[Senate Hearing 109-666]
[From the U.S. Government Printing Office]



                                                        S. Hrg. 109-666

                  ENHANCED ENERGY SECURITY ACT OF 2006

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

                                HEARING

                               before the

                              COMMITTEE ON
                      ENERGY AND NATURAL RESOURCES
                          UNITED STATES SENATE

                       ONE HUNDRED NINTH CONGRESS

                             SECOND SESSION

                                   ON

                                S. 2747

TO ENHANCE ENERGY EFFICIENCY AND CONSERVE OIL AND NATURAL GAS, AND FOR 
                             OTHER PURPOSES

                               __________

                             JUNE 22, 2006


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


                                 _____

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30-716 PDF              WASHINGTON : 2006
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               COMMITTEE ON ENERGY AND NATURAL RESOURCES

                 PETE V. DOMENICI, New Mexico, Chairman
LARRY E. CRAIG, Idaho                JEFF BINGAMAN, New Mexico
CRAIG THOMAS, Wyoming                DANIEL K. AKAKA, Hawaii
LAMAR ALEXANDER, Tennessee           BYRON L. DORGAN, North Dakota
LISA MURKOWSKI, Alaska               RON WYDEN, Oregon
RICHARD M. BURR, North Carolina,     TIM JOHNSON, South Dakota
MEL MARTINEZ, Florida                MARY L. LANDRIEU, Louisiana
JAMES M. TALENT, Missouri            DIANNE FEINSTEIN, California
CONRAD BURNS, Montana                MARIA CANTWELL, Washington
GEORGE ALLEN, Virginia               KEN SALAZAR, Colorado
GORDON SMITH, Oregon                 ROBERT MENENDEZ, New Jersey
JIM BUNNING, Kentucky

                     Bruce M. Evans, Staff Director
                   Judith K. Pensabene, Chief Counsel
                  Bob Simon, Democratic Staff Director
                  Sam Fowler, Democratic Chief Counsel
                John Peschke, Professional Staff Member
                   Deborah Estes, Democratic Counsel




















                            C O N T E N T S

                              ----------                              

                               STATEMENTS

                                                                   Page

American Institute of Architects.................................    60
Bayh, Hon. Evan, U.S. Senator from Indiana.......................     2
Bingaman, Hon. Jeff, U.S. Senator from New Mexico................     7
Callahn, Kateri, President, Alliance to Save Energy..............    39
Coleman, Hon. Norm, U.S. Senator from Minnesota..................     4
Domenici, Hon. Pete V., U.S. Senator from New Mexico.............     1
Dorgan, Hon. Byron L., U.S. Senator from North Dakota............     9
Karsner, Alexander, Assistant Secretary, Office of Energy 
  Efficiency and Renewable Energy, Department of Energy..........    10
Lashof, Daniel A., Science Director, Climate Center, Natural 
  Resources Defense Council......................................    29
Lieberman, Hon. Joseph I., U.S. Senator from Connecticut.........     1
Nadel, Steven, Executive Director, American Council for an 
  Energy-Efficient Economy.......................................    46
Salazar, Hon. Ken, U.S. Senator from Colorado....................    24
Thomas, Hon. Craig, U.S. Senator from Wyoming....................     9

                                APPENDIX

Responses to additional questions................................    63





















 
                  ENHANCED ENERGY SECURITY ACT OF 2006

                              ----------                              


                        THURSDAY, JUNE 22, 2006

                                       U.S. Senate,
                 Committee on Energy and Natural Resources,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 10:05 a.m., in 
room SD-366, Dirksen Senate Office Building, Hon. Pete V. 
Domenici, chairman, presiding.

          OPENING STATEMENT OF HON. PETE V. DOMENICI, 
                  U.S. SENATOR FROM NEW MEXICO

    The Chairman. I have an opening statement and I'm sure you 
do, but in deference to other Senators' time, why don't we 
proceed to have our two Senators comment first, Senator Bayh 
and then Senator Coleman. We are glad that you are here and we 
understand that you are co-sponsors of this legislation and 
would like to be heard this morning. So we welcome you. Your 
statements will be made a part of the record as if read. We 
would welcome whatever you would care to say. Please proceed, 
Senator Bayh first and Senator Coleman second.
    [The prepared statement of Senator Lieberman follows:]
            Prepared Statement of Hon. Joseph I. Lieberman, 
                     U.S. Senator From Connecticut
    Thank you, Mr. Chairman. I am grateful to the members of the Energy 
and Natural Resources Committee for allowing me to testify in support 
of the Enhanced Energy Security Act. I was proud to cosponsor this bill 
with Senator Bingaman last month.
    As you know, the Enhanced Energy Security Act is based on the 
Vehicle and Fuel Choices for American Security Act, a bill that 
Senators Bayh, Brownback, Coleman, and I introduced with six other 
colleagues last November. Twenty-six Senators, including Senator 
Bingaman, have now cosponsored that bill, which I like to call the Set 
America Free Act. Seventy-nine Congressmen and Congresswomen have 
cosponsored its companion bill in the House of Representatives.
    The Set America Free Act's core provisions fall within the 
jurisdiction of this committee. Senator Bingaman has taken that core, 
has slightly amended and supplemented it, and has reintroduced it as 
the Enhanced Energy Security Act. He also has taken those of the Set 
America Free Act's provisions that fall within the Finance Committee's 
jurisdiction and has introduced them as the Enhanced Energy Security 
Tax Incentives Act, of which I am also an original cosponsor.
    As the Ranking Minority Member of this Committee, and as someone 
who has earned the respect of Senator Domenici, the committee's 
esteemed Chairman, Senator Bingaman has had the wherewithal to bring 
about today's hearing. I commend him and Chairman Domenici for doing 
so. It is an unmistakable sign of the momentum that continues to gather 
behind the Set America Free Act.
    Like that bill, the Enhanced Energy Security Act requires the 
Executive Branch to use means readily at its disposal to save, by 2016, 
2.5 million barrels per day from projected oil consumption in that 
year. It goes on to require 7 million barrels per day in savings by 
2026 and 10 million barrels per day in savings by 2031. Currently, we 
import just over 10 million barrels per day of crude oil and consume 
just over twice that amount.
    Americans are alarmed both by the steady rise in gas prices and by 
the increasing volatility in those prices. The main reason fuel prices 
are high and volatile is that the price of oil is high and volatile. 
The fundamental reason for that, in turn, is the narrowness of the 
margin between global oil demand and global oil production. We might 
never again see a comfortable margin, because while we have not yet 
drained all the oil deposits in the world, the demand of countries such 
as the U.S., China, and India is growing just as quickly as production.
    Many Americans are also concerned that the U.S. is being thrust 
into increasing competition over oil with nations such as China, and 
they do not like seeing our economy held hostage to the caprice of 
those unstable and even hostile countries that supply much of the 
world's oil.
    The U.S. can not drill its way out of this bind. Oil is a commodity 
that trades in a global market. Any modest amount of oil produced by 
new wells in the U.S. would be merely a trickle in the stream of global 
production, and thus would not have any appreciable effect on the price 
we pay for oil.
    The only permanent solution to high fuel prices is to end our oil 
addiction. The Set America Free Act would do just that. What is more, 
in the process of making our cars, trucks, and busses more efficient 
and increasing the use of fuels derived from crops, the act would 
reduce greatly the amount of global warming pollution that our vehicles 
add to the atmosphere.
    Energy independence, economic security, and curbing global 
warming--the Set America Free Act advances us toward each of those 
vital goals. So I am honored to testify today in favor of Senator 
Bingaman's Enhanced Energy Security Act. I respectfully ask this 
committee to schedule a vote on the bill and to report it favorably to 
the Senate floor.
    Thank you, Mr. Chairman.

           STATEMENT OF HON. EVAN BAYH, U.S. SENATOR 
                          FROM INDIANA

    Senator Bayh. Thank you very much, Mr. Chairman, for 
convening these hearings and for your leadership on this 
important issue. It is good to be with you again this morning. 
And to Senator Bingaman, thank you for your leadership. We 
wouldn't be here if it hadn't been for your very good work on 
this issue. I also should thank members of the committee who 
could not be present today, who have endorsed this legislation, 
as well as our colleague, Senator Lieberman, who has done great 
work in this area and has helped to bring us to this point 
today, as well as to our friend and colleague, Norm Coleman, 
who I've had the pleasure of collaborating with on several 
other issues.
    Mr. Chairman, I hope this can be an example of bipartisan 
cooperation that can characterize more of our work here in the 
U.S. Capitol.
    In fact, Mr. Chairman, this is an all too infrequent 
occurrence, working across the aisle to advance our Nation's 
interests, making common cause on our common challenges. The 
energy challenge that faces our country, as you know well, Mr. 
Chairman, is not a democratic issue or a republican issue, it 
is an American issue and it is appropriate that we work on it 
together and I'm hopeful that perhaps this can serve as a 
template for solving the other challenges that face us, finding 
the common ground that we need to build upon to create 
America's future.
    This is the right issue on which to start, Mr. Chairman, 
because our energy dependency and our future independence will 
be one of the defining challenges of our generation. It affects 
so much that is important to this country. It affects our 
economy, our national security, our finances, our environment 
and we need to make progress on this issue, Mr. Chairman, if we 
are going to set our children free. We need to bring the same 
level of urgency and focus to this issue that we did to the 
question of putting a man on the moon. It will take that kind 
of effort to make the progress that America deserves. I hope we 
can begin to make that progress starting today.
    The approach that Senator Coleman and I and Senator 
Bingaman and others adopt makes real progress, Mr. Chairman. We 
empower American workers to produce the next generation of 
high-mileage vehicles for use by American consumers. We rely 
increasingly on America's farmers and their crops to produce 
America's energy sources. If the Nation of Brazil can derive 
almost 37 percent of its fuel from bio-based fuels, certainly 
we can do better here in this country. Mr. Chairman, I would 
simply note that in next year's Indianapolis 500, those motor 
vehicles, some of the most powerful on earth, they go 230 miles 
an hour, they will be powered 100 percent by ethanol in next 
year's 500. If we can do that with those race cars, we can do a 
better job with America's family vehicles.
    Our approach involves having American scientists and 
engineers make the discoveries that will truly make us 
independent in terms of our energy needs in the long run. And 
the progress, Mr. Chairman, will be substantial. The experts 
estimate that over the next 10 years, we will reduce America's 
petroleum consumption from what it would otherwise be by about 
2.5 million barrels per day, 100 percent of what we are 
currently importing from the Middle East. That doesn't solve 
all of our problem but it is a material step in the right 
direction. And over the next 20 years, we would reduce our 
anticipated consumption by 7 million barrels per day--again, a 
major step in the right direction.
    The time has come to act, Mr. Chairman. We need a greater 
sense of urgency, more than ever. We import more petroleum 
today than we did on 9/11. Almost 5 years after that attack, we 
have made virtually no progress. We must do better than that. 
We find ourselves in the unacceptable position of too often 
funding both sides of the War on Terror. That must stop and it 
can stop by increasing our energy independence and reducing our 
need for imported petroleum.
    Finally, Mr. Chairman, we are exporting way too many 
American jobs today and importing way too much oil. The time 
has come to reverse that process. Our proposal would accomplish 
that.
    So, let me just conclude by recalling the spirit that 
prevailed across our country, certainly in my State and I know 
in yours as well, following the 9/11 attacks. I literally had 
people stopping me on the street, asking, what can I do? What 
can I do to help my country? There was a palpable desire on the 
part of the American people to help us meet the challenges that 
we face.
    Mr. Chairman, we gathered here today to give them that 
answer, to support this set of initiatives. And if we do, I 
think the chances are good that some day we might look back at 
this as the beginning of solving this problem. Much as Winston 
Churchill said at the end of the Battle of Britain, an 
important turning point in another great struggle for mankind, 
when he said that this was certainly not the end. Perhaps it 
was not the beginning of the end, but it was definitely the end 
of the beginning. So let us bring that same focus, that same 
sense of urgency and commitment to the beginning of meeting 
America's energy challenges. That is why we are here today. Mr. 
Chairman, I thank you for your courtesy and for your 
leadership.
    The Chairman. Thank you very much, Senator. Now, Senator 
Coleman, we welcome your remarks.

         STATEMENT OF HON. NORM COLEMAN, U.S. SENATOR 
                         FROM MINNESOTA

    Senator Coleman. Thank you very much, Mr. Chairman. I want 
to thank you first personally. I was listening to Senator 
Bayh's remarks and the Americans say, what can we do? Mr. 
Chairman, I've had a number of conversations with you where 
you've asked the question, what can we do? What do we do? What 
should we be doing that we're not doing? And I think through 
the leadership--bipartisan leadership of Senator Bingaman, the 
ranking members, Senator Bayh and others, I think we've laid on 
the table, through the Vehicle Fuel Choices for American 
Security Act, from which this legislative effort stems, 26 co-
sponsors, a bipartisan approach and some very specific things 
that we can do.
    First, let me second the comments of my colleague from 
Indiana. I think there are few topics Congress can address 
right now that are more important to the future of this Nation 
than energy security. We talk about whether it is freeing our 
Nation from dependence on foreign oil or limiting. There is a 
lot of discussion about it, but clearly, this is a matter of 
national defense. This is a matter of economic security. This 
is a matter of defense of our way of life. I think what some 
folks see as a challenge, I see, and I think my colleagues see, 
as an opportunity for economic stimulus and growth.
    We set an ambitious plan in this Enhanced Energy Security 
Act, saving 2.5 million barrels of oil per day in 10 years, 
roughly the amount of oil that we import today from the Middle 
East. I think many would dismiss this as too ambitious a goal, 
but as Senator Bayh talked about, and I believe, at one point 
in time we told Americans that we were going to walk on the 
moon. At the time, we didn't have the capacity to get to the 
moon, not to mention get back. I think because we had a 
singular focus and a commitment and we stayed the course of 
that commitment, it happened. The innovative spirit of America, 
the relentless drive to get something done, that's the key. Lay 
out the objective, and this bill lays out a very clear 
objective and then challenges--let us kind of marshal our 
energies to make it happen. I think that the failure to act--
clearly, the threat is real. It doesn't take much imagination 
to consider the foreign policy implications of having to worry 
about what Hugo Chavez is thinking this morning about selling 
oil to America. Right now, I don't think he has a choice, but 
at some point he will, with the political stability in Nigeria.
    Mr. Chairman, countries that aren't free produce two-thirds 
of the world's oil and have nearly 80 percent of the world's 
proven oil reserves. Looking to our economy, Chairman Greenspan 
was recently before the Foreign Relations Committee and we held 
a hearing on this subject. He pointed out that world oil 
markets are now subject to a degree of strain not experienced 
in a generation and that the lack of excess capacity means 
there isn't enough of a buffer between supply and demand to 
absorb shut-downs of even a small part of the world's 
production. If terrorists attack just one major oil supply that 
exceeds our economy, we will pay a heavy price.
    So the imperative is clear. America must unleash itself 
from its foreign oil dependency. I think the solution is clear: 
Technology, renewable energy, and energy conservation. This 
bill provides some important initiatives, that will promote, by 
the way, E-85 fueling infrastructures, speed the development of 
cellulosic ethanol, while investing in the development of 
efficient vehicle technologies and assisting auto manufacturers 
to transition to fuel-efficient vehicle production.
    I believe that much of the ability to reduce petroleum 
demand will rest with our ability to accelerate technology for 
electric hybrids and infrastructure for renewable fuels. This 
year, Brazil will have the liberty of not having to import. The 
liberty--not to say that it won't, but it will have the liberty 
of not importing foreign oil. I've been to Brazil. I've talked 
to their leaders. I've witnessed what they have done first-
hand. And what they did was simply had a focused, concentrated 
effort over 30 years. It took a long time but they started in 
the 1970's and they are there today. In the 1970's, their 
leadership realized 85 percent dependence on foreign oil was 
unacceptable. They did something about it. They made a 
commitment to investing in ethanol production, mandated an 
aggressive percentage of gasoline be blended with ethanol, and 
ultimately ensured that flex fuel vehicles were widely 
available. A similar commitment by the United States could also 
reap significant rewards.
    In fact, in a recent study--and I'm going to have it 
submitted, if I can, into the record--by AllianceBernstein of 
Wall Street, they've laid out kind of an interesting view of 
research on strategic change. They noted--they talked about how 
cellulosic ethanol could be a game changer, a game changer 
resulting in, perhaps, a reduction of 40 percent of the demand 
for petroleum.
    Mr. Chairman, renewables are a real option. One of the 
problems we have is half the E-85 pumps--it's one thing to have 
renewables, but half the pumps in the Nation are in one State, 
my State. I think 246 out of 600 E-85 pumps. But we can change 
that. Notably, the alternative fueling infrastructure 
incentives in this bill would make an estimated $20 million 
available per year for these pumps. I think it is obvious that 
our current foreign oil dependence is untenable, that our 
economy and national security is in peril if we don't do 
something about it. But hopefully, that's not the end of the 
story.
    I truly believe we can gain a great deal of energy 
independence through existing and emerging energy saving and 
renewable energy technology that will protect and grow American 
jobs. Mr. Chairman, hybrids are a few years away. Again, I cite 
the AllianceBernstein study: Hybridization--Toyota is coming 
out with a lithium battery, I'm told, in a couple years. It 
could get 70 miles, stay charged and that will drive down, that 
will drive down. But what we've got to do is we've got to 
support those technologies. We have to be there to move the 
ball forward. Cellulosic isn't here today but we have a stake 
in it being here in the near-term future.
    The Enhanced Energy Security Act moves us toward 
independence and continued prosperity and I commend the 
committee for considering this proposal. Thank you, Mr. 
Chairman.
    [The prepared statement of Senator Coleman follows:]
  Prepared Statement of Hon. Norm Coleman, U.S. Senator From Minnesota
    First of all, I want to thank you, Chairman Domenici, for holding 
this hearing, and I want to recognize Senator Bingaman's efforts on 
this bipartisan legislation. The Vehicle and Fuel Choices for American 
Security from which this legislative effort stems has 26 cosponsors and 
speaks to bipartisan interest in taking an aggressive approach to 
energy independence.
    There are few topics Congress could address right now more 
important to the future well-being of the nation than our energy 
security. Freeing our nation from dependence on foreign energy is truly 
a matter of national defense--defense of our national security, defense 
of our economy, defense of our way of life. But, what some folks forget 
is that this challenge presents a powerful opportunity for economic 
stimulus and growth.
    The Enhanced Energy Security Act sets an ambitious plan for saving 
2.5 million barrels of oil per day in 10 years, roughly the amount of 
oil we currently import from the Middle East. Many would dismiss such 
an ambitious goal, but the moon was also once out of reach--we all know 
the power of America's innovative, relentless spirit when called to an 
objective, no matter how formative.
    Quickly, the threat to national and economic security is real and 
growing. It does not take much imagination to consider the foreign 
policy implications of having oil imports rest on the whims of Hugo 
Chavez in Venezuela or the political stability of Nigeria. Countries 
that aren't free produce more than two-thirds of the world's oil and 
have nearly 80 percent of the proven reserves.
    Looking to our economy, just consider the recent comments of Alan 
Greenspan who has pointed out that world oil markets are now subject to 
a degree of strain not experienced in a generation and that the lack of 
excess capacity means there isn't enough of a buffer between supply and 
demand to absorb shutdowns of even a small part of the world's 
production. If a terrorist attack on one of our major oil suppliers 
succeeds, our economy will pay a heavy price.
    The imperative is clear: America must free itself from its oil 
dependence, and I believe the solution is also clear: renewable energy 
and energy conservation. The Enhanced Energy Security Act and its 
parent bill, the Vehicle Fuel Choices for American Security Act, 
include important initiatives that will promote E85 fueling 
infrastructure and speed the development of cellulosic ethanol, while 
investing in the development of efficient vehicle technologies and 
assisting auto manufacturers' transition to fuel-efficient vehicle 
production. These initiatives will help make America a leader in 
renewable fuel and energy conservation technology that U.S. businesses 
can then export to countries like China and India where there is a 
projected 125% increase in the demand for oil from 2003 to 2025.
    I believe much of the reduction in petroleum demand will rest with 
our ability to produce renewable fuels. This year, Brazil will have the 
liberty of not having to import a drop of foreign oil. I been to 
Brazil, witnessed their success firsthand, I've sat down with their 
leaders and talked renewables, and what I've learned is that Brazil's 
success was the result of a determined, concerted effort over 30 years 
to reach oil independence.
    In the 70s, the Brazilian leadership realized its 85 percent 
dependence on foreign oil was unacceptable and they did something about 
it. Investing billions of dollars, Brazil directed provided heavy 
government support for ethanol production, mandated an aggressive 
percentage of gasoline be blended with ethanol, and ultimately ensured 
flex fuel vehicles were widely available. A similar commitment by the 
United States could also reap significant rewards. In fact, a recent 
AllianceBernstein study found that ethanol could eventually replace a 
large fraction, around 40 percent, of gasoline demand.
    Of course, mandating that every gallon of gasoline contain ethanol 
in this country would be difficult, which is why it's so important to 
have heavy federal in E85 pumps so that ethanol can be made widely 
available. Notably, the alternative fueling infrastructure incentives 
in this bill would make an estimated $20 million a year available for 
these pumps.
    I think it's obvious our current foreign oil dependence is 
untenable, that our economy and very national security is in peril if 
we don't do something about it, but thankfully, that's not the end of 
the story. I truly believe we can gain a great deal of energy 
independence through existing and emerging energy saving and renewable 
energy technologies that will protect and grow American jobs. The 
Enhanced Energy Security Act moves us towards independence and 
continued prosperity, and I commend the Committee for considering this 
proposal.

    The Chairman. Thank you very much, Senator. Before you 
leave, and we're going to proceed, we have a lot of witnesses, 
but I just want to lay before the two of you and the two of us, 
a simple proposition that it becomes more and more obvious to 
this Senator with the passage of each day that while we are all 
complaining about the high price of crude oil, one thing that 
it is bringing to the American economy is an opportunity for 
innovative technology because the price is justifying 
investment. And I lay before you now, and it is being addressed 
by some very intelligent people, it is a very simple 
proposition, and that is, why is that high price not bringing 
more investment? And it seems that question is being answered 
in the following manner.
    One of the reasons is, there is no assurance that the price 
is going to stay that high. Now, that is bringing some very 
imaginative thinking to the proposition of how one might 
resolve that issue. Such things as a floor and where would a 
floor be? Is $38 or $40 a sufficient floor to assure that there 
will be investments of all types, in terms of things like coal 
gasification. Now, you must have heard these propositions from 
Jet Blue and others, where they are talking about that kind of 
thing. Very, very interesting propositions. They find their 
ways through your different proposals, at least the basic 
notion that it is time to invest because the price is awful. 
What you are competing with is very, very high, finally. So you 
don't want to let that get away from you. You want to get the 
alternatives on while that is true.
    I want to thank you for your testimony and for your 
proposals. I don't know where this is going for the remainder 
of this a short year, but there are many good ideas there and I 
thank you for them.
    Senator Bingaman, would you like to make your opening 
remarks? I'll follow with mine and then we'll proceed with the 
witnesses.
    Senator Bingaman. I'm glad, too. Let me also just thank 
both Senator Bayh and Senator Coleman for their leadership on 
this. The legislation that we are considering this morning in 
the committee, of course, is built on--is essentially the parts 
of the legislation that they introduced, which this committee 
has jurisdiction of and which, I think, have a great deal of 
merit and we appreciate your leadership.
    The Chairman. Thank you.
    Senator Bingaman. Did you want me to give an opening 
statement?
    The Chairman. Yes, please.

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

    Senator Bingaman. Let me go ahead and begin, Mr. Chairman, 
on a subject that is a little different than the subject of 
this hearing, and acknowledge that today is the 1-year 
anniversary of a sense of the Senate resolution that we passed 
related to greenhouse gas emissions and global warming. I 
wanted to thank you for the continued effort that we are making 
to move ahead on that issue and the workshop that we had 
earlier and the white paper we've issued. I think all of that 
has been positive.
    The topic of today's hearing is S. 2747, and as I 
indicated, it is a piece of legislation that essentially takes 
provisions that were earlier introduced, that should be in the 
jurisdiction of this committee. The earlier legislation 
contained tax provisions as well and went to the Finance 
Committee.
    So what we've done is to get the provisions that relate to 
this committee and put them together in legislation, S. 2747, 
dealing primarily with the issue of energy efficiency. I think 
energy efficiency, along with the use of alternative fuels and 
alternative energy sources, provide us with the best near-term 
options to begin balancing energy demand and supply and 
reducing the cost of energy. Clearly, this needs to be part of 
what we do, in a very conscious way, by changing our policies 
and beginning to move toward reducing our addition to foreign 
oil, which the President spoke about in his State of the Union 
speech. I hope we get some good testimony on the provisions in 
this legislation. I believe we may also get some additional 
ideas for legislation from some of the testimony from the 
second panel, which I think would be good.
    Let me thank Secretary Karsner for his appearance today. I 
believe this is his first appearance since his confirmation and 
I look forward to hearing his comments. I am somewhat 
disappointed that the written testimony the Department has 
submitted is not more detailed in response to the specific 
provisions in this legislation. I thought, frankly, we would 
get more direct interaction with the administration on what 
steps they propose will help us to end this addiction to oil, 
which the President spoke of. Clearly, the proposals in this 
legislation, I think, move in that direction. I hope we can get 
into those questions in the question and answer period. Thank 
you very much.
    The Chairman. Thank you. Again, good morning. And this 
morning we have a hearing on my colleague, Mr. Bingaman's bill, 
S. 2747, which essentially is enhanced energy efficiency as a 
means of reducing our consumption of gas and oil. I'm pleased 
that we are having the hearing and look forward to the 
testimony. There is no doubt much can be done to improve the 
ways in which we use energy. We can do many things as private 
citizens that make economic sense. We can reduce the amount of 
gasoline we consume by driving less. We can reduce the amount 
of natural gas and electricity we consume by producing more 
efficient appliances and exercising more care in how cool or 
warm we keep our homes, depending upon the season. We can build 
more efficient residences and commercial buildings. We can use 
more energy produced from renewable energy, solar, wind and 
biomass and we can reduce our use of water, which requires 
enormous amounts of energy to store and then move to consumers.
    These are just a few of the steps that most consumers are 
faced with, that the higher prices of last year look them in 
the eye and cause them to make some changes. The question we as 
legislators now face is, what can we do to help consumers 
understand how to reduce their energy consumption and the cost 
that they must endure?
    We did a great deal in the energy bill of 2005 that 
addresses energy conservation and improved energy efficiency. 
But that was before increased global demand for oil and natural 
gas and Hurricanes Katrina and Rita drastically changed our 
lives, and how dependent we are on imported petroleum and how 
even the slightest interruption of domestic supplies can affect 
our daily lives.
    Our hearing today marks, I think, the beginning of a search 
for additional ideas that we might undertake to address our 
energy needs and I welcome my friend's contribution to the 
start of this effort to find new ideas and, I hope, some new 
solutions.
    Before we hear our witnesses, I want to take a moment to 
recall that on this date, a year ago, we passed, as you 
indicated, a sense of the Senate resolution regarding the need 
to establish a system of reducing greenhouse gas emissions in 
the U.S. economy. We have not made great progress, but that is 
looked upon by many as a significant achievement, the mere fact 
that we made the finding and then the Senate adopted it. Since 
then, our committee has had several hearings and a very 
successful conference, as you've indicated, and I look forward 
to seeing where this all ends up.
    Now, having made your statement, I look now to Senator 
Thomas to see if he has any opening remarks and then to the 
distinguished Senator Dorgan, if he has any.

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

    Senator Thomas. Thank you, Mr. Chairman. I am pleased that 
you are having this hearing. I think one of the great things to 
look forward to is some alternatives that we can have for 
energy and the demands of energy that we have and to look at 
the ways we can do that and to the incentives we can put in 
place to cause it to happen.
    I just want to make one point that I think we also need to 
remember, that we have two challenges, at least, before us. One 
is the long-term challenge of finding some alternatives and 
some new ways to produce. We also have the challenge of our 
needs in the short-term. So, we can't get so consumed with our 
long-term energy that we don't take a look at doing what we can 
with the things that we do know how to do and to exploit those 
things we already have. So, I hope we can find this balance and 
I think this hearing will be part of doing that. Thank you, 
sir.
    The Chairman. Thank you very much.

        STATEMENT OF HON. BYRON L. DORGAN, U.S. SENATOR 
                       FROM NORTH DAKOTA

    Senator Dorgan. Mr. Chairman, thank you very much. I am the 
ranking member of a committee that is meeting two floors above 
us, the Commerce subcommittee, so I will have to be in and out. 
But I want to thank you. You know, as the old saying goes, talk 
is cheap and energy prices are high, but I've been very proud 
to be a part of this committee working on the previous energy 
bill and now working on things that really will matter. I think 
the proposals by you and the proposals by Senator Bingaman 
recognize that the least expensive and most readily available 
forms of energy are achieved through efficiency and 
conservation in the short-term, because we use a prodigious 
amount of energy and waste a great deal of it as well. As 
Senator Thomas said, we've got to do a lot of things and a lot 
of things right, in the short, intermediate and long terms to 
address these issues. I think that the hearing you are holding 
today is exactly the right thing at the right time and I 
appreciate your leadership and the leadership of Senator 
Bingaman.
    The Chairman. Thank you, Senator. Now, this is your first 
opportunity to appear before us. I remember the day we had you 
before us, how excited you were to take this job on. And now I 
understand you have been over there for a while. You still have 
a smile on your face and you look just as rosy as you did when 
you were willing to accept the job. I know this bill has 
presented a very difficult challenge, an analytical challenge 
for you and a policy analysis challenge, but we look forward to 
your testimony. Your remarks will be made part of the record. 
We urge that you make them brief for oral presentation, 
considering that they are already in the record as presented.
    With that, would you please proceed and then we'll ask 
questions, if we have any.

STATEMENT OF ALEXANDER KARSNER, ASSISTANT SECRETARY, OFFICE OF 
  ENERGY EFFICIENCY AND RENEWABLE ENERGY, DEPARTMENT OF ENERGY

    Mr. Karsner. Thank you, sir. Chairman Domenici, ranking 
member Bingaman and members of the committee, I am pleased to 
offer preliminary comments on some of the provisions of S. 
2747, the Enhanced Energy Security Act of 2006, and I will also 
report on the status of the Office of Energy Efficiency and 
Renewable Energy's work to implement the energy efficiency 
provisions of the Energy Policy Act of 2005.
    I will begin with the comments on S. 2747. When EPAct 2005 
was signed last August, it addressed many energy issues that 
had sought attention for many years. It was only a month later 
when Hurricane Katrina hit and slammed--
    The Chairman. We can't hear you very well, sir.
    Mr. Karsner. Oh, forgive me, sir. It was only a month later 
when Hurricane Katrina hit, forcing home new energy realities 
and forcing our country to take an even closer look at our 
energy vulnerabilities. We, as a Nation, needed to take more 
comprehensive action. And I would like to express my gratitude 
to this committee for your diligence in pursuing new 
legislative paths and initiatives to advance our national 
energy efficiency goals at this very critical time.
    Unfortunately, the administration has not had sufficient 
time to review or coordinate its interagency review of S. 2747 
and, therefore, does not, at this time, have a formal position 
on the legislation. I would note, however, that some portions 
of S. 2747 overlap with current EPAct provisions and that it 
would be productive to resolve any issues of redundancy or 
duplication that are inherent in the legislation. Many sections 
of S. 2747 contribute effective energy-efficiency ideas to the 
mix of proposals our Nation needs to reduce oil consumption.
    For example, I am generally supportive of the School Bus 
Idling Program to save fuel and reduce pollution and believe 
the proposals for near-term vehicle technology to promote 
electric propulsion appear to be sufficiently flexible and 
aligned with the President's Advanced Energy Initiative.
    The ``Golden Carrot'' style incentive program, in section 
402, for high-efficiency consumer products, could definitely 
prove effective, especially if it were to be enhanced to ensure 
that winning companies make a sufficient commitment to bring 
those products to market.
    The section on energy-saving performance contracts could 
potentially provide increased flexibility for the Federal 
Government to use energy service companies. Inside the 
Department of Energy, we are inclined to support the energy 
efficiency resource programs proposed in section 404, a measure 
that was not included in the final version of the EPAct but 
supported by the administration at that time.
    Other measures, such as the Efficient and Safe Equipment 
and Replacement Program, would at this time require further 
review. Looking at title I, the national oil savings plan to 
reduce oil use on a fixed schedule, we believe that the targets 
might not be able to be met, even with the most aggressive 
technology push. While the advanced energy initiative is 
expected to help achieve these long-term goals, there remain 
national uncertainties in technology development and commercial 
uptake that make it imprudent to legislate an arbitrary end 
result.
    In addition, the President has asked Congress for the 
authority to reform and increase passenger car CAFE standards 
but has indicated that highway safety, technology, and 
economics need to be considered in the balance when determining 
the maximum feasible fuel economy standard.
    In title II, we have additional concerns. For example, 
while the President and Secretary Bodman are both committed to 
Federal leadership in using the Federal fleet of vehicles to 
advance fuel efficiency and flexible fuels, we believe there 
are aspects of the technical language in S. 2747 regarding 
Federal fleet requirements that need further review and 
discussion. We look forward to working collaboratively with you 
and the members of the committee to resolve these issues.
    Similarly, we are not yet convinced of the effectiveness of 
vehicle retirement programs with respect to the cost and life 
cycle energy savings under the present economic analysis. With 
regard to section 206, EPAct already authorizes grants to 
support activities for auto companies producing fuel-efficient 
vehicles. We believe a series of new loan guarantees 
legislation would largely be unnecessary.
    EPAct also provides tax credits to reduce the cost of 
alternative fuel distribution addressed in section 207 of S. 
2747. In title IV, the national media campaign language is 
virtually identical to that enacted in EPAct.
    I would also like to comment on the proposed renewable 
portfolio standards. The administration continues to believe 
that RPS standards are best left to the States. Under Secretary 
Garman provided congressional testimony before this committee 
on March 8, 2005, explaining this position.
    I would now like to briefly address EERE's implementation 
of EPAct 2005, with more complete comments in my written 
testimony that have been submitted for the record.
    Targeting our national imperative to reduce energy 
consumption, EPAct introduced a broad range of energy 
efficiency initiatives, programs, standards and studies, many 
of which built upon the work that was already in progress at 
the Department of Energy. For example, section 105 provides 
long-term authority to extend Federal energy savings 
performance contracting--ESPCs--until September 30, 2016. This 
extension has renewed interest in Federal energy savings 
projects after the 1-month hiatus in Federal ESPC authority. 
EERE has reinvigorated its super ESPC program to increase the 
potential for cost-effective energy savings through private 
investment in Federal energy efficiency projects.
    Appliance and equipment standards are cost-effective energy 
saving tools, based on published benefit/cost analysis of past 
rules. The Department is committed to addressing the backlog of 
mandated rulemakings and meeting all of its statutory 
requirements. By this August, we will be sending you another 
status report on our progress on appliance standards. We expect 
to report that we will be on schedule for all items and, to the 
extent possible, I am hopeful that we will find ourselves 
slightly ahead of schedule.
    Section 110 directed DOE to explore the impact of extending 
daylight savings time. That study is presently underway and in 
concurrence. Another study on the energy conservation 
implications of the widespread adoption of telecommuting by 
Federal employees is also in the concurrence process.
    Section 134 authorized the Energy Efficiency Public 
Information Initiative, a comprehensive national plan to inform 
consumers that builds upon the outreach efforts ongoing within 
DOE. Consistent with this authorization, a number of consumer 
awareness programs are underway. For example, last October, 
Secretary Bodman launched the ``Easy Ways to Save Energy'' 
campaign, which includes an education and awareness effort with 
the Alliance to Save Energy and private industry to disseminate 
energy savings information through radio and television public 
service announcements, websites, newspaper advertising, and 
media campaigns.
    In conclusion, I hope this gives you some understanding of 
the administration's perspective on S. 2747 and a fair overview 
of the energy efficiency responsibilities that our office 
assumed with the enactment of the EPAct. In many important 
ways, EPAct has served to buttress our efforts and help 
emphasize the necessity of energy efficiency onto the national 
stage. We look forward to working with you as we dedicate 
ourselves to developing energy efficient and renewable energy 
technologies and promoting significant improvements in the 
energy efficiency of our country.
    Thank you very much.
    [The prepared statement of Mr. Karsner follows:]
Prepared Statement of Alexander Karsner, Assistant Secretary, Office of 
      Energy Efficiency and Renewable Energy, Department of Energy
    Chairman Domenici, Ranking Member Bingaman, and Members of the 
Committee, I am pleased today to offer preliminary comments on some of 
the provisions in S. 2747, the ``Enhanced Energy Security Act of 
2006''. I will also report on the status of the Office of Energy 
Efficiency and Renewable Energy's (EERE) work to implement the energy 
efficiency provisions of the Energy Policy Act (EPACT) of 2005.
                          comments on s. 2747
    When EPACT 2005 was signed last August, it addressed many energy 
issues that had sought attention for years. However, only a month 
later, Hurricane Katrina hit, slamming home new energy realities and 
forcing our country to take an even closer look at our energy 
vulnerabilities. We, as a Nation, needed to take more comprehensive 
action, and I would like to thank this Committee for your diligence in 
pursuing new legislative paths and initiatives to advance our national 
energy efficiency goals at this critical time.
    The Administration has not had sufficient time to review or 
coordinate its interagency review of S. 2747 and therefore does not 
have a formal position on this legislation. I would note, however, that 
some portions of S. 2747 overlap with current EPACT provisions and that 
it would be productive to resolve any issues of duplication that are 
inherent in the legislation.
    Looking at the Title I national oil savings plan to reduce oil use 
on a fixed schedule, we believe that the targets might not be able to 
be met, even with aggressive, technology-forcing increases in CAFE 
standards that may not fully account for highway safety. While the 
Advanced Energy Initiative is expected to help achieve these long-term 
goals, there remain natural uncertainties in technology development and 
commercial uptake that make it imprudent to legislate an arbitrary end-
result. In addition, the President has asked Congress for authority to 
reform and increase passenger car CAFE standards but has indicated that 
highway safety, technology, and economics need to be considered when 
determining the maximum feasible fuel economy standard.
    In Title II, we have additional concerns. For example, while the 
President and Secretary Bodman are both committed to Federal leadership 
in using the Federal fleet of vehicles to advance fuel efficiency and 
flexible fuels, we believe there are aspects of the technical language 
in S. 2747 regarding Federal fleet requirements that need further 
review and discussion. We look forward to working with the committee to 
resolve these issues.
    Similarly, we are not convinced of the effectiveness of vehicle 
retirement programs with respect to cost and life-cycle energy savings 
under economic analysis. With regard to Section 206, EPACT already 
authorizes grants to support activities for auto companies producing 
fuel efficient vehicles, and we believe new loan guarantees would be 
largely unnecessary. EPACT also provides tax credits to reduce the cost 
of alternative fuel distribution addressed in Section 207 of S. 2747. 
In Title IV, the ``National Media Campaign'' is virtually identical to 
that enacted in EPACT.
    I would also like to comment on the proposed Renewable Portfolio 
Standard (RPS). The Administration continues to believe that RPS 
standards are best left to the States. Under Secretary Garman provided 
Congressional testimony before this Committee on March 8, 2005, 
explaining this position.
                       epact 2005 implementation
    I would now like to address EERE's implementation of EPACT 2005. 
Targeting our national imperative to reduce energy consumption, EPACT 
introduced a broad range of energy efficiency initiatives, programs, 
standards, and studies, many of which built upon work that was already 
in progress at the Department of Energy (DOE).
EERE's Federal Energy Management Program Provisions
    While EPACT's first section in Title I appropriately addresses 
energy savings in facilities administered by Congress, the next set of 
sections broadens Federal programs for energy efficiency that are 
conducted by EERE's Federal Energy Management Program, or FEMP.
    Section 102, Energy Management Goals, re-establishes the statutory 
energy reduction goals for Federal buildings. Updating the 1985 energy 
consumption figures, the new goal uses a base year of Fiscal Year (FY) 
2003 and requires reductions of two percent per year in energy use per 
square foot, leading to a 20 percent reduction by FY 2015.
    The law allows agencies to exclude certain buildings from this goal 
under stringent criteria and gave the Department of Energy 180 days to 
provide guidelines for these exclusions. The guidelines have been 
finalized and issued to the Federal agencies. Formally titled the 
Guidelines Establishing Criteria for Excluding Buildings from the 
Energy Performance Requirements of Section 543 of the National Energy 
Conservation Policy Act as Amended by the Energy Policy Act of 2005, 
they are available on FEMP's web site at: http://wwwl.eere.energy.gov/
femp/pdfs/exclusion_criteria.pdf.
    To further assist agencies in adjusting to the new goals, EERE is 
drafting a memorandum to Federal agencies to clarify how the differing 
reporting requirements of EPACT and Executive Order 13123 (still in 
effect) will be addressed and to provide guidance to agencies in 
establishing their 2003 baseline. EERE plans to provide each agency 
with its FY 2003 energy consumption, costs, and square footage data 
formatted in ways that allow agencies to easily assess their baseline 
data according to default and new building inventory categories. We are 
also convening working group meetings with agencies to revise the 
Annual Reporting Guidance to reflect the EPACT 2005 requirements.
    To promote operations and maintenance (O&M) best practices in the 
Federal sector, EERE is developing an O&M Best Practices Guide and 
training materials including a comprehensive on-line training program 
for Federal energy managers and building operators. EERE will continue 
conducting its Energy Savings Expert Team (ESET) facility assessments, 
launched last fall in response to the President's call for agency 
action to conserve energy. The teams initially conducted site 
assessments at 28 large Federal installations and identified potential 
natural gas savings of 970 billion Btu. DOE is following up with all 
sites to assess whether the ESET recommendations are implemented, to 
provide technical assistance to agencies should they choose to use 
energy savings performance contracts instead of direct appropriations 
to implement projects, and to help with project planning for more 
capital-intensive projects.
    Additional efforts include promoting the Resource Efficiency 
Manager (REM) concept in the Federal sector. REM salaries are paid for 
by the savings they help generate. EERE will also demonstrate advanced 
energy efficient technologies in Federal buildings, with a goal to test 
or demonstrate one new advanced energy efficient technology each year. 
One of the steps toward this goal is working with industry to develop 
deployment opportunities for advanced energy efficient technologies.
    Section 103, Energy Use Measurement and Accounting, requires all 
Federal agencies to install metering and advanced metering where cost-
effective, according to guidelines developed by the Department of 
Energy in consultation with a number of interest groups. After meeting 
with representatives from industry, energy efficiency advocacy 
organizations, national laboratories, universities, and Federal 
facility managers, EERE has issued the Guidance for Electric Metering 
in Federal Buildings, located on the web at: http://
www1.eere.energy.gov/femp/pdfs/adv_metering.pdf. Agencies must submit 
their implementation plans by August 3, 2006, and progress reporting 
under the advanced metering requirement will begin in FY 2007.
    Section 104, Procurement of Energy Efficient Products, seeks to 
harness the energy savings that can be achieved economically through 
the purchase of energy-efficient products and equipment. DOE has 
drafted the regulations necessary to carry out Section 104; the 
regulations are being reviewed internally. We have also drafted the 
premium efficiency standard for electric motors of 1 to 500 horsepower 
as required under Section 104(d).
    The Department will continue to develop and revise its widely-used 
energy efficient product procurement recommendations and will seek to 
expand its bulk purchasing program to encompass additional 
technologies, agencies, and building types each year. Over, the longer 
term, we will work with EPA, State, and local government organizations 
and non-government organizations (NGOs) to establish and participate in 
a broad-based network of public agencies, institutions, and leading 
corporations committed to using ENERGY STAR and FEMP criteria in their 
purchasing, with affiliated suppliers who agree to provide compliant 
energy-efficient products.
    Section 105 provides long-term authority to extend Federal Energy 
Savings Performance Contracting (ESPC) until September 30, 2016. This 
extension has renewed interest in Federal energy savings projects, 
after the 13-month hiatus in Federal ESPC authority.
    EERE has reinvigorated its Super ESPC program to increase the 
potential for cost effective energy savings though private investment 
in Federal energy efficiency projects.
    EERE continues to increase outreach and education of ESPC to the 
Federal agencies that actually implement the energy efficiency 
projects. Our ESPC education campaign includes new informational and 
promotional materials in the most current media formats and direct 
communications with Senior Energy Officials of every major Federal 
agency. We plan to increase by 50 percent the number of ESPC training 
workshops conducted during the next two fiscal years.
    EERE will continue to conduct detailed data analysis of ESPC 
metrics including cost effectiveness, financing costs, and project 
cycle times to help improve ESPC results. Specific improvements include 
reducing project cycle time from the current 12 to 18 months to 9 to 12 
months and modifying contracts to obtain the best possible financing 
rates.
    Under Section 109, DOE is required to issue a new Federal building 
energy efficiency standard, through the rulemaking process, within one 
year of the passage of EPACT 2005. The provisions of this section 
require that buildings be designed to 30 percent below the American 
Society of Heating, Refrigerating, and Air-Conditioning Engineers 
(ASHRAE) standard or the International Energy Conservation Code 
(depending on building type) if life-cycle cost effective. We are 
working on a rulemaking to implement Section 109.
EERE's Building Technologies Program Provisions
    Turning now to the building sector, EPACT 2005 could not have 
arrived at a more propitious time. Drivers in the marketplace, such as 
high electricity and natural gas prices, along with excellent progress 
in R&D on building technologies are bringing energy efficiency and 
renewable energy into mainstream markets, and significantly improving 
the business case for energy efficiency and renewable energy.
    But when it comes to energy efficiency, the case for the Nation is 
even more compelling than the business case. That is something that 
President Bush recognized when he outlined the Advanced Energy 
Initiative during his State of the Union address, with a proposal to 
increase clean-energy research and break America's dependence on 
foreign sources of energy and to promote clean energy by changing the 
way we power our homes, businesses, and automobiles.
    DOE has an aggressive goal for the future of buildings. By 2020, 
DOE aims to have cost-competitive net-zero-energy homes in this 
country. Such buildings would be 60 to 70 percent more efficient than 
conventional practice in their energy use, and would use renewable 
energy such as solar photovoltaics to meet their remaining energy 
requirements. A related goal is to have zero-energy commercial 
buildings as well by 2025. We have set interim targets to develop 
residential and commercial building design packages that incrementally 
improve energy efficiency and incorporate renewables in a cost 
effective manner.
    I'd like to review our progress across the 12 EPACT sections for 
which the Building Technologies Program is responsible, ranging from 
expanded authorizations for appliance standards to assisting the 
Department of Treasury develop the technical requirements for tax 
incentives. This extensive focus on energy efficiency in the building 
sector reflects the significant opportunities for energy efficiency 
improvements in residential and commercial buildings, appliances and 
equipment. In particular, I'd like to highlight our appliance standards 
work, progress on solid state lighting R&D, and our Energy Star 
activities.
    Appliance and equipment standards are cost effective energy-saving 
tools, based on published benefit-cost analyses of past rules. The 
Department is committed to addressing the backlog of mandated 
rulemakings and meeting all of its statutory requirements. In our 
report to Congress, submitted on January 31, 2006, pursuant to Section 
141, we presented a multi-year schedule that is ambitious and 
achievable and will enable the Department to produce at least one new 
or amended standard for all products in the backlog no later than June 
2011, five years from the issuance of this plan. By June 2011, the 
Department will issue standards for the following 18 products in the 
backlog:

   Residential furnaces and boilers
   Mobile home furnaces
   Small furnaces
   Residential water heaters
   Direct heating equipment
   Pool heaters
   Distribution transformers, MV dry-type and liquid-immersed
   Electric motors (1-200 hp)
   Incandescent reflector lamps
   Fluorescent lamps
   Incandescent general service lamps
   Fluorescent lamp ballasts
   Residential dishwashers
   Ranges and ovens (gas and electric) and microwave ovens
   Residential clothes dryers
   Room air conditioners
   Packaged terminal air conditioners and heat pumps
   Residential central air conditioners and heat pumps

    Since the passage of EPACT, and consistent with the schedule 
delivered to Congress, we are making great progress. I would like to 
summarize what we have done in the past year.
    By this August, we will be sending you another status report on our 
progress on appliance standards. We expect to report that we will be on 
schedule for all items, and perhaps slightly ahead of schedule on 
selected items. For example, EPACT 2005 included 15 prescribed 
standards, which DOE promptly codified en masse in its October 18, 2005 
technical amendment.
    In regard to test procedures, EPACT 2005 prescribed 11 test 
procedures. Adopting these is a more technical exercise, so it takes a 
little longer. The proposed rule to codify the prescribed test 
procedures will be issued this June, with a final rule expected by 
November 2006.
    On the standards side, I am happy to report that DOE is on schedule 
in getting the EPACT 2005-required rulemakings up and running. For 
residential dehumidifiers and commercial clothes washers, DOE held a 
``framework workshop'' in April 2006 to kick off the rulemaking. 
Comments have been received and the analysis is underway. I note that 
Congress has required a second rulemaking for commercial clothes 
washers--this will begin after the first rule is issued.
    The commercial refrigeration standards rulemaking is in a similar 
state--the ``framework workshop'' was held in May 2006. In July, we'll 
be having a ``framework workshop'' to kick off the standards rulemaking 
for beverage vending machines.
    There are three other activities related to EPACT 2005 and 
Appliance Standards that I'd like to close with:
    First, there are two future revisions for the commercial 
refrigeration products' standards and two revisions to the statutorily 
prescribed standard for automatic commercial ice makers--we have 
planned for these future activities required by EPACT 2005.
    Second, EPACT 2005 requires a rulemaking for a niche part of the 
ceiling fan light kit market. This final rule is due January 1, 2007. 
EPACT 2005 did not allow DOE enough time to complete a full rulemaking 
for this niche set of products, but it did offer ``default'' standards 
in case DOE misses its deadline--DOE plans to codify the ``default'' 
standards on January 2, 2007 through a technical amendment in the 
Federal Register.
    Third, we are working on the determination analysis for battery 
chargers and external power supplies. DOE plans to make the 
determination by August 2008. As indicated in the April 24th Unified 
Agenda, if this determination is positive, the DOE will issue a final 
rule for these products by August 2011.
    While the appliance standards authorizations in Title I are the 
most significant for our work in the building sector, there are several 
additional sections that offer new authority that we are taking 
advantage of immediately.
    Section 131 of EPACT 2005 provided additional authorization for the 
ENERGY STAR program. Our analysis suggests that this joint effort 
between the Department of Energy and the Environmental Protection 
Agency has been successful in promoting the adoption of energy 
efficient technologies by consumers and businesses. EPACT 2005 
recognized that success, and provided for acceleration of new ENERGY 
STAR criteria for clothes washers and dishwashers.
    I'm pleased to report that we published the new specifications for 
these appliances on December 20, 2005, and March 8, 2006, respectively. 
These criteria go into effect on January 1, 2007. Taken together, we 
estimate purchase of these ENERGY STAR appliances will save $89 million 
in energy bills and 10.4 billion gallons of water per year. We are also 
on track to update the specifications again over the next three years, 
effective January 1, 2010.
    Section 912, the Next Generation Lighting Initiative, directs the 
Secretary to carry out a program of research, development, 
demonstration, and commercial application activities to advance solid-
state lighting (SSL) technologies for application in general 
illumination. Relative to today's options, the SSL technologies will be 
longer lasting, more energy efficient, cost competitive, and have less 
environmental impact.
    Prior to the passage of EPACT, the Department's SSL program had 
competitively selected an industry partner, the Next Generation 
Lighting Industry Alliance (administered by the National Electrical 
Manufacturers Association), and signed a Memorandum of Agreement (MOA) 
in February 2005. A Determination of Exceptional Circumstances which 
provides special guidance on the intellectual property for inventions 
developed under the SSL program was signed in June 2005.
    EERE's existing lighting R&D program produced numerous advancements 
in SSL. For example, 15 solid-state lighting patents were submitted in 
FY 2005 as a result of DOE-funded research projects. These patents 
demonstrate the value of DOE's SSL projects to private companies and 
notable progress toward commercialization.
    One company, Cree Lighting, demonstrated a white light emitting 
diode (LED) device with a record-setting efficacy of 65 lumens per 
watt. The improvement in brightness was enabled by balancing multiple 
interrelated design parameters, including novel chip design. The 
results are particularly significant because they were achieved in a 
pre-production prototype using Cree's standard XLampTM 
package, rather than a laboratory device.
    With the additional impetus provided by the passage of EPACT, the 
program continues to produce technical achievements. For example, 
researchers from the University of Southern California, University of 
Michigan, and Universal Display Corporation have achieved a record 
efficiency of 24 lumens per watt in a white organic light-emitting 
diode (OLED) device. The new OLED device is 50 percent more efficient 
than a standard incandescent light bulb and 20 percent more efficient 
than the team's previous record OLED.
    Relative to the commercialization of future products, EERE hosted 
an LED Industry Standards Workshop in March 2006 to provide a forum for 
greater cooperation and coordination among standards organizations. DOE 
presented details of the proposed DOE ENERGY STAR criteria for LED 
products, which will be made public later this year. With DOE 
leadership, the group will continue to coordinate, provide updates, and 
accelerate process in solid-state lighting.
    I would also like to say a word about the Tax Credit section in 
Title XIII, Energy Policy Tax Incentives Subtitle C-Conservation and 
Energy Efficiency Provisions. The Department has been working with 
representatives from State energy offices, industry and other 
organizations to develop an understanding of the technical requirements 
for implementation of the tax credits. The Department is also working 
closely with the U.S. Department of the Treasury to ensure that the 
regulations address all the technical issues related to the tax 
credits. The Department of the Treasury has the primary responsibility 
for developing the specific regulations, establishing definitions and 
procedures, to implement these measures.
Other Energy Efficiency Provisions
    EERE is also responsible for a variety of additional studies, 
outreach initiatives, and programs. Many are underway.
    For example, Section 110 directed DOE to explore the impact of 
extending daylight savings time. That study is underway. Another study 
on the energy-conservation implications of the widespread adoption of 
telecommuting by Federal employees is in the concurrence process.
    Section 134 authorized the ``Energy Efficiency Public Information 
Initiative,'' a comprehensive national plan to inform consumers that 
builds upon the outreach efforts ongoing at DOE. Consistent with this 
authorization, a number of consumer awareness programs have already 
begun. For example, last October Secretary Bodman launched the ``Easy 
Ways to Save Energy Campaign'' which includes an education and 
awareness effort with the Alliance to Save Energy and private industry 
to disseminate energy saving information through radio and television 
public service-announcements, websites, newspaper advertising, and 
media campaigns. Other collaborative efforts such as ``Powerful 
Savings,'' ``EnergyHog,'' and ``The Power is in Your Hands'' combined 
the best skills of government, the private sector, and non-governmental 
institutions to provide the public with tools to conserve energy and 
save money.
    Several EPACT sections engage our Weatherization and 
Intergovernmental Activities Program (OWIP). EPACT Section 123 provided 
aggressive new goals and planning requirements for the State Energy 
Program (SEP). We have invited States to review, and, if necessary, 
revise State Energy Conservation Plans and are encouraging regional 
collaboration, where appropriate. EERE notified the States of these 
requirements in January through the SEP annual program guidance and 
will send formal invitation letters to governors by June 30.
                               conclusion
    I hope this gives you some understanding of the Administration's 
perspective on S. 2747, and a fair overview of the energy efficiency 
responsibilities that our office assumed with the enactment of EPACT. 
In many important ways, EPACT has served to buttress our efforts and 
help launch the necessity of energy efficiency onto the national stage. 
We look forward to working with you as we dedicate our efforts to 
developing energy efficient and renewable energy technologies and 
promoting improvements in the energy efficiency of our country.

    The Chairman. Thank you very much.
    Senator Bingaman.
    Senator Bingaman. Thank you very much. Mr. Karsner, one of 
the key provisions in this legislation tries to set a target 
for the amount of oil that could be saved and, I think, for 10 
years from now I think it begins. Your testimony, as I 
understand it, and I think this is an exact quote, would be, 
``imprudent to legislate an arbitrary end result.'' The 
confusion I've got on this is that the President, in his State 
of the Union speech, and this is another quote, he said that he 
was committing the country to ``replace more than 75 percent of 
our oil imports from the Middle East by 2025.'' Now, that's a 
pretty specific target, as I understood it.
    We wrote a letter--when I say ``we,'' I mean about 20 of us 
here in the Senate. We wrote a letter to Secretary Bodman, 
after the President's State of the Union speech, asking him to 
please tell us how you're going to do this, how you are going 
to reduce imports from the Middle East by 75 percent by the 
year 2025. We wrote that letter on the 21st of February. We 
haven't received an answer yet.
    We're trying, in this legislation, to establish a much more 
modest goal than what the President called for but what we 
thought was a somewhat realistic goal and do it in a 
responsible way by saying 10 years from now, we should have 
some goal that we're working at, it should be some quantitative 
goal that seemed to be consistent with the view the President 
was taking in setting his quantitative goal. I'm just wondering 
how you reconcile the position that you are taking here in 
opposition to any arbitrary end result with the position the 
President took in his speech.
    Mr. Karsner. Yes, sir. I think it is not a question of the 
goal or the aspiration of the goal or the objective. Indeed, as 
you point out, we are at least as--or more--aggressive in our 
objectives and in our targets than the legislation indicates. 
The question is actually opposition to legislating a mandate, 
fixing a law, as to what the end result might be. In industry, 
we would call these objectives `stretch targets,' putting 
something very ambitious before us and then designating a plan 
to reach those stretch targets. So at the Department of Energy, 
beginning with the release of the Advanced Energy Initiative, 
we began putting together coherent plans that would meet the 
stretch targets.
    By way of example, the President's objective that 
cellulosic ethanol become commercial by 2012, cellulosic 
ethanol being a very, very important part of the formula to 
displace petroleum, then going further and saying that we could 
displace up to 30 percent of gasoline consumption, at the 
present measures, by 2030. Those are stretch targets. Other 
people in the private sector have come out with similar stretch 
targets--25 percent by 2025, by way of example. They are far 
enough out that our own stretch targets shouldn't be viewed as 
exclusive, even though they are ambitious. We are looking to 
collaborate both with the committee and really, all people of 
goodwill who were interested in resolving this problem, to make 
those targets more acute and more poignant.
    Senator Bingaman. Well, perhaps you could give us what 
those stretch targets are that you have embraced and the extent 
to which they are consistent with what the President talked 
about in his State of the Union speech and then what the plans 
are to reach those stretch targets. Because I think that is 
what we were asking for in our letter to Secretary Bodman is to 
tell us what the plan is to reach this stretch target, which I 
think is a very major stretch. Quite frankly, to say that we 
are going reduce imports from the Middle East by 75 percent by 
the year 2025, that's a real stretch. But I have yet to see any 
plan that would get us there, and if you have such a plan that 
you've developed, I'd be anxious to have it. If you could maybe 
respond to us or see if Secretary Bodman could put that 
together and respond to the letter we sent, that would be 
helpful.
    Mr. Karsner. Yes, sir. We will.
    [The information follows:]

    With respect to the President's goal of reducing oil imports, 
programs under the Advanced Energy Initiative, if successful in 
achieving major breakthroughs in all vehicles and fuels initiatives, 
such as expanding the use of ethanol, specifically cellulosic ethanol, 
could displace the need for up to 5 million barrels of oil per day by 
2025. Through investments in transportation technology, the AEI will 
allow the greater use of ``homegrown'' ethanol made from cellulosic 
biomass, which is now discarded as waste. The funding will make ethanol 
feedstocks such as wood chips, corn stover (stalks) or switch grass 
cost-competitive. Also the AEI will accelerate research in the next 
generation of battery technology for hybrid vehicles and ``plug-in 
hybrids.''

    Senator Bingaman. On page 2 of your testimony, you note 
that EPAct authorizes grants to support activities for auto 
companies producing fuel-efficient vehicles. Could you tell us 
what progress has been made to date to implement those 
provisions, when you think that program will be up and running, 
when you expect the first loan guarantee to be entered into, 
whatever you could tell us about that.
    Mr. Karsner. What I can tell you is that we have had a 
significant dialog with the auto companies, particularly those 
that are partnered with the program, and asked them to cull 
their own portfolios in technology to propose ways that the 
loan guarantees might enhance their ambitions to get to 
manufacturing and production of more fuel efficient vehicles. 
Thus far, there has been limited interest by only one or two of 
the automobile companies in pursuing those loan guarantees. 
With regard to standing up the loan guarantee program, as Under 
Secretary Garman has testified, there is a process at DOE 
presently for creating an Office of Loan Guarantees and they 
anticipate taking applications before the end of the year.
    Senator Bingaman. OK. My time is up. Go right ahead, Mr. 
Chairman.
    Thank you.
    Mr. Karsner. Thank you, sir.
    The Chairman. The note I just passed out here indicated we 
have three stacked votes at 11:10 a.m. Now, I don't think, 
Senator, that we could possibly be finished by then. I merely 
indicate we'll leave and----
    Senator Bingaman. Come back for it.
    The Chairman [continuing.] Come back, just so that 
everybody understands.
    Mr. Karsner, let me indicate that in reading your 
testimony, I want to tell you that I was very impressed and 
appreciative of your stating with specificity all of the 
efficiency measures that are being implemented pursuant to the 
law that we passed. Senator Bingaman had been pushing goals for 
years and there are still many of them that you acknowledge 
have not been implemented; right?
    Mr. Karsner. Correct.
    The Chairman. But you are pushing hard, are you not, in 
terms of, across the board, the appliance standards and all the 
others? Are we making some headway? Could you just articulate 
for a minute or two for the public what is going on in that 
area?
    Mr. Karsner. Yes, sir. As you know, I've been on the job 
for a very short time, but in that short time, the two things 
you just mentioned have been amongst my highest priorities, as 
I committed during my confirmation hearings. That is to say, 
the appliance standards and implementation of the EPAct 
provisions are things that I insist on a weekly briefing on, in 
terms of both issues and, as I had committed to you, Senator 
Bingaman, at that time, we would analyze the critical path and 
see where we might be able to accelerate or, if you want, 
lubricate the machinery of decisionmaking so that we could look 
at ways to get to the fastest pace of implementation possible. 
I am comfortable that the team is very, very committed, that 
they are on schedule, that they are working hard to see where 
gains could be made and that we are also reaching out to all of 
the stakeholders, very assertively, to work collaboratively 
where we can to see where consensus might be drawn in future 
discussions.
    The Energy Policy Act itself provides a very prescriptive 
path for my job for the duration. There are very many helpful 
provisions that, if implemented and executed, will lead to 
these savings that are desired at a very fast pace. I think it 
goes without saying that it remains the highest priority in 
terms of the tools we have at the Department of Energy to 
throttle the current energy balance and to affect the situation 
now. So therefore, it remains my highest priority.
    The Chairman. You mentioned in your remarks, when you were 
addressing the mandated target for savings on crude oil, you 
alluded to the President seeking additional authority with 
reference to auto emissions standards. And not having received 
that, could you discuss that whole proposition with us a bit 
and the relationship of that target to the fuel efficiency 
standards for automobiles and what you talked about in giving 
the President more authority and economic considerations?
    Mr. Karsner. Well, the President has already used his 
authority on CAFE for light-duty vehicles and trucks and he 
would like the comparable authority for the other classes of 
vehicles so that the administration might have the capacity to 
review and raise, as may be necessary, combined with the other 
considerations that are economic and highway safety. I believe 
that the administration has put that forward to Congress 
already and I believe the administration has demonstrated that 
it is willing and able and assertive about reviewing CAFE 
standards and making gains where it can.
    The Chairman. Do you have any way of telling us what the 
CAFE standards would have to be to achieve the target that this 
legislation mandates for the saving of crude oil, of imported 
crude oil?
    Mr. Karsner. I do not have that information. I would be 
pleased to bring back our technical experts to talk about it in 
more detail. Obviously, there is a sensitivity there with 
respect to how much technology can be deployed over the same 
timeframe versus how much increased efficiency is necessary out 
of the vehicle. So there are really several moving pieces and 
it is a moving target and that is part of the difficulty in 
legislating an absolute end result. If one assumes that the 
technology doesn't get to the market fast enough, then of 
course, that number would shoot very, very high, which may not 
even be possible under current manufacturing standards.
    The Chairman. One of the problems with the Bingaman 
legislation you have alluded to, is the mandated target of 
savings with no policy leeway, just telling you, here is a 
target, do it. And I understand the frustration of the Senator. 
He has expressed it in his questions. He'd like to know how you 
are going to get there.
    On the other hand, you have also expressed the 
administration's position that that target seems a bit too 
difficult. You have been caught in a box because maybe the 
President has alluded to a higher target in general terms, but 
I think there is a difference. One is legislated and mandated 
by law and one is not, which I think is going to be difficult 
for this legislation. But I merely comment on that.
    Let's see if these Senators on this side have any questions 
of this witness before we proceed.
    I will submit some questions in writing, Mr. Secretary.
    Mr. Karsner. Thank you.
    Senator Thomas. Thank you, Mr. Chairman. I have one. We 
have a number of things out there playing now about some 
conversion from coal, for instance, to fuel and this and that. 
It seems like the implementation of the current regulations is 
very slow. Some of these things are designed to provide 
incentives and we have companies waiting to go but the 
Department hasn't yet set forth the regulations that allow them 
to apply for the incentives to go ahead with their plants. Do 
you have any comment on that?
    Mr. Karsner. My only comment is that the pace of government 
is also new to me and I'm trying to, at least within the domain 
that I work in, accelerate things where possible. I know that 
my colleague, Jeff Jarett, is working very aggressively and 
ambitiously in terms of the coal-to-liquids projects.
    Senator Thomas. It just seems as if this is a pretty 
regulatory thing that has already been authorized, and yet the 
years have gone by and people are standing around waiting to 
make investments to do the things that we're talking about here 
and they seem to be slow. You talked about efficiency 
requirements by the States, urging the States to do that; was 
that correct?
    Mr. Karsner. I'm sorry, sir. Specifically what?
    Senator Thomas. I think you said in your statement that you 
wanted the States to do the efficiency standards.
    Mr. Karsner. That was with regard to the renewable 
portfolio standards and a national mandate versus a State-by-
State mandate policy.
    Senator Thomas. But when we have the movement of vehicles 
and so on, is that a reasonable thing to do?
    Mr. Karsner. I think that the vehicle efficiency standards, 
the CAFE standards, are not part and parcel of the renewable 
portfolio standards that I mentioned in my statement.
    Senator Thomas. OK. The bill that we're talking about 
directs the Secretary to conduct R&D for electric-driven 
transportation technology and research and those kinds of 
things and provide--isn't it more appropriate to allow the 
companies to do this with private dollars?
    Mr. Karsner. There are some things that the private sector 
would not otherwise take on because it is too far off of their 
planning horizons, so the type of research and development that 
is needed at this early stage for moving on to lithium ion 
batteries, for example, is something that we are doing 
collaboratively with the private sector.
    Senator Thomas. Well, I hope so, because if we don't do it 
with our own private sector then foreign companies will do it 
and we'll be looking for somewhere else to do those things. So 
I think sometimes I get the feeling that the bureaucracy is a 
little academic oriented, looking way off into the future and 
not paying much attention to what we are, where we are 
currently, in terms of these kinds of things, like the coal-to-
liquid structure and designated streams and those kind of 
things. I know there are other questions and we're pressed on 
time, but we will continue to work with you because we need to 
move forward, both on the shorter term and on the very long 
term and make those things--get them into place.
    Mr. Karsner. I agree, sir.
    The Chairman. Let's see. Senator Alexander.
    Senator Alexander. Thanks, Mr. Chairman. Mr. Secretary, 
thank you for coming. I'd like to pursue your comments about 
the renewable portfolio standard. Now, the renewable portfolio 
standard would be a requirement that we use renewable materials 
to produce electricity; correct?
    Mr. Karsner. That's correct, sir.
    Senator Alexander. And what percent of our electricity in 
the United States today is produced by renewable materials or 
processes?
    Mr. Karsner. I believe it is under 2 percent, excluding 
hydropower.
    Senator Alexander. How much?
    Mr. Karsner. Under 2 percent.
    Senator Alexander. Under 2 percent. And your testimony is 
that--well, how many States have renewable portfolio standards 
today?
    Mr. Karsner. I believe it is approximately 25, but I could 
report on that for the record.
    [The information follows:]

    Lawrence Berkeley National Laboratory staff report that twenty 
states plus the District of Columbia have renewable energy portfolio 
standards in place, as of May 2006. Three more states, Minnesota, 
Illinois and Vermont, have established renewable energy goals.

    Senator Alexander. So a couple of dozen have it. And how 
high are--what are their goals? They are well above 2 percent, 
are they not?
    Mr. Karsner. Many different States have many different 
goals, based on what their renewable resource is in that State, 
generally speaking. So there is really a patchwork of different 
renewable portfolios.
    Senator Alexander. But the range might be what?
    Mr. Karsner. On the top end of it, you might find 20 
percent. Others do it in terms of quantitatively assessing the 
amount of megawatts that ought to be delivered by renewable 
energy.
    Senator Alexander. And these include some major States--for 
example, California and Pennsylvania. So even though, 
nationally, it is only 2 percent in terms of renewables 
producing electricity, some two dozen States, including many 
large States, have their own standards. And they define 
renewables differently in those States; is that correct?
    Mr. Karsner. I believe that's right.
    Senator Alexander. Well, for example, in Pennsylvania, I 
believe, a renewable might be coal waste to turn into 
electricity. And in Tennessee, we might want to use incremental 
hydro. And in Connecticut, I believe, they even define 
renewables as fuel cells. Do you think that is appropriate for 
different States to have different definitions of what they 
mean by renewable?
    Mr. Karsner. I do. I think it should be substantially 
driven by the available renewable resources in that State, in 
terms of how much penetration they might expect for that 
State's development.
    Senator Alexander. If there were a national renewable 
portfolio standard, would the primary beneficiary of that be 
wind power?
    Mr. Karsner. I think wind power is a substantial 
beneficiary on the State-by-State RPS, so I'm not sure that 
there would be any great gain for wind power with a national 
RPS.
    Senator Alexander. Well, for example, if there were a 
requirement that a State like Tennessee have a 10 percent or 20 
percent renewable standard and wind were one of the only ways 
it could get there and it couldn't get there, then it would end 
up, in effect, paying a tax on its electric bills to cause some 
other State to do that; is that not right?
    Mr. Karsner. That is one of the reservations I have about a 
national renewable portfolio standard. It could be seen as 
punitive to those States that lack the renewable energy 
resource so that people in Tennessee or Florida might pay 
substantially more.
    Senator Alexander. It might transfer well from one part 
of--from the southeast to another part of the State. Maybe it's 
an unintended consequence because of the different sorts of 
renewable resources.
    Mr. Karsner. That is the general position.
    Senator Alexander. And that would be on top of whatever--if 
wind were the example, then that subsidy would then be on top 
of whatever the renewable production credit is for wind power 
in the Federal tax code today?
    Mr. Karsner. Right. I don't think that a renewable 
portfolio standard concept, in general, always implies that 
there need be a subsidy. For example, the State renewable 
portfolio standard in Texas has driven down wind prices to make 
them much, much lower than they were.
    Senator Alexander. But that's a State renewable. See, I'm 
talking about a Federal renewable standard.
    Mr. Karsner. Right.
    Senator Alexander. If you required a State, in effect, to 
use a renewable resource that it could not use, then that would 
transfer wealth from that State to another part of the country.
    Mr. Karsner. It would certainly impose higher costs.
    Senator Alexander. Would you anticipate that over the next 
5 years, that more States would have renewable portfolio 
standards?
    Mr. Karsner. I would anticipate that, and in fact, I would 
encourage that. We're hopeful that all States would develop for 
themselves, as appropriate, a renewable portfolio standard that 
takes into account the available resource they have in that 
State.
    Senator Alexander. Thank you, Mr. Chairman.
    The Chairman. Thank you.
    Senator Salazar.
    Senator Salazar. Mr. Chairman and Senator Bingaman, thank 
you for holding this hearing. It is a very important hearing 
and I have a statement for the record that I will submit for 
the record.
    [The prepared statement of Senator Salazar follows:]
   Prepared Statement of Hon. Ken Salazar, U.S. Senator From Colorado
    Good morning Mr. Chairman; Ranking Member Bingaman, and members of 
the committee. I would like to thank you, Mr. Chairman, for agreeing to 
hold this hearing. And I welcome our colleagues, Senator Bayh and 
Senator Coleman, who are here today because of our shared commitment to 
securing America's energy independence by promoting the manufacture and 
use of advanced technology vehicles, including flex-fuel vehicles able 
to run on either petroleum or renewable fuels.
    My own state of Colorado contributes substantially to the energy 
resources of our country. We are blessed with an abundance of natural 
energy resources, and the coal, oil and gas industries play a 
significant part in our state's economy. In that regard, I very much 
appreciate your willingness, Mr. Chairman, to travel to Colorado to 
consider the possible development of Colorado's vast oil shale 
resources. And I look forward to the hearing you have scheduled next 
week on oil & gas development in the Rocky Mountains. But as long as 
the United States is dependent on foreign oil for a significant part of 
our energy needs, particularly our transportation fuels, our economy 
and our national security are at risk. We need to move rapidly toward 
energy independence and energy security.
    I am therefore proud to be an original co-sponsor of S. 2747, 
Senator Bingaman's bill under consideration today, and of S. 2025--the 
Vehicle and Fuel Choices for American Security Act of 2005--which is 
the basis for the oil savings and vehicle titles of Senator Bingaman's 
bill. These broadly supported, bipartisan provisions will change how we 
power our vehicles.
    Mr. Chairman, right now, the United States consumes around 20 
million barrels of oil every day. Fully two-thirds of the oil we 
consume in this country is for transportation. The massive amount of 
oil that we are importing is barely enough to cover the needs of the 
transportation sector alone. S. 2747 tackles this problem head on. It 
would bring more gallons of biofuels, such as cellulosic ethanol and 
biodiesel, to market. It would give consumers more choices and greater 
access to alternative fuels and advanced technology vehicles. It would 
lower and stabilize the cost of transportation fuels, and it would 
retool America's vehicle fleet to run more efficiently and on 
alternative fuels.
    At the same time, S. 2747 would significantly reduce our dependence 
on the Middle East for supplies of oil and natural gas. We can achieve 
these results through policies that encourage more efficient use of 
energy in vehicles, electric appliances, lighting and industry, as well 
as a greater emphasis on the use of renewable sources of energy.
    In that regard, I am anxious to hear from Mr. Karsner what energy 
efficiency standards and goals the Department of Energy will adopt in 
2007 and 2008 to implement the energy efficiency programs authorized in 
EPAct 2005 as well as the funding priorities reflected in the 
President's Advanced Energy Initiative.
    Mr. Chairman, the bipartisan energy bill we passed last year was an 
important first step along a path toward greater energy security. But 
it was only a first step. I believe there is an urgent national 
security imperative to embrace advanced flex-fuel vehicles and the 
renewable fuels and infrastructure to support them, as well as a 
renewable energy initiative like the one contained in this bill, to put 
us firmly on the pathway toward energy independence. A bold but 
achievable renewable energy initiative will strengthen our national 
security by reducing our dependence on foreign oil.
    I look forward to hearing today's testimony and to further 
Committee action on S. 2747, the Enhanced Energy Security Act of 2006.

    Mr. Chairman. It will be made part of the record.
    Senator Salazar. Let me, Mr. Karsner, just ask a question. 
I know that in your comments, you were critical of the oil 
savings targets that we have in S. 2747 and I think your term 
was that you thought it was imprudent to legislate, in your 
words, in this regard, that it was imprudent to legislate an 
arbitrary end result. In the President's State of the Union, he 
obviously called for a goal of getting us to reduce our 
consumption of oil imports by 75 percent. That's a relatively 
objective number with a goal that's out there. Tell me how it 
is that what the President is trying to get to here, in terms 
of an oil savings goal where we will reduce our imports from 
the Middle East, differs from what we are proposing here in S. 
2747?
    The Chairman. Senator Salazar, I might indicate to you that 
while I'm not going to object to your question, it is redundant 
in that Senator Bingaman asked the exact same question. But we 
can have it answered again. Maybe we can say you asked it more 
eloquently.
    [Laughter.]
    Senator Salazar. Well, maybe what you can do is to just as 
succinctly respond to that question.
    Mr. Karsner. Right. I appreciate that. It is not so much at 
all that we are critical of the target. We are critical of 
putting a target into law when the target itself is dependent 
upon the pace and the pricing and the market realities and 
realization of the progress of the technology.
    Senator Salazar. OK. I appreciate that. Let me ask you, in 
terms of some of the other aspects of S. 2747, one of the 
things that we have included in S. 2747 is to improve 
efficiency of our vehicle fleet, for getting more advanced 
vehicles on the road. It sets these goals and helps 
manufacturers retool their vehicle fleets to meet them.
    Mr. Karsner. Oh, absolutely.
    Senator Salazar. What steps has the Department taken, under 
your leadership, to try to achieve these goals since we passed 
EPAct last year?
    Mr. Karsner. If I understand the question, you're asking 
about the Vehicle Technologies Program and the implementation 
of using the tools of EPAct to enhance the vehicle technologies 
available for efficiency?
    Senator Salazar. Yes.
    Mr. Karsner. Well, I can report more intelligently with our 
technical experts for the record and work for a briefing in 
your office about that. We have a very robust and well-funded 
vehicle technologies program and through the Fuel and Freedom 
Car Partnership, we are working on several aspects of that, 
including enhanced work on plug-in hybrid vehicles and battery 
technologies, light-weighting of the vehicle materials for use 
in the manufacturing assembly, and of course, the other 
technologies related to the uptake of flexible fuel and 
hydrogen fuel cells. But I think it would be useful to give you 
a more exhaustive answer and briefing on that from our 
technical experts in the vehicles program.
    Senator Salazar. Let me ask a question on cellulosic 
ethanol. I know that in last year's legislation, we created 
loan guarantees for projects such as cellulosic ethanol 
demonstration plants, and I know that Senator Craig, for 
example, has been working with the White House and the 
Department of Energy to try and get a company to establish a 
commercial facility in Idaho. And there have been, as I 
understand it, some problems in terms of getting to the point 
where we have a functioning set of rules that are pushing 
forward with those loan guarantees that would make that kind of 
a project feasible. Can you comment on whether or not, within 
the legislation that we have here, there are additional 
incentives that would help us move forward, and make those kind 
of incentives for cellulosic ethanol a greater possibility?
    Mr. Karsner. Yes, sir. I think that the title XVII, and to 
a lesser extent, the title XV program, are both sufficient to 
stand up a loan guarantee program. Under Secretary Garman has 
testified on this and he has really led this effort within the 
Department of Energy to stand up a program. And I believe that 
they announced that they are hopeful that they will begin 
taking applications on that prior to the year end. For our own 
part, within the Energy Efficiency and Renewable Energy Office, 
we are seeking to exhaustively vet those technologies that 
might be available and applicable to a loan guarantee program 
at the point that it stood up. In other words, we are seeking 
to parallel process so that applicants are ready and able at 
the point that the Government is ready and able to take those 
applications.
    Senator Salazar. OK. I will only make one closing comment 
here and that is that during Monday's hearing of the Energy 
Committee on the implementation of the 2005 legislation, which 
this committee authored, the Director of NREL and one of his 
subordinates said that they were confident that we would be at 
a point within 6 years where we could commercially move forward 
with cellulosic ethanol. He also said very clearly that he 
thought that we had the technology to be able to get to the 
point where 70 percent of our oil was being replaced by biomass 
fuels by the year 2030. And I continue to believe that that is 
a huge opportunity for us, along with all the other items that 
we have on our menu, including oil shale in my State and a 
whole host of other things that the chairman is very interested 
in. Our hope in drafting the provisions of this bill is that we 
would help move the realization of that vision and that agenda 
forward, which the President started out with in referring to 
it in his State of the Union message. So, I thank you for your 
testimony, Mr. Karsner.
    Mr. Karsner. Thank you, sir.
    The Chairman. All right. Thank you very much, Senator.
    While we are moving toward the next set of witnesses, I 
would like to state for the record to clarify some of the 
questions that have been put forward with reference to a status 
of loan guarantees, which were prescribed in the statute that 
we adopted as part of our 1985 overall law. And let me state 
for the record that I guess it would be fair to say that I am 
embarrassed to state for the record and it's not to ask this 
witness, it's merely to make a statement, that the Department 
is not ready to issue any loan guarantees, as prescribed in the 
law, as the major method of funding innovative technology 
because there has been a major battle between the OMB and the 
Department that has not been resolved to this point.
    Now, it is on the way to resolution. I can say that to my 
fellow Senators. It is close. I will tell you that it will be 
resolved soon or something will be resolved, I will assure you 
of that.
    I haven't figured out what that resolution will be yet, but 
there are a lot of ways to skin a cat around here and this cat 
will be skinned. There will be loan guarantees and a loan 
guarantee office in the Department of Energy under the law or 
something will happen, because it was prescribed to be one of 
the major ways to take advantage of the high price of crude 
oil. I mean, anybody understands the high price of crude oil is 
an invitation to investment, but the investment is negated by 
the fear that the price will fall again and you need the 
incentive to help precipitate and pursue that investment more 
vigorously.
    One way being discussed is some kind of a modulation of it 
by floor. That's going to hit us pretty soon. There is a very 
big discussion of establishing a floor on crude oil for certain 
industries to go with coal, the coal to liquid to diesel.
    The other way is a large use of loan guarantees, and they 
aren't ready. So it is embarrassing that that was how we 
intended to avail ourselves of this opportunity. And anybody 
sitting out there saying, ``Oh, it will happen, of course it 
will happen,'' it will happen because the price is so high, but 
it will happen much more vigorously if we put the incentives in 
place contemplated by Congress. And I am very, very embarrassed 
that the administration is in this hiatus. And it just cannot 
stay there very much longer. It's got to be resolved. Now, 
that's not your fault, sir. And we could have certainly given 
you hell about the fact that you have no loan guarantees 
available. I already knew that, but there is no use beating up 
on you. You know it better than I. You said Secretary Bodman 
wants to have it a stand-up agency by the end of the year; 
right? You made that statement?
    Mr. Karsner. Right.
    The Chairman. That may never happen if the OMB does not 
shape up. I think they may be on the way now. They have a 
deputy around here that's got to be confirmed. That fellow has 
no chance. He won't even appear before us here. He won't even 
see this table, the way things are going right now. He already 
knows that. Having said that, I think we're going to move on.
    Senator Craig. Mr. Chairman?
    The Chairman. Yes, sir?
    Senator Craig. I'm coming late to the theatre, and I 
apologize, but I do want to tell you and the committee--I was 
visiting with Senator Salazar earlier in the morning--I met 
with Director Portman and OMB staff this week. It was a closed 
meeting for the very purpose of allowing me to express my full 
emotion as it relates to the conflict--I'm using that word--of 
differences going on between DOE and OMB as to how to do loan 
guarantees.
    The Chairman. Good.
    Senator Craig. And I've suggested that if they can't do it, 
we'll hire an outside firm to come in and do it for you, 
because there is a substantial amount of finger-pointing at 
this moment. It's coming from both sides. Here is what the 
Director told me. He was going to put a stop to that. He is 
working directly with DOE as we speak. He is fully engaged in 
this and he is going to complete it as rapidly as he can. It is 
on the top of his priority list. So I would suggest that 
between you and probably the ranking member and--I know that 
all of us have been involved in it. We got involved in this 
discussion this morning before the Foreign Affairs Committee, 
with Senator Lugar. He has dug into it. Why? For all the 
reasons you just gave. When we promise new energy policy, of 
the value and the kind that we're talking about, to get out on 
the edge of these new technologies, and our Government wants a 
promise, but can't deliver, then we have to figure out why it 
can't.
    Thank you for being as persistent as you are. We will work 
with you on it, and maybe collectively we can get it done, and 
at the same time, in talking with Secretary Bodman, if he gets 
it right in the sense that he says, ``I don't want a program 
out there that just starts putting money at every technology.'' 
Some work, some won't work. Money spent, money wasted, projects 
gained, new technologies brought online--all of those are 
factors in a good vetting process that allows us to make sure 
the money that we put out there or assist in putting out there 
gets to the right project.
    The Chairman. Right. That's right. We're glad you arrived. 
You surely added the right conclusion to these remarks. I can 
tell you that everything you just said does not lead to the 
conclusion that the only institution that knows how to decide 
how to let this happen properly is the OMB.
    Senator Craig. Oh, I agree.
    The Chairman. That's impossible. I mean, if there is no 
other way to do it, then we are in deep you-know-what, because 
they don't want them. There are many of them over there that 
don't even want to do them, so when you write them up and say, 
``Do it,'' and then they don't want to do it, it's pretty 
messy.
    Senator Craig. Yes.
    The Chairman. I sure thank you and I'm sorry we had to do 
this in front of you. I hope you have a very good day.
    Mr. Karsner. Oh, no. It has helped with my assignment, sir.
    Senator Bingaman. Mr. Chairman, maybe I should speak up for 
the administration here.
    [Laughter.]
    Senator Bingaman. But I'll withhold, since I don't really 
have any defense to give.
    The Chairman. I bet. You better not. You certainly have 
had--by having this hearing, I've looked with great favor upon 
you. And that you dare to defend them today, that would be the 
end.
    [Laughter.]
    The Chairman. On this issue----
    Senator Bingaman. I certainly wouldn't want to defend them 
on this or any other issue.
    The Chairman. Thank you, sir.
    Mr. Karsner. Thank you, sir.
    The Chairman. All right, let's get the next witnesses. I 
didn't know you were on it, too.
    Mr. Callahan. Oh! The vote has started. Do you want to 
start that panel or do you want to----
    The Chairman. Yes, let's get--we're sorry. Right now, with 
you in your places, we have the clock saying that we have to 
vote. So we're going to acknowledge your presence and make sure 
everybody knows who you are.
    Dan Lashof, senior scientist with the Natural Resource 
Defense Council here in DC, thank you for coming. We look 
forward to hearing from you.
    Kateri Callahan; is that correct? Boy, I'm better today 
than usual. President of the Alliance to Save Energy, 
Washington, DC, thank you.
    And we have Steve Nadel, executive director of the American 
Council for Energy-Efficient Economy.
    Senator Bingaman, what do you think we ought to do at this 
point?
    Senator Bingaman. Mr. Chairman, I think we ought to get as 
much testimony as we can before that second bell rings.
    The Chairman. Right. Let's start, we're going to start now 
with you, Mr. Lashof. We have your written testimony. You 
proceed as you would like.

   STATEMENT OF DANIEL A. LASHOF, SCIENCE DIRECTOR, CLIMATE 
           CENTER, NATURAL RESOURCES DEFENSE COUNCIL

    Mr. Lashof. Thank you, Mr. Chairman and Senator Bingaman, 
for holding this hearing. Normally, I would, of course, begin 
by thanking you for having this important hearing at this time, 
but I would note that had you perhaps scheduled it this 
afternoon, we could be cheering the U.S. World Cup team now 
with some of our renewable energy. And I would just note 
quickly, Senator Bayh and Senator Coleman noted that we could 
learn some things from Brazil about their ethanol program. I've 
been told that their stock market closes when Brazil is playing 
in the World Cup, so maybe we want to follow that practice as 
well. But I am delighted to be here to discuss the Enhanced 
Energy Security Act, which NRDC strongly supports.
    Let me try to make five points this morning, quickly, with 
the help of three charts.
    First, President Bush was right when he said that we're 
addicted to oil and that is a serious problem. We are currently 
spending about $1.5 billion per day on oil, as has been noted 
earlier. Some of that money ends up in the hands of extremist 
groups that wish to do us harm. And as our colleagues in the 
Set America Free Coalition have said, America is, in effect, 
funding both sides of the war on terror and we need to stop 
doing that.
    Second, the United States can't drill its way to energy 
security and that is what this first chart shows. It shows 
world oil reserves. The United States is there on the right 
with just 2 percent of the world's oil reserves, compared with 
about 70 percent in OPEC countries.
    In contrast, we are responsible for about 25 percent of 
world oil demand and so that shows that our leverage in 
affecting the world oil market and becoming more secure is 
primarily through the demand side.
    Third, the Enhanced Energy Security Act, I believe, offers 
a critical opportunity to break the gridlock that is currently 
blocking meaningful reductions in oil dependence. Title I, in 
particular, would establish a firm oil savings target and hold 
government agencies responsible for achieving that target. But 
it provides unlimited flexibility about how that target is to 
be achieved. I think that is an innovation in the approach that 
is very commendable and I think that is the reason we've seen 
broad bipartisan support, 26 co-sponsors. That is S. 2025, 
which shares that same approach.
    Now, we've had testimony earlier from Mr. Karsner about 
whether or not it is sensible for the Government to legislate a 
target of that kind. I believe that it is critical. This is a 
national priority to reduce our oil dependence. I believe we 
have to have firm targets to require a detailed plan about how 
they will be achieved and then review that plan to see whether 
we are on track. Without that--I remember even back to the 1992 
Energy Policy Act. We passed some lovely aspirational targets. 
I believe the numbers were something like 30 percent of our 
petroleum was supposed to be replaced with alternative. I don't 
remember the number because they were not, in fact, taken 
seriously, because they were just aspirational. So we have 
not--without a rigorous plan to hold agencies accountable for 
actually hitting these targets, we simply will not make the 
progress we need to make.
    Now, in this second chart, I show that--and this is my 
fourth point--the oil saving targets in the bill are 
achievable. Again, Mr. Karsner raised some questions about 
that. This shows just one way we could achieve the targets, 
from a variety of technologies and vehicle fuel-efficiency 
levels, but also looking at replacement tires, heavy-duty 
trucks and medium-duty trucks, as well as certainly ethanol and 
other alternative fuels. Those add up to, by 2015, 3.2 million 
barrels a day. The target in the bill is 2.5 million barrels a 
day, so the potential exceeds that. And I would again emphasize 
this is just one way to get there that we looked at. Many 
people believe we could do much more with ethanol by 2015 or 
2017 than is shown here. That would be great. Then we could 
reduce the pressure to make as large of gains in other areas.
    I also note that there is technology coming along every day 
and when we make a national commitment, we'll see more. Just 
yesterday, UPS--with EPA--announced a new hydraulic hybrid 
delivery truck that gets a 70 percent improvement in fuel 
economy. That kind of technology, which I heard about for the 
first time--
    The Chairman. Who did that?
    Mr. Lashof [continuing]. Last night, is a dramatic 
innovation that could make a big difference.
    So let me just finish with my fifth point and that is, it 
is essential to reduce oil dependence and global warming 
emissions simultaneously. Mr. Chairman and Senator Bingaman, 
you both noted that today is the 1-year anniversary of the 
Senate resolution that you led us to adopting, calling for a 
program to reduce our global warming pollution that would be 
effective, and I think that is essential. Happily, S. 2747 
emphasizes approaches that do just that: simultaneously reduce 
both oil dependence and global warming and, certainly in this 
regard, the energy efficiency and renewable energy provisions 
of the bill are extremely important and we strongly support 
those. It would also reduce demand for natural gas and make a 
big difference there. But we do need to choose wisely.
    And my last point, which is shown in this chart. There are 
options that some people have advocated that could as much as 
double the global warming emissions per gallon of gasoline 
equivalent. I think we need to avoid those. We could do that by 
including in government incentive programs, whatever their 
nature, a performance standard that says that at least in 
looking at alternative fuels, it has to at least do better than 
the conventional gasoline that it would be intended to replace. 
Thank you very much.
    [The prepared statement of Mr. Lashof follows:]
   Prepared Statement of Daniel A. Lashof, Science Director, Climate 
               Center, Natural Resources Defense Council
                              introduction
    Thank you for the opportunity to testify today on the subject of 
enhanced energy security. My name is Daniel A. Lashof. I am the Science 
Director of the Climate Center at the Natural Resources Defense Council 
(NRDC). NRDC is a national, nonprofit organization of scientists, 
lawyers and environmental specialists dedicated to protecting public 
health and the environment. Founded in 1970, NRDC has more than 1.2 
million members and online activists nationwide, served from offices in 
New York, Washington, Los Angeles and San Francisco.
                                summary
    Today's energy use patterns are responsible for two growing 
problems that require urgent action to keep them from spiraling out of 
control--oil dependence and global warming. Both are serious; both 
warrant a much more proactive policy action than has occurred to date. 
Fortunately, we have in our tool box energy resource options that can 
dramatically reduce both oil dependence and global warming emissions, 
and policy options, such as the Enhanced Energy Security Act (S. 2747) 
and the Enhanced Energy Security Tax Incentives Act (S. 2748), to 
mobilize these solutions into action.
    The unsettling events of the past year--devastating hurricanes, 
accelerated melting of glaciers and ice sheets, steep price spikes at 
the gas pump, and rising tensions with oil-rich regimes--serve as a 
painful reminder that we are vulnerable and that security is now 
defined by factors much broader than simply our military defenses. Oil 
dependence poses a direct threat to our national security, our economy 
and our environment, and makes a substantial contribution to the urgent 
problem of global warming. As Secretary of State Condoleezza Rice noted 
in the recent Senate Foreign Relations hearing:

          ``We do have to do something about the energy problem. I can 
        tell you that nothing has really taken me aback more as 
        secretary of State than the way that the politics of energy 
        is--I will use the word warping--diplomacy around the world . . 
        . It is, of course, an energy supply that is still heavily 
        dependent on hydrocarbons, which makes more difficult our 
        desire to have growth, environmental protection and reliable 
        energy supply all in a package''.\1\
---------------------------------------------------------------------------
    \1\ U.S. Senate Committee on Foreign Relations Hearing, April 4, 
2006.

    The twin crises of oil dependence and global warming require an 
immediate and thoughtful response that will enable us to tackle both 
challenges together.
    There is strong bipartisan consensus around many of the solutions, 
most notably the Vehicle and Fuel Choices for American Security Act (S. 
2025). Diverse coalitions that cross the political spectrum have come 
together in asking for aggressive action to break our oil addiction.\2\ 
A majority of the Senate has also endorsed the need to address global 
warming with a comprehensive and effective national program of 
mandatory market-based standards and incentives on emissions of 
greenhouse gases. In red and blue states alike we hear deep concern 
about oil and a call to action for Washington to seriously address the 
energy challenge ahead. Most importantly, Americans overwhelmingly 
support strong action to address the core of the problem--our demand 
for oil--and federal standards to enable consumers to use less oil.
---------------------------------------------------------------------------
    \2\ Set America Free Coalition, www.setamericafree.org.
---------------------------------------------------------------------------
    The Enhanced Energy Security Act stands out by focusing on the 
efficient use of energy and clean, renewable alternatives, rather than 
measures that would prolong our addiction. While measures outside this 
committee's jurisdiction, such as improving vehicle fuel economy 
performance and transit, are essential to successfully addressing our 
dependence on oil, this bill provides the right foundation for energy 
security legislation to move America toward a less risky and more 
reliable energy future. NRDC also strongly supports the renewable 
portfolio standard provision in the bill, which passed the Senate last 
year, and the energy efficiency provisions.
America's Addiction to Oil Threatens our Security
    The central challenge to America's energy security is our 
dependence on oil and the web of geopolitical and economic forces that 
now govern access to and control of this increasingly costly and 
strategic global commodity. As we describe in our 2005 report 
``Securing America: Solving Oil Dependence through Innovation'' 
(attached for the record),\3\ our intense rate of oil consumption 
already poses a clear and direct threat to America's national and 
economic security, as well as our environment. With only 3 percent of 
global oil reserves, America's greatest leverage is reducing our demand 
for oil through innovation, efficiency gains and clean, renewable 
alternatives. To enhance our energy security we must stop enabling the 
addiction and begin to move America beyond oil.
---------------------------------------------------------------------------
    \3\ Natural Resources Defense Council, ``Securing America'' report, 
2005.
---------------------------------------------------------------------------
    ``America is addicted to oil'' the President said in his State of 
the Union. He was right. We consume nearly 21 million barrels of oil 
per day--a quarter of the world's oil production and more than China, 
India, Japan and all of South and Central America use combined--and 
rely on foreign suppliers for 60 percent of our daily oil needs. The 
U.S. also has by far the highest per capita oil consumption of all 
major countries.\4\ If we continue with business as usual, by 2025 we 
will import over 70 percent of the oil we need to power our economy.\5\ 
With limited domestic supply, the country that leaves itself most 
vulnerable is the one that is most dependent on the volatile global 
market for its basic energy needs--and that country is the U.S.
---------------------------------------------------------------------------
    \4\ B.P. Statistical Review of World Energy, June 2006, page 13.
    \5\ Energy Information Administration, Annual Energy Outlook 2006.

                    PROVEN OIL RESERVES THROUGH 2025
------------------------------------------------------------------------
                                                            Billions of
                                                              Barrels
------------------------------------------------------------------------
U.S.....................................................           23
Non-OPEC................................................          396
Middle East.............................................          727
OPEC....................................................          870
                                                         ---------------
    Total...............................................        1,266
------------------------------------------------------------------------
Source: Energy Information Administration, Annual Energy Outlook 2004

    First, our appetite for oil is unsustainable and it is shifting the 
balance of power toward oil rich suppliers (see figure above). The U.S. 
has just 3 percent of the global oil reserves, while the Middle East is 
home to two thirds of the world's oil.\6\ Today we have the luxury of 
importing large amounts of oil from friendlier nations such as Mexico 
and Canada but this luxury is fleeting. At current consumption rates, 
non-Organization of the Petroleum-Exporting Countries (non-OPEC) 
production is expected to peak and begin declining as early as 2015,\7\ 
which means that oil rich nations, especially those in the Middle East, 
will take even tighter control of the reins of the global oil market.
---------------------------------------------------------------------------
    \6\ B.P. Statistical Review of World Energy, June 2006, page 6.
    \7\ PFC Energy, Global Crude Oil and Natural Gas Liquids Supply 
Forecast, September 2004.
---------------------------------------------------------------------------
    Second, there is growing evidence that higher oil prices are here 
to stay. Most analysts agree that market fundamentals of high demand 
and limited supply, and not speculation or market hysteria, are the 
primary reason for today's high oil prices. These prices can be 
explained, in part, by continued growth in oil demand in the United 
States and explosive growth in Asia, especially China. Oil demand has 
grown a robust 5 percent since 2003, despite a doubling of oil prices 
during that period. It appears likely that global oil demand and tight 
global oil supplies will keep fuel prices high for the foreseeable 
future.
    There is also little spare oil production capacity to cushion a 
sudden loss in supply and the mix of easily extractable crude oil is 
moving away from ``light, sweet'' toward more ``sour'' grades that 
fewer refineries can handle. Considering these factors, oil prices may 
abruptly jump even higher, as happened during the first two oil crises 
of 1973-75 and 1979-81. Oil prices could also decline for short 
periods, but unlike during the last two oil crises, important oil 
market fundamentals now favor higher prices lasting for much longer-and 
perhaps becoming a permanent feature of the market.
    Moreover, oil suppliers are also less able to adequately cushion 
the market in the face of rising demand. Historically, producers were 
accused of holding back supplies when prices rose. But most industry 
experts agree that OPEC and other suppliers are now pumping at or near 
the upper limits of their capability. Indeed, there are concerns that 
rapid exploitation degrades the long term viability of some oil 
fields.\8\ Spare capacity, often used to cushion oil price spikes, is 
essentially gone.
---------------------------------------------------------------------------
    \8\ Simmons, Matt. Twilight in the Desert: The Coming Saudi Oil 
Shock and the World Economy, John Wiley & Sons (2005).
---------------------------------------------------------------------------
    Another reason to worry is that America's economy is already 
feeling the pinch of persistently higher oil prices. The run-up in oil 
prices, including the cost of the new ``fear premium'', exerts an 
inflationary impact on everyday goods and services, consumers are left 
with less disposable income after their trips to the pump, and 
businesses of all sizes (except the oil companies) are seeing shrinking 
profits in the face of pricier fuel. Oil imports now account for a 
quarter of the ballooning trade deficit.\9\ At an average cost of $70 
per barrel, we spend nearly $1.5 billion every day on oil and over $300 
billion annually just for oil imports. Former Federal Reserve Chairman 
Alan Greenspan has called the cost of oil a ``hidden tax'' on consumers 
and despite the economy's resilience to rising energy costs, the 
economy remains extremely vulnerable to supply disruptions and oil 
prices shocks in the global market, as we experienced in the aftermath 
of Hurricane Katrina.\10\
---------------------------------------------------------------------------
    \9\ Bureau of Economic Analysis, U.S. International Transactions, 
2006.
    \10\ U.S. Senate Committee on Foreign Relations Hearing, April 4, 
2006.
---------------------------------------------------------------------------
    Finally, above and beyond the direct cost of oil dependence, we 
invest billions of dollars annually to acquire and protect access to 
oil resources. According to recent estimates by the National Defense 
Council Foundation, the hidden military and economic cost of oil 
dependence is in the range of $800 billion annually and oil supply 
disruptions like those we experienced in the 1970's could cost the 
economy as much as $8 trillion.\11\ Moreover, our oil dependence has 
enormous environmental costs, including emissions of the greenhouse 
gases that cause global warming, air and water pollution, and the 
despoiling of pristine public lands.
---------------------------------------------------------------------------
    \11\ National Defense Council Foundation, Senate Foreign Relations 
Committee Testimony, March 30, 2006.
---------------------------------------------------------------------------
    On a global stage of energy winners and losers, America's over-
dependence on oil is now a liability that comes with costly 
consequences. One that is particularly dangerous is the connection 
between oil and terror. As we describe in the joint report with the 
Institute for the Analysis of Global Security (see attached), terror 
networks have clearly identified oil as the Achilles' heel of our 
economy and continue to carry out numerous attacks on oil 
infrastructure around the globe.\12\ The billions of dollars we export 
every year facilitates a massive transfer of wealth to oil suppliers 
that help finance terrorism and support the spread of hostile 
ideology.\13\ According to defense and national security experts, 
because of our oil dollars, America helps ``fund both sides of the war 
on terror''. Oil has become a strategic commodity that can easily be 
used against us.
---------------------------------------------------------------------------
    \12\ Institute for the Analysis of Global Security, www.iags.org.
    \13\ The Paradox of Plenty: Oil Booms and Petro-States, Studies in 
International Political Economy, No. 26, University of California, 
1997; Zakaria, Fareed, The Future of Freedom: Illiberal Democracy at 
Home and Abroad, Norton, 2004.
---------------------------------------------------------------------------
    To answer this multifaceted challenge of energy security we must 
pursue solutions that will tackle the core of the problem--our demand 
for oil--and make new policy commitments, such as the Enhanced Energy 
Security Act (S. 2747), that will offer lasting relief to consumers and 
clean, renewable energy alternatives. Scaling back our appetite for oil 
is essential to safeguarding our national security, economy and 
environment.
                transportation drives our oil addiction
    We are singularly dependent on oil to fuel our economy and the 
transportation sector drives our addiction. Today transportation is 
responsible for more than two-thirds of total U.S. oil demand; our 
passenger vehicles account for forty percent of total demand.\14\
---------------------------------------------------------------------------
    \14\ Energy Information Administration, Annual Energy Outlook 2006.
---------------------------------------------------------------------------
    Moreover, our transportation system is 97 percent reliant on oil 
and will account for 80 percent of our projected oil demand growth over 
the next two decades. There are several reasons:

   First, we are taking more trips. More Americans rode trains 
        and buses 80 years ago, and transit use spiked during World War 
        II. Then it plummeted, leveling off at less than half of its 
        peak level. Meanwhile vehicle miles traveled (VMT) climbed 
        steadily and is now three trillion miles per year.\15\ 
        Increasing travel by private vehicles is exacerbated by sprawl 
        and poorly designed communities that makes commutes longer and 
        traffic worse.
---------------------------------------------------------------------------
    \15\ Based on Federal Highway Administration and American Public 
Transportation Association figures.
---------------------------------------------------------------------------
   Second, the fuel economy of our light duty vehicle fleet is 
        stagnant. Thanks largely to the proliferation of inefficient 
        SUVs, improvements in fuel economy stalled in 1988 (see figure 
        below\15\a). The largest recent jump in performance 
        happened in the late 1970's, driven by policy and consumer 
        choices in reaction to embargoes and price run ups.\16\ Despite 
        significant technology innovation over the last two decades, in 
        the absence of higher standards fuel economy performance has 
        not advanced.
---------------------------------------------------------------------------
    \15\a1AAll graphs have been retained in committee files.
    \16\ U.S. EPA, ``Light-Duty Automobile Technology and Fuel Economy 
Trends: 1975 Through 2003''.
---------------------------------------------------------------------------
   Third, petroleum continues to dominate the transportation 
        fuel market. The popularity of biofuels is an extremely recent 
        phenomenon and despite booming growth in the industry, biofuels 
        account for just a few percent of the nation's total fuel use. 
        Of the 170,000 gas stations around the country, only 700 
        dispense E85 fuel, and consumer awareness about alternative 
        fuels is still low, even among owners of flexible fuel vehicles 
        (FFVs).\17\ Today there are 5.7 million FFVs on the road, less 
        than 2.6 percent of total vehicles, but even this small number 
        run on alternative fuels just 1 percent of the time. In fact, 
        FFVs currently increase our oil use, since automakers receive 
        excessive credits against their fuel economy standards for 
        producing these vehicles, regardless of how much alternative 
        fuel they actually use.\18\
---------------------------------------------------------------------------
    \17\ Energy Information Administration, National Petroleum News, 
May 2005.
    \18\ Report to Congress: Effects of the Alternative Motor Fuels Act 
CAFE Incentives Policy, Department of Transportation, Environmental 
Protection Agency, and Department of Energy, March 2002.

    The non-passenger vehicle fleet also contributes to the problem. 
Heavier vehicles ranging from 8,500 pounds to more than 33,000 pounds 
consume more than 2.8 million barrels of oil each day--more than we 
import from the Persian Gulf.\19\ The heaviest trucks, such as tractor-
trailers weighing more than 33,000 pounds, consume two-thirds of this 
energy, while lighter, shorter-range trucks use the remaining third. 
These vehicles could be 70 percent more efficient.\20\
---------------------------------------------------------------------------
    \19\ Calculation based on projections in EIA's Annual Energy 
Outlook 2003 for energy consumption by commercial light, medium and 
heavy trucks.
    \20\ Natural Resources Defense Council, ``Securing America'' 
report, 2005.
---------------------------------------------------------------------------
 oil demand and global warming pollution must be reduced simultaneously
    Oil dependence is a critical link between national security and 
global warming. The oil we burn in our cars and trucks is responsible 
for a third of U.S. global warming pollution. Passenger vehicles alone 
contribute 1.6 billion tons of carbon dioxide and 13 million tons of 
smog-forming emissions from tailpipes every year. The recent alarming 
trends of arctic melting, extended drought, and severe storms suggest 
that the effects of global warming are being felt more rapidly than 
expected.\21\ Global warming itself threatens the security of the 
United States not only by supercharging hurricanes, but also because it 
has the potential to destabilize regimes by creating millions of 
environmental refugees and intensifying conflicts over water resources 
in semi-arid regions.
---------------------------------------------------------------------------
    \21\ Natural Resources Defense Council, ``Global Warming Science 
Update YTD'', 2005.
---------------------------------------------------------------------------
    To avoid catastrophic global climate change the U.S. and other 
nations will need to deploy energy resources that result in much lower 
releases of CO2 than today's use of oil, gas and coal. To 
keep global temperatures from rising to levels not seen since before 
the dawn of human civilization, the best expert opinion is that we need 
to get on a pathway now to allow us to cut global warming emissions by 
60-80% from today's levels over the decades ahead. The technologies we 
choose to meet our future energy needs must have the potential to 
perform at these improved emissions levels.
    Most serious climate scientists now warn that there is a very short 
window of time for beginning serious emission reductions if we are to 
avoid truly dangerous global warming without severe economic impact. 
Delay makes the job harder. The National Academy of Sciences recently 
stated: ``Failure to implement significant reductions in net greenhouse 
gases will make the job much harder in the future--both in terms of 
stabilizing their atmospheric abundances and in terms of experiencing 
more significant impacts.'' \22\ In short, a slow start means a crash 
finish--the longer emissions growth continues, the steeper and more 
disruptive the cuts required later.
---------------------------------------------------------------------------
    \22\ National Academy of Sciences, Understanding and Responding to 
Climate Change: Highlights of National Academies Reports, p.16 (October 
2005), http://dels.nas.edu/dels/rpt_briefs/climate-change-final.pdf.
---------------------------------------------------------------------------
    The Enhanced Energy Security Act focuses appropriately on measures 
that would simultaneously reduce oil dependence and global warming 
pollution. The National Coal Council and others, by contrast, have 
proposed launching a massive program to replace oil with a synthetic 
liquid fuel produced from coal using a process known as Fischer-
Tropsch. Such a step would have devastating environmental consequences: 
potentially doubling carbon dioxide emissions per gallon of gasoline 
replaced, and increasing the devastating effects of coal mining felt by 
communities and ecosystems stretching from Appalachia to the Rocky 
Mountains.\23\ Fortunately, we have better, less controversial options 
that can reduce our oil dependence more quickly, more cheaply, and more 
cleanly than coal-to-liquids.
---------------------------------------------------------------------------
    \23\ NRDC Senate Energy Committee testimony on coal liquefaction, 
April 14, 2006.
---------------------------------------------------------------------------
    To assess the global warming implications of alternative fuels we 
need to examine the total life-cycle or ``well-to-wheel'' emissions. 
Coal is a carbon-intensive fuel, containing almost double the amount of 
carbon per unit of energy compared to natural gas and about 20 percent 
more than petroleum. When coal is converted to liquid fuels, two 
streams of CO2 are produced: one at the coal-to-liquids 
production plant and the second from the exhausts of the vehicles that 
bum the fuel. With the technology in hand today and on the horizon it 
is difficult to see how a large coal-to-liquids program can be 
compatible with the low-CO2-emitting transportation system 
we need to design to prevent global warming.
    Today, our system of refining crude oil to produce gasoline, 
diesel, jet fuel and other transportation fuels, results in a total 
well-to-wheels emissions rate of about 27.5 pounds of CO2 
per gallon of fuel. Based on available information about coal-to-
liquids plants being proposed, the total well-to-wheels CO2 
emissions from such plants would be about 49.5 pounds of CO2 
per gallon--twice as high as conventional petroleum based fuels.\24\
---------------------------------------------------------------------------
    \24\ Calculated well to wheel CO2 emissions for coal-
based ``Fischer-Tropsch'' are about 1.8 greater than producing and 
consuming gasoline or diesel fuel from crude oil. If the coal-to-
liquids plant makes electricity as well, the relative emissions from 
the liquid fuels depends on the amount of electricity produced and what 
is assumed about the emissions of from an alternative source of 
electricity.
---------------------------------------------------------------------------
    Even if the CO2 from coal-to-liquids plants is captured, 
well-to-wheels CO2 emissions would still be higher than 
emissions from today's crude oil system. Capturing 90 percent of the 
emissions from coal-to-liquid plants would lower plant emissions to 
levels close to petroleum production and refining, while vehicle 
emissions would be equivalent to those from gasoline. However, even 
with CO2 capture, the well-to-wheels emissions would be 8 
percent higher than from petroleum.
    This comparison indicates that using coal to produce a significant 
amount of liquids for transportation fuel would not be compatible with 
the need to develop a low-CO2 emitting transportation 
sector. Liquid fuel from coal contains the same amount of carbon as 
gasoline or diesel made from crude, so the potential for achieving 
significant CO2 emission reductions compared to crude is 
inherently limited. Biofuels, especially cellulosic ethanol, offer much 
greater potential to reduce oil dependence and cut CO2 
emissions. We already use ethanol in our fuel supply and significant 
investments are pouring into the biofuels industry to help it grow. 
Renewable biofuels are a cheaper, cleaner and more readily available 
alternative that could displace imported oil, help revitalize the rural 
economy, and lower CO2 emissions.
    Transforming our transportation sector by mobilizing the use of 
efficient technologies, diversifying fuel choices at the pump to 
include clean, renewable fuels, and offering mass transit options for 
commuters, such as light rail, is essential to ensuring that our 
pursuit of energy security also enables us to tackle the urgent 
challenge of global warming.
    Fortunately, technology is available today that can give us a 
robust and effective program to reduce oil dependence. To cut our 
dependence on oil we should follow a simple rule: start with the 
measures that will produce the quickest, cleanest and least expensive 
reductions in oil use; measures that will put us on track to achieve 
the reductions in global warming emissions we need to protect the 
climate. As we describe in the attached report, a combination of more 
efficient transportation, biofuels, ``smart growth'' policies and oil 
savings measures in other sectors, could reduce our oil demand by as 
much as 40 percent by 2025 (see ``oil savings toolbox'' below).

                 TECHNOLOGICALLY ACHIEVABLE OIL SAVINGS
                        [million barrels per day]
------------------------------------------------------------------------
                   Oil Savings Measures                      2015   2025
------------------------------------------------------------------------
Raise fuel efficiency in new passenger vehicles through      1.6    4.9
 tax credits and standards................................
Accelerate oil savings in motor vehicles through
    fuel efficient replacement tires and motor oil........   0.5    0.6
    efficiency improvements in heavy-duty trucks..........   0.5    1.1
Accelerate oil savings in industrial, aviation, and          0.3    0.7
 residential sectors......................................
Encourage growth of biofuels industry through                0.3    3.9
 demonstration and standards..............................
                                                           -------------
        Total Oil Saved...................................   3.2   11.2
------------------------------------------------------------------------
See Appendix for complete analyses.

    The Enhanced Energy Security Act (S. 2747) creates a solid 
foundation for tackling the core challenge of growing oil demand, and 
the companion tax bill provides needed incentives to help consumers and 
industry play an active role in bringing innovative, efficient 
technologies and renewable energies to market sooner. Given the breadth 
of the legislation, the following discussion focuses largely on 
provisions of the bill related to oil dependence. NRDC looks forward to 
working with the committee to perfect and help enact the legislation.
      congress should set clear targets and demand accountability
    Breaking our oil addiction requires mobilizing American ingenuity, 
factories and farms around a clear goal. The first step Congress must 
take is to make a binding national commitment to oil savings. If the 
past is any indicator of success for such a commitment, this savings 
goal is achievable. During world war II, American factories converted 
in just months from building cars to building tankers and bombers that 
became the arsenal of democracy. And after the first oil crisis in the 
early 1970s, America slashed its oil imports and saved billion of 
dollars in fuel costs to keep our economy strong. From biofuels to 
hybrid vehicles, we have the technology today to make significant 
reductions in our oil demand.
    S. 2747 would establish the critical foundation of oil savings, 
starting with a commitment to reduce oil consumption by 2.5 million 
barrels of oil per day in ten years, and provide a set of tools and 
incentives to help achieve these goals. Crucially, the bill also 
ensures that the oil savings target is not merely aspiration by 
establishing a rigorous process for ensuring that the nation gets on 
track--and stays on track--to meeting the requirement.
    We recommend the following policy measures to achieve the oil 
savings commitments that would be established by S. 2747. Although we 
recognize that not all of these measures are within the jurisdiction of 
the Energy Committee, we recommend that final oil savings legislation 
incorporate this complete toolbox in order to provide the greatest 
possible flexibility in the means for achieving the targets.
Accelerate Oil Savings in Transportation

   Raise fuel economy performance standards for passenger cars 
        and light trucks;
   Provide domestic automakers and suppliers with incentives to 
        retool factories and produce more efficient, advanced 
        technology vehicles, such as hybrids and advanced clean diesel, 
        to regain competitiveness with foreign rivals and keep jobs and 
        profits in the U.S.;
   Establish minimum efficiency standards for heavy trucks and 
        replacement tires;
   Reduce vehicle miles traveled (VMT) through increased 
        funding for transit and transit-oriented development; and
   Enable private fleet owners and consumers to use less fuel 
        by offering incentives for fleet turnover and extending EPACT 
        consumer tax incentives for hybrid vehicles.
Expand Fuel Choices though Clean, Renewable Biofuels

   Increase EPACT production goals for cellulosic biofuels to 1 
        billion gallons by 2016;
   Require that areas with access to biofuels and registered 
        flexible fuel vehicles (FFVs) require fuel stations to install 
        E85 pumps and provide incentives to offset capital costs of new 
        pumps;
   Make every new vehicle flexible fuel capable and phase out 
        the federal fuel economy loophole for dual-fuel cars and 
        trucks;
   Implement and fully fund cellulosic biofuels production 
        incentives authorized by EPACT; and
   Ensure that alternative transportation fuels perform better 
        than gasoline in reducing ``well-to-wheels'' emissions of 
        carbon dioxide.
Increase Energy Savings in Industry, Aviation and the Residential 
        Building Sector

   Expand industrial efficiency programs to focus on oil use 
        reduction and adopt standards for petroleum heating;
   Replace chemical feedstocks with bioproducts through 
        research and development and government procurement of 
        bioproducts;
   Upgrade air traffic management systems so aircraft follow 
        the most-efficient routes; and
   Promote residential energy savings with a focus on oil-heat.

    Many of the necessary reforms are already included in the broadly 
supported Vehicle and Fuel Choices for American Security Act (S. 2025), 
as well as the bill before this committee.
    Most importantly, the Enhanced Energy Security Act includes a 
meaningful framework for oil savings. The bill provides helpful new 
programs to develop new vehicle technology, such as plug-in hybrids and 
lightweight materials, and accelerate the turnover of inefficient cars 
and trucks. The bill provides needed incentives for oil saving 
technologies, as well, such as cellulosic biofuels and advanced 
technology vehicles, and increased funding authorization for cellulosic 
biofuels. The companion tax legislation would help domestic automakers 
retool and produce more fuel efficient vehicles, assist private fleet 
owners in purchasing these cars and trucks, and help truckers install 
idling reduction equipment to reduce fuel use.
    However, the Enhanced Energy Security Act and the companion tax 
legislation contain several omissions that should be addressed. 
Specifically, the retooling incentives for auto manufactures and 
suppliers should be consistent between the authorizing and tax 
legislation (Section 208 of S. 2747 and Section 202 of S. 2748) in 
requiring sustained improvements in fleetwide fuel economy for 
automakers that take advantage of the production incentives, and Tier 
II, Bin 5 emissions compliance for all qualifying vehicles. This would 
help ensure adequate air quality protection and actual fuel savings in 
return for public dollars.
    The bill could also better address the problem of oil dependence by 
incorporating additional measures for transportation efficiency and 
biofuels infrastructure, which are essential to reducing oil 
dependence. Unlike S. 2025, the oil savings toolbox in this bill is not 
complete, and although some of these provisions fall outside this 
committee's jurisdiction, the following measures should be included to 
provide the tools necessary to achieve oil savings. We look forward to 
working with the committees to adopt these and other improvements to 
the bill.
Increased Fuel Economy Performance for Light Duty Vehicles
    A key solution to oil dependence is raising the efficiency of cars 
and trucks. When Congress first enacted fuel economy standards in 1975 
in response to rising gas prices and the OPEC oil embargo, Corporate 
Average Fuel Economy standards (CAFE) succeeded in doubling the fuel 
economy of American vehicles in just ten years. This helped drive the 
oil intensity of our economy down by about one-third, providing better 
insulation from today's high prices.
    The program also resulted in a substantial reduction in the 
nation's oil dependence. According to the National Research Council, 
had we continued to use oil at the same rate, today we would be 
consuming 40 percent more gasoline and 3.8 million barrels or nearly 20 
percent more oil.\25\
---------------------------------------------------------------------------
    \25\ National Research Council, Effectiveness and Impact of 
Corporate Average Fuel Economy (CAFE) standards, Washington, D.C. 2002.
---------------------------------------------------------------------------
    In the context of higher prices, fuel savings technologies are 
vital to the future of domestic automakers and suppliers. As we noted 
in our ``In the Tank'' report in 2005, automakers stand to lose 
substantial market share, profit and jobs if they do not make fuel 
economy a top priority.\26\
---------------------------------------------------------------------------
    \26\ University of Michigan and Natural Resources Defense Council, 
``In the Tank'' report, 2005.
---------------------------------------------------------------------------
    NRDC strongly supports the recently introduced ``Ten-in-Ten Fuel 
Economy Act'' as a critical part of our nation's strategy for 
addressing the urgent challenges of oil dependence and global warming. 
The bill would guarantee that we save 2.5 million barrels of oil per 
day by 2025 and reduce tailpipe emission of carbon dioxide by 420 
million metric tons.
Efficiency Standards for Tires and Heavy Trucks
    Tires may look similar, but some models are more fuel-efficient 
than others, while having comparable or superior braking, tread life 
(longevity), and other important performance attributes. The small 
incremental cost of fuel-efficient replacement tires compared with 
average tires sold in the replacement market quickly pay for 
themselves, and could easily save consumers at least $36 a year by 
boosting the fuel economy performance of their vehicle by 2 to 4%--a 
potential annual savings of $6 billion nationally. Despite the clear 
benefits, only new cars are routinely equipped with these tires and 
they are not widely available in the replacement market. Congress 
should grant authority to set minimum tire efficiency standards. 
Replacement tires should not only be labeled, but also optimized for 
fuel efficiency so consumers can take advantage of an easy way to save 
fuel.
    Improving the fuel economy of heavy-duty trucks offers a major 
opportunity for oil savings. All truck classes can benefit from fuel-
efficiency gains from current and emerging technology. Technology 
assessments by the American Council for an Energy-Efficient Economy 
(ACEEE) found that truck fuel-efficiency advances up to 70 percent are 
cost-effective. In addition to tax incentives for purchases of idling 
reduction equipment, Congress should grant authority to set minimum 
efficiency standards for medium and heavy duty trucks.\27\
---------------------------------------------------------------------------
    \27\ Langer, Therese, Report to the National Commission on Energy 
Policy ``Energy Savings Through Increased Fuel Economy for Heavy-Duty 
Trucks,'' 2004.
---------------------------------------------------------------------------
Transit
    Oil dependence is one more reason to pursue smart-growth as an 
alternative to suburban sprawl and to expand Americans' transportation 
options. The potential for smart growth oil savings is immense. If all 
new construction were built in a similar fashion to existing smart 
growth developments, the nation would save over half a million barrels 
of oil per day after 10 years of construction. The attached report 
identifies ways for Congress to support local smart growth policies to 
reduce VMT and achieve oil savings.
            Renewable Energy and Energy Efficiency is Essential to 
                    Overall Energy Security
    NRDC strongly supports the renewable portfolio standard provision 
of the Enhanced Energy Security Act. This provision, which passed in 
the Senate's version of the Energy Policy Act of 2005, would be a major 
step forward in promoting clean renewable energy in the United States.
    NRDC also supports the energy efficiency provisions. The financial 
incentives program for high-efficiency products is an excellent idea, 
which is similar to the Golden Carrot program NRDC developed in 
collaboration with utilities, state energy offices and EPA to promote 
the design and manufacture of a high-efficiency refrigerator. We 
recommend that the high-efficiency products provision be strengthened 
by 1) giving EPA the authority to make the awards, since EPA has more 
experience than DOE in this area, 2) authorizing a specific dollar 
amount for the program, 3) requiring that the products actually be in 
production before giving the money to the manufacturers, and 4) 
requiring that the award be for products that achieve a certain minimum 
percentage of energy savings. This last requirement is necessary to 
exclude bids for very modest, but cheap, energy savings, which can be 
acquired more easily through other programs. This program should be 
limited to technologies that advance the state of the art.
    NRDC also supports a federal energy efficiency resource program, 
which would require that electric utilities save a certain percentage 
of their consumption through energy efficiency programs. The energy 
efficiency resource program provisions in the Enhanced Energy Security 
Act should be strengthened by placing the requirement on the utilities 
instead of leaving the decision of whether to establish such a 
requirement to state public utility commissions.
Energy Efficiency Provisions of the Enhanced Energy Security Tax 
        Incentives Act
    Some 1.5 million barrels of oil per day are consumed in buildings 
where savings of 30%-50% and more are cost-effective and can be 
facilitated by tax incentives. NRDC strongly supports extending energy 
efficiency tax incentives extensions, as is done in the Enhanced Energy 
Security Tax Incentives Act. However, there are now better alternatives 
for some of these incentives that are more meaningful and more cost 
effective. The original EPAct incentives for retrofitting homes and for 
solar energy are based on the cost of the measures rather than their 
performance. This structure was tried in the 1970's for both efficiency 
and solar, and it was an expensive failure. NRDC has concerns about 
adding the tax credit for 30% energy savings in new homes. Almost all 
of the 200,000 homes constructed in California annually already save 
about 28% on average, so this provision could be costly. NRDC supports 
the existing homes and solar energy incentives language that will soon 
be introduced by Senators Snowe and Feinstein. The Snowe-Feinstein bill 
would create new performance-based incentives for retrofit of both 
owner-occupied homes and rentals, while also extending the EPACT 
incentives for 2 years.
                               conclusion
    NRDC is pleased to endorse S. 2747 and S. 2748, which provide an 
excellent foundation for breaking America's addiction to oil, reducing 
natural gas demand, and curbing global warming. By establishing an 
enforceable national commitment to oil savings and providing flexible 
tools for achieving it, these proposals point the way to breaking the 
energy policy gridlock that we are stuck in today. Congress should 
seize this opportunity to increase our security, strengthen our 
economy, and protect our environment.

    The Chairman. Thank you very much. We've got just minutes 
left on this vote. We are going to vote now and return and it 
will be your turn then. We stand in recess.
    [Recess.]
    Senator Bingaman [presiding]. Why don't we go ahead again. 
We apologize for the interruption. Senator Domenici still has 
to stay on the Senate floor to speak on one of the amendments 
that is pending on this defense bill, so he asked me to come 
back and proceed with the rest of the testimony here.
    Kateri, why don't you go right ahead. Your full statement 
will be included in the record and we are glad to hear your 
summary or whatever you would like to say.

           STATEMENT OF KATERI CALLAHAN, PRESIDENT, 
                    ALLIANCE TO SAVE ENERGY

    Ms. Callahan. Great. Thank you, Senator Bingaman. I am 
Kateri Callahan and I serve as the president of the Alliance to 
Save Energy, which, as you know, is a bipartisan, non-profit 
coalition of more than 100 businesses, governments, 
environmental and consumer groups who promote energy efficiency 
around the world.
    I would like to start, Senator, by thanking you for the 
leadership that you provide and Senator Dorgan, who is on our 
Board of Directors, also to express our appreciation for the 
leadership of this committee in beginning to make energy 
efficiency a true cornerstone of energy policy. In the Energy 
Policy Act of last year, just one of the provisions, the 
appliance standards, will result in energy savings and dollar 
savings for consumers of $63 billion by 2020. So it has been 
very good working with you in advancing energy efficiency.
    Notwithstanding, however, all of this good progress that 
has been made, we believe there is a need for additional 
government policies to advance energy efficiency, particularly 
in the transportation sector. So we are very delighted about 
the innovative measure that you have introduced as S. 2747 and 
we are pleased to support and endorse that legislation.
    The question facing our country is twofold--and Senator 
Domenici alluded to this earlier in the day. First, and 
urgently, we need to address today's high energy prices, which 
are causing plant closings and the loss of jobs, and 
contributing to a general malaise in consumers, coast-to-coast. 
But the second, and I would argue equally important, question 
is what Federal policies can be put in place today to insulate 
us against all of the future threats we have to our economy, 
our environment and our energy security because of our enormous 
and growing thirst for energy.
    We think the first and central answer to both of those 
questions is energy efficiency as our Nation's greatest energy 
resource. It has a proven track record. We now save more energy 
every year than is provided to us by any other single resource. 
And if the Congress and the States hadn't taken the actions 
that they had since 1973, we would need 43 percent more energy 
today to fuel our economy. The good news, though, is that we 
haven't wrung out of energy efficiency everything that we can. 
Our national labs did a study a couple of years ago and they 
believe that we could essentially halt the growth in our energy 
consumption in 20 years just by putting in place energy 
efficiency programs. So it is doable and it is doable with 
technologies and practices available to us today.
    The first place to start, as I mentioned, is transportation 
because, in our view, that was the largest gap in EPAct 2005. 
We've done a study of it, Senator, and we believe that, on 
balance, that bill will save no oil whatsoever. S. 2747 puts in 
place aggressive targets for national oil savings. We very much 
support those. However, I know the numbers that Dan doesn't, 
because I was around for EPAct 1992. There were goals in that 
bill, very important goals, of saving 10 percent of the use of 
transportation fuel by the year 2000 and 30 percent by 2010. 
Well, we are still today, in 2006, at 97 percent dependency in 
the transportation sector. So we think the surest way to oil 
savings would be through increases, reforms and CAFE standards, 
but we understand that is problematic in the Congress, even 
though the majority of Americans support it. It is also outside 
of the jurisdiction of this committee. So the novel approach 
that we would like the committee to look at is a vehicle 
feebate program.
    The idea is simple. You would provide a rebate for fuel-
efficient vehicles that is paid for by a fee on gas guzzling 
vehicles. A feebate would encourage manufacturers to put more 
fuel-efficient technologies in their vehicles and it would 
encourage consumers to buy those vehicles. There are three 
important benefits that I want to mention to the approach. It 
is revenue neutral; the fees would pay the rebates, so no cost 
to the government; and it is market-based, you can align 
consumer preferences with manufacturers' technology capability 
and with national policies. The nice thing about it, too, I 
think, is it would provide continual improvement. One act by 
Congress would result in putting in place a program that would 
continually increase the fuel economy of vehicles as the mid-
point rose higher and higher into the future.
    I'm going to run out of time here in a minute, so let me 
just say that we also appreciate and support that S. 2747 is 
focused on saving natural gas. I think Steve Nadel is going to 
talk here about the renewable portfolio standard and things we 
would like to see done to expand so that energy efficiency 
resources can be used effectively to help take us off of 
conventional fuels in the electricity sector. And while it is 
out of the jurisdiction of this committee, I wanted to mention 
that, because I can't let this opportunity pass, we think it is 
critically important to extend the energy tax incentives that 
you made available in EPAct 2005. We applaud your support and 
introduction of legislation, Senator Bingaman, to do just that 
and we will work with you on it.
    Consumers and businesses in this country have been hit by 
the worst energy price shocks in years and, according to the 
polls, we see half the people in the country are spending less 
on other household needs and goods because they are having to 
spend more on energy. So the polls are telling us something 
needs to be done now, but fortunately, the polls are also 
saying that people want the Congress to focus more on long-term 
solutions than just dealing with today's energy crisis. So we 
think we have an opportunity now to enact significant energy 
efficiency provisions that do both. They tackle today's energy 
prices but they put us on a path for a sustainable energy 
future. Thank you.
    [The prepared statement of Ms. Callahan follows:]
  Prepared Statement of Kateri Callahan, President, Alliance to Save 
                                 Energy
    My name is Kateri Callahan and I serve as President of the Alliance 
to Save Energy, a bipartisan, nonprofit coalition of more than 100 
business, government, environmental and consumer leaders who promote 
energy efficiency worldwide to achieve a healthier economy, a cleaner 
environment, and greater energy security.
    The Alliance appreciates the leadership Senators Bingaman and 
Dorgan are providing as two of our Congressional Vice-Chairs, and we 
are grateful for the important work that this Committee has done, 
through design and enactment of last year's energy bill which included 
critical energy saving provisions, to begin to make efficiency a 
cornerstone of this nation's energy policy. The energy efficiency 
appliance standards alone in EPACT will result in more than $63 billion 
dollars in consumer savings on energy bills by 2020.
    Notwithstanding, however, these positive steps, the need for 
additional government policies to advance energy efficiency--
particularly in the transportation sector--have never been greater so 
we are pleased that the Committee is considering new, important 
measures like Senator Bingaman's Enhanced Energy Security Act of 2006, 
S. 2747, which the Alliance supports.
    The question facing our country is two-fold. First, and urgently, 
how can we best and most expeditiously tackle today's high energy 
prices which are causing plant closings and loss of manufacturing jobs, 
and contributing to the general malaise of consumers coast-to-coast. 
But the second, and more important question, I believe, is what federal 
policies can be put in place today to insulate our country against the 
looming economic, environmental and energy security threats arising 
from our enormous national thirst for energy.
    A first and central answer to both questions is to more fully use 
our nation's greatest energy resource--energy efficiency. Efficiency 
has a proven track record; we now save more energy each year through 
energy efficiency than we get from any single energy source, including 
oil. If we tried to run today's economy without the energy-efficiency 
improvements that have taken place since 1973, we would need 43 percent 
more energy than we use now. The very good news is that efficiency is 
the gift that keeps on giving. The National Laboratories have found 
that we could essentially halt the growth in energy consumption in this 
country within 20 years through aggressive policy support of energy 
efficiency.
    In our view the largest gap in the Energy Policy Act of 2005 was on 
oil savings and efficiency in the transportation sector. We estimate 
that last year's final energy bill--on balance--will save no oil at 
all.
    S. 2747 includes aggressive targets for national oil savings. While 
the Alliance supports these targets, we do not believe that enacting 
goals is enough. The Energy Policy Act of 1992, for example, included 
goals to displace 10 percent of light duty vehicle fuel by 2000, and 30 
percent by 2010 with alternative fuel; yet today, petroleum still 
accounts for 97 percent of transportation fuel. The Alliance believes 
administration action is needed, but Congress should not wait.
    Perhaps the surest route to oil savings would be through increases 
or reforms in CAFE standards, as in the bill introduced earlier this 
week by Senator Feinstein and others. Although there is near-universal 
support for boosting the standards among the public, the Alliance 
recognizes that CAFE standards are much more controversial in the halls 
of Congress, and are outside the jurisdiction of this committee.
    One novel approach to oil savings that could be within this 
committee's purview is a vehicle ``feebate.'' The idea is simple: 
provide a rebate for fuel-efficient vehicles that is paid for by a fee 
on gas guzzlers.
    A feebate would encourage manufacturers to use more fuel-efficient 
technologies in their vehicles, and encourage consumers to purchase 
more efficient vehicles. It would save consumers money in the long run, 
as the savings in gasoline should be greater than any added vehicle 
cost.
    There are three important benefits of this approach. It is revenue-
neutral, with the fees collected paying for the rebates provided. It is 
market-based, aligning consumer preferences with manufacturer abilities 
and national policy. And, it can yield continual improvement without 
further action by Congress or the Administration because as fuel 
economies increase, the dividing line between fees and rebates is 
automatically adjusted higher.
    S. 2747 also properly focuses on saving natural gas. Because 
supplies of natural gas are so tight in the United States, reducing 
demand for natural gas by just a few percent could yield significant 
price reductions over the next several years. S. 2747 includes a 
renewable portfolio standard, but many utilities have found that 
helping their customers to save a kilowatt hour of electricity is 
cheaper than producing that kilowatt hour from renewable sources or 
even from traditional sources. S. 2747 recognizes the potential of 
these programs with a provision from last year's Senate energy bill 
requiring state public utility commissions to consider policies to 
promote utility energy-efficiency programs. The Alliance strongly 
supports this provision, but would urge the committee to consider 
further federal action.
    And, while outside the jurisdiction of this committee, I cannot let 
an opportunity go by to emphasize the importance of extending and 
building on the tax incentives for energy-efficient buildings, 
equipment, and vehicles that were in EPAct 2005. These incentives have 
great potential to transform markets for energy-efficient technologies, 
but they are in effect for too short a time.
    Consumers and businesses in this country have been hit by the worst 
energy price shocks in many years. According to polls, about half of 
American households have cut back on other household spending because 
of energy costs. But polls also show that a large majority of Americans 
are rightly more concerned that Congress find long-term energy 
solutions than that Congress quickly address current prices. There is 
an opportunity now to enact significant energy-efficiency measures that 
can provide quick relief, but more importantly, will benefit the 
economy, the environment, and energy security for years and years to 
come.
                                 ______
                                 
                              introduction
    The Alliance to Save Energy is a bipartisan, nonprofit coalition of 
more than 100 business, government, environmental and consumer leaders. 
The Alliance's mission is to promote energy efficiency worldwide to 
achieve a healthier economy, a cleaner environment, and greater energy 
security. The Alliance, founded in 1977 by Senators Charles Percy and 
Hubert Humphrey, currently enjoys the leadership of Senator Mark Pryor 
as Chairman; Washington Gas Chairman and CEO James DeGraffenreidt, Jr. 
as Co-Chairman; and Senators Jeff Bingaman, Byron Dorgan, Susan Collins 
and Jim Jeffords along with Representatives' Ralph Hall, Zach Wamp and 
Ed Markey, as its Vice-Chairs. Attached to this testimony are lists of 
the Alliance's Board of Directors and its Associate members.
    The Alliance is pleased to testify at a hearing on legislation to 
promote energy efficiency. Despite some positive steps in the Energy 
Policy Act of 2005, the need for energy efficiency and the potential 
contribution of new energy-efficiency policies have never been greater.
                the need for energy-efficiency policies
    Gasoline and natural gas prices have doubled in the last few years, 
and electricity prices also reached all-time highs. All told, recent 
energy price increases cost American families and businesses over $300 
billion last year. These high prices have caused plant closings and 
loss of manufacturing jobs, and have made many low-income homeowners 
unable to pay their heating bills. President Bush recognized that our 
long-term energy security and environmental issues due to our wasteful 
use of fossil fuels are equally serious when he called for ending our 
``addiction'' to oil.
    The problems are likely to get worse. The Energy Information 
Administration projects that oil use in the United States will grow by 
another 7.5 million barrels a day by 2030, about one-third of current 
consumption. While there has been a great deal of attention recently to 
growing oil demand in China and India, it is worth noting that 
projected growth in oil demand in the United States is nearly as great 
as in China, and three times that of India. Natural gas use in the 
United States is projected to grow by a fifth by 2030, and electricity 
use by half. Such growth will lead to higher prices, greater 
volatility, and increasing dependence on foreign natural gas as well as 
foreign oil.
    Energy efficiency has the potential to slow the growth in demand 
significantly, and thus moderate the associated price volatility, 
energy security concerns, and environmental impacts. Energy efficiency 
is the nation's greatest energy resource--we now save more energy each 
year from energy efficiency than we get from any single energy source, 
including oil, natural gas, coal, and nuclear power. The Alliance to 
Save Energy estimates that if we tried to run today's economy without 
the energy-efficiency improvements that have taken place since 1973, we 
would need 43 percent more energy supplies than we use now. Much of 
these savings result from federal energy policies and programs like 
appliance and motor vehicle standards, research and development, and 
the Energy Star program. The existing car and light truck CAFE 
standards alone saved an estimated 2.8 million barrels of oil a day in 
2000.
    And tremendous, cost-effective, potential energy savings remain. 
Vehicle efficiency has continued to improve even after CAFE standards 
were largely fixed in the mid-1980's, but, paradoxically, vehicle fuel 
economy has actually gone down--the efficiency gains have been eaten up 
by increased weight and power. The EPA estimates that if automakers had 
applied the technology gains since 1987 to improving fuel economy, 
average fuel economy would be 20 percent higher. The National Research 
Council found that much greater vehicle efficiency gains are possible 
with existing, cost-effective technologies that have not been widely 
applied yet, not even including hybrid-electric engines. A 2000 study 
by several of the national labs found that overall the United States 
could save 19 percent of anticipated energy use by 2020, essentially 
halting growth in consumption. This includes 12 percent savings for 
natural gas, 21 percent savings for petroleum, and 24 percent savings 
for electricity.
                          oil savings measures
    Perhaps the largest gap in the Energy Policy Act of 2005 was on oil 
savings and efficiency in the transportation sector. The Alliance 
estimates that last year's energy bill, as it emerged from the 
conference committee, likely will save no oil at all, as the small 
savings from the hybrid-electric vehicle tax incentive and other 
provisions will be canceled out by increased gasoline use due to 
extension of the CAFE loophole for dual-fueled vehicles. Our dependence 
on foreign oil has steadily increased under the policies and programs 
in place today. If we truly wish to end our ``addiction'' to oil, 
Congress and the President must take further action.
    S. 2747, the Enhanced. Energy Security Act of 2006, includes 
aggressive targets for national oil savings, enough to make a real 
difference in oil markets and on our oil dependence. The Alliance 
supports these targets, but does not believe that passing fine goals is 
enough. Although the Energy Policy Act of 1992 included goals that 
alternative fuels would replace 10 percent of light duty vehicle fuel 
by 2000, and 30 percent by 2010, petroleum still accounts for 97 
percent of transportation fuel. While S. 2747 details procedures by 
which the administration is to achieve the goal, the Alliance believes 
greater support and likely additional legislation will be needed from 
Congress. Administration action is needed, but Congress should not 
wait.
    Perhaps the surest route to oil savings would be through increases 
or reforms in CAFE standards. Standards increases could be relatively 
quick, cost-effective, and could have a major impact on energy use. 
Although there is near-universal support for boosting the standards 
among the public, the Alliance recognizes that CAFE standards are much 
more controversial in the halls of Congress, and are outside the 
jurisdiction of this committee. Other smaller, but positive, measures 
in S. 2025 and tax provisions in S. 2748 also are outside this 
Committee's jurisdiction.
Vehicle ``Feebate''
    One new approach to oil savings that could be within the 
committee's purview is a vehicle ``feebate.'' The idea is simple: 
provide an incentive (rebate) to make and buy fuel-efficient vehicles; 
a premium (fee) on gas guzzlers will discourage that choice and pay for 
the incentives.
    In one approach the Department of Energy would apply a fee or 
rebate to the manufacturer of each new car and light truck. For each 
vehicle the amount would be based on the gallons of gasoline estimated 
to be used over the lifetime of the vehicle; the less gasoline a 
vehicle uses, the larger the rebate (or smaller the fee).
    The fee or rebate would then be determined relative to a dividing 
line, the midpoint mpg. The dividing line between fees and rebates 
would be set each year such that the total fees would just pay for all 
the rebates, so there would be no net revenue or cost to the 
government. Consequently, about half the vehicles would receive a 
rebate, and about half the vehicles would be assessed a fee. If you do 
not wish to influence the kind of vehicles customers buy, cars and 
trucks could be divided into several categories based on size, with a 
separate midpoint mpg for each category.
    A feebate would improve fuel efficiency because it would encourage 
manufacturers to use more fuel-efficient technologies in their 
vehicles, and encourage consumers to purchase more efficient vehicles. 
One study finds that a feebate slightly different from that described 
above would save 1.2 million barrels a day of oil by 2020; a larger 
feebate could save considerably more. Although improved technologies 
may increase the average price of cars and light trucks, the savings in 
gasoline should be greater than the added cost.
    There are several benefits to the feebate approach:

                  EXAMPLES OF POSSIBLE FEES AND REBATES
------------------------------------------------------------------------
                                         Fuel
               Vehicle                  Economy          Feebate
                                         (mpg)
------------------------------------------------------------------------
Toyota Prius.........................     55     $1177 rebate
Ford Escape Hybrid...................     33     $693 rebate
Honda Accord.........................     27     $423 rebate
                                      ----------------------------------
Midpoint mpg.........................     21     _
                                      ----------------------------------
Lincoln Town Car.....................     20     $95 fee
Chevrolet Trailblazer................     18     $317 fee
Ford F-150...........................     16     $595 fee
------------------------------------------------------------------------
For example, this rebate for a Prius is calculated: 25 cents per gallon
  * 160,000 miles * (1/21 mpg ^ 1/55 mpg) = $1177


   Revenue neutral: The program can be designed to cost the 
        government NO money, and it would not be a tax increase.
   Market-driven policy: The financial incentives will help 
        push the market to more efficient vehicles, to align consumer 
        demand, manufacturer requirements, and national policy.
   Continual improvement: As fuel economies increase, the 
        midpoint mpg is ratcheted up, encouraging continual 
        improvement, but never out of line with the existing market.
   Not tied to CAFE standards: If the feebate is large enough, 
        market forces will drive up fuel economies beyond the current 
        fuel economy standard.
   Reduces oil consumption and greenhouse gas emissions.
                      natural gas savings measures
    S. 2747 also properly focuses on saving natural gas. Because 
supplies of natural gas are so tight in the United States, reducing 
demand for natural gas by just a few percent points could yield 
significant price reductions over the next several years. S. 2747 
includes several provisions for natural gas efficiency and electricity 
efficiency (which can yield significant savings of natural gas as an 
energy source), notably a renewable portfolio standard.
    But many utilities have found that helping their customers to save 
a kilowatt-hour of electricity is cheaper than producing that kilowatt-
hour from renewable sources or even from traditional sources. While 
estimates vary widely, utility end-use energy-efficiency programs often 
cost around 3-4 cents per kilowatt-hour. S. 2747 recognizes the 
potential of these programs by requiring state public utility 
commissions to consider policies to promote utility energy-efficiency 
programs, taken from last year's Senate energy bill. The Alliance 
strongly supports this provision, but would urge the committee to 
consider further federal action as noted below.
Energy Efficiency Resource Standard
    Several states are already developing innovative policies to set 
performance standards for utility energy-efficiency programs alongside 
standards for generation from renewable sources. Renewable and 
efficiency requirements can reinforce each other in several ways.

   Texas has separate renewable and efficiency requirements,
   Connecticut and Pennsylvania have alternative energy 
        portfolio standards with separate tiers for renewables and 
        efficiency and other sources,
   Hawaii and Nevada have combined standards for renewable and 
        efficiency resources (Nevada caps the amount efficiency 
        contributes),
   California has a ``loading order'' that sets efficiency as 
        the preferred resource; once cost-effective efficiency measures 
        have been exhausted, utilities are to use renewable sources, 
        and only `then traditional sources.

    Like a renewable portfolio standard, an energy efficiency resource 
standard is a performance-based approach that gives utilities broad 
flexibility about how and where to achieve the energy savings. 
Utilities are required to implement energy-efficiency programs 
sufficient to save a specified amount of energy, such as one percent of 
the previous year's sales. They can implement their own programs, hire 
energy service companies or other contractors, or sometimes pay other 
utilities to achieve the savings by buying credits. Usually, the costs 
of the energy-efficiency programs must be recovered from energy 
customers through utility rates, but the savings from avoided energy 
supply are greater than the efficiency cost. Note that an energy 
efficiency resource standard is not a requirement that the utility's 
sales decrease in absolute terms or a limit on their sales at all; it 
is a requirement that utilities implement programs that are estimated 
to save a specified amount of energy.
    As a focus for federal policy, the energy efficiency resource 
standard has several advantages:

   It is readily available in all parts of the nation,
   It is available for direct natural gas use as well as for 
        electricity,
   It is cost-effective today, and
   The potential savings are enormous--if 0.75 percent savings 
        were achieved annually nationwide, by 2020 electricity and 
        natural gas use would be reduced by 8 percent, with an 
        estimated net cumulative savings to consumers of $64 billion.
Appliance Standards
    Perhaps the only other federal policy to achieve that level of 
electricity and natural gas savings is appliance standards. While EPAct 
2005 included a set of important new standards, additional action by 
Congress is needed. First, the greatest potential natural gas savings 
are from a standard requiring efficient residential furnaces in the 
Northern states, but these furnaces may not be cost-effective in all of 
the warmer states. Legislation would be useful to clarify that the 
Department of Energy, if warranted, could set separate levels for 
heating and cooling equipment in two climate regions. Second, the 
Alliance is working with manufacturers and other stakeholders to reach 
agreement on proposed federal standards for additional categories of 
equipment, and hopes these standards will be legislated as agreement is 
reached. Finally, the Alliance urges you to maintain vigilant oversight 
as DOE attempts to meet the requirements for rulemakings in EPAct 2005 
while issuing long-delayed standards required in earlier bills.
Energy-Efficiency Tax Incentives
    Other important measures to save electricity and natural gas are 
outside the jurisdiction of this committee. But the Alliance will not 
let an opportunity go by to emphasize the importance of extending and 
building on the tax incentives for energy-efficient buildings, 
equipment, and vehicles that were in EPAct 2005. These incentives have 
great potential to transform markets for energy-efficient technologies, 
but they are in effect for too short a time. ``A large commercial 
building initiated when the bill'' was signed last August will not be 
finished before the commercial buildings deduction expires in December, 
2007. For Toyota hybrid vehicles, the tax credit will expire even 
earlier, phasing out between October 2006 and March 2007. The Alliance 
strongly supports the extensions that are in S. 2748, with some 
modifications that have been worked out with other stakeholders--
notably a performance-based incentive for whole-home energy-efficiency 
retrofits that picks up where the current home improvements credit 
leaves off. The Alliance also supports updates to federal standards for 
certain buildings, particularly manufactured housing and homes with 
federally subsidized mortgages.
                               conclusion
    Consumers and businesses in this country have been hit by the worst 
energy price shocks in many years for gasoline, natural gas, and (in 
some areas) electricity. These price increases hit the rest of the 
economy, as chemical plants move overseas and, according to polls, 
about half of American households cut back on other household spending. 
There are measures we could take, such as consumer education, which 
would have an immediate impact. But polls also show that a large 
majority of Americans are rightly more concerned that Congress find 
long-term energy solutions than that Congress quickly address current 
prices. There is an opportunity now, due to the high prices, to enact 
significant energy-efficiency measures that will benefit the economy, 
the environment, and energy security for years to come. If Congress 
does not act, the price volatility and supply shortages will continue 
to plague us. The Alliance urges you to seize the opportunity to take 
really significant measures to reduce energy waste in this nation.

    Senator Bingaman. Thank you very much.
    Mr. Nadel--is that the right pronunciation? Why don't you 
go right ahead. Thank you.

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

    Mr. Nadel. Thank you, Senator. I appreciate the opportunity 
to be here. I am the executive director of the American Council 
for an Energy-Efficient Economy, a non-profit research 
organization here in Washington. As Kateri Callahan said, 
energy efficiency is our Nation's No. 1 energy resource, but 
there is much more opportunity. Since the Energy Policy Act was 
passed last year, our energy problems have only gotten worse 
and we are very heartened to see that this committee is again 
considering energy legislation, including major energy 
efficiency provisions. I particularly wanted to thank you, 
Senator Bingaman, for taking a lead on this.
    As we look at the Energy Policy Act of 2005, and the Energy 
Policy Act of 1992, what we see is there are many, many 
provisions of which a few have had some significant impacts and 
many of them, unfortunately, have not had the impacts we all 
would have hoped for. They have not been followed with 
Appropriations, States haven't followed through, et cetera. We 
therefore recommend that the committee focus on just a few 
major energy-saving provisions that will have a really big 
impact. Fortunately, S. 2747, I think, has three of the four 
things that we think are very important, and I am going to 
suggest a few tweaks and one significant addition.
    First, we need to do something about saving oil. That's the 
biggest problem with the 2005 law and, actually, the 1992 law 
as well. We really need to take some leadership. We need some 
creative approaches and I think the approach in S. 2747 is a 
good, creative approach to make some significant progress. So I 
strongly urge this committee to include that in any bill that 
reports out.
    In addition, we are going to need some supporting policies 
so that the future administrations have many choices to choose 
from to meet those targets. Title II has some good provisions. 
In our written comments, we provide a couple of additional 
suggestions of things that--arrows that can be in the quiver, 
that future administrations can use to meet those targets. We 
think the targets are very achievable. We have done some 
analyses as well, looking just at the opportunities for energy 
efficiency savings. We can save more than 5 million barrels per 
day just from efficiency by 2020. And I point out that about 2 
million of that comes from the industrial sector, the 
residential sector, airplanes, and heavy vehicles. It is not 
just CAFE, it is not just passenger vehicles, there are lots of 
opportunities throughout the economy to save oil. So we urge 
this committee to take that path.
    Second, there is a provision in S. 2747 calling on States 
to consider setting energy efficiency performance standards. 
These are targets that utilities would need to meet that would 
gradually escalate over time to help lock in some electricity 
and, potentially, natural gas savings.
    We would recommend strengthening that provision and making 
it a national energy efficiency performance standard. We think 
there are many benefits to going national: You get much more 
savings, savings that all states take advantage of; it will 
help reduce energy prices nationwide; and because there are 
more savings, it will help reduce pollution nationwide. We urge 
that there be an energy efficiency performance standard 
actually included in the legislation, somewhat modeled after 
the renewable portfolio standard that is already in there.
    Third, we recommend that a provision be added on appliance 
and equipment efficiency standards. The Energy Policy Act last 
year included quite a few standards. We are in the process of 
negotiating with manufacturers on additional standards and we 
hope the committee will include whatever consensus standards we 
can reach agreement on by the time the bill moves. We have one 
agreement now. We are working on several others.
    Also, we recommend that the bill clarify current law and 
authorize the Department of Energy, when it sets efficiency 
standards on heating and cooling equipment, to set two 
standards for the United States instead of one. Alaska and 
Florida have very different climates and a one-size-fits-all 
approach is creating some problems. Either you set a very weak 
standard and don't save any energy or set a stronger standard 
but it disadvantages those folks, say, in a warm climate. By 
dividing the country into two standards, we can save a lot of 
energy while reducing the burdens in those climates that won't 
benefit.
    Finally, we recommend that the energy efficiency tax 
incentives get included.
    We thank you, Senator Bingaman and your co-sponsors, for 
including many of this as S. 2748.
    Overall, we estimate that the Energy Policy Act of 2005, 
the energy efficiency provisions, would reduce U.S. energies by 
about 1\1/2\ percent in 2020. This is a significant savings. 
But those four measures I just recommended, those could save an 
additional 12 percent. We are talking seven times the energy 
savings from the Energy Policy Act of 2005 from just four 
provisions. So we urge you to consider these four provisions as 
you move forward with legislation. Thank you.
    [The prepared statement of Mr. Nadel follows:]
   Prepared Statement of Steven Nadel, Executive Director, American 
            Council for an Energy-Efficient Economy (ACEEE)
                                summary
Introduction
    Energy efficiency is an important cornerstone for America's energy 
policy. Energy efficiency has saved consumers and businesses trillions 
of dollars in the past three decades, including about a trillion 
dollars in 2005 alone. These efforts should now be accelerated in order 
to:

   Save American consumers and businesses even more money;
   Change the energy supply and demand balance to put downward 
        pressure on energy prices;
   Decrease America's addiction to oil, particularly oil 
        imports;
   Strengthen our economy (since energy savings generate 
        American jobs and capital investment);
   Buy us time to implement a comprehensive long-term energy 
        strategy, and
   Reduce the risks of global warming by moderating carbon 
        dioxide emissions growth.
Key Drivers
    Prices of heating oil, gasoline, natural gas, and coal have risen 
60-100% in the past three years (varying by fuel), driven by rising 
demand, tight supplies, and limited transportation and processing 
infrastructure. While prices are unlikely to return to the levels of 
three years ago, prices can be reduced through a combination of reduced 
demand and increased supplies. However, new supplies take time to 
develop, so energy efficiency is the only near-term option. A 2005 
ACEEE analysis found that reducing natural gas use by about 4% over 
five years could reduce natural gas prices by over 20%. Reducing demand 
for oil and for refined petroleum products is also likely to reduce 
prices.
    U.S. reliance on oil imports continues to rise and is projected to 
be near 70% of total U.S. oil demand by 2020. A substantial portion of 
this oil comes from unstable regions of the world. While moderate 
amounts of new oil are available in hard-to-reach areas of the U.S., 
they are not enough to offset continuing rapid depletion of North 
American fields. Moreover, much greater amounts of oil are available by 
increasing the efficiency with which we use oil. A January 2006 ACEEE 
study finds that we can reduce U.S. oil use by more than 5 million 
barrels per day by 2020. That's equivalent to almost doubling current 
U.S. oil production--which no serious petroleum expert views as 
possible. Improvements to passenger vehicles account for more than 3 
million barrels per day of savings, but more than 2 million barrels per 
day of savings are available in the residential, commercial, and 
industrial sectors, and in heavy vehicles and airplanes. This suggests 
that oil-savings efforts should focus on all sectors, not just 
passenger vehicles.
    Greenhouse gas emissions, especially carbon dioxide, continue to 
increase. Early signs of the impact of global warming are becoming 
apparent in Alaska and other parts of the Arctic, and several recent 
papers have identified a link between warmer ocean temperatures and 
increased hurricane intensity. Energy efficiency is the most cost-
effective way to reduce these emissions, as efficiency investments 
generally pay for themselves with energy savings alone, providing no-
cost emissions reductions. For example, a May 2006 ACEEE study found 
that the planned cap and trade system for power-sector carbon dioxide 
emissions in the northeastern U.S. can have a positive impact on the 
regional economy provided increased energy efficiency programs are a 
key part of implementation efforts.
Energy Policy Acts of 2005 and 1992
    The Energy Policy Act of 2005 contained some useful energy 
efficiency provisions, particularly the new equipment efficiency 
standards and energy efficiency tax incentives. Other EPAct 2005 
provisions may also help as well, but virtually all of these lack 
funding or other critical follow-up actions. Overall, ACEEE now 
estimates that the efficiency provisions in this law will reduce energy 
use in 2020 by 1.8 quadrillion Btu, which is 1.5% of projected national 
energy use. More than 75% of the savings are from equipment efficiency 
standards and efficiency tax incentives. Experience with the Energy 
Policy Act of 1992 showed a similar pattern--most of the savings came 
from a few provisions, and the majority of provisions proved to be more 
show than substance.
Key Priorities for New Legislation
    Based on this past experience, we recommend that future legislative 
efforts focus on a few provisions that will result in substantial 
energy savings. We recommend four such provisions as follows:

          1. Oil savings targets--S. 2747 sets oil savings targets that 
        OMB and other agencies are tasked with meeting. This is a 
        promising provision but needs to be backed by complementary 
        actions that will make the targets enforceable, as well as 
        authorize a variety of policies that OMB can choose among in 
        order to meet the targets.
          2. A national energy efficiency resource standard--An energy 
        efficiency resource standard (HERS) consists of electric and/or 
        gas energy savings targets for utilities, with flexibility to 
        achieve the target through a market-based trading system. An 
        EERS is similar to a renewable portfolio standard, but for 
        energy efficiency savings instead of renewable energy 
        generation. Policies along these lines have been adopted by 
        eight states and several European countries. S. 2747 encourages 
        states to consider EERSs but we recommend that this section be 
        strengthened to establish a national EERS, with a national 
        market-based trading system.
          3. Equipment and appliance efficiency standards--Consensus 
        efficiency standards were key successes in the last two Energy 
        Policy Acts, and ACEEE is now working with industry and other 
        stakeholders to negotiate additional consensus standards. We 
        recommend that any consensus agreements that emerge be 
        incorporated into legislation. In addition, new legislation 
        should authorize DOE to consider separate standards for the 
        North and South for heating and cooling equipment. The current 
        one standard for all approach means that there will be clear 
        winners and losers that can be avoided by customizing standards 
        for each climate zone.
          4. Efficiency tax incentives--Provisions in EPAct 2005 
        generally expire at the end of 2007, largely because the 2005 
        conferees were under pressure to reduce the amounts spent on 
        tax incentives. These should be extended, to at least the 
        original expiration dates, and a few refinements should also be 
        considered.
Energy Savings
    ACEEE estimates that together these four items can reduce U.S. 
energy use by more than 14 quads in 2020, reducing energy use by about 
12%. These savings would be more than seven times the efficiency 
savings of EPAct 2005.
Conclusion
    We urge the Committee to concentrate on the largest opportunities 
for improving energy efficiency and take concrete action on legislation 
in these four key priority areas. Failure to take these steps now will 
make it much more likely that our nation's energy problems will 
continue or even worsen, and that Congress and the nation will have to 
continue facing energy ``crises'' for many years to come.
                                 ______
                                 
                              introduction
    ACEEE is a nonprofit organization dedicated to increasing energy 
efficiency as a means of promoting both economic prosperity and 
environmental protection. We were founded in 1980 and have contributed 
in key ways to energy legislation adopted during the past 25 years, 
including the Energy Policy Acts of 2005 and 1992 and the National 
Appliance Energy Conservation Act of 1987. I have testified before the 
Committee several times and appreciate the opportunity to do so again.
    Energy efficiency improvements have contributed a great deal to our 
nation's economic growth and increased standard of living over the past 
30 years. Energy efficiency improvements since 1973 accounted for 
approximately 55 quadrillion Btus in 2005, which is more than half of 
U.S. energy use and nearly as much energy as we now get annually from 
domestic coal, natural gas, and oil resources combined.\1\ Thus, energy 
efficiency can rightfully be called our country's largest energy 
source. If the United States had not dramatically reduced its energy 
intensity over the past 30 years, consumers and businesses would have 
spent roughly $1 trillion more on energy purchases in 2005.
---------------------------------------------------------------------------
    \1\ Specifically, national energy intensity (energy use per unit of 
GDP) fell 46 percent between 1973 and 2003. About 60% of this decline 
is attributable to real energy efficiency improvements and about 40% is 
due to structural changes in the economy and fuel switching. Energy and 
GDP figures from Energy Information Administration, 2006, Monthly 
Energy Review May 2006. Washington, DC: U.S. Dept. of Energy. 
Proportion of gains due to efficiency from Murtishaw and Schipper, 
2001, Untangling Recent Trends in U.S. Energy Use. Washington, D.C.: 
U.S. Environmental Protection Agency.
---------------------------------------------------------------------------
    Even though the United States is much more energy efficient today 
than it was 30 years ago, there is still enormous potential for 
additional cost-effective energy savings. Some newer energy efficiency 
technologies have barely begun to be adopted. Other efficiency measures 
could be developed and commercialized rapidly in coming years, with 
policy and program support. For example, in a study from 2000, the 
Department of Energy's national laboratories estimated that increasing 
energy efficiency throughout the economy could cut national energy use 
by 10 percent or more in 2010 and about 20 percent in 2020, with net 
economic benefits for consumers and businesses.\2\ Studies for many 
regions of the country have found similar if not even greater 
opportunities for cost-effective energy savings.\3\
---------------------------------------------------------------------------
    \2\ Interlaboratory Working Group, 2000, Scenarios for a Clean 
Energy Future. Washington, D.C.: Interlaboratory Working Group on 
Energy-Efficient and Clean-Energy Technologies, U.S. Department of 
Energy, Office of Energy Efficiency and Renewable Energy.
    \3\ For a summary of many of these studies, see Nadel, Shipley and 
Elliott, 2004, The Technical, Economic and Achievable Potential for 
Energy Efficiency in the U.S.: A Meta-Analysis of Recent Studies. 
Washington, D.C.: American Council for an Energy-Efficient Economy.
---------------------------------------------------------------------------
    Unfortunately, a variety of market barriers keep these savings from 
being implemented. These barriers are many-fold and include such 
factors as ``split incentives'' (landlords and builders often do not 
make efficiency investments because the benefits of lower energy bills 
are received by tenants and homebuyers); panic purchases (when a 
product such as a refrigerator needs replacement, there often isn't 
time to research energy-saving options); and bundling of energy-saving 
features with high-cost extra ``bells and whistles.''
    Recent developments in energy markets indicate that the U.S. needs 
to accelerate efforts to implement energy efficiency improvements:

   Oil, gasoline, natural gas, and coal prices have risen 
        substantially in recent years. For example, residential natural 
        gas prices in 2005 averaged $13.83 per thousand cubic feet, up 
        61% from the average price three years earlier (prices averaged 
        $8.57 per thousand cubic feet in 2002).\4\ Likewise, retail 
        gasoline prices are up 87% relative to three years ago ($2.917 
        per gallon 6/19/06 versus $1.558 per gallon 6/16/03).\5\ Even 
        more dramatically, Powder River Basin coal has more than 
        doubled in price since three years ago (spot prices of $13.80 
        per short ton in May 2006, up from about $6 per short ton in 
        May 2003).\6\ Energy efficiency can reduce demand for these 
        fuels, reducing upward price pressure and also reducing fuel-
        price volatility, making it easier for businesses to plan their 
        investments. Prices are determined by the interaction-of supply 
        and demand--if we seek to address supply and not demand, it's 
        like entering a boxing match with one hand tied behind our 
        back.
---------------------------------------------------------------------------
    \4\ Energy Information Administration, 2006, Natural Gas Navigator: 
U.S. Natural Gas Residential Price. http://tonto.eia.doe.gov/dnav/ng/
ng_pri_sum_dcu_nus_m.htm. Visited June 20. Washington, D.C.: U.S. Dept. 
of Energy.
    \5\ Energy Information Administration, 2006, Petroleum Navigator: 
U.S. All Grades All Formulations Retail Gasoline Prices. http://
tonto.eia.doe.gov/dnav/pet/hist/mg_tt_usw.htm. Visited June 20. 
Washington, D.C.: U.S. Dept. of Energy.
    \6\ Energy Information Administration, 2006, Coal News and Markets, 
Week of May 5, 2006. http://www.eia.doe.gov/cneaf/coal/page/coalnews/
coalmar.html#spot. Washington, D.C.: U.S. Dept. of Energy.
---------------------------------------------------------------------------
   A recent ACEEE analysis found that gas markets are so tight 
        that if we could reduce gas; demand by as little as 4% over the 
        next five years, we could reduce wholesale natural gas prices 
        by y more than 20%.\7\ This analysis was conducted by Energy 
        and Environmental Analysis, Inc. using its North American Gas 
        Market Model, the same analysis firm and computer model that 
        was employed by DOE and the National Petroleum Council for 
        their 2003 study on U.S. natural gas markets.\8\ These savings 
        would put over $100 billion back into the U.S. economy. 
        Moreover, this investment would help bring back U.S. 
        manufacturing jobs that have been lost to high gas prices while 
        also helping to relieve the crushing burden of natural gas 
        costs experienced by many households, including low-income 
        households. Importantly, much of the gas savings in this 
        analysis comes from electricity efficiency measures, because 
        much of the marginal electric load is met by natural-gas fired 
        power plants.
---------------------------------------------------------------------------
    \7\ Elliott and Shipley, 2005, Impacts of Energy Efficiency and 
Renewable Energy on Natural Gas Markets: Updated and Expanded Analysis. 
http://www.aceee.org/pubs/e052full.pdf. Washington, D.C.: American 
Council for an Energy-Efficient Economy.
    \8\ National Petroleum Commission. 2003, Balancing Natural Gas 
Policy--Fueling the Demands of a Growing Economy: Volume I, Summary of 
Findings and Recommendations. Washington, D.C.: U.S. Department of 
Energy.
---------------------------------------------------------------------------
   The U.S. is growing increasingly dependent on imported oil, 
        with imports accounting for more than 60% of U.S. oil 
        consumption in 2005, of which more than 40% came from OPEC 
        countries.\9\ The U.S. Energy Information Administration 
        estimates that imports will account for 68% of U.S. oil use in 
        2020.\10\ While moderate amounts of new oil resources are 
        available in hard-to-reach areas of the U.S., much greater 
        energy resources are available by increasing the efficiency 
        with which we use oil. A January 2006 report by ACEEE found 
        that the U.S. can reduce oil use by as much as 5.3 million 
        barrels per day in 2020 through improved efficiency, including 
        more than 2 million barrels per day in industry, buildings, 
        heavy duty vehicles, and airplanes.\11\ In other words, there 
        are substantial energy savings outside of the highly 
        contentious area of light-duty vehicle fuel economy. These 5.3 
        million barrels per day of oil savings are nearly as much as we 
        presently import from OPEC (OPEC imports were 5.5 million 
        barrels per day in 2005).\12\ Energy efficiency can slow the 
        growth in oil use, allowing a larger portion of our needs to be 
        met from sources in the U.S. and friendly countries, as well as 
        domestically produced alternative fuel sources.
---------------------------------------------------------------------------
    \9\ Energy Information Administration, 2006, Monthly Energy Review 
May 2006. Washington, DC: U.S. Department of Energy.
    \10\ Energy Information Administration, 2006, Annual Energy 
Outlook.  Washington, D.C.: U.S. Department of Energy.
    \11\ Elliott, Langer and Nadel, 2006, Reducing Oil Use Through 
Energy Efficiency: Opportunities Beyond Cars and Light Trucks. 
Washington, DC:. American Council for an Energy-Efficient Economy.
    \12\ See note #9.
---------------------------------------------------------------------------
   Economists have increasingly raised concerns that the U.S. 
        economy is slowing and that robust growth rates we have had in 
        recent years will not be sustained. Energy efficiency 
        investments can spur economic growth; they often have financial 
        returns of 30% or more, helping to reduce operating costs and 
        improve productivity and profitability. In addition, by 
        reducing operating costs, efficiency investments free up funds 
        to spend on other goods and services, creating what economists 
        call the ``multiplier effect,'' and helping the economy 
        broadly. This stimulates new economic activity and job growth 
        in the U.S., whereas most of every dollar we spend on oil flows 
        overseas. A 1997 study found that due to this effect, an 
        aggressive set of efficiency policies could add about 770,000 
        jobs to the U.S. economy by 2010.\13\
---------------------------------------------------------------------------
    \13\ Alliance to Save Energy et al., 1997, Energy Innovations: A 
Prosperous Path to a Clean Environment. Washington, DC: American 
Council for an Energy-Efficient Economy.
---------------------------------------------------------------------------
   While the U.S. overall has ample supplies of electricity at 
        present, demand is rapidly growing and several regions (such as 
        southwest Connecticut, Texas, New York, and California) are 
        projecting a need for substantial new capacity in the next few 
        years in order to keep reserve margins 
        adequate.14,15 Energy efficiency resource policies 
        can slow growth rates, postponing the date that additional 
        capacity will be needed.
---------------------------------------------------------------------------
    \14\ North American Electric Reliability Council, 2005, 2005 Long-
Term Reliability Assessment: The Reliability of Bulk Electric Systems 
in North America. Princeton, N.J.: North American Electric Reliability 
Council.
    \15\ New York Independent System Operator, 2005, ``The NYISO Issues 
Reliability Needs Assessment.'' Press release of December 21. 
Schenectady, N.Y.: New York Independent System Operator.
---------------------------------------------------------------------------
   Greenhouse gas emissions continue to increase. Early signs 
        of the impact of these changes are becoming apparent in Alaska 
        and other Arctic regions.\16\ And several recent papers have 
        identified a link between warmer ocean temperatures and 
        increased hurricane intensity.17,18 Energy 
        efficiency is the most cost-effective way to reduce these 
        emissions, as efficiency investments generally pay for 
        themselves with energy savings alone, providing no or negative-
        cost emissions reductions. The term ``negative-cost'' means 
        that, because such efficiency investments produce net economic 
        benefits, they achieve emission reductions at a net savings for 
        the economy. This important point has been missed in much of 
        the climate policy analysis modeling performed to date. Too 
        many economic models are incapable of characterizing the real 
        economic effects of efficiency investments, and so forecast 
        inaccurate economic costs from climate policies. Fortunately, 
        this kind of flawed policy analysis is beginning to be 
        corrected. For example, a May 2006 study just released by ACEEE 
        found that the Regional Greenhouse Gas Initiative (RGGI--the 
        planned cap and trade system for greenhouse gases in the 
        northeastern U.S.) can have a small but positive impact on the 
        regional economy provided increased energy efficiency programs 
        are a key part of implementation efforts.\19\
---------------------------------------------------------------------------
    \16\ Hassol, 2004, Impacts of a Warming Arctic: Arctic Climate 
Impact Assessment. http://www.acia.uaf.edu. Cambridge University Press.
    \17\ Webster, Holland, Curry and Chang, 2005, ``Changes in Tropical 
Cyclone Number, Duration, and Intensity in a Warming Environment.'' 
Science, 309, 16 September, 1844-1846.
    \18\ Emanuel, 2005, ``Increasing Destructiveness of Tropical 
Cyclones over the Past 30 Years.'' Nature, 436, 4 August, 686-688.
    \19\ Prindle, Shipley and Elliott, 2006, Energy Efficiency's Role 
in a Carbon Cap-and-Trade System: Modeling Results from the Regional 
Greenhouse Gas Initiative. Washington, DC: American Council for an 
Energy-Efficient Economy.

    Energy efficiency also draws broad popular support. For example, in 
a March 2005 Gallup Poll, 61% of respondents said the U.S. should 
emphasize ``more conservation,'' versus only 28% who said we should 
emphasize ``production'' (an additional 6.5% volunteered ``both'').\20\ 
In an earlier May 2001 Gallup poll, when read a list of 11 actions to 
deal with the energy situation, the top four actions (supported by 85-
91% of respondents) were ``invest in new sources of energy,'' ``mandate 
more energy-efficient appliances,'' ``mandate more energy-efficient new 
buildings,'' and ``mandate more energy-efficient cars.'' Options for 
increasing conventional energy supply and delivery generally received 
significantly less support.\21\
---------------------------------------------------------------------------
    \20\ Gallop, 2005, ``Gallop Poll Social Series--The Environment.'' 
Princeton, N.J.: The Gallop Organization.
    \21\ Moore, David, 2001, ``Energy Crisis: Americans Lean toward 
Conservation over Production.'' Princeton, N.J.: The Gallup 
Organization.
---------------------------------------------------------------------------
    However, energy efficiency alone will not solve our energy 
problems. Even with aggressive actions to promote energy efficiency, 
U.S. energy consumption is likely= to continue to rise for more than a 
decade, and this growth, combined with retirements of some aging 
resources and production facilities, will mean that some new energy 
supplies and energy infrastructure will be needed. But aggressive steps 
to promote energy efficiency will substantially cut our energy supply 
and energy infrastructure problems, reducing the economic cost, 
political controversy, and environmental impact of energy supply 
enhancements, while buying us time to implement a comprehensive, long-
term energy strategy.
                the energy policy acts of 2005 and 1992
    The Energy Policy Act of 2005 (EPAct 2005) made some useful 
progress on energy efficiency. Particularly notable were sections that 
established new consensus, federal efficiency standards on 16 products 
and that created energy efficiency tax incentives. Other useful 
provisions included the extension of authority for Energy Saving 
Performance Contracts (ESPC) in federal facilities, and a variety of 
mandated reports that hopefully will help spur future policy action. 
For example, the EPAct 2005 provision requiring DOE to submit a plan to 
Congress on steps it will take to catch up on overdue efficiency 
standard rulemakings was timed just right, and DOE has now prepared and 
begun to implement this plan. In addition, a variety of promising 
initiatives were authorized in EPAct 2005, but to have an impact, need 
to be followed by appropriations.
    Unfortunately, most of the new provisions requiring funding were 
not included in either the President's budget request or in the House 
appropriations bills (the Senate has yet to act). Given recent 
developments, such as the lack of funding for many of the EPAct 2005 
provisions, ACEEE now estimates that the energy efficiency sections of 
EPAct 2005 will reduce U.S. energy use by about 1.8 quadrillion Btu 
(``quads'') in 2020, reducing projected U.S. energy use in 2020 by 
1.5%. Of these savings, more than 75% will come from two key 
provisions--equipment efficiency standards and energy efficiency tax 
incentives.\22\
---------------------------------------------------------------------------
    \22\ Nadel, Prindle and Brooks, 2006, ``The Energy Policy Act of 
2005: Energy Efficiency Provisions and Implications for Future Policy 
Efforts'' in Proceedings of the 2006 ACEEE Summer Study on Energy 
Efficiency in Buildings. Washington, D.C.: American Council for an 
Energy-Efficient Economy.
---------------------------------------------------------------------------
    A similar pattern applies to the Energy Policy Act of 1992 (EPAct 
1992). This law also attempted to comprehensively address U.S. energy 
needs, including an energy efficiency title. ACEEE and the Alliance to 
Save Energy conducted a review of this law five years after passage and 
found that many of the provisions were not fully implemented due to 
limited funding, the fact that many provisions were voluntary and were 
largely ignored, and limited follow-through. For example, provisions 
calling for state action were ignored by many states, and only resulted 
in policy changes in a few states. Ultimately, most of the energy 
efficiency savings that actually occurred came from just a few 
provisions including a series of new equipment efficiency standards 
(which accounted for more than half the savings), equipment efficiency 
ratings, improvements to building codes, and some R&D efforts.\23\
---------------------------------------------------------------------------
    \23\ ACEEE and ASE, 1997, Missing the Mark: Five-Year Report Card 
on the Energy Efficiency Provisions of the Energy Policy Act. 
Washington, D.C.: American Council for an Energy-Efficient Economy and 
Alliance to Save Energy.
---------------------------------------------------------------------------
                   key priorities for new legislation
    Based on the experience with EPAct 1992 and initial actions on 
EPAct 2005 implementation, we recommend that as the Energy Committee 
considers new energy efficiency. legislation, it concentrate on a few 
provisions with significant energy savings, and that the Committee not 
spend a lot of time on provisions that may sound good on paper, but are 
unlikely to actually save much energy in practice. Based on our review 
of a variety of bills introduced in Congress and our read of the 
political situation, we recommend that a new energy efficiency bill 
emphasize four areas as follows:

          1. Oil savings targets and associated policies;
          2. Energy efficiency resource standards (energy-saving 
        targets for utilities);
          3. Equipment efficiency standards; and
          4. Extensions and refinements of efficiency tax incentives in 
        EPAct 2005.

    Fortunately, S. 2747 (the subject of this hearing) and its 
companion S. 2748 address most of these items in some fashion, although 
in each case some further strengthening would be very helpful. In the 
remainder of my testimony I discuss these four priority areas, 
summarize the energy savings available from addressing these four key 
priorities, make some further comments on S. 2747, and then draw a few 
final conclusions.
Oil Savings Targets
    The biggest shortfall in EPAct 2005 (and in EPAct 1992 as well) was 
the' failure to address opportunities to use oil more efficiently. As I 
noted previously, U.S. dependence on oil imports is increasing and 
energy efficiency represents a key strategy for reducing this 
dependency. There are many strategies that can be employed to reduce 
oil use, of which improving passenger vehicle fuel economy is just one. 
Other strategies include:

   Improving the efficiency of buildings with oil and propane 
        space heating and water heating. These systems are particularly 
        common in the Northeast, and Midwest; and in rural areas, that 
        lack natural gas distribution systems.
   Reducing oil use in industry through such measures as 
        improved boilers and process heating; increased recycling of 
        waste materials; improved paving materials that reduce 
        petroleum feedstock requirements; and energy efficiency 
        improvements in off-highway equipment and operating practices.
   Improving the fuel economy of heavy vehicles, such as 
        delivery trucks and tractor trailers.
   Promoting ``smart growth'' strategies so public transit is 
        more assessable and driving distances are reduced.
   Improving the fuel efficiency of airplanes.

    S. 2747 includes a provision directing the Office of Management and 
budget and other agencies to develop and implement a plan to reach 
specified oil savings targets, including 2.5 million barrels per day in 
2016 and 10 million barrels per day in 2031. These targets represent 
approximately 10% of projected 2016 U.S. petroleum product use and 
approximately 35% of projected 2031 use. We strongly support this 
section and urge the Committee to incorporate it into the next major 
piece of energy legislation it reports out.
    However, this provision is only useful if future administrations 
faithfully implement it. To increase the chances that this provision is 
fully implemented, we recommend that the following steps be taken:

          1. The Committee should have legal counsel carefully review 
        the language to make sure it is enforceable in a court of law. 
        While we hope that legal action will never be needed, if legal 
        action is clearly provided for, this will provide a significant 
        incentive to future administrations to keep on track in 
        implementing this provision.
          2. The Committee should work closely with the Commerce 
        Committee to make sure that a variety of strategies for meeting 
        the targets are authorized, including heavy vehicle testing and 
        fuel economy policies and replacement tire efficiency 
        standards. The Committee should also encourage the Commerce 
        Committee to develop initial near-term fuel economy targets 
        (such as ones based on the 2002 National Academy study),\24\ so 
        that some savings will start to accrue even while the OMB-led 
        process is put in place.
---------------------------------------------------------------------------
    \24\ See National Research Council, 2002, Effectiveness and Impact 
of Corporate Average Fuel Economy (CAFE) Standards. Washington, D.C.: 
National Academy Press.
---------------------------------------------------------------------------
          3. The Committee should work to authorize or put in place 
        additional policies for achieving fuel savings such as: (a) 
        revenue-neutral fees and rebates (``feebates'') to encourage 
        purchase of vehicles with above-average fuel economy and 
        discourage purchase of below-average vehicles; and (b) a small 
        fee on heating oil and propane purchases to fund programs to 
        help homeowners and businesses reduce use of these fuels.\25\
---------------------------------------------------------------------------
    \25\ Specifically, we recommend a fee of 1-2 cents per gallon, with 
funds to be administered by the states. State allocations should be 
based on use of heating oil and propane by state, and a competitive 
RFP, in which states with the best program proposals receive extra 
funds. While many gas and electric utilities operate energy-saving 
programs, homeowners and businesses using heating oil and propane are 
generally left out. This proposed program would address this gap.
---------------------------------------------------------------------------
Energy Efficiency Resource Standard
    An energy efficiency resource standard (EERS) is a simple, market-
based mechanism to encourage more efficient use of electricity and 
natural gas. An EERS consists of electric and/or gas energy savings 
targets for utilities, often with flexibility to achieve the target 
through a market-based trading system. An EERS is similar to a 
renewable portfolio standard, but for energy efficiency savings instead 
of renewable energy generation. Programs along these lines have been 
adopted by eight states and several European countries. All EERSs 
currently in place include end-user energy saving improvements that are 
aided and documented by utilities or other program operators.\26\ 
Sometimes distribution system efficiency improvements, along with 
combined heat and power (CHP) systems and other high-efficiency 
distributed generation systems, are included as well. With trading, a 
utility that saves more than its target can sell savings credits to 
utilities that fall short of their savings targets. Trading would also 
permit the market to find the lowest-cost savings. However, unlike 
other resources such as renewable energy and coal, energy-saving 
opportunities are distributed throughout the 50 states.
---------------------------------------------------------------------------
    \26\ Savings are documented in program evaluations, following 
evaluation guidelines specified by state utility commissions. State 
commissions have many resources to draw on to develop these guidelines, 
including guidelines from other states.
---------------------------------------------------------------------------
    Among the EERS-like laws now in operation, Texas's electricity 
restructuring law created a requirement for electric utilities to 
offset 10% of their demand growth through end-use energy efficiency. 
Utilities in Texas have had no difficultly meeting their targets and 
there is discussion about increasing the targets. Hawaii and Nevada 
recently expanded their renewable portfolio standards to include energy 
efficiency. Connecticut and California have both established energy 
savings targets for utility energy efficiency programs (Connecticut by 
law and California by regulation) while Vermont has specific savings 
goals in the performance contract with the nonprofit organization that 
runs statewide programs under a contract with the Public Service Board. 
Pennsylvania's new Advanced Energy Portfolio Standard includes end-use 
efficiency among other clean energy resources. Colorado's largest 
utility has energy savings goals as part of a settlement agreement 
approved by the Public Service Commission. And Illinois and New Jersey 
are planning to begin programs soon. EERS-like programs have been 
working well in the United Kingdom and the Flemish region of Belgium. 
Italy has recently started a program, and another is about to start in 
France. Details on each of these pro ams are provided in a March 2006 
ACEEE report.\27\
---------------------------------------------------------------------------
    \27\ Nadel, 2006, Energy Efficiency Resource Standards: Experience 
and Recommendations. Washington, D.C.: American Council for an Energy-
Efficient Economy.
---------------------------------------------------------------------------
    S. 2747 includes a provision directing states to consider adoption 
of EERSs. However, experience under EPAct 1992 and 2005 is that few 
states follow up on these directives. Instead, we recommend that S. 
2747 be amended to establish a national EERS, but allowing for state-
based administration provided states meet certain basic criteria.
    We recommend that EERS targets generally start at modest levels 
(e.g., savings of 0.25% of sales annually) and ramp-up over several 
years to savings levels currently achieved by states with substantial 
experience (e.g., 0.50% of gas sales, 0.75% of electric sales, and 1.0% 
of peak electric demand annually). To ensure that costs will be 
moderate, we recommend that a market for trading of savings. credits be 
established and that a ``safety valve'' be created under which electric 
and gas utilities could buy credits from the implementing agency for 
about half of the current retail costs of each energy source (monies so 
collected should be used to fund public-benefit, government-operated 
energy efficiency programs).
    While many EERSs are separate from a renewable portfolio standard, 
an option would be to combine renewable energy and energy efficiency in 
a single, combined portfolio standard. However, if this is done, the 
portfolio target should be significantly higher than if only renewable 
energy or if only energy efficiency were included. For example, a 
combined efficiency/renewables target might be 20% of 2020 sales, and 
not the 10% of 2020 sales that the Senate has previously passed as a 
renewable portfolio standard. Another option will be to add additional 
``advanced energy resources'' to a portfolio standard such as 
``advanced coal'' that includes carbon sequestration or new advanced 
nuclear reactors. Each of these resources has supporters and 
detractors, so a careful political calculus is needed to see which 
resources add versus subtract votes. To the extent additional resources 
are added to a portfolio standard, the targets should be increased 
commensurately. In no case should utilities be allowed to reduce their 
renewables purchases below levels previously voted by the Senate.
Equipment Efficiency Standards
    ACEEE, affected industries, and other stakeholders have a long 
history of negotiating consensus agreements on new efficiency 
standards. Many of these agreements were incorporated into the Energy 
Policy Acts of 1992 and 2005. ACEEE is now talking with industry about 
standards on additional products, and we expect to have agreements on 
several new standards by the end of the year. If we are successful, we 
urge the Committee to include these new consensus standards in 
legislation it works on next year. Products that may lend themselves to 
consensus standards include the following:

   Reflector lamps
   Pool heaters
   Metal halide luminaries
   Bottle-type drinking water dispensers
   Portable electric spas (hot tubs)
   Single-voltage external AC to DC and AC to AC power supplies
   Commercial hot-food holding cabinets
   Walk-in refrigerators and freezers

    In addition, we recommend that current standards law be amended to 
permit DOE to divide the country into two climate zones when setting 
new standards for heating and cooling equipment. DOE's Office of 
General Counsel says they lack authority to set separate standards for 
different regions, and therefore must use a one size fits all approach. 
However, climate in the U.S. varies enormously from Alaska to Florida, 
and a one size fits all approach for the entire country does not make 
sense for some climate-sensitive products. For example, DOE is 
currently conducting a rulemaking on new standards for residential 
furnaces, a major consumer of natural gas. Condensing furnaces (e.g., 
those meeting the ENERGY STAR specification) are very cost-effective in 
Northern states, but may not be cost-effective in many Southern states. 
But a single climate zone approach would either mean setting a weak 
standard based on Southern needs and achieving little energy savings, 
or setting a stronger standard based on national average heating loads 
and imposing significant costs on warm states. Dividing the country 
into two climate regions would save substantial energy without imposing 
extra costs on warm states. An ACEEE analysis estimated that a 
condensing furnace standard in cold states would reduce national 
natural gas use by more than 150 billion cubic feet and will save 
consumers $3.2 billion (discounted net present value) for equipment 
sold by 2030.
    Manufacturers claim that imposing separate standards for the North 
and South would create difficulties for them. However, manufacturers 
often have separate models for Northern and Southern climates (e.g., 
furnaces in the South often have larger fans in order to handle larger 
cooling loads) and thus we think manufacturers are overstating the 
difficulties. To address this problem and the large energy and economic 
savings that are possible with regional standards, we recommend that 
current law be amended to grant DOE authority to consider separate 
standards for the North and South for residential heating and cooling 
systems. This amendment should require DOE to consider the advantages 
and disadvantages' of regional differentiation based on criteria in the 
underlying law and decide whether regionally differentiated standards 
make sense for a particular product. To limit the impact on 
manufacturers, we recommend that the amendment permit only two zones 
and require zones to follow state boundaries and be fully contiguous 
(except Alaska and Hawaii).
Efficiency Tax Incentives
    EPAct 2005 included a variety of very useful energy efficiency tax 
incentives including incentives for efficient commercial buildings, 
homes, appliances, heating and cooling equipment, and vehicles. 
However, pressure on conferees caused most of these incentives to be 
cut to only two years, which is too short a period to transform 
markets. S. 2748 extends most of these incentives for an additional 
three years and adds several new incentives that previously passed the 
Senate but were not included in the final EPAct 2005 conference 
agreement. In general we support the provisions of S. 2748, but 
recommend a few refinements as follows:
    Commercial buildings: EPAct 2005 included an ``interim'' provision 
for lighting energy retrofits. We recommend that this provision be 
specifically included in any extension as this is the only provision 
that truly applies to existing commercial buildings. If cost becomes an 
issue, this lighting retrofit provision could expire earlier than the 
2010 date for the other commercial building incentives.
    New homes: EPAct 2005 includes incentives for new homes reducing 
energy use by 50% relative to a model energy code, and includes 
additional incentives for manufactured homes that either save 30% or 
that meet ENERGY STAR criteria. S. 2748 provides a 30% savings 
threshold for all new homes and continues the special ENERGY STAR 
provision for manufactured homes. We think the 30% credit for all homes 
will prove very expensive and recommend that it be dropped if cost 
becomes an issue. Also, for manufactured homes, the current ENERGY STAR 
specification is fairly weak and saves less than 30% in nearly all 
cases. We recommend that the manufactured home credit clearly call for 
30% savings and not include an ENERGY STAR path unless the Secretary of 
the Treasury determines that meeting the ENERGY STAR specification will 
on average save 30% (this latter option will permit an updated ENERGY 
STAR spec to be included).
    Heating and cooling equipment: We recommend that eligibility levels 
for a few products be modified in cases where very few products are on 
the market that qualify for the tax credits. Specifically, we recommend 
a 90% AFUE requirement for boilers and oil-fired furnaces, and that the 
heat pump credit specifically reference the highest Consortium for 
Energy Efficiency tier in place on Dec. 31, 2006. The credit for 
boilers and oil furnaces should also be increased to $300 to provide 
more incentive to manufacturers and consumers to develop and buy these 
products.
    Existing homes: From reports we have heard from program operators, 
the current incentives are not encouraging much new investment. We 
recommend that future extensions include a performance-based component 
that provides incentives of $800-2,000 for reducing home energy use by 
20-50%. Such a provision will offer a larger and more enticing 
incentive to consumers and will save a substantial amount of energy as 
contractors seek to reach and exceed the 20% savings threshold. A bill 
along these lines with broad support is now being crafted by Senators 
Snowe and Feinstein. Once ready, we recommend it be incorporated into 
future legislation.
    Appliances: S. 2748 does not extend the tax credit for efficient 
appliances. We recommend that this credit also be extended, but that 
eligibility levels be increased so that only the most efficient 
products on the market are eligible for incentives.
    Vehicles: Toyota has already hit the 60,000 vehicle cap set by 
EPAct 2005 for advanced vehicles. We support the provision in S. 2748 
to lift this cap. However, if the costs of this provision prove too 
high, a compromise would be to set a vehicle cap per manufacturer per 
vehicle class (e.g., compact, intermediate, full size car, etc.) in 
order to encourage all manufacturers to sell full product lines of 
advanced vehicles.
    Combined heat and power plants: This provision was passed by the 
Senate but dropped by conferees. Due to volatility of energy prices and 
onerous interconnection requirements and rates imposed by some 
utilities, the pace of CHP installations has slowed. These proposed tax 
incentives should help reverse this trend.
    Microturbines and advanced meters: If funds are tight, we recommend 
that these provisions be dropped. Energy savings from both of these 
provisions are pretty small and not as cost-effective as the other 
efficiency incentive provisions.
                             energy savings
    ACEEE has conducted a variety of analyses on savings from various 
energy efficiency provisions. Based on this work, we can approximate 
the savings from each of the four key priority areas discussed above. 
These estimates are preliminary and will be refined as the legislative 
process proceeds.

------------------------------------------------------------------------
                                                              Savings in
                           Measure                               2020
                                                                (quads)
------------------------------------------------------------------------
Oil savings target..........................................        7.4
Energy efficiency resource standard.........................        5.6
Equipment efficiency standards..............................        0.4
Tax incentive extensions and refinements....................        0.7
                                                             -----------
    Total...................................................       14.1
------------------------------------------------------------------------

    These savings total more than 14 quads and represent about 12% of 
projected 2020 U.S. energy use. These savings are more than seven times 
greater than the efficiency savings in EPAct 2005.
                     additional comments on s. 2747
    S. 2747 contains additional provisions not discussed above as key 
priorities. In general we believe these provisions are worthwhile, 
although many of them are likely to have modest impacts. Below we 
provide brief comments on a few of these provisions.
    Deployment of advanced vehicle technologies (Section 208): This 
provision requires that manufacturers not decrease fuel economy below 
2002 levels in order to be eligible for incentives. We support the 
intent of providing grants only to manufacturers who do not reduce fuel 
economy, but recommend that this provision be refined to not take 
effect for two years and then to require that to be eligible, 
manufacturers must exceed their 2002 fuel economy by 6%, with this 
eligibility floor increasing 3-4% each year thereafter. Grants should 
go to companies that achieve at least minimal fuel economy 
improvements, but the two-year delay gives manufacturers time to hit 
initial targets. Some of these improvements are already required under 
recent actions raising fuel economy standards for light trucks.
    Renewable portfolio standard (Section 301): We support this 
provision. We have not dwelled upon it as ACEEE concentrates on energy 
efficiency and not renewable energy. However, as I noted earlier, a 
renewable portfolio standard and energy efficiency resource standard 
nicely complement each other.
    National media campaign (Section 403): A national media campaign is 
one of the few things that can be done to reduce energy use in 2006 and 
2007. Such a campaign was authorized by Section 135 of EPAct 2005 but 
has not been funded. Section 403 of S. 2747 is a useful complement to 
the EPAct provision and hopefully has a better chance of receiving 
funding.
                               conclusion
    Energy efficiency is an important cornerstone for America's energy 
policy. Energy efficiency has saved consumers and businesses' billions 
of dollars in the past two decades, but these efforts should be 
accelerated in order to:

   Save American consumers and businesses even more money;
   Change the energy supply and demand balance to put downward 
        pressure on energy prices;
   Decrease America's addiction to oil, particularly oil 
        imports;
   Strengthen our economy (since energy savings generate 
        American jobs and capital investment); and
   Reduce the risks of global warming by moderating carbon 
        dioxide emissions growth.

    The Energy Policy Act of 2005 took modest steps in this direction, 
particularly the sections establishing new appliance and equipment 
efficiency standards and tax incentives for advanced energy-saving 
equipment, vehicles, and buildings. Overall, we estimate that EPAct 
2005 will reduce U.S. energy use by about 1.5% by 2020.
    But much more can and should be done. We recommend that Congress 
include the following provisions in new legislation:

          1. Oil savings targets and associated policies;
          2. Energy efficiency resource standards (energy-saving 
        targets for utilities);
          3. New consensus equipment efficiency standards and 
        enhancements to DOE's rulemaking authority;
          4. Buy us time to implement a comprehensive long-term energy 
        strategy, and
          5. Extensions and refinements of efficiency tax incentives in 
        EPAct 2005.

    These provisions will increase energy savings relative to EPAct 
2005 by more than a factor of seven, reducing U.S. energy use by about 
12% in 2020. Failure to take these steps now will make it more likely 
that Congress and the nation will continue to face energy ``crises'' 
for many years to come.
    This concludes my testimony. Thank you for the opportunity to 
present these views.

    Senator Bingaman. Thank you much. Let me just ask a 
question of each of you. Mr. Lashof, your testimony and your 
written statement also talk about the value of this renewable 
portfolio standard nationally. I think you heard some of the 
criticism that was stated by, I think, both Senator Alexander 
and Mr. Karsner about the whole idea of having a national 
standard rather than a State-by-State standard. I thought I 
would give you a chance to respond to that, if you would like 
to.
    Mr. Lashof. I'm very happy to. Thank you, Senator. I 
certainly believe that a national standard would be desirable. 
I believe that we have national interests in increasing our use 
of renewable energy, both to reduce the price of national gas 
and to reduce global warming pollution. And that requirement--a 
national standard makes sense for those grounds. I think, in 
the absence of a national standard, in fact, the States that do 
move forward to the extent that they impose higher costs on 
their customers, in part to relieve pressure, for example, of 
natural gas prices, are providing benefits to the entire 
Nation, and States that don't have standards are free riders 
because they benefit from the reduced natural gas prices that 
result from increased use of renewables but might not be 
contributing to paying any early incremental costs for 
achieving that. So I think that is one reason for a national 
standard.
    I would also note two other things. One is, Congress seems 
to believe that national standards make sense in related areas. 
For example, the renewable fuel standard that was included in 
EPAct on the transportation fuel side is a national approach, 
again recognizing that there are national benefits. That, like 
the renewable portfolio standard, provides a trading program 
that gives you a great deal of flexibility for each State to 
make whatever contribution makes the most economic sense, 
whether it is by building those resources within their State or 
by getting them through the trading mechanism.
    The last point I would make is that unlike some of the 
discussion we heard which seemed to suggest that wind was 
really the only option and that maybe the Southeast doesn't 
have renewable potential, there is enormous renewable energy 
potential in all parts of the country, using different 
resources. So while wind resources may be largest in the 
Midwest and the Great Plains and in the Dakotas, there are 
enormous biomass resources in the Southeast. And in the 
Department of Energy study of how a renewable portfolio 
standard would be achieved, it showed, in fact, that there were 
net benefits nationally. They actually found that biomass 
resources would be the largest contributor. So I believe that 
there are big opportunities in Tennessee and Florida and other 
States to contribute in that way to meeting a national 
standard. Thank you.
    Senator Bingaman. Thank you very much.
    Ms. Callahan, let me ask you about this feebate proposal. 
Most of the proposals that relate to vehicle fuel efficiency 
have been opposed by the automobile manufacturers. What is your 
understanding of their reaction to this proposal?
    Ms. Callahan. Well, Senator, we have been talking to some 
of the manufacturers and are continuing a dialog with them. As 
you might suspect, their attraction to the program or not 
depends on their vehicle stock and what they are producing. The 
ones that have the more fuel-efficient vehicles tend to be more 
in favor of this kind of proposal than those who produce less 
fuel-efficient vehicles, just as an early read on it.
    One thing that I think makes this more attractive to the 
autos, and we are talking to them about, is that you could set 
this program up so that you had mid-points for every class of 
vehicle, all eleven different classes of vehicles. So you could 
offer consumers full choice and you would be comparing big, 
heavy SUVs to other big, heavy SUVs and setting your mid-point 
there. So I think there are ways that can have greater appeal 
to the auto manufacturers with this program than they perhaps 
realize at this point. And we are talking to them and would 
enjoy having support from you and your staff and you having 
some dialog with them as well.
    To answer specifically, I think Honda is leaning toward 
this kind of a program as a solution. I think that they may be 
the most out-front in terms of being open, with being attracted 
to this, in lieu of, at some point, a CAFE program. Because if 
you put this in place and made it work right, it would, in 
effect, make CAFE moot over the course of time.
    Senator Bingaman. OK. Thank you very much.
    Mr. Nadel, let me ask you about some of these tax 
incentives that you have here. You list a whole series of them 
that need to be enacted or extended. I certainly favor that 
and, of course, we have the legislation that does that. Have 
you looked at costing these out and trying to determine what 
kind of revenue we are talking about, this costing the Federal 
treasury, and each specific tax provision?
    Mr. Nadel. We had done a detailed analysis of many of these 
provisions when they were originally 5-year proposals. I don't 
have the exact numbers with me, but based on that, with some 
updates, it should be relatively easy to come up with some cost 
estimates and I would be happy to provide those for the record.
    Senator Bingaman. That would be useful. If you have those, 
I think that would be helpful. Let me ask, on your energy 
efficiency resource standard, could you elaborate a little bit 
as to how you see that working as a national standard? I mean, 
what would it apply to and how would you administer it?
    Mr. Nadel. OK. It would apply to electricity and natural 
gas sales that effectively cost from the utility into the 
transmission and distribution system, same as the RPS now 
applies. We would recommend that the Department of Energy 
develop some implementing regulations, such as exactly what 
would the criteria be to evaluate the energy savings so that we 
knew we had reasonable evaluations of how much had actually 
been saved. But we would recommend that, in general, States be 
allowed, and we would expect most of them to actually then work 
with their local utilities, within the framework of these 
general regulations, to help make sure that each of their 
utilities has met the standard, with DOE only filling in if a 
State didn't want to take that lead. But that is how we would 
see it working in broad outline.
    Senator Bingaman. OK. Do you know of any reaction from the 
utility industry to this kind of proposal? I know we've had 
various people in the utility industry on both sides of the 
question of whether a renewable portfolio standard made sense. 
How about with regard to the energy efficiency standard?
    Mr. Nadel. Right. We've been talking to a number of 
utilities about this. I think the Edison Electric Institute, 
who represents all the utilities, is a little skeptical of any 
mandate since they have been skeptical about the renewable 
portfolio standard, but a number of utilities have indicated 
interest. There is--we are working with one major utility now, 
and a Senator on this committee, to actually get a bill 
introduced shortly.
    Senator Bingaman. OK.
    Mr. Nadel. So we think there would be some utilities' 
support. Certainly not the whole industry, but some.
    Senator Bingaman. OK. Well, thank you all very much for 
testifying. I think it has been a useful hearing and we've 
gotten a lot of issues out for discussion. We will try to 
follow up and move something forward legislatively. Thank you 
all for coming.
    Ms. Callahan. Thank you, Senator.
    Mr. Nadel. Thank you.
    [Whereupon, at 12:39 p.m., the hearing was adjourned.]

    [The following statement was received for the record:]
           Statement of The American Institute of Architects
    The American Institute of Architects (AIA) welcomes the opportunity 
to provide written testimony to the Senate Committee on Energy and 
Natural Resources for its hearing on energy efficiency and S. 2747.
    The AIA represents the professional interests of than 75,000 
licensed architects and allied design professionals who every day 
express their commitment to excellence in design and livability in our 
nation's buildings and cities. The AIA strongly supports S. 2747, which 
we believe will enhance energy efficiency and lead to a substantial 
conservation of oil and natural gas. We commend Senator Bingaman for 
his leadership on this issue.
    We believe that governmental policies, programs, and incentives 
should encourage energy conservation, especially as it relates to the 
built environment. We also support the aggressive development of 
renewable energy sources. As architects, our members have strongly 
enunciated their commitment to promoting energy efficiency and waste 
reduction in the built environment, encouraging energy-conscious design 
and technology, and supporting national programs for more efficient use 
of nonrenewable resources and the development of renewable energy 
sources.
    The AIA recognizes that a growing body of evidence demonstrates 
that current building planning, design, construction, and real estate 
practices contribute to patterns of resource consumption that seriously 
jeopardize the Nation's environment. Architects accept responsibility 
for their role in creating the built environment. Consequently, they 
believe that they must alter their profession's actions to encourage 
clients and the entire design and construction industry to work 
collaboratively to change the course of this country's energy future.
    We believe that Congress should give a high priority to creating 
federal incentives that reduce the energy consumption footprint of the 
built environment. We believe that Senator Bingaman's bill is a great 
first step. But much more needs to be done.
    First, the AIA believes that the General Services Administration 
(GSA) should be tasked with developing a baseline for the average 
energy consumption of each representative type of building (office 
building, hospital, barracks, post office, ranger station, etc.) 
operated by the federal government.
    Within one year of developing a baseline, the GSA and all federal 
agencies that construct and renovate buildings should be directed to 
develop requirements that all federal buildings constructed or 
renovated after January 1, 2010, shall consume no more than one-half 
the energy consumption specified by GSA's energy consumption baseline. 
The regulations also should set a declining cap on energy consumption 
for newly constructed buildings and major renovations such that they 
meet the following minimum delivered energy performance compared to the 
baseline:

------------------------------------------------------------------------

------------------------------------------------------------------------
2015.......................................................       60%
2020.......................................................       70%
------------------------------------------------------------------------

(This is modeled after New Mexico Executive Order 2006-0001 signed by 
New Mexico Governor Bill Richardson on January 16, 2006.)
    Second, the AIA proposes that the National Institute for Standards 
and Technology (NIST) develop a standard for measuring sustainability 
in buildings using transparent, consensus-based procedures consistent 
with the Technology Transfer Act of 1995 and 0MB Advisory Circular 119. 
We recommend that the standard:

          a. Is developed and renewed on a regular basis through a 
        consensus based process, in which all interested parties can 
        participate;
          b. Requires clearly defined design documentation to 
        demonstrate compliance;
          c. Requires compliance to be validated by an independent 
        third party;
          d. Requires the development of sustainable sites avoiding the 
        conversion of prime agricultural lands or wetlands, 
        regenerating brownfield sites or those that result in 
        regenerative benefits to the natural environment;
          e. Requires specific goals in the efficient use of water 
        resources that promote application of new wastewater 
        technologies;
          f. Requires specific goals for significant reductions in 
        energy use, especially non-renewable energy sources, with 
        enhanced performance assured through commissioning of building 
        systems;
          g. Promotes the use of renewable energy sources;
          h. Requires reduced use of non-renewable natural resources 
        through the reuse of existing structures and materials, 
        reductions in construction waste, promotion of recycled content 
        materials, and use of materials independently certified as from 
        sustainable sources;
          i. Requires specific goals for improved indoor environmental 
        quality through enhanced indoor air quality, thermal comfort, 
        acoustics, daylighting, pollutant source control and use low 
        emission materials and building system controls;
          j. Promotes the development and application of innovative 
        designs and collaborative processes intended to improve 
        environmental performance;
          k. Recognizes the life cycle value of a community or project 
        in addition to construction first costs, including assessment 
        of impact on climate change, acid rain, water pollution, 
        resource depletion, and toxicity factors;
          l. Utilizes life cycle assessment data as the basis for 
        design and construction decision making;
          m. Acknowledges national, regional and bio-climatic 
        differences;
          n. Reduces (and eventually eliminates) on site and off site 
        toxic elements in the built environment;
          o. Requires specific measurable reductions in CO2 
        production in the built environment; and
          p. Requires documentation of actual building energy and 
        operational performance.

    Third, the AIA believes that the commercial building tax deduction 
authorized by Section 1331 of the Energy Policy Act of 2005 (that 
provides for a deduction of up to $1.80 per square foot for commercial 
and public buildings placed in service in 2006 and 2007 that meet an 
energy reduction target equivalent to 50% of ASHRAE Standard 90-1-
2001), though well-intentioned, is not sufficient to offset the costs 
of meeting as rigorous an energy reduction target as 50% of ASRAE 90.1-
2001. We believe that the deduction amount should be increased to $2.70 
per square foot.
    In addition, we believe that the deduction expires far too quickly 
to spur the design and construction of any new energy efficient 
buildings; buildings to be ``placed in service'' during 2006 and 2007 
are already designed, and construction may have already started. 
Therefore, we believe that the deduction should be made permanent.
    Finally, the AIA strongly believes that a new generation of 
sustainable buildings will require a workforce of architects and 
engineers sufficiently educated in the principles of sustainability. We 
believe that the National Science Foundation (NSF) should be authorized 
to establish a Sustainability Grants Program that will make federal 
monies available for:

   The development of a model curriculum in sustainable design 
        for buildings that would be adopted and enlarged upon by 
        schools of architecture and engineering;
   Scholarships to architectural and engineering students who 
        commit to completing a course of study that includes all of the 
        elements of sustainability in the built environment; and
   Competitive grants to faculty members at schools of 
        architecture and engineering for research projects that fill 
        critical knowledge gaps in the study of sustainability in 
        architecture (e.g., life cycle analysis).

    The American Institute of Architects commends Senator Bingaman and 
the members of the Senate Energy and Natural Resources Committee for 
recognizing the need for energy efficiency. The AIA fully supports the 
use of incentive-based programs that encourage energy efficiency 
throughout all sectors of the American economy. We look forward to 
working with the Committee and the Senate on initiatives that will lead 
to greater conservation and energy efficiency.

                                APPENDIX

                   Responses to Additional Questions

                              ----------                              

   Responses of Alexander Karsner to Questions From Senator Bingaman
                             federal fleet
    Question 1. On page two of your testimony in regard to the language 
in Title II of S. 2747 regarding petroleum savings requirements for the 
Federal fleet you note that ``we believe there are aspects of the 
technical language . . . that need further review and discussion.'' 
Please provide the committee with the specific language you are 
referring to and the necessary technical corrections. The provision 
begins on page 8 and continues through page 11.
    Answer. The Administration is currently reviewing this legislation. 
DOE might suggest establishing Fiscal Year 2005 as a baseline and 
extending the 20 percent petroleum consumption goal to Fiscal Year 2016 
with a 2 percent reduction each year.
                      vehicle retirement programs
    Question 2. On page two of your testimony you note that you are not 
convinced of the effectiveness of vehicle retirement programs. I wonder 
if you might explain to us why that is? Do you have any internal policy 
analysis that you could share with us on this? I would ask that you 
provide an additional explanation for the record as to specifically why 
you find them not to be effective.
    Answer. We have not conducted an internal policy analysis but there 
have been a number of studies analyzing the cost and life-cycle energy 
savings of vehicle retirement programs. Section 202(c) would benefit 
from the inclusion of a requirement that payments are only made with 
proof that a new efficient vehicle is being purchased. Otherwise 
payments could be made to owners of little used ``extra'' vehicles, 
which will not materially affect the consumption of petroleum.
                              oil savings
    Question 3. The Secretary has noted that ``. . . the programs under 
the President's Advanced Energy Initiative, if successful in achieving 
major breakthroughs in all vehicles and fuels initiatives, would alone 
displace the need to up to 5 million barrels per day of 2025.'' Please 
provide a detailed explanation for the record of how the 5 million 
barrels is calculated and how it breaks down along the various programs 
and new technologies
    Answer. The statement is based on the commercial uptake for these 
technologies and based on analysis of potential R&D breakthroughs which 
was similar to a National Academy of Science's scenario looking at 
petroleum displacement potential from hybrids and fuel cell vehicles 
developed for an Academy report on hydrogen.
    The FY 2007 budget request seeks a 65 percent increase in funding 
for biomass research with the goal of making cellulosic ethanol cost 
competitive by 2012. This aggressive target will be accomplished 
through the ability to convert a wider variety of regionally available 
biomass feedstocks and agricultural wastes and the validation of those 
technologies and their related economics. Through partnerships with the 
private sector, the Hydrogen Fuel Initiative and related FreedomCAR 
activities seek to make it practical and cost effective for large 
numbers of Americans to use clean, hydrogen fuel-cell vehicles by 2020. 
The Vehicle Technologies program places an emphasis on the development 
of lithium ion batteries and other technologies for plug-in hybrid 
technologies that offer the potential to make significant reductions in 
petroleum use.
    In short, biofuels, greater efficiency through market penetration 
of hybrids and plug-in hybrids, and hydrogen fuel cell vehicles all 
would contribute to the oil displacement goal.
                   alternative fueling infrastructure
    Question 4. Your testimony (page 2) states that Sec. 207 is not 
necessary because EPAct 2005 provides tax credits for E85 and other 
alternative fueling infrastructure. In the past, policies to encourage 
the use of alternative fuels have foundered due to the lack of 
refueling infrastructure or the lack of vehicles designed to use the 
alternative fuels, or both. We now have over 6 million flexible fuel 
vehicles that can run on alternative fuels and only about 600 fueling 
stations. Not all of the entities interested in developing alternative 
fueling infrastructure can take advantage of a tax credit. Why 
shouldn't the federal government support a revenue neutral grant 
program that would help expand the fueling infrastructure?
    Answer. The scope of the tax credits provided for in EPACT 2005 is 
substantial incentive for businesses to spur new development of 
alternative fueling infrastructure. We believe the participation of 
private enterprise is essential for a sustainable infrastructure over 
the long term. Moreover, Section 207(4)(f) includes alternative fuels 
price controls that we feel would actually discourage investment in 
alternative fuels.
                          efficiency programs
    Question 5. In your oral statement, you indicated that the 
Department would support several of the provisions in S. 2747. These 
included: Section 203--Assistance to States to reduce school bus 
idling; Section 204--Near term vehicle technology program; Section 
401--Energy Savings Performance Contracts; Section 402--Deployment of 
new technologies for high efficiency consumer products; section 404--
Energy efficiency resource programs. Please provide the Committee with 
any technical comments the Department may that would improve these 
sections. In addition, please indicate any other provisions in S. 2747 
that the Department could support if technical changes were made to the 
language.
    Answer. We do not have technical comments to offer at this time. 
The Department could support Section 201 with language stipulating a 
2016 goal for each Federal agency reduce its covered petroleum 
consumption by 2 percent each year, to achieve at least a 20 percent 
reduction in petroleum consumption, as calculated from the baseline 
established by the Secretary for Fiscal Year 2005.
     Responses of Alexander Karsner to Questions From Senator Smith
                              oil savings
    Question 1a. In his State of the Union address, the President 
announced a goal of reducing by our oil imports from the Middle East by 
75% by 2025. The bill under discussion, S. 2747 calls for formulation 
of an action plan to achieve specific oil savings in the future. In 
your testimony, you stated that these targets might not have been 
achievable. Given the broadly recognized importance of reducing our 
dependence on oil, it is critical that we have a clear understanding of 
what is achievable. Specific question are:
    What oil savings targets does DOE recommend as being both 
achievable and consistent with meeting the President's goal?
    Answer. The Advanced Energy Initiative, proposed by President Bush 
in his recent State of the Union Address, proposes a 22 percent 
increase in clean-energy research at the Department of Energy (DOE) 
that will accelerate breakthroughs in developing and using alternative 
sources of energy--which will ultimately help diversify our energy mix. 
Funding will help develop clean, affordable sources of energy that will 
reduce the use of fossil fuels and lead to changes in the way we power 
our homes, businesses and cars. With respect to the President's goal of 
reducing oil imports, programs under the AEI, if successful in 
achieving major breakthroughs in all vehicles and fuels initiatives, 
would alone displace the need for up to 5 million barrels of oil per 
day by 2025.
    Question 1b. What are the several key measures that DOE recommends 
as most important to achieving those targets?
    Answer. Specific goals include developing advanced battery 
technologies that allow a plug-in hybrid-electric vehicle to have a 40-
mile range operating solely on battery charge, reducing the cost of 
cellulosic ethanol to $1.07/gallon by 2012, and making progress towards 
the President's goal of enabling large numbers of Americans to choose 
hydrogen fuel cell vehicles by 2020. The aggressive oil reduction 
target will be accomplished through the ability to convert a wider 
variety of regionally available biomass feedstocks and agricultural 
wastes and the validation of those technologies and their related 
economics and the development of lithium ion batteries and other 
technologies for plug-in hybrids technologies that offer the potential 
to make significant reductions in petroleum use. If research is 
successful, hydrogen fuel cell vehicles could also contribute to 
reducing oil demand, though not till about 2020.
    Question 1c. In particular, given the importance of vehicle 
efficiency, what oil savings contributions does DOE recommend from 
increases in efficiency, and how should those efficiency gains be 
implemented?
    Answer. The FY 2007 Presidential budget request reallocated vehicle 
funding program resources to increase focus on plug-in hybrid electric 
vehicle (HEV) research. Our technological goals are ambitious, and 
progress to date is good. We have seen pre-competitive advances in the 
reduction in the cost of the next generation of batteries, as well as 
improvements in the cost and performance of other essential components 
of HEVs. Other indicators of progress include advances in the nickel 
metal hydride battery developed through DOE-sponsored R&D. Work is 
underway to develop the high energy batteries for plug-in HEVs.
    Question 1d. A second key factor to oil usage in transportation is 
total vehicle miles traveled. What contribution toward oil savings does 
DOE recommend from this factor, and how should that be achieved?
    Answer. The focus of the Advanced Energy Initiative is to change 
the way we power our, homes, businesses, and vehicles by employing new 
technologies to improve the efficiency of our oil use and develop 
alternative fuels to displace oil rather than the promotion of policies 
to reduce the number of miles traveled.
                             federal fleets
    Question 2. In your testimony, you indicate that the Administration 
is committed to federal leadership in advancing vehicle efficiency and 
alternative fuels in federal fleets, yet you have reservations about 
the specific federal fleet measures contained in S. 2747.
    Please outline the key features of a federal fleet program that 
both would achieve the significant oil savings as envisioned in S. 2747 
and would have high likelihood of success.
    Answer. DOE believes that establishing Fiscal Year 2005 as a 
baseline and extending the 20 percent petroleum consumption goal to 
Fiscal Year 2016 with a 2 percent reduction each year would be a more 
effective target.
                     renewable portfolio standards
    In your verbal testimony, you indicated that leaving RPS policies 
in the hands of the states allows states to adopt policies that are 
best suited to their renewable resource availabilities. However, this 
approach doesn't seem to recognize that wholesale electricity markets 
are regional in nature.
    Question 3a. Under a federal RPS, wouldn't power suppliers in each 
state be likely to use the most cost-effective resources anyway?
    Answer. The Administration opposes a national RPS because power 
generation options and renewable resources vary widely from state to 
state, because states hold different views of the types of resources 
that they would like to support, and because retail electricity sales 
are regulated largely at the state level. A national RPS could create 
``winners'' and ``losers'' among regions of the country the winners 
being the regions with ample renewable resources, and the losers being 
the regions without. A national RPS could lead to higher energy bills 
and opposition to renewable energy moving into the mainstream of the 
Nation's energy supply mix.
    Question 3b. Has there been any analysis of the economic 
differences between implementation of state-by-state versus national 
RPS policies?
    Answer. The Department bases its opposition to a national RPS on 
past Federal interventions in the marketplace such as the Fuel Use Act 
of 1978 which effectively curtailed the use of natural gas for 
electricity generation. The EIA has analyzed RPS provisions in various 
studies including Impacts of a 10-Percent Renewable Portfolio Standards 
in 2002, and Analysis of a 10-Percent Renewable Portfolio Standard in 
2003, outlining, in part, the costs to industry of implementing a 
national RPS.
    Question 3c. What approach would renewable power systems developers 
prefer?
    Answer. A third of the states representing 35 percent of the total 
electricity load for the U.S., have adopted RPS standards. These 
policies are beginning to drive the development of the renewable energy 
marketplace at a healthy rate. For example, the RPS policies in Texas, 
New York, Minnesota, California, Colorado, Pennsylvania, and New Mexico 
are expected to deliver significant new wind capacity additions in the 
coming years.
    Question 3d. What about utilities and power suppliers?
    Answer. We believe that regional stakeholders, including utilities 
and power suppliers, working with governors, state legislatures, and 
energy companies are in the best position to develop a portfolio 
standard that will suit their states' energy, environmental, and 
economic needs. If RPS standards are too aggressive, supply constraints 
and high costs may result, causing adverse effects in the promotion of 
market adoption of renewable technologies.
     Responses of Alexander Karsner to Questions From Senator Wyden
    Question 1. Near-term Vehicle Technology Program: could the goals 
of this section be accomplished by expanding DOE authorities under the 
Cooperative Research and. Development Act? Government research alone in 
these areas won't bring cleaner, safer, more fuel-efficient cars and 
trucks to market.
    Answer. No, the goals of Section 204 could not be accomplished by 
expanding DOE authorities under the Cooperative Research and 
Development Act (CRADA).
    The CRADA is one of several research tools that DOE uses 
extensively to engage industry in our programs for specific purposes. 
Although it is an effective tool, expanding the CRADA authority is not 
a substitute and would not be sufficient for carrying out the total 
core research, development, and technology validation that the 
Department performs.
    Question 2. Light-weight materials research and development: DOE, 
DOD and NASA are already funding R&D in super light-weight carbon 
materials and nanotechnologies. Is another government-wide research 
plan going to make a difference in the time it will take to bring new 
materials to market? What can be done to accelerate the production of 
lightweight materials? Would DOE support a production tax credit for 
light-weight materials manufacturing?
    Answer. The DOE Automotive Light-weight Materials development 
effort differs from the DOD and NASA efforts in that they have very 
different cost, performance, and operational characteristics. The DOE 
program has already helped bring new aluminum, magnesium, and polymer 
composites processing technologies to market sooner. (There is very 
little nanomaterials research in the DOE Materials program.) The 
production of light-weight materials for cars and trucks might be 
accelerated by tax incentives for more fuel efficient vehicles (non 
technology-specific). Production tax credits specifically for light-
weight materials manufacturing might be too technology specific and 
could distort rational engineering and design choices.
    Question 3. Federal Renewable Portfolio Standards . . . your 
testimony notes that the Bush Administration opposes a Federal 
renewable portfolio standard (RPS) and instead prefers to rely on state 
RPS programs to encourage investment in renewable energy. Approximately 
20 states have adopted RPS programs. These programs differ in how they 
treat various renewable energy technologies. In addition, some states 
only reward renewable energy generated in a particular state. The 
states that have acted also differ in means of enforcement. This 
hodgepodge of state RPS programs could very well stunt the development 
of renewable energy projects which rely on well-functioning regional 
markets that allow developers to trade renewable energy and credits 
across state lines pursuant to consistent rules. How can the Bush 
Administration rely solely a state-by-state approach to RPS programs 
when it supports the development of regional electricity markets?
    Answer. We believe that regional stakeholders, including utilities 
and power suppliers, working with governors, state legislatures, and 
energy companies are in the best position to develop a portfolio 
standard that will suit their states' energy, environmental, and 
economic needs. If RPS standards are too aggressive, supply constraints 
and high costs may result, causing adverse effects in the promotion of 
market adoption of renewable technologies. A third of the states, 
representing 35 percent of the total electricity load for the U.S., 
have adopted RPS standards. These policies are beginning to drive the 
development of the renewable energy marketplace at a healthy rate. For 
example, the RPS policies in Texas, New York, Minnesota, California, 
Colorado, Pennsylvania, and New Mexico are expected to deliver 
significant new wind capacity additions in the coming years.
    Question 4. In reply to a question on RPS from Senator Alexander 
you stated that a national RPS would drive up energy prices in the 
states without a RPS or renewable energy resources of their own. Yet 
according to Cliff Chen, who authored a recent study of state RPS with 
DOE Lawrence Berkeley National Lab energy researchers Ryan Wiser and 
Mark Bolinger, mandatory renewable energy programs now used in more 
than half the United States have little effect on the rates consumers 
pay for electricity or the national economy. Why then does DOE continue 
to oppose adoption of a national RPS?
    Answer. The Administration opposes a national RPS because power 
generation options and renewable resources vary widely from state to 
state, because states hold different views of the types of resources 
that they would like to support, and because retail electricity sales 
are regulated largely at the state level. A national RPS could create 
``winners'' and ``losers'' among regions of the country, the winners 
being the regions with ample renewable resources, and the losers being 
the regions without. A national RPS could lead to higher energy bills 
and opposition to renewable energy moving into the mainstream of the 
Nation's energy supply mix.
    Question 5. Does DOE support the inclusion of wave/ocean power and 
incremental hydro in the definitions of renewable energy sources 
provided in S. 2747?
    Answer. Yes, DOE supports wave/ocean power and incremental hydro 
technologies as renewable energy sources.
    Question 6. Sec. 207 . . . Funding for Alt Fuels Infrastructure: 
have any of the panelists examined which is the quickest and most cost-
effective way to build out the infrastructure needed to deliver ethanol 
to U.S. consumers?
    Answer. No, a study of the quickest and most cost effective way to 
build out the ethanol infrastructure has not been undertaken. However, 
the Vehicle Technologies Program is currently developing a 
comprehensive ethanol strategy covering R&D and deployment.
    Responses of Alexander Karsner to Questions From Senator Salazar
    Question 1. The Enhanced Energy Security Act (S. 2747) and S. 2025, 
the Vehicle and Fuel Choices for American Security Act of 2005, on 
which it is based, is strong bipartisan legislation that will help us 
accomplish the President's goal of reducing our dependence on foreign 
oil.
    Please provide me and the members of this Committee with the 
Department of Energy's formal position on the oil savings targets set 
out in Title I of the bill.
    Answer. The goals established in Title I of the Enhanced Energy 
Security Act might not be able to be met even with aggressive 
technology-forcing increases in CAFE standards that disregard highway 
safety. While the Advanced Energy Initiative is expected to help 
achieve these long-term goals, there remain uncertainties in technology 
development and commercial uptake that make it imprudent to legislate 
an arbitrary end-result. In addition, the President has asked Congress 
for authority to reform and increase passenger car CAFE standards but 
has indicated that highway safety, technology and economics need to be 
considered when determining the maximum feasible fuel economy standard. 
As before, an arbitrary savings goal should not be used to set the 
standard.
    Question 2. During his State of the Union speech, the President of 
the United States announced a national goal to reduce 75% of our oil 
imports from the Middle East by 2025. Out of the 12 million barrels 
(mbd) the U.S. imports daily, only 2 mbd actually come from the Middle 
East. According to the Energy Information Administration, by 2025 the 
United States is projected to import close to 20mbd, of which 5mbd will 
come from the Persian Gulf. The President's oil savings target is 
therefore 3.75mbd by 2025.
    Is that goal achievable? Is it achievable using the tools contained 
in S. 2747 (or S. 2025) and without any increases in CAFE standards?
    Answer. The Advanced Energy Initiative, proposed by President Bush 
in his recent State of the Union address, proposes a 22 percent 
increase in clean-energy research at the Department of Energy (DOE) 
that will accelerate breakthroughs in developing and using alternative 
sources of energy--which will ultimately help diversify our energy mix. 
With respect to the President's goal of reducing oil imports, programs 
under the AEI, if successful in achieving major breakthroughs in all 
vehicles and fuels initiatives, would alone displace the need for up to 
5 million barrels of oil per day by 2025.
    Question 3. S. 2747 (and S. 2025 on which it is based) is 
aggressive in encouraging increased production of biofuels and 
investment in renewable fuels systems and infrastructure. In that 
respect, it would advance one of the goals of the President's Advanced 
Energy Initiative. Do you agree?
    Answer. The Department of Energy and the Administration have not 
had sufficient time to review or coordinate its interagency review of 
S. 2747 and therefore does not have a formal position on this 
legislation.
    Question 4. S. 2747 sets goals for improving the efficiency of our 
vehicle fleet and for getting more advanced vehicles on the road. It 
sets these goals and then helps manufacturers retool their vehicle 
fleets to meet them.
    What steps has the Department taken under your leadership to 
encourage American Automobile manufacturers to embrace these goals and 
to increase market penetration of advanced vehicle technologies?
    Answer. The FreedomCAR partnership was established in 2002 to 
provide a mechanism for U.S. automobile manufacturers to work 
cooperatively with the Federal Government in pre-competitive research 
areas that show the promise of significantly reducing the use of 
petroleum. To this end the Department of Energy provides financial 
assistance and technical expertise to support research activities that 
cover a broad spectrum of technologies that will have significant 
impact in near term, mid term, and long term. Near term activities are 
focused on increasing the efficiency of internal combustion engines to 
reduce consumption and utilizing alternative fuels, such as ethanol, to 
directly displace petroleum use. Mid term activities are focused on 
developing advanced hybrid vehicle technologies, such as cost effective 
long range batteries for plug-in hybrids that can significantly reduce 
petroleum consumption. In the long term the partnership is pursuing a 
new paradigm in transportation: the complete replacement of petroleum 
use in automobiles through the use of hydrogen.
    Question 5. Your prepared testimony expresses ``concerns'' with the 
federal fleet requirements in S. 2747 and questions ``the 
effectiveness'' of the vehicle retirement program ``with respect to 
cost and life-cycle energy savings under economic analysis.'' You also 
state with reference to Section 206 of the bill that new loan 
guarantees for the manufacture of fuel efficient vehicles ``would be 
largely unnecessary.''
    Please explain the Department's ``concerns'' and share with me and 
the members of this Committee the economic analysis on which the 
Department bases its criticism of the bill. Please also explain why 
additional incentives for automobile manufactures to develop new fuel 
efficient vehicles are unnecessary.
    Answer. Section 202(c) would benefit from the inclusion of a 
requirement that payments are only made with proof that a new efficient 
vehicle is being purchased.
    Otherwise payments could be made to owners of little used ``extra'' 
vehicles, which will not materially affect the consumption of 
petroleum.
    EPAct 2005 already authorizes grants to support the production of 
fuel efficient vehicles. There is little reason to provide loan 
guarantees to automobile manufacturers that typically have access to 
capital. These loan guarantees would be difficult to administer 
compared to loan guarantees for discreet facilities such as renewable 
energy plants, nuclear power plants, or gasification plants.
                       renewable energy standard
    Question 6. Wild swings in the price of natural gas are 
dramatically increasing costs of production for sectors of the economy 
ranging from farmers to the petrochemical industry. Studies by the 
Energy Information Administration indicate that increasing the use of 
renewable energy sources would result in reduced demand and lower 
prices for consumers and large industrial users.
    Does the Administration support measures that would ensure an 
increase in the deployment of renewable energy sources, which would in 
turn reduce the price of natural gas?
    Answer. Our main priorities are reducing America's growing 
dependence on foreign oil and generating clean electricity. We have 
directed our resources to those programs with the greatest potential to 
contribute to those priorities. One of the goals is to reduce the cost 
of solar photovoltaic technologies so that they become cost-competitive 
by 2015, and expand access to wind energy through technology. The 
Administration is also supportive of EPAct 2005 provisions which 
contained $3.4 billion over ten years in tax incentives to encourage 
the production of electricity using renewable wind, solar, biomass, and 
geothermal energy sources, including the first-ever tax credit for 
residential solar energy systems. Diversification of our electric power 
sector will ensure the availability of affordable electricity and ample 
natural gas supplies.
    Question 7. Several studies indicate that two of the principle 
barriers to increasing the use of renewables are a lack of long term 
markets and a lack of effective financing mechanisms.
    I know you have a particular interest in private-public 
partnerships for new alternative energy technologies. Please describe 
for me and the members of this Committee the steps that the Department 
will take under your leadership to address these dual barriers.
    Answer. The Office of Energy Efficiency and Renewable Energy 
continues to support the development of long-term energy markets that 
provides a diverse supply of reliable, affordable, and environmentally 
sound energy through investment, development, and public-private 
partnerships. EERE provides cost shared funding so these collaborative 
partnerships can research and develop transformational technologies 
which can then be commercialized by the private sector. Examples of 
formal partnerships include the FreedomCAR Partnership and the 21st 
Century Truck Partnership.
    Question 8. As you point out in your prepared testimony, the 
Administration has opposed a federal renewable energy standard, arguing 
that ``RPS standards are best left to the States.'' At least 22 states 
and the District of Columbia now have in place some sort of requirement 
to increase the use of renewable energy. These programs differ in how 
they treat various renewable energy technologies. In addition, some 
states only reward renewable energy generated in a particular state. 
The states that have acted also differ in means of enforcement. This 
hodgepodge of state RPS programs could very well stunt the development 
of renewable energy projects which rely on well-functioning regional 
markets that allow developers to trade renewable energy and credits 
across state lines pursuant to consistent rules.
    What is the rationale for the Administration's stated preference 
for a state-by-state approach to renewable energy programs when it 
supports the development of regional electricity markets?
    Answer. The Administration opposes a national RPS because power 
generation options and renewable resources vary widely from state to 
state, because states hold different views of the types of resources 
that they would like to support, and because retail electricity sales 
are regulated largely at the state level. A national RPS could create 
``winners'' and ``losers'' among regions of the country, the winners 
being the regions with ample renewable resources, and the losers being 
the regions without. A national RPS could lead to higher energy bills 
and opposition to renewable energy moving into the mainstream of the 
Nation's energy supply mix.
    Question 9. Several trade organizations have charged that the lack 
of a single federal standard for connecting to the electric grid allows 
individual utilities to devise Byzantine procedures that hamper the 
ability of renewable energy companies to connect to the electrical 
grid.
    Would the Administration support a national ``net-metering'' 
standard that would reduce these regulatory barriers?
    Answer. The Administration supports the provisions in EPAct 
Sections 1252-1254, which require states and non-regulated utilities to 
analyze demand response/advance metering, net metering, and 
interconnection issues but allows states to make their own 
determination on standards based on that assessment.
               renewable energy (production tax credits)
    Question 10. Many in the renewable trade associations have charged 
that an ``on-again-off-again'' production tax credit is crippling our 
deployment of renewables, because reliable financial predictions are 
difficult to make with such short term tax credits. Businesses order 
renewable energy technologies, such as wind turbines, in time to 
qualify for tax credits, leading to significant backlogs and increased 
prices, but orders drop off again when it appears that the production 
tax credits may expire. As a result of these peaks and valleys in 
demand, the manufacturers of the equipment cannot expand their 
production capacity.
    Will the Administration support a long term extension of the 
production tax credits and clean energy bonds for renewables, so that 
consumers and producers can make plans to buy or to produce renewable 
energy technology more than one year at a time?
    Answer. The Administration has not developed a formal position on 
long-term extension of production tax credits.
              national renewable energy laboratory (nrel)
    Question 11. In 2005, drastic personnel reductions were threatened 
at the National Renewable Energy Laboratory in Colorado. Shortly before 
the President visited NREL, the Department of Energy announced that it 
was allocating an additional $5 million to NREL to re-hire the 
researchers and staff. These budget shortfalls also required NREL to 
reduce or postpone research contracts with key technical partners 
outside of NREL and DOE. Unfortunately, sufficient funding was not 
available to restore the research contracts. Such budget uncertainties 
make it very difficult for NREL to attract and retain high quality 
staff members and research partners in today's competitive environment.
    What steps has the Department taken or will the Department take to 
ensure that NREL will have sufficient and reliable funding in FY07, so 
that the laboratory can continue to lead the nation's efforts to 
develop renewable energy sources and to offer new advances in energy 
efficiency?
    Answer. In his State of the Union address, the President announced 
new solar and biofuels initiatives designed to accelerate the 
contribution of these transformational technologies to the Nation's 
energy portfolio. The President has requested commensurate funding 
increases for the Department's Solar Technology and Biomass programs, 
through which these initiatives will be managed, as well as funding 
increases in its Wind and Hydrogen, Fuel Cells & Infrastructure 
Technologies research and development programs. Together, the Solar, 
Biomass, Wind, and Hydrogen programs form the core of NREL's research 
and development capabilities, collectively accounting for 60 percent of 
all NREL funding. Depending on appropriations, NREL will likely receive 
increased funding in FY 2007 to support these initiatives. (The 
Department's Preliminary Lab Tables released with the FY 2007 Budget 
are estimates and may need revision.)
    It is important to note each DOE program allocates funding to 
various national labs or to competitive solicitations for industry or 
university researchers in ways to best accomplish program goals. 
Increased funding for a program does not necessarily translate to 
increased funding for each national lab currently receiving funding 
from that program.
        federal renewable energy and energy efficiency programs
    Question 12. What is the total amount of money that the federal 
government will spend on renewable energy and energy efficiency 
research and development for FY06? What percentage is that of the U.S. 
GDP?
    What are the corresponding amounts of money and the relative share 
of GDP for our major international economic competitors, including 
Brazil, Canada, China, Germany, Great Britain, India and Japan?
    Answer. According to the 2006 edition of Energy Policies of IEA 
Countries (forthcoming), in 2005, the U.S. spent 366.09 million dollars 
on energy efficiency RD&D and 242.81 million dollars on renewable 
energy sources RD&D. This represented approximately 0.005% of U.S. GDP 
in 2005. These figures represent funding reported by the Energy 
Information Agency to the IEA, and likely exclude significant amounts 
of RD&D conducted at agencies other than DOE.

----------------------------------------------------------------------------------------------------------------
                                                                                      Renewable
                                                                         Energy         energy      % of GDP in
                                                                       efficiency    sources RD&D     national
                                                                      RD&D  ($ in       ($ in         currency
                                                                       millions)      millions)
----------------------------------------------------------------------------------------------------------------
U.S................................................................         366.09         242.71          0.005
Canada.............................................................          46.67          33.79          0.007
Germany............................................................          24.33         123.51          0.005
UK.................................................................           0.00          66.49          0.003
Japan..............................................................         464.73         285.41          0.016
----------------------------------------------------------------------------------------------------------------

    No RD&D information on Brazil, China and India is available as they 
are not TEA countries and do not report their data to that 
organization.
    Question 13. Your prepared testimony highlights certain federal 
energy-efficiency programs, such as Energy Star and Building Codes 
Assistance, the Federal Energy Management Program, and the 
Weatherization Program. But the President's budget request for fiscal 
year 2007 proposes significant cuts to each of these vital programs 
designed to cut pollution and save energy.
    Do you agree with me that, at a time of record high natural gas and 
oil prices, we must invest more, not less, in technologies and 
practices that promise the quickest, cleanest and cheapest means of 
addressing tight energy supplies and extraordinarily high prices?
    Answer. In this year's Department of Energy FY 2007 budget request 
we realigned some priorities. The Advanced Energy Initiative, proposed 
by President Bush in his recent State of the Union Address, proposes a 
22 percent increase in clean-energy research at the Department of 
Energy (DOE) that will accelerate breakthroughs in developing and using 
alternative sources of energy--which, will ultimately, help diversify 
our energy mix. With respect to the President's goal of reducing oil 
imports, programs under the AEI, if successful in achieving major 
breakthroughs in all vehicles and fuels initiatives, could alone 
displace the need for up to 5 million barrels of oil per day by 2025.
    As part of the Advanced Energy Initiative, $150 million has been 
requested for biomass; $30 million to develop better battery technology 
for hybrid cars; and $148 million for the Solar America Initiative; and 
$44 million for wind energy research.
    Within the Building Technologies program, there are funding 
increases for building integration, technology validation, and market 
introduction as well as support for equipment standards and analysis. 
The request continues strong support for the development of solid state 
lighting technologies that can significantly reduce lighting 
electricity consumption in commercial buildings. Funding for energy 
efficient vehicle technologies, exclusive of Congressionally directed 
activities (i.e. earmarks) and transfers, is level with the FY 2006 
appropriation. The FY 2007 request places an emphasis on the 
development of lithium ion batteries and other technologies for plug-in 
hybrids technologies that offer the potential to make significant 
reductions in petroleum use.
    The Administration also is requesting over $3 million for public 
energy education and outreach to continue our energy efficiency 
campaigns of the last few months. DOE will continue to build strategic 
partnerships with public and private groups to promote energy 
efficiency practices and technologies.
    Question 14. Before you came on board, Energy Department officials 
said the energy bill was passed too late to have significant impact on 
the 2007 budget. In fact, none of the new programs authorized in the 
bill were funded.
    As you prepare the FY08 budget, do you plan to fund the new program 
to assist states with building codes compliance, the pilot program for 
state policies to promote utility energy efficiency programs, the 
consumer education campaign, or other new energy efficiency programs in 
the bill? Will you continue to increase the funding for appliance 
standards to implement the new required rulemakings while working 
through the backlog of long-delayed standards?
    Answer. It would be premature to discuss the Fiscal Year 2008 
budget formulation process. However, the plan that the Department has 
submitted to Congress considers both the backlog and the new 
requirements detailed in EPACT 2005. The backlog in rulemakings was not 
a funding issue, but a management issue that the Department is 
committed to addressing. New management processes, including review and 
reporting requirements, have been instituted. Productivity improvements 
in the rulemaking program are taking effect and will significantly 
increase the rate at which new standards are issued.
    In Fiscal Year 2007 the program will complete action on rulemakings 
started in Fiscal Year 2005 and prior years, and will continue work on 
the 13 product standards and test procedures initiated in Fiscal Year 
2006.
                                 ______
                                 
      Response of Daniel Lashof to Question From Senator Bingaman
                      new hydraulic hybrid trucks
    Question 1. In this morning's Washington Post there is an article 
about new hydraulic hybrid trucks. It notes that these new UPS trucks 
that will be tested in Detroit have the potential to yield a 60-70 
percent saving on fuel use. The trucks were built for EPA. Have you 
performed any analysis on the potential for such hybrid hydraulic 
systems? What barriers (if any) exist to the wider deployment of this 
technology?
    Answer. Our analysis of oil savings from heavy duty trucks includes 
the hybridization of local trucks greater than 10,000 pounds gross 
vehicle weight. Fuel economy gains of 70 percent are technically 
feasible with hybridization through hydraulic or electric systems. Our 
analysis was not specific to hydraulic hybrids.
    NRDC worked with the American Council for an Energy Efficient 
Economy (ACEEE) to evaluate the fuel savings from heavy duty vehicles. 
ACEEE compiled a list of barriers to improving heavy truck efficiency, 
including the greater adoption of hydraulic and other hybrid systems, 
in their January 2006 report ``Reducing Oil Use through Efficiency: 
Opportunities beyond Cars and Light Trucks''. The barriers to and 
policies for improved heavy truck efficiency from the report (pages 18-
20) are excerpted below:
                                barriers
   Lack of fuel economy information: The absence of a fuel 
        economy testing and labeling requirement for heavy trucks 
        creates a failure in the current market, in that truck buyers 
        lack the information to choose the most efficient truck. In 
        addition, the variety in tractor-trailer duty-cycles makes 
        trucking companies reluctant to accept claims of efficiency 
        improvements without extended testing of products on their own 
        fleets.
   High initial cost: Efficiency technologies typically 
        increase the purchase price of a truck. Many truck purchasers 
        are unable to pay this price increment, even if the 
        technologies have short payback times. For example, APUs can 
        cost up to $7,000, or about three years' worth of fuel savings. 
        Three years is said to be the payback time required by truckers 
        for efficiency technologies (Stodolsky et al. 2000), so some 
        APUs would be marginal in this regard.\1\
---------------------------------------------------------------------------
    \1\ Less expensive idle reduction technologies with much shorter 
payback periods may be available in the near future (Neff 2005).
---------------------------------------------------------------------------
   Driver preferences: Trucking companies have for some years 
        experienced a severe shortage of qualified drivers and are 
        therefore eager to retain the drivers they have. In some cases, 
        fuel efficiency improvements may conflict with driver 
        preferences with regard to driving practices, aerodynamic 
        treatments, and engine settings.

   Industry structure: Truck manufacturing is not a vertically 
        integrated industry for the most part. This makes marketing of 
        efficient components directly to the users more difficult, 
        especially because component manufacturers do not have an 
        avenue for demonstrating their efficiency benefits within 
        complete trucks.
   Resale market: Limited value is assigned to efficiency in 
        the used truck market.
   Manufacturer risk: The manufacturers' risks in investing in 
        new technology, and the fact that competing manufacturers can 
        often take advantage of the leader's technology, serve as a 
        barrier, particularly in light of fuel price volatility.
                                policies
   Fuel economy standards for tractor-trailers: There are at 
        present no fuel economy standards for vehicles over 8,500 lbs. 
        in the United States (or elsewhere, for that matter). Tractor-
        trailers are relatively homogeneous, making this a good class 
        of vehicles for fuel economy standards from the standpoint of 
        feasibility. In particular, because the vast majority of 
        tractor-trailer miles are driven on the highway, the problem of 
        choosing an appropriate test cycle is much simplified.
   Funding for idle reduction technologies: Partial government 
        subsidies for idle reduction technologies for a limited period 
        of time would result in a decline in cost. The Energy Policy 
        Act of 2005 authorizes $95 million in spending on anti-idling; 
        if appropriated, this would be sufficient to have a major 
        impact. The funds should be applied to develop a range of 
        technologies, however, and not limited to a single approach 
        such as truck stop electrification that applies to a limited 
        truck population.
   Extended tax incentives for hybrids: The Energy Policy Act 
        of 2005 includes tax credits for heavy-duty (as well as light-
        duty) hybrids. The amount of credit depends on size, fuel 
        economy benefit, and incremental cost (see Table A-2). The 
        credits will offset some of the high purchase costs of these 
        vehicles and bring down the incremental costs by raising 
        production levels. At a fuel price of $2.05 per gallon, the 
        credits together with three years' fuel savings would more than 
        offset incremental costs for Class 6-8 hybrids and would be 
        almost sufficient for Classes 3-5 as well. The credits are only 
        available through 2009, however, which is not sufficient time 
        to allow for new product development. A five-year extension of 
        the credits could greatly enhance the success of the program.
   Hybrid R&D funding: Funding for hybrid research and 
        development is also a determinant of the rate at which hybrids 
        enter the market. DOE should renew its commitment to the 
        ambitious fuel economy targets laid out in its ``Technology 
        Roadmap for the 21st Century Truck Program'' (DOE 2000) and 
        maintain funding levels for development of hybrids and other 
        technologies needed to achieve those targets.
   Fuel economy standards for Class 2b trucks: Fuel economy 
        standards, feebates, and incentives to promote hybridization 
        all warrant consideration for Class 2b. This class includes a 
        wide range of vehicle types, but 80% are pickups (Davis and 
        Truett 2002), which together with vans, panel trucks, and sport 
        utility vehicles make up over 96% of the total. These vehicles 
        have under-8500-lb. counterparts and bringing them under CAFE 
        or a feebate scheme would pose no serious technical obstacles.
       Responses of Daniel Lashof to Questions From Senator Smith
                              oil savings
    Question 1. In your testimony, you include an ``oil savings 
toolbox'' that lists oil savings that can be achieved by several 
individual actions.
    Do the listed savings represent the results of an integrated 
analysis? In other words, can these savings be added, or are the 
savings from some factors likely to overlap with savings from others?
    Answer. The savings are the result of an integrated analysis. For 
example, the oil savings from fuel efficient motor oil used in on-road 
vehicles are calculated assuming that the savings from fuel-efficient 
tires are already achieved. This methodology eliminates the `double-
counting' of fuel savings and allows the measures presented in the 
toolbox to be added as shown.
    Question 2. Does the analysis include the effects of ``take back,'' 
which represents an inclination of drivers to increase vehicle miles 
traveled if vehicle efficiency is increased?
    Answer. The oil savings analysis does consider the effects of 
``take back'', also known as the ``rebound effect.'' When considering 
improvements in light-duty vehicle efficiency, it is assumed that there 
is rebound effect of 10%, meaning a 10% increase in fuel economy 
results in a 1% increase in vehicle miles traveled. This is a 
conservative assumption considering recent analysis by economists 
Kenneth Small and Kurt Van Dender demonstrating that the rebound effect 
ranges between 2.6 percent and 12.1 percent\2\ and the average long-
range value is 6.8 percent.\3\
---------------------------------------------------------------------------
    \2\ Small, Kenneth and Kurt Van Dender, ``The Effect of Improved 
Fuel Economy on Vehicle Miles Traveled: Estimating the Rebound Effect 
Using U.S. State Data, 1966-2001,'' University of California Energy 
Institute, Berkeley, California, September 2005
    \3\ Van Dender, Kurt, ``Recent Estimates of the Rebound Effect and 
Their Relevance to Proposed CAFE Reforms for Light Trucks'', a 
presentation provided to at a workshop sponsored by Resources for the 
Future, October 20, 2005.
---------------------------------------------------------------------------
       Responses of Daniel Lashof to Questions From Senator Wyden
    Question 1. Sec. 207 . . . Funding for Alt Fuels Infrastructure: 
have any of the panelists examined which is the quickest and most cost-
effective way to build out the infrastructure needed to deliver ethanol 
to U.S. consumers?
    Answer. A sustained and balanced set of policies that includes 
infrastructure requirements, tax incentives and federal funding are 
necessary to scale up the biofuels market and the availability of 
ethanol at the pump. Enacting these measures would also assure 
investors that there will be a growing long term market for sustainably 
made biofuels and attract the venture capital needed to quickly 
commercialize new cellulosic biofuels technologies.
    The quickest and most effective way to deliver biofuels to 
consumers over the next ten years would be to establish standards and 
incentives to increase the availability of E85 (85 percent ethanol and 
15 percent gasoline) and flexible fuel vehicles. NRDC recommends the 
following measures:

          (1) Require a growing percentage of all new light-duty 
        vehicles to be flexible-fuel capable. At least fifty percent of 
        all new vehicles should be flexible-fuel by model year 2012. 
        Getting flexible fuel vehicles into the hands of consumers will 
        help grow the market for biofuels and expedite consumer 
        acceptance and demand for E85 fuel.
          (2) Eliminate CAFE (Corporate Average Fuel Economy) credits 
        for flexible fuel vehicles to ensure that use of flexible fuel 
        vehicles actually results in fuel savings.
          (3) Require a growing percentage of retail gas stations to 
        install E85 pumps, starting with areas that have a significant 
        percentage of registered flexible fuel vehicles and local 
        ethanol production.

    To ensure that biofuels are produced from diverse sources and 
perform better than gasoline, the following policies should be adopted 
along with the above infrastructure requirements.

    (1) Ramp up the cellulosic ethanol production required by the 
Renewable Fuel Standard (RFS) from 250 million gallons in 2013 to 1 
billion gallons by 2016, and set interim production requirements for 
2009 through 2012.
    (2) Require a growing percentage of ethanol be sold as E85 fuel 
over the next decade, reaching at least 40 percent of ethanol 
production by 2015.
    (3) Establish lifecycle greenhouse gas performance standards for 
renewable fuels that ensure growing emission reductions compared with 
conventional gasoline.
                                 ______
                                 
    Responses of Kateri Callahan to Questions From Senator Bingaman
                                feebates
    Question 1. Please provide for the record a more detailed 
explanation of how the concept of feebates work and how a potential 
program could be implemented here in the United States.
    Answer. The basic concept of a feebate program is to provide an 
incentive for efficient vehicles that is paid for by a fee on 
inefficient vehicles. It will work best if the incentives and fees are 
large enough to affect manufacturer and consumer choices, and if they 
are applied broadly enough to shift the full automotive market. But 
there are many ways a feebate could be implemented, with options on who 
administers it, on what vehicles are included, and on the amount of the 
fees and rebates applied.
    Who administers to whom: The fees and rebates could be applied to 
the manufacturers, retailers, or purchasers of new vehicles. 
Administration of the program would be easiest if it is applied to 
manufacturers since there are so few. Additionally, feebate analysts 
conclude that the greatest efficiency gains will come from 
manufacturers as they improve the technology in their vehicles, rather 
than from consumer purchasing decisions. The amount of the fee or 
rebate could be reported on the vehicle fuel economy label to increase 
consumer awareness and help drive appropriate purchasing decisions.
    The feebate system could be administered by the Department of 
Energy or another agency. (The National Highway Traffic Safety 
Administration at the Department of Transportation already administers 
CAFE fines to vehicle manufacturers.) Finally, the fees and rebates 
could be applied as a refundable excise tax by the Internal Revenue 
Service, similar to the current gas guzzler tax.
    What vehicles are covered, in what categories: In order to maximize 
the impact and prevent gaming, the fees and rebates should be applied 
to all light duty vehicles (cars, SUVs, minivans, and pickup trucks). 
And, it should include vehicles currently heavier than CAFE limits, up 
to at least 10,000 pounds.
    The simplest approach would be to put all vehicles in one category. 
However, as smaller vehicles would generally receive rebates, and 
larger vehicles be assessed fees, manufacturers of larger vehicles 
would inherently be at a disadvantage under such a system.
    If Congress wishes to encourage fuel-efficient technologies, 
without influencing the kind of vehicles people buy, the vehicles could 
be divided into several categories, with fees balanced against rebates 
for vehicles in each category. For example, vehicles could be divided 
based on vehicle footprint (length multiplied by width) as in the new 
light truck CAFE standards. The categories should be broad enough to 
ensure competition in each category and to discourage manipulating 
vehicles to shift between categories. Because most of the impact of 
feebates is likely to be on manufacturer technology, not customer 
choice, well-designed categories should only slightly reduce the 
savings from a feebate. Multiple categories will, however, lead to some 
vehicles receiving a rebate even though they have worse fuel economy 
than other vehicles that must pay a fee (i.e., an ``efficient'' SUV 
could receive a rebate in that category while an ``inefficient'' 
compact car would be assessed a fee). With multiple categories, 
manufacturers and consumers are not penalized or rewarded because of 
the kind of vehicles they make or buy. The Alliance to Save Energy 
recommends this approach to application of fees and rebates on 
vehicles.
    How much is the rebate or fee: If the purpose is to maximize oil 
savings, the fees and rebates should be proportional to the gallons of 
gasoline that the vehicle can be expected to use over its lifetime, or 
to gallons per mile (``gpm''--the inverse of mpg) assuming the number 
of miles is fixed. This is the same metric that is averaged in 
calculating fleet fuel economies for CAFE.
    A range of amounts have been proposed, from 25 cents per gallon to 
$3.00 per gallon, or less than $500 per .01 gpm to more than $2000 per 
.01 gpm. The amount can be set to incorporate fuel usage externality 
costs in vehicle choices, or to incorporate the actual cost of gasoline 
that consumers may not think about when buying a vehicle. Costs will be 
minimized if the feebate is phased in over a period of years in order 
to allow manufacturers time to respond with new technologies. Greene 
and coauthors estimated a $1000 per .01 gpm feebate would increase 
average fuel economy to 32 mpg (compared to about 24 mpg today--using 
the inaccurate mpg values employed in the CAFE program).
    The fee or rebate for each vehicle is set based on the gpm compared 
to a midpoint gpm. The midpoint gpm (or mpg) that divides between fees 
and rebates in a vehicle category can be set so that the total value of 
the fees is roughly the same as the total value of the rebates, so the 
program is revenue-neutral. The midpoint mpg should be reset 
periodically to maintain revenue neutrality. Assuming that average fuel 
economy improves due to the incentives from this program, the dividing 
line will be ``ratcheted up'' (e.g., the mpg value for the midpoint 
will increase) in response to changing markets. Unlike a static 
standard, a feebate creates an incentive for continual improvement.
    Question 2. If a feebate system were implemented what would its 
relationship with the CAFE system potentially be?
    Answer. A well-designed feebate system should increase overall fuel 
economy significantly. If CAFE standards remained nearly static, as 
they have for the past couple decades, they would effectively become 
irrelevant, as the average fuel economy for each manufacturer fleet 
exceeded the standards because of the feebate impacts (certain luxury 
car manufacturers might be an exception, but as they routinely violate 
CAFE standards today, it is not clear that CAFE is having much impact 
on them anyway other than requiring them to pay fines for their 
violations).
    Congress might choose to retain the CAFE system as a backstop, in 
case the feebate is poorly designed or fuel economy decreases despite 
the pressure of the feebate. If Congress or the administration does 
choose to raise CAFE standards significantly, a feebate could serve as 
an incentive to exceed those standards, and could help move the market 
to make it easier to meet the increased standards.
    If both CAFE standards and a feebate system are in place, 
automakers may find it easier to respond if the policy details, such as 
the categories of vehicles, are coordinated.
    Question 3. Section 208, ``Deployment of new technologies to reduce 
oil use in transportation ``direct the Secretary of Energy to provide 
deployment incentives for a variety of projects to reduce oil used in 
transportation. One measure allowed is a ``reverse auction.'' Are you 
familiar with this concept and its benefits?
    Answer. A reverse auction is an auction with one buyer and many 
sellers, rather than a ``conventional'' auction with many buyers and 
one seller. In a reverse auction, one seller seeks the highest price 
from bids by multiple buyers. Sec. 108 proposes a reverse auction for 
incentives for cellulosic ethanol; this issue is outside the scope and 
mission of the Alliance to Save Energy.
       Response of Kateri Callahan to Question From Senator Smith
    Question 1. Your testimony supports the adoption of feebates as a 
means of increasing vehicle efficiencies. However, at least initially 
such a program would tend to favor foreign auto companies over domestic 
companies because of the types of vehicles comprising their current 
product lines. Please comment on the possibility of establishing a 
feebate program that works on a company-by-company basis, without 
moving funds from one manufacturer to another. Could this increase 
overall fleet efficiency just as effectively, without penalizing the 
U.S. auto industry?
    Answer. A feebate rewards automakers, or their customers, whose 
vehicles use less gasoline. These companies are not necessarily 
headquartered in other countries. In fact General Motors frequently 
points out that it makes more models that get at least 30 mpg than any 
other manufacturer.
    David Greene at Oak Ridge National Laboratories and others modeled 
the impact of a feebate on manufacturers based on their product mixes 
of a few years ago. They found that a feebate with all cars and light 
trucks mixed in a single category will likely yield net savings for 
some ``foreign'' manufacturers and a net cost to ``domestic'' 
manufacturers. However, if vehicles are divided into categories, with 
fees and rebates balanced within each category, then the distributional 
impacts are different. Some ``domestic'' manufacturers--those with 
relatively fuel-efficient options in a given category--are likely to 
benefit from such a feebate.
    A feebate, as usually envisioned, does not directly transfer money 
between manufacturers; the transfer is between the government and 
individual manufacturers or customers. A system that had no net 
financial impact on any manufacturer or customer would be meaningless, 
with no impact at all. However, a feebate could in principle be based 
on each manufacturer's current fleet, with incentives for improvement 
and penalties for backsliding. Such a system should have a similar 
impact in improving overall fuel economy, though some might consider it 
manifestly unfair.
       Response of Kateri Callahan to Question From Senator Wyden
    Question 1. Sec. 207 . . . Funding for Alt Fuels Infrastructure: 
have any of the panelists examined which is the quickest and most cost-
effective way to build out the infrastructure needed to deliver ethanol 
to U.S. consumers?
    Answer. The mission of the Alliance to Save Energy is limited to 
reducing energy use. As we do not address such supply-side questions, I 
would only comment that production of ethanol, as of all fuels, is 
limited, and expansion of ethanol will only partially compensate for 
growing fuel use unless paired with greater efficiency.
    [Responses to the following questions were not received at 
the time the hearing went to press:]

                                       U.S. Senate,
                 Committee on Energy and Natural Resources,
                                     Washington, DC, June 26, 2006.
Mr. Steven Nadel,
Executive Director, American Council for an Energy-Efficient Economy, 
        Washington, DC.
    Dear Mr. Nadel: I would like to take this opportunity to thank you 
for appearing before the Senate Committee on Energy and Natural 
Resources on Thursday, June 22, 2006 to give testimony regarding S. 
2747, to enhance energy efficiency and conserve oil and natural gas, 
and for other purposes.
    Enclosed herewith please find a list of questions which have been 
submitted for the record. If possible, I would like to have your 
response to these questions by Monday, July 10, 2006.
    Thank you in advance for your prompt consideration.
            Sincerely,
                                          Pete V. Domenici,
                                                          Chairman.
[Enclosure.]
                     Question From Senator Bingaman
                      new hydraulic hybrid trucks
    Question 1. In this morning's Washington Post there is an article 
about new hydraulic hybrid trucks. It notes that these new UPS trucks 
that will be tested in Detroit have the potential to yield a 60-70 
percent saving on fuel use. The trucks were built for EPA. Have you 
performed any analysis on the potential for such hybrid hydraulic 
systems? What barriers (if any) exist to the wider deployment of this 
technology?
                      Question From Senator Wyden
    Question 1. Sec. 207 . . . Funding for Alt Fuels Infrastructure: 
have any of the panelists examined which is the quickest and most cost-
effective way to build out the infrastructure needed to deliver ethanol 
to U.S. consumers?