[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]


 
                       FULL COMMITTEE HEARING ON 
                    SMALL BUSINESS ENERGY PRIORITIES 

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

                      COMMITTEE ON SMALL BUSINESS
                 UNITED STATES HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                               __________

                            OCTOBER 17, 2007

                               __________

                          Serial Number 110-52

                               __________

         Printed for the use of the Committee on Small Business


 Available via the World Wide Web: http://www.access.gpo.gov/congress/
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                   HOUSE COMMITTEE ON SMALL BUSINESS

                NYDIA M. VELAZQUEZ, New York, Chairwoman


HEATH SHULER, North Carolina         STEVE CHABOT, Ohio, Ranking Member
CHARLIE GONZALEZ, Texas              ROSCOE BARTLETT, Maryland
RICK LARSEN, Washington              SAM GRAVES, Missouri
RAUL GRIJALVA, Arizona               TODD AKIN, Missouri
MICHAEL MICHAUD, Maine               BILL SHUSTER, Pennsylvania
MELISSA BEAN, Illinois               MARILYN MUSGRAVE, Colorado
HENRY CUELLAR, Texas                 STEVE KING, Iowa
DAN LIPINSKI, Illinois               JEFF FORTENBERRY, Nebraska
GWEN MOORE, Wisconsin                LYNN WESTMORELAND, Georgia
JASON ALTMIRE, Pennsylvania          LOUIE GOHMERT, Texas
BRUCE BRALEY, Iowa                   DEAN HELLER, Nevada
YVETTE CLARKE, New York              DAVID DAVIS, Tennessee
BRAD ELLSWORTH, Indiana              MARY FALLIN, Oklahoma
HANK JOHNSON, Georgia                VERN BUCHANAN, Florida
JOE SESTAK, Pennsylvania             JIM JORDAN, Ohio
BRIAN HIGGINS, New York
MAZIE HIRONO, Hawaii

                  Michael Day, Majority Staff Director

                 Adam Minehardt, Deputy Staff Director

                      Tim Slattery, Chief Counsel

               Kevin Fitzpatrick, Minority Staff Director

                                 ______

                         STANDING SUBCOMMITTEES

                    Subcommittee on Finance and Tax

                   MELISSA BEAN, Illinois, Chairwoman


RAUL GRIJALVA, Arizona               DEAN HELLER, Nevada, Ranking
MICHAEL MICHAUD, Maine               BILL SHUSTER, Pennsylvania
BRAD ELLSWORTH, Indiana              STEVE KING, Iowa
HANK JOHNSON, Georgia                VERN BUCHANAN, Florida
JOE SESTAK, Pennsylvania             JIM JORDAN, Ohio

                                 ______

               Subcommittee on Contracting and Technology

                      BRUCE BRALEY, IOWA, Chairman


HENRY CUELLAR, Texas                 DAVID DAVIS, Tennessee, Ranking
GWEN MOORE, Wisconsin                ROSCOE BARTLETT, Maryland
YVETTE CLARKE, New York              SAM GRAVES, Missouri
JOE SESTAK, Pennsylvania             TODD AKIN, Missouri
                                     MARY FALLIN, Oklahoma

        .........................................................

                                  (ii)

  


           Subcommittee on Regulations, Health Care and Trade

                   CHARLES GONZALEZ, Texas, Chairman


RICK LARSEN, Washington              LYNN WESTMORELAND, Georgia, 
DAN LIPINSKI, Illinois               Ranking
MELISSA BEAN, Illinois               BILL SHUSTER, Pennsylvania
GWEN MOORE, Wisconsin                STEVE KING, Iowa
JASON ALTMIRE, Pennsylvania          MARILYN MUSGRAVE, Colorado
JOE SESTAK, Pennsylvania             MARY FALLIN, Oklahoma
                                     VERN BUCHANAN, Florida
                                     JIM JORDAN, Ohio

                                 ______

            Subcommittee on Urban and Rural Entrepreneurship

                 HEATH SHULER, North Carolina, Chairman


RICK LARSEN, Washington              JEFF FORTENBERRY, Nebraska, 
MICHAEL MICHAUD, Maine               Ranking
GWEN MOORE, Wisconsin                ROSCOE BARTLETT, Maryland
YVETTE CLARKE, New York              MARILYN MUSGRAVE, Colorado
BRAD ELLSWORTH, Indiana              DEAN HELLER, Nevada
HANK JOHNSON, Georgia                DAVID DAVIS, Tennessee

                                 ______

              Subcommittee on Investigations and Oversight

                 JASON ALTMIRE, PENNSYLVANIA, Chairman


CHARLIE GONZALEZ, Texas              LOUIE GOHMERT, Texas, Ranking
RAUL GRIJALVA, Arizona               LYNN WESTMORELAND, Georgia

                                 (iii)

  
















                            C O N T E N T S

                              ----------                              

                           OPENING STATEMENTS

                                                                   Page

Velazquez, Hon. Nydia M..........................................     1
Chabot, Hon. Steve...............................................     2

                               WITNESSES

Thompson, Frank, National Association of Home Builders...........     4
Cropps, Mitchell, the Air Conditioning Contractors of America 
  andThe Plumbing-Heating-Cooling Contractors Association........     6
Rodriguez, Miguel, the American Institute of Architects..........     8
Fuller, Lee, Independent Petroleum Association of America........    10

                                APPENDIX


Prepared Statements:
Velazquez, Hon. Nydia M..........................................    30
Chabot, Hon. Steve...............................................    32
Thompson, Frank, National Association of Home Builders...........    34
Cropps, Mitchell, the Air Conditioning Contractors of America 
  andThe Plumbing-Heating-Cooling Contractors Association........    41
Rodriguez, Miguel, the American Institute of Architects..........    45
Fuller, Lee, Independent Petroleum Association of America........    52

Statements for the Record:
The Heating, Airconditioning & Refrigeration Distributors 
  International (HARDI)..........................................    60
The National Propane Gas Association (NPGA)......................    62

                                  (v)

  


                         FULL COMMITTEE HEARING
                           ON SMALL BUSINESS
                           ENERGY PRIORITIES

                              ----------                              


                      Wednesday, October 17, 2007

                     U.S. House of Representatives,
                               Committee on Small Business,
                                                    Washington, DC.
    The Committee met, pursuant to call, at 10:05 a.m., in Room 
2360, Rayburn House Office Building, Hon. Nydia M. Velazquez 
[chair of the Committee] Presiding.
    Present: Representatives Velazquez, Cuellar, Altmire, 
Braley, Clarke, Ellsworth, Sestak, Higgins, Chabot, Bartlett, 
Akin, Westmoreland and Fallin.

           OPENING STATEMENT OF CHAIRWOMAN VELAZQUEZ

    ChairwomanVelazquez. Good morning. I now call this hearing 
to order, entitled Small Business Energy Priorities.
    Our Nation's small business owners face many challenges in 
operating a successful company. The rising cost of energy 
continues to be one of the major concerns. As negotiations 
begin on comprehensive energy legislation in the coming weeks, 
it is critical to ensure that small firms, whether as producers 
or consumers of energy, are included in those discussions.
    Today's panelists will outline their priorities as Congress 
moves toward a final product. This hearing presents an 
opportunity to identify outstanding matters and solicit the 
input of the small business community. Our Nation's energy 
policies are a public/private partnership and will only work if 
small firms are able to carry them out.
    In August, the House took a major step towards greater 
energy independence when it passed H.R. 3221, the New Direction 
for Energy Independence, National Security and Consumer 
Protection Act. This legislation included the input from 10 
different House Committees. It encourages the development of 
new technologies, promotes greater conservation and efficiency, 
and calls for more green energy production.
    H.R. 3221 contained key initiatives from this Committee 
that will assist small businesses improve their energy 
efficiency. With guarantees and lower fees on SBA loans, more 
small businesses will be able to purchase efficient technology.
    The House-passed bill also creates private equity 
investment companies that will spur funding for additional 
renewable fuel production. It also requires that the SBA set up 
a national effort to educate entrepreneurs on potential energy-
efficient products and techniques that can save businesses 
money. These are just a few of the targeted measures aimed at 
small firms.
    This hearing would allow us to assess the direct and 
indirect impact of some of the proposed changes. Our focus will 
be on working to address the unique concerns of small 
businesses. Representatives of the construction, maintenance, 
installation and the designing industries are here to talk 
about how these reforms can work, but only if they are properly 
implemented. The goal of the comprehensive legislation is to 
move America forward toward increasing energy supplies and 
creating smarter usage. This will reduce overall energy 
consumption and greenhouse gas emissions, all while moving our 
economy in the right direction. Small businesses obviously will 
have an enormous role in achieving these goals.
    Based on the testimony from the panelists, it is critical 
that the Federal Government and affected industries have an 
ongoing dialogue to implement this shift in policy. There must 
be flexibility in these reforms that allow small businesses to 
work with regulators to craft workable standards even after the 
bill is signed into law.
    Small firms have been at the forefront of energy efficiency 
and the development of new technologies. From breakthroughs in 
green design and construction to the development in cellulosic 
ethanol, small businesses are the leaders in the field. They 
have not only been involved in the push for efficiency, but now 
have a role as suppliers of energy. The energy legislation 
being examined only seeks to build upon these efforts.
    I look forward to hearing the small business community's 
recommendations to improve upon the final comprehensive energy 
package. The Committee can draw on this as this Congress works 
to increase our Nation's energy independence. I appreciate the 
witnesses coming here today to talk about this important 
issues, and I look forward to today's discussion.
    ChairwomanVelazquez. I now yield to Mr. Chabot for opening 
remarks.

                OPENING STATEMENT OF MR. CHABOT

    Mr.Chabot. Thank you, Madame Chair. And thank you for 
holding this important hearing. We also want to thank all of 
the witnesses for being here. We will get to your testimony 
very shortly.
    Energy is the lifeblood of the economy. U.S. economic 
prosperity is closely tied to the availability of reliable and 
affordable supplies of energy. Even when increases inefficiency 
are taken into account, significant increases in demand are 
projected into the future. It is not just the United States 
that is going to need more energy in the coming years. Our 
traditional energy supplies will be increasingly strained by 
dramatic growth in global demand. By the year 2030, the world's 
energy needs will increase by an estimated 70 percent.
    We have had several hearings on this topic throughout this 
year, and every single small business person who has testified 
in this room has all said essentially the same thing: The 
recent volatility in the energy markets have put a tremendous 
strain on all of them, on all of our small businesses. Small 
businesses are in the same boat as the rest of us, only theirs 
is sinking a little faster because small businesses work on 
very thin profit margins. Even the smallest fluctuations in 
cost can be a matter of making a profit that month or going 
into the red.
    Increasing our focus on developing new alternative fuels 
and energy sources such as ethanol, biodiesel, solar and wind 
energy will be critical in our making progress on this issue. 
There can be little doubt that increased demand and consumption 
of renewable fuels has had a positive impact on our Nation's 
economy, including small businesses. It is quite apparent, 
however, that the United States must work towards a balanced 
and diversified energy policy, including locating and 
developing our own domestic sources of fossil fuels and 
improving our nuclear energy technology in order to meet our 
needs and reduce our dependence on foreign sources of energy.
    Disturbingly, we import two-thirds of the oil we consume, 
much of it from OPEC and much of it from some of the more 
unstable areas of the world, Iran, Iraq, Saudi Arabia, Kuwait, 
United Arab Emirates. It goes on and on. Additionally we import 
oil from Nigeria and Venezuela. At the same time, the number of 
refineries operating in the United States has decreased from 
324 back in 1981 to 148 now. With fewer than half the 
refineries we had back in 1981, and without building a new 
refinery since 1976, our energy problem is on track to become 
an energy crisis. Think of that, not having built an oil 
refinery in 30 years. That is just unacceptable.
    Simply put, we must balance incentives and research into 
new renewable fuels that will eventually replace our current 
reliance on fossil fuels with ensuring we have an abundant and 
affordable source of energy right now. Unfortunately, I don't 
believe that the major energy bills that we have considered 
this year have achieved this balance. I do not believe that 
these bills create any new energy at all. And if anything, it 
makes fossil fuel energy more expensive, which in turn will 
make us even more dependent on foreign sources.
    I am thankful that we have such an esteemed panel here to 
discuss the specifics of this bill with us this morning and to 
see what the experts outside the government think about the 
direction we are taking on energy policy, and I look forward to 
the testimony this morning. I want to thank the witnesses and, 
again, thank the Chairwoman for holding this hearing, and I 
yield back.
    ChairwomanVelazquez. Thank you.

    ChairwomanVelazquez. And I now recognize Mr. Altmire for 
the purpose of introducing Mr. Thompson.
    Mr.Altmire. I want to thank all the witnesses for being 
here today, especially--I have a constituent. And I want to 
thank the Chair for allowing me the opportunity to introduce 
and welcome the constituent from my district, Mr. Frank 
Thompson of Cranberry.
    Mr. Thompson is president of Sweetwater Builders, a 
residential home builder and land developer company in greater 
Pittsburgh. He has a lifetime of experience in the home 
building industry and has served on the executive board of the 
National Association of Home Builders since 1993. Mr. Thompson 
has been honored by the National Association of Home Builders 
for his work in the building code development process, and he 
has received numerous awards from the Pennsylvania Builders 
Association, including the Distinguished Achievement Award in 
2005.
    Recognized as an expert in the area of residential 
construction and land development, Mr. Thompson has previously 
testified before Committees of both the House and the Senate to 
talk about housing industry issues.
    So I would like to thank Mr. Thompson for joining us here 
today, and I look forward to hearing his testimony.
    ChairwomanVelazquez. Mr. Thompson, welcome. And you will 
have 5 minutes to make your presentation. And all the 
witnesses' testimony will be made part of the record, without 
objection.

   STATEMENT OF FRANK THOMPSON, OWNER, SWEETWATER BUILDERS, 
  CRANBERRY TOWNSHIP, PENNSYLVANIA, ON BEHALF OF THE NATIONAL 
                  ASSOCIATION OF HOME BUILDERS

    Mr.Thompson. Thank you.
    Good morning, Madame Chair, Ranking Member Chabot. Jason, 
thank you for your very kind remarks and other distinguished 
members of the Committee.
    My name is Frank Thompson. I am a fourth-generation small-
volume home builder and land developer in a suburb of 
Pittsburgh, Cranberry Township. I am here representing the 
National Association of Home Builders, which represents over 
235,000 member companies employing millions of individuals in 
the home building, remodeling, multifamily and light commercial 
construction industry. I appreciate this opportunity to discuss 
with you ways to promote residential energy efficiency and the 
negative impact that section 9031 of the House energy bill will 
have if enacted on thousands of small businesses that comprise 
the majority of our Nation's housing industry.
    Home builders recognized long ago that energy efficiency is 
in the best interest of the Nation's economy, environment and 
security. Small builders play an especially crucial role in 
implementing and participating in voluntary efficiency 
programs. A couple of those programs are the U.S. Department of 
Energy and the EPA has the Energy Star program, and DOE also 
has a Building America program. In addition to that, there are 
numerous other volunteer programs, some through companies, some 
through States, some through locals. There is a wealth of 
participation by our membership in these programs. We are proud 
to participate in these programs, and we think they have had a 
tremendous impact on building energy-efficient housing in this 
country.
    Another valuable incentive for promoting residential energy 
is the New Energy-Efficient Home Credit, which was enacted as 
part of the Energy Policy Act of 2005. This tax incentive 
shifts builders towards greater energy savings in new home 
construction through a $2,000 tax credit to a home builder who 
constructs a qualified home. Small builders are particularly 
interested in this as we found this incentive particularly 
useful because of the flexibility we have to react to 
marketplace preferences. We are building a lot of custom homes, 
and we can incorporate these features that do have the tax 
incentives into the home, saving our customers thousands of 
dollars in future utilities.
    Unfortunately, the credit is set to expire at the end of 
2008, and language to extend it was not included in either the 
House or Senate energy bills. NAHB strongly encourages Congress 
to permanently extend the New Energy-Efficient Home Credit. And 
I would suggest that you consider expanding the amount that is 
available and certainly look at it as it relates to existing 
housing.
    As a member of the International Code Council, I work with 
thousands of individuals, businesses, and government agencies, 
including the Department of Energy and FEMA, that devote their 
time and expertise to craft benchmarks for building soundness, 
safety, health and, of course, energy efficiency. The ICC's 
lengthy Development Committee and voting processes are designed 
to ensure integrity and inclusiveness, and DOE is an integral 
part of that. In fact, the 2006 International Energy 
Conservation Code is actually a major revision of the previous 
energy code that was drafted by the Department of Energy.
    Of course, the roles of State and local governments is also 
critical in this process as they are the ones on the ground 
that ultimately implement the codes and make necessary 
modifications for local geographic needs, a right given to the 
States in the United States Constitution. Because structural 
and efficiency needs are different in different areas of the 
country and need to be flexible for each State, it is crucial 
that the code process remains open, be based entirely upon 
consensus and be protected from encroachment by any Federal 
agency.
    Generally the provisions on updating State building codes 
in section 9031 of the House energy bill create a number of 
technical and economic problems, particularly for small 
builders. And I have cited those in my written testimony. This 
section requires States to adopt certain stringent construction 
codes and standards, and then requires them to prove that they 
are 30 percent above the energy code in terms of savings by 
2007, and 50 percent above code by 2020. If States do not meet 
these, then DOE steps in and drafts modified building codes 
incorporating these increases for the States. This completely 
undermines the State authority and sets Federal benchmarks for 
efficiency and building codes that do not--may not 
realistically account for specific geographic needs or 
incorporate practical enforcement provisions.
    This section would negate the efficiency goals currently 
determined by the consensus code process, impose excessive 
cost, and set up an administrative requirement that is likely 
to be impossible to undertake. Furthermore, home buyers are 
very sensitive to up-front costs for a new home, particularly 
for efficiency features that often have long payback periods. 
This mandate would simply increase costs for new homes, making 
them even more unaffordable, and if they can't afford that new 
home, they are going to stay in an existing, less efficient 
homes.
    ChairwomanVelazquez. Mr. Thompson, your 5 minutes expired. 
But if you want to summarize.
    Mr.Thompson. I will be happy to, Madam Chair.
    I appreciate this opportunity to come before you and 
testify on your concerns, and be happy to answer any concerns 
you have. Thank you.
    ChairwomanVelazquez. Thank you.
    [The prepared statement of Mr. Thompson may be found in the 
Appendix on page 4.]

    ChairwomanVelazquez. Our next witness is Mr. Mitchell 
Cropp. He is the President of Cropp-Metcalfe, a heating, 
cooling and plumbing company established in 1979 and based in 
Maryland, D.C. And Virginia. Mr. Cropp is representing the Air 
Conditioning Contractors of America and the Plumbing-Heating-
Cooling Contractors National Association. ACCA and PHCC 
represents over 15,000 contractors and HVAC personnel.
    Welcome, sir.

  STATEMENT OF MITCHELL CROPP, PRESIDENT, CROPP-METCALFE AIR 
      CONDITIONING-HEATING-SECURITY, ON BEHALF OF THE AIR 
              CONDITIONING CONTRACTORS OF AMERICA

    Mr.Cropp. Thank you, Madam Chairman Velazquez, and Ranking 
Member Chabot and members of the Small Business Committee. 
Thank you for the opportunity to provide testimony on the 
pending energy legislation and its impacts on the contractors 
and small businesses of the heating, ventilating, and air 
conditioning and refrigerating industry, referred to as HVACR.
    My name is Mitchell Cropp, and I am president of Cropp-
Metcalfe, a heating, cooling and plumbing service company with 
four branches that serve both residential and commercial 
clients in the Washington, D.C., metropolitan area. I have been 
involved in the HVACR industry for the past 50 years. I come 
before you as a member of both the Air Conditioning Contractors 
of America and Plumbing-Heating-Cooling Contractors 
Association. I am a past president of the Virginia chapter of 
PHCC and a past chairman of the ACCA in 1998. Together these 
two contractor groups represent tens of thousands of HVACR 
contractors, distributors and manufacturers across the country.
    Let me begin by saying that ACCA and PHCC are strong 
advocates of energy-efficiency standards and have a long 
history of promoting energy efficiency. Every day thousands of 
ACCA and PHCC members help homeowners, small business owners 
and building managers realize the comfort and the cost benefits 
of energy-efficient HVACR equipment.
    Our industry overwhelming supports routine increases in the 
uniform Federal appliance efficiency standard for heating and 
cooling products as described under the Energy Policy and 
Conservation Act, EPCA, and as amended by the National 
Appliance Energy Conservation Act.
    As you are aware, the House and Senate energy bills as 
passed propose to allow the Department of Energy to authorize 
regional standards for commercial and residential heating and 
cooling products. This is unprecedented. And I am very 
concerned about those provisions and their potential impacts on 
the HVACR industry.
    Imposing regional standards for heating and cooling 
products would erase decades of consensus agreement on products 
covered under the NAECA between manufacturers and energy 
efficiency advocates, and the harmful impacts would trickle 
down to the hundreds of thousands of small businesses in the 
HVACR industry, which include manufacturers, distributors, 
contractors and both the commercial and residential consumers 
that they serve.
    The idea of regional standards may sound reasonable. It 
seems logical that a furnace in Maine would be different than 
the one in Florida. But regional standards are not very 
practical for consumers or small businesses. From my viewpoint, 
I see regional standards increasing the cost of high-efficiency 
heating and cooling products to the consumer, creating an 
unenforceable rule that gives a leg up to the unlicensed 
contractors, and placing an undue burden on the small 
businesses that struggle in a very competitive market.
    Let me explain. As you would expect, a higher efficiency 
air conditioning product, higher SEER on the air conditioning 
side, is more expensive to manufacture and install; therefore, 
it would be more expensive for the consumer. Recently the 
minimum seasonal energy efficiency ratio, or SER, of all air-
conditioning systems increased from a 10 SER to a 13 SER. 
Contractors and distributors are still adjusting to the 
unforeseen and unintended consequences due to this transition.
    A survey of contractors found that consumers chose more 
often to repair or maintain older, less efficient equipment 
instead of upgrading to the high-efficiency SER 13 units due to 
the increased costs of the higher-efficiency product. As a 
result, the national inventory remains older and less 
efficient, including equipment that contains refrigerants that 
use CFCs, HCFCs, which are known ozone-depleting substances.
    Regional efficiency standards will also lead to higher 
costs for equipment and installation of heating products. 
Higher-efficiency furnaces are not a plug-and-play product. 
They are more expensive, they are labor-intensive to install, 
and they are not always practical. A high-efficiency 
conventional furnace requires special vending needs that may 
necessitate costly and time-consuming demolition and 
renovation. Often this is not practical for the installer or 
for the consumer. High-efficiency furnaces are not practical in 
many applications.
    There are also other implications to other appliances. For 
example, upgrading to a higher-efficiency furnace may involve 
relining a chimney to accommodate a water heater. A survey of 
contractors found that with installation and labor costs, 
consumers can expect to pay anywhere between 20 and 50 percent 
more for a high-efficiency condensing furnace.
    ChairwomanVelazquez. Mr. Cropp, your time is up.
    Mr.Cropp. Thank you.
    ChairwomanVelazquez. But during the question-and-answer 
period, you will be able to make any points that at this point 
you haven't made.
    Mr.Cropp. That will be fine. Thank you.
    ChairwomanVelazquez. Thank you.
    [The prepared statement of Mr. Cropp may be found in the 
Appendix on page 6.]

    ChairwomanVelazquez. Mr. Mike Rodriguez is the next 
witness. He is the president of Rodriguez Architects in Coral 
Gables, Florida. Mr. Rodriguez also spends time with 
architecture students serving as a part-time lecturer at the 
University of Miami. He is representing American Institute of 
Architects as an officer of the board of directors. AIA 
represents over 80,000 licensed architects and emerging 
professionals.
    Welcome.

    STATEMENT OF MIGUEL A. RODRIGUEZ, PRINCIPAL, RODRIGUEZ 
   ARCHITECTS, INC., ON BEHALF OF THE AMERICAN INSTITUTE OF 
                           ARCHITECTS

    Mr.Rodriguez. Thank you, Madam Chairwoman, Ranking Member 
Chabot, members of the Committee. Good morning.
    I am Mike Rodriguez, an architect, small business owner and 
vice president of the American Institute of Architects. Since 
nearly half of our AIA members own or work for small business 
firms, we appreciate all that the Committee does for the small 
business concerns of this country.
    One of the most important issues facing my firm, as well as 
countless small businesses across the country, is energy. 
Increases in energy prices are apparent in the form of 
surcharges being passed on by virtually every vendor and 
supplier we use, yet our ability to pass on these costs, 
particularly in a professional services environment with long-
term design contracts, is severely limited, if at all possible.
    The AIA strongly supports policies, programs and incentives 
that encourage energy conservation and efficiency. We believe 
that by the year 2030, all new buildings and all significantly 
renovated buildings should be carbon-neutral. Many 
organizations have adopted these principles as well, including 
the U.S. Conference of Mayors, the National Association of 
Counties and the Alliance to Save Energy.
    Today I will discuss a number of important provisions 
included in legislation before Congress that promote energy 
efficiency, especially as it relates to the built environment 
and small businesses. Before I get into specifics however, it 
is important to understand why energy efficiency is so 
important to small businesses.
    By constructing energy-efficient building systems and 
technologies, businesses can reduce monthly energy bills, 
improve worker productivity, increase worker retention and 
improve the well-being of building occupants. And businesses 
that show a commitment to the environment often find that is a 
competitive edge among consumers as they become increasingly 
attuned to the well-being of the planet. In short, energy-
efficient design is not only good for the environment, but good 
for the bottom line.
    To put this policy into action, one of the AIA's major 
legislative priorities for 2007 has been to extend the energy-
efficient commercial buildings tax deduction. This provision 
provides building owners, many of whom are small business 
people, with a Federal tax incentive to install energy-
efficient systems in their buildings or to construct new 
energy-efficient buildings.
    Currently some energy-efficient systems are more expensive 
to design and build and install than traditional counterparts. 
For this reason, the initial increased capital costs can 
dissuade owners, especially business owners like me who often 
do not have access to the additional up-front cash necessary to 
install these systems that are sometimes costly. The energy-
efficient commercial buildings tax deduction addresses this 
situation and provides owners the financial incentive needed to 
build in an energy-efficient manner.
    The AIA strongly supported the enactment of this tax 
deduction in 2005; however, it can only be claimed for 
buildings placed into service by December 31, 2008. And as it 
often takes several years to move from the building's initial 
design stage to final completion, many of the buildings on the 
drawing boards today will not be placed into service until long 
after the deduction has expired and therefore will be unable to 
reap the intended tax benefits.
    In order to ensure that this vital incentive will make a 
difference, we believe it must be extended. In addition, we 
believe that the value of the deduction should be deepened from 
the current $1.80 per square foot to at least $2.25 per square 
foot. This will make it an even bigger incentive for building 
owners. We recognize that deepening this incentive increases 
the cost to the Treasury, but I propose to you that the cost of 
failing to act to reduce our energy consumption is far greater 
to our community, to society and the planet itself.
    We are pleased that the House extended the tax deduction 
until 2013 in its energy bill. I understand the Senate's energy 
bill does not include any tax incentives for energy efficiency; 
however, the Senate Finance Committee did approve a tax package 
that not only extended the deduction, but also deepened it to 
$2.25 per square foot. The AIA urges Congress to include both 
the extension and a deepening of the energy-efficient 
commercial building tax deduction in its final bill.
    The energy bill passed by the House also includes a number 
of other important provisions that will help provide incentives 
for energy-efficient practices and educate business owners on 
the benefits of energy efficiency. The AIA strongly supports 
the provisions under title 3 of the bill and commends this 
Committee and especially Subcommittee Chairman Shuler for the 
diligent efforts in crafting the legislation.
    We have presented Committee staff with some suggestions on 
how to make this title even stronger, and I ask permission to 
include our recommendations into the hearing record. Today, 
however, I would like to focus on two of these provisions. 
First, section 3005 would allow Small Business Development 
Centers to apply for grants to carry out sustainability 
initiatives. Many business owners I have worked with are simply 
unaware of technologies, strategies and materials that will 
reduce their business energy use. Education is key.
    Madame Chairwoman, I recognize that my time has expired. 
Thank you all for the time that you have allowed me. I would be 
happy to answer questions.
    ChairwomanVelazquez. Thank you, Mr. Rodriguez.
    [The prepared statement of Mr. Rodriguez may be found in 
the Appendix on page 8.]

    ChairwomanVelazquez. Our next witness is Mr. Lee Fuller. He 
is vice president of government relations for the Independent 
Petroleum Association of America, IPAA, who represents 
independent oil and natural gas products and service companies 
across the United States. IPAA addresses issues in the 
exploration and production segment of the industry.
    Welcome, sir.

    STATEMENT OF LEE FULLER, VICE PRESIDENT FOR GOVERNMENT 
    RELATIONS, INDEPENDENT PETROLEUM ASSOCIATION OF AMERICA

    Mr.Fuller. Thank you very much, Madam Chair, members of the 
Committee.
    The Independent Petroleum Association of America does 
represent independent petroleum and natural gas producers. 
IPAA's producer membership is comprised of companies ranging 
from large, publicly traded companies operating in the upstream 
segment of the industry to small, individually owned companies. 
Most employ fewer than 20 employees.
    Independent producers drill 90 percent of American oil and 
natural gas wells, produce approximately 82 percent of American 
natural gas and produce about 68 percent of American oil. 
Within this production are America's marginal wells. The 
operation of these wells is dominated by small business owners 
of IPAA. The overwhelming number of wells in the United States 
falls into this category. Approximately 85 percent of America's 
oil wells and 70 percent of America's natural gas wells are 
marginal wells. Equally significant, though, while individually 
small, collectively they provide about 19 percent of America's 
oil production and 10 percent of America's natural gas 
production.
    Before addressing the specific House energy legislation, it 
is essential to understand the role of oil and natural gas in 
America's energy supply. Currently oil and natural gas account 
for about 65 percent of America's energy supply. Looking 
forward, energy demand growth will be essential to the growth 
of the U.S. economy, and all forms of energy will be needed.
    Global climate-related initiatives can create shifts in the 
energy supply mix. However, oil and natural gas will continue 
to be key components, and American oil and natural gas offer 
the most national security. Congress needs to clearly 
understand the implications of global climate strategies in the 
energy mix as it considers different options.
    Recently a Natural Gas Council study of a typical 
aggressive global climate bill showed that natural gas demand 
would increase between 20 and 30 percent by 2030. Consequently, 
if Congress moves forward with global climate initiatives, it 
needs to fully understand that natural gas demand increases 
will be a logical result and, correspondingly, that natural gas 
supply needs to be addressed at the same time.
    Turning to H.R. 3221, a bill that has been characterized as 
a down payment on global climate policy, at issue is how H.R. 
3221 addresses these essential energy challenges. Not only does 
it fail to advance the need to develop more American oil and 
natural gas, it reverses progress that has already been made. 
No bill can be considered a down payment on global climate that 
has one of its key objectives curtailing the development of 
natural gas.
    Title 7 of H.R. 3221 contains nine sections specifically 
designed to reduce access to American natural gas on Federal 
lands. The first four of these provisions repeal or adversely 
modify provisions of the Energy Policy Act of 2005 that were 
passed to allow development of important natural gas resources 
underlying these areas. Just 2 years after enactment, and just 
as the implementation of these provisions is occurring, H.R. 
3221 would change them.
    The next four provisions would add new burdens to the 
development of natural gas underlying on-shore Federal lands.
    The final provision would override years of efforts to 
develop natural gas leasing on former naval oil shale reserves.
    Taken together, these sections represent an irrational 
policy of curtailing the very actions that are needed to meet 
future natural gas demands.
    Title 13, the revenue title of H.R. 3221, is similarly 
counterproductive. To put a perspective on this issue, IPAA 
does not oppose tax expenditures designed to encourage the 
development of American energy, energy efficiency or energy 
conservation. However, IPAA rejects the concept that increasing 
taxes on oil and natural gas is essential to develop other 
energy options.
    As described previously, oil and natural gas will continue 
to be an essential component of America's energy supply. 
Independent producers largely develop their capital through the 
wellhead. That is. Their capital for investment in new 
production and in maintaining existing production comes from 
the sale of the oil and natural gas that is produced. Moreover, 
independent producers have a history of reinvesting their 
income back into new production. When taxes are increased, 
investment in American production diminishes. This is exactly 
the consequence of section 13001 of H.R. 3221.
    The JOBS Act of 2004 created a deduction for investment in 
the United States. Section 13001 would deny this deduction 
solely for the investment in oil and natural gas. Here the case 
is crystal clear. The deduction is only available for American 
investment, and its denial means that those dollars were taken 
from American investment. U.S. oil and natural gas production 
will be diminished.
    The effect on small businesses is twofold. For those small 
business oil and natural gas producers, investment dollars are 
taken away. For small business consumers, the availability of 
American oil and natural gas is diminished.
    In conclusion, IPAA's small business members have been 
actively engaged in producing American oil and natural gas. 
What do they need from energy policy? Among their clear needs 
are access to the resource base in America and access to the 
capital to develop it. H.R. 3221 not only fails to support 
these needs, but aggressively rejects them.
    Thank you very much.
    ChairwomanVelazquez. Thank you, sir.
    [The prepared statement of Mr. Fuller may be found in the 
Appendix on page 10.]

    ChairwomanVelazquez. Mr. Cropp, I would like to address my 
first question to you. The energy bill that passed out of the 
House proposes an implementation of regional appliance 
efficiency standards. How would the implementation of regional 
standards affect the air conditioning industry? And can you 
talk to us about some of the challenges these different 
standards may present?
    Mr.Cropp. In the regional makeup, the way I understand it--
for instance, if I am in multiple regions, it requires the 
contractor--number one, the burden is put on the contractor, 
first of all, to have the products for each region. And 
therefore, if one is a less efficient region versus the other, 
it puts a tremendous burden on us for space, for carrying parts 
on vehicles and, of course, the storage of such. The 
manufacturers themselves have suppliers to furnish us the 
products, and they are--they will have their same headaches as 
we have.
    When you look at the high-efficient products, though, we 
look at it as can the consumer--or is the savings enough, 
whether or not it is cost-effective, it is a return on their 
investment. In many applications, we can look at 2- or 3-, 
maybe as much as $4,000 difference than a current 80 percent 
furnace to go to a 90 percent furnace. I am talking about 
furnaces at this point. And it is hard to justify that the life 
of that furnace is 15 to 20 years, will they get that return, 
and what did we really save?
    Certain applications such as townhouses and condos and what 
have you, it is very difficult to run your flues or get your 
flues for aesthetics and so forth, cost-effective. It is not 
that. In certain applications, we are just going to struggle in 
the industry. We are concerned about the regulation itself that 
says you have got to have this size. Who is going to police it? 
Is it the county's, the local jurisdiction's? There is not a 
police force out there to regulate that and control it.
    ChairwomanVelazquez. In terms of regulating efficiency 
standards, in your opinion, what do you view as an ideal 
structure?
    Mr.Cropp. I think the 80 percent furnace level right now is 
a good standard to work towards to have. When you start going 
over that, the requirements for the application and so forth 
really challenges us as to whether or not it is cost-effective. 
I think if there was more maybe energy credits or tax 
incentives for the consumer, maybe they would afford it, could 
afford it, would do it.
    ChairwomanVelazquez. If regional standards were 
implemented, the Department of Energy will have to create a new 
system. What impact would regional standards have on your 
industry, small firms and consumers? And also can you tell the 
Committee why it is important for the Department of Energy to 
consult with the industry in implementation of regional 
standards?
    Mr.Cropp. Your last question there about consulting with 
the industry itself, from my many years in this industry, I 
have always had a problem with setting regulations and had a 
problem with the manufacturer designing the product and so 
forth and not consulting the people that put it in, the people 
that are in direct contact with the consumer themselves. It 
would be a tremendous challenge in the training arena to be 
sure personnel are properly trained to take and install such 
products, and more so in the application of the products is 
where the challenges come.
    When you look, again, as I mentioned earlier, about 
stocking product, I think you--in regional situations we open 
up the arena of possibly people bringing in products from one 
region to another region, and it really does not meet the 
standards of that region. We call these people sort of 
bootleggers or people that do not follow the codes and 
regulations. Unless there is going to be a method of policing 
this in some way, shape or form, I see the regulation not 
working.
    ChairwomanVelazquez. Thank you.
    Mr. Rodriguez, in your testimony you spoke about the 
energy-efficient commercial building tax deduction, and this 
provision is set to expire at the end of 2008. As it stands 
now, the House bill will extend this program until the year 
2013. Can you talk to us about the incentives this tax 
deduction creates, and what will happen if not extended?
    I also would like for you to talk to us about--if you had 
been able to assess the impact that this deduction has had in 
your industry since it was created in 2005.
    Mr.Rodriguez. I would be happy to, Madam Chairwoman. I 
think the--what happens if it is not extended is actually 
pretty clear. The intention of the bill was to make this credit 
available widely. The mere time involved in development of a 
project from its initial conception, design, permitting, 
construction and occupancy, which is when you can actually 
claim the credit, is just so long that the time period--most of 
the buildings in design today, as I stated, just simply will 
not meet the time requirements. The extension is necessary in 
order to allow that. It is also necessary to make it a more 
memorialized deduction, if you will, so that people can rely on 
it being there when they actually put their buildings into 
service.
    I think it is too easy to say, well, you know, it is 
meaningless to me because I am not going to be done in time. 
The longer extension in possible--I would like it be permanent, 
but 2013 is a step in the right direction.
    As for the impact, I think when you talk about the effect 
of the additional cost that is borne in order to implement 
certain energy-efficient provisions, it is just nice to be able 
to plan--it is a way of amortizing the cost. It is a tax 
credit. You won't get it initially, you still have got to front 
the money, but at least you know and you can rely on that money 
being there, and the burden of carrying the debt on whatever it 
is that you are doing will be reduced by that. I think it is a 
win-win on all sides, and I want to repeat, because I don't 
think it is important--it is important to repeat this as often 
as possible. Failing to act will have far greater cost impacts 
than acting now will. And you can say that almost across the 
board. And it is very critical that we not take this 
opportunity to make that happen.
    ChairwomanVelazquez. Thank you.
    Now I recognize--I have other questions, but I am going to 
allow for the Members to be able to make questions, and then I 
will come back on the second round.
    Mr. Chabot?
    Mr.Chabot. Thank you very much, Madam Chair.
    Mr. Thompson, I will begin with you if I can. You mentioned 
that the permanent extension of the new home energy credit 
which is not currently in the bill could have a pretty 
significant impact on home builders, and would you go into that 
a little bit?
    Mr.Thompson. Sure. Of course, this tax credit has not been 
available for a very long. The IRS was delayed in clarifying 
the guidelines, and, of course, now it is ready to expire in 16 
months. We are just getting up to speed here and seeing more 
and more builders taking advantage of the tax credits that are 
available under it, passing savings--future savings on to their 
customers. The $2,000 is far less than what it should be, and 
it needs drastically expanded as it relates to existing homes.
    I had an experience recently where a customer was trying to 
do some energy improvements on their existing home, a 130-year-
old house, and chose to insulate the ceiling. It was about a 
$1,200 improvement. The energy tax credit for doing that was 
about $60. It basically had no impact on the customer making a 
decision to make that improvement.
    I will suggest to you, and it would be borne out by facts, 
that by focusing more on existing houses, which have a far 
greater use of energy than on the most new homes being 
constructed, we can get a lot more bang for our buck in terms 
of investment in energy savings.
    Mr.Chabot. Thank you very much.
    Mr. Cropp, in your written testimony you mention that when 
people are forced to install a more expensive high-efficiency 
HVAC system, they are more inclined to try to fix the older 
unit than get the more expensive one. How often does this 
happen? How common is that observation?
    Mr.Cropp. We just recently did some checking for the 
industry to report back to them, and one of them was compressor 
expenses, a component part of the air conditioning unit engine. 
It is the heart of it. And we found within the last 12 months 
that over--we have increased selling of just the replacement 
compressor itself by over 25 percent. And this means that in 
the past, we were able to convince the consumer that if the 
compressor warranties run out, that it is more economical for 
you to get a complete system. They are now opting out to go 
with a new compressor because of the increased costs.
    The cost of the product is not just that in the HVAC--in 
the cooling cycle. For instance, the sizes have increased to 
the point we now need two people to move them around to the 
backyards, or they are even to the size that the standard 
vehicles--or vans, they won't fit inside the vans. So we have 
had to increase that cost to get box trucks. And even down to 
the point that some gates at people's homes, we can't get them 
through the gates, so they either have to take the gates down, 
or we have to get a small crane to lift them over the backyard. 
So some people think they ought to be getting these products 
smaller, but they are getting them larger.
    But we thought it was--back to your original question. A 25 
percent increase in compressor sales is very high for us, and 
we think the trend will continue to be that way to replace the 
engine now--the compressor and not the entire system.
    ChairwomanVelazquez. Would the gentleman yield?
    Mr.Chabot. I will be happy to yield.
    ChairwomanVelazquez. Mr. Cropp, this Committee reported a 
portion of the energy bill that provides for affordable loans 
for the purchase of energy efficiency appliances. Do you 
believe that the up-front costs may help more small businesses 
purchase these appliances?
    Mr.Cropp. I really do. I think the more that we can offer 
less expensive loans, it certainly helps us give them terms, 
will also give them credits, more tax credits, to put that 
investment into that building by putting the HVAC products more 
current, high efficiencies, yes, I think it definitely will 
help.
    ChairwomanVelazquez. Thank you. Yield back.
    Mr.Chabot. Thank you. Reclaiming my time.
    Mr. Rodriguez, you mentioned in your written testimony that 
2 years ago the American Institute of Architects adopted a 
policy calling for the immediate reduction of the amount of 
greenhouse gas-producing energy that buildings use. Is this 
something that you all did on your own, or was it something 
that came from here in Washington?
    Mr.Rodriguez. No, sir. We did not do it strictly on our 
own. It also did not come from here in Washington. It is 
actually a consensus that we built over time with several 
allied groups, probably one of the most notable ones, Mr. Ed 
Mazria's Architecture 2030. But it is a consensus opinion that 
was built with a lot of input, and also supported our process 
for establishing positions is broad-based and includes 
notification requirements and public comment from our members. 
So really our entire membership chimed in on those 
requirements.
    Mr.Chabot. But it wasn't something you were directed from 
Washington to do? You and your colleagues and associations did 
it on your own?
    Mr.Rodriguez. No, sir. That is correct.
    Mr.Chabot. Thank you.
    And finally, Mr. Fuller, in your testimony you mentioned 
that 3221 fails to advance production of domestic energy, and 
you mentioned a number of reasons why. First of all, could you 
comment on the quote--or at least you hear it oftentimes--you 
know, when you tax something at a higher rate, you essentially 
get less of it. I think that was one of the points that you 
were making in additional taxation on some of the things that 
you all do; is that correct?
    Mr.Fuller. Yes, sir. One of the frustrations that we have 
as this debate has moved forward on energy policy has been the 
concept that seems to be so prevalent, that there is a need to 
increase taxes on oil and natural gas production. Prices are 
high, that is true, but for our companies to put the money that 
they need into new production, they need as much revenue as 
they can get because they put it back into the ground.
    There was a study done in 2000--or 2004 that showed that 
independent producers were--the top 50 were reinvesting 150 
percent of their American cash flow back into American 
production projects, which means that if you are reducing their 
cash flow by $1, you are losing $1.50 in additional U.S. 
investment.
    That is exactly what this bill would do. It would take away 
investment that is actually--must be going into the United 
States and use that for tax purposes. That doesn't get us more 
production. Without more production, you are not going to see 
the additional supply that would have an effect of responding 
to the market demand that we do not see disappearing for oil 
and natural gas. We see oil and natural gas being a deep part 
of any energy supply mix going forward. Not saying that other 
things don't need to grow; the strong world economies thrive on 
energy. That is what they need, and we are going to need all 
the energy we can get in this country to build the economy we 
need for the future.
    Mr.Chabot. Thank you. I yield back.
    ChairwomanVelazquez. Ms. Clarke?
    Ms.Clarke. Thank you very much, Madame Chair. I want to 
thank you and Ranking Member Chabot as well as my colleague 
Congressman Shuler for your leadership and hard work in passing 
H.R. 2389 out of this Committee.
    I want to thank the panelists for their testimony and 
assisting us to grapple with the 21st century national energy 
policies and concerns.
    This bill, which later moved to energy legislation H.R. 
3221, seeks to help small businesses develop energy efficiency 
practices and spurs investment in the production of alternative 
energy. It is clear to many of us that it is not easy and 
perhaps not even feasible for small businesses to step up to 
the plate to do their part to protect the environment. The 
financial demands associated with this task can be cost-
prohibitive. But this bill provides loans, education and 
investment to small firms to help them become more energy-
independent. It also provides good energy practices by 
modifying existing Small Business Administration programs to 
provide more flexible loan terms to small businesses that are 
developing or utilizing new technologies.
    I support these measures in the bill because they are smart 
and efficient ways to increase the flow of capital to small 
business development and acquire energy-efficient technologies. 
We must make energy-efficient technology more affordable and 
accessible to defeat the effects of global warming. This should 
a goal for this generation; shifting this burden to future 
generations is simply not an option.
    So I want to ask to Mr. Rodriguez, as you know, many small 
businesses have small profit margins, so the companies' bottom 
line is very important to them. However, it is difficult to 
find ways to lower their energy costs without enough capital 
and personnel to resolve their problem. What do you believe 
would be the impact of requiring the Small Business 
Administration to develop a Federal program for educating small 
firms about energy efficiency?
    Mr.Rodriguez. Thank you for the question. You are hitting 
at something that is near to my heart, the concept of 
education, of making information available.
    In my written testimony, and part of what I cut out to stay 
on time of my oral testimony, I tell the story of a very small 
project that we just completed for a repeat client who needed 
to simply add a restroom to his market in order--because he 
discovered this is a young man, entrepreneur, in business 6 
months has a market that also serves food. He discovered he 
wasn't making money on the market, but the food was making him 
money, and it was bringing people to the market. But in order 
to increase the seats, he had to add restrooms.
    And the process of doing that, we suggested to him, because 
we had to move the existing water heater, that he replace it 
with a new tankless, much more efficient water heater. And he 
was all over it. However, that cost was $2,000, which may not 
seem like a whole lot, but when you look at the magnitude or 
the lack of magnitude of this renovation, it was a huge piece 
of his overall cost. So the finance piece is important, but 
just having the access to the information that enabled him to 
realize that there was another option there other than moving 
the same old water heater over is key.
    I would like to also say that we also favor expansion of 
the section 3005 provisions regarding the Small Business 
Development Centers to allow them to provide information on 
design, on building design, not simply construction. Design is 
where true energy savings begin. And there is a lot that can be 
done with design that can mitigate--with all due respect to my 
colleagues, mitigate the need to spend a lot more money on MEL 
systems. If there is information on design, if design can play 
a part earlier on, then we can take steps in the designing of 
the building itself, siding it, how you focus openings in the 
building to capture breezes, how you protect against solar. All 
of that can help ultimately reduce the energy cost and help 
reduce the initial cost of implementing those features.
    So that part is key, and we do believe and support 
fervently that the portion of it be expanded. Again, it is 
building on education because information is power, and small 
businesses--and I am one--we are tasked enough already with all 
of the mundane portions of what we do. There is just not enough 
time. It has got to be ready, it has got to be available.
    Ms.Clarke. Madam Chair, I want to make one final question 
to Mr. Fuller. The great thing about--Mr. Fuller, this question 
is directed to you. The great thing that I found about 
Congressman Shuler's bill is that it will not only help small 
businesses cope with rising costs, but will increase investment 
in small businesses that are developing renewable energy 
solutions. Are you opposed to any bill that will reduce the 
country's dependence on foreign oil?
    Mr.Fuller. No, not at all. We are primarily focused on 
developing American resources. That is what my members do. We 
develop 90 percent of the wells in the United States. We think 
we have serious energy security issues in this country because 
we are too dependent on foreign oil imports, and we are 
starting to grow on foreign gas imports as well, much of which 
comes from unstable areas, as someone pointed out earlier.
    The point we are trying to make is that oil and natural gas 
will continue to be a major component of our energy supply mix. 
We can do all these other things, and we need to, but we are 
still going to need oil and natural gas. American oil and 
natural gas is the most secure that we can get. So we shouldn't 
be diminishing our ability to produce American oil and natural 
gas while we are trying to reach all these other policy 
objectives. That is our concern.
    Ms.Clarke. Thank you, Madam Chair.
    ChairwomanVelazquez. Mr. Bartlett?
    Mr.Bartlett. Thank you very much.
    Mr. Fuller, recognizing that in spite of vastly improved 
technologies for discovering oil, like 3-D-size-making computer 
modeling, every year on the average since 1980, we found less 
and less oil. Now our discoveries year by year are a small 
fraction of what they were in 1980, as you know. Recognizing 
that history, if you could pump ANWR, the reserves in ANWR, and 
offshore tomorrow, what would you do the day after tomorrow?
    Mr.Fuller. Well, I think what you are trying to suggest is 
that we need to be looking for other types of energy sources, 
and we agree with that. But we also believe that there are 
significant reserves still left in the United States that can 
be developed. For example, there is about, I think, 390 or so 
billion barrels of oil that we still have in areas that we have 
already developed, yet much of it hasn't been extracted because 
the technology do it is not advanced enough to move forward and 
to get that oil. For example, one of the areas that has been 
recently researched that has shown potential in that regard is 
the use of carbon dioxide.
    Mr.Bartlett. Let me ask you a question, sir. Isn't $87 a 
barrel of oil a pretty good incentive for developing these new 
technologies? The point I am trying to make is that the world's 
experts believe that we have probably found 95 percent of all 
the oil we will ever find. Pumping ANWR and offshore tomorrow 
leaves nothing in reserve for the day after tomorrow.
    I have 10 kids, 16 grand kids and 2 great-grand kids. Not 
with my vote, but this Congress is going to bequeath to them 
the largest intergenerational debt transfer in the history of 
the world. Wouldn't it be nice if I left my kids, my grand kids 
and my great-grand kids a little energy? I think so.
    In a former life, I was a home builder, and the other three 
witnesses are all in one way or another involved in home 
building. And I would contend that we are doing is satisfying 
ourselves that we are--that we are addressing the problem of 
energy with what we are doing in home building, and yet three 
of the most productive ways of saving energy in our homes I see 
in a very, very small percentage of homes.
    What percent of the new homes built are passed as solar? We 
do really dumb things in our home design. We put in 6-inch 
walls with R-19 insulation, and then half of the street-facing 
windows, which may be north, or half of the street-facing 
walls, which may be north, are windows. No matter what kind of 
window you put in, a triple-glazed window is an awful heat 
source. It is a big hole through which heat goes compared to a 
wall.
    What percent of our homes are passed as solar?
    Mr.Rodriguez. If you are addressing the question to me, 
sir, I don't have the answer, but I will tell you it is 
minuscule.
    Mr.Bartlett. It is minuscule, and it is a huge, huge way to 
save energy.
    What percentage of our homes have a solar water heater on 
the roof? It is a huge way of saving energy. What percentage of 
them have a solar water heater on the roof?
    Mr.Rodriguez. That is correct. And again, I don't have a 
specific number. I will tell you with respect to that--that is 
an interesting question. The percentage usage was higher. As we 
began to increase our reliance on electricity, and energy 
prices were reduced, it started to drop, and now we are 
starting to see it come back up again.
    Mr.Bartlett. The usual heat pump is tied to the air, which 
means that when I am air conditioning my home in the 
summertime, I have to heat up the 100-degree air temperature 
outside. When I am heating my home with the heat pump in the 
wintertime, I am having to cool the 10-degree air outside. That 
is pretty dumb, isn't it, compared to tying my heat pump--we 
call it geothermal. It is not geothermal. We are not tying it 
to the magna of the Earth, but we are tying it to the Earth, 
which is 56 degrees all year long. That seems awfully cool in 
the summertime and awfully warm in the wintertime.
    How many of our heat pumps are tied to the Earth?
    Mr.Rodriguez. Minuscule amount.
    Mr.Bartlett. Why are we kidding ourselves we are doing 
something about energy efficiency when just three of the most 
efficient ways, the most dramatic ways of saving energy appear 
in almost none of our homes?
    Mr.Rodriguez. If I may, Mr. Bartlett, I think that is your 
biggest opportunity, is to provide the opportunity for people 
to avail themselves of that through a variety of ways. First of 
all, you address design. I am here to tell you that we are not 
designing things the way we are supposed to be designing them, 
but there are an awful lot of factors that have to be 
considered when you make that statement, and it is not just 
pure design.
    We also have to deal with available technologies, so if we 
don't provide technologies to be broadened and beyond that to 
look towards new technologies, not making existing technologies 
better, although that is also a part, then that is an 
opportunity wasted. That is your greatest opportunity and, I 
would submit also, challenge. You have to be able to look at 
the future and that future is not tomorrow; it is X number of 
days, months, years, maybe decades ahead.
    ChairwomanVelazquez. Mr. Bartlett, your time has expired, 
but I will recognize you for 2 more minutes.
    Mr.Bartlett. We can have another round, Madam?
    ChairwomanVelazquez. Yes, we do.
    Mr.Bartlett. Let me close this round then by saying that we 
are just giving lip service to energy conservation and 
leadership has responsibility, and we are behaving as leaders--
you all are leaders in your industries, we are leaders here. We 
are behaving no more responsibly than the parent who gives 
their kids cookies because that is what the kids want. 
Leadership has some responsibility, and we are not exercising 
that responsibility from the top down. We are not exercising 
that responsibility relative to energy.
    Thank you very much. I look forward to a second round.
    ChairwomanVelazquez. Mr. Ellsworth.
    Mr.Ellsworth. Madam Chair, I am still inspired by Mr. 
Bartlett's comments. I will just associate myself with his 
comments and go to the next round.
    ChairwomanVelazquez. Ms. Fallin.
    Ms.Fallin. I guess what I would like to know, and I missed 
a portion of the early on testimony and I apologize, I was at 
other committee hearings, but what can we do, and maybe you 
have already covered this, but in light of knowing our energy 
demands throughout the world and in light of knowing what our 
housing in the United States, how much of the energy it picks 
up and the price of gas and oil, and foreign countries that may 
be unfriendly to our United States, that we are depending so 
much on foreign energy, what can we do as a nation to help our 
families, our consumers, our homeowners use more of the new 
technology? I have heard a lot about the tax credits and 
extending those, but are there other things that we can do as 
Members of Congress that will maybe ease up some of the burdens 
that we put upon business for the research development that can 
encourage the energy efficient technologies to be used in our 
homes?
    Any of you. Yes, sir.
    Mr.Thompson. Ms. Fallin, I think one of the other 
suggestions the National Association of Home Builders would 
advance is that we need to explore opportunities through 
financing. Energy efficient mortgages, they have been around 
for about 15 years, but we really don't see much activity in 
them. And I don't have all the answers today for you on that, 
but I would welcome a dialogue on how we could make them more 
mainstream in the marketplace and have an impact on bringing 
these expensive technologies to the mainstream and affordable 
to America's home buying consumers.
    Ms.Fallin. I am going to ask, you are saying we have had 
those kind of mortgages in the past?
    Mr.Thompson. Yes, they have been around for about 15 years. 
They are not very widespread in their use. You don't see a lot 
of banks or lenders that are even offering them.
    Ms.Fallin. If I may ask, Madam Chairman, what stops 
consumers from getting those mortgages? What is the burden or 
red tape that keeps us from utilizing those more?
    Mr.Thompson. I don't think there has been enough 
differential in the rates that they provide or the amount of 
loan that you can obtain that has made enough difference in the 
marketplace for people to reach out for them, but I really 
think there is an opportunity to market them, to improve the 
advantages to customers considering these energy efficient 
investments in their home and bringing them to the mainstream.
    Ms.Fallin. If I may, Madam Chairman, are there any rules or 
regulation or hoops that we make home builders, architects, 
anyone who deals in energy efficiency that you have to jump 
through that would--and we want to conserve energy, we want to 
be conservation conscious, but are there any things that we do 
in our rules and regulations throughout the Federal Government 
that don't make sense, that we could look at in Congress that 
would improve our energy efficiency in our homes?
    Mr.Rodriguez. If I may, this may sound a bit pie in the 
sky, but there is a point there, I think we have to provide 
incentives for ingenuity. I don't think we do enough of that, 
so how do we do that? As I said earlier, we have to look 
further into the future than we are looking. We have to stop 
talking about stuff and get on with it.
    You know, one of my favorite lines is the Paperwork 
Reduction Act, which added about 2 inches at the bottom of the 
form to inform us of the Paperwork Reduction Act.
    There is no one particular person to blame. That is kind of 
one of those common-sense things that we kind of missed. But 
the greatness of this country has traditionally been its 
ingenuity, and yet it seems whenever we provide funding or do 
anything to provide incentives for ingenuity, we weigh it down 
with reporting requirements, with the forms or with the 
thresholds that have to be crossed. I think anything we do has 
to be done with that in mind, keep that down, recognizing that 
you have to exercise proper stewardship without necessarily 
sinking the ship by adding too much ballast.
    We have to keep that in mind and do everything we can. If 
we can reward ingenuity, I think that is pretty global and you 
would address a lot of the items that we are talking about here 
today.
    Ms.Fallin. Thank you, Madam Chairman.
    ChairwomanVelazquez. Mr. Thompson, almost everyone here are 
talking about the fact that education and information has to be 
part of the equation when we talk about energy and 
conservation. How can we achieve greater energy efficiency? The 
legislation that the House sought to increase this type of 
awareness, but there may be a concern that it also could create 
a regulatory burden, and the gentlelady was making reference to 
that.
    If this legislation requires home builders to obtain 
additional energy analysis to indicate whether they meet or 
exceed the revised energy efficiency levels, what possible 
effect could this have on your industry?
    Mr.Thompson. I think a couple comments there would be that 
the States would have a great deal of difficulty in 
implementing the requirements to show that their code meets the 
50 or 30 percent over code requirement. So the simpler the 
codes can be, the easier they can be to comply with, the less 
certification that there needs to be, the less expensive 
certification, the easier it will be for small businesses to be 
able to meet those requirements.
    Larger businesses will probably have an economy of scale 
that will help them in that respect, but it will be 
particularly onerous on the smaller businesses through the 
complexities.
    The ICC code development process takes this into account 
and I think the consensus process that we have there really 
tries to bring to the building codes a reasonable degree of 
simplification and options flexibility, so that for regional 
differences you can find what is going to be the most cost 
effective way to achieve on energy efficiency.
    ChairwomanVelazquez. And if this means that costs are going 
to be incurred, who would be the one paying for that, builders 
in this case or consumers?
    Mr.Thompson. Well, as a builder, if you want to stay in 
business you have to pass those costs on to your buyers. So it 
will be the American home buying consumer who will pay for 
that, or they will say it is not worth the investments in a new 
home, I am going to buy an existing house, which will be less 
energy efficient. So we have to strike the right balance there 
that continues to improve the energy efficiency of the overall 
stock.
    ChairwomanVelazquez. Mr. Rodriguez, in your testimony you 
spoke about increasing the tax credit from $1.80 cents to over 
$2 per square foot. Can you talk to us about why this is 
necessary if many builders are already utilizing the tax credit 
and how will this increase promote greater energy efficiency?
    Mr.Rodriguez. We are not seeing the significant use of the 
credit on the commercial side. The deepening of it simply makes 
it more worthwhile and in a sense we are promoting rewarding 
energy efficiency rather than mandating it or regulating it. So 
the expansion of the credit will have that effect by making it 
a more viable piece that comes back, but we are just not seeing 
it being used tremendously, and part of that also has to do 
with the extension.
    ChairwomanVelazquez. Uh-huh.
    Mr.Rodriguez. We can't minimize that, but we think it is 
critical to make it real, to make it worthwhile. It is not a 
dissimilar response to the mortgage answer that was given 
shortly before. It is just a matter of it is less meaningful at 
its current rate than it would be at the higher.
    ChairwomanVelazquez. Mr. Chabot.
    Mr.Chabot. Thank you, yeah, just a couple of final 
questions. Mr. Fuller, you mentioned, I think, that there are 
390 billion barrels of oil that we already know about, but at 
this point because of the state of technology we can't tap into 
because they are either too deep or for some reason. Can you 
expound upon that a little bit?
    And also, Roscoe mentioned ANWR, for example, in passing. I 
think we have--estimates vary but I believe it is around 16 
billion barrels of oil there. I think what you said the numbers 
there, you know it certainly grabs your attention when you 
consider that ANWR is around 16 billion barrels and you are 
talking about 390 billion barrels of oil that are already 
discovered but we can't get to for one REASON or another. Could 
you expound upon that a little bit?
    Mr.Fuller. Yes, I'll try to do that. Essentially you have 
to look at the history of the development of oil in the United 
States. Much of the early development, turn of the last century 
and early on into about half of the last century was at a time 
we didn't understand as a science of producing oil as well as 
we do now. So the production that was done, prices were very 
low. The structure that was controlling how fast things could 
be produced was in its infancy. It developed over time, but 
what happened was a lot of oil was left in the ground because 
we produced maybe 10 percent of a field.
    We have been working since then to try to figure out ways 
to enhance that oil recovery, and we have used a number of 
different technologies called typically secondary or tertiary 
coverage. Some of those involve using produced water to try to 
flood more oil out of a formation using the oil floating on 
water concept.
    Recently we have started to see various types of gas 
technologies, nitrogen, carbon dioxide, as mechanisms to try to 
force this basically oil that is still left in these old fields 
into production. Much of that has happened in marginal wells, 
very small producing wells, because they have depleted over a 
long period of time. Much of that is done by the small business 
component of my membership.
    One of the challenges that they have is that as small 
businesses they don't have a huge research and development 
capability, they have virtually no research and development 
capability. So even though the price of oil may be high, this 
is a technology question, this is a question of how do you 
develop the technologies to be able to go after those types of 
reserves that haven't been produced well.
    One of the areas that we have worked with a lot with the 
Congress on is trying to maintain the research and development 
component of the Department of Energy's fossil energy program 
for oil and natural gas, which the administration wants to zero 
out. They view it as a some form of a program that subsidizes 
the big oil companies. It is not. They do their own research 
and it is proprietary. My members don't get to utilize it.
    The kind of research that could be done, for example, on 
utilizing carbon dioxide, which is an issue that is getting a 
lot of attention in the global climate context, to bring more 
of that oil into production is an area that we think bears a 
significant potential. The Department of Energy has done 
studies suggesting that significant amounts of that oil can be 
produced, and that is an area that we need to go back to again 
and again and again, because as we learn more things about the 
nature of developing oil, developing natural gas, the potential 
for getting that 300 or 90 billion barrels out and into 
American production can be a big asset to this country.
    Mr.Chabot. Thanks.
    And then finally, again Roscoe mentioned a couple things 
which I thought were quite interesting relative to this whole 
thing, and Roscoe, by the way, is a nuclear physicist, right?
    Mr.Bartlett. No, physiologist.
    Mr.Chabot. One of those things that a lot of us are not 
terribly familiar with and so we defer to Roscoe's knowledge. 
Although I have to say Roscoe said he's got 10 kids, 16 grand 
kids, I think he has personally been responsible for sort of 
the energy depletion in our country, but in any event, more 
power to you, Roscoe.
    But Roscoe talked about the solar energy and solar homes 
and how few that we actually have, the percentage, et cetera. 
And I actually had the opportunity a while back to go and 
personally tour kind of an experimental new solar home that is 
actually a nun in my district out at Mount Saint Joseph, the 
college, that she along with volunteers and others help and 
literally built, which is very impressive and I strongly 
encourage anybody to look into the research that she has done, 
et cetera.
    But at the practical level where somebody would say in 
Ohio, for example, use to a great extent solar energy for 
heating water or for heating their home or whatever, could 
anyone on the panel who wants to take this up, could you 
discuss the practicalities involved there of say doing it in 
Cincinnati or Cleveland, which is in the northern part of Ohio 
obviously versus, say, Arizona where may be more practical. 
What are we talking here dollars and cents? And why don't more 
people do it in cooler climates in like say Ohio compared to 
say Arizona.
    Mr.Rodriguez. If I may address that, first of all clearly 
the sun shines every place to a lesser or greater degree, but 
one of the more interesting tidbits of data that I heard was 
Seattle, whom everybody knows is rainy and cloudy 300 some odd 
days of the year. I wish I had good command of the numbers, but 
the point was that the solar effect on one wall of a typical 
home in Seattle given the lack of sunshine, if you will, that 
they receive was still enough to generate all the solar--all 
the power that the home needed to run and be off the grid. It 
may actually be producing in excess.
    What are the barriers here? So the first answer to your 
question is solar is good anywhere. Maybe not in the deep caves 
somewhere, I might not put a solar ray on the bottom of a 
missile silo, but certainly where we would be using them.
    The problem with solar right now is, I would say, the major 
one, is cost. The technology is advancing, production is not 
increasing and we all know the supply/demand thing. Oddly 
enough photovoltaic cells, the key ingredient is silica, the 
key ingredient in computer chips, and we all know what happened 
to the price of computer chips as supply grew.
    We need to find a way to reward greater production of 
photovoltaics to bring that cost down to where it is 
manageable.
    I just did this for my own home in Miami. I didn't 
implement it, I have been running costs to see what point it 
reaches where it warrants the investment in it. The last time I 
did it was a couple years ago, and I estimated about $60,000 to 
deploy a solar array that would power the house, a small house, 
2700 square feet. I recently did it, it is now about 30,000, 
and it is at the point where I am actually thinking seriously. 
It is probably not as cheap as I'd like it, but I also like to 
walk the walk. So I am looking at doing that. But if we get 
that down, then solar homes become much more viable.
    Mr.Chabot. Mr. Cropp, would you want to weigh in on that? 
And how would that compare, the 60 or 30,000, to what it would 
take to have the appropriate heating and air conditioning for a 
home of say 2700 square feet, as Mr. Rodriguez said?
    Mr.Cropp. We are not experienced in doing solar, but in 
some of the seminars that I have attended--
    Mr.Chabot. I am sorry, what I meant was how would that 
compare with not going solar, doing the traditional route? I am 
talking about some comparison, because he said 60 and then you 
got it down to 30?
    Mr.Rodriguez. It is about 30 now.
    Mr.Chabot. So what would a comparable 2700-foot size home 
cost for the furnace and air conditioning as well.
    Mr.Cropp. You were looking at the entire house?
    Mr.Rodriguez. Yes.
    Mr.Cropp. See, he's talking the entire house. I would be 
talking just one portion of the house, but on a HVAC side the 
high efficient AC, a furnace, which would be minimal in the 
location that he's talking there, you are probably looking at 
anywhere from about 10 to $14,000 installation. That would give 
you a very high efficient system.
    The other area that was mentioned earlier about geothermal, 
it all boils down to the cost of the product and the cost of 
the installation and some of these costs. The reason the 
industry is not pushing it and aggressively going after it in 
certain locations is just that, what it costs to drill a hole 
or what it costs for the labor. The products themselves, if we 
can give incentives to the manufacturers or to the people that 
are producing these products, then there is a chance they can 
get these products cost effective.
    Mr.Rodriguez. If I may add, Mr. Chabot.
    Mr.Chabot. Yes.
    Mr.Rodriguez. I want to bring our attention back to the 
holistic approach I talked about earlier, to build on Mr. 
Cropp's response. There is one direct effect that installing a 
more energy efficient heating cooling system would have on a 
solar application, and that is it reduces power consumption, it 
reduces the draw. By reducing the draw the solar system can be 
sized down, which in turn reduces the cost of the solar system 
for installation. So the key is to look at not just installing 
a solar array, and saying we can be as inefficient as we want 
because we are doing it, although I suppose I probably couldn't 
argue with that, because I would think the sun is renewable and 
we don't face having to deal with it not being renewable. But 
if we can make water heating more efficient, the appliances 
more efficient, the HVAC system more efficient, every other 
piece of that house more efficient, it means you have to build 
a smaller solar array, drops that cost.
    Mr.Chabot. Thank you very much.
    Mr.Thompson. If I could add one comment to that. I agree 
that you need to take both steps. The problem is that now you 
have added cost in the higher expense of the passive solar 
system or the geothermal system. In order to keep the cost 
somewhat curtailed of that we have also spent significant 
dollars on reducing the consumption in the house. So we have 
actually increased costs on both sides of the equation there. 
And so it becomes very difficult for America's home buying 
consumer to be able to afford it. Please put some incentives in 
place in the marketplace and the Tax Code that can help them 
better afford it.
    Mr.Chabot. Thank you very much. I appreciate it. It has 
been a very informative panel. I think you have all done a very 
excellent job, thank you.
    ChairwomanVelazquez. Mr. Sestak.
    Mr.Sestak. Thank you, Madam Chair. I apologize, I read your 
material and then I listened to your testimony and then I had 
to step out for another meeting. And so I don't think I have 
much to offer except maybe an overarching question. And I mean 
this in an agnostic way. And perhaps, sir, Mr. Rodriguez you 
could answer first and then Mr. Thompson.
    To some degree when you listen to your testimony or read 
it, the crossover point becomes important, you feel we can get 
there to where it is an incentive, and there seems to be 
significant hesitation about that, because I do see two goods 
here, the environment and truly a global issue and a national 
issue and the impact upon small business is how you achieve it. 
And I strongly do believe in the environment as one of, you 
know, the major survivable issues, so to speak.
    How would you address that in the crossover point, because 
your testimony says you can get there, and his point is, boy, I 
will tell you, you know, it is kind of okay right now, let's 
keep it volunteer, you know, before we--I mean this in an 
agnostic way.
    Mr.Rodriguez. And it is taken that way and I appreciate the 
opportunity to address it. I want to keep beating the holistic 
hammer. Another thing we have to do is stop making other 
decisions to proceed entirely on initial cost. We have to look 
at the life cycle of that building, in this particular 
reference that we are talking about a home.
    Now, if I could build you a home, that was completely off 
the grid and it would cost you nothing in energy to operate, 
doesn't that affect the overall cost of the home? It may cost 
you more to buy, there's no question about that, so then the 
question becomes at what point do those two lines meet? How 
much more are you willing to pay for a home? Let's not increase 
the cost of the home.
    I think we have to give a little more credit to the 
American consumer. They are not all as dumb as we sometimes 
think they are. If you make the case on a holistic basis and 
you say we can build you a home that is going to save you 
energy, you are going to be healthier because we have daylight 
in it and good air quality, we have appliances that don't kill 
you with energy usage and you will be able to run it for no 
money at all so you're not going to have to pay the electric 
utility X amount of money, or let's not say zero, let's say 10 
percent of what you are paying no now, at some point that 
becomes a pretty easy decision, doesn't it?
    I will hit on one other thing, one of the biggest barriers 
that we have and I think more so in commercial than in 
residential because our homes are our homes and the average 
time in a home is--well, the last I read is 7, it is probably a 
little less now in years, and people are people and they want 
to be mobile. When it comes to commercial, we are making 
financing and construction decisions for our buildings on a 5-
year cycle. It's very difficult to make a case for life cycle 
overcoming the initial cost to build something if we are 
looking at keeping this 5 years. Well, what happens to the poor 
guys that buys it on the fifth year and first day because they 
then inherit. When we talk about mortgages, how those decisions 
are being made and encouraged, looking at buildings as lasting 
more than 5 years. What would have happened if the folks who 
built the building right now would have designed it for a 5-
year life? Think about it. Okay.
    Mr.Sestak. Okay. Yes, sir.
    Mr.Thompson. We are already incorporating life cycle 
considerations into the energy efficiency that we incorporated 
into houses already. The building codes look at it from that 
approach on a regular basis. So we can continue to focus on 
that, but we can't keep it focused solely on new homes. If we 
are to meet these tremendous energy savings that we hope to, it 
can't be on the backs of only new homes, only new commercial 
buildings, unless we look at the entire stock, existing stock 
of buildings that we have and how we can improve their energy 
efficiency. We do not have hope of beating the ambitious goals 
that are being laid out.
    Mr.Sestak. I went to visit the only green school in 
Pennsylvania in Radnor, and there are 600 wells where it goes 
down and the water comes up. I just went out there one day to 
visit and you are right about this crossover point, they don't 
reach it until beyond that 7-year point where someone doesn't 
get it back, and I think that is key and we don't do that well 
in government, because it is appropriations every year.
    But sir, for me can you be part of it so that the standards 
can rise some, I mean not only but to some degree you got to 
where you were, we are not where we were in 1930, so is there 
another step to be done?
    Mr.Thompson. Well, I think we are looking far beyond a 5 or 
7-year life cycle for energy efficiency already. In work that 
I've done and NAHB has done with the Department of Energy, 15 
to 30-year life cycle is the way we have looked at different 
energy improvements.
    I offered geothermal heat pumps to many of my customers. 
Here's how much it costs, here is what the projected payback 
is, and I find very few, when armed with that information, make 
the choice to spend the additional money for the geothermal 
system. Perhaps we need to educate the public better, perhaps 
we need to put other incentives in place that will help more of 
those people make those decisions to be more energy efficient. 
But I will tell you, the builders are out there making those 
options available to our home buying consumers.
    I also wanted to mention that there is a DOE solar 
decathlon on the mall going on right now. There are several 
solar houses out there in the 500,000 to $1 million price 
range.
    Mr.Sestak. I thank you very much. Those are very important. 
I hear the same argument made by dealers of CAFE standards for 
cars. I guess it is coming to grip with how does everyone 
contribute so everyone benefits, that is the hard part, without 
anyone being hurt badly. Thank you very much.
    ChairwomanVelazquez. Time has expired.
    Mr. Bartlett.
    Mr.Bartlett. Thank you. Rather than to the high cost of 
geothermal heat pumps, almost every time we build a house we 
dig a big hole. It is to put a basement in the house. Why don't 
we just put these pipes under the footer and under the basement 
floor and insulate over it? Wouldn't that be a pretty cheap way 
to link it to the Earth?
    Germany has somewhere between mediocre and poor insolation, 
that is not insulation, which is the amount of sunshine you 
get, and yet Germany is the leading country in the world in 
installing solar panels.
    How many of you know who M. King Hubbert was? Anybody? What 
a pity it is and it is not your fault. M. King Hubbert was a 
Shell Oil Company geologist who 51 years ago this year, the 8th 
day of March in San Antonio, Texas, gave what will in a few 
years be recognized as the most important speech given in the 
last century and he addressed a group of oil engineers, and so 
forth, in San Antonio, Texas. And he told them that the United 
States in 14 years, by 1970, would reach its maximum oil 
production.
    At that time the United States was king of oil. We were 
producing and exporting more oil, I think, than any country in 
the world. And he told them that in just 14 years we would 
reach our maximum oil production. Shell Oil Company begged him 
not to do that. It was a silly thing to say and it would make 
them look silly. He was ridiculed for a number of years, and 
then right on target in 1970 we reached our maximum oil 
production.
    Mr. Fuller, in spite of drilling more oil wells in our 
country than all the rest of the world put together, we have 
530,000 operating oil wells in our country. We have more than 
four times as many oil wells in the Gulf of Mexico than all of 
Saudi Arabia. In spite of all those oil wells we now produce 
about half the oil. As a matter of fact, for the lower 48, 
which is what M. King Hubbert predicted, we now produce less 
oil, about half the oil that we did in 1970.
    It was mentioned in the opening remarks that by 2030 we 
will have a 70 percent increase for the demand in oil. There 
will not be 70 percent more oil, just 2 percent growth, and 
growth in the world is now increasing more than that because of 
China, India and the Third World trying to industrialize. Just 
2 percent growth, doubles in 35 years, it is four times bigger 
in 70 years, it is 8 times bigger in 105 years and it is 16 
times bigger in 140 years. There isn't even a prayer that we 
will have anything left. We are not going to have half the oil 
that we have now in 140 years.
    As a matter of fact, another great speech given in the last 
century was given by the father of our nuclear submarine, Hyman 
Rickover, to a group of physicians in St. Paul, Minnesota. That 
was just 50 years ago this last year. His widow sat in the 
gallery when I commemorated that speech on the floor of the 
House.
    He predicted that in 8,000 years of recorded history the 
age of oil would be but a blip in the history of man. At that 
time we were 100 years into the age of oil, now we are 150 
years into the age of oil.
    How many of you know that your government has paid for four 
major studies on energy futures of the world and that they are 
now systematically ignoring the counsel of SAIC studies called 
the Hurst report, Corps of Engineers study done for the Army, 
the GAO study done--I asked for it through our Science 
Committee--and the National Petroleum Council which the 
President asked for, and every one of those reports said that 
the peaking of oil--by the way, oil production has been 
constant for the last 30 months, increasing demand, constant 
production, increasing cost. About every one of those four 
studies concluded that oil peaking was either present or 
imminent with its potentially devastating consequence.
    Do any of you know anything about those four studies? 
Again, what a pity. It recognizes the absence, Madam Chair, of 
leadership in our country.
    I thank you very much for holding this meeting. Energy I 
think will be the overarching issue in this decade. We have 
about 20 people running for President and not one of them 
mentions energy. I pulled up their Web sites on energy and the 
comments there run from silly to really silly for most of them.
    So thank you very much for holding this very important 
hearing and thank you for your testimony, gentlemen.
    ChairwomanVelazquez. Thank you.
    I just want to move a little bit away from the whole oil 
discussion, Mr. Fuller, and I would like to ask you to address 
my last question and it is regarding high natural gas prices 
could have a significant negative impact on agriculture in 
rural America, and the agriculture sector is a large consumer 
of natural gas, using it for everything from producing nitrogen 
fertilizer to drying grain. Farmers are doing their part to 
reduce natural gas consumption by installing renewable energy 
and energy efficiency systems and by adopting best management 
practices to optimize fertilizer use.
    What can be done to bring more stability in prices for 
natural gas and for rural America? Are there alternatives to 
natural gas usage either in the short or long term?
    Mr.Fuller. I can't speak to the last point because I don't 
know about the alternatives. What we are tending to see is 
natural gas is in a commodity market, commodity market reacts 
to supply and demand, and that is what has caused a lot of the 
volatility. It is--over the past several years we are seeing 
two dynamics probably flowing. One is in conventional gas, 
which is the classic type of formation that has been developed 
for decades and decades, we face significant increases in 
decline curves. The ability to produce and find that gas is 
increased. And so say 15 years ago the average annual decline 
rate was about 16 percent overall, now that average annual 
decline rate is over 30 percent. That means that to stay even 
in the United States we have to find and develop and get on-
line new natural gas supplies that exceed the amount that we 
annually produce from the Gulf of Mexico, which is a world 
class area for natural gas production. That challenge is what 
then has the effect of creating the demand-supply interaction 
that we have seen.
    Now recently what we have started to see is as we were 
developing more unconventional gas, which comes from types of 
formations that haven't been developed until perhaps the past 
15 years, things like shales and tight sands, those tend to 
have a slower decline rate and we have seen the increase go up.
    We are actually probably seeing for this year the first 
time in quite a while a small increase in natural gas 
production. Without more supply, we are either faced with 
demand destruction to bring the market back into alignment or--
and therefore we are going to continue to see the kind of 
volatility that has existed for the past several years.
    ChairwomanVelazquez. Thank you, Mr. Fuller. Definitely this 
has been a fascinating hearing and I want to thank all the 
witnesses for your participation.
    Would you like to add?
    Mr.Chabot. Very briefly, Madam Chair. I would just note 
that neither you, nor I, nor the panel, nor anybody in the room 
other than Roscoe knew who the heck M. King Hubbert was. I 
thought this was a very informative hearing and I want to thank 
you for holding it, and I want to thank the panel for 
discussing this important topic with us. I yield back.
    ChairwomanVelazquez. And I just would like to say that yes, 
there have been concerns that have been raised regarding H.R. 
3221, the energy package that was reported out of the House. 
And I just want to make sure that some of the incentives that 
are contained in that bill are adequate in terms of promoting 
efficiency in this country, also that some of the changes that 
will be implemented in some other areas are done in a way that 
are workable.
    So I will be drafting a letter, sending it to the relevant 
parties, and I will make that letter available to the members 
of the committee, raising some of the concerns that were 
expressed here this morning and any member who wants to be part 
of that letter is welcome to do so.
    I ask unanimous consent the members have 5 legislative 
dates to enter statements and supporting materials into the 
record. Without objection, so ordered.
    This hearing is now adjourned. Thank you.
    [Whereupon, at 11:50 a.m., the committee was adjourned.]

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