewing and downloading on the Company's 
website and will be sent to stockholders or others upon request.
    The Company opposes this proposal because the information the 
Company would report is largely duplicative of information already 
provided. We also believe the detailed information requested on future 
costs and risks would require knowledge of future governmental or other 
legal action and is too speculative to report and quantify as requested 
by the proposal, beyond what is discussed in the reports noted above. 
We believe that it is in the best interests of our stockholders that 
the Company not be required to incur the additional expense of 
producing and distributing such a report.
    The vote needed to pass the proposed stockholders' resolution is a 
majority of the shares represented at the meeting and entitled to vote.
    THE BOARD OF DIRECTORS RECOMMENDS A VOTE ``AGAINST'' ITEM NO. 3.

                               __________
  Statement of Mark Brownstein, Director of Enterprise Strategy, PSEG 
                          Services Corporation

    I am honored to be here this morning to represent Public Service 
Enterprise Group ( PSEG), and the Clean Energy Group.
    PSEG is a diversified energy company with over $25 billion in 
assets and over $8 billion in annual revenues. The PSEG family of 
companies includes Public Service Electric and Gas Company, New 
Jersey's oldest and largest electric and gas delivery company, PSEG 
Global, which owns and operates energy production and distribution 
facilities overseas, and PSEG Power, one of the largest independent 
electric generating companies in the United States, with 13,000 
megawatts of electric generating capacity operating or under 
construction in New Jersey, New York, Connecticut, Pennsylvania, Ohio, 
and Indiana.
    The Clean Energy Group (CEG) is a coalition of companies with more 
than 100,000 Mw of generation capacity nationwide, including coal, gas, 
oil, nuclear, and renewables. The members of CEG--Consolidated Edison, 
Inc., Entergy, Exelon Corporation, KeySpan, Northeast Utilities, PG&E 
National Energy Group, Sempra Energy, and PSEG are committed to 
promoting progressive environmental policies that are economically 
sound and sustainable.
    PSEG, which celebrates its 100th anniversary this week, has long 
believed that environmental performance is one indicator of overall 
business performance. Experience has taught us that proactive steps to 
improve environmental performance can often lead to better bottom line 
results. That said we never take our eye off of bottom line results. In 
our view, environment and economics are inseparable, and, as with many 
things in life, the secret to success is finding the right balance.
    If you remember only one thing from what I say here today, please 
remember that one word: balance. For PSEG and the CEG member companies, 
the single greatest value to be derived from Federal multi-pollutant 
legislation aside from the public health and environmental benefits 
themselves--is certainty. And the best way we know to achieve certainty 
is through a public policy outcome that strikes the right balance 
between environmental and energy policy objectives.
    I am aware that this is the third hearing you have held on the many 
questions surrounding multi-pollutant legislation. And I am also aware 
that various stakeholders have come before you to argue that the 
current proposals on the table go too far, or do not go far enough. I 
suppose such a tug of war is common in politics, but in business, we 
often worry when any one extreme carrys the day, for experience shows 
that a strong pull to any one extreme only invites an equal and 
opposite backlash at some point down the road. From day one, our goal 
in this debate has been to seek and encourage consensus for we believe 
that it is only through consensus that we can achieve the kind of 
regulatory stability essential to the health of our industry.
    You have heard from others here today about the importance of 
certainty, and I echo that concern. This is a very capital intensive 
industry, where large investments are made in assets that last 30 years 
or more. Making large bets on the future is an inherently risky 
proposition, and no amount of legislative activity on your part can 
offer us 100 percent certainty. But to the extent that the trajectory 
of future environmental requirements looms large in the planning of any 
major player in our industry, you can make a significant difference by 
crafting legislation that clearly articulates expectations over the 
next 15 years, at least.
    The past two and a half years have been tumultuous for our 
industry. We do not need any more excitement. But where some people 
might argue that now is the wrong time to set new environmental 
requirements, we would argue that to take this ``do nothing'' advice 
would be to kill us with kindness.
    Whether you believe that the current oversupply of generation and 
capital crunch will last 2 years or 5 years, the fact of the matter is 
that current market conditions in our industry are part of a cycle. At 
some point, hopefully soon, companies like ours will begin to make new 
investments in our nation's energy infrastructure, and when we do, it 
is critical that we have a clear understanding of the environmental 
requirements we will have to meet. Otherwise, I fear, we will be making 
bad investments.
    Nowhere is this more true than the issue of carbon dioxide 
regulation. First off, let me state for the record, as we have said 
many times in the past, PSEG believes that President Bush was right to 
reject the Kyoto Protocol. The reductions contemplated under that 
agreement demanded too much, too fast for our industry and our economy 
to handle.
    At the same time, we think the issue of climate change is real, and 
we believe a domestic regulatory response is both necessary and 
inevitable. Given that our industry is singularly responsible for over 
a third of the nation's greenhouse gas emissions and 10 percent of 
total manmade greenhouse gas emissions worldwide, we cannot, and should 
not dodge this issue.
    With this perspective in mind, we believe that we are better off as 
a company, and as an industry, if we develop and implement a moderate 
response now rather than wait 10 years, only to find that the political 
problem is now worse or that the environmental problem requires a more 
drastic response, and the investment decisions made in the interim were 
dead wrong. This is one of the reasons why we think the bill introduced 
by Senators Carper, Chafee, Gregg make such an important contribution 
to this debate, and why we have been such strong supporters of their 
efforts.
    We are encouraged by the leadership that the Bush Administration 
has shown on the issue of multi-pollutant legislation, and we deeply 
appreciate the leadership that Senator Inhofe and, you, Senator 
Voinovich, have shown in tackling this very difficult issue. We 
encourage you in your efforts to find that balance that I talked about 
earlier, and I pledge the full support of PSEG and the CEG companies in 
your efforts.
    Once again, thank you for the opportunity to testify before this 
committee. I will be happy to answer any questions you may have.

                                 
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