[Senate Hearing 109-466]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 109-466
 
   PUBLIC POLICY OPTIONS FOR ENCOURAGING ALTERNATIVE AUTOMOTIVE FUEL 
                              TECHNOLOGIES

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

                                HEARING

                               before the

                         COMMITTEE ON COMMERCE,
                      SCIENCE, AND TRANSPORTATION
                          UNITED STATES SENATE

                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION

                               __________

                           NOVEMBER 15, 2005

                               __________

    Printed for the use of the Committee on Commerce, Science, and 
                             Transportation




                    U.S. GOVERNMENT PRINTING OFFICE
28-350                      WASHINGTON : 2006
_____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov  Phone: toll free (866) 512-1800; (202) 512ï¿½091800  
Fax: (202) 512ï¿½092250 Mail: Stop SSOP, Washington, DC 20402ï¿½090001

       SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION

                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION

                     TED STEVENS, Alaska, Chairman
JOHN McCAIN, Arizona                 DANIEL K. INOUYE, Hawaii, Co-
CONRAD BURNS, Montana                    Chairman
TRENT LOTT, Mississippi              JOHN D. ROCKEFELLER IV, West 
KAY BAILEY HUTCHISON, Texas              Virginia
OLYMPIA J. SNOWE, Maine              JOHN F. KERRY, Massachusetts
GORDON H. SMITH, Oregon              BYRON L. DORGAN, North Dakota
JOHN ENSIGN, Nevada                  BARBARA BOXER, California
GEORGE ALLEN, Virginia               BILL NELSON, Florida
JOHN E. SUNUNU, New Hampshire        MARIA CANTWELL, Washington
JIM DeMINT, South Carolina           FRANK R. LAUTENBERG, New Jersey
DAVID VITTER, Louisiana              E. BENJAMIN NELSON, Nebraska
                                     MARK PRYOR, Arkansas
             Lisa J. Sutherland, Republican Staff Director
        Christine Drager Kurth, Republican Deputy Staff Director
                David Russell, Republican Chief Counsel
   Margaret L. Cummisky, Democratic Staff Director and Chief Counsel
   Samuel E. Whitehorn, Democratic Deputy Staff Director and General 
                                Counsel
             Lila Harper Helms, Democratic Policy Director


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on November 15, 2005................................     1
Statement of Senator Burns.......................................    32
Statement of Senator Inouye......................................    32
Statement of Senator Bill Nelson.................................    35
Statement of Senator E. Benjamin Nelson..........................    33
Statement of Senator Pryor.......................................    34
Statement of Senator Stevens.....................................     1
    Prepared statement...........................................     1

                               Witnesses

Friedman, David, Research Director, Clean Vehicles Program, Union 
  of Concerned Scientists (UCS),.................................    17
    Prepared statement...........................................    19
Grumet, Jason, Executive Director, National Commission on Energy 
  Policy (NCEP)..................................................    23
    Prepared statement...........................................    26
Plotkin, Steven E., Transportation and Energy Analyst, Center for 
  Transportation Research, Argonne National Laboratory...........     7
    Prepared statement...........................................     9
Shane, Jeffrey N., Under Secretary for Policy, Department of 
  Transportation.................................................     2
    Prepared statement...........................................     4
Webber, Fred, President/CEO, Alliance of Automobile Manufacturers    12
    Prepared statement...........................................    13

                                Appendix

Written Questions Submitted by Hon. Maria Cantwell to Jeffrey N. 
  Shane..........................................................    45


                       PUBLIC POLICY OPTIONS FOR
          ENCOURAGING ALTERNATIVE AUTOMOTIVE FUEL TECHNOLOGIES

                              ----------                              


                       TUESDAY, NOVEMBER 15, 2005

                                       U.S. Senate,
        Committee on Commerce, Science, and Transportation,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 10 a.m. in room 
SD-562 Dirksen Senate Office Building, Hon. Ted Stevens, 
Chairman of the Committee, presiding.

            OPENING STATEMENT OF HON. TED STEVENS, 
                    U.S. SENATOR FROM ALASKA

    The Chairman. I'm sorry to report we have seven stacked 
roll call votes that start at 10:45 this morning. Since we're 
short on time, we're going to combine panels. We'll ask all 
Senators including myself to submit their opening statements. 
It is my hope that we can ask the witnesses to present their 
testimony. We have got six of you and if you could hold your 
statements down to about 5 minutes we will see if we can have a 
question period for a few minutes then be able to leave here 
about 10:50, 10:55 a.m. Any objection? Obviously not. Let me 
proceed then. Just in order that you're seated at the table.
    Ms. Glassman.
    [The prepared statement of Senator Stevens follows:]

    Prepared Statement of Hon. Ted Stevens, U.S. Senator from Alaska
    Good morning. I am pleased to be here today to discuss the public 
policy options for encouraging alternative automotive fuel 
technologies.
    I scheduled this hearing to improve the Committee's understanding 
of current and future alternative fuel sources and vehicle fuel 
efficiency technologies.
    With so many different fuel sources and technologies available 
today or being developed, it is vital to understand them as we consider 
developing Federal policies and programs.
    We already see some of these technologies emerging on the market, 
including hybrid and electric vehicles. I am encouraged by what I've 
seen thus far from these technologies that reduce both fuel costs and 
vehicle emissions. Congress must study these alternative technologies 
to better plan for the future; and act in a manner whereby markets 
continue to work and provide consumers the greatest flexibility 
possible when making decisions involving fuel technologies.
    I apologize, but since there are seven stacked votes starting at 
10:45 a.m. today and we are short on time, we will be combining the two 
panels of witnesses today. First, we will hear testimony from the 
Honorable Jeffrey Shane, who is accompanied by Jackie Glassman, the 
Deputy Administrator for the National Highway Traffic Safety 
Administration.
    Then, we will hear from Mr. Steven Plotkin from the Center for 
Transportation Research of the Argonne National Laboratory, Mr. Fred 
Webber from the Auto Alliance, Mr. David Friedman from the Union of 
Concerned Scientists, and Mr. Jason Grumet from the National Commission 
on Energy Policy.

  STATEMENT OF JEFFREY N. SHANE, UNDER SECRETARY FOR POLICY, 
                  DEPARTMENT OF TRANSPORTATION

    Ms. Glassman. Actually, Mr. Shane will present the 
testimony for the Department of Transportation.
    Mr. Shane. Thank you very much, Mr. Chairman. I'm Jeff 
Shane. I'm the Under Secretary for Policy for the Department of 
Transportation and I'm accompanied by Jackie Glassman who is 
Senior Administrator at the National Highway Traffic Safety 
Administration.
    The Chairman. There are only four of you. Why don't you 
take about 8 minutes apiece and we'll proceed after that.
    Mr. Shane. Thank you, sir. We appreciate the opportunity to 
discuss the efforts of the Administration and the U.S. 
Department of Transportation on policy options for encouraging 
alternative automotive fuel technologies. This is a matter 
obviously, of great importance to the economy and great 
importance to our national energy security. Mr. Chairman, I 
have a longer statement that we have submitted for the record 
and I'd be very grateful if that can be incorporated in the 
record.
    The Chairman. All of your statements will be in the record. 
Make the comments you want to.
    Mr. Shane. Thank you. In 2003, noticing the rapid drop in 
the amount of fuel consumed in the United States that's 
actually produced in the United States, President Bush 
announced a bold initiative to begin the transition to a 
hydrogen economy. This initiative is aimed at developing 
commercially viable hydrogen-powered vehicle, hydrogen 
production systems, and hydrogen infrastructure. The hydrogen 
initiative's goal is to ensure America's long-term energy 
security by making vehicles powered by hydrogen fuel cells a 
practical and cost-effective choice for large numbers of 
Americans by the year 2020. This is the Administration's long-
term vision.
    The Department of Energy is primarily responsible for 
hydrogen production and storage technology, fuel cell 
development, and light duty vehicle development. The Department 
of Energy and the Department of Transportation share 
responsibility for codes and standards development. DOT, under 
its statutory authorities, is primarily responsible for 
ensuring the safety of hydrogen vehicles, the safety of 
hydrogen infrastructure, and for developing the regulations and 
the standards that ensure that safety.
    My prepared testimony lists a number of DOT-specific 
responsibilities in this connection. I'll just ask that those 
be referred to in the prepared remarks in the interest of time.
    We know that hydrogen technology development and deployment 
will take time and that is why the Administration is also 
committed to programs that will provide near-term results. 
These include rulemakings for light trucks under the Corporate 
Average Fuel Economy program. That's the CAFE program. In 2002, 
the Congress acceded to Secretary Mineta's request to resume 
rulemaking under CAFE. Rulemaking covering model years 2005 to 
2007 is expected to save 3.6 billion gallons of fuel over the 
life of the regulated vehicles.
    For model year 2008-2011 vehicles, we just issued a second 
rulemaking that proposes an innovative new approach: basing 
light truck fuel economy standards on vehicle size for the 
first time. This approach will yield greater fuel savings for 
the driving public while enhancing safety and reducing 
compliance costs.
    Other programs that can be expected to yield near-term 
results include the tax credits for energy-efficient hybrid, 
clean diesel, and advanced internal combustion engine vehicles 
that were created by the Energy Policy Act of 2005;
    the renewable fuel standard incorporated into the 
legislation, the extension of the renewable fuels CAFE credit 
under the Alternative Motor Fuels Act enacted as a part of the 
Energy Policy Act, and multiple ``clean fuels'' programs for 
heavy vehicles incorporated into the Energy Policy Act;
    and, alternative fuel vehicles and associated 
infrastructure continue to be eligible under the Congestion 
Mitigation and Air Quality Improvement Program or CMAQ program, 
as authorized under SAFETEA-LU.
    Finally, we're also placing great emphasis on programs to 
mitigate fuel-sapping congestion through encouraging high 
occupancy vehicle lanes, congestion pricing, public-private 
partnerships, the deployment of intelligent transportation 
systems and, of course, support for transit and paratransit 
systems.
    Biofuels offer another approach for reducing our near-term 
dependence on imported fuels. All of the current and near-term 
advanced automotive technologies that we are considering today, 
including hybrids, can use biofuel blends. Today conditions are 
better than ever for expansion of renewable fuels in the 
transportation sector.
    The renewable fuels standard enacted by Congress in the 
Energy Policy Act of 2005 mandates a near-doubling of ethanol 
use in gasoline by 2012 to 7.5 billion gallons.
    The American Jobs Creation Act of 2004 greatly simplified 
the long-standing ethanol excise tax credit. Together with high 
petroleum prices, the Federal excise tax credit has greatly 
improved the competitiveness of alcohol fuels and biodiesel.
    The Energy Policy Act of 1992 and the CAFE credit 
provisions in the Alternative Motor Fuels Act have created a 
fleet of more than four million ``ethanol ready'' vehicles that 
can use E85 ethanol blends at their owners' discretion. 
Essentially all gasoline vehicles sold in the United States 
today can use up to 10 percent ethanol blended in gasoline 
without affecting their warranties.
    There is widespread commercial interest in expanding 
production of both ethanol and biodiesel. The Renewable Fuels 
Association reports that there are 92 ethanol plants in the 
United States with current fuel ethanol capacity of 4.2 billion 
gallons a year, and that 1.4 billion gallons a year of 
additional capacity are currently under construction. The 
National Biodiesel Board indicates that 2004 production is 25 
million gallons and they expect 2005 production to triple to 75 
million gallons.
    In addition, the Energy Policy Act contains incentives for 
production of cellulosic ethanol, which, if the technology can 
be made economical, offers the opportunity to convert low value 
crop residues into fuel-grade ethanol. Biodiesel can be made 
from waste oils in low volumes and from a range of oilseeds in 
potentially larger volumes.
    Reducing our Nation's dependence on oil cannot be 
accomplished by one simple act. The Administration's efforts 
recognize that there are actions all of us can take today in 
the near-term and there are other actions and revolutionary new 
technologies that require a long-term commitment for successful 
deployment.
    The Department of Transportation is very pleased to play a 
vital role in these and other important and ongoing efforts and 
ensuring public safety in transportation while helping 
innovative technologies roll out on America's roads.
    That concludes my statement, Mr. Chairman.
    The Chairman. Thank you very much.
    [The prepared statement of Mr. Shane follows:]

  Prepared Statement of Jeffrey N. Shane, Under Secretary for Policy, 
                      Department of Transportation

    Mr. Chairman and Members of the Committee:
    Thank you for giving me the opportunity to discuss the efforts of 
the Administration and the U.S. Department of Transportation on policy 
options for encouraging alternative automotive fuel technologies. This 
is a matter of great importance to the economy and to our national 
energy security.
    Back in 1985, 73 percent of the petroleum consumed in America came 
from domestic sources. Since then, American gasoline consumption has 
increased by about a third, while domestic crude production has 
dropped, resulting in a dramatic rise in oil imports. Today, only about 
35 percent of the crude oil used in U.S. refineries is from domestic 
sources, and our dependence on foreign oil is increasing. This change 
did not happen overnight, and many of the strategies to address our oil 
dependence must look to the long term.
    In 2003, President Bush announced a bold initiative to begin the 
transition to a hydrogen economy. This initiative spans a range of 
technologies, aimed at developing commercially viable hydrogen-powered 
vehicles, hydrogen production systems with carbon sequestration, and 
hydrogen infrastructure. The initiative's goal is to ensure the long-
term energy security of America by making vehicles powered by hydrogen 
fuel cells a practical and cost-effective choice for large numbers of 
Americans by the year 2020. This is the Administration's long-term 
vision.
    The Department of Energy is primarily responsible for hydrogen 
production and storage technology, fuel cell development, and light-
duty vehicle development.
    The Department of Energy and the Department of Transportation share 
responsibility for codes and standards development. DOT, under its 
statutory authorities, is primarily responsible for ensuring the safety 
of hydrogen vehicles and infrastructure, and for developing the 
regulations and standards that ensure that safety. DOT is also 
responsible for ensuring that hydrogen vehicles can be integrated into 
the larger transportation system. Some of the specific responsibilities 
within DOT:

   The National Highway Traffic Safety Administration (NHTSA) 
        concentrates its efforts on ensuring that hydrogen vehicles are 
        safe.

   The Research and Innovative Technology Administration (RITA) 
        coordinates the Department's Hydrogen Working Group, and 
        represents the Department on the National Science and 
        Technology Council and as a member on the Interagency Working 
        Group on Hydrogen exploring hydrogen delivery infrastructure 
        needs. A multi-modal team will develop advice for first 
        responders for vehicle crashes and hazardous material cleanup 
        crews at vehicle crash sites, and for safe infrastructure 
        location and permitting. RITA is also conducting multimodal 
        safety research, covering vehicles, hazardous materials 
        transport, and fixed infrastructure.

   The Federal Motor Carrier Safety Administration is 
        developing guidelines for the operation, fueling, inspection, 
        and maintenance of hydrogen systems in commercial vehicles.

   The Federal Transit Administration, in partnership with key 
        stakeholders, leads a broad-based national effort focused on 
        fuel cell buses.

   The Pipeline and Hazardous Materials Safety Administration 
        (PHMSA) oversees the safety and security of hydrogen delivery 
        by pipeline, rail, and truck, including existing technologies 
        such as high pressure cylinders and emerging technologies such 
        as metal hydrides. PHMSA will continue to provide advice for 
        first responders to hydrogen and other hazardous materials 
        incidents.

    Coordinated codes and standards work is critical to the success of 
the entire hydrogen venture. Although widespread use of hydrogen-
powered vehicles is more than a decade away, there are prototype 
vehicles on public roads now. Safety is essential to the broad public 
acceptance of any new technology. Manufacturers of both vehicles and 
infrastructure will need to know which regulatory standards they must 
meet before designing systems for mass production and widespread 
deployment.
    We know that hydrogen technology development and deployment will 
take time. That is why the Administration is also committed to programs 
that will provide nearer term results. These include:

   Rulemakings for light trucks under the Corporate Average 
        Fuel Economy (CAFE) program. In 2002, the Congress granted 
        Secretary Mineta's request to resume rule-making under CAFE. 
        NHTSA's rulemaking covering Model Years 2005-2007 vehicles is 
        expected to save 3.6 billion gallons of fuel over the life of 
        the regulated vehicles. For model year 2008-2011 vehicles, we 
        have proposed an innovative new approach: basing light truck 
        fuel economy standards on vehicle size. This approach will 
        yield greater fuel savings for the driving public while 
        enhancing safety and reducing compliance costs.

   Tax credits for energy-efficient hybrid, clean diesel, and 
        advanced internal combustion engine vehicles created by the 
        Energy Policy Act of 2005;

   The renewable fuels standard incorporated into the Energy 
        Policy Act;

   The extension of the renewable fuels CAFE credit under the 
        Alternative Motor Fuels Act, enacted in the Energy Policy Act;

   Multiple ``clean fuels'' programs for heavy vehicles 
        incorporated into the Energy Policy Act and the Safe, 
        Accountable, Flexible, Efficient Transportation Equity Act: A 
        Legacy for Users (SAFETEA-LU). Many of these clean fuels 
        provisions explicitly permit funding for alternative fuel 
        vehicles.

   Alternative fuel vehicles and infrastructure continue to be 
        eligible under the Congestion Mitigation and Air Quality 
        Improvement (CMAQ) Program, as reauthorized under SAFETEA-LU. 
        Under CMAQ, the Federal Highway Administration and Federal 
        Transit Administration are pursuing a program to reduce truck 
        and heavy vehicle idling, in cooperation with the Department of 
        Energy and the Environmental Protection Agency.

   Programs to mitigate fuel-sapping congestion through 
        encouraging high occupancy vehicle (HOV) lanes, congestion 
        pricing, public-private partnerships, deployment of intelligent 
        transportation systems; and support for transit and paratransit 
        systems and other private vehicle alternatives.

    As this portfolio suggests, we view vehicles as elements in a 
larger transportation system. While improved vehicles are critical to 
reducing fuel consumption, viewing vehicles together with roads, 
technology, and alternative transport modes offers important synergies. 
As we begin to develop ways for vehicles to communicate with the roads 
and with each other, emerging transportation systems will grow in 
efficiency and safety.
    While reducing automotive fuel consumption presents a difficult and 
long-standing challenge, today we have certain advantages. We are 
living in a period of rapid innovation in automotive technology. While 
today's vehicles may look very much like the vehicles of twenty years 
ago, many aspects of engine operation are now controlled by 
microprocessors. Automakers have several technological options for 
improving vehicle fuel economy without reducing performance, including 
clean diesel engines and hybrid vehicles. In the next few years, we 
should see increased potential for advanced hybrids and advanced 
internal combustion engines.
    Due to recent increases in fuel prices, consumers are placing a 
higher value on fuel economy today than in the recent past. This 
creates the market conditions under which advanced vehicles that offer 
improved fuel economy can be successful in the marketplace. We believe 
that the National Highway Traffic Safety Administration's proposed 
light truck rulemaking will also encourage manufacturers to adopt more 
advanced fuel-saving technologies.
    Biofuels offer an alternative approach to reducing our near-term 
dependence on imported fuels. All of the current and near-term advanced 
automotive technologies that we are considering today, including 
hybrids, can use biofuel blends. Historically, despite a range of 
incentives, high transportation costs limited the scale of fuel ethanol 
plants and tended to concentrate ethanol use in regional markets in the 
Midwest and California. However, at present, conditions are better than 
ever for the expansion of renewable fuels in the transportation sector.

   The renewable fuels standard enacted by Congress in the 
        Energy Policy Act of 2005 mandates a near-doubling of ethanol 
        use in gasoline by 2012, to 7.5 billion gallons (489,000 
        barrels per day). According to the Energy Information 
        Administration, 2004 U.S. gasoline consumption was about 9.1 
        million barrels per day; 2004 fuel ethanol production was 3.4 
        billion gallons (202,000 barrels per day).

   The American Jobs Creation Act of 2004 greatly simplified 
        the long-standing ethanol excise tax credit, offering ethanol 
        blenders a credit of $0.51 for each gallon of ethanol blended 
        into gasoline. Biodiesel from waste oils is eligible for a 
        $0.50 per gallon tax credit (through 2008) and biodiesel from 
        virgin agricultural materials is eligible for a $1.00 per 
        gallon tax credit.

   High petroleum prices and the Federal excise tax credit have 
        greatly improved the competitiveness of alcohol fuels and 
        biodiesel.

   The Energy Policy Act of 1992 and the CAFE credit provisions 
        of Alternative Motor Fuels Act have created a fleet of more 
        than 4 million ``ethanol ready'' vehicles that can use E85 
        ethanol blends at their owners' discretion, and essentially all 
        gasoline vehicles sold in the United States can use up to 10 
        percent ethanol blended in gasoline without affecting their 
        manufacturers' warranties.

   There is widespread commercial interest in expanding 
        production of both ethanol and biodiesel. The Renewable Fuels 
        Association reports that there are 92 ethanol plants in the 
        United States, with current fuel ethanol capacity of 4.2 
        billion gallons per year, and that 1.4 billion gallons per year 
        of additional capacity are currently under construction, 
        (including 23 new plants and expansions of existing 
        facilities). Biodiesel production has advanced in recent years, 
        although it is not nearly as well established as ethanol. The 
        National Biodiesel Board indicates that 2004 production was 25 
        million gallons (1,600 barrels per day) and they expect 2005 
        production to triple to 75 million gallons (4,800 barrels per 
        day). The Federal Transit Administration has a small program to 
        test biodiesel on transit buses in Missouri. There is 
        interesting research underway on biodiesel as well. A recent 
        article in Science described a new, less energy-intensive 
        method for making biodiesel that would permit ethanol plants to 
        switch between making ethanol and biodiesel, and opens a 
        potential pathway for generating biodiesel from plant wastes.''

   The Energy Policy Act extended the Federal tax credit for 
        small ethanol and biodiesel producers. Small producers (less 
        than 60 million gallons per year) can receive a tax credit of 
        $0.10 per gallon for the first 15 million gallons of annual 
        production.

    In addition, the Energy Policy Act contains incentives for 
production of cellulosic ethanol, which, if the technology can be made 
economical, offers the opportunity to convert low value crop residues 
into fuel-grade ethanol. Biodiesel can be made from waste oils in low 
volumes (limited by feedstock availability), and from a range of 
oilseeds in potentially larger volumes.
    Biofuel usage is expanding rapidly. Widespread commercialization of 
cellulosic ethanol would have a positive impact. Essentially all motor 
vehicles on the road today can use biofuels in blends of less than 10 
percent. There may be continuing commercial and economic barriers to 
expanding biofuel production. The commercial conditions under which 
biofuels are produced and consumed have changed greatly. In the coming 
months, the ways in which fuel producers and consumers will adapt to 
the new situation created by recent legislation and the continued high 
fuel prices will become clearer.
    Reducing our Nation's dependence on oil cannot be accomplished by 
any one simple act. The Administration's efforts recognize that there 
are actions all of us can take today and in the near term, and there 
are other actions and revolutionary new technologies that require a 
long-term commitment for successful deployment. The Department of 
Transportation is pleased to play a vital role in these important and 
ongoing efforts, ensuring public safety in transportation while helping 
innovative technologies roll out on America's roads.
    This concludes my statement. I will be glad to answer your 
questions.

    The Chairman. Mr. Plotkin, welcome. And I would say to my 
colleagues that with the time frame of the schedule of votes, 
we're going to listen to the panel and then ask questions 
quickly before we leave at 11 a.m.

   STATEMENT OF STEVEN E. PLOTKIN, TRANSPORTATION AND ENERGY 
              ANALYST, CENTER FOR TRANSPORTATION 
             RESEARCH, ARGONNE NATIONAL LABORATORY

    Mr. Plotkin. Mr. Chairman, Senators, thank you for the 
opportunity of discussing with you the crucial subject of 
finding alternatives and supplements to oil-based fuel, 
especially gasoline. I will summarize my written testimony by 
listing a few key points.
    My focus is primarily on the longer term. First, I would 
like to give you a little bit of context about where I think 
we're likely to be going if we don't have a new energy policy. 
I think I can foresee one of two possible futures. The first is 
that conventional oil production peaks within the next 20 to 30 
years or at least falls way short of growing demand because of 
some combination of unlucky geology and hostility of key oil 
producing countries to the outside investment needed to sustain 
and increase their production. The result will be much higher 
oil prices and both the strangling of demand and a shift to 
unconventional sources of oil such as tar sands, gas to 
liquids, and oil shale. I think it quite likely that the 
transition to these sources will not go smoothly.
    Second, if we are lucky at geology and if the key oil 
producers ease their hostility to outside investment, we may 
continue much as we have in the past few decades, periods of 
price and supply stability, interspersed with disruption, and 
price spikes. In this future we will remain at the mercy of 
events in the Middle East, and in both scenarios we're likely 
to have massive increases in greenhouse gases.
    What can we do about this? Well, first, in the very near 
time frame, there are no quick fixes. The National Academy of 
Sciences has identified many vehicle efficiency technologies 
that are cost-effective in the very narrow sense of trading off 
lifetime fuel savings versus higher vehicle cost. These are 
capable of increasing fleet fuel efficiency eventually by about 
one-third, with other technology to be added in the future, but 
several years are required to redesign the vehicles, and a 
number of years past that to roll it into the fleet. As for new 
fuels, even for those fuels whose technology is well-developed, 
construction of new plants is slow and these plants are very 
risky in today's economic climate. And for those fuels not now 
commercially vetted, several decades will be required for them 
to make a large dent in our oil dependence, if the R&D 
roadblocks can be overcome.
    Second, greater efficiency is needed not only to reduce 
gasoline use in conventional vehicles but also to make the 
alternative fuels more practical. Although this hearing is 
about fuels, I believe improving vehicle efficiency should be a 
crucial part of the U.S. Energy policy both to reduce gasoline 
demand, again, and to make the new fuel pathways more 
practical. Hydrogen is the most severe example. Its energy 
density is extremely low, very much like that of battery 
electricity and only an extremely efficient vehicle can 
practically store enough hydrogen to obtain the kind of range 
that we need, say 300 miles.
    Another thing we need to do is expand our fuel options. 
First, I'm concerned that the transition to unconventional oil, 
if it is needed, is going to be a very rocky one. It's possible 
that conventional oil production will fall off quite rapidly. 
It's also possible that because of the past and because of 
increases and decreases in price over time that investors are 
going to be extremely wary of putting billions of dollars into 
these new plants. I think the government has got to look 
carefully at policies to smooth the way to unconventional 
fuels, unconventional oil, if it's needed.
    Second, look at hydrogen. The Federal Government's primary 
focus in the area of fuels research is hydrogen, for reasons 
including its multiple feedstocks, many of which are widely 
available in the U.S., its zero tailpipe emissions and high 
utilization efficiency in fuel cell vehicles, and its potential 
to achieve very low emissions of greenhouse gases. In my 
opinion, we will have to wait at least a few decades before we 
see a major impact from hydrogen, and that only if major R&D 
hurdles are overcome.
    Third, we need alternatives to hydrogen, and the National 
Academy of Sciences has recommended that the Department of 
Energy look at alternative pathways that can achieve the same 
goals as hydrogen can. One of these pathways is the biomass 
pathway. Ethanol from cellulosic feedstocks, for example, will 
produce low greenhouse gas emissions and will fit very well 
into our existing vehicle and our fuel infrastructure, a great 
advantage. The supply of land is an issue, but the feedstocks 
can be grown on land that is lower in quality than that used 
for higher value food products. The cost of the fuel production 
is the key hurdle, and it is a difficult one. However, there 
are several potential solutions including genetic engineering 
of organisms that can break down and convert cellulose.
    Recently the idea of a plug-in hybrid vehicle has gotten 
attention in the media. I like this concept too. A plug-in 
hybrid is like a regular hybrid with a larger battery and 
electric motor, so that it can be recharged overnight and use 
electricity to fuel a portion of its daily miles. Because most 
drivers log the majority of their miles in relatively short 
trips, plug-ins with moderate electric range, say 20 to 30 
miles, can substitute electricity for a large portion of their 
gasoline use. However, like hydrogen, there are very 
substantial research and development hurdles to be overcome, 
particularly about vehicle costs and battery life.
    We've got to recognize that moving alternative fuels into 
the marketplace is extremely tough. In the past California has 
attempted to move methanol into its fuels marketplace. It's 
attempted to move electric vehicles into its fuels marketplace. 
It has failed. There have been some positive side-effects 
because of these initiatives, but nevertheless these 
initiatives failed. The old EPACT failed to move large 
quantities of alternative fuels into the marketplace, so we 
have got to recognize that this is a hard task and it is going 
to require strong government policy.
    And, finally, look at the level of R&D spending today. At 
today's gasoline prices we're going to spend about $300 billion 
dollars on gasoline over the next year. We will spend about 
one-tenth of 1 percent of that amount on Federal research on 
hydrogen, biomass, and vehicle efficiency technologies. I know 
this is a time of great pressure on Federal budgets, but I 
wonder if this is false economizing.
    Thank you very much.
    The Chairman. Thank you very much.
    [The prepared statement of Mr. Plotkin follows:]

  Prepared Statement of Steven E. Plotkin, Transportation and Energy 
     Analyst, Center for Transportation Research, Argonne National 
                               Laboratory

    Chairman Stevens, Senator Inouye and other Members of the 
Committee, I appreciate the opportunity to testify on this crucial 
subject of finding alternatives and supplements to our current 
petroleum-based automotive fuel system. Although I have my Laboratory's 
permission to testify today, let me stress that the views I will give 
you are my own, based on my own analysis and my interpretation of the 
analyses of my colleagues in industry, government, and academia; they 
should not be interpreted as the views of Argonne or of the Department 
of Energy, the primary sponsor of my work for the past 10 years.
    I'll begin by discussing what I believe will happen to automotive 
fuels over the next few decades if we take no strong action. I believe 
there is the possibility--and this is a much debated possibility, with 
lots of disagreement in the energy community--that the production of 
conventional oil will peak sometime during the next 20 to 30 years. 
This is partly a function of geology, which is inherently uncertain, 
and partly a function of the market. To keep on increasing oil 
production by nearly 2 percent per year, to match the forecasts of 
world oil demand of most major forecasting organizations, will require 
enormous capital expenditures, much of it in countries that are not 
allowing the free entry of outside capital into their oil production 
sector. If conventional oil production does peak, the most likely ``gap 
fillers'' will be some combination of ``demand destruction''--lower 
demand for oil caused by very large price increases and some 
combination of lower economic activity and increased efficiency--and 
the increased production of ``unconventional oil''--from tar sands, oil 
shale, natural gas (``Gas to Liquids, GTL''), coal liquids (as South 
Africa has been doing for decades), and other sources. These 
unconventional sources are attractive in the sense that they require no 
large changes in the major part of the world's transportation 
infrastructure--vehicles, refueling stations, fuel distribution 
network, and refineries. Because the production plants are immensely 
expensive, however, and will appear risky to investors if they believe 
oil prices may not remain high, there is quite a strong possibility 
that there may be a substantial period of time when investments in 
these plants do not come fast enough to prevent significant disruptions 
in the supply of transportation fuel. Further, these unconventional 
sources may have significant adverse impacts on emissions of greenhouse 
gases and have other negative environmental impacts as well, though 
potentially there are means of mitigating these impacts.
    An alternative to this future is that geology turns out to be more 
favorable than analysts like Colin Campbell and his colleagues believe 
it to be, and OPEC creates a more friendly climate towards outside 
capital, allowing world oil production to match increasing demand. This 
scenario will lead us back to lower oil prices (though probably not for 
several years and perhaps never back to $25 oil) and back to a future 
of periods of stable prices interwoven with periods of price spikes 
because of natural and man-caused disruptions. Such a future may be 
preferable to its alternative, but it will still leave the U.S. economy 
at the mercy of events in the Middle East.
    There are no quick fixes to reducing our gasoline use and 
substituting alternatives. There are many available vehicle efficiency 
technologies that are cost-effective in the narrow sense of trading off 
lifetime fuel savings versus increased vehicle cost, as discussed at 
length in the 2002 National Academy of Sciences report on fuel economy 
standards and literally hundreds of other reports and papers, but these 
cannot play a significant role for several years because of the time it 
takes to redesign vehicles and roll them into the total fleet. Keeping 
tires properly inflated, improving vehicle maintenance, and driving a 
bit more slowly and gently can all play a role essentially 
instantaneously, but a modest role only. And in terms of new fuels, 
building new plants for those fuels whose technology is well developed 
will still take a few years, and few investors will be clamoring to 
invest in those fuels not being heavily subsidized by (or required by) 
the government. Finally, a switch to fuels that are not now 
commercially ready, like hydrogen, will require several decades to make 
a large dent in oil dependence--assuming that existing R&D roadblocks 
can be overcome.
    Before talking about alternative fuel technologies, let me point 
out that the most straightforward way to reduce dependence on gasoline 
is to increase vehicle efficiency, and in fact increasing vehicle 
efficiency is an important component in allowing alternatives to 
gasoline to play an important role in our fuel infrastructure (and a 
significant fraction of DOE's R&D funding in transport technology does 
go towards vehicle efficiency programs). This latter point is the case 
because some of the alternatives to gasoline have low energy density, 
and adequate fuel storage onboard the vehicle is made much easier if 
vehicle efficiency is improved. Hydrogen is the most extreme case--a 75 
mpg hydrogen-fueled midsize car that attains the Department of Energy's 
year 2010 goal for hydrogen storage volume (.045 kilograms of hydrogen/
liter of storage volume) will require nearly 28 gallons of storage 
volume to achieve a 300-mile range (and 35 gallons at the DOE year 2007 
goal). Reducing the weight of its ``glider''--its structure and 
everything else not associated with its drivetrain--by half reduces its 
fuel storage requirement to 21.5 gallons at the 2010 goal. Because 
reducing vehicle weight, improving the vehicle's aerodynamics and 
tires, and increasing the efficiency of its accessories reduce the 
power needed to run the vehicle, every component of its drivetrain can 
be smaller and cheaper. Also, many alternatives to gasoline are limited 
in their ultimate production capacity--the obvious example is biomass 
fuels--and these alternatives can play a much larger role in a fleet of 
ultra-efficient vehicles than they can in a more conventional fleet. 
And, of course, even if gasoline remains the dominant fuel, a 50 mpg 
fleet will use a lot less gasoline than will a 25 mpg fleet (more than 
half as much, though, due to the lower ``per mile'' fuel cost). The 
policy problem, of course, is that achieving large improvements in fuel 
economy has proven extremely difficult in the past without relying on 
government arm-twisting. The technology has been available and has been 
used--the technical efficiency of today's cars and light trucks is 
startlingly higher than that of 15 years ago--but their fuel economy is 
the same. All that technology has been used to allow larger, heavier 
vehicles that reach 60 miles per hour in much less time than their 
ancestors. The Environmental Protection Agency, in its excellent annual 
reports on ``Light-Duty Automotive Technology and Fuel Economy 
Trends,'' notes that the year 2005 light-duty vehicle fleet would have 
been 24 percent more efficient than it now is, had it kept the same 
weight and performance distribution that it had in 1987.
    I think it makes more sense to focus on a longer time frame for new 
fuels--perhaps a decade or more. In reviewing the Department of 
Energy's hydrogen program in 2005, the National Research Council 
suggested to the Department that it look to a wider portfolio of fuels, 
given the substantial technical and economic risks associated with 
hydrogen and all other potential fuel pathways:
    ``The program should perform high-level systems analyses that 
identify the potential, the challenges, and the specific research 
breakthroughs for alternatives that could achieve the program vision 
without requiring a hydrogen infrastructure, and it should use these 
results to help define R&D efforts and allocate funds within DOE.''
    Planning for the suggested systems analyses is underway at DOE, and 
I am confident that these analyses will begin soon. There are many 
dozens of different pathways to achieving large amounts of alternatives 
to conventional gasoline, and it makes sense to take a hard look at 
most of them. In advance of this effort, however, let me share some of 
my preliminary views about a few pathways.
    Using hydrogen in fuel cell vehicles is the most prominent fuel 
pathway being examined and developed in this country and worldwide. 
Vehicle manufacturers and suppliers in the U.S. and worldwide are 
spending billions of dollars on this research, and national governments 
and the EU are spending substantial sums as well. Although the 
Department of Energy spending on hydrogen is well below what the 
private sector is spending, hydrogen is the key focus of its vehicles 
and fuels R&D programs. The reasons for the focus on hydrogen include:

   Zero vehicle tailpipe emissions.

   Ability to use multiple feedstocks, including electricity, 
        to produce hydrogen (though it's worth noting that gasoline and 
        diesel fuel can also be made from multiple feedstocks using 
        Fischer-Tropsch and other synthesis processes).

   High vehicle efficiency with fuel cells.

   Potentially excellent well-to-wheels emissions of greenhouse 
        gases, with some hydrogen pathways.

    There has been excellent progress on all fronts of the hydrogen R&D 
effort, but there remain formidable challenges in such areas as 
hydrogen production costs, fuel cell stack costs, onboard fuel storage, 
and a host of other key areas. My opinion is that we will probably have 
to wait for at least a few decades before we see a significant impact 
on light-duty vehicle fuel use from hydrogen. It is also my opinion 
that we have no guarantees that the hydrogen R&D program will be fully 
successful, despite our best efforts. Consequently, I fully agree with 
the National Academy's desire to see DOE expand its focus to encompass 
other fuel pathways. However, I am concerned that this expansion not 
rob the hydrogen program of needed resources, and I will discuss this 
issue a bit later.
    DOE is also pursuing various biomass fuels, for example ethanol 
from cellulosic sources (e.g., wood, waste, fast growing grasses), 
though at a level well below the hydrogen programs. The advantage of 
this pathway is that it produces far fewer greenhouse gases than 
today's fuels because of the carbon recapture in the regrowth of the 
feedstock biomass. However, substituting for a significant share of 
U.S. light-duty vehicle fuel use would entail growing plantation-style 
crops (e.g., fast-growing grasses or trees) on a large percentage of 
U.S. cropland; on the other hand, biomass crops can be successfully 
grown on land that is of lower quality than that required for most food 
crops. The biggest R&D hurdle for this pathway is to drastically reduce 
the cost of the cellulose-to-ethanol production process. There are some 
tantalizing possibilities here, including efforts by Craig Venter (of 
human genome research) and others to discover and/or ``design'' 
microorganisms that can accelerate the process. Venter also is pursuing 
the production of hydrogen using genetically-engineered microorganisms, 
with some DOE support.
    Tom Friedman and a few other journalists recently embraced the 
concept of the ``plug-in hybrid,'' or PHEV, a hybrid electric vehicle 
with a larger motor and battery that can be recharged overnight and 
thus substitute electricity for gasoline for some of the vehicle's 
miles. Although journalistic embraces should be treated with some 
skepticism, I too like the concept and believe it is worth pursuing. 
The key here is that most drivers put on most of their mileage in short 
trips. A PHEV20, a plug in with 20 miles of battery range, can replace 
about 31-39 percent of annual miles driven for the average driver if 
the vehicle is recharged every night; a PHEV 60 can replace 63-74 
percent of these miles. Coupled with the vehicle's high fuel economy, a 
fleet of PHEV60s would use less than 20 percent of the gasoline used by 
a similar fleet of current vehicles. Also, having the fuel used by that 
fleet be cellulosic ethanol is a tantalizing prospect--because it 
raises the possibility that biomass fuels could play a dominant role in 
the U.S. light-duty vehicle fleet sometime in the future, despite their 
supply limitations. Another thing I like about PHEVs is that, in the 
face of a severe disruption in liquid fuel supply, a PHEV owner will 
have the capability of traveling at least limited distances without 
using such fuels--and for considerable distances if fast chargers are 
available at a decent percentage of gas stations. However, I should be 
quick to note that PHEVs are like hydrogen fuel cell vehicles in one 
important regard--they have significant R&D hurdles to jump before they 
can be seen as fully practical. Substantial improvements in battery 
life and reductions in cost are the key hurdles, and I should note that 
lack of sufficient progress in batteries basically killed the electric 
vehicle ``revolution'' that California hoped to jump start a while ago. 
However, I do believe that the high degree of optimism that one must 
have to be confident that the hydrogen economy can succeed the oil 
economy, if applied to PHEVs, would make one a supporter of this 
pathway as well. At the least, this pathway deserves a very careful 
examination.
    The group of pathways I mentioned before, those of ``unconventional 
oil,'' are being pursued vigorously by industry, and some are now fully 
commercialized. Canada is well on its way to become a major world 
supplier of oil from tar sands, and several gas-toliquids plants have 
been built or are under construction. As I noted, I'm concerned that 
these pathways may not be built up quickly enough in the face of a 
peaking in conventional oil production (if it occurs), leading to a 
period (probably of several years) of severe supply disruptions. If the 
Federal Government is not willing to take the very strong initiatives 
that will be necessary to move hydrogen, biomass, or other true 
alternatives to gasoline into the marketplace, I would hope that it 
would at least pay strong attention to evaluating what policies could 
pave the way to a very rapid buildup of unconventional oil production 
should this become necessary.
    Thus far, Federal and State attempts to move alternatives to 
gasoline into the marketplace have failed. California tried vigorously 
to promote methanol and then electric vehicles, and could not make much 
progress with either (although the push for methanol led to the 
introduction of reformulated gasoline, and the electric vehicle effort 
played an important role in improving electric drivetrains, the key to 
hybrid electric drivetrains and crucial to any hope for successful 
hydrogen fuel cell vehicles). The Federal Government's efforts, 
embodied in EPACT, achieved only a small fraction of its market 
penetration goals. The lesson here is that a limited or half-hearted 
attempt to move alternative fuels into the marketplace will almost 
certainly fail in the face of a firmly entrenched gasoline 
infrastructure and a vehicle/fuels system that delivers exceedingly 
good performance. And if we wait for the oil supply emergency that 
would ease the way for a fuels transition, we have many years of 
disruption before enough of the transition has occurred to support a 
stable transportation system.
    In other words, we have the following choices:

        1. Remain relatively passive and hope that geology and OPEC's 
        willingness to support huge investments in expansion of oil 
        supplies allows a reasonably stable future for worldwide 
        supplies of transportation fuels.

        2. Take whatever measures we can to smooth the way to a future 
        transition to unconventional oil as a major part of world oil 
        supplies.

        3. Move strongly to reduce U.S. dependence on oil as the 
        overwhelming source of our transportation fuels. Improving 
        vehicle efficiency as well as taking a host of measures to 
        reduce automobile dependence (better land use planning, 
        improved transit services, etc.) should be an important part of 
        the choice. The studies I am familiar with show, however, that 
        moving to new fuels must be part of this choice if we also care 
        about emissions of greenhouse gases.

    I don't know how long oil prices will remain at today's high 
levels, and I don't think anyone else does, either. However, at today's 
prices, during the next year we will spend about $300 billion on 
gasoline for our fleet of cars and light trucks, and the fleet will 
drive more miles each following year for the foreseeable future. The 
Federal Government is now spending on the order of one tenth of one 
percent of this amount on research and development into improved 
vehicle efficiency and new fuels for this fleet, with a robust share 
going to hydrogen programs. I wonder if this is enough, especially for 
fuels pathways other than hydrogen (although the hydrogen program would 
also benefit from more resources) and especially for a world in which 
our oil security appears to be so fragile.
    Thank you for giving me this opportunity to discuss my thoughts on 
this most important topic.

STATEMENT OF FRED WEBBER, PRESIDENT/CEO, ALLIANCE OF AUTOMOBILE 
                         MANUFACTURERS

    Mr. Webber. Good morning, Mr. Chairman. Good morning, 
Senators. My name is Fred Webber. I'm President and CEO of the 
Alliance of Automobile Manufacturers. Today there are 
approximately 800 million vehicles on the road worldwide by 
some estimates. This number is projected to grow to 1.2 billion 
vehicles by 2020. Along with this growth in the size of the 
vehicle fleet there is also substantial growth in the demand 
for fuel because people are going to drive more, they're going 
to go more places.
    As a result, growth in worldwide oil demand is expected to 
increase by at least 3 percent per year. With this in mind, if 
by some miracle it were possible to increase the fuel economy 
of the entire worldwide fleet of vehicles by 25 percent 
overnight, it would still take only 6 or 7 years for fuel 
consumption to return to and surpass current levels. This 
suggests that we have a daunting problem to address, not just 
in terms of U.S. gasoline consumption, but worldwide as well.
    Is it hopeless? We don't think so. Any attempts however, to 
address concerns about U.S. dependence on oil cannot succeed by 
focusing only on one component of gasoline demand. Vehicle fuel 
economy has increased and it will continue to do so as new and 
improved technologies find their way into the market but that 
factor alone will not help slow the growing demand for gasoline 
in the U.S. transportation sector.
    Mr. Chairman, the Alliance strongly supported the Energy 
Policy Act of 2005 because it created an effective energy 
policy based on broad, market-oriented principles. It also 
promoted policies that would foster research and development 
and accelerate the deployment of advanced technology vehicles 
by providing customer tax incentives and extending 
manufacturing incentives for the production of dual fuel 
vehicles.
    Since 1996 automobile manufacturers have been producing 
vehicles capable of using high concentration blends of ethanol. 
There are more than five million of these E85 capable vehicles 
on the road today and nearly one million more are being added 
each year. If all of these E85 capable vehicles were able to 
refuel using only E85, the U.S. would be able to reduce its 
gasoline consumption by nearly three billion gallons per year.
    Hybrid electric vehicles are being offered today and will 
increase substantially in numbers over the next several years. 
They offer significant improvements in fuel economy in excess 
of 50 percent in some vehicles on the road today. Also the 
automobile industry is working now to introduce technologies 
that will allow diesel powered vehicles to meet the EPA's 
latest emissions requirements. These types of vehicles can 
provide fuel economy gains in excess of 25 percent when 
compared to conventional vehicles.
    Another promising and exciting technology is hydrogen 
powered internal combustion engines, ICEs. The concept of using 
hydrogen in internal combustion engines offers several 
advantages--near zero emissions, maintaining the utility 
flexibility and driving dynamic of today's automobile, 
assisting in the development of hydrogen storage technology, 
developing hydrogen distribution channels and helping to 
promote hydrogen refueling infrastructure.
    From a vehicle perspective, hydrogen-powered fuel cells 
offer the biggest improvement in efficiency and emissions and 
the greatest opportunity to dramatically reduce the 
environmental and energy footprints of U.S. vehicles but the 
economic, technological, and infrastructure challenges are 
still substantial. For example, onboard hydrogen storage does 
present a great challenge. In addition, the introduction of 
fuel cells into America's light vehicle passenger and truck 
fleet will require a demonstration of greater durability and 
overcoming the packaging restrictions of size and weight.
    The Alliance believes that the hydrogen title of the new 
energy law will prove to be of major assistance to the 
automobile industry in our efforts to overcome these hurdles 
and develop this promising technology and get it into the 
marketplace as soon as is technologically and commercially 
possible.
    Transitioning away from the gasoline-powered internal 
combustion engines requires government, automotive 
manufacturers, auto suppliers, and fuel providers to work 
together to accelerate high volume advance technology vehicles 
and domestic alternative fuels. Any market driven focus, and 
incentives for consumers will, indeed, need to play a critical 
role.
    Thank you, sir.
    The Chairman. Thank you, Mr. Webber.
    [The prepared statement of Mr. Webber follows:]

     Prepared Statement of Fred Webber, President/CEO, Alliance of 
                        Automobile Manufacturers

    Thank you Mr. Chairman. My name is Fred Webber, President and CEO 
of the Alliance of Automobile Manufacturers (Alliance). I am pleased to 
be afforded the opportunity to offer the views of the Alliance at this 
important hearing. The Alliance is a trade association of nine car and 
light truck manufacturers including BMW Group, DaimlerChrysler, Ford 
Motor Company, General Motors, Mazda, Mitsubishi Motors, Porsche, 
Toyota and Volkswagen. One out of every 10 jobs in the U.S. is 
dependent on the automotive industry.
    Today there are approximately 800 million vehicles on the road 
worldwide. By some estimates, this number is projected to grow to 1.2 
billion vehicles by 2020. Along with this growth in the size of the 
vehicle fleet, there is also substantial growth in the demand for fuel 
because people want to go more places. As a result, growth in worldwide 
oil demand is expected to increase by at least 3 percent per year. With 
this in mind, if by some miracle it were possible to increase the fuel 
economy of the entire worldwide fleet of vehicles by 25 percent 
overnight, it would still take only six or seven years for fuel 
consumption to return to and surpass current levels.
    This suggests that we have a daunting problem to address--not just 
in terms of U.S. gasoline consumption, but worldwide as well. Is it 
hopeless? We don't think so!!
    Consider what is happening in the U.S. today. With the price of 
gasoline around $2.50 per gallon, the focus on fuel economy of cars and 
light trucks is receiving ever-increasing scrutiny. Fortunately, the 
automobile industry is in a very strong position to meet any shifting 
consumer demands for fuel economical vehicles or vehicles that operate 
on non-petroleum based fuels. Automakers currently offer more than 100 
models that have EPA-estimated highway ratings of 30 miles per gallon 
or more. In addition, new models are increasingly available with highly 
fuel-efficient technologies like cylinder deactivation, variable valve 
timing, continuously variable transmissions and more. Ongoing 
advancements by automobile industry engineers will lead to even greater 
fuel economy gains. Furthermore, advanced technology and alternative 
fuel vehicles, including hybrid-electric, E85 flexible fuel, fuel cell, 
hydrogen internal combustion and clean diesel vehicles, offer the 
current and future promise of significant increases in fuel efficiency 
or petroleum displacement, without sacrificing consumer expectations 
for safety, performance, comfort and utility. So, American consumers 
currently are, and should continue to be, well served in terms of the 
vehicles that provide outstanding fuel economy or alternatives to 
gasoline.
    But as with the world market noted earlier, U.S. gasoline 
consumption is a function of much more than just vehicle fuel economy. 
The number of miles driven by Americans has risen dramatically over the 
last few decades. And the size of the vehicle fleet on American roads 
has also increased substantially--resulting in increases in U.S. 
gasoline demand despite impressive improvements in vehicle fuel 
economy. Any attempts to address concerns about U.S. dependence on oil 
cannot succeed by focusing only on one component of gasoline demand. 
Vehicle fuel economy has increased--and it will continue to do so as 
new and improved technologies find their way into the market--but that 
factor alone will not help slow the growing demand for gasoline in the 
U.S. transportation sector.

Energy Policy Act of 2005
    The Energy Policy Act of 2005, recently approved by Congress and 
signed into law by President Bush, contains a number of provisions that 
are important to our industry and our Nation as we look at the 
challenges ahead. The Alliance strongly supported the legislation 
because it created an effective energy policy based on broad, market-
oriented principles. It also promoted policies that will foster 
research and development and accelerate the deployment of advanced 
technology vehicles by providing customer tax incentives and extending 
manufacturing incentives for the production of dual fuel vehicles. This 
focus on ``accelerating the implementation of advanced technologies'' 
leverages and enhances the intense competition of automobile 
manufacturers worldwide. Competition drives automakers to develop and 
introduce breakthrough technologies as rapidly as possible to meet the 
demands and needs of consumers and to try to outperform each other in 
the market. Market share is precious to these companies and they fight 
hard to maintain what they have and to wrest some from competitors.
    However, often these new technologies carry significantly higher 
costs, at least initially, as they are developed and refined for use on 
the various types of vehicles needed by American consumers. Incentives 
can help to offset these higher costs during early market introduction 
and allow the demand for these technologies to progress and achieve 
economies of scale more rapidly than otherwise might be the case. The 
recently passed energy bill included consumer tax credits for various 
types of alternative technology vehicles, such as hydrogen fuel cells, 
hydrogen internal combustion engines, alternative fuels, hybrids and 
advanced lean-burn diesel. The tax incentives will allow the Nation's 
consumers to choose from a wide variety of vehicles and technologies 
designed to meet their needs. The acceleration of these technologies 
into the market--based on incentives, not mandates--will help 
automakers to continue meeting American consumers' needs while at the 
same time advancing the Nation's broader energy policy objectives.

Alternative Fuel Vehicles
    Another important provision of the new energy law is the increased 
promotion of renewable fuels in the transportation sector. Since 1996, 
auto manufacturers have been producing vehicles capable of using high 
concentration blends of ethanol. There are more than 5 million of these 
E85 capable vehicles on the road today and nearly 1 million more are 
being added each year. If all of these E85 capable vehicles were able 
to refuel using only E85, the U.S. would be able to reduce its gasoline 
consumption by nearly 3 billion gallons per year.
    One area of special concern to the auto industry and the driving 
public is the lack of infrastructure in the United States that allows 
flexible fueled vehicle owners and operators to run on ``E85'' rather 
than on gasoline. Congress, in the Energy Policy Act of 1992, 
encouraged that automakers produce such flexible fuel vehicles--and 
they have. However, very few of the over 167,000 gas stations in the 
U.S. have ethanol or E85 pumps. The recently passed energy bill will 
help in this by raising the requirement for the use of ethanol and 
other renewable fuels to 7.5 billion gallons per year by 2012 and 
providing tax incentives aimed at making more such pumps available to 
the driving public and thus saving money for consumers and helping to 
reduce reliance on imports. However, these incentives are only the tip 
of the iceberg. We need a commitment by all to accelerate their 
installation at many more stations to ensure greater use of ethanol and 
E85 fuels.

Advanced Technology Vehicles
    As I mentioned earlier, a whole array of advanced technology 
vehicles are also underway. Some sixty models of advanced technology 
vehicles are either on American roads or in development by automobile 
manufacturers. As they are successful, these efforts will lead to 
substantial improvements in efficiency and emissions performance--all, 
without sacrificing safety, utility, and performance.

Hybrid-Electric Vehicles
    Hybrid-electric vehicles are being offered today and will increase 
substantially in numbers over the next several years. They offer 
significant improvements in fuel economy, in excess of 50 percent in 
some vehicles on the road today. These products use electric motors to 
reduce some of the burdens on the traditional internal combustion 
engine and they capture usable energy through regenerative braking. 
Hybrid vehicles do not require additional investment in fuel 
infrastructure which helps reflect their potential for near term 
acceptance. It is estimated that by 2010, more than 50 hybrid 
nameplates will be available in North America with volumes approaching 
1 million vehicles. Hybrid technology is also complimentary to fuel 
cell technology especially with regenerative breaking and high capacity 
battery technology.

Advanced Lean-Burn Technology Vehicles
    Vehicles that are powered by advanced lean-burn technology such as 
clean, direct injection diesels offer greater fuel economy and better 
performance. While diesel powered vehicles are very popular in Europe--
where environmental standards are less stringent than in the U.S. and 
economic incentives are provided through lower diesel fuel prices--
their prospects in the U.S. market have been less certain. U.S. 
emissions standards for these vehicles are very challenging and diesel 
fuel pricing does not provide the same economic incentives. Still, the 
automobile industry is working now to introduce technologies that will 
allow diesel powered vehicles to meet the EPA's latest emissions 
regulations. These types of vehicles could provide fuel economy gains 
in excess of 25 percent compared to conventional vehicles.

Hydrogen-Powered Internal Combustion Vehicles
    Another promising and enabling technology is hydrogen-powered ICEs. 
The concept of using hydrogen in internal combustion engines offers 
several advantages: near zero emissions, maintaining the utility, 
flexibility, and driving dynamic of today's automobile, assisting in 
the development of hydrogen storage technology and developing hydrogen 
distribution channels and helping to promote hydrogen refueling 
infrastructure.

Fuel Cell Vehicles
    From a vehicle perspective, hydrogen-powered fuel cells offer the 
biggest improvement in efficiency and emissions and the greatest 
opportunity to dramatically reduce the environmental and energy 
footprints of U.S. vehicles. But the economic, technological and 
infrastructure challenges are still substantial. For example, onboard 
hydrogen storage presents great challenges. In addition, the 
introduction of fuel cells into America's light vehicle passenger and 
truck fleet will require demonstration of greater durability and 
overcoming the packaging restrictions of size and weight.
    The Alliance believes that the hydrogen title of the new energy law 
will prove to be of major assistance to the automobile industry in our 
efforts to develop this promising technology and to get it into the 
marketplace as soon as is technologically and commercially possible.
    Also important in pursuing this market will be a robust fuel cell 
commercialization plan for use in stationary power units. Experience 
and commercial expansion of stationary power units, relatively 
unconstrained by size and weight, will be helpful, gaining the 
experience necessary to meet the cost targets for commercialization in 
the vehicle sector.

Fuel Economy Regulation
    A constant challenge faced by the auto industry today is the almost 
singular focus on CAFE standards as the ``answer'' to concerns about 
light duty vehicle gasoline consumption. As noted earlier, many factors 
contribute significantly to U.S. oil demand, and attempting to reduce 
demand by pulling only one lever will not work. In addition, the CAFE 
program, over its lifetime, has had unintended consequences--from 
adverse economic impacts to documented adverse implications for highway 
safety.
    The National Highway Traffic Safety Administration (NHTSA) is 
trying to address these concerns by reforming the structure of the CAFE 
program. The Alliance applauds these efforts. We also note that when 
NHTSA is finished with its current CAFE rulemaking covering 2008-2011 
model year light trucks, it will have established increases in the CAFE 
requirements for light trucks for seven consecutive years--from 20.7 
mpg in 2004 to over 24 mpg by 2011. This represents the most aggressive 
increase in the CAFE standards for these vehicles in the history of the 
program. For 2008-11 alone, NHTSA estimates that over 10 billion 
gallons of gasoline will be saved over the useful life of the vehicles 
produced in these model years.
    Most importantly for the auto industry, NHTSA is required to 
carefully balance the technological feasibility, economic 
considerations, consumer needs, competitive impacts, vehicle and 
highway safety, impacts on U.S. jobs, and other considerations in 
setting the ``maximum feasible'' levels.
    But I want to say again that the CAFE program is not the ``answer'' 
to U.S. gasoline consumption concerns. Vehicle fuel economy has 
increased and will continue to do so--but it ultimately comes down to 
what vehicles consumers buy and how they use them that drive U.S. 
gasoline consumption.

Conclusion
    For its part, the auto industry is committed to advance the state 
of technology and bring new vehicles using these technologies to the 
market as quickly as possible. Competition among the automakers will 
drive this process far better and with fewer disruptions to the 
marketplace and consumers than any regulations that can be adopted. 
Furthermore, stimulating consumers can help accelerate this process. 
The recently enacted consumer tax credits provisions of the energy law 
will help to spur the purchase of these new vehicles which years of 
research and development have made possible.
    A consistent government focus and market-driven incentives will 
help the manufacturing and fuel industries in this transition. Attached 
is a list of benefits, and possible policy options that would aid in 
this transition.

                               Attachment

Energy Technology Opportunities
    Advanced Technologies and Renewable Fuel Incentives: Transitioning 
away from gasoline powered internal combustion engines requires 
government, automotive manufacturers, auto suppliers, and fuel 
providers to work together to accelerate high-volume advanced 
technology vehicles and domestic alternative fuels. Market-driven focus 
and incentives for consumers will need to play a critical role.
Advanced Diesels
   Can provide 25-30 percent improvements in fuel efficiency.
   Selective Catalytic Reduction (SCR) technology (i.e., urea 
        system) would enable diesels vehicles to meet the stringent 
        U.S. tailpipe emissions standards.

        --Needed: Full implementation of EPA's low sulfur diesel 
        requirements, on-time.

        --Needed: Flexibility from EPA to introduce SCR technology and 
        support in developing urea fueling infrastructure.

        --Needed: Development of appropriate and consistent biodiesel 
        fuel quality standards to enable greater petroleum 
        displacement.

Hybrids
   Current applications of hybrid technology can increase fuel 
        economy by up to 50 percent.

        --Needed: Consumer incentives that reduce incremental vehicle 
        costs to accelerate the acceptance of hybrids in the 
        marketplace (currently less than 1 percent of vehicle sales).

        --Needed: Manufacturing incentives and grants to facilitate 
        conversion of facilities to production of advanced 
        technologies; will accelerate the growth of a U.S. advanced 
        technology supply base, especially in the areas of battery 
        technologies, transaxles, and regenerative braking systems.

Biofuels
   Over 5 million E85 Flex Fuel Vehicles (FFVs) on U.S. roads 
        and more in pipeline.

   Use of E10 nationwide could displace over 13 billion gallons 
        of gasoline a year.

   Utilizing E85 in the existing FFV fleet could displace over 
        3 billion gallons of gasoline a year.

   As a result of the incentives in the Energy Bill, 
        manufacturers are expected to produce nearly 1 million more 
        FFVs per year, which if operated on E85 could displace over 500 
        million more gallons of gasoline per year.

        --Needed: Increase retail E85 fueling infrastructure to 
        encourage greater ethanol production and E85 availability.

        --Needed: Accelerate R&D efforts on cellulosic ethanol 
        production; cellulosic ethanol holds the promise of reducing 
        net production energy needs and yielding greater reductions in 
        GHG emissions.

Hydrogen
   Hydrogen fuel produced from renewable sources holds the 
        promise of eliminating CO2 emissions.

        --Needed: Government maintained long-term R&D focus on 
        technology and innovation.

STATEMENT OF DAVID FRIEDMAN, RESEARCH DIRECTOR, CLEAN VEHICLES 
                  PROGRAM, UNION OF CONCERNED 
                        SCIENTISTS (UCS)

    Mr. Friedman. Thank you, Mr. Chairman and Members of the 
Committee. I'm Research Director and Senior Engineer with the 
Union of Concerned Scientists Clean Vehicles Program. To begin 
I just want to note that during the next 5 minutes the United 
States will spend over $2 million on imports of oil and other 
petroleum products. That represents nearly a half a million 
dollars leaving the U.S. economy every minute. That's almost 
one-third of the United States trade deficit. As long as the 
United States is tied to oil, America's pocketbooks will be 
susceptible to instability in the Persian Gulf and other 
regions of the world. As long as the United States is tied to 
fossil fuels, we will be contributing to many significant 
environmental problems that impact our health and our economy, 
especially the reality of global warming. These facts make the 
long-term destination clear.
    We must switch to clean, renewable fuels to power our cars 
and trucks. But the reality is that there are no silver bullets 
to tap into overnight. We will continue to be dependent on oil 
as a transportation fuel for decades to come.
    Now, while there are no silver bullets, there is reason for 
optimism if we set ourselves on a path of innovation and 
efficiency. Innovation is required because all of the possible 
clean renewable fuels require breakthroughs to be affordable 
and widely available. Efficiency is needed because the problem 
is too big to wait for these breakthroughs and we already have 
the technology. The efficient vehicles are also a key part of 
making clean renewable fuels possible.
    If we are to tap into this innovation, there are at least 
three major options that can serve as alternatives to 
gasoline--renewal hydrogen, cellulosic ethanol, and renewable 
electricity. These three share many features. Among them are 
that if pursued aggressively each have the potential, and I 
underline the word potential--to eliminate the use of petroleum 
as an automotive fuel by the middle of this century. But they 
also all require changes to, or an overhaul of our refueling 
infrastructure.
    In addition, none of them are inherently clean. There are 
other ways to make and use these alternatives, some of which 
could actually harm U.S. energy security and the environment.
    Finally, all of these alternatives require vehicles to be 
significantly more efficient than they are today in order to 
fulfill their potential. Otherwise, they will require too much 
land and too many resources. Nobody knows which of these 
alternatives is the right one but because they all have such 
promise, each one needs to be supported so that they can 
eventually compete to determine our long-term path.
    Now, I also want to spend some more time on the issue of 
efficiency because improving the efficiency of the cars and 
trucks consumers drive every day can sometimes get lost in the 
excitement surrounding clean renewable alternatives to fuels. 
Besides being a lynchpin in the future of cleaner alternative 
fuels, investments in vehicle efficiency actually offer greater 
potential to stabilize car and truck gasoline demand in the 
near-term, creating hundreds of thousands of new U.S. jobs and 
saving consumers billions of dollars every year.
    The automobile industry has been investing in technologies 
that can safely and economically allow consumers to get more 
miles to the gallon in cars, minivans, pickups and SUVs of all 
shapes and sizes. The chart to my right shows the potential for 
these technologies to dramatically increase the fuel economy of 
an SUV with the same size and acceleration of a Ford Explorer 
mid-size SUV. The majority of these technologies have no 
influence on the safety of the vehicle. However, some such as 
use of high strength steel and aluminum and unibody 
construction can actually help make highways safer while 
improving fuel economy. With technologies costing only $600 to 
$800 a consumer could have the choice of an SUV that gets the 
fuel economy of today's family car. For just over $2,000 a 
consumer could have the choice of an SUV that gets the fuel 
economy of a compact car. At just $2.00 per gallon this SUV 
would save consumers over $6,000 on fuel costs during the 
lifetime of the vehicle, almost three times the cost. The 
technologies needed to get this SUV to more than 35 miles per 
gallon would even pay for themselves in less than 4 years at 
that fuel price.
    The problem is that automakers are not giving consumers 
these choices. While automakers do offer many models that get 
more than 30 miles per gallon on the highway, most of these are 
cars and most driving is in the city. That leaves a mother with 
three children in car seats with no real choice today.
    The problem is for the past 20 years, technologies like 
this have gone to doubling power and increasing weight by 25 
percent. As a result the average fuel economy of new 
automobiles is lower today than it was 20 years ago. But that 
does not have to be our future if we put these technologies to 
work. If we put them to work across the fleet, we could see an 
increase in fuel economy on the order of 65 percent and this 
type of investment would lead to over 160,000 new jobs 
throughout the country in the next 10 years. In the automotive 
sector alone jobs could grow by over 40,000 and consumers would 
end up saving over $20 billion per year.
    Tapping into hybrids could take us even further but this 
will not happen on the current path. The Administration 
recently proposed an interesting change to the structure of 
fuel economy standards for SUVs, minivans, and pickups. A lot 
of work clearly went into this and while this change addressed 
a key automaker concern and has the potential to open the door 
to significantly higher increases in the standard, the proposal 
falls short of the technically feasible and economically 
practical levels that are seen in this chart. The 
Administration proposal also does not include the new increases 
to cars that represent over half of all the vehicles sold 
today.
    Finally, the proposal did not close key loopholes in fuel 
economy regulations and may open up new ones, but there is 
significant potential and the changes needed to take advantage 
of the potential, the innovation and efficiency needed, will 
not happen on their own. But this should not be surprising. In 
fact, every major transportation revolution this country has 
ever seen needed the help of the Federal Government to succeed, 
whether that be planes, trains, or automobiles, and the next 
transition will be no different.
    There are several different mechanisms the Government could 
use to make this a reality--oil savings targets, incentives for 
automakers and suppliers to get this technology on the road, 
and eliminating the cap on consumer tax credits. Also, 
incentives to increase alternative fuel use and infrastructure 
and to increase the efficiency of our heavy-duty vehicles in 
other sectors.
    Finally, we need to close existing loopholes in fuel 
economy regulations and tax laws and significantly increase 
fuel economy standards for cars and trucks.
    In closing, again, none of these are silver bullets but by 
adopting a reasonable package that includes several of these 
measures now, we can reduce the trade deficit and create 
hundreds of thousands of new jobs while steadily reducing our 
oil usage.
    Thank you very much.
    The Chairman. Thank you very much.
    [The prepared statement of Mr. Friedman follows:]

Prepared Statement of David Friedman, Research Director, Clean Vehicles 
              Program, Union of Concerned Scientists (UCS)

    Thank you, Mr. Chairman and Members of the Committee, for the 
opportunity to testify before you today. My name is David Friedman. I 
am the research director and a senior engineer with the Union of 
Concerned Scientists' (UCS) Clean Vehicles Program. UCS is a nonprofit 
partnership of scientists and citizens that has been working at the 
intersection of science and policy for over 30 years.
    To begin, I want to note that during the five minutes I will use to 
speak today, the U.S. will spend over $2 million on imports of oil and 
other petroleum products. That represents nearly $500,000 leaving the 
U.S. economy every minute--almost one-third of the U.S. trade deficit.
    As long as the U.S. is tied to oil, American's pocket books will be 
susceptible to instability in the Persian Gulf and other regions of the 
world. Rising oil consumption in China and other developing nations 
will only make matters worse. And as long as the U.S. is tied to fossil 
fuels, we will be contributing to many significant environmental 
problems that impact our health and our economy, especially the reality 
of global warming.
    These facts make the destination clear--we must switch to clean, 
renewable fuels to power our cars and trucks--but the reality is that 
there are no silver bullets to tap into overnight. We will continue to 
be dependent on oil as a transportation fuel for decades to come.
    While there are no silver bullets, there is reason for optimism if 
we set ourselves on a path of innovation and efficiency. Innovation is 
required because all of the possible clean, renewable fuels require 
breakthroughs to be affordable and widely available. Efficiency is 
needed because the problem is too big to wait for these breakthroughs 
and we already have the technology.
Innovation
    If we are to tap into innovation, there are at least three major 
options that could serve as alternatives to gasoline: renewable 
hydrogen, cellulosic ethanol, and renewable electricity. These three 
share many features:

   They have the potential to eliminate the use of gasoline or 
        diesel as an automotive fuel by the middle of this century if 
        aggressively pursued;

   They will require changes to or an overhaul of the refueling 
        infrastructure;

   They all need breakthroughs in production, while hydrogen 
        and electric vehicles also need breakthroughs in storage 
        technology if they are to work;

   There are different ways to make the alternatives, some of 
        which could actually harm U.S. energy security and the 
        environment;

   They all require vehicles to be significantly more efficient 
        than they are today in order to fulfill their potential, 
        otherwise they will require too much land and too many 
        resources.

    Because breakthroughs are still required, nobody knows which 
alternative is the right one. It could be fuel cell vehicles powered by 
hydrogen made from the sun, the wind or biomass. It could be hybrids 
running on cellulosic ethanol made from grasses, rice straw, corn 
plants, and other woody products grown in the U.S. It could also be 
battery electric vehicles that develop from hybrids that you can plug-
in and recharge with renewable electricity. But because these 
alternatives all have such promise, each one needs to be supported so 
that they can eventually compete to determine the best path.
    Accelerating innovation towards clean and renewable alternatives to 
oil will not be a small or inexpensive task, but the benefits far 
outweigh the costs. To be successful, such a path will need a clear and 
reasonable timetable along with milestones to help determine which 
alternative is showing the most promise over the next decade or two. 
The necessary support that will be needed on this path must also 
recognize that hydrogen, electricity, and even biofuels are not 
inherently clean--instead they are energy carriers that are only as 
clean as the process that produced them and how they are used.
Efficiency
    Improving the efficiency of the cars and trucks consumers drive 
every day can sometimes get lost in the excitement surrounding clean, 
renewable alternatives to oil. However, investments in vehicle 
efficiency actually offer greater potential to reduce oil dependence in 
the near term and can create hundreds of thousands of new jobs in the 
U.S. while saving consumers billions on fuel. Improving vehicle 
efficiency is also essential to reducing the amount of land needed for 
the renewable hydrogen, cellulosic ethanol, or renewable electricity 
that could power vehicles in decades to come.
    The automobile industry has been investing in technologies that can 
safely and economically allow consumers to get more miles to the gallon 
in cars, minivans, pickups and SUVs of all shapes and sizes. Figure 1 
shows the potential for these technologies to dramatically increase the 
fuel economy of an SUV with the size and acceleration of a Ford 
Explorer. These technologies include efficient gasoline engines, more 
efficient transmissions, improved aerodynamics, high strength steel, 
and lower rolling resistance tires. The majority of these technologies 
have no influence on the safety of the vehicle. Some, however, such as 
the use of high-strength steel and aluminum and unibody construction 
could actually help make highways safer.
    With technology costing only $600-$800, a consumer could have the 
choice of an SUV that gets the fuel economy of today's family car. For 
just over $2,000 a consumer could have the choice of an SUV that gets 
the fuel economy of a compact car. At just $2.00 per gallon, this SUV 
would save consumers over $6,000 on fuel costs during the vehicle's 
lifetime. The technologies needed to get this SUV to more than 35 mpg 
would pay for themselves in less than four years (the savings in Figure 
1 are based on gasoline at only $1.40 per gallon).
    The problem is that automakers are not giving consumers these 
choices. Instead, for the past twenty years similar technologies have 
gone to doubling power and increasing weight by 25 percent. As a 
result, the average fuel economy of new automobiles is lower today than 
it was twenty years ago. Twenty years from now, however, this does not 
have to be the case. Because new technologies have been developed, 
there is an opportunity to move to a future where consumers can have 
the same size and performance they have today, but with dramatically 
higher fuel economy.
    In order to quantify the benefits linked with such a future, UCS 
estimated the effect of moving existing technologies into cars and 
trucks over the next 10 years to reach an average of 40 miles per 
gallon (mpg) by 2015. We found that:

   In 2015, the benefits resulting from investments in fuel 
        economy would lead to 161,000 more jobs throughout the country, 
        with California, Michigan, New York, Florida, Ohio, and 
        Illinois topping the list.

   In the automotive sector, projected jobs would grow by 
        40,800 in 2015.

   For consumers, the cost of the new technology would more 
        than pay for itself, saving a net $23 billion dollars in 2015 
        alone.

    Getting technologies like these into the fleet over the next ten 
years and then tapping into the growing potential of hybrid cars and 
trucks could get us to the point of saving five to six million barrels 
of oil per day by 2025 (Figure 2). That would be enough of a reduction 
in oil use to stop the current growth in oil demand and hold us where 
we are today while we wait for the breakthroughs that are needed for 
clean and renewable alternatives to oil.
    But this will not happen on the current path. The Administration 
recently proposed an interesting change to the structure of fuel 
economy standards for SUVs, minivans, and pickups. While this change 
addressed a key automaker concern and had the potential to open the 
door to higher increases in the standard, the proposal falls short of 
the technically feasible and economically practical levels shown above 
by a factor of three. The Administration proposal also does not include 
any increases to the cars that represent fifty percent of all light 
duty automobiles sold today. Finally, the proposal did not close key 
loopholes in fuel economy regulations and may open up new ones.

Conclusion: Government Policy
    A transition to clean, renewable alternatives to oil will be 
complex, expensive, and technically challenging and will not happen 
overnight. Investing in efficiency to cut oil use, while the best 
option over the next two decades, has often been overlooked and mired 
in political challenges. And neither of these will happen on their own. 
But these are exactly the reasons why Federal, State and local 
Governments must play a role. This is not surprising. In fact, the 
Federal Government has helped drive every transportation revolution 
this country has ever seen, whether it was trains, planes, or 
automobiles. The next transition will be no different.
    There are several different mechanisms the government could use, 
and many of them are currently being considered as options to help 
reduce oil usage. Among the viable options are:

   Enforceable, national oil savings targets

   Performance-based incentives for suppliers and manufacturers 
        and eliminating the cap on consumer incentives

   Incentives to increase alternative fuel production, 
        including production targets, research and development, and 
        infrastructure investments

   Incentives and requirements to increase efficiency of oil 
        usage in the heavy duty transportation and industrial sectors

   Closure of existing loopholes in fuel economy regulations 
        and tax laws

   Increased fuel economy standards for cars and trucks

    Again, none of these options is a silver bullet. And some, if not 
all of them, are politically challenging. But by adopting a reasonable 
package that includes several of these measures now, we can reduce the 
trade deficit and create hundreds of thousands of new jobs, while 
steadily reducing our oil usage. And that's something I hope we can all 
support.
    Thank you for the opportunity to testify today. I would be happy to 
answer any questions you may have.




    STATEMENT OF JASON GRUMET, EXECUTIVE DIRECTOR, NATIONAL 
               COMMISSION ON ENERGY POLICY (NCEP)

    Mr. Grumet. Thank you very much, Chairman Stevens. I'm 
Jason Grumet and I'm here on behalf of the National Commission 
on Energy Policy which is a diverse bipartisan group of energy 
experts. I am thankful for the opportunity to be here today.
    Coming at the end of a long stream of very substantive 
testimony I want to try to focus on three points. I want to 
share with you the conclusion that our Commission reached over 
a year ago that enhancing oil security is far and away the most 
pressing near-term challenge facing our energy system.
    I next want to talk a little bit about why we believe that 
cellulosic ethanol is in fact, the most promising near-term 
opportunity to address our present reliance on oil.
    And third, I want to touch on the recently improved Energy 
Policy Act which I think has put us on a critical path and 
gives us some optimism toward commercializing these kinds of 
advanced biofuels over the next 20 years.
    So if I can begin on oil security, obviously, recent events 
highlight the vulnerability of our economy to disruptions in 
our petroleum supply chain. They also highlight I think a very 
discouraging reality that once a disruption occurs no matter 
how hard we try there is very little that we can do in the 
near-term to reduce the harm to consumers.
    Unfortunately, the fundamentals of our oil industry don't 
suggest this dynamic will change any time soon. The spare 
capacity of the global oil supplies are at an almost all-time 
low of 2 percent of the total global annual demand, and as Mr. 
Webber and others have suggested, oil demand both domestically 
and globally is predicted to grow by a full 50 percent in the 
next 20 years.
    In addition, Chevron and other companies have pointed out 
recently that for many years now our annual consumption is 
exceeding the discoveries of the new oil reserves.
    And finally, oil intensity, the measure of how much oil we 
use per dollar of GDP which has declined very sharply from the 
mid-1970s into the mid-1980s, has now started a plateau as our 
fuel economy has stagnated. As we have a global market, Mr. 
Chairman, a disruption anywhere in the world, whether it is a 
labor unrest in Venezuela or a civil unrest in Nigeria or 
terrorism in the Middle East or an accident, a natural disaster 
anywhere that affects oil supply, will dramatically harm not 
only the U.S. but, in fact, the global economy. And it is for 
this reason that our Commission recommended a suite of 
proposals to boost global supply and to significantly reduce 
domestic oil demand over the next 25 years.
    I want to now focus on biofuels because we believe that a 
greater reliance upon biofuels is, in fact, one of the more 
realistic and important opportunities that we have when trying 
to increase our energy security. Just for a point of reference, 
we use approximately 140 billion gallons of gasoline each year 
in this country. In thinking about what could be a meaningful 
contribution to displacing billions of gallons of this very 
useful product, our Commission came up with four criteria which 
we think are at minimum important.
    Any alternative fuel has to have an ample and domestic 
feedstock, has to be compatible, largely compatible, with the 
existing infrastructure, needs to have relatively low carbon 
emissions and finally, needs to be able to compete cost 
effectively against gasoline sometime over the next couple of 
decades.
    Now, when we looked at these criteria we first thought 
about corn-based ethanol which is far and away a most 
successful existing alternative fuel. Corn-based ethanol has 
significant attributes. It is able to be used largely in the 
existing infrastructure, it's about 20 percent better than 
gasoline when it comes to greenhouse gas emissions when we look 
at the full fuel cycle energy balance, and then we start to run 
into a little bit of trouble. It takes roughly 4 percent of the 
Nation's corn supply to displace 1 percent of the Nation's 
gasoline supply. So the 7.5 billion gallon renewable fuel 
standard, which would displace about 5 percent of our Nation's 
gasoline, would require about 20 percent of our Nation's corn. 
Many of the enthusiasts for ethanol whom I work with tell me 
that once you get above about 10 or 12 billion gallons of corn-
based ethanol you really start to strain production, you start 
to have a real competition between the ethanol used and the 
corn used for ethanol, and the corn necessary to support our 
livestock and food.
    Turning now to the issue of cellulosic ethanol, we see some 
greater opportunities. Cellulosic ethanol can be made from a 
variety of waste products as well as energy crops like 
switchgrass. Though there are ample feedstocks, the 
infrastructure is exactly the same as with traditional ethanol. 
It's an essentially carbon neutral fuel, and while there's not 
a commercially available source of cellulosic ethanol, 
projections suggest that over time there are reasons to believe 
that cellulosic ethanol could be more cost competitive with 
gasoline than traditional ethanol.
    Mr. Plotkin mentioned the key issue that people raise when 
thinking about a massive deployment of cellulosic-based 
ethanol, that's land requirements. You may have heard some 
people suggest it would take all the arable land in the United 
States to create enough cellulosic ethanol to displace half of 
our Nation's fuel supply. Our Commission looked at this quite 
carefully and came to a different conclusion. Our sense is that 
with deliberate but unremarkable progress with crop yields for 
things like switchgrass, with improved conversion efficiency to 
turn the cellulosic material into ethanol and with improvements 
in fuel economy, it's quite manageable to imagine the 
displacement of about half of the Nation's gasoline supply with 
cellulosic ethanol.
    I just wanted to note, a number of others have mentioned 
this, but the transition to alternative fuels and to ethanol 
will be dramatically undermined if we do not, and at the same 
time and at the same scale, increase our fuel economy. I won't 
repeat that analysis, but our Commission made a number of 
recommendations to reform and strengthen the vehicle fuel 
economy which I'd be happy to talk about in other hearings.
    So let me now conclude by talking for a few moments about 
the Energy Policy Act. It does a lot of very important things. 
It creates 10 significant new programs to move toward 
commercialization of cellulosic biomass. If you look at the 
explicit appropriations for those 10 programs, they total over 
$4.2 billion over a decade and it provides a series of grants 
and production incentives, and R&D and loan guarantees that we 
believe really give us an opportunity over 10 or 15 years to 
diversify the fuel supply.
    It's very encouraging. It demonstrates a clear enthusiasm 
of Congress and a clear intent to diversify our fuel supply, 
but I believe that we need a different kind of vigilance to 
make this happen. If you look at past efforts we have been 
trying to diversify our fuel supply for quite a number of 
years. Unfortunately past efforts to advance our coordinated 
research program, have been significantly undermined by an 
inadequacy of appropriations, by inconsistency from year to 
year, and by an unusual number of Congressional earmarks.
    Now we recognize that in this fiscal climate, everything 
needs to be scrutinized and appropriations is clearly going to 
be a challenge going forward. Also, I entirely appreciate that 
Congress and only Congress has the authority to direct 
spending. I think it is paradoxical that the enthusiasm that 
many Members of Congress have for advancing these kinds of 
projects is in many ways responsible for the great appetite to 
direct this spending. Our request is simply to ask Congress to 
channel that enthusiasm to obligate the implementing agencies 
to give a clear and transparent long-term research plan and try 
to ensure the earmarked projects are consistent with that 
overarching strategy.
    Mr. Chairman, there's really little that we can do when we 
face an energy shock like we've experienced over the last few 
months, but one thing is for sure, this will happen again. 
There's an absolute inevitability that our Nation will again, 
whether it's in one month, one year, or 10 years, face another 
significant disruption in world oil supply. We have an 
opportunity and I think an obligation to try to mitigate what 
are very predictable harms by focusing on biofuels.
    This hearing today is a step in that direction and I thank 
you.
    [The prepared statement of Mr. Grumet follows:]

   Prepared Statement of Jason Grumet, Executive Director, National 
                   Commission on Energy Policy (NCEP)

    Good morning, Chairman Stevens and Members of the Committee. I 
speak to you today on behalf of the National Commission on Energy 
Policy (NCEP), a diverse and bipartisan group of energy experts that 
first came together in 2002 with support from the Hewlett Foundation 
and several other leading philanthropies. Last December, the Commission 
released a report entitled Ending the Energy Stalemate: A Bipartisan 
Strategy to Meet America's Energy Challenges. Oil security and biofuels 
figured prominently in our recommendations and I am pleased to be with 
you today to discuss policy approaches to encouraging alternative 
automotive fuel technologies.
    Over the next few minutes I will attempt to explain the NCEP's 
rationale for promoting biofuels and the basis for our conclusion that 
cellulosic ethanol is the most promising gasoline alternative. I will 
conclude with some reflections on recent efforts to promote biofuels in 
the recently adopted Energy Policy Act of 2005 (EPAct 2005).

Oil Security
    During our deliberations, Commission members actively debated the 
extent to which our oil dependence limits U.S. foreign policy, provides 
funding for terrorism and imposes burdens on our military. While 
members voiced a variety of passionate opinions on these questions, 
Commissioners were unanimous in the belief that oil dependence poses an 
unacceptable threat to the U.S. economy. To address this threat, we 
propose a variety of measures to increase global oil supply while 
simultaneously seeking to reduce domestic oil demand through increased 
vehicle efficiency and the diversification of our transportation fuels.
    Events of the last few months highlight our vulnerability to 
disruptions in the petroleum supply chain. As Congress and ordinary 
Americans struggle to find economic relief, it has become clear that 
once a serious disruption occurs there are no good near-term options. 
In our collective frustration, many have sought to focus blame on price 
gouging, windfall profits or restrictive environmental laws as if our 
plight was somehow the result of a few bad people or poorly written 
statutes. While these assertions should not be dismissed out of hand, 
they should not distract us from the fundamental reality that our 
economy and very way of life are dependent upon a product that is 
beyond our control. The United States possesses less than three percent 
of the world's proven oil reserves and consumes twenty-five percent of 
the world's annual oil production. At present, global spare capacity to 
compensate for supply disruptions has fallen to a mere 2 percent of 
global demand. In today's tight global oil market a supply disruption 
anywhere can have a dramatic effect on price everywhere. It doesn't 
matter if the cause is labor unrest in Venezuela, civil unrest in 
Nigeria, terrorism in the Middle East, accidents or natural disasters 
affecting oil production anywhere in the world, our economy and 
consumers will suffer. While we have few options to mitigate the impact 
of the current gasoline price shock, we have an obligation to prepare 
for the inevitable future oil supply disruptions. That such disruptions 
will occur is a certainty. Our challenge is to minimize their harmful 
effects over the next several decades while we transition to a more 
secure and diversified transportation system.
    All evidence suggests that absent a significant course correction, 
our economic vulnerability to oil disruptions is likely to get worse in 
the future. Both domestic and global demand for oil is projected to 
grow by roughly 50 percent over the next 20 years. This rate of growth 
is more than double the historical rate since 1980 (Figure 1-1.) 
Moreover, according to Chevron and others, the energy sector has for 
years experienced a consistent and growing gap between oil production 
and the discovery of replacement reserves. In addition, the rate of 
improvement in U.S. oil economic intensity has slowed in recent years. 
Oil economic intensity is a measure of how much oil is required for the 
U.S. economy to produce a dollar of economic output. This measure is 
important because the ability of the U.S. economy to weather oil price 
shocks improves as oil's share of our economic output decreases. Since 
1970, the U.S. oil economic intensity has dropped by half--a tremendous 
achievement--largely due to CAFE standards and high oil prices in the 
late 1970s and early 1980s, and to a shift in the electricity sector 
away from the use of petroleum. Further improvements would further 
insulate the U.S. economy from oil price shocks (Figure 1-2).
    The Commission firmly believes that we can neither produce nor 
conserve our way to energy security--we must do both. At the same time, 
we recognize that oil is a global commodity with one global price. The 
vulnerability of our economy to oil price shocks is purely a function 
of how much oil we consume. In this regard, the origin of the oil makes 
no difference whatsoever. While oil production in the U.S. has 
important regional and national economic value, improves our balance of 
trade and improves global supply, the only way to reduce the impact of 
an oil price shock is to use less oil.
    While I will focus today on opportunities to enhance the use of 
biofuels, it is important to recognize that the transition toward 
alternative fuels is unlikely to succeed absent a commensurate effort 
to increase vehicle fuel economy. First, the effort to diversify our 
fuel supply will take decades. Increased vehicle fuel economy can 
essentially buy us time while this effort progresses. Second, biofuels 
and most other alternative fuels suffer from a lack of available 
feedstock, a lower energy density than gasoline, or both. Unless our 
vehicle fleet becomes more fuel efficient, the transition to a greater 
reliance on alternative fuels will likely falter due to inadequate 
supply or inadequate driving range of alternatively fueled vehicles. I 
have attached a copy of the full Commission Report in which we 
recommend significantly reforming and strengthening the current CAFE 
program and offer specific ideas to address the cost, domestic 
competitiveness, safety and performance issues that have caused our 
Nation's fuel economy to remain essentially stagnant for nearly two 
decades.

Biofuel Attributes and Challenges
    We burn nearly 140 billion gallons of gasoline each year in the 
U.S. In order to meaningfully improve our Nation's energy security, 
alternative fuels must be capable of being economically and reliably 
produced on a truly massive scale. The Commission identified four 
criteria that characterize a promising alternative fuel: (1) they can 
be produced from ample domestic feedstocks; (2) they have low carbon 
emissions during production and use; (3) they can work in existing 
vehicles and with existing infrastructure; and (4) they have the 
potential to become cost-competitive with petroleum fuels given 
sufficient time and resources dedicated to technology development. 
Among the variety of alternative fuel options potentially available for 
the light-duty vehicle fleet, the Commission believes that ethanol 
produced from cellulosic biomass (i.e. fibrous or woody plant 
materials) should be the focus of near-term Federal research, 
development, and demonstration efforts. Let me briefly discuss the 
attributes of traditional corn-based ethanol and then turn to 
cellulosic ethanol.
    Corn-based ethanol is far and away our most successful non-
petroleum transportation fuel. The Renewable Fuels Standard adopted in 
the 2005 Energy Policy Act imposes an annual ethanol sales requirement 
that grows to 7.5 billion gallons in 2012. Current ethanol sales were 
roughly 4 billion gallons last year. Despite the beneficial sales-
volume credits given to producers of cellulosic ethanol, virtually all 
of this mandate will be met with traditional ethanol. A requirement to 
sell 250 million gallons of cellulosic ethanol takes effect in 2013.
    For years, detractors of corn ethanol have asserted that it takes 
as much energy to produce a gallon of ethanol as the gallon generates. 
The Commission's analysis disputes this assertion finding that corn 
ethanol on average provides nearly a 20 percent more energy than it 
takes to produce. A more recent study by Argonne National Laboratory 
finds a 35 percent benefit. The fundamental liability of corn-based 
ethanol is there's simply not enough corn to begin to keep pace with 
the expected growth in gasoline demand let alone reduce our current 
dependence. It takes roughly 4 percent of our Nation's corn supply to 
displace 1 percent of our Nations gasoline supply. Even organizations 
devoted to ethanol advocacy agree that it will be difficult to produce 
more than 10-12 billion gallons of ethanol a year without imposing 
unacceptable demands on corn supply and significant upward pressure on 
livestock feed prices.
    The 2005 Energy Policy Act also made progress toward ensuring that 
the increased use of ethanol will not undermine air quality and public 
health standards. Eliminating the opportunity for ethanol blended 
gasoline to meet less protective evaporative emission standards remains 
necessary to ensure that our efforts to increase energy security do not 
undermine our clean air goals. Finally, car makers will have to take 
some steps to better accommodate ethanol blended gasoline. The 
Coordinated Research Council, which is supported by both automotive and 
petroleum industries and the State of California, has been conducting 
research examining the extent to which automobile evaporative emissions 
increase in cars using ethanol blended fuels. The research appears to 
indicate that when a small quantity of ethanol is blended into 
gasoline, the resulting mixture escapes more readily through the hoses 
and seals in the vehicles fuel system leading to more smog forming 
emissions. The problem appears less prevalent in newer vehicles but 
demonstrates the type of challenges that will arise as we begin to 
transition toward a more diverse suite of transportation fuels. One of 
the many reasons for interest in promoting flexible fueled vehicles 
capable of running on up to 85 percent ethanol blends is that when 
ethanol is the dominant constituent, the overall volatility of the fuel 
is reduced and evaporative problems go away. Efforts by Senators Lugar, 
Obama and others to increase the number of flexible fueled vehicles 
sold over the next decade deserve serious consideration.
    Cellulosic ethanol is chemically identical to corn-based ethanol 
and is equally compatible with existing vehicle technology and fueling 
infrastructure. The added advantages of cellulosic ethanol lie in its 
significantly lower energy inputs and greenhouse gas emissions, much 
larger base of potential feedstocks and its greater potential to become 
cost-competitive with gasoline at very large production scales. For 
cellulosic ethanol to succeed on a large scale, important concerns 
about land requirements must be overcome and production costs must be 
reduced. The central challenge is producing enough feedstocks without 
disrupting current production of food and forest products. Some 
cellulosic ethanol can be produced from currently available waste 
products such as corn stalks, sugar cane bagasse and wheat straw. 
However, production scales on the order of fifty billion gallons per 
year, will require improved high-yield energy crops like switchgrass, 
integration of cellulosic ethanol production into existing farming 
activities and improved process efficiency for converting cellulosic 
materials into ethanol.
    An examination of the land requirements to produce enough 
cellulosic ethanol to fuel half of the current U.S. passenger fleet 
reveals the importance of advancements noted above. Using status quo 
assumptions for crop yields, conversion efficiency and fuel economy, it 
would take 180 million acres or roughly 40 percent of the land already 
in cultivation in the U.S. to fuel half the current vehicle fleet. 
However, with steady but unremarkable progress over two to three 
decades, it should be possible to cut the required land down to 30 
million acres by doubling the per acre yields of switchgrass, 
increasing conversion efficiency by one-third and doubling the fuel 
economy of our vehicle fleet. As a point of reference, there are 
roughly 30 million acres in the Conservation Reserve Program (CRP).
    Another central challenge is reducing production costs for 
cellulosic ethanol. The lack of fertilizer, pesticide and herbicide 
needed to grow energy crops like switchgrass offers obvious economic 
benefits as does producing ethanol from materials that would otherwise 
be treated as waste. The National Renewable Energy Labs and a separate 
analysis sponsored by the NCEP both suggest that mature cellulosic 
ethanol production could compete economically with gasoline. However, 
these studies are projections. At this time, there is no fully 
commercial scale production of cellulosic ethanol anywhere in the 
world. Until cellulosic ethanol is produced in a variety of commercial 
facilities, it will not be possible to prove or disprove these cost 
estimates. These are serious challenges, but achievable if we dedicate 
ourselves to a serious, coordinated, and sustained research, 
development and commercialization efforts. The Energy Policy Act of 
2005 offers promise in this critical direction

Energy Policy Act of 2005
    The Energy Policy Act of 2005 (EPAct 2005) contains at least ten 
major programs to promote ethanol derived from cellulosic feedstocks. 
These programs include explicit authorizations for more than $4.2 
billion over the next decade to support critical R&D and ``first-
mover'' commercial facilities through a combination of grants, loan 
guarantees and production incentives. While these programs demonstrate 
Congress' clear intention to promote biofuels, it will require 
continued vigilance by Congress and the Administration to ensure that 
this vision is achieved. Historically, efforts to promote biofuels have 
been undermined by a lack of appropriations, inconsistent funding year 
to year, and an unusual degree of Congressional earmarks. These 
factors, if continued, will make it difficult to achieve the critical 
objective of diversifying our Nation's fuel supply.
    We encourage Congress to make every effort to fund the research and 
demonstration projects authorized in the Energy Policy Act of 2005. 
While it is clear that all discretionary programs must come under 
continual budget scrutiny, inconsistent funding year to year can be 
devastating to long term research efforts by making it impossible to 
hire and train experts, build infrastructure, and amass knowledge based 
on iterative experimentation. The Commission recognizes that Congress 
alone is responsible for appropriations, but can't help but note that 
the high level of non-competitive earmarks is undermining the strategic 
goals of our Nation's bioenergy programs. For example, in 2004, of the 
$94 million in appropriations for the DOE's Bioenergy Program, nearly 
$41 million was directed to earmarked projects. In 2005, earmarks 
accounted for nearly 50 percent of the program's budget. Paradoxically, 
this high level of earmarks reflects the enthusiasm that many Members 
of Congress maintain for promoting domestic alternatives to petroleum. 
However, an effective national effort that coordinates the efforts of 
Federal, State and private institutions cannot be mounted under these 
circumstances.

Conclusion
    Since the late 1980s, the U.S. has pursued a stated policy of 
promoting alternatives to petroleum-based transportation fuels as a 
means of diminishing our vulnerability to oil price shocks and supply 
reductions and reducing emissions from passenger vehicles. Despite 
these efforts, gasoline and diesel fuel still account for roughly 
ninety-eight percent of our transportation fuels. Biofuels offer an 
important opportunity to lower energy prices, protect the economy from 
oil price shocks and minimize greenhouse gas emissions. These 
homegrown, renewable fuels are also major source of income for 
America's farmers and rural communities. By following through on the 
critical path set forth in the 2005 Energy Policy Act, we have the 
potential to develop cost-competitive biofuels that will strengthen our 
economy and protect our environment.
    I thank the Committee for focusing its attention on this important 
topic.
Figures from Ending the Energy Stalemate: A Bipartisan Strategy to Meet 
        America's Energy Challenges, National Commission on Energy 
        Policy (2005)
        
        
        

    The Chairman. Thank you very much.
    This is really the first in a series of hearings we have 
jurisdiction over technology base. I was interested to note 
that China has reduced its consumption of oil in one year from 
30 percent of the world's share down to 16 percent.
    We have to start looking at alternative sources and the 
technology base will determine that, I think. Recently I had a 
meeting with one of the Nobel Peace Prize winners and I asked 
him whether we have the right policy when we closed canyons 
that are capable of producing massive amounts of hydropower and 
instead start looking at putting solar panels in Arizona the 
size of which would cover all of Arizona just to cover five 
major cities of the country.
    We've got a great many technology problems to chase. One of 
them is the gas hydrates, in my state some 3,000 trillion cubic 
feet of gas trapped in ice. We have a whole series of questions 
to determine whether we should change our policies and pursue a 
different technology base for our energy. Brazil turned to 
hydroelectric power. China is turning to other types of power. 
But very clearly we're in a global economy and the race is 
going to be how much diversity can a country develop in terms 
of its energy supply.
    Now, we don't have much time. I've taken 3 minutes. I would 
yield to my friend from Hawaii and we'll just see how long we 
can stay here running down the list. I don't think any Member 
should take more than 4 minutes. Thank you very much.

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

    Senator Inouye. Thank you, Mr. Chairman. It's obvious that 
the problems we're facing are reaching a crisis point and 
everyone has agreed that something has to be done. One has said 
that CAFE is not the answer, some have suggested hydrogen and 
other alternative energies. It should be clear that none of us 
on our side are experts. We know very little, if any, about 
what we're discussing and yet we'll be called upon to make 
policies and decisions and so the ideal situation would be if 
all of you and people like you got together and came up with 
some proposal. Because if you don't, then the political aspect 
will come in, who gives the most contributions, who is the most 
helpful, and that usually is not the best answer.
    And so we plead with you to come up with something because 
in the final analysis our job will be how much can we spend.
    All of you spoke of incentives that translates into money, 
taxes, or something like that and before we decide we'll have 
to know what's ahead of us. Because no matter how great the 
program is, the average American on the street is not going to 
be happy if his taxes are suddenly increased by 10 percent or 
20 percent and so my plea with you is somehow let's get 
together. We know the manufacturers have their problems, the 
auto producers have their problems, the scientists have theirs, 
we have our problems. Thank you very much.
    The Chairman. Senator Burns. Do not exceed 4 minutes.
    Senator Burns. I don't have any problems.
    [Laughter.]

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

    I just want to make just a statement here. When you look at 
our sources of energy, I'm really interested in what Mr. Grumet 
said that it makes more sense that we start making our 
renewable fuels from the biowaste than it does to use a kernel 
because pretty soon we're going to get in competition with the 
food chain of humans. We all eat every day. The second thing we 
do, in fact is eat. The first thing you do when you get up you 
have a lot of options but the second thing you do is eat. When 
we get in competition with that and you start driving other 
costs and sources for humans so biomass and solar offer us a 
great deal of opportunity.
    I just want to offer a suggestion to this group here that 
what Mr. Inouye has just suggested is right that industry and 
market-driven is usually our best scientist, so to speak. 
Necessity is the mother of invention and so whenever we start 
looking at where we want to be in 25 years or 10 years has to 
come from some of you folks sitting at this table today. We've 
got some of the smartest people in the world located in this 
town however, we at times have a lack of wisdom and to look 
into the future.
    So with all of this information it's time that we set the 
goals and recommend the policies and it will be a combination 
of things and then develop a way to find and to secure those 
finds for we are not going to do anything to damage the love 
that the American has for his automobile and the freedom he 
enjoys with it. We found that out in the building of our 
highways. You can put three more lanes on each side between 
here and Springfield, Virginia, and we fill them in 30 seconds. 
We can't out-build the love for the automobile.
    And then we've got to look and say how do we move great 
masses of product and commodities and we haven't really found 
anything that replaces diesel yet, even though our gasoline 
prices in Montana are down around $2.20, $2.25 I think this 
last weekend, we have still not found anything to move a 
massive amount of any volume of anything to replace diesel. 
Diesel is not coming down and we have to do something about 
that.
    So thank you for the hearing. Thanks for your testimony 
today but we've got to pick the right stuff for our 
alternatives and our renewables, or that will drive us into 
other problems that our society will face in that 25-year 
period.
    Thank you very much, Mr. Chairman.
    The Chairman. Next with us I think is Senator Pryor.
    Senator Pryor. I think it's Senator Nelson.
    Senator Ben Nelson. Senator Pryor is such a gentleman. I 
appreciate his recognizing that.

             STATEMENT OF HON. E. BENJAMIN NELSON, 
                   U.S. SENATOR FROM NEBRASKA

    First of all I want to thank you for your appearing here 
today and your testimony. Obviously, there's a lot that needs 
to be gleaned from what you said and what others are saying as 
well. My approach is two-fold. One is to try to determine what 
we can do as a Nation to move from merely having an energy bill 
to having an energy policy that is comprehensive and sufficient 
to get us into the next 20 years or, hopefully, way beyond 
that.
    I propose, and I hear other people saying something similar 
that we should have the equivalent of a Manhattan Project like 
we did in the Second World War to develop nuclear capabilities 
at that point but to develop an energy policy that includes all 
kinds of energy and the most appropriate use of each form of 
energy for the development of our needs.
    Now having said that, I guess I'm interested in what you 
may think about something like that as to whether it's even 
possible--I'm not looking for an energy czar or anything like 
that but bringing together other people from industry, from 
academics, people who obviously have a background and knowledge 
and commitment to this so I will ask you that in one second.
    The second thing though is I keep hearing, and, Mr. Grumet, 
you may be able to help us most on this, what can be done to 
counter the faulty assertions about the cost of producing fuels 
like ethanol and cellulosic biomass, what do we do to overcome 
that obvious bias and do so with facts. Let's start with that, 
then maybe I can get some thoughts about the other.
    Mr. Grumet. Well, Senator Nelson, I think it is a complex 
question. I think the challenge that cellulosic ethanol faces 
is that there is no present day commercial scale production. So 
the best any of us can do is to offer informed thoughtful 
projections and argue about whose model is smarter than whose 
model. This is why moving forward with the kinds of provisions 
in the energy bill I think are so critically important so we 
can actually get to the bottom of whether this very substantial 
opportunity can actually stand on its own two feet.
    You know with corn-based ethanol there have been lots of 
battles over the years. One has been the question of whether it 
takes as much energy to produce ethanol as ethanol provides. 
Our Commission thinks we have answered that question clearly 
that, no that is not the case, that there is an energy benefit 
to ethanol. The ethanol from corn has become more efficient in 
recent years but at the same time it is a rather mature 
technology. So I think there is a lesser chance that there is 
going to be a kind of cost breakthrough or an order of 
magnitude with corn ethanol as there might be with ethanol 
coming from the use of cheaper waste products. I think it's 
fundamental when you think about the comparison between ethanol 
and gasoline, you have to think about what you're counting. If 
you're just counting production costs of one gallon to one 
gallon, corn-based ethanol costs more money, at least until 
very recently, at over $2.00 a gallon many things are cost-
effective.
    When you factor in the broader social concerns about oil 
dependence and start to deal with those external costs and the 
cost of air pollution, the cost of climate change, the cost 
that may be associated with maintaining a large military 
presence, the cost that may be associated with undermining our 
foreign policy, when you put those numbers together you may 
come up with a very different answer and I think that is a 
longer debate than you've been involved in for quite a while.
    Senator Ben Nelson. Thank you. Maybe you could just tell me 
on the other, is it possible to have the equivalent of a 
Manhattan-type project, yes or no, because we're running out of 
time, starting with Mr. Shane.
    Mr. Shane. Mr. Chairman, I think we have the equivalent of 
a Manhattan project right now. It's cut across the entire 
country. I think possibly the Congress and even the Executive 
Branch is a little short. We have stimulated an enormous amount 
of research that has taken place everywhere. My colleague from 
the Energy Department might have a more interesting answer than 
I do on these questions but I honestly think that we have 
incentivized a huge amount of research and that we're moving 
this technology along probably as fast as is humanly possible.
    Senator Ben Nelson. I'm ahead of time. I appreciate that.
    Thank you, Mr. Chairman.
    The Chairman. Thank you very much.
    Senator Pryor. I think you've got 4 minutes. The vote has 
been extended. It will start in just 2 minutes.

                 STATEMENT OF HON. MARK PRYOR, 
                   U.S. SENATOR FROM ARKANSAS

    Senator Pryor. Thank you, Mr. Chairman. I want to thank 
this panel of witnesses for being here today. Some of the 
things you said are very encouraging. There's a lot of 
potential upside and I agree with what Senator Nelson and 
others have said, that we really need to make this a national 
priority. You can look at a country like Brazil. I know that 
the U.S. is different in a lot of ways than Brazil, but some of 
the things they've done down there that I think provide a model 
for us in some ways and I know some of those things apply and 
some don't.
    But, Mr. Chairman, I was interested to learn a few weeks 
ago that in the timber industry, and I think Mr. Grumet sort of 
touched on this a few moments ago, but in the timber industry 
when they harvest timber, of course, they typically cut it for 
building material, et cetera. About half or maybe even as much 
as two-thirds is waste. It's branches and et cetera that you 
just can't use but you can chip it up and make ethanol out of 
it and so there's a huge resource all around this country. And 
the way I look at this is, if we're smart about it, and invest 
in the technology and incentivize various industries around the 
country, it will be a huge economic stimulus.
    I know that last week or 2 weeks ago we had a big fight on 
the floor about agriculture policy and if we're smart, again, 
we could incorporate energy production into our ag policy. A 
lot of the problems, a lot of the challenges, will go away 
because you create an entirely new domestic market for 
agriculture. That is not food-based or fiber-based but it's 
energy-based and it helps all across the board. It helps with 
our trade imbalance, which is at a record high, it helps with 
the value of the dollar, it helps stimulate rural America. And 
so I really appreciate you all being here today and also, Mr. 
Chairman, thank you for mentioning that this is the first of 
many of hearings because I do think as a national policy, the 
U.S. Senate could really provide some great leadership and this 
Committee can provide great leadership on steering the course 
into the future for the U.S.
    Mr. Grumet, tell me, you probably know this better than I, 
about the timber industry and the waste in timber and what it 
can be used for. Am I right on that?
    Mr. Grumet. Senator, you're absolutely right that in most 
operations, half the actual volume of the lumber is not able to 
be productively put into commercial products. Now much of that 
is sometimes chipped and put into co-firing of utilities. It's 
not all wasted so to speak, but there is a tremendous 
opportunity from a vast variety of feedstocks. One of the 
things that gets people so excited about cellulosic ethanol is 
it's hard to find a state that doesn't have three or four 
different opportunities. For so long in the ethanol discussion, 
we've had these undertones of a battle between the Mid-western 
States and the coast. I'm sure you've all seen that play out in 
many of the votes prior to today. What is so productive about 
the transition now to this national renewable fuel standard and 
providing the extra credits for cellulosic ethanol is to create 
the opportunity to have a truly national biofuels market that 
will provide the kind of support and kind of longevity of 
support that we will need to be successful.
    Thank you, Mr. Chairman.
    The Chairman. Senator Bill Nelson.

                STATEMENT OF HON. BILL NELSON, 
                   U.S. SENATOR FROM FLORIDA

    Senator Bill Nelson. Mr. Grumet, can you make cellulosic 
ethanol cheaper than from corn?
    Mr. Grumet. I believe that there's every reason to think 
that over time cellulosic ethanol can become more cost-
effective for the simple reason that corn is a high value 
product. You can make cellulosic ethanol----
    Senator Bill Nelson. Over how much time?
    Mr. Grumet. If we fund and implement the provisions in the 
recent energy bill, we believe that by 2015 to 2020 you will 
have commercially available cellulosic ethanol that can compete 
with gasoline. So as all of the panelists have said, this is 
not a solution for next year.
    Senator Bill Nelson. And is that advance of technology in 
improving the making of ethanol process, or is that assuming 
that gas is going to be three bucks a gallon in 2015?
    Mr. Grumet. It's more the former, sir. There are really two 
fundamental challenges. One is increasing the yields. While we 
can make a lot of progress with waste like wood chips and 
others, ultimately, to really have billions and billions of 
gallons, we'll have to grow energy crops.
    Switchgrass is one of the crops that people think is one of 
the most promising opportunities, much easier to grow, lower 
value land, no fertilizer, no pesticides, but we need to 
increase the yield. If we increase the yield of switchgrass 
half as much as we increased the yield of corn over the last 10 
years and we increased the conversion efficiency. We have to 
come up with some new enzymes which is why folks like Craig 
Venter and others are out there in the laboratories trying to 
figure out ways we can come up with enzymes that will break 
down the woody parts of these plants so we can get the sugars 
out. If we do those two things, costs will come down.
    Senator Bill Nelson. Is switchgrass what we otherwise would 
think of as prairie grass?
    Mr. Grumet. Yes, sir.
    Senator Bill Nelson. And there are 31 million acres of 
prairie grass in this country.
    Mr. Grumet. Absolutely. And we also have the CRP lands 
which were set aside for conservation and unlike growing of 
corn, growing prairie grass would be consistent with the goals 
of the conservation program.
    Senator Bill Nelson. And just as you were talking with 
Senator Pryor, I come from a state that raises a lot of pine 
trees. When they come in and harvest those pine trees for wood, 
they cut-off all the branches and the branches are just left 
right there to decompose. That is a source, again, something 
that is wasted now that could be chipped and converted?
    Mr. Grumet. That's correct.
    Senator Bill Nelson. Well, then what I don't understand, 
Mr. Chairman, is here we are in a situation where we have 
dependence on foreign oil to the point of 60 percent of our 
daily consumption. We have the technology in every way 
indicated that we can at least move to improve the technology 
so that it becomes economically promising, and you all have 
talked about hybrids, you've talked about increased miles per 
gallon, you take hybrids plus plug-in hybrids so that you're 
charging up the battery from a source other than oil. When it's 
parked in the garage at night, you mix gasoline with ethanol so 
you're using less oil. This is something we can start on 
tomorrow if we have the will.
    And as you say, Mr. Grumet, it may be tomorrow, it may be a 
month from now, it may be a year, it may be 10 years, but there 
is going to be an abrupt disruption of the supply of oil at 
some point. And why we don't get on it and start changing the 
energy policy to wean ourselves from this foreign oil that 
we're so dependent upon is just beyond me.
    And thank you all. And, Mr. Chairman, thank you for having 
this hearing.
    The Chairman. Well, I think we should continue, I was told 
they were going to start at quarter of to vote and then I was 
told that it was going to start at ten of and now I'm told it's 
going to start in around 5 minutes.
    Senator, you heard the testimony. One-third of our trade 
deficit come from importing that oil. If that money was spent 
in the United States, we would eliminate our deficit and have 
almost 100 percent more to allocate to basic research. I've 
been pressing for 25 years to start exploring the Arctic plain 
and to develop Alaska's gas.
    I want to thank you, Mr. Grumet, for your report on the 
Alaska Natural Gas Pipeline. I believe there should be an 
energy czar. Again, we had one once before and Frank Zarb did a 
good job but right now the emphasis ought to be on technology 
and that is what we're exploring right now, is how to find some 
way to put the steam behind the technology base we need in 
terms of gas hydrates.
    Hydrogen is a byproduct of that, as I understand it. 
ConocoPhillips and BP are now investing $45 million dollars 
apiece a year on gas hydrate research. We should be investing a 
half billion dollars a year, that's 30,000 cubic feet of gas, 
and we'll be importing half of our LNG by 2020, half of our 
natural gas will come from overseas in LNG by 2020.
    Now, let me ask you all, how would you suggest--another 4 
minutes maybe, and then we'll have other people join in here--
how would suggest we put the emphasis behind the technology 
base? We're not the Energy Committee. We're dealing with 
technology. How do we get some movement behind technology so we 
can develop the alternative fuels we need for the future? And 
we'll go right down the line. If you would each take a couple 
of minutes.
    Mr. Shane. Again, Mr. Chairman, the Energy Department is 
really the Department that probably has a better answer for 
you. By creating the incentives is what I would say. We're 
seeing some very interesting market effects right now just by 
virtue of the fact the cost of fuel has gone up so high. There 
is now a market demand for hybrid vehicles. I think it's fair 
to say we have market demand for other fuel saving measures, 
including alternative fuels. And so when you know that the 
demand is latent and pent up and it doesn't take too much to 
unleash it, then you know it doesn't take very much to 
incentivize the kind of research you're talking about in a more 
intensive way than we are seeing today.
    I happen to think there's a tremendous amount of research 
going on and I don't have a glib answer for why we haven't 
achieved the millennium just yet. My guess is it's not that far 
away but as I say I think I would defer to our colleagues in 
the Energy Department. Presumably they'll be invited to future 
hearings that you have.
    The Chairman. Mr. Plotkin.
    Mr. Plotkin. Well, first let me say that I'm testifying 
only for myself. I don't want to give heartburn to my 
Department of Energy sponsors who support my lab. I believe 
that, in terms of looking at fuels, we have a very strong 
program in hydrogen. We have a much more modest program in 
biomass fuels. I think we are not supporting the kind of range 
of different fuel alternatives that we really ought to be doing 
in this country and we probably ought to emphasize other fuels 
in addition to hydrogen, not stealing resources from the 
hydrogen program but adding to it.
    I would also like to mention that I don't think the answer 
is to start putting some of these technologies right out there 
into the marketplace. Plug-in hybrids, for example, I really 
like this concept but they have a long way to go before they 
will be commercially successful. The kind of batteries that we 
use for hybrids will not last very long in the kind of service 
required for plug-ins. In hybrids you can have a battery last a 
lifetime of the vehicle because you're only moving the state of 
charge just a little bit every day. With a plug-in, battery 
state of charge will go all the way down and then all the way 
back up. That type of operation destroys the lifetime of the 
battery. It cuts it way down. We've got to work on that, and so 
if you throw these things out into the marketplace I think 
you're going to burn your bridges.
    It's sort of like what we did with diesels back in the 
1970s. People still remember how bad some of those engines were 
and even though modern diesels are fabulous and Europeans love 
them, you can't sell them in cars today, only in trucks. I'm 
afraid we've got to be careful about that aspect of it. Don't 
throw these technologies out into the marketplace before their 
time, but support more R&D on alternatives.
    The Chairman. Thank you.
    Mr. Webber.
    Mr. Webber. Well, Mr. Chairman, first let me assure the 
audience that the automobile industry has gotten the message 
and has been moving out very smartly. We have over 100 vehicles 
today in car lots that get over 30 miles per gallon. My 
daughter just bought a van. She has two young children. That 
van gets over 30 miles per gallon. I just wanted to set the 
record straight.
    Second, it all depends or relies on research and 
development. The global automobile industry pours $35 to $40 
billion a year in research and development. Here in the United 
States alone, we poured $15.2 billion last year into research 
and development. I wish this entire panel had the time to 
travel to a city like Detroit and look at advanced technology 
vehicles, drive them, see the research going on in biodiesel, 
clean diesel hybrids.
    It's very exciting and the industry is very serious in 
moving forward with these advanced technologies. Yes, we're 
going to need time, we're going to need to address 
infrastructure problems, we're going to need to address fuel 
requirements. It's going to take a collaborative effort maybe 
along the lines of a Manhattan Project, I'm not sure, but we 
are going to all have to put our heads together to make sure 
that these advanced technologies are not only going to work but 
they're going to be made available to the consumer.
    But we're in the midst, in my humble opinion, of a 
revolution in the automobile industry the likes of which we 
haven't seen in 100 years and it's very, very exciting and 
we're moving as quickly as we can.
    The Chairman. Thank you very much.
    Mr. Friedman.
    Mr. Friedman. Thank you, Mr. Chairman, I do believe we need 
a moon shot, we need some radical changes if we're going to get 
to this type of future. This body has definitely acted in ways 
that are moving us in that direction. But as Mr. Plotkin said 
we're only spending one-tenth of 1 percent of the amount of 
money that actually is going toward fuels in the first place, 
and so we do need a moon shot for example, even before the 
plug-ins to echo Mr. Plotkin's comments.
    Ten years ago I helped build a plug-in hybrid. It was a 
great vehicle, it got really high fuel economy, but the 
batteries were too expensive and they didn't last as long. 
That's the reality. We need breakthroughs in these technologies 
in order for them to work but we don't need breakthroughs in 
order to get the fuel efficiency to work and to get this 
technology out there. This isn't rocket science. This is auto 
mechanics. And the reality is that if we put that technology to 
work we can change things.
    The EPA fuel economy sticker for the best minivan out there 
is 22 miles-per-gallon. They can get a lot better. They need to 
get a lot better and if they do, as you said, we can take some 
of that trade deficit, turn it into dollars inside the United 
States which means more jobs, which means a better tax base, 
which means we can afford to pay to get the research done, and 
get these technologies out on the road and get these fuels into 
cars and trucks.
    The Chairman. Thank you.
    Mr. Grumet, before you comment I want to point out here the 
report said that the lengthy construction period of 10 years is 
required to complete the Alaska Gas Pipeline. You might be 
interested to know that an Act of Congress passed gave them 18 
months to issue the permits for that system. We had a visit 
from the people in the Administration and we were told it was 
going to take 44 months to get prepared for the 18 months. So 
that 5 years of that 10 years is spent right here in this town 
complying with myriads of laws, to build a pipeline that 
follows the route of the Alaska Oil Pipeline down to Fairbanks 
and then follows the Alaska/Canada Highway the balance to the 
Canadian border. Not more than a thousand yards from that road 
all the way to Canada and yet it's going to take 5 years to 
determine if the permit should be issued. That's why I think we 
need a czar. Will you please answer the question?
    Mr. Grumet. Mr. Chairman, your leadership on the pipeline 
was one of the most critical supply projects we've undertaken. 
It's appreciated and I hope that the 5-years doesn't get spent 
unnecessarily.
    Your question about how you stimulate innovation in a 
complicated society and economy is exactly the right one. And I 
just reflect on two critical goals for government. One is to 
provide the resources for the kinds of long-term research and 
development like the methane hydrates or cellulosic ethanol 
that are too far down the road for private capital to be 
willing to invest in.
    The second challenge I believe for government is to provide 
private capital with the kinds of incentives and obligations 
for it to innovate. Obviously, government should not dictate 
technology but government does have to dictate goals.
    One thing that Mr. Webber alluded to is that the auto 
industry is making incredible technological progress over the 
last 20 years. Cars and engines have become more efficient by 
at least a percent a year every year. But because there's been 
no government direction to devote that benefit toward the 
public good of lowering our dependence upon oil. That benefit 
has gone to the private good, having bigger, faster, heavier 
cars. And we all want to have lower oil dependence, but when we 
get into the showroom we also want to have bigger, faster, 
heavier cars and that is where really government probably has a 
role.
    Had we directed the auto industry to increase fuel economy 
by that same percentage, we would have cars that were as fast 
and big as they were 15 years ago but they would be 20 or 25 
percent more fuel efficient. And so it is those kinds of 
choices. We have to give the private sector the incentives and 
the clear public direction and then get out of the way and let 
them get the job done.
    The Chairman. Senator Inouye.
    Senator Inouye. This is all very interesting and very 
important for Hawaii. As you know, when the gas prices were 
$2.00 here it was $2.75 in Hawaii. When it became $3.00 we were 
close to $4.00 because we are dependent. However, I'm proud to 
say that we have taken risks, everything from ocean thermal 
energy conversion to solar energy, to wind energy and they have 
begun to pay off and we're now less dependent on fossil fuel 
than most states.
    And, unfortunately, or fortunately, we in Hawaii love our 
automobiles. The city of Honolulu has more automobiles per 
capita than any other city of its size, so please help us.
    The Chairman. Well, gentlemen, Howard Baker used to say 
Senators can do almost anything except keep time. We're given 
more time here. I don't want to keep you but I do want to ask 
about the question of this concept. You mentioned that 
yourself, Mr. Plotkin, what greater emphasis can your 
Department give--pardon me, it's not Mr. Plotkin, it's the 
Department's representative, Mr. Shane--you're Transportation, 
you're Energy, is that right?
    Mr. Shane. Correct.
    The Chairman. Are you two working together to develop these 
new technologies or do you work each on your separate paths?
    Mr. Shane. The Departments of Transportation and Energy do 
cooperate a lot, particularly in the context of setting 
standards. The Department of Energy has the technology side of 
it. The Department of Transportation is not contributing in a 
significant way to the development of alternative fuels 
technology. What we're responsible for at DOT is to ensure that 
the safety of the vehicles remains what it is. The safety of 
infrastructure is what we need and so there is a cooperative 
relationship. It is a strong bond between the two agencies, but 
there is also an important division of labor as to the 
substance of what we respectively do.
    The Chairman. Mr. Plotkin.
    Mr. Plotkin. Senator, the Department sponsors my research 
but I am not their employee and I really hesitate to speak for 
them.
    The Chairman. Will anyone answer the question why have we 
abandoned hydropower? Why have we abandoned the concept of 
building new hydropower dams? Brazil converted its energy and 
dependance. They were more than 70 percent dependent on 
imported oil. They're now less than 30 because they went to 
hydropower within the last two decades.
    Mr. Plotkin. Senator, hydropower provides electricity but 
Brazil hasn't gone to electric vehicles. What they have gone to 
is ethanol vehicles and they're using their sugarcane, I 
believe, to power much of their vehicles and that is their 
answer to reducing gasoline use. I'm not really sure that 
hydropower has anything to do with that.
    The Chairman. I was told they built a substantial number of 
hydropower plants.
    Mr. Plotkin. Yes, that may very well be true but that 
doesn't provide them with transportation fuels. It provides 
them with a source of electricity. Perhaps they were using a 
lot of diesel for power generation.
    The Chairman. But doesn't it link the demand for the fossil 
fuel so if you can supply major cities with electricity without 
using diesel?
    Mr. Plotkin. But the reality is in this country we use 
very, very little oil in our power sector and only for peaking 
power. So the kind of base load power that hydropower provides 
really would not have an effect on our oil use unless, of 
course, we manage to move plug-in hybrids or electric vehicles 
into the fleet. But currently we could produce lots more 
energy, theoretically, from hydropower and do nothing to help 
our oil situation.
    The Chairman. Mr. Friedman. Excuse me, before you do that, 
Mr. Plotkin, we in Alaska have half of the coal in the United 
States, only one operating coal mine, and coal is very much 
involved in the generation of electricity in major cities in 
the Southern 48, isn't it?
    Mr. Plotkin. Yes, coal provides about half of our electric 
power generation capability.
    The Chairman. Mr. Friedman.
    Mr. Friedman. Thank you, Senator. I just also wanted to add 
that I think part of the difference is just a difference in 
resources between Brazil and the United States. In the United 
States one of greatest opportunities for renewable electricity 
is actually wind power which is now becoming cost competitive 
with natural gas and other electricity sources because of the 
technology progress that has been made. So we have substantial 
opportunity through renewable energy standards and other 
credits to dramatically increase the amount of renewable 
electricity that we generate.
    Part of what that can do is offset other fossil fuels and 
eventually in the future say if we go with hydrogen or 
potentially with electricity as our alternative fuel, some of 
those resources along with solar power and biomass could be 
tapped in order to make hydrogen in a very clean and energy-
efficient manner. That helps make a lot of progress and in the 
long-term could move us out of oil but in the short-term could 
substantially help reduce the amount of coal and if needed 
natural gas that we use.
    The Chairman. If my memory serves me, my memory says your 
wind power comes on any line at the highest alternative source 
of cost. Therefore, it's subsidized to begin with, isn't it, 
much more than any other form of alternative energy?
    Mr. Friedman. Well, right now even without the subsidy 
levels that are out there it is, especially with natural gas, 
with the prices where it is today it can be cost competitive. 
The big challenge with wind power is that it is intermittent. 
When there's a lot of wind you have electricity, when there 
isn't a lot of wind, you don't and that creates a great 
opportunity to actually marry multiple systems together. You 
could marry the wind system with a hydrogen future or electric 
future where when there's excess wind you could generate 
hydrogen or electricity for vehicles and otherwise you can 
operate it as more of a base load. So you actually enter into a 
system that balances these two.
    In reality, in the end what you probably want to do is have 
a diverse set of fuels and a diverse set of resources, 
biofuels, wind power and for many decades to come, oil as 
alternatives and options for fueling our cars and trucks.
    The Chairman. The vote has finally been called. You know, 
none of you mentioned things like fuel cells. Is there no hope 
that fuel cells will bring about a greater economy in and of 
themselves, Mr. Webber?
    Mr. Webber. We're very excited in the automobile industry 
about fuel cell development. As I mentioned, in this country 
alone we're spending over $15 billion a year in advance 
technology. Part of that is going into fuel cell development. 
We see great possibilities. We've got a long way to go but we 
are moving very much in that direction.
    The Chairman. Mr. Grumet.
    Mr. Grumet. On the question of fuel cells no one likes to 
be a Grinch. All technology is wonderful, but considering the 
fact we have to make hard choices, our Commission does not have 
high hopes for hydrogen or fuel cells any time in the next 30 
years or so. We have a history in this country of failing 
dramatically when we need to change the fueling infrastructure. 
This was pointed out before when California tried to move to 
methanol, and in the past when we tried to have an all-electric 
infrastructure.
    We think that hydrogen is a wonderful idea for the second 
half of this century but I think I would agree with what Mr. 
Plotkin was alluding to that we would refocus our resources 
somewhat away from hydrogen in a world of limited resources and 
toward things like near-term efficiency and near-term biofuels.
    Mr. Webber. We would respectfully disagree. And again, let 
me take you to Detroit and drive a hydrogen fuel automobile. 
Let me let you talk to some of the top research and development 
people in the global automobile industry. We have high hopes 
for hydrogen. We're not going to give up. If we took that 
viewpoint then, yes, it would take 50 years but we see great 
possibilities here and we're going to drive in that direction, 
no pun intended.
    The Chairman. Mr. Shane.
    Mr. Shane. Yes, I just wanted to reiterate that the 
President's hydrogen initiative contemplates a practically 
available viable fuel cell-powered vehicle available to 
Americans by 2020. I realize that is pushing the envelope. 
Senator Nelson asked about whether we needed a Manhattan 
Project. I think what the President is saying is that by 
putting the might of the American government behind the concept 
of a fuel cell powered vehicle, working closely with our 
friends in Detroit who have been working on this for a long, 
long time even prior to the initiative, as well as work that is 
going on abroad. We think that 2020 is not an unreasonable 
target date.
    The Chairman. Mr. Plotkin.
    Mr. Plotkin. I would just like to add that I would hope, in 
refocusing our energy R&D program, that we would not move 
resources out of hydrogen toward other alternatives because I 
believe that--and I think this is true of all of these fuels--
so much work needs to be done, that hydrogen is perhaps barely 
getting the resources it needs.
    If you remove funds from the hydrogen program, I think we 
will have no chance of having a viable hydrogen economy any 
time soon. I think we need to add resources to the other 
alternatives like cellulosic ethanol, like plug-in hybrids, but 
I think it would be a big mistake to shift resources away from 
hydrogen. In a zero sum game I think what you would end up with 
is that nothing would substitute for oil, and you will have 
that future of either a continuation of today, or we will move 
to unconventional sources of oil which will have some 
substantial environmental impacts and won't really change our 
energy security situation very much.
    The Chairman. Mr. Friedman.
    Mr. Friedman. Senator, I would also like to add that if we 
look at the history of alternative fuels, part of the reason 
why they've often failed is because of the lack of consistent 
and sustained support. And I would worry that if we pulled back 
from hydrogen that we would end up with the type of future that 
Mr. Plotkin is talking about from our perspective, whether it's 
hydrogen with fuel cells, whether it's electricity and plug-ins 
or battery electric vehicles or even ethanol, there are still 
significant breakthroughs that need to happen in order to make 
them work. That is a part of the reason why these are long-term 
technologies and all of these technologies are going to need 
significant help in order to get there and that's the 
significant role that the Federal Government and this Congress 
can play.
    But I think and I encourage us to be careful not to jump 
from silver bullet to silver bullet. Hydrogen has gotten lot of 
attention, in some ways deserved attention and in some ways 
maybe too much hype. Ethanol is now getting a lot of attention. 
It has a lot of potential but, again we need to look at all of 
them reasonably and fairly and if you look at the technologies 
where they are today they all have huge potential but they all 
have important hurdles that need to be overcome and that need 
help in order to get there, unlike efficiency which could 
definitely make a lot of help now.
    The Chairman. Last comment, Mr. Webber.
    Mr. Webber. I never thought I would agree with Mr. 
Friedman. We have debated many issues. I think really he's 
right and what I would reiterate in his remarks is let's go 
forward on several technologies. That is why the global 
automobile industry is developing clean technology for diesel. 
Hybrids, biofuels, and hydrogen, those are several fronts we're 
working on. They have great promise and they will help us 
achieve the goal you stated earlier, Mr. Chairman, about 
getting off oil.
    The Chairman. Well, gentlemen, I think the real problem 
that--the base of this, and we're both still on appropriations, 
but it's the money question. I do think we have to have more 
money and I've been trying to find some way to convince those 
people who won't support us on our desire to explore and 
develop the Arctic Plain or to accelerate this development and 
building of the Alaska Gas Pipeline to convince them those two 
projects will be the two largest projects in the history of the 
United States. The gas pipeline is probably the largest single 
private enterprise project in the history of man and totally 
private enterprise. Those two projects will bring in enough 
money if we could dedicate it to the subject we're dealing with 
now to the development of technology base for alternative 
fuels; we might give some hope to our grandchildren.
    But right now all we can see is just an increased demand 
throughout the world for the fuels we're using and increased 
competition from those countries that are going to really, 
really take the oil from us, in effect. We have to find some 
way to develop the technology base to stay ahead and I think 
it's going to take cash. I'm still preaching to the wind. Thank 
you all very much.
    [Whereupon, at 10:25 a.m., the hearing was adjourned.]

                            A P P E N D I X

 Written Questions Submitted by Hon. Maria Cantwell to Jeffrey N. Shane
    Mr. Shane's responses to the following questions were not received 
at the time this hearing went to press:
    Question 1. Mr. Shane, the Energy Information Administration now 
projects that the average retail price of gasoline will remain above 
$2.00 per gallon for the next two decades. In terms of the pre-tax 
price used to measure societal costs and benefits, this represents a 
nearly 50 percent increase over the now seemingly out-of-date prices 
that NHTSA used in developing its Notice of Proposed Rulemaking for 
light truck Corporate Fuel Economy Standards?

   Does NHTSA plan to base the fuel economy targets in its 
        final rule on the up to date gasoline price projections in 
        EIA's Annual Energy Outlook 2006 reference case?

   If so, please describe in detail how much of an effect this 
        will have on the final target levels in model year 2011?

   If not, why will they not be using the most up to date price 
        projections?

    Question 2. Mr. Shane, I understand that the present value of 
future fuel savings depends strongly on the interest rate used to 
discount those savings. OMB Circular A-4 states that when regulation 
primarily and directly affects private consumption, a lower discount 
rate than the standard 7 percent is appropriate. It also notes that the 
most common alternative is the social rate of time preference, and 
suggests a real rate of 3 percent for this.

   Why has NHTSA not followed this guidance in selecting the 
        discount rate for its modeling?

    Question 3. Mr. Shane, fuel savings from increasing fuel economy 
are partially eroded by the rebound effect, whereby the lower per-mile 
cost of driving results in an increase in miles driven. NHTSA's 
assumption of a 20 percent rebound effect is, by NHTSA's own admission, 
at the high end of the commonly accepted range. Moreover, recent 
research by Dr. Kenneth Small and Dr. Kurt Van Dender indicates that 
rising income levels have led to a reduction in rebound overtime. At a 
recent workshop in Washington D.C., Dr. Van Dender indicated that a 
rebound of just 10 percent would be more accurate, even accounting for 
current high gas prices.

   Why has NHTSA chosen to bias its results against increasing 
        fuel economy by using such a high rebound value?

    Question 4. Mr. Shane, consumers have been complaining that EPA's 
window sticker fuel economy ratings, which are reportedly 10 to 30 
percent below the CAFE test results, are still unrealistically high. I 
understand EPA is currently in the process of developing a rule that 
will attempt to address this longstanding dissatisfaction by revising 
the way in which window-sticker values are determined. In its Annual 
Energy Outlook modeling, EIA assumes that on-road fuel economy is 
approximately 20 percent below the CAFE test values.

   If NHTSA is prepared to rely on EIA projections for gasoline 
        prices, why are they not prepared to rely on EIA's estimates of 
        on-road fuel economy?

   At a time when EPA has acknowledged that its current fuel 
        economy ratings are not representative of real-world driving, 
        why has NHTSA gone ahead and used EPA's on-road correction 
        factor of 15 percent?

   What evidence is there that EPA's admittedly flawed 
        estimates are superior to those of EIA?

   Does the proposed EPA update take into account the factors 
        and general intent of Section 7260 of the Senate passed 
        Transportation Bill?

    Question 5. Mr. Shane, in its response to the peer review process 
for the CAFE Compliance and Effects Modeling System (CAFE-CEMS), NHTSA 
states that it ``defers to EPA/OTAQ to provide updated estimates of 
this parameter and its potential variation among vehicle types.''

   Will NHTSA be employing the new on-road fuel economy ratings 
        expected from EPA in setting the targets in its final rule?

    Question 6. Mr. Shane, NHTSA's CAFE-CEMS includes the ability to 
value reductions in emissions of greenhouse gases in valuing fuel 
economy increases, but I understand the agency set the value of avoided 
emissions to zero. The agency cited the broad range of estimates of the 
value of GHG emissions in the current literature as its reason for 
setting this value to zero. However, there are broad ranges of 
estimates for the values of many externalities, such as criteria 
pollutants.

   Will NHTSA be adopting a substantial positive value for 
        these emissions, recognizing the serious threat they pose to 
        the economic and environmental health of the country?

    Question 7. Mr. Shane, the U.S. Code requires NHTSA to set fuel 
economy standards for vehicles up to 10,000 lbs GVWR if doing so is 
feasible and would result in significant energy conservation.

   Will NHTSA be setting standards for all vehicles between 
        8,500-10,000 lbs in its final rule?

   Please explain why you believe doing so be infeasible?

   If vehicles above 10,000 GVWR were included, what would be 
        the resulting oil savings?

                                  
